Online Professionals Solutions Pvt Ltd.
Professionals Solutions For All
Home
Advanced Search
My Documents
Admin Login
What's New FILING OF FORM DIR-3-EKYC BY 31st AUGUST. PENALTY OF RS. 5000/- AFTER DUE DATE      Due Dates For the Month of November 2018      CBDT extends due date for filing of Income Tax Returns & audit reports from 30th Sept,2018 to 15th Oct, 2018     

  CHAPTER XII

 MEETINGS OF BOARD AND ITS POWERS

 

173.Meetings of Board.

 

(1) Every company shall hold the first meeting of the Board of Directors within
thirty days of the date of its incorporation and thereafter hold a minimum number of four
meetings of its Board of Directors every year in such a manner that not more than one
hundred and twenty days shall intervene between two consecutive meetings of the Board:
Provided that the Central Government may, by notification, direct that the provisions
of this sub-section shall not apply in relation to any class or description of companies or
shall apply subject to such exceptions, modifications or conditions as may be specified in
the notification.
(2) The participation of directors in a meeting of the Board may be either in person or
through video conferencing or other audio visual means, as may be prescribed, which are
capable of recording and recognising the participation of the directors and of recording and
storing the proceedings of such meetings along with date and time:
Provided that the Central Government may, by notification, specify such matters which
shall not be dealt with in a meeting through video conferencing or other audio visual means.
(3) A meeting of the Board shall be called by giving not less than seven days’ notice in
writing to every director at his address registered with the company and such notice shall be
sent by hand delivery or by post or by electronic means:
Provided that a meeting of the Board may be called at shorter notice to transact urgent
business subject to the condition that at least one independent director, if any, shall be
present at the meeting:
Provided further that in case of absence of independent directors from such a meeting
of the Board, decisions taken at such a meeting shall be circulated to all the directors and
shall be final only on ratification thereof by at least one independent director, if any.
(4) Every officer of the company whose duty is to give notice under this section and
who fails to do so shall be liable to a penalty of twenty-five thousand rupees.
(5) A One Person Company, small company and dormant company shall be deemed to
have complied with the provisions of this section if at least one meeting of the Board of
Directors has been conducted in each half of a calendar year and the gap between the two
meetings is not less than ninety days:
Provided that nothing contained in this sub-section and in section 174 shall apply to
One Person Company in which there is only one director on its Board of Directors.
 
 
174.Quorum for meetings of Board.

(1) The quorum for a meeting of the Board of Directors of a company shall be onethird

of its total strength or two directors, whichever is higher, and the participation of the
directors by video conferencing or by other audio visual means shall also be counted for the
purposes of quorum under this sub-section.
(2) The continuing directors may act notwithstanding any vacancy in the Board; but,
if and so long as their number is reduced below the quorum fixed by the Act for a meeting of
the Board, the continuing directors or director may act for the purpose of increasing the
number of directors to that fixed for the quorum, or of summoning a general meeting of the
company and for no other purpose.
(3) Where at any time the number of interested directors exceeds or is equal to twothirds
of the total strength of the Board of Directors, the number of directors who are not
interested directors and present at the meeting, being not less than two, shall be the quorum
during such time.
Explanation.—For the purposes of this sub-section, “interested director” means a
director within the meaning of sub-section (2) of section 184.
(4) Where a meeting of the Board could not be held for want of quorum, then, unless
the articles of the company otherwise provide, the meeting shall automatically stand adjourned
to the same day at the same time and place in the next week or if that day is a national holiday,
till the next succeeding day, which is not a national holiday, at the same time and place.
Explanation.—For the purposes of this section,—
(i) any fraction of a number shall be rounded off as one;
(ii) “total strength” shall not include directors whose places are vacant.
 
 

175.Passing of resolution by circulation.

(1) No resolution shall be deemed to have been duly passed by the Board or by

a committee thereof by circulation, unless the resolution has been circulated in draft, together
with the necessary papers, if any, to all the directors, or members of the committee, as the
case may be, at their addresses registered with the company in India by hand delivery or by
post or by courier, or through such electronic means as may be prescribed and has been
approved by a majority of the directors or members, who are entitled to vote on the resolution:
Provided that, where not less than one-third of the total number of directors of the
company for the time being require that any resolution under circulation must be decided at
a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the
Board or the committee thereof, as the case may be, and made part of the minutes of such
meeting.
 


176.Defects in appointment of directors not to invalidate actions taken.

No act done by a person as a director shall be deemed to be invalid,

notwithstanding that it was subsequently noticed that his appointment was invalid by
reason of any defect or disqualification or had terminated by virtue of any provision contained
in this Act or in the articles of the company:
Provided that nothing in this section shall be deemed to give validity to any act done
by the director after his appointment has been noticed by the company to be invalid or to
have terminated.
 
