CLT SYLLABUS FOR TERM END EXAM

01. Salient features of a Company

02. Kinds of Companies
03. Contents of MOA (Clauses)
04. Contents of AOA.
05. MOA Vs. AOA
06. Incorporation of a Company
07. Doctrine of Ultra Vires,
08. Doctrine of Constructive Notice & Doctrine of Indoor Management.
09. Doctrine of Corporate Veil
10. Types of shares
11. Types of share Capital
12. Equity vs. Preference shares
13. Shares Vs. Debentures
14. Prospectus – Types
15. Prospectus – Contents
16. Legal requirements regarding issue of Prospectus
17. Misstatements in the Prospectus – Civil and Criminal Liability
18. Types of Directors
19. Appointment of directors,
20. Resignation of Directors
21. Powers of directors
22. Annual General meetings
23. Extraordinary General meetings
24. Board Meetings
25. Requisites of a valid meeting
26. Kinds of Resolutions
27. Auditors of a Company.
28. Inspection, Inquiry and Investigation
29. Oppression and Mismanagement
30. Winding up of a company
31. RBI – Role and Functions
32. SEBI
33. IRDA
34. Insurance Laws
35. Nationalization of Banks in India
36. Regional Rural Banks
37. NBFCs
38. Information Technology Act 2000
39. Intellectual Property Rights
40. Taxation in India
41. Residential Status
42. Income Tax Calculation – Exercises
43. GST
 01. COMPANY AND ITS FEATURES

A company is a voluntary association of persons formed for some common purpose with capital divisible
into parts known as shares.
Justice Lindlay, defines company “as an association of many persons who contribute money or money’s
worth to a common stock and employ it in some trade or business and who share the profits arising there
from”
According to Companies Act a company means a company formed and registered under companies act. The
salient features of a company are as follows
1. Voluntary Association
A company is voluntary association of persons who have come together for a common object which
generally is to earn profit.
The activities of this association are governed by the law and are limited by its memorandum of
association
2. Incorporated Association:
A company comes into existence on incorporation or registration under the companies act. Minimum
number of persons required for the purpose of incorporation is seven in case of a public company
and two in case of a private company.
3. Separate Legal Entity:
On incorporation company gets personality which is separate and distinct from those of its members.
Company is an artificial person created by law.
4. Separate Property:
The company can own, enjoy and dispose off its property in its own name.
5. Legal Restrictions:
The formation, working and winding up of a company are strictly governed by laws, rules and
regulations
6. Perpetual Succession:
Unlike a person a company never dies. Its existence is not affected in any way by the death or
insolvency of any shareholder. Members may come and members may go , but the company
continues its operations until it is wound up.
7. Common Seal:
As a company is an artificial person it cannot sign its name on a contract. So it function with the help
of seal. All contract entered into by the members will be under the common seal of the company.
8. Share Capital:
A company mobilizes its capital by selling its shares. Those persons who buy these shares become its
share holders and thereby become members in it
9. Limited Liability:
In case of limited companies liability of members will be limited to the amount unpaid on the shares.
10. Transferability of Shares:
Members can freely transfer and sell their shares .The right to transfer share is a statutory right of
members.
11. Ownership & Management
The owners of a company are its share holders.
The affairs of the company are managed by their representatives known as Directors
 02. KINDS OF COMPANIES:

A. Classification on the basis of liability

1. Companies with limited liability

(a) Companies limited by guarantee [Sec.2(21)]- where the liability of the members of a
company is limited to a fixed amount which the members undertake to contribute to the assets
of the company in the event of its being wound up, the company is called a company limited
b guarantee.

(b) Companies limited by shares [Sec.2(22)]- where the liability of the members of a company
is limited to the amount unpaid on the shares, such a company is known as a company limited
by shares
2. Unlimited companies [Sec.2(92)] - A company without limited liability is known as an unlimited
company. In case of such a company, every member is liable for the debts of the company.

B. Classification on the basis of number of members

1. Private company [Sec.2 (68)] - A private company is normally what the Americans call a ‘close
corporation’. According to Sec.2 (68), a private company means a company which has a minimum
paid-up capital as may be prescribed by CG, and by its Articles:

a. Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private
character of the company.
b. Except in case of one person company, limits the number of its members to 200 not including
its employee-members. Joint shareholders shall be counted as one member only.
c. Prohibits any invitation to the public to subscribe for any securities. In other words, a private
company shall not make a public issue of its securities.

A Private company may be:

a. One Person company [Sec. 2(62)]: It means a company which has only one person as a
member. All the provisions of a private company is also applicable to this company.
b. Small Company [Sec. 2(85)]: A company shall be a small company only if it’s paid-up
capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed (not being
more than Rs. 5 crores) and its turnover does not exceeds Rs. 2 crores or such higher amount
as may be prescribed (not being more than Rs. 20 crores)

c. Other that “One Person Company” and “Small Company”.

2. Public company [Sec. 2(71)] - A public company means a company which –

a. is not a private company

b. is a private company which is a subsidiary of a company which is not a private company.
c. has a minimum paid-up capital as may be prescribed by CG.

C. Classification on the basis of control

1. Holding company-Section 2(46) - A company is known as the holding company of another
company if is has control over that other company.
 2. Subsidiary company-Section 2(87) - A company is known as a subsidiary of another
company when control is exercised by the latter(called holding company) over the former
called a subsidiary company.
A company is deemed to be a subsidiary of another company when:
a. where the company controls the composition of Board of Directors of the subsidiary
company
b. where the company holds more than one- half the nominal value of equity share capital of
another company
c. where a company is subsidiary of another company, which is itself is subsidiary of the
controlling company.

D. Classification on the basis of ownership

1. Foreign company [Sec 2(42)]- it means any company incorporated outside India which has
an established place of business in India.
2. Government company [Sec 2(45)] - A Government company means any company in which
not less than 51 % of the paid-up share capital is held by-
a. the Central government
b. any State government or governments
c. partly by the Central government and partly by one or more State governments.
3. Non-government company: It means a company other than Government company.

E. Classification on the basis of listing of shares on the stock exchange

1. Listed Company [Sec. 2(52)]: It means a company which has any of its securities listed on
any recognized stock exchange.
2. Unlisted Company: It means a company other than listed company
 03. MEMORANDUM OF ASSOCIATION
Meaning:
The Memorandum of association is the constitution of the company. Everything that the company does must
be in conformity with this document. Exceeding what this document provides for would amount to an ultra
vires act. Every shareholder is advised to read this important document while investing in the company.

Contents:
1. Name clause
2. Registered Office Clause
3. Liability Clause
4. Capital Clause
5. Objects Clause

1. Name Clause:
Every company needs a name. Such name must not be one that is undesirable by the government or one that
infringes trade mark of another company. The Trade Mark Act 1999 governs this procedure of granting a
name to the company. The company can use the name permanently once it acquires central government
approval. The name should be one that gives correct information about the company, incorrect usage of the
world international, intercontinental etc for companies that have only a local operation are not allowed. A
private company must affix the word private limited after its name and a public limited company must affix
the word limited after its name. A company can alter its name if its wishes too, but it would need central
government approval.

2. Registered Office Clause:

Every company must have a registered office in any Indian state. A company can have only one registered
office. A registered office is the place where the company keeps all its books of accounts and the
shareholders register along with other statutory documents. Any shareholder can access a registered office to
inspect the books of accounts of the company and other documents. Failure to maintain such statutory books
in the registered office would attract a fine or a penalty to the officer who's duty it was to do so. A registered
office can be shifted from one state to another state only if its beneficial to the share holders and if it would
improve the locale of the company. Prior permission of the company law board would be needed to this
along with special resolution passed by the share holders.

3. Liability Clause:

The liability clause would specify the kinds of liability the shareholders and the members would have.
Liability can be limited or unlimited. Under limited liability the shareholder is expected to pay up only the
amount of the share he has invested in . Under unlimited liability the share holder can be held liable much
more than the value of the share he has invested in ,moreover unlimited liability can lead to personal liability
too.

4. Capital Clause:
This clause specifies the authorized capital of the business. . A private company needs a minimum capital of
one lac rupees and a public limited company needs a minimum capital of five lac rupees. The capital of the
company cannot go below the minimum level but it can exceed it depending on whats provided in the
articles of association.
The memorandum of association must be subscribed by at least 7 persons in case of public limited and 2
persons in case of private limited companies.

5. Objects Clause
This clause contains the objects of the company. That is the purpose for which such company is formed. The
object clause shows to us the kinds of business the company is entitled to carry on. The company can carry
on business that are ancillary to the ones mentioned in the objects clause but it cannot carry on one which is
not germane to the original objects. The objects clause helps the creditors to know as to what their money is
being used for and gives a better sense of security. The objects can be altered by passing a special resolution,
the conformity of the company law board is not a necessity here.
 04. ARTICLES OF ASSOCIATION

The articles of association of a company are its bye-laws or rules and regulations that govern the
management of its internal affairs and the conduct of its business. The articles play a very important role in
the affairs of a company. It deals with the rights of the members of the company inter se. They are
subordinate to and are controlled by the memorandum of association. Articles of association is subordinate
to the Memorandum of Association
CONTENTS OF ARTICLES
The articles set out the rules and regulations framed by the company for its own working. The articles
should contain generally the following matters:
1. Exclusion wholly or in part of Table F.
2. Adoption of preliminary contracts.
3. Number and value of shares.
4. Issue of preference shares.
5. Allotment of shares.
6. Calls on shares.
7. Lien on shares.
8. Transfer and transmission of shares.
9. Nomination.
10. Forfeiture of shares.
11. Alteration of capital.
12. Buy back.
13. Share certificates.
14. Dematerialization.
15. Conversion of shares into stock.
16. Voting rights and proxies.
17. Meetings and rules regarding committees.
18. Directors, their appointment and delegations of powers.
19. Nominee directors.
20. Issue of Debentures and stocks.
21. Audit committee.
22. Managing director, Whole-time director, Manager, Secretary.
23. Additional directors.
24. Seal.
25. Remuneration of directors.
26. General meetings.
27. Directors meetings.
28. Borrowing powers.
29. Dividends and reserves.
30. Accounts and audit.
31. Winding up.
32. Indemnity.
33. Capitalization of reserves.
 05. MORANDUM OF ASSOCIATION
VS
ARTICLES OF ASSOCIATION

BASIS FOR ARTICLES OF

MEMORANDUM OF ASSOCIATION
COMPARISON ASSOCIATION

Meaning Memorandum of Association is a document Articles of Association is a

that contains all the fundamental information document containing all the rules
which are required for the incorporation of and regulations that governs the
the company. company.

Defined in Section 2 (56) Section 2 (5)

Type of Information Powers and objects of the company. Rules of the company.
contained

Status It is subordinate to the Companies Act. It is subordinate to the

memorandum.

Retrospective Effect The memorandum of association of the The articles of association can be
company cannot be amended retrospectively. amended retrospectively.

Major contents A memorandum must contain six clauses. The articles can be drafted as per
the choice of the company.

Obligatory Yes, for all companies. A public company limited by

shares can adopt Table A in place
of articles.

Compulsory filing at Required Not required at all.

the time of
Registration

Alteration Alteration can be done, after passing Special
Resolution (SR) in Annual General Meeting
(AGM) and previous approval of Central
Government (CG) or Company Law Board
(CLB) is required.
Alteration can be done in the
Articles by passing Special
Resolution (SR) at Annual
General Meeting (AGM)

Relation Defines the relation between company and Regulates the relationship
outsider. between company and its
members and also between the
members inter se.

Acts done beyond the Absolutely void Can be ratified by shareholders.

scope
 06. INCORPORATION OF COMPANY

Moving from the Companies Act 1956 to the Companies Act 2013 therefore all the provisions becomes
changed with new Act, 2013. Due to new act many amendments were introduce by Central Government
from time to time by Notification, Amendments etc. There were so many amendments have been made in
last approximately 4 years in relation to Incorporation of New Company.

STEP-I: Apply for Name Approval:

(A) Login on MCA Website
Applicants have to fill the information online. (This form can’t be download)
.
(B) Details required to be mentioned in online form:
• Entity type
• CIN (Corporate Identification Number and it has to be entered only when an existing
company wishes to change its name and is using RUN to reserve a new name)
• Proposed name (Auto Check Facility)
• Comment (Mention Objects of the proposed Company and any other relevant information
Like Trade Mark etc.)
• Choose File (Any attachment) (C) Choose File:
• This option is available to upload the PDF documents. If applicant want to attach any file,
can be upload at this option.
(D) Submission of Form on MCA Website:
After completion of above steps user shall submit the Form with MCA website.
(E) Payment of Fees:
There is no option of pay later challan in RUN. Applicant has to pay fees immediately after
submission of form. After payment challan shall be generated.
(F) Validity of Reserved Name:
Reserved name shall be valid for 20 days from the date of approval of Name.
Reserved name shall be valid for 60 days in case of allotment of name for existing Company
(Change of Name).

STEP-II: Preparation of Documents for Incorporation of Company:

After approval of name or for Incorporation of Company applicant have to prepare the following below
mentioned Documents;
(I) INC-9 Affidavit / declaration by first subscriber(s) and director(s) (on duly authorized
Stamp Papers).
(II) DIR-2 declaration from first Directors along with Copy of Proof of Identity and
residential address.
(III) NOC from the owner of the property.
(IV) Proof of Office address (Conveyance/ Lease deed/ Rent Agreement etc. along with rent
receipts);
(V) Copy of the utility bills (not older than two months)
(VI) In case of subscribers/ Director does not have a DIN, it is mandatory to attach: Proof of
identity and residential address of the subscribers
(VII) All the Subscribers should have Digital Signature.
STEP – III: Fill the Information in Form:
Once all the above mentioned documents/ information are available. Applicant has to fill the
information in the e-form “Spice” INC-32.

Features of SPICe (inc-32) Form:

(a) Maximum details of subscribers are SEVEN (7). In case of more subscribers, physically
signed MOA & AOA shall be attaching in the Form.
(b) Maximum details of directors are TWENTY (20).
(c) Maximum THREE (3) directors are allowed for filing application of allotment of DIN while
incorporating a Company.
(d) Person can apply the Name also in this form.
(e) By affixation of DSC of the subscriber on the INC-33 (e-moa) date of signing will be appear
automatically by the form.
(f) Applying for PAN / TAN will be compulsory for all fresh incorporation applications filed in
the new version of the SPICe form.
(g) In case of companies incorporated, with effect from the 26th day of January, 2018, with a
nominal capital of less than or equal to rupees ten lakhs or in respect of companies not having
a share capital whose number of members as stated in the articles of association does not
exceed twenty, fee on INC-32 (SPICe) shall not be applicable

STEP-IV: Preparation of MOA & AOA:

After proper filing of SPICE form applicant has to download the e-form INC-33 (MOA) and IN-34
(AOA) form the MCA site. After downloading of form fill all the information in the forms as per
requirement of Table A to J of Schedule I.
After completely filing of the form affix DSC of all the subscribers and professional on subscriber
sheet of the MOA & AOA.
STEP-V: Fill details of PAN & TAN:
It is mandatory to mention the details of PAN & TAN in the Incorporation Form INC-32. Link to
find out of Area Code to file PAN & TAN are given in Help Kit of SPICE Form.

STEP-VI: Submission of INC-32,33,34 on MCA-:

Once all the 3 forms ready with the applicant, upload all three document as Linked form on MCA
website and make the payment of the same.
STEP -VII: Certificate of Incorporation-:
Incorporation certificate shall be generating with CIN, PAN & TAN.
 07. DOCTRINE OF ULTRAVIRES

The object clause of the Memorandum of the company contains the object for which the company is
formed. An act of the company must not be beyond the objects clause, otherwise it will be ultra vires and,
therefore, void and cannot be ratified even if all the members wish to ratify it. This is called the doctrine of
ultra vires.
The doctrine of Ultra Vires has been firmly established in the case of Ashtray Railway Carriage and
Iron Company Ltd v. Riche. Thus the expression ultra vires means an act beyond the powers. Here the
expression ultra vires is used to indicate an act of the company which is beyond the powers conferred on the
company by the objects clause of its memorandum. An ultra vires act is void and cannot be ratified even if
all the directors wish to ratify it. An ultra vires transaction cannot be ratified by all the shareholders, even if
they wish it to be ratified.

CASE LAW
Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7 H.L. 653.

The objects of this company, as stated in the Memorandum of Association, were to supply and sell the
materials required to construct railways, but not to undertake their construction or finance for the same. The
contract here was to construct a railway. That was contrary to the memorandum of association; what was
done by the directors in entering into that contract was therefore in direct contravention of the provisions of
the Company Act, 1862
It was held that this contract, being of a nature not included in the Memorandum of Association, was ultra
vires not only of the directors but of the whole company, so that even the subsequent assent of the whole
body of shareholders would have no power to ratify it.

EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES

There are, however, certain exceptions to this doctrine, which are as follows:
1. An act, which is intra vires the company but outside the authority of the directors may be ratified by
the shareholders in proper form.20
2. An act which is intra vires the company but done in an irregular manner, may be validated by the
consent of the shareholders. The law, however, does not require that the consent of all the
shareholders should be obtained at the same place and in the same meeting.
3. If the company has acquired any property through an investment, which is ultra vires, the company’s
right over such a property shall still be secured.
4. While applying doctrine of ultra vires, the effects which are incidental or consequential to the act
shall not be invalid unless they are expressly prohibited by the Company’s Act.
5. There are certain acts under the company law, which though not expressly stated in the memorandum,
are deemed impliedly within the authority of the company and therefore they are not deemed ultra
vires. For example, a business company can raise its capital by borrowing.
6. If an act of the company is ultra vires the articles of association, the company can alter its articles in
order to validate the act.
 08. DOCTRINE OF CONSTRUCTIVE NOTICE &
DOCTRINE OF INDOOR MANAGEMENT

Doctrine of Constructive Notice

Section 399 allows any person to electronically inspect make a record, or get a copy/extracts of any
document of any company which the Registrar maintains. There is a fee applicable for the same. The
documents include the certificate of incorporation of the company.
The Memorandum and Articles of Association are public documents. Before any person deals with a
company he must inspect its documents and establish conformity with the provisions. However, even if a
person fails to read them, the law assumes that he is aware of the contents of the documents. Such an
implied or presumed notice is called Constructive Notice.
In simpler words, if a person enters into a contract which is beyond the powers of a company, then he has
no right under the said contract against the company. The Memorandum of Association defines the powers
of the company. Also, if the contract is beyond the authority of the directors as defined in the Articles, the
person has no rights.
Doctrine of Indoor Management
Section 399 of the Companies Act, 2013, specifies the rules and regulations governing the inspection,
production, and evidence of documents with the Registrar. In this article, we will look at the doctrine of
constructive notice, the doctrine of indoor management, and exceptions to the indoor management rule.
The doctrine of indoor management is an exception to the earlier doctrine of constructive notice. It is
important to note that the doctrine of constructive notice does not allow outsiders to have notice of the
internal affairs of the company.
Hence, if an act is authorized by the Memorandum or Articles of Association, then the outsider can assume
that all detailed formalities are observed in doing the act. This is the Doctrine of Indoor Management or the
Turquand Rule. This is based on the landmark case between The Royal British Bank and Turquand. In
simple words, the doctrine of indoor management means that a company’s indoor affairs are the company’s
problem.
Therefore, this rule of indoor management is important to people dealing with a company through its
directors or other persons. They can assume that the members of the company are performing their acts
within the scope of their apparent authority. Hence, if an act which is valid under the Articles is done in a
particular manner, then the outsider dealing with the company can assume that the director/other officers
have worked within their authority.
Exceptions to the Doctrine of Indoor Management
The Turquand rule or the law of indoor management is not applicable to the following cases:
The outsider has actual or constructive knowledge of an irregularity
In such cases, the rule of indoor management does not offer protection to the outsider dealing with the said
company.
The outsider behaves negligently
The rule of Indoor management does not protect a person dealing with a company if he does not initiate an
inquiry despite suspecting an irregularity. Further, this rule does not offer protection if the circumstances
surrounding the contract are suspicious. For example, the outsider should get suspicious if an officer
purports to act in a manner outside the scope of his authority.
Forgery
The doctrine of indoor management is applicable to irregularities that affect a transaction except for
forgery. In case of a forgery, the transaction is deemed null and void.
 09. DOCTRINE OF CORPORATE VEIL

Doctrine of Corporate Veil

The separate legal entity of a company is one of its most unique features. In this article, we will look at the
famous Corporate Veil Theory and try to understand the scenarios under which lifting or piercing the corporate
veil is possible.
Saloman Vs. Saloman & Co. Ltd. (1895 - 99)
Facts of the Case
Saloman sold his business to a company named Saloman & Company Ltd., which he formed. Saloman took
20,000 shares. The price paid by the company to Saloman was £ 30,000, but instead of paying him, cash, the
company gave him 20,000 fully paid shares of £ 1 each & £ 10,000 in debentures. The company wound up &
the assets of the company amounted to £ 6,000 only. Debts amounted to £ 10,000 due to Saloman & Secured by
debentures and a further £ 7,000 due to unsecured creditors. The unsecured creditors claimed that as Saloman &
Co. Ltd., was really the same person as Saloman, he could not owe money to himself and that they should be
paid their £ 7,000 first.
Judgment-
1. A Company is a "legal person" or "legal entity" separate from and capable of surviving beyond the lives of,
its members.
2. The company is not in law the agent of the subscribers or Trustee for them.
3. Saloman was entitled to £ 6,000 as the company was an entirely separate person from Saloman.
4. The unsecured creditors got nothing.

