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Module 1 Sapna

Introduction to Companies Act1956

Definition of Company. Features of company Types of Companies Lifting the Corporate Veil

Short Title and extent.

INTRODUCTION: This Act may be called the Companies Act, 1956. It is a Business Law. It is a commercial Law & its roots are seen in English Company Law. Many provisions of it are incorporated in this Indian Companies Act of 1956.

Applicability of Act
Being a Central Government Act it is applicable to all the states of India including Union Territories. The provisions of this Act are applicable to all the class of companies in India. The provisions are also applicable to all the

companies incorporated out of India but they have established places of business in India.

Objectives :
To conduct the business smoothly with the help of limited liabilities & with limited shares. To serve the community by providing Quality products & services at reasonable cost.

To earn the profit & distribute it among all the investors & Board of Directors in proportionate with their investments. To grow the business with the help of share capital & Ideas so that the part of it is contributed towards national prosperity. To create an employment opportunities for qualified and eligible person towards CSR.

General Definitions: 1)A Company is a form of business organization in which the funds of a large number of investors are managed by a few persons for the purpose of earning profits which are shared by all the investors. It is an association of persons formed to achieve the common goal set by their Board of Directors.

As per companies Act 1956.(Sec3(1)(i)), It means a business organization formed as per the companies Act 1956to achieve following objectives a) To encourage the investors to do their investments. b) To ensure proper Administration c) To prevent Malpractices d) To allow for investigation if required.

Essential Features of a Company

Registration- Should be registered under the Companies Act.
Distinct Person- Separate legal entity.

Perpetual succession- Never dies.

Easy transfer of shares. Limited liability. Artificial person but not a citizen.

Common Seal. Capacity to sue and be sued. Share holders are actual owners of Company Number of persons are as per MOA

Separation of ownership and Management

Authority to raise share capital in large scale. To comply Statutory Requirements on

regular basis

Lifting of Corporate Veil

As the company is a separate legal entity , is has been provided with a veil, compared to that of individuals who are managing the company. But if the court feels that such veil has to been used for any wrongful purpose, the court lifts the corporate veil and makes the individual liable for such acts which they should not have done or doing in the name of the company

Circumstances to lift the corporate veil

The corporate veil can be lifted either under the Statutory provisions or Judicial interpretations The statutory provisions are Provided under the Companies Act, 1956 The other circumstances are decided through Judicial interpretations, which are based on facts of each case as per the decisions of the court

Statutory circumstances for lifting the corporate veil

Reduction in membership- Less than seven in public company and less than

two if it is a private company Failure to refund application moneyAfter the issue of shares to the pubic, the company has to pay back the initial payment to the unsuccessful applicants (SEBI Guidelines- 130 Days), if they fail to do so, the corporate veil can be lifted. Mis-description of companies nameWhile signing a contract if the companys name is not properly described, then the corporate veil can be lifted.

Misrepresentation in the prospectus- (Derry

Vs Peek) In case of misrepresentation, the promoters, directors and every other person responsible in this matter can be held liable. carried on with an intent to defraud the creditors, then the court may lift the corporate veil.

Fraudulent Conduct- In case the company is

Holding and subsidiary companies- A

subsidiary has a distinct legal entity from the holding company other than in a few circumstances, so if otherwise shown, the court may under the Act , lift the corporate veil of the subsidiary company.

Circumstances to lift the corporate veil through judicial interpretations When the court feels that there are no statutory
provisions which can pierce the corporate veil, and the identity of the company is not the one which has to exist, and the court has to interfere in order to avoid the activities that are done in the name of the company by persons managing them, it has been empowered to do so The circumstances are..

