Steps to Register a new Company

1. Do you want to start an Indian Company?
Apply for the name of the company to be registered by filing Form INC-1 for the same. After that depending upon the proposed company type file required incorporation forms listed below.

• Form INC-7 or Form INC-2 : Form INC-7 for Application for incorporation of a company (Other than OPC) or Form INC-2 for Application for Incorporation of OPC.
• Form INC-22 : Notice of situation or change of situation of registered office based on the option chosen in Form INC-7.
• Form INC-22 is to be filed within 30 days from the date of Incorporation of OPC (If the registered address is different from the address given in Form INC-22) or other than OPC (if not filed earlier).
• Form DIR-12: Particulars of appointment of directors and the key managerial personnel and the changes among them. This form is to be filed by OPC in case promoter is not the sole director or there are more than one director in an OPC. 

2. Do you want to register a Part I Company?
In order to register Part I Company, applicant is required to file Form INC-1 for name availability. After approval of the same, applicant is required to file Form No. URC-1 along with filing e forms INC-7, INC-22 and DIR-12 or e-forms INC-7 and DIR-12 as the case may be

3. Do you want to register a Section 8 Company?
To register a section 8 company, applicant is required to file Form INC-1 for name availability. Once the name is approved/made available, there is a further requirement of obtaining a license for a Section 8 Company, for which Form RD-1 is to be filed in order to obtain a license for such company. After obtaining license number, applicant can proceed further to incorporate a company by filing e forms INC-7, INC-22 and DIR-12 or e-forms INC-7 and DIR-12 as the case may be.

4. Do you want to start a Foreign Company?

• Any foreign company can establish its place of business in India by filling Form FC-1 (Documents delivered for registration by a foreign company). The eForm has to be digitally signed by authorized representative of the foreign company.
• There is no need to apply and obtain DIN for Directors of a foreign company but the DSC of the authorized representative is mandatory, which again is not required to be registered on MCA Application.

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Amendment in schedule VII of Companies Act, 2013. - F. No. 1/18/2013-CL-V - Dated 6-8-2014 - Companies Law

[TO BE PUBLISHED IN THE GAZETTE OF INDIA, EXTRAORDINARY,

PART II, SECTION 3, SUB-SECTION (i)]

Government of India

Ministry of Corporate Affairs

Notification

New Delhi, dated, the 06^th August, 2014

G.S.R. 568 (E).- In exercise of the powers conferred by sub-section (1) of section 467 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following further amendments in Schedule VII of the said Act, namely:-
(1) In Schedule VII, after item (x), the following item and entry shall be inserted, namely:-
"(xi) slum area development.
Explanation.- For the purposes of this item, the term `slum area' shall mean any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force."
2.   This notification shall come into force on the date of its publication in the Official Gazette.

[File Number 1/18/2013-CL-V]

 (Amardeep  S. Bhatia)

 Joint Secretary to the Government of India

Note. The Schedule VII was brought into force with effect from 1^st April, 2014 and was amended (effective from 1^st April, 2014) vide notification number GSR 130(E) dated 27th February, 2014 and Corrigenda number GSR 261(E) dated 31^st  March, 2014.

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Independent Directors Repository Operationalized

August 12, 2014

Section 150 of the Companies Act, 2013 provides for creation and maintenance of database of Independent Directors. In this regard, the three Professional Institutes, namely, The Institute of Chartered Accountants of India, The Institute of Company Secretaries of India and The Institute of Cost Accountants of India, under the active encouragement of the Ministry of Corporate Affairs, Government of India have taken a joint initiative and developed a portal namely "Independent Directors Repository " .The portal would help to facilitate the individuals who are eligible and willing to act as Independent Directors. This will also facilitate Companies to select the persons who are eligible and willing to act as Independent Directors. The portal is now operational and the URL of the portal is http://independentdirector.in CA. K. Raghu, President, The Institute of Chartered Accountants of India, said "ICAI is very happy that this Independent Directors Repository would be really beneficial and it is a big opportunity to the members of the three Professional Institutes and other persons who are eligible and willing to act as Independent Directors. Further, the companies may also be benefited in selecting individuals as independent directors as per their requirement on their board. This endeavour of the three Professional Institutes under the active encouragement of the Ministry of Corporate Affairs, Government of India, is towards implementing the provisions of the Companies Act, 2013. The Independent Directors and the companies would be sharing a common platform which would enable them to meet each other`s requirements." CS. R Sridharan, President, The Institute of Company Secretaries of India, said "The Companies Act, 2013 provides for creation and maintenance of Independent Directors database. To fulfill this requirement the three Professional Institutes have come together and developed an Independent Directors Repository. This Repository would be mutually helpful to both, the individuals who are willing to act as independent directors as well the companies to select independent directors for their Board." CMA Dr A. S. Durgaprasad, President, The Institute of Cost Accountants of India, said "the joint initiative of the three Professional Institutes in developing the Independent Directors Repository Portal would not only provide a platform to Individuals willing to act as Independent Directors to register themselves but also give access to the large database of professionals to the companies enabling them to select Independent Directors as per their requirement."

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14 tips to answer tricky questions during a Job interview

Savvy hiring managers have honed their ability to ask the least amount of questions yielding the greatest depth of information. One way they do this is by asking seemingly simple questions that get you to reveal information you may have been trying to conceal. In other words: questions designed to trick you.

 

 "To uncover areas that may reflect inconsistencies, hiring managers sometimes ask these tricky questions," says Tina Nicolai, executive career coach and founder of Resume Writers' Ink.

Lynn Taylor, a national workplace expert and the author of "Tame Your Terrible Office Tyrant: How to Manage Childish Boss Behavior and Thrive in Your Job," says they use these queries to break through the "traditional interview noise and clutter," and to get to the "raw you."

"While some of these questions may seem as if they're designed to put you on the defensive, the intent is usually to evaluate candidate responses on multiple levels - not just at face value," Taylor explains. "Hiring managers can discern a great deal about job seekers with thought provoking, challenging questions. If they cross the line by being too tricky, unfair, or irrelevant, they can easily lose excellent talent."

1) How would you describe yourself in one word?

Why do they ask this? The question is likely being asked to elicit several data points: your personality type, how confident you are in your self perception, and whether your work style is a good fit for the job, Taylor explains.

What makes it tricky? This question can be a challenge, particularly early on in the interview, because you don really know what personality type the manager is seeking. "There is a fine line between sounding self-congratulatory versus confident, and humble versus timid," Taylor says. "And people are multifaceted, so putting a short label on oneself can seem nearly impossible."

What response are they looking for? Proceed cautiously, warns Taylor. "If you know you are reliable and dedicated, but love the fact that your friends praise your clever humor, stick with the conservative route." If you are applying for an accounting job, the one word descriptor should not be "creative," and if its an art director position, you don want it to be, "punctual," for example. "Most employers today are seeking team players that are levelheaded under pressure, upbeat, honest, reliable, and dedicated. However, it would be a mistake to rattle off adjectives that you think will be well received. This is your opportunity to describe how your best attributes are a great match for the job as you see it."