What is the Doctrine of Corporate Veil?

The Corporate Veil Theory is a legal concept which separates the identity of the company from its members.
Hence, the members are shielded from the liabilities arising out of the company’s actions.
Therefore, if the company incurs debts or contravenes any laws, then the members are not liable for those errors
and enjoy corporate insulation. In simpler words, the shareholders are protected from the acts of the company.
This brings us to some important questions:
1. If lifting or piercing the corporate veil possible?
2. If yes, then what are the scenarios and the rules that govern piercing the corporate veil?
Piercing the Corporate Veil means looking beyond the company as a legal person. Or, disregarding the
corporate identity and paying regard to the humans instead. In certain cases, the Courts ignore the company and
concern themselves directly with the members or managers of the company. This is called piercing the
corporate veil. Usually, Courts choose this option when the case involves a question of control rather than
ownership.

Piercing the Corporate Veil

Scenarios under which the Courts consider piercing or lifting the corporate veil are as below,
1) To Determine the Character of the Company
2) To Protect Revenue or Tax
3) If trying to avoid a Legal Obligation
4) Forming Subsidiaries to act as Agents
5) A company formed for fraud or improper conduct or to defeat the law
 10. TYPES OF SHARES

EQUITY SHARE AND ITS TYPES

EQUITY SHARES
Equity shares are also known as ordinary shares. They are the form of fractional or part ownership in which
the shareholder, as a fractional owner, takes the maximum business risk. The holders of Equity shares are
members of the company and have voting rights. Equity shares are the vital source for raising long-term
capital.
Equity shares represent the ownership of a company and capital raised by the issue of such shares is known
as ownership capital or owner’s funds. They are the foundation for the creation of a company.
Equity shareholders are paid on the basis of earnings of the company and do not get a fixed dividend. They
are referred to as ‘residual owners’. They receive what is left after all other claims on the company’s
income and assets have been settled. Through their right to vote, these shareholders have a right to
participate in the management of the company.
Now let’s understand what motivates the company to raise them:

Merits of Equity Shares

• Equity capital is the foundation of the capital of a company. It stands last in the list of claims and it
provides a cushion for creditors.
• Equity capital provides creditworthiness to the company and confidence to prospective loan providers.
• Investors who are willing to take a bigger risk for higher returns prefer equity shares.
• There is no burden on the company, as payment of dividend to the equity shareholders is not
compulsory.
• Equity issue raises funds without creating any charge on the assets of the company.
• Voting rights of equity shareholders make them have democratic control over the management of the
company
Now let’s understand what limits the company from raising them:
Limitations of Equity Shares
• Investors who prefer steady income may not prefer equity shares.
• The cost of equity shares is higher than the cost of raising funds through other sources.
• The issue of additional equity shares dilutes the voting power and earnings of existing equity
shareholders.
• Many formalities and procedural delays are involved and they are time-consuming processes

PREFERENCE SHARES
Preference shares are the shares which promise the holder a fixed dividend, whose payment takes priority
over that of ordinary share dividends. Capital raised by the issue of preference shares is called preference
share capital.
The preference shareholders are in superior position over equity shareholders in two ways: first, receiving a
fixed rate of dividend, out of the profits of the company, before any dividend is declared for equity
shareholder and second, receiving their capital after the claims of the company’s creditors have been settled,
at the time of liquidation. In short, the preference shareholders have a preferential claim over dividend and
repayment of capital as compared to equity shareholders.
 Dividends are payable only at the discretion of the directors and only out of profit after tax, to that extent,
these resemble equity shares. Preference resemble debentures as both bear fixed rate of return to the holder.
Thus, preference shares have some characteristics of both equity shares and debentures.
Preference shareholders generally do not enjoy any voting rights. In certain cases, holders of preference
shares may claim voting rights if the dividends are not paid for two years or more on cumulative preference
shares and three years or more on non-cumulative preference shares. But what are cumulative and non-
cumulative preference shares? They are classified below:
Types of Preference Shares
1. Cumulative and Non-Cumulative:
The preference shares that have the right to collect unpaid dividends in the future years, in case the same
is not paid during a year are known as cumulative preference shares. Non-cumulative shares, the
dividend is not accumulated if it is not paid in a particular year.
2. Participating and Non-Participating:
Preference shares which have a right to participate in the extra surplus of a company shares which after
dividend at a certain rate has been paid on equity shares are called participating preference shares. These
non-participating preference shares do not enjoy such rights of participation in the profits of the
company.
3. Convertible and Non-Convertible:
Preference shares that can be converted into equity shares within a specified period of time are known as
convertible preference shares. Non-convertible shares are such that cannot be converted into equity
shares. intervals say six months or one year.
Now let’s understand what motivates the company to raise them:
Merits of Preference Shares
• It does not affect the control of equity shareholders over the management as preference shareholders
don’t have voting rights.
• Payment of fixed rate of dividend to preference shares may make a company to announce higher rates of
dividend for the equity shareholders in good times.
• Preference shares have reasonably steady income in the form of fixed rate of return and safety of the
investment.
• Also, they are suitable for those investors who want a fixed rate of return with low risk.
• Preference shareholders have a preferential right of repayment over equity shareholders in the event of
liquidation or bankruptcy of a company.
• Preference capital does not create any sort of charge against the assets of a company.
Limitations of Preference Shares
• The rate of dividend on preference shares is generally higher than the rate of interest on debentures.
• The Dividend on these shares is to be paid only when the company earns a profit, there is no assured
return for the investors.
• Preference shares are not preferred by those investors who are willing to take a risk and are interested in
higher returns;
• Preference capital dilutes the claims of equity shareholders over assets of the company.
• The dividend paid is not deductible from profits as an expense. Thus, there is no tax saving as in the case
of interest on loans.
 11. SHARE CAPITAL
There are various class of shares (equity) dependent on various things. Let’s discuss them.

AUTHORIZED SHARE CAPITAL

• It is the maximum amount of capital which a company can issue. The companies can increase it from
time to time. For that we need to comply with some formalities also have to pay some fees to the
legal bodies.
ISSUED SHARE CAPITAL
• It is that part of authorized capital which the company offers to the investors.
SUBSCRIBED SHARE CAPITAL
• It is that part of issued capital which an investor accepts and agrees upon.
PAID UP CAPITAL
• It is the part of the subscribed capital, which the investors pay. Normally, all companies accept
complete money in one shot and therefore issued, subscribed and paid capital becomes one and the
same. Conceptually, paid-up capital is the amount of money which a company actually invests in the
business.
• Apart from the above, there are other types of shares (equity) also.
RIGHTS SHARES
• These shares are those which a company issues to it’s existing shareholders. The company issues
such kind of shares in order to protect the ownership rights of the existing investors.
BONUS SHARES
• When the company issues shares to its shareholdersin the form of a dividend, we shall call
them bonus shares. There are various advantages and disadvantages of bonus shareslike dividend,
capital gain, limited liability, high risk, fluctuation in the market, etc.

SWEAT EQUITY SHARE

• Sweat equity shares are issued to exceptional employees or directors of the company for their
exceptional job in terms of providing know-how or intellectual property rights to the company.
 12. EQUITY VS. PREFERENCE SHARES

BASIS FOR
EQUITY SHARES PREFERENCE SHARES
COMPARISON

Meaning Equity shares are the
ordinary shares of the
company representing the
part ownership of the
shareholder in the
company.
Preference shares are the shares that
carry preferential rights on the
matters of payment of dividend and
repayment of capital.

Payment of The dividend is paid after Priority in payment of dividend over

dividend the payment of all equity shareholders.
liabilities.

Repayment of In the event of winding up In the event of winding up of the

capital of the company, equity company, preference shares are repaid
shares are repaid at the before equity shares.
end.

Rate of dividend Fluctuating Fixed

Redemption No Yes

Voting rights Equity shares carry voting Normally, preference shares do not
rights. carry voting rights. However, in
special circumstances, they get voting
rights.

Convertibility Equity shares can never be Preference shares can be converted

converted. into equity shares.

Arrears of Equity shareholders have Preference shareholders generally get

Dividend no rights to get arrears of
the dividend for the
previous years.
the arrears of dividend along with the
present year's dividend, if not paid in
the last previous year, except in the
case of non-cumulative preference
shares.
 13. SHARES VS. DEBENTURES
BASIS FOR
SHARES DEBENTURES
COMPARISON

Meaning The shares are the owned funds The debentures are the
of the company. borrowed funds of the
company.

What is it? Shares represent the capital of Debentures represent the debt
the company. of the company.

Holder The holder of shares is known as The holder of debentures is

shareholder. known as debenture holder.

Status of Holders Owners Creditors

Form of Return Shareholders get the dividend. Debenture holders get the
interest.

Payment of return Dividend can be paid to Interest can be paid to

shareholders only out of profits. debenture holders even if
there is no profit.

Allowable Dividend is an appropriation of Interest is a business expense

deduction profit and so it is not allowed as and so it is allowed as
deduction. deduction from profit.

Security for No Yes

payment

Voting Rights The holders of shares have The holders of debentures do

voting rights. not have any voting rights.

Conversion Shares can never be converted Debentures can be converted

into debentures. into shares.

Repayment in the Shares are repaid after the Debentures get priority over
event of winding up payment of all the liabilities. shares, and so they are repaid
before shares.

Quantum Dividend on shares is an Interest on debentures is a

appropriation of profit. charge against profit.

Trust Deed No trust deed is executed in case When the debentures are
of shares. issued to the public, trust deed
must be executed.
 14. PROSPECTUS - TYPES
“A prospectus means any documents described or issued as a prospectus and includes any notices, circular,
advertisement, or other documents inviting deposit from the public or documents inviting offer from the
public for the subscription of shares or debentures in a company.” A prospectus also includes shelf
prospectus and red herring prospectus. A prospectus is not merely an advertisement. [Section 2(70)]
Thus, a prospectus is a just an invitation to offer securities to the public and not an offer in the
contractual sense. A public listed company who intends to offer shares or debentures can issue prospectus.
There are four types of a prospectus, which are as under:
RED HERRING PROSPECTUS [Section 32]
The word Red Herring means to distract or mislead someone from an important issue. When a company
decides to attract investors to invest in their company, they use a prospectus named Red Herring Prospectus.
It is basically a prospectus which is used in the public issue to attract different investors. In this prospectus,
the price and quantum are not mentioned or disclosed.
Here price means the actual price to be issued per share in the IPO and quantummeans the quantity or the
total number of shares to be offered in the IPO.
ABRIDGED PROSPECTUS [Section 2(1)]
Abridged Prospectus is the actual summary of a prospectus. It contains all the salient features of a
prospectus. The original prospectus that a company files to the exchange regulator is too large. The abridged
prospectus contains the summary of the same prospectus.
Reading the entire prospectus may be too much time consuming for an investor. Instead, they go through the
abridged prospectus, which gives them the basic idea about the company.
The abridged prospectus contains all the important and materialistic information. No company will issue
shares without the abridged prospectus attached to it. It enables t investors take a well-informed decision.
SHELF PROSPECTUS [Section 31]
Shelf means ‘life’ or ‘validity’ of a prospectus. Only selected companies bring their shelf prospectus. All
companies are not eligible for designing a shelf prospectus. Normally finance-based companies are eligible
for bringing out their shelf prospectus.
Shelf prospectus has a validity of maximum of one year. There are various companies which frequently raise
funds (ex. banks) for issuing loans. Every time they raise funds from the public, they require approval from
the Stock Exchange and ROC.
Every time a company wishes to raise funds, they must file their prospectus to the regulators for approval. If
a company submits their Shelf prospectus, they don’t have to file the prospectus again and again while
raising funds for that particular year.
A company filing a Shelf prospectus has to file an Information memorandum which must contain:
• If any changes made by the company after the previous offer security.
• Any new charges created if any
• Any new material or facts created
After the validity period is over, the company has to submit another prospectus which will be valid for
another one year.
DEEMED PROSPECTUS [Section 25(1)]
Deemed means to presume something. When a company agrees to allot shares to an issuing house (which is
a different company) which they will later sell to the public, then the document by which offer is made is
deemed to be a prospectus.
The document by which the issuing house offers share to the public is said to be deemed prospectus.
Any one condition from the following two conditions should be fulfilled:
• The issuing house should issue the shares to the public 6 months after the agreement with the
company whose shares are to be issued.
• The issuing house shouldn’t give the share price to the company until they bring it to the public.
 15- CONTENTS OF A PROSPECTUS:
1. Address of the registered office of the company.
2. Name and address of company secretary, auditors, bankers, underwriters etc.
3. Dates of the opening and closing of the issue.
4. Declaration about the issue of allotment letters and refunds within the prescribed time.
5. A statement by the board of directors about the separate bank account where all monies received out
of shares issued are to be transferred.
6. Details about underwriting of the issue.
7. Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
8. The authority for the issue and the details of the resolution passed therefore.
9. Procedure and time schedule for allotment and issue of securities.
10. Capital structure of the company.
11. Main objects and present business of the company and its location.
12. Main object of public offer and terms of the present issue.
13. Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash.
14. Details of directors including their appointment and remuneration.
15. Disclosure about sources of promoter’s contribution.
16. Particulars relation to management perception of risk factors specific to the project, gestation period
of the project, extent of progress made in the project and deadlines for completion of the project.
 16- LEGAL REQUIREMENT REGARDING ISSUE OF PROSPECTUS:
(Sec. 26 of the Companies Act, 2013)
The Companies Act has defined some legal requirements about the issue and registration of a prospectus.
The issue of the prospectus would be deemed to be legal only if the requirements are met.
1. Issue after the incorporation: As a rule, the prospectus of a company can only be issued after its
incorporation. A prospectus issued by, or on behalf of a company, or in relation to an intended company,
shall be dated, and that date shall be taken as the date of publication of the prospectus.
2. Registration of prospectus: it is mandatory to get the prospectus registered with the Registrar of
Companies before it is issued to the public. The procedure of getting prospectus registered is as under:
A. A copy of the prospectus, duly signed by every person who is named therein as a director or a
proposed director of the company must be filed with Registrar of Companies before the
prospectus is issued to the public.
B. The following document must be attached thereto:
i) Consent to the issue of the prospectus required under any person as an expert confirming his
written consent to the issue thereof, and that he has not withdrawn his consent as aforesaid
appears in the prospectus.
ii) Copies of all contracts entered into with respect to the appointment of the managing director,
directors and other officers of the company must also be filed with Registrar.
iii) If the auditor or accountant of the company has made any adjustments in the company’s
account, the said adjustments and the reasons thereof must be filed with the documents.
iv) There must be a copy of the application which is to be filled for the issue of the company’s
shares and debentures attached with the prospectus.
v) The prospectus must have the written consent of all the persons who have been named as
auditors, solicitors, bankers, brokers, etc.
C. Every prospectus must have, on the face of it, a statement that:
i) A copy of the prospectus has been delivered to the Registrar for registration.
ii) Specifies that any documents required to be endorsed by this section have been delivered to
the Registrar.
D. A copy of the prospectus must be filed with the Registrar of Companies.
E. According to the Section 26, no prospectus shall be issued more than ninety days after the date on
which a copy thereof is delivered for registration.
If a prospectus issued in contravention of the above –stated provisions, then the company and every
person who knows a party to the issue of the prospectus shall be punishable with a fine.

17- MISSTATEMENTS IN THE PROSPECTUS

Misleading Prospectus or Mis-statement in prospectus:

A prospectus is said to be misleading or untrue in two following cases:
1) A statement included in a prospectus shall be deemed to be untrue, if the statement is misleading in
the form and context in which it is included.
2) Omission from prospectus of any matter to mislead the investors
Contravention of Section 26 of the Companies Act, 2013
• If a prospectus is issued in contravention of the provisions of this section, then the company shall be
punishable with a fine, not less than fifty thousand rupees which may extend to Three Lakhs
Rupees, and
 • Every person who is party to the issue of the prospectus shall be punishable with imprisonment for
a term which may to three years or with a fine, not less than Fifty Thousand Rupees which
may extend to Three Lakhs Rupees, or with Both.

CRIMINAL LIABILITY FOR MIS-STATEMENT IN PROSPECTUS (SECTION 34):

Where a prospectus, issued, circulated or distributed:
1. Includes any statement which is untrue or misleading in form or context in which it is included; or
2. Where any inclusion or omission of any matter is likely to mislead;
Every person who authorizes the issue of such prospectus shall be liable under section 447 i.e.
FRAUD.
PUNISHMENT:
“Imprisonment for a term which may not be less than six months, but which may extend to TEN
years”; OR “A fine not less than the amount involved in fraud but it may extend to three
times the amount of fraud” OR “ BOTH” .
Defenses available in this section are:
1. Person shall prove that statement or omission was immaterial;
2. Person has reasonable ground to believe and did believe that statement was true; or
3. Person has reasonable ground to believe and did believe that the inclusion or omission was
necessary.
Where a prospectus is issued which includes any statement which is untrue or misleading in form or context
or any matter is likely to mislead the investor, then every person who authorizes issue of prospectus shall be

CIVIL LIABILITY FOR MIS-STATEMENTS IN PROSPECTUS (SECTION 35):

Where a person has subscribed for securities of a company acting upon any misleading statement, inclusion
or omission and has sustained any loss or damage as its consequence, the company and every person, related
with the issue of the prospectus, which includes the following persons shall be liable to pay compensation to
effected person.
1. Director at the time of the issue of prospectus.
2. Named as director or as proposed director with his consent;
3. Promoter of the company;
4. Person who has authorized the issue of the prospectus; and
5. Expert;
This civil liability shall be in addition to the criminal liability under section 36. Where it is proved that a
prospectus has been issued with intent to defraud the applicants for the securities of a company or any other
person or for any fraudulent purpose, every person shall be personally responsible, without any limitation of
liability, for all or any of the losses or damages that may have been incurred by any person who subscribed
to the securities on the basis of such prospectus.

Defenses under this section are:

1. He has withdrawn his consent or never give his consent;
2. The prospectus was issued without his knowledge or consent and when he become aware, gave a
reasonable public notice that prospectus was issued without his knowledge or consent

Conclusion
As seen above, a prospectus is a mandatory document for limited companies to commence their business,
but its complicated procedure delays the operation of any business, therefore a number of organizations
hesitate to issue prospectus to the general public for subscription of share capital & debentures.
 18. TYPES OF DIRECTORS

TYPES OF DIRECTORS
Director means a person appointed to the Board of a Company. The different types of directors in a
company are discussed here below.

1) Resident director
A Director, who resides in India during the preceeding financial year, for a period not less than 182
days is called a Resident director. Every company shall have at least one resident director.

