CHAPTER 18 10

MISCELLANEOUS
PROVISIONS
LEARNING OUTCOMES
After reading this chapter, you will be able to:
 Know the meaning of the Foreign Companies
 Know about offer of Indian Depository Receipts.
 Know the provisions of Registered Valuers and Valuation Rules.
 Know the provisions regarding Removal of names of companies from the
Register of Companies.
 Identify the Government companies and their Annual Reports.
 Analyzing the concept of Nidhis and Dormant companies.
 Know about Miscellaneous Provisions.

© The Institute of Chartered Accountants of India

 18.2 COMPANY LAW

1. INTRODUCTION
The Companies Act, 2013 has prescribed certain more provisions which have been covered under the
following headings under this Chapter:
 Foreign company
 Registered Valuers

 Removal of Names of Companies from the Register of Companies

 Government companies
 Nidhis

 Other Provisions

2. FOREIGN COMPANY
Foreign Company [Section 2(42)]: “Foreign company” means any company or body corporate
incorporated outside India which-
(a) has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
(b) conducts any business activity in India in any other manner.
Example 1: ABC Entertainment Limited (Indian Company) having foreign subsidiary UVW Limited
rendering satellite services to the group will be covered under the definition of Foreign Company under
the Companies Act, 2013.
Example 2: Airline companies who operate through their booking agents in India will be covered under the
definition of Foreign Company under the Companies Act, 2013.
According to the 1Companies (Registration of Foreign Companies) Rules, 2014, “electronic mode”
means carrying out electronically based, whether main server is installed in India or not, including,
but not limited to –
(a) business to business and business to consumer transactions, data interchange and other
digital supply transactions;

1 Rule 2(1)(h) of the Companies (Specification of Definitions Details) Rule, 2014

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.3

(b) offering to accept deposits or inviting deposits or accepting deposits or subscriptions in

securities, in India or from citizens of India;

(c) financial settlements, web based marketing, advisory and transactional services, database
services and products, supply chain management;
(d) online services such as telemarketing, telecommuting, telemedicine, education and
information research; and
(e) all related data communication services,
whether conducted by e-mail, mobile devices, social media, cloud computing, document
management, voice or data transmission or otherwise.
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 shall not be construed as ‘electronic mode’ for the purpose
of clause (42) of section 2 of the Act.
Example 3: Zakpak Ltd. is a shipping company incorporated in Japan. The Company has set up a
branch office in India after obtaining necessary approvals from RBI. Branch Offices are generally
considered as a reflection of the Parent Company’s office. Thus, branch offices of a company
incorporated outside India are considered as a place of business for conducting business activity in
India and will be required to follow provisions of this chapter and such other provisions as may be
specified elsewhere under Companies Act, 2013.
2Facts: Union Minister of State for Corporate Affairs Shri Rao Inderjit Singh in a written reply to a
question in Rajya Sabha stated that 320 foreign companies were registered in India between 2018
and 2021.

APPLICATION OF ACT TO FOREIGN COMPANIES [SECTION 379]

According to this section:
(i) Applicability of Act to foreign companies: Sections 380 to 386 (both inclusive) and
sections 392 and 393 shall apply to all foreign companies. It implies that all companies which falls
within the definition of foreign company as per section 2(42), shall comply with the provisions of this
Chapter.

2 Press release dated July 27, 2021 published by Press Information Bureau Delhi

© The Institute of Chartered Accountants of India

 18.4 COMPANY LAW

(ii) Requirement of holding of paid up share capital: Where not less than 50% of the paid-up
share capital, whether equity or preference or partly equity and partly preference, of a foreign
company incorporated outside India is held by:
(i) one or more citizens of India; or
(ii) by one or more companies or bodies corporate incorporated in India; or
(iii) by one or more citizens of India and one or more companies or bodies corporate incorporated
in India,
whether singly or in the aggregate, such foreign company shall also comply with the provisions of
Chapter XXII and such other provisions of this Act as may be prescribed with regard to the business
carried on by it in India as if it were a company incorporated in India. [Section 379(2)]
Note: Chapter XXII referred to above deals with the legal provisions for companies incorporated
outside India.
Example 4: The shareholding of Emaar Company LLC, incorporated in Dubai and having a place of
business in India, is as follows:

1. Hinduja Company Limited (Indian Company): 26%

2. Vaishali Company Limited (Indian Company): 25%
3. Citizens of Dubai: Remaining holding
As per section 379(2), Emaar Company LLC will also be required to comply with the provisions of
Chapter XXII as not less than 50% of the shareholders of Emaar Company LLC consists of body
corporates incorporated in India. Emaar Company LLC will also be required to comply with other
provisions of this Act as may be prescribed with regard to the business carried on by its place of
business in India as if it were a company incorporated in India.

DOCUMENTS, ETC., TO BE DELIVERED TO REGISTRAR BY FOREIGN COMPANIES

[SECTION 380]
According to section 380 (1) of the Companies Act, 2013,
(i) Every foreign company shall, within 30 days of the establishment of its place of business in
India, deliver to the Registrar for registration:
(a) a certified copy of the charter, statutes or memorandum and articles, of the company
or other instrument constituting or defining the constitution of the company. If the

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.5

instrument is not in the English language, a certified translation thereof in the English
language;
(b) the full address of the registered or principal office of the company;
(c) a list of the directors and secretary of the company containing such particulars as may
be prescribed;
In relation to the nature of particulars to be provided as above, 3the Companies
(Registration of Foreign Companies) Rules, 2014, provide that the list of directors and
secretary or equivalent (by whatever name called) of the foreign company shall contain
the following particulars, for each of the persons included in such list, namely:
(1) personal name and surname in full;
(2) any former name or names and surname or surnames in full;
(3) 4 father’s name or mother’s name or spouse’s name;
(4) date of birth;
(5) residential address;
(6) nationality;
(7) if the present nationality is not the nationality of origin, his nationality of origin;
(8) passport Number, date of issue and country of issue; (if a person holds more
than one passport then details of all passports to be given)
(9) income-tax permanent account number (PAN), if applicable;
(10) occupation, if any;
(11) whether directorship in any other Indian company, (Director Identification
Number (DIN), Name and Corporate Identity Number (CIN) of the company in
case of holding directorship);
(12) other directorship or directorships held by him;
(13) Membership Number (for Secretary only); and
(14) e-mail ID.

3 Rule 3 of the Companies (Registration of Foreign Companies) Rules, 2014

4 Substituted by Companies (Registration of Foreign Companies) Rules, 2014 dated 20th January, 2023

© The Institute of Chartered Accountants of India

 18.6 COMPANY LAW

(d) the name and address or the names and addresses of one or more persons
resident in India authorised to accept on behalf of the company service of process
and any notices or other documents required to be served on the company;
(e) the full address of the office of the company in India which is deemed to be its
principal place of business in India;
(f) particulars of opening and closing of a place of business in India on earlier
occasion or occasions;
(g) declaration that none of the directors of the company or the authorised
representative in India has ever been convicted or debarred from formation of
companies and management in India or abroad; and
(h) any other information as may be prescribed.
(ii) Form, procedure and time for making application and submission of prescribed
documents: According to the Companies (Registration of Foreign Companies) Rules, 2014,
the above information shall be filed with the Registrar within 30 days of the establishment of
its place of business in India, in Form FC-1 along with prescribed fees and documents
required to be furnished as provided in section 380(1). The application shall also be supported
with an attested copy of approval from the Reserve Bank of India under the Foreign Exchange
Management Act or Regulations, and also from other regulators, if any, approval is required
by such foreign company to establish a place of business in India or a declaration from the
authorised representative of such foreign company that no such approval is required.
(iii) Office where documents to be delivered and fee for registration of documents:
1. 5According to the Companies (Registration of Foreign Companies) Rules, 2014, any
document which any foreign company is required to deliver to the Registrar shall be
delivered to the Registrar having jurisdiction over New Delhi.
2. It shall be accompanied with the prescribed fees 6.
3. If any foreign company ceases to have a place of business in India, it shall forthwith
give notice of the fact to the Registrar, and from the date on which such notice is so
given, the obligation of the company to deliver any document to the Registrar shall
cease, provided it has no other place of business in India.

5 Rule 8 of the Companies (Registration of Foreign Companies) Rules, 2014

6 Rule 12 of the Companies (Registration Offices and Fees) Rules, 2014

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.7

(iv) Under section 380(2) every foreign company existing at the commencement of the
Companies Act 2013, which has not delivered to the Registrar the documents and particulars
specified in section 592(1) of the Companies Act, 1956, it shall continue to be subject to the
obligation to deliver those documents and particulars in accordance with the Companies Act,
1956.

(v) Form, procedure and time within which alteration in documents shall be intimated to
Registrar: Section 380(3) provides that where any alteration is made or occurs in the
documents delivered to the Registrar under section 380, the foreign company shall, within 30
days of such alteration, deliver to the Registrar for registration, a return containing the
particulars of the alteration in the prescribed form. The Companies (Registration of Foreign
Companies) Rules, 2014, has prescribed that the return containing the particulars of the
alteration shall be filed in form FC-2 along with prescribed fees.
Illustration 1: Search & Find Pte. Ltd., incorporated in Singapore. The Company sells its goods
through electronic mode on the e-commerce platforms in India, however, it does not have any branch
or office in India. Is the Company required to submit the documents as required under Section 380
of the Companies Act, 2013.
Answer: Yes, as per 2(42) of Companies Act, 2013, any company or body corporate incorporated
outside India which (a) has a place of business in India whether by itself or through an agent,
physically or through electronic mode; and (b) conducts any business activity in India in any other
manner shall be considered as a foreign company. Accordingly, as Search & Find Pte. Ltd., is
conducting its business through electronic mode, it is considered a foreign company as per
Companies Act, 2013 and is required to submit the documents mentioned under Section 380 of the
Companies Act, 2013.

ACCOUNTS OF FOREIGN COMPANY [SECTION 381]

According to this section:
(i) Every foreign company shall, in every calendar year,—
(a) make out a balance sheet and profit and loss account in such form, containing such
particulars and including or having attached or annexed thereto such documents as
may be prescribed, and
(b) deliver a copy of those documents to the Registrar.

© The Institute of Chartered Accountants of India

 18.8 COMPANY LAW

According to the 7Companies (Registration of Foreign Companies) Rules, 2014, every foreign
company shall prepare financial statement of its Indian business operations in accordance
with Schedule III or as near thereto as possible for each financial year including:
(1) documents that are required to be annexed should be in accordance with Chapter IX
i.e. Accounts of Companies.
(2) The documents relating to copies of latest consolidated financial statements of the
parent foreign company, as submitted by it to the prescribed authority in the country
of its incorporation under the applicable laws there.
Note: “financial year” in relation to any company or body corporate, means the period
ending on the 31st day of March every year, and where it has been incorporated on or
after the 1st day of January of a year, the period ending on the 31 st day of March of the
following year, in respect whereof financial statement of the company or body
corporate is made up:
Provided that where a company or body corporate, which is a holding company or a
subsidiary or associate company of company incorporated outside India and is
required to follow a different financial year for consolidation of its accounts outside
India, the Central Government may, on an application made by that company or body
corporate in such form and manner as may be prescribed, allow any period as its
financial year, whether or not that period is a year.
Provided further that any application pending before the Tribunal as on the date of
commencement of the Companies (Amendment) Ordinance, 2018, shall be disposed
of by the Tribunal in accordance with the provisions applicable to it before such
commencement.
It is important to note that a foreign company having its place of business in India may
not necessarily follow a financial year ending on the 31st day of March every year
provided it has obtained the requisite approvals from the Central Government for the
same.
Example 5: ROK Limited, is a company incorporated outside India having a place of business
in India. ROK Limited is a subsidiary of HOK Limited (Holding company), registered in
Australia and is required to consolidate its accounts with HOK Limited. Accordingly, if HOK
Limited is required to follow financial year other than 31 st day of March every year, ROK can
make an application to Central Government to follow the financial year as per HOK Limited.

7 Rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.9

(ii) The Central Government is empowered to direct that, in the case of any foreign company or
class of foreign companies, the requirements of clause (a) given above shall not apply, or
shall apply subject to such exceptions and modifications as may be specified in notification
in that behalf [Section 381(1)].
(iii) If any of the specified documents are not in the English language, a certified translation
thereof in the English language shall be annexed. [Section 381 (2)]
(iv) Every foreign company shall send to the Registrar along with the documents required
to be delivered to him, a copy of a list in the prescribed form, of all places of business
established by the company in India as at the date with reference to which the balance sheet
referred to in section 381(1) is made.
8According to the Companies (Registration of Foreign Companies) Rules, 2014, every foreign
company shall file with the Registrar, along with the financial statement, in Form FC-3 with
such fee as provided under Companies (Registration Offices and Fees) Rules, 2014 a list of
all the places of business established by the foreign company in India as on the date of
balance sheet.
According to the 9Companies (Registration of Foreign Companies) Rules, 2014, if any foreign
company ceases to have a place of business in India, it shall forthwith give notice of the fact
to the Registrar, and as from the date on which notice is so given, the obligation of the
company to deliver any document to the Registrar shall cease, if it does not have other place
of business in India.
(v) According to the 10Companies (Registration of Foreign Companies) Rules, 2014,
(a) Further, every foreign company shall, along with the financial statement required to be
filed with the Registrar, attach thereto the following documents; namely:-
(1) Statement of related party transaction
(2) Statement of repatriation of profits
(3) Statement of transfer of funds (including dividends, if any)
The above statements shall include such other particulars as are prescribed in the
Companies (Registration of Foreign Companies) Rules, 2014.

8 Rule 6 of the Companies (Registration of Foreign Companies) Rules, 2014

9 Rule 8 of the Companies (Registration of Foreign Companies) Rules, 2014
10 Rule 4 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 18.10 COMPANY LAW

(b) All these documents shall be delivered to the Registrar within a period of 6 months
of the close of the financial year of the foreign company to which the documents
relate.
Provided that the Registrar may, for any special reason, and on application made in
writing by the foreign company concerned, extend the said period by a period not
exceeding three months.
Example 6: Mukesh & Jordan LLC is a foreign company and is required to file its financial
statements within six months of the close of the financial year with Registrar on an annual
basis alongwith following additional documents:
(1) Statement of related party transaction
(2) Statement of repatriation of profits
(3) Statement of transfer of funds (including dividends, if any)
However, where the Central Government has exempted or specified different documents for
any foreign company or a class of foreign companies, then documents as specified shall be
submitted.
(vi) Audit of accounts of foreign company: According to the 11Companies (Registration of
Foreign Companies) Rules, 2014,
(a) Every foreign company shall get its accounts, pertaining to the Indian business
operations prepared in accordance with section 381(1) and Rules thereunder, shall
be audited by a practicing Chartered Accountant in India or a firm or limited liability
partnership of practicing chartered accountants.
(b) The provisions of Chapter X i.e. Audit and Auditors and rules made there under, as
far as applicable, shall apply, mutatis mutandis, to the foreign company.

DISPLAY OF NAME, ETC., OF FOREIGN COMPANY [SECTION 382]

Every foreign company shall—

(a) conspicuously exhibit on the outside of every office or place where it carries on business in
India, the name of the company and the country in which it is incorporated, in letters easily
legible in English characters, and also in the characters of the language or one of the
languages in general use in the locality in which the office or place is situate;

11 Rule 5 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.11

(b) cause the name of the company and of the country in which the company is incorporated, to
be stated in legible English characters in all business letters, bill-heads and letter paper, and
in all notices, and other official publications of the company; and
(c) if the liability of the members of the company is limited, cause notice of that fact—
(i) to be stated in every such prospectus issued and in all business letters, bill-heads,
letter paper, notices, advertisements and other official publications of the company, in
legible English characters; and
(ii) to be conspicuously exhibited on the outside of every office or place where it carries
on business in India, in legible English characters and also in legible characters of the
language or one of the languages in general use in the locality in which the office or
place is situated.

