Chapter -1

PRELIMINARY

Corporate Law

Chapter Overview

S. No. Particulars Page No.

1. Introduction 1.2
2. Short Title, Extent , Commencement and Application 1.3
3. Definitions 1.4

©Deepika Rathi [Company name]

[Date]
 CHAPTER-1
Preliminary

Chapter-1
PRELIMINARY

1 INTRODUCTION
Why Companies Act 2013 ? ✓ The Companies Act, 2013 is an Act to
consolidate and amend the law relating to
companies.
✓ The legislation was necessitated to meet
changes in the national and international
economic environment and for expansion
and growth of economy of our country.

✓ The Companies Act, 2013 received the

assent of the Hon’ble President of India on
29th August 2013
✓ Notified in the Official Gazette on 30th
Assent of the
August 2013 for public information stating
that different dates may be appointed
Hon’ble
for enforcement of different provisions of president
the Companies Act, 2013, through
notifications.

✓ Section 1 came into force on 30th August

2013;
Enforcement of sections ✓ 98 sections came into force on 12th
September 2013;
✓ 143 sections were enforced from 1st April
2014 and so on.

✓ The Companies Act, 2013 is rule based

legislation with 470 sections and seven
schedules.
✓ The entire Act has been divided into 29
chapters. Features of
✓ Each chapter has at least one set of Rules. Companies Act 2013
✓ The Companies Act, 2013 aims to improve
corporate governance, simplify regulations
and strengthen the interests of investors.
✓ Thus, this enactment makes our corporate
regulations more contemporary.

DEEPIKA RATHI 1.2

Company & LLP Law : CA Intermediate

 CHAPTER-1
Preliminary

2 SHORT TITLE, EXTENT, COMMENCEMENT & APPLICATION

Section-1:The Act may be called as the Companies

Short Title of the Act
Act 2013.

Extent to the The Act Shall be extend to the whole

applicability of the Act India.

Commencement of the Section 1 came into force at once and the remaining
Act provisions on different dates through Notifications.

Applicability of the Act (Section -1)

The Provisions of this Act shall apply to :-

(a) companies incorporated under this

Act or under any previous company law.
Companies incorporated
(b) Insurance Companies (except in so previously or current act
far as the said provisions are inconsistent
with the provisions of the Insurance Act,
1938 or the Insurance Regulatory and
Development Authority Act, 1999)
Insurance Company

(c) Banking Companies (except in so far

as the said provisions are inconsistent
with the provisions of the Banking
Regulation Act, 1949)
Banking Company
(d) Companies producing/supplying
electricity (except in so far as the said
provisions are inconsistent with the
provisions of the Electricity Act, 2003)
Electricity Company

(e) Any other company governed by any

special Act for the time being in force,
except in so far as the said provisions
are inconsistent with the provisions of
such special Act.

1.3 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

(f) Such body corporate, incorporated

by any Act for the time being in force,
as the Central Government may, by
notification, specify in this behalf,
subject to such exceptions, modifications
or adaptation, as may be specified in the
Food Corporation of India
notification.

3 DEFINITIONS (Section -2)

✓ Sections or Clauses, are ‘internal aids to construction’ and immense help in

interpreting or construing the enactment or any of its parts.
✓ According to clause 95 of section 2, words and expressions used and not defined in
this Act but defined in the Securities Contracts (Regulation) Act, 1956 or the
Securities and Exchange Board of India Act, 1992 or the Depositories Act, 1996
shall have the meanings respectively assigned to them in those Acts.
✓ When a word or phrase is defined as having a particular meaning in the enactment,
it is that meaning alone which must be given to it while interpreting a Section of
the Act unless there be anything repugnant in the context.

Abridged Prospectus
Section Means
2(1) A memorandum containing such salient features of a prospectus as
may be specified by the Securities and Exchange Board by making
regulations in this behalf.

Accounting Standards
Section Means the standards of accounting or any addendum thereto for
2(2) companies or class of companies referred to in section 133
The Central The Central Government may prescribe
Government - the standards of accounting or any addendum
to Prescribe thereto,
Accounting - as recommended by the Institute of Chartered
Standards Accountants of India, constituted under section 3
(Section- of the Chartered Accountants Act, 1949,
133) - in consultation with and after examination of the
recommendations made by the National Financial
Reporting Authority.