2) Women director
Every listed company and every other public company having paid up share capital of Rs 100 crores
and above or turnover of Rs 300 crores and above shall have at least one women director. This
stipulation as per section 149 of the Act shall be complied with in 6 months from the date of
incorporation of the company. Any intermittent vacancy shall be filled with in 3 months or before the
ensuing Board meeting whichever is later.

3) Small share Holder’s director :

A small share holder is one who holds shares with a nominal value of not more than Rs 20000/- or
such other sum as may be prescribed from time to time. A listed company shall appoint one director
representing the small share holders, on requisition of not less than 1000 small share holders or 1/10th
of the total number of such shareholders whichever is less. The tenure of such director shall not be
more than 3 consecutive years and there after they are not eligible for reappointment.

4) Additional Director
Additional Directors are appointed by the Board of Directors. They hold the office until the next
general meeting or the last date on which the annual general meeting is to be held whichever is
earlier. A person, who failed to get appointed in the general meeting, shall not be appointed as an
alternate Director.

5) Alternate Director
Alternate Director is appointed by the Board if permitted by the articles of the company or by a
resolution passed in the general meeting. An alternate director is appointed in the vacancy created
due to the absence of a director in the company for a period of more than 3 months from India. The
alternate director would hold the office until the director in whose place is appointed returns back to
India or until the term of his office whichever is earlier.
A person appointed as an alternate director shall not be a director or alternate director in the same
company as on the date of appointment. No person can be appointed as an alternate director in the
place of an Independent director, unless the person proposed to be appointed as alternate director is
qualified to be appointed as an Independent director.

6) Casual Director
The Board of Director may appoint a person as Casual Director in the vacancy created on account of
vacation of office by an existing director before his term. Such appointment shall be approved by
members in the immediate next general meeting. The Casual Director would hold the office until the
remaining term of the director who vacated the office.
7) Nominee director:
Nominee director is a person who is permitted to be nominated by the parties interested in the
company as per the provisions of law in force. He is appointed to the board of a company to
represent the interests of Financial Institutions, Government and others

8) Shadow Director: Section 2(59) defines the term officer. 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 / are accustomed to act.
Thus a person, though not being on the board is able to influence the decisions of the board is called
shadow director

9) Executive Director: The Key Managerial Personnel of a company include Managing Director and
the Whole Time Directors. [Section 2 (51)]. As per section 2 (34) of the act, Director, means a
director appointed to the Board of a Company. Whole time Director includes a director in the whole
time employment of the company [Section 2(94)].

10) Managing Director: Managing director is 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 by
whatever name he is called [2 (54)]
Thus a director who is a part of the board and as well the management of the company is called
Executive Director.

11) Non-Executive Director: A director who is neither a Whole time Director nor Managing director is
called a non-executive director.

12) Independent Director:

The Independent director is a person of integrity having experience and expertise in the relevant
field. He is neither Promoter nor Managing / Whole Time / Nominee Director of the company or its
Holding /Subsidiary /Associate Company. He either in his personal capacity or official capacity is
not related to the company. Neither he nor his relatives in his / their personal or official capacity
have any pecuniary relationship with the company or its Holding / Subsidiary / Associate companies,
exceeding prescribed limits specified in the Act.
A Public Company having paid up share capital of Rs 10 crores and more; or turnover of Rs 100
crores and above; or aggregate outstanding loans, debentures and deposits exceeding Rs 50 crores
shall have at least two independent directors. The number of independent directors in the board shall
not be less than 1/3rd of the total number of directors. While calculating the 1/3rd number every
fraction shall be rounded off to one.
 19. APPOINTMENT OF DIRECTORS.

The procedure for appointment of directors is mentioned in section 152 of the act and appointment
and Qualifications of Directors Rules 2014

1) The procedure for appointment of Directors in a company

• The first directors of a company would the subscribers to its memorandum of association,
unless provided otherwise by the articles of association. They are deemed as the first directors
until the directors are duly appointed.
• In case of One Person Company, the individual member would continue to be the first director
of the company, until the directors are duly appointed.
• Every director shall be appointed by the company in general meeting
• No person shall be appointed as a director, unless he has been allotted Director Identification
Number (DIN) or such other prescribed number.
• Every person proposed to be appointed as a director shall furnish the following in the general
meeting.
• DIN / such other prescribed number
• A declaration that he is not disqualified to become a director under this act.
• The Articles of Association provides for the procedure of appointment of directors in a
company. The company may adopt the principle of proportional representation, where by not
less than 2/3rd of the total number of directors of a company are appointed once in three years.
• The person appointed as director shall give consent to hold the office of director in the
company. Such consent letter shall be filed with the Registrar of Companies within 30 days of
such appointment.

• At the first annual general meeting of a public limited company, (held next after the date of
general meeting at which the first directors are appointed) and at every subsequent annual
general meeting 1/3rd of such rotational directors are liable to retire by rotation
• The appointment of independent director shall be approved by the company in the general
meeting. The notice for general meeting shall contain the justification in choosing the person
for appointment as independent director.

2) Right of persons other than retiring directors to stand for directorship

A person, who is not a retiring director, but otherwise eligible for appointment as a director in the
general meeting shall adhere to the following procedure
• The candidate shall lodge an application at the registered office of the company, at least
14 days prior to the commencement of the general meeting. person any
• Alternately, the candidature of a person can also be proposed by some other member.
• An amount of Rs 100000/- or such other higher amount fixed shall be deposited.
• The requirement of deposit of amount is not applicable in the following cases.
i. In case of appointment of an Independent director.
ii. Where a director is recommended by “The Nomination and Remuneration
Committee”, where such committee is constituted. In its absence, such
recommendation can be made by “The Board of Directors”
 • The company shall inform the candidature of a person for the office of director as per
the prescribed procedure.
• The deposit amount is refundable , if the person proposed,
i. Is elected as a director.
ii. Gets 25% of total valid votes cast on such resolution

3) Director Identification Number (DIN)

• DIN is a 8 digit unique identity number, which has lifelong validity.
• It is person specific .If a person resigns one company and joins another company as a director,
the same DIN can be used
• Every person intending to be appointed as a director in a company shall apply for allotment of
DIN to Central Government (Ministry of Corporate Affairs).
• If the application is found to be in order, the competent authority would allot DIN within 30
days of application.
• Whenever a return / application / information, related to a company is to be submitted by a
director, the DIN is required to be mentioned by him under his signature.
• A person, having a DIN shall not apply for a second one.
• A person, within 30 days from the date of receipt of the DIN, shall inform the same to the
company /companies in which he is a director.
• If a person contravenes the provisions of the act, and applies for additional DIN or fails to
communicate his DIN to the companies in which he is a director, within 30 days of its receipt, is
punishable with imprisonment up to 6 months or a fine up to Rs 50000/-. Thereafter if the
contravention continues beyond the first day, a further fine of Rs 500/- per day is levied.
• Every company, within 15 days, from the date of receipt of information, shall furnish the details
of DINs of all its directors to Registrar / competent authority. Failing which, the company and
the every officer of the company in default is punishable with a fine ranging from Rs 25000/.- to
Rs 100000/-

4) Number of Directorships
• A person shall not hold office as a director, including any alternate directorship, in more than
Twenty (20) companies (other than dormant companies), of which directorship in public
companies shall not exceed Ten (10). The term public companies for this purpose include
private companies which are holding or subsidiary companies of the public company.
• The members of a company may reduce the captioned limits by passing a special resolution.
• A person holding directorship in more than 20 companies , within one year from the date of
commencement of the Act ,
a) Shall choose the companies up to the permitted limit, in which he would like hold the
office as director and inform them, under intimation to the Registrar having jurisdiction in
respect of each of such company.
b) Shall resign his office in the remaining companies.
• If any person holds office of directorship in contravention of the provisions of the act, is
punishable with a fine which may range from Rs 5000/- to Rs 25000/- per day after the first,
during which the contravention continues.
5) Disqualifications for appointment of a Director.( section. 164)
The following persons are not eligible to be appointed as directors of a company
• A person declared to be of unsound mind by the competent court of law.
• An undischarged insolvent.
• A person, whose application is pending before a court, for adjudicating him as an insolvent
• A person, who has been convicted by a court of any offence, and sentenced imprisonment for
a period of
a) Not less than 6 months, and a period of 5 years has not lapsed from the date of expiry
of such sentence.
b) Seven years or more
• The person has been convicted for an offence u/s188 dealing with the related party
transactions at any time during the last preceeding 5 years.
• The competent Court of law / Tribunal has passed an order disqualifying a person for
appointment as a director, and the order is in force.
• Shares of the company held by him either singly or jointly with others, has calls in arrears for
more than 6 months.
• The person has not been allotted DIN
• The directors of the following companies are not eligible to be reappointed as a director in the
same company or any other company for a period of five (5), years from the date on which
the said company fails to comply with the following requirements.
a) Non filing of “Financial Statements / Annual Returns” continuously for a period of
three (3) financial years.
b) Failure to make the following payment obligations continuously for a period of one year
and more.
i. Repayment of the deposits accepted
ii. Payment of interest on deposits
iii. Redemption of any Debentures on due date.
iv. Payment of interest on the Debentures
v. Payment of any dividend declared
The above disqualification does not apply to a person, who is appointed as a director of a
company which is in default of clause (a) or clause (b) above; for a period of six months from
the date of his appointment.
• In addition to the above , a private company may by its articles provide for any
disqualifications for appointment of a director.
 20. RETIREMENT OF DIRECTORS BY ROTATION

Retirement of Directors by Rotation

Unless the articles of association provide otherwise, the retirement of all the directors shall be as follows.
1) The period of office of not less than 2/3rd of the total number of directors is liable to determination
by retirement of directors by rotation.
2) In determining the total number of directors, independent directors shall be excluded.
3) At the first annual general meeting of a public limited company, (held next after the date of general
meeting at which the first directors are appointed) and at every subsequent annual general meeting
1/3rd of such rotational directors are liable to retire by rotation.( In case of fraction, number nearest
to1/3rd is counted)
4) The directors to retire by rotation are those who have been longest in the office, since their last
appointment. Where there are two or directors with the same tenure of office, those who are to retire
shall, in default of and subject to any agreement among themselves, be determined by lot.
5) The vacancy of a retired director is filled in either by appointing the retiring director or some other
person, in the annual general meeting.
6) If the vacancy could not be filled in during the general meeting, and in the absence of any resolution
passed in the meeting not to fill in the vacancy, the meeting stands adjourned till the same day in the
next week( If such day is a holiday the succeeding working day) at the same place and time.
7) On the day of adjournment, if the vacancy could not be filled in, and in the absence of any resolution
by the meeting, not to fill in the vacancy; the retired director is deemed to have been reappointed,
subject to the following conditions.
a) The resolution for the re-appointment of such director has been put before the present or
previous meeting and has been lost.
b) The retiring director has communicated to the company in writing his dissent for re-
appointment.
c) The person is neither qualified nor disqualified for appointment
d) An ordinary or special resolution is required for his appointment or re-appointment.
e) Where appointment of directors need to be voted individually.
8) If a person contravenes the provisions of the act about the appointment of directors, is punishable
with imprisonment up to 6 months or a fine up to Rs 50000/-. Thereafter if the contravention
continues beyond the first day, a further fine of Rs 500/- per day is levied.

Resignation of a Director
The following procedure is to be followed for the resignation of a director
a) A director, intending to retire shall give a notice in writing to the company.
b) The Board, on receipt of the notice shall make note of the same
c) The company shall inform the Registrar within such time as may be prescribed.
d) The matter shall be placed in the immediately following general meeting by the board in its
report.
e) The Director may also forward a copy of his resignation letter , with the reasons for resignation
to the Registrar, within 30 days of his resignation.
f) The resignation of the Director would be effective from the date of receipt of his resignation by
the company or the date specified by the director in the notice, whichever is later.
The Director who has resigned shall be liable even after his resignation for the offences which
occurred during his tenure
 21. POWERS OF DIRECTORS

Company is a legal person. The decisions on behalf of a company are exercised by the board of directors as
per the provisions of Memorandum and Articles of Association of the company. The powers of board of
directors are mentioned in a summary form
01. Powers of the Board to be exercised by the Board by means of the resolution passed at a duly
convened Board meeting
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorize buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another company;
(k) any other matter which may be prescribed in Rule 8 of the Companies (Meetings of
02. Certain more powers that shall also be exercised by the Board of Directors only by means of
resolutions passed at meetings of the Board:
(1) to make political contributions;
(2) to appoint or remove KMP
(3) to appoint internal auditors and secretarial auditor;
03. The Board may, by a resolution passed at a meeting, delegate the powers specified in points (d) to
(f) above, on such conditions as it may specify to:
1. any committee of directors,
2. the managing director,
3. the manager or any other principal officer of the company, or
4. the principal officer of the branch office (in the case of a branch office of the company).
 22. ANNUAL GENERAL MEETING

An annual general meeting (AGM) must be held each year by every company other than “OPC”. AGM is an
important platform by which the general body of shareholders finds an opening to exercise their power of
control.

RULES RELATING TO ANNUAL GENERAL MEETING.

Following are the rules regarding annual general meetings:
1) In case of the first annual general meeting, it shall be held within a period of nine months from the
date of closing of the first financial year of the company and in any other case, within a period of
six months, from the date of closing of the financial year.
2) If a company holds its first annual general meeting as aforesaid, it shall not be necessary for the
company to hold any annual general meeting in the year of its incorporation.
3) Not more than 15 months shall elapse between two AGMs.
4) In case there is any difficulty in holding any AGM (except the first one), the ROC may, for any
special reasons shown, grant an extension of time for holding the meeting by a period not exceeding
3 months provided the application for the purpose is made before the due date of the annual general
meeting
5) A notice (either in writing or electronic mode) of at least 21 days before the meeting must be given
to the members.
6) However, a general meeting may be called after giving a shorter notice if consent is given in writing
or by electronic mode by not less than ninety-five per cent of the members entitled to vote at such
meeting.
7) A statement setting out the material facts concerning each item of special business to be transacted at
a general meeting shall be annexed to the notice calling such meeting.
8) The AGM must be held on a working day during business hours ( between 9 am and 6 pm) on any
day that is not a ‘National Holiday’ at the registered office of the company or at some other place
within the city, town or village in which the registered office of the company is situated.
9) Quorum: in case of public company,
a) Five members personally present if the number of members as on the date of meeting is Up to one
thousand
b) Fifteen members personally present if the number of members as on the date of meeting is more
than one thousand but up to five thousand;
c) Thirty members personally present if the number of members as on the date of meeting exceeds
five thousand.
10) In the case of private company, two members personally present, shall be the quorum for a meeting
of the company.

BUSINESS TO BE TRANSACTED AT AGM

At every AGM, the following matters must be discussed and decided. Since such matters are discussed at
every AGM, they are known as ordinary business. All other matters and business to be discussed at the
AGM are special business.
The following matters constitute ordinary business at an AGM :-
1. Consideration of final accounts, director’s report and the auditor’s report
2. Declaration of dividend
 3. Appointment of directors in the place of those retiring
4. Appointment of and the fixing the remuneration of the statutory auditors.
In case any special business has to be discussed and decided upon, an explanatory statement of the special
business must also accompany the notice calling the meeting. The notice should also give the nature and
extent of the interest of the directors or manager in the special business, as also the extent of the
shareholding interest in the company of every such person.

CONSEQUENCES OF NOT HOLDING AN AGM

Default in holding an AGM may result in the following consequences:
1. Any member of the company may apply to the NCLT which may in turn call, or direct the calling of
the meeting.
2. NCLT may give such ancillary or consequential directions as it may consider expedient in relation to
the calling, holding and conducting of the meeting.
3. The NCLT may also direct that one member present in person or by proxy shall be deemed to
constitute the meeting.
4. A fine, which may extend to Rs one lakh on every officer of the company who is in default, may be
levied and for continuing default, a further fine which may extend to five thousand rupees per day
for the duration of the default may be levied.

23. EXTRAORDINARY GENERAL MEETING

• An extraordinary meeting is usually called by the Board for taking some urgent business that cannot
be kept pending till next AGM.
• Every business transacted at such a meeting is a special business.
• An explanatory statement of the special business must also accompany the notice calling the
meeting.
• The notice should also give the nature and extent of the interest of the directors or manager in the
special business, as also the extent of the shareholding interest in the company of every such person.

Who can call an extraordinary general meeting?

An Extraordinary general meeting may be called by the following.
1. The Board on requisitions:
The Board must call an EGM of the company if required to do so by the following number of
members:
(a) In the case of a company having a share capital, such number of members, who hold, on the
date of receipt of the requisition, not less than one-tenth of the paid-up share capital of the
company as on that date carrying the right of voting.
(b) In the case of a company not having a share capital, such number of members who have, on
the date of receipt of requisition, not less than one-tenth of the total voting power of all the
members having on the said date a right to vote.
2. By the Requisitionists:
If the Board does not, within 21 days from the date of receipt of a valid requisition in regard to
any matter, proceeds to call a meeting for the consideration of that matter on a day not later than 45
days from the date of receipt of such requisition, the meeting may be called and held by the
requisitionists themselves within a period of 3 months from the date of requisition
 24. BOARD MEETINGS
Board meetings refer to meetings of directors. The directors are supposed to act collectively as a single
entity, called the board, hence the term ‘Board Meetings’.

Periodicity of the Board meetings.

Every company shall hold the first meeting of the Board of Directors within thirty days of its
incorporation and thereafter hold a minimum four meetings every year in such a manner that not more
than one hundred and twenty days shall intervene between two consecutive meetings.
[Section 173(1)]
• The participation of directors in a meeting of the Board may be either in person of through video
conferencing or other audio visual means.
• A meeting of the Board shall be called by a minimum seven days notice in writing to every director
at his address registered with the company.
• In case of absence of independent directors from such a meeting of the Board, decision taken at such
a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at
least one independent director, if any
• The quorum for a meeting of the BoD of a company shall be one-third of its total strength or
two directors whichever is higher and the participation through video conferencing shall be taken
into account.
 25. REQUISITES OF A VALID MEETING
The following conditions must be satisfied for a meeting to be called a valid meeting:
1. It must be duly convened. The persons calling the meeting must be authorized to do so.
2. The proper authority in this regard is the Board of Directors, members, or National Company Law
Tribunal, as the case may be.
3. Proper and adequate notice must have been given to all those entitled to attend.
4. The rules of quorum must be maintained and the relevant provisions of the Act and the articles must
be duly complied with.
5. The business at the meeting must be validly transacted.
6. The meeting must be conducted in accordance with the regulations governing the meetings.

PROXY
• A member may appoint another person to attend and vote at a meeting on his behalf. Such
otperson is known as ‘Proxy’.
• If the articles so authorize, any member, entitled to attend and vote at a meeting of the company,
shall be entitled to appoint another person (whether a member or not) as his proxy to attend and
vote in his/her behalf.
• The member appointing a proxy must duly deposit with the company a proxy form at the time of
the meeting or prior to it giving details of the proxy appointed.
• A proxy is not entitled to vote except on a poll.

RESOLUTIONS
• A motion, with or without amendments is put to vote at a meeting.
• A 'motion' when passed by requisite majority of votes by the shareholders becomes a company
resolution.
• Thus, a resolution may be defined as the formal decision of a meeting on any

MINUTES
• Every company must keep records of all the proceedings of a meeting, known as minutes.
• The minutes are a gist of the discussions at the meeting and the final decisions taken there at.
• It normally includes only the resolutions actually passed.
• The pages of the minute books must be consecutively numbered and the minutes must be
recorded therein within 30 days of the conclusion of the meeting.
• The minutes book of the proceedings of general meetings must be kept at the registered office of
the company.
If any person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be
punishable with imprisonment for a term which may extend to two years and with a fine which shall not be
less than Rs.25,000/- but which may extend to 1 lakh.
 26. KINDS OF RESOLUTIONS.
There are three types of resolutions:
a) Ordinary Resolution
b) Special Resolution
c) Resolution requiring a special notice

a) Ordinary resolution
• An ordinary resolution is one which can be passed by a simple majority. That is if the votes
(including the casting vote, if any, of the chairperson), at a general meeting cast by members entitled
to vote in its favour are more than the votes cast against it.
• An ordinary resolution is required to transact such businesses as: declaring dividend, appointment of
auditors, electing directors, or to pass the annual accounts.

b) Special Resolution
▪ A special resolution is one which is passed by at least three-fourths clear majority.
▪ This means that the votes cast in favour of the resolution is at least three times the
number of votes cast against it.
▪ Special resolutions are needed to decide on important matters of the company.