Judicial interpretations by the court are as follows:

Protection of Revenue- When ever a company uses its

name for the purpose of tax evasion or to circumvent tax obligations incorporation has been used for fraudulent purpose, like defrauding the creditors, defeating the purpose of law etc.. company or all the members being the citizens of the enemy country. (Daimler Co. Ltd V. Continental Tyre & Rubber Co. Ltd)

Prevention of fraud or Improper conduct- The

Determination of the character of the company- Enemy

Other circumstances
Where a company is used to avoid welfare legislation- If a company is formed in order to avoid the benefits to the workers like bonus, or other statutory benefits..
For determining the technical competence of the company- To look into the competency of the company or the shareholders or promoters
(New Horizons Ltd and Another V. Union of India (1994)

Types of Companies
A) On the basis of Liability

B) On the basis of Incorporation

C) On the basis of Ownership D) Government Companies E) On the basis of Jurisdiction F) On the basis of Control &Shareholding

G) One Man Company

Types of Companies
A) On the basis of Liability 1)Limited by shares 2)Limited by Guarantee 3)Unlimited Company
B) On the basis of Incorporation 1)Chartered Company 2)Statutory Company 3)Registered Company

C) On the basis of Ownership 1)Private Limited Company 2) Public Limited Company

D) Government Companies E) On the basis of Jurisdiction 1) Foreign Company 2) MNC Company

F) On the basis of Control & Shareholding 1) Holding Company 2) Subsidiary Company

G) One Man Company

A) On the basis of Liability

A ) Companies Limited by shares : companies limited by shares are the most commonly found companies. Section 12 (2) (a) implies that where the liability of the shareholders of a company is limited to the extent of the unpaid amount on the shares held by them, the company is known as a company limited by shares.

In such companies, each share has a fixed nominal or face value which the shareholder is required to pay either at a time or in various

installments. Whatsoever may be the liabilities of a company, shareholders are not bound to pay anything more than the face value of the shares held by them.

Thus, the liability of each of the shareholders of such a company is always limited to the extent of the amount unpaid on his shares.

B) Companies Limited by Guarantee: Words Companies limited by Guarantee implies that the liability of members of such company is always limited to a fixed amount agreed by its members to contribute towards the assets of the company.

Section 12 (2) (b) states that, a company having the liability of its members limited by the memorandum to such amount as the

members may respectively undertake by the memorandum to contribute to the assets of the company in any event of its being wound up, such company in this Act is termed as a company limited by guarantee

C. Unlimited companies: it is obvious that where the liability of the members of a company is unlimited, it is called as an

unlimited company. Section 12 provides that any seven or more persons in the case of a public company and 2 or more persons in the case of a private limited company can have such liability. Any company registered without limited liability is known as an unlimited company.

The liability of members of such company is unlimited like an ordinary partnership firm and every member of such company is liable for debts of the company in proportion to his interest in the company. An unlimited company may have or may not have a share capital. But if it has a share capital, it may be a public company or a private company

A) chartered companies : chartered companies are also known as Royal charter companies. Such companies are incorporated under the Royal (special) charter granted by the King or the Queen. Such companies as given exclusive powers rights and privileges under the Royal charter.

They have to function in accordance with the terms and conditions of the Royal charter. The East India company, /bank of England, The chartered bank of Australia are some of the examples of chartered or Royal companies. However, such companies find no place in India after independence, since there no monarchy in India now.

B) Statutory companies :- Companies which are created by special Acts of Legislature are known as statutory companies. A statutory company can be defined as a company which is incorporated by a special Act passed by whether the Central Legislature or state Legislature and such a company enjoys certain powers,

rights, privileges as laid down in the Act. Therefore such companies do not require to have a Memorandum of Association. Companies Act 1956 is applicable to the statutory companies. Eg.Reserve Bank of India. LIC,UTI

c) Registered companies Under the Act : Registered companies are those companies which are registered or incorporated with the

Registrar of companies as per the provisions of the companies act. At present, in India, almost all companies are registered under the companies Act of 1956.

C) On the Basis of ownership

A) Private company : Section 3 (i) (iii) defines a private company as followsPrivate company means a company which by its Articles a) Restricts the rights to transfer its shares, if any, b) Limits the number of its members to fifty and c) Not includes the persons who are in employment of the company;

d) Persons, who having been formerly in the employment

of the company, were members of the company while in that employment and have continued to be members after the employment ceased; and e) prohibits any invitation to the public to subscribe for any shares in or debentures of the company. Thus, the three features i.e. restriction on right to transfer, limit on the number of members and invitation to the public to subscribe as mentioned above are the mandatory provisions of a private limited company words Private Limited are required to be used at the end of the name of every company.

