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CHAPTER XII : MEETINGS OF BOARD
AND ITS POWERS
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Section 173: Meetings of Board
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(1) Every company shall hold the first
meeting of the Board of Directors
within thirty days of the date of its
incorporation and thereafter hold a
minimum number of four meetings of its
Board of Directors every year in such a
manner that not more than one hundred
and twenty days shall intervene between
two consecutive meetings of the Board:
Provided that the Central Government
may, by notification, direct that the
provisions of this sub-section shall
not apply in relation to any class or
description of companies or shall apply
subject to such exceptions,
modifications or conditions as may be
specified in the notification.]
(2) The participation of directors in a
meeting of the Board may be either in
person or through video conferencing or
other audio visual means,
as may be prescribed
, which are capable of recording and
recognising the participation of the
directors and of recording and storing
the proceedings of such meetings along
with date and time:
Provided that the Central Government
may,
by notification, specify such
matters
which shall not be dealt with in a
meeting through video conferencing or
other audio visual means.
5
[Provided further that where there is
quorum in a meeting through physical
presence of directors, any other
director may participate through video
conferencing or other audio visual
means in such meeting on any matter
specified under the first proviso.]
(3) A meeting of the Board shall be
called by giving not less than seven
days’ notice in writing to every
director at his address registered with
the company and such notice shall be
sent by hand delivery or by post or by
electronic means:
Provided that a meeting of the Board
may be called at shorter notice to
transact urgent business subject to the
condition that at least one independent
director, if any, shall be present at
the meeting:
Provided further that in case of
absence of independent directors from
such a meeting of the Board, decisions
taken at such a meeting shall be
circulated to all the directors and
shall be final only on ratification
thereof by at least one independent
director, if any.
(4) Every officer of the company whose
duty is to give notice under this
section and who fails to do so shall be
liable to a penalty of twenty-five
thousand rupees.
(5) A One Person Company, small company
and dormant company shall be deemed to
have complied with the provisions of
this section if at least one meeting of
the Board of Directors has been
conducted in each half of a calendar
year and the gap between the two
meetings is not less than ninety days:
Provided that nothing contained in this
sub-section and in
section 174
shall apply to One Person Company in
which there is only one director on its
Board of Directors.]
Exceptions/ Modifications/
Adaptations
1. In case of Section 8 company -
Section 173 (1) shall apply only to the
extent that the Board of Directors, of
such Companies shall hold at least one
meeting within every six calendar
months. -
Notification dated 5th june, 2015.
2. In case of
Specified IFSC Public Company
- In sub-section (1) of Section 173,
after the proviso, the following
proviso shall be inserted, namely:-
“Provided further that a
Specified IFSC public company
shall hold the first meeting of the
Board of Directors within sixty days of
its incorporation and thereafter hold
atleast one meeting of the Board of
Directors in each half of a calendar
year.”.
Notification Dated 4th January 2017
.
3. In case of
Specified IFSC Priavte Company
- In sub-section (1) of Section 173
after the proviso, the following
proviso shall be inserted, namely:-
“Provided further that a
Specified IFSC private company
shall hold the first meeting of the
Board of Directors within sixty days of
its incorporation and thereafter hold
atleast one meeting of the Board of
Directors in each half of a calendar
year.”.
Notification Dated 4th January 2017
.
4. In case of Private Company - For
Sub-section(5) of Section 173 the
following sub-section shall be
substituted, namely:-
(5) A One Person Company, small
company, dormant company and a private
company (if such private company is a
start-up) shall be deemed to have
complied with the provisions of this
section if at least one meeting of the
Board of Directors has been conducted
in each half of a calendar year and the
gap between the two meetings is not
less than ninety days: -
Notification Dated 13th June, 2017
Amendments
5.
Inserted by The Companies
(Amendment) Act, 2017
:-
Amendment Effective From 7th May
2018
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Section 174: Quorum for
Meetings of Board
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(1) The quorum for a meeting of the
Board of Directors of a company shall
be 1[one third of its total
strength or two directors, whichever is
higher], and the participation of the
directors by video conferencing or by
other audio visual means shall also be
counted for the purposes of quorum
under this sub-section.
(2) The continuing directors may act
notwithstanding any vacancy in the
Board; but, if and so long as their
number is reduced below the quorum
fixed by the Act for a meeting of the
Board, the continuing directors or
director may act for the purpose of
increasing the number of directors to
that fixed for the quorum, or of
summoning a general meeting of the
company and for no other purpose.
(3) Where at any time the number of
interested directors exceeds or is
equal to twothirds of the total
strength of the Board of Directors, the
number of directors who are not
interested directors and present at the
meeting, being not less than two, shall
be the quorum during such time.
Explanation.—For the purposes of this
sub-section, “interested director”
means a director within the meaning of
sub-section (2) of
section 184.
]
(4) Where a meeting of the Board could
not be held for want of quorum, then,
unless the articles of the company
otherwise provide, the meeting shall
automatically stand adjourned to the
same day at the same time and place in
the next week or if that day is a
national holiday, till the next
succeeding day, which is not a national
holiday, at the same time and place.
Explanation.—For the purposes of this
section,—
(i) any fraction of a number shall be
rounded off as one;
(ii) “total strength” shall not include
directors whose places are vacant.
Exceptions/ Modifications/
Adaptations
1. In case of section 8 company, in
Sub-section (1) of Section 174, for the
words "one-third of its total strength
or two directors, whichever is higher",
the words "either eight members or
twenty five per cent, of its total
strength whichever is less" shall be
substituted.
The following proviso shall be inserted
namely in case of section 8 company -
"provided that the quorum shall not be
less than two members". -
Notification dated 5th june, 2015.
2. In case of
Specified IFSC Public Company
- Sub-section (3) of section 174 shall
apply with the exception that
interested director may participate in
such meeting provided the disclosure of
his interest is made by the concerned
director either prior or at the
meeting. -
Notification Date 4th January, 2017
.
3. In case of
Specified IFSC Private Company
- Sub-section (3) of section 174 shall
apply with the exception that
interested director may participate in
such meeting provided the disclosure of
his interest is made by the concerned
director either prior or at the
meeting. -
Notification Date 4th January, 2017
.
4. In case of Private Company -
Sub-Section (3) of Section 174 shall
apply with the exception that the
interested director may also be counted
towards quoram in such meeting after
disclosure of his interest pursuant to
section 184." -
Notification Dated 13th June, 2017
.
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Section 175: Passing of
Resolution by Circulation
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(1) No resolution shall be deemed to
have been duly passed by the Board or
by a committee thereof by circulation,
unless the resolution has been
circulated in draft, together with the
necessary papers, if any, to all the
directors, or members of the committee,
as the case may be, at their addresses
registered with the company in India by
hand delivery or by post or by courier,
or through such electronic means
as may be prescribed
and has been approved by a majority of
the directors or members, who are
entitled to vote on the resolution:
Provided that, where not less than
one-third of the total number of
directors of the company for the time
being require that any resolution under
circulation must be decided at a
meeting, the chairperson shall put the
resolution to be decided at a meeting
of the Board.
(2) A resolution under sub-section (1)
shall be noted at a subsequent meeting
of the Board or the committee thereof,
as the case may be, and made part of
the minutes of such meeting.
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Section 176: Defects in Appointment of Directors
not to Invalidate Actions Taken
No act done by a person as a director shall be deemed to be
invalid, notwithstanding that it was subsequently noticed
that his appointment was invalid by reason of any defect or
disqualification or had terminated by virtue of any
provision contained in this Act or in the articles of the
company:
Provided that nothing in this section shall be deemed to
give validity to any act done by the director after his
appointment has been noticed by the company to be invalid
or to have terminated.
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Section 177: Audit Committee
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(1) The Board of Directors of 5[every listed public
company] and such other class or
classes of companies,
as may be prescribed
, shall constitute an Audit Committee.