SERVICE ON FOREIGN COMPANY [SECTION 383]

Any process, notice, or other document required to be served on a foreign company shall be deemed
to be sufficiently served, if addressed to any person whose name and address have been delivered
to the Registrar under section 380 and left at, or sent by post to, the address which has been so
delivered to the Registrar or by electronic mode.

DEBENTURES, ANNUAL RETURN, REGISTRATION OF CHARGES, BOOKS OF ACCOUNT AND

THEIR INSPECTION [SECTION 384]
(i) The provisions of section 71 (Issue of Debentures) shall apply mutatis mutandis to a foreign
company.
(ii) The provisions of section 92 (Preparation and filing of Annual return) shall, subject to such
exceptions, modifications and adaptations as may be made therein by rules made under this
Act, apply to a foreign company as they apply to a company incorporated in India. Further,
as per Rule 3 of the Companies (Corporate Social Responsibility Policy) Rules 2014, a foreign
company which fulfils the criteria specified under Section 135(1) of the Companies Act 2013
is required to comply with Section 135 of the Companies Act, 2013, subject to such
exceptions, modifications and adaptations as may be made therein by rules made under this
Act, apply to a foreign company as they apply to a company incorporated in India.
12According to the Companies (Registration of Foreign Companies) Rules, 2014, every
foreign company shall prepare and file an annual return in Form FC-4 along with prescribed

12 Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 18.12 COMPANY LAW

fees, within a period of 60 days from the last day of its financial year, to the Registrar
containing the particulars as they stood on the close of the financial year.
(iii) The provisions of section 128 (Books of account, etc., to be kept by company) shall apply to
a foreign company to the extent of requiring it to keep at its principal place of business in
India, the books of account referred to in that section, with respect to monies received and
spent, sales and purchases made, and assets and liabilities, in the course of or in relation to
its business in India.
(iv) The provisions of Chapter VI (Registration of Charges) shall apply mutatis mutandis to
charges on properties which are created or acquired by any foreign company.
(v) The provisions of Chapter XIV (Inspection, inquiry and investigation) shall apply mutatis
mutandis to the Indian business of a foreign company as they apply to a company
incorporated in India.

FEE FOR REGISTRATION OF DOCUMENTS [SECTION 385]

There shall be paid to the Registrar for registering any document required by the provisions of this
Chapter to be registered by him, such fee, as may be prescribed.
13According to the Companies (Registration of Foreign Companies) Rules, 2014, the fees to be paid
to the Registrar for registering any document relating to a foreign company shall be such as
provided in the Companies (Registration Offices and Fees) Rules, 2014.

INTERPRETATION [SECTION 386]

For the purposes of the foregoing provisions of this Chapter, the expression:
(a) “Certified” means certified in the prescribed manner to be a true copy or a correct translation;
(b) “Director”, in relation to a foreign company, includes any person in accordance with whose
directions or instructions the Board of Directors of the company is accustomed to act; and
(c) “Place of business” includes a share transfer or registration office.
Illustration 2: Examine with reference to the provisions of the Companies Act, 2013 whether the
following companies can be treated as foreign companies:
(i) A company incorporated outside India having a share registration office at Mumbai.

13 Rule 8 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.13

(ii) Indian citizens incorporated a company in Singapore for the purpose of carrying on business
there.

Answer: Section 2(42) of the Companies Act, 2013 defines a “foreign company” as any company or
body corporate incorporated outside India which:
(a) Has a place of business in India whether by itself or through an agent, physically or through
electronic mode; and
(b) Conducts any business activity in India in any other manner.
According to section 386 of the Companies Act, 2013, for the purposes of Chapter XXII of the
Companies Act, 2013 (Companies incorporated outside India), expression “Place of business”
includes a share transfer or registration office.
Further, to qualify as a ‘foreign company’ a company must have the following features:
(a) it must be incorporated outside India; and
(b) it should have a place of business in India.
(c) That place of business may be either in its own name or through an agent or may even be
through the electronic mode; and
(d) It must conduct a business activity of any nature in India.
(i) Therefore, a company incorporated outside India having a share registration office at
Mumbai will be treated as a foreign company provided it conducts any business activity
in India.
(ii) In the case of a company incorporated in Singapore for the purpose of carrying on
business in Singapore, it will not fall within the definition of a foreign company. Its
incorporation outside India by Indian citizen is immaterial. In order to be a foreign
company it has to have a place of business in India and must also conduct a business
activity in India.

DATING OF PROSPECTUS AND PARTICULARS TO BE CONTAINED THEREIN [SECTION 387]

According to this section:

(i) Prospectus to be dated and signed [Section 387(1)]: No person shall issue, circulate or
distribute in India any prospectus offering to subscribe for securities of a company
incorporated or to be incorporated outside India, whether the company has or has not
established, or when formed will or will not establish, a place of business in India, unless the
prospectus is dated and signed, and—

© The Institute of Chartered Accountants of India

 18.14 COMPANY LAW

(a) contains particulars with respect to the following matters, namely:—

(1) the instrument constituting or defining the constitution of the company;

(2) the enactments or provisions by or under which the incorporation of the
company was effected;

(3) address in India where the said instrument, enactments or provisions, or copies
thereof, and if the same are not in the English language, a certified translation
thereof in the English language can be inspected;
(4) the date on which and the country in which the company would be or was
incorporated; and
(5) whether the company has established a place of business in India and, if so,
the address of its principal office in India; and

(b) states the matters specified under section 26 (Matters to be stated in prospectus).

Provided that points (1), (2) and (3) of point (a) above shall not apply in the case of a
prospectus issued more than 2 years after the date at which the company is entitled to
commence business.

Example 7: Mir Company LLC, a company incorporated in Dubai, on 28th April 2017. Mir
Company LLC has established a place of Business in Mumbai in the year 2020. Now the
place of business in India proposes to offer subscription to securities of Mir Company LLC.
Now the place of business in India before going with the subscription will have to file a
prospectus dated and signed and the prospectus shall not be required to contain the
particulars mentioned in points (1), (2) and (3) of point (a) above as the prospectus will be
getting issued after a period of more than 2 years since the Mir Company LLC has
commenced its business.
(ii) No waiver of compliance in prospectus [Section 387(2)]: Any condition requiring or
binding an applicant for securities to waive compliance with any requirement imposed by
virtue of section 387(1) or purporting to impute him with notice of any contract, documents or
matter not specifically referred to in the prospectus, shall be void.
It is to be understood that section 387 (2) does not provides any exception with respect to the
non-compliance of the requirements stated under section 387 (1) by any person responsible
for issuing or circulating prospectus.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.15

(iii) Form of application for securities to be issued along with prospectus [Section 387(3)]:
No person shall issue to any person in India a form of application for securities of such a
company or intended company as is mentioned in section 387(1), unless the form is issued
with a prospectus which complies with the provisions of this Chapter (Chapter XXII) and such
issue does not contravene the provisions of section 388:

Exception: If it is shown that the form of application was issued in connection with a bona
fide invitation to a person to enter into an underwriting agreement with respect to securities.

(iv) Section 387(4) further provides that the provisions of section 387—

(a) shall not apply to the issue to existing members or debenture holders of a company
of a prospectus or form of application relating to securities of the company, whether
an applicant for securities will or will not have the right to renounce in favour of other
persons; and

(b) except in so far as it requires a prospectus to be dated, to the issue of a prospectus

relating to securities which are or are to be in all respects uniform with securities
previously issued and for the time being dealt in or quoted on a recognised stock
exchange,

but, subject as aforesaid, section 387 shall apply to a prospectus or form of application
whether issued on or with reference to the formation of a company or subsequently.

According to section 387(4), the provisions of section 387 shall not apply to the issue of
prospectus or form of application relating to securities of the company to existing member
or debenture holders of a company; and

The provisions of section 387 shall not apply in respect of issue of prospectus dealing with
offer for securities which are uniform in all respects with securities previously issued and
such previously issued securities are listed on a recognised stock exchange. However,
provisions relating to dating of prospectus shall continue to apply.

(v) Nothing in Section 387 shall limit or diminish any liability which any person may incur under
any law for the time being in force in India or under the Companies Act, 2013 apart from
Section 387.

© The Institute of Chartered Accountants of India

 18.16 COMPANY LAW

PROVISIONS AS TO EXPERT’S CONSENT AND ALLOTMENT [SECTION 388]

According to this section:
(i) No person shall issue, circulate or distribute in India any prospectus offering for subscription
in securities of a company incorporated or to be incorporated outside India, whether the
company has or has not been established, or when formed will or will not establish, a place
of business in India,—

(a) if, where the prospectus includes a statement purporting to be made by an expert, he
has not given, or has before delivery of the prospectus for registration withdrawn, his
written consent to the issue of the prospectus with the statement included in the
form and context in which it is included, or there does not appear in the prospectus a
statement that he has given and has not withdrawn his consent as aforesaid;
or
(b) if the prospectus does not have the effect, where an application is made in pursuance
thereof, of rendering all persons concerned bound by all the provisions of section 33
(Issue of application forms for securities) and section 40 (Securities to be dealt with in
stock exchanges), so far as applicable.
(ii) For the purposes of this section, a statement shall be deemed to be included in a prospectus,
if it is contained in any report or memorandum appearing on the face thereof or by reference
incorporated therein or issued therewith.

REGISTRATION OF PROSPECTUS [SECTION 389]

According to this section:

No person shall issue, circulate or distribute in India any prospectus offering for subscription in
securities of a company incorporated or to be incorporated outside India, whether the company has
or has not established, or when formed will or will not establish, a place of business in India, unless
before the issue, circulation or distribution of the prospectus in India;

 a copy thereof certified by the chairperson of the company and two other directors of the
company as having been approved by resolution of the managing body has been delivered
for registration to the Registrar; and

 the prospectus states on the face of it that a copy has been so delivered, and

 there is endorsed on or attached to the copy, any consent to the issue of the prospectus
required by section 388 and such documents as may be prescribed.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.17

14 According to the Companies (Registration of Foreign Companies) Rules, 2014, the following
documents shall be annexed to the prospectus, namely:

(a) any consent to the issue of the prospectus required from any person as an expert;

(b) a copy of contracts for appointment of managing director or manager and in case of a
contract not reduced into writing, a memorandum giving full particulars thereof;

(c) a copy of any other material contracts, not entered in the ordinary course of business, but
entered within preceding 2 years;

(d) a copy of underwriting agreement; and

(e) a copy of power of attorney, if prospectus is signed through duly authorized agent of directors.

OFFER OF INDIAN DEPOSITORY RECEIPTS [SECTION 390]

For the purposes of this section, and according to the 15Companies (Registration of Foreign
Companies) Rules, 2014, Indian Depository Receipts (IDR) means any instrument in the form of a
depository receipt created by a Domestic Depository in India and authorized by a company
incorporated outside India making an issue of such depository receipts.
According to section 390, notwithstanding anything contained in any other law for the time being in
force, the Central Government may make rules applicable for—
(i) the offer of Indian Depository Receipts (IDR);
(ii) the requirement of disclosures in prospectus or letter of offer issued in connection with
IDR;
(iii) the manner in which the IDR shall be dealt with in a depository mode and by custodian and
underwriters; and
(iv) the manner of sale, transfer or transmission of IDR,

by a company incorporated or to be incorporated outside India, whether the company has or has not
established, or will or will not establish, any place of business in India.
According to Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014, no
company incorporated or to be incorporated outside India, whether the company has or has not

14 Rule 11 of the Companies (Registration of Foreign Companies) Rules, 2014

15 Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014

© The Institute of Chartered Accountants of India

 18.18 COMPANY LAW

established, or may or may not establish, any place of business in India shall make an issue of
Indian Depository Receipts (IDRs) unless it complies with the conditions mentioned under this rule,
in addition to the Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009 and any directions issued by the Reserve Bank of India.
The Rules relating to offer, disclosure requirements and manner of transfer, sale etc., related to IDR
are contained in Companies (Registration of Foreign Companies) Rules, 2014.

Standard Chartered PLC was the first global company to file for an issue of IDR in India in 2010.

Application of Chapter XV (Compromises, Arrangements and Amalgamations): Section 234 of

the Companies Act, 2013 deals with merger or amalgamation of company with foreign company.
Section 234(1) states that the provisions of Chapter XV unless otherwise provided under any other
law for the time being in force, shall apply mutatis mutandis to schemes or mergers and
amalgamations between companies registered under this Act and companies incorporated in the
jurisdictions of such countries as may be notified from time to time by the Central Government.
Provided that the Central Government may make rules, in consultation with the Reserve Bank of
India, in connection with mergers and amalgamations provided under this section.
Section 234(2) states that subject to the provisions of any other law for the time being in force, a
foreign company, may with the prior approval of the Reserve Bank of India, merge into a company
registered under this Act or vice versa and the terms and conditions of the scheme of merger may
provide, among other things, for the payment of consideration to the shareholders of the merging
company in cash, or in Depository Receipts, or partly in cash and partly in Depository Receipts, as
the case may be, as per the scheme to be drawn up for the purpose.
Explanation: For the purposes of sub-section (2) above, the expression “foreign company” means
any company or body corporate incorporated outside India whether having a place of business in
India or not.

APPLICATION OF SECTIONS 34 TO 36 AND CHAPTER XX [SECTION 391]

Section 391 of the Companies Act, 2013 provides for Application of sections 34 to 36 and Chapter
XX. According to this section:
According to sub-section (1), the provisions of sections 34 to 36 (both inclusive) shall apply to—

(i) the issue of a prospectus by a company incorporated outside India under section 389 as they
apply to prospectus issued by an Indian company;
(ii) the issue of IDR by a foreign company.
Section 34 deals with criminal liability for mis-statements in prospectus.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.19

Section 35 deals with Civil Liability for mis-statement in prospectus.

Section 36 deals with punishment for fraudulently inducing persons to invest money.
Sub-section (2) provides that, subject to the provisions of section 376 (Power to wind up Foreign
companies although dissolved), the provisions of Chapter XX (i.e. Chapter on Winding up) shall
apply mutatis mutandis for closure of the place of business of a foreign company in India as if it were
a company incorporated in India in case such foreign company has raised monies through offer or
issue of securities under this Chapter which have not been repaid or redeemed.

PUNISHMENT FOR CONTRAVENTION [SECTION 392]

Without prejudice to the provisions of section 391, if a foreign company contravenes the
provisions of Chapter XXII of the Companies Act, 2013 (i.e. Chapter on Companies incorporated
outside India), the foreign company shall be punishable with fine which shall not be less than
1,00,000 rupees but which may extend to 3,00,000 rupees and in the case of a continuing offence,
with an additional fine which may extend to 50,000 rupees for every day after the first during which
the contravention continues and every officer of the foreign company who is in default shall be
punishable with fine which shall not be less than 25,000 rupees but which may extend to 5,00,000
rupees.
Thus, the punishment for contravention may be summed up as under:
1. Fine on defaulting foreign company in the range of 1 lac rupees to 3 lac rupees.
2. In case of continuing default an additional fine on the foreign company to the tune of 50,000
rupees per day after the first during which the contravention continues.
3. Punishment for every officer of the foreign company who is in default shall be imposition of a
fine of a minimum amount of 25,000 rupees, but which may extend to 5,00,000 rupees.

