Corporate laws and compliance

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13 FINAL : PAPER - CORPORATE LAWS AND FINAL COMPLIANCE STUDY NOTES The Institute of Cost Accountants of India CMA Bhawan,12, Sudder Street, Kolkata - 700 016First Edition : April 2013 Revised Second Edition : November 2014 Published by : Directorate of Studies The Institute of Cost Accountants of India (ICAI) CMA Bhawan, 12, Sudder Street, Kolkata - 700 016 www.icmai.in Printed at : Repro India Limited Plot No. 02, T.T.C. MIDC Industrial Area, Mahape, Navi Mumbai 400 709, India. Website : www.reproindialtd.com Copyright of these Study Notes is reserved by the Insitute of Cost Accountants of India and prior permission from the Institute is necessary for reproduction of the whole or any part thereof.Syllabus PAPER 13: CORPORATE LAWS & COMPLIANCE (CLC) Syllabus Structure A Corporate Laws 75% B Corporate Governance and Responsibilities 25% B 25% A 75% ASSESSMENT STRATEGY There will be written examination paper of three hours OBJECTIVES To gain an expert knowledge of Corporate functions in the context of Companies Act & related Corporate Laws. To be able to assess whether strategies and the organization is in compliance with established regulatory framework. Learning Aims The syllabus aims to test the student’s ability to:  Understand the principles of Corporate Laws relevant for compliance and decision-making  Analyze and interpret the impact of allied laws  Evaluate the essence of Corporate Governance for effective implementation  Demonstrate the role of a Corporate in socio-economic development Skill set required Level C: Requiring skill levels of knowledge, comprehension, application, analysis, synthesis and evaluation. Section A : Corporate Laws 75% 1. The Companies Act, 2013 ( as amended from time to time) – rules, regulations prescribed there under with special reference to: (a) Company formation and conversion (b) Pro cedure for alteration of Memorandum and Articles (c) Pro cedure for Issue of Shares and Securities (d) Investment and loans (e) Audits under Companies Act (f) Dividends (g) Board of Directors (h) Board Meetings and Procedures (i) Inspection and investigation (j) Pre vention of oppression and mismanagement (k) Revival an d rehabilitation of sick industrial companies (l) Corporate winding up and dissolution (m) Companies incorporated outside India (n) Offences and penalties (o) E-governance2. Laws and Procedures for Corporate Restructuring 3. SEBI Laws and Regulations 4. The Competition Act, 2002 and its role in Corporate Governance 5. Laws related to Banking Sector 6. Laws related to Insurance Sector 7. Laws related to Power Sector Section B : Corporate Governance and Responsibilities 25% 8. Corporate Governance 9. Social, Environmental and Economic Responsibilities of Business SECTION A: CORPORATE LAWS 75 MARKS 1. The Companies Act, 2013 ( as amended from time to time) – rules, regulations prescribed there under with special reference to: (a) Company formation and conversion (i) Incorporation of private companies, public companies, company limited by guarantee and unlimited companies and their conversions/reconversion/re-registration (ii) N idhi Companies, Mutual Benefit Funds and Producer Companies – concept, formation, membership, functioning, dissolution (iii) For mation of “Not-for-Profit” making companies (iv) Pro cedure relating to Foreign Companies Carrying on Business in India (b) Procedure for alteration of Memorandum and Articles (i) Alteration of various clauses of memorandum (ii) Effects of alteration (c) Procedure for Issue of Shares and Securities (i) Shares – public issue, Rights Issue, Bonus Shares, Issue of Shares at Par / Premium / Discount; issue of shares on preferential or private placement basis (ii) Issue of Sweat Equity Shares, Employees Stock Option Scheme (ESOPs), Employees Stock Purchase Scheme ( ESPS), Shares with differential voting rights (iii) Issue and redemption of preference shares (iv) A lteration of share capital – forfeiture of shares, reissue of forfeited shares, increase, consolidation, conversion and re-conversion into stock, subdivision, cancellation and surrender of shares (v) Buy back of shares (vi) Reduction of share capital (vii) Issue of debentures and bonds, creation of security and debenture redemption reserve, redemption of debentures, conversion of debentures into shares (viii) Transfer and transmission (d) Investment and loans (i) Pro cedure for inter-corporate loans, investments, giving off guarantee and security (ii) Acceptance of deposits, renewal, repayment, default and remedies (e) Audits under Companies Act (i) CARO (ii) Statutory Cost Auditor’s and Statutory Financial Auditors – appointment, resignation, removal, qualification, disqualification, rights, duties and liabilities (iii) Co mpanies (Cost Accounting Record) Rules, 2011 and Companies (Cost Audit Report) Rules, 2011 (To be substituted by relevant Rules of 2014) (f) Dividends (i) Profits and ascertainment of divisible profits (ii) Declaration and payment of dividend (iii) U npaid and unclaimed dividend – treatment and transfer to Investor Education and Protection Fund (g) Board of Directors (i) Directors and Managerial Personnel – appointment, reappointment, resignation, removal (ii) Payment of remuneration to Directors and managerial personnel and disclosures thereof (iii) Power, Managerial remuneration (iv) Obtaining DIN (v) Compensation for loss of office (vi) Waiver of recovery of remuneration (vii) Making loans to Directors, Disclosure of interest of a Director, Holding of Office or Place of Profit by a Director/relative (viii) Interested Directors (h) Board Meetings and Procedures (i) Board Meetings, Minutes and Registers (ii) Powers of the Board (iii) Corporate Governance & Audit Committee (iv) Duties and Liabilities of Directors (iv) Powers related to – political contributions, sole selling agent, loans to Directors, Interested Directors, Office or Place of Profit (i) Inspection and investigation (j) Prevention of oppression and mismanagement (i) Majority Rule but Minority Protection (ii) Pre vention of Oppression and Mismanagement (k) Revival and rehabilitation of sick industrial companies (l) Corporate winding up and dissolution – issues related to winding up, powers of the Court, Official Liquidator (i) Reconstruction under Members’ Voluntary Winding up (ii) Reconstruction under Creditors’ Voluntary Winding up (iii) Reconstruction by arranging with Creditors in Voluntary Winding up (m) Companies incorporated outside India (n) Offences and penalties (o) E-governance 2. Laws and Procedures of Corporate Restructuring leading to: (a) Mergers; Amalgamations, Takeovers / Acquisitions, Joint Ventures, LLPs, Corporate restructure, Demerger, Reorganization through compromise or an arrangement (b) Reconstruction Vs. Amalgamation (c) Sale of undertaking of the Company (d) Acquiring Shares in another company (e) Compulsory Amalgamation in public interest 3. SEBI Laws and Regulations: (a) The Securities and Exchange Board of India Act,1992 – Rules, Regulations and Guidelines issued there under (b) The Securities Contracts (Regulation) Act,1956 (c) SEBI ( Issue of Capital and Disclosure Regulations), 2009 (d) Clause 49 (e) Substantial Acquisition of Shares and Takeover Regulations 4. The Competition Act, 2002 and its role in Corporate Governance (a) Competition – Meaning, objectives, extent and applicability (b) Competition Commission of India (c) Areas affecting competition (d) MRTP Act vs. Competition Act (e) Other matters (f) Competition Act, 2002 and Corporate Governance 5. Laws related to Banking Sector: (a) The Banking Regulation Act, 1949; (b) The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (c) The Prevention of Money Laundering Act, 2002 – Role of Cost Accountants in Anti-Money Laundering (AML) Audits to check tax evasion and transfer of funds. (d) The Foreign Exchange Management Act, 1999 6. Laws related to Insurance Sector: (a) The Insurance Act, 1938; (b) The Insurance Regulatory and Development Authority Act, 1999 7. Laws related to Power Sector: (a) The Indian Electricity Act, 1910 (b) Role of Central Electricity Regulatory Commission (CERC) SECTION B: CORPORATE GOVERNANCE AND RESPONSIBILITIES 25 MARKS 8. Corporate Governance (a) Overview-Issues and Concepts (b) Corporate Governance Practices/Codes in India, UK, Japan, Germany and USA (c) Corporate governance in family business (d) Corporate governance in state-owned business – the MOU system 9. Social, Environmental and Economic Responsibilities of Business. (a) National Voluntary Guidelines on Social, environmental and Economic Responsibilities of Business (b) Corporate Social Responsibility – Nature of activities; Evaluation of CSR projects (c) Whole life costing- assessment of socio-economic impact of strategic and operational decisions of business.Content CORPORATE LAWS AND COMPLIANCE Study Note 1 : The Companies Act, 2013 1.1 Incorporation of Company and Matters Incidental Thereto 1.14 1.2 Prospectus and Allotment of Securities 1.36 1.3 Private Placement 1.50 1.4 Share Capital and Debentures 1.51 1.5 Acceptance of Deposits by Companies 1.81 1.6 Declaration and Payment of Dividend 1.87 1.7 Accounts of Companies 1.92 1.8 Audit and Auditors 1.111 1.9 Appointment and Qualifications of Directors 1.126 1.10. Meetings of Board and its Powers 1.145 1.11 Appointment and Remuneration of Managerial Personnel 1.166 1.12. Inspection, Inquiry and Investigation 1.177 1.13. Removal of Names of Companies from the Register of Companies 1.191 1.14. Revival and Rehabilitation of Sick Companies 1.193 1.15. Winding Up 1.201 1.16. Companies Authorised to Register under this Act 1.239 1.17. Companies Incorporated Outside India 1.246 1.18. Registration Offices and Fees 1.262 1.19. NIDHIS 1.268 1.20. Special Courts 1.279 1.21. Miscellaneous 1.284 1.22. Incorporation of Producer Companies and other matters 1.295 Study Note 2 : Laws and Procedures for Corporate Restructuring 2.1 Compromises, Arrangements and Amalgamations 2.1 2.2. Prevention of Oppression and Mismanagement 2.12Study Note 3 : SEBI Laws and Regulations 3.1 The Securities and Exchange Board of India Act, 1992 3.1 3.2 The Securities Contracts (Regulation) Act, 1956 3.27 3.3 SEBI (Issue of Capital and Disclosure Regulations), 2009 3.54 3.4 Corporate Governance of Listing Agreement 3.113 3.5 SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 3.135 Study Note 4 : The Compitition Act, 2002 and its Role in Corporate Governance 4.1 Preliminary 4.1 