Examples where special resolutions are required are:

1. To alter the domicile clause of the memorandum from one state to another, or to alter the
objects clause of the memorandum.
2. To alter the name of the company with the approval of the Central Government.
3. To alter the articles of association.
4. To change the name of the company by omitting ‘Limited’ or ‘Private Limited’.
\
c) Resolutions requiring a special notice
There are certain matters specified in the Act which may be discussed at a general meeting for which a prior
intention to move the resolution has to be given to the members. Such a prior intention in the form of special
notice enables the members to be prepared on the matter to be discussed and gives them time to indicate
their views on the resolution.

The following matters require special notice to be passed at a meeting:

1. To appoint an auditor other than a retiring auditor at an annual general meeting.
2. To resolve at an annual general meeting that a retiring auditor shall not be reappointed.
3. To remove a director before the expiry of his period of office.
4. To appoint another director in place of removed director.
5. Where the articles of a company provide for serving a special notice for a resolution, in respect of
any specified matter or matters.
6. A resolution requiring special notice may be passed either as an ordinary resolution or as a special
resolution.
 27. AUDITORS OF A COMPANY

The Companies Act provides for the compulsory appointment of an auditor to examine the affairs of the
company and to report the same to the shareholders. It is for the protection of the shareholders

APPOINTMENT OF AUDITORS
First Auditors (Sec.139 (6):
• They are appointed by the BOD within 30 days from the date of registration of the company.
• If the BOD fails to appoint then the company shall appointment at its general meeting.
Such Auditors hold office till the conclusion of the first annual general meeting
• The subsequent auditor shall be appointed at first annual general meeting. Sec 139(1)
• At first AGM the auditor shall be appointed and the tenure shall be for 5 years.
• The appointment of auditor would be ratified every year.
• The company shall file a notice of auditor appointment with the registrar within 15 days of meeting
• Before the appointment of the auditor, the written consent of the auditor to such appointment shall
be obtained from the auditor
• The certificate filed by the auditor shall also indicate that he is dully qualified to be appointed as
auditor as per rules
Casual Vacancy –Sec139 (8)
• In case of a company whose accounts are subject to audit by the auditor appointed by Comptroller
and Auditor General of India (CAG), the vacancy shall be filled by CAG within 30 days.
• If CAG does not fill the vacancy BOD shall fill within next 30 days.
• In case of the other companies, shall be filled by the BOD within 30 days.
• If vacancy is due to resignation, then such appointment made by the BOD also be approved by the
company at its general meeting within 3 months.
Re – appointment of retiring auditors-Sec 139(a)
• The retiring auditor may be appointed at the AGM at which he is retiring
• Where he is not disqualified for re-appointment
• Where he has not given to the company a notice in writing of his unwillingness to be re-appointed.
• Where a special resolution has not been passed at the meeting by which another person is appointed
instead of the retiring auditor.
Continuation of existing Auditor. Sec 139(10)
• Where at any AGM no auditor is appointed or re-appointed, then the existing auditor shall continue
as auditor of the company
Rotation of Auditors.
It has been provided in the Act for the listed companies, prescribed class of companies
• Sec 139(2) makes it mandatory to appoint auditors on rotational basis.
• As per this section, no listed or a prescribed class shall appoint or re-appoint
– An individual – one term of 5 consecutive yrs
– An Auditor firm – two terms of 5 consecutive yrs
Auditorships- Maximum
• A person cannot be full time employment as an auditor in more than 20 companies.
• Sec 141(3) (g) makes as provision for the same

REMOVAL OF AN AUDITOR
Removal of An Auditor by the Company -Sec140 (1)
 • After obtaining the previous approval of the CG
• Giving a reasonable opportunity of being heard to the auditor concerned before taking any action
• By passing a special resolution of the company

Removal by the Tribunal Sec140 (5)

A Director can be removed by the Tribunal, if it, either suo moto or on an application made to it by the CG
or any person concerned, is satisfied that the auditor of a company has, either directly or indirectly acted in
a fraudulent manner or colluded in any fraud by or in relation to, the company or its directors or officers.

RIGHTS OF AUDITORS
• Right to access to books of accounts: Sec 143(1)
• Right to call information and explanations: 143(1)
• Right to receive notice and attend the GM: 146
• Right to receive remuneration:Sec142
• Right to be heard: sec 140(1), in case of removal , the auditor has the right to be heard at the meeting
before the resolution removing the auditor is passed

STATUTORY DUTIES OF AUDITORS.

1) Duty to make a report to the members:
The report must sate whether in his opinion the accounts give the true and fair view of the company
affairs and financial position.
a) Whether , in his opinion, the proper books of accounts have been kept by the company
b) Whether , in his opinion, financial statements of the company comply with the accounting
standard
c) The observations and comments of auditor on FS or matters which have any adverse effect on
the functioning of the company.
d) Whether the company B/S and P&L account are in agreement with the books of the company.

2) Duty to make enquiries:

a) Where the loans and advances are made by the company on some security, whether these are
proper secured.
b) Whether loans and advances made by the company have been shown as deposits.
c) Where the company is investment or banking, whether any securities' have been sold by the
company at price less than that at which they were purchased.
d) Whether personal expenses have been charged to revenue account
3) Duty to certify in the prospectus, profit and loss, assets and liabilities
4) Duty to assist inspectors
5) Duty to make report in case of members voluntary winding up

GENERAL DUTIES
• To exercise reasonable care and skill: if he fails to exercise reasonable care and skill, he may be held
liable for damages.
• To check the accuracy of accounts: should check the cash in hand and the bank balance.
• To satisfy himself about securities: Should make personal inspection of the securities and ascertain
that they are in safe custody
• To report to the shareholders: must report all material points to the shareholders.
• To verify the assets: Should himself verify the assets of the company.
 28. INSPECTION, INQUIRY AND INVESTIGATION

INTRODUCTION
The Shareholders of a Company have several rights, including those of the right to vote and elect their
directors, right to convene board meetings, right to receive dividends and so on.Chapter15 and sections 206
to 229, provide the shareholders with the powers to inspect, inquire and investigate the affairs of the
company in appropriate situations where it could be believed that the business of the company was being
done in a fraudulent or unfair manner.
INVESTIGATION
Investigation means to carry out a systematic or formal inquiry to discover and examine facts of an incident
to establish the truth. Section 206 of the Companies Act, 2013 deals with the Power to call for information,
inspect books and conduct inquiries. The Registrar may inspect the books of account and conduct an inquiry
when –
• The Company does not comply with the specified time period mentioned in the notice
• The information provided by the company is unsatisfactory
• The Registrar feels that not all the information has been provided for review
If a company fails to follow the written notice as issued by the Registrar then, as per Section 206 the
defaulting officers are liable to pay a fine of up to Rs. 1,00,000 and a supplementary fine of Rs. 500 for each
day of default.
Conduct of Inspection and Inquiry
Section 207 of the Companies Act, 2013 talks about the conduct of Inspection and Inquiry. It states that
every director of a company has the duty to provide any and all information and details that is required by
the Registrar of Companies. Disobedience of orders could make the directors or employees liable to
imprisonment or fines of not less than Rs. 25000 extending till Rs. 1,00,000. If there is a conviction of
offence, then the person has to vacate their position.
Report on Inspection
After completion of inquiries and inspection,the Registrar submits a written report to the Central
Government of his findings. If required, the Registrar may also recommend a further investigation to be
undertaken. If so, the reasons for such investigation should be mentioned. This is elucidated under Section
208 of the Companies Act, 2013.
Search and Seizure
A search and seizure is a procedure that is generally undertaken by police to search the property of a person
who is suspected to have committed a crime. They then, seize any evidence or property linked to the crime.
As per Section 209 of the Companies Act, 2013, if an inspector or Registrar on prudent grounds believes
that any documents of papers or information in relation to any personnel of a company is to be destroyed, or
altered, or falsified, or mutilated, an order from court may be obtained for the seizure of such materials.
Thus, through the order, the inspector and his officials may enter the places where these records have been
placed. However, it is the duty of the Registrar to return all the materials seized within a 180 days, although
they may be taken again if needed.
Investigation into Affairs of the Company
As per Section 210 of the Companies Act, 2013, the Central Government may appoint some inspectors or
investigators to investigate the affairs of the company and report to on the basis of the report submitted by
the Registrar under Section 208 or on basis of a special resolution passed by a company or in public interest.
An investigation may also be ordered by the Central Government by any company on the recommendation
of any tribunal.
Serious Frauds Investigation Office
An Office called the Serious Fraud Investigation Office was established under the Companies Act, 2013 in
Section 211, as per the Naresh Chandra Committee Report on Corporate Audit and Governance. The aim of
this office is to identify any and all serious frauds that take place in companies. The report of this committee
stated the need for such an office in these words – “a multi-disciplinary team that not only uncovers the
fraud, but is able to direct and supervise prosecutions under various economic legislations through
appropriate agencies.” Scams such as the Satyam Scam were uncovered through this office.
This office comes under the control of the Ministry of Corporate Affairs. It is headed by director and is
required to have experienced people from Banking , Corporate affairs, Taxation, Forensic audit,Capital
market, Information Technology, Law, or any other fields as may be necessary for the efficient discharge of
Serious Fraud Investigation Office (SFIO) functions under this Act.
SFIO may investigate the affairs of a company, as per the directions of The Central Government, or on
intimation of a special resolution passed by a company requesting an investigation or in public interest; or
on the request of any Department of Central Government or a State Government. The Registrar then,
appoints the necessary number of inspectors to conduct the investigation.
Powers and Procedures of the Inspector
Inspectors are delegated by the Registrar of Companies to perform the investigations into the affairs of
companies.
1) The powers and procedures of these inspectors are explained under Section 217 of the Companies
Act, 2013 in several clauses. It shall be the duty of all officers and other employees and agents
including the former officers, employees and agents of a company
(a) to preserve and produce to an inspector all books and papers of or relating to the company or
the other body corporate or person which are in their custody or power; and
(b) to give to the inspector all assistance in connection with the investigation which they are
reasonably able to give.
2) The inspector conducting the investigations is empowered to call for any information or records that
are related to the investigation being conducted. The records should be returned within 180 days,
although a notice may be given to obtain these records for investigative purposes again. The records
taken are to be returned to the company from which they had been seized.
3) The inspectors have all the powers of a Civil Court under the Code of Civil Procedure, 1908, in
respect of the following matters :
(a) The discovery and production of books of account and other documents at such time and
place as may be specified;
(b) Summoning and enforcing attendance of persons and examining them an oath; and
(c) Inspection of any books, registers and other documents of the company at any place.
It shall be obligatory for the officers of the Central or State Government, police or statutory authority to
provide necessary assistance to the inspector for the purpose of inspection, inquiry or investigation.

Appeals
The appeal system had found mention in the Companies Act, 1956 as well as the Companies Act, 2013. The
Section 10F stated that an appeal could be filed against any order given by the CLB to the High Court on
any question of law. The board was the final authority on the basis of facts. Consent orders that are issued by
the CLB are also appealable if a doubt regarding the genuineness of the consent exists.
The court can only interfere in the decisions of the CLB when there is evidence to prove that the power of
CLB has not been exercised properly in spite of the availability of sufficient evidence.
 29. OPPRESSION AND MISMANAGEMENT

The management of a Company is based on the majority rule, but at the same time the interests of the
minority can’t be completely overlooked. While talking of majority and minority, we are not talking of
numerical majority or minority but of majority or minority voting strength. The reason for this distinction is
that a small group of shareholders may hold the majority shareholding whereas the majority of shareholders
may, among them, hold a very small percentage of share capital. Once they acquire control, the majority
can, for all practical purposes, do whatever they want with the Company with practically no control or
supervision, because even if they are questioned on their acts in the general meeting, they always come out
winners because of their greater voting strength. So, the modern Companies Acts contain a large number of
provisions for the protection of the interests of minorities in companies.

OPPRESSION
The term ‘oppression’ has been explained by Lord Cooper in Elder v. Elder & Watson Ltd. as, “The essence
of the matter seems to be that the conduct complained of should at the lowest involve a visible departure
from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder
who entrusts his money to the company is entitled to rely.”

ACTS HELD AS OPPRESSIVE

• Not calling a general meeting and keeping shareholders in dark.
• Non-maintenance of statutory records and not conducting affairs of the company in accordance
with the Companies Act.
• Depriving a member of the right to dividend.
• Refusal to register transmission under will.
• Issue of further shares benefiting a section of shareholders.
• Failure to distribute the amount of compensation received on nationalisation of business of
company among members, where required to be so distributed.

ACTS HELD AS NOT OPPRESSIVE

The following acts have been held as not oppressive:-
• An unwise, inefficient or careless conduct of director.
• Non-holding of the meeting of the directors.
• Not declaring dividends when company is making losses
• Denial of inspection of books to a shareholder.
• Lack of details in notice of a meeting.
• Non-maintenance / Non-filing of records.
• Increasing the voting rights of the shares held by the management.
MISMANAGEMENT
Mismanagement is said to be done if
• the affairs of the company are being conducted in a manner prejudicial to the interests of the
company; or
• a material change (not being a change brought about by, or in the interests of, any creditors including
debenture holders, or any class of shareholders, of the company) has taken place in the management
of control of the company, whereby it is likely that the affairs of the company will be conducted in a
manner prejudicial to the interests of the company.

Acts held as Mismanagement

The following acts have been held as amounting to mismanagement:-
• Where there is serious infighting between directors.
• Where Board of Directors is not legal and the illegality is being continued.
• Where bank account(s) was/were operated by unauthorised person(s).
• Where directors take no serious action to recover amounts embezzled.
• Continuation in office after expiry of term of directors.
• Sale of assets at low price and without compliance with the Act.
• Violation of Memorandum.
• Violation of statutory provisions and those of Articles.
• Company doomed to trade unprofitably.

Acts held as not Mismanagement

The following acts have been held to not to amount to Mismanagement:-
• Building up of reserves or non-declaration of dividend especially when it does not result in
devaluation of shares.
• Merely because company incurs loss, mismanagement can’t be alleged.
• Arrangement with creditors in company’s bonafide interest.
• Removal of director and termination of works manager’s services.

APPLICATION AGAINST OPPRESSION & MISMANAGEMENT

a) Application to National Company Law Tribunal (NCLT)
The first remedy available to oppressed minority is to move NCLT. Whenever the affairs of a
company are being conducted in a manner pre-judicial to public interest or in a manner oppressive to
any member or members, an application can be made to the Company Law Board (now Tribunal) u/s
397.
b) Who can apply
i. Any member of a company who complain that the affairs of the company are being
conducted in a manner oppressive to any member or members
ii. As per Section 399 the aggrieved member who is able to show that he suffered an injustice
in his capacity as a shareholder and not in any other capacity.
iii. Central Government or any person authorized by the Central Government.
iv. A legal representative of a deceased member, on whom title to the shares devolves by
operation of law.

The requisite number of members who must sign the application is given in Section 399. The
requirement varies with the fact as to whether the company has a share capital or not and is discussed
below:-
 • In the case of a company having a share capital, not less than one hundred members of the
company or not less than one tenth of the total number of its members, whichever is less, or
any member or members holding not less than one-tenth of the issued share capital of the
company, provided that the applicant or applicants have paid all calls and other sums due on
their shares.
• In the case of a company not having a share capital, not less than one-fifth of the total number
of its members.
·
c) Who cannot apply
The following can’t apply for relief u/s 397:-
▪ A member whose calls or other sums due on their shares have not been paid.
▪ A holder of a letter of allotment of a partly paid share.
▪ A holder of a share warrant.
▪ A transferee of shares who has not lodged the shares for transfer to the company.

d) Notice to the Central Government

NCLT is required to give notice of every application made to it u/s 397 to the Central Government.

RELIEF AGAINST OPPRESSION & MISMANAGEMENT

Sections 397 and 398 confer general powers on the NCLT to pass necessary orders including an interim
order, where appropriate, to end oppression and mismanagement. Section. 402 empower it to grant certain
specific reliefs mentioned here below.

(a) The regulation of the conduct of the company's affairs in future;

(b) The purchase of the shares or interests of any members of the company by other members
thereof or by the company;
(c) In the case of a purchase of its shares by the company as aforesaid, the consequent reduction
of its share capital;
(d) The termination, setting aside or modification of any agreement howsoever arrived at,
between the company on the one hand, and any of the following persons, on the other
namely:—
(i) The managing director,
(ii) Any other director,
(iii) The managing agent,
(iv) The secretaries and treasurers, and
(v) The manager,

e) Any other matter for which in the opinion of the Court it is just and equitable that provision
should be made.
 30. WINDING UP OF A COMPANY

Winding up of a company – a means by which a company is dissolved. It is an unwarranted event whereby:

• Its life for some unavoidable circumstances is put to an end; and
• Its property is administered for the benefit of its creditors and members.

Modes of Winding up: A company may be wound up either:

(i) Compulsorily i.e. by the Tribunal (NCLT) Or (ii) Voluntarily Compulsory

COMPULSORY WINDING UP
Winding up takes place by an order of the National Company Law Tribunal (NCLT).

Grounds for Compulsory Winding Up:

Tribunal may order winding up of a company (on a petition submitted before it) on the following two basic
grounds:
1. Inability to pay its debts i.e. the realizable value of its existing assets is not sufficient to discharge its
existing liabilities.
2. Special resolutions by the members’ .i.e. where at least 75% of members attending and voting resolve to
put an end to the life of their company.

When is a company deemed to be unable to pay its debts?

1. If a creditor to whom Rs.1 lakh or more is due to be paid by the company and after 21 days of
servicing demand notice, if the company is unable to pay debt.
2. If any decree or execution is issued in favour of a creditor by the Tribunal or any court to the
company and is returned unsatisfied in whole or in part.
3. If it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts
(Contingent and prospective).

Special resolution by members for winding up by Tribunal

1. Shareholders can pass a special resolution with at least 75 percent of members attending and voting,
for winding up.

Implication of winding up:

During this process the company ceases to carry on its usual business, the assets are realized, the proceeds
are utilized in paying off the debts and the surplus, if any, is distributed amongst the contributories on pro
rata basis.

Some instances, where the Tribunal had ordered wing up of a company under “Just & Equitable”
clause:
1. When substratum of the company has disappeared, i.e., company is unable to achieve any of its main
objects i.e. unable to establish the business for which it was formed.
2. It is impossible to carry on business except at a loss and there is no reasonable hope of making profits.
3. Existing or probable assets are insufficient to meet known existing liabilities.
4. Complete deadlock in the management due to hostility among directors which cannot be resolved in
General or Board meetings.
5. If the company is only a ‘bubble’, i.e., it does not have any real business or property to carry on.
6. It is in public opinion that the company be wound up. As a corollary, wind up can be declined if it is
against public interest

Other Grounds for Compulsory Winding Up: Tribunal may order winding up of a company on the
basis of the following grounds also:
1) If the company has acted against the interests of the sovereignty and integrity of India, the security of
the State, friendly relations with foreign states, public order, decency or morality.
2) If a scheme of revival and rehabilitation of a sick company is not approved by the creditors in the
manner specified
3) If the affairs of the company have been conducted in a fraudulent manner/company was formed for
fraudulent and unlawful purposes or the persons concerned in the formation of the company or
management of its affairs have been guilty of fraud, misfeasance or misconduct in connection
therewith and that it is proper that the company be wound up.
4) If the company has defaulted in filing with the ROC its financial statements or annual returns for
immediately preceding the five consecutive financial years
5) The Tribunal is of the opinion that it is just and equitable to wind up the company.

Who can file petition for winding up by the Tribunal?

1. Company itself
2. Any creditor or creditors, including any contingent or prospective creditor or creditors;
3. Any contributory or contributories
4. Any combination of creditors, company, or contributories acting jointly or separately;
5. The Registrar
6. Any person authorized by the Central Govt. in consequence of investigation
7. By the Central Govt. or State Govt. where the company has acted against the interest of the
sovereignty and integrity of India, the security of the State, friendly relations with foreign states,
public order, decency or morality.

