(Part I)|(Part II)|(Part III)|(Part IV)|(Part V)|(Part VI)|(Part VII)|(Part VIII)
Resolutions requiring special notice.
190. Resolutions requiring special notice.-(1) Where, by any pro- vision contained in this Act or in the articles, special notice is required of any resolution, notice of the intention to move the resolution shall be given-to the company not less than twenty-eight days before the meeting at which it is to be moved, exclusive of the day on which the notice is served or deemed to be served and. the day of the meetIng. ( 2) The company shall give its members notice of any such reso- lution at the same time and in the same manner as it gives notice of the meeting, or if that is not practicable, shall give them notice thereof, either by advertisement in a newspaper having an appropriate circulation or in any other mode allowed by the articles, not. less than twenty-one days before the meeting.
(3) If, after notice of the intention to move such a resolution has been given to the company, a meeting is called for a date twenty- eight days or less after the notice has been given, then,
notwithstanding anything contained in sub-sections (1) and (2), the notice, though not given within the time required by this section, shall be deemed to have been properly given for the purposes thereof.
Resolutions passed at adjourned meetings. 191. Resolutions passed at adjourned meetings.-Where a resolution is passed at an adjourned meeting of- (a) a company; (b) the holders of any class of shares in a company; or (c) the Board of directors of a company; the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact passed, and shall not be deemed to have been passed on any earlier date, 130
Registration of certain resolutions and agreements.
192. Registration of certain resolutions and agreements.-(1) A copy. of every resolution or agreement to which this section applies shall, within fifteen days after the passing or making thereof, be printed or typewritten and duly certified under the signature of an officer of the company and filed with the Registrar who shall record the same,
(2) Where articles have been registered, a copy of every such resolution or agreement for the time being in force shall be embodied in or annexed to every copy of the articles issued after the passing of the resolution or the making of the agreement.
(3) Where articles have not been registered, a printed copy of every such resolution or agreement shall be forwarded to any member at his request, on payment of one rupee.
(4) This section shall apply to- (a) special resolutions; (b) resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolutions; (c) any resolution of the Board of directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director; (d) any agreement relating to the appointment, re-appoint- ment or renewal of the appointment of a managing agent or secretaries and treasurers for a company, or varying the terms of any such agreement, executed by the company; (e) resolutions or agreements which have been agreed to by all the members of any class of shareholders but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by some particular majority or otherwise in some particular manner; and all resolutions or agreements which effectively bind all the members of any class of shareholders though not agreed to by all those members; and (f) resolutions requiring a company to be wound up volun-
tarily passed in pursuance of sub-section (1) of section 484.
(5) If default is made in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to twenty rupees for every day during which the default continues.
(6) If default is made in complying with sub-section (2) or (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten rupees for each copy in respect of which default is made.
(7) For the purposes of sub-sections (5) and (6), the liquidator of a company shall be deemed to be an officer of the company.
Minutes of proceedings of general meetings and of Board and othermeetings. 193. Minutes of proceedings of general meetings and of Board
and other meetings.-(1) Every company shall cause minutes of all proceedings of general meetings, and of all proceedings at meetings 131 of its Board of directors or of committees of the Board, to be entered in books kept for that purpose.
(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.
(3) All appointments of officers made at any of the meetings aforesaid shall be included in the minutes of the meeting.
(4) 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 in, the resolution.
(5) Nothing contained in sub-sections (1) to (4) shall be deemed to require the inclusion in any such minutes of any matter which, in the opinion of the chairman of the meeting- (a) is, or could reasonably be regarded as, defamatory of any person; (b) is irrelevant or immaterial to the proceedings; or (c) is detrimental to the interests of the company. Explanation.-The chairman shall exercise an absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in this sub-section.
(6) If default is made in complying with the foregoing provi- sions of this section in respect of any meeting, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees.
Minutes to be evidence. 194. Minutes to be evidence.-Any such minute, if purporting to be signed by the chairman of the meeting at which the proceedings took place or by the chairman of the next succeeding meeting, shall be evidence of the proceedings.
Presumptions to be drawn where minutes duly drawn and signed. 195. Presumptions to be drawn where minutes duly drawn and signed.-Where minutes of the proceedings of any general meeting of the company or of any meeting of its Board of directors or of a committee of the Board have been made and signed in accordance with the provisions of sections 193 and 194, then, 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 in particular, all-appointments of directors or liquidators made at the meeting shall be deemed to be valid.
Inspection of minute books of general meetings.
196. Inspection of minute books of general meetings.-(1) The books containing the minutes of the proceedings of any general meeting of a company held on or after the 15th day of January, 1937, shall- (a) be kept at the registered office of the company, and (b) be open, during business hours, to the inspection of any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting impose, so however that not less than two hours in each day are allowed for inspection. 132
(2) Any member shall be entitled to be furnished, within seven days after he has made a request in that behalf to the company, with a
copy of any minutes referred to in sub-section (1), on payment of six annas for every one hundred words or fractional part thereof required to be copied.
(3) If any inspection required under sub-section (1) is refused,
or if any copy required under sub-section (2) is not furnished within the time specified therein, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees in respect of each offence.
(4) In the case of any such refusal or default, the Court may, by order, compel an immediate inspection of the minute books or direct that the copy required shall forthwith be sent to the person requiring it.
Publication of reports of proceedings of general meetings. 197. Publication of reports of proceedings of general meetings.-
(1) No document purporting to be a report of the proceedings of any general meeting of a company shall be circulated or advertised at the expense of the company, unless it includes the matters required by section 193 to be contained in the minutes of the proceedings of such meeting.
(2) If any report is circulated or advertised in contravention
of sub-section (1), the company, and every officer of the company who is in default, shall be punishable, in respect of each offence, with fine which may extend to five hundred rupees. Managerial remuneration, etc.
Overall maximum managerial remuneration and minimum managerialremuneration in the absence or inadequacy of profits. 198. Overall maximum managerial remuneration and minimum
managerial remuneration in the absence or inadequacy of profits.(1) Save as otherwise expressly provided in this Act, in the case of a public company or a private company which is a subsidiary of a public company, the total remuneration payable by the company to its directors, its managing agent or secretaries and treasurers, if any, and its manager, if any, shall not exceed eleven per cent. of the net profits of the company, computed in the manner laid down in sections 349, 350 and 351, except that the remuneration of the directors shall not be deducted from the gross profits.
(2) The percentage aforesaid shall be exclusive of an fees pay- able to directors for meetings of the Board attended by them.
(3) Nothing contained in sub-sections (1) and (2) shall be deemed- (a) to prohibit the payment of a monthly remuneration to directors in accordance with the provisions of section 309 or to a manager in accordance with the provisions of section 387; or (b) to affect the operation of sections 352, 353, 354, 356, 357, 358, 359 or 360.
(4) Notwithstanding anything contained in sub-sections (1) to
(3), if in any financial year, a company has no profits or its profits are inadequate, the company may pay to any director or directors including managing or whole-time directors, if any, its managing agent or secretaries and treasurers, if any, and Its manager, if any, or if there are two or more of them holding office in the’ company, 133 to all of them together, by way of minimum remuneration, such sum not exceeding fifty thousand rupees per annum as it considers reasonable: Provided that where a monthly payment is being made or is pro- posed to be made to any managing or whole-time director or directors and the manager or to any one or more of them and the Central Government is satisfied that for the efficient conduct of the business of the company, the minimum remuneration of fifty thousand rupees per annum. is or will be insufficient, the Central Government may, by order, sanction an increase in the minimum remuneration to such sum, for such period, and subject to such conditions, if any, as may be specified in the order.
Calculation of commission etc., in certain cases.
199. Calculation of commission etc., in certain cases.-(1) Where any commission or other remuneration payable to any officer or employee of a company (not being a director, the managing agent, secretaries and treasurers or a manager) is fixed at a percentage of, or is otherwise based on, the net profits of the company, such profits shall be calculated in the manner set out in sections 349, 350 and
(2) Any provision in force at the commencement of this Act for the payment of any commission or other remuneration in any manner based on the net profits of a company, shall continue to be in force for a period of one year from such commencement; and thereafter shall
become subject to the provisions of sub-section (1).
Prohibition of tax-free payments.
200. Prohibition of tax-free payments.-(1) No company shall pay to any officer or employee thereof, whether in his capacity as such or otherwise, remuneration free of any tax, or otherwise calculated by reference to, or varying with, any tax payable by him, or the rate or standard rate of any such tax, or the amount thereof. Explanation.-In this sub-section, the expression “tax” comprises any kind of income-tax including super-tax.
(2) Where by virtue of any provision in force immediately before the commencement of this Act, whether contained in the company’s articles, or in any contract made with the company, or in any resolution passed by the company in general meeting or by the company’s Board of directors, any officer or employee of the company holding any office at the commencement of this Act is entitled to
remuneration in any of the modes prohibited by sub-section (1), such provision shall have effect during the residue of the term for which he is entitled to hold such office at such commencement, as if it provided instead for the payment of a gross sum subject to the tax in question, which, after deducting such tax, would yield the net sum actually specified in such provision.
(3) This section shall not apply to any remuneration- (a) which fell due before the commencement of this Act, or (b) which may fall due after the commencement of this Act, in respect of any period before such commencement. 134
Avoidance of provisions relieving liability of officers and auditorsof company. 201. Avoidance of provisions relieving liability of officers
and auditors of company.-(1) Save as provided in this section, any provision, whether contained in the articles of a company or in an agreement with a company or in any other instrument, for exempting any officer of the company or any person employed by the company as auditor from, or indemnifying him against, any liability which, by virtue of any rule of law, would otherwise attach to him in respect of any negligence, default, misfeasance, breach of duty or breach of trust of which he may be guilty in relation to the company, shall be void: Provided that a company may, in pursuance of any such provision as aforesaid, indemnify any such officer or auditor against any liability incurred by him in defending any proceedings, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or discharged or in connection with any application under section 633 in which relief is granted to him by the Court.
(2) Nothing contained In the proviso to sub-section (1) shall apply to the constituted attorney of the managing agent of a company, unless such attorney is, or is deemed to be, an officer of the company. Prevention of management by undesirable persons
Undischarged insolvent not to manage companies.
202. Undischarged insolvent not to manage companies.-(1) If any person, being an undischarged insolvent,- (a) discharges any of the functions of a director, or acts as or discharges any of the functions of the managing agent, secretaries and treasurers, or manager, of any company; or (b) directly or indirectly takes part or is concerned in the promotion, formation or management of any company; he shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both.
(2) In this section, “company” includes- (a) an unregistered company; and (b) a body corporate incorporated outside India, which has an established place of business within India. 203 Power to restrain fraudulent persons from managing Companies. 203. Power to restrain fraudulent persons from managing
Companies.-(1) Where- (a) a person is convicted of any offence in connection with the promotion, formation or management of a company; or 135 (b) in the course of winding up a company it appears that a person- (i) has been guilty of any offence for which he is punishable (whether he has been convicted or not) under section 542; or (ii) has otherwise been guilty, while an officer of the company, of any fraud or misfeasance in relation to the company or of any breach of his duty to the company; the Court may make an order that that person shall not, without the leave of the Court, be a director of, or in any way, whether directly or indirectly, be concerned or take part in the promotion, formation or management of a company, for such period not exceeding five years as may be specified in the order.
(2) In sub-section (1), the expression “the Court”,- (a) in relation to the making of an order against any person by ‘virtue of clause (a) thereof, includes the-Court by which he is convicted, as well as any Court having jurisdiction to wind up the company as respects which the offence was committed; and (b) in relation to the granting of leave, means any Court having jurisdiction to wind up the company as respects which leave is sought.
(3) A person intending to apply for the making of an order under this section by the Court having jurisdiction to wind up a company shall give not less than ten days’ notice of his intention to the person against whom the order is sought, and at the hearing of the application, the last-mentioned person may appear and himself give evidence or call witnesses.
(4) An application for the making of an order under this section by the Court having jurisdiction to wind up a company may be made by the Official Liquidator, or by the liquidator of the company, or by any person who is or has been a member or creditor of the company.
(5) On the hearing of any application for an order under this section by the Official Liquidator or the liquidator, or of any application for leave under this section by a person against whom an order ha been made on the application’ of the Official liquidator or liquidator, the Official Liquidator or liquidator shall appear and call the attention of the Court to any matters which seem to him to be relevant, and may himself give evidence or call witnesses.
(6) An order may be made by virtue of sub-clause (ii) of clause
(b) of sub-section (1), notwithstanding that the person concerned may be criminally liable in respect of the matters on the ground of which the order is to be made, and for the purposes of the said sub-clause (ii), the expression “officer” shall include any person in accordance with whose directions or instructions the Board of directors of the company has been accustomed to act.
(7) If any person act-, in contravention of an order made under this section, he shall, in respect of each offence, be punishable with 136 imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both.
(8) The provisions of this section shall be in addition to, and without prejudice to the operation of, any other provision contained in this Act. Restriction on appointment of firms and bodies corporate to offices
Restriction on appointment of firm or body corporate to office orplace of profit under a company. 204. Restriction on appointment of firm or body corporate to
office or place of profit under a company.-(1) Save as provided in
sub-section (2), no company shall, after the commencement of this Act, appoint or employ any firm or body corporate to or in any office or place of profit under the company, other than the office of managing agent or secretaries and treasurers, for a term exceeding five years at a time.
(2) Sub-section (1) shall not apply to the appointment or em- ployment of a firm or body corporate as a technician or a consultant,- (i) unless the firm or body corporate aforesaid is already the managing agent or secretaries and treasurers of the com- pany; or (ii) unless a partner in the firm aforesaid, or a director or member of the body corporate aforesaid being a private company, or a director of the body corporate aforesaid not being a private company, is- already the managing agent of the company; or a member of the firm, a director or member of the private company, or a director of the body corporate not-being a private company, which firm, private company or body cor- porate is already the managing agent or the secretaries an treasurers of the company.
(3) Any firm or body corporate holding at the commencement of this Act any office or place of profit under the company shall, unless its term of office expires earlier, be deemed to have vacated its office immediately on the expiry of five years from the commencement of this Act.
(4) Nothing contained in sub-section (1) shall be deemed to prohibit the re-appointment, re-employment, or extension of the term of office, of any firm or body corporate by further periods not exceeding five years on each occasion: Provided that any such re-appointment, re-employment or extension shall not be sanctioned earlier than two years from the date on which it is to come into force.
(5) Any office or place in a company shall be deemed to be an office or place of profit under the company, within the meaning of this section, if the person holding it obtains anything by way of remuneration, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.
(6) This section shall not apply to a private company, unless it is a subsidiary of a public company, 137 Dividends and manner and time of payment thereof
Dividend to be paid only out of profits. 205. Dividend to be paid only out of profits.-No dividend shall be declared or paid except out of the profits of the company or out of moneys provided by the Central or a State Government for the payment of the dividend in pursuance of a guarantee given by such Government. Explanation.-Nothing in this section shall be deemed to affect in any mariner the operation of section 208.
Dividend not to be paid except to registered shareholders or to theirorder or to their bankers. 206. Dividend not to be paid except to registered
shareholders or to their order or to their bankers.-(1) No dividend shall be paid by a company in respect of any share therein, except- (a) to the registered holder of such share or to his order or to his bankers; or (b) in case a share warrant has been issued in respect of the share in pursuance of section 114, to the bearer of such warrant or to his bankers.
(2) Nothing contained in sub-section (1) shall be deemed to require the bankers of a registered shareholder to make a separate application to the company for the payment of the dividend.
Penalty for failure to distribute dividends within three months. 207. Penalty for failure to distribute dividends within three months.-Where a dividend has been declared by a company but has not been paid, or the warrant in respect thereof has not been posted, within three months from the date of the declaration, to any shareholder entitled to the payment of the dividend, every director of the company; its managing agent or secretaries and treasurers; and where the managing agent is a firm or body corporate, every partner in the firm and every director of the body corporate; and where the secretaries and treasurers are a firm, every partner in the firm and where they are a body corporate, every director thereof; shall, if he is knowingly a party to the default, be punishable with simple imprisonment for a term which may extend to seven days and shall also be liable to fine: Provided that no offence shall be deemed to have been committed within the meaning of the foregoing provision in the following cases, namely: – (a) where the dividend could not be paid by reason of the operation of any law; (b) where a shareholder has given directions to the company regarding the payment of the dividend and those directions cannot be complied with; (c) where there is a dispute regarding the right to receive the dividend; (d) where the dividend has been lawfully adjusted by the company against any sum due to It from the shareholder; or (e) where, for any other reason, the failure to pay the dividend or to post the warrant within the period aforesaid was not due to any default on the part of the company. 138 Payments of interest out of capital
Power of company to pay interest out of capital in certain cases. 208. Power of company to pay interest out of capital in certain
cases.-(1) Where any shares in a company are issued for the purpose of raising money to defray the expenses of the construction of any work or building, or the provision of any plant, which cannot be made profitable for a lengthy period, the company may- (a) pay interest on so much of that share capital as is for the time being paid up, for the period and subject to the
conditions and restrictions mentioned in sub-sections (2) to
(7); and (b) charge the sum so paid by way of interest, to capital as part of the cost of construction of the work or building or the provision of the plant.
(2) No such payment shall be made unless it is authorised by the articles or by a special resolution.
(3) No such payment, whether authorised by the articles or by special resolution, shall be made without the previous sanction of the Central Government. The grant of such sanction shall be conclusive evidence, for the purposes of this section, that the shares of the company, in respect of which such sanction is given, have been issued for a purpose specified in this section.
(4) Before sanctioning any such payment, the Central Government may, at the expense of the company, appoint a person to inquire into, and report to the Central Government on, the circumstances of, the case; and may, before making the appointment, require the company to give security for the payment of the costs, of the inquiry.
(5) The payment of interest shall be made only for such period as may be determined by the Central Government; and that period shall in no case extend beyond the close of the half-year next after the half-year during which the work or building has been actually completed or the plant provided.
(6) The rate of interest shall in no case exceed four per cent. per annum or such other rate as the Central Government may, by notifi- cation in the Official Gazette, direct.
(7) The payment of the interest shall not operate as a reduction of the amount paid up on the shares in respect of which it is paid.
(8) Nothing in this section shall affect any company to which the Indian Railway Companies Act, 1895 (10 of 1895), or the Indian Tramways Act, 1902 (4 of 1902), applies. Accounts
Books of account to be kept by company.
209. Books of account to be kept by company.-(1) Every company shall keep at its registered office or at such other place in India as the Board of directors thinks fit, proper books of account with respect to- (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expendi- ture take place; (b) all sales and purchases of goods by the company; and (c) the assets and liabilities of the company. 139
(2) Where a company has a branch office, whether in or outside India, the company shall be deemed to have complied with the pro-
visions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns, made up to dates at intervals of not more than three months, are sent by the branch office to the company at its registered office or the other place referred to in subsection
(1).
(3) For the purposes of sub-sections (1) and (2), proper books of account shall not be deemed to be kept with respect to the matters specified therein, if there are not kept such books as are necessary to give a true and fair view of the state of the affairs of the company or branch office, as the case may be, and to explain its transactions.
(4) The books of account shall be open to inspection by any director during business hours.
(5) If any of the persons referred to in sub-section (6) fails to take all reasonable steps to secure compliance by the company with the requirements of this section, or has by his own wilful act been the cause of any default by the company thereunder, he shall, in res- pect of each offence, be punishable with fine which, may extend to one thousand rupees: Provided that in any proceedings against a person in respect of an offence under this section consisting of a failure to take reasonable steps to secure compliance by the company with the requirements of this section, it shall be a defence to prove that he had reasonable ground to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that those requirements were complied with and was in a position to discharge that duty.
(6) The persons referred to in sub-section (5) are the following, namely:- (a) where the company has a managing agent or secretaries and treasurers, such managing agent or secretaries and treasurers; (b) where such managing agent or secretaries and treasurers are a firm, every partner in the firm; (c) where such managing agent or secretaries and treasurers are a body corporate, every director of such body corporate; and (d) where the company has neither a managing agent nor secretaries and treasurers, every director of the company.
(7) I f any person, not being a person referred to in sub-
section (6), having been charged by the managing agent, secretaries and treasurers, or Board of directors, as the case may be, with the duty, of seeing that the requirements of this section are complied with, makes, default in doing so, he shall, in respect of each offence, be punishable with fine which may extend to one thousand rupees.
Annual accounts and balance sheet.
210. Annual accounts and balance sheet.-(1) At every annual general meeting of a company held in pursuance of section 166, 140 the Board of directors of the company shall lay before the company- (a) a balance sheet as at the end of the period specified in
sub-section (3); and (b) a profit and loss account for that period.
(2) In the case of a company not carrying on business for profit, an income and expenditure account shall be laid before the company at its annual general meeting instead of a profit and loss account, and all references to “profit and loss account”, “profit” and “loss” in this section and elsewhere in this Act, shall be construed, In relation to such a company, as references respectively to the “income and expenditure account,” “the excess of income over expenditure,” and “the excess of expenditure over income”.
