15 AUDIT ANDAUDITORS

Q. 1. Discuss the provisions of the Companies Act, 2013 relating to

appointment of auditors.
Ans..Appointment of auditors (Section 139):
a Appointment of first auditor or auditors. As. per Section 139(6) the
Board of Directors shall appoint the first auditor or auditors of a
company, other than a Government company, within 30 days from the
date of registration of the company. In case of failure of the Board to
appoint first auditor, the members of the company will then appoint the
first auditor or auditors within 90 days at an Extra Ordinary General
Meeting of the company. The first auditor shall hold office till the
conclusion of the first Annual General Meeting.
(i) Subsequent appointment of Auditor or Auditors [Section 139(1)]: It is
necessary for every company, before making an appointment at an AGM
of an auditor, to obtain from the auditor to be appointed, his written
consent and a certificate to the following effect:
(a) The individual/firm is eligible for appointment andChartered
is not
disqualified for appointment under the Act, the,
Accountants Act, 1949 and the rules or regulations made thereunder;
under the
(b) The proposed appointment is as per the terms provided
Act;
down by or
(c) The proposed appointment is within the limits laid
under the authority of the Act;
or audit firm or any
(@) The list of proceedings against the auditorrespect to professional
partner of the audit firm pending with is true and correct.
matters of conduct, as disclosed in the certificate,
the Companies Act, 2013 read with Rule 3 of Companies
Section 139(1) of every company, other than a
(Audit and Auditors) Rules, 2014 provides that
Company, shall at the first Annual General Meeting, appoint an
Government hold office from the conclusion of
firm as an auditor who shall
ndividual or a
till the conclusion of its sixth Annual General Meeting (AGM) and
that meeting meeting.
thereafter tillthe conclusion of every sixth concerned of his or its appointment and
inform the auditor
Ihe company shall appointment with the Registrar within 15 days of the
dlSo fle a notice of such
heeting in which the auditor is appointed.
companies shall not appoint or reappoint an
Term of Auditor. Following 1 term of 5 Consecutive
years; and an audit
individual as auditor for more than
than 2 terms of 5 Consecutive years:
firm as auditor for more
(a) A Listed Company;