4.2 Prohibition of Certain Agreements, Abuse of Dominant Position and Regulation of Combinations 4.4 4.3 Compition Commission Of India 4.9 4.4 Duties, Powers And Functions Of Commission 4.12 4.5 Duties Of Director General 4.22 4.6 Penalties 4.22 4.7 Competition Advocacy 4.24 4.8 Finance, Accounts And Audit 4.25 4.9 Competiton Appellate Tribunal 4.26 4.10 Miscellaneous 4.32 4.11 MRTP Act, 1969 & Competition Act, 2002 4.39 4.12 Competition Act, 2002 And Corporate Governance 4.40 Study Note 5 : Laws Related to Banking Sector 5.1 The Banking Regulation Act, 1949 5.1 5.2 The Securitisation And Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002 5.81 5.3 The Prevention of Money Laundering Act, 2002 5.102 5.4 The Foreign Exchange Management Act, 1999 5.114 Study Note 6 : Laws Related to Insurance Sector 6.1 The Insurance Act, 1938 6.1 6.2 The Insurance Regulatory and Development Authority Act, 1999 6.131Study Note 7 : Laws Related to Power Sector 7.1 The Indian Electricity Act 1910 7.1 Study Note 8 : Corporate Governance 8.1 Overview-Issues and Concepts 8.1 8.2 Corporate Governance Practices/Codes in - UK, Germany, Japan, India and USA 8.3 8.3 Corporate Governance in Family Business 8.29 8.4 Corporate Governance in State-owned Business - the MOU System 8.36 Study Note 9 : Social, Environmental and Economic Responsibilities of Business 9.1 Corporate Social Responsibility Section 135 9.1 9.2 The Companies (Corporate Social Responsibility Policy) Rules, 2014 9.7 9.3 Corporate Social Responsibility– Perspectives and Best Practices 9.10 9.4 Whole Life Costing - Assessment of Socio-economic impact of Strategic and 9.32 Operational Decisions of BusinessStudy Note - 1 THE COMPANIES ACT, 2013 This Study Note includes 1.1 Incorporation of Company and Matters Incidental Thereto 1.2 Prospectus and Allotment of Securities 1.3 Private Placement 1.4 Share Capital and Debentures 1.5 Acceptance of Deposits by Companies 1.6 Declaration and Payment of Dividend 1.7 Accounts of Companies 1.8 Audit and Auditors 1.9 Appointment and Qualifications of Directors 1.10 Meetings of Board and its Powers 1.11 Appointment and Remuneration of Managerial Personnel 1.12 Inspection, Inquiry and Investigation 1.13 Removal of Names of Companies from the Register of Companies 1.14 Revival and Rehabilitation of Sick Companies 1.15 Winding Up 1.16 Companies Authorised to Register under this Act 1.17 Companies Incorporated Outside India 1.18 Registration Offices and Fees 1.19 NIDHIS 1.20 Special Courts 1.21 Miscellaneous 1.22 Incorporation of Producer Companies and other matters SHORT TITLE, EXTENT COMMENCEMENT AND APPLICATION Section 1 (1) This Act may be called the Companies Act, 2013. (2) It extends to the whole of India. (3) This section shall come into force at once and the remaining provisions of this Act shall come into force on such date as the Central Government may, by notification in the Official Gazette, appoint and different dates may be appointed for different provisions of this Act and any reference in any provision to the commencement of this Act shall be construed as a reference to the coming into force of that provision. (4) The provisions of this Act shall apply to— (a) companies incorporated under this Act or under any previous company law; (b) insurance companies, except in so far as the said provisions are inconsistent with the provisions of the Insurance Act, 1938 or the Insurance Regulatory and Development Authority Act, 1999; CORPORATE LAWS AND COMPLIANCE I 1.1The Companies Act, 2013 (c) banking companies, except in so far as the said provisions are inconsistent with the provisions of the Banking Regulation Act, 1949; (d) companies engaged in the generation or supply of electricity, except in so far as the said provisions are inconsistent with the provisions of the Electricity Act, 2003; (e) any other company governed by any special Act for the time being in force, except in so far as the said provisions are inconsistent with the provisions of such special Act; and (f) such body corporate, incorporated by any Act for the time being in force, as the Central Government may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as may be specified in the notification. Definitions Section 2 In this Act, unless the context otherwise requires,— (1) “Abridged Prospectus” means a memorandum containing such salient features of a prospectus as may be specified by the Securities and Exchange Board by making regulations in this behalf; (2) “Accounting Standards” means the standards of accounting or any addendum thereto for companies or class of companies referred to in section 133; (3) “Alter” or “Alteration” includes the making of additions, omissions and substitutions; (4) “Appellate Tribunal” means the National Company Law Appellate Tribunal constituted under section 410; (5) “Articles” means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act; (6) “Associate Company”, in relation to another company, means a company in which that other company has a significant influence, but which is not a subsidiary company of the company having such influence and includes a joint venture company. Explanation.