Public company ; section 3 (1)(iv) lays down that. Public company means a company which is not a private company. Thus it can

be said that a public company is a company which by its Articles, does not restricts the right to transfer its shares, if any, does not limit the number of its members and further does not

prohibit any invitation to the public to subscribe for any shares in or debentures of the company. Any seven or more persons can come together and join hands to form a public company. However, there is no restriction on the maximum number of members

Private company& Public company Differences:1.) A private company cannot have less than two members and more than fifty members The minimum number of persons required to form a public company is seven. There is no restriction on the maximum numbers of members in a public company. 2.) A private company cannot invite public to subscribe its share capital neither it can invite the people to buy its debentures A public company invites the public to subscribe to share capital or to purchase the debentures.

3).In a private company, the right to transfer its shares is restricted by its Articles. Thus, if a private company has a share capital, it imposes certain restrictions on the right of its members to transfer the shares of the company they hold In a public company, its shares are freely transferable. 4). A private company has to add the words Private Limited at the end of its name. A Public company has to use the word Limited at the end of its name.

5). A private company enjoys certain privileges i.e. exemption from certain provisions of the companies Act. Of 1956. A Public company does not enjoy any such privileges. 6).Directors of a private company need not file their consent with the Registrar to Act as director or sign an undertaking the take up qualification shares.

Directors of a Public company have to file their consent with the Registrar to Act as director or sign an undertaking to take up qualification shares. 7). Legal controls on private companies are less. Legal controls, restrictions on public companies are more and strict. 8) In private companies, restrictions on the remuneration of Director's are far less. In public companies, there are restrictions on the remuneration of Directors. The remuneration of Directors cannot be more than 11 %of net profits of the company.

9). Directors are allowed to borrow from the private companies Directors cannot borrow from the public companies 10).In the case of a private company, unless the articles of the company provide for a large number, two members personally present are quorum for a meeting of the company.

In the case of a public company, unless the Articles of the company provide for a large number, five members personally present are quorum for a meeting of the company. (section 174 (1)).

D) Government Company
Section 617 of the companies Act of 1956 defines government company as follows i) For the purpose of this Act Government company means any company in which more than fifty one percent of the paid up share capital is held by the central government, or by any State Government, or Governments or partly by others.

The Central Government and partly by one or more state governments and includes a company which is a subsidiary of a

Government company as thus defined In India, there are many companies in which 100% paid-up share capital or more than 51% of the paid up share capital is provided by the Central or State Government.

E) Based on the Jurisdiction of functioning

The boundaries of the country wherein it is registered, such a company is called a multinational or transnational company Foreign company :- , It can be said that a foreign company is one which is incorporated outside India but has a place of business in India.

(b) MNC:Companies incorporated outside India before/after the commencement of this act at many places, established a place of business within India and continue their business at established places within India at the commencement of this Act and after.

F) On the basis of control and/or share holding

a) Holding company :- section 4 (4) of the companies Act of 1956 implies that a company is deemed to be holding company of another if that other is its subsidiary. Thus, a holding company can be defined as a company which has a control over a subsidiary company through anyone of the several methods as explainedinsection4(1).

b) Subsidiary company :- A company is a subsidiary of a holding company if a holding company controls the majority composition of its board of directors, having an object to control the management of the subsidiary or that other company i.e. holding company holds the majority of its shares or the holding companys subsidiary has its own subsidiary, it becomes the subsidiary of the first mentioned company


Other types of companies:

One Man company :- One man company can be a public or a private company, but it is usually a private company wherein one man holds practically the whole of the share capital of the company. In other words, it can be said that where a single man holds almost all the shares of a company such a company is called as one man company. If one man company satisfies all the conditions and requirements of incorporation as laid down in the companies Act, it becomes a legal personality.

Generally for formation of one man company in order to

meet the statutory requirements, certain persons are invited to become members who may hold a few shares. Such dummy members are usually nominees of the main shareholder who is the de-facto owner of the company and carries on the business with Limited Liability e.g. X and Y register their company as a private company with a share capital of Rs 7,00,000 divided into 70000 shares of Rs. 10/each. X holds 69,999 shares while Y holds only 1 share. This is nothing but an example of one man Co. company.

