A company is an association of several persons. Decisions are made according to the view of the majority. Various matters have to be discussed and decided upon. These discussions take place at the various meetings which take place between members and between the directors. Needless to say, the importance of meetings cannot be under-emphasised in case of companies. The Companies Act, 1956 contains several provisions regarding meetings. These provisions have to be understood and followed.

For a meeting, there must be at least 2 persons attending the meeting. One member cannot constitute a company meeting even if he holds proxies for other members.

List  the different Kinds of Company Meetings?

Broadly, meetings in a company are of the following types :-

I. Meetings of Members :

These are meetings where the members / shareholders of the company meet and discuss various matters. Member’s meetings are of the following types :-

A. Statutory Meeting :

A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than six months from the date on which it is entitled to commence business i.e. it obtains certificate of commencement of business. In a statutory meeting, the following matters only can be discussed :-

Floatation of shares / debentures by the company

Modification to contracts mentioned in the prospectus

The purpose of the meeting is to enable members to know all important matters pertaining to the formation of the company and its initial life history. The matters discussed include which shares have been taken up, what money has been received, what contracts have been entered into, what sums have been spent on preliminary expenses, etc. The members of the company present at the meeting may discuss any other matter relating to the formation of the Company or arising out of the statutory report also, even if no prior notice has been given for such other discussions but no resolution can be passed of which notice have not been given in accordance with the provisions of the Act.

A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company.

A statutory meeting may be adjourned from time to time by the members present at the meeting.

The Board of Directors must prepare and send to every member a report called the “Statutory Report” at least 21 days before the day on which the meeting is to be held. But if all the members entitled to attend and vote at the meeting agree, the report could be forwarded later also. The report should be certified as correct by at least two directors, one of whom must be the managing director, where there is one, and must also be certified as correct by the auditors of the company with respect to the shares allotted by the company, the cash received in respect of such shares and the receipts and payments of the company. A certified copy of the report must be sent to the Registrar for registration immediately after copies have been sent to the members of the company.

A list of members showing their names, addresses and occupations together with the number shares held by each member must be kept in readiness and produced at the commencement of the meeting and kept open for inspection during the meeting.

If default is made in complying with the above provisions, every director or other officer of the company who is in default shall be punishable with fine upto Rs. 500. The Registrar or a contributory may file a petition for the winding up of the company if default is made in delivering the statutory report to the Registrar or in holding the statutory meeting on or after 14 days after the last date on which the statutory meeting ought to have been held.

Contents of Statutory Report must provide the following particulars:- (a)The total number of shares allotted, distinguishing those fully or partly paid-up, otherwise than in cash, the extent to which partly paid shares are paid-up, and in both cases the consideration for which they were allotted.(b) The total amount of cash received by the company in respect of all shares allotted, distinguishing as aforesaid.(c) An abstract of the receipts and payments upto a date within 7 days of the date of the report and the balance of cash and bank accounts in hand, and an account of preliminary expenses.(d) Any commission or discount paid or to be paid on the issue or sale of shares or debentures must be separately shown in the aforesaid abstract.(e) The names, addresses and occupations of directors, auditors, manager and secretary, if any, of the company and the changes which have taken place in the names, addresses and occupations of the above since the date of incorporation.(f) Particulars of any contracts to be submitted to the meeting for approval and modifications done or proposed.(g) If the company has entered into any underwriting contracts, the extent, if any, to which they have not been carried out and the reasons for the failure.(h) The arrears, if any, due on calls from every director and from the manager.(i) The particulars of any commission or brokerage paid or to be paid, in connection with the issue or sale of shares or debentures to any director or to the manager.

The auditors have to certify that all information regarding calls and allotment of shares are correct.

B. Annual General Meeting

Must be held by every type of company, public or private, limited by shares or by guarantee, with or without share capital or unlimited company, once a year. Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings. However, a company may hold its first annual general meeting within 18 months from the date of its incorporation. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only.