(3) The profit and loss account shall relate- (a) in the case of the first annual general meeting of the company, to the period beginning with the incorporation of the company and ending with a day which shall not precede the day of the meeting by more than nine months; and (b) in the case of any subsequent annual general meeting of the company, to the period beginning with the day immediately after the period for which the account was last submitted and ending with a day which shall not precede the day of the meeting by more than nine months, or in cases where an extension of time has been granted for holding the meeting
under the proviso to section 166(1)(c), by more than nine months and the extension so granted.
(4) The period to which the account aforesaid relates is referred to in this Act as a “financial year”; and it may be less or more than a calendar year, but it shall not exceed fifteen months: Provided that it may extend to eighteen months where special permission has been granted in that behalf by the Registrar.
(5) If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of this section, he shall, In respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both: Provided that In any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that he had reasonable ground to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that the provisions of this section were complied with and was in a position to discharge that duty: Provided further that no person shall be sentenced to imprison- ment for any such offence unless it was committed wilfully.
(6) If any person, not being a director of the company, having been charged by the Board of directors with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both: 141 Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.
Form and contents of balance sheet and profit and loss account. 211. Form and contents of balance sheet and profit and loss
account.-(1) Every balance sheet of a company shall give a true and fair view of the state of affairs of the company as at the end of the financial year and shall, subject to the provisions of this section, be in the Form set out in Part I of Schedule VI, or as near thereto as circumstances admit: Provided that nothing contained in this sub-section shall apply to any insurance or banking company, or to any other class of company ‘or which a form of balance sheet has been specified in or under the Act governing such class of company.
(2) Every profit and loss account of a company shall give a true and fair view of the profit or loss of the company for the financial year and shall, subject as aforesaid, comply with the requirements of Part II of Schedule VI, so far as they are applicable thereto: Provided that nothing contained in this sub-section shall apply to any insurance or banking company, or to any other class of company for which a form of profit and loss account has been specified In or under the Act governing such class of company.
(3) The Central Government may, by notification in the Official Gazette, exempt any class of companies from compliance with any of the requirements in Schedule VI if, in its opinion, It is necessary to grant the exemption in the national interest. Any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification.
(4) The Central Government may, on the application or with the consent of the Board of directors of the company, by order, modify in relation to that company any of the requirements of this Act an to the matters to be stated in the company’s balance sheet or profit and loss account for the purpose of adapting them to the circumstances of the company.
(5) The balance sheet and the profit and loss account of a com- pany shall not be treated as not disclosing a true and fair view of the state of affairs of the company, merely by reason of the fact that they do not disclose- (i) In the case of an insurance company, any matters which are not required to be disclosed by the Insurance Act, 1938 (4 of 1938); (ii) in the case of a banking company, any matters which are not required to be disclosed by the Banking Companies Act, 1949 (10 of 1949) ; (iii) in the case of a company engaged in the generation or supply of electricity, any matters which are not required to be disclosed by the Electricity (Supply) Act, 1948, (54 of 1948); (iv) in the case of a company governed by any other special Act for the time being in force, any matters which are not required to be disclosed by that special Act; or 142 (v) in the case of any company, any matters which are not required to be disclosed by virtue of the provisions contained in Schedule VI or by virtue of a notification
issued under sub-section (3) or an order issued under sub-
section (4).
(6) For the purposes of this section, except where the context otherwise requires, any reference to a balance sheet or profit and loss account shall include any notes thereon or documents annexed thereto, giving information required by this Act, and allowed by this Act to be given in the form of such notes or documents.
(7) If any such person as is referred to in sub-section (6) of section 209 fails to take all reasonable steps to secure compliance by the company, as respects any Accounts laid before the company in general meeting, with the provisions of this section and with the other requirements of this Act as to the matters to be stated in the accounts, he shall, in respect of each offence, be punishable with im- prisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both: Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that he had reasonable ground to believe and did believe that a competent and reliable person was charged with the duty of seeing that the provisions of this section and the other requirements aforesaid were complied with and was in a position to discharge that duty: Provided further that no person shall be sentenced to imprison- ment for any such offence unless it was committed wilfully.
(8) If any person, not being a person referred to in sub-section
(6) of section 209, having been charged by the managing agent, sec- retaries and treasurers, or Board of directors, as the case may be, with the duty of seeing that the provisions of this section and the other requirements aforesaid are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with im- prisonment for a term which may extend to six months or with fine which may extend to one thousand rupees, or with both: Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.
Balance sheet of holding company to include certain particulars as toits subsidiaries. 212. Balance sheet of holding company to include certain
particulars as to its subsidiaries.-(1) There shall be attached to the balance sheet of a holding company having a subsidiary or subsidiaries at the end of the financial year as at which the holding company’s balance sheet is made out, the following documents in respect of such subsidiary or of each such subsidiary, as the case may be: – (a) a copy of the balance sheet of the subsidiary; (b) a copy of its profit and loss account; (c) a copy of the report of its Board of directors; (d) a copy of the report of its auditors; (e) a statement of the holding company’s interest in the
subsidiary as specified in sub-section (3);
(f) the statement referred to in sub-section (5), if any; and 143
(g) the report referred to in sub-section (6), if any.
(2) (a) The balance sheet referred to in clause (a) of sub-
section (1) shall be made out, in accordance with the requirements of this Act, as at the end of the financial year of the subsidiary next before the day as at which the holding company’s balance sheet is made out. (b) The profit and loss account and the reports of the Board of directors and of the auditors, referred to in clauses (b), (c) and (d)
of sub-section (1), shall be made out, in accordance with the requirements of this Act, for the financial year of the subsidiary referred to in clause (a). (c) The financial year aforesaid of the subsidiary shall not end on a day which precedes the day on which the holding company’s financial year ends by more than six months. (d)- Where the financial year of a subsidiary is shorter in duration than that of its holding company, references to the financial year of the subsidiary in clauses (a), (b) and (c) shall be construed as references to two or more financial years of the subsidiary the duration of which, in the aggregate, is not less than the duration of the holding company’s financial year.
(3) The statement referred to in clause (e) of sub-section (1) shall specify- (a) the extent of the holding company’s interest in the subsidiary at the end of the financial year or of the last of the financial years of the subsidiary referred to in sub-
section (2) ; (b) the net aggregate amount, so far as it concerns members of the holding company and is not dealt with in the company’s accounts, of the subsidiary’s profits after deducting its losses or vice versa- (i) for the financial year or years of the subsidiary aforesaid ; and (ii) for the’ previous financial years of the subsidiary since it became the holding company’s subsidiary; (c) the net aggregate amount of the profits of the subsidiary after deducting its losses or vice versa- (i) for the financial year or years of the subsidiary aforesaid ; and (ii) for the previous financial years of the subsidiary since it became the holding company’s subsidiary; so far as those profits are dealt with, or provision is made for those losses, in the company’s accounts.
(4) Clauses (b) and (c) of sub-section (3) shall apply only to profits and losses of the subsidiary which may properly be treated in the holding company’s accounts as revenue profits or losses, and the profits or losses attributable to any shares in a subsidiary for the time being held by the, holding company or any other of its subsi- diaries shall not (for that or any other purpose) be treated as afore- said so far as they are profits or losses for the period before the date 144 on or as from which the shares were acquired by the company or any of its subsidiaries, except that they may in a proper case be so treated where- (a) the company is itself the subsidiary of another body corporate; and (b) the shares were acquired from that body corporate or a subsidiary of it; and for the purpose of determining whether any profits or losses are to be treated as profits or losses for the said period, the profit or loss for any financial year of the subsidiary may, if it is not practicable to apportion it With reasonable accuracy by reference to the facts, be treated as accruing from day to day during that year and be apportioned accordingly.
(5) Where the financial year or years of a subsidiary referred
to in sub-section (2) do not coincide with the financial year of the holding company, a statement containing information on the following matters shall also be attached to the balance sheet of the holding company:- (a) whether there has been any, and, if so, what change in the holding company’s interest in the subsidiary between the end of the financial year or of the last of the financial years of the subsidiary and the end of the holding company’s financial year; (b) details of any material changes which have occurred between the end of the financial year or of the last of the financial years of the subsidiary and the end of the holding company’s financial year in respect of- (i) the subsidiary’s fixed assets; (ii) its investments; (iii) the moneys lent by it; (iv) the moneys borrowed by it for any purpose other than that of meeting current liabilities.
(6) If, for any reason, the Board of directors of the holding company is unable to obtain information on any of the matters required
to be specified by sub-section (4), a report in writing to that effect shall be attached to the balance sheet of the holding company.
(7) The documents referred to in clauses (e), (f) and (g) of
subsection (1) shall be signed by the persons by whom the balance sheet of the holding company is required to be signed.
(8) The Central Government may, on the application or with the consent of the Board of directors of the company, direct that in relation to any subsidiary, the provisions of this section shall not apply, or shall apply only to such extent. as may be specified in the direction.
(9) If any such person as is referred to in sub-section (6) of section 209 fails to take all reasonable steps to comply with the provisions of this section, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both: 145 Provided that in any proceedings against a person in respect of an offence under this section, it shall be a defence to prove that he had reasonable ground to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that the provisions of this section were complied with and was in a position to discharge that duty: Provided further that no person shall be sentenced to imprison- ment for any such offence unless it was committed wilfully.
(10) If any person, not being a person referred to in sub-section
(6) of section 209, having been charged by the managing agent, secretaries and treasurers, or Board of directors, as the case may be, with the duty of seeing that the provisions of this section are complied with, makes default in doing so, he shall in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both: Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully.
Financial year of holding company and subsidiary,
213. Financial year of holding company and subsidiary,–(1) Where it appears to the Central Government desirable for a holding company or a holding company’s subsidiary, to extend its financial year so that the subsidiary’s financial year may end with that of the holding company, and for that purpose to postpone the submission of the relevant accounts to a general meeting, the Central Government may, on the application or with the consent of the Board of directors of the company whose financial year is to be extended, direct that in the case of that company, the submission of accounts to a general meeting, the holding of an annual general meeting or the making of an annual return, shall not be required to be submitted, held or made, earlier than the dates specified in the direction, notwithstanding anything to the contrary in this Act or in any other Act for the time being in force.
(2) The Central Government shall, on the application of the Board of directors of a holding company or a holding company’s sub- sidiary, exercise the powers conferred on that Government by sub-
section (1) if it is necessary so to do, in order to secure that the end of the financial year of the subsidiary does not precede the end of the holding company’s financial year by more than six months, where that is not the case at the commencement of this Act, or at the date on which the relationship of holding company and subsidiary comes into existence where that date is later than the commencement of this Act.
Rights of holding company’s representatives and members. 214. Rights of holding company’s representatives and members.-
(1) A holding company may, by resolution, authorise representatives named in the resolution to inspect the books of account kept by any of its subsidiaries; and the books of account of any such subsidiary shall be open to inspection by those representatives at any time during business hours.
(2) The rights conferred by section 235 upon members of a com- pany may be exercised; in respect of any subsidiary by members of the holding company as if they alone were members of the subsidiary. 146
Authentication of balance sheet and profit and loss account. 215. Authentication of balance sheet and profit and loss
account.-(1) Save as provided by ‘sub-section (2), every balance sheet and every profit and loss account of a company shall be signed on behalf of the Board of directors- (i) in the case of a banking company, by the persons speci- fied in clause (a) or clause (b), as the case may be, of sub-
section (2) of section 29 of the Banking Companies Act, 1949 (10 of 1949); (ii) in the case of any other company, by its managing agent, secretaries and treasurers, manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one.
(2) In the case of a company not being a banking company, when only one of its directors is for the time being in India, the balance sheet and the profit and loss account shall be signed by such director; but in such a case there shall be attached to the balance sheet and the profit and loss account a statement signed by him explaining the reason for non-compliance with the provisions of sub-
section (1).
(3) The balance sheet and the profit and loss account shall be approved by the Board of directors before they are signed on behalf of the Board in accordance with the provisions of this section and before they are submitted to the auditors for their report thereon.
Profit and loss account to be annexed and auditors’ report to beattached to balance sheet. 216. Profit and loss account to be annexed and auditors’ report to be attached to balance sheet.-The profit and loss account shall be annexed to the balance sheet and the auditors’ report shall be attach- ed thereto.
Board’s report.
217. Board’s report.-(1) There shall be attached to every balance sheet laid before a company in general meeting, a report by its Board of directors, with respect to- (a) the state of the company’s affairs; (b) the amounts, if any, which it proposes to carry to any reserves either in such balance sheet or in a subsequent balance sheet; and (c) the amount, if any, which it recommends should be paid by way of dividend.
(2) The Board’s report shall, so far as is material for the appreciation of the state of the company’s affairs by its members and will not-in the Board’s opinion be harmful to the business of the com- pany or of any of its subsidiaries, deal with any changes which nave occurred during the financial year- (a) in the nature of the company’s business; (b) in the company’s subsidiaries or in the nature of the business carried on by them; and (c) generally in the classes of business in which the company has an interest.
(3) The Board shall also be bound to give the fullest informa- tion and explanations in its report aforesaid, or in cases falling 147 under the proviso to section 222, in an addendum to that report, on every reservation, qualification or adverse remark contained in the auditors’ report.
(4) The Board’s report and any addendum thereto shall be signed by its chairman if he is authorised in that behalf by the Board; and where he is not so authorised, shall be signed by such number of directors as. are required to sign the balance sheet and the profit
and loss account of the company by virtue of sub-sections (1) and (2) of section 215.
(5) If any person, being a director of a company, fails to take all reasonable steps to comply with the provisions of sub-sections
(1) to (3), or being the chairman, signs the Board’s report other-
wise than in conformity with the provisions of sub-section (4), he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both: Provided that no person shall be sentenced to imprisonment for any such offence unless it was committed wilfully: Provided further that in any proceedings against a person in
respect of an offence under sub-section (1), it shall be a defence to prove that he had reasonable ground to believe, and did believe, that a competent and reliable person was charged with the duty of seeing that the provisions of that sub-section were complied with and was in a position to discharge that duty.
(6) If any person, not being a director, having been charged by the Board of directors with the duty of seeing that the provisions of
sub-sections (1) to (3) are complied with, makes default in doing so, he shall, in respect of each offence, be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to two thousand rupees, or with both: Provided that no person shall be sentenced. to imprisonment for any such offence unless it was committed wilfully.
Penalty for improper issue, circulation of publication of balance sheetor profit and loss account. 218. Penalty for improper issue, circulation of publication of balance sheet or profit and loss account.-(a) If any copy of a balance sheet or profit and loss account which has not been signed as required by section 215 is issued, circulated or published; or (b) If any copy of a balance sheet is issued, circulated or pub- lished without there being annexed or attached thereto, as the case may be, a copy each of (i) the profit and loss account, (ii) any ac- counts, reports or statements which, by virtue of section 212, are required to be attached to the balance sheet, (iii) the auditors’ re- port, and (iv) the Board’s report referred to in section 217; the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
Right of member to copies of balance sheet and auditors’ report. 219. Right of member to copies of balance sheet and auditors’
report.-(1) A copy of every balance sheet (including the profit and loss account, the auditors’ report and every other document required by law to be annexed or attached, as the case may be, to the, 148 balance sheet) which is to be laid before a company in general meeting shall, not less than twenty-one days before the date of the meeting, be sent to every member of the company, to every holder of debentures issued by the company (not being debentures which ex facie are payable to the bearer thereof), to every trustee for the holders of any debentures issued by the company, whether such member, holder or trustee is or is not entitled to have notices of general meetings of the company sent to him, and to all persons other than such members, holders or trustees, being persons so entitled. Provided that- (a) in the case of a company not having a share capital, this sub-section shall not require the sending of a copy of the documents aforesaid to a member, or holder of debentures, of the company who is not entitled to have notices of general meetings of the company sent to him; (b) this sub-section shall not require a copy of the docu- ments aforesaid to be sent- (i) to a member, or holder of debentures, of the com- pany, who is not entitled to have notices of general meetings of the company sent to him and of whose address the company is unaware; (ii) to more than one of the joint holders of any shares or debentures none of whom is entitled to have such notices sent to him; or (iii) in the case of joint holders of any shares or debentures some of whom are and some of whom are not entitled to have such notices sent to them, to those who are not so entitled; and (c) if the copies of the documents aforesaid are sent less than twenty-one days before the date of the meeting, they shall, notwithstanding that fact, be demeed to have been duly sent if it is so agreed by all the members entitled to vote at the meeting.
(2) Any member or holder of debentures of a company, whether he is or is not entitled to have copies of the company’s balance sheet sent to him shall, on demand, be entitled to be furnished without charge, and any person from whom the company has accepted a sum of money by way of deposit shall, on demand accompanied by the payment of a fee of one rupee, be entitled to be furnished, with a copy of the last balance sheet of the company and of every document required by law to be annexed or attached thereto, including the profit and loss account and the auditors’ report.
(3) If default is made, in complying with sub-section (1), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
(4) If, when any person makes a demand for a copy of any document with which he is entitled to ‘be furnished by virtue of sub-
section (2), default is made in complying with the demand 149 within seven days after the making thereof, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees, unless it is proved that that person had already made a demand for and been furnished with a copy of the document. The Court may also, by order, direct that the copy demanded shall forthwith be furnished to the person concerned.
(5) Sub-sections (1) to (4) shall not apply in relation to a balance sheet of a private company laid before it before the commence- ment of this Act; and in such a case the right of any person to have sent to him or to be furnished with a copy of the balance sheet, and the liability of the company in respect of a failure to satisfy that right, shall be the same as they would have been if this Act had not been passed.
Three copies of balance sheet, etc. to be field with Registrar. 220. Three copies of balance sheet, etc. to be field with
Registrar. (1) After the balance sheet and the profit and loss account have been laid before a company at an annual general meeting as aforesaid, there shall be filed with the Registrar at the same time as the copy of the annual return referred to in section 161- (a) in the case of a public company, three copies of the balance sheet and the profit and loss account, signed by the managing director, managing agent, secretaries and trea- surers, manager or secretary of the company, or if there be none of these, by a director of the company, together with three copies of all documents which are required by this Act to be annexed or attached to such balance sheet or profit and loss account; (b) in the case of a private company, three copies of the balance sheet certified to be true copies by the company’s auditors and of the auditors’ report in so far as it relates to the balance sheet.
(2) If the annual general meeting of a public or private company before which a balance sheet is laid as aforesaid does not adopt the balance sheet, a statement of that fact and of the reasons therefor shall be annexed to the balance sheet and to the copies thereof required to be filed with the Registrar.
(3) If default is made in complying with the requirements of
sub-sections (1) and (2), the company, and every officer of the company who is in default, shall be liable to the like punishment as is provided by section 162 for a default in complying with the pro- visions of sections 159, 160 or 161.
Duty of officer to make disclosure of payments, etc.
221. Duty of officer to make disclosure of payments, etc.- (1) Where any particulars or information is required to be given in the balance sheet or profit and loss account of a company or in any document required to be annexed or attached thereto, it shall be the duty of the concerned officer of the company, to furnish without delay to the company, and also to the company’s auditor whenever he so requires, those particulars or that information in as full a manner as possible. 150
(2) Where the officer concerned is a firm or body corporate acting as managing agent or as secretaries and treasurers, the duty aforesaid shall extend to every partner in the firm, or to every director of the body corporate, as the case may be.
(3) The particulars or information referred to in sub-section
(1) may relate to payments made to any director, managing agent, secretaries and treasurers, or other person by any other company, body corporate, firm or person.
(4) If any person knowingly makes default in performing the duty cast on him by the foregoing provisions of this section, he shall be punishable with imprisonment which may extend to six months, or with fine which may extend to five thousand rupees, or with both.
Construction of references to documents annexed to accounts. 222. Construction of references to documents annexed to accounts.-References in this Act to documents annexed or required to be annexed to a company’s accounts or any of them shall not include the Board’s report, the auditors’ report or any document attached or required to be attached to those accounts: Provided that any information which is required by this Act to be given in the accounts, and is allowed by it to be given in a statement annexed to the accounts, may be given in the Board’s report instead of in the accounts; and if any such information is so given, the report shall be annexed to the accounts and this Act shall apply in relation thereto accordingly, except that the auditors shall report thereon only in so far as it gives the said information.
Certain companies to publish statement in the form in Table F inSchedule I. 223. Certain companies to publish statement in the form in Table
F in Schedule I.-(1) Every company which is a limited banking company, an insurance company, or a deposit, provident or benefit society, shall, before it commences business and also on the first Monday in February and the first Monday in August in every year during which it carries on business, make a statement in the form in Table F in Schedule I, or in a form as near thereto as circumstances admit.
(2) A copy of the statement, together with a copy of the last audited balance sheet laid before the members of the company, shall be displayed and until the display of the next following statement, shall be kept displayed, in a conspicuous place in the registered office of the company, and in every branch office or place where the business of the company is carried on.
(3) Every member, and every creditor, of the company shall be entitled, on payment of a sum of eight annas, to be furnished with a copy of the statement, within seven days of such payment.
(4) If default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.
(5) This section shall not apply to a life assurance company or provident insurance society to which the provisions of the Insurance Act, 1938 (4 of 1938), as to the annual statements to be made 151 by such company or society, apply with or without modifications, if the company or society complies with those provisions. Audit
Appointment and remuneration of auditors.