DEEPIKA RATHI 1.4

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Rule 7 of the i. The standards of accounting as specified under the Companies Act,
Companies 1956 shall be deemed to be the accounting standards until
(Accounts) accounting standards are specified by the Central Government
Rules, 2014 under section 133.
ii. Till the National Financial Reporting Authority* is constituted
under section 132 of the Act, the Central Government may
prescribe the standards of accounting or any addendum thereto, as
recommended by the Institute of Chartered Accountants of India
in consultation with and after examination of the recommendations
made by the National Advisory Committee on Accounting
Standards constituted under section 210A of the Companies Act,
1956.
Further, in exercise of the powers conferred by section 133, the Central Government in
consultation with the National Advisory Committee on Accounting Standards prescribed
that Companies (Accounting Standards Rules, 2006 and the Companies (Indian
Accounting Standards) Rules, 2015 may be followed.
*The Central Government hereby appoints the 1st October 2018 as the date of
constitution of National Financial Reporting Authority.

Analysis of Section 2(2)

✓ Section 133 of the Companies Act 2013 deals with the power of the
Central Government to prescribed the Accounting Standards.
✓ Accordingly Central Government has prescribed the Accounting Standards

Before 1st October 2018 (i.e. before After 1st October 2018 (i.e. After
constitution of National Financial constitution of National Financial
Reporting Authority U/s 132) Reporting Authority U/s 132)
✓ The CG shall prescribe the standards of ✓ Section 133(Rule 7 of the Companies
accounting or any addendum thereto Accounts Rules, 2014) : The CG shall
- as recommended by Institute of prescribe the Standards of Accounting or
Chartered Accountants of India any Ascendum there to
- consultation with and after examination - As recommended by Chartered
of the recommendations made by the Accountants of India
National Advisory Committee on - In Consultation with and after
Accounting Standards constituted examination of the recommendation
under section 210A of the Companies made by the National Financial
Act, 1956 reporting Authority.
✓ It shall be deemed to be Accounting
Standard until prescribe u/s 133 of this
Act.

1.5 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Section Alter or Alteration

2(3) Alter or Alteration includes the making of additions, omissions and
substitutions.

Article
Section Article means :-
2(5) ➢ the articles of association of a company as originally framed, or
➢ as altered from time to time, or
➢ applied in pursuance of any previous company law, or
➢ applied in pursuance of this Act;

Associate Company
Section Associate Company means :-
2(6) in relation to another company, means
➢ a company in which that other company has a significant
influence, but which is not a subsidiary company of the company
having such influence and
➢ includes a joint venture company.

Meaning Significant Influence Meaning of Joint Venture

“Significant influence" means “Joint venture" means
➢ control of at least twenty per cent. ➢ a joint arrangement whereby the
of total voting power, or parties that have joint control of the
➢ control of or participation in business arrangement have rights to the net
decisions under an agreement. assets of the arrangement.

Significant Influence Joint Venture

Controls 21% of
Voting Power
A Ltd. B Ltd.

Dee Ltd. E Ltd.

‘’AB Joint Venture’’

Control/participate
✓ To have joint control of the arrangement
business decisions of
✓ Have rights to the net assets of the
arrangement

DEEPIKA RATHI 1.6

Company & LLP Law : CA Intermediate

 CHAPTER-1
Preliminary

Clarification dated 25/06/2014 :

✓ The shares held by a company in another company in a fiduciary capacity shall not
be counted for the purpose of determining the relationship of associate company.
✓ Meaning of Fiduciary : A fiduciary is a person who holds a legal or ethical
relationship of trust with one of more parties (persons or group of persons.
Typically, a fiduciary prudently takes care of money or other assets for another
person)

Auditing Standards
Section
Means :-
2(7)
✓ The standards of auditing or any addendum thereto for companies
or class of companies referred to in sub-section (10) of section 143.
✓ Section 143 of the Companies Act, 2013 deals with the Powers
and Duties of Auditors and Auditing Standards.
➢ Sub-section (10) to section 143 provides that the Central
Government may prescribe the standards of auditing or any
addendum thereto, as recommended by the Institute of
Chartered Accountants of India, constituted under section 3
of the Chartered Accountants Act, 1949, in consultation with
and after examination of the recommendations made by the
National Financial Reporting Authority.
➢ Provided that until any auditing standards are notified, any
standard or standards of auditing specified by the Institute
of Chartered Accountants of India shall be deemed to be the
auditing standards.

Authorized Capital or Nominal Capital

Section
2(8) Means such capital as is authorized by the memorandum of a company
to be the maximum amount of share capital of the company.

Section
Board of Director or Board
2(10) In relation to a company, means the collective body of the directors of
the company

Body corporate or Corporation

Section It includes a company out side India, but does not include -
2(11) i. a co-operative society registered under any law relating to co-
operative societies; and
ii. any other body corporate (not being a company as defined in this
Act), which the Central Government may, by notification, specify
in this behalf)

1.7 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Book and Paper and Book or Paper

Section
2(12) Include books of account, deeds, vouchers, writings, documents,
minutes and registers maintained on paper or in electronic form.