2) How does this position compare to others you are applying for?

Why do they ask this? They are basically asking: "Are you applying for other jobs?" "The hiring manager is first trying to figure out how active you are in your job search," Nicolai says. Then, once you open up, they want to see how to speak about other companies or positions you are interested in — and how honest you are.

What makes it tricky? If you say, "This is the only job I'm applying for," that'll send up a red flag. Very few job applicants only apply to the one single job — so they may assume you are being dishonest. However, if you openly speak about other positions you are pursuing, and you speak favourably about them, the hiring manager may worry that you'll end up taking another job elsewhere, and they won want to waste their time. "Speaking negatively about other jobs or employers isn't good either," she says.

What response are they looking for? It is appropriate to say, "There are several organizations with whom I am interviewing, however, I not yet decided the best fit for my next career move." "This is positive and protects the competitors," says Nicolai. "No reason to pit companies or to brag."

3) Can you name three of your strengths and weaknesses?

Why do they ask this? The interviewer is looking for red flags and deal breakers, such as inability to work well with coworkers and/or an inability to meet deadlines. "Each job has its unique requirements, so your answers should showcase applicable strengths, and your weaknesses should have a silver lining," Taylor says. "At the very least, you should indicate that negative attributes have diminished because of positive actions you have taken."

What makes it tricky? You can sabotage yourself addressing either. Exposing your weaknesses can hurt you if not ultimately turned into positives, she says. "Your strengths may not align with the skill set or work style required for the job. It's best to prepare for this question in advance, or risk landing in a minefield."

What response are they looking for? Hiring managers want to know that your strengths will be a direct asset to the new position and none of your weaknesses would hurt your ability to perform. "They are also looking for your ability to self assess with maturity and confidence," says Taylor.

4) Why do you want to work here?

Why do they ask this? Interviewers ask this because they want to know what drives you the most, how well you researched them, and how much you want the job.

What makes it tricky? "Clearly you want to work for the firm for several reasons," Taylor says. "But just how you prioritize them reveals a lot about what is important to you." You may be thinking to yourself, "I'm not getting paid what I'm worth," or, "I have a terrible boss," or, "All things being equal, this commute is incredibly short" — none of which endears you to the hiring manager. "You are also being tested on your level of interest for the job," she says.

What response are they looking for? Hiring managers want to see that you have taken the time to research the company and understand the industry.

They also want to know that you actually want this job (and not just any job); that you have a can-do attitude; that you are high energy; that you can make a significant contribution; that you understand their mission and goals; and that you want to be part of that mission.

5) Why do you want to leave your current job?

Why do they ask this? "Your prospective boss is looking for patterns or anything negative, especially if your positions are many and short-term," Taylor explains. They may try to determine if you currently have or had issues working with others leading to termination, if you get bored quickly in a job, or other red flags.

What makes it tricky? No one likes talking about a job they dislike and why. If not answered diplomatically, your answer could raise further questions and doubts, or sink your chances entirely.

What response are they looking for? They are hoping that you are seeking a more challenging position that is a better fit for your current skill set. "Know that hiring managers don mind hearing that you are particularly excited about the growth opportunity at their company."

6) What are you most proud of in your career?

Why do they ask this? Interviewers ask this because they want to understand what you are passionate about, what you feel you excel at, and whether you take pride in your work. "How you describe your favourite project, for example, is almost as important as the project itself," Taylor says. "It's assumed that if you can speak with conviction and pride about your past work, you can do the same during important presentations at the new employer."

What makes it tricky? Managers may assume that this type of work is what you really want to do most or focus on in the future. It can make you sound one-dimensional if you don put it in the context of a larger range of skills and interests.

What response are they looking for? Hiring managers want to see your ability to articulate well, foster enthusiasm in others, and your positive energy. "But one note of caution: In all your zeal to share your successes, remain concise," Taylor suggests. "You want to showcase your ability to present well once on the job."

 

7) What kind of boss and coworkers have you had the most and least success with, and why?

Why do they ask this? Interviewers are trying to ascertain if you generally have conflicts with people and/or personality types. "Secondarily, they want to know how you can work at your best," says Taylor.

What makes it tricky? You run the risk of appearing difficult by admitting to unsuccessful interactions with others, unless you keep emotions out of it. You may also inadvertently describe some of the attributes of your prospective boss. If you say, "I had a boss who held so many meetings that it was hard to get my work done," and your interviewer turns beet red — you might have hit a nerve.

What response are they looking for? "They want to hear more good than bad news," Taylor explains. "It's always best to start out with the positive and downplay the negatives." You don want to be evasive, but this is not the time to outline all your personality shortcomings either. Here you have an opportunity to speak generally about traits that you admire in others, yet appear flexible enough to work with a variety of personality types. For example: "I think I work well with a wide gamut of personalities. Some of my most successful relationships have been where both people communicated very well and set mutual expectations upfront."

8) Have you ever considered being an entrepreneur?

Why do they ask this? The interviewer is testing to see if you still have the hidden desire to run your own company, thus abandoning ship, Taylor says. "No firm wants to sense this, as they will begin to ponder whether their valuable training time and money could vanish."

What makes it tricky? Most everyone has considered being an entrepreneur at some point in their lives, but to varying degrees. This question is tricky because you can unwittingly be lured into talking about your one-time desire to be your own boss with too much perceived enthusiasm. An employer may fear that you still hope to eventually go out on your own, and they'll consider you a flight risk.

What response are they looking for? It's okay to tell a prospective manager that you once considered entrepreneurship or have worked as an independent contractor. It can easily be turned into a positive by stating that you already experienced it or thought about it, and its not for you. That might be more convincing than saying, "No, I never considered that."

This is an opportunity to discuss why working in a corporate environment as part of a team is most fulfilling to you. You may also enjoy the specialized work in your field more than the operational, financial, or administrative aspects of entrepreneurship. You can further allay their fears by explaining exactly why their company appeals to you.

 

9) If you could work for any company, where would you work?

Why do they ask this? Hiring managers want to ascertain how serious you are about working for them in particular, versus the competition, as well as your level of loyalty, Taylor says. "It also helps them weed out candidates who may veer from the core career. You may have heard that Google is a great place to work, but that off-road strategy would spell doom, as you have being given the opportunity to theoretically work at your dream job. The interviewer isn't making conversation here, so stay focused on the job at hand."

What makes it tricky? You might get caught up in the casual flow of the discussion and inadvertently leak out some well-respected firms, but this is counterproductive and only instils some doubt about your objectives.

What are they seeking? "Your interviewer wants to know that you are interviewing at your first company of choice." A response to this might be, "Actually, I have been heavily researching target firms, and [your company] seems like the ideal fit for my credentials. It's exciting to me that [your company] is doing XYZ in the industry, for example, and I'd like to contribute my part."

10) What would you do if you won $5 million tomorrow?

Why do they ask this? They want to know whether you'd still work if you didn't need the money. Your response to this question tells the employer about your motivation and work ethic. They may also want to know what you'd spend the money on, or whether you'd invest it. This tells them how responsible you are with your money, and how mature you are as a person.