224. Appointment and remuneration of auditors.-(1) Every company shall, at each annual general meeting, appoint an auditor or auditors to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting.
(2) At any annual general meeting, a retiring auditor, by whatsoever authority appointed, shall be re-appointed, unless- (a) he is not qualified for re-appointment; (b) he has given the company notice in writing of his unwillingness to be re-appointed; (c) a resolution has been passed at that meeting appointing somebody instead of him or providing expressly that he shall not be re-appointed; or (d) where’ notice has been given of an intended resolution to appoint some person or persons in the place of a retiring auditor, and by reason of the death, incapacity or disqualification of that person or of all those persons, as the case may be, the resolution cannot be proceeded with.
(3) Where at an annual general meeting no auditors are appointed or re-appointed, the Central Government may appoint a person to fill the vacancy.
(4) The company shall, within seven days of the Central Govern-
ment’s power under sub-section (3), becoming exercisable, give notice of that fact to that Government; and, if a company fails to give such notice, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
(5) The first auditor or auditors of a company shall be appoint- ed by the Board of directors within one month of the date of registration of the company; and the auditor or auditors so appointed shall hold office until the conclusion of the first annual general meeting: Provided that- (a) the company may, at a general meeting, remove any such auditor or all or any of such auditors and appoint in his or their places any other person or persons who have been nominated for appointment by any member of the company and of whose nomination notice has been given to the members of the company not less than fourteen days before the date of the meeting; and (b) if the Board fails to exercise its powers under this subsection, the company in general meeting may appoint the first auditor or auditors.
(6) (a) The Board may fill any casual vacancy in the office of an auditor; but while any such vacancy continues, the remaining auditor or auditors, if any, may act: 152 Provided that where such vacancy is caused by the resignation of in auditor, the vacancy shall only be filled by the company in general meeting. (b) Any auditor appointed in a casual vacancy shall hold office until the conclusion of the next annual general meeting.
(7) Except as provided in the proviso to sub-section (5), any auditor appointed under this section may be removed from office before the expiry of his term only by the company in general meeting, after obtaining the previous approval of the Central Government in that behalf.
(8) The remuneration of the auditors of a company- (a) in the case of an auditor appointed by the Board or the Central Government, may be. fixed by the Board or the Central Government, as the case may be; and (b) subject to clause (a), shall be fixed by the company in general meeting or in such manner as the company in general meeting may determine. For the purposes of this sub-section, any sums paid by the company in respect of the auditors’ expenses shall be deemed to be included in the expression “remuneration”.
Provisions as to resolutions for appointing or removing auditors. 225. Provisions as to resolutions for appointing or removing
auditors.-(1) Special notice shall be required for a resolution at an annual general meeting appointing as auditor a person other than a retiring auditor, or providing expressly that a retiring auditor shall not be re-appointed.
(2) On receipt of notice of such a resolution, the company shall forthwith send a copy thereof to the retiring auditor.
(3) Where notice is given of such a resolution and the retiring auditor makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so,- (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent, whether before or after the receipt of the representations by the company; and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company’s default, the auditor may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting: Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person 153 who claims to be aggrieved, the Court is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory matter; and the Court may order the company’s costs on such an application to be paid in whole or in part by the auditor, notwithstanding that he is not a party to the application.
(4) Sub-sections (2) and (3) shall apply to a resolution to
remove the first auditors or any of them under sub-section (5) of section 224 or to the removal of any auditor or auditors under sub-
section (7) of that section, as they apply in relation to a resolution that a retiring auditor shall not be re-appointed.
Qualifications and disqualifications of auditors.
226. Qualifications and disqualifications of auditors.-(1) A person shall not be qualified for appointment as auditor of a company unless he is a chartered accountant within the meaning of the Chartered Accountants Act, 1949 (38 of 1949): Provided that a firm whereof all the partners practising in India are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of a company, in which case any partner so practising may act in the name of the firm.
(2) (a) Notwithstanding anything contained in sub-section (1), but subject to the provisions of any rules made under clause (b), the holder of a certificate granted under a law in force in the whole or any portion. of a Part B State immediately before the commencement of the Part B States (Laws) Act, 1951 (3 of 1951), entitling him to act as an auditor of companies in that State or any portion thereof, shall be entitled to be appointed to act as an auditor of companies registered anywhere in that State. (b) The Central Government may, by notification in the Official Gazette, make rules providing for the grant, renewal, suspension or cancellation of auditors’ certificates to persons in Part B States for the purposes of clause (a), and prescribing conditions and restrictions for such grant, renewal, suspension or cancellation.
(3) None of the following persons shall be qualified for appointment as auditor of a company- (a) a body corporate; (b) an officer or employee of the company; (c) a person who is a partner, or who is in the employment, of an officer or employee of the company; (d) a person who is indebted to the company for an amount exceeding one thousand rupees, or who has given any guarantee or provided any security in connection with the indebtedness of any third person to the company for an amount exceeding one thousand rupees; (e) a person who is a director or member of a private company, or a partner of a firm, which is the managing agent or the secretaries and treasurers of the company; (f) a person who is a director, or the holder of shares exceeding five per cent. in nominal value of the subscribed 154 capital, of any body corporate which is the managing agent or the secretaries and treasurers, of the company: Provided that any shares held by such person as nominee or trustee for any third person and in which the holder has no beneficial interest shall be excluded in computing the percentage of shares held by him for the purpose of this clause. Explanation.-References in this sub-section to an officer or employee shall be construed as not including references to an auditor.
(4) A person shall also not be qualified for appointment as
auditor of a company if he is, by virtue of sub-section (3), dis- qualified for appointment as auditor of any other body corporate which is that company’s subsidiary or holding company or a subsidiary of that company’s holding company, or would be so disqualified if the body corporate were a company.
(5) If an auditor becomes subject, after his appointment, to any
of the disqualifications specified in sub-sections (3) and (4), he shall be deemed to have vacated his office as such.
Powers and duties of auditors.
227. Powers and duties of auditors.-(1) Every auditor of a company shall have a right of access at all times to the books and accounts and vouchers of the company, whether kept at the head ‘office of the company or elsewhere, and shall be entitled to require from the officers of the company such information and explanations as the auditor may think necessary for the performance of his duties as auditor.
(2) The auditor shall make a report to the members of the company on the accounts examined by him, and on every balance .sheet and profit and loss account and on every other document declared by this Act to be part of or annexed to the balance sheet or profit and loss account, which are laid before the company in general meeting during his tenure of office, and the report shall state whether, in his opinion and to the best of his information and according to the explanations given to him, the said accounts give the information required by this Act in the manner so required and give a true and fair view- (i) in the case of the balance sheet, of the state of the company’s affairs as at the end of its financial year; and (ii) in the case of the profit and loss account, of the profit or loss for its financial year.
(3) The auditor’s report shall also state- (a) whether he has obtained all the information and ex- planations which to the best of his knowledge and belief were necessary for the purposes of his audit; (b) whether, in his opinion, proper books of account as required by law have been kept by the company so far as appears from his examination of those books, and proper re- turns adequate for the purposes of his audit have been re- ceived from branches not visited by him; 155 (c) whether the company’s balance sheet and profit and, loss account dealt with by the report are in agreement with the books of account and returns.
(4) Where any of the matters referred to in clauses (i) and (ii)
of sub-section (2) or in clauses (a), (b) and (c) of sub-section (3) is answered in the negative or with a qualification, the auditor’s report shall state the reason for the answer.
(5) Where the company is one which is not required to disclose any matters by virtue of any provisions contained in this or in any other Act, if the balance sheet and the profit and loss account specify those provisions and if, in the opinion of the auditor and to the best of his information and according to the explanations given to him, they give the information required by this Act in the manner so required and, subject to the provisions aforesaid, give a true and fair view, in the case of the balance sheet, of the state of the company’s affairs as at the end of its financial year, and in the case of the profit and loss account, of the profit or loss for its financial year, the auditor’s report shall state that in his opinion and to the best of his information and according to the explanations given to him, the accounts of the company are properly drawn up so as to disclose the state of the company’s affairs as at the date of its balance sheet and its profit or loss for its financial year ending on that date, so far as is required by the provisions of this or any other Act applicable to the company.
Audit of accounts of branch office of company.
228. Audit of accounts of branch office of company.-(1) Where a company has a branch office, the accounts of that office shall, unless the company in general meeting decides otherwise, be audited by a person qualified for appointment as auditor of the company under section 226, or where the branch office is situate in a country outside India, either by a person qualified as aforesaid or by an accountant duly qualified to act as an auditor of the accounts of the branch office in accordance with the laws of that country.
(2) Where the accounts of any branch office are not so audited, the company’s auditor- (a) shall be entitled to visit the branch office, if he deems it necessary to do so for the performance of his duties as auditor, and (b) shall have a right of access at all times to the books and accounts and vouchers of the company maintained at the branch office: Provided that in the ‘case of a banking company having a branch office outside India, it shall be sufficient if the auditor is allowed access to such copies of, and extracts from, the books and accounts of the branch as have been transmitted to the principal office of the company in India.
Signature of audit report etc.- 229. Signature of audit report etc.-Only the person appointed as auditor of the company, or where a firm is so appointed
in pursuance of the proviso to sub-section (1) of section 226, only a partner in the firm practising in India, may sign the auditor’s report, or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor. 156
Reading and inspection of auditor’s report. 230. Reading and inspection of auditor’s report.-The auditor’s report shall be read before the company in general meeting and shall be open to inspection by any member of the company.
Right of auditor to attend general meeting. 231. Right of auditor to attend general meeting.-All notices of, and other communications relating to, any general meeting of a company which any member of the company is entitled to have sent to him shall also be forwarded to the auditor of the company; and the auditor shall be entitled to attend any general meeting and to be heard at any general meeting which he attends on any part of the business which concerns him as auditor.
Penalty for non-compliance with sections 225 to 231. 232. Penalty for non-compliance with sections 225 to 231.-If de- fault is made by a company in complying with any of the provisions contained in sections 225 to 231, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
Penalty for non-compliance by auditor with sections 227 and 229. 233. Penalty for non-compliance by auditor with sections 227 and 229.-If any auditor’s report is made, or any document of the company is signed or authenticated, otherwise than in conformity with the requirements of sections 227 and 229, the auditor concerned, and the person, if any, other than the auditor who signs the report or signs or authenticates the document, shall, if the default is wilful, be punishable with fine which may extend to one thousand rupees. Power of Registrar to call for information etc.
Power of Registrar to call for information or explanation. 234. Power of Registrar to call for information or explanation-
(1) Where, on perusing any document which a company is required to submit to him under this Act, the Registrar is of opinion that any information or explanation is necessary in order that such document may afford full particulars of the matter to which it purports to relate, he may, by a written order, call on the company submitting the document to furnish in writing such information or explanation, within such time as he may specify in the order.
(2) On receipt by the company of an order under sub-section (1), it shall be the duty of the company, and of all persons who are officers of the company, to furnish such information or explanation to the best of their power.
(3) On receipt of a copy of an order under sub-section (1), it shall also be the duty of every person who has been an officer of the company to furnish such information or explanation to the best of his power.
(4) If the company, or any such person as is referred to in sub-
section (2) or (3), refuses or neglects to furnish any such infor- mation or explanation,- (a) the company, and each such person, shall be punishable with fine which may extend to fifty rupees in respect of each offence; and (b) the Court may, on the application of the Registrar and after notice to the company, make an order on the company for production of such documents as, in the opinion of 157 the Court, may reasonably be required by the Registrar for
the purpose referred to in sub-section (1) and allow the Registrar inspection thereof on such terms and conditions as it thinks fit.
(5) On receipt of any document containing such information or explanation, the Registrar may annex it to the original document submitted to him; and any document so annexed shall be subject to the like provisions as to inspection, the taking of extracts, and the furnishing of copies, as the original document is subject.
(6) If such information or explanation is not furnished within the specified time, or if after perusal of such information or ex- planation the Registrar is of opinion that the document in question discloses an unsatisfactory state of affairs, or that it does not dis- close a full and fair statement of the matter to which it purports to relate, the Registrar shall report in writing the circumstances of the case to the Central Government.
(7) If it is represented to the Registrar on materials placed before him by any contributory or creditor or any other person interested that the business of a company is being carried on in fraud of its creditors or of persons dealing with the company or otherwise for a fraudulent or unlawful purpose, he may, after giving the company an opportunity of being heard, by a written order, call on the company to furnish in writing any information or explanation on matters specified in the order, within such time as he may specify therein;
and the provisions of sub-sections (2), (3), (4) and (6) of this section shall apply to such order. If upon inquiry the Registrar is satisfied that any representation on which he took action under this sub-section was frivolous or vexatious, he shall disclose the identity of his informant to the company.
(8) The provisions of this section shall apply mutatis mutandis to documents which a liquidator, or a foreign company within the meaning of section 591, is required to file under this Act. Investigation
Investigation of affairs of company on application by members orreport by Registrar. 235. Investigation of affairs of company on application by members or report by Registrar.-The Central Government may appoint one or more competent persons as inspectors to investigate the affairs of any company and to report thereon in such manner as the Central Government may direct,- (a) in the case of a company having a share capital, on the application either of not less than two hundred members or of members, holding not less than one-tenth of the total voting power therein; (b) in the case of a company not having a share capital, on the application of not less than one-fifth in number of the persons on the company’s register of members; (c) in the case of any company, on a report by the
Registrar under sub-section (6), or sub-section (7) read with
subsection (6), of section 234. 158
Application by members to be supported by evidence and power to callfor security. 236. Application by members to be supported by evidence and power to call for security.-An application by members of a company under clause (a) or (b) of section 235 shall be supported by such evidence as the Central Government may require for the purpose of showing that the applicants have good reason for requiring the investigation; and the Central Government may, before appointing an inspector, require the applicants to give security, for such amount not exceeding one thousand rupees as it may think fit. for payment of the costs of the investigation.
Investigation of company’s affairs in other cases. 237. Investigation of company’s affairs in other cases.-Without prejudice to its powers under section 235, the Central Government- (a) shall appoint one or more competent persons as inspectors to investigate the affairs of a company and to report thereon in such manner as the Central Government may direct, if- (i) the company, by special resolution; or (ii) the Court, by order, declares that the affairs of the company ought to be investigated by an inspector appointed by the Central Government; and (b) may do so if, in the opinion of the Central Government, there are circumstances suggesting- (i) that the business of the company is being conducted with intent to defraud its creditors, members or any other persons, or otherwise for a fraudulent or unlawful purpose, or in a manner oppressive of any of its members, or that ‘the company was formed for any fraudulent or unlawful purpose; (ii) that persons concerned in the formation of the company or the management of its affairs have in connection therewith been guilty of fraud, misfeasance or other misconduct towards the company or towards any of its members; or (iii) that the members of the company have not been given all the information with respect to its affairs which they might reasonably expect, including information relating to the calculation of the commission payable to a managing or other director, the managing agent, the secretaries and treasurers, or the manager, of the company.
Firm, body corporate or association not to be appointed as inspector. 238. Firm, body corporate or association not to be appointed as inspector.-No firm, body corporate or other association shall be appointed as an inspector under section 235 or 237.
Power of inspectors to carry investigation into affairs of relatedcompanies or of managing agent or associate. 239. Power of inspectors to carry investigation into affairs of
related companies or of managing agent or associate.-(1) If an ins- pector appointed under section 235 or 237 to investigate the affairs of a company thinks it necessary for the purposes of his investigation to investigate also the affairs of- (a) any other body corporate which is, or has at any relevant time been, the company’s subsidiary or holding company, or a 159 subsidiary of its holding company, or a holding company of its subsidiary; (b) any other body corporate which is, or has at any relevant time been, managed- (i) by any person as managing agent or as secretaries and treasurers who is, or was at the relevant time, either the managing agent or the secretaries and treasurers of the company; (ii) by any person who is, or was at the relevant time, an associate of the managing agent or secretaries and treasurers of the company; or (iii) by any person of whom the managing agent or secretaries and treasurers of the company is, or was at the relevant time, an associate; (c) any other body corporate which is, or has at any rele- vant time been, managed by the company; or (d) any person who is, or has at any relevant time been, the company’s managing agent or secretaries and treasurers or an associate of such managing agent or secretaries and treasurers,
the inspector shall, subject to the provisions of sub-section (2), have power so to do, and shall report on the affairs of the other body corporate or of the managing agent, secretaries and treasurers or associate of the managing agent or secretaries and treasurers, so far as he thinks the results of his investigation thereof are relevant to the investigation of the affairs of the first-mentioned company.
(2) In the case of any body corporate or person referred to in
clause (b) (ii), (b) (iii), (c), or (d) of sub-section (1), the inspector shall not exercise his power of investigating into, and reporting on, its or his affairs without first having obtained the prior approval of the Central Government thereto.
Production of documents and evidence.
240. Production of documents and evidence.-(1) It shall be the duty of all officers and agents of the company, and where the company is or was managed by a managing agent or secretaries and treasurers, of all officers and agents of the managing agent or secretaries and treasurers, and where the affairs of any other body corporate, or of a managing agent or secretaries and treasurers, or of an associate of a managing agent or secretaries and treasurers, are investigated by virtue of section 239, of all officers and agents of such body corporate, managing agent, secretaries and treasurers,. or associate, and where such managing agent, secretaries and treasurers or associate is or was a firm, of all partners in the firm= (a) to produce to an inspector all books and papers of, or relating to, the company or, as the case may be, of or relating to the other body corporate, managing agent, secretaries and treasurers or associate, which are in their custody or power; and (b) otherwise to give to the inspector all assistance in connection with the investigation which they are reasonably able to give.
(2). An inspector may examine on oath any of the persons
referred to in sub-section (1), in relation to the affairs of the company, other 160 body corporate, managing agent, secretaries and treasurers or associate, as the case may be; and may administer an oath accordingly.
(3) If any such person refuses- (a) to produce to an inspector any book or paper which It
is his duty under sub-section (1) to produce; or (b) to answer any question which is put to him by an
inspector in pursuance of sub-section (2), the inspector may certify the refusal under his hand to the Court; and the Court may thereupon inquire into the case; and after hearing any witnesses who may be produced against or on behalf of the alleged offender and after hearing any statement which may be offered in defence, punish the offender as if he had been guilty of contempt of the Court.
(4) If an inspector thinks it necessary for the purpose of his Investigation that a person whom he has no power to examine on oath should be so examined, he may apply to the Court and the Court may, if it sees fit, order that person to attend and be examined on oath before it on any matter relevant to the investigation, and on any such examination- (a) the inspector may take part therein either personally or by a legal practitioner; (b) the Court may put such questions to the person examined as the Court thinks fit; (c) the person examined shall answer all such questions as the Court may put or allow to be put to him, but may at his own cost employ a legal practitioner, who shall be at liberty to put to such person such questions as the Court may deem just for the purpose of enabling him to explain or qualify any answers given by him: Provided that, notwithstanding anything in clause (c), the Court may allow the person examined such costs as in its discretion it may think fit, and any costs so allowed shall be treated as part of the expenses of the investigation.
(5) Notes of any examination under sub-section (2) or (4) shall be taken down in writing and shall be read over to or by, and signed by, the person examined, and may thereafter be used in evidence against him.
(6) In this section- (a) the expression “officers”, in relation to any company or body corporate, includes any trustee for the debenture holders of such company or body corporate; (b) the expression “agent”, in relation to any company, body corporate or person, means any one acting or purporting to act for or on behalf of such company, body corporate or person, and includes the bankers and legal advisers of, and persons employed as auditors by, such company, body corporate or person; and (c) any reference to officers, agents or partners shall be construed as a reference to past as well as present officers, agents or partners, as the case may be. 161
Inspectors’ report.
241. Inspectors’ report.-(1) The inspectors may, and if so directed by the Central Government shall, make interim reports to that Government, and on the conclusion of the investigation, shall make final report to the Central Government. Any such report shall be written or printed, as the Central Gov- ernment may direct.
(2) The Central Government- (a) shall forward a copy of any report made by the inspectors to the company at its registered office, and also to any body corporate, managing agent, secretaries and treasurers or associate dealt with in the report by virtue of section 239; (b) may, if it thinks fit, furnish a copy thereof, on request and on payment of the prescribed fee, to any person- (i) who is a member of the company or other body corporate (including a managing agent, secretaries and treasurers; or an associate of a managing agent or secretaries and treasurers, where such managing agent, secretaries and treasurers or associate is a body corporate) dealt with in the report by virtue of section 239; (ii) who is a partner in the firm, where such managing agent, secretaries and treasurers or associate is a firm; or (iii) whose interests as a creditor of the company, other body corporate, managing agent, secretaries and treasurers or associate aforesaid appear to the Central Government to be affected; (c) shall, where the inspectors are appointed under clause (a) or (b) of section 235, furnish, at the request of the applicants for the investigation, a copy of the report to them; (d) shall, where the inspectors are appointed under section 237 in pursuance of an order of the Court, furnish a copy of the report to the Court; and (e) may also cause the report to be published.
Prosecution.