Conversion of Company
The Act provides for conversion of public company into a private company and vice versa A private company is converted into a public company either by default or by choice in compliance with the statutory requirements. Once the action for conversion takes place then, a petition can be filed with the central government with the necessary documents for its decision on the matter of conversion

Registration and Incorporation

Association of persons or partnership or more

than 20 members ( 10 in case of banking) can register to form a company under the Companies Act, 1956 If they do not register they can be considered to be illegal association. The contract entered into by this illegal association is void and cannot be validated. Its illegality will not affect its tax liability or its chargeability The certification of incorporation is the conclusive evidence, that all the requirements for the registration have been complied with the

Incorporation of a Company
The persons who conceive an idea of a company decide

and do the necessary work for formation of a company are called the promoters of the Company. The Promoters are the persons who decide on the formation of the company. The promoters of a company stand undoubtedly in a fiduciary position though they are not the agent or a trustee of a company. They are the ones who create and mould the company. They may have to enter into pre-incorporation contracts , which can be validated after the incorporation of the company for obtaining certificate of incorporation.

They can be remunerated for their services, but they

have to enter into a contract before the incorporation of the company through a pre incorporation of the company They will usually act as nominees or as the first directors of the company They enter into contracts after the incorporation and before the commencement of business. But they need not compulsorily participate in the formation of the company.

Sometimes , a few persons may only act as professionals who help the promoters on behalf of

the company.. like the solicitor, chartered accountant etc.. and get paid for their services. The promoters in most of the cases decide as to What is the type of a company to be formed? In India promoters generally secure the management of the company that is formed and have a controlling interest in the companys management

Legal Position of the Promoters

They cannot make profit at the expense of the company, which they have promoted without the

knowledge and consent of the company. In case they do so , they may be compelled to account for it. They cannot sell their property to the company at a profit unless all the material facts are disclosed at the independent board of directors or the shareholders of the company. If they do so, the company may repudiate the contract of sale or confirm the sale after recovering the profit made by the promoter.

Promoters have the following liabilities under the Companies Act, 1956
They can be liable for non compliance of the provisions of

the Act Severe penalty may be imposed The court may suspend the promoter from taking part in the management of the company Liable for any untrue statement in the prospectus to the person who has subscribed for any shares or debentures on the faith of the prospectus The liabilities are . a) to set aside the allotment of shares, b) sued for damages, c) sued for compensation d) criminal proceedings

Promoters Liability
Application for availability of name Preparation of MOA and AOA Selection and finalization of MOA and AOA- Its printing, stamping and signing Preparation of other necessary documents Filling of the required documents for Registration to obtain certificate of incorporation and Certificate of commencement of business

Assignment 1 (Submission: 27th march.2013)

Explain the position of Promoters/ directors of a company?
Two joint Hindu families carry on business

together as joint owners. The first family consists of 3 brothers & their respective sons being 12 in number. The second family consists of the father, 4 major sons & 2 minor sons. Is the business illegal? What are the special privileges of Private company? Mention any 6-7 points

Memorandum of Association
It is the charter of the company It contains the fundamental conditions upon which the company can be incorporated It contains the objects of the companys formation The company has to act within objects specified in

the MOA It defines as well as confines the powers of the company Any thing done beyond the objects specified in the MOA will be ultra vires. Their transactions will be null and void The outsider have to transact looking into the MOA

Conditions of the MOA

It should be printed Divided into paragraph and numbers

consecutively Signed by at least seven persons or two in case of public and private company respectively. The signature should be in the presence of a witness, who will have to attest the signature Members have to take shares and write the number of shares taken with full address

The MOA of the Limited Company

The name of the state where the registered office of the company is to be situated The objects of the company stating the

Main objects and the other objects The declaration about the liability of the members is limited ( limited by shares or guarantee) The amount of the authorized share capital, divided into shares of fixed amounts.