COMPANY’S FAILURE TO COMPLY WITH PROVISIONS OF THIS CHAPTER NOT TO AFFECT

VALIDITY OF CONTRACTS, ETC [SECTION 393]
Any failure by a company to comply with the provisions of Chapter XXII of the Companies Act, 2013,
shall not affect the validity of any contract, dealing or transaction entered into by the company or its
liability to be sued in respect thereof. However, the company shall not be entitled to bring any suit,
claim any set-off, make any counter-claim or institute any legal proceeding in respect of any such
contract, dealing or transaction, until the company has complied with the provisions of the
Companies Act, 2013, applicable to it.

© The Institute of Chartered Accountants of India

 18.20 COMPANY LAW

RULE 12 OF COMPANIES (REGISTRATION OF FOREIGN COMPANIES) RULES, 2014

Action for Improper Use or Description as Foreign Company: It states that if any person or persons
trade or carry on business in any manner under any name or title or description as a foreign company
registered under the Act or the rules made thereunder, that person or each of those persons shall,
unless duly registered as foreign company under the Act and rules made thereunder, shall be liable
for investigation under section 210 of the Act and action consequent upon that investigation shall be
taken against that person.

EXEMPTIONS UNDER CHAPTER XXII

The Central Government may, by notification, exempt any class of-

(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,

in so far 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.

3. REGISTERED VALUER
Provisions related to the Registered Valuers are dealt under Section 247 read with the Companies
(Registered Valuers and Valuation) Rules, 2017 of The Companies Act, 2013. Sections deals with
what all property can be valued and by whom as per the prescribed term and conditions, role of the
Registered Valuers and the consequences of contravention in the legal compliance by the valuer.
(i) Nature of the assets for Valuation: Valuation is required to be made in respect of any
• property,
• stocks,
• shares,
• debentures,
• securities,
• goodwill,
• any other assets (herein referred to as the assets) or
• net worth of a company or its liabilities under the provision of this Act.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.21

Appointment of valuer: A Registered Vauer shall be appointed by a person having such

qualifications and experience, registered as a valuer and being a member of an organisation
recognised, in such manner, on such terms and conditions as may be prescribed and
appointed by the audit committee or in its absence by the Board of Directors of that company.
(ii) Role of Valuer: The valuer appointed under sub-section (1) shall,—
(a) make an impartial, true and fair valuation of any assets which may be required to
be valued;
(b) exercise due diligence while performing the functions as valuer;
(c) make the valuation in accordance with such rules as may be prescribed; and
(d) not undertake valuation of any assets in which he has a direct or indirect interest or
becomes so interested at any time during a period of three years prior to his appointment
as valuer or three years after the valuation of assets was conducted by him.
(iii) Contravention: If a valuer contravenes the provisions of this section or the rules made
thereunder, the valuer shall be liable to a penalty of fifty thousand rupees . However, if the
valuer has contravened such provisions with the intention to defraud the company or its
members, he shall be punishable with imprisonment for a term which may extend to 1 year
and with fine which shall not be less than ₹ 1 Lakh but which may extend to ₹ 5 lakhs.
(iv) Levying penalties: Where a valuer has been convicted under point (iii) above, he shall be
liable to—
(a) refund the remuneration received by him to the company; and
(b) pay for damages to the company or to any other person for loss arising out of incorrect
or misleading statements of particulars made in his report.
COMPANIES (REGISTERED VALUERS AND VALUATION) RULES, 2017
These rules shall apply for valuation in respect of any property, stocks, shares, debentures,
securities or goodwill or any other assets or net worth of a company or its liabilities under the
provision of the Act or these rules.
Explanation.- It is hereby clarified that conduct of valuation under any other law other than the Act
or these rules by any person shall not be affected by virtue of coming into effect of these rules.
Rule 2: Definitions
1. In these rules, unless the context otherwise requires ─
(a) “Act” means the Companies Act, 2013 (18 of 2013);
(b) "authority" means an authority specified by the Central Government under section 458 of
the Companies Act, 2013 to perform the functions under these rules;

© The Institute of Chartered Accountants of India

 18.22 COMPANY LAW

(c) "asset class" means a distinct group of assets, such as land and building, machinery
and equipment, displaying similar characteristics, that can be classified and requires
separate set of valuers for valuation;
(d) “certificate of recognition” means the certificate of recognition granted to a
registered valuers organisation under sub-rule (5) of rule 13 and the term “recognition”
shall be construed accordingly;
(e) “certificate of registration” means the certificate of registration granted to a valuer
under sub-rule (6) of rule 6 and the term “registration” shall be construed accordingly;
(f) "partnership entity" means a partnership firm registered under the Indian Partnership
Act, 1932 (9 of 1932) or a limited liability partnership registered under the Limited
Liability Partnership Act, 2008 (6 of 2009);
(g) “Annexure” means an annexure to these rules;
(h) “registered valuers organisation” means a registered valuers organization
recognised under sub-rule (5) of rule 13;
(i) "valuation standards" means the standards on valuation referred to in rule 18; and
(j) "valuer" means a person registered with the authority in accordance with these rules
and the term "registered valuer" shall be construed accordingly.
Rule 3: Eligibility for registered valuers
(1) A person shall be eligible to be a registered valuer if he-
(a) is a valuer member of a registered valuers organisation;
Explanation─ For the purposes of this clause, "a valuer member" is a member of a
registered valuers organisation who possesses the requisite educational qualifications
and experience for being registered as a valuer;
(b) is recommended by the registered valuers organisation of which he is a valuer
member for registration as a valuer;
(c) has passed the valuation examination under rule 5 within three years preceding
the date of making an application for registration under rule 6;
(d) possesses the qualifications and experience as specified in rule 4;
(e) is not a minor;
(f) has not been declared to be of unsound mind;
(g) is not an undischarged bankrupt, or has not applied to be adjudicated as a bankrupt;
(h) is a person resident in India;

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.23

Explanation─ For the purposes of these rules 'person resident in India' shall have the
same meaning as defined in clause (v) of section 2 of the Foreign Exchange
Management Act, 1999 as far as it is applicable to an individual;
(i) has not been convicted by any competent court for an offence punishable with
imprisonment for a term exceeding 6 months or for an offence involving moral
turpitude, and a period of 5 years has not elapsed from the date of expiry of the
sentence;
Provided that if a person has been convicted of any offence and sentenced in respect
thereof to imprisonment for a period of 7 years or more, he shall not be eligible to be
registered;
(j) has not been levied a penalty under section 271J of Income-tax Act, 1961 and time
limit for filing appeal before Commissioner of Income-tax (Appeals) or Income-tax
Appellate Tribunal, as the case may be has expired, or such penalty has been
confirmed by Income-tax Appellate Tribunal, and 5 years have not elapsed after levy
of such penalty; and
(k) is a fit and proper person;
Explanation─ For determining whether an individual is a fit and proper person under
these rules, the authority may take account of any relevant consideration, including
but not limited to the following criteria-
(i) integrity, reputation and character,
(ii) absence of convictions and restraint orders, and
(iii) competence and financial solvency.
(2) No partnership entity or company shall be eligible to be a registered valuer if-
(a) it has been set up for objects other than for rendering professional or financial services,
including valuation services and that in the case of a company, it is a subsidiary, joint
venture or associate of another company or body corporate;
(b) it is undergoing an insolvency resolution or is an undischarged bankrupt;
(c) all the partners or directors, as the case may be, are not eligible under clauses (c),
(d), (e), (f), (g), (h), (i), (j) and (k) of sub-rule (1);
(d) 3 or all the partners or directors, whichever is lower, of the partnership entity or
company, as the case may be, are not registered valuers; or
(e) none of its partners or directors, as the case may be, is a registered valuer for the
asset class, for the valuation of which it seeks to be a registered valuer.
(f) it is not a member of a registered valuers organisation:

© The Institute of Chartered Accountants of India

 18.24 COMPANY LAW

Provided that it shall not be a member of more than one such register valuers organization at
a given point of time: provided further that the partnership entity on company, already
registered as valuers, on the date of commencement of the Companies (Register Valuers and
Valuation) Amendment Rules, 2022, shall comply within six months of such commencement
with the conditions specified under this clause.
Example 8: The Board of Directors of Tim Tim Ltd. proposes to appoint Mr. Nirala, an
individual as the valuer for carrying out valuation of an immovable property as required under
the provisions of the Companies Act, 2013. The approval of Audit Committee was not taken
for such appointment.
In the given case, as there is audit committee in the company, Board of Director does not
have right to appoint the valuer. It is against the said provision. In fact, valuer proposes to be
appointed shall have such qualification and experience and registered as a valuer in such
manner, on such terms and conditions as may be prescribed and appointed by the audit
committee or in its absence by the Board of Directors of that company.
Sagar Dattatray Goge., In re, IBBI/VALUATION/DISC./3/2021, FEBRUARY 9, 2021, it was
ordered that, where 'G' was granted registration as valuer by IBBI but 'G' concealed
information of pendency of criminal proceedings against him, registration of 'G' as Registered
Valuer was to be cancelled for violation of rule 3 of Companies (Registered Valuers and
Valuation) Rules, 2017.
Rule 4: Qualifications and experience
An individual shall have the following qualifications and experience to be eligible for registration
under rule 3, namely:-
(a) post-graduate degree or post-graduate diploma, in the specified discipline, from a
University or Institute established, recognised or incorporated by law in India and at least
three years of experience in the specified discipline thereafter; or
(b) a Bachelor's degree or equivalent, in the specified discipline, from a University or Institute
established, recognised or incorporated by law in India and at least five years of experience
in the specified discipline thereafter; or
(c) membership of a professional institute established by an Act of Parliament enacted for the
purpose of regulation of a profession with at least three years' experience after such
membership.
Explanation- For the purposes of this clause the 'specified discipline' shall mean the specific
discipline which is relevant for valuation of an asset class for which the registration as a valuer or
recognition as a registered valuers organisation is sought under these rules.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.25

Rule 5: Valuation Examination

(1) Conduct of Examination: The authority shall, either on its own or through a designated
agency, conduct valuation examination for one or more asset classes, for individuals,
qualifications and experience as specified in rule 4, and have completed their educational
courses as member of a registered valuers organisation, to knowledge, skills, values and
ethics in respect of valuation:
Provided that the authority may recognise an educational course conducted by a registered
valuers organisation before its recognition as adequate appearing for valuation examination:
Provided also that the authority may recognise an examination conducted as part of a
master’s or post graduate degree course conducted by equivalent to the valuation
examination.
(2) Determination of Syllabus: The authority shall determine the syllabus for various valuation
specific subjects or assets classes for the valuation examination on the recommendation
Committee of experts constituted by the authority in this regard.
(3) Publishing details on the website: The syllabus, format and frequency of the valuation
examination, including qualifying marks, shall be published on the website of the authority at
least the examination.
(4) Acknowledgment of passing examination: An individual who passes the valuation
examination, shall receive acknowledgement of passing the examination.
(5) Number of attempts: An individual may appear for the valuation examination any number of
times.
Rule 6: Application for certificate of registration
1. Manner of applying for registration: In the following manner an application can be applied
for obtaining of certificate of registration from following class of person who are eligible for
registration as a registered valuer under rule 3:

Class Application filing

An individual make an application to the authority in Form A of
Annexure-II along with a non-refundable application
fee of five thousand rupees in favour of the authority
A partnership entity or company may make an application to the authority in Form-B of
Annexure-II along with a non-refundable application
fee of ten thousand rupees in favour of the authority

Examination of application: The authority shall examine the application, and may grant twenty
one days to the applicant to remove the deficiencies, if any, in the application.

© The Institute of Chartered Accountants of India

 18.26 COMPANY LAW

Submission of documents: The authority may require the applicant to submit additional
documents or clarification within twenty- one days.
Appearance of applicant before the authority: The authority may require the applicant to
appear, within twenty one days, before the authority in person, or through its authorised
representative for explanation or clarifications required for processing the application.
Grant of certificate: If the authority is satisfied, after such scrutiny, inspection or inquiry as
it deems necessary, that the applicant is eligible under these rules, it may grant a certificate
of registration to the applicant to carry on the activities of a registered valuer for the relevant
asset class or classes in Form-C of the Annexure-II within sixty days of receipt of the
application, excluding the time given by the authority for presenting additional documents,
information or clarification, or appearing in person, as the case may be.
In case of denial of registration: If, after considering an application made under this rule,
the authority is of the prima facie opinion that the registration ought not be granted, it shall
communicate the reasons for forming such an opinion within forty-five days of receipt of the
application, excluding the time given by it for removing the deficiencies, presenting additional
documents or clarifications, or appearing in person, as the case may be.
Call for an explanation: The applicant shall submit an explanation as to why his/its
application should be accepted within fifteen days of the receipt of the communication to
enable the authority to form a final opinion.
Consideration by authority: After considering the explanation, if any, given by the applicant,
the authority shall either -
(a) accept the application and grant the certificate of registration; or
(b) reject the application by an order, giving reasons thereof.
The authority shall communicate its decision to the applicant within thirty days of receipt of
explanation.
Rule 7: Conditions of Registration
The registration granted under rule 6 shall be subject to the conditions that the valuer
shall -
(a) at all times possess the eligibility and qualification and experience criteria as specified under
rule 3 and rule 4;
(b) at all times comply with the provisions of the Act, these rules and the Bye-laws or internal
regulations, as the case may be, of the respective registered valuers organisation;
(c) in his capacity as a registered valuer, not conduct valuation of the assets or class(es) of
assets other than for which he/it has been registered by the authority;

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.27

(d) take prior permission of the authority for shifting his/ its membership from one registered
valuers organisation to another;
(e) take adequate steps for redressal of grievances;
(f) maintain records of each assignment undertaken by him for at least three years from the
completion of such assignment;
(g) comply with the Code of Conduct of the registered valuers organisation of which he is a
member;
(h) in case a partnership entity or company is the registered valuer, allow only the partner or
director who is a registered valuer for the asset class(es) that is being valued to sign and act
on behalf of it;
(i) in case a partnership entity or company is the registered valuer, it shall disclose to the
company concerned, the extent of capital employed or contributed in the partnership entity
or the company by the partner or director, as the case may be, who would sign and act in
respect of relevant valuation assignment for the company;
(j) in case a partnership entity is the registered valuer, be liable jointly and severally along with
the partner who signs and acts in respect of a valuation assignment on behalf of the
partnership entity;
(k) in case a company is the registered valuer, be liable along with director who signs and acts
in respect of a valuation assignment on behalf of the company;
(l) in case a partnership entity or company is the registered valuer, immediately inform the
authority on the removal of a partner or director, as the case may be, who is a registered
valuer along with detailed reasons for such removal; and
(m) comply with such other conditions as may be imposed by the authority.
Rule 7A: Intimation of changes in personal details etc., by registered valuer to authority-
A registered valuer shall intimate the authority for change in the personal details, or any modification
in the composition of partners or directors, or any modification in any clause of the partnership
agreement or Memorandum of Association, which may affect registration of registered valuer, after
paying fee as per the Table-I in Annexure V.
Rule 8: Conduct of Valuation
(1) The registered valuer shall, while conducting a valuation, comply with the valuation standards
as notified or modified under rule 18:
Provided that until the valuation standards are notified or modified by the Central
Government, a valuer shall make valuations as per-
(a) Internationally accepted valuation standards; or

© The Institute of Chartered Accountants of India

 18.28 COMPANY LAW

(b) Valuation standards adopted by any registered valuers organisation.