(2) The Audit Committee shall consist
of a minimum of three directors
2
[with independent directors forming a
majority]:
Provided that majority of members of
Audit Committee including its
Chairperson shall be persons with
ability to read and understand, the
financial statement.
(3) Every Audit Committee of a company
existing immediately before the
commencement of this Act shall, within
one year of such commencement, be
reconstituted in accordance with
sub-section (2).
(4) Every Audit Committee shall act in
accordance with the terms of reference
specified in writing by the Board which
shall, inter alia, include,—
3
[(i) the recommendation for
appointment, remuneration and terms of
appointment of auditors of the
company;]
(ii) review and monitor the auditor’s
independence and performance, and
effectiveness of audit process;
(iii) examination of the financial
statement and the auditors’ report
thereon;
(iv) approval or any subsequent
modification of transactions of the
company with related parties;
1
[Provided that the Audit Committee may
make omnibus approval for related party
transactions proposed to be entered
into by the company subject to such
conditions
as may be prescribed
;]
6
[Provided further that in case of
transaction, other than transactions
referred to in section 188, and where
Audit Committee does not approve the
transaction, it shall make its
recommendations to the Board:
Provided also that in case any
transaction involving any amount not
exceeding one crore rupees is entered
into by a director or officer of the
company without obtaining the approval
of the Audit Committee and it is not
ratified by the Audit Committee within
three months from the date of the
transaction, such transaction shall be
voidable at the option of the Audit
Committee and if the transaction is
with the related party to any director
or is authorised by any other director,
the director concerned shall indemnify
the company against any loss incurred
by it:
Provided also that the provisions of
this clause shall not apply to a
transaction, other than a transaction
referred to in section 188, between a
holding company and its wholly owned
subsidiary company.]
(v) scrutiny of inter-corporate loans
and investments;
(vi) valuation of undertakings or
assets of the company, wherever it is
necessary;
(vii) evaluation of internal financial
controls and risk management systems;
(viii) monitoring the end use of funds
raised through public offers and
related matters.
(5) The Audit Committee may call for
the comments of the auditors about
internal control systems, the scope of
audit, including the observations of
the auditors and review of financial
statement before their submission to
the Board and may also discuss any
related issues with the internal and
statutory auditors and the management
of the company.
(6) The Audit Committee shall have
authority to investigate into any
matter in relation to the items
specified in sub-section (4) or
referred to it by the Board and for
this purpose shall have power to obtain
professional advice from external
sources and have full access to
information contained in the records of
the company.
(7) The auditors of a company and the
key managerial personnel shall have a
right to be heard in the meetings of
the Audit Committee when it considers
the auditor’s report but shall not have
the right to vote.
(8) The Board’s report under
sub-section (3) of
section 134
shall disclose the composition of an
Audit Committee and where the Board had
not accepted any recommendation of the
Audit Committee, the same shall be
disclosed in such report along with the
reasons therefor.
(9) Every listed company or such class
or classes of companies,
as may be prescribed
, shall establish a vigil mechanism for
directors and employees to report
genuine concerns in such manner
as may be prescribed
.
(10) The vigil mechanism under
sub-section (9) shall provide for
adequate safeguards against
victimisation of persons who use such
mechanism and make provision for direct
access to the chairperson of the Audit
Committee in appropriate or exceptional
cases:
Provided that the details of
establishment of such mechanism shall
be disclosed by the company on its
website, if any, and in the Board’s
report.]
Amendments
1.
Inserted by Companies (Amendment)
Act, 2015
and is
effective from 14th December, 2015.
5.
Substituted by the Companies
Amendment Act 2017
:-
Amendment Effective From 7th May
2018
In section 177, in sub-section (1), for
the words
"every listed company"
the following words shall be
substituted, namely :-
"every listed public company"
6.
Inserted by The Companies
(Amendment) Act, 2017
.:-
Amendment Effective From 7th May
2018
Exceptions/ Modifications/
Adaptations
2. Note: In case of section 8 company,
in Section-section 2 of Section 177 the
words "with independent directors
forming a majority" shall be omitted. -
Notification dated 5th june, 2015.
3. In case of Government Company - in
clause (i) of Sub-section (4) of
Section 177 for the words
"recommendation for appointment,
remuneration and terms of appointment'"
the words "recommendation for
remuneration" shall be substituted. -
Notification dated 5th june, 2015.
4. In case of
Specified IFSC Public Company
- Section 177 shall not apply. -
Notification Dated 4th January 2017
.
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Section 178: Nomination and
Remuneration Committee and
Stakeholders Relationship
Committee
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(1) The Board of Directors of 4[every listed public
company] and such other class or
classes of companies,
as may be prescribed
shall constitute the Nomination and
Remuneration Committee consisting of
three or more non-executive directors
out of which not less than one-half
shall be independent directors:
Provided that the chairperson of the
company (whether executive or
non-executive) may be appointed as a
member of the Nomination and
Remuneration Committee but shall not
chair such Committee.
(2) The Nomination and Remuneration
Committee shall identify persons who
are qualified to become directors and
who may be appointed in senior
management in accordance with the
criteria laid down, recommend to the
Board their appointment and removal and 5[shall specify the manner
for effective evaluation of performance
of Board, its committees and individual
directors to be carried out either by
the Board, by the Nomination and
Remuneration Committee or by an
independent external agency and review
its implementation and compliance].
(3) The Nomination and Remuneration
Committee shall formulate the criteria
for determining qualifications,
positive attributes and independence of
a director and recommend to the Board a
policy, relating to the remuneration
for the directors, key managerial
personnel and other employees.
(4) The Nomination and Remuneration
Committee shall, while formulating the
policy under sub-section (3) ensure
that—
(a) the level and composition of
remuneration is reasonable and
sufficient to attract, retain and
motivate directors of the quality
required to run the company
successfully;
(b) relationship of remuneration to
performance is clear and meets
appropriate performance benchmarks; and
(c) remuneration to directors, key
managerial personnel and senior
management involves a balance between
fixed and incentive pay reflecting
short and long-term performance
objectives appropriate to the working
of the company and its goals:
[Provided that such policy shall be
placed on the website of the company,
if any, and the salient features of the
policy and changes therein, if any,
along with the web address of the
policy, if any, shall be disclosed in
the Board's report.]
(5) The Board of Directors of a company
which consists of more than one
thousand shareholders,
debenture-holders, deposit-holders and
any other security holders at any time
during a financial year shall
constitute a Stakeholders Relationship
Committee consisting of a chairperson
who shall be a non-executive director
and such other members as may be
decided by the Board.
(6) The Stakeholders Relationship
Committee shall consider and resolve
the grievances of security holders of
the company.
(7) The chairperson of each of the
committees constituted under this
section or, in his absence, any other
member of the committee authorised by
him in this behalf shall attend the
general meetings of the company.
(8) In case of any contravention of the
provisions of
section 177
and this section, the company shall be
punishable with fine which shall not be
less than one lakh rupees but which may
extend to five lakh rupees and every
officer of the company who is in
default shall be punishable with
imprisonment for a term which may
extend to one year or with fine which
shall not be less than twenty-five
thousand rupees but which may extend to
one lakh rupees, or with both:
Provided that 7[inability to
resolve or consider any grievance] by
the Stakeholders Relationship Committee
in good faith shall not constitute a
contravention of this section.
Explanation.—The expression ‘‘senior
management’’ means personnel of the
company who are members of its core
management team excluding Board of
Directors comprising all members of
management one level below the
executive directors, including the
functional heads.]
Exceptions/ Modifications/
Adaptations
1. In case of section 8 company -
Section 178 shall not apply -
Notification dated 5th june, 2015.