129
 SERIES
130 SHIV DAS DELHI UNIVERSITY
share capital of 10
(b) An unlisted Public Company havinga paid-up crores
or more;
(c) APrivate Limited Company having a paid-up
share capital of ?50
(a) orAllmore;
Companies having paid up share capital below threshold limit
Crores
mentioned in (b) and (c) above and having public borrowings from
mo
Banks, Financial Institutions or public deposits or 50 crores or
Further, no audit firm shall be appointed as auditor of the Company for
period of 5 years, if same firnm presently having common partners to the previous
audit firm, whose tenure has expired in a company immediately preceding the
financial year.
(i) Appointment of Auditors in a Government Company [Section 139(5). Th
appointment of auditor in a Government company or government controlled
(directly/indirectly) company shall be held in accordance with the followine
provisions:
The First auditor shall be appointed by the Comptroller and Auditor General
(CAG) within 60 days from the date of incorporation. In caseof failure todo so.
the Board shall appoint auditor-within next 30 days and on failure to do so by the
Board, it shall inform the members, who shall appoint the auditor within 60daus
at an Extraordinary General Meeting. Such auditor shall hold office till the
conclusion of first Annual General Meeting.
In case of subsequent auditor for existing government companies, the
Comptroller and Auditor General shall appoint the auditor within a period of
180 days from the commencement of the financial year and the auditor so
appointed shallhold office till the conclusion of the Annual General Meeting.
The CAG shall have a right to conduct a supplementary audit of financial
statemernts of the company and comment upon or supplement such audit report
within 60 days from the date of receipt of the audit report.
Reappointment of Auditors [Section 139(9)]: A retiring auditor shall be
reappointed unless
() He is not qualified for reappointmernt; or
(in) He has given to the company, notice in writing of his unwillingness to be
reappointed; or
(iiü) A special resolution has been passed at that
somebody instead of him, or expressly providing meeting,
that he
appointng
shal not be
appointed.
Section 139(10) lays that where at any annual general
meeting, no auditor
appointed or reappointed, the existing auditor shall continue
the company. to be an auditor o1
Appointment of Auditor by filling casual vacancy [Section 139(8))
casual vacancy in the office of auditor may filled by the Board. But where t
vacancy is caused by resignation of auditor,besuch
the company in general meeting vacancy shall only be filed
within 3 months of the
Board. The auditor so appointed shall hold the
next AGM.
recommendation
office until
or
the conclusion o
The casual vacancy in office of
an auditor of a company
Government
 CHAPTER 15: AUDIT AND AUDITORS 131
overnment controlled (directly /indirectly) company shall be filled by the
Comptrollerand Auditor General within 30 days from the date of vacancy and if
failsto do so, the Board shall fill upthe same within next 30 days.
In case the company had appointed more than one auditors, the remaining
uditor o auditors can continue to act notwithstanding the vacancy caused by
resignationof other auditor.
eAppointment of Auditor other than Retiring Auditor. The procedure for
ppointing.an auditor, who is not the retiring auditor, is as follows
( Aspecialnotice of minimum 14 clear days is required for appointing as
auditor, a person other than the retiring auditor or providing expressly
that a retiring auditor shall not be reappointed. No special notice is
required if the retiring auditor has completed the term of 5or 10 years,as
the case may be.
(i) On receipt of notice of such a resolution, the company should
immediately send a copy of the same tothe retiring auditor.
Where the notice is received well in advance, the company can
(ii) conveniently send the notice of the resolution to the members including
the same in the AGM. Where it is received just 14 days before the
meeting and it is not feasible for the company to send notice of the same
to members, the company has to notify the same in English and
Vernacular Language newspapers at least 7 days before the meeting.
(iv) The retiring auditor can make a representation and request for the
notification to members. The company should do so unless the
representation is received too late. If it is received too late then
representations shall be read out at the meeting. It may be noted that if a
be
copy of the representation is not sent as aforesaid, a copy there of shall
filed with the Registrar of Companies
claims to
(v) If on the application of the company or any other person who satisfied
be aggrieved, the National Company Law Tribunal, on being
that the rights are being abused to secure needless publicity for the
defamatory matter,the comnpany need not send a copy of or read out
representations.
necessary
(vi) At AGM, the appointment will be considered and the
resolution be passed.
the auditor concerned
(Du) After the appointment, the Company shall inform appointment with the
his or its appointment and also file a notice of such
egistrar within 15 days of the meeting in which the auditor is appointed.
2. Discuss the provisions of the Companies Act,2013 regarding rotation of
uditors,
Ans. Rotation of auditors. As per Companies Act, 2013 there
shall be
pulsory rotation of individual auditors every 5 years, and of audit firm every
years, for listed companies and such class or classes of companies as may be
Prescribed.
Per Rule 5. Rotation of auditors applies to the following
classes of
panies, excluding One Person Companies and Small Companies:
of 10 crores
(") An unlisted public company having paid-up share capital
or more;
 DELHIUNIVERSITY SERIES
SHIV DAS capital of ?50
having paid-up share
132
Aprivate
(b) All
(c)
limited
companies
company crores
having paid up share capital below threshold limit
more;
mentioned in (a) and (b) above, but having public borrowings from
financial institutions, banks or public deposits of 50 crores or more,
As per Section 139(2) ofthe Companies Act, 2013, listed companies and above
(i) An shall not appoint
individual or reappoint:
as auditor for more than 1 term of 5 Consecutive yeears,
companies,
(ii) and
An audit firm as auditor for more than 2 terms of 5 Consecutive years,
An individual auditor or an audit firm shall not be eligible for reappointment
the
the same company tor 5 years from the completion of term as
as auditor in
above.
In other words, there shall be a cooling off period of 5 years for rotated
their term.
auditor/firm of 5 years from the completion of the company, for ,
Further, no audit firm shall be appointed as auditor of
partner(s) to the
period of 5 years, if the same firm presently having common immediatelv
previous audit firm, whose tenure has expired in a company
preceding the financial year. been
Atransition period of 3years from the commencement of the Act has
prescribed for existing companies to comply with the provisions of the rotation of
auditors.
The term "firm" includes a Limited Liability Partnership, incorporated under
the LLP Act, 2008.
As per Section 139(3) the members of a company may resolve that
(4) the audit firm appointed by the auditing partner and his team shall be
rotated at such intervals as may be resolved by themembers, or
(b) The audit shall be conducted by nore than one auditors.
The Central Government has the powers to prescribe the manner in which
the companies can rotate their auditors.
Q. 3. What are the provisions of the Companies Act, 2013 relating to
qualifications and disqualifications of auditors? Discuss.
Ans. Qualification of Auditors. Sections 141(1) and 141(2) state that only a
Chartered Accountant (individual) or .a firnm, where majority of partre
practicing in India are Chartered Accountants, can be appointed as auditor ot
any company, whether public or private.
Where a firm including a Limited Liability Partnership (LLP)Accountants
is
appontesh
an auditor of a company, only the partners who are Chartered
be authorized to act and sign on behalf of the firm.
Disqualifications of auditors (Section 141(3). The following persons shall not
be eligible for appointment as an auditor of a
(a) a body corporate other than a limitedcompany,
liability namely
partnership registered
under the Limited Liability
(6) an officer or Partnership Act, 2008;
(c) a person whoemployee
of the
1S a partner, or company;
who is in the
employee of the company; employment, of an or
 CHAPTER 15: AUDIT AND
(d) a
person who, or his relative or AUDITORS " 133
sholding any security of or interestpartner
in the
-
its holding associate company or acompany or its subsidiary, or of
or
Company:
Providedthat the subsidiary of such holding
relative may hold security or
value not interest in the
exceeding one thousand rupees company
or such sum as of face
prescribed; may be
isindebtedto the
(i) company, or its
of suchsubsidiary,
Company or a or its holding or associate
amount as may be subsidiary
prescribed; or holding
company, in excess of such
(ü) has given a guarantee or
indebtedness of any third provided
person
any security in
to the company, or connection with the
holding or associate company or a its subsidiary, or its
for such amount as may be subsidiary of such holding comparny,
ia a person or a firm who, prescribed;
whether directly or indirectly, has business
relationship with the company, . its subsidiary, or its
associate company or subsidiary oforsuch holding or
holding company or associate
company of such nature as may be prescribed,;
0 a person whose relative is a
director or is in the employment of the
company as a director or key managerial personnel;
(c)a person who is in full time
employment elsewhere or a person or a partner
of a firm holding appointment as its auditor, if such persons or partner
is at the date of such
appointment or reappointment holding
appointment as auditor of more than twenty companies.
(h) aperson who has been convicted by a court of an offence
and a period of ten years has not elapsed from theinvolving fraud
date of such
conviction;
) aperson who, directly or indirectly, renders any service referred to in
Section 144 to the comparny or its holding company or its subsidiary
company.
Q4. Discuss the provisions of Companies Act, 2013 related to removal of
auditors,
Ans. Removal of Auditors:
LBy the shareholders. The auditor appointed under Section 139 mav be
emoved from his office before the expiry of the term only by
) Obtaining the prior approval of the Central Government within 30 days
of resolution passed by the Board.
() The company shall hold the general meeting within 60 days of receipt of
approval of the Central Government for passing the special resolution.
(i) The auditor concerned shall be given a reasonable opportunity of being
heard.
Noy the National Company Law Tribunal. National Company Tribunal
(NCLT) can either -
) Suo moto; or
(in) On an application from Central Government, or
(ii) On an application from person concerned,
 SERIES
DAS DELHI UNIVERSITY
can direct the companyto changethe auditor if it is satisfied that the
134 SHIV auditor of
indirectly, acted in a fraudulent ma
has, whether
a company collided
directly or
fraud by, or in relation
to the company or manner 9;
abetted or
or In the case
officers.
in any
itsdiretors
of application being made by the Central Government and the
NCLT being satisfied that change of auditor is required, it shall, within 15 days
of the receipt of such application, make an order that the auditor shall not
function as an auditor of the company and the Central Government may appoint
another
Whereauditor in his whether
the auditor place. individual or firm, against whom the final ordder as
aforementioned is passed by the NCLT under this section he shall not be elig1ble
to be appointed as an auditor of any company for a period of 5 years from the
date of passing of such order. Further the auditor shall also be liable for acion
frauds.
under Section 447 which provides for punishment for
In case a firm is appointed by the company, the liability shall be of the firm and
every partner or partners who acted in fraudulent manner or abetted or coll:i
in any fraud by, or in relation to, the company or its directors or officers shall L
liable and not be eligible to be appointed as auditor of arny company for a period
of 5 years.
Q.5. Discuss the rights, powers and duties of auditors under the Companies
Act, 2013.
Ans. Rights and powers of auditors:
1. The auditor has a right of access at all times to the Books of accounts and
vouchers of the company, whether kept at the registered office of the company or
at any other place.
2. He is entitled to enquire from the officers of the company about such
information and explanation as may be necessary for the performance of his duty
as an auditor.
3. Right to attend General Meeting. As per Section 146 the auditor has the
right to receive all notices and other communications relating to any General
Meeting. He-has the right to attend the general meeting, to be heard in such
meetings, on any part of business which concerns him as an auditor.
4. The auditor of a holding company has also the right
of all its subsidiaries in so far it relates to of access to the records
with that of its subsidiaries.
consolidation of its financial statement
5. He has the right to receive
covered under Section 142 fixed inRemuneration on the completion of his wolN
its General Meeting or in such
be determined. manner as nay
The remuneration shall, in addition to the fee
any, incurred by the auditor in pavable, include the expense,
Duties of a company auditor:
connection with the audit of the company.
1, Duty to inquire about certain
special matters.
auditor has the duty to inquire, amongst other Section
matters,143
intoprovides tha
the following
matters:
(i) Whether loans and advances made by the company on the basis ol
security have been proPeriy secured. and whether the terms On which
 they have been made are CHAPTER 15: AUDIT AND
members;
Whether
prejudicial to the interests oftheAUDITORS 139or its
transact
book entries are iprejudicial
o ns of the
company company
to the which are represented merely by
Where the
company not being aninterests of the company;
company, whether so
shares, in
much of the assetsvestmof ent
the company or a banking
debentures and other securities have beencompany as consist of
than at which they
were
purchased by the sold
at a price less
(ic) Whether loans and advances made by company;have been shown as
deposits; the company
(o) Whetherit personal expenses have been charged to
(ei) Where is stated in the books and documents of the revenue account;
chares have beern allotted for cash,
whether cash
comparny that any
has
received in respect,of such allotment and if no cash has actually been
received, whether the position as stated in the accountactually
books
been so
and the
balance sheet is correct, regular and not misleading.
Duty to act as a whistle Blower: The auditors are required to immediately
report to the Central Governnment, if any offence involving fraud has been
committed against the comparny by its officers or employees. The auditor shall
enort the fraud to the Central Government within 60 days of his knowledge
and after following the prescribed procedure in this regard.
3. Duty to make an Audit Report: Section 143(2) provides that an auditor is
reguired to make an audit report to the members of the companyon the accounts
Act
examined by him and on every financial statement which is required by the
to be laid before the company in a General Meeting. auditor to also
is the duty of an
4. Duty to comply with Auditing Standards: It
comply with the Auditing Standards.
report.
Q. 6. Write a note on Auditor's required to make a report and this report
Ans. Auditor's report: The auditor is
is called Auditor'sreport.
shall state:
The auditor in his Audit Report the best of his information and knowledge
opinion and to state of
() Whether in his a true and fair view of the company's
the said accounts give
affairs. information and explanations, which to the
obtained all of his audit,
(1) Whether he has and belief were necessary for the purposeinformation on the
best of knowledge thereof and the effect of such
details
and if not the been
financial statements. accounts, as required by law have
Books of
(ii) Whether proper company. Profit and Loss of
the
maintained by the Statement of
Balance Sheet and Standards prescribed by the
the Accounting
(0) Whether with the
Company comply appointed as Director
Central Government. from being
any Director is disqualified
(°)Whether
under Section 164(2).
 136 SHIV DAS DELHI UNIVERSITY SERIES