(2) The registered valuer may obtain inputs for his valuation report or get a separate valuation
for an asset class conducted from another registered valuer, in which case he shall fully
disclose the details of the inputs and the particulars etc. of the other registered valuer in his
report and the liabilities against the resultant valuation, irrespective of the nature of inputs or
valuation by the other registered valuer, shall remain of the first mentioned registered valuer.
(3) The valuer shall, in his report, state the following:-
(a) Background information of the asset being valued;
(b) Purpose of valuation and appointing authority;
(c) Identity of the valuer and any other experts involved in the valuation;
(d) Disclosure of valuer interest or conflict, if any;
(e) Date of appointment, valuation date and date of report;
(f) Inspections and/or investigations undertaken;
(g) Nature and sources of the information used or relied upon;
(h) Procedures adopted in carrying out the valuation and valuation standards followed;
(i) Restrictions on use of the report, if any;
(j) Major factors that were taken into account during the valuation;
(k) Conclusion; and
(l) Caveats, limitations and disclaimers to the extent they explain or elucidate the
limitations faced by valuer, which shall not be for the purpose of limiting his
responsibility for the valuation report.
Rule 9: Temporary surrender
(1) A registered valuer may temporarily surrender his registration certificate in accordance with
the bye-laws or regulations, as the case may be, of the registered valuers organisation and
on such surrender, the valuer shall inform the authority for taking such information on record.
(2) A registered valuers organisation shall inform the authority if any valuer member has
temporarily surrendered his/its membership or revived his/ its membership after
temporary surrender, not later than seven days from approval of the application for temporary
surrender or revival, as the case may be.
(3) Every registered valuers organisation shall place, on its website, in a searchable format,
the names and other details of its valuers members who have surrendered or revived their
memberships.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.29

Rule 12: Eligibility for registered valuers organisation

(1) An organisation that meets requirements under sub-rule (2) may be recognised as a
registered valuers organisation for valuation of a specific asset class or asset classes if ─
(i) it has been registered under section 25 of the Companies Act, 1956 or section 8 of the
Companies Act, 2013 with the sole object of dealing with matters relating to regulation
of valuers of an asset class or asset classes and has in its bye laws the requirements
specified in Annexure-III;
(ii) it is a professional institute established by an Act of Parliament enacted for the purpose
of regulation of a profession;
Provided that, subject to sub-rule (3), the following organisations may also be recognised as
a registered valuers organisation for valuation of a specific asset class or asset classes,
namely:-
(a) an organisation registered as a society under the Societies Registration Act, 1860 or
any relevant state law, or;
(b) an organisation set up as a trust governed by the Indian Trust Act, 1882.
(2) The organisation referred to in sub-rule (1) shall be recognised if it –
(a) conducts educational courses in valuation, in accordance with the syllabus determined
by the authority, under rule 5, for individuals who may be its valuers members, and
delivered in class room or through distance education modules and which includes
practical training;
(b) grants membership or certificate of practice to individuals, who possess the
qualifications and experience as specified in rule 4, in respect of valuation of asset
class for which it is recognised as a registered valuers organisation;
(c) conducts training for the individual members before a certificate of practice is issued
to them;
(d) lays down and enforces a code of conduct for valuers who are its members, which
includes all the provisions specified in Annexure-I;
(e) provides for continuing education of individuals who are its members;
(f) monitors and reviews the functioning, including quality of service, of valuers who are
its members; and
(g) has a mechanism to address grievances and conduct disciplinary proceedings against
valuers who are its members.

© The Institute of Chartered Accountants of India

 18.30 COMPANY LAW

(3) A registered valuers organisation, being an entity under proviso to sub-rule (1), shall convert
into or register itself as a company under section 8 of the Companies Act, 2013, and include
in its bye laws the requirements specified in Annexure- III, within one year from the date of
commencement of these rules.
Rule 16: Complaint against a registered valuer or registered valuers organisation
A complaint may be filed against a registered valuer or registered valuers organisation before the
authority in person or by post or courier along with a non-refundable fees of ` 1,000 in favour of the
authority and the authority shall examine the complaint and take such necessary action as it deems
fit:
Provided that in case of a complaint against a registered valuer, who is a partner of a partnership
entity or director of a company, the authority may refer the complaint to the relevant registered
valuers organisation and such organisation shall handle the complaint in accordance with its bye
laws.
Rule 18: Valuation Standards
The Central Government shall notify and may modify (from time to time) the valuation standards on
the recommendations of the Committee set up under rule 19.
Composition of the committee as per Rule 19:
• 1 Chairperson (well versed in valuation, finance, accountancy etc.);
• 1 member nominated by Ministry of Corporate Affairs;
• 1 member nominated by Insolvency and Bankruptcy Board of India;
• 1 member nominated by legislative department;
• Upto 4 members, nominated by Central Government representing authorities which are
allowing valuations by registered valuers;
• Upto 4 members, representatives of registered valuer organization, nominated by Central
Government;
• Upto 2 members to represent industry and other stakeholders nominated by the Central
Government in consultation with the authority;
• President of ICAI, ICSI, Institute of Cost Accountants of India as ex–officio members
Chairperson and members of committee shall have a tenure of 3 years & maximum 2 tenures.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.31

Rule 20: Punishment for contravention

Without prejudice to any other liabilities where a person contravenes any of the provision of these
rules he shall be punishable in accordance with sub-section (3) of section 469 of the Act.
Rule 21: Punishment for false statement
If in any report, certificate or other document required by, or for, the purposes of any of the provisions
of the Act or the rules made thereunder or these rules, any person makes a statement,—
(a) which is false in any material particulars, knowing it to be false; or
(b) which omits any material fact, knowing it to be material, he shall be liable under section 448
of the Act.
Example 9: Mr. Bhola director of Bhandari Ltd. entered into an arrangement with his friend
and acquired asset on the name of Bhandari Ltd. by passing resolution in the general meeting
of the company. The notice for approval of resolution by the company included the particulars
of the arrangement along with the value of the asset duly calculated by a registered valuer.
Later, the Board of company discovered the loss arising out of incorrect statement in the
report made by the valuer.
In this case, valuer is liable to be convicted for the incorrect statement given in the report
made with an intent to defraud the company or its members.

4. REMOVAL OF NAMES OF COMPANIES FROM THE

REGISTER OF COMPANIES
Provision related to removal of names of companies from the register of companies is covered in
Chapter XVIII of the Companies Act, 2013. This chapter comprises of five sections being covered
from Section 248 to 252.
[I] Power of Registrar to Remove Name of Company from Register of Companies [Section
248]
(1) Power of registrar: Where the Registrar has reasonable cause to believe that—
(a) a company has failed to commence its business within one year of its
incorporation, or;
(b) omitted
(c) a company is not carrying on any business or operation for a period of two
immediately preceding financial years and has not made any application within
such period for obtaining the status of a dormant company under section 455, or;
(d) the subscribers to the memorandum have not paid the subscription which they
had undertaken to pay at the time of incorporation of a company and a declaration to

© The Institute of Chartered Accountants of India

 18.32 COMPANY LAW

this effect has not been filed within one hundred and eighty days of its
incorporation under sub-section (1) of section 10A; or
(e) the company is not carrying on any business or operations, as revealed after the
physical verification carried out under sub-section (9) of section 12,
he shall send a notice to the company and all the directors of the company, of his intention
to remove the name of the company from the register of companies and requesting them to
send their representations along with copies of the relevant documents, if any, within a period
of thirty days from the date of the notice.
(2) Filing of application to registrar by company for removal of name: A company may, after
extinguishing all its liabilities, by-
• a special resolution, or
• consent of seventy-five per cent. members in terms of paid-up share capital,
file an application in the prescribed manner to the Registrar for removing the name of the
company from the register of companies on all or any of the grounds specified in sub-section
(1) and the Registrar shall, on receipt of such application, cause a public notice to be issued
in the prescribed manner:
Approval of the regulatory body, in case of a company regulated under a special Act:
Provided that in the case of a company regulated under a special Act, approval of the
regulatory body constituted or established under that Act shall also be obtained and enclosed
with the application.
(3) Exemption to section 8 companies: Nothing in sub-section (2) shall apply to a company
registered under section 8.
(4) Publishing of notice for general public: A notice issued under sub-section (1) or sub-
section (2) shall be published in the prescribed manner and also in the Official Gazette for
the information of the general public.
(5) Strike off of names from register of companies: At the expiry of the time mentioned in the
notice, the Registrar may, unless cause to the contrary is shown by the company, strike off
its name from the register of companies, and shall publish notice thereof in the Official
Gazette, and on the publication in the Official Gazette of this notice, the company shall stand
dissolved.
(6) Provisions for realisation of amount: The Registrar, before passing an order under sub-
section (5), shall satisfy himself that sufficient provision has been made for the realisation of
all amount due to the company and for the payment or discharge of its liabilities and
obligations by the company within a reasonable time and, if necessary, obtain necessary

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.33

undertakings from the managing director, director or other persons in charge of the
management of the company:
Provided that notwithstanding the undertakings referred to in this sub-section, the assets of
the company shall be made available for the payment or discharge of all its liabilities and
obligations even after the date of the order removing the name of the company from the
register of companies.
(7) Existence of the liability: The liability, if any, of every director, manager or other officer who
was exercising any power of management, and of every member of the company dissolved
under sub-section (5), shall continue and may be enforced as if the company had not been
dissolved.
(8) Not affecting on the power of tribunal: Nothing in this section shall affect the power of the
Tribunal to wind up a company the name of which has been struck off from the register of
companies.
Example 10: The Registrar of Companies (ROC) was reviewing the financial statements of White
Steam Pvt. Ltd which was incorporated 8 months ago. The ROC found that the subscribers to the
Memorandum of Association of the company had not paid the subscription money nor had they filed
a declaration to this effect. ROC strike off the name of the company from the register of companies.
In this case there is non-compliance.
As per Section 248 (1)(b) of the Companies Act, where the Registrar has reasonable cause to
believe that— the subscribers to the memorandum have not paid the subscription which they had
undertaken to pay within a period of one hundred and eighty days from the date of incorporation of
a company and a declaration under sub-section (1) of section 11 to this effect has not been filed
within one hundred and eighty days of its incorporation; he shall send a notice to the company and
all the directors of the company, of his intention to remove the name of the company from the register
of companies and requesting them to send their representations along with copies of the relevant
documents, if any, within a period of thirty days from the date of the notice.
Since the subscribers have not paid the subscription money within 180 days of incorporation, the
ROC shall send to the Company a notice stating his intention to remove the name of the company
from the Register of Companies and requesting them to send their representations within 30 days
from date of notice. Such notice was not send by ROC to the company.
Example 11: ABC Life Insurance Company Ltd. was incorporated following all the legal procedures
but the company cannot commence its operation for a period of one year since its incorporation. The
members decided to get its name removed from the Registrar of Companies. Consent of eighty
percent members in terms of paid-up share capital was taken for the removal of name. Thus, an
application was filed for this purpose. Application is said to be invalid, as the approval of IRDA must
be obtained first. As per Section 248(2), when a company is regulated as per a Special Act, the

© The Institute of Chartered Accountants of India

 18.34 COMPANY LAW

approval the regulatory authority is needed and should be enclosed with the application for removal
of name.

1. In HIFFCO Farming Ltd. v. Registrar of Companies, Company Appeal (AT) No. 51 of 2022,
April 21, 2022, it was held that where appellant company had not filed financial statement with
Registrar of Companies from year 2006-07 onwards and its name was 'struck-off' from Register of
Companies, in view of fact that company was carrying on business operation and right to seek
restoration of name of company was not extinguished, name of company was to be restored in
register of companies subject to filing of all pending statutory documents along with late fees.
2. In Nirendra Nath Kar v.Gopal Navin Bhai Dave, Civil Appeal No. 4448 of 2015, September 29,
2022, it was decided that where an application for restoration of company was made by one who
was neither company nor a member nor a creditor, he could not be said to be a person aggrieved to
question order of RoC striking off name of company from Register of Companies and, thus, he had
no locus standi to file application for restoration of name of company
[II] Restrictions on making application undersection 248 in certain situations [Section 249]
(1) An application under section 248 on behalf of a company shall not be made if, at any time in
the previous three months, the company—
(a) has changed its name or shifted its registered office from one State to another;
(b) has made a disposal for value of property or rights held by it, immediately before
cesser of trade or otherwise carrying on of business, for the purpose of disposal for
gain in the normal course of trading or otherwise carrying on of business;
(c) has engaged in any other activity except the one which is necessary or expedient for
the purpose of making an application under that section, or deciding whether to do so
or concluding the affairs of the company, or complying with any statutory requirement;
(d) has made an application to the Tribunal for the sanctioning of a compromise or
arrangement and the matter has not been finally concluded; or
(e) is being wound up under Chapter XX of this Act or under the Insolvency and
Bankruptcy Code, 2016.
(2) Violation of above conditions on filing of application: If a company files an application in
violation of restriction as given in sub-section (1) as given above, it shall be punishable with
fine which may extend to one lakh rupees.
(3) Rights of registrar on non-compliance of conditions by the company: An application
filed under sub-section (2) of section 248 shall be withdrawn by the company or rejected by
the Registrar as soon as conditions under sub-section (1) are brought to his notice.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.35

• changed its name or shifted its registered office

Application under • made a disposal for value of property or rights
section 248 is held by it
restricted, if at any • engaged in any other activity except the one
time in the previous which is necessary or expedient
three months, the • made an application to the Tribunal for the
company- sanctioning of a compromise or arrangement
• wound up

Example 12: A-Com is a private limited company incorporated in the year 2013. The company deals
in manufacturing of glasses. Since May 2018, the company is not carrying any business operations.
In April 2020, the company shifted its registered office from Jaipur to Ahmedabad. On 2nd May 2020,
Company decided to file an application for Strike off. According to section 249, the said act of the
company will not be valid because application can be filed only after 3 months from the date the
company shifted its registered office.
[III] Effect of Company Notified as Dissolved [Section 250]
Where a company stands dissolved under section 248, it shall on and from the date
mentioned in the notice –
• cease to operate as a company, and
• the Certificate of Incorporation issued to it shall be deemed to have been cancelled
from such date.
For the purpose of realising the amount due to the company and for the payment or discharge
of the liabilities or obligations of the company, this sub-section shall not effect. The company
shall be continued in existence.
[IV] Fraudulent Application for Removal of Name [Section 251]
(1) Intention of filing application: Where it is found that an application by a company has been
made with the-

© The Institute of Chartered Accountants of India

 18.36 COMPANY LAW

object of evading the

liabilities of the
company, or

to defraud any other with the intention to

persons, deceive the
creditors, or

the persons in charge of the management of the company shall, notwithstanding that the
company has been notified as dissolved—
(a) be jointly and severally liable to any person or persons who had incurred loss or
damage as a result of the company being notified as dissolved; and
(b) be punishable for fraud in the manner as provided in section 447.
(2) Recommendation for prosecution: The Registrar may also recommend prosecution of the
persons responsible for the filing of an application.
[V] Appeal to Tribunal [Section 252]
(1) Aggrieved person to file an appeal against the order of registrar: Any person aggrieved
by an order of the Registrar, notifying a company as dissolved under section 248, may file an
appeal to the Tribunal within a period of three years from the date of the order of the Registrar
and if the Tribunal is of the opinion that the removal of the name of the company from the
register of companies is not justified in view of the absence of any of the grounds on which
the order was passed by the Registrar, it may order restoration of the name of the company
in the register of companies.
Reasonable opportunity of representations given to registrar: Before passing any order
under this section, the Tribunal shall give a reasonable opportunity of making representations
and of being heard to-
• the Registrar,
• the company and
• all the persons concerned.
Restoration of name of company: If the Registrar is satisfied, that the name of the company
has been struck off from the register of companies either inadvertently or on the basis of
incorrect information furnished by the company or its directors, which requires restoration in

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.37

the register of companies, he may within a period of three years from the date of passing of
the order dissolving the company under section 248, file an application before the Tribunal
seeking restoration of name of such company.
(2) Order of tribunal to be filed with register: A copy of the order passed by the Tribunal shall
be filed by the company with the Registrar within thirty days from the date of the order and
on receipt of the order, the Registrar shall cause the name of the company to be restored in
the register of companies and shall issue a fresh certificate of incorporation.
(3) Order of tribunal as it may deem just: If a company, or any member or creditor or workman
thereof feels aggrieved by the company having its name struck off from the register of
companies, the Tribunal on an application made by-
• the company,
• member,
• creditor or
• workman
before the expiry of twenty years from the publication in the Official Gazette of the notice
under sub-section (5) of section 248 may, if satisfied that the company was, at the time of its
name being struck off, carrying on business or in operation or otherwise it is just that the
name of the company be restored to the register of companies,
• order the name of the company to be restored to the register of companies,
• and the Tribunal may, by the order, give such other directions and make such
provisions as deemed just for placing the company and all other persons in the same
position as nearly as may be as if the name of the company had not been struck off
from the register of companies.