2. In case of Government company-
Sub-sections (2), (3) and (4) of
Section 178, shall not apply except
with regard to appointment of 'senior
management' and other employees. -
Notification dated 5th june, 2015.
3. In case of
Specified IFSC Public Company
- Section 178 shall not apply. -
Notification Dated 4th January 2017
.
Amendments
4.
Substituted by the Companies
Amendment Act 2017
:-
Amendment Effective From 7th May
2018
In section 178, in sub-section (1), for
the words
"every listed company"
the following words shall be
substituted, namely :-
"every listed public company"
5.
Substituted by the Companies
Amendment Act 2017
:-
Amendment Effective From 7th May
2018
In section 178, in sub-section (2), for
the words
"shall carry out evaluation of every
director's performance"
the following words shall be
substituted, namely :-
"shall specify the manner for effective
evaluation of performance of Board, its
committees and individual directors to
be carried out either by the Board, by
the Nomination and Remuneration
Committee or by an independent external
agency and review its implementation
and compliance"
6.
Substituted by the Companies
Amendment Act 2017
:-
Amendment Effective From 7th May
2018
In section 178, in sub-section (4), in
clause (c), for the proviso,
"Provided that such policy shall be
disclosed in the Board's report"
the following proviso shall be
substituted, namely :-
"Provided that such policy shall be
placed on the website of the company,
if any, and the salient features of the
policy and changes therein, if any,
along with the web address of the
policy, if any, shall be disclosed in
the Board's report."
7.
Substituted by the Companies
Amendment Act 2017
:-
Amendment Effective From 7th May
2018
In section 178, in sub-section (8), in
the proviso, for the words
"non-consideration of resolution of any
grievance"
the following words shall be
substituted, namely :-
"inability to resolve or consider any
grievance"
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Section 179: Powers of Board
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(1) The Board of Directors of a company
shall be entitled to exercise all such
powers, and to do all such acts and
things, as the company is authorised to
exercise and do:
Provided that in exercising such power
or doing such act or thing, the Board
shall be subject to the provisions
contained in that behalf in this Act,
or in the memorandum or articles, or in
any regulations not inconsistent
therewith and duly made there under,
including regulations made by the
company in general meeting:
Provided further that the Board shall
not exercise any power or do any act or
thing which is directed or required,
whether under this Act or by the
memorandum or articles of the company
or otherwise, to be exercised or done
by the company in general meeting.
(2) No regulation made by the company
in general meeting shall invalidate any
prior act of the Board which would have
been valid if that regulation had not
been made.
2&3
[(3) The Board of Directors of a
company shall exercise the following
powers on behalf of the company by
means of resolutions passed at meetings
of the Board, namely:—
(a) to make calls on shareholders in
respect of money unpaid on their
shares;
(b) to authorise buy-back of securities
under
section 68
;
(c) to issue securities, including
debentures, whether in or outside
India;
1
[(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or
provide security in respect of loans;]
(g) to approve financial statement and
the Board’s report;
(h) to diversify the business of the
company;
(i) to approve amalgamation, merger or
reconstruction;
(j) to take over a company or acquire a
controlling or substantial stake in
another company;
(k) any other matter which
may be prescribed
:
Provided that the Board may, by a
resolution passed at a meeting,
delegate to any committee
of directors, the managing director,
the manager or any other principal
officer of the company or in the case
of a branch office of the company, the
principal officer of the branch office,
the powers specified in clauses (d) to
(f) on such conditions as it may
specify:
[Provided further that the acceptance
by a banking company in the ordinary
course of its business of deposits of
money from the public repayable on
demand or otherwise and withdrawable by
cheque, draft, order or otherwise, or
the placing of monies on deposit by a
banking company with another banking
company on such conditions as the Board
may prescribe, shall not be deemed to
be a borrowing of monies or, as the
case may be, a making of loans by a
banking company within the meaning of
this section.]
Explanation I.—Nothing in clause (d)
shall apply to borrowings by a banking
company from other banking companies or
from the Reserve Bank of India, the
State Bank of India or any other banks
established by or under any Act.
Explanation II.—In respect of dealings
between a company and its bankers, the
exercise by the company of the power
specified in clause (d) shall mean the
arrangement made by the company with
its bankers for the borrowing of money
by way of overdraft or cash credit or
otherwise and not the actual day-to-day
operation on overdraft, cash credit or
other accounts by means of which the
arrangement so made is actually availed
of.
(4) Nothing in this section shall be
deemed to affect the right of the
company in general meeting to impose
restrictions and conditions on the
exercise by the Board of any of the
powers specified in this section.
Exception/ Modification/ Adaptation
1. In case of section 8 company,
matters referred to in clauses (d), (e)
and (f) of Sub-section (3) of Section
179 may be decided by the Board by
circulation instead of at a meeting. -
Notification dated 5th june, 2015.
2. In case of
Specified IFSC Public Company
- In sub-section (3) of Section 179,
after the second proviso, the following
proviso shall be inserted, namely:-
“Provided also that in case of a
Specified IFSC public company
, the Board can exercise powers by
means of resolutions passed at the
meetings of the Board or through
resolutions passed by circulation.”.
Notification Dated 4th January
2017.
3. In case of
Specified IFSC Priavte Company
- In sub-section (3) of Section 179,
after the second proviso, the following
proviso shall be inserted, namely:-
“Provided also that in case of a
Specified IFSC priavte company
, the Board can exercise powers by
means of resolutions passed at the
meetings of the Board or through
resolutions passed by circulation.”.
Notification Dated 4th January
2017.
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Section 180: Restrictions on Powers of Board
(1) The Board of Directors of a company shall exercise the
following powers only with the consent of the company by a
special resolution
, namely:—
(a) to sell, lease or otherwise dispose of the whole or
substantially the whole of the undertaking of the company
or where the company owns more than one undertaking, of the
whole or substantially the whole of any of such
undertakings.
Explanation.—For the purposes of this clause,—
(i) “undertaking” shall mean an undertaking in which the
investment of the company exceeds twenty per cent. of its
net worth as per the audited balance sheet of the preceding
financial year or an undertaking which generates twenty per
cent. of the total income of the company during the
previous financial year;
(ii) the expression “substantially the whole of the
undertaking” in any financial year shall mean twenty per
cent. or more of the value of the undertaking as per the
audited balance sheet of the preceding financial year;
(b) to invest otherwise in trust securities the amount of
compensation received by it as a result of any merger or
amalgamation;
(c) to borrow money, where the money to be borrowed,
together with the money already borrowed by the company
will exceed aggregate of its 3[paid-up share
capital, free reserves and securities premium] , apart from
temporary loans obtained from the company’s bankers in the
ordinary course of business:
Provided that the acceptance by a banking company, in the
ordinary course of its business, of deposits of money from
the public, repayable on demand or otherwise, and
withdrawable by cheque, draft, order or otherwise, shall
not be deemed to be a borrowing of monies by the banking
company within the meaning of this clause.
Explanation.—For the purposes of this clause, the
expression “temporary loans” means loans repayable on
demand or within six months from the date of the loan such
as short-term, cash credit arrangements, the discounting of
bills and the issue of other short-term loans of a seasonal
character, but does not include loans raised for the
purpose of financial expenditure of a capital nature;
(d) to remit, or give time for the repayment of, any debt
due from a director.
(2) Every special resolution passed by the company in
general meeting in relation to the exercise of the powers
referred to in clause (c) of sub-section (1) shall specify
the total amount up to which monies may be borrowed by the
Board of Directors.
(3) Nothing contained in clause (a) of sub-section (1)
shall affect—
(a) the title of a buyer or other person who buys or takes
on lease any property, investment or undertaking as is
referred to in that clause, in good faith; or
(b) the sale or lease of any property of the company where
the ordinary business of the company consists of, or
comprises, such selling or leasing.