Commencement of winding up and appointment of an official liquidator

Proceedings of winding up are conducted by an official administrator, called ‘liquidator’ under the
supervision of the Tribunal. The liquidator is attached to each High Court. He/she is appointed by the
Central Govt. and works under the supervision of the Regional Director of Department of Company Affairs.

Rules governing the appointment of a liquidator.

1. The Tribunal will appoint an Official Liquidator for a panel maintained by the Central Government
consisting of names of CAs, Cost accountants, Advocates, Company Secretaries and such other
professional as notified by the Central Govt
2. The Tribunal has the power to limit or restrict the powers of the liquidator.
3. Central Govt. has the right to remove from the panel the names of any professional on the grounds of
misconduct, fraud, misfeasance and breach of duties.
4. The terms and conditions of appointment of a provisional liquidator and the fee payable to him shall
by fixed by the Tribunal.
5. Provisional liquidator shall file a declaration within seven days from the date of appointment in the
prescribed form disclosing conflict of interest or lack of independence in respect of his appointment.

Removal and replacement of a liquidator

The Tribunal can remove a provisional liquidator on the following grounds:
1. Misconduct
 2. Fraud or misfeasance
3. Professional incompetence or failure to exercise due care and diligence in performance of the powers
and functions
4. Conflict of interest or lack of independence during the term of his appointment that would justify
removal.
5. Where the Tribunal is of the opinion that any liquidator is responsible for causing any loss or damage
to the company due to fraud or misfeasance or failure to exercise due care and diligence in the
performance of his or its powers and functions, the Tribunal may recover or cause to be recovered
such loss or damage from the liquidator and pass such other orders as it may think fit

VOLUNTARY WINDING UP OF A COMPANY

Voluntary Winding Up implies winding up of a company by the members in a predefined manner and
subject to fulfillment of certain conditions by the company.
A company can be wound up voluntarily:
• If the company in general meeting passes a resolution requiring the company to be wound up
voluntarily as a result of the expiration of its duration, if any, fixed by its ‘Articles’ or on the
occurrence of any event in respect of which the articles provide that the company should be
dissolved
• If the company passes a special resolution that the company be wound up voluntarily. [Section
304]

VOLUNTARY WINDING UP - PROCESS

1. Declaration of solvency: Where it is proposed to wind up a company voluntarily, its director/(s)
shall at a Board meeting make a declaration (on the basis of their full enquiry into the affairs of the
company) that the company is solvent to discharge its external liabilities, if any.
2. Meeting of creditors
3. Appointment of company liquidator
4. Liquidator to submit his report on the progress of winding up
5. Report of the liquidator to the Tribunal
6. Final meeting of members and dissolution of the company
 31. RESERVE BANK OF INDIA: ROLE AND FUNCTIONS
I NOTE ISSUING AUTHORITY
Issuance of Bank RBI is empowered to issue currency notes of the denominations of 2, 5,
Notes 10, 50, 100,200, 500, 1000, 2000, 5000, 10000. They bear the signature
of Governor of RBI. 5000 and 10000 rupee notes are not in circulation.
Re. 1 note issued by Ministry of Finance. It bears the signature of
Secretary, Ministry of Finance
Minimum Reserve In India the note issue is based on the Minimum Reserve System. The
System issue department of RBI issues bank notes against 100% backing of
approved assets ( i.e. Gold coins, Bullion, Foreign securities, Rupee
coins, Govt of India rupee securities ,bills of exchange and Promissory
notes.), out of which the value of Gold coins and foreign securities
should not be less than 200 crores.
II Banker to the Government
Banking Business RBI is obliged to transact banking business and manage the public
debts of the Central Government, and state Governments.
Public Debt Public debt management includes issuance of Treasury bills (Short
Management term fund requirements) and Government dated bonds (Long term fund
requirements), by RBI on behalf of Central / state Governments
Open market Conducting the Open Market Operations in respect of Treasury Bills
Operations and Government Securities
Ways and Means RBI provides the Ways and Means advances to Central and state
Advances Governments for their short term requirements ( Normally for about 3
months)
III Controlling the Money supply
Monetary Policy RBI controls the money supply in the e conomy, co curb inflationary
and deflationary tendencies. Monetary Policy is announced once in a
year.
IV Credit Supply
Credit Control RBI ensures the monetary and credit supply through various
Instruments instruments. Some of them are as follows. These instruments are used
by RBI either to infuse the liquidity or suck the excess liquidity with
banks / economy
Bank Rate It is the rate at which RBI rediscounts the Bills of commercial banks.
Presently Bank Rate is 6.50%
CRR Cash Reserve Ratio: It specifies the cash balances required to be
maintained by banks RBI as a specific percentage on their adjusted net
demand and time liabilities. Presently CRR it is 4%
SLR It specifies the minimum investment by a Bank in the approved
securities. It is mentioned as a percentage of adjusted demand and time
liabilities of a Bank. Presently SLR is 19.00%. A higher percentage
may be specified by RBI, to curb the excess liquidity with a Bank.
Open Market Open market operations include the buying and selling of government
Operations securities. When the economy is having the excess liquidity RBI sells
government securities at attractive rate of interest, so that people
having excess money invest money in these securities there by excess
liquidity in the economy is removed.
Selective Credit This is a Qualitative Control. RBI stipulates higher margin and rate of
Control interest in respect of loans and advances against essential commodities
and some other selected items to ensure hoarding of stock and black
marketing.
 Market stabilization Normally RBI borrows funds from when ever required by Government.
scheme Some times RBI resorts to public borrowing to suck the excess
liquidity in the economy.
Fixation of Inventory When ever required RBI fixes the Inventory norms for banks finance
Norms E.g.: Tandon Committee norms, Chore Committee norms, Nayak
committee norms.
Directed Lending RBI specifies the targets to be achieved by banks in respect of certain
sector. E.g.: Priority sector advances. 40% to priority sectors, 18% to
agriculture,10% to weaker sections etc
Control over Interest Even though the deposit interest rates and lending rates are deregulated
rates , certain interest rates like Interest rates on export credit etc are
regulated by RBI
V Banker to Banks
Licensing Authority A bank should comply with the minimum stipulations of RBI to do
banking business
Scheduled Bank A bank whose name is entered in the second schedule to the RBI Act is
Status to banks called a scheduled bank
Refinance Finance against the long term loans to the borrowers
Rediscounting of Bill Liquidity to banks against the bills discounted by them to their clients
Liquidity Adjustment Repo and Reverse Repo both put together is called Liquidity
Facility adjustment facility. RBI finances to banks against purchase of
securities upon a condition that such securities are sold back by RBI to
concerned bank on repayment of the loan. Presently the Repo rate is
6.00%.
Reverse repo facilitates the banks to park their excess funds with RBI.
Now the Reverse Repo rate is 5.75%
Lending RBI lends @ Bank rate. Presently Bank Rate is 6.25%. Lending at SLR
securities is @Marginal standing facility rate, which is presently 6.25%
Lender of last resort Banks look towards RBI as a lender of last resort.
VI Regulator of Financial system
Regulation of Reserve Bank of India is the regulator of money market, Credit market
Financial Markets and Forex Markets
Rating System for RBI adopts CAMELS rating for rating the performance of Banks
Banks
Issuance of RBI as per the powers derived from B.R.Act issues guidelines to banks
directions to in respect of certain key areas of operations. Like IRAC norms , CAR
commercial banks etc.
Regulator of Payment systems like EFT, RTGS are effected through RBI
Payment and
settlement system
VII Management of Forex Reserves
Forex reserves RBI controls the forex reserves as per the powers drawn from FEMA
VIII Improvement of Customer service in Bank
Institution of Committees like Talwar committee, Goiporia committee are instituted
customer service for framing guidelines for customer service
committees
Ombudsman scheme Ombudsman scheme is instituted to redress the grievances of
customers against the banks
25.04.2019
 32. THE SECURITIES AND EXCHANGE BOARD OF INDIA (SEBI)

SEBI was officially appointed as the authority for regulating the financial markets in India on 12th April
1988. It was initially established as a non-statutory body, i.e. it had no control over anything but later in
1992, it was declared an autonomous body with statutory powers. SEBI plays an important role in regulating
the securities market of India. Thereby it is important to know the purpose and objective of SEBI.

ESTABLISHMENT OF SEBI
At the end of the 1970s and during 1980s, capital markets were emerging as the new sensation among the
individuals of India. Many malpractices started taking place such as unofficial self- styled merchant bankers,
unofficial private placements, rigging of prices, non-adherence of provisions of the Companies Act,
violation of rules and regulations of stock exchanges, delay in delivery of shares, price rigging, etc.
Due to these malpractices, people started losing confidence in the stock market. The government felt a
sudden need to set up an authority to regulate the working and reduce these malpractices. As a result, the
Government came up with the establishment of SEBI.

ORGANIZATIONAL STRUCTURE OF SEBI

The SEBI Board consists of nine members-
1. One Chairman appointed by the Government of India
2. Two members who are officers from Union Finance Ministry
3. One member from Reserve Bank of India
4. Five members appointed by the Union Government of India

OBJECTIVES OF SEBI
SEBI has following objectives-
1. Protection to the investors
The primary objective of SEBI is to protect the interest of people in the stock market and provide a
healthy environment for them.
2. Prevention of malpractices
This was the reason why SEBI was formed. Among the main objectives, preventing malpractices is
one of them.
3. Fair and proper functioning
SEBI is responsible for the orderly functioning of the capital markets and keeps a close check over
the activities of the financial intermediaries such as brokers, sub-brokers, etc.

FUNCTIONS OF SEBI
SEBI primarily has three functions-
1. Protective Function
2. Regulatory Function
3. Development Function
Protective Functions
As the name suggests, these functions are performed by SEBI to protect the interest of investors and other
financial participants. It includes-
• Checking price rigging
• Prevent insider trading
• Promote fair practices
• Create awareness among investors
• Prohibit fraudulent and unfair trade practices
Regulatory Functions
These functions are basically performed to keep a check on the functioning of the business in the financial
markets.
These functions include-
• Designing guidelines and code of conduct for the proper functioning of financial intermediaries and
corporate.
• Regulation of takeover of companies
• Conducting inquiries and audit of exchanges
• Registration of brokers, sub-brokers, merchant bankers etc.
• Levying of fees
• Performing and exercising powers
• Register and regulate credit rating agency

Development Functions
SEBI performs certain development functions also that include but they are not limited to-
• Imparting training to intermediaries
• Promotion of fair trading and reduction of malpractices
• Carry out research work
• Encouraging self-regulating organizations
• Buy-sell mutual funds directly from AMC through a broker

PURPOSE AND ROLE OF SEBI

SEBI acts as a watchdog for all the capital market participants and its main purpose is to provide such an
environment for the financial market enthusiasts that facilitate efficient and smooth working of the securities
market.
To make this happen, it ensures that the three main participants of the financial market are taken care of, i.e.
issuers of securities, investor, and financial intermediaries.
Issuers of securities
These are entities in the corporate field that raise funds from various sources in the market. SEBI makes sure
that they get a healthy and transparent environment for their needs.
Investor
Investors are the ones who keep the markets active. SEBI is responsible for maintaining an environment that
is free from malpractices to restore the confidence of general public who invest their hard earned money in
the markets.
Financial Intermediaries
These are the people who act as middlemen between the issuers and investors. They make the financial
transactions smooth and safe
 33. IRDA ACT 1999
• The Insurance Regulatory and Development Authority of India (IRDA), is an autonomous, statutory
body tasked with regulating and promoting the insurance and re-insurance industries in India.
• It was constituted by the Insurance Regulatory and Development Authority Act, 1999, an Act of
Parliament passed by the Government of India.
• The agency's headquarters are in Hyderabad, Telangana, where it moved from Delhi in 2001.
• The IRDA Act has effect on The Insurance Act (1938), The Life Insurance Corporation Act (1956)
and The General Insurance Business (Nationalization) Act (1972).

ESTABLISHMENT
• IRDA Act was passed upon the recommendations of Malhotra Committee report (7 Jan,1994),
headed by Mr R.N. Malhotra (Retired Governor, RBI)
• The main recommendations of the committee includes - permitting the entry of Private
Sector Companies and Foreign promoters in to the insurance sector and establishment of an
independent regulatory authority for Insurance Sector in India
• In April, 2000, IRDA was set up as statutory body, with its headquarters at New Delhi.
• The headquarters of the agency were shifted to Hyderabad, Telangana in 2001.

OBJECTIVES
• To promote the interest and rights of policy holders.
• To promote and ensure the growth of Insurance Industry.
• To ensure speedy settlement of genuine claims and to prevent frauds and malpractices
• To bring transparency and orderly conduct of in financial markets dealing with insurance.

ORGANIZATION
• IRDA is a ten member body consists of :
• One Chairman (For 5 Years & Maximum Age - 60 years )
• Five whole-time Members (For 5 Years and Maximum Age- 62 years)
• Four part-time Members (Not more than 5 years)
• The chairman and members of IRDAI are appointed by Government of India.
The present Chairman of IRDAI is Subhash Chandra Khuntia.

FUNCTIONS OF IRDA
• Section 14 of IRDA Act,1999 lays down the duties and functions of IRDA:
• It issues the registration certificates to insurance companies and regulates them.
• It protects the interest of policy holders.
• It provides license to insurance intermediaries such as agents and brokers after specifying the
required qualifications and set norms/code of conduct for them.
• It promotes and regulates the professional organizations related with insurance business to
promote efficiency in insurance sector.
• It regulates and supervises the premium rates and terms of insurance covers.
• It specifies the conditions and manners, according to which the insurance companies and other
intermediaries have to make their financial reports.
• It regulates the investment of policyholder's funds by insurance companies.
• It also ensures the maintenance of solvency margin (company's ability to pay out claims) by
insurance companies.
• The Insurance Regulatory Development Authority Act, 1999 marked the stop of government
control in the insurance business
SALIENT FEATURES OF IRDA ACT
• The insurance sector in India is thrown open to the private sector. The 2nd and 3rd schedules of
the Act provide for removal of existing corporations (or companies) to carry out the business of
life and general (non-life) insurance in India.
• An Indian insurance company is a company scheduled under the Companies Act, 1956, in which
foreign equity does not exceed 26% of the total equity shareholding, including the equity
shareholding of NRIs, FIIs and OCBs.
• After start of an insurance company, the Indian promoters can hold more than 26% of the total
equity holding for a period of 10 years, the balance shares being held by non-promoter Indian
shareholders who will not include the equity of the foreign promoters, and the shareholding of
NRIs, FIIs and OCBs.
• After the permissible period of 10 years, excess equity above the prescribed level of 26% is
disinvested as per a phased programme to be indicated by IRDA. The Central Government is
empower to extend the period of ten years in individual cases and also to provide for higher
ceiling on share holding of Indian promoters in excess of which disinvestment is required
• On foreign promoters, the maximum of 26% will always be operational. They will thus be unable
to hold any equity beyond this ceiling at any stage.
• The Act gives statutory status for the Interim Insurance Regulatory Authority (IRA) set up by the
Central Government through a Resolution passed in January 1996.
• All the powers presently exercised under the Insurance Act, 1938, by the Controller of Insurance
(CoI) will be transferred to the IRDA.
• The IRDA Act also provides for the appointment of CoI by the Central Government when the
Regulatory Authority is superseded
• The minimum amount of paid-up equity capital is Rs.100 crore in case of life insurance as well as
general insurance, and Rs.200 crores in the case of re-insurance.
• Solvency margin (excess of assets over liabilities) is fixed at not less than Rs.50 crore for life as
well as general insurance; for reinsurance solvency margin is stipulated at not less than Rs.100
crores in each case.
• Insurance companies will deposit Rs.10 crores as security deposit before starting their business.
• In the non-life sector, IRDA would give preference to companies providing health insurance.
• Every insurer shall provide life insurance or general insurance policies (including insurance for
crops) to the persons residing in the rural sector, workers in the unorganized or informal sector or
for economically vulnerable or backward classes of the society and other categories of persons as
may be specified by regulations made by IRDA.
• Failure to fulfill the social obligations would attract a fine of Rs.25 lakh; in case the obligations
are still not fulfilled, license would be cancelled.
 34. INSURANCE LAWS

THE INSURANCE ACT, 1938

• This Act was passed in 1938 and was brought into force from 1st July, 1939.
• This act applies to the GIC and the four subsidiaries.
• Registration: Every insurer is required to obtain a Certificate of Registration from the Controller of
Insurance, by making the payment of requisite fees. Registration should be renewed annually.
• Accounts and audit: An insurer is required to maintain separate accounts of the receipts and
payments in each class of insurance viz. Fire. Marine and Miscellaneous Insurance, and the
supporting documents
• Investments: Investments of insurance company are usually made in approved investments under
the provisions of the Act. The guidelines and limitations are issued by the Central Government from
time to time.
• Limitation on management expenses: The Act prescribes the maximum limits of expenses of
management including commission that may be incurred by an insurer. The percentages are
prescribed in relation to the total gross direct business written by the insurer in India.
• Prohibition of Rebates: The Act prohibits any person from offering any rebate of commission or a
rebate of premium to any person to take insurance. Any person found guilty would be punished with
a fine up to five hundred rupees.
• Powers of Investigation: The Central Government may at any time direct the Controller or any
other person by order, to investigate the affairs of any insurer and report to the central government.
• Other Provisions: They include Prohibition of rebates, Powers of investigation, Licensing of agents,
Advance payments of premiums, Tariff Advisory Committee

GENERAL INSURANCE BUSINESS (NATIONALIZATION) ACT, 1972

• This Act came into force on 1st January, 1973.
• Under this Act, there were no longer private insurers in the country.
• As a result general insurance business became the domain of the State. The General Insurance
Corporation of India (GIC) became the holding company with four subsidiaries, namely United India
Insurance Company, Oriental Insurance Company, National Insurance Company and New India
Assurance Company
• The ownership of all shares of both the Indian insurance companies and the foreign insurers from
then on vested in the Central Government with effect from 1.1.1973.

The objectives of the Act:

• To provide for the acquisition of the shares of the existing general insurance companies
• To serve the needs of the economy by development of general insurance business
• To establish the GIC by the central government under the provisions of the Companies Act of 1956,
with an initial authorized share capital of seventy – five crores
• To aid, assist, and advise the companies in the matter of setting up of standards in the conduct of
general insurance business
• To encourage healthy competition amongst the companies as far as possible
• To ensure that the operation of the economic system does not result in the concentration of wealth to
the common detriment.
• To ensure that no person shall take insurance in respect of any property in India with an insurer
whose principal registered office is outside India
• To carry on of any part of the general insurance business if it thinks it desirable to do so
 • To advice the companies in the matter of controlling their experience and investment of funds
THE MOTOR VEHICLES ACT, 1988.
The Motor Vehicles Act, 1988 is an Act of the Parliament of India which regulates all aspects of road
transport vehicles. The Act came into force from 1 July 1989.
The Act provides in detail the legislative provisions regarding
• Licensing of drivers and conductors,
• Registration of motor vehicles,
• Control of motor vehicles through permits,
• Special provisions relating to state transport undertakings,
• Traffic regulations,
• Insurance, liability, offences and penalties etc.
• In order to exercise the legislative provisions of the Act, the Government of India made the Central
Motor Vehicles Rules, 1989.
Third Party Insurance
Section 146 of the above Act states that no person shall use, other than as a passenger or allow to use a
motor vehicle in a public place unless a policy of insurance which covers the liability to third party on
account of death or bodily injury to such third party or damage to any property of a third party arising
out of the use of the vehicle in a public place,

The liabilities which require compulsory insurance

• Death or bodily injury of any person including the owner of the goods or his authorized
representative carried in the carriage
• Damage to any property of a third party
• Death or bodily injury of any passenger of a public service vehicle
• Liability arising under the Workmen’s Compensation Act, 1923 in respect of death or bodily injury
of the paid driver of the vehicle, conductor or ticket examiner (public service vehicles) and workers
carried in a goods vehicle
• The limit of liability to third party property is Rs.6,000

No Fault Liability
• Section 140 of the Motor Vehicles Act, 1988, provides for liability of the owner of the Motor
Vehicles to pay compensation in certain cases, on the principle of no fault.
• The amount of compensation so payable is Rs.50,000 for death and Rs.25,000 for permanent
disablement of any person resulting from an accident arising out of the use of the motor vehicles.
• The principle of “no fault” means that the claimant need not prove negligence on the part of the
motorist. Liability is automatic in such cases.
• Further, under Section 141(1) of the said Act, claims for death or permanent disablement can also be
pursued under other provisions of the Act on the basis of negligence (fault liability).