(vi) Any qualification, reservation or adverse remarks

maintenance of aCcounts and other matters.
(vii) Whether the company has adequate internal
relating to the
place and the effectiveness of such control financial
Rule 11 of Companies (Audit and Auditors) Rules,
control system in
Auditor's Report should also include views and 2014 provides
comments of the that the
the following matters:
() Whether the company has disclosed in its
financial statem
auditor on
impact, if any, of pending litigations on its financial
(i) Whether the company has made statements the
position:
on long-term contracts; provision for foreseeable losses, if a
(iii) Whether there has been any,
delay in
Education and Protection Fund by depositing
the
money into the
Investo r
If the Audit Report so company.
Oualified Audit Report prepared contains any adverse remarks it is called a
and if it does not contain
comments, it is called a Clean or Unqualified report. negative observation
Signing of Audit Report: According to Section 145 only the
company or where afirm is appointed, only the Partners of theAuditors of the
firm may sign
the Auditor's Report or sign or
authenticate any document of the company,
required by law, to be signed and authenticated by the auditor.
Q.7. Give theprovisions of the Companies Act, 2013
which cannot be rendered by an Auditor. with respect toservices
Ans. Services which cannot be rendered by an Auditor
auditor of acompany can render such services as are approved(Section 144: An
by the Board of
Directors or the Audit Committee of the company.
Section 144 provides that an auditor of a company shall not, directly or
indirectly, render the following services to the company or its holding
company or subsidiary company:
() Accounting and book-keeping services;
(ii) Internal audit;
(iüi) Design and implementation of any financial information system;
(iv) Actuarial services;
(o) Investment advisory services;
(vi) Investment banking services;
(vii) Rendering of outsourced financial services;
(viii) Management services and;
(ix) Any other kind of services as may be
prescribed.
 16 CONCEPT &MODES OF WINDING UP
Whatis meant by Winding up' of a
fisolutionof a company? Explain. Company? How is it different from
Meaning of Winding up.
Ans.
management of, a Winding up or liquidation
is
whch,
the company' s affairs is taken out of its the proces by
sassetsarerealised by a liquidator, and its debts are paid out ofdirectors' hands,of
the proceeds
If any balance
realisation. remains in the hands of the liguidator, it is
amOng
the members of the
Company in accordance with their rights under divided
Articles.
the
rieconpany law.
is an artificial legal person, its life shall be brought to an end
process of
byaAccordingto Professor Gower, "Winding up of a company is the process whereby
slifeisendedland its property administered for the benefit of its creditors and members.
administrator, called aliquidator, is aypointed and he takes control of the company,
allectsitsassets, pays its debts and finally distributes any surplus among the members
with their rights."
naccordance
Meaning of Dissolution. Dissolution means putting an end to the existence of
the company. On
dissolution, the Company ceases to exist. Its name is struck off
hu the Registrar from the Register of Companies. This fact is published in the
Official Gazette.
Distinction between Winding up and Dissolution:
Winding up of a company precedes its dissolution. the
Winding up is the first step and Dissolution is the last or final step in
i.e., brings
entire process which drops the curtain over a company's life,
its life to an end.
Winding up involves realisation of the various assets of the company and
and if there is a
distribution of the proceedings amongst creditors
Dissolution is the last step
surplus, then even also amongst members. formalities are over.
which actually announces that all these
the company remains but after
After winding up, the legal entity of
dissolution, it comes to an end.
Creditors of the company can prove their debts during the winding up
-
proceedings but not after dissolution.
circumstances under which a company
V2. What is winding up? State the Tribunal.
ay be compulsorily wound up Please by the
refer to the answer givenin Q. 1(above).
Ans. Meaning of Winding up. order of the Tribunal. Grounds for winding up
Compulsory winding up under petition under
by the Tribunal. As per Section 271(1), acompany may, on a
Section 272., be wound up by the Tribunal-
resolution, resolved that the company
be
(a) if the
Çompany has, by special
Wound up by the Tribunal;
137
 138 SHIV DAS DELHI UNIVERSITY SERIES
(b) if the company has acted against the interests of the
integrity of India, the security of the State, friendly
foreign States, public order, decency or morality:
soverei gnty
relations andwith
(c) if on an application made by the Registrar or any other
authorized by the Central Government by notification under thisperson
the Tribunal is of the opinion that the affairs of the company have been
conducted in a fraudulent manner or the company was formed
fraudulent and unlawful purpose or the perSons concerned in
formation or management of its affairs have been guilty of
misteasance or misconduct in connection therewith and that it is fraud,
that the company be wound up; proper
(a) if the company has made a default in filing with the Registrar i
financial statements or annual returns for immediately preceding fve
consecutive financial years; or
(e) if the Tribunal is of the opinion that it is just and equitable that the
company should be wound up.
The Tribunal has very wide discretionary powers under this clause. What is
just and equitable depends on the fact of each case. Some of the instances of ust
and equitable grounds are as follows:
() Deadlock in management. Where there is a. complete deadlock in the
management of the company, the company may be ordered to be wound
up on just and equitable grounds [Re. Akola Electric Supply Co. Ltd.].
For instance, when directors are not on speaking terms or are bitterly
hostile to each other.
A company cannot be ordered to be wound up if there is difference in
view of the majority directors and minority directors.
(ü) Loss of substratum. If the company has failed to materialise its objects
for which it was formed or objects become impossible to be
its substratum isgone and the company may be ordered to becarried out,
wound up
on just and equitable grounds.
(iin) Losses. Where the business of the company cannot be
at a loss, the Tribunal may order for the carried on except
a mere apprehension on the part of some
winding up of the company. But
company's business cannot be carried on except atshareholders
that the
a loss, would not be
any ground for an order by the Tribunal.
(iv) Oppression of minority. Where the majority of
exercising oppression on the minority, the company mayshareholders
be wound up
is
by the Tribunal on just and equitable
grounds.
(v) Illegality of objects and fraud. Where the
out fraudulent or illegal business or whencompany was formed to carry
the business of the company
becomes illegal because of a change in law, the Tribunal may order the
company to be wound up on just and equitable grounds. For example, I
the object of the company is to conduct lottery business in Delhi it would
be an illegal business.
(vi) Bubble company. Where the company does not carry on any business
nor does it own any property, i.e., it is a mere 'bubble' company, it n)
 CHAPTER 16: CONCEPTS &MODES OF
he wound up by the WINDING UP 139
fly-by-night companies."Tribunal's order. Such Companies are also called
What are the effects
0.3. or
Company? consequences of a winding up order against a
Ans. Consequences of the Winding up Order:
() The Tribunal shall,
beorder, send the within period of 7 days from the date of passing of
a
intimation
Registrar. [Section 277(1)1. thereof the Company Liquidator and the
to
(i) The Registrar shall, then, notify in the Official Gazatte that
has been made. such an order
In case ofa listed company, the
to the stock exchange or Registrar shall intimate about such order
exchanges where the securities of the company
are listed. [Section 277(2)].
in The winding up order shall be deemed to be
the officers, employees and workmen of thethe notice of discharge to
company'sbusiness is continued for the purpose company except when
of beneficial realisation
of the assets of the company. (Section
(io) The powers of the Board of Directors get277(3).
terminated and now vest in the
Company Liquidator.
(o) Within 3 weeks from the date of passing of winding up
order, the
Company Liquidator shall make an application to the Tribunal for
constitution of a winding up committee to assist the Company Liquidator
and monitor the progress of liquidation proceedings. [Section 277(4)]
(ui) The Company Liquidator shall place before theTribunal a report along
with minutes of the meetings of the committee every month. The report
shallbe signed by the members present in the meeting for consideration
till the final report for dissolution of the company is submitted before the
Tribunal. [Section 277(6)].
(oi) The Company Liquidator shall prepare the draft final report and present
it before the winding up comnmittee for consideration and approval.
[Section 277(7)].
Q.4. Whoare entitled to file a petition to the Tribunal for the winding up of
a company.
Ans. Petition for winding up. Petition means an application to the Tribunal for
Winding up. As per Section 272, petition for winding up of the company by the
Tribunal can be presented by any of the following:
1.Petition by the company. Acompany can file petitionwith the Tribunal for
Winding up when members of the company pass a special resolution and resolve
that the company be wound up by the Tribunal.
Apetition to the Tribunal can also be made by the company when directors
find the Company to be insolvent due to circumstances which ought to be
invesadmitted
tigated by the Tribunal.
Petton presented by the company for winding up before the Tribunal shall
form and in
only if accompanied by a statement of affairs in such
nmanner as may be prescribed.
2. Petition by any creditor or creditors. Any creditor or creditors of the
 140 SHIV DAS DELHI UNIVERSITY SERIES