The Compulsory Clauses in MOA The Name Clause it decides on the name of
the company based on the capital involved
The Registered Office Clause- where it has

registered its head office and other branch office ( The registered office can be changed with the permission of the ROC) object and the other objects of the company are clearly specified. The applicable doctrine here is the Doctrine of Ultra Vires beyond the powers of the company (opposed to Intra Vires)

The Object Clause- Main object, ancillary

The Liability Clause- What is the liability of its members..

limited by shares or guarantee or unlimited, there can be alteration in the liability clause The Capital Clause - The amount of the nominal capital of the company, number of shares in which it is to be divided alteration of the capital clause etc The Association or Subscription clause- Where the subscribers to the MOA declare that they respectively agree to take the number of the shares in the capital. It has to have the following: a) They have to sign in the presence of two witnesses, who attest the signatures, b) The subscriber to take at least one share. c) After the name the subscriber has to write the number of shares taken

Doctrine of Ultra Vires

The powers exercisable by the company are to be

confined to the objects specified in the MOA. So it is better to define and include the provisions regarding the acquiring of business, sharing of profits, promoting company and other financial, gifts , political party funds etc If the company acts beyond the powers or the objects of the company that is specified in the MOA, the acts are considered to be of ultra vires. Even if it is ratified by the all the members, the action is considered to be ineffective. Even the charitable contributions have to be based on the object clause.

Articles of Association
It is the companies bye- laws or rules to govern the management of the company for its internal

affairs and the conduct of its business. AOA defines the powers of its officers and also establishes a contract between the company and the members and between the members inter se It can be originally framed and altered by the company under previous or existing provisions of law.

AOA plays a subsidiary part to the MOA Any thing done beyond the AOA will be

considered to be irregular and may be ratified by the shareholders. The content of the AOA may differ from company to company as the Act has not specified any specific provisions Flexibility is allowed to the persons who form the company to adopt the AOA within the requirements of the company law The AOA will have to be conversant with the MOA, as they are contemporaneous documents to be read together. Any ambiguity and uncertainty in one of them may be removed by reference to the other.

Contents of the AOA may be as follows:

Share capital Transfer and transmission of shares Forfeiture of the shares Surrender of the shares General meetings Alteration of the capital Directors etc.. Dividends and reserves Account and audit Borrowing powers Winding up Adoption of the preliminary contracts etc.

Class Activity
What are the differences between AOA & MOA?
Do all companies have both?

How can you alter MOA & AOA?

Raising of Capital From Public

The companies can raise money by offering securities for sale to the public. They can invite the public to buy shares, which is known as public issue. For this purpose the company may issue a prospectus, which may include a notice circular, advertisement or other documents which are issued to invite public deposits.

It is an invitation issued to the public to purchase or

subscribe shares or debentures of the company. Every prospectus must be dated. The date of publication and the date of issue must be specifically stated in the prospectus.
The golden rule of the prospectus is that every detail

has to be given in strict and scrupulous accuracy. The material facts given in the prospectus are presumed to be true.

Contents of the prospectus

General information Capital structure Terms of present issue Management and projects

Management and perception of risk factor

It is compulsory to register the prospectus with the Registrar

Civil Liability for Misstatements In case of any untrue statement in the prospectus

The liability will be on the director of the company , whose name was written during the time of issue The persons who have authorized their names to be theirs in the prospectus to be named as directors Promoter Every person including the person who is an expert and has authorized his name to be issued with the prospectus

Remedies for misstatements in the prospectus

Relying on the prospectus if any person buys shares, the person may- Rescind the contract ( only when there is misrepresentation relating to the material facts. The rescission has to be done within a reasonable time Claim damages- it can be claimed from the directors, promoters or other persons who has authorized their name to be written during the issue of the prospectus

Promoters &Shareholders & Debenture Holders &

Promoters- Before a company can be formed ,there must be some persons who have an intension to form a company and who take the necessary steps to carry that intention into operation. The promoters of a company decide the scope of its business activities. they provide a registration fees and carry out other duties involved in the formation of company.

- The terms members refer to a person whose name appears on the register of the company. On the other hand ,the term shareholders refer to a person who holds shares in a company. - Section-41 of the companies act defines a member as: 1-the subscriber of the memorandum of a company shall be deemed to have agreed to become members of the company and on its registration shall be entered as member in its register of members.

2-Every other person who agrees in writing to become a member of a company and whose name is entered in its register of member shall be a member of the company. 3-Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to a member of the concerned company.