© The Institute of Chartered Accountants of India

 18.38 COMPANY LAW

person aggrieved by Copy of order of

an order of the Tribunal is of the tribunal shall be filed Company/member/credito
Registrar, may file an opinion- with- r/workman aggrieved by
appeal to - the struck off of name
registrar within 30 from register, tribunal on
removal of name from an application of them-
Tribunal register is not justified days from the date of
order
it may order order the name of company
Within 3 yeras from restoration of the registrar shall cause
date of order of the name of the to be restored
name in the register
registrar company to be give such other
Reasonable restored
opportunity may be directions as deemed to
given to registrar be just for placing all the
above in the same
position, as the name
has not been struck off.

In a decided case law Nirendra Nath Kar v. Gopal Navin Bhai Dave, Civil Appeal No. 4448 of 2015
September 29, 2022, where under Section 252 of the Companies Act, 2013 an appeal to Tribunal
was filed on an order of removal of name of company from the Register of companies. Where an
application for restoration of company was made by appellant who was neither company nor a
member nor a creditor, he could not be said to be a person aggrieved to question order of RoC to
strike off name of company from Register of Companies and, thus, appellant had no locus standi to
file application for restoration of name of company. Order passed by Division Bench of High Court
setting aside order of Single Judge for restoring name of company was held to be justified.

5. GOVERNMENT COMPANIES
[I] Annual reports on Government companies [Section 394]
As per section 2(45) of the Companies Act, 2013, “Government Company” means any company in
which not less than 51% of the paid-up share capital (equity & preference) is held by the Central
Government, or by any State Government or Governments, or partly by the Central Government and
partly by one or more State Governments, and includes a company which is a subsidiary company
of such a Government company.
Explanation: Here “paid up share capital” shall be construed as “total voting power”, where shares
with differential voting rights have been issued.
Section 394 of the Companies Act, 2013 provides for Annual reports on Government companies.
It provides for Annual reports on Government companies in the cases where the Central Government
and the State Government is a member of the Government Company. According to this section:
(1) Where the Central Government is a member of a Government company, the Central
Government shall cause an annual report on the working and affairs of that company to be—

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.39

(a) prepared within three months of its annual general meeting before which the
comments given by the Comptroller and Auditor-General of India and the audit report
are placed under the proviso to sub-section (6) of section 143; and
(b) as soon as may be after such preparation, laid before both Houses of Parliament
together with a copy of the audit report and comments upon or supplement to the audit
report, made by the Comptroller and Auditor-General of India.
(2) Where in addition to the Central Government, any State Government is also a member
of a Government company, that State Government shall cause a copy of the annual report
prepared under sub-section (1) to be laid before the House or both Houses of the State
Legislature together with a copy of the audit report and the comments upon or supplement to
the audit report referred above.
Example 13:
(i) Central Government and Government of Maharashtra together hold 40% of the paid-up share
capital of MN Limited. A government company also holds 20% of the paid-up share capital in
MN Limited.
(ii) PQ Limited is a subsidiary but not a wholly owned subsidiary of a government company.
Position of MN Limited and PQ Limited as a Government Company.
In this case, MN Limited is not a Government company because the holding of the Central
Government and Government of Maharashtra is 40% which is less than the 51% prescribed under
the definition of Government Company. The holding of the government company in MN Limited of
20% cannot be taken into account while counting the prescribed limit of 51%.
Whereas in the second case, PQ Limited is a government company as the definition of
Government Company clearly specifies that a Government Company includes a company which is
a subsidiary company of a Government company. Whether the subsidiary should be a wholly owned
subsidiary or not is not clearly mentioned under the definition of the Government company under
section 2(45).
[II] Annual reports where one or more State Governments are members of companies
[Section 395]
Section 395 of the Companies Act, 2013 seeks to provide that where central Government is not a
member of Government Company, but one or more state Government(s) are member, then state
Government shall prepare annual reports on the working and affairs of the company. According to
this section:
(1) Where the Central Government is not a member of a Government company, every State
Government which is a member of that company, or where only one State Government is a

© The Institute of Chartered Accountants of India

 18.40 COMPANY LAW

member of the company, that State Government shall cause an annual report on the working
and affairs of the company to be—
(a) Prepared within the time specified in sub-section (1) of section 394; and
(b) as soon as may be after such preparation, laid before the House or both Houses of
the State Legislature together with a copy of the audit report and comments upon or
supplement to the audit report referred to in sub-section (1) of that section.
(2) Application of the provisions to the Government Company in liquidation: The provisions
of this section and section 394 shall, so far as may be, apply to a Government company in
liquidation as it applies to any other Government company.

6. NIDHIS
Power to Modify Act in its Application to Nidhis [Section 406 of the Companies Act, 2013]
Section 406 of the Companies Act, provides power to the Central Government to modify Act in its
application to Nidhis. According to this section:
(1) "Nidhi" or "Mutual Benefit Society" means a company which the Central Government may,
by notification in the Official Gazette, declare to be a Nidhi or Mutual Benefit Society, as the
case may be.
(2) The Central Government may, by notification in the Official Gazette, direct that any of the
provisions of this Act specified in the notification—
(a) shall not apply to any Nidhi or Mutual Benefit Society; or
(b) shall apply to any Nidhi or Mutual Benefit Society with such exceptions, modifications
and adaptations as may be specified in the notification.
(3) A copy of every notification proposed to be issued under sub-section (2), shall be laid in draft
before each House of Parliament, while it is in session, for a total period of thirty days, and
if, both Houses agree in disapproving the issue of notification or both Houses agree in making
any modification in the notification, the notification shall not be issued or, as the case may
be, shall be issued only in such modified form as may be agreed upon by both the Houses.
(4) In reckoning any such period of thirty days as is referred to in sub-section (3), no account
shall be taken of any period during which the House referred to in sub-section (3) is prorogued
or adjourned for more than four consecutive days.
(5) The copies of every notification issued under this section shall, as soon as may be after it
has been issued, be laid before each House of Parliament.
The Nidhi Rules, 2014 [As amended by Nidhi (Amendment) Rules 2022], shall apply in relation to
the following:

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.41

Application (Rule 2): These rules shall apply to-

(a) every company which had been declared as a Nidhi or Mutual Benefit Society under sub -
section (1) of Section 620A of the Companies Act, 1956,
(b) every company functioning on the lines of a Nidhi company or Mutual Benefit Society
but has either not applied for or has applied for and is awaiting notification to be a Nidhi or
Mutual Benefit Society under sub- Section (1) of Section 620A of the Companies Act, 1956;
and
(c) every company incorporated as a Nidhi pursuant to the provisions of Section 406 of the
Act.
(d) every company declared as Nidhi or Mutual Benefit Society under sub-section (1)
of section 406 of the Act.
Definitions (Rule 3)
(a) “Act” means the Companies Act, 2013;
(aa) “Branch” means a place other than the registered office of Nidhi”
(b) “Doubtful Asset” means a borrowal account which has remained a non performing asset for
more than two years but less than three years;
(c) “Loss Asset” means a borrowal account which has remained a nonperforming asset for
more than three years or where in the opinion of the Board, a shortfall in the recovery of the
loan account is expected because the documents executed may become invalid if subjected
to legal process or for any other reason;
(d) “Net Owned Funds” means the aggregate of paid up equity share capital and free reserves
as reduced by accumulated losses and intangible assets appearing in the last audited
balance sheet:
Provided that the amount representing the proceeds of issue of preference shares shall not
be included for calculating Net Owned Funds.
(da) "Nidhi" means a company which has been incorporated as a nidhi with the object of
cultivating the habit of thrift and saving amongst its members, receiving deposits from, and
lending to, its members only, for their mutual benefit, and which complies with the rules made
by the central Government for regulation of such class of companies.
(e) “Non-Performing Asset” means a borrowal account in respect of which interest income or
instalment of loan towards repayment of principal amount has remained unrealised for twelve
months;
(f) “Standard Asset” means the asset in respect of which no default in repayment of principal
or payment of interest has occurred or is perceived and which has neither shown signs of any

© The Institute of Chartered Accountants of India

 18.42 COMPANY LAW

problem relating to repayment of principal sum or interest nor does it carry more than normal
risk attached to the business;
(g) “Sub-Standard Asset” means a borrowal account which is a non performing asset:
Provided that reschedulement or renegotiation or rephasement of the loan instalment or
interest payment shall not change the classification of an asset unless the borrowal account
has satisfactorily performed for at least twelve months after such reschedulement or
renegotiation or rephasement.
Incorporation and incidental matters (Rule 4)—
(a) A Nidhi shall be a public company and shall have a minimum paid up equity share capital
of 10 lakh rupees.
Provided that every Nidhi existing as on the date of commencement of the Nidhi Amendment
Rules, 2022, shall comply with this requirement within a period of eighteen months from the
date of such commencement.
(b) On and after the commencement of the Act, no Nidhi shall issue preference shares.
(c) If preference shares had been issued by a Nidhi before the commencement of this Act, such
preference shares shall be redeemed in accordance with the terms of issue of such shares.
(d) Except as provided under the proviso to sub-rule (e) to rule 6, no Nidhi shall have any object
in its Memorandum of Association other than the object of cultivating the habit of thrift
and savings amongst its members, receiving deposits from, and lending to, its members
only, for their mutual benefit.
Exception as provided under the proviso to sub-rule (e) to rule 6: Nidhis which have
adhered to all the provisions of these rules may provide locker facilities on rent to its
members subject to the rental income from such facilities not exceeding twenty per cent of
the gross income of the Nidhi at any point of time during a financial year.
(e) Every “Nidhi” shall have the last words ‘Nidhi Limited’ as part of its name.
Requirements for minimum number of members, net owned fund etc. (Rule 5):
(1) Every Nidhi shall, within a period of one year from the date of its incorporation, ensure that it
has—
(i) not less than two hundred members;
(ii) Net Owned Funds of ten lakh rupees or more;
(iii) unencumbered term deposits of not less than ten per cent of the outstanding deposits
as specified in rule 14; and
(iv) ratio of Net Owned Funds to deposits of not more than 1:20.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.43

(2) Within ninety days from the close of the first financial year after its incorporation and where
applicable, the second financial year, Nidhi shall file a return of statutory compliances in Form
NDH-1 along with such fee as provided in Companies (Registration Offices and Fees) Rules,
2014 with the Registrar duly certified by a company secretary in practice or a chartered
accountant in practice or a cost accountant in practice.
(3) If a Nidhi is not complying with clauses (i) or (iv) of sub-rule (1) above, it shall within thirty
days from the close of the first financial year, apply to the Regional Director in Form NDH-2
along with fee specified in Companies (Registration Offices and Fees) Rules, 2014 for
extension of time and the Regional Director may consider the application and pass orders
within thirty days of receipt of the application.
Provided that the Regional Director may extend the period upto one year from the date of
receipt of application.
Explanation—For the purpose of this rule "Regional Director" means the person appointed by
the Central Government in the Ministry of Corporate Affairs as a Regional Director;
(4) If the failure to comply with sub-rule (1) of this rule extends beyond the second financial
year, Nidhi shall not accept any further deposits from the commencement of the second
financial year till it complies with the provisions contained in sub-rule (1), and gets itself
declared under sub-section (1) of section 406 besides being liable for penal consequences
as provided in the Act.
(5) The provisions of this rule shall not be applicable for the companies incorporated as Nidhi on
or after the commencement of the Nidhi (Amendment) Rules, 2022.
General restrictions or prohibitions (Rule 6)—
No Nidhi shall—
(a) carry on the business of chit fund, hire purchase finance, leasing finance, insurance or
acquisition of securities issued by any body corporate;
(b) issue preference shares, debentures or any other debt instrument by any name or in any form
whatsoever;
(c) open any current account with its members;
(d) 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.
Explanation—For the purposes of this sub-rule, “control” shall have the same meaning
assigned to it in section 2(27) of the Act;
(e) carry on any business other than the business of borrowing or lending in its own name:
However, Nidhis which have adhered to all the provisions of these rules may provide locker

© The Institute of Chartered Accountants of India

 18.44 COMPANY LAW

facilities on rent to its members subject to the rental income from such facilities not exceeding
twenty per cent of the gross income of the Nidhi at any point of time during a financial year.
(f) accept deposits from or lend to any person, other than its members;
(g) pledge any of the assets lodged by its members as security;
(h) take deposits from or lend money to any body corporate;
(i) enter into any partnership arrangement in its borrowing or lending activities;
(j) issue or cause to be issued any advertisement in any form for soliciting deposit:
However private circulation of the details of fixed deposit Schemes among the members of
the Nidhi carrying the words “for private circulation to members only” shall not be considered
to be an advertisement for soliciting deposits.
(k) pay any brokerage or incentive for mobilising deposits from members or for deployment of
funds or for granting loans.
(l) raise loans from banks or financial institutions or any other source for the purpose of
16

advancing loans to members of Nidhi

Example 14: Sunshine Benefit Fund Limited, incorporated as a Nidhi Company under the
Companies Act, 2013. The Board of Directors have decided to provide Locker Facilities on rent to
its members and have estimated that rental income from such letting would be around 25% of the
gross income of the company. In the given case, the Board of Directors cannot provide locker
facilities on rent to its member in the light of the requirement of the Rule 6 (e) of the Nidhi Rules,
2014. According to the rule, Nidhis which have adhered to all the provisions of these rules may
provide locker facilities on rent to its members subject to the rental income from such facilities not
exceeding twenty per cent of the gross income of the Nidhi at any point of time during a financial
year.
Share capital and allotment (Rule 7)
(a) Every Nidhi shall issue fully paid up equity shares of the nominal value of not less than ten
rupees each:
Provided that this requirement shall not apply to a company referred to in sub-rules (a) and
(b) of rule 2.
(b) No service charge shall be levied for issue of shares.
(c) Every Nidhi shall allot to each deposit holder at least a minimum of ten equity shares or

16 Inserted by the Nidhi (Amendment) Rules, 2022

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.45

shares equivalent to one hundred rupees:

Provided that a savings account holder and a recurring deposit account holder shall hold at
least one equity share of rupees ten.
Membership (Rule 8)—
(1) A Nidhi shall not admit a body corporate or trust as a member.
(2) Except as otherwise permitted under the rules, every Nidhi shall ensure that its membership
is not reduced to less than 200 members at any time.
(3) A minor shall not be admitted as a member of Nidhi:
However, deposits may be accepted in the name of a minor, if they are made by the natural
or legal guardian who is a member of Nidhi.
(4) 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 subsistence of such loan or deposit, as the
case may be.
Provided that the member shall retain the minimum number of shares required under sub-
rule (3) of rule 7 at all times.
Net owned funds (Rule 9)
Every Nidhi shall maintain Net Owned Funds (excluding the proceeds of any preference share
capital) of not less than twenty lakh rupees or such higher amount as the Central Government may
specify from time to time.
Provided that every Nidhi existing as on the date of commencement of the Nidhi (Amendment)
Rules,2022 shall comply with this requirement within a period of eighteen months from the date of
such commencement.
Acceptance of Deposits by Nidhis (Rule 11)
(a) A Nidhi shall not accept deposits exceeding twenty times of its Net Owned Funds (NOF) as
per its last audited financial statements.
(b) In the case of companies covered under clauses (a) and (b) of rule 2 and existing on or
before 26th July, 2001 and which have accepted deposits in excess of the aforesaid limits,
the same shall be restored to the prescribed limit by increasing the Net Owned Funds position
or alternatively by reducing the deposit according to the table given below:
Ratio of Net Owned Funds to Deposits Date by which the company has to
(as on 31.3. 2013) achieve prescribed ceiling of 1:20
(a) More than 1:20 but upto 1:35 By 31.3. 2015
(b) More than 1:35 but upto 1:45 By 31.3. 2016
(c) More than 1:45 By 31.3. 2017