242. Prosecution.-(1) If, from any report made under section 241, it appears to the Central Government that any person has, in relation to the company or in relation to any other body corporate, managing agent, secretaries and treasurers, or associate of a managing agent or secretaries and treasurers, whose affairs have been investigated by virtue of section 239, been guilty of any offence for which he is criminally liable, the Central Government may, after taking such legal advice as it thinks fit, prosecute such person for the offence; and it shall be the duty of all officers and agents of the company, body corporate, managing agent, secretaries and treasurers, or associate, as the case may be, (other than the accused in the proceedings), to give the Central Government all assistance in connection with the prosecution which they are reasonably able to give.
(2) Sub-section (6) of section 240 shall apply for the purposes of this section, as it applies for the purposes of that section.
Application for winding up of company or an order under section 397 or398. 243. Application for winding up of company or an order under section 397 or 398.-If any such company or other body corporate, or any such managing agent, secretaries and treasurers, or associate, being a body corporate, is liable to be wound up under this Act and it appears to the Central Government from any such report as aforesaid that it is expedient so to do by reason of any such circumstances as are referred to in sub-clause (i) or (ii) of clause (b) of section 237, the Central Government may, unless the company, body corporate, managing agent, secretaries and treasurers or associate is already being wound up by the Court, cause to be presented to the Court by any person authorised by the Central Government in this behalf- (a) a petition for the winding up of the company, body cor- porate, managing agent, secretaries and treasurers, or associate, on the ground that it Is just and equitable that it should be wound up; (b) an application for an order under section 397 or 398; or (c) both a petition and an application as aforesaid.
Proceedings for recovery of damages or property.
244. Proceedings for recovery of damages or property.- (1) If from any such report as aforesaid, it appears to the Central Govern- ment that proceedings ought, in the public interest, to be brought by the company or any body corporate whose affairs have been investigated in pursuance of clause (a), (b) or (c) of section 239,- (a) for the recovery of damages in respect of any fraud, misfeasance or other misconduct in connection with the promotion or formation, or the management of the affairs, of such company or body corporate; or (b) for the recovery of any property of such company, or body corporate, which has been misapplied or wrongfully retained; the Central Government may itself bring proceedings for that purpose in the name of such company or body corporate.
(2) The Central Government shall indemnify such company or body corporate against any costs or expenses incurred by it in, or in
connection with, any proceedings brought by virtue of sub-section (1).
Expenses of investigation.
245. Expenses of investigation.-(1) The expenses of and incidental to an investigation by an inspector appointed by the Central Government under section 235 or 237 shall be defrayed in the first instance by the Central Government; but the following persons shall, to the extent mentioned below, be liable to reimburse the Central Government in respect of such expenses:- (a) any person who is convicted on a prosecution instituted in pursuance of section 242, or who is ordered to pay damages or restore any property in proceedings brought by virtue of section 244, may, in the same proceedings, be ordered to pay the said expenses to such extent as may be specified by the Court convicting such person, or ordering him to pay such damages or restore such property, as the case may be; 163 (b) any company or body corporate in whose name proceedings are brought as aforesaid shall be liable, to the extent of the amount or value of any sums or property recovered by it as a result of the proceedings; and (c) unless, as a result of the investigation, a prosecution is instituted in pursuance of section 242,- (i) any company, body corporate, managing agent, secretaries and treasurers or associate dealt with by the report, where the inspector was appointed under clause (a) or (b) of section 235 or clause (a) of section 237, shall be liable to reimburse the Central Government in respect of the whole of the expenses, unless, and except in so far as, the Central Government otherwise directs; and (ii) the applicants for the investigation, where the inspector was appointed under clause (a) or (b) of section 235, shall be liable to such extent, if any, as the Central Government may direct.
(2) Any amount for which a company or body corporate is liable
by virtue of clause (b) of subsection (1) shall be a first charge on the sums or property mentioned in that clause.
(3) The report of an inspector appointed under clause (c) of section 235 or clause (b) of section 237, may if he thinks fit, and shall if the Central Government so directs, include a recommendation as to the directions, if any, which he thinks appropriate, in the light of his investigation, to be given under clause (c) of sub-
section (1).
(4) For the purposes of this section, any costs or expenses incurred by the Central Government in or in connection with proceedings brought by virtue of section 244 (including expenses
incurred by virtue of sub-section (2) thereof) shall be treated as expenses of the investigation giving rise to the proceedings.
(5) (a) Any liability to reimburse the Central Government impos-
ed by clauses (a) and (b) of sub-section (1) shall, subject to satisfaction of the right of the Central Government to reimbursement, be a liability also to indemnify all persons against liability under clause (c) of that subsection. (b) Any such liability imposed by the said clause (a) shall, subject as aforesaid, be a liability also to indemnify all persons against liability under the said’ clause (b). (c) Any person liable under the said clause (a) or (b) or sub- clause (i) or (ii) of the said clause (c) shall be entitled to contribution from any other persons liable under the same clause or sub-clause, as the case may be, according to the amount of their respective liabilities thereunder.
(6) In so far as the expenses to be defrayed by the Central Gov- ernment under this section are not recovered thereunder, they shall be paid out of moneys provided by Parliament.
Inspectors’ report to be evidence. 246. Inspectors’ report to be evidence.-A copy of any report of any Inspector or inspectors appointed under section 235 or 237 authenticated in such manner, if any, as may be prescribed, shall be admissible in any legal proceeding as evidence of the opinion of the inspector or inspectors in relation to any matter contained in the report, 164
Investigation of ownership of company.
247. Investigation of ownership of company.-(1) Where it appears to the Central Government that there is good reason so to do, it may appoint one or more inspectors to investigate and report on the membership of any company and other matters relating to the company, for the purpose of determining the true persons- (a) who are or have been financially interested in the success or failure, whether real or apparent, of the company; or (b) who are or have been able to control or materially to influence the policy of the company.
(2) When appointing an inspector under sub-section (1), the Central Government may define the scope of his investigation, whether as respects the matters or the period to which it is to extend or otherwise, and in particular, may limit the investigation to matters connected with particular shares or debentures.
(3) Subject to the terms of an inspector’s appointment, his powers shall extend to the investigation of any circumstances suggesting the existence of any arrangement or understanding which, though not legally binding, is or was observed or is likely to be observed in practice and which is relevant to the purposes of his investigation.
(4) Subject as aforesaid, the powers of the inspector shall also extend, where the company has or at any time had a managing agent or secretaries and treasurers,- (a) in case such managing agent or secretaries and treasur- ers are or were a body corporate, to the investigation of the ownership of the shares of such body corporate, and of who the persons are or were who control or manage or controlled or managed its affairs; (b) in case such managing agent or secretaries and treasur- ers are or were a firm, to the investigation of who the persons are or were who control or manage or controlled or managed its affairs as partners in the firm or otherwise and of the respective interests therein of the partners; and (c) in all cases, to the investigation of who the persons are or were who are or were entitled to any share of, or any amount forming part of, the remuneration of such managing agent or secretaries and treasurers.
(5) For the purposes of any investigation under this section, sections 239, 240 and 241 shall apply with the necessary modification’s of references to the affairs of the company or to those of any other body corporate or of any managing agent, secretaries and treasurers, or associate: Provided that the said sections shall apply in relation to all persons (including persons concerned only on behalf of others) who are or have been, or whom the inspector has reasonable cause to believe to be or to have been,- (i) financially interested in the success or failure, or the apparent success or failure, of the company or of any other 165 body corporate, managing agent, secretaries and treasurers or associate whose membership or constitution is investigated with that of the company; or (ii) able to control or materially to influence the policy of such company, body corporate, managing agent, secretaries and treasurers or associate; as they apply in relation to officers and agents of the company, of the other body corporate, or of the managing agent, secretaries and treasurers or associate, as the case may be: Provided further that the Central Government shall not be bound to furnish the company or any other person with a copy of any report by an inspector appointed under this section or with a complete copy thereof, if it is of opinion that there is good reason for not divulging the contents of the report or of parts thereof; but in such a case, the Central Government shall cause to be kept by the Registrar a copy of any such report, or as the case may be, of the parts thereof, as respects which it is not of that opinion.
(6) The expenses of any investigation under this section shall be defrayed by the Central Government out of moneys provided by Parliament, unless the Central Government directs that the expenses or any part thereof should be paid by the persons on whose application the investigation was ordered.
Information regarding persons having an interest in company, or inbody corporate or firm acting as managing agent thereof, 248. Information regarding persons having an interest in company,
or in body corporate or firm acting as managing agent thereof,–(1) Where it appears to the Central Government that there is good reason to investigate the ownership of any shares in or debentures of a company, or of a body corporate which acts or has acted as the managing agent or secretaries and treasurers of a company, and that it is unnecessary to appoint an inspector for the purpose, the Central Government may require any person whom it has reasonable cause to believe- (a) to be, or to have been, interested in those shares or debentures; or (b) to act, or to have acted, in relation to those shares or debentures, as the legal adviser or agent of someone interested therein; to give the Central Government any information which he has, or can reasonably be expected to obtain., as to the present and past interests in those shares or debentures, and the names and addresses of the persons interested and of any persons who act. or have acted on their behalf in relation to the shares or debentures.
(2) For the purposes of sub-section (1), a person shall be deemed to have an interest in a share or debenture- (a) if he has any right to acquire or dispose of the share or debenture or any interest therein or to vote in respect thereof-, (b) if his consent is necessary for the exercise of any of the rights of other persons interested therein; or (c) if other persons interested therein can be required, or are accustomed, to exercise their rights in accordance with his directions or instructions. 166
(3) Where it appears to the Central Government that there is good reason to investigate the ownership of any interest in a firm which acts or has acted as managing agent or as secretaries and treasurers of any company, and that it is unnecessary to appoint an inspector for the purpose, the Central Government may require any person whom it has reasonable cause to believe- (a) to have, or to have had, any interest in the firm; or (b) to act, or to have acted, in relation to any such interest, as the legal adviser or agent of someone interested therein; to give the Central Government any information which he has, or can reasonably be expected to obtain, as to the present and past interests held in the firm, and the names and addresses of the persons interested and of any persons who act or have acted on their behalf in relation to any such interest.
(4) Any person- (a) who fails to give any information required of him under this section; or (b) who, in giving any such information, makes any state- ment which he knows to be false in a material particular, or recklessly makes any statement which is false in a material particular; shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five thousand rupees, or with both.
Investigation of associateship with managing agent, etc.
249. Investigation of associateship with managing agent, etc.-(1) Where any question arises as to whether any body corporate firm, or individual is or is not, or was or was not, an associate of the managing agent or secretaries and treasurers of a company and it appears to the Central Government that there is good reason to investigate such question, it may either- (a) appoint an inspector for the purpose of making the in, vestigation; or (b) if it considers it unnecessary to appoint an inspector as aforesaid, require any person whom it has reasonable cause to believe to be in a position to give relevant information in regard to the question, to furnish the Central Government with information on such matters as may be specified by it.
(2) The provisions of section 247 shall apply mutatis mutandis
to cases falling under clause (a) of sub-section (1) and those of section 248 to cases falling under clause (b) of that sub-section.
Imposition of restrictions on shares or debentures.
250. Imposition of restrictions on shares or debentures.(1) Where in connection with an investigation under section 247, 248 or 249, it appears to the Central ‘Government that there is difficulty in finding out the relevant facts about any shares (whether issued or to be issued), and that the difficulty is due wholly or mainly to the unwillingness of the persons concerned or any of them to assist the investigation as required by this Act, the Central Government 167 may, by order, direct that the shares shall, until further order, be subject to the restrictions imposed by this section.
(2) So long as any shares are directed to be subject to the res- trictions imposed by this section,- (a) any transfer of those shares shall be void; (b) where those shares are to be issued, they shall not be issued; and any issue thereof or any transfer of the right to be issued therewith, shall be void; (c) no voting rights shall be exercisable in respect of those shares; (d) no further shares shall be issued in right of those shares or in pursuance of any offer made to the holder thereof; and any issue of such shares, or any transfer of the right to be issued therewith, shall be void; and (e) except in a liquidation, no payment shall be made of any sums due from the company on those shares, whether in respect of dividend, capital or otherwise.
(3) Where the Central Government makes an order directing that any shares shall be subject to the said restrictions, or, refuses to make an order directing that any shares shall cease to be subject thereto, any person aggrieved thereby may apply to the Court, and the Court may, if it sees fit, direct that the shares shall cease to be subject to the said restrictions.
(4) Any order (whether of the Central Government or of the Court, directing that any shares shall cease to be subject to the said restrictions, which is expressed to be made with a view to permitting a transfer of those shares, may continue the restrictions mentioned in
clauses (d) and (e) of sub-section (2), either in whole or in part, so far as they relate to any right acquired, or offer made, before the transfer.
(5) Any person who- (a) exercises, or purports to exercise, any right to dispose of any shares or of any right to be issued with any such shares, when to his knowledge, lie is not entitled to do so, by reason of any of the said restrictions applicable to the case; (b) votes in respect of any such shares whether as holder or proxy, or appoints a proxy to vote in respect thereof, when, to his knowledge, he is not entitled to do so by reason of any of the said restrictions applicable to the case; or (c) being the holder of any such shares, fails to give notice of the fact of their being subject to the said restrictions to any person whom he does not know to be aware of that fact but whom he knows to be entitled, apart from such restrictions, to vote in respect of those shares, whether as holder or as proxy; shall be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to five thousand rupees, or with both.
(6) Where shares in any company are issued in contravention of such of the said restrictions as may be applicable to the case, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. 168
(7) A prosecution shall not be instituted under this section except by, or with the consent of, the Central Government.
(8) This section shall apply in relation to debentures as it applies in relation to shares.
Saving for legal advisers and bankers. 251.Saving for legal advisers and bankers.-Nothing in sections 234 to 250 shall require the disclosure to the Registrar or to the Central Government or to an inspector appointed by that Government- (a) by a legal adviser, of any privileged communication made to him in that capacity, except as respects the name and address of his client; or (b) by the bankers of any company, body corporate, managing agent, secretaries and treasurers or other person, referred to in the sections aforesaid, as such bankers, of any information as to the affairs of any of their customers other than such company, body corporate, managing agent, secretaries and treasurers or person. CHAP DIRECTORS CHAPTER II DIRECTORS Constitution of Board of Directors
Minimum number of directors.
252. Minimum number of directors.-(1) Every public company and every private company which is a subsidiary of a public company, shall have at least three directors.
(2) Every private company which is not a subsidiary of a public company shall have at least two directors.
(3) The directors of a company collectively are referred to in this Act as the “Board of directors” or “Board”.
Only individuals to be directors. 253. Only individuals to be directors.-No body corporate, asso- ciation or firm shall be appointed director of a public or private company, and only an individual shall be so appointed.
Subscribers of memorandum deemed to be directors. 254. Subscribers of memorandum deemed to be directors.-In, default of and subject to any regulations in the articles of a company, subscribers of the memorandum who are individuals, shall be deemed to be the directors of the company, until the directors are duly appointed in accordance with section 255.
Appointment of directors and proportion of those who are to retire byrotation. 255. Appointment of directors and proportion of those who are to
retire by rotation.-(1) Not less than two-thirds of the total number of directors of a public company, or of a private company which is a subsidiary of a public company, shall- (a) be persons whose period of office is liable to determination by retirement of directors by rotation; and (b) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
(2) The remaining directors in the case of any such company, and the directors generally in the case of a private company which is not a subsidiary of a public company, shall, in default of and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
Ascertainment of directors retiring by rotation and filling ofvacancies. 256. Ascertainment of directors retiring by rotation and
filling of vacancies.-(1) At the first annual general meeting of a public 169 Company, or a private company which is a subsidiary of a public company, held next after the date of the general meeting at which the first directors are appointed in accordance with section 255 and ,at every subsequent annual general meeting, one-third of such of, the directors for the time being as are liable to retire, by rotation, or if their number is not three or a multiple of three, then, the number nearest to one-third, shall retire from office.
(2) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors’ on the ,same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(3) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
(4) (a) If the place of the retiring director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place. (b) If at the adjourned meeting also, the. place of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless- (i) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost; (ii) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed; (iii) he is not qualified or is disqualified for appointment; (iv) a resolution. whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act; or
(v) the proviso to sub-section (2) of section 263 or sub-
section (3) of section 280 is applicable to the case.
(5) Where a director is to retire at any annual general meeting
both in virtue of sub-section (2) and in virtue of sub-section (2) of section 280, he shall be deemed, for the purposes of this section, to
retire in virtue of sub-section (2) of this section.
Right of persons other than retiring directors to stand fordirectorship. 257. Right of persons other than retiring directors to stand for
directorship.–(1) A Person who is not a retiring director shall, sub- ject 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.
(2) Sub-section (1) shall not apply to a private company, unless it is a subsidiary of a public company. 170
Right of company to increase or reduce the number of directors. 258. Right of company to increase or reduce the number of directors.-Subject to the provisions of sections 252, 255, and 259. a company in general meeting may, by ordinary resolution, increase or reduce the number of its directors within the limits fixed in that behalf by its articles.
Increase in number of directors to require Government sanction. 259. Increase in number of directors to require Government sanction.-In the case of a public company or a private company which is a subsidiary of a public company, any increase in the number of its directors, except- (a) in the case of a company which was in existence on the 21st day of July, 1951, an increase which was within the per- missible maximum under its articles as in force on that date, and (b) in the case of a company which came or may come into existence after that date, an increase which is within the permissible maximum under its articles as first registered, shall not have any effect unless approved by the Central Government; and shall become void if, and in so far as, it is disapproved by that Government.
Additional directors. 260. Additional directors.-Nothing in section 255, 258 or 259 shall affect any, power conferred on the Board of directors by the articles to appoint additional directors: Provided that such additional directors shall hold office only up to the date of the next annual general meeting of the company: Provided further that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles.
Certain persons not to be appointed directors, except by specialresolution. 261. Certain persons not to be appointed directors, except
by special resolution.-(1) If a public company, or a private company which is a subsidiary of a public company, has a managing agent and such managing agent is authorised by the articles or by an agreement to appoint any director to the Board, none of the following persons shall be appointed as a director of the company whose period of office is liable to determination by retirement of directors by rotation, except by a special resolution passed by the company:- (a) any person who is an officer or employee of, or who holds any office or place of profit under, the company or any subsidiary thereof: Provided that nothing in this clause shall apply to the director of such company or subsidiary, or to the holder of any office or place of profit under such company or subsidiary which may be held by a director of the company by virtue of section 314; (b) where any office or place of profit which would dis- qualify a person under clause (a), read with the proviso thereto, is held by any firm, any partner in, or employee of, the firm; (c) where any such office or place of profit is held by a private company, any member, officer or employee of such com- pany; 171 (d) where any such office or place of profit is held by a body corporate, any officer or employee of such body corporate; (e) any person who is entitled, by virtue of any agreement, to any share of, or any amount out of, the remuneration received by the managing agent; (f) any associate, or officer or employee, of the managing agent; or (g) any person who is an officer or employee of, or who holds any office or place of profit under, any body corporate under the management of the managing agent or any subsidiary of such body corporate: Provided that nothing in clause (g) shall apply to the director of such body corporate or subsidiary or to the holder of any office or place of profit under such body corporate or subsidiary which may be held by a director of such body corporate by virtue of section 314.
(2)Special notice shall be required of any resolution appointing, or approving the appointment of, any person referred to in clauses (a)
to (g) of sub-section (1), as a director of the company.
(3) The notice given to the company of any such resolution, and the notice thereof given by the company to its members, shall set out the reasons which make the resolution necessary.
(4) Nothing in this section shall be deemed to prevent any director holding any office immediately before the commencement of this Act from continuing to hold that office up to the next annual general meeting of the company.
Filling of casual vacancies among directors.
262. Filling of casual vacancies among directors.-(1) In the case of a public company or a private company which is a subsidiary of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office will expire in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of directors at a meeting of the Board.
(2) Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated as aforesaid.
Appointment of directors to be voted on individually. 263. Appointment of directors to be voted on individually.-
(1) At a general meeting of a public company or of a private company which is a subsidiary of a public company, ‘a motion shall not be made for the appointment of two or more persons as directors of the company by a single resolution, unless a resolution that it shall be so made has first been agreed to by the meeting without any vote being given against it.
(2) A resolution moved in contravention of sub-section (1) shall be void, whether or not objection was taken at the time to its being so moved: Provided that where a resolution so moved is passed, no provision for the automatic re-appointment of retiring directors in default of another appointment shall apply. 172
(3) For the purposes of this section, a motion for approving a person’s appointment, or for nominating a person for appointment, shall be treated as a motion for his appointment.
Consent of candidate for directorship to be filed with Registrar. 264. Consent of candidate for directorship to be filed with
Registrar.-(1) A person who is not a retiring director shall not be capable of being appointed director of a company unless he has, by himself or by his agent authorised in writing, signed and filed with the Registrar, a consent in writing to act as such director.
(2) Sub-section (1) shall not apply to a private company unless it is a subsidiary of a public company.