 
 
 

177.Audit Committee

 

 
(1) The Board of Directors of every listed company and such other class or
classes of companies, as may be prescribed, shall constitute an Audit Committee.
(2) The Audit Committee shall consist of a minimum of three directors with independent
directors forming a majority:
Provided that majority of members of Audit Committee including its Chairperson shall
be persons with ability to read and understand, the financial statement.
(3) Every Audit Committee of a company existing immediately before the commencement
of this Act shall, within one year of such commencement, be reconstituted in accordance
with sub-section (2).
(4) Every Audit Committee shall act in accordance with the terms of reference specified
in writing by the Board which shall, inter alia, include,—
(i) the recommendation for appointment, remuneration and terms of appointment
of auditors of the company;
(ii) review and monitor the auditor’s independence and performance, and
effectiveness of audit process;
(iii) examination of the financial statement and the auditors’ report thereon;
(iv) approval or any subsequent modification of transactions of the company
with related parties;
(v) scrutiny of inter-corporate loans and investments;
(vi) valuation of undertakings or assets of the company, wherever it is necessary;
(vii) evaluation of internal financial controls and risk management systems;
(viii) monitoring the end use of funds raised through public offers and related
matters.
(5) The Audit Committee may call for the comments of the auditors about internal
control systems, the scope of audit, including the observations of the auditors and review of
financial statement before their submission to the Board and may also discuss any related
issues with the internal and statutory auditors and the management of the company.
(6) The Audit Committee shall have authority to investigate into any matter in relation
to the items specified in sub-section (4) or referred to it by the Board and for this purpose
shall have power to obtain professional advice from external sources and have full access to
information contained in the records of the company.
(7) The auditors of a company and the key managerial personnel shall have a right to
be heard in the meetings of the Audit Committee when it considers the auditor’s report but
shall not have the right to vote.
(8) The Board’s report under sub-section (3) of section 134 shall disclose the
composition of an Audit Committee and where the Board had not accepted any
recommendation of the Audit Committee, the same shall be disclosed in such report along
with the reasons therefor.
(9) Every listed company or such class or classes of companies, as may be prescribed,
shall establish a vigil mechanism for directors and employees to report genuine concerns in
such manner as may be prescribed.
(10) The vigil mechanism under sub-section (9) shall provide for adequate safeguards
against victimisation of persons who use such mechanism and make provision for direct
access to the chairperson of the Audit Committee in appropriate or exceptional cases:
Provided that the details of establishment of such mechanism shall be disclosed by the
company on its website, if any, and in the Board’s report.
 
 
 
 

178.Nomination and Remuneration Committee and Stakeholders Relationship Committee.

 

 
(1) The Board of Directors of every listed company and such other class or
classes of companies, as may be prescribed shall constitute the Nomination and Remuneration
Committee consisting of three or more non-executive directors out of which not less than
one-half shall be independent directors:
Provided that the chairperson of the company (whether executive or non-executive)
may be appointed as a member of the Nomination and Remuneration Committee but shall not
chair such Committee.
(2) The Nomination and Remuneration Committee shall identify persons who are
qualified to become directors and who may be appointed in senior management in accordance
with the criteria laid down, recommend to the Board their appointment and removal and shall
carry out evaluation of every director’s performance.
(3) The Nomination and Remuneration Committee shall formulate the criteria for
determining qualifications, positive attributes and independence of a director and recommend
to the Board a policy, relating to the remuneration for the directors, key managerial personnel
and other employees.
(4) The Nomination and Remuneration Committee shall, while formulating the policy
under sub-section (3) ensure that—
(a) the level and composition of remuneration is reasonable and sufficient to
attract, retain and motivate directors of the quality required to run the company
successfully;
(b) relationship of remuneration to performance is clear and meets appropriate
performance benchmarks; and
(c) remuneration to directors, key managerial personnel and senior management
involves a balance between fixed and incentive pay reflecting short and long-term
performance objectives appropriate to the working of the company and its goals:
Provided that such policy shall be disclosed in the Board's report.
(5) The Board of Directors of a company which consists of more than one thousand
shareholders, debenture-holders, deposit-holders and any other security holders at any
time during a financial year shall constitute a Stakeholders Relationship Committee consisting
of a chairperson who shall be a non-executive director and such other members as may be
decided by the Board.
(6) The Stakeholders Relationship Committee shall consider and resolve the grievances
of security holders of the company.
(7) The chairperson of each of the committees constituted under this section or, in his
absence, any other member of the committee authorised by him in this behalf shall attend the
general meetings of the company.
(8) In case of any contravention of the provisions of section 177 and this section, the
company shall be punishable with fine which shall not be less than one lakh rupees but
which may extend to five 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 twenty-five thousand rupees but which may extend to one lakh rupees,
or with both:
Provided that non-consideration of resolution of any grievance by the Stakeholders
Relationship Committee in good faith shall not constitute a contravention of this section.
Explanation.—The expression ‘‘senior management’’ means personnel of the company
who are members of its core management team excluding Board of Directors comprising all
members of management one level below the executive directors, including the functional heads.
 