(4) Any special resolution passed by the company consenting
to the transaction as is referred to in clause (a) of
sub-section (1) may stipulate such conditions as may be
specified in such resolution, including conditions
regarding the use, disposal or investment of the sale
proceeds which may result from the transactions:
Provided that this sub-section shall not be deemed to
authorise the company to effect any reduction in its
capital except in accordance with the provisions contained
in this Act.
(5) No debt incurred by the company in excess of the limit
imposed by clause (c) of sub-section (1) shall be valid or
effectual, unless the lender proves that he advanced the
loan in good faith and without knowledge that the limit
imposed by that clause had been exceeded.]
Exception/ Modification/ Adaptation
1. In case of private company - Section 180 shall not apply
-
Notification dated 5th june, 2015.
2. In case of
Specified IFSC Public Company
- Section 180 Shall apply in case of a Specified IFSC
public company, unless the articles of the company provides
otherwise -
Notification Dated 4th January 2017
.
Amendments
3.
Substituted by the Companies Amendment Act 2017
:-
Amendment effective from 9th february 2018
In section 180, in sub-section (1), in clause (c), for the
words
"paid-up share capital and free reserves"
the following words shall be substituted, namely :-
"paid-up share capital, free reserves and securities
premium"
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Section 181: Company to
Contribute to Bona Fide and
Charitable Funds etc.
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The Board of Directors of a company may contribute to bona
fide charitable and other funds:
Provided that prior permission of the company in general
meeting shall be required for such contribution in case any
amount the aggregate of which, in any financial year,
exceed five per cent. of its average net profits for the
three immediately preceding financial years.
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Section 182: Prohibitions and
Restrictions Regarding
Political Contributions
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(1) Notwithstanding anything contained in any other
provision of this Act, a company, other than a Government
company and a company which has been in existence for less
than three financial years, may contribute any amount
directly or indirectly to any political party:
Provided 1[
further]
that no such contribution shall be made by a company unless
a resolution authorising the making of such contribution is
passed at a meeting of the Board of Directors and such
resolution shall, subject to the other provisions of this
section, be deemed to be justification in law for the
making 1[
and the acceptance]
of the contribution authorised by it.
(2) Without prejudice to the generality of the provisions
of sub-section (1),—
(a) a donation or subscription or payment caused to be
given by a company on its behalf or on its account to a
person who, to its knowledge, is carrying on any activity
which, at the time at which such donation or subscription
or payment was given or made, can reasonably be regarded as
likely to affect public support for a political party shall
also be deemed to be contribution of the amount of such
donation, subscription or payment to such person for a
political purpose;
(b) the amount of expenditure incurred, directly or
indirectly, by a company on an advertisement in any
publication, being a publication in the nature of a
souvenir, brochure, tract, pamphlet or the like, shall also
be deemed,—
(i) where such publication is by or on behalf of a
political party, to be a contribution of such amount to
such political party, and
(ii) where such publication is not by or on behalf of, but
for the advantage of a political party, to be a
contribution for a political purpose.
(3) Every company shall disclose in its profit and loss
account the total amount contributed by it under this
section during the financial year to which the account
relates.
(3A) Notwithstanding anything contained in sub-section (1),
the contribution under this section shall not be made
except by an account payee cheque drawn on a bank or an
account payee bank draft or use of electronic clearing
system through a bank account:
Provided that a company may make contribution through any
instrument, issued pursuant to any scheme notified under
any law for the time being in force, for contribution to
the political parties.]
(4) If a company makes any contribution in contravention of
the provisions of this section, the company shall be
punishable with fine which may extend to five times the
amount so contributed and every officer of the company who
is in default shall be punishable with imprisonment for a
term which may extend to six months and with fine which may
extend to five times the amount so contributed.
Explanation.—For the purposes of this section, “political
party” means a political party registered under section 29A
of the Representation of the People Act, 1951.
Amendments:
1.
Omitted by The Finance Act,2017
2.
Substittuted by The Finance Act,2017
For sub section (3)
Every company shall disclose in its profit and loss account
any amount or amounts contributed by it to any political
party during the financial year to which that account
relates, giving particulars of the total amount contributed
and the name of the party to which such amount has been
contributed. (See General Circular No.19/2013)
The following Sub-Section shall be substituted namely:-
"(3) Every company shall disclose in its profit and loss
account the total amount contributed by it under this
section during the financial year to which the account
relates.
(3A) Notwithstanding anything contained in sub-section (1),
the contribution under this section shall not be made
except by an account payee cheque drawn on a bank or an
account payee bank draft or use of electronic clearing
system through a bank account:
Provided that a company may make contribution through any
instrument, issued pursuant to any scheme notified under
any law for the time being in force, for contribution to
the political parties"
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Section 183: Power of Board and
Other Persons to Make
Contributions to National
Defence Fund, etc.
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(1) The Board of Directors of any company or any person or
authority exercising the powers of the Board of Directors
of a company, or of the company in general meeting, may,
notwithstanding anything contained in
sections 180
,
181
and
section 182
or any other provision of this Act or in the memorandum,
articles or any other instrument relating to the company,
contribute such amount as it thinks fit to the National
Defence Fund or any other Fund approved by the Central
Government for the purpose of national defence.
(2) Every company shall disclose in its profits and loss
account the total amount or amounts contributed by it to
the Fund referred to in sub-section (1) during the
financial year to which the amount relates.
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Section 184: Disclosure of
Interest by Director
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(1) Every director shall at the first
meeting of the Board in which he
participates as a director and
thereafter at the first meeting of the
Board in every financial year or
whenever there is any change in the
disclosures already made, then at the
first Board meeting held after such
change, disclose his concern or
interest in any company or companies or
bodies corporate, firms, or other
association of individuals which shall
include the shareholding, in such
manner
as may be prescribed
.
(2) Every director of a company who is
in any way, whether directly or
indirectly, concerned or interested in
a contract or arrangement or proposed
contract or arrangement entered into or
to be entered into—
(a) with a body corporate in which such
director or such director in
association with any other director,
holds more than two per cent.
shareholding of that body corporate, or
is a promoter, manager, Chief Executive
Officer of that body corporate; or
(b) with a firm or other entity in
which, such director is a partner,
owner or member, as the case may be,
shall disclose the nature of his
concern or interest at the meeting of
the Board in which the contract or
arrangement is discussed and shall not
participate in such meeting:
Provided that where any director who is
not so concerned or interested at the
time of entering into such contract or
arrangement, he shall, if he becomes
concerned or interested after the
contract or arrangement is entered
into, disclose his concern or interest
forthwith when he becomes concerned or
interested or at the first meeting of
the Board held after he becomes so
concerned or interested.]
(3) A contract or arrangement entered
into by the company without disclosure
under sub-section (2) or with
participation by a director who is
concerned or interested in any way,
directly or indirectly, in the contract
or arrangement, shall be voidable at
the option of the company.
(4) If a director of the company
contravenes the provisions of
sub-section (1) or subsection (2), such
director shall be punishable with
imprisonment for a term which may
extend to one year or with fine which 4[
shall
not be less than fifty thousand
rupees but which]
may extend to one lakh rupees, or with
both.
(5) Nothing in this section—
(a) shall be taken to prejudice the
operation of any rule of law
restricting a director of a company
from having any concern or interest in
any contract or arrangement with the
company;
5
[(b) shall apply to any contract or
arrangement entered into or to be
entered into between two companies or
between one or more companies and one
or more bodies corporate where any of
the directors of the one company or
body corporate or two or more of them
together holds or hold not more than
two per cent. of the paid-up share
capital in the other company or the
body corporate.]
Exceptions/ Modifications/
Adaptations
1. In case of private company - Section
184 (2) shall apply; with the exception
that the interested director may
participate in such meeting after
disclosure of his interest. -
Notification dated 5th june, 2015.