Option to company to adopt proportional representation for theappointment of directors. 265. Option to company to adopt proportional representation for the appointment of directors.-Notwithstanding anything contained in this Act, the articles of a company may provide for the appointment of not less than two-thirds of the total number of the directors of a public company or of a private company which is a subsidiary of a public company, according to the principle of proportional re- presentation, whether by the single transferable vote or by a system of cumulative voting or otherwise, the appointments being made once in every three years and interim casual vacancies being filled in’ accordance with the provisions, mutatis mutandis, of section 262.
Restrictions on appointment or advertisement of director. 266. Restrictions on appointment or advertisement of director.-
(1) A person shall not be capable of being appointed director of a company by the articles, and shall not be named as a director or proposed director of a company in a prospectus issued by or on’ behalf of the company, or as proposed director of an intended company in a prospectus issued in relation to that intended company. or in a statement in lieu of prospectus filed with the Registrar by or on behalf of a company, unless, before the registration of the articles, the publication of the prospectus or the filing of the statement in lieu of prospectus, as the case may be, he has, by himself or by his agent authorised in writing,- (a) signed and filed with the Registrar a consent in writing to act as such director; and (b) either- (i) signed the memorandum for shares not being less in number or value than that of his qualification shares, if any; or (ii) taken his qualification shares, if any, from the company and paid or agreed to pay for them; or (iii) signed and filed with the Registrar an undertaking in writing to take from the’ company his qualification shares, if any, and pay for them; or (iv)made and filed with the Registrar an affidavit to the effect that shares, not being less in number or value than that of his qualification shares, if any, are registered in his name.
(2) Where a person has signed and filed as aforesaid an undertaking to take and pay for his qualification shares, he shall, as regards those shares, be in the same position as if he had signed the memorandum for shares of that number or value. 173
(3) References in this section to the share qualification of a director or proposed director shall be construed as including only a share qualification required within a period determined by reference to. the time of appointment, and. references therein to qualification shares shall be construed accordingly.
(4) On the application for registration of the memorandum and the articles, if any, of a company, the applicant shall file with the Registrar a list of the persons who have consented to be directors of the company; and, if this list contains the name of any person who has not so consented, the applicant shall be punishable with One which may extend to five hundred rupees.
(5) This section shall not apply to- (a) a company not having a share capital; (b) a private company; (c) a company which was a private company before becoming a public company; or (d) a prospectus issued by or on behalf of a company after the expiry of one year from the date on which the company was entitled to commence business. Managing directors, etc.
Certain persons not to be appointed managing directors. 267. Certain persons not to be appointed managing directors. No company shall, After the commencement of this Act, appoint or employ, or continue the appointment or employment of, any per. son as its managing or whole-time director who- (a) is an undischarged insolvent, or hag at any time been adjudged an insolvent; (b) suspends, or has at any time suspended, payment to his creditors, or makes, or has at any time made, a composition with them; or (c) is, or has at any time been, convicted by a Court in India of an offence involving moral, turpitude.
Amendment of provision relating to managing, Whole-time or non-rotational directors to require Government approval. 268. Amendment of provision relating to managing, Whole-time or non-rotational directors to require Government approval.-In the case of a public company or a private company which is a subsidiary of a public company, an amendment of any provision relating to the appointment or re-appointment of a managing or whole-time director or of a director not liable to retire by rotation, whether that provision be contained in the company’s memorandum or articles, or in an agree- ment entered into by it, or in any resolution passed by the company in general meeting or by its Board of directors, shall not have any effect unless approved by the Central Government; and the amendment shall become void if, and in so far as, it is disapproved by that Government.
Appointment of managing or whole-time director to require Governmentapproval. 269. Appointment of managing or whole-time director to require Government approval.-In the case of a public company or a private company which is a subsidiary of a public company, the appointment of a managing or whole time director for the first time after the commencement of this Act in the case of an existing company, and after 174 the expiry of three months from the date of its incorporation in the case of any other company, shall not have any effect unless approved by the Central Government; and shall become void if, and in so far as, it is disapproved by that Government. Share qualification
Time within which share qualification is to be obtained and maximumamount thereof. 270. Time within which share qualification is to be obtained and
maximum amount thereof.-(1) Without prejudice to the restrictions imposed by section 266, it shall be the duty of every director who is required by the articles of the company to hold a specified share qualification and who is not already qualified in that respect, to obtain his qualification within two months after his appointment as director.
(2) Any provision in the articles of the company (whether made before or after the commencement of this Act) shall be void in so far as it requires a person to hold the qualification shares before his appointment as a director or to obtain them within a shorter time than two months after his appointment as such.
(3) The nominal value of the qualification shares shall not exceed five thousand rupees, or the nominal value of one share where it exceeds five thousand rupees.
(4) For the purpose of any provision in the articles requiring a director to hold a specified share qualification, the bearer of a share warrant shall not be deemed to be the holder of the shares specified in the warrant.
Filing of declaration of share qualification by director. 271. Filing of declaration of share qualification by director.- Every director, not being a technical director or a director appointed by the Central or a State Government, shall within two months after his appointment, or in the case of a director holding office at the commencement of this Act, within two months after such commencement, file with the company a declaration specifying the qualification shares held by him.
Penalty. 272. Penalty.-If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares referred to in section 270, he shall be punishable with fine which may extend to fifty rupees for every day between such expiry and the last day on which he acted as a director.
Saving. 273. Saving.-Sections 270 to 272 shall not apply to a private company, unless it is a subsidiary of a public company. Disqualifications of directors
Disqualifications of directors.
274. Disqualifications of directors.-(1) A person shall not be capable of being appointed director of a company, if- (a) he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force; (b) he is an undischarged insolvent; (c) he has applied to be adjudicated as an insolvent and his application is Pending; 175 (d) he has been convicted by a Court in India of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence; (e) he has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or (f) an order disqualifying him for appointment as director has been passed by a Court in pursuance of section 203 and is in force, unless the leave of the Court has been obtained for his appointment in pursuance of that section.
(2) The Central Government may, by notification in the Official Gazette, remove- (a) the disqualification incurred by any person in virtue
of clause (d) of sub-section (1), either generally or in relation to any company or companies specified in the notification; or (b) the disqualification incurred by any person in virtue
of clause (e) of sub-section (1).
(3) A private company which is not a subsidiary of a public company may, by its articles, provide that a person shall be disquali- fied for appointment as a director on any grounds in addition to those
specified in sub-section (1). Restrictions on number of directorships
No person to be a director of more than twenty companies. 275. No person to be a director of more than twenty companies. After the commencement of this Act, no person shall, save as otherwise provided in section 276, hold office at the same time as director in more than twenty companies.
Choice to be made by director of more than twenty companies atcommencement of Act. 276. Choice to be made by director of more than twenty companies
at commencement of Act.-(1) Any person holding office as director in more than twenty companies immediately before the commencement of this Act shall, within two months from such commencement,- (a) choose not more than twenty of those companies, as companies in which he wishes to continue to hold the office of director; (b) resign his office as director in the other companies; and (c) intimate the choice made by him under clause (a) to each of the companies in which he was holding the office of director before such commencement, to the Registrar having jurisdiction in respect of each such company, and also to the Central Government.
(2) Any resignation made in pursuance of clause (b) of sub-
section (1) shall become effective immediately on the despatch thereof to the company concerned.
(3) No such person shall act as director- (a) in more than twenty companies, after the expiry of two months from the commencement of this Act; or 176 (b) of any company after despatching the resignation of his office as director thereof, in pursuance of clause (b) of
subsection (1).
Choice by person becoming director of more than twenty companies aftercommencement of Act. 277. Choice by person becoming director of more than twenty
companies after commencement of Act.-(1) Where a person already holding the office of director in twenty companies is appointed, after the commencement of this Act, as a director of any other company, the appointment– (a) shall not take effect unless such person has, within fifteen days thereof, effectively vacated his office as director in any of the companies in Which he was already a director; and (b) shall become void immediately on the expiry of the fifteen days if he has not, before such expiry, effectively vacated his office as director in any of the other companies aforesaid.
(2) Where a person already holding the office of director in nineteen companies or less is appointed, after the commencement of this Act, as a director of other companies, making the total number of his directorships more than twenty, he shall choose the directorships which he wishes to continue to hold or to accept, so however that the total number of the directorships, old and new, held by him shall not exceed twenty. None of the new appointments of director shall take effect until such choice is made; and all the new appointments shall become void if the choice is not made within fifteen days of the day on which the last of them was made.
Exclusion of certain directorships for the purposes of sections 275,276 and
278. Exclusion of certain directorships for the purposes of
sections 275, 276 and 277.–(1) In calculating, for the purposes of sections 275, 276 and 277, the number of companies of which a person may be a director, the following companies shall be excluded, namely: – (a) a private company which is neither a subsidiary nor a holding company of a public company; (b) an unlimited company; (c) an association not carrying on business for profit or which prohibits the payment of a dividend; (d) a company in which such person is only an alternate director, that is to say, a director who is only qualified to act as such during the absence or incapacity of some other director.
(2) In making the calculation aforesaid, any company referred to
in clauses (a), (b) and (c) of sub-section (1) shall be excluded for a period of three months from the date on which the company ceases to fall within the purview of those clauses.
Penalty. 279. Penalty.-Any person who holds office, or acts, as a director of more than twenty companies in contravention of the foregoing provisions shall be punishable with fine which may extend to five thousand rupees in respect of each of those companies after the first twenty. 177 Retiring age of directors
Age limit.
280. Age limit.-(1) Save as otherwise provided in section 281, a person shall not be capable of being appointed a director of a public company or of a private company which is a subsidiary of a public company, if he has attained the age of sixty-five years.
(2) Save as aforesaid, a director of a public company or of a private company which is a subsidiary of a public company shall vacate his office at the conclusion of the annual general meeting commencing next after he attains the age of sixty-five years: Provided that this sub-section shall not apply to a director who is in office at the commencement of this Act so as to require the termination of the appointment then held by him before the conclusion of the third annual general meeting held after the commencement of this Act, but shall apply so as to terminate the appointment aforesaid at the conclusion of that meeting, if he had attained the age of sixty-five years before the commencement of the meeting.
(3) Where a person retires by virtue of sub-section (2), no provision for the automatic re-appointment of retiring directors in, default of another appointment shall apply; and if at the meeting at the conclusion of which he retires, the vacancy is not filled, it may be filled as a casual vacancy under section 262.
Age limit not to apply if company so resolves.
281. Age limit not to apply if company so resolves.-(1) Nothing in section 280 shall prevent the appointment of a director who has attained the age of sixty-five years or require a director to retire who has attained that age, if his appointment is or was made or approved by a resolution passed by the company in general meeting and specifically declaring that the age limit shall not apply to him.
(2) Special notice shall be required of any such resolution; and unless such notice is given, the resolution shall be void.
(3) Notice of any such resolution given to the company, and by the company to its members, must state or must have stated the age of the person to whom it relates.
Duty of director to disclose age.
282. Duty of director to disclose age.-(1) Any person who is appointed, or to his knowledge is proposed to be appointed, director of a company at a time when he has attained the age of sixty-five years or such lower age, if any, as may be specified in the company’s articles in this behalf, shall give notice of his age to the company: Provided that this sub-section shall not apply in relation to a person’s re-appointment on the termination of his previous appointment as director of the company, if notice has been given as aforesaid in connection with, or at any time during the continuance of, such previous appointment or any appointment as director prior thereto.
(2) Any person who- (a) fails to give notice of his age as required by sub-
section (1); or 178 (b) acts as director under any appointment which is invalid, or which has terminated, by reason of his age; shall be punishable with fine which may extend to fifty rupees for every day during which the failure continues or during which he continues to act as aforesaid, as the case may be.
(3) For the purposes of clause (b) of sub-section (2), a person who has acted as director under an appointment which is invalid or has terminated, shall be deemed to have continued so to act throughout the period from the date of the invalid appointment or the date on which the appointment terminated, as the case may be, until the last day on which he acted thereunder. Vacation of office by directors
Vacation of office by directors.
283. Vacation of office by directors.-(1) The office of a director shall be vacated if- (a) he fails to obtain within the time specified in sub-
section (1) of section 270, or at any time thereafter ceases to hold, the share qualification, if any, required of him by the articles of the company; (b) he is found to be of unsound mind by a Court of compe- tent jurisdiction; (c) he applies to be adjudicated an insolvent; (d) he is adjudged an insolvent; (e) he is convicted by a Court in India of any offence and is sentenced in respect thereof to imprisonment for not less than six months; (f) he fails to pay any call in respect of shares of the company held by him, whether alone or jointly with others, within six months from the last date fixed for the payment of the call; (g) he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board; (h) he, or any firm in which he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295; (i) he acts in contravention of section 299; (j) he becomes disqualified by an order of Court under section 203; or (k) he is removed in pursuance of section 284.
(2) Notwithstanding anything in clauses (d), (e) and (j) of sub-
section (1), the disqualification referred to in those clauses shall not take effect- (a) for thirty days from the date of the adjudication sentence or order; 179 (b) where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence, or order until the expiry of seven days from the date on which such appeal or petition is disposed of; or (c) where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of.
(3) A private company which is not a subsidiary of a public com- pany may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in subsection
(1).
Removal of directors.
284. Removal of directors.-(1) A company may, by ordinary re- solution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office: Provided that this sub-section shall not, in the case of a private company, authorise the removal of a director holding office for life on the 1st day of April, 1952, whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise : Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional re- presentation.
(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.
(4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so,- (a) in any notice of the resolution given to members of the company, state the fact of the representations having been made; and (b) send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company); and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company’s default, the director may (without prejudice to his right to be beard orally) require that the representations shall be read out at the meeting: 180 Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Court is satisfied that the rights conferred by this subsection are being abused to secure needless publicity for defamatory matter; and the Court may order the company’s costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.
(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board in pursuance of section 262, be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has
been given under sub-section (2). A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid.
(6) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of section 262, and all the provisions of that section shall apply accordingly: Provided that the director who was removed from office shall not be re-appointed as a director by the Board of directors.
(7) Nothing in this section shall be taken- (a) as depriving a person removed thereunder of any com- pensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director; or (b) as derogating from any power to remove a director which may exist apart from this section. Meetings of Board
Board to meet once in every three months. 285. Board to meet once in every three months.-In the case of every company, a meeting of its Board of directors shall be held at least once in every three calendar months.
Notice of meetings.
286. Notice of meetings.-(1) Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.
(2) Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees.
Quorum for meetings. 287. Quorum for meetings.-
(1) In this section- (a) “total strength” means the total strength of the Board of directors of a company as determined in pursuance of this Act. after deducting’ therefrom the number of the directors if any, whose places may be vacant at the time; and 181 (b) “interested director” means any director whose presence cannot, by reason of section 300, count for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter.
(2) The quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction con- tained in that one-third being rounded off as one), or two directors, whichever is higher: Provided that where at any time the number of interested direc- tors exceeds or is equal to two-thirds of the total strength, the number of the remaining directors, that is to say, the number of the directors who are not interested, shall be the quorum during such time.
Procedure where meeting adjourned for want of quorum.
288. Procedure where meeting adjourned for want of quorum.- (1) If a meeting of the Board could not be held for want of quorum, then, unless the articles otherwise provide, the meeting shall automatically stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.
(2) The provisions of section 285 shall not be deemed to have been contravened merely by reason of the fact that a meeting of the Board which had been called in compliance with the terms of that section could not be held for want of a quorum.
Passing of resolutions by circulation. 289. Passing of resolutions by circulation.-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 direc- tors, or to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board or committee, as the case may ‘be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.
Validity of acts of directors. 290. Validity of acts of directors.-Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision con- tained in this Act or in the articles: Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated. Board’s powers and restrictions thereon
General powers of Board.
291. General powers of Board.-(1) Subject to the provisions of this Act, 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 the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any 182 other Act or by the memorandum or articles of the company or other- wise, to be exercised or done by the company in general meeting: Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions con- tained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made thereunder, including regulations made 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.
Certain powers to be exercised by Board only at meeting.
292. Certain powers to be exercised by Board only at meeting. (1) The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board: – (a) the power to make calls on shareholders in respect of money unpaid on their shares; (b) the power to issue debentures; (c) the power to borrow moneys otherwise than on debentures; (d) the power to invest the funds of the company; and (e) the power to make loans: Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director, the managing agent, secretaries and treasurers, or the manager of the company, or in the case of a banking company, also to a manager or other principal officer of a branch office of the company, the powers specified in clauses (c), (d) and (e), to the extent specified in sub-
sections (2), (3) and (4) respectively.
(2) Every resolution delegating the power referred to in clause
(C) of sub-section (1) shall specify the total amount up to which moneys may be borrowed by the delegate.
(3) Every resolution delegating the power referred to in clause
(d) of sub-section (1) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the delegate.
(4) Every resolution delegating the power referred to in clause
(e) of sub-section (1) shall specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made, and the maximum amount of loans which may be made for each such purpose in individual cases.
(5) 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 subsection (1). 183
Restrictions on powers of Board.
293. Restrictions on powers of Board.-(1) The Board of directors of, a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,- (a) 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 such undertaking; (b) remit, or give time for the re-payment of, any debt due by a director; (c) invest, otherwise than in trust securities, the sale proceeds resulting from the acquisition, after the commence- ment of this Act, without the consent of the company, of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time; (d) borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company, (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purpose; or (e) contribute, after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed twentyfive thousand rupees, or five per cent. of its average net profits as determined in accordance with the provisions of sections 349 and 350 during the three financial years immediately preceding, whichever is greater. Explanation.-Where a portion of a financial year of the company falls before the commencement of this Act, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning, and for the purposes, of clause (e).
(2) Nothing contained in clause (a) of sub-section (1) shall affect- (a) the title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and caution; or (b) the selling or leasing of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.
(3) Any resolution passed by the company permitting any trans-
action such as is referred to in clause (a) of, sub-section (1) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transaction; 184 Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in its capital except in accord- ance with the provisions contained in that behalf in this Act.
(4) 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 moneys by the
banking company within the meaning of clause (d) of subsection (1).
(5) No debt incurred by the company in excess of the limit im-
posed by clause (d) 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.
Appointment of sole selling agents to require approval of company ingeneral meeting. 294. Appointment of sole selling agents to require approval of
company in general meeting.-(1) After the commencement of this Act, the Board of directors of a company shall not appoint a sole selling agent for any area, except subject to the condition that the appointment shall cease to be valid if it is not approved by the company in general meeting within a period of six months from the date on which the appointment is made.
(2) If the company in general meeting disapproves of the appointment, or does not approve of it within the period of six months aforesaid, it shall cease to be valid with effect from the date of such disapproval, or the expiry of the period of six months aforesaid, whichever is earlier.
(3) Where before the commencement of this Act, a company has appointed a sole selling agent for any area for a period of not less than five years, the appointment shall be placed before the company in general meeting within a period of six months from such commencement; and the company in general meeting may, by resolution,- (a) if the appointment was made on or after the 15th day of February, 1955, terminate the appointment forthwith or with effect from such later date as may be specified in the resolution: and (b) if the appointment was made before the date specified in clause (a), terminate the appointment with effect from such date as may be specified in the resolution, not being earlier than live years from the date on which the appointment was made, or the expiry of one year from the commencement of this Act, whichever is later.
Loans to directors, etc.
295. Loans to directors, etc.-(1) Save as otherwise provided in
sub-section (2), no company (hereinafter in this section referred to as the lending company”) shall, without obtaining the previous appro- val of the Central Government in that behalf, make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by,- (a) any director of the lending company or of a company which is its holding company or any partner or relative of any 185 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 twenty-five 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, managing agent, secretaries and treasurers, 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) Sub-section (1) shall not apply to any loan made, guarantee given or security provided- (a) by a private company unless it is a subsidiary of a public company; (b) by a banking company; (c) by a holding company to its subsidiary; or (d) by a company which is the managing agent or secretaries and treasurers of another company to the latter.
(3) Where any loan made, guarantee given or security provided by a lending company and outstanding at the commencement of this Act could not have been made, given or provided, without the previous approval of the Central Government, if this section had then been in force, the lending company shall, within six months from the commencement of this Act or such further time not exceeding. six months as the Central Government may grant for that purpose, either obtain the approval of the Central Government to the transaction or enforce the repayment of the loan made, or in connection with which the guarantee was given or the security was provided, notwithstanding any agreement to the contrary.
(4) Every person who is knowingly a party to any contravention
of sub-section (1) or (3), including in particular any person to whom the loan is made or who has taken the loan in respect of which the guarantee is given or the security is provided, shall be punishable either with fine which may extend to five thousand rupees or with simple imprisonment for a term which may extend to six months: Provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where the loan has been re-paid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.
(5) All persons who are knowingly parties to any contravention
of sub-section (1) or (3) shall be liable jointly and severally, to the 186 lending company for the repayment of the loan or for making good the sum which the lending company may have been called upon to pay in virtue of the guarantee given or the security provided by such company.
(6) No officer of the lending company or of the borrowing body
corporate shall be punishable under sub-section (4) or shall incur the
liability referred to in sub-section (5) in respect of any loan made, guarantee given or security provided in contravention of clause (d) or
(e) of sub-section (1), unless at the time when the loan was made, the guarantee was given or the security was provided by the lending company, he knew or had express notice that that clause was being contravened thereby.