What makes it tricky? Questions that are out of left field can ambush you, causing you to lose composure. "They have nothing to do with the job at hand, and you may wonder if there is any significance to them," Taylor says. "Whether there is or not, the fact remains that you can easily lose your cool if you don pause and gather your thoughts before you respond to a question like this."

What response are they looking for? They want to hear that you'd continue working because you are passionate about what you do — and they want to know you'd make smart financial decisions. If you'd do something irresponsible with your own money, they'll worry you'll be careless with theirs.

11) Have you ever been asked to compromise your integrity by your supervisor or colleague? Tell us about it.

Why do they ask this? Your prospective boss is evaluating your moral compass. They want to know how you handled a delicate situation that put your integrity to the test, Taylor explains. "They may also dig too deeply to test your level of discretion." Essentially they want to know: Did you use diplomacy? Did you publicly blow the whistle? Did a backlash ensue? What was your thought process?

What makes it tricky? Interviewers want to know how you manage sensitive matters, and are also wary of those who badmouth former employers, no matter how serious the misdeed. "They will be concerned if you share too much proprietary information with the interviewer," she says. "So it is tricky because you must carefully choose your words, using the utmost diplomacy."

What response are they looking for? It's wise to be clear, concise, and professional in your answer, without revealing any internal practices of prior employers. "You have nothing to gain by divulging private corporation information."

Something like this might work: "There was one time where a fellow worker asked me to get involved in a project that seemed unethical, but the problem resolved itself. I try to be as honest as possible early on if a project creates concern for me about the company, as I'm very dedicated to its success."

12) Can you give us a reason someone may not like working with you?
Why do they ask this? Prospective bosses want to know if there are any glaring personality issues, and what better way that to go direct to the source? "They figure that the worst that can happen is you will lie, and they may feel they are still adept at detecting mistruths," Taylor explains. "The negative tone of the question is bound to test the mettle of even the most seasoned business professionals."

What makes it tricky? You can easily shoot yourself in the foot with this question. If you flip and say, "I can think of a reason anyone wouldn't like working with me," you are subtly insulting the interviewer by trivializing the question. So you have to frame the question in a way that gets at the intent without being self-effacing. "Hiring managers are not seeking job candidates who have self-pity," she says.

What response are they looking for? You don want to say, "Well I'm not always the easiest person to be around, particularly when under deadlines. I sometimes lose my temper too easily." You might as well pack up and look for the nearest exit. "Conversely, you can lead with the positive and go from there: Generally I havee been fortunate to have great relationships at all my jobs. The only times I have been disliked — and it was temporary — was when I needed to challenge my staff to perform better. Sometimes I feel we must make unpopular decisions that are for the larger good of the company," Taylor suggests.

13) Why have you been out of work for so long?

Why do they ask this? "Interviewers are sceptical by design," Taylor says. "Sometimes you are guilty until proven innocent — until all the perceived skeletons in the closet have been removed." This is a daunting question in particular because it can seem offensive. The implication is that you might not be motivated enough to secure a job; you are being distracted by other pursuits; your skills set may not be up to date; there is an issue with your past employers, or a host of other concerns.

What makes it tricky? The way its worded is naturally designed to test your resilience. The key is not to take the bait and just answer the intent of the question in a calm, factual manner.

What response are they looking for? The hiring manager wants be assured that you possess initiative even when unemployed, as this drive and tenacity will translate well in a corporate setting. Sample responses: "I have been interviewing steadily, but want to find the ideal fit before I jump in and give my typical 110%," or, "I'm active in my job search, and I keep my skills current through [courses, volunteering, social media, business networking groups]." "If you took off time to take care of a personal matter, you can certainly state that without giving a lot of detail," Taylor says.

Make sure you are accountable. Don't blame the unemployment rate, your market, industry, or anything else. This is about how active and excited you are to be making a contribution to the employer.

14) How did you make time for this interview? Where does your boss think you are right now?

Why do they ask this? Hiring managers want to find out if your priorities are in the right place: current job first, interviews second. "They know that the habits you follow now speak to your integrity and how you will treat your job at their company should you undertake a future job search," says Taylor. "They also want to know how you handle awkward situations where you cannot be truthful to your boss. Ideally your interview is during a break that is your time, which is important to point out."

What makes it tricky? The implication is, "How is it searching for a job behind your bosses back?" For most employed job seekers, it's uncomfortable to lie about their whereabouts. So they are vague and treat it like any other personal matter they handle on their time.

What response are they looking for? It's wise to explain that you always put your job first, and schedule interviews before or after work, at lunchtime, during weekends if appropriate, and during personal time off. If asked pointedly, "Where does your boss think you are right now?" be vague. Don say: "I took a sick day." Instead, Taylor suggests you try something like: "My boss understands that I have certain break periods and personal time — he doesn't ask for details. He's most interested in my results."  

 

 Published In Times Of India | Jul 28, 2014, 06.55PM

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Minutes of proceedings of meetings u/s 118 of Cos Act,2013

Introduction:

Section 118 of the Companies Act, 2013 and Rule 25 of Companies (management and Administration) Rules,2014 deals with the Minutes of Proceedings of General Meeting, Meeting of BoD and other meeting and Resolutions passed by Postal Ballot

Preparation of Minutes:

Every company shall prepare, sign and keep minutes of proceedings of the following meetings/resolutions within 30 days of the conclusion of every such meeting concerned/resolution:

(i) general meetings of the members;

(ii) meetings of any class of shareholders

(iii) meetings of the creditors

(iv) meetings of the Board; and

(v) meetings of each of the committees of the Board.

Resolutions passed by postal ballot shall be recorded in the minute book of general meetings as if it has been deemed to be passed in the general meeting.

Minutes/ Resolutions	Entry
Minutes of proceedings of each meeting	Entered in the books maintained for that purpose along with the date of such entry within 30 days of the conclusion of the meeting.
every resolution passed by postal ballot	A brief report on the postal ballot conducted including the resolution proposed, the result of the voting thereon and the summary of the scrutinizer’s report shall be entered in the minutes book of general meetings along with the date of such entry within 30 days from the date of passing of resolution

The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.

All appointments made at any of the meetings aforesaid shall be included in the minutes of the meeting.

In the case of a meeting of the Board of Directors or of a committee of the Board, the minutes shall also contain—

(a) the names of the directors present at the meeting; and

(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring with the resolution.

The minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.

Matters not be included in the minutes:

Any matter which, in the opinion of the Chairman of the meeting,—

(a) is or could reasonably be regarded as defamatory of any person; or

(b) is irrelevant or immaterial to the proceedings; or

(c) is detrimental to the interests of the company

Shall not be included in the minutes.

The Chairman shall exercise absolute discretion in regard to the inclusion or  non-inclusion of any matter in the minutes of the meeting.