Hit and Run Motor Accidents

• Section 161 defines “hit and run motor accident” as accident arising out of a motor vehicle or motor
vehicles the identity of whereof cannot be ascertained in spite of reasonable efforts for the purpose.
The Section provides for payment of compensation as follows in such cases:
• In respect of death of any person resulting from a “hit and run” accident, a fixed sum of Rs.25,000
• In respect of grievous hurt to any person resulting from a hit and run motor accident, a fixed sum of
Rs.12,500
• Compensation known as Solatium is payable out of a “Solatium Fund” established by the Central
Government
 Motor Accident Claim Tribunals
• For speedy disposal of third party claims and at a minimum cost, the Claims Tribunals have been
constituted by different State Governments. Only a nominal fee has to be paid for instituting a case
and Court fee is not based on the value of the suit. Thus it is very much less expensive and poor third
party claimants are not prevented from making proper claims.
• Where a Tribunal has been set up for an area, no Civil Court has any jurisdiction to entertain any
claim falling under the tribunal’s jurisdiction.

MARINE INSURANCE ACT 1963

• Marine Insurance covers the risks associated with marine adventures like transportation of cargo
through ships.
• The consignment is exposed to the perils associated with transportation through sea and hence
requires an insurance cover against sea perils such as tempest which could result in damage to the
ship as well as the goods consigned.
• Insurable Interest: In marine insurance contracts that the insurable, it is sufficient interest is present
at the time of loss.
• A contract of marine insurance, like any other contract, is a contract based upon the utmost good
faith, uberrimae fidei, and if the utmost good faith is not observed by either party, the contract may
be avoided by the other party.

TYPES OF POLICIES

Voyage and Time Policies

Section 27 recognizes two types of Marine insurance policies a Voyage Policy and a Time Policy.
• A Voyage Policy, as the name suggests, provides insurance cover only for a particular voyage and
expires at the end of the voyage.
• Time Policy, on the other hand, provides insurance coverage for a specific period irrespective of the
expiry of the voyage. However, a Time Policy for a period exceeding one year is void.

Valued and Unvalued Policies

Sections 29 and 30 recognize Valued and Unvalued Policies.
• A Valued Policy is one where the value of the insured property is ascertained in advance at the time
of issuance of the policy. This value is conclusive whether or not the loss is total or partial.
• An Unvalued Policy, on the other hand, does not ascertain or fix the value in advance, but, subject to
the sum assured under the policy, allows the value to be fixed subsequently.

Marine Insurance Policies are subject to :

• Principles of indemnity
• Right of subrogation
• Right of contribution
• Causa Proxima
• Total and Partial Loss principles
• Implied conditions and Warranties
PUBLIC LIABILITY INSURANCE ACT 1991.
• The Act provides for mandatory public liability insurance for installations handling hazardous
substances to provide minimum relief to victims of accidents , other than employees. The Bhopal
Gas led to the enactment of Public Liability Insurance Act in 1991.
• The Act imposes no fault liability, i.e. irrespective of any wrongful act, neglect or default on the
owner to pay relief in the event of
(a) Death of or injury to any person (other than workman) or
(b) Damage to property of any person arising out of accident while handling any hazardous
substance.
• No fault liability means that the claimant is not required to prove that the death, injury or damage
was due to any wrongful act, neglect or default of any person.
• The amount of relief payable under Section 3 is as per the schedule incorporated in the Act

Compulsory Insurance
• The liability has to be compulsorily insured under a contract of insurance for an amount of the paid
up capital of the undertaking handling any hazardous substance.
• The maximum aggregate liability of the insurer to pay relief under an award to the several claimants
arising out of an accident shall not exceed rupees five crores and in case of more than one accident
during the currency of the policy or one year, whichever is less, shall not exceed rupees fifteen crores
in the aggregate.
• Every owner, in addition to premium, has to pay to the insurer an equivalent amount to be credited to
the Environment Relief Fund established under the act.
• The contribution received by the insurer shall be remitted as per the Scheme made by the
Government.
Policy Exclusions
• The policy does not cover the following liabilities:
• Arising out of willful or intentional non compliance of any statutory provisions
• In respect of fines, penalties, punitive and/or exemplary damages
• In respect of damage to property owned, leased etc., by the insured or in his custody. This is not
deemed to be third party property. The insured can avail of a separate Material Damage Policy.
Types of Public Liability Insurance Policies
• Industrial risk Policies : They cover the risks arising in manufacturing premises including godowns,
warehouses etc., forming part thereof
• Non Industrial Risks comprise of risks arising out of the following establishments:
o Hotels, Motels, Club Houses, Restaurants etc.
o Cinema Halls, Auditoriums and similar public places
o Residential premises
o Office or administrative premises, medical establishments, airport premises etc.
o Schools, Educational Institutions, Libraries
o Exhibitions, fairs, stadia , Amusement parks , Film studios
o Depots, Warehouses, Godowns, Shops, Tank farms and similar other non industrial risks
Coverage
• The coverage under the policy includes the following indemnities:
o Legal liabilities
o liabilities other than those under the Public Liability Insurance Act or any other statute
o Compensation including claimant’s costs, fees and expenses
 35. NATIONALIZATION OF BANKS IN INDIA

Basic History of Nationalization of banks in India

Nationalization of Banks in India started in the year 1955 when the Imperial Bank of India was nationalized
and reestablished as the State Bank of India under the SBI act 1955. Till 1969 State Bank of India was the
only bank that was not privately owned. But the most important step was taken when Indira Gandhi’s
Government passed an ordinance and nationalized the major 14 commercial banks and transferred the
ownership of these banks form the private sector to the public sector.

After independence, the government of India made 5-year planning system to achieve social objectives but
commercial banks failed to support the government in achieving social objectives because all commercial
banks were owned by private corporate houses those days. That was the basic reason for Nationalization of
Banks in India. On 19th July 1969, the government of India nationalized 14 commercial banks which had
more than Rs 50 crores total deposit base. They are Allahabad Bank, Bank of Baroda, Bank of India, Bank
of Maharashtra, Canara Bank, Central Bank of India, Dena Bank, Indian Bank, Indian overseas bank,
Punjab & Sindh Bank, Punjab National Bank, Syndicate Bank, UCO bank and United Bank of India.

The second tenure of nationalization of banks in India came in April 1980. At that time 6 Banks with total
deposits of Rs.200 crores and above are nationalized. They are, Andhra Bank, Corporation Bank, Oriental
Bank of Commerce , New Bank of India, Union Bank of India, and Vijaya Bank
There after The New Bank of India got merged with The Punjab National Bank. There by nationalized
Banks got reduced to 19. W.e.f 01.04.2019, Bank of Baroda, Dena Bank and Vijaya Bank got merged. Thus
the nationalized banks as on 01.04.19 are 17.

Objectives of Nationalization of banks in India

Proper utilize the savings of the country’s people to the maximum possible extent.
• Expand the banking system in the country, basically for social purposes.
• Fulfill the financial credit needs of small industry and other economic activities and to support them
for their growth.
• Reducing the economic gap between rural and urban areas in the country because before
nationalization banking sector was limited to urban areas.
• To control the power of private sector or monopoly firms, because on that time most banks were
occupied by private cooperate houses and they did not show interest in social welfare.
• The investment need of the government in social infrastructure for developing the economy of the
country like roads, bridges, schools, port, hospital etc because the British left India in the worst
condition.

Merits of Nationalization of Banks in India

1. Bank deposits expanded:

After the Nationalization of banks, Banks deposits were increased by 200 times because expanding of
bank’s branches. Before nationalization banks only focus on developed and populated areas but after the
nationalization banks also opens their branches in the undeveloped and low populated area, consequently,
banks deposits boosted and reached a record level.
2. Credit provided to weaker section:
After Nationalization of banks, Banks are providing loans to the weaker section of society at a very low rate.
In April 1972, Government released a scheme “Differential Interest rates scheme” in which banks have to
give loan at 4% interest rate to the weaker section of society.

3. Risk Reduction:
After nationalization, Due to a large number of banks deposits and borrowers, banks had brought a high
degree of diversification in the banking system, which reduces the risk of defaults.
4. Focus on small Industries:
Before nationalization banks only focus on developed and highly profitable sectors but after nationalization
banks also focus on a small industry which is not highly profitable but still provide welfare to society.

Demerits of Nationalization of Banks of India

1. Less Competition:
After the nationalization of banks, competitions between banks in India was decreased because now
ownership transferred to the government and banks had no incentive to do anything new and innovative to
compete with others.

1. Inefficiency: Due to less competition between banks and less innovative ideas, the country’s banking
system becomes inefficient.

2. Political Purpose: Critics argue that nationalization of banks was a political step instead of social
purpose.

3. Increased Expenditure: After nationalization, branches expanded to the low populated also and
undeveloped areas of the country which incur higher expenditure burden.
 36. REGIONAL RURAL BANKS (RRBs)
Regional rural banks are basically, banking organization for local level operations across the States in India.
They are created with a mandate to provide essential or basic banking and financial services to the rural
areas. While Regional Rural Banks are meant for rural areas, they can operate in urban areas also.
The main purpose behind setting up the RRBs is to mobilise financial resources from the rural areas and
grant loans to needy and marginal farmers and artisans. They also facilitate the movement of government
funds to MGNREGA workers, or distribution of pension.
History of RRBs:
The Regional Rural Banks were setup on the basis of Narasimham Committee report (1975), by the
legislations of the Regional Rural Banks Act of 1976. Thereafter, the first Regional Rural Bank was setup
in 1975 itself by the name Prathama Grameen Bank.

Ownership of RRBs:
The equity of RRBs is held by the stakeholders in fixed proportions of 50:15:35 distributed among the
following –
• Central Government has 50% share.
• State Government has 15% share.
• The Sponsor Bank has 35% share.
These ratios are important to remember to be able to face the questions related to regional rural bank
recruitment.

Objectives of Regional Rural Banks (RRB):

• To bridge the credit gap in rural regions in India.
• To check rural credit outflow to urban areas.
• To reduce regional imbalances in terms of availability of financial facilities.
• To increase rural employment generation.

Characteristic features of RRBs:

• RRBs have knowledge of rural constraints and problems like a cooperative because it operates in
familiar rural environment.
• RRBs show professionalism in mobilizing financial resources like a commercial bank.
• RRBs are supposed to work in its prescribed local limits.
• It provides banking facilities as well as credit to small and marginal farmers, small entrepreneurs,
laborers, artisans in rural areas.
• RRBs have to fullfil the priority sector lending norms as applicable on other commercial banks.

Priority Sector Lending:

RBI mandates that all domestic Banks must ensure that 40% of their loans and advances are given to the
priority sector. Priority sector comprises the areas of economy that require banking assistance but gets
neglected by banks due to various reasons.
The Reserve Bank of India categorizes agriculture, retail trade, education, housing and small business as
Priority sector.

Presently the total number of RRBs in India is 45.

 37. NON-BANKING FINANCIAL COMPANIES
• A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,
1956 engaged in the business of
✓ Loans and advances,
✓ Acquisition of shares/stocks/bonds/debentures/ securities issued by Government or local
authority or other marketable securities of a like nature,
✓ Leasing, Hire-Purchase, Insurance business, Chit business etc.,
• NBFCs does not include any institution whose principal business is that of
✓ Agriculture activity, Industrial activity,
✓ Purchase or sale of any goods (other than securities) or providing any services and
✓ Sale/purchase/construction of immovable property.
• Residuary NBFCs
A non-banking institution which is a company and has principal business of receiving deposits under
any scheme or arrangement in one lump sum or in installments by way of contributions or in any
other manner, is called RNBC. It is also a non-banking financial company
• NBFCs : Principal Business Activities
✓ when a company’s financial assets constitute more than 50 per cent of the total assets and
✓ Income from financial assets constitutes more than 50 per cent of the gross income.
✓ A company which fulfils both these criteria will be registered as NBFC by RBI.
• Differences between Banks and NBFCs
NBFCs lend and make investments and hence their activities are akin to that of banks; however there
are a few differences as given below:
✓ NBFC cannot accept demand deposits;
✓ NBFCs do not form part of the payment and settlement system.
✓ NBFCs cannot issue cheques drawn on itself;
✓ Deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not
available to depositors of NBFCs, unlike in case of banks.
• NBFCs Registration with RBI
In terms of Section 45-IA of the RBI Act, 1934, no Non-banking Financial company can commence
or carry on business of a non-banking financial institution without
a) Obtaining a certificate of registration from the Bank and
b) Without having a Net Owned Funds of Rs. 25 lakhs (Rs. Two crore since April 1999).
A company incorporated under the Companies Act, 1956 and desirous of commencing business of
non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should
comply with the following:
✓ i. it should be a company registered under Section 3 of the companies Act, 1956
✓ ii. It should have a minimum net owned fund of ₹ 200 lakh. (The minimum net owned fund
(NOF) required for specialized NBFCs like NBFC-MFIs, NBFC-Factors,)
• NBFCs which does not require registration with RBI
To obviate dual regulation, certain categories of NBFCs, which are regulated by other regulators are
exempted, from the requirement of registration with RBI viz.
✓ Venture Capital Fund/Merchant Banking / Stock broking companies registered with SEBI.
✓ Insurance Company holding a valid Certificate of Registration issued by IRDA.
✓ Nidhi companies as notified under Section 620A of the Companies Act, 1956.
✓ Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982.
✓ Housing Finance Companies regulated by National Housing Bank.
✓ Stock Exchange or a Mutual Benefit company.
 TYFPES OF NBFCS
01. Asset Finance Company (AFC) : An AFC is a company which is a financial institution carrying on
as its principal business the financing of physical assets supporting productive/economic activity,
such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling
equipments, moving on own power and general purpose industrial machines. Principal business for
this purpose is defined as aggregate of financing real/physical assets supporting economic activity
and income arising there from is not less than 60% of its total assets and total income respectively.
02. Investment Company (IC) : IC means any company which is a financial institution carrying on as
its principal business the acquisition of securities
03. Loan Company. :LC means any company which is a financial institution carrying on as its principal
business the providing of finance whether by making loans or advances or otherwise for any activity
other than its own but does not include an Asset Finance Company.
04. Infrastructure finance Company. : IFC is a non-banking finance company
a) Which deploys at least 75 per cent of its total assets in infrastructure loans,
b) Has a minimum Net Owned Funds of ₹ 300 crore,
c) Has a minimum credit rating of ‘A ‘or equivalent
d) CRAR of 15%.
05. Systemically Important Core Investment Company. : CIC-ND-SI is an NBFC carrying on the
business of acquisition of shares and securities which satisfies the following conditions:-
a) it holds not less than 90% of its Total Assets in the form of investment in equity shares,
preference shares, debt or loans in group companies;
b) its investments in the equity shares (including instruments compulsorily convertible into
equity shares within a period not exceeding 10 years from the date of issue) in group
companies constitutes not less than 60% of its Total Assets;
c) it does not trade in its investments in shares, debt or loans in group companies except
through block sale for the purpose of dilution or disinvestment;
d) it does not carry on any other financial activity referred to in Section 45I(c) and 45I(f) of
the RBI act, 1934 except investment in bank deposits, money market instruments,
government securities, loans to and investments in debt issuances of group companies or
guarantees issued on behalf of group companies.
e) Its asset size is ₹ 100 crore or above and
f) It accepts public funds
06. Infrastructure debt fund NBFC. : IDF-NBFC is a company registered as NBFC to facilitate the
flow of long term debt into infrastructure projects. They raise resources through issue of Rupee or
Dollar denominated bonds of minimum 5 year maturity. Only Infrastructure Finance Companies
(IFC) can sponsor IDF-NBFCs.
07. Micro Finance NBFC. : NBFC-MFI is a non-deposit taking NBFC having not less than 85% of its
assets in the nature of qualifying assets which satisfy the following criteria:
a) Loan disbursed by an NBFC-MFI to a borrower with a rural household annual income not
exceeding ₹ 1,00,000 or urban and semi-urban household income not exceeding ₹ 1,60,000;
b) Loan amount does not exceed ₹ 50,000 in the first cycle and ₹ 1,00,000 in subsequent cycles;
c) Total indebtedness of the borrower does not exceed ₹ 1,00,000;
d) Tenure of the loan not to be less than 24 months for loan amount in excess of ₹ 15,000 with
prepayment without penalty;
e) Loan to be extended without collateral;
f) Aggregate amount of loans, given for income generation, is not less than 50 per cent of the
total loans given by the MFIs;
g) Loan is repayable on weekly, fortnightly or monthly instalments at the choice of the borrower
08. NBFC – Factors
NBFC-Factor is a non-deposit taking NBFC engaged in the principal business of factoring. The
financial assets in the factoring business should constitute at least 50 percent of its total assets and its
income derived from factoring business should not be less than 50 percent of its gross income.
09. Mortgage Guarantee NBFCs. MGC are financial institutions for which at least 90% of the
business turnover is mortgage guarantee business or at least 90% of the gross income is from
mortgage guarantee business and net owned fund is Rs. 100 crore.
10. NBFC- Non-Operative Financial Holding Company. : NOFHC is financial institution through
which promoter / promoter groups will be permitted to set up a new bank .It’s a wholly-owned Non-
Operative Financial Holding Company (NOFHC) which will hold the bank as well as all other
financial services companies regulated by RBI or other financial sector regulators, to the extent
permissible under the applicable regulatory prescriptions.
 38.INFORMATION TECHNOLOGY ACT, 2000

SALIENT FEATURES
✓ The Government had enacted the original IT legislation in 2000.
✓ Committee on Computerization in Banks (1988) headed by Dr. C.R. Rangarajan, Committee on
Technology Issues (1994) headed by Mr. W.S. Saraf are towards this direction
✓ The focus of the IT Act 2000 was recognition of electronic records and facilitation of e –commerce
✓ The Act is a comprehensive piece of legislation which aims at policing some of the activities over
the Internet
✓ The amended IT Act 2008 focuses on Cyber Terrorism and Cyber Crime
✓ The IT (Amendment) Act came into force in 2009 and was aimed at facilitating e-governance,
preventing cyber crime and fostering security practices within the country.
✓ Issues related to electronic transactions, digital signatures, hacking and network service providers
are covered
✓ The act facilitates usage of Digital Signatures and Digital Records can be used as legal and valid
proof for launching litigation in a court of law
✓ The Act legalizes the e-mail as a mode of communication
✓ The act empowers the government departments to accept filing, creating and retention of official
documents in the digital format
✓ The act provides statutory remedy to corporate in case the crime against the accused for breaking
into their computer systems or network and damaging and copying the data is proven.
✓ The Information Technology Act, 2000 has given legal recognition to creation, transmission and
retention of an electronic (or magnetic) data to be treated as valid proof in a court of law.

IMPORTANT SECTIONS OF THE IT ACT

✓ Section 66 : • Hacking and gaining unauthorized access •
Any person who dishonestly, fraudulently indulges in actions like unauthorized access, theft/misuse
of data, etc.•
✓ Section 67 : • Publishing content in electronic form which is obscene •
Any person who circulates/publishes sexually explicit/pornographic content in electronic form•
Example; Delhi Public School MMS Scandal Case
✓ Section 75: • Application of the Act to apply for offence or contravention committed outside India
The provision for the act shall also apply to any offence or contravention committed outside India by
any person irrespective of his nationality• Caselet: • State Bank of India Cyber-Squatting Case.
✓ Section 79 : • Network Service providers not to be liable in certain cases
An intermediary shall not be liable for any third party information data or communication link made
available or hosted by him; subject to some conditions.• Caselet: • Insulting images of Warrior
Shivaji on Google’s Orkut.
✓ Section 85: • Offences against a Company
Director, Manager or Secretary or any other official shall be liable• Caselet: • The Bank NSP Case.
DRAWBACKS
• Almost all cyber crimes, barring a couple, bailable offences.
• The focus is more on enhancing the quantum of civil liability and reducing the quantum of
punishment.