Company may make a petition tothe Tribunal for winding up of the

the ground that the company is not able to pay its
The term creditor includes:
(i) àsecured creditor
debts.
company on
(ii) a debentureholder and
(iii) trustee for the holders of debentures.
Acontingent or prospective creditor can also file a petition for the
of the company if prior consent of the Tribunal has been obtained. The
would give the consent when
winTrdiinbgunaupl
() it is of the opinion that there is a prima-facie case for winding up of the
Company; and
(ü) a securityfor costs as the Tribunal thinks reasonable has been
the petitioner i.e., creditor. given by
3. Petition by contributory or contributories. A contributory is a person who ie
liable to contribute towards the assets of a company in case of its winding in
The holder of fully paid-up shares is also a contributory because he has the rioht
toshare in the surplus, if any, in a winding up.
A contributory can make petition to the Tribunal on any ground for
winding up except No. 1 (inability to pay debts) and No. 2 (passing ofcompany' s
a special
resolution by the company).
A contributory can present a winding up petition if:
(i) he is an original allottee of the shares; or
(ii) he has held his shares for any 6 out of the previous 18
(ii) the shares have devolved upon him through the months; or
holder. death of a former
4. Petition by all or any of the prior parties (i.e.,
points 1, 2 and 3 together). A petition for the windingparties
up may
mentioned under
be presented by
the company, creditor/creditors or the
contributory/contributories
5. Petition by the Registrar. The Registrar jointly.
up only with the previous sanction of the can"present a petition for winding
Central Government. The Central
Government shall not accord its sanction unless the
reasonable opportunity of making representations. company has been given a
petition to the Tribunal only on the following grounds.The Registrar can make
() When the company is unable to
(ii) When the company has acted pay its debts.
(iii) When the affairs of the against the national interest.
manner. company are being conducted in a fraudulent
(iv) When the company has made a
annual returns for immediately default in 5filing financial statements
6. Petition by any person
authorised
preceding
bythe Central consecutive years.
Government may also authorise a persorn to present aGovernment.
petition on itsThe
behalf.
e For
example, if from the reports of the inspectors appointed by the Central
Government to investigate the affairs of a company, it appears that the business
of the company has beern conducted for fraudulent or unlawful purp0sE, it may
allow a person, usually the Registrar, to file a petition for the winding upofthe
company.
 CHAPTER 16: CONCEPTS &MODES OF WINDING UP " 141

Petitionby Central or State

Government. If the company has acted against
order,
SOVeTegnty,integrity or security of India or the State, or against public
morality,the Central Government or the State Government can file a
companys winding up.
non for the
PRACTICALPROBLEM the directors of the
two members of a company, they are also
are only
Both of them are not on speaking terms. Can the company be wound up
company
Onthisground? Give reasons.
company and both of them are not onspeaking
, There are only two membersof a up on this ground?
(erms. Can the company be wound wound up by the court on the grounds of
Hint: Yes, the company can be
just and equitable. Chapter 16).
[Page 138
details: (Refer to See Q. 2(Point 7),

Shiv
as
 MISCELLANEOUS PROVISIONS
E-FILING,
NATIONAL COMPANY LAW TRIBUNAL &
17
SPECIAL COURTS

is a key feature of the MCA-21 project. Comment.

Q. 1. E-filing on online filing of documents.
Ans.Write
Or, a note
E-tiling is a key feature of the MCA-21 project of Ministry of Corporate
affairs. The major bencfits of e-filing arethe ease of interaction with alll citzens
and almost a paperless environment. The notified new e-forms may be fled
through any other computer readable media
through electronic media or under
the Companies Act,
Highlights of the System:(e-forms) with ROCcan be done from one's home o
() The filing of formsinternet. There is no need to visit the ROC's offe.
office through the
filing various documents.
fees can also be made over the internet throok
(i) The pavment of filing without queuing up at the banks.
credit card/internet banking
willbe valid only when filing fee is paid.
(in) The filing
of filled-up forms is done in the portals before fina
(iv) Pre-scrutiny
submission.
e-forms require certification by CA/CWA/CS (in whoe
() Many of these Certification must be done by signing digitally.
time practice). Identification Number) is compulsory for all directors.
(vi) DIN (Directors e-form must obtain DSC (Digital Signature
(vi) Every signatory of
Certificate).
The process of e-filing MCA-21 portal.
(i)Download a blank e-form from the software that is free and wide.
offline using
(ii) Fill up the e-form
available. the svstenn w
electronic pre-security in which
(ui) Optionally carry out form has been completed in all respects.
verify whether the
form has to be digitally signed by one or more sigrnatories.
(iv) The processing to the MCA-21 portal. either at
Submit the e-form for
(v)
payments to complete the transaction
(vi) Make necessary internet banking.
authorised bank branch or through
Advantages of e-filing
Advantages to Corporates and Professionals.
1.
Documents can be filed without visiting the ROC otfice. Or
pasin
() documents
to stand in long queuesfor filing
(i1) There is no need
filing fees. affords one the
leexibilitvted
open on a 24x7 basis. This
(iii) Filing will beone's convenience
this work at
Pre-scrutiny of forms filed will be done in the portal itself at the
(iv)
142
 CHAPTER 17: MISCELLANEOUS PROVISIONS 143
filing. So, once the form is filed, a need to interact with ROC personnel
torectify deficiencies in the filings will be minimised to a great extent.
Filing fees can be paid from the comforts of one's office/home using
(o) redit card/internet banking.
Advantages to the public. To the public, the portal offers inspection of
documentsfiled by companies on a 24x7 basis from the comforts of one's home/
atfice.
Advantages tothe Government.
() Better
utilisation of existing staff and limited space resources.
The DIN(which is compulsory for all existing and prospective directors
to obtain) will help enforce accountability of directors.
)Time and energy spent in accepting documents, filing
them,
corresponding with companies will be drastically reduced and
channelised towards taking action against errant corporates.
Adyantages to financial institutions. They have the facility of easy
registration and verification of charges from anywhere in the country.
Seroices available under the MCA-21 Project:
companies.
() Registration and incorporation of new documents under the Comparnies
(i) Filing of various returns and statutory
Act.
like Memorandum of Association,
(ii) Securing copies of public documents
Articles of Association etc.
(iv) Registration and verification of charges.
(o) Inspection of public documents. Corporates operating in
(ui) Building up a centralized database repository of
India.
(pi) Total transparency through e-governance.
(pi) Timely redressal of investor grievances.
Company Law Tribunal.
Q2. Write a note on National
Ans. National Company Law Tribunal: President and
Composition of the Tribunal. The Tribunal shall consist of a
L. members as the Central Government may
number of judicial and technical
Such
appointed by it. The President of the NCLT shall be a
necessary, to be
Petson who is or has been ajudge of a High
Courtfor 5 years.
the Tribunal will be exercised by
benches of the Tribunal. The powers of
Denches, constituted by the Presidernt of the Tribunal. Every order of thea
or act of the Tribunal. There would be
Bench would be deemed to be
Delhi
the order
presided over by the President of the Tribunal.
pal Bench_at New of
would consist of two mnembers, out
every Bench of the Tribunal
Ortinarily.
2One shall be a judicial Member and
Order of the Tribunal, The Tribunal may, after
another shall be a Technical Member.
giving the parties to any
orders
opportunity of being heard, pass such
herorceedi
ein ngs
before it, a reasonable Tribunal for the disposal of
as it thinks fit, Efforts shall be made by the commencement of the
the within 3 months fromn the
date of
proceedings
proThece dings.
Tribunal shall have power to review its own orders.
 UNIVERSITY SERIES
SHIV DAS DELHI
144 Tribunal. An aggrieved person
an appeal
4. Appealagainst any
Against thedecision the mayfile
Orders ofor order of the Tribunal before the "National
Company Law Appellate Tribunal". The appeal should be filed within 4:5 days
Tribunal's order is received
the date on which a copy of the by the
from
by any
whois aggrievedfile
appellant.
to Supreme
5. AppealCourt
court. Any
Law
person
Appellate
decision
Tribunal may an appeal to the
Supreme
order of theNational Company
within a period of 60 days from the date of communication