Signing of Minutes:

Minutes/ Resolution	Sign
Minutes of Proceeding of BoD or committee	Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting or each report in such books shall be dated and signed by the chairman of the said meeting or the chairman of the next succeeding meeting.
Minutes of proceedings of a general meeting	Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting or each report in such books shall be dated and signed by the chairman of the same meeting within the aforesaid period of 30 days or in the event of the death or inability of that chairman within that period, by a director duly authorised by the Board for the purpose.
Every resolution passed by postal ballot	Each page of every such book shall be initialled or signed and the last page of the record of proceedings of each meeting or each report in such books shall be dated and signed by the chairman of the Board within the aforesaid period of 30 days or in the event of there being no chairman of the Board or the death or inability of that chairman within that period, by a director duly authorized by the Board for the purpose

Place of keeping the minutes:

Minute Book	Place
Minutes book of General Meeting	shall be kept at the registered office of the company and shall be preserved permanently and kept in the custody of the company secretary or any director duly authorised by the board or at such other place as may be approved by the Board
Minutes book of the Board &Committee meeting	shall be preserved permanently and kept in the custody of the company secretary of the company or any director duly authorized by the Board for the purpose and shall be kept in the registered office or such place as Board may decide.

Status in pending Contrary:

Where the minutes have been kept in accordance with this section, until the contrary is proved, the meeting shall be deemed to have been duly called and held, and all proceedings thereat to have duly taken place, and the resolutions passed by postal ballot to have been duly passed and in particular, all appointments of directors, KMP, auditors or company secretary in practice, shall be deemed to be valid.

Circulation/Advertisement of Document:

A document purporting to be a report of the proceedings of any general meeting of a company shall not  be circulated or advertised at the expense of the company, unless it includes the matters required by this section to be contained in the minutes of the proceedings of such meeting.

Observe Secretarial Standards:

Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980, and approved as such by the Central Government.

Penalty:

Company in default	Fine of Rs.25,000/-
Officer in default	Fine of Rs.5,000/-
If a person is found guilty of tampering with the minutes	Imprisonment – 2 years  and Fine – Rs.25,000/- to Rs.1,00,000/-

Companies Act 2013 Vs Companies Act,1956:

S.No	CA,2013	CA,1956
1	It requires minutes to be kept of meeting of any class of shareholders and creditors also.	This was not the case under CA,1956
2	Minutes of every resolution passed by postal ballot are also to be kept.	There was no such requirement
3	Every company shall observe secretarial standards with respect to general and Board meetings specified by the ICSI and approved as such by the Central Government	There was no such provision
4	If a person is found guilty of tampering with the minutes of proceedings of the meeting the aforesaid penalty is imposed.	There was no specific penalty for tampering with minutes

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In Companies (Management and Administration) Rules,2014, clause  C of Rule 25 is MISSING in the notified rules, the MCA has to clarify whether it is a typo error or it is missed at the time of drafting the rules.

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FAQs on Section 160 of Companies Act, 2013

Q.1 What is the text of the Section 160 of Companies Act 2013 and rule framed thereunder?

Ans.: Section 160 of Companies Act 2013 which has come into force from 1.4.2014 reads as under:

“Right of persons other than retiring directors to stand for directorship.

160. (1) A person who is not a retiring director in terms of section 152 shall, subject to the provisions of this Act, be eligible for appointment to the office of a director at any general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen days before the meeting, left at the registered office of the company, a notice in writing under his hand signifying his candidature as a director or, as the case may be, the intention of such member to propose him as a candidate for that office, along with the deposit of one lakh rupees or such higher amount as may be prescribed which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets elected as a director or gets more than twenty-five per cent of total valid votes cast either on show of hands or on poll on such resolution.

(2) The company shall inform its members of the candidature of a person for the office of director under sub-section (1) in such manner as may be prescribed.”

Rule 13 of Companies (Appointment & Qualification of Directors) Rules 2014 reads as under:

“Notice of candidature of a person for directorship

13. The company shall, at least seven days before the general meeting, inform its members of the candidature of a person for the office of a director or the intention of a member to propose such person as a candidate for that office-

(1) by serving individual notices, on the members through electronic mode to such members who have provided their e-mail addresses to the company for communication purposes, and in writing to all other members; and

(2) by placing notice of such candidature or intention on the website of the company, if any:

Provided that it shall not be necessary for the company to serve individual notices upon the members as aforesaid, if the company advertises such candidature or intention, not less than seven days before the meeting at least once in a vernacular newspaper in the principal vernacular language of the district in which the registered office of the company is situated, and circulating in that district, and at least once in English language in an English newspaper circulating in that district.”

Q.2  What was corresponding Section of  Companies Act 1956?

Ans.:  Section 257 of Companies Act 1956 which corresponds to Section 160 of Companies Act 2013 read as under:

“Right of persons other than retiring directors to stand for directorship.

257. (1) A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting, if he or some member intending to propose him has, not less than fourteen days before the meeting, left at the office of the company a notice in writing under his hand signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office, as the case may be along with a deposit of five hundred rupees which shall be refunded to such person or, as the case may be, to such member, if the person succeeds in getting elected as a director.

(1A) The company shall inform its members of the candidature of a person for the office of director or the intention of a member to propose such person as a candidate for that office, by serving individual notices on the members not less than seven days before the meeting :

Provided that it shall not be necessary for the company to serve individual notices upon the members as aforesaid if the company advertises such candidature or intention not less than seven days before the meeting in at least two newspapers circulating in the place where the registered office of the company is located, of which one is published in the English language and the other in the regional language of that place.

(2) Sub-section (1) shall not apply to a private company, unless it is a subsidiary of a public company.”

Q.3:  What is the intention behind such provision in the Act?

Ans.:  As a general rule, directors are appointed by members at a general meeting.  As an exception, Board can also appoint directors in some specified cases.   Section 160 provides for right of any person to stand for the position of a director in a company in a general meeting in a democratic way.  However, provision for deposit has also been made to avoid abuse of this right by some persons with bad motive.  The amount of deposit which was merely Rs.500/- under 1956 Act has been drastically increased to Rs.1 lac under 2013 Act. 

Q.4:  Whether there is any exemption from application of this Section to some class of companies?

Ans.: Private companies: Section 257 of 1956 Act was not applicable to a private company, unless it was a subsidiary of a public company.  On the other hand, Section 160 of 2013 Act is applicable to a private company also.  MCA intends to exempt private companies from this Section by a notification under Section 462 of the Act.  Draft of notification has already been laid before the Parliament.  Final notification in this regard is expected to be issued in this month (August 2014).  However, till such time private companies will have to comply with this provision.

Government companies:  Under 1956 Act wholly owned Government companies were exempted from Section 257 vide Notification No.GSR 906 dated 30.7.1981.  However, exemption notification under 2013 Act is still awaited.

Section 8 companies:  Under 1956 Act Section 25 companies whose articles provided for election  of directors by ballot were exempted from Section 257 vide S.O. No.1578 dated 1.7.1961.  However, exemption notification under 2013 Act is still awaited.

Q.5:  In which cases Section 160 will apply?

Ans.:  As per wordings used in Section 160, it will be applicable in cases of appointment of directors other than retiring directors.  Retiring director means a director retiring by rotation at the meeting.  Thus it seems to be applicable in following cases:

a. Appointment of additional director as director at AGM

b. Appointment of a director to fill casual vacancy

c. Any other person seeking appointment as director at general meeting (including alternate director, nominee director etc.)