© The Institute of Chartered Accountants of India

 18.46 COMPANY LAW

(c) The companies which are covered under the Table above shall not accept fresh deposits or
renew existing deposits if such acceptance or renewal leads to violation of the prescribed
ratio.
(d) The ratio specified in table above shall also apply to incremental deposits.
Deposits (Rule 13)
(1) The fixed deposits shall be accepted for a minimum period of six months and a maximum
period of sixty months.
(2) Recurring deposits shall be accepted for a minimum period of twelve months and a maximum
period of sixty months.
(3) In case of recurring deposits relating to mortgage loans, the maximum period of recurring
deposits shall correspond to the repayment period of such loans granted by Nidhi.
(4) The maximum balance in a savings deposit account at any given time qualifying for interest
shall not exceed one lakh rupees at any point of time and the rate of interest shall not exceed
two per cent. above the rate of interest payable on savings bank account by nationalised
banks.
(5) A Nidhi may offer interest on fixed and recurring deposits at a rate not exceeding the
maximum rate of interest prescribed by the Reserve Bank of India which the Non-Banking
Financial Companies can pay on their public deposits.
(6) A fixed deposit account or a recurring deposit account shall be foreclosed by the depositor
subject to the following conditions, namely:-
(a) a Nidhi shall not repay any deposit within a period of three months from the date of its
acceptance;
(b) where at the request of the depositor, a Nidhi repays any deposit after a period of
three months, the depositor shall not be entitled to any interest up to six months from
the date of deposit;
(c) where at the request of the depositor, a Nidhi makes repayment of a deposit before
the expiry of the period for which such deposit was accepted by Nidhi, the rate of
interest payable by Nidhi on such deposit shall be reduced by two per cent. from the
rate which Nidhi would have ordinarily paid, had the deposit been accepted for the
period for which such deposit had run:
Provided that in the event of death of a depositor, the deposit may be repaid prematurely to
the surviving depositor or depositors in the case of joint holding with survivor clause, or to
the nominee or to legal heir with interest up to the date of repayment at the rate which
the company would have ordinarily paid, had such deposit been accepted for the period for
which such deposit had run.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.47

Un-encumbered Term Deposits (Rule 14)

Every Nidhi shall invest and continue to keep invested, in unencumbered term deposits with a
scheduled commercial bank (other than a co-operative bank or a regional rural bank), or post office
deposits in its own name an amount which shall not be less than ten per cent. of the deposits
outstanding at the close of business on the last working day of the second preceding month:
Provided that in cases of unforeseen commitments, temporary withdrawal may be permitted with the
prior approval of the Regional Director by making application in Form NDH- 2 alongwith fee specified
in the Companies (the Registration Offices and Fees) Rules, 2014 for the purpose of repayment to
depositors, subject to such conditions and time limit which may be specified by the Regional Director
to ensure restoration of the prescribed limit of ten per cent.
Loans (Rule 15)
(1) A Nidhi shall provide loans only to its members.
Provided that in case of joint shareholders, the loan shall be provided to the member whose
name appears first in the Register of members.
(2) The loans given by a Nidhi to a member shall be subject to the following limits, namely:-
(a) two lakh rupees, where the total amount of deposits of such Nidhi from its members is
less than two crore rupees;
(b) seven lakh fifty thousand rupees, where the total amount of deposits of
such Nidhi from its members is more than two crore rupees but less than twenty crore
rupees;
(c) twelve lakh rupees, where the total amount of deposits of such Nidhi from its members
is more than twenty crore rupees but less than fifty crore rupees; and
(d) fifteen lakh rupees, where the total amount of deposits of such Nidhi from its members
is more than fifty crore rupees:
Provided that where a Nidhi has not made profits continuously in the three preceding financial
years, it shall not make any fresh loans exceeding fifty per cent. of the maximum amounts of
loans specified in clauses (i), (ii), (iii) or (iv).
Provided further that a member shall not be eligible for any further loan if he has borrowed
any earlier loan from the Nidhi and has defaulted in repayment of such loan.
(3) For the purposes of sub-rule (2), the amount of deposits shall be calculated on the basis of
the last audited annual financial statements.
(4) A Nidhi shall give loans to its members only against the following securities, namely:-
(a) gold, silver and jewellery:
Provided that the repayment period of such loan shall not exceed one year.
(b) immovable property:

© The Institute of Chartered Accountants of India

 18.48 COMPANY LAW

Provided that the total loans against immovable property [excluding mortgage loans
granted on the security of property by registered mortgage, being a registered
mortgage under section 69 of the Transfer of Property Act, 1882] shall not exceed
fifty per cent. of the overall loan outstanding on the date of approval by the board, the
individual loan shall not exceed fifty per cent. of the value of property offered as
security and the period of repayment of such loan shall not exceed seven years.
(c) fixed deposit receipts, National Savings Certificates, other Government Securities and
insurance policies:
Provided that such securities duly discharged shall be pledged with Nidhi and the
maturity date of such securities shall not fall beyond the loan period or one year
whichever is earlier:
Provided further that in the case of loan against fixed deposits, the period of loan shall
not exceed the unexpired period of the fixed deposits.
Rate of Interest (Rule 16)
The rate of interest to be charged on any loan given by a Nidhi shall not exceed seven and half per
cent. above the highest rate of interest offered on deposits by Nidhi and shall be calculated
on reducing balance method:
Provided that Nidhi shall charge the same rate of interest on the borrowers in respect of the same
class of loans and the rates of interest of all classes of loans shall be prominently displayed on the
notice board at the registered office and each branch office of Nidhi.
Rules relating to Directors (Rule 17)—
(1) The Director shall be a member of Nidhi.
(2) The Director of a Nidhi shall hold office for a term up to 10 consecutive years on the Board
of Nidhi.
(3) The Director shall be eligible for re-appointment only after the expiration of 2 years of ceasing
to be a Director.
(4) Where the tenure of any Director in any case had already been extended by the Central
Government, it shall terminate on expiry of such extended tenure.
(5) The person to be appointed as a Director shall comply with the requirements of sub-section
(4) of Section 152 of the Act and shall not have been disqualified from appointment as
provided in section 164 of the Act.
Dividend (Rule 18)—
A Nidhi shall not declare dividend exceeding twenty five per cent in a financial year.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.49

Auditor (Rule 19)—

(1) No Nidhi shall appoint or re-appoint an individual as auditor for more than one term of 5
consecutive years.
(2) No Nidhi shall appoint or re-appoint an audit firm as auditor for more than 2 terms of 5
consecutive years:
Provided that an auditor (whether an individual or an audit firm) shall be eligible for
subsequent appointment after the expiration of 2 years from the completion of his or its term.
Explanation: For the purposes of this proviso:
(a) in case of an auditor (whether an individual or audit firm), the period for which he or
it has been holding office as auditor prior to the commencement of these rules shall
be taken into account in calculating the period of 5 consecutive years or 10
consecutive years, as the case may be;
(b) appointment includes re-appointment.
Filling of Half Yearly Return (Rule 21)
Every company covered Rule 2 shall file half yearly return with the Registrar in Form NDH-3 along
with such fees as provided in Companies (Registration Office & fees) Rules, 2014 within thirty days
from the conclusion of each half year duly certified by a company secretary in practice or chartered
accountant in practice or cost accountant in practice.
Auditor’s certificate (Rule 22)
The Auditor of the company shall furnish a certificate every year to the effect that the company has
complied with all the provisions contained in the rules and such certificate shall be annexed to the
audit report and in case of non-compliance, he shall specifically state the rules which have not been
complied with.
Penalty for non-compliance (Rule 24)
If a company to which the Nidhi Rules, 2014 applies contravenes any of the provisions of the
prescribed rules, the company and every officer of the company who is in default shall be punishable
with fine which may extend to 5,000 rupees, and where the contravention is a continuing one, with
a further fine which may extend to 500 rupees for every day after the first during which the
contravention continues.
Example 15: Suhani Nidhi Limited proposes to reappoint Mr. Hemant, a director who has completed
a term of 10 consecutive years as a director of Nidhi. According to Rule 17 of the Nidhi Rules 2014,
the director of a nidhi company shall hold office for a term upto 10 consecutive years on the board
of Nidhi and he shall be eligible for re-appointment only after expiration of two years of ceasing to
be a director.
Hence, in the instant case, Suhani Nidhi Limited cannot re-appoint Mr. Hemant as a director for a
period of two years after completion of 10 consecutive years.

© The Institute of Chartered Accountants of India

 18.50 COMPANY LAW

7. OTHER PROVISIONS
[I] Punishment for fraud [Section 447]
Section 447 of the Companies Act, 2013 provides for Punishment for fraud. According to this section:
(i) Without prejudice to any liability including repayment of any debt under this Act or any other
law for the time being in force, any person who is found to be guilty of fraud involving an
amount of at least ten lakh rupees or one per cent of the turnover of the company, whichever
is lower, shall be punishable with imprisonment for a term which shall not be less than 6
months but which may extend to 10 years and shall also be liable to fine which shall not be
less than the amount involved in the fraud, but which may extend to 3 times the amount
involved in the fraud.
(ii) Where the fraud in question involves public interest, the term of imprisonment shall not
be less than 3 years.
(iii) Where the fraud involves an amount less than ` 10 Lakhs or one per cent of the turnover
of the company, whichever is lower, and does not involve public interest, any person guilty of
such fraud shall be punishable with imprisonment for a term which may extend to five years
or with fine which may extend to 17` 50 Lakhs or with both.
Explanation—For the purposes of this section—
(a) “fraud” in relation to affairs of a company or any body corporate, includes any act, omission,
concealment of any fact or abuse of position committed by any person or any other person
with the connivance in any manner, with intent to deceive, to gain undue advantage from, or
to injure the interests of, the company or its shareholders or its creditors or any other person,
whether or not there is any wrongful gain or wrongful loss;
(b) “wrongful gain” means the gain by unlawful means of property to which the person gaining
is not legally entitled;
(c) “wrongful loss” means the loss by unlawful means of property to which the person losing is
legally entitled.
[II] Punishment where no specific penalty or punishment is provided [Section 450]
(i) Applicability of section 450: The penalty under this section applies only in those cases
where penalty or punishment is not provided elsewhere in this Act.
(ii) Penalty under this section: The company and every officer of the company who is in default
or such other person:

17Substituted for "twenty lakh rupees" by the Companies (Amendment) Second Ordinance, 2019, w.r.e.f.
2-11-2018.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.51

(a) shall be liable to a penalty of ` 10,000, and

(b) Where the contravention is continuing one, with a further penalty of one thousand
rupees for each day after the first during which the contravention continues, subject to
a maximum of two lakh rupees in case of a company and fifty thousand rupees in case
of an officer who is in default or any other person
(iii) List of contraventions: If a company or any officer of a company or any other person
contravenes:
(a) any of the provisions of this Act; or
(b) the rules made thereunder; or
(c) any condition, limitation or restriction subject to which any approval, sanction, consent,
confirmation, recognition, direction or exemption in relation to any matter has been
accorded, given or granted.
[III] Dormant company [Section 455]
Section 455 of the Companies Act, 2013 provides for Dormant Company. According to this section:
(i) Status as a dormant company: Where a company is formed and registered under this Act
for a future project or to hold an asset or intellectual property and has no significant
accounting transaction, such a company or an inactive company may make an application to
the Registrar in such manner as may be prescribed for obtaining the status of a dormant
company.
Explanation—For the purposes of this section,—
(a) “inactive company” means a company which has not been carrying on any business
or operation, or has not made any significant accounting transaction during the last
two financial years, or has not filed financial statements and annual returns during the
last two financial years;

has not made any significant

accounting transaction during the
last two financial years, or

which has not been has not filed financial

carrying on any statements and annual
business or returns during the last
operation, or two financial years;
Inactive
company

(b) “significant accounting transaction” means any transaction other than—

(1) payment of fees by a company to the Registrar;

© The Institute of Chartered Accountants of India

 18.52 COMPANY LAW

(2) payments made by it to fulfill the requirements of this Act or any other law;
(3) allotment of shares to fulfill the requirements of this Act; and
(4) payments for maintenance of its office and records.
According to the Rule 3 of the Companies (Miscellaneous) Rules, 2014, a company may
make an application in Form MSC-1 along with such fee as provided in the Companies
(Registration Offices and Fees) Rules, 2014 to the Registrar for obtaining the status of a
Dormant Company in accordance with the provisions of section 455 after passing a special
resolution to this effect in the general meeting of the company or after issuing a notice to all
the shareholders of the company for this purpose and obtaining consent of at least 3/4th
shareholders (in value).
A company shall be eligible to apply under this rule only, if-
(a) no inspection, inquiry or investigation has been ordered or taken up or carried out
against the company;
(b) no prosecution has been initiated and pending against the company under any law;
(c) the company is neither having any public deposits which are outstanding nor the
company is in default in payment thereof or interest thereon;
(d) the company is not having any outstanding loan, whether secured or unsecured:
However if there is any outstanding unsecured loan, the company may apply under this
rule after obtaining concurrence of the lender and enclosing the same with Form MSC-1;
(e) there is no dispute in the management or ownership of the company and a certificate
in this regard is enclosed with Form MSC-1;
(f) the company does not have any outstanding statutory taxes, dues, duties etc. payable
to the Central Government or any State Government or local authorities etc.;
(g) the company has not defaulted in the payment of workmen’s dues;
(h) the securities of the company are not listed on any stock exchange within or outside India.
(ii) Certificate of status of dormant company: The Registrar on consideration of the
application shall allow the status of a dormant company to the applicant and issue a certificate
in such form as may be prescribed to that effect.
According to the Rule 4 of the Companies (Miscellaneous) Rules, 2014, the Registrar shall,
after considering the application filed in Form MSC-1, issue a certificate in Form MSC-2
allowing the status of a Dormant Company to the applicant .
(iii) Register of dormant company: The Registrar shall maintain a register of dormant
companies in such form as may be prescribed.
According to the Rule 5 of the Companies (Miscellaneous) Rules, 2014, the Register
maintained under the portal maintained by the Ministry of Corporate Affairs on its web-site