Book of Account
Section It includes records maintained in respect of –
2(13) i. all sums of money received and expended by a company and
matters in relation to which the receipts and expenditure take
place
ii. all sales and purchases of goods and services by the company
iii. the assets and liabilities of the company and
iv. the items of cost as may be prescribed under section 148 in the
case of a company which belongs to any class of companies
specified under that section.
Note : Section 148 of the Companies Act, 2013 authorises Central
Government to Specify Audit of Items of Cost in Respect of Certain
Companies.

Analysis of Section 2(12)

Books of
Account

In case of companies Other Companies

specified u/s 148
i. Receipts and
Items of cost expenditure
specified u/s 148 and ii. Sales and Purchase
(i) (ii) (iii) iii. Assets and liabilities

Branch office
Section
2(14) In relation to a company, means any establishment described as such
by the company.

Section Called Up Capital

2(15)
Means Such part of Capital, which has been called for payment.

DEEPIKA RATHI 1.8

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Charge
Section
2(16) Means
An interest or lien created on property or assets of a company or any of
its undertakings or both as security and includes mortgage.

Chartered Accountant
Section
2(17) Means
a chartered accountant as defined in clause (b) of sub-section (1) of
section 2 of the Chartered Accountants Act, 1949 who holds a valid
certificate of practice under sub-section (1) of section 6 of that Act.

Section Chief Executive officer (CEO)

2(18)
Means an officer of a company, who has been designated as such by it

Chief Financial officer (CFO)

Section Means a person appointed as the Chief Financial Officer of a company.
2(19) Note : Definitions of CEO & CFO should be read with section 2(51) and
203 which deals with the definition and appointment of Key Managerial
Personnel (KMP) of the Companies Act, 2013.

Company
Section
2(20) Means a company incorporated under this Act or under any previous
company law.

Company limited by guarantee

Means a company
Section
2(21) A company having the liability of its members limited by the
memorandum to such amount as the members may respectively
undertake to contribute to the assets of the company in the event of
its being wound up

Chief limited by Shares

Section
2(22) Means a company having the liability of its members limited by the
memorandum to the amount, if any, unpaid on the shares respectively
held by them.

Contributory
Section ➢ Means a person liable to contribute towards the assets of the
2(26) company in the event of its being wound up.
➢ Explanation: For the purpose of this clause, it is hereby clarified
that a person holding fully paid-up shares in a company shall be
considered as a contributory.

1.9 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Control
Section Control shall include
2(27) ➢ the right to appoint majority of the directors or
➢ to control the management or policy decisions exercisable by a
person or persons acting individually or in concert, directly or
indirectly, including by virtue of their shareholding or
➢ management rights or shareholders agreements or voting
agreements or in any other manner

Debenture
Section ➢ Includes debenture stock, bonds or any other instrument of a
2(30) company evidencing a debt, whether constituting a charge on the
assets of the company or not
➢ Provided that –
a. the instruments referred to in Chapter III-D of the
Reserve Bank of India Act, 1934; and
b. such other instrument, as may be prescribed by the Central
Government in consultation with the Reserve Bank of India,
issued by a company,
Shall not treated as debenture

Debenture Section 2(30)

Includes Excludes
• Instruments referred to in
• Stock, Bonds or any other Chapter III-D of the RBI Act,
instruments of a company 1934 (i.e. Derivatives, Money
evidencing a debt Market Instruments,
• Whether constituting a Securities etc.)
Charge or not • Other instruments prescribed
by Central Government.

Section Director
2(34) Means a director appointed to the Board of a company.

Section Dividend
2(35) Dividend includes any interim dividend.

DEEPIKA RATHI 1.10

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Document
Section
2(36) Includes summons, notice, requisition, order, declaration, form and
register, whether issued, sent or kept in pursuance of this Act or
under any other law for the time being in force or otherwise,
maintained on paper or in electronic form.

Employees’ stock option

Section Means the option given to the directors, officers or employees of a
2(37) company or of its holding company or subsidiary company or companies,
if any, which gives such directors, officers or employees, the benefit
or right to purchase, or to subscribe for, the shares of the company at
a future date at a pre-determined price.

Expert
Section Includes
2(38) An engineer, a valuer, a Chartered Accountant, a Company Secretary, a
Cost Accountant and any other person who has the power or authority
to issue a certificate in pursuance of any law for the time being in
force

Financial Statement
Section In relation to a company includes –
2(40) i. a balance sheet as at the end of the financial year
ii. a profit and loss account, or in the case of a company carrying on
any activity not for profit, an income and expenditure account for
the financial year
iii. cash flow statement for the financial year
iv. a statement of changes in equity, if applicable and
v. any explanatory note annexed to, or forming part of, any
document referred to in sub-clause (i) to sub-clause (iv)
Provided that the financial statement, with respect to One Person
Company, small company and dormant company, may not include the cash
flow statement.
For private companies, the proviso to section 2(40) shall be read as
follows
“Provided that the financial statement, with respect to one person
company, small company, dormant company and private company (if such
private company is a start-up) may not include the cash flow statement.