thereof,on any question of law.

and Appellate Tribunal:
Procedure before Tribunal Tribunal shall have, for the purposes of
1. The Tribunal and the Appellate powers as are vested in acivil
under this Act, the same
discharging its functions trying a suit in respect of .
Procedure, 1908 while
court under the Code of Civil
following matters: and enforcing the attendance of any person and examining
(a) summoning
him on oath;
of documents,;
(b) requiring the discovery and production
(c) receiving evidence on affidavits; 123 and 124 of the Indizn
(d) subject to the provisions of the Sections
Evidence Act, 1872, requisitioning any public record or document or
copy of such record or document from any office; ex
(e) issuing commissions for the examination for default or deciding it
parte;
) dismissing a representation for default or deciding it ex-parte;
(&) setting aside any order or dismissal of any representation for default or
any order passed by it ex-parte; and
(1) any other matter as may be prescribed.
2. Any order made by the Tribunal or the Appellate Tribunal may be enforced
bythat Tribunal in the same manner as if it were a decree made by acourt in a
suit pending therein.
3. All proceedings before the Tribunal or the Appellate Tribunal shall be
deemed tobe judicial proceedings within the meaning of Sections 193 and 22%,
and for the purposes of Section 196 of the Indian Penal Code.
Civil court not to have jurisdiction. No civil court shall have jurisdiction to
entertain any suit or proceeding in respect of any matter which the Tribunal or the
Appellate Tribunal is empowered to determine by or under this Act or any oie
law for the time being in force and no
other authority in respect of any actioninjunction shall be granted by any cou
taken or to be taken in pursuance O
power conferred by or under this Act or any other law for the time being in o
Q 3. Explain the relevant
Special courts. provisions of the Companies Act, 2013 regarding
Ans. Establishment of Special Courts [Section 435]., The Cerntral Government
may, for the purpose of providing speedy trial of offences punishable underthis
Act with imprisonment of two years or more by notification, establish ot
designate as many Special Courts as may be necessary.
 CHAPTER 17: MISCELLANEOUS
ASpecial Court shall consist of- PROVISÍONS 145
t asingle judge holding
Tudge,in case of offencesoffice as Session Judge or Additional Session
punishable under this Act with imprisonment
of two years or more; and
) aMetropolitan Magistrate or a
the case of other Judicial Magistrate of the First Class, in
offences,
whoshall be appointed by the Central
the Chief Justice of the High Court withinGovernment with thethe
whose jurisdiction concurrence of
judge to be
appointedis working.
ofences triable by Special courts (Section436):
1All offences specified under Section 435(1) of the Companies Act, 2013
shall
he triable by the Special court for the area in which registered office of the
ompany in relation to which the offence is committed, or where there are more
shan one Special Courts for that area, by such one of them as may be specified by
the High Court (Section 436(1)(a)].
2. When a person accused of, or suspected of commission of an offence under
this Act is forwarded, a Judicial Magistrate may authorise the detention of that
person for 15 days or an Executive Magistrate for 7 days. When the Magistrate
considers that the detention of the person upon or before the expiry of the period
of detention is unnecessary, he shall order such person to be forwarded to the
Special Court having jurisdiction [Section 436(1)(6)].
3. The Special Court may exercise the same power which a Magistrate having
jurisdiction to try a.case may exercise under Section 167 of the Code of Criminal
Procedure, 1973 in relation to an accused person who has been forwarded to him
[Section 436(1)(c)]. police report of the facts
4. A Special Court may, upon perusal of thecomplaint, take cognizance of
constituting an offence under this Act or upon a
to it for trial [Section 436(1)()).
the offence without the accused being committed Special
an offence under this Act, a Court may also try an
5. When trying
Procedure, 1973 in a same trial Section
offence under the Code of Criminal
436(2)] Court may try in a summary way any offence under this Act
6. The Special imprisonment for aterm not exceeding 3 years. In
case
which is punishable with imprisonment for a term exceeding 1 year shall
of
OT Summary trial, a sentenceSpecial Court thinks it undesirable to try the case
not be passed. Where the shall record an order to that effect and thereafter
Summarily, the Special Court examined and proceed to hear or
witnesses who have been
ecall any witness or
Tehear in regular trial (Section 436(3)]J power of appeal or revision, as
High Court will have the the
Appeal and Revision. trying cases within the local limits of
pecial Court were Court of Session,
Court (Section 437]. special court. The provisions of the
Jurisdiction of the High
APplication of code to proceedings
before
proceedings before a Special
1973 shallapply to the
deof Criminal Procedure, deemed to bea Court of Session and the person
shall be deemed to be a Public
Court. The Special Court before a Special
Court be
prosecution
Conducting a
Prosecutor [Section 438|.
 UNIVERSITY SERIES
146 SHIV DAS DELHI
offences pertaining to
Offences to be non-cognizable. Allthe
referred to Companies AcAct,
Serious Fraud
2013 are non-cogrnizable, except
Office (SFIO) (Section 439].
However, until a Special Court
offences

is established, any offence Investigation

which isis triall..
triable bya
be tried by a Sessions Court
Special Court under this Act, shall
jrisdiction over that area. exercising
 THE DEPOSITORIES ACT
18

What is Depository System? What are its constituents?