 
 
179.Powers of Board 
 
(1) The Board of Directors of a company shall be entitled to exercise all such
powers, and to do all such acts and things, as the company is authorised to exercise and do:
Provided that in exercising such power or doing such act or thing, the Board shall be
subject to the provisions contained in that behalf in this Act, or in the memorandum or
articles, or in any regulations not inconsistent therewith and duly made thereunder, including
regulations made by the company in general meeting:
Provided further that the Board shall not exercise any power or do any act or thing
which is directed or required, whether under this Act or by the memorandum or articles of the
company or otherwise, to be exercised or done by the company in general meeting.
(2) No regulation made by the company in general meeting shall invalidate any prior
act of the Board which would have been valid if that regulation had not been made.
(3) The Board of Directors of a company shall exercise the following powers on behalf
of the company by means of resolutions passed at meetings of the Board, namely:—
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another
company;
(k) any other matter which may be prescribed:
Provided that the Board may, by a resolution passed at a meeting, delegate to any
committee of directors, the managing director, the manager or any other principal officer of
the company or in the case of a branch office of the company, the principal officer of the
branch office, the powers specified in clauses (d) to (f) on such conditions as it may specify:
Provided further that the acceptance by a banking company in the ordinary course of
its business of deposits of money from the public repayable on demand or otherwise and
withdrawable by cheque, draft, order or otherwise, or the placing of monies on deposit by a
banking company with another banking company on such conditions as the Board may
prescribe, shall not be deemed to be a borrowing of monies or, as the case may be, a making
of loans by a banking company within the meaning of this section.
Explanation I.—Nothing in clause (d) shall apply to borrowings by a banking company
from other banking companies or from the Reserve Bank of India, the State Bank of India or
any other banks established by or under any Act.
Explanation II.—In respect of dealings between a company and its bankers, the exercise
by the company of the power specified in clause (d) shall mean the arrangement made by the
company with its bankers for the borrowing of money by way of overdraft or cash credit or
otherwise and not the actual day-to-day operation on overdraft, cash credit or other accounts
by means of which the arrangement so made is actually availed of.
(4) Nothing in this section shall be deemed to affect the right of the company in general
meeting to impose restrictions and conditions on the exercise by the Board of any of the
powers specified in this section.
 
 
 
 

180. Restrictions on powers of Board.

 

 
(1) The Board of Directors of a company shall exercise the following powers only
with the consent of the company by a special resolution, namely:—
(a) to sell, lease or otherwise dispose of the whole or substantially the whole of
the undertaking of the company or where the company owns more than one undertaking,
of the whole or substantially the whole of any of such undertakings.
Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the investment of
the company exceeds twenty per cent. of its net worth as per the audited balance
sheet of the preceding financial year or an undertaking which generates twenty
per cent. of the total income of the company during the previous financial year;
(ii) the expression “substantially the whole of the undertaking” in any
financial year shall mean twenty per cent. or more of the value of the undertaking
as per the audited balance sheet of the preceding financial year;
(b) to invest otherwise in trust securities the amount of compensation received
by it as a result of any merger or amalgamation;
(c) to borrow money, where the money to be borrowed, together with the money
already borrowed by the company will exceed aggregate of its paid-up share capital
and free reserves, apart from temporary loans obtained from the company’s bankers in
the ordinary course of business:
Provided that the acceptance by a banking company, in the ordinary course of
its business, of deposits of money from the public, repayable on demand or otherwise,
and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a
borrowing of monies by the banking company within the meaning of this clause.
Explanation.—For the purposes of this clause, the expression “temporary loans”
means loans repayable on demand or within six months from the date of the loan such
as short-term, cash credit arrangements, the discounting of bills and the issue of other
short-term loans of a seasonal character, but does not include loans raised for the
purpose of financial expenditure of a capital nature;
(d) to remit, or give time for the repayment of, any debt due from a director.
(2) Every special resolution passed by the company in general meeting in relation to
the exercise of the powers referred to in clause (c) of sub-section (1) shall specify the total
amount up to which monies may be borrowed by the Board of Directors.
(3) Nothing contained in clause (a) of sub-section (1) shall affect—
(a) the title of a buyer or other person who buys or takes on lease any property,
investment or undertaking as is referred to in that clause, in good faith; or
(b) the sale or lease of any property of the company where the ordinary business
of the company consists of, or comprises, such selling or leasing.
(4) Any special resolution passed by the company consenting to the transaction as is
referred to in clause (a) of sub-section (1) may stipulate such conditions as may be specified
in such resolution, including conditions regarding the use, disposal or investment of the sale
proceeds which may result from the transactions:
Provided that this sub-section shall not be deemed to authorise the company to effect
any reduction in its capital except in accordance with the provisions contained in this Act.
(5) No debt incurred by the company in excess of the limit imposed by clause (c) of
sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan
in good faith and without knowledge that the limit imposed by that clause had been exceeded.
 
 
 
 

181.Company to contribute to bona fide and charitable funds, etc.