In the case there is any difficulty in holding any annual general meeting (except the first annual meeting), the Registrar may, for any special reasons shown, grant an extension of time for holding the meeting by a period not exceeding 3 months provided the application for the purpose is made before the due date of the annual general meeting. However, generally delay in the completion of the audit of the annual accounts of the company is not treated as “special reason” for granting extension of time for holding its annual general meeting. Generally, in such circumstances, an AGM is convened and held at the proper time . all matters other than the accounts are discussed. All other resolutions are passed and the meeting is adjourned to a later date for discussing the final accounts of the company. However, the adjourned meeting must be held before the last day of holding the AGM.

A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company. The notice must state that the meeting is an annual general meeting. The time, date and place of the meeting must be mentioned in the notice. The notice of the meeting must be accompanied by a copy of the annual accounts of the company, director’s report on the position of the company for the year and auditor’s report on the accounts. Companies having share capital should also state in the notice that a member is entitled to attend and vote at the meeting and is also entitled to appoint proxies in his absence. A proxy need not be a member of that company. A proxy form should be enclosed with the notice. The proxy forms are required to be submitted to the company at least 48 hours before the meeting.

The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government may, however, exempt any class of companies from the above provisions. If any day is declared by the Central government to be a public holiday after the issue of the notice convening such meeting, such a day will be traeted as a working day.

A company may, by appropriate provisions in its its articles, fix the time for its annual general meeting and may also by a resolution passed in one annual general meeting fix the time for its subsequent annual general meetings.

Companies licensed under Section 25 are exempt from the above provisions provided that the time, date and place of each annual general meeting are decided upon beforehand by the Board of Directors having regard to the directions, if any, given in this regard by the company in general meeting.

In case of default in holding an annual general meeting, the following are the consequences :-

Any member of the company may apply to the Company Law Board. The Company Law Board may call, or direct the calling of the meeting, and give such ancillary or consequential directions as it may consider expedient in relation to the calling, holding and conducting of the meeting. The Company Law Board may direct that one member present in person or by proxy shall be deemed to constitute the meeting. A meeting held in pursuance of this order will be deemed to be an annual general meeting of the company. An application by a member of the company for this purpose must be made to the concerned Regional Bench of the Company Law Board by way of petition in Form No. 1 in Annexure II to the CLB Regulations with a fee of rupees fifty accompanied by (i) affidavit verifying the petition, (ii) bank draft for payment of application fee.

Fine which may extend to Rs. 5,000 on the company and every officer of the company who is in default may be levied and for continuing default, a further fine of Rs. 250 per day during which the default continues may be levied.

Business to be Transacted at Annual General Meeting :

At every AGM, the following matters must be discussed and decided. Since such matters are discussed at every AGM, they are known as ordinary business. All other matters and business to be discussed at the AGM are specila business.

The following matters constitute ordinary business at an AGM :-

Consideration of annual accounts, director’s report and the auditor’s report

Declaration of dividend

Appointment of directors in the place of those retiring

Appointment of and the fixing of the remuneration of the statutory auditors.

In case any other business ( special business ) has to be discussed and decided upon, an explanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person. In case approval of any document has to be done by the members at the meeting, the notice must also state that the document would be available for inspection at the Registered Office of the company during the specified dates and timings.

C. Extraordinary General Meeting

Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting. Such meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is special business. An explanatory statement of the special business must also accompany the notice calling the meeting. The notice must should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person. In case approval of any document has to be done by the members at the meeting, the notice mus also state that the document would be available for inspection at the Registered Office of the company during the specified dates and timings.

The Articles of Association of a Company may contain provisions for convening an extraordinary general meeting. Eg. It may provide that “the board may, whenever it thinks fit, call an extraordinary general meeting” or it may provide that “if at any time there are not within India, directors capable of acting who are sufficient in number to form a quorum, any director or any two members of the company may call an extraordinary general meeting”.

Extraordinary General Meeting on Requisition :

The members of a company have the right to require the calling of an extraordinary general meeting by the directors. The board of directors of a company must call an extraordinary general meeting if required to do so by the following number of members :-

members of the company holding at the date of making the demand for an EGM not less than one-tenth of such of the voting rights in regard to the matter to be discussed at the meeting ; or

if the company has no share capital, the members representing not less than one-tenth of the total voting rights at that date in regard to the said matter.