Saving regarding book-debts. 296. Saving regarding book-debts.-Nothing contained in section 295 shall apply to a book-debt which is required to be treated by virtue of the provision contained in that behalf in Schedule VI as a loan or an advance for the, purpose of preparing the balance sheet of the company, unless the ‘transaction represented by the bookdebt was from its inception in the nature of a loan or an advance.
Board’s sanction to be required for certain contracts in whichparticular directors are interested. 297. Board’s sanction to be required for certain contracts in
which particular directors are interested.-(1) Except with the consent of the Board of directors of a company, a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company of which the director is a member or director, shall not enter into any contract with the company- (a) for the sale, purchase or supply of any goods, materials or services; or (b) after the commencement of this Act, for underwriting the subscription of any shares in, or debentures of, the company.
(2) Nothing contained in clause (a) of sub-section (1) shall affect any contract or contracts for the sale, purchase or supply of any goods, materials or services in which either the company, or the director, firm, partner or private company, as the case may be, regularly trades or does business, provided that the value of such goods and materials and the cost of such services do not exceed five thousand rupees in the aggregate in any calendar year comprised in the period of the contract or contracts.
(3) The consent of the Board required by sub-section (1) shall not be deemed to have been given within the meaning of that sub- section, unless the consent is accorded- (a) by a resolution passed at a meeting of the Board and (b) before the contract is entered into, or within two months of the date on which it was entered into.
(4) Where such consent is not accorded to the contract before it is entered into, anything done in pursuance of the contract shall, if such consent is ultimately not accorded, be voidable at the option of the Board. 187
(5) Sub-sections (3) and (4) shall not apply to any case where consent has been accorded to the contract before the commencement of this Act.
Power of directors to carry on business when managing agent orsecretaries and treasurers are deemed to have vacated office, etc.– 298. Power of directors to carry on business when managing agent or secretaries and treasurers are deemed to have vacated office, etc.–Where in pursuance of any provisions contained in this Act, the managing agent or secretaries and treasurers of a company are deemed to have vacated or to have been suspended from office, or are removed or suspended from office, or cease to act or to be entitled to act as managing agent or secretaries and treasurers, or where a permanent or temporary vacancy has otherwise occurred in the office of managing agent or secretaries and treasurers, then notwithstanding anything contained in this Act, the Board of directors shall have power to carry on, or arrange for the carrying on of, the affairs of the company until the managing agent or secretaries and treasurers again become entitled to act as such, or until the company in general meeting resolves otherwise. Procedure, etc, where director interested
Disclosure of interests by director.
299. Disclosure of interests by director.-(1) 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, by or on behalf of the company, shall disclose the nature of his concern or interest at a meeting of the Board of directors.
(2) (a) In the case of a proposed contract or arrangement, the
disclosure required to be made by a director under sub-section (1) shall be made at the meeting of the Board at which the question of entering into the contract or arrangement is first taken into consi- deration, or if the director was not, at the date of that meeting, concerned or interested in the proposed contract or arrangement, at the first meeting of the Board held after he becomes so concerned or interested. (b) In the case of any other contract or arrangement, the required disclosure shall be made at the first meeting of the Board held after the director becomes concerned or interested in the contract or arrangement.
(3) (a) For the purposes of sub-sections (1) and (2), a general notice given to the Board by a director, to the effect that he is a director or a member of a specified body corporate or is a member of a specified firm and is to be regarded as concerned or interested in any contract or arrangement which may, after the date of the notice, be entered into with that body corporate or firm, shall be deemed to be a sufficient disclosure of concern or interest in relation to any contract or arrangement so made. (b) Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further periods of one financial year at a time, by a fresh notice given in the last month of the financial year in which it would otherwise expire. (c) No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the Board, or the director concerned takes reasonable steps to secure that it is brought up and read at the first meeting of the Board after it is given. 188
(4) Every director who fails to comply with sub-section (1) or
(2) shall be punishable with fine which may extend to five thousand rupees.
(5) Nothing in this section 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 contracts or arrangements with the company.
Interested director not to participate or vote in Board’s proceedings. 300. Interested director not to participate or vote in Board’s
proceedings.-(1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in ‘any way, whether directly or indirectly, concerned or interested in the contract or arrangement; nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.
(2) Sub-section (1) shall not apply to- (a) a private company which is neither a subsidiary nor a holding company of a public company; (b) a private company which is a subsidiary of a public company, in respect of any contract or arrangement entered into, or to be entered into, by the private company with the holding company thereof; (c) any contract of indemnity against any loss which the directors, or any one or more of them, may suffer by reason of becoming or being sureties or a surety for the company; (d) any contract or arrangement entered into or to be entered into with a public company, or a private company which is a subsidiary of a public company, in which the interest of the director aforesaid consists solely in his being a director of such company and the holder of not more than shares of such number or value therein as is requisite to qualify him for appointment as a director thereof, he having been nominated as such director by the company
referred to in sub-section (1); or (e) a public company, or a private company which is a sub- sidiary of, a public company, in respect of which a
notification is issued under sub-section (3), to the extent specified in the notification.
(3) In the case of a public company or a private company which is a subsidiary of a public company, if the Central Government is of opinion that having regard to the desirability of establishing or promoting any industry, business or trade, it would not be in the public interest to apply all or any of the prohibitions contained in
sub-section (1) to the company, the Central Government may, by notification in the Official Gazette, direct that that sub-section shall not apply to such company, or shall apply thereto subject to such exceptions, modifications and conditions as may be specified in the notification.
(4) Every director who knowingly contravenes the provisions of this section shall be punishable with fine which may extend to five thousand rupees. 189
Register of contracts, companies and firms in which directors areinterested. 301. Register of contracts, companies and firms in which
directors are interested.–(1) A register shall be kept by every company, in which shall be entered particulars of all contracts or arrangements to which section 297 or 299 applies, including the following particulars, namely: – (a) the date of the contract or arrangement; (b) the names of the parties thereto; (c) the principal terms and conditions thereof; (d) the date on which it was placed before the Board; (e) the names of the directors voting for and against the contract or arrangement and the names of those remaining neutral.
(2) Particulars of every such contract or arrangement shall be entered in the register aforesaid within three days of the meeting of the Board at which the contract or arrangement is approved; and the register shall be placed before the next meeting of the Board and shall then be signed by all the directors present at that meeting.
(3) The register aforesaid shall also specify, in relation to each director of the company, the names of the bodies corporate and
firms of which notice has been given by him under sub-section (3) of section 299.
(4) If default is made in complying with the provisions of sub-
section (1), (2) or (3), the company, and every officer of the company who is in default, shall, in respect of each default, be punishable with fine which may extend to five hundred rupees.
(5) The register aforesaid shall be kept at the registered office of the company; and it shall be open to inspection at such office, and extracts may be taken therefrom and copies thereof may be required, by any member of the company to the same extent, in the same manner, and on payment of the same fee, as in the case of the register of members of the company; and the provisions of section 163 shall apply accordingly.
Disclosure to members of director’s interest in contract ap pointingmanager, managing director, managing agent or secretaries andtreasurers. 302. Disclosure to members of director’s interest in contract ap- pointing manager, managing director, managing agent or secretaries and
treasurers.-(1) Where a company- (a) enters in to a contract for the appointment of a manager of the company, in which contract any director of the company is in any way, whether directly or indirectly, concerned or interested; or (b) varies any such contract already in existence and in which a director is concerned or interested as aforesaid; the company shall, within twenty-one days from the date of entering into the contract or of the varying of the contract, as the case may be, send to every member of the company an abstract, of the terms of the contract or variation, together with a memorandum clearly specifying the nature of the concern or interest of the director in such contract or variation. 190
(2) Where a company enters into a contract for the appointment of a managing director of the company, or varies any such contract which is already in existence, the company shall send an abstract of the terms of the contract or variation to every member of we company
within the time specified in sub-section (1); and if any other director of the company is concerned or interested in the contract or variation, a memorandum clearly specifying the nature of the concern or interest of such other director in the contract or variation shall also be sent to every member of the company with the abstract aforesaid.
(3) Where a company proposes to enter into a contract for the appointment of a managing agent or of secretaries and treasurers, in which contract any director of the company ‘is concerned or interested as aforesaid, or proposes to vary any such contract already in existence in which a director is concerned or interested as aforesaid, the company shall send the abstract and memorandum referred to in sub-
section (2) to every member of the company, in sufficient time before the general meeting of the company at which the proposal is to be considered.
(4) Where a director becomes concerned or interested as
aforesaid in any such contract as is referred to in sub-section (1),
(2) or (3) after it is made, the abstract and the memorandum, if any, referred to in the said sub-section shall be sent to every member of the company within twenty-one days from the date on which the director becomes so concerned or interested.
(5) If default is made in complying with the foregoing provi- sions of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one thousand rupees.
(6) All contracts entered into by a company for the appointment of a manager, managing director, managing agent or secretaries and treasurers, shall be kept at the registered office of the company; and shall be open to the inspection of any member of the company at such office; and extracts may be taken therefrom and copies thereof may be required by any such member, to the same extent, in the same manner and on payment of the same fee, as in the case of the register of members of the company; and the provisions of section 163 shall apply accordingly.
(7) The provisions of this section shall apply in relation to any resolution or proposed resolution of the Board of directors of a company appointing a manager or a managing or whole-time director, or varying any previous contract or resolution of the company relating to the appointment of a manager or a managing or whole-time director, as they apply in relation to any contract or proposed contract for the like purpose. Register of Directors, etc.
Register of directors, managing agents, secretaries and treasurersetc. 303. Register of directors, managing agents, secretaries and
treasurers etc.-(1) Every company shall keep at its registered office a register of its directors, managing director, managing agent, 191 secretaries and treasurers, manager and secretary, containing with respect to each of them the following particulars, that is to say:- (a) in the case of an individual, his present name and sur- name in full; any former name or surname in full; his usual residential address; his nationality; and, if that nationality is not the nationality of origin, his nationality of origin; his business occupation, if any; if he holds the office of director, managing director, managing agent, manager or secretary in any other body corporate, the particulars of each such office held by him; and except in the case of a private company which is not a subsidiary of a public company, the date of his birth; (b) in the case of a body corporate, its corporate name and registered or principal office; and the full name, address, nationality, and nationality of origin, if different from that nationality, of each of its directors; and if it holds the office of managing agent, secretaries and treasurers, manager or secretary in any other body corporate, the particulars of each such office; (c) in the case of a firm, the name of the firm, the full name, address, nationality, and nationality of origin, if different from that nationality, of each partner; and the date on which each became a partner; and if the firm holds the office of managing agent, secretaries and treasurers, manager or secretary in any other body corporate, the particulars of each such office; (d) if any director or directors have been nominated by a body corporate, its corporate name; all the particulars referred to in clause (a) in respect of each director so nominated, and also all the particulars referred to in clause (b) in respect of the body corporate; (e) if any director or directors have been nominated by a firm, the name of the firm, all the particulars referred to in clause (a) in respect of each director so nominated, and also all the particulars referred to in clause (c) in respect of the firm. Explanation.-For the purposes of this sub-section–
(1) any person in accordance with whose instructions, the Board of directors of a company is accustomed to act shall be deemed to be a director of the company;
(2) in the case of a person usually known by a title different from his surname, the expression “surname” means that title; and
(3) references to a former name or surname do not include- (i) in the case of a person usually known by an Indian title different from his surname, the name by which he was known previous to the adoption of, or succession to, the title; (ii) in the case of any person, a former name or sur- name, where that name or surname was changed or disused 192 before the person bearing the name attained the age of eighteen years, or has been changed or disused for a period of not less than twenty years; and (iii) in the case of a married woman, the name or sur- name by which she was known previous to the marriage.
(2) The company shall, within the periods respectively mentioned in this sub-section, send to the Registrar a return in the prescribed form containing the particulars specified in the said register and a notification in the prescribed form of any change among its directors, managing directors, managing agents, secretaries and treasurers, managers or secretaries or in any of the particulars contained in the register, specifying the date of the change. The period within which the said return is to be sent shall be a period of twenty-eight days from the appointment of the first directors of the company and the period within which the said noti- fication of a change is to be sent shall be twenty-eight days from the happening thereof.
(3) If default is made in complying with sub-section (1) or (2), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues.
Inspection of the register.
304. Inspection of the register.-(1) The register kept under section 303 shall be open to the inspection of any member of the company without charge and of any other person on payment of one rupee for each inspection during business ‘hours subject to such reasonable restrictions as the company may by its articles or in general meeting impose, So that not less than two hours in each day are allowed for inspection.
(2) If any inspection required under sub-section (1) is refused,- (a) the company, and every officer of the company who is in default, shall be punishable with fine which may extend to fifty rupees; and (b) the Court may, by order, compel an immediate inspection of the register.
Duty of directors etc., to make disclosure. 305. Duty of directors etc., to make disclosure.-Every director including a person deemed to be a director by virtue of the Ex.
planation to sub-section (1) of section 303], managing director, managing agent, secretaries and treasurers, manager or secretary of any company, who is appointed to the office of director, managing director, managing agent, secretaries and treasurers, manager or secretary of any other body corporate shall, within twenty days of his appointment, disclose to the company aforesaid the particulars relating to the office in the other body corporate which are required
to be specified under sub-section (1) of section 303; and if he falls to do so, he shall be punishable with fine which may extend to five hundred rupees.
Register to be kept by Registrar and inspection thereof. 306. Register to be kept by Registrar and inspection thereof.-
(1) The Registrar shall keep a separate register or registers in which there shall be entered the particulars received by him under
sub-section (2) of section 303 in respect of companies, so however that all entries in respect of each such company shall be together 193
(2) The register or registers aforesaid shall be open to inspec- tion by any member of the public at any time during office hours, on payment of the prescribed fee. Register of Directors’ shareholdings
Register of directors’ shareholdings, etc.
307. Register of directors’ shareholdings, etc.-(1) Every company shall keep a register showing, as respects each director of the company, the number, description and amount of any shares in, or debentures of, the company or any other body corporate, being the company’s subsidiary or holding company, or a subsidiary of the company’s holding company, which are held by him or in trust for him, or of which he has any right to become the holder whether on payment or not.
(2) Where any shares or debentures have to be recorded in the said register or to be omitted therefrom, in relation to any director, by reason of a transaction entered into after the commencement of this Act and while he is a director, the register shall also show the date of, and the price or other consideration for, the transaction: Provided that where there is an interval between the agreement for any such transaction and the completion thereof, the date so shown shall be that of the agreement.
(3) The nature and extent of any interest or right in or over any shares or debentures recorded in relation to a director in the said register shall, if he so requires, be indicated in the register.
(4) The company shall not, by virtue of anything done for the purposes of this section, be affected with notice of, or be put upon inquiry as to, the rights of any person in relation to any shares or debentures.
(5) The said register shall, subject to the provisions of this section, be kept at the registered office of the company, and shall be open to inspection during business hours (subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so that not less than two hours in each day are allowed for inspection) as follows:- (a) during the period beginning fourteen days before the date of the company’s annual general meeting, and ending three days after the date of its conclusion, it shall be open to the inspection of any member or holder of debentures, of the company; and (b) during that or any other period, it shall be open to the inspection of any person acting on behalf of the Central Government or of the Registrar. In computing the fourteen days and the three days mentioned in this sub-section, any day which is a Saturday, a Sunday or a public holiday shall be disregarded.
(6) Without prejudice to the rights conferred by sub-section
(5), the Central Government or the Registrar may, at any time, require a copy of the said register, or any part thereof.
(7) The said register shall also be produced at the commencement of every annual general meeting of the company and 194 shall remain open and accessible during the continuance of the meeting to any person having the right to attend the meeting. If default is made in complying with this sub-section the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees.
(8) If default is made in complying with sub-section (1) or (2), or if any inspection required under this section is refused, or if any copy required thereunder is not sent within a reasonable time, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees and also with a further fine which may extend to twenty rupees for every day during which the default continues.
(9) In the case of any such refusal, the Court may also, by order, compel an immediate inspection of the register.
(10) For the purposes of this section- (a) any person in accordance with whose directions or instructions the Board of directors of a company is accustomed to act, shall be deemed to be a director of the company; and (b) a director of a company shall be deemed to hold, or to have an interest or a right in or over, any shares or debentures, if a body corporate other than the company holds them or has that interest or right in or over them, and either- (i) that body corporate or its Board of directors is accustomed to act in accordance with his directions or instructions; or (ii) he is entitled to exercise or control the exercise of one-third or more of the total voting power exercisable at any general meeting of that body corporate.
Duty of directors and persons deemed to be directors to makedisclosure of shareholdings. 308. Duty of directors and persons deemed to be directors to make
disclosure of shareholdings.-(1) Every director of a company, and every person deemed to be a director of the company by virtue of sub-
section (10) of section 307, shall give notice to the company of such matters relating to himself as may be necessary for the purpose of enabling the company to comply with the provisions of that section.
(2) Any such notice shall be given in writing, and if it is not given at a meeting of the Board, the person giving the notice shall take all reasonable steps to secure that it is brought up and read at the meeting of the Board next after it is given.
(3) Any person who fails to comply with sub-section (1) or (2) shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both. Remuneration of directors
Remuneration of directors.
309. Remuneration of directors.-(1) The remuneration payable to the directors of a company, including any managing or wholetime director, shall be determined, in accordance with and subject to the provisions of section 198 and this section either by the articles 195 of the company, or by a resolution or, if the articles so require, by a special resolution, passed by the company in general meeting.
(2) A director may receive remuneration either by way of a monthly payment, or by way of a fee for each meeting attended, or partly by the one way and partly by the other.
(3) In lieu of or in addition to the remuneration specified in
sub-section (2), remuneration may be paid to a director who is either in the whole-time employment of the company or a managing director, at a specified percentage of the net profits of the company: Provided that such percentage shall not exceed five for any one such director, or where there is more than one such director, ten for all of them together.
(4) In the case of a director who is neither in the whole-time employment of the company nor a managing director and whose remuneration does not include anything by way of a monthly payment, the company may, by special resolution, authorise the payment, to such director, or where there is more than one such director, to all of them together- (a) if the company has a managing or whole-time director, a managing agent or secretaries and treasurers, or a manager, of a commission not exceeding one per cent. of the net profits of the company; (b) in any other case, of a commission not exceeding three per cent. of the net profits of the company.
(5) The net profits, referred to in sub-sections (3) and (4) shall be computed in the manner referred to in section 198, sub-
section (1).
(6) No director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.
(7) The special resolution referred to in sub-section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time: Provided that no renewal shall be effected earlier than one year from the date on which it is to come into force.
(8) The provisions of this section shall come into force imme- diately on the commencement of this Act or, where such commencement does not coincide with the end of a financial year of the company, with effect from the expiry of the financial year immediately succeeding such commencement,
(9) The provisions of this section shall not apply to a private company unless it is a subsidiary of a public company. 196
Provision for increase in remuneration to require Government sanction. 310. Provision for increase in remuneration to require Government sanction.-In the case of a public company, or a private company which is a subsidiary of a public company, an amendment of any provision relating to the remuneration of any director including a managing or whole-time director, which purports to increase or has the effect of increasing, whether directly or indirectly, the amount thereof, whether that provision be contained in the company’s memorandum or articles, or in an agreement entered into by it, or in any resolution passed by the company in general meeting or by its Board of directors, shall not have any effect unless approved by the Central Government; and the amendment shall become void if, and in so far as, it is disapproved by that Government.
Increase in remuneration of managing director on reappointment orappointment after Act to require Government sanction. 311. Increase in remuneration of managing director on reappointment or appointment after Act to require Government sanction.-In the case of a public company, or a private company which is a subsidiary of a public company, if the terms of any re- appointment or appointment of a managing or whole-time director, made after the’ commencement of this Act, purport to increase or have the effect of increasing, whether directly or indirectly, the remuneration which the managing or whole-time director or the previous managing or whole-time director, as the case may be, was receiving immediately before such re-appointment or appointment, the re-appointment or appointment shall not have any effect unless approved by the Central Government; and shall become void if, and in so far as, it is disapproved by that Government. Miscellaneous provisions
Prohibition of assignment of office by director. 312. Prohibition of assignment of office by director.-Any assignment of his office made after the commencement of this Act by any director of a company shall be void.
Appointment and term of office of alternate directors.
313. Appointment and term of office of alternate directors.-(1) The Board of directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director (hereinafter in this section called “the original director”) during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.
(2) An alternate director appointed under sub-section (1) shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.
(3) If the term of office of the original director is determined before he so returns to the State aforesaid, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate, director.
Director etc. not to hold office or place of profit.
314. Director etc. not to hold office or place of profit.-(1) Except with the previous consent of the company accorded by a special resolution, no director of a company, no partner or relative of such a director, no firm in which such a director or relative is a partner, no private company of which such a director is a director or member, and no director, managing agent, secretaries and treasurers, or manager of such a private company shall hold any office or place of profit, except that of managing director, managing agent, secretaries 197 and treasurers, manager, legal or technical adviser, banker, or trustee for the holders of debentures of the company,- (a) under the company; or (b) under any subsidiary of the company, unless the re- muneration received from such subsidiary in respect of such office or place is paid over to the company or its holding company.