 

 
The Board of Directors of a company may contribute to bona fide charitable and
other funds:
Provided that prior permission of the company in general meeting shall be required for
such contribution in case any amount the aggregate of which, in any financial year, exceed
five per cent. of its average net profits for the three immediately preceding financial years.
 
 
 
 

182.Prohibitions and restrictions regarding political contributions.

 

 
(1) Notwithstanding anything contained in any other provision of this Act, a
company, other than a Government company and a company which has been in existence for
less than three financial years, may contribute any amount directly or indirectly to any
political party:
Provided that the amount referred to in sub-section (1) or, as the case may be, the
aggregate of the amount which may be so contributed by the company in any financial year
shall not exceed seven and a half per cent. of its average net profits during the three immediately
preceding financial years:
Provided further that no such contribution shall be made by a company unless a
resolution authorising the making of such contribution is passed at a meeting of the Board of
Directors and such resolution shall, subject to the other provisions of this section, be
deemed to be justification in law for the making and the acceptance of the contribution
authorised by it.
(2) Without prejudice to the generality of the provisions of sub-section (1),—
(a) a donation or subscription or payment caused to be given by a company on
its behalf or on its account to a person who, to its knowledge, is carrying on any
activity which, at the time at which such donation or subscription or payment was
given or made, can reasonably be regarded as likely to affect public support for a
political party shall also be deemed to be contribution of the amount of such donation,
subscription or payment to such person for a political purpose;
(b) the amount of expenditure incurred, directly or indirectly, by a company on
an advertisement in any publication, being a publication in the nature of a souvenir,
brochure, tract, pamphlet or the like, shall also be deemed,—
(i) where such publication is by or on behalf of a political party, to be a
contribution of such amount to such political party, and
(ii) where such publication is not by or on behalf of, but for the advantage
of a political party, to be a contribution for a political purpose.
(3) Every company shall disclose in its profit and loss account any amount or amounts
contributed by it to any political party during the financial year to which that account relates,
giving particulars of the total amount contributed and the name of the party to which such
amount has been contributed.
(4) If a company makes any contribution in contravention of the provisions of this
section, the company shall be punishable with fine which may extend to five times the
amount so contributed and every officer of the company who is in default shall be punishable
with imprisonment for a term which may extend to six months and with fine which may extend
to five times the amount so contributed.
Explanation.—For the purposes of this section, “political party” means a political
party registered under section 29A of the Representation of the People Act, 1951.
 
 
 
 

183.Power of Board and other persons to make contributions to national defence fund, etc.

 

 
(1) The Board of Directors of any company or any person or authority exercising
the powers of the Board of Directors of a company, or of the company in general meeting,
may, notwithstanding anything contained in sections 180, 181 and section 182 or any other
provision of this Act or in the memorandum, articles or any other instrument relating to the
company, contribute such amount as it thinks fit to the National Defence Fund or any other
Fund approved by the Central Government for the purpose of national defence.
(2) Every company shall disclose in its profits and loss account the total amount or
amounts contributed by it to the Fund referred to in sub-section (1) during the financial year
to which the amount relates.
 
 
 
 

184.Disclosure of interest by director.

 

 
(1) Every director shall at the first meeting of the Board in which he participates as
a director and thereafter at the first meeting of the Board in every financial year or whenever
there is any change in the disclosures already made, then at the first Board meeting held after
such change, disclose his concern or interest in any company or companies or bodies
corporate, firms, or other association of individuals which shall include the shareholding, in
such manner as may be prescribed.
(2) Every director of a company who is in any way, whether directly or indirectly,
concerned or interested in a contract or arrangement or proposed contract or arrangement
entered into or to be entered into—
(a) with a body corporate in which such director or such director in association
with any other director, holds more than two per cent. shareholding of that body
corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or
member, as the case may be,
shall disclose the nature of his concern or interest at the meeting of the Board in which the
contract or arrangement is discussed and shall not participate in such meeting:
Provided that where any director who is not so concerned or interested at the time of
entering into such contract or arrangement, he shall, if he becomes concerned or interested
after the contract or arrangement is entered into, disclose his concern or interest forthwith
when he becomes concerned or interested or at the first meeting of the Board held after he
becomes so concerned or interested.
(3) A contract or arrangement entered into by the company without disclosure under
sub-section (2) or with participation by a director who is concerned or interested in any way,
directly or indirectly, in the contract or arrangement, shall be voidable at the option of the
company.
(4) If a director of the company contravenes the provisions of sub-section (1) or subsection
(2), such director 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 one lakh rupees, or with both.
(5) Nothing in this section—
(a) shall be taken to prejudice the operation of any rule of law restricting a
director of a company from having any concern or interest in any contract or arrangement
with the company;
(b) shall apply to any contract or arrangement entered into or to be entered into
between two companies where any of the directors of the one company or two or more
of them together holds or hold not more than two per cent. of the paid-up share capital
in the other company.
 
 
 
 

185.Loan and investment by company.