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.53

www.mca.gov.in or any other website notified by the Central Government, shall be the
register for dormant companies.
(iv) Consequences of non-filing of annual returns or financial statements: In case of a
company which has not filed financial statements or annual returns for 2 financial years
consecutively, the Registrar shall issue a notice to that company and enter the name of such
company in the register maintained for dormant companies.
According to the Rule 7 of the Companies (Miscellaneous) Rules, 2014, a dormant company
shall file a “Return of Dormant Company” annually, inter alia, indicating financial position duly
audited by a chartered accountant in practice in Form MSC-3 along with such annual fee as
provided in the Companies (Registration Offices and Fees) Rules, 2014 within a period of 30
days from the end of each financial year.
The company shall also continue to file the return or returns of allotment and change in
directors in the manner and within the time specified in the Act, whenever the company allots
any security to any person or there is any change in the directors of the company.
Example 16: ABC Company was incorporated in the year 2010. The Company did not file its
financial statement with Registrar of Companies for the year 2018-19. Due to financial loses
the Company is neither carrying on any business nor did any significant account transactions
from the past one and half year. In July 2020 the company decided to file the application for
obtaining the status of inactive company.
As per section 455(1), such an inactive company (company which has not been carrying on
any business or operation, or has not made any significant accounting transaction during the
last two financial years, or has not filed financial statements and annual returns during the
last two financial years) may make an application to the Registrar for obtaining the status of
a dormant company.
(v) Directors of dormant company: A dormant company shall have such minimum number of
directors, file such documents and pay such annual fee as may be prescribed to the Registrar to
retain its dormant status in the register and may become an active company on an application
made in this behalf accompanied by such documents and fee as may be prescribed.
According to Rule 6 of the Companies (Miscellaneous) Rules, 2014, a dormant company shall
have a minimum number of 3 directors in case of a public company, 2 directors in case of a
private company and 1 director in case of a One Person Company.
Rotation of auditors: According to Rule 6 the Companies (Miscellaneous) Rules, 2014, the
provisions of the Act in relation to the rotation of auditors shall not be applicable to dormant
companies.
Application for seeking status of an active company: According to the Rule 8 of the
Companies (Miscellaneous) Rules, 2014,

© The Institute of Chartered Accountants of India

 18.54 COMPANY LAW

(a) Filing of an application: An application for obtaining the status of an active company
shall be made in Form MSC-4 along with fees as provided in the Companies
(Registration Offices and Fees) Rules, 2014 and shall be accompanied by a return in
Form MSC-3 in respect of the financial year in which the application for obtaining the
status of an active company is being filed:
However, the Registrar shall initiate the process of striking off the name of the
company if the company remains as a dormant company for a period of consecutive 5
years.
(b) Issue of certificate by Registrar: The Registrar shall, after considering the
application filed for obtaining the status of an active company, issue a certificate in
Form MSC-5 allowing the status of an active company to the applicant.
(c) Filing of an application by Directors on doing or omission of act by dormant
company: Where a dormant company does or omits to do any act mentioned in the
Grounds of application in Form MSC-1 submitted to Registrar for obtaining the status
of dormant company, affecting its status of dormant company, the directors shall within
7 days from such event, file an application for obtaining the status of an active
company.
(d) Initiation of proceedings for enquiry: Where the Registrar has reasonable cause to
believe that any company registered as ‘dormant company’ under his jurisdiction has
been functioning in any manner, directly or indirectly, he may initiate the proceedings
for enquiry under section 206 of the Act and if, after giving a reasonable opportunity
of being heard to the company in this regard, it is found that the company has actually
been functioning, the Registrar may remove the name of such company from register
of dormant companies and treat it as an active company.
(vi) Striking off the name by the Registrar: The Registrar shall strike off the name of a dormant
company from the register of dormant companies, which has failed to comply with the
requirements of this section .

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.55

TEST YOUR KNOWLEDGE

Multiple Choice Questions
1. Jackson Communications LLC, incorporated in Arizona, USA, has established a principal
place of business at Kolkata, West Bengal. It is required to deliver requisite documents to the
specified authority. You are required to select an appropriate option from the four given below
which indicates the number of days within which such documents shall be delivered:
(a) Jackson Communications LLC shall, within 10 days of the establishment of a principal
place of business in India, deliver the requisite documents to the specified authority.
(b) Jackson Communications LLC shall, within 15 days of the establishment of a principal
place of business in India, deliver the requisite documents to the specified authority.
(c) Jackson Communications LLC shall, within 30 days of the establishment of a principal
place of business in India, deliver the requisite documents to the specified authority.
(d) Jackson Communications LLC shall, within 45 days of the establishment of a principal
place of business in India, deliver the requisite documents to the specified authority.
2. Morgen Stern Digi Cables GmbH incorporated in Berlin, Germany, established a place of
business at Mumbai to conduct its business of data interchange and other digital supply
transactions online. However, Morgen Stern Digi Cables GmbH failed to deliver certain
documents to the jurisdictional Registrar of Companies within the prescribed time period in
compliance with the respective statutory provisions. Which option, out of the four given below,
shall correctly indicate the amount of fine with which Morgen Stern Digi Cables GmbH shall
be punishable for its failure to deliver certain documents:
(a) Morgen Stern Digi Cables GmbH is punishable with fine which shall not be less than
50,000 rupees but which may extend to 5,00,000 rupees and in the case of a
continuing offence, with an additional fine upto 25,000 rupees for every day after the
first during which the contravention continues.
(b) Morgen Stern Digi Cables GmbH is punishable with fine which shall not be less than
1,00,000 rupees but which may extend to 5,00,000 rupees and in the case of a
continuing offence, with an additional fine upto 20,000 rupees for every day after the
first during which the contravention continues.
(c) Morgen Stern Digi Cables GmbH is punishable with fine which shall not be less than
2,00,000 rupees but which may extend to 5,00,000 rupees and in the case of a
continuing offence, with an additional fine upto 50,000 rupees for every day after the
first during which the contravention continues.
(d) Morgen Stern Digi Cables GmbH is punishable with fine which shall not be less than
1,00,000 rupees but which may extend to 3,00,000 rupees and in the case of a

© The Institute of Chartered Accountants of India

 18.56 COMPANY LAW

continuing offence, with an additional fine upto 50,000 rupees for every day after the
first during which the contravention continues.
3. Radix Healthcare Ltd., a company registered in Thailand, although has no place of business
established in India, yet it is engaged in online business through remote delivery of healthcare
services in India. Select the incorrect statement from those given below as to the nature of
the Radix Healthcare Ltd. in the light of the applicable provisions of the Companies Act, 2013:
(a) Radix Healthcare Ltd. is not a foreign company as it has no place of business
established in India.
(b) Radix Healthcare Ltd. is a foreign company being involved in business activity through
telemedicine.
(c) Radix Healthcare Ltd. is a foreign company for conducting business through electronic
mode.
(d) Radix Healthcare Ltd. is a foreign company as it conducts business activity in India.
4. Fam Software Company Inc., a company incorporated in Australia, proposes to establish a
place of business at Mumbai. The list of the Directors includes (i) Mr. Arjun – Managing
Director, (ii) Mr. Ranveer – Director, (iii) Mr. Ramesh Malik - Director and (iv) Mr. Arbaaz -
Director. Ms. Lavina has been appointed as the Secretary of Fam Software Company Inc. It
is to be noted that Mr. Ramesh Malik and Mr. Arbaaz, resident in India, are the persons who
have been authorised by Fam Software Company Inc. to accept on behalf of the company
service of process, notices or other documents required to be served on Fam Software
Company Inc. In relation to the company’s establishment, you are required to enlighten the
Fam Company Inc. with respect to whose, a declaration will be required to be submitted to
the Registrar of Companies by Fam Software Company Inc. for not being convicted or
debarred from formation of companies in or outside India.
(a) Mr. Arjun, Mr. Ranveer, Mr. Ramesh Malik, Mr. Arbaaz and Ms. Lavina.
(b) Mr. Arjun, Mr. Ramesh Malik, Mr. Arbaaz and Ms. Lavina.
(c) Mr. Ramesh Malik and Mr. Arbaaz.
(d) Mr. Arjun, Mr. Ranveer, Mr. Ramesh Malik and Mr. Arbaaz.
5. 5K Cosmetic Shop plc., a company incorporated in Switzerland, is involved in digital supply
services through electronic mode, the server of which is located outside India. The company
follows calendar year as its financial year. Every year the company is required to prepare a
balance sheet and profit and loss account. You are required to choose the correct timeline
within which such documents shall be filed with the Registrar of Companies considering the
provisions of Chapter XXII of the Companies Act, 2013:

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.57

(a) Within a period of 30 days from the close of the financial year of 5K Cosmetic Shop
plc.
(b) Within a period of 3 months from the close of the financial year of 5K Cosmetic Shop
plc.
(c) Within a period of 60 days from the close of the financial year of 5K Cosmetic Shop
plc.
(d) Within a period of 6 months from the close of the financial year of 5K Cosmetic Shop
plc.
6. With an Authorised Capital of ` 45,00,000 (divided into 4,50,000 equity shares of ` 10 each)
and issued and paid-up capital of ` 25,00,000 (divided into 2,50,000 equity shares of ` 10
each), Amber Prabhat Nidhi Limited incorporated in 2018 at Balaghat, Madhya Pradesh by
Loknath, Premnath and other trusted people, wants to issue a certain number of preference
shares to its members. Being the Financial Advisor of Amber Prabhat Nidhi Limited, you are
required to advise regarding the quantum of Preference shares which can issued to the
members by choosing the correct option from those given below:
(a) Amber Prabhat Nidhi Limited can issue Preference Shares equivalent to Authorised
Equity Share Capital after carrying out due amendment in the Capital Clause.
(b) Amber Prabhat Nidhi Limited cannot issue Preference Shares.
(c) Amber Prabhat Nidhi Limited can issue Preference Shares upto 50% of the Authorised
Equity Share Capital after carrying out due amendment in the Capital Clause
(d) Amber Prabhat Nidhi Limited can issue Preference Shares upto 75% of the Authorised
Equity Share Capital after carrying out due amendment in the Capital Clause
7. Who amongst the following may file an application for the restoration of the name of the
company in the register of company and within the period of:
(a) The Company itself and within 2 years from the date of passing of the order dissolving
the company
(b) The authorised officials of the company and within 2 years from the date of passing of
the order dissolving the company
(c) NCLT and within 3 years from the date of passing of the order dissolving the company
(d) Any person aggrieved by an order of the Registrar and within 3 years from the date of
passing of the order dissolving the company
8. Within how many days authority will grant certificate of registration to the applicant to carry
on the activities of a registered valuer?

© The Institute of Chartered Accountants of India

 18.58 COMPANY LAW

(a) within 30 days of the receipt of application, including the time given by the authority
for presenting additional documents, information or clarification, or appearing in
person, as the case may be.
(b) within 45 days of receipt of the application, including the time given by the authority
for presenting additional documents, information or clarification, or appearing in
person, as the case may be.
(c) within 60 days of receipt of the application, excluding the time given by the authority
for presenting additional documents, information or clarification, or appearing in
person, as the case may be.
(d) within 90 days of receipt of the application, excluding the time given by the authority
for presenting additional documents, information or clarification, or appearing in
person, as the case may be
9. A workman aggrieved by the company having its name struck off from the register of
companies, applies to Tribunal for after 15 years of the publication of strikeoff of the name of
the company in the gazette. Comment on the validity of filing of application by workman in
the light of the companies Act, 2013:
(a) Workman is not eligible to file an application for restoration of name of the company
in the register of companies.
(b) Only Company is eligible to file an application for restoration of name of the company
in the register of companies but before expiry of 20 years of the notice from the
publication in the Official Gazette.
(c) Workman is eligible to file an application for restoration of name of the company in the
register of companies but before expiry of 20 years of the notice from the publication
in the Official Gazette.
(d) Company, member, creditor or a workman are eligible to file an application for
restoration of name of the company in the register of companies but after expiry of 20
years of the notice from the publication in the Official Gazette.
10. Pankaj Nidhi Limited, incorporated under section 406 of the Companies Act, 2013. Pankaj
Nidhi Limited wants to enter into an agreement for acquiring another company by purchase
of its securities. Now the management of the Pankaj Nidhi Limited is in dilemma with respect
to the requirement of entering into such an agreement. Pankaj Nidhi Limited approached you
to provide with the best course of action considering the provisions of the Companies Act,
2013.
(a) As per the Nidhi Rules, 2014, Nidhi company can enter into an agreement for acquiring
other company by purchase of its securities provided the Nidhi company has passed

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.59

a special resolution in its general meeting and also obtained the previous approval of
the Regional Director having jurisdiction over such Nidhi.
(b) As per the Nidhi Rules, 2014, Nidhi Company can 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.
(c) As per the Nidhi Rules, 2014, Nidhi company can enter into an agreement for acquiring
other company by purchase of its securities provided the Nidhi company has passed
a special resolution in its general meeting and have obtained the previous approval of
the Registrar of Companies (Roc) having jurisdiction over such Nidhi.
(d) As per the Nidhi Rules, 2014, Nidhi company can enter into an agreement for acquiring
other company by purchase of its securities provided the Nidhi company has passed
a special resolution in its general meeting or have obtained the previous approval of
the Registrar of Companies (Roc) having jurisdiction over such Nidhi.
Descriptive Questions
1. (i) ABC Ltd., a foreign company having its Indian principal place of business at Kolkata,
West Bengal is required to deliver various documents to Registrar of Companies under
the provisions of the Companies Act, 2013. You are required to state, where the said
company should deliver such documents.

(ii) In case, a foreign company does not deliver its documents to the Registrar of
Companies as required under section 380 of the Companies Act, 2013, state the
penalty prescribed under the said Act, which can be levied

2. DEJY is a Company Limited incorporated in Singapore desires to establish a branch office at

Mumbai. You being a practicing Chartered Accountant have been appointed by the company
as a liaison officer for compliance of legal formalities on behalf of the company. Examining
the provisions of the Companies Act, 2013,answer the following:
(i) Whether branch office will be considered as a company incorporated outside India.
(ii) If yes, state the documents you are required to furnish on behalf of the company, on
the establishment of a branch office at Mumbai.
3. Galilio Ltd. is a foreign company in Germany, and it has established a place of business in
Mumbai. Explain the relevant provisions of the Companies Act, 2013 and rules made
thereunder relating to preparation and filing of financial statements, as also the documents
to be attached alongwith the financial statements by the foreign company.

© The Institute of Chartered Accountants of India

 18.60 COMPANY LAW

4. In the light of the provisions of the Companies Act, 2013, examine whether the following
Companies can be considered as a 'Foreign Company':
(i) Red Stone Limited is a Company registered in Singapore. The Board of Directors
meets and executes business decisions at their Board Meeting held in India.

(ii) Xen Limited Liability Company registered in Dubai has installed its main server in
Dubai for maintaining office automation software by Cloud Computing for its client in
India.
5. Abroad Ltd., a foreign company without establishing a place of business in India, proposes
to issue prospectus for subscription of securities in India. Being a consultant of the company,
advise on the procedure of such an issue of prospectus by Abroad Ltd.
6. Jackson & Jackson LLC, incorporated in Germany, is proposing to establish a business in
Mumbai, India. Its official documents are in German language. Whether Jackson & Jackson
LLC can file the required documents with Registrar in the same language.

7. Swift Pharmaceuticals, a Company registered in Singapore, has started its business in India
during the financial year 2016. The Company has submitted all the required documents with
registrar within the due date. On March 1, 2023, Swift Pharmaceuticals has shifted its
principal office in Singapore. Does the Company required to undertake any steps due to
change in address of principal office.
8. Explain the meaning of 'Fraud' in relation to the affairs of a company and the punishment
provided for the same in Section 447 of the Companies Act, 2013.
9. JKL Research Development Limited is a registered Public Limited Company. The company
has a unique business idea emerging from research and development in a new area.
However, it is a future project and the company has no significant accounting transactions
and business activities at present. The company desires to obtain the status of a 'Dormant
Company'. Advise the company regarding the provisions of the Companies Act, 2013 in this
regard and the procedure to be followed in this regard.
10. Gulmohar Ltd. is a company registered in India for last 5 years. Since last 2 financial years,
it has not been carrying on any business or operations and has not filed financial statements
and annual returns saying that it has not made any significant accounting transaction during
the last two financial years. Considering the current situation, Directors of the Company is
contemplating to apply to Registrar of Companies to obtain status of dormant or inactive
company. Advise them on:
Whether Gulmohar Ltd. is eligible to apply to Registrar of Companies to obtain dormant status
for the company?