(2) If any office or place of profit under the company or a subsidiary thereof is held in contravention of the provisions of sub-
section (1), the director concerned shall be deemed to have vacated his office as director with effect from the first day on which the contravention occurs; and shall also be liable to refund to the company any remuneration received, or the monetary equivalent of any perquisites or advantage enjoyed by him, in respect of such office or place of profit.
(3) Any office or place in a company shall be deemed to be an office or place of profit under the company within the meaning of sub-
section (1),- (a) in case the office or place is held by a director, if the director holding it obtains anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise; (b) in case the 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 obtains anything by way of remuneration whether as salary, fees, commission, perquisities, the right to occupy free of rent any premises as a place of residence, or otherwise. Restrictions on appointment of managing directors
Application of sections 316 and 317. 315. Application of sections 316 and 317.-Sections 316 and 317 shall not apply to a private company, unless it is a subsidiary of a public company.
Number of companies of which one person may be appointed managingdirector. 316. Number of companies of which one person may be appointed
managing director.–(1), No company shall, after the commencement of this Act, appoint or employ any person as managing director, if he is either the managing director or the manager of any other company,
except as provided in sub-section (2).
(2) A company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company: Provided that such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India. 198
(3) Where, at the commencement of this Act, any person is holding the office either of managing director or of manager in more than two companies, he shall, within one year from the commencement of this Act, choose not more than two of those companies as companies in which he wishes to continue to hold the office of managing director or manager, as the case may be; and the provisions of clauses (b) and (c)
of sub-section (1) and of sub-sections (2) and (3) of section 276 shall apply mutatis mutandis in relation to this case, as those provisions apply in relation to the case of a director.
(4) Notwithstanding anything contained in sub-sections (1) to
(3), the Central Government may, by order, permit any person to be appointed as a managing director of more than two companies if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.
Managing director not to be appointed for more than five years at atime. 317. Managing director not to be appointed for more than five
years at a time.-(1). No company shall, after the commencement of this Act, appoint or employ any individual as its managing director for a term exceeding five years at a time.
(2) Any individual holding at the commencement of this Act the office of managing director in a company shall, unless his term ex- pires earlier, be deemed to have vacated his office immediately on the expiry of five years from the commencement of this Act.
(3) Nothing contained in sub-section (1) shall be deemed to pro- hibit the re-appointment, re-employment, or the extension of the term of office, of any person by further periods not exceeding five years on each occasion: Provided that any such re-appointment, re-employment or extension shall not be sanctioned earlier than two years from the date on which it is to come into force. Compensation for loss of office
Compensation for loss of office not permissible except to managing orwhole-time directors or to directors who are managers. 318. Compensation for loss of office not permissible except to
managing or whole-time directors or to directors who are managers.-(1) Payment may be made by a company, except in the cases, specified in
sub-section (3) and subject to the limit specified in sub-section (4), to a managing director, or a director holding the office of manager or in the whole time employment 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.
(2) No such payment shall be made by the company to any other director.
(3) No payment shall be made to a managing or other director in
pursuance of sub-section (1), in the following cases, namely:- (a) where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as 199 the managing director, managing agent, secretaries and treasurers, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; (b) where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid; (c) where the office of the director is vacated by virtue of section 203, section 280, or any of the clauses, (a) to
(k), of subsection (1) of section 283; (d) where the company is being wound up, whether by or subject to the supervision of the Court or voluntarily, provided the winding up was due to the negligence or default of the director; (e) where the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary or holding company thereof; (f) whether the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.
(4) Any payment made to a managing or other director in pur-
suance of sub-section (1) shall not exceed the remuneration which he would have earned if he had been in office for the unexpired residue of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold the office, or where he held the office for a lesser period than three years, during such period: Provided that no such payment shall be made to the director in the event of the commencement of the winding up of the company, whether before, or at any time within twelve months after, the date on which he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses thereof, are not sufficient to repay to the share-holders the share capital (including the pre- miums, if any,) contributed by them.
(5) Nothing in this section shall be deemed to prohibit the pay- ment to a managing director, or a director holding the office of manager, of any remuneration for services rendered by him to the company in any other capacity.
Payment to director, etc., for loss of office etc., in connection withtransfer of undertaking or property. 319. Payment to director, etc., for loss of office etc., in
connection with transfer of undertaking or property.-(1) No director of a company shall, in connection with the transfer of the whole or any part of any undertaking of property of the company, 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- (a) from such company; or (b) from the transferee of such undertaking or property or from any other person (not being such company), unless parti- culars with respect to the payment proposed to be made by such transferee or person (including the amount thereof) have been 200 disclosed to the members of the company and the proposal has been approved by the company in general meeting.
(2) Where a director of a company receives ‘payment of any,
amount in contravention of sub-section (1), the amount shall be deemed to have been received by him in trust for the company.
(3) Sub-sections (1) and (2) shall not affect in any manner the operation of section 318.
Payment to director for loss of office, etc., in connection withtransfer of shares. 320. Payment to director for loss of office, etc., in
connection with transfer of shares.-(1) No director of a company shall, in connection with the transfer to any persons 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 cor- porate with a view to the company becoming a subsidiary of such body corporate or a subsidiary 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,– (a) from such company; or (b) except as otherwise provided in this section, from the transferees of the shares or from any other person (not being such company).
(2) In the case referred to in clause (b) of sub-section (1), it shall be the duty of the director concerned to take all reasonable steps to secure that particulars with respect to the payment proposed to be made by the transferees or other person (including the amount thereof) are included in, or sent with, any notice of the offer made for their shares which is given to any shareholders,
(3) If- (a) any such director fails to take reasonable steps as aforesaid; or (b) any person who has been properly required by any such director to include the said particulars in, or send them with, any such notice as aforesaid fails so to do; he shall be punishable with fine which may extend to two hundred and fifty rupees.
(4) If-
(a) the requirements of sub-section (2) are not complied with in relation to any such payment as is governed ‘by clause
(b) of sub-section (1); or 201 (b) the making of the proposed payment is not, before the transfer of any shares in pursuance of the offer, approved by a meeting, called for the purpose, of the holders of the shares to which the offer relates and other holders of shares of the same class (other than shares already held at the date of the offer by, or by a nominee for, the offeror, or where the offeror is a company, by, or by a nominee for, any subsidiary thereof) as any of the said shares; any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any persons who have sold their shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.
(5) If at a meeting called for the purpose of approving any
payment as required by clause (b) of sub-section (4), a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, the payment shall, for the purposes of that sub-section, be deemed to have been approved.
Provisions supplementary to sections 318, 319 and 320.
321. Provisions supplementary to sections 318, 319 and 320.-(1) Where in proceedings for the recovery of any payment as having, by
virtue of sub-section (2) of section 319 or sub-section (4) of section 320, been received by any person in trust, it is shown that- (a) the payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question, or within one year before, or within two years after, that agreement or the offer leading thereto; and ‘ (b) the company or any person to whom the transfer was made was privy to that arrangement; the payment shall be deemed, except in so far as the contrary is shown, to be one to which that sub-section applies.
(2) If in connection with any such transfer as is mentioned in section 319 or in section 320,– (a) the price to be paid, to a director of the company whose office is to be abolished or who is to retire from office, for any shares in the company held by him is in excess of the price which could at the time have been obtained by other holders of the like shares; or (b) any valuable consideration is given to any such director; the excess or the money value of the consideration, as the case may be, shall for the purposes of that section, he deemed to have been a payment made to him by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement.
(3) References in sections 318, 319 and 320 to payments made to any director of a company by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement, do not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services; and for the purposes of this sub-section the 202 expression pension” includes any superannuation allowance, superannuation gratuity or similar payment.
(4) Nothing in sections 319 and 320 shall be taken to prejudice the operation of any rule of law requiring disclosure to be made with respect to any such payments as are therein mentioned or with respect to any other like payments made or to be made to the directors of a company. Directors with unlimited liability
Directors, etc., with unlimited liability in limited company. 322. Directors, etc., with unlimited liability in limited
company.- (1) In a limited company, the liability of the directors or of any director or of the managing agent, secretaries and treasurers or manager may, if so provided by the memorandum, be unlimited.
(2) In a limited company in which the liability of a director, managing agent, secretaries and treasurers or manager is unlimited, the directors, the managing agent, secretaries and treasurers and the manager of the company, and the member who proposes a person for appointment to the office of director, managing agent, secretaries and treasurers or manager, shall add to that proposal a statement that the liability of the person holding that office will be unlimited; and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be given to him by the following or one of the following persons, namely, the promoters of the company, its directors, its managing agent, secretaries and treasurers or manager, if any, and its officers.
(3) If any director, managing agent, secretaries and treasurers, manager or proposer makes default in adding such a statement, or if any promoter, director, managing agent, secretaries and treasurers, manager or officer of the company makes’ default in giving such a notice, he shall be punishable with fine which, may extend to one thousand rupees and shall also be liable for any damage which the person so appointed may. sustain from the default; but the liability of the person appointed shall not be affected by the default.
Special resolution of limited company making liability of directors,etc., unlimited. 323. Special resolution of limited company making liability
of directors, etc., unlimited.-(1) A limited company may, if so authorised by its articles, by special resolution, alter its memoran- dum so as to render unlimited the liability of its directors or of any director or of its managing agent, secretaries and treasurers or manager.
(2) Upon the passing of any such special resolution, the provisions thereof shall be as valid as if they had been originally contained in the memorandum: Provided that no alteration of the memorandum making the
liability of any of the officers referred to in sub-section (1) un- limited shall apply to such officer, if he was holding the office from before the date of the alteration, until the expiry of his then term, unless he has accorded his consent to his liability becoming un- limited. 203 CHAP Managing agents CHAPTER III.-Managing agents Prohibition of appointment of managing agent in certain cases
Power of Central Government to notify that companies engaged inspecified classes of industry or business shall not have managingagents. 324. Power of Central Government to notify that companies engaged in specified classes of industry or business shall not have managing
agents.-(1) Subject to such rules as may be prescribed in this behalf, the Central Government may, by notification in the Official Gazette, declare that, as from such date as may be specified in the
notification, the provisions of sub-section (2) shall apply to. all companies, whether incorporated before or after the commencement of this Act,-which are engaged on that date or may thereafter be engaged, wholly or in part, in such class or description of industry or business as may be specified in the notification.
(2) Thereupon,- (a) where any such company has a managing agent on the specified date, the term of office of that managing agent shall, if it does not expire earlier, expire at the end of three years from the specified date, or on the 15th day of August, 1960, whichever is later; and the company shall not re-appoint or appoint the same or any other managing agent; and (b) where any such company has no managing agent on the specified date, or where it is incorporated on or after that date, it shall not appoint a managing agent.
(3) Copies of all rules prescribed under sub-section (1) shall, as soon as may be after they have been prescribed, be laid before both Houses of Parliament.
(4) A copy of every notification proposed to be issued under
subsection (1) shall be laid in draft before both Houses of Parliament for a period of not less than thirty days while they are in session; and if, within that period, either House disapproves of the issue of the notification or approves of such issue only with modifications, the notification shall not be issued or, as the case may require, shall be issued only with such modifications as may be agreed on by both the Houses.
Managing agency company not to have managing agent.
325. Managing agency company not to have managing agent.-(1) No company acting as the managing agent of any other company shall, after the commencement of this Act, appoint a managing agent for itself, whether it transacts any other kind of business in addition or not.
(2) No company having a managing agent shall, after the com- mencement of this Act, be appointed as the managing agent of any other company.
(3) Any appointment of managing agent made in contravention of
sub-section (1) or (2) shall be void.
(4) Where at the commencement of this Act a company having a managing agent is itself acting as a managing agent of any other company, the term of office of the company first mentioned as managing agent of the other company shall, if it does not expire earlier in accordance with the provisions applicable thereto immediately before such commencement [including any provisions contained in the Indian Companies Act, 1913 (7 of 1913)], expire on the 15th day of August,
204 Appointment and term of office
Central Government to approve of appointment, etc., of managing agent;and circumstances in which approval may be accorded. 326. Central Government to approve of appointment, etc., of managing agent; and circumstances in which approval may be accorded.-
(1) In respect of any company to which neither the prohibition specified in section 324 nor that specified in section 325 applies, a managing agent shall not be appointed or re-appointed,- (a) except by the company in general meeting; and (b) unless the approval of the Central Government has been obtained for such appointment or re-appointment.
(2) The Central Government shall not accord its approval under
sub-section (1) in any case, unless it is satisfied- (a) that it is not against the public interest to allow the company to have a managing agent; (b) that the managing agent proposed is, in its opinion, a fit and proper person to be appointed or re-appointed as such, and that the conditions of the managing agency agreement proposed are fair and reasonable; and (c) that the managing agent proposed has fulfilled any con- ditions which the Central Government requires him to fulfil.
Application of sections 328 to 331. 327. Application of sections 328 to 331.-The provisions of sections 328 to 331 shall apply to- (a) a public company; (b) a private company which is a subsidiary of a public and (c) a private company which is not a subsidiary of a public company, unless the Central Government, by general or special order, specifically exempts the private company.
Term of office of managing agent.
328. Term of office of managing agent.-(1) After the commencement of this Act, no company shall- (a) in case it appoints a managing agent for the first time (that is to say, in case the company has had no managing agent at any time since its formation), make the appointment for a term exceeding fifteen years; (b) in any other case, re-appoint or appoint a managing agent for a term exceeding ten years at a time; (c) re-appoint a managing agent for a fresh term, when the existing term of the managing agent has two years or more to run: in the interest of the company so to do, permit the re-appointment of a managing agent at an earlier time than that specified in clause (c).
(2) For the purpose of sub-section (1), re-appointment does not include the re-appointment of any person on fresh, additional or changed conditions for any period not extending beyond his existing term, but otherwise includes- (a) the renewal, or the extension of the term, of a previous appointment; and (b) the appointment of any person or persons heaving an interest in the previous managing agency.
(3) Any appointment or re-appointment of a managing agent, made
in contravention of the provisions of sub-sections (1) and 205
(2) shall be void in respect of the entire term for which the appointment or re-appointment is made. Variation of managing agency agreement
Variation of managing agency agreement. 329. Variation of managing agency agreement.-A resolution of the company in general meeting shall be required for varying the terms of a managing agency agreement; and before such a resolution is passed, the previous sanction of the Central Government shall be obtained therefor. Special provisions regarding existing managing agents
Term of office of existing managing agents to terminate on 15thAugust,
330. Term of office of existing managing agents to terminate on 15th August, 1960.-Where a company has a managing agent at the commencement of this Act, the term of office of such managing agent shall, if it does not expire earlier in accordance with the provisions applicable thereto immediately before such commencement [including any provisions contained in the Indian Companies Act, 1913 (7 of 1913) ], expire on the 15th day of August, 1960, unless before that date he is re-appointed for a fresh term in accordance with any provision contained in this Act.
Application of Act to existing managing agents. 331. Application of Act to existing managing agents.-All pro- visions of this Act, other than those relating to the term for which the office can be held, shall apply to every managing agent holding office at the commencement of this Act, with effect from such commencement. Restrictions on number of managing agencies
No person to be managing agent of more than ten companies after 15thAugust,
332. No person to be managing agent of more than ten companies
after 15th August, 1960.-(1) After the 15th day of August, 1960, no person shall, at the same time, hold office as managing agent in more than ten companies.
(2) Where a person holding office as managing agent in more than
ten companies before that date fails to comply with sub-section (1), the Central Government may permit him to hold office as managing agent with effect from that date in respect of such of those companies, not exceeding ten in number, as it may determine.
(3) In calculating the number of companies of which a person may be a managing agent in pursuance of this section, the following companies shall be excluded, namely:- (a) a private company which is neither a subsidiary nor a holding company of a public company; (b) an unlimited company; (c) an association which does not carry on business for profit, or which prohibits the payment of a dividend.
(4) For the purposes of this section, each of the following persons shall also be deemed to hold office as managing agent of the company: – (a) where the managing agent of the company is a firm every partner in the firm; 206 (b) where the managing agent of the company is itself a company, every person who is a director, the secretaries and treasurers or a manager, of the latter company, and every member thereof who is entitled to exercise not less than twenty per cent. of the total voting power therein.
(5) Any person who acts as a managing agent of more than ten companies in contravention of this section shall be punishable with fine which may extend to one thousand rupees in respect of each of those companies in excess of ten, for each day on which he so acts. Right to charge on assets
Right of managing agent to charge on company’s assets. 333. Right of managing agent to charge on company’s assets.-A managing agent whose office stands terminated under section 324 or 332 shall be entitled to a charge on the assets of the company in respect of all moneys which are due to him from the company at the date of such termination, or which he may have to pay after that date in respect of any liability or obligation properly incurred by him on behalf of the company before such date, subject to all existing charges and incumbrances, if any, on such assets. Vacation of office, removal and resignation
Vacation of office on insolvency, dissolution or winding up, etc. 334.Vacation of office on insolvency, dissolution or winding up, etc.-Subject to the provisions of section 340, the managing agent of a company shall be deemed to have vacated his office as such- (a) in case the managing agent is an individual, if he is adjudged an insolvent; (b) in the same case, if the managing agent applies to be adjudicated an insolvent; (c) in case the managing agent is a firm, on its dissolution from any cause whatsoever, including the insolvency of a partner in the firm; (d) in case the managing agent is a body corporate, on the commencement of its winding up whether by or subject to the supervision of the Court, or voluntarily; (e) in all cases, on the commencement of the winding up of the company managed by the managing agent, whether by or subject to the supervision of the Court or voluntarily.
Suspension from office where receiver appointed.
335. Suspension from office where receiver appointed.-(1) The managing agent of a company shall be deemed to have been suspended from his office as such, if a receiver is appointed for his property- (a) by a Court, or (b) by or on behalf of the creditors of the managing agent, including the holders of debentures issued by the managing agent, in pursuance of any power conferred by an instrument executed by the managing agent: Provided that the Court which appointed the receiver, or which will have jurisdiction to wind up the managed company, as the case 207 may be, may, by order, direct that the managing agent shall continue to act as such for such period and subject to such restrictions and conditions, if any, as may be specified in the order.
(2) The Court may, at any time, cancel or vary any order passed
by it under the proviso to sub-section (1).
Vacation of office on conviction in certain cases. 336. Vacation of office on conviction in certain cases.- Subject to the provisions of sections 340 and 341, the managing agent of a company shall also be deemed to have vacated his office as such, if- (a) the managing agent; (b) in case the managing agent is a firm, any partner in the firm; or (c) in case the managing agent is a body corporate, any director of, or any officer holding a general power of attorney from, such body corporate; is convicted by a. Court in India, after the commencement of this Act, of any offence, and sentenced therefor to imprisonment for a period of not less than six months.
Removal for fraud or breach of trust. 337. Removal for fraud or breach of trust.-A company in general meeting may, by ordinary resolution,, remove its managing agent from office (i) for fraud or breach of trust in relation-to the affairs of the company or of any subsidiary or holding company thereof, whether committed before or after the commencement of this Act- (ii) for fraud or breach of trust, whether committed before or after such commencement, in relation to the affairs of any other, body corporate, if a Court of Law, whether in or outside India, finds such fraud or breach of trust to have been duly established; or (iii) subject to the provisions of sections 340 and 341, where the managing agent is a firm or body corporate, if any partner in the firm, or any director of, or any officer holding a general power of attorney from, the body corporate is guilty of any such fraud or breach of trust as is referred
to in clause (1).
Removal for gross negligence or mismanagement. 338. Removal for gross negligence or mismanagement.-A company in general meeting may, by special resolution, remove its managing agent from office for gross negligence in, or for gross mismanagement of, the affairs of the company or of any subsidiary thereof.
Power to call meetings for the purposes of sections 337 and 338 andprocedure. 339. Power to call meetings for the purposes of sections 337 and
338 and procedure.-(1) Without prejudice to any other provision contained in this Act or in the articles of the company for the calling of meetings, any two directors of the company may call a general meeting of the company for the purpose of considering any resolution of the nature referred to in section 337 or 338. 208
(2) On receipt of notice of any such resolution, a copy of the resolution shall be sent forthwith to the managing agent by the company.
(3) The managing agent shall have, in relation to any such resolution, all the rights which a director of the company has under section 284 in relation to any resolution for removing him from office, including, in particular, the right to make representations to the company in writing, to have such representations sent to members of the company and to have them read out at the meeting and also the right to be heard on the resolution at the meeting.
Time when certain disqualifications will take effect.
340. Time when certain disqualifications will take effect.-(1) The disqualifications imposed by clause (a) of section 334, by sub-
section (1) of section 335, by section 336, and by any resolution passed in pursuance of clause (ii) of section 337, shall not take effect- (a) for thirty days from the date of the order of adjudication, appointment of the receiver, sentence, or finding of the Court, as the case may be, or (b) where any appeal or petition is preferred within the thirty days aforesaid against the order, appointment, sentence or conviction resulting in the sentence, or finding, until the expiry of seven days from the date on which such appeal or petition is disposed of, or (c) where within the seven days aforesaid, any further appeal or petition is preferred in respect of the order, appointment, sentence, conviction or finding, as the case may be, and the appeal or petition, if allowed, would result in the removal of the disqualification, or in making the resolution inapplicable, as the case may be, until such further appeal or petition is disposed of.