1-A holder of a share warrant is a shareholder but not a member as his name is struck off the register of members immediately after the issue of such share warrant. 2-A registered shareholder is a member but a registered member may not be a shareholder, because the company may not have a share capital. 3-The transferor or the deceased person is a member so long as his name is on the register of members whereas he cannot be termed a shareholder. 4-similarly a shareholder by transfer is not a member until his name is entered in the companys register of company

Difference between Shareholder & Member

Principal of Majority rule

Majority must prevail is the fundamental principal of company law. Except the power vested in board of directors the overall power are exercised through general meeting and question relating to management are decided either by a simple majority or special majority of the votes of shareholders.

Who can be called a minority

The group of shareholder who are not a part of the majority can be called the minority. It can be single dissident shareholder or group of a shareholder.


Unjust /unfair conduct which is burdensome, harsh & wrongful
Must be of a persistent nature, continuing till

the date of petition Minor acts of mismanagement or domestic disputes between directors or members etc is not oppression The complainant must be suffering from oppression in his capacity as a member & not in any other capacity

Acts amounting to Oppression

Attempts by majority shareholders to force new & risky objects on an unwilling minority
Unreasonable refusal for transfer of shares

with motive of retaining control Depriving the member of their membership rights- right to vote, elect director etc Diversion of a business opportunity to company controlled by one of the directors Making the allocation in such a way that majority is reduced to minority


Not calling a gen. meeting & keeping the shareholder in dark Non maintenance of statutory records & not conducting affairs of the co. in accordance with the Cos Act Depriving a member of the right to dividend


Transfer of share held by Company to some shareholders otherwise than by making an offer to all If sale of asset is made by a Co. to some of its directors & simultaneously giving them loan to purchase the same Issue of further shares benefiting a section of the share holders

Acts Not Held As Oppressive

An unwise, inefficient careless conduct of a director Not declaring dividend when Co. is making loss Non-holding of the meeting of the director Failure to maintain proper records of the Co.

Acts which are not Oppression

Carelessness on the part of director
Illegal or irregular acts Denial of access to books of accounts to a

member Declaration of dividend below the actual profits

Includes both acts of omission & commission
When the affairs of the company are being

conducted in a manner prejudicial to the public interest or the company's interest.

When by a reason of material change in the

management or control of he company the affairs of the company are likely to be conducted in a manner prejudicial to the public interest or the company's interest.

Prevention of Mismanagement
Sec. 398 provides for relief in case of mismanagement by majority A requisite no of members of the Co. may apply to tribunal for appropriate relief on the ground of mismanagement of the Co.

Acts Held as Mismanagement

(Under Sec. 398) Serious in fight between the directors

Illegal constitution of the board of directors

Gross neglect of interest of the Co. by sale of its only assets


Diversion of the fund to benefit the majority Operation of bank A/C by an unauthorized person Advance of loans with out execution of a document Continuation of managing director in office after the expiry of his term.


Sale of assets at low price & with out compliance with the Act Violation of statutory provisions & those of articles Violation of the condition of the Cos memorandum

Acts not held as Mismanagement

Building up of reserves
Merely because company incurs loss, it can not be that it is mismanaged Removal of secretary by majority decision of the board of directors unless it is shown that the removal has prejudicially affected the interest of the Co. or the public interest

Reliefs against O & M

Application to the tribunal for the winding up of the company- last resort
Application to tribunal for relief by-

- Making necessary alterations in the memorandum

- Termination or setting aside or modification

of any agreement between the company & its MD/ third party

Reliefs against O & P

Notice of application to Central Govt.tribunal should give each notice of every application & consider the recommendations

of central govt. before passing final order Central govt. can also appoint directors to protect the interest of the company- if more than 100 members approached or members holding 1/10th of voting power

Powers of Central Govt.

Power to appoint directors & additional directors which will report govt. from time to time with regard to affairs of the company Power to issue directions- To alter articles of the company - To remove an auditor etc Tribunal can also prevent change on Board of

Directors- if it prejudicially affects the affairs of the comapny

Assignment 2
Discuss the provisions of companies Act 1956, regarding the investigation of affairs of a company by the Central Govt.? What types of Investigations can be ordered?

Submission next class- 29th March 2013


Winding up/liquidation/dissolution
Winding up of a company is a process of putting an end the life of a company .it is a proceeding by means of which a company is dissolved and in the course of such a dissolution its assets are collected ,its debts are paid off out of the assets of the company or from contribution by its members.