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.61

(i) Will your answer be different if Gulmohar Ltd is continuing payment of fees to Registrar
of Companies and payment of rentals for its office and accounting records for last two
financials years?
(ii) Is special resolution in general meeting a pre-requisite to make an application to
Registrar of Companies for obtaining the status of dormant company?
(iii) What will be your answer if it is found after making an application of dormant company
to Registrar of Companies that an investigation is pending against the company which
was ordered 6 months ago?
ANSWERS
Answer to Multiple Choice Questions
1 c 2 d 3 a 4 d 5 d
6. b 7. d 8. c 9. c 10. b

Answer to Descriptive Questions

1. (i) The Companies Act, 2013 vide section 380 state that every foreign company is
required to deliver to the Registrar for registration, within 30 days of the establishment
of office in India, documents which have been specified therein. According to the
Companies (Registration of Foreign Companies) Rules, 2014, any document which
any foreign company is required to deliver to the Registrar shall be delivered to the
Registrar having jurisdiction over New Delhi.
(ii) The Companies Act, 2013 lays down the governing provisions for foreign companies
in Chapter XXII which is comprised of sections 379 to 393. The penalties for non- filing
or for contravention of any provision for this chapter including for non-filing of
documents with the Registrar as required by section 380 and other sections in this
chapter are laid down in section 392 of the Act which provides that if a foreign company
contravenes the provisions of this Chapter, the foreign company shall be punishable
with a fine which shall not be less than 1,00,000 but which may extend to 3,00,000
and in the case of a continuing offence, with an additional fine which may extend to
50,000 for every day after the first during which the contravention continues and every
officer of the foreign company who is in default shall be punishable with fine which
shall not be less than 25,000 but which may extend to 5,00,000.
2. (i) According to section 2(42) of the Companies Act, 2013, “Foreign company” means any
company or body corporate incorporated outside India which-

© The Institute of Chartered Accountants of India

 18.62 COMPANY LAW

(a) has a place of business in India whether by itself or through an agent, physically
or through electronic mode; and
(b) conducts any business activity in India in any other manner.
Further, branch offices are generally considered as reflection of the Parent Company’
office. Thus, branch offices of a company incorporated outside India are considered
as a place of business for conducting business activity in India and will be required to
follow provisions of this chapter and such other provisions as may be specified
elsewhere under Companies Act, 2013.
(ii) Under section 380(1) of the Companies Act, 2013 every foreign company shall, within
30 days of the establishment of place of business in India, deliver to the Registrar for
registration the following documents:
(a) a certified copy of the charter, statutes or memorandum and articles, of the
company or other instrument constituting or defining the constitution of the
company. If the instruments are not in the English language, a certified
translation thereof in the English language;
(b) the full address of the registered or principal office of the company;
(c) a list of the directors and secretary of the company containing such particulars
as may be prescribed;
In relation to the nature of particulars to be provided as above, the Companies
(Registration of Foreign Companies) Rules, 2014, provide that the list of directors and
secretary or equivalent (by whatever name called) of the foreign company shall contain
the following particulars, for each of the persons included in such list, namely:
(1) personal name and surname in full;
(2) any former name or names and surname or surnames in full;
(3) father’s name or mother’s name or spouse’s name;
(4) date of birth;
(5) residential address;
(6) nationality;
(7) if the present nationality is not the nationality of origin, his nationality of origin;

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.63

(8) passport Number, date of issue and country of issue; (if a person holds more
than one passport then details of all passports to be given)

(9) income-tax permanent account number (PAN), if applicable;

(10) occupation, if any;
(11) whether directorship in any other Indian company, (Director Identification
Number (DIN), Name and Corporate Identity Number (CIN) of the company in
case of holding directorship);
(12) other directorship or directorships held by him;

(13) Membership Number (for Secretary only); and

(14) e-mail ID.
(d) the name and address or the names and addresses of one or more persons resident
in India authorised to accept on behalf of the company service of process and any
notices or other documents required to be served on the company;
(e) the full address of the office of the company in India which is deemed to be its principal
place of business in India;
(f) particulars of opening and closing of a place of business in India on earlier occasion
or occasions;

(g) declaration that none of the directors of the company or the authorised representative
in India has ever been convicted or debarred from formation of companies and
management in India or abroad; and
(h) any other information as may be prescribed.
According to the Companies (Registration of Foreign Companies) Rules, 2014, any document
which any foreign company is required to deliver to the Registrar shall be delivered to the
Registrar having jurisdiction over New Delhi.
3. Preparation and filing of financial statements by a foreign company:
According to section 381 of the Companies Act, 2013:

(i) Every foreign company shall, in every calendar year,—

(a) make out a balance sheet and profit and loss account in such form, containing
such particulars and including or having attached or annexed thereto such
documents as may be prescribed, and

© The Institute of Chartered Accountants of India

 18.64 COMPANY LAW

(b) deliver a copy of those documents to the Registrar.

According to the Companies (Registration of Foreign Companies) Rules, 2014, every

foreign company shall prepare financial statement of its Indian business operations in
accordance with Schedule III or as near thereto as possible for each financial year
including:
(1) documents that are required to be annexed should be in accordance with
Chapter IX i.e. Accounts of Companies.
(2) The documents relating to copies of latest consolidated financial statements of
the parent foreign company, as submitted by it to the prescribed authority in the
country of its incorporation under the applicable laws there.
(ii) The Central Government is empowered to direct that, in the case of any foreign
company or class of foreign companies, the requirements of clause (a) of section
381(1) shall not apply, or shall apply subject to such exceptions and modifications as
may be specified in notification in that behalf.
(iii) If any of the specified documents are not in the English language, a certified translation
thereof in the English language shall be annexed. [Section 381 (2)]
(iv) Every foreign company shall send to the Registrar along with the documents
required to be delivered to him, a copy of a list in the prescribed form, of all places of
business established by the company in India as at the date with reference to which
the balance sheet referred to in section 381(1) is made.
According to the Companies (Registration of Foreign Companies) Rules, 2014, every
foreign company shall file with the Registrar, along with the financial statement, in
Form FC-3 with such fee as provided under Companies (Registration Offices and
Fees) Rules, 2014 a list of all the places of business established by the foreign
company in India as on the date of balance sheet.
According to the Companies (Registration of Foreign Companies) Rules, 2014, if any
foreign company ceases to have a place of business in India, it shall forthwith give
notice of the fact to the Registrar, and as from the date on which notice is so given,
the obligation of the company to deliver any document to the Registrar shall cease, if
it does not have other place of business in India.
(v) According to the Companies (Registration of Foreign Companies) Rules, 2014,

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.65

(a) Further, every foreign company shall, along with the financial statement
required to be filed with the Registrar, attach thereto the following documents;
namely:-
(1) Statement of related party transaction
(2) Statement of repatriation of profits

(3) Statement of transfer of funds (including dividends, if any)

The above statements shall include such other particulars as
are prescribed in the Companies (Registration of Foreign Companies) Rules,
2014.
(b) All these documents shall be delivered to the Registrar within a period of 6
months of the close of the financial year of the foreign company to which the
documents relate.
4. According to section 2(42) of the Companies Act, 2013, “Foreign company” means any
company or body corporate incorporated outside India which-
(a) has a place of business in India whether by itself or through an agent, physically or
through electronic mode; and
(b) conducts any business activity in India in any other manner.
According to the Companies (Registration of Foreign Companies) Rules, 2014, “electronic
mode” means carrying out electronically based, whether main server is installed in India or
not, including, but not limited to-
(a) business to business and business to consumer transactions, data interchange and
other digital supply transactions;
(b) offering to accept deposits or inviting deposits or accepting deposits or subscriptions
in securities, in India or from citizens of India;
(c) financial settlements, web-based marketing, advisory and transactional services,
database services and products, supply chain management;
(d) online services such as telemarketing, telecommuting, telemedicine, education and
information research; and
(e) all related data communication services,

© The Institute of Chartered Accountants of India

 18.66 COMPANY LAW

Whether conducted by e-mail, mobile devices, social media, cloud computing, document
management, voice or data transmission or otherwise.
(i) In the given situation, Red Stone Limited is registered in Singapore. However, it does
not have a place of business in India whether by itself or through an agent, physically
or through electronic mode; and does not conduct any business activity in India in any
other manner. Mere holding of board meetings and executing business decisions in
India cannot be termed as conducting business activity in India. Hence, M/s Red Stone
Limited is not a foreign company as per the Companies Act, 2013.
(ii) In the given situation, Xen Limited Liability Company is registered in Dubai and has
installed its main server in Dubai for maintaining office automation software by Cloud
Computing for its client in India. Thus, it can be said that M/s Xen Limited Liability
Company has a place of business in India through electronic mode and is conducting
business activity in India. Hence, Xen Limited Liability Company is a foreign company
as per the Companies Act, 2013.
5. As per section 389 of the Companies Act, 2013, no person shall issue, circulate or distribute
in India any prospectus offering for subscription in securities of a company incorporated or to
be incorporated outside India, whether the company has or has not established, or when
formed will or will not establish, a place of business in India, unless before the issue,
circulation or distribution of the prospectus in India, a copy thereof certified by the chairperson
of the company and two other directors of the company as having been approved by
resolution of the managing body has been delivered for registration to the Registrar and the
prospectus states on the face of it that a copy has been so delivered, and there is endorsed
on or attached to the copy, any consent to the issue of the prospectus required by section
388 and such documents as may be prescribed under Rule 11 of the Companies
(Incorporated outside India) Rules, 2014.

Accordingly, the Abroad Ltd. a foreign company shall proceed with the issue of prospectus in
compliance with the above stated provisions of section 379 of the Act.
6. Every foreign company shall, within 30 days of the establishment of its place of business in
India, deliver the documents to the Registrar as per Section 380 of the Companies Act, 2013.
Further, if the original instruments/ documents are not in the English language, a certified
translation in the English language is required for the same and submitted to Registrar.
7. Section 380 (3) provides that where any alteration is made or occurs in the documents
delivered to the Registrar under section 380, the foreign company shall, within 30 days of

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.67

such alteration, deliver to the Registrar for registration, a return containing the particulars of
the alteration in the prescribed form. The Companies (Registration of Foreign Companies)
Rules, 2014, has prescribed that the return containing the particulars of the alteration shall
be filed in form FC-2 along with prescribed fees. Accordingly, Swift Pharmaceuticals is
required to submit the full address of the new registered or principal office of the company by
March 30, 2023.
8. As per the explanation given to section 447 of the Companies Act, 2013, ‘Fraud’ in relation
to affairs of a company or anybody corporate, includes any act, omission, concealment of any
fact or abuse of position committed by any person or any other person with the connivance
in any manner, with intent to deceive, to gain undue advantage from, or injure the interests
of, the company or its shareholders or its creditors or any other person, whether or not there
is any wrongful gain or wrongful loss.
“Wrongful gain” means the gain by unlawful means of property to which the person gaining is
not legally entitled.
“Wrongful loss” means, the loss by unlawful means of property to which the person losing is
legally entitled.
Punishment:
(i) Without prejudice to any liability including repayment of any debt under this Act or any
other law for the time being in force, any person who is found to be guilty of
fraud involving an amount of at least ten lakh rupees or one per cent of the turnover
of the company, whichever is lower, shall be punishable with imprisonment for a term
which shall not be less than six months but which may extend to ten years and shall
also be liable to fine which shall not be less than the amount involved in the fraud, but
which may extend to three times the amount involved in the fraud.
(ii) Where the fraud in question involves public interest, the term of imprisonment shall
not be less than three years.
(iii) However, where the fraud involves an amount less than ten lakh rupees or one per
cent of the turnover of the company, whichever is lower, and does not involve public
interest, any person guilty of such fraud shall be punishable with imprisonment for a
term which may extend to five years or with fine which may extend to fifty lakh
rupees or with both.
9. The provisions related to the Dormant companies is covered under section 455 of the
Companies Act, 2013. According to provisions-
1. a company is formed and registered under this Act for the purpose of a future project
or to hold an asset or intellectual property and has no significant accounting
transaction.

© The Institute of Chartered Accountants of India

 18.68 COMPANY LAW

2. Such company or an inactive company may make an application to the Registrar in

such manner as may be prescribed for obtaining the status of a dormant company.
3. The Registrar shall allow the status of a dormant company to the applicant and issue
a certificate after consideration of the application.
4. The Registrar shall maintain a register of dormant companies in such form as may be
prescribed.
In case of a company which has not filed financial statements or annual returns for two
financial years consecutively, the Register shall issue a notice to that company and enter the
name of such company in the register maintained for dormant companies.
A dormant company shall have such minimum number of directors, file such documents and
pay such annual fee as may be prescribed to the Registrar to retain its dormant status in the
register and may become an active company on an application made in this behalf
accompanied by such documents and fee as may be prescribed. However, the Registrar
shall strike off the name of a dormant company from the register of dormant companies, which
has failed to comply with the requirements of this section.
Thus, JKL Research Development Limited may follow the above procedure to obtain the
status of a ‘Dormant Company’.
10. (i) According to section 455 of the Companies Act, 2013, an inactive company may make
an application to the Registrar in such manner as may be prescribed for obtaining the
status of a dormant company.
Here, “inactive company” means a company which has not been carrying on any
business or operation, or has not made any significant accounting transaction during
the last two financial years, or has not filed financial statements and annual returns
during the last two financial years.
Gulmohar Ltd., since from last two years is not carrying on business or operations
and has not filed financial statements and annual returns saying it has not made any
significant accounting transaction during the last two financial years. Thus, it falls within
the definition of inactive company as stated above and hence is eligible to apply to
Registrar of Companies to obtain the status of Dormant Company.
(ii) According to Explanation to section 455, “significant accounting transaction” means
any transaction other than—
(1) payment of fees by a company to the Registrar;
(2) payments made by it to fulfill the requirements of this Act or any other law;
(3) allotment of shares to fulfill the requirements of this Act; and
(4) payments for maintenance of its office and records.

© The Institute of Chartered Accountants of India

 MISCELLANEOUS PROVISIONS 18.69

Thus, Gulmohar Ltd. is still eligible to apply to the Registrar of Companies to obtain
the status of Dormant company even if it has continued ‘payment of fees to Registrar
of Companies and payment of rentals for its office and accounting records’ for last
two years, as these transactions have been kept outside the purview of significant
accounting transactions.
(iii) According to the Rule 3 of the Companies (Miscellaneous) Rules, 2014, a company
may make an application in prescribed form to the Registrar for obtaining the status
of a Dormant Company in accordance with the provisions of section 455 after passing
a special resolution to this effect in the general meeting of the company or after
issuing a notice to all the shareholders of the company for this purpose and obtaining
consent of at least 3/4thshareholders (in value).
Thus, special resolution is a pre- requisite to make an application to Registrar of
Companies for obtaining the status of dormant company.
(iv) According to the Rule 3 of the Companies (Miscellaneous) Rules, 2014, a company
shall be eligible to apply under this rule only, if no inspection, inquiry or investigation
has been ordered or taken up or carried out against the company.
According to section 455(6), the Registrar shall strike off the name of a dormant
company from the register of dormant companies, which has failed to comply with the
requirements of section 455.
In the given case, Gulmohar Ltd. was not eligible to apply for the status of a dormant
company as an investigation was pending against the company which was ordered 6
months ago. But since, it has already made an application and then it came to the light
about the pending investigation against the company, the Registrar shall not register
it as a dormant company and if already registered as a dormant company, strike off
the name of a dormant company from the register of dormant companies as the
company has contravened the necessary requirements.

© The Institute of Chartered Accountants of India