1.11 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

(i) Balance Sheet

(ii) Profit & Loss Account or Income

Expenditure Account for the financial
year

(iii) Cash Flow

Financial
Statement (iv)Statement of change in equity

(v) explanatory note annexed to, or

forming part of, any document referred
to in sub-clause (i) to sub-clause (iv)

Exemptions

✓ One person company,

✓ Small Company
✓ Dormant Company and May not include
✓ Private Company (If such
company is startup company) Cash Flow Statement

Note : The exceptions, modifications and adaptations shall be applicable to a private

company which has not committed a default in filing its financial statements under
section 137 of the said Act or annual return under section 92 of the said Act with
the Registrar.

Meaning of Start-up or Startup Company

Means a private company
- incorporated under the Companies Act, 2013 or the Companies Act, 1956 and
- recognised as start-up in accordance with the notification issued by the
Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

Section
Financial Year
2(41) ➢ In relation to any company or body corporate means
- The period ending on the 31st day of March every year and
- where it has been incorporated on or after the 1st day of
January of a year :-the period ending on the 31st day of
March of the following year
- in respect whereof financial statement of the company or
body corporate is made up.

DEEPIKA RATHI 1.12

Company & LLP Law : CA Intermediate

 CHAPTER-1
Preliminary

Financial Year
➢ Provided that where a company or body corporate, which is a
holding company or a subsidiary or associate company of a company
incorporated outside India and is required to follow a different
financial year for consolidation of its accounts outside India, the
Central Government may, on an application made by that company
or body corporate in such form and manner as may be prescribed,
allow any period as its financial year, whether or not that period is
a year.
➢ Note : The term “company incorporated outside India” refers to
Foreign Company incorporated under any applicable laws for the
constitution of company outside India.

Analysis of Section 2(41)

Company Already Incorporated or Incorporate between 1st April to 31st December

1st April 31st March

Company Incorporate between 1st January to 31st March

1st January 31st March of 31st March of

First year Following year

Financial Year

Subsidiary or Associate of Foreign company may apply to Central Government to follow

a different financial year for consolidation of its accounts outside India.

After application Central Government may allow any period as its financial year,
whether or not that period is a year.

1.13 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Free reserves
Section ➢ Means such reserves which, as per the latest audited balance
2(43) sheet of a company, are available for distribution as dividend.
➢ Provided that
i. Any amount representing unrealized gains, notional gains
or revaluation of assets, whether shown as a reserve or
otherwise or
ii. any change in carrying amount of an asset or of a liability
recognized in equity, including surplus in profit and loss
account on measurement of the asset or the liability at
fair value
Shall not be treated as free reserves

Global Depository Receipt

Section
Means
2(44)
Any instrument in the form of a depository receipt, by whatever name
called, created by a foreign depository outside India and authorised
by a company making an issue of such depository receipts.

Government Company
Section Means
2(45) Any company in which not less than 51% of the paid-up share capital is
held by the Central Government, or by any State Government or
Governments, or partly by the Central Government and partly by one
or more State Governments, and includes a company which is a
subsidiary company of such a Government company .

Explanation : For the purposes of this clause, the "paid-up share

capital" shall be construed as "total voting power", where shares with
differential voting rights have been issued
SHARE HOLDING PATTERN IN
GOVERNMENT COMPANY
Others
Holding 9% Government
Share Holding
17%
23% 51%
Section
2(46) Holding Company
In relation to one or more other companies, means a company of which
such companies are subsidiary companies.

Section Issued Capital

2(50)
Means such capital as the company issues from time to time for
subscription.

DEEPIKA RATHI 1.14

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Key Managerial Personnel

Section
2(51) In relation to a company, means
i. the Chief Executive Officer or the managing director or the
manager
ii. the company secretary
iii. the whole-time director
iv. the Chief Financial Officer such other officer, not more than
one level below the directors who is in whole-time employment,
designated as key managerial personnel by the Board; and
v. such other officer as may be prescribed (However till now not
other officer has been prescribed.

Summary of Section 2(51)

Key Managerial Personnel

CEO/MD/ CS Such other officer- not Other

WTD
Manager one below directors+ in Prescribed
whole time employment+ Officers
designated as KMP

Listed Company
Section ➢ Means a company which has any of its securities listed on any
2(52) recognised stock exchange.
➢ Provided that such class of companies, which have listed or intend
to list such class of securities, as may be prescribed in
consultation with the Securities and Exchange Board, shall not be
considered as listed companies.
➢ According to rule 2A of the Companies (Specification of
definitions details) Rules, 2014, the following classes of companies
shall not be considered as listed companies, namely:-
a. Public companies which have not listed their equity shares
on a recognized stock exchange but have listed their-
i. non-convertible debt securities issued on private
placement basis in terms of SEBI (Issue and Listing
of Debt Securities) Regulations, 2008; or
ii. non-convertible redeemable preference shares
issued on private placement basis in terms of SEBI
(Issue and Listing of Non- Convertible Redeemable
Preference Shares) Regulations, 2013 or
iii. both categories of (i) and (ii) above.