The erstwhile DCA (now MCA) had clarified as under:

“In the view of the Department, additional director appointed under Section 260 and directors appointed to fill casual vacancies under section 262 are not retiring directors within the meaning of the Explanation below sub-section (5) of section 256.  Accordingly, in their case, the provisions of section 257(1) will be attracted and will have to be complied with.  In view of the clarification given above, the aforesaid directors should comply with the provisions of section 26491) and (2) also.”  (Company News & Notes dated July 1, 1963).

Keeping in view above, MCA could take a view that this Section will apply even to appointment of independent directors under Companies Act 2013. Hence, in practice companies are still following Section 160 in such cases to avoid risk  of penal provisions, even though not necessary looking to the intention behind the law.

However, as mentioned above, intention behind this provision is to permit a common person to stand for directorship of a company and at the same time deter frivolous proposals and misuse the provision.  Hence, this provision should not applicable to a person who is proposed to be appointed as a director by the Board of Directors of the company directly.  Thus additional directors being appointed as director at AGM and independent directors to be proposed by the Board should be out of purview of Section 160.  MCA should reconsider this and issue a fresh clarification in this regard or amend the Act if required.       

Q.6:  Give a draft of notice to be given under Section 160.

Ans.:  Draft of notice under Section 160 is given below:

“The Board of Directors,

XYZ Ltd

Dear Sirs,

Re:  Notice under Section 160 of Companies Act 2013

                                            

I, Mr ____, member of the company, hereby propose the candidature of Mr ___ S/o Shri ____  residing at _______________for appointment as a director of the company at the forthcoming Annual General Meeting  of the company.

Please find enclosed herewith cheque No._______ dated ______ drawn on ________ for Rs.1,00,000/- being the deposit for proposing the candidature of Mr _____ as a director of the company.

Thanking you,

Yours  faithfully,

(__________)”

Q.7:  Who can give the notice with deposit?

Ans.:  The notice alongwith deposit can be given by the candidate himself or any member of the company.  There is no requirement that such member should be an individual only.  Hence even a corporate member can also give such notice with deposit.  Further, there is no requirement  of minimum shareholding  for this purpose.  Hence even a member holding one equity share can give  such notice.  Section 160 provides for giving notice by a ‘member’ which term includes preference shareholders also.  However, since preference shareholders cannot vote on the resolution, they cannot give notice under the Section.

Q.8:  What should be the mode of payment of deposit amount?

Ans.: The Act has not provided for any specific mode of payment of the deposit amount.  However, with a view to ensure transparency and bring the facts on record it would be advisable to make payment through banking channel only, i.e. cheque/DD/RTGS etc. and not in cash.

Q.9:  When the notice and deposit is to be given?

Ans.:  As per Section 160 notice is required to be given at least 14 days before the general meeting.  However, in practice such  notice is given before issue of notice of general meeting (which is required to be issued at least 21 days before the meeting) so that it could be incorporated in the same  notice of general meeting and additional formality is avoided.  The notice of general meeting can state the fact that the company has received notice under Section 160 of the Act or candidature of someone as a director.  Hence it will be advisable to give notice under Section 160 alongwith deposit of Rs.1 lac on or before the date of the Board meeting when draft of notice of general meeting is approved.

Q.10:  How the intimation about the notice  is to be given to the members?

Ans.: Rule 13 of Companies (Appointment & Qualification of Directors) Rules 2014 prescribes method of intimating the members about the notice received under Section 160.  As per the Rule at least 7 days before the meeting individual notice has to be served to the members and such notice has also to be placed on company’s website, if any.  It implies that if the company does not have any website, the requirement of placing the notice on website will not be applicable. It may be noted that requirement of placing such notice on company’s website was  not there in 1956 Act.  Such notice may be removed from the website after the general meeting since it will loose its relevance.  Individual notice to members can be dispensed with if notice is issued in newspaper as per the Rule.

                       

Q.11: Whether the company can refuse to give  intimation of the notice to the members?

Ans.: No, the company cannot refuse to give intimation  of the notice to the members.  The word ‘shall’ used in sub-section (2) indicates that it is mandatory.  [Gopal Vyas v. Sinclair  Hotels & Transportation Ltd., AIR 1990 Cal 45, 49 : (1990) 68 Com Cases 516 (Cal—DB).

Q.12: When the deposit is to be refunded?

Ans.:  In case the candidate is appointed as director at the general meeting, or he gets more than 25% of valid votes cast, the deposit amount has to be refunded by the company to the concerned person.  Otherwise, the deposit is to be forfeited by the company.  [Circular No.5 dated 15.9.1989].

Q.13: What will be accounting treatment of the deposit?

Ans.: The company should keep the deposit under any appropriate head under Current Liabiities.  In case the deposit is forfeited, it should be transferred to Other Income.

Q.14. What is the penalty prescribed in case of contravention of provisions of the Section?

Ans.:  Section 172 of the Act provides that if a company contravenes any of the provisions of this Chapter and  for which no specific punishment is provided therein, the company and every officer of the company who  is in default shall be punishable with fine which shall not be less than Rs.50,000/- but  which may extend to Rs.5 lacs.

Q.15. Whether offence under the Section can be compounded?

Ans.: Section 441 of the Act provides for compounding of offences punishable with:

- Fine only

- Fine or imprisonment

- Fine or imprisonment or both.

Offences punishable with imprisonment only or imprisonment and fine both are not compoundable.

However, Section 441 has not yet come into force and hence presently offences under the Act are not compoundable.           

Read More

Chapter III

CHAPTER III

PROSPECTUS AND ALLOTMENT OF SECURITIES

Section No.

PART I.—Public offer. 2

   23.            Public offer and private placement. 2

   24.            Power of Securities and Exchange Board to regulate issue and transfer of securities, etc. 2

   25.            Document containing offer of securities for sale to be deemed prospectus. 3

   26.            Matters to be stated in prospectus. 4

   27.            Variation in terms of contract or objects in prospectus. 7

   28.            Offer of sale of shares by certain members of company. 7

   29.            Public offer of securities to be in dematerialized form.. 8

   30.            Advertisement of prospectus. 8

   31.            Shelf prospectus. 8

   32.            Red herring prospectus. 9

   33.            Issue of application forms for securities. 9

   34.            Criminal liability for misstatements in prospectus. 10

   35.            Civil liability for misstatements in prospectus. 10

   36.            Punishment for fraudulently inducing persons to invest money. 11

   37.            Action by affected persons. 11

   38.            Punishment for personation for acquisition, etc., of securities. 11

   39.            Allotment of securities by company. 12

   40.            Securities to be dealt with in stock exchanges. 12

   41.            Global depository receipt. 13

PART II.—Private placement. 13

   42.            Offer or invitation for subscription of securities on private placement. 13

PART I.—Public offer 

Public offer and private placement

23. (1)   A public company may issue securities—

(a)   To public through prospectus (herein referred to as "public offer") by complying with the provisions of this Part; or

(b)      Through private placement by complying with the provisions of Part II of this Chapter; or

(c)   Through a rights issue or a bonus issue in accordance with the provisions of this Act and in case of a listed company or a company which intends to get   its securities listed also with the provisions of the Securities and Exchange Board of India Act, 1992 and the rules and regulations made thereunder

(2) A private company may issue securities—

(a)      By way of rights issue or bonus issue in accordance with the provisions of this Act; or

(b)      Through private placement by complying with the provisions of Part II of this Chapter.