The requisition must state the objects of the meetings and must be signed by the requisitioning members. The requisition must be deposited at the company’s registered office. When the requisition is deposited at the registered office of the company, the directors should within 21 days, move to call a meeting and the meeting should be actually be held within 45 days from the date of the lodgement of the requisition. If the directors fail to call and hold the meeting as aforesaid, the requisitionists or any of them meeting the requirements at (a) or (b) above, as the case may be, may themselves proceed to call meeting within 3 months from the date of the requisition, and claim the necessary expenses from the company. The company can make good this sum from the directors in default. At such an EGM, any business which is not covered by the agenda mentioned in the notice of the meeting cannot be voted upon.

What are the Power of Company Law Board to Order Calling of Extraordinary General Meeting ?

If for any reason, it is impracticable to call a meeting of a company, other than an annual general meeting, or to hold or conduct the meeting of the company, the Company Law Board may, either i) on its own motion, or ii) on the application of any director of the company, or of any member of the company, who would be entitled to vote at the meeting, order a meeting to be called and conducted as the Company Law Board thinks fit, and may also give such other ancillary and consequential directions as it thinks fit expedient. A meeting so called and conducted shall be deemed to be a meeting of the company duly called and conducted.

Procedure for Application under Section 186 :

An application by a director or a member of a company for this purpose is required to be made to the Regional Bench of the Company Law Board before whom the petition is to be made in Form No 1 specified in Annexure II to the CLB Regulations with a fee of Rs200. The petition must be accompanied with the following documents -

Evidence in proof of status of the applicant.

Affidavit verifying the petition.

Bank draft evidencing payment of application fee.

Memorandum of appearance with copy of the Board’s resolution or executed vakalat nama, as the case may be.

D. Class Meeting

Class meetings are meetings which are held by holders of a particular class of shares, e.g., preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares. At such meetings, these members dicuss the pros and cons of the proposal and vote accordingly. (See provisions on variations of shareholder’s rights). Class meetings are held to pass resolution which will bind only the members of the class concerned, and only members of that class can attend and vote.

Unless the articles of the company or a contract binding on the persons concerned otherwise provides, all provisions pertaining to calling of a general meeting and its conduct apply to class meetings in like manner as they apply with respect to general meetings of the company.

II. Meetings of the Board of Directors

- Meeting of the Board of Directors

- Meeting of a Committee of the Board

III. Other Meetings

A. Meeting of debenture holders

A company issuing debentures may provide for the holding of meetings of the debentureholders. At such meetings, generally nmmatters pertaining to the variation in terms of security or to alteration of their rights are discussed. All matters connected with the holding, conduct and proceedings of the meetings of the debentureholders are normally specified in the Debenture Trust Deed. The decisions at the meeting made by the prescribed majority are valid and lawful and binding upon the minority.

B. Meeting of creditors

Sometimes, a company, either as a running concern or in the event of winding up, has to make certain arrangements with its creditors. Meetings of creditors may be called for this purpose. Eg U/s 393, a company may enter into arrangements with creditors with the sanction of the Court for reconstruction or any arrangement with its creditors. The court, on application, may order the holding of a creditors’ s meeting. If the scheme of arrangement is agreed to by majority in number of holding debts to value of the three-fourth of the total value of the debts, the court may sanction the scheme. A certified copy of the court’s order is then filed with the Registrar and it is binding on all the creditors and the company only after it is filed with Registrar.

Similarly, in case of winding up of a company, a meeting of creditors and of contributories is held to ascertain the total amount due by the company and also to appoint a liquidator to wind up the affairs of the company.

Requisites of a Valid Meetings The following conditions must be satisfied for a meeting to be called a valid meeting :-

It must be properly convened. The persons calling the meeting must be authorised to do so.

Proper and adequate notice must have been given to all those entitled to attend.

The meeting must be legally constituted. There maust be a chairperson. The rules of quorum must be maintained and the provisions of the Companies Act, 1956 and the articles must be complied with.