 

 
(1) Save as otherwise provided in this Act, no company shall, directly or indirectly,
advance any loan, including any loan represented by a book debt, to any of its directors or
to any other person in whom the director is interested or give any guarantee or provide any
security in connection with any loan taken by him or such other person:
Provided that nothing contained in this sub-section shall apply to—
(a) the giving of any loan to a managing or whole-time director—
(i) as a part of the conditions of service extended by the company to all its
employees; or
(ii) pursuant to any scheme approved by the members by a special
resolution; or
(b) a company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan and in respect of such
loans an interest is charged at a rate not less than the bank rate declared by the
Reserve Bank of India.
Explanation.—For the purposes of this section, the expression “to any other
person in whom director is interested” means—
(a) any director of the lending company, or of a company which is its
holding company or any partner or relative of any such director;
(b) any firm in which any such director or relative is a partner;
(c) any private company of which any such director is a director or member;
(d) any body corporate at a general meeting of which not less than twentyfive
per cent. of the total voting power may be exercised or controlled by any
such director, or by two or more such directors, together; or
(e) any body corporate, the Board of directors, managing director or
manager, whereof is accustomed to act in accordance with the directions or
instructions of the Board, or of any director or directors, of the lending company.
(2) If any loan is advanced or a guarantee or security is given or provided in
contravention of the provisions of sub-section (1), the company shall be punishable with
fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh
rupees, and the director or the other person to whom any loan is advanced or guarantee or
security is given or provided in connection with any loan taken by him or the other person,
shall be punishable with imprisonment which may extend to six months or with fine which
shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or
with both.
 
 
 
 
 

186.Loan and investment by company.

 

 
(1) Without prejudice to the provisions contained in this Act, a company shall
unless otherwise prescribed, make investment through not more than two layers of investment
companies:
Provided that the provisions of this sub-section shall not affect,—
(i) a company from acquiring any other company incorporated in a country
outside India if such other company has investment subsidiaries beyond two layers
as per the laws of such country;
(ii) a subsidiary company from having any investment subsidiary for the purposes
of meeting the requirements under any law or under any rule or regulation framed
under any law for the time being in force.
(2) No company shall directly or indirectly —
(a) give any loan to any person or other body corporate;
(b) give any guarantee or provide security in connection with a loan to any other
body corporate or person; and
(c) acquire by way of subscription, purchase or otherwise, the securities of any
other body corporate,
exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium
account or one hundred per cent. of its free reserves and securities premium account, whichever
is more.
(3) Where the giving of any loan or guarantee or providing any security or the
acquisition under sub-section (2) exceeds the limits specified in that sub-section, prior
approval by means of a special resolution passed at a general meeting shall be necessary.
(4) The company shall disclose to the members in the financial statement the full
particulars of the loans given, investment made or guarantee given or security provided and
the purpose for which the loan or guarantee or security is proposed to be utilised by the
recipient of the loan or guarantee or security.
(5) No investment shall be made or loan or guarantee or security given by the company
unless the resolution sanctioning it is passed at a meeting of the Board with the consent of
all the directors present at the meeting and the prior approval of the public financial institution
concerned where any term loan is subsisting, is obtained:
Provided that prior approval of a public financial institution shall not be required
where the aggregate of the loans and investments so far made, the amount for which guarantee
or security so far provided to or in all other bodies corporate, along with the investments,
loans, guarantee or security proposed to be made or given does not exceed the limit as
specified in sub-section (2), and there is no default in repayment of loan instalments or
payment of interest thereon as per the terms and conditions of such loan to the public
financial institution.
(6) No company, which is registered under section 12 of the Securities and Exchange
Board of India Act, 1992 and covered under such class or classes of companies as may be
prescribed, shall take inter-corporate loan or deposits exceeding the prescribed limit and
such company shall furnish in its financial statement the details of the loan or deposits.
(7) No loan shall be given under this section at a rate of interest lower than the
prevailing yield of one year, three year, five year or ten year Government Security closest to
the tenor of the loan.
(8) No company which is in default in the repayment of any deposits accepted before
or after the commencement of this Act or in payment of interest thereon, shall give any loan
or give any guarantee or provide any security or make an acquisition till such default is
subsisting.
(9) Every company giving loan or giving a guarantee or providing security or making
an acquisition under this section shall keep a register which shall contain such particulars
and shall be maintained in such manner as may be prescribed.
(10) The register referred to in sub-section (9) shall be kept at the registered office of
the company and —
(a) shall be open to inspection at such office; and
(b) extracts may be taken therefrom by any member, and copies thereof may
be furnished to any member of the company on payment of such fees as may be
prescribed.
(11) Nothing contained in this section, except sub-section (1), shall apply—
(a) to a loan made, guarantee given or security provided by a banking company
or an insurance company or a housing finance company in the ordinary course of its
business or a company engaged in the business of financing of companies or of
providing infrastructural facilities;
(b) to any acquisition—
(i) made by a non-banking financial company registered under
Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business
is acquisition of securities:
Provided that exemption to non-banking financial company shall be in
respect of its investment and lending activities;
(ii) made by a company whose principal business is the acquisition of
securities;
(iii) of shares allotted in pursuance of clause (a) of sub-section (1) of
section 62.
(12) The Central Government may make rules for the purposes of this section.
(13) If a company contravenes the provisions of this section, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which
may extend to five lakh rupees and every officer of the company who is in default shall be
punishable with imprisonment for a term which may extend to two years and with fine which
shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
Explanation.—For the purposes of this section,—
(a) the expression “investment company” means a company whose principal
business is the acquisition of shares, debentures or other securities;
(b) the expression “infrastructure facilities” means the facilities specified in
Schedule VI.
 