Explanation—for the purposes of this Chapter, "public offer" includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.

Power of Securities and Exchange Board to regulate issue and transfer of securities, etc

24. (1)   The provisions contained in this Chapter, Chapter IV and in section 127 shall,—

(a)      In so far as they relate to —

(i)        Issue and transfer of securities; and      
(ii)       non-payment of dividend,

by listed companies or those companies which intend to get their securities listed on any recognised stock exchange in India, except as provided under this Act, be administered by the Securities and Exchange Board by making regulations in this behalf;

(b)      In any other case, be administered by the Central Government.

Explanation.—For the removal of doubts, it is hereby declared that all powers relating to all other matters relating to prospectus, return of allotment, redemption of preference shares and any other matter specifically provided in this Act, shall be exercised by the Central Government, the Tribunal or the Registrar, as the case may be.

(2)    The Securities and Exchange Board shall, in respect of matters specified in sub- section (1) and the matters delegated to it under proviso to sub-section (1) of section 458, exercise the powers conferred upon it under sub-sections (1), (2A), (3) and (4) of section 11, sections 11A, 11B and 11D of the Securities and Exchange Board of India Act, 1992.

Document containing offer of securities for sale to be deemed prospectus

25. (1)     Where a company allots or agrees to allot any securities of the company with a view to all or any of those securities being offered for sale to the public, any document by which the offer for sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company; and all enactments and rules of law as to the contents of prospectus and as to liability in respect of mis-statements, in and omissions from, prospectus, or otherwise relating to prospectus, shall apply with the modifications specified in sub- sections (3) and (4) and shall have effect accordingly, as if the securities had been offered to the public for subscription and as if persons accepting the offer in respect of any securities were subscribers for those securities, but without prejudice to the liability, if any, of the persons by whom the offer is made in respect of mis-statements contained in the document or otherwise in respect thereof.

(2)   For the purposes of this Act, it shall, unless the contrary is proved, be evidence that an allotment of, or an agreement to allot, securities was made with a view to the securities being offered for sale to the public if it is shown—

(a)   That an offer of the securities or of any of them for sale to the public was made within six months after the allotment or agreement to allot; or

(b)   That at the date when the offer was made, the whole consideration to be received by the company in respect of the securities had not been received by it.

(3) Section 26 as applied by this section shall have effect as if —

(i)   It required a prospectus to state in addition to the matters required by that section to be stated in a prospectus—

(a)   The net amount of the consideration received or to be received by the company in respect of the securities to which the offer relates; and

(b)   The time and place at which the contract where under the said securities have been or are to be allotted may be inspected;

(ii)   The persons making the offer were persons named in a prospectus as directors of a company.

(4)    Where a person making an offer to which this section relates is a company or a firm, it shall be sufficient if the document referred to in sub-section (1) is signed on behalf of the company or firm by two directors of the company or by not less than one-half of the partners in the firm, as the case may be.

Matters to be stated in prospectus

26. (1)     Every prospectus issued by or on behalf of a public company either with reference to its formation or subsequently, or by or on behalf of any person who is or has been engaged or interested in the formation of a public company, shall be dated and signed and shall—

(a)      State the following information, namely:—

(i)      names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed;

(ii)    dates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time;

(iii)     a statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilised and unutilised monies out of the previous issue in the prescribed manner;

(iv)      Details about underwriting of the issue;

(v)   Consent of the directors, auditors, bankers to the issue, expert’s opinion, if any, and of such other persons, as may be prescribed;

(vi)     The authority for the issue and the details of the resolution passed therefor;

(vii)  Procedure and time schedule for allotment and issue of securities; (viii) capital structure of the company in the prescribed manner;

(ix)   Main objects of public offer, terms of the present issue and such other particulars as may be prescribed;

(x)   Main objects and present business of the company and its location, schedule of implementation of the project;

(xi)      Particulars relating to—

(A)   Management perception of risk factors specific to the project;

(B)    Gestation period of the project;              

(C)    Extent of progress made in the project;               

(D)   Deadlines for completion of the project; and   

(E)   any litigation or legal action pending or taken by a Government Department or a statutory body during the last five years immediately preceding the year of the issue of prospectus against the promoter of the company;

(xii)  Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash;

(xiii) Details of directors including their appointments and remuneration, and such particulars of the nature and extent of their interests in the company as may be prescribed; and

(xiv) Disclosures in such manner as may be prescribed about sources of promoter’s contribution;

(b)   set out the following reports for the purposes of the financial information, namely:—

(i)    Reports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed;

(ii)   Reports relating to profits and losses for each of the five financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed:

Provided that in case of a company with respect to which a period of five years has not elapsed from the date of incorporation, the prospectus shall set out in such manner as may be prescribed, the reports relating to profits and losses for each of the financial years immediately preceding the financial year of the issue of prospectus including such reports of its subsidiaries;

(iii) reports made   in the prescribed manner by the auditors upon the profits and losses of the business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus:

Provided that in case of a company with respect to which a period of five years has not elapsed from the date of incorporation, the prospectus shall set out in the prescribed manner, the reports made by the auditors upon the profits and losses of the business of the company for all financial years from the date of its incorporation, and assets and liabilities of its business on the last date before the issue of prospectus; and

(iv)   reports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly;

(c)  make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 and the rules and regulations made thereunder; and

(d)    State such other matters and set out such other reports, as may be prescribed.

(2)   Nothing in sub-section (1) shall apply—

(a)    to the issue to existing members or debenture-holders of a company, of a prospectus or form of application relating to shares in or debentures of the company, whether an applicant has a right to renounce the shares or not under sub-clause (ii) of clause (a) of sub-section (1) of section 62 in favour of any other person; or

(b)    To the issue of a prospectus or form of application relating to shares or debentures which are, or are to be, in all respects uniform with shares or debentures previously issued and for the time being dealt in or quoted on a recognised stock exchange.

(3)    Subject to sub-section (2), the provisions of sub-section  (1)  shall apply to a prospectus or a form of application, whether issued on or with reference to the formation of a company or subsequently.

Explanation—the date indicated in the prospectus shall be deemed to be the date of its publication.

(4)    No prospectus shall be issued by or on behalf of a company or in relation to an intended company unless on or before the date of its publication, there has been delivered to the Registrar for registration, a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his duly authorised attorney.

(5)    A prospectus issued under sub-section (1) shall not include a statement purporting to be made by an expert unless the expert is a person who is not, and has not been, engaged or interested in the formation or promotion or management, of the company and has given his written consent to the issue of the prospectus and has not withdrawn such consent before the delivery of a copy of the prospectus to the Registrar for registration and a statement to that effect shall be included in the prospectus.