— For the purposes of this clause, “significant influence” means control of at least twenty per cent of total share capital, or of business decisions under an agreement; (7) “Auditing Standards” means the standards of auditing or any addendum thereto for companies or class of companies referred to in sub-section (10) of section 143; (8) “Authorised Capital” or “nominal capital” means such capital as is authorised by the memorandum of a company to be the maximum amount of share capital of the company; (9) “Banking Company” means a banking company as defined in clause (c) of section 5 of the Banking Regulation Act, 1949; (10) “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company; (11) “Body Corporate” or “Corporation” includes a company incorporated outside India, but does not include— (i) a co-operative society registered under any law relating to co-operative societies; and (ii) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification, specify in this behalf; (12) “Book and Paper” and “book or paper” include books of account, deeds, vouchers, writings, documents, minutes and registers maintained on paper or in electronic form; (13) “Books of Account” includes records maintained in respect of— (i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place; 1.2 I CORPORATE LAWS AND COMPLIANCE(ii) all sales and purchases of goods and services by the company; (iii) the assets and liabilities of the company; and (iv) the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section; (14) “Branch Office”, in relation to a company, means any establishment described as such by the company; (15) “Called-up capital” means such part of the capital, which has been called for payment; (16) “Charge” means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage; (17) “Chartered Accountant” means a chartered accountant as defined in clause (b) of sub-section (1) of section 2 of the Chartered Accountants Act, 1949 who holds a valid certificate of practice under sub-section (1) of section 6 of that Act; (18) “Chief Executive Officer” means an officer of a company, who has been designated as such by it; (19) “Chief Financial Officer” means a person appointed as the Chief Financial Officer of a company; (20) “Company” means a company incorporated under this Act or under any previous company law; (21) “Company limited by guarantee” means a company having the liability of its members limited by the memorandum to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up; (22) “Company limited by shares” means a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them; (23) “Company Liquidator”, in so far as it relates to the winding up of a company, means a person appointed by— (a) the Tribunal in case of winding up by the Tribunal; or (b) the company or creditors in case of voluntary winding up, as a Company Liquidator from a panel of professionals maintained by the Central Government under sub-section (2) of section 275; (24) “Company Secretary” or “secretary” means a company secretary as defined in clause (c) of sub- section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act; (25) “Company Secretary in practice” means a company secretary who is deemed to be in practice under sub-section (2) of section 2 of the Company Secretaries Act, 1980; (26) “Contributory” means a person liable to contribute towards the assets of the company in the event of its being wound up. Explanation.— For the purposes of this clause, it is hereby clarified that a person holding fully paid-up shares in a company shall be considered as a contributory but shall have no liabilities of a contributory under the Act whilst retaining rights of such a contributory; (27) “Control” shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner; (28) “Cost Accountant” means a cost accountant as defined in clause (b) of subsection (1) of section 2 of the Cost and Works Accountants Act, 1959; CORPORATE LAWS AND COMPLIANCE I 1.3The Companies Act, 2013 (29) “Court” means— (i) the High Court having jurisdiction in relation to the place at which the registered office of the company concerned is situate, except to the extent to which jurisdiction has been conferred on any district court or district courts subordinate to that High Court under sub-clause (ii); (ii) the district court, in cases where the Central Government has, by notification, empowered any district court to exercise all or any of the jurisdictions conferred upon the High Court, within the scope of its jurisdiction in respect of a company whose registered office is situate in the district; (iii) the Court of Session having jurisdiction to try any offence under this Act or under any previous company law; (iv) the Special Court established under section 435; (v) any Metropolitan Magistrate or a Judicial Magistrate of the First Class having jurisdiction to try any offence under this Act or under any previous company law; (30) “Debenture” includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not; (31) “Deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India; (32) “Depository” means a depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996; (33) “Derivative” means the derivative as defined in clause (ac) of section 2 of the Securities Contracts (Regulation) Act, 1956; (34) “Director” means a director appointed to the Board of a company; (35) “Dividend” includes any interim