STRENGTHENING THE IT ACT

• The IT (Amendment) Act, 2008, reduced the quantum of punishment for a majority of cyber crimes.
This needs to be rectified.
• The majority of cyber crimes need to be made non-bailable offences.
• The IT Act does not cover a majority of crimes committed through mobiles. This needs to be
rectified.
• .Detailed legal regime needed to protect privacy of individuals and institutions.
• Cyber war as an offence needs to be covered under the IT Act.
 39. INTELLECTUAL PROPERTY RIGHTS
Sl.No Differentiating PATENT COPYRIGHT TRADE MARK DESIGNS
Features
01 Definition A new product or Copyright is a Trademark is a An industrial
process involving right given by the sign that helps design is the
an inventive step law to creators of distinguish the ornamental or
and capable of literary, dramatic, products from a aesthetic aspect of
industrial musical and particular an article
application
artistic works and producer or
producers of enterprise from
cinematograph those of its
films and sound competitors.
recordings
02 Act Indian Patent Act Copyright Act, Trade Marks Act The Designs Act,
1970 1957 1999 2000
03 Objectives A patent gives its It protects the It protects The artisan, creator,
owner the right to rights of creator/ goodwill, creates originator of a
exclude others author/ owner of a favourable design having
from making, original literary, impression in the aesthetic look is not
using, selling, and dramatic, musical, minds of deprived of his
importing
artistic consumers and bonafide reward by
an invention for a
limited works,cinematogr gives right to get others applying it to
period of time aph films license /assign their goods.
trademarks.
04 Rights Right to prevent Right to control Right to use the They give owners
Protected others from the reproduction, mark and to exclusive rights to
making, selling making of prevent others reproduce their
using or derivative works, from using work, publicly
importing the distribution and similar marks in a display or perform
patented public way that would their work, and
invention performance and cause likelihood create derivative
display of the of confusion works.
copyrighted about the origin
works of the goods or
services.
05 Pre requisites The Patent should A work must be A mark must be 1) New and Original
be original, creative distinctive (i.e., 2) Distinguishable
1). Novel, and fixed in a that is, it must be from others
2).Non- tangible medium capable of 3) Not published /
obviousness, disclosed
identifying the
3).Capable of 4) Not obscene
industrial
source of a
application and particular good)
4).Enabling
06 Period 20 years 60 years For as long as the Initially the right is
mark is used in granted for a period
commerce of 10 years, which
can be extended, by
another 5 years.
07 Remedy for 1) Suit for 1). Civil and, 1). Suit for 3) Suit for
Infringement injunction. Administrative injunction. injunction.
2) Recovery of remedies 2). Recovery of 4) Recovery of
damages 2). Criminal case.. damages damages
. .
 40. TAXATION IN INDIA
The Indian Constitution is quasi-federal in nature, and the country has three tier government structures.
To avoid any disputes between the center and state the Constitution envisages following provisions
regarding taxation:
• Division of powers to levy taxes between center and state is clearly defined.
• There are certain taxes which are levied by the center, but their proceeds are distributed between both
center and the state. Example- Union Excise Duty.
• There are certain taxes which are levied by the center, but their proceeds are transferred to the states.
Example-Estate duty on property other than agriculture income.
• There are certain taxes which are levied by the central government, but the responsibility to collect
them is vested with the states. Example- Stamp Duty other than included in the Union List.
• There are certain taxes which are levied by the states, and their proceeds are also kept by states.
Example: Erstwhile VAT

TYPES OF TAX SYSTEMS

A marginal tax rate is the extra tax for an additional rupee earned. The average tax rate is the ratio of the
total tax paid over the total income earned.
1. PROGRESSIVE TAX SYSTEM
In a progressive tax rate system, higher income individuals pay a higher proportion of tax with a rise in
income. In this case, the marginal tax rate would be higher than the average tax rate. A progressive ta is
cited as a method to reduce inequality in society. Most economies around the world use a progressive tax
to assess taxes for individual income.
2. PROPORTIONAL TAX SYSTEM
In a proportional tax rate system, everyone pays the same proportion of his or her income as tax. The tax
rate does not change with an increase or decrease in income. Here, the average tax rate is equal to the
marginal tax rate. This system exists in Latvia and Russia, and is considered to be more ‘fair’ and easier
to manage for everyone. Some states in the U.S. like Colorado, Utah and Michigan impose a proportional
income tax for individuals.
3. REGRESSIVE TAX SYSTEM
A regressive tax is a tax which results in a decrease in the tax rate as the amount subject to taxation
increases. In a regressive tax rate system, the individuals with lower income pay a higher proportion of
his or her income as tax. Here, the marginal tax rate is lower than the average tax rate. Any tax with a cap
above which no taxes are paid are regressive taxes.

CLASSIFICATION OF TAXES
What is a Tax?
Taxes are generally an involuntary fee levied on individuals and corporations by the government in order to
finance government activities. Taxes are essentially of quid pro quo in nature. It means a favor or advantage
granted in return for something.
Direct Tax versus Indirect Tax
Basis Direct Tax
Meaning The tax that is levied by the
government directly on the individuals
or corporations are called Direct Taxes
Incidence The incidence and impact of the direct
tax fall on the same person
Examples Income Tax, Corporation Tax and
Wealth Tax
Nature They are progressive in nature
Objective Both Social and Economical. Social
objective of direct tax is the
distribution of income. A person
earning more should contribute more in
the provision of public service by
paying more tax. This provision is also
known as progressive taxation
Impact Not at all Inflationary
Indirect Tax
The tax that is levied by the government on one
entity (Manufacturer of goods), but is passed on
to the final consumer by the manufacturer
The incidence and impact of the tax fall on
different persons
VAT, Service tax, GST, Excise duty,
entertainment tax and Customs Duty
They are regressive in nature
Only Economical. When an indirect tax is
levied on a product, both rich and poor must
pay at the same rate. A person earning 10 lakh a
month pays the same tax on the Wheat purchase
as the person earning 3000 Re a month. This
principle is called regressive taxation
Is inflationary

Taxes in India
In India, Taxes are levied on income and wealth. The most important direct tax from the point of view of
revenue is personal income tax and corporation tax.
Income Tax:
• Income tax is levied on the income of individuals, Hindu undivided families, unregistered firms and
other association of people and companies.
• In India, the nature of income tax is progressive.
• For taxation purpose income from all sources is added and taxed as per the income tax slabs of the
individual.
.Corporation Tax
• Corporation tax levied on the income of corporate firms and corporations.
• For taxation purpose, a company is treated as a separate entity and thus must pay a separate tax
different from personal income tax of its owner.
• Companies both public and private which are registered in India under the Companies Act, 1956 are
liable to pay corporate tax.
• The Budget 2017-18 proposed following tax structure for domestic corporate firms:
• For the Assessment Years 2017-18 and 2018-19, a domestic company is taxable at 30%.
• For Assessment Year 2017-18, the tax rate would be 29% where turnover or gross receipt of the
company does not exceed Rs.5 crores in the previous year 2014-15.
• However, for Assessment year 2018-19, the tax rate would be 25% where turnover or gross receipt
of the company does not exceed Rs. 50 crores in the previous year 2015-16.

Tax on Wealth and Capital

Estate Duty: First introduced in 1953. It was levied on the total property passing on the death of a person.
The whole property of the deceased person constituted his wealth and is liable for the tax. The tax now
stands abolish w.e.f 1985.
Wealth Tax: First introduced in 1957. It was levied on the excess of net wealth (over 30,00,00,0 @ 1
percent) of individuals, joint Hindu families and companies. Wealth tax has been a minor source of revenue.
The tax now stands abolish wef 2015.
Gift Tax: First introduced in 1958. The gift tax was levied on all donations except the one given by the
charitable institution’s government companies and private companies. The tax is abolished w.e.f. 1998.
Capital Gain Tax: Ay profit or gain that arises from the sale of the capital asset is a capital gain. The profit
from the sale of capital is taxed. Capital Asset includes land, building, house, jewellery, patents, copyrights
etc.
• Short-term capital asset – An asset which is held for not more than 36 months or less is a short-term
capital asset.
• Long-term capital asset – An asset that is held for more than 36 months is a long-term capital asset.
From FY 2017-18 onwards – The criterion of 36 months has been reduced to 24 months in the case of
immovable property being land, building, and house property.
• For instance, if you sell house property after holding it for a period of 24 months, any income arising
will be treated as long-term capital gain provided that property is sold after 31st March 2017. But this
change is not applicable to movable property such as jewellery, debt oriented mutual funds etc. They
will be classified as a long-term capital asset if held for more than 36 months as earlier.
• Tax on long-term capital gain: the Long-term capital gain is taxable at 20% + surcharge and
education cess.
• Tax on the short-term capital gain when securities transaction tax is not applicable: If securities
transaction tax is not applicable, the short-term capital gain is added to your income tax return, and the
taxpayer is taxed according to his income tax slab.
• Tax on the short-term capital gain if securities transaction tax is applicable: If securities
transaction tax is applicable, the short-term capital gain is taxable at the rate of 15% +surcharge and
education cess.
Indirect Taxes in India

Indirect Taxes

Customs Duties

Excise Duties Service Tax Value Added Tax Goods & Service Tax

Indirect Taxes in a nutshell

Tax Who Levies Revenue goes to Nature Incidence Levied on
Central Shifts to Final Export and
Custom Duty Central Govt. Progressive
Government Consumer Import
Domestically
Excise Central Both Central and Shifts to Final
progressive Manufactured
Duty/CENVAT Government State Govt. Consumer
Goods
Central Shifts to Final
Service Tax Central Govt. Regressive All Services
Government Consumer
State Shifts to Final Sale of Goods
VAT State Govt. Regressive
Government Consumer in the States
 41. RESIDENTIAL STATUS
• Residential status is a term coined under Income Tax Act and has nothing to do with nationality or
domicile of a person
• An Indian, who is a citizen of India can be non-resident for Income-tax purposes, whereas an
American who is a citizen of America can be resident of India for Income-tax purposes
• Residential status of a person depends upon the territorial connections of the person with this
country, i.e., for how many days he has physically stayed in India
• Residential status is always determined for the previous year because we have to determine the
total income of the previous year only
• A person may be a resident of more than one country for any previous year
• Citizenship of a country and residential status of that country are separate concepts
• A person may be resident in one previous year and a non-resident in India in another previous year

DETERMINATION OF RESIDENTIAL STATUS OF INDIVIDUALS.

STEP. 1. Ascertain whether the person is a) Resident OR b) Non-resident
STEP.2. If he is a Resident further probe, whether the person is
a) Ordinarily Resident OR Not Ordinarily Resident.

STEP.1. If a person complies with ANY ONE of the following two BASIC CONDITIONS, he is
called a RESIDENT. If he does not comply with both the following conditions, he is
called NON-RESIDENT
Condition.No.1. He should be in India for at least 182 days during the relevant previous year
Condition.No.2. He should be in India for at least 60 days during the relevant previous year AND,
He should be in India for at least 365 days during FOUR previous years preceding the
relevant previous year.
NOTE: If the Step-1 indicates that the person is a Non- resident, no further probe is required.
However, if the step 1, indicates that, he is a Resident, further enquiry is to be made, to
ascertain whether he is, Ordinarily Resident OR Not-Ordinarily Resident.
STEP.2. If an assessee complies with the following TWO conditions, he is called Ordinarily
Resident. If he does not comply with One OR BOTH the following conditions he is
called Not Ordinarily Resident.
Condition.No.3. He must be in India for at least 730 days during 7 previous years preceding the relevant
previous year.
Condition.No.4. He must be a Resident in India in 2 out of 10 previous years preceding the relevant
previous year.
NOTE: After Step.2, we will be able to ascertain whether the assessee is
a) Resident and Ordinarily Resident
OR
b) Resident and Not Ordinarily Resident
Exercise. No.1. On 10th October 2017, Mr.Pradeep Kumar, left India for the first time in his life, on
employment to USA. He returned back to India on 18th March 2018 on 15days leave.
Determine his residential status for the year 2017-18 (Assessment year 2018-19)
Current PY (2017-18) Preceeding PYs
April 30 2016-17 365 Resident
May 31 2015-16 365 Resident
June 30 2014-15 365 Resident
July 31 2013-14 365 Resident
August 31 2012-13 365 Resident
September 30 2011-12 365 Resident
October (1 to 10) 10 2010-11 365 Resident
November 0 2009-10 365 Resident
December 0 2008-09 365 Resident
January 0 2007-08 365 Resident
February 0 He left India for the first time.
March (18 to 31) 14 Hence he is Resident for all the Previous Years,
Total Days in India 207 preceeding the current previous year.

Conditions Compliance with Basic Conditions (1) or (2)

1 Resident for >= 182 D in Current Previous Year (CPY) Yes
Resident
2 Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs preceeding CPY Yes
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY Yes Ordinarily
4 Resident for >= 730 Days in 7 PYs preceeding CPY Yes Resident
RESIDENTIAL STATUS RESIDENT & ORDINARILY RESIDENT

Exercise. No.2. Mr. Rajmohan, an Indian Citizen went to London for business purpose on 8th July 2017, and
came back to India on 25th March 2018. He was never out of India in the past. Determine his residential
status for the year 2017-18 (Assessment year 2018-19)
Current PY (2017-18) Preceeding PYs
April 30 2016-17 365 Resident
May 31 2015-16 365 Resident
June 30 2014-15 365 Resident
July 8 2013-14 365 Resident
August 0 2012-13 365 Resident
September 0 2011-12 365 Resident
October 0 2010-11 365 Resident
November 0 2009-10 365 Resident
December 0 2008-09 365 Resident
January 0 2007-08 365 Resident
February 0 He left India for the first time.
March 7 Hence he is Resident for all the Previous Years,
Total Days in India 106 preceeding the current previous year.
 Conditions Compliance with Basic Conditions (1) or (2)
1 Resident for >= 182 D in Current Previous Year (CPY) NO
Resident
2 Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs preceeding CPY Yes
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY Yes Ordinarily
4 Resident for >= 730 Days in 7 PYs preceeding CPY Yes Resident
RESIDENTIAL STATUS RESIDENT & ORDINARILY RESIDENT

Exercise. No.3. Mr.S.K.Patil, a citizen of India, has left for Paris, to see his grandparents on 15th April 2017,
and he did not return to India, till the end of the year. Determine his residential status for the year 2017-18
(Assessment year 2018-19)
Current PY (2017-18) Preceeding PYs
April 15 2016-17 365 Resident
May 0 2015-16 365 Resident
June 0 2014-15 365 Resident
July 0 2013-14 365 Resident
August 0 2012-13 365 Resident
September 0 2011-12 365 Resident
October (1 to 10) 0 2010-11 365 Resident
November 0 2009-10 365 Resident
December 0 2008-09 365 Resident
January 0 2007-08 365 Resident
February 0 He left India for the first time.
March 0 Hence he is Resident for all the Previous Years,
Total Days in India 15 preceeding the current previous year.

Conditions Compliance with Basic Conditions (1) or (2)

1 Resident for >= 182 D in Current Previous Year (CPY) NO Non-
2 Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs preceeding CPY NO Resident
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY This is not applicable to the
4 Resident for >= 730 Days in 7 PYs preceeding CPY Assessee, as he is a Non-Resident,
RESIDENTIAL STATUS NON RESIDENT
Example.4. Dr.Mitra, an Indian citizen, left for England on 16.06.1985, and returned to India on
23.07.1989.There after he left for Iran on 10.03.2017, and came back to India on 10.11.2017. Determine his
residential status for the year 2017-18 (Assessment year 2018-19)
Current PY (2017-18) Preceeding PYs
April 0 2016-17 344 Resident
May 0 2015-16 366 Resident
June 0 2014-15 365 Resident
July 0 2013-14 365 Resident
August 0 2012-13 365 Resident
September 0 2011-12 366 Resident
October 0 2010-11 365 Resident
November 21 2009-10 365 Resident
December 31 2008-09 365 Resident
January 31 2007-08 366 Resident
February 28
March 31
Total Days in India 142

Conditions Compliance with Basic Conditions (1) or (2)

1 Resident for >= 182 D in Current Previous Year (CPY) NO
Resident
2 Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs preceeding CPY Yes
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY Yes Ordinarily
4 Resident for >= 730 Days in 7 PYs preceeding CPY Yes Resident
RESIDENTIAL STATUS RESIDENT & ORDINARILY RESIDENT

Example .5 : Mr.I.P.Nathan, 53 years old Indian citizen left to America on 01.07.2012, and returned to
India, on 01.05.2015., and again left to America, on 01.01.2018. Determine his residential status for the year
2017-18 (Assessment year 2018-19).
Current PY (2017-18) Preceeding PYs
April 30 2016-17 365 Resident
May 31 2015-16 (1 May to 31 Mar) 336 Resident
June 30 2014-15 0 Non-Resident
July 31 2013-14 0 Non-Resident
August 31 2012-13 (1 Apr to 1 Jul) 92 Resident
September 30 2011-12 366 Resident
October (1 to 10) 31 2010-11 365 Resident
November 30 2009-10 365 Resident
December 31 2008-09 365 Resident
January 1 2007-08 366 Resident
February 0 .
March (18 to 31) 0
Total Days in India 276
 Conditions Compliance with Basic Conditions (1) or (2)
1 Resident for >= 182 D in Current Previous Year (CPY) Yes
Resident
2 Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs preceeding CPY Yes
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY Yes Ordinarily
4 Resident for >= 730 Days in 7 PYs preceeding CPY Yes Resident
RESIDENTIAL STATUS RESIDENT & ORDINARILY RESIDENT

Exercise. 6: Mr. Clinton, an American Citizen, came to India for the first time on 17.05.2017, and continued
to stay in India. Determine his residential status for the year 2017-18 (Assessment year 2018-19)
Current PY (2017-18) Preceeding PYs
April 0 2016-17 0 Non – Resident
May 15 2015-16 0 Non – Resident
June 30 2014-15 0 Non – Resident
July 31 2013-14 0 Non – Resident
August 31 2012-13 0 Non – Resident
September 30 2011-12 0 Non – Resident
October (1 to 10) 31 2010-11 0 Non – Resident
November 30 2009-10 0 Non – Resident
December 31 2008-09 0 Non – Resident
January 31 2007-08 0 Non – Resident
February 28 He came to India for the first time. Hence he is a Non-
March (18 to 31) 31 Resident for all Previous Year preceeding to the current
Total Days in India 319 previous year.