1.15 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Listed Company
b. Private companies which have listed their non-convertible debt securities on
private placement basis on a recognized stock exchange in terms of SEBI
(Issue and Listing of Debt Securities) Regulations, 2008;
c. Public companies which have not listed their equity shares on a recognized
stock exchange but whose equity shares are listed on a stock exchange in a
jurisdiction as specified in sub-section (3) of section 23 of the Act.

Summary of Section 2(51)

Listed Company But shall not include following class of companies

Public Companies which Private Public companies
Company which have not listed their companies which which have not
has any of its equity shares on a have listed their listed their
securities listed recognized stock non-convertible equity shares on
on any exchange but have listed debt securities a recognized
recognised stock their on private stock exchange
exchange. i. Non-convertible placement basis but whose equity
Debt Securities shares are listed
issued on private on a stock
placement basis exchange in a
ii. Non-convertible jurisdiction as
Redeemable specified in sub-
Preference shares section (3) of
issued on private section 23 of the
placement basis Act.
iii. both categories of
(i) and (ii) above

Manager
Section Means
2(53) An individual who, subject to the superintendence, control and
direction of the Board of Directors, has the management of the whole,
or substantially the whole, of the affairs of a company, and includes a
director or any other person occupying the position of a manager, by
whatever name called, whether under a contract of service or not.

DEEPIKA RATHI 1.16

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Managing Director
Section Means
2(54)
➢ A director who, by virtue of the articles of a company or an
agreement with the company or a resolution passed in its general
meeting, or by its Board of Directors, is entrusted with
substantial powers of management of the affairs of the company
and includes a director occupying the position of managing
director, by whatever name called.
➢ Explanation.— For the purposes of this clause, the power to do
administrative acts of a routine nature when so authorised by the
Board such as:
• the power to affix the common seal of the company to any
document or
• to draw and endorse any cheque on the account of the
company in any bank or
• to draw and endorse any negotiable instrument or
• to sign any certificate of share or to direct registration of
transfer of any share
shall not be deemed to be included within the substantial powers
of management
Explanation.- For any individual to be called as managing director,
an individual shall first be a director duly appointed by the Company
under the provisions of the Companies Act, 2013. This also implies
that an individual who is not a director in the company cannot be
appointed as Managing Director of that company.

Member
Section
In relation to a company means –
2(55)
i. The subscriber to the memorandum of the company who shall
be deemed to have agreed to become member of the company,
and on its registration, shall be entered as member in its
register of members
ii. Every other person who agrees in writing to become a member
of the company and whose name is entered in the register of
members of the company
iii. Every person holding shares of the company and whose name is
entered as a beneficial owner in the records of a depository

Memorandum
Section
2(56) Means the memorandum of association of a company as originally
framed or as altered from time to time in pursuance of any previous
company law or of this Act

1.17 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Net Worth
Section Means
2(57)
(Add) Aggregate Value of the paid-up share capital and all reserves
created out of the profits, securities premium account and debit or
credit balance of profit and loss account,
(Less) after deducting the aggregate value of the accumulated
losses, deferred expenditure and miscellaneous expenditure not
written off, as per the audited balance sheet,
but does not include reserves created out of revaluation of assets,
write-back of depreciation and amalgamation .

Question:- The statutory auditors of a company were required to issue a

certificate on the net worth of the company as per the requirement of
the management as on 30th September 2020 computed as per the
provision of section 2(57) of the Companies Act, 2013.
The company had fair valued its property, plant and equipment in the
current year which was mistakenly taken into retained earnings of the
company in its books of accounts. Advise whether this fair valuation
would be covered in the net worth of the company as per the legal
requirements.
Answer:- As per sec 2(57) of the Companies Act 2013, any reserves created out
of revaluation of assets doesn’t form part of net worth. The company
fair valued its property, plant and equipment and took that to retained
earnings.
Even if the company has taken the fair valuation to the retained
earnings in its books of accounts, the resultant credit in reserves (by
whatever name called) would be in the category of ‘reserves created
out of revaluation of assets’ which is specifically excluded in the
definition of ‘net worth’ in section 2 (57) and hence should be excluded
by the company.
Further the auditors should also consider the matter related to
accounting of this reserve.

Notification
Section
2(58) Means a notification published in the Official Gazette and the
expression “notify” shall be construed accordingly.