(6) Every prospectus issued under sub-section (1) shall, on the face of it,—

(a) State that a copy has been delivered for registration to the Registrar as required under sub-section (4); and

(b)  Specify any documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents.

(7)  The Registrar shall not register a prospectus unless the requirements of this section with respect to its registration are complied with and the prospectus is accompanied by the consent in writing of all the persons named in the prospectus.

(8)  No prospectus shall be valid if it is issued more than ninety days after the date on which a copy thereof is delivered to the Registrar under sub-section (4).

(9)  If a prospectus is issued in contravention of the provisions of this section, the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees and every person who is knowingly a party to the issue of such prospectus shall be punishable with imprisonment for a term which may extend to three years or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

Variation in terms of contract or objects in prospectus

27.  (1)   A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution:

Provided that the details, as may be prescribed, of the notice in respect of such resolution to shareholders, shall also be published in the newspapers (one in English and one in vernacular language) in the city where the registered office of the company is situated indicating clearly the justification for such variation:

Provided further that such company shall not use any amount raised by it through prospectus for buying, trading or otherwise dealing in equity shares of any other listed company.

(2)  The dissenting shareholders being those shareholders who have not agreed to the proposal to vary the terms of contracts or objects referred to in the prospectus, shall be given an exit offer by promoters or controlling shareholders at such exit price, and in such manner and conditions as may be specified by the Securities and Exchange Board by making regulations in this behalf.

Offer of sale of shares by certain members of company

28. (1)    where certain members of a company propose, in consultation with the Board of Directors to offer, in accordance with the provisions of any law for the time being in force, whole or part of their holding of shares to the public, they may do so in accordance with such procedure as may be prescribed.

(2)   Any document by which the offer of sale to the public is made shall, for all purposes, be deemed to be a prospectus issued by the company and all laws and rules made thereunder as to the contents of the prospectus and as to liability in respect of mis-statements in and omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus issued by the company.

(3)   The members, whether individuals or bodies corporate or both, whose shares are proposed to be offered to the public, shall collectively authorise the company, whose shares are offered for sale to the public, to take all actions in respect of offer of sale for and on their behalf and they shall   reimburse the company all expenses incurred by it on this matter.

Public offer of securities to be in dematerialized form

29. (1)   Notwithstanding anything contained in any other provisions of this Act,—

(a)    Every company making public offer; and

(b)   Such other class or classes of public companies as may be prescribed, shall issue the securities only in dematerialised form by complying with the provisions of the Depositories Act, 1996 and the regulations made thereunder.

(2)   Any company, other than a company mentioned in sub-section (1), may convert its securities into dematerialised form or issue its securities in physical form in accordance with the provisions of this Act or in dematerialised form in accordance with the provisions of the Depositories Act, 1996 and the regulations made thereunder.

Advertisement of prospectus

30. Where an advertisement of any prospectus of a company is published in any manner, it shall be necessary to specify therein the contents of its memorandum as regards the objects, the liability of members and the amount of share capital of the company, and the names of the signatories to the memorandum and the number of shares subscribed for by them, and its capital structure.

Shelf prospectus

31. (1)   Any class or classes of companies, as the Securities and Exchange Board may provide by regulations in this behalf, may file a shelf prospectus with the Registrar at the stage of the first offer of securities included therein which shall indicate a period not exceeding one year as the period of validity of such prospectus which shall commence from the date of opening of the first offer of securities under that prospectus, and in respect of a second or subsequent offer of such securities issued during the period of validity of that prospectus, no further prospectus is required.

(2)  A company filing a shelf prospectus shall be required to file an information memorandum containing all material facts relating to new charges created, changes in the financial position of the company as have occurred between the first offer of securities or the previous offer of securities and the succeeding offer of securities and such other changes as may be prescribed, with the Registrar within the prescribed time, prior to the issue of a second or subsequent offer of securities under the shelf prospectus:

Provided that where a company or any other person has received applications for the allotment of securities along with advance payments of subscription before the making of any such change, the company or other person shall intimate the changes to such applicants and if they express a desire to withdraw their application, the company or other person shall refund all the monies received as subscription within fifteen days thereof.

(3)    Where an information memorandum is filed, every time an offer of securities is made under sub-section (2), such memorandum together with the shelf prospectus shall be deemed to be a prospectus.

Explanation.—For the purposes of this section, the expression "shelf prospectus" means a prospectus in respect of which the securities or class of securities included therein are issued for subscription in one or more issues over a certain period without the issue of a further prospectus.

Red herring prospectus

32.(1)    A company proposing to make an offer of securities may issue a red herring prospectus prior to the issue of a prospectus.

(2)  A company proposing to issue a red herring prospectus under sub-section (1) shall file it with the Registrar at least three days prior to the opening of the subscription list and the offer.

(3)   A red herring prospectus shall carry the same obligations as are applicable to a prospectus and any variation between the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus.

(4)   Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised, whether by way of debt or share capital, and the closing price of the securities and any other details as are not included in the red herring prospectus shall be filed with the Registrar and the Securities and Exchange Board.

Explanation.—For the purposes of this section, the expression "red herring prospectus" means a prospectus which does not include complete particulars of the quantum or price of the securities included therein.

Issue of application forms for securities

33. (1)    No form of application for the purchase of any of the securities of a company shall be issued unless such form is accompanied by an abridged prospectus:

Provided that nothing in this sub-section shall apply if it is shown that the form of application was issued—

(a)   In connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to such securities; or

(b)   In relation to securities which were not offered to the public.

(2)   A copy of the prospectus shall, on a request being made by any person before the closing of the subscription list and the offer, be furnished to him.

(3)   If a company makes any default in complying with the provisions of this section, it shall be liable to a penalty of fifty thousand rupees for each default.

Criminal liability for misstatements in prospectus

34.   Where a prospectus, issued, circulated or distributed under this Chapter, includes any statement which is untrue or misleading in form or context in which it is included or where any inclusion or omission of any matter is likely to mislead, every person who authorises the issue of such prospectus shall be liable under section 447:

Provided that nothing in this section shall apply to a person if he proves that such statement or omission was immaterial or that he had reasonable grounds to believe, and did up to the time of issue of the prospectus believe, that the statement was true or the inclusion or omission was necessary.

Civil liability for misstatements in prospectus

35. (1)   Where a person has subscribed for securities of a company acting on any statement included, or the inclusion or omission of any matter, in the prospectus which is misleading and has sustained any loss or damage as a consequence thereof, the company and every person who—

(a)       is a director of the company at the time of the issue of the prospectus;

(b)   Has authorised himself to be named and is named in the prospectus as a director of the company, or has agreed to become such director, either immediately or after an interval of time;

(c)       Is a promoter of the company;

(d)       Has authorised the issue of the prospectus; and

(e)    Is an expert referred to in sub-section (5) of section 26, shall, without prejudice to any punishment to which any person may be liable under section 36, be liable to pay compensation to every person who has sustained such loss or damage.