Conditions Compliance with Basic Conditions (1) or (2)

1 Resident for >= 182 D in Current Previous Year (CPY) YES
Resident for >= 60 D in CPY (+) >= 365 D in 4 PYs Resident
2 NO
preceeding CPY
Compliance with Additional Conditions (3) & (4)
3 Resident for >= 2 PY out of 10 PYs preceeding CPY NO Not Ordinarily
4 Resident for >= 730 Days in 7 PYs preceeding CPY NO Resident
RESIDENTIAL STATUS RESIDENT & NOT-ORDINARILY RESIDENT
 42.INCOME TAX CALCULATION – EXERCISES
Income Tax is the aggregate of the incomes computed under various heads of income according to the
provisions of the IT Act before making any deductions u/s 80C to 80U. It includes:
1) Income from Salaries, 2) Income from House Property. 3) Profits and Gains of Business or
Profession
4) Income from Capital Gains, 5) Income from Other Sources

Previous Year 2017-18 (Assessment Year ( 2018-19)

less than 60 yrs & above, but 80 years and
60 years less than 80 yrs above
Income Slab Tax Rate Tax Rate Tax Rate
Up to Rs.250,000 NIL NIL NIL
Above Rs.250,000 up to Rs.300,000 5% NIL NIL
Above Rs.300,000 up to Rs.500,000 5% 5% NIL
Above Rs.500,000 up to Rs.1000,000 20% 20% 20%
Above Rs.1000,000 30% 30% 30%
REBATE U/S 87A:
• A resident individual, whose net income does not exceed Rs.350,000, can avail rebate u/s 87A.
• It is deductible from income tax before calculating education cess.
• The amount of rebate is 100% of income tax or Rs.2, 500, whichever is less.
SURCHARGE:
• 10% of income tax where total income exceed Rs.50,00,000 up to Rs.1 crore;
• 15% where total income exceeds Rs.1 crore.
CESS: 3% on the total sum of income tax and surcharge payable.
ROUNDING OF THE TAX AMOUNT: Round off the Tax amount to the nearest multiple of Rs.10

CALCULATION OF TAX LIABILITY

Particulars Amt (Rs)

1. Tax on Casual Income@ 30% XXX

2. Tax on unexplained cash credit, investment, money & expenditure @ 30% XXX
3. Tax on long term capital gain @ 20% XXX
4. Tax on short term capital gain (liable for STT) @ 15% XXX
5. Tax on other Taxable Income (at slab rates) XXX
TOTAL TAX (1 + 2 + 3 + 4 + 5) XXX
Less: Tax Rebate under section 87A (if applicable) XXX
BALANCE TAX XXX
Add: Surcharge (if applicable) XXX
Add: Education Cess @ 3% (2 + 1) XXX
TOTAL BALANCE TAX XXX
Add: Interest or Penalty XXX
TOTAL TAX LIABILITY XXX
Less: Tax paid on Self Assessment / TDS / Advance Tax paid XXX
TAX PAYABLE / (REFUND DUE) XXX
 EXAMPLE . 1 NAME OF THE PERSON Mr.PIYUSH AGE 47y
Total Income Rs. 3,40,000 Resident.
Tax as per Slabs: Rate
Up to Rs. 2,50,000 Rs. 2,50,000 Nil Nil
Rs.250,000 to Rs. 5,00,000 Rs. 90,000 5% 4,500
Rs.500,000 to Rs.10,00,000 20% --
Above Rs.10,00,000 30% --
Total Tax 4,500
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 which ever is less. 2,500
Balance Tax 2,000
Add: Surcharge
> Rs.50L @ 10% of Balance --
Total Tax 2,000
Add: Education Cess @ 3% of Total tax 60
Tax Liability 2,060
Rounded off to 2,060

EXAMPLE 2 NAME OF THE PERSON Mr. MAHESH AGE 45y

Total Income (Rs.) Rs. 1,12,80,000 Resident
Tax as per Slabs Rate Amount in Rs.
Up to Rs. 2,50,000 Rs. 2,50, 000 Nil Nil
Rs.2,50,000 to Rs. 5,00,000 Rs. 2,50,000 5% 12,500
Rs.5,00,000 to Rs.10,00,000 Rs. 5,00,000 20% 1,00,000
Above Rs.10,00,000 Rs. 1,02,80,000 30% 30,84,000
Total Tax 31,96,500
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 31,96,500
Add: Surcharge
> Rs.100L @ 15% of Balance 4,79,475
Total Tax 36,75,975
Add: Education Cess @ 3% of Total tax 1,10,279
Tax Liability 37,86,254
Rounded off to 37,86,250
EXAMPLE. 3 NAME OF THE PERSON Mr.GIRIDHAR AGE 75 Yrs
Total Income Rs.10,28,200Resident. Senior Citizen
Tax as per Slabs Rate Amount in Rs.
Up to Rs. 3,00,000 Rs. 3,00,000 Nil
Rs.300,000 to Rs. 5,00,000 Rs. 2,00,000 5% 10,000
Rs.500,000 to Rs.10,00,000 Rs. 5,00,000 20% 1,00,000
Above Rs.10,00,000 Rs. 28,200 30% 8,460
Total Tax 1,18,460
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 1,18,460
Add: Surcharge
> Rs.50L @ 10% of Balance --
Total Tax 1,18,460
Add: Education Cess @ 3% of Total tax 3,554
Tax Liability 1,22,014
Rounded off to 1,22,010

EXAMPLE 4 NAME OF THE PERSON MR. PARTH AGE 85YRS

Total Income Rs.78, 00,000 Resident. Super Senior Citizen
Tax as per Slabs: Rate Amount in Rs
Up to Rs. 5,00,000 Rs. 5,00,000 Nil Nil
Rs.5,00,000 to Rs.10,00,000 Rs. 5,00,000 20% 100,000
Above Rs.10,00,000 Rs.68,00,000 30% 2,040,000
Total Tax 2,140,000
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 which ever is less 0
Balance Tax 2,140,000
Add: Surcharge
> Rs.50L @ 10% of Balance 214,000
Total Tax 2,354,000
Add: Education Cess @ 3% of Total tax 70,620
Tax Liability 2,424,620
Rounded off to 2,424,620
EXAMPLE 5 NAME OF THE PERSON MR.PAVAN AGE 44 Yrs
Total Income (Rs.) Rs. 84,95,000 Resident
Tax as per Slabs: Rate Amount in Rs.
Up to Rs. 2,50,000 Rs. 2,50,000 Nil Nil
Rs.250,000 to Rs. 5,00,000 Rs. 2,50,000 5% 12,500
Rs.500,000 to Rs.10,00,000 Rs. 5,00,000 20% 100,000
Above Rs.10,00,000 Rs. 74, 95,000 30% 2,248,500
Total Tax 2,361,000
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 2,361,000
Add: Surcharge
> Rs.50L @ 10% of Balance 236,100
Total Tax 2,597,100
Add: Education Cess @ 3% of Total tax 77,913
Tax Liability 2,675,013
Rounded off to 2,675,010

EXAMPLE 6 NAME OF THE PERSON MR. MOHAN AGE 55Yrs

Total Income Rs. 9,30,000 Resident
Tax as per Slabs Rate Amount in Rs.
Up to Rs. 2,50,000 Rs. 2,50,000 Nil Nil
Rs.250,000 to Rs. 5,00,000 Rs. 2,50,000 5% 12,500
Rs.500,000 to Rs.10,00,000 Rs. 4,30,000 20% 86,000
Above Rs.10,00,000 30% --
Total Tax 98,500
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 98,500
Add: Surcharge
> Rs.50L @ 10% of Balance --
Total Tax 98,500
Add: Education Cess @ 3% of Total tax 2,955
Tax Liability 101,455
Rounded off to 101,460
EXAMPLE 7 NAME OF THE PERSON MR.GOPAL AGE 70 Yrs
Resident. Senior
Total Income Rs. 11,80,500
Citizen
Tax as per Slabs: Rate Amount in Rs.
Up to Rs. 3,00,000 Rs. 3,00,000 NIL
Rs.3,00,000 to Rs. 5,00,000 Rs. 2,00,000 5% 10,000
Rs.5,00,000 to Rs. 10,00,000 Rs. 5,00,000 20% 1,00,000
Above Rs. 10,00,000 Rs. 1,80,500 30% 54,150
Total Tax 1,64,150
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 1,64,150
Add: Surcharge
> Rs.50L @ 10% of Balance --
Total Tax 1,64,150
Add: Education Cess @ 3% of Total tax 4,925
Tax Liability 1,69,075
Rounded off to 1,69,080
EXAMPLE 8 NAME OF THE PERSON MR.RAHUL AGE 85 Yrs
Total Income Rs. 1,17,00,000 Resident. Super Senior
Citizen
Tax as per Slabs: Rate Amount in Rs.
Up to Rs. 5,00,000 Rs. 5,00,000 Nil Nil
Rs.5,00,000 to Rs.10,00,000 Rs. 5,00,000 20% 100,000
Above Rs.10,00,000 Rs. 1,07,00,000 30% 3,210,000
Total Tax 3,310,000
Less: Tax Rebate u/s. 87A
Tax amount (or) Rs.2,500 WEL 0
Balance Tax 3,310,000
Add: Surcharge
> Rs.100L @ 15% of Balance 496,500
Total Tax 3,806,500
Add: Education Cess @ 3% of Total tax 114,195
Tax Liability 3,920,695
Rounded off to 3,920,700
Assessment of Tax
• The assessment procedure starts from, filing of a Return and continues up to the appeal to the
Supreme Court.
• Every person, whose income is liable to be assessed as per the provisions of Income Tax Act, shall
have to submit his “ Return of Income “, under Section 139 of the Act
• There are 7 types of persons/ assesses under the act (Please refer to the definition of assessee given
above) and each type of person is required to submit the return of income in different Form/Return.
• Permanent Account Number allotted by the Income Tax Department should be mentioned in the
return.

Self-Assessment
Every person before submitting a return of income is required to make a self-assessment of his income
and pay tax. After submission of the return of income by the assessee, the Assessing Officer can make
the assessment in any of the following ways.
No Type of Basis / Method of Assessment.
assessment
01 Summary Assessment without calling the Assessee, and purely based on the Return of
Assessment Income, submitted by the assessee.
02 Scrutiny Assessment based on scrutiny of the “Return of Income” and after hearing
Assessment additional evidence in response to notice.
03 Best The Assessing Officer assesses the income of the assessee, to the best of his
Judgement judgement, when the assessee fails to respond to the notice or fails to comply
Assessment with requirements of the notice.
• The Income tax Officials assess/ re-assess the income of a person, but subject to certain specific
time limits, depending on the nature of transactions.
• “Opportunity of being heard”, should be given to the assessee during the enquiry.
Under Income Tax Act, there are several authorities, to whom appeals can be made against the
assessment of Income tax. They are Deputy Commissioner /Commissioner (Appeals); Appellate
Tribunal; High Court; and Supreme Court. Thus Return of Income continues to be in existence
until it is disposed off by the Supreme Court in deserving cases.
 43. GOODS AND SERVICES TAX
MAJOR DEFECTS IN THE PRESENT STRUCTURE OF INDIRECT TAXES
• Movement of goods in European Union (EU) is free across all countries without any incidence of tax
• However, in India, movement of goods from one State to other was itself not tax free
• Moreover, India does not have a national market due to invisible barriers of CST, Entry Tax and
State VAT
• Hence, this had its impact on Indian Exports
• Apart from this, the other major defects are:
• Credit of CST levied by Union Government was not available
• Taxes levied by CG were not available as set off against the taxes levied by the SGs
• Certain taxes levied by the SGs were not allowed as set off for payment of other taxes levied by the
SGs
• If there was any difficulty, there is no authority to sort out the problems of CST and find solutions
• Cascading effect of taxes cannot be avoided due to CST and Entry Tax
• Millions of man-hours and truck-hours are lost at check posts
• Huge corruption was involved due to this
• CG cannot impose tax on goods beyond manufacturing level
[Though CST was levied by CG, it is collected and retained by the SGs]
• SGs cannot impose Service Tax

OVERLAPPING OF TAXES.
Over the years, distinction between goods and services has become hazy, due to which there is overlapping
of State VAT and CST on transactions like
a) Works Contracts, b) Food rates services (like restaurants, outdoor catering, mandap services, etc.)
c) Software, d) IPR related services, e) Lottery, f) SIM cards, g) Renting of movable property, etc.
These defects necessitated the introduction of GST Act into the country

INTRODUCTION OF GST IN INDIA

• GST was introduced in India after a 14 year long journey
• In 2003, the Kelkar Task Force on indirect tax had suggested a comprehensive Goods and Services
Tax based on VAT principle
• The Bill was introduced in Lok Sabha on 19 Dec 2014 and was passed on 6 May 2015
• The Goods and Services Tax Act was passed in the Parliament on 29 Mar 2017
• The CGST Act came into force on 22 Jun 2017
• On 1 Jul 2017, GST Act came into effect across the whole of India
Introduction of GST required amendments in the Constitution so as to enable the integration of
– The central excise duty including additional duties of customs on imports
– Service tax
– State VAT
– Certain specific taxes
The amendments in the Constitution also empowered the Center and State to simultaneously levy and collect
this tax
GST COUNCIL: ORGANIZATION
• GST Council was constituted by the President of India within 60 days from the date of
commencement of the amendment
• The council consists of the following members:
– Union Finance Minister (Chairperson)
– Union Minister of State in charge of Revenue or Finance (Member)
– Minister in charge of Finance or Taxation or any other Minister nominated by each State
Government (Members)
• The members shall choose one amongst themselves to be the Vice-Chairperson of the Council for
such period as they may decide
• At present there are 33 members in the GST Council
•
GST COUNCIL MEETINGS
• One-half of the total number of members of the GST Council shall constitute the quorum at its
meetings
• Every decision of the Council shall be taken at a meeting, by a majority of not less than three-
fourths of the weighted votes of the members present and voting
• The principles to be followed are:
• Vote of the Central Government shall have a Weightage of one-third of the total votes cast in the
meeting
• Votes of all the State Governments taken together shall have a weightage of two-thirds of the total
votes cast in the meeting

RECOMMENDATIONS OF GST COUNCIL

• Taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be
subsumed in the GST
• Goods and services that may be subjected to, or exempted from the GST
• Model GST laws, principles of levy, apportionment of GST levied on supplies in the course of inter-
state trade or commerce and the principles that govern the place of supply
• Threshold limit of turnover below which goods and services may be exempted from GST.
• Rates including floor rates with bands of GST
• Special rates for a specified period, to raise additional resources during any natural calamity or
disaster
• Special provision w.r.t. the States of Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram,
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand
• Any other matter relating to the GST, as the Council may decide
• GST Council shall recommend the date on which the GST will be levied on Petroleum crude , High
speed diesel, Motor spirit (commonly known as petrol), Natural gas, Aviation turbine fuel
• The GST Council shall be guided by the need for a harmonized structure of GST and for the
development of a harmonized national market for goods and services

GST COUNCIL ADJUDICATION OF DISPUTES

• The GST Council shall establish a mechanism to adjudicate any dispute between
• Government of India (GOI) Vs. One or more States; or
• GOI and any State or States on one-side Vs. One or more other States on the other side.
• Two or more States, arising out of the recommendations of the Council or implementation thereof
No act or proceedings of the GST Council shall be invalid merely by the reason of:
• Any vacancy in, or any defect in, the constitution of the Council; or
• Any defect in the appointment of a person as a member of the Council; or
• Any procedural irregularity of the Council not affecting the merits of the case

GOODS AND SERVICES TAX

• It means any tax on the supply of goods, or services or both except taxes on the supply of liquor for
human consumption
• Meaning of “Goods” is given in an inclusive manner to include all materials, commodities and
articles
• “Services” means anything other than goods
• The unique feature of GST is integration of taxes on goods and services in India
• It subsumed (absorbed) many indirect taxes that existed in pre-GST era
• It is a single tax on the supply of goods and services, right from the manufacturer to the consumer
• Credits of input taxes paid at each stage will be available in the subsequent stage of value addition,
which makes GST essentially a tax only on the value addition at each stage
• The final consumer will thus bear only the GST charged by the last dealer in the supply chain, with
set-off benefits at all the previous stages
• GST is applicable on “supply” of goods or services
• GST is based on the principle of destination based consumption taxation
• GST is levied simultaneously by both the Center (Central GST) and the States including the UTs
with legislatures (State GST) on a common base
• The UTs without legislature levy UT GST
• An Integrated GST is levied on inter-state supply (including stock transfers) of goods or services
(This is collected by the Center)
• Import of goods is treated as inter-state supply and is subjected to IGST in addition to customs duty
• Import of services is treated as inter-state supply and is subjected to IGST
• CGST, SGST / UTGST and IGST would be levied at the rates recommended by GST Council
• There are 29 States and 7 UTs in India
• All the 29 States and 2 UTs (Delhi and Puducherry) have their own State legislatives through which
the SGST Act, 2017 has been passed
• These are all governed by the respective SGST Acts
• The remaining 5 UTs (Chandigarh, Andaman & Nicobar Islands, Daman & Diu, Dadra & Nagar
Haveli, and Lakshadweep) are governed by the UTGST Act

NON-APPLICABILITY OF GST
• GST would apply to all goods and services except
• Alcohol for human consumption (presently States levy excise duty)
• 5 specific petroleum products – Crude, Petrol, Diesel, Aviation Turbine Fuel & Natural Gas
• [these will be applicable from a date to be recommended by the GST Council]
• Tobacco and its products will be subject to GST + Central Excise duty [charged and collected by the
respective States]
CENTRAL TAXES SUBSUMED IN GST
• Central Excise Duty
• Duties of Excise (Medicinal and Toilet Preparations)
• Additional Duties of Excise (Goods of Special Importance)
• Additional Duties of Excise (Textiles and Textile Products)
• Additional Duties of Customs (commonly known as CVD) & Special Additional Duty of Customs
• Service Tax
• Cesses and surcharges in so far as they relate to supply of goods or services

STATE TAXES SUBSUMED IN GST

• State VAT
• Sales Tax
• Entry Tax (all forms) and Purchase Tax
• Luxury Tax
• Entertainment Tax (except those levied by the local bodies)
• Taxes on advertisements
• Taxes on lotteries, betting and gambling
• State cesses and surcharges in so far as they relate to supply of goods or services

TAXES NOT SUBSUMED IN GST

Basic Customs Duty (on imports), Export Duty, Road and Passenger Tax, Toll Tax
Property Tax, Stamp Duty, Electricity Duty, Taxes collected by the local bodies

BENEFITS FROM GST

Benefits for consumers
• Single and transparent tax proportionate to the value of goods and services
• Relief in overall tax burden
• Reduction in prices of goods and services due to elimination of cascading effect
Benefits for business and industry
• Easy compliance
• Uniformity of tax rates and structures
• Removal of cascading effect
• Improved competitiveness
• Gain to manufacturers and exporters
Benefits for the Government
• Simple and easy to administer
• Better controls on leakage
• Avoidance of corruption
• Higher revenue efficiency

FOUR TYPES OF TAXES IN GST

• When transaction is between 2 states , Integrated Tax (IGST) levied under IGST Act, 2017
• When transaction is within same state, Central Tax (CGST) levied under CGST Act, 2017
• State Tax (SGST) levied under SGST Act, 2017 (within same state)
• Union Territory Tax (UTGST) levied under UTGST Act, 2017 (within same UT)
Example. No. (1). Rs.100, 000 worth laptop is sold by an electronics store in Pune, Maharashtra to a
customer in Nagpur, Maharashtra and the applicable GST rate is 18%
• Then Amount of GST = Rs.18,000
• Goods are supplied from: Maharashtra
• Goods are supplied to: Maharashtra
• Type of transaction: Intra-state (within the same state), i.e. CGST & SGST
• Payable to: Rs.9,000 to Center and Rs.9,000 to Maharashtra State

Example No. (2). Rs.120, 000 worth laptop is sold by an electronics store in Chandigarh to a customer in
Chandigarh and the applicable GST rate is 18%
• Then Amount of GST = Rs.21,600
• Goods are supplied from: Chandigarh
• Goods are supplied to: Chandigarh
• Type of transaction: Intra-state (within the same UT), i.e. CGST & UTGST
• Payable to: Rs.10,800 to the Center & Rs.10,800 to Chandigarh UT

Example. No. (3). Rs.150, 000 worth laptop is sold by an electronics store in New Delhi to a customer in
Chandigarh and the applicable GST rate is 18%
• Then Amount of GST: = Rs.27,000
• Goods are supplied from: New Delhi
• Goods are supplied to: Chandigarh
• Type of transaction: Inter-state (between two UTs), i.e. IGST
• Payable to: Rs.27,000 to the Center

Example No. (4). Rs.200, 000 worth laptop is sold by an electronics store in Daman, Daman & Diu, to a
customer in Chandigarh and the applicable GST rate is 18%
• Then Amount of GST = Rs.36,000
• Goods are supplied from: Daman & Diu
• Goods are supplied to: Chandigarh
• Type of transaction: Inter-state (between two UTs), i.e. IGST
• Payable to: Rs.36,000 to the Center

Example. No. (5). Rs.140, 000 worth laptop is sold by an electronics store in Pune, Maharashtra to a
customer in Mysore, Karnataka and the applicable GST rate is 18%
• Then Amount of GST = Rs.25,200
• Goods are supplied from: Maharashtra
• Goods are supplied to: Karnataka
• Type of transaction: Inter-state (between two States), i.e. IGST
• Payable to: Rs.25,200 to the Center