Ans. Depository System. The Depositories Act, 1996 introduced the concept of
Depositoryand Dematerialisation of shares and securities.
Shares were traditionally held in physical or paper form. This method had its
OWninherent weaknesses like loss/ theft of certificates, forged/ fake certificates,
qumbersonme and time-consuming process for transfer of shares etc. Therefore, to
eliinate these weaknesses, a new system called the Depository System was
introducedin 1996.
The Depository System 1s a system whereby the transfer of securities takesof
placenotthroughtransfer deeds and physical delivery of scrips, but by means
bok entry in the ledger of the depository without the physical movement of
sriDs. This system is also referred to as Scripless Trading System.
At present there are two depositories in India:
() National Securities Depository Limited (NSDL) and
() Central Depository Services (India) Limited (CDSL).
Key Constituents of Depository:
the depository
() Issuer. Issuer means the company which is listed with mode.
and whose shares are available for trading under
demat
electronic connectivity
(ü) Issuer's Registrar. The Registrar provides The dematerialisation of
between the depository and the issuer company. and it keeps the
shares is done by Registrar on behalf of the company
electronicdata of beneficiary owners.
(m) Depository Participant (DP). Depository Participant acts as service
custodian of the electronic
provider to the investors and acts as
trading and settlement and acts
accounts of the clients. DP takes care of depository.
and
as an intermediary between investor
members are the persons admitted as
(i0) Clearing Members. Clearing which has been admitted as a user
members by a Clearing Corporation open a clearing
by the depository. These members are required to
member account with the DP.
Brokers. These are the registered members of the stock exchange,
(0) Stock trade on behalf of the investors.
who have been authorised to between the stock exchanges for
coordinates
(°)Clearing Corporation. It members and custodians for bringing in the
executed trades, clearing
for settlement.
hecessary funds and securities beneficiaries for the services provided
the main
() Investors. Investors are owners.
the depository. They are called as beneficial recorded for direct credit
Dy beneficiary's bank is
) Bank. Account number of the account.
into
of the mnonetary benefits
147
 UNVERSITY SERIES
DELHI 2Certificatesin CHAPTER 18:
They are cancelled. THE
All theseare
148 SHV
DASdirectly orindirectlylinkedtothe main depository NSDL through
carried out
electronically. Physicalform DEPOSITORIES ACT
They are
" 149
.2. Distinguish
whom, all the
between
operations are dematerialisation and rematerialisation of shares.
which
Functionofthe
Primary function. printed again.
process by physical Depository
Ans.
is the into an equivalent number of
'Dematerialisation converted
cersecurtificatitieess
of 4 Formsused
DRF Form. Secondary function.
investor are in
theinvestor's account with his/her
of an
securities
electronicformand
creditedinto
securities:
DP.In order Q3
What is a Depository?
What isa Depository?
What are the
RPF Form.
benefits of
dematerialise physical
Participant provides Dematerialisation
Request Form Describeof the working of a Depository System?
Section 2(1)(e)
Accordingto
ttheories Act,Deposi
1996,toary.
to (DRF)Depository
to the investor. The shareholder fills up separate DREs for each the
and registered Deposi
Ans.
() The
company and submits the same with the DP along with the share company formed
dematerialised.
meansa
granted a under
certificate of of registration underCompanies
has been and Exchange
"Deposi
Act and towhich
ry"
certificates to be through the
of the requestand
Serurities Board India Act, 1992. Section 12 (1A) of the
(1) The DP
intimates depository certificates
share DRF to the system. The Dp In
other words, a depository is an
organisation which holds securities (ike
then surrenders
(i) concermed.
the
The company cancelsthe share certificates and substitutes in its Register Company shares,
debentures, bonds,
nvestorsin electronic form,for atgoverment
the requestsecurities, mutual fund units etc.) of
of the investors
through a registered
of Members the name of the depository as the registered owner of those depository participant. It also provides services related to transactions
Depositories Act, 1996 in securities.
accordingly. provides a legal
depositories SO that transfer of securities could beframework
The
the depository the
shares and informs information
for setting up of
thesuch
receiptof of
Onname
from company the depository enters deposshe ledgers of the depository without the physical effected through book entry
(iv) the investor concerned in its records as the Beneficial Owner
movement of scrips.
him. Thissysterm is also called Scripless Trading System.
shares held by
and the number of continues to enjoy all the rights and benefits Benefits of using. Depository. System for holding securities in a Company:
The to all the liabilities in respect of his secrities held byandtheis
Beneficial
(v) subject
Owner h Securities transter transactions can be effected immediately. The need to
follow-up with the stock broker or Registrar or company for transfer is
depository. eliminated.
will intimatethe DP electronically
and thereby
(vi) Thereafter, the depository (i) No stamp duty is payable on transfer of securities. As a result,
confirm Dematerialisation to the DP. On receipt of the confirmation h
DP credits the client's demat account with the equjvalent number of transaction costs are usually lower than those on physical delivery.
electronic form. (i) Need to post or carry securities to different locations for settlement
shares which he will then hold in purposes or for registration is eliminated.
then issues a statement of transaction to the client.
(vi) The DP owner (ip) The concept of an "odd lot" in respect of dematerialised securities is
(vii) For the securities dematerialised, the depository is the registered
as the Beneficial abolished.
in the books of the Issuing Company and the investor
Owner in the books of the depository. The process is known as () The bonus and right issues are credited by the company directly to the
Dematerialisation. shareholders' Depository Accounts. For doing so, the concerned
company obtains the details of beneficiary holders and their holdings as
(ix) The investors holding shares in electronic form can convert their holding on the date of the Book Closure or Record Date from depositories.
of shares in part or in full into physical form of share certificates through (vi) The process of transmission is more convenient as the transmission
the process of Renaterialisation (Remat). The investor will have to formalities for all securities held in a demat account can be completed by
request his DP for Remat, who in turn intimates the depository of the
request. submitting douments to the Depository Participant (DP) alone, whereas
nominees
in case of physical certificate of securities, the legal heirs or
(x) The depository will forward the same to the company and the company correspond with each company in which securities are held.
issues the share certificates to the investor. This process of getting back have to received from the
(n) Statement of account of transactions and holdings is
the share certificates in paper form is called Rematerialisation. Participant (DP) periodically which eliminates the need to
Distinction between Dematerialisation and Rematerialisation of shares Depository securities held and of transactions therein.
keep manual accounts of the
Rematerialisation for safe custody of
Point of Distinction Dematerialisation
Conversion of securities (Pin) The requirement of maintaining bank vaults eliminated.
1. Meaning Conversion of physical Securities, certificates and frequent stock taking is
into automatically gets registered
certificates of securities in electronic form the DP
(4) Change of address recorded withinvestors hold securities electronically
into electronic form. physical certificates. Win all the companies in which
each of them separately
eliminating the need to correspond with
 UNIVERSITY SE

trade deliveryCHAPTER
DELHI
SHIV DAS Soettlement of 18: THE
150
The Depositories
Working Actenvisagesthat each depository will have its agenl to be
ofaDepository:
(DPs), whoshall act as a crucial
(w)
owner's accounts; by
Settlement of
or DEPOSIYOWIfrom/in
receipt of securities ES ACT 151
Participants´ depository
'Depository depository. A interfaces with
(heink Receiving off-market transactions between benetCial
inbveetwsteonn
known as
and the Participants'. under IPO or electronic
crediton in respect of beneficial
An
che
investors
investor
througha setof
who wants
Depository to avail himself of the services of a depository ts
Receiving otherwise
non-cash behalí of ownets,by
securnties allotted
rights shares or any other benefitsdemat
(vi)
the
agreement with 'Demat' depository through a corporate non-cash such as
account holders:; issuers
(DP), he can and
Participant',
intoan
requiredto enter for this he has to
purchase/sell
Once the
open a
opens an
securities
investor
account with
in electronic forn1
account with a Dº
the through a broker
depository "Dpeaprotisiptoayn
depository.the details of his account with the DP. The investor can sell and buy
providing
broker and not through DP.
ofafte he
()
issuers in electronic