End of Companies Act!!!


Section 10 of the act makes the registration of the all the industrial undertaking. after that Govt. should issue Certificate of registration. The Govt. should Consider in Certificate of registration1-The productive or Installed Capacity 2-Level of production immediately before three years. 3-Export factor

Revocation of Registration Section 10A If it has obtain by misrepresentation Who Require Licence Every existing industrial undertaking (Not being Central Govt.) in the private sector require licence

When Registration is not Necessary

1- Small Scale Industry
2-otherwise exempt from he license 3-not cover in definition of Factory 100%EOU/SEZ

Industrial Licence
An industrial Licence is a written permission from the Govt. to an industrial undertaking to manufacture specified articles listed in First schedule and includes particulars of industrial undertaking, its location ,article to be manufactured the capacity on the basis of maximum utilization of plant & machinery etc.

When is Licence Required

1-Licence for manufacturing of New Articles 2-Licence for carrying on Business without Registration 3-Licence of New undertaking 4-Licence for carrying on business after the revocation of certificate of registration 5-Licence for change in location

Power of Govt. to Investigation

Sec-15 The Central Govt. may make investigation in

respect of any Industrial undertaking1-If there has been substantial fall in volume of production for which there is no justification. 2 if there has been marked deterioration in the quality of the articles for which there is no justification. 3 if there has been rise in the price without justification. 4if working against public interest. 5-in case of company Liquidation

Power of Central Government after Investigation Sec-16

1-fix the standard of production
2-to control the price 3-to take such step for development of the

undertaking. 4-prohibit any practice which reduce there production

Power to take management of the undertaking by Central Govt. Sec-18A

Where central govt. is of opinion that 1-Not comply direction u/s-16 2-managed against public interest

Power to take IU without Investigation 18 AA

1-The person of the IU have by reckless investment or creation of the in cumbrances on the assets of the IU 2-Close for a period more than 3 months

Effect of notified order under section 18A

1-All person holding as a management position shall vacated the office 2-All contracts between IU and management

shall be terminated 3-The person authorized by Govt. shall take the management of the IU

Cancellation of contracts in bad faith(18c)

No compensation to terminated

directors(18D) Application of Companies Act 1956(winding up)

Take over of IU owned by Company in Liquidation Sec-18FA

After the necessary investigation have been made u/s

15A the Central Govt. is of the opinion that there are possibilities of running or restarting IU, and the Central Govt. is further satisfied that the IU should be run for maintaing or increasing the production, supply or distribution of articles needed by the general public. Then application to high court & after that High Court shall order to central Govt.to appoint any person or body to take over the management. which should not be exceeding more than 5 years.

Power of IDRA
Power of Inspection
To take over the management of the

Industrial Undertaking Give order for control the price and distribution of of certain articles(18G)

Where any person failure on1-Provison sec10(1)- Failure to get Registration 2-failure to obtain Licence for manufacture new article. 3-failure to comply direction u/s 16 after investigation 4-any order u/s 18 G These contravention attract imposition upto 6 months or fine extending upto Rs.5000/-

Power to Exempt in Certain Cases (Section 29-B)

Some condition such 1- The smallness of the number of worker employed 2-Amount invested in the IU 3-Desiirability of encouraging small IU

Industrial Licensing PolicyLocational Policy

IU are free to select location of the project. however in the case of cities with population more than one million the proposed location should be at least more than 25 KM away or it should be located in Industrial area.
Industries related to electronic , computer software and printing are exempt from such restriction.

Policy Regarding Foreign Investment

Approval will be given for upto 51% investment
Payment of dividend should be monitored by

RBI To provide access international market In SSI 24 % allowed foreign Investment

Other sector open to foreign Investors.

Hotel & tourism 51% Advertising Sector 74% Insurance sector26% 100%in power sector with approval Telecommunication 49% Film Industry100% Drugs & Pharmaceuticals 100%

List of Industries reserved for public sector

Arms and ammunition and allied of defence equipment
Atomic Energy

Mineral Oils
Railway Transport

Industrial Licence is compulsory

Alcoholic drinks
Cigar and Cigarettes of tobacco Defence equipment Hazardous chemicals Drugs and pharmaceutics