The business at the meeting must be validly transacted.. The meeting must be conducted in accordance with the regulations governing the meetings.

Notice of General Meeting

A meeting cannot be held unless a proper notice has been given to all persons entitled to attend the meeting at the proper time, containing the necessary information. A notice convening a general meeting must be given at least 21 clear days prior to the date of meeting. However, an annual general meeting may be called and held with a shorter notice, if it is consented to by all the members entitled to vote at the meeting. In respect of any other meeting, it may be called and held with a shorter notice, if at least members holding 95 percent of the total voting power of the Company consent to a shorter notice.

Notice of every meeting of company must be sent to all members entitled to attend and vote at the meeting. Notice of the AGM must be given to the statutory auditor of the company.

Accidental omission to give notice to, or the non-receipt of notice by, any member or any other person on whom it should be given will not invalidate the proceedings of the meeting. The notice may be given to any member either personally or by sending it by post to him at his registered address, or if there is none in India, to any address within India supplied by him for the purpose. Where notice is sent by post, service is effected by properly addressing, pre-paying and posting the notice. A notice may be given to joint holders by giving it to the jointholder first named in the register of members. A notice of meeting may also be given by advertising the same in a newspaper circulating in the neighbourhood of the registered office of the company and it shall be deemed to be served on every member who has to registered address in India for the giving of notices to him.

A notice calling a meeting must state the place, day and hour of the meeting and must contain the agenda of the meeting. If the meeting is a statutory or annual general meeting, notice must describe it as such. Where any items of special business are to be transacted at the meeting, an explanatory statement setting out all materials facts concerning each item of the special business including the concern or interest, if any, therein of every director and manager, is any, must be annexed to the notice. If it is intended to propose any resolution as a special resolution, such intention should be specified.

A notice convening an AGM must be accompanied by the annual accounts of the company, the director’s report and the auditor’s report. The copies of these documents could, however, be sent less than 21 days before of the date of the meeting if agreed to by all members entitled to vote at the meeting.

What does the term Proxy refers to?

In case of a company having a share capital and in the case of any other company, if the articles so authorise, any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person (whether a member or not) as his proxy to attend and vote instead of himself. Every notice calling a meeting of the company must contain a statement that a member entitled to attend and vote is entitled to appoint one proxy in the case of a private company and one or more proxies in the case of a public company and that the proxy need not be member of the company.

A member may appoint another person to attend and vote at a meeting on his behalf. Such other person is known as “Proxy”. A member may appoint one or more proxies to vote in respect of the different shares held by him, or he may appoint one or more proxies in the alternative, so that if the first named proxy fails to vote, the second one may do so, and so on.

The member appointing a proxy must deposit with the company a proxy form at the time of the meeting or prior to it giving details of the proxy appointed. However, any provision in the articles which requires a period longer than forty eight hours before the meeting for depositing with the company any proxy form appointing a proxy, shall have the effect as if a period of 48 hours had been specified in such provision.

A company cannot issue an invitation at its expense asking any member to appoint a particular person as proxy. If the company does so, every officer in default shall be liable to fine up to Rs1,000. But if a proxy form is sent at the request of a member, the officer shall not be liable. Every member entitled to vote at a meeting of the company, during the period beginning 24 hours before the date fixed for the meeting and ending with the conclusion of the meeting may inspect proxy forms at any time during business hours by giving 3 days notice to the company of his intention to do so.

The proxy form must be in writing and be signed by the member or his authorised attorney duly authorised in writing or if the appointer is a company, the proxy form must be under its seal or be signed by an officer or an attorney duly authorised by it.

The proxy can be revoked by the member at any time, and is automatically revoked by the death or insolvency of the member. The member may revoke the proxy by voting himself before the proxy has voted, but once the proxy has exercised the vote, the member cannot retract his vote. Where two proxy forms by the same shareholder are lodged in respect of the same votes, the last proxy form will be treated as the correct proxy form.

A proxy is not entitled to vote except on a poll. Therefore, a proxy cannot vote on show of hands.