2. In case of Section 8 company -
Section 184 (2) shall apply, only if
the transaction with reference to
section 188 on the basis of terms and
conditions of the contract or
arrangement exceeds one lakh rupees. -
Notification dated 5th june, 2015.
3. In case of
Specified IFSC Public Company
- Sub-section (2) of section 184 shall
apply with the exception that
interested director may participate in
such meeting provided the disclosure of
his interest is made by the concerned
director either prior or at the
meeting. -
Notification Dated 4th January 2017
.
Amendments
4.
Ommited by The Companies
(Amendment) Act, 2017
:-
Amendment effective from 9th
february 2018
5.
Substituted by the Companies
Amendment Act 2017
:-
Amendment effective from 9th
february 2018
In section 184, in sub-section (5), for
clause (b),
"(b) shall apply to any contract or
arrangement entered into or to be
entered into between two companies
where any of the directors of the one
company or two or more of them together
holds or hold not more than two per
cent. of the paid-up share capital in
the other company."
the following clause shall be
substituted, namely :-
"(b) shall apply to any contract or
arrangement entered into or to be
entered into between two companies or
between one or more companies and one
or more bodies corporate where any of
the directors of the one company or
body corporate or two or more of them
together holds or hold not more than
two per cent. of the paid-up share
capital in the other company or the
body corporate."
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Section185:
Loan to Directors, etc.
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(1) No company shall, directly or
indirectly, advance any loan, including
any loan represented by a book debt to,
or give any guarantee or provide any
security in connection with any loan
taken by,—
(a) any director of company, or of a
company which is its holding company or
any partner or relative of any such
director; or
(b) any firm in which any such director
or relative is a partner.
(2) A company may advance any loan
including any loan represented by a
book debt, or give any guarantee or
provide any security in connection with
any loan taken by any person in whom
any of the director of the company is
interested, subject to the condition
that—
(a) a special resolution is passed by
the company in general meeting:
Provided that the explanatory statement
to the notice for the relevant general
meeting shall disclose the full
particulars of the loans given, or
guarantee given or security provided
and the purpose for which the loan or
guarantee or security is proposed to be
utilised by the recipient of the loan
or guarantee or security and any other
relevant fact; and
(b) the loans are utilised by the
borrowing company for its principal
business activities.
Explanation.—For the purposes of this
sub-section, the expression "any person
in whom any of the director of the
company is interested" means—
(a) any private company of which any
such director is a director or member;
(b) any body corporate at a general
meeting of which not less than
twenty-five per cent. of the total
voting power may be exercised or
controlled by any such director, or by
two or more such directors, together;
or
(c) any body corporate, the Board of
directors, managing director or
manager, whereof is accustomed to act
in accordance with the directions or
instructions of the Board, or of any
director or directors, of the lending
company.
(3) Nothing contained in sub-sections
(1) and (2) shall apply to—
(a) the giving of any loan to a
managing or whole-time director—
(i) as a part of the conditions of
service extended by the company to all
its employees; or
(ii) pursuant to any scheme approved by
the members by a special resolution; or
(b) a company which in the ordinary
course of its business provides loans
or gives guarantees or securities for
the due repayment of any loan and in
respect of such loans an interest is
charged at a rate not less than the
rate of prevailing yield of one year,
three years, five years or ten years
Government security closest to the
tenor of the loan; or
(c) any loan made by a holding company
to its wholly owned subsidiary company
or any guarantee given or security
provided by a holding company in
respect of any loan made to its wholly
owned subsidiary company; or
(d) any guarantee given or security
provided by a holding company in
respect of loan made by any bank or
financial institution to its subsidiary
company: Provided that the loans made
under clauses (c) and (d) are utilised
by the subsidiary company for its
principal business activities.
(4) If any loan is advanced or a
guarantee or security is given or
provided or utilised in contravention
of the provisions of this section,—
(i) the company shall be punishable
with fine which shall not be less than
five lakh rupees but which may extend
to twenty-five lakh rupees;
(ii) every officer of the company who
is in default shall be punishable with
imprisonment for a term which may
extend to six months or with fine which
shall not be less than five lakh rupees
but which may extend to twenty-five
lakh rupees; and
(iii) the director or the other person
to whom any loan is advanced or
guarantee or security is given or
provided in connection with any loan
taken by him or the other person, shall
be punishable with imprisonment which
may extend to six months or with fine
which shall not be less than five lakh
rupees but which may extend to
twenty-five lakh rupees, or with both.]
Amendments
1.
Substituted by the Companies
Amendment Act 2017
;-
Original content
:-
Amendment Effective From 7th May
2018
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Section 186: Loan and
Investment by Company
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(1) Without prejudice to the provisions
contained in this Act, a company shall
unless otherwise prescribed, make
investment through not more than two
layers of investment companies:
Provided that the provisions of this
sub-section shall not affect,—
(i) a company from acquiring any other
company incorporated in a country
outside India if such other company has
investment subsidiaries beyond two
layers as per the laws of such country;
(ii) a subsidiary company from having
any investment subsidiary for the
purposes of meeting the requirements
under any law or under any rule or
regulation framed under any law for the
time being in force.]
[(2) No company shall directly or
indirectly —
(a) give any loan to
any person
or other body corporate;
(b) give any guarantee or provide
security in connection with a loan to
any other body corporate or person; and
(c) acquire by way of subscription,
purchase or otherwise, the securities
of any other body corporate,
exceeding sixty per cent of its paid-up
share capital, free reserves and
securities premium account or one
hundred per cent of its free reserves
and securities premium account,
whichever is more.
[Explanation.—For the purposes of this
sub-section, the word "person" does not
include any individual who is in the
employment of the company.]
(3) Where the aggregate of the loans
and investment so far made, the amount
for which guarantee or security so far
provided to or in all other bodies
corporate along with the investment,
loan, guarantee or security proposed to
be made or given by the Board, exceed
the limits specified under sub-section
(2), no investment or loan shall be
made or guarantee shall be given or
security shall be provided unless
previously authorised by a special
resolution passed in a general meeting:
Provided that where a loan or guarantee
is given or where a security has been
provided by a company to its wholly
owned subsidiary company or a joint
venture company, or acquisition is made
by a holding company, by way of
subscription, purchase or otherwise of,
the securities of its wholly owned
subsidiary company, the requirement of
this sub-section shall not apply:
Provided further that the company shall
disclose the details of such loans or
guarantee or security or acquisition in
the financial statement as provided
under sub-section (4).]
(4) The company shall disclose to the
members in the financial statement the
full particulars of the loans given,
investment made or guarantee given or
security provided and the purpose for
which the loan or guarantee or security
is proposed to be utilised by the
recipient of the loan or guarantee or
security.
(5) No investment shall be made or loan
or guarantee or security given by the
company unless the resolution
sanctioning it is passed at a meeting
of the Board with the consent of all
the directors present at the meeting
and the prior approval of the public
financial institution concerned where
any term loan is subsisting, is
obtained:
Provided that prior approval of a
public financial institution shall not
be required where the aggregate of the
loans and investments so far made, the
amount for which guarantee or security
so far provided to or in all other
bodies corporate, along with the
investments, loans, guarantee or
security proposed to be made or given
does not exceed the limit as specified
in sub-section (2), and there is no
default in repayment of loan
instalments or payment of interest
thereon as per the terms and conditions
of such loan to the public financial
institution.]
(6) No company, which is registered
under
section 12
of the Securities and Exchange Board of
India Act, 1992 and covered under such
class or classes of companies
as may be prescribed
, shall take inter-corporate loan or
deposits exceeding the prescribed limit
and such company shall furnish in its
financial statement the details of the
loan or deposits.
(7) No loan shall be given under this
section at a rate of interest lower
than the
prevailing yield
of one year, three year, five year or
ten year Government Security closest to
the tenor of the loan.