 
 
 

187.Investments of company to be held in its own name.

 

 
(1) All investments made or held by a company in any property, security or other
asset shall be made and held by it in its own name:
Provided that the company may hold any shares in its subsidiary company in the
name of any nominee or nominees of the company, if it is necessary to do so, to ensure
that the number of members of the subsidiary company is not reduced below the statutory
limit.
(2) Nothing in this section shall be deemed to prevent a company—
(a) from depositing with a bank, being the bankers of the company, any shares or
securities for the collection of any dividend or interest payable thereon; or
(b) from depositing with, or transferring to, or holding in the name of, the State
Bank of India or a scheduled bank, being the bankers of the company, shares or
securities, in order to facilitate the transfer thereof:
Provided that if within a period of six months from the date on which the shares
or securities are transferred by the company to, or are first held by the company in the
name of, the State Bank of India or a scheduled bank as aforesaid, no transfer of such
shares or securities takes place, the company shall, as soon as practicable after the
expiry of that period, have the shares or securities re-transferred to it from the State
Bank of India or the scheduled bank or, as the case may be, again hold the shares or
securities in its own name; or
(c) from depositing with, or transferring to, any person any shares or securities,
by way of security for the repayment of any loan advanced to the company or the
performance of any obligation undertaken by it;
(d) from holding investments in the name of a depository when such investments
are in the form of securities held by the company as a beneficial owner.
(3) Where in pursuance of clause (d) of sub-section (2), any shares or securities in
which investments have been made by a company are not held by it in its own name, the
company shall maintain a register which shall contain such particulars as may be prescribed
and such register shall be open to inspection by any member or debenture-holder of the
company without any charge during business hours subject to such reasonable restrictions
as the company may by its articles or in general meeting impose.
(4) If a company contravenes the provisions of this section, the company shall be
punishable with fine which shall not be less than twenty-five thousand rupees but which
may extend to twenty-five lakh rupees and every officer of the company who is in default
shall be punishable with imprisonment for a term which may extend to six months or with fine
which shall not be less than twenty-five thousand rupees but which may extend to one lakh
rupees, or with both.
 
 
 
 

188.Related party transactions.

 

 
(1) Except with the consent of the Board of Directors given by a resolution at a
meeting of the Board and subject to such conditions as may be prescribed, no company shall
enter into any contract or arrangement with a related party with respect to—
(a) sale, purchase or supply of any goods or materials;
(b) selling or otherwise disposing of, or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any services;
(e) appointment of any agent for purchase or sale of goods, materials, services
or property;
(f) such related party's appointment to any office or place of profit in the company,
its subsidiary company or associate company; and
(g) underwriting the subscription of any securities or derivatives thereof, of the
company:
Provided that no contract or arrangement, in the case of a company having a paid-up
share capital of not less than such amount, or transactions not exceeding such sums, as may
be prescribed, shall be entered into except with the prior approval of the company by a
special resolution:
Provided further that no member of the company shall vote on such special resolution,
to approve any contract or arrangement which may be entered into by the company, if such
member is a related party:
Provided also that nothing in this sub-section shall apply to any transactions entered
into by the company in its ordinary course of business other than transactions which are not
on an arm’s length basis.
Explanation.— In this sub-section,—
(a) the expression “office or place of profit” means any office or place—
(i) where such office or place is held by a director, if the director holding it
receives from the company anything by way of remuneration over and above
the remuneration to which he is entitled as director, by way of salary, fee,
commission, perquisites, any rent-free accommodation, or otherwise;
(ii) where such office or place is held by an individual other than a director
or by any firm, private company or other body corporate, if the individual, firm,
private company or body corporate holding it receives from the company anything
by way of remuneration, salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise;
(b) the expression “arm’s length transaction” means a transaction between two
related parties that is conducted as if they were unrelated, so that there is no conflict
of interest.
(2) Every contract or arrangement entered into under sub-section (1) shall be referred
to in the Board’s report to the shareholders along with the justification for entering into such
contract or arrangement.
(3) Where any contract or arrangement is entered into by a director or any other
employee, without obtaining the consent of the Board or approval by a special resolution in
the general meeting under sub-section (1) and if it is not ratified by the Board or, as the case
may be, by the shareholders at a meeting within three months from the date on which such
contract or arrangement was entered into, such contract or arrangement shall be voidable at
the option of the Board and if the contract or arrangement is with a related party to any
director, or is authorised by any other director, the directors concerned shall indemnify the
company against any loss incurred by it.
(4) Without prejudice to anything contained in sub-section (3), it shall be open to the
company to proceed against a director or any other employee who had entered into such
contract or arrangement in contravention of the provisions of this section for recovery of
any loss sustained by it as a result of such contract or arrangement.
(5) Any director or any other employee of a company, who had entered into or authorised
the contract or arrangement in violation of the provisions of this section shall,—
(i) in case of listed company, be punishable with imprisonment for a term which
may extend to one year or with fine which shall not be less than twenty-five thousand
rupees but which may extend to five lakh rupees, or with both; and
(ii) in case of any other company, be punishable with fine which shall not be less
than twenty-five thousand rupees but which may extend to five lakh rupees.
 