What does the  term Quorum refers to?

Quorum refers to the minimum number of members who must be present at a meeting in order to constitute a valid meeting. A meeting without the minimum quorum is invalid and decisions taken at such a meeting are not binding. The articles of a company may provide for a quorum without which a meeting will be construed to be invalid. Unless the articles of a company provide for larger quorum, 5 members personally present (not by proxy) in the case of a public company and 2 members personally present (not by proxy) in the case of a private company shall be the quorum for a general meeting of a company.

It has been held by Courts that unless the articles otherwise provide, a quorum need to be present only when the meeting commenced, and it was immaterial that there was no quorum at the time when the vote was taken. Further, unless the articles otherwise provide, if within half an hour from the time appointed for holding a meeting of the company, a quorum is not present in the person, the meeting :-

if called upon the requisition of members, shall stand dissolved;

in any other case, it shall stand adjourned to the same day in the next week, at the same time and place, or to such other day and time as the Board of Directors may determine.

If at the adjourned meeting also, the quorum is not present within half an hour from the time appointed for holding the meeting, the members present shall a quorum.

In case the Company Law Board calls or directs the calling of a meeting of the company, when default is made in holding an annual general meeting, the government may give directions regarding the quorum including a direction that even one member of the company present in person, or by proxy shall be deemed to constitute a meeting. Similarly the Company Law Board may, direct a meeting of the company (other than an annual general meeting) to be called and held where for any reason it is impracticable to call a meeting and direct that even one member present in person or by proxy shall be deemed to constitute a meeting.

Who is a Chairman?

The chairman is the head of the meeting. Generally, the chairman of the Board of Directors is the Chairman of the meeting. Unless the articles otherwise provide, the members present in person at the meeting elect one of themselves to be the chairman thereof on a show of the hands. If there is no Chairman or he is not present within 15 minutes after the appointed time of the meeting or is unwilling to act as chairman of the meeting, the directors present may elect one among themselves to be the chairman of the meeting. If, however no director is willing to act as chairman or if no director is present within 15 minutes after the appointed time of the meeting, the members present should choose one among themselves to be chairman of the meeting. If, after the election of a chairman on a show of hands, poll is demanded and taken and a different person is elected as chairman, then that person will be the chairman for the rest of the meeting.

What are the Duties of the chairman?

Without a chairman, a meeting is incomplete. The chairman is the regulator of the meeting. His duties include the following :-

He must ensure that the meeting is properly convened and constituted i.e. that proper notice has been given, that the required quorum is present, etc.

He must ensure that the provisions of the act and the articles in regard to the meeting and its procedures are observed.

He must ensure that business is taken in the order set out in agenda and no business which is not mentioned in the agenda is taken up unless agreed to by the members.

He must impartially regulate the proceedings of the meeting and maintain discipline at the meeting.

He may exercise his powers of adjournment of the meeting, should he in good faith feel that such a step is necessary. The chairman has the power to adjourn the meeting in case of indiscipline at the meeting. A chairman however does not have the power to stop or adjourn the meeting at his own will and pleasure. If he adjourns the meeting prematurely, the members present may decide to continue the meeting and elect another chairman and proceed with the business for which it was convened.

He must exercise his power to order a poll correctly and must order it to be taken when demanded properly.

He must exercise his casting vote bonafide in the interest of the company.

Voting and Demand for Poll

Generally, initially matters are decided at a general meeting by a show of hands. If the majority of the hands raise their hands in favour of a particular resolution, then unless a poll is demanded, it is taken as passed. Voting by a show of hands operates on the principle of “One Member-One Vote”. However, since the fundamental voting principle in a company is “One Share-One Vote”, if a poll is demanded, voting takes place by a poll. Before or on declaration of the result of the voting on any resolution on a show of hands, the chairman may order suo motu (of his own motion) that a poll be taken. However, when a demand for poll is made, he must order the poll be taken. The chairman may order a poll when a resolution proposed by the Board is lost on the show of hands or if he is of the opinion that the decision taken on the show of hands is likely to be reversed by poll. When a poll is taken, The decision arrived by poll is final and the decision on the show of hands has no effect.