Officer
Section Includes any director, manager or key managerial personnel or any
2(59) person in accordance with whose directions or instructions the Board of
Directors or any one or more of the directors is or are accustomed to
act.

DEEPIKA RATHI 1.18

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Officer who is in default

Section
2(60) For the purpose of any provision in this Act which enacts that an
officer of the company who is in default shall be liable to any penalty
or punishment by way of imprisonment, fine or otherwise, means any of
the following officers of a company namely –
i. whole-time director (WTD)
ii. key managerial personnel (KMP);
iii. where there is no key managerial personnel, such director or
directors as specified by the Board in this behalf and who has or
have given his or their consent in writing to the Board to such
specification, or all the directors, if no director is so specified;
iv. any person who, under the immediate authority of the Board or
any key managerial personnel, is charged with any responsibility
including maintenance, filing or distribution of accounts or
records, authorises, actively participates in, knowingly permits, or
knowingly fails to take active steps to prevent, any default;
v. any person in accordance with whose advice, directions or
instructions the Board of Directors of the company is
accustomed to act, other than a person who gives advice to the
Board in a professional capacity;
vi. every director, in respect of a contravention of any of the
provisions of this Act, who is aware of such contravention by
virtue of the receipt by him of any proceedings of the Board or
participation in such proceedings without objecting to the same,
or where such contravention had taken place with his consent or
connivance.
vii. in respect of the issue or transfer of any shares of a company,
the share transfer agents, registrars and merchant bankers to
the issue or transfer.
Section
2(62) One Person Company
Means a company which has only one person as a member

Ordinary or Special resolution

Section
Means an ordinary resolution, or as the case may be, special resolution
2(63)
referred to in section 114 (Ordinary and Special Resolution)

Paid-up share capital or Share Capital Paid-up

Section Means
2(64) Such aggregate amount of money credited as paid-up as is equivalent to
the amount received as paid-up in respect of shares issued and also
includes any amount credited as paid-up in respect of shares of the
company, but does not include any other amount received in respect of
such shares, by whatever name called.

1.19 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Section Paid-up share capital or Share Capital Paid-up

2(65)
Means voting by post or through any electronic mode

Section Prescribed
2(66)
Means prescribed by rules made under this Act

Private Company
Section
2(68) Means a company having a minimum paid-up share capital as may be
prescribed, and which by its articles,-
i. Restricts the right to transfer its shares
ii. Except in case of One Person Company, limits the number of its
members to two hundred
➢ Provided that where two or more persons hold one or more
shares in a company jointly, they shall, for the purposes of
this clause, be treated as a single member :
➢ Provided further that
A. persons who are in the employment of the company;
and
B. persons who, having been formerly in the employment
of the company, were members of the company while
in that employment and have continued to be
members after the employment ceased
Shall not be included in the number of members and
iii. Prohibits any invitation to the public to subscribe for any securities
of the company
Note : Nothing has been prescribed so far, thus, there is no minimum
paid up share capital to form a private company.
Note :
The requirement of having a minimum paid up share capital shall not
apply to a section 8 company (Formation of companies with charitable
objects, etc.) vide notification dated 5th June 2015.
The above-mentioned exemption shall be applicable to a section 8
company which has not committed a default in filing its financial
statements under section 137 of the Companies Act, 2013, or annual
return under section 92 of the said Act with Registrar. [Vide
amendment notification G.S.R. 584(E) dated 13th June 2017.]

DEEPIKA RATHI 1.20

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Promoter
Section
2(69) Means a person
a. who has been named as such in a prospectus or is identified by
the company in the annual return referred to in section 92 or
b. who has control over the affairs of the company, directly or
indirectly whether as a shareholder, director or otherwise or
c. in accordance with whose advice, directions or instructions the
Board of Directors of the company is accustomed to act :
Provided that nothing in sub-clause (c) shall apply to a person who
is acting merely in a professional capacity

Prospectus
Section
Means any document described or issued as a prospectus and includes a
2(70)
red herring prospectus or shelf prospectus or any notice, circular,
advertisement or other document inviting offers from the public for
the subscription or purchase of any securities of a body corporate.

Public Company
Section ➢ Means a company which-
2(71) a) is not a private company; and
b) has a minimum paid-up share capital as may be prescribed
➢ Provided that a company which is a subsidiary of a company, not
being a private company, shall be deemed to be public company for
the purposes of this Act even where such subsidiary company
continues to be a private company in its articles;
➢ Note : The requirement of having a minimum paid up share capital
shall not apply to a section 8 company vide notification dated 5th
June 2015.
➢ Note : Nothing has been prescribed so far, thus, there is no
minimum paid up share capital to form a public company.

Section
Register of Companies
2(74) Means the register of companies maintained by the Registrar on paper
or in any electronic mode under this Act.