(8) No company which is in default in
the repayment of any deposits accepted
before or after the commencement of
this Act or in payment of interest
thereon, shall give any loan or give
any guarantee or provide any security
or make an acquisition till such
default is subsisting.
(9) Every company giving loan or giving
a guarantee or providing security or
making an acquisition under this
section shall keep a
register
which shall contain such particulars
and shall be maintained in such manner
as may be prescribed
.
(10) The register referred to in
sub-section (9) shall be kept at the
registered office of the company and —
(a) shall be open to inspection at such
office; and
(b) extracts may be taken therefrom by
any member, and copies thereof may be
furnished to any member of the company
on payment of such fees
as may be prescribed
.
[(11) Nothing contained in this
section, except sub-section (1), shall
apply—
(a) to any loan made, any guarantee
given or any security provided or any
investment made by a banking company,
or an insurance company, or a housing
finance company in the ordinary course
of its business, or a company
established with the object of and
engaged in the business of financing
industrial enterprises, or of providing
infrastructural facilities;
(b) to any investment—
(i) made by an investment company;
(ii) made in shares allotted in
pursuance of clause (a) of sub-section
(1) of section 62 or in shares allotted
in pursuance of rights issues made by a
body corporate;
(iii) made, in respect of investment or
lending activities, by a non-banking
financial company registered under
Chapter III-B of the Reserve Bank of
India Act, 1934 and whose principal
business is acquisition of securities.]
(12) The Central Government may make
rules for the purposes of this section.
(13) If a company contravenes the
provisions of this section, the company
shall be punishable with fine which
shall not be less than twenty-five
thousand rupees but which may extend to
five lakh rupees and every officer of
the company who is in default shall be
punishable with imprisonment for a term
which may extend to two years and with
fine which shall not be less than
twenty-five thousand rupees but which
may extend to one lakh rupees.
Explanation.—For the purposes of this
section,—
(a) the expression “investment company”
means a company whose principal
business is the acquisition of shares,
debentures or other securities; 13[and a company will be
deemed to be principally engaged in the
business of acquisition of shares,
debentures or other securities, if its
assets in the form of investment in
shares, debentures or other securities
constitute not less than fifty per
cent. of its total assets, or if its
income derived from investment business
constitutes not less than fifty per
cent. as a proportion of its gross
income]
(b) the expression “infrastructure
facilities” means the facilities
specified in
Schedule VI
.]
Amendments
1.
Inserted by Order Companies
(Removal of Difficulties) Order
Dated 13th Feb 2015.
10
Inserted by The Companies
(Amendment)Act,2017
. :-
Amendment Effective From 7th May
2018
11.
Substituted by the Companies
(Amendment) Act,2017
:-
Amendment Effective From 7th May
2018
In section 186,for sub-section (3),
"Where the giving of any loan or
guarantee or providing any security or
the acquisition under sub-section (2)
exceeds the limits specified in that
sub-section, prior approval by means of
a special resolution passed at a
general meeting shall be necessary."
The following sub-section shall be
substituted namely:-
[(3) Where the aggregate of the loans
and investment so far made, the amount
for which guarantee or security so far
provided to or in all other bodies
corporate along with the investment,
loan, guarantee or security proposed to
be made or given by the Board, exceed
the limits specified under sub-section
(2), no investment or loan shall be
made or guarantee shall be given or
security shall be provided unless
previously authorised by a special
resolution passed in a general meeting:
Provided that where a loan or guarantee
is given or where a security has been
provided by a company to its wholly
owned subsidiary company or a joint
venture company, or acquisition is made
by a holding company, by way of
subscription, purchase or otherwise of,
the securities of its wholly owned
subsidiary company, the requirement of
this sub-section shall not apply:
Provided further that the company shall
disclose the details of such loans or
guarantee or security or acquisition in
the financial statement as provided
under sub-section (4).]
12.
Substituted by the Companies
(Amendment) Act,2017
:-
Amendment Effective From 7th May
2018
In section 186,for sub-section (11),
(11) Nothing contained in this section,
except sub-section (1), shall apply—
(a) to a loan made, guarantee given or
security provided by a banking company
or an insurance company or a housing
finance company in the ordinary course
of its business or a company engaged in
the business of financing of companies
or of providing infrastructural
facilities;
(b) to any acquisition—
(i) made by a non-banking financial
company registered under Chapter IIIB
of the Reserve Bank of India Act, 1934
and whose principal business is
acquisition of securities:
Provided that exemption to non-banking
financial company shall be in respect
of its investment and lending
activities;
(ii) made by a company whose principal
business is the acquisition of
securities;
(iii) of shares allotted in pursuance
of clause (a) of sub-section (1) of
section 62.
"(iv) made by a banking company or an
insurance company or a housing finance
company, making acquisition of
securities in the ordinary course of
its business."]
the following sub-section shall be
substitued:-
[(11) Nothing contained in this
section, except sub-section (1), shall
apply—
(a) to any loan made, any guarantee
given or any security provided or any
investment made by a banking company,
or an insurance company, or a housing
finance company in the ordinary course
of its business, or a company
established with the object of and
engaged in the business of financing
industrial enterprises, or of providing
infrastructural facilities;
(b) to any investment—
(i) made by an investment company;
(ii) made in shares allotted in
pursuance of clause (a) of sub-section
(1) of section 62 or in shares allotted
in pursuance of rights issues made by a
body corporate;
(iii) made, in respect of investment or
lending activities, by a non-banking
financial company registered under
Chapter III-B of the Reserve Bank of
India Act, 1934 and whose principal
business is acquisition of securities.]
13.
Inserted by The Companies
(Amendment)Act,2017
:-
Amendment Effective From 7th May
2018
Exceptions/ Modifications/
Adaptations
2. In case of Government Company -
Section 186 shall not apply to :-
(a) a Government company engaged in
defence production;
(b) a Government company, other than a
listed company, in case such company
obtains approval of the Ministry or
Department of the Central Government
which is administratively in charge of
the company, or, as the case may be,
the State Government before making any
loan or giving any guarantee or
providing any security or making any
investment under the section. -
Notification dated 5th june, 2015.
3. In case of
Specified IFSC Public Company
- In Sub-section (5) of section 186
after the proviso, the following
proviso shall be inserted -
“Provided further that in case of a
Specified IFSC public company, the
Board can exercise powers under this
sub-section by means of resolutions
passed at meetings of the Board of
Directors or through resolutions passed
by circulation.”. -
Notification Date 4th January, 2017
.
4. In case of
Specified IFSC Public Company
- In Sub-sections (2) and (3) of
section 186 shall not apply if a
company passes a resolution either at
meeting of the Board of Directors or by
circulation. -
Notification Date 4th January, 2017
.
5. In case of
Specified IFSC Public Company
- In Sub-section (1) of section 186
shall not apply. -
Notification Date 4th January, 2017
.
6. In case of
Specified IFSC Private Company
- In Sub-section (1) of section 186
shall not apply. -
Notification Date 4th January, 2017
.
7. In case of
Specified IFSC Private Company
- In Sub-sections (2) and (3) of
section 186 shall not apply if a
company passes a resolution either at
meeting of the Board of Directors or by
circulation. -
Notification Date 4th January, 2017
.
8. In case of
Specified IFSC Private Company
- In Sub-section (5) of section 186
after the proviso, the following
proviso shall be inserted -
“Provided further that in case of a
Specified IFSC public company, the
Board can exercise powers under this
sub-section by means of resolutions
passed at meetings of the Board of
Directors or through resolutions passed
by circulation.”. -
Notification Date 4th January, 2017
.
9. In case of Section 8 Company- In
Sub-section(7) of Section 186, the
following shall be inserted namely :-
Notification Dated 13th June, 2017
.