(2) No person shall be liable under sub-section (1), if he proves—

(a)   That, having consented to become a director of the company, he withdrew his consent before the issue of the prospectus, and that it was issued without his authority or consent; or

(b)   that the prospectus was issued without his knowledge or consent, and that on becoming aware of its issue, he forthwith gave a reasonable public notice that it was issued without his knowledge or consent.

(3)    Notwithstanding anything contained in this section, where it is proved that a prospectus has been issued with intent to defraud the applicants for the securities of a company or any other person or for any fraudulent purpose, every person referred to in sub- section (1) shall be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by any person who subscribed to the securities on the basis of such prospectus.

Punishment for fraudulently inducing persons to invest money

36.    Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into,—

(a)   Any agreement for, or with a view to, acquiring, disposing of, subscribing for, or underwriting securities; or

(b)   Any agreement, the purpose or the pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities; or

(c)    Any agreement for, or with a view to obtaining credit facilities from any bank or financial institution,

shall be liable for action under section 447.

Action by affected persons

37.    A suit may be filed or any other action may be taken under section 34 or section 35 or section 36 by any person, group of persons or any association of persons affected by any misleading statement or the inclusion or omission of any matter in the prospectus.

Punishment for personation for acquisition, etc., of securities

38. (1)   Any person who—

(a)   Makes or abets making of an application in a fictitious name to a company for acquiring, or subscribing for, its securities; or

(b)   makes or abets making of multiple applications to a company in different names or in different combinations of his name or surname for acquiring or subscribing for its securities; or

(c)    otherwise induces directly or indirectly a company to allot, or register any transfer of, securities to him, or to any other person in a fictitious name, shall be liable for action under section 447.

(2)    The provisions of sub-section (1) shall be prominently reproduced in every prospectus issued by a company and in every form of application for securities.

(3)    Where a person has been convicted under this section, the Court may also order disgorgement of gain, if any, made by, and seizure and disposal of the securities in possession of, such person.

(4)    The amount received through disgorgement or disposal of securities under sub- section (3) shall be credited to the Investor Education and Protection Fund.

Allotment of securities by company

39. (1)       No allotment of any securities of a company offered to the public for subscription shall be made unless the amount stated in the prospectus as the minimum amount has been subscribed and the sums payable on application for the amount so stated have been paid to and received by the company by cheque or other instrument.

(2)    The amount payable on application on every security shall not be less than five per cent. of the nominal amount of the security or such other percentage or amount, as may be specified by the Securities and Exchange Board by making regulations in this behalf.

(3)    If the stated minimum amount has not been subscribed and the sum payable on application is not received within a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by the Securities and Exchange Board, the amount received under sub-section (1) shall be returned within such time and manner as may be prescribed.

(4)    Whenever a company having a share capital makes any allotment of securities, it shall file with the Registrar a return of allotment in such manner as may be prescribed.

(5)    In case of any default under sub-section (3) or sub-section (4), the company and its officer who is in default shall be liable to a penalty, for each default, of one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less.

Securities to be dealt with in stock exchanges

40. (1)       Every company making public offer shall, before making such offer, make an application to one or more recognised stock exchange or exchanges and obtain permission for the securities to be dealt with in such stock exchange or exchanges.

(2)    Where a prospectus states that an application under sub-section (1) has been made, such prospectus shall also state the name or names of the stock exchange in which the securities shall be dealt with.

(3)    All monies received on application from the public for subscription to the securities shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(a)   for adjustment against allotment of securities where the securities have been permitted to be dealt with in the stock exchange or stock exchanges specified in the prospectus; or

(b)   For the repayment of monies within the time specified by the Securities and Exchange Board, received from applicants in pursuance of the prospectus, where the company is for any other reason unable to allot securities.

(4)    Any condition purporting to require or bind any applicant for securities to waive compliance with any of the requirements of this section shall be void.

(5)    If a default is made in complying with the provisions of this section, the company shall be punishable with a fine which shall not be less than five lakh rupees but which may extend to fifty lakh rupees and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may extend to three lakh rupees, or with both.

(6)    A company may pay commission to any person in connection with the subscription to its securities subject to such conditions as may be prescribed.

Global depository receipt

41.    A company may, after passing a special resolution in its general meeting, issue depository receipts in any foreign country in such manner, and subject to such conditions, as may be prescribed.

PART II.—Private placement

Offer or invitation for subscription of securities on private placement

42.  (1)      Without prejudice to the provisions of section 26, a company may, subject to the provisions of this section, make private placement through issue of a private placement offer letter.

(2)   Subject to sub-section (1), the offer of securities or invitation to subscribe securities, shall be made to such number of persons not exceeding fifty or such higher number as may be prescribed, [excluding qualified institutional buyers and employees of the company being offered securities under a scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62], in a financial year and on such conditions (including the form and manner of private placement) as may be prescribed.

Explanation I.—If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognised stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of  Part I of this Chapter.

Explanation II— for the purposes of this section, the expression—

(i)     "Qualified institutional buyer’’ means the qualified institutional buyer as defined in the Securities and Exchange Board of India   (Issue of Capital and Disclosure Requirments) Regulations, 2009 as amended from time to time.

(ii)    "private placement" means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.

(3)    No fresh offer or invitation under this section shall be made unless the allotments with respect to any offer or invitation made earlier have been completed or that offer or invitation has been withdrawn or abandoned by the company.

(4)    Any offer or invitation not in compliance with the provisions of this section shall be treated as a public offer and all provisions of this Act, and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange Board of India Act, 1992 shall be required to be complied with.

(5)    All monies payable towards subscription of securities under this section shall be paid through cheque or demand draft or other banking channels but not by cash.

(6)    A company making an offer or invitation under this section shall allot its securities within sixty days from the date of receipt of the application money for such securities and if the company is not able to allot the securities within that period, it shall repay the application money to the subscribers within fifteen days from the date of completion of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be liable to repay that money with interest at the rate of twelve per cent. per annum from the expiry of the sixtieth day:

Provided that monies received on application under this section shall be kept in a separate bank account in a scheduled bank and shall not be utilised for any purpose other than—

(a)       for adjustment against allotment of securities; or

(b)   for the repayment of monies where the company is unable to allot securities. (7) All offers covered under this section shall be made only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name, and that a complete record of such offers shall be kept by the company in such manner as may be prescribed and complete information about such offer shall be filed with the Registrar within a  period of thirty days of circulation of relevant private placement offer letter.

(8)    No company offering securities under this section shall   release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer.

(9)    Whenever a company makes any allotment of securities under this section, it shall file with the Registrar a return of allotment in such manner as may be prescribed, including the complete list of all security-holders, with their full names, addresses, number of securities allotted and such other relevant information as may be prescribed.

(10)  If a company makes an offer or accepts monies in contravention of this section, the company, its promoters and directors shall be liable for a penalty which may extend to the amount involved in the offer or invitation or two crore rupees, whichever is higher, and the company shall also refund all monies to subscribers within a period of thirty days of the order imposing the penalty.             

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