(ir)Pledging of
shares; and
Freezing of the
form
demateria
on
lised behalf of itscorporate
securities
demat account for
allotment of bonus and
demat benefits given by the
and account holders.
facilitating loans aganst
a stock What are the rights debits,
onlythroughheldin electronic form is very similar to Depositories Act. and obligations of credits, both.
Q. 6.the or
securities
form of securities.
Selling of selling
Instead of signing the transfer deed as seller and deliverig
securities ot a it
with securities certificatesto a broker, he has to instruct his DP to debit hi paper under
Ans. A depository is an depository and
'participants
securities sold by him and credit his heldin
electronic form at the organisation where
request of the the securities of aninvestorout are
acount with the
number of
The delivery
account.
instruction has to be givern to his DP
him,
daily signed by
brokerof's"Delcleiarvering
through
containing the details
securities transactions
Participant.
by book entry investor and
through the mediumwhichof carries
a
Depository
the
Instruction Slip' (DIS) participant means a person
soldForbypurchasing
him. demat securities from the secondary market, the chent has to
Slip, duly signed,
securities A
Srurities and Exchange Board of registered under Section 12(1A) of the
India Act. 1992 [Section
Depositories Act. 1996 states certain rights 2(1)(&)) The
'Receipt Instructionshould ensure that containing
the and obligations of depository'
give to his DP a
purchased.
securities from The investor his
the
his clearing account to his depository account before the book
deetails
broker transfers participant:
hA depository shall enter into an
and
as its agent in such torm as mayagreement with one or more
be specified by the bve-laws.participants
closure.
will inform the depository
participant by the client and also makeelectronically abr ia Any person th°ough a participant
Theordepository
sale purchase transactions appropriate entries in about the form as may be specitied by themay enter into an agreernent. in such
purchase of securities. availing its services. bye-laws, with any depository for
its records to effect the sale or eligible to be held in ta Gubiect to the provisions of this Act,
Q. 4. Which securities are dematerialised ina form the rights and obligations of the
depository? depositories, participants and the issuer whose securities are dealt with
eligible for being held in by a depository shall be specified by the
Ans. The following securities are
form in a depository:
() Shares, scrips, stocks, bonds, debentures, debentre stocks or other
dematerialised regulations.
lip) Notwithstanding anything contained in any other law, a
be deemed to be the registered owner for the purposes depository shall
of effecting
marketable securities of like nature in or of any incorporated transfer of ownership of securities on behalf of a beneficial owner.
or other body corporate; or conmpany (v) The depository as a registered owner shall not have any voting rights or
(D Units of mutual funds, rights under collective investment schemes and any other rights in respect of securities held by it.
venture capital funds, commercial paper, certificates of deposit (v) The beneficial owner shall be entitled to all the rights and benefits and be
securities debt, money market instruments, etc. subjected to all the liabilities in respect of his securities held by a
Q5. What are the services provided by a Depository? depository.
Ans. Following services are provided by a depository to the beneficial owners (oi) A beneficial owner may, with the previous approval of the depository.
but of course, through a Depository Participant (DP): create a pledge or hypothecation in respect of a security owned by him
() Opening a demat account, through a depository.
() Dematerialisation, ie. converting physical securities into electronic fom (vii) Where shares of a company, whose shares are maintained by à
(m) Rematerialisation, ie. converting electronic securities balances held in depository are transferred, the transaction may be directly handled by
beneficial owner's account into physical form;
(iv) Maintaining record of securities held by the beneficial owners in the the participant and the depository. The depository shall humish to the
electronic form; 1SSuer company information about the transter of secunities in the name
of beneficial owners at such intervals as may be spefied by the bye
laws.
 CHAPTER 18: THE
SHIVDAS
DELHI
UNIVERSITYSERIES
of a depository in
( )a slatefinancial corporation,
an institution
engaged in DEPCSITORIES ACT 153
152
beneficial Owner seeks to
opt out accordingly.
depository respect of any
(e)
ofthe aforestated providing
custodian of institutions, jontly fiornancial services, promoted by any
(x) If a inform the depository
security,heshallsuch intimation, the the will make (n)a securities severally,
a clearing house or stockregistered with the SEBI.
of
On receipt recordsand shall
inits
inform issuer companv.
Board ofIndia) considers it
and Exchange of the investor it may call
neces ary (rii)a
stock broker, provided heexchange,
haas minimum net
a
changes(Securities
(x) If SEBI interest or intheinterest
public participant etc. to furnish in
necessary
up on anyin
aggregate value of the
dematerialised form in portfolio
a
of
depositorysecurities of the
worth of ?50 lakhs and
benefcial owners
the
the
information
issuer
depository,
relating
company, writing
to securities held in a depository. SEBI may als0 the of its net woorth, or a
a through
stock broker with a him shall held
not exceed 100 in
times
having a minimum
authorise any person to make an enquiry or inspection in relation to the non-banking finance worth of ? 10 crores,
i) a
registrar to an issuecompany minimum net
company, depository or
participant.
SEBI may also a or share transfer agent who worth of 50 lakhs,
affairs of the issuer depository or participant or ISSuer worth of ? 10 crores and who has a
has been granted a minimum net
to any
issue directions the interest of investors company as it
or the securities market., registration by SEBI.
Beneficial OWner of
certificate of
may deem fit in d securities.
sUritiesis bifurcated between the
In the Depository system, the
Q.7. Define the
terms:
securities registered owner and ownership
the beneficial of
(a) Depository
(Depository participant) and the dematerialised, the Depository is the registered owner in the
owner.
(b) Participants
owner of securities.
hoksof theissuing company and the investor is the beneficial owner in the
(c) Beneficial to Section 2(1)(e) of the Depositories Act, 1996, oksof
the Depository.
a"Depository" means aAccording
Ans. (a) Depository. company formed and registered under the Companies Q8.
Discuss the
provision for punishment for offences, penalties and
certificate of registration under appealsinthe Depositories Act, 1996.
Act and which has
been granted a
Exchange Board of India Act,
1992 Section
12 Ans. Section 19 of the Depositories Act, deals with imposition of penaity for
(LA) of the Securities and
depository is an organisation which holds securities (like failure to furnish information, returns etc. or to enter into an agreement or to
In other words, a bonds, government securities, mutual fund units redress investors' grievances or to reconcile records or to comply with the
shares, debentures, investors etc.)
of directions of SEBI, or for delay in dematerialisation or issue of certificate of
investors in electronic form, at
the request of the through a registered serurities etc. The guilty party shall be liable to a penalty of ?1 lakh for each day
provides services related to transactions
depository participant. It also
in
during whichthe failure continues or 1 crore, whichever is less, for every failure.
securities.
has to be mad Erther, whoever tails to comply with any provisions of this Act, the rules or
In order to receive the certificate of registration, an application
prescribed fee and draft bylaws of th the regulations or bylaws made or directions issued by SEBI thereunder. for
to SEBI by the sponsors, along with the which no separate penalty has been provided, shall be liable to a penalty which
Depository that is proposed to be set up. Regulations, 199%. may exterd to 1 crore.
As per Regulation 6 of SEBI (Depositories arnd Participants)
must belong to one of the Power to adjudicate., For the purpose of adjudging, SEBI will appoint an officer
the sponsor, to be eligible to act as & Depository,
institution, (ii) a scheduled bank not below the rank of a Division Chief of SEBI to be an adjudicating officer for
institutions namely: () a public finarncial
(iv) recognised stock exchange, (v) a body holding an enquiry, for the purpose of imposing any penalty.
(in) foreign bank operating in lndia, equity Punishment for offences. Irespective of any penalty imposed by the
corporate engaged in providing financial services where at least 75% of
severally etc. Adjudicating Officer under this Act, if any person contravenes or abets the
capital is held by any of the aforestated institutions, jointly orCommencement of contravention of the provisions of this Act or any rules or regulations, he shall be
To act as a Depository it should obtain a Certificate of imprisonment for a term which may extend to 10 years, or with
Business from 'SEBI. punishable with
fine, which may extend to ? 25 crores, or with both.
(b) Participant. A participant is a person through whom the investor ofAct,thea Further, if any person fails to pay the penalty imposed by the Adjudicating Officer
securities avails the services of the depository. As per Section 2(1)(g) of the or orders, he shall be punishable with
participant means a person registered under Section 12(1A) of the Securities ot fails to comply with any of his directionsbe less than one month but which may
mprisonment for a term which shall not
and Exchange Board of India Act, 1992. A participant is an agent of the extend to 25 crores, or with both
depository and acts as a link between the investor and the depository. extend to 10 years, or with fine which may committed by a company, the company
The applicant willing to get registered as participant with SEBI should belong Where an offence under this Act has been time the offence was committed was
at the
to one of the following categories: seu as well as every person who company for the conduct of its business like
responsible to the
() a public financial institution, arge or, and was Director, shall be deemed to be guilty of offence
(in) a bank, Ce Managing Director or Executive and punished accordingly
and shall be liable to be proceeded against
(iin) a foreign bank operating in India,
 yoluntaryWinding up
perview of Indianand lBankrupt
nsolvency
SERIES
UNIVERSITY
Depositories Act, 1996. the come under
SHIVDAS
DELHI
of
featuresprovides a legal basis for cy Code, 2016
erasntasbfelirsahbmiletynt
154 salient 1996
the ensuring free WhatisVoluntary Winding up
Depositories Act, the objective of
Explain under
Q.9.
Ans.The securities
depositoriesin
securities
with security by(a)
accuracyand (b) dematerialising the
withspeed,
transferable:
maintenanceof
t
making he securities
ownership securitieins
records ina the
of public
of
of
e1.
What
s