A poll is allowed only if the prescribed number of members demand a poll. A poll must be ordered by the chairman if it is demanded:-

in the case of a public company having a share capital, by any member or members present in person or by proxy and holding shares in the company-

which confer a power to vote on the resolution not being less than one-tenth of the total voting power in respect of the resolution, or

on which an aggregate sum of not less than fifty thousand rupees has been paid up.

in the case of a private company having a share capital, by one member having the right to vote on the resolution and present in person or by proxy if not more than seven such members are personally present, and by two such members present in person or by proxy, if more than seven such members are personally present.

in the case of any other, by any member or members present in person or by proxy and having not less than one-tenth of the total voting power in respect of the resolution.

What does the term Motion refers to?

Motion means a proposal to be discussed at a meeting by the members. A resolution may be passed accepting the motion, with or without modifications or a motion may be entirely rejected. A motion, on being passed as a resolution becomes a decision. A motion must be in writing and signed by the mover and put to the vote of the meeting by the chairman. Only those motions which are mentioned in the agenda to the meeting can be discussed at the meeting. However, motions incidental or ancillary to the matter under discussion may be moved and passed. Generally, a motion is proposed by one member and seconded by another member.

What does the term Amendment means?

Amendment means any modification to a motion before it is put to vote for adoption. Amendment may be proposed by any member who has not already spoken on the main motion or has not previously moved an amendment thereto. There can be an amendment to an amendment motion also. A motion must be in writing and signed by the mover and put to the vote of the meeting by the chairman. An amendment must not raise any question already decided upon at the same meeting and must be relevant to the main motion which it seeks to amend. The chairman has the discretion to accept or reject an amendment on various grounds such as inconsistency, redundancy, irrelevance, etc. If the amendment is adopted on a vote by the members, it is incorporated in the body of the main motion. The altered motion is then discussed and put to vote and if passed, becomes a resolution.

What are the different Kinds of Resolutions?

Resolutions mean decisions taken at a meeting. A motion, with or without amendments is put to vote at a meeting. Once the motion is passed, it becomes a resolution. A valid resolution can be passed at a properly convened meeting with the required quorum. There are broadly three types of resolutions :-

1. Ordinary Resolution :

An ordinary resolution is one which can be passed by a simple majority. I.e. if the votes (including the casting vote, if any, of the chairman), at a general meeting cast by members entitled to vote in its favour are more than votes cast against it. Voting may be by way of a show of hands or by a poll provided 21 days notice has been given for the meeting.

2. Special Resolution :

A special resolution is one in regard to which is passed by a 75 % majority only i.e. the number of votes cast in favour of the resolution is at least three times the number of votes cast against it, either by a show of hands or on a poll in person or by proxy. The intention to propose a resolution as a special resolution must be specifically mentioned in the notice of the general meeting. Special resolutions are needed to decide on important matters of the company. Examples where special resolutions are required are :-

To alter the domicile clause of the memorandum from one State to another or to alter the objects clause of the memorandum.

To alter / change the name of the company with the approval of the central government

To alter the articles of association

To change the name of the company by omitting “Limited” or “Private Limited”. The Central Government may allow a company with charitable objects to do so by special resolution under section 25 of the Companies Act, 1956.

3. Resolution requiring Special Notice :

There are certain matters specified in the Companies Act, 1956 which may be discussed at a general meeting only if a special notice is given regarding the proposal to discuss these matters at a meeting. A special notice enables the members to be prepared on the matter to be discussed and gives them time to indicate their views on the resolution. In case special notice of resolution is required by the Companies Act, 1956 or by the articles of a company, the intention to propose such a resolution must be notified to the company at least 14 days before the meeting. The company must within 7 days before the meeting give the notice of the proposed resolution to its members. Notice of the resolution is required to be given in the same way in which notice of a meeting is given, or if that is not practicable, the company may give notice by advertisement in a newspaper having an appropriate circulation or in any other manner allowed by the articles, not less 7 days before the meeting.