dividend; (36) “Document” includes summons, notice, requisition, order, declaration, form and register, whether issued, sent or kept in pursuance of this Act or under any other law for the time being in force or otherwise, maintained on paper or in electronic form; (37) “Employees’ Stock Option” means the option given to the directors, officers or employees of a company or of its holding company or subsidiary company or companies, if any, which gives such directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future date at a pre-determined price; (38) “Expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force; (39) “Financial Institution” includes a scheduled bank, and any other financial institution defined or notified under the Reserve Bank of India Act, 1934; (40) “Financial Statement” in relation to a company, includes— (i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv): 1.4 I CORPORATE LAWS AND COMPLIANCEProvided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement; (41) “Financial Year”, in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up: Provided that on an application made by a company or body corporate, which is a holding company or a subsidiary of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Tribunal may, if it is satisfied, allow any period as its financial year, whether or not that period is a year: Provided further that a company or body corporate, existing on the commencement of this Act, shall, within a period of two years from such commencement, align its financial year as per the provisions of this clause; (42) “Foreign Company” means any company or body corporate incorporated outside India which— (a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and (b) conducts any business activity in India in any other manner. (43) “Free Reserves” means such reserves which, as per the latest audited balance sheet of a company, are available for distribution as dividend: Provided that— (i) any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a reserve or otherwise, or (ii) any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and loss account on measurement of the asset or the liability at fair value, shall not be treated as free reserves; (44) “Global Depository Receipt” means any instrument in the form of a depository receipt, by whatever name called, created by a foreign depository outside India and authorised by a company making an issue of such depository receipts; (45) “Government Company” means any company in which not less than fifty-one per cent. of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company; (46) “Holding Company”, in relation to one or more other companies, means a company of which such companies are subsidiary companies; (47) “Independent Director” means an independent director referred to in sub-section (5) of section 149; (48) “Indian Depository Receipt” means any instrument in the form of a depository receipt created by a domestic depository in India and authorised by a company incorporated outside India making an issue of such depository receipts; (49) “Interested Director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he or any of his relatives is a partner, director or a member, interested in a contract or arrangement, or proposed contract or arrangement, entered into or to be entered into by or on behalf of a company; (50) “Issued Capital” means such capital as the company issues from time to time for subscription; CORPORATE LAWS AND COMPLIANCE I 1.5The Companies Act, 2013 (51) “Key Managerial Personnel”, in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager; (ii) the Company Secretary; (iii) the Whole-time Director; (iv) the Chief Financial Officer; and (v) such other officer as may be prescribed; (52) “Listed Company” means a company which has any of its securities listed on any recognised stock exchange; (53) “Manager” means an individual who, subject to the superintendence, control and direction of the Board of Directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called, whether under a contract of service or not; (54) “Managing Director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called. Explanation.— For the purposes of this clause, the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within the substantial powers of management; (55) “Member”, in relation to a company, means— (i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members; (ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository; (56) “Memorandum” means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous company law or of this Act; (57) “Net Worth” means the aggregate value of the paid-up share capital and all reserves created out of the profits and securities premium account, after deducting the aggregate value of the accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of revaluation of assets, write-back of depreciation and amalgamation; (58) “Notification” means a notification published in the Official Gazette and the expression “notify” shall be construed accordingly; (59) “Officer” includes any director, manager or key managerial personnel or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the directors is or are accustomed to act; (60) “Officer who is in default”, for