A n a

A
the
procedure of
Windingvoluntary
Voluntary that
Company
up
intends (Sectionwinding
59 of
Insolvency
the
and
up and what Bankrupt
are its cy Code, 2016!
to liquidate itself Insolvency and consequences?
Bankrupt
not cy Code,
companiesfreelyproviding
mayvoluntarily and has
A16)
on any debt to any
A Company may chooseperson
detault
limited mode;and(c)
depository 1996: book Redines.
to be woundinitiate
up voluntary committed
liquidation
Depositories Act, a legal framework anumslances including winding up as a voluntarily of operation
entryform.
featuresofthe provides for Articles of
Association or result of expiry of period under several
Salientdepositories
()entry
sothatAct,
Depositories
1996ofsecurities could be effected through book
transfer
The only in the ledgers of the depository without the physicalup set ing fcd
its for its dissolution.
in
Association
Conditionsfor Voluntary Winding up:
oCcurrence of an event provided in its
Articles
declaration from majority of
the directors
movementofscrips. be registered under the idavil
) A statingthat: of the
company verified
andalso
(i) Each
with SEBI
depository
required toand
is (Securities
Commencement of Business" from it.
Comparies Act.
Exchange Board of India) and receive
()TThey
have made a full inquiry into the affairs of the
formed an opinion that either the company
by an
and they have
Company has no debt or that
"Certificate of have option to hold
the investors able to pay its debts in full from the it will be
a
depository system,
form. securities in voluntary liquidation; and proceeds of assets to be sold in the
(n) Inthe dematerialised
(iv) physical
Each depository
or will have its agents to be known as "Depository The company is not
being liquidated to defraud any
Participants', who shall be a crucial link between the investors and the The declaration under sub-clause (a) shall be person.
depository. Adepository willinterface with the investors through aset of (9
documents:
accompanied with the following
() Audited financial statements and record of business operations of the
(u) 'Depository
AninvestorParticipants'.
who wants toavail himself of the services of a depository, is company for the previous two years or for the period since its
agreement with the depository incorporation, whichever is later:
to enter
Depository
required into an
Participant (DP), and for this he has to open a'Dema through a e Areport of the valuatton of the assets of the company, if any, prepared by a
Registered Valuer.
DP of the depository.
with aheld Procedure of Voluntary Winding up under IBC 2016:
(vi) account
The securities inthe depository are fungible. They cease to have any Step-I: Submission of declaration(s) to ROC, stating that the company will be able
distinctive folio or certificate number. All the shares of the samne class are topayits dues and is not being liquidated to defraud any person.
exchanged for one another.
and can be system, Step-I1: Passing of special resolution for approving the proposal of voluntary
(vin) identical
In the depository the ownership of securities is bifurcated liquidation and appointment of liquidator (Approval), within 4(four) weeks of the
between Registered Owner and Beneficial Owner. For the securities aforesaid declaration(s). If a corporate person owes debts, approval of two-third
bonk
dematerialised, the depository is the registered owner in the majority Creditors would also be required.
0ssuing company and the investor is the benefhcial owner in the boket Step-III: Publicannouncemernt inviting claims of all stakeholders, within 5 (five)
the depository. The beneficial owner continues to enjoy all the richte days of such Approval, in newspaper as well as on website of the corporate person.
benefits and he is subject to all the liabilities in respect of his securis Ster-IV: Intimation to the ROC and the Board (Insolvency and Bankruptcy Board
held by the Depository. df ndia) about the Approval, within 7 (seven) days of such Approval.
(vin) The Depositories Act has done away with the stamp duty on transter of Step-V: Preparation of preliminary report by the liquidator about the capital structure,
securities within the depository mode. All transfers of securities outsida stimates of assets and liabilities, proposed plan of action etc., and submission of the
the depository mode shall attract the stamp duty. same to the corporate person within 45 (forty-five) days of such Approval.
Step-VI: Verification of claims, within 30 (thirty) days form the last date for
(in) Abeneficial owner may with the previous approval of the Depository, receipt of claims and preparation of list of stakeholders, within 45 (forty-five) days
create a pledge in respect of securities owned by him through a from the last date for receipt of claims.
repository. Step-VII: Opening of a bank account in the nante of the corporate person followed
(1) In the depository system, the transaction of transfer of shares is directly by the words 'in voluntary liquidation', in a scheduled bank, for the receipt of all
handled by the participant and the depository. Thus, the depository is moneys due to the corporate person.
required to furnish to the issuer company information about the transíer Step-VIl: Sale of assets, recovery of monies due to corporate person, realization
of shares in the name of beneficial owners at regular intervals. of uncalled capital or unpaid capital contribution.
155
 SERIES
SHIV DAS DELHIUNIVERSITY
Step-IX: Distribution of the proceeds from realization within 6(six) months from
156
stakeholders.
amount to the to the corporate person,
the receiptSubmission of final report bythe liquidator
of the
Company Law Tribunal ROC
Step-X:
and the Board and
application to the National (NCLT) for
regarding the dissolution, to the
the dissolution.
NCLT order
Step-XI: Submission of days of the receipt of order. concerned
(fourteen)
ROC within 14 Winding up process: its
Consequences of Business. The corporate shall cease to carry on business on
on winding up.
1. Cease to carry except for its beneficial
of a liquidator difference between
the appointment Liability. The most important
2. Limit on Directors' means of closure is that the liabilities
voluntary
of a Director shall not
in the cases of fraud.
winding up and other of the company, except
continue post the dissolution
misrepresentation, etc.
Exist. The powers of the Board of Drectors shall not ceacs
3. Board Continues to hampering the independence of the liquidator.
without
and shall continue private the third party (the
process. It is a private process run by stakeholder is natt
4. Winding up a has to make sure that each
liquidator), wherein the liquidation
settlement.
and is satisfied with their
Claims and list of Stakeholders. The liquidator shallcollect
5. Verification of stakeholders.
claims and prepare a list ofliquidator shall create a liquidation
collate and verify all Distribution of Assets. The
6. Realisation and allthe assets of the corporate.
and distribute
estate; then realise
Dissolution to National Company Law Tribunal. The
7. Application of dissolution to the adjudicating
for the
liquidator shall make an application
Law Tribunal (NCLT), along with the final report.
authority,i.e., National Company the
Dissolution. The corporate shall be wound up from the date of
8. Date of National Company Law Tribunal (NCLT).
dissolution order passed by the voluntary
'Declaration of solvency' in relation to
Q. 2. What is meant by
winding up of a company? Solvency is an important document in the members'
Ans. The Declaration of must be made in the meeting of the Board of
voluntary winding up. The declaration
Directors.
should be made by a majority of the directors and certified by an affidavit.
(a) It of Solvency that they have made a
Majority of Directors shall state in Declaration
and they have formed an opinion that
full inquiry into the affairs of the company be able to pay its debts in full from the
either the company has nodebt or that it will liquidation; and the company is not
proceeds of assets to be sold in the voluntary
being liquidated to defraud any person.
(b) Affidavitto be accompanied by:
(P Audited Financial Statements of past two years
(i) Records of Business Operations of past two years
valuation of the assets of e
(ii1) Report by the Registered Valuer about the
Company, if any.
(iv) Latest Financial Position of the Company, if any. there shall be aspecial
(c) Within four weeks of making a Declaration of Solvency, requiring the
resolution of the members of the company in a general meetng professionalto
company to be liquidated voluntarily and appointing an insolvency
act as the liquidator.