Registrar
Section Means a Registrar, an Additional Registrar, a Joint Registrar, a Deputy
2(75)
Registrar or an Assistant Registrar, having the duty of registering
companies and discharging various functions under this Act.

1.21 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Related Party
Section With reference to a company means-
2(76) i. a director or his relative
ii. a key managerial personnel or his relative
iii. a firm, in which a director, manager or his relative is a partner
iv. a private company in which a director or manager or his relative
is a member or director
v. a public company in which a director or manager is a director
and holds along with his relatives, more than two per cent of its
paid-up share capital
vi. any body corporate whose Board of Directors, managing
director or manager is accustomed to act in accordance with the
advice, directions or instructions of a director or manager
vii. Any person on whose advice, directions or instructions a
director or manager is accustomed to act Provided that
nothing in sub-clauses (vi) and (vii) shall apply to the advice,
directions or instructions given in a professional capacity
viii. Any body corporate which is-
a) a holding, subsidiary or an associate company of such
company;
b) a subsidiary of a holding company to which it is also a
subsidiary; or
c) an investing company or the venturer of the company
Explanation.- For the purpose of this clause, “the investing
company or the venturer of a company” means a body corporate
whose investment in the company would result in the company
becoming an associate company of the body corporate.
Note : This Clause (viii) shall not apply with respect to section
188 (Related Party transactions) to a private company vide
Notification No. G.S.R. 464(E) dated 5th June, 2015.
ix. Such other person as may be prescribed

As per Rule 3 given in the Companies (Specification of Definitions

Details) Rules, 2014, for the purposes of sub-clause (ix) of clause
(76) of section 2 of the Act, a director (other than an independent
director) or key managerial personnel of the holding company or his
relative with reference to a company, shall be deemed to be a related
party.
Analysis of Section 2(76)
i. Director or his relative
Example: Mr. X,Y and Z are directors of Company ABC LTD. The related parties
for the company, in general are as under :
Mr X. Mr. Y and Mr. Z are directors and the relatives of these directors are
considered as related parties.

DEEPIKA RATHI 1.22

Company & LLP Law : CA Intermediate

 CHAPTER-1
Preliminary

ii. Key managerial personal or his relative

Example: Mr. A the director of ABC Ltd is a partner of XYZ an another firm.
This firm will also be considered as a related party.

iii. A firm in which a director, manager or relative is a partner

Example: Mr. A is Company Secretary of LMN LTD. His relatives will be

considered as related parties.

iv. A private company in which a director manager or relative

is a member or director.

Example: Mr. X,Y and Z are directors of Company ABC LTD. Mr. Y is a Director of
B Pvt. Ltd.
In this case B Pvt. Ltd. Becomes a related party. Even when Mr. Y’s relative is a
member or Director in B Pvt. Ltd. this company shall be considered as a related
party.
v. A public limited company in which a director or manager is a
director and holds along with his relatives more than 2% of its
paid up capital.

Example: Mr. Z along with his relatives holds more than 2% of the paid up capital
of C Ltd.
In this case Mr. Z will be considered as a related party.

vi. Any body corporate whose board of Directors, MD or

Manager is required to act in accordance with the advice,
direction or instructions of a director or manager (Not
applicable in cases when these directions are followed in a
professional capacity)

Example: Mr. P of PQR Ltd. Acts on direction of Mr. X of XYZ Ltd. In this case
PQR Ltd. will be considered as a related party.

vii. Any body corporate whose board of Directors, MD or

Manager is required to act in accordance with the advice,
direction or instructions of a director or manager (Not
applicable in cases when these directions are followed in a
professional capacity)

Example: Mr. A holding 51% in XYZ Ltd. on whose advice Mr. X has to act will be
considered as a related party.

1.23 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

viii. Holding, Subsidiary or Associate of such Company

(Holding Company) ABC Ltd.

Holding 51% in
All are
related party
(Subsidiary Company) XYZ Ltd. (Holding Company)
to each other

Holding 30% in Holding 51% in

PQR Ltd. LMN Ltd. (Subsidiary Company)

(Associate Company)

Joint Venture

A Ltd. B Ltd.

Holding X % of Stake Holding Y % of Stake

AB Ltd. Joint
Venture

Related Party

Investing Party

Investing Party I Ltd.