The following matters requiring Special Notice before they are discussed before tha meeting :-

To appoint at an annual general meeting appointing an auditor a person other than a retiring auditor.

To resolve at an annual general meeting that a retiring auditor shall not be reappointed.

To remove a director before the expiry of his period of office.

To appoint another director in place of removed director.

Where the articles of a company provide for the giving of a special notice for a resolution, in respect of any specified matter or matters.

Please note that a resolution requiring special notice may be passed either as an ordinary resolution (Simple majority) or as a special resolution (75 % majority).

Circulation of Member’s Resolution

Generally, the Board of Directors prepare the agenda of the meeting to be sent to all members of the meeting. A member, by himself has very little say in deciding the agenda. However, there are provisions in the Companies Act which enable members to introduce motions at a meeting and give prior notice of their intention to do so to all other members of the company. If members having one twentieth of the total voting rights of all members having the right to vote on a resolution or if 100 members having the right to vote and holding paid-up capital of Rs1,00,000 or more, require the company to do so, the company must :-

Give to the members entitled to receive notice of the next annual general meeting, notice of any resolution which may be properly moved and is intended to be moved at that meeting; and

Circulate to members entitled to have notice of any general meeting sent to them, any statement of not more than 1,000 words with respect to the matter referred to in any proposed resolution, or any business to be dealt with at that meeting.

The expenses for this purpose must be borne by the requisitionists and must be tendered to the company. The requisition, signed by all the requisitionists, must be deposited at the registered office of the company at least 6 weeks before the meeting in the case of resolution and not less than 2 weeks before the meeting in case of any other requisition together with a reasonable sum to meet the expenses. However, where a copy of the requisition requiring notice of resolution has been deposited at the registered office of the company and an annual general meeting is called for a date six weeks or less after the requisition is deposited, the copy though not deposited within the prescribed time is deemed to have been properly deposited.

The company is required to serve the notice of resolution and/or the statement to the members as far as possible in the manner and so far as practicable at the same time as the notice of the meeting ; otherwise as soon as practicable thereafter.

However, a company need not circulate a statement if the Court, on the application either of the company or any other aggrieved person, is satisfied that the rights so conferred are being abused to secure needless publicity or for defamatory purposes. Secondly a banking company need not circulate such statement, if in the opinion of its Board of directors, the circulation will injure the interest of the company.

Registration of Resolutions and Agreements

A copy of each of the following resolutions along with the explantory statement in case of a special business and agreements must, within 30 days after the passing or making thereof, be printed or typewritten and duly certified under the signature of an officer of the company and filed with the Registrar of Companies who shall record the same :-

All special resolutions

All resolutions which have been unanimously agreed to by all the members but which, if not so agreed, would not have been effective unless passed as special resolutions

All resolutions of the board of directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a managing director

All resolutions or agreements which have been agreed to by all members of any class of members but which, if not so agreed, would not have been effective unless passed by a particular majority or in a particular manner and all resolutions or agreements which effectively bind all members of any class of shareholders though not agreed to by all of those members

All resolutions passed by a company conferring power upon its directors to sell or dispose of the whole or any part of the company’s undertaking; or to borrow money beyond the limit of the paid-up share capital and free reserves of the company; or to contribute to charities beyond Rs50000 or 5 per cent of the average net profits

All resolutions approving the appointment of sole selling agents of the company

All copies of the terms and conditions of appointment of a sole selling agent or sole buying or purchasing agent

Resolutions for voluntary winding up of a company

What does the term Adjournment refers to?

Adjournment means suspending the proceedings of a meeting for the time being so that the meeting may be continued at a later date and time fixed in that meeting itself at the time of such adjournment or to decided later on. Only the business not finished at the original meeting can be transacted at the adjourned meeting.

The majority of members at a meeting may move an adjournment motion at a meeting. If the chairman adjourns the meeting, ignoring the views of the majority, the remaining members can continue the meeting. The chairman cannot adjourn the meeting at his own discretion without there being a good cause for such an adjournment. Where the chairman, acting bona fide within his powers, adjourns the meeting as per the view of the majority, the minority members cannot to continue with such meeting and, if they do the proceedings there will be null and void.