the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any penalty or punishment by way of 1.6 I CORPORATE LAWS AND COMPLIANCEimprisonment, fine or otherwise, means any of the following officers of a company, namely:— (i) whole-time director; (ii) key managerial personnel; (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer; (61) “Official Liquidator” means an Official Liquidator appointed under sub-section (1) of section 359; (62) “One Person Company” means a company which has only one person as a member; (63) “Ordinary or special resolution” means an ordinary resolution, or as the case may be, special resolution referred to in section 114; (64) “Paid-up share capital” or “share capital paid-up” means such aggregate amount of money credited as paid-up as is equivalent to the amount received as paid-up in respect of shares issued and also includes any amount credited as paid-up in respect of shares of the company, but does not include any other amount received in respect of such shares, by whatever name called; (65) “Postal Ballot” means voting by post or through any electronic mode; (66) “Prescribed” means prescribed by rules made under this Act; (67) “Previous Company Law” means any of the laws specified below:— (i) Acts relating to companies in force before the Indian Companies Act, 1866; (ii) the Indian Companies Act, 1866; (iii) the Indian Companies Act, 1882; (iv) the Indian Companies Act, 1913; (v) the Registration of Transferred Companies Ordinance, 1942; (vi) the Companies Act, 1956; and (vii) any law corresponding to any of the aforesaid Acts or the Ordinances and in force— (A) in the merged territories or in a Part B State (other than the State of Jammu and Kashmir), or any part thereof, before the extension thereto of the Indian Companies Act, 1913; or (B) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the Jammu and Kashmir (Extension of Laws) Act, 1956, in so far as banking, insurance and CORPORATE LAWS AND COMPLIANCE I 1.7The Companies Act, 2013 financial corporations are concerned, and before the commencement of the Central Laws (Extension to Jammu and Kashmir) Act, 1968, in so far as other corporations are concerned; (viii) the Portuguese Commercial Code, in so far as it relates to sociedades anonimas; and (ix) the Registration of Companies (Sikkim) Act, 1961; (68) “Private Company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,— (i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that— (A) persons who are in the employment of the company; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company; (69) “Promoter” means a person— (a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity; (70) “Prospectus” means any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate; (71) “Public Company” means a company which— (a) is not a private company; (b) has a minimum paid-up share capital of five lakh rupees or such higher paid-up capital, as may be prescribed: Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ; (72) “Public Financial Institution” means— (i) the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956; 1.8 I CORPORATE LAWS AND COMPLIANCE(ii) the Infrastructure Development Finance Company Limited, referred to in clause (vi) of sub- section (1) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (iii) specified company referred to in the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002; (iv) institutions notified by the Central Government under sub-section (2) of section 4A of the Companies Act, 1956 so repealed under section 465 of this Act; (v) such other institution as may be notified by the Central Government in consultation with the Reserve Bank of India: Provided that no institution shall be so notified unless— (A) it has been established or constituted by or under any Central or State Act; or (B) not less than fifty-one per cent. of the paid-up share capital is held or controlled by the Central Government or by any State Government or Governments or partly by the Central Government and partly by one or more State Governments; (73) “Recognised Stock Exchange” means a recognised stock exchange as defined in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956; (74) “Register of companies” means the register of companies maintained by the Registrar on paper or in any electronic mode under this Act; (75) “Registrar” means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering companies and discharging various functions under this Act; (76) “Related party”, with reference to a company, means— (i) a director or his relative; (ii) a key managerial personnel or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager is a member or director; (v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital; (vi) anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any company which is— (A) a holding, subsidiary or an associate company of such company; or (B) a subsidiary of a holding company to which it is also a subsidiary; (ix) such other person as may be prescribed; (77) ‘‘Relative’’, with reference to any person, means anyone who is related to another, if— (i) they are members of a Hindu Undivided Family; (ii) they are husband and wife; or (iii) one person is related to the other in such manner as may be prescribed; CORPORATE LAWS AND COMPLIANCE I 1.9