Provided that nothing contained in this
sub-section shall apply to a company in
which twenty-six per cent. or more of
the paid-up share capital is held by
the Central Government or one or more
State Governments or both, in respect
of loans provided by such company for
funding Industrial Research and
Development projects in furtherance
objects as stated in its memorandum of
association.".
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Section 187: Investments of
Company to be Held in its Own
Name
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(1) All investments made or held by a
company in any property, security or
other asset shall be made and held by
it in its own name:
Provided that the company may hold any
shares in its subsidiary company in the
name of any nominee or nominees of the
company, if it is necessary to do so,
to ensure that the number of members of
the subsidiary company is not reduced
below the statutory limit.
(2) Nothing in this section shall be
deemed to prevent a company—
(a) from depositing with a bank, being
the bankers of the company, any shares
or securities for the collection of any
dividend or interest payable thereon;
or
(b) from depositing with, or
transferring to, or holding in the name
of, the State Bank of India or a
scheduled bank, being the bankers of
the company, shares or securities, in
order to facilitate the transfer
thereof:
Provided that if within a period of six
months from the date on which the
shares or securities are transferred by
the company to, or are first held by
the company in the name of, the State
Bank of India or a scheduled bank as
aforesaid, no transfer of such shares
or securities takes place, the company
shall, as soon as practicable after the
expiry of that period, have the shares
or securities re-transferred to it from
the State Bank of India or the
scheduled bank or, as the case may be,
again hold the shares or securities in
its own name; or
(c) from depositing with, or
transferring to, any person any shares
or securities, by way of security for
the repayment of any loan advanced to
the company or the performance of any
obligation undertaken by it;
(d) from holding investments in the
name of a depository when such
investments are in the form of
securities held by the company as a
beneficial owner.
(3) Where in pursuance of clause (d) of
sub-section (2), any shares or
securities in which investments have
been made by a company are not held by
it in its own name, the company shall
maintain a register which shall contain
such particulars
as may be prescribed
and such register shall be open to
inspection by any member or
debenture-holder of the company without
any charge during business hours
subject to such reasonable restrictions
as the company may by its articles or
in general meeting impose.
(4) If a company contravenes the
provisions of this section, the company
shall be punishable with fine which
shall not be less than twenty-five
thousand rupees but which may extend to
twenty-five lakh rupees and every
officer of the company who is in
default shall be punishable with
imprisonment for a term which may
extend to six months or with fine which
shall not be less than twenty-five
thousand rupees but which may extend to
one lakh rupees, or with both.
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Section 188: Related Party
Transactions
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(1) Except with the
consent of the Board of Directors
given by a resolution at a meeting of
the Board and subject to such
conditions
as may be prescribed
, no company shall enter into any
contract or arrangement with a related
party with respect to—
(a) sale, purchase or supply of any
goods or materials;
(b) selling or otherwise disposing of,
or buying, property of any kind;
(c) leasing of property of any kind;
(d) availing or rendering of any
services;
(e) appointment of any agent for
purchase or sale of goods, materials,
services or property;
(f) such related party's appointment to
any office or place of profit in the
company, its subsidiary company or
associate company; and
(g) underwriting the subscription of
any securities or derivatives thereof,
of the company:
Provided that no contract or
arrangement, in the case of a company
having a paid-up share capital of not
less than such amount, or transactions
not exceeding such sums, as may be
prescribed, shall be entered into
except with the prior approval of the
company by a
1
[resolution]:
Provided further that no member of the
company shall vote on such
1
[resolution], to approve any contract
or arrangement which may be entered
into by the company, if such member is
a
related party
Provided also that nothing contained in
the second proviso shall apply to a
company in which ninety per cent. or
more members, in number, are relatives
of promoters or are related parties:]
Provided also that nothing in this
sub-section shall apply to any
transactions entered into by the
company in its ordinary course of
business other than transactions which
are not on an arm’s length basis.
2
[Provided also that the requirement of
passing the resolution under first
proviso shall not be applicable for
transactions entered into between a
holding company and its wholly owned
subsidiary whose accounts are
consolidated with such holding company
and placed before the shareholders at
the general meeting for approval.]
Explanation.— In this sub-section,—
(a) the expression “office or place of
profit” means any office or place—
(i) where such office or place is held
by a director, if the director holding
it receives from the company anything
by way of remuneration over and above
the remuneration to which he is
entitled as director, by way of salary,
fee, commission, perquisites, any
rent-free accommodation, or otherwise;
(ii) where such office or place is held
by an individual other than a director
or by any firm, private company or
other body corporate, if the
individual, firm,
private company or body corporate
holding it receives from the company
anything by way of remuneration,
salary, fee, commission, perquisites,
any rent-free accommodation, or
otherwise;
(b) the expression “arm’s length
transaction” means a transaction
between two related parties that is
conducted as if they were unrelated, so
that there is no conflict of interest.
(2) Every contract or arrangement
entered into under sub-section (1)
shall be referred to in the Board’s
report to the shareholders along with
the justification for entering into
such contract or arrangement.
(3) Where any contract or arrangement
is entered into by a director or any
other employee, without obtaining the
consent of the Board or approval by a
3
[resolution] in the general meeting
under sub-section (1) and if it is not
ratified by the Board or, as the case
may be, by the shareholders at a
meeting within three months from the
date on which such contract or
arrangement was entered into, such
contract or arrangement 9
[shall be voidable at the option of the
Board or, as the case may be,of the
shareholders"] and if the contract or
arrangement is with a related party to
any director, or is authorised by any
other director, the directors concerned
shall indemnify the company against any
loss incurred by it.
(4) Without prejudice to anything
contained in sub-section (3), it shall
be open to the company to proceed
against a director or any other
employee who had entered into such
contract or arrangement in
contravention of the provisions of this
section for recovery of any loss
sustained by it as a result of such
contract or arrangement.
(5) Any director or any other employee
of a company, who had entered into or
authorised the contract or arrangement
in violation of the provisions of this
section shall,—
(i) in case of listed company, be
punishable with imprisonment for a term
which may extend to one year or with
fine which shall not be less than
twenty-five thousand rupees but which
may extend to five lakh rupees, or with
both; and
(ii) In case of any other company, be
punishable with fine which shall not be
less than twenty-five thousand rupees
but which may extend to five lakh
rupees.
Amendments
1.
Substituted by Companies
(Amendment) Act, 2015 and is
effective from 29th May, 2015.
In sub-section (1), for the words
"special resolution", at both the
places where they occur, the word
"resolution" shall be substituted;
2.
Inserted by Companies (Amendment)
Act, 2015 and is effective from
29th May, 2015.
3.
Substituted by Companies
(Amendment) Act, 2015 and is
effective from 29th May, 2015.
In sub-section (3), for the
words "special resolution", the word
"resolution" shall be substituted.
4.
Clarification related to Non-
applicability of Section 188 to
Corporate Reconstruction etc
.
8.
Inserted by The Companies
(Amendment)Act,2017
:-
Amendment effective from 9th
february 2018
9.
Substituted by the Companies
(Amendment) Act,2017
:-
Amendment effective from 9th
february 2018
In section 188,in sub-section (3), for
the words:-
"shall be voidable at the option of the
Board",
the following words shall be
substituted namely:-
"shall be voidable at the option of the
Board or, as the case may be,of the
shareholders"
Exceptions/ Modifications/
Adaptations
5. In case of private company - Second
proviso to Sub-section (1) of Section
188 shall not apply -
Notification dated 5th june, 2015.
6. In case of Government company -
First and second proviso to Sub-
section (1) of Section 188 shall not
apply to :-
(a) a Government company in respect of
contracts or arrangements entered into
by it with any other Government
company;
(b) a Government c ompany, other than a
listed company, in respect of contracts
or arrangements other than those
referred to in clause (a), in case such
company obtains approval of the
Ministry or Department of the Central
Government which is administratively in
charge of the company, or, as the case
may be, the State Government before
entering into such contract or
arrangement. -
Notification dated 5th june, 2015.