(2) In the cases referred to in sub-section (1), the Board may suspend the managing agent from office immediately on, or at any time after, the adjudication, appointment, sentence or finding referred to in clause (a) of that sub-section and until the disposal of the appeals and petitions, if any, referred to in clauses (b) and (c) thereof, or until the convicted partner, director or officer is expelled or dismissed in pursuance of section 341, as the case may be.
Conviction not to operate as disqualification if convicted partner,director, etc., is expelled. 341. Conviction not to operate as disqualification if convicted
partner, director, etc., is expelled.-(1) In the cases referred to in clauses (b) and (c) of section 336, it shall be open to the managing agent, notwithstanding anything to the contrary in any other law or agreement, for the time being in force, to expel or dismiss the convicted partner, director or officer, within thirty days from the date of his sentence; and in that event, the disqualifications imposed’ by the clauses aforesaid shall cease to apply.
(2) Sub-section (1) shall not affect the operation of section 346 in any case to which that section would otherwise apply. 209
Resignation of office by managing agent.
342. Resignation of office by managing agent.-(1) Unless the managing agency agreement otherwise provides, a managing agent may, by notice to the Board, resign his office with effect from such date as may be specified in the notice.
(2) The managing agent shall cease to act as such with effect from the date so specified or from such later date, if any, as may be mutually agreed on between him and the Board; but his resignation shall not be effective until it is considered as provided in sub-
section (3).
(3) When notice of resignation is given as aforesaid, the Board shall- (a) prepare a statement of the affairs of the company as at the date specified in the notice of resignation or such subsequent date [not being later than that on which the
managing agent ceases to act as such under sub-section (2)] as the directors may think suitable, together with a balance- sheet made out as at that date, and a profit and loss account for the period subsequent to the date for which the last such account was prepared and laid before the company in general meeting, and ending on that date; (b) obtain a report from the auditors of the company on such balance-sheet and profit and loss account, in accordance with sections 227, 228 and 229; and (c) place the managing agent’s resignation together with the statement of affairs, balance-sheet, profit and loss account and auditors’ report mentioned above, before the company in general meeting.
(4) In relation to any report made by the auditors as aforesaid sections 230, 231, 232 and 233 shall apply in like manner as they apply in relation to the auditors’ report referred to therein.
(5) The company in general meeting may, by resolution, accept the resignation or take such other action with reference thereto as it may deem fit. Transfers of and succession to, office
Transfer of office by managing agent. 343. Transfer of office by managing agent.-A transfer of his office’ by the managing agent of a company shall not take effect unless it Is approved both by the company in general meeting and by the Central Government.
Managing agency not to be heritable after commencement of Act. 344. Managing agency not to be heritable after commencement of Act.-Any agreement made by a company other than a private company which is not a subsidairy of a public company, with its managing agent after the commencement of this Act shall be void in so far as it provides for succession to the office by inheritance or devise.
Succession to managing agency by inheritance or devise under agreementbefore commencement of Act, to be subject to Central Government’sapproval. 345. Succession to managing agency by inheritance or devise under agreement before commencement of Act, to be subject to Central
Government’s approval.-(1) Where the office of the managing agent of a company is held by an individual at the commencement of this Act and the managing agency agreement provides for succession to the office by inheritance or devise, no person shall 1512 M. of Law-27. 210 succeed to the office on the death of the holder thereof. unless the succession of such person thereto is approved by the Central Govern- ment; and that Government shall not accord such approval unless, in its opinion, such person is a fit and proper person to hold the office of managing agent of the company.
(2) The provisions of sub-section (1) shall not apply to a private company which is not a subsidiary of a public company. Changes in constitution of firms and corporations
Changes in constitution of managing agency firm or corporation to beapproved by Central Government. 346. Changes in constitution of managing agency firm or
corporation to be approved by Central Government.-(1) Notwithstanding anything to the contrary contained in any other provision of this Act, where the managing agent of a public company, or of a private company which is a subsidiary of a public company, is a firm or body corporate and any change takes place in the constitution of the firm or body corporate, the managing agent shall cease to act as such on the expiry of six months from the date on which the change takes place or such further time as the Central Government may (whether before or after the expiry of the six months) allow in that behalf, unless the approval of the Central Government has been accorded before such expiry to the changed constitution of the firm or body corporate. Explanation.-For the purposes aforesaid, a change in the consti- tution of a body corporate means- (a) its conversion from a private to a public company, or from a public to a private company; (b) any change among the directors or managers of the cor- poration, whether caused by the death or retirement of a director or manager, the appointment of a new director or manager, or otherwise; (c) any change in the ownership of shares in the body cor- porate or in the case of a body corporate not having a share capital, any change in its membership.
(2) Where a managing agent is a body corporate (other than a private company) the shares whereof are for the time being dealt in, or quoted on, a recognised stock exchange, no change in the ownership of the shares of the company shall be deemed to be a change in its constitution within the meaning and for the purposes of sub-section
(1), unless the Central Government, by notification in the Official Gazette, otherwise directs: Provided that no such notification shall be issued in respect of any company, unless the Central Government is of opinion that any change in the ownership of its shares has taken place or is likely to take place, which has affected or is likely to affect Prejudicially the affairs of any company which is being managed by the managing agent.
Application of Schedule VIII to certain managing agents.
347. Application of Schedule VIII to certain managing agents,-(1) The provisions of Schedule VIII shall apply- (a) to every firm or private company which acts as the managing agent of any company, whether public or private; and 211
(b) save as provided in subsection (2), to every other body corporate (not being a private company) which acts as the managing agent of any company, whether public or private.
(2) A body corporate (not being a private company) acting as managing agent shall, if and so long as its shares are dealt in, or quoted on, any recognised stock exchange, be exempt from the operation
of sub-section (1), unless the Central Government, by notification in the Official Gazette, otherwise directs: Provided that the Central Government may, by order, modify or limit the operation of this sub-section in relation to any body cor- porate in such manner as that Government thinks fit.
(3) If default is made by a managing agent to which Schedule VIII applies in complying with the provisions thereof,- (a) if the managing agent is a firm, every partner therein who is in default, and (b) if the managing agent is a body corporate, the body corporate, and every director or other officer thereof who is in default, shall be punishable with fine which may extend to fifty rupees for every day during which the default continues. Remuneration of managing agents
Remuneration of managing agent ordinarily not to exceed 10 per cent.of net profits. 348. Remuneration of managing agent ordinarily not to exceed 10 per cent. of net profits.-Save as otherwise expressly provided in this Act, a company shall not pay to its managing agent, in respect of any financial year beginning at or after the commencement of this Act, by way of remuneration, whether in respect of his services as managing agent or in any other capacity, any sum in excess of ten per cent. of the net profits of the company for that financial year.
Determination of net profits.
349. Determination of net profits.-(1) In computing for the purpose of section 348, the net profits of a company in any financial year- (a) credit shall be given for the sums specified in sub-
section (2), and credit shall not be given for those
specified in subsection (3); and
(b) the sums specified in sub-section (4) shall be deducted
and those specified in sub-section (5) shall not be deducted.
(2) In making the computation aforesaid, credit shall be given for the following sums:- bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf by any Government, unless and except in so far as the Central Government otherwise directs.
(3) In making the computation aforesaid, credit shall not be given for the following sums:- (a) profits, by Way of premium, on shares or debentures of the company, which ane issued or sold by the company; 212 (b) profits on sales by the company of forfeited shares-, (c) profits from the sale of the undertaking or any of the undertakings of the company or of any part thereof; (d) profits from the sale of any immovable property or fixed assets-of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets.
(4) In making the computation aforesaid, the following sums shall be deducted:- (a) all the usual working charges; (b) directors’ remuneration; (c) bonus or commission paid or payable to any member of the company’s staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis; (d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits; (e) any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf; (f) interest on debentures issued by the company; (g) interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets; (h) interest on unsecured loans and advances; (i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature: (j) outgoings; (k) depreciation to the extent specified in section 350; (l) the loss (not including any loss of a capital nature) incurred in any year which begins at or after the commencement of this Act, in so far as it has not been taken into account in arriving at the net profits of that year or of any subsequent year preceding the year in respect of which the net profits have to be ascertained; (m) any compensation or damages to be paid in virtue of any legal liability, including a liability arising from a breach of contract; (n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m).
(5) In making the computation aforesaid, the following sums shall not be deducted:- (a) the remuneration payable to the managing agent; (b) income-tax and super-tax payable by the company under the Indian Income-tax Act, 1922 (11 of 1922), or any other tax 213 on the income of the company not falling under clauses (d)
and (e) of sub-section (4); (c) any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such
as is referred to in clause (m) of sub-section (4).
Ascertainment of depreciation. 350. Ascertainment of depreciation.-The amount of depreciation to
be deducted in pursuance of clause (k) of sub-section (4) of section 349- (a) shall be the amount of normal depreciation allowable under the Indian Income-tax Act, 1922 (11 of 1922) for the financial year for which the net profits are to be computed; (b) shall not include any special, initial or other depreciation or any development rebate, whether allowable under that Act or otherwise; (c) shall not include any arrears of depreciation: Provided that arrears of depreciation may be taken into account in the first of the financial years referred to in section 348, in so far as these arrears have not been taken into account in arriving at the net profits of any financial year or years preceding the first financial year aforesaid.
Special provision where there is a profit-sharing arrangement betweentwo or more companies. 351. Special provision where there is a profit-sharing arrangement between two or more companies.-Where there is an arrangement between two or more companies to share their profits, and not less, than two of those companies have the same managing agent, any profits paid in pursuance of the arrangement by any of the com- panies having that managing agent to any other or others of them shall- (a) be excluded from the not profits of the company making such payment; and (b) be included in the net profits of the company receiving such payment, or where more than one company receives such payment, be included in the net profits of each of the receiving companies, to the extent of the payment received by it.
Payment of additional remuneration. 352. Payment of additional remuneration.-Additional remuneration in excess of the limits specified in sections 198 and 348 may be paid to the managing agent if, and only if, such remuneration is sanctioned by a special resolution of the company and is approved by the Central Government as being in the public interest.
Time of payment of remuneration. 353. Time of payment of remuneration.-The remuneration payable to the managing agent for any financial year or part thereof shall not be paid to him, until the accounts of the company for such financial year have been audited and laid before the company in general meeting: Provided that the minimum remuneration, if any, payable in pursuance of section 198 may be paid to the managing agent in such suitable instalments as may be specified either in the articles of the company or in a resolution passed by the company at an anunal general meeting or in the managing agency agreement executed by the company. 214
Managing agent not entitled to office allowance but entitled to bereimbursed in respect of expenses. 354. Managing agent not entitled to office allowance but entitled to be reimbursed in respect of expenses.-The managing agent shall not be paid any office allowance, but he may be reimbursed in respect of any expenses incurred by him on behalf of the company and sanctioned by the Board or by the company in general meeting; and nothing contained in sections 348 to 353 shall be deemed to prohibit his being so reimbursed.
Saving. 355. Saving.-Sections 348 to 354 shall not apply to a private company unless it is a subsidiary of a public company. Appointments as selling and buying agents
Appointment of managing agent or associate as selling agent of goodsproduced by the company. 356. Appointment of managing agent or associate as selling agent
of goods produced by the company.-(1) No managing agent and no associate of a managing agent, shall receive any commission or other remuneration from the company, in respect of sales of goods produced by the managed company, if the sales are made from the premises at which they are produced or from the head office of the managing agent or from any place in India.
(2) For sales of any goods produced by the company which are effected from any place outside India not being a place specified in
sub-section (1), the managing agent, or an associate of the managing agent, may be appointed as a selling agent subject to the following conditions, namely:- (a) that the managing agent or associate maintains an .office at such place for his own business, that is to say, for a business not connected with that of the company; (b) that the remuneration payable in respect of the work done as selling agent by the managing agent or associate is in accordance with the terms of a special resolution passed by the company in that behalf; and (c) that no other sums are payable by the company to the managing agent or associate whether by way of expenses or otherwise.
(3) Any appointment made in pursuance of sub-section (2) shall not be made for a term exceeding five years but may be renewed from time to time for a term not exceeding five years on each occasion: Provided that such renewal shall not be effected earlier than one year from the date on which it is to come into force.
(4) The special resolution referred to in clause (b) of sub-
section (2) shall set out the material terms subject to which the appointment of selling agent is made.
(5) Every appointment made under sub-section (2) and all parti- culars relating thereto shall be entered in a register maintained by the company for the purpose.
Application of section 356 to case where business of company consistsof the supply or rendering of any services. 357. Application of section 356 to case where business of company consists of the supply or rendering of any services.-Where and in so far as the business of a company consists in the supply or rendering of any services, the provisions of section 356 shall apply in respect of any such business procured for the company by its managing agent or any associate of its managing agent from any place outside 215 India, in like manner as those provisions apply in respect of sales of any goods produced by a company which are effected from that place.
Appointment of managing agent or associate as buying agent forcompany. 58. Appointment of managing agent or associate as buying agent
for company.-(1) No managing agent, and no associate of a managing agent, shall receive any payment whatever, from the company except expenses, if any, sanctioned under section 354 in respect of purchases of goods made on its behalf either in India, or in cases to which sub-
section (2) does not apply, outside India.
(2) Where purchases of goods are made on behalf of a company by its managing agent or any associate of its managing agent, at any place outside India, then, if the managing agent or associate maintains an office at such place not only for such purchase but also for his own business, that is to say, for a business not connected with that of the company, he may receive, at the option of the company, either- (a) such part of the expenses of such office as may reasonably be attributed to the purchases made on behalf of the company as aforesaid; or (b) remuneration, by way of commission or otherwise, in respect of the work done by the managing agent or associate in making such purchases.
(3) In cases to which clause (a) of sub-section (2) applies, the maximum amount which may be paid to the managing agent shall be specified in a special resolution passed by the company; and in cases to which clause (b) of that sub-section applies, the remuneration payable to the managing agent or associate shall be in accordance with the terms of a special resolution, passed by the company in that behalf.
(4) The special resolution referred to in sub-section (3) shall se-, out in sufficient detail the nature of the office maintained by the managing agent or associate outside India, the purposes for which it is maintained, the scale of its operations, the expenses incurred in maintaining the office, and the proportion of those expenses which may be reasonably attributed to the work done on behalf of the company.
(5) The special resolution shall not remain in force for a term exceeding three years but may be renewed from time to time for a term not exceeding three years on each occasion: Provided that no renewal shall take place earlier than one year from the date on which it is to come into force.
(6) Every resolution passed in pursuance of this section shall be entered in a register maintained by the company for the purpose.
Commission, etc., of managing agent as buying or selling agent ofother concerns. 359. Commission, etc., of managing agent as buying or selling
agent of other concerns.-(1) A company in general meeting may by resolution, authorise its managing agent or any associate of its managing agent to retain any commission or other remuneration earned or to be earned by such agent or associate as the managing agent, secretaries and treasurers, manager, agent, secretary or selling 216 or buying agent of any firm, body corporate or other concern in respect of any goods, power, freight, repairs or other services, for the sale, purchase, supply or rendering of which a contract has been, or is to be, entered into by such firm, body or concern with the com- pany, provided the prices or amounts charged to or received by the company are at rates which are not less favourable to the company than the market rates or which are otherwise reasonable.
(2) Every contract so entered into and all particulars relating thereto shall be entered in a separate register maintained by the company for the purpose.
Contracts between managing agent or associate and company for the saleor purchase of goods or the supply of services, etc. 360. Contracts between managing agent or associate and company for the sale or purchase of goods or the supply of services, etc.-
(1) A company may, by special resolution, approve of any contract being entered into with its managing agent or an associate of its managing agent,- (a) for the sale, purchase or supply of any property, movable or immovable, or for the supply or rendering of any service other than that of managing agent, or (b) for the underwriting of any shares or debentures to be issued or sold by the company.
(2) The special resolution aforesaid shall- (a) set out the material terms of the contract proposed to be entered into; and (b) provide specifically that for any property supplied or sold, or any services supplied or rendered, by the company, the managing agent or associate shall make payment to the company within one month from the date of the supply or sale of the goods, or the supply or rendering of the service, as the case may be.
(3) Every such contract and all particulars relating thereto shall he entered in a separate register maintained by the company for the purpose.
(4) Nothing contained in clause (a) of sub-section (1) shall affect any contract or contracts for the sale, purchase or supply of any property or services in which either the company or the managing agent or associate, as the case may be, regularly trades or does business, provided that the value of such property and the cost of such services do not exceed five thousand rupees in the aggregate in any calendar year comprised in the period of the contract or contracts.
Existing contracts relating to matters dealt with in sections 356 to360 to terminate on 1st March, 1958. 361. Existing contracts relating to matters dealt with in sections 356 to 360 to terminate on 1st March, 1958.- All contracts in force at the commencement of this Act, to which a company or the managing agent or an associate of the managing agent of a company is a party, shall, in so far as the contracts relate to any of the matters referred to in sections 356 to 360, be deemed to terminate on the first day of March, 1958, unless they terminate on an earlier date.
Registers to be open to inspection. 362. Registers to be open to inspection.-The registers referred to in sections 356 to 360 shall be open to inspection, and extracts may be taken therefrom and copies thereof may be required, by 217 any member of the company, in the same manner, to the same extent and on payment of the same fees, as in the case of the register of members of the company.
Remuneration received in contravention of foregoing sections to beheld in trust for company. 363. Remuneration received in contravention of foregoing sections to be held in trust for company.-Where the managing agent of a company, or an associate of the managing agent, receives any sum from the company, whether directly or indirectly, by way of remuneration, rebate, commission, expenses or otherwise,- (a) in the case of a public company or a private company which is a subsidiary of a public company, in contravention of sections 348 to 354 and sections 356 to 361; or (b) in the case of a private company which is not a sub- sidiary of a public company, in contravention of sections 356 to 361; the managing agent or associate shall account to the company for such sum as if he held it in trust for the company. Assignment of, or charge on, remuneration
Company not to be bound by assignment of, or charge on, managingagent’s remuneration. 364. Company not to be bound by assignment of, or charge on, managing agent’s remuneration.-Any assignment of, or charge on, his remuneration, or any part thereof, effected by a managing agent shall be void as against the company. This section shall not affect the rights inter se of the managing agent and any person other than the company. Compensation for termination of office
Prohibition of payment of compensation for loss of office in certaincases. 365. Prohibition of payment of compensation for loss of office in certain cases.-A company shall not pay or be liable to pay to its managing agent any compensation for the loss of his office in the following cases :- (a) where the managing agent resigns hi-, office in view of the reconstruction of the company or of its amalgamation with any other body corporate or bodies corporate and is appointed as the managing agent, secretaries and treasurers, manager’ or other officer of the reconstructed company or of the body corporate resulting from the amalgamation; (b) where the managing agent resigns his office, otherwise than on the reconstruction of the company or its amalgamation as aforesaid; (c) where the managing agent vacates his office in pursuance of section 324, 330 or 332; (d) where the managing agent is deemed to have vacated his office in pursuance of clause (a), (b), (c) or (d) of section 334 or of section 336; (e) where the managing agent is deemed to have vacated his office in pursuance of clause (e) of section 334, provided the winding up of the company was due to the negligence or default of the managing agent; 1512 M. of Law-28. 218 (f) where the managing agent is deemed to have been sus- pended, or is suspended, from his office in pursuance of
section 335 or sub-section (2) of section 340; (g) where the managing agent is removed from office by a resolution in pursuance of section 337 or 338; and (h) where the managing agent has instigated, or has taken part in bringing about, the termination of his office.
Limit of compensation for loss of office. 366. Limit of compensation for loss of office.-The compensation which may be. paid by a company to its managing agent for loss of office shall not exceed the remuneration which he would have earned if he had been in office for the unexpired residue of his term, or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which his office ceased or was terminated, or where he held the office for a lesser period than three years, during such period: Provided that in’ the event of the winding up of the company commencing, whether before, or at any time within twelve months after, the date of the cessation or termination of the office of managing agent, no compensation shall be payable to him if the assets of the company on the winding up, after deduction of the expenses thereof, are not sufficient to repay the share capital (including the premiums, if any,) contributed by the members of the company. Other rights and liabilities not affected on termination of office
Managing agent’s rights and liabilities after termination of office. 367. Managing agent’s rights and liabilities after termination of office. Where the office of a managing agent ceases or is terminated- (a) the managing agent and the company shall be entitled to enforce any claim or demand which each may have against the other in, respect of anything done or omitted to be done by either of them before the cessation or termination of the managing agency; and (b) the rights and liabilities. in relation to the company, of the managing agent in any other capacity, shall not he affected. Restrictions or, powers
Managing agent to be subject to control of Board and to restrictionsin Schedule VII. 368. Managing agent to be subject to control of Board and to restrictions in Schedule VII.- The managing agent of a company, whe- ther appointed before or after the commencement of this Act, shall exercise his powers subject to the superintendence, control and direction of its Board of directors and subject also to the provisions of the memorandum and articles of the company and to the restrictions contained in Schedule VII.