 
 
 

189.Register of contracts or arrangements in which directors are interested.

 

 
(1) Every company shall keep one or more registers giving separately the particulars
of all contracts or arrangements to which sub-section (2) of section 184 or section 188
applies, in such manner and containing such particulars as may be prescribed and after
entering the particulars, such register or registers shall be placed before the next meeting of
the Board and signed by all the directors present at the meeting.
(2) Every director or key managerial personnel shall, within a period of thirty days of
his appointment, or relinquishment of his office, as the case may be, disclose to the company
the particulars specified in sub-section (1) of section 184 relating to his concern or interest in
the other associations which are required to be included in the register under that
sub-section or such other information relating to himself as may be prescribed.
(3) The register referred to in sub-section (1) shall be kept at the registered office of the
company and it shall be open for inspection at such office during business hours and
extracts may be taken therefrom, and copies thereof as may be required by any member of the
company shall be furnished by the company to such extent, in such manner, and on payment
of such fees as may be prescribed.
(4) The register to be kept under this section shall also be produced at the commencement
of every annual general meeting of the company and shall remain open and accessible during
the continuance of the meeting to any person having the right to attend the meeting.
(5) Nothing contained in sub-section (1) shall apply to any contract or arrangement—
(a) for the sale, purchase or supply of any goods, materials or services if the
value of such goods and materials or the cost of such services does not exceed five
lakh rupees in the aggregate in any year; or
(b) by a banking company for the collection of bills in the ordinary course of its
business.
(6) Every director who fails to comply with the provisions of this section and the rules
made thereunder shall be liable to a penalty of twenty-five thousand rupees.
 
 
 
 
 

190.Contract of employment with managing or whole-time directors

 

 
(1) Every company shall keep at its registered office,—
(a) where a contract of service with a managing or whole-time director is in
writing, a copy of the contract; or
(b) where such a contract is not in writing, a written memorandum setting out its
terms.
(2) The copies of the contract or the memorandum kept under sub-section (1) shall be
open to inspection by any member of the company without payment of fee.
(3) If any default is made in complying with the provisions of sub-section (1) or
sub-section (2), the company shall be liable to a penalty of twenty-five thousand rupees and
every officer of the company who is in default shall be liable to a penalty of five thousand
rupees for each default.
(4) The provisions of this section shall not apply to a private company.
 
 
 
 

191.Payment to director for loss of office, etc., in connection with transfer of undertaking, property or shares.

 

 
(1) No director of a company shall, in connection with—
(a) the transfer of the whole or any part of any undertaking or property of the
company; or
(b) the transfer to any person of all or any of the shares in a company being a
transfer resulting from—
(i) an offer made to the general body of shareholders;
(ii) an offer made by or on behalf of some other body corporate with a view
to a company becoming a subsidiary company of such body corporate or a
subsidiary company of its holding company;
(iii) an offer made by or on behalf of an individual with a view to his
obtaining the right to exercise, or control the exercise of, not less than one-third
of the total voting power at any general meeting of the company; or
(iv) any other offer which is conditional on acceptance to a given extent,
receive any payment by way of compensation for loss of office or as consideration
for retirement from office, or in connection with such loss or retirement from
such company or from the transferee of such undertaking or property, or from
the transferees of shares or from any other person, not being such company,
unless particulars as may be prescribed with respect to the payment proposed to
be made by such transferee or person, including the amount thereof, have been
disclosed to the members of the company and the proposal has been approved
by the company in general meeting.
(2) Nothing in sub-section (1) shall affect any payment made by a company to a
managing director or whole-time director or manager of the company by way of compensation
for loss of office or as consideration for retirement from office or in connection with such loss
or retirement subject to limits or priorities, as may be prescribed.
(3) If the payment under sub-section (1) or sub-section (2) is not approved for want of
quorum either in a meeting or an adjourned meeting, the proposal shall not be deemed to
have been approved.
(4) Where a director of a company receives payment of any amount in contravention
of sub-section (1) or the proposed payment is made before it is approved in the meeting, the
amount so received by the director shall be deemed to have been received by him in trust for
the company.
(5) If a director of the company contravenes the provisions of this section, such
director shall be punishable with fine which shall not be less than twenty-five thousand
rupees but which may extend to one lakh rupees.
(6) Nothing in this section shall be taken to prejudice the operation of any law requiring
disclosure to be made with respect to any payment received under this section or such other
like payments made to a director.
 