7. In case of
Specified IFSC Public Company
- Second proviso to sub section (1) of
section 188 shall not apply. -
Notification Dated 4th January 2017
.
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Section 189: Register of
Contracts or Arrangements in
Which Directors are Interested
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(1) Every company shall keep one or
more registers giving separately the
particulars of all contracts or
arrangements to which sub-section (2)
of
section 184
or
section 188
applies, in such manner and containing
such particulars
as may be prescribed
and after entering the particulars,
such register or registers shall be
placed before the next meeting of the
Board and signed by all the directors
present at the meeting.
(2) Every director or key managerial
personnel shall, within a period of
thirty days of his appointment, or
relinquishment of his office, as the
case may be, disclose to the company
the particulars specified in
sub-section (1) of
section 184
relating to his concern or interest in
the other associations which are
required to be included in the register
under that sub-section or such other
information relating to himself
as may be prescribed
.
(3) The register referred to in
sub-section (1) shall be kept at the
registered office of the company and it
shall be open for inspection at such
office during business hours and
extracts may be taken therefrom, and
copies thereof as may be required by
any member of the company shall be
furnished by the company to such
extent, in such manner, and on payment
of such fees
as may be prescribed
.
(4) The register to be kept under this
section shall also be produced at the
commencement of every annual general
meeting of the company and shall remain
open and accessible during the
continuance of the meeting to any
person having the right to attend the
meeting.
(5) Nothing contained in sub-section
(1) shall apply to any contract or
arrangement—
(a) for the sale, purchase or supply of
any goods, materials or services if the
value of such goods and materials or
the cost of such services does not
exceed five lakh rupees in the
aggregate in any year; or
(b) by a banking company for the
collection of bills in the ordinary
course of its business.
(6) Every director who fails to comply
with the provisions of this section and
the rules made thereunder shall be
liable to a penalty of twenty-five
thousand rupees.]
Exception/ Modification/ Adaptation
1. In case of Section 8 company -
Section 189 shall apply only if the
transaction with reference to section
188 on the basis of terms and
conditions of the contract or
arrangement exceeds one lakh rupees. -
Notification dated 5th june, 2015.
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Section 190: Contract of
Employment with Managing or
Whole-Time Directors
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(1) Every company shall keep at its
registered office,—
(a) where a contract of service with a
managing or whole-time director is in
writing, a copy of the contract; or
(b) where such a contract is not in
writing, a written memorandum setting
out its terms.
(2) The copies of the contract or the
memorandum kept under sub-section (1)
shall be open to inspection by any
member of the company without payment
of fee.
(3) If any default is made in complying
with the provisions of sub-section (1)
or sub-section (2), the company shall
be liable to a penalty of twenty-five
thousand rupees and every officer of
the company who is in default shall be
liable to a penalty of five thousand
rupees for each default.
(4) The provisions of this section
shall not apply to a private company.
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Section 191: Payment to
Director for Loss of Office,
etc., in Connection with
Transfer of Undertaking,
Property or Shares
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(1) No director of a company shall, in
connection with—
(a) the transfer of the whole or any
part of any undertaking or property of
the company; or
(b) the transfer to any person of all
or any of the shares in a company being
a transfer resulting from—
(i) an offer made to the general body
of shareholders;
(ii) an offer made by or on behalf of
some other body corporate with a view
to a company becoming a subsidiary
company of such body corporate or a
subsidiary company of its holding
company;
(iii) an offer made by or on behalf of
an individual with a view to his
obtaining the right to exercise, or
control the exercise of, not less than
one-third of the total voting power at
any general meeting of the company; or
(iv) any other offer which is
conditional on acceptance to a given
extent, receive any payment by way of
compensation for loss of office or as
consideration for retirement from
office, or in connection with such loss
or retirement from such company or from
the transferee of such undertaking or
property, or from the transferees of
shares or from any other person, not
being such company, unless particulars
as may be prescribed
with respect to the payment proposed to
be made by such transferee or person,
including the amount thereof, have been
disclosed to the members of the company
and the proposal has been approved by
the company in general meeting.
(2) Nothing in sub-section (1) shall
affect any payment made by a company to
a managing director or whole-time
director or manager of the company by
way of compensation for loss of office
or as consideration for retirement from
office or in connection with such loss
or retirement subject to limits or
priorities,
as may be prescribed
.
(3) If the payment under sub-section
(1) or sub-section (2) is not approved
for want of quorum either in a meeting
or an adjourned meeting, the proposal
shall not be deemed to have been
approved.
(4) Where a director of a company
receives payment of any amount in
contravention of sub-section (1) or the
proposed payment is made before it is
approved in the meeting, the amount so
received by the director shall be
deemed to have been received by him in
trust for the company.
(5) 2[1[If a director of the
company makes any default in complying
with the provisions of this section,
such director shall be liable to a
penalty of one lakh rupees.]]
(6) Nothing in this section shall be
taken to prejudice the operation of any
law requiring disclosure to be made
with respect to any payment received
under this section or such other like
payments made to a director.
Amendments
1.
Substituted by the Companies
(Amendment) Ordinance,2018 dated
02.11.2018
In section 191,for sub-section (5),
If a director of the company
contravenes the provisions of this
section, such director shall be
punishable with fine which shall not be
less than twenty-five thousand rupees
but which may extend to one lakh
rupees.
the following sub-section shall be
substituted, namely:-
If a director of the company makes any
default in complying with the
provisions of this section, such
director shall be liable to a penalty
of one lakh rupees.
2.
Substituted by the Companies
(Amendment) Ordinance,2019 dated
14.01.2019
[
Companies (Amendment) Ordinance
2018 is repealed on 12th January
2019]
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Section 192: Restriction on
Non-cash Transactions Involving
Directors.
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(1) No company shall enter into an
arrangement by which—
(a) a director of the company or its
holding, subsidiary or associate
company or a person connected with him
acquires or is to acquire assets for
consideration other than cash, from the
company; or
(b) the company acquires or is to
acquire assets for consideration other
than cash, from such director or person
so connected, unless prior approval for
such arrangement is accorded by a
resolution of the company in general
meeting and if the director or
connected person is a director of its
holding company, approval under this
sub-section shall also be required to
be obtained by passing a resolution in
general meeting of the holding company.
(2) The notice for approval of the
resolution by the company or holding
company in general meeting under
sub-section (1) shall include the
particulars of the arrangement along
with the value of the assets involved
in such arrangement duly calculated by
a registered valuer.
(3) Any arrangement entered into by a
company or its holding company in
contravention of the provisions of this
section shall be voidable at the
instance of the company unless—
(a) the restitution of any money or
other consideration which is the
subjectmatter of the arrangement is no
longer possible and the company has
been indemnified by any other person
for any loss or damage caused to it; or
(b) any rights are acquired bona fide
for value and without notice of the
contravention of the provisions of this
section by any other person.
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Section 193: Contract by One
Person Company
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(1) Where One Person Company limited by
shares or by guarantee enters into a
contract with the sole member of the
company who is also the director of the
company, the company shall, unless the
contract is in writing, ensure that the
terms of the contract or offer are
contained in a memorandum or are
recorded in the minutes of the first
meeting of the Board of Directors of
the company held next after entering
into contract:
Provided that nothing in this
sub-section shall apply to contracts
entered into by the company in the
ordinary course of its business.
(2) The company shall inform the
Registrar about every contract entered
into by the company and recorded in the
minutes of the meeting of its Board of
Directors under sub-section (1) within
a period of fifteen days of the date of
approval by the Board of Directors.
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