Own 25% Stake Related Party

A Ltd. (Reporting Entity)

ix. Such other company as may be prescribed

DEEPIKA RATHI 1.24

Company & LLP Law : CA Intermediate

 CHAPTER-1
Preliminary

Relative
Section ➢ With reference to any person, means anyone who is related to
2(77) another, if-
i. they are members of a Hindu Undivided Family
ii. they are husband and wife; or
iii. one person is related to the other in such manner as may be
prescribed
➢ Rule 4 given in the Companies (Specification of Definitions Details)
Rules, 2014 provides of the List of Relatives in terms of Clause
(77) of section 2 .
Accordingly, a person shall be deemed to be the relative of
another, if he or she is related to another in the following manner,
namely :-
1. Father: Provided that the term “Father” includes step-father
2. Mother: Provided that the term “Mother” includes the step-
mother
3. Son: Provided that the term “Son” includes the step-son.
4. Son’s wife.
5. Daughter.
6. Daughter’s husband.
7. Brother: Provided that the term “Brother” includes the step-
brother
8. Sister: Provided that the term “Sister” includes the step-
sister.
Relative Section 2(77)

(i) Member of HUF (ii) Husband & Wife (iii) One person related
to the other

Father & Mother Son including Step Daughter and her Brother & Sister includes
including step father son and Son’s wife Husband Step Brother & Step Sister
& Mother

1.25 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Remuneration
Section
Means any money or its equivalent given or passed to any person for
2(78)
services rendered by him and includes perquisites as defined under
the Income Tax Act, 1961.

Section Share
2(84)
Means a share in the share capital of a company and includes stock.

Small Company
Section Means a Company, other than a Public Company-
2(85)
(i) Paid Up Share Capital of which does not exceed 50 Lakhs
Rupees Or such higher amount as may be prescribed*, which
shall not be more than 10 Crore Rupees and
(ii) Turnover of which as per Profit and Loss account for the
immediately preceding financial year does not exceed 2 Crore
Rupees or Such higher amount as may be prescribed*, which
shall not be more than 100 Crore Rupees.

Provided that nothing in this clause shall apply to-

a. A holding company or a subsidiary company
b. A company registered under section 8
c. A company or body corporate governed by any special Act.

*As per Rule 2(1)(t) of Companies ( Specification of Definitions

Details) Rules, 2014 Paid up Capital and Turnover of the Small
company shall not exceed Rupees 4 crores and Rupees 40 crores
respectively.

Subscribed Capital
Section
2(86) Means such part of the capital which is for the time being
subscribed by the members of a company.

Subsidiary Company or Subsidiary

Section In relation to any other company (that is to say the holding
2(87) company), means a company in which the holding company—
i. Controls the composition of the Board of Directors; or
ii. Exercises or controls more than one-half of the total voting
power either at its own or together with one or more of its
subsidiary companies

DEEPIKA RATHI 1.26

Company & LLP Law : CA Intermediate

CHAPTER-1
Preliminary

Provided that such class or classes of holding companies as may be

prescribed shall not have layers of subsidiaries beyond such numbers
as may be prescribed.

Explanation—For the purposes of this clause-

a. a company shall be deemed to be a subsidiary company of the
holding company even if the control referred to in sub-clause (i)
or sub-clause (ii) is of another subsidiary company of the holding
company
b. the composition of a company’s Board of Directors shall be
deemed to be controlled by another company if that other
company by exercise of some power exercisable by it at its
discretion can appoint or remove all or a majority of the directors
c. the expression “company” includes any body corporate
d. “layer” in relation to a holding company means its subsidiary or
subsidiaries

Clarification- The shares held by a company or power exercisable by

it in another company in a fiduciary capacity shall not be counted for
the purpose of determining the holding –subsidiary relationship in
terms of the provision of section 2(87) of the Companies Act, 2013.

Subsidiary Company

In which Holding Company

• Owns/ Controls > 50% of total
voting power or
• exercise control of board

Deemed Subsidiary Company

(Holding Company) ABC Ltd.

Holding 51% in

(Subsidiary Company) XYZ Ltd. (Holding Company)

Holding 51% in

LMN Ltd. (Subsidiary Company)

In this case LMN will be the deemed subsidiary of ABC Ltd.

1.27 DEEPIKA RATHI

Company & LLP Law : CA Intermediate
 CHAPTER-1
Preliminary

Sweat Equity Shares

Section Means such equity shares as are issued by a company to its directors
2(88) or employees at a discount or for consideration, other than cash, for
providing their know-how or making available rights in the nature of
intellectual property rights or value additions, by whatever name
called.

Total Voting Power

Section In relation to any matter means
2(89)
The total number of votes which may be cast in regard to that matter
on a poll at a meeting of a company if all the members thereof or
their proxies having a right to vote on that matter are present at the
meeting and cast their votes.

Section Tribunal
2(90) Means the National Company Law Tribunal constituted under section
408.

Turnover
Section
2(91) Means the gross amount of revenue recognised in the profit and loss
account from the sale, supply, or distribution of goods or on account
of services rendered, or both, by a company during a financial year.

Section Unlimited Company

2(92) Means a company not having any limit on the liability of its members;

Voting Right
Section
2(93) Means the right of a member of a company to vote in any meeting of
the company or by means of postal ballot.

DEEPIKA RATHI 1.28

Company & LLP Law : CA Intermediate