 
 
 

192.Restriction on non-cash transactions involving directors.

 

 
(1) No company shall enter into an arrangement by which—
(a) a director of the company or its holding, subsidiary or associate company or
a person connected with him acquires or is to acquire assets for consideration other
than cash, from the company; or
(b) the company acquires or is to acquire assets for consideration other than
cash, from such director or person so connected,
unless prior approval for such arrangement is accorded by a resolution of the company in
general meeting and if the director or connected person is a director of its holding company,
approval under this sub-section shall also be required to be obtained by passing a resolution
in general meeting of the holding company.
(2) The notice for approval of the resolution by the company or holding company in
general meeting under sub-section (1) shall include the particulars of the arrangement along
with the value of the assets involved in such arrangement duly calculated by a registered
valuer.
(3) Any arrangement entered into by a company or its holding company in contravention
of the provisions of this section shall be voidable at the instance of the company unless—
(a) the restitution of any money or other consideration which is the subjectmatter
of the arrangement is no longer possible and the company has been indemnified
by any other person for any loss or damage caused to it; or
(b) any rights are acquired bona fide for value and without notice of the
contravention of the provisions of this section by any other person.
 
 
 
 

193.Contract by One Person Company.

 

 
(1) Where One Person Company limited by shares or by guarantee enters into a
contract with the sole member of the company who is also the director of the company, the
company shall, unless the contract is in writing, ensure that the terms of the contract or offer
are contained in a memorandum or are recorded in the minutes of the first meeting of the
Board of Directors of the company held next after entering into contract:
Provided that nothing in this sub-section shall apply to contracts entered into by the
company in the ordinary course of its business.
(2) The company shall inform the Registrar about every contract entered into by the
company and recorded in the minutes of the meeting of its Board of Directors under
sub-section (1) within a period of fifteen days of the date of approval by the Board of
Directors.
 
 
 
 

194.Prohibition on forward dealings in securities of company by director or key managerial personnel.

 

 
(1) No director of a company or any of its key managerial personnel shall buy in
the company, or in its holding, subsidiary or associate company—
(a) a right to call for delivery or a right to make delivery at a specified price and
within a specified time, of a specified number of relevant shares or a specified amount
of relevant debentures; or
(b) a right, as he may elect, to call for delivery or to make delivery at a specified
price and within a specified time, of a specified number of relevant shares or a specified
amount of relevant debentures.
(2) If a director or any key managerial personnel of the company contravenes the
provisions of sub-section (1), such director or key managerial personnel shall be punishable
with imprisonment for a term which may extend to two years or with fine which shall not be
less than one lakh rupees but which may extend to five lakh rupees, or with both.
(3) Where a director or other key managerial personnel acquires any securities in
contravention of sub-section (1), he shall, subject to the provisions contained in
sub-section (2), be liable to surrender the same to the company and the company shall
not register the securities so acquired in his name in the register, and if they are in
dematerialised form, it shall inform the depository not to record such acquisition and
such securities, in both the cases, shall continue to remain in the names of the transferors.
Explanation.—For the purposes of this section, ‘‘relevant shares’’ and ‘‘relevant
debentures’’ mean shares and debentures of the company in which the concerned person is
a whole-time director or other key managerial personnel or shares and debentures of its
holding and subsidiary companies.
 
 
 
 

195. Prohibition on insider trading of securities.

 

 
(1) No person including any director or key managerial personnel of a company
shall enter into insider trading:
Provided that nothing contained in this sub-section shall apply to any communication
required in the ordinary course of business or profession or employment or under any law.
Explanation.—For the purposes of this section,—
(a) “insider trading” means—
(i) an act of subscribing, buying, selling, dealing or agreeing to subscribe,
buy, sell or deal in any securities by any director or key managerial personnel
or any other officer of a company either as principal or agent if such director or
key managerial personnel or any other officer of the company is reasonably
expected to have access to any non-public price sensitive information in respect
of securities of company; or
(ii) an act of counselling about procuring or communicating directly or
indirectly any non-public price-sensitive information to any person;
(b) “price-sensitive information” means any information which relates, directly
or indirectly, to a company and which if published is likely to materially affect the price
of securities of the company.
(2) If any person contravenes the provisions of this section, he shall be punishable
with imprisonment for a term which may extend to five years or with fine which shall not be
less than five lakh rupees but which may extend to twenty-five crore rupees or three times
the amount of profits made out of insider trading, whichever is higher, or with both.

 

Quick Menu
 
 

Quick Links

Latest news

Information Sharing

Bookmark and Share
Total Visitors: 208911 Copyrights © Online Professionals Solutions Pvt Ltd. All Rights Reserved.