An adjourned meeting is merely the continuation of the original meeting and therefore, a fresh notice is not necessary, if the time, date and place for holding the adjourned meeting are decided and declared at the time of adjourning it. If a meeting is adjourned without stipulation as to when it will be continued, fresh notice of the adjourned meeting must be given.

What does the  term Postponement of a meeting means?

Postponement of a meeting means defering the holding of the meeting itself at a later date. Postponement is done by the Board of Directors or by the person convening the meeting. In case of adjournment, it is the decision of the majority of the members present at the meeting itself.

What is the  meaning  of Dissolution?

Dissolution of a meeting means termination of a meeting. The meeting no longer exists once it has been dissolved. If within half an hour after the time appointed for holding a general meeting; the quorum is not present, the meeting shall stand dissolved if it was called on requisition by members.

Minutes of Proceedings of Meetings

Every company must keep minutes of the proceedings of general meetings and of the meetings of board of directors and its committees. The minutes are a record of the discussions made at the meeting and the final decisions taken thereat.

Every company must keep minutes containing details of all proceedings at the meetings. The pages of the minute books must be consecutively numbered and the minutes must be recorded therein within 30 days of the meeting. They have to be written directly on the numbered pages. Pasting or attaching of papers is not allowed. Each page of every such minutes books must be initialed or signed and last page of the record of proceedings of each meeting in such books must be dated and signed by :-

in the case of the meeting of the Board of directors or committee thereof, by the chairman of that meeting or that of the succeeding meeting, and

in the case of a general meeting, by the chairman of the same meeting within the aforesaid 30 days or in the event of the death or inability of that chairman within the period, by a director duly authorised by the Board of directors for the purpose.

The Company Law Board, however, may not object if minutes are maintained in loose leaf form provided all other procedural requirements are complied with and all possible safeguards against manipulation or interpolation of the minutes are ensured. The loose leaves must be bound at reasonable intervals. Entering the minutes in a bound minute book by a chemical process, which does not amount to attachment to any book by pasting or otherwise is permissible provided on the mechanical impression of the minutes, the original signatures of the Chairman are given on each page. All appointments of officers made at any of the meetings must be included in the minutes of the meeting. In the case of a meeting of the Board of directors or its Committee, the minutes must also state the names of directors present at the meeting and the names of directors, if any, dissenting from, or not concurring with a resolution passed at the meeting.

The chairman may exclude from the minutes any matters which are defamatory, irrelevant or immaterial or which are detrimental to the interests of the company. The discretion of the Chairman with regard to the inclusion or exclusion of any matter is absolute and unfettered.

Where minutes of the proceedings of any meeting have been kept properly, they are, unless the contrary is proved, presumed to be correct, and are valid evidence that the meeting was duly called and held, and all proceedings thereat have actually taken place, and in particular, all appointments of directors or liquidators made at the meeting shall be deemed to be valid.

The minute books of the proceedings of general meetings must be kept the registered office of the company. Any member has a right to inspect, free of cost during business hours at the registered office of the company, the minutes books containing the proceedings of the general meetings of the company. Further, any member shall be entitled to be furnished, within 7 days after he has made a request to the company, with a copy of any minutes on payment of Rupee One for every hundred words or fraction thereof. If any inspection is refused or copy not furnished within the time specified, every officer in default shall be punishable with fine up to Rs. 500 for each offence. The Company Law Board may also by order compel an immediate inspection or furnishing of a copy forthwith. But the minutes books of the board meetings are not open for inspection of members

What does the term charge refers to in context of a company?

A charge means an interest or right which a lender or creditor obtains in the property of the company by way of security that the company will pay back the debt. Charges are of 2 types :-

1. Fixed Charge

2. Floating Charge

: Such a charge is against a specific clearly identifiable and defined property. The property under charge is identified at the time of creation of charge. The nature and identity of the property does not change during the existence of the charge. The company can transfer the property charged only subject to that charge so that the charge holder or mortgage must be paid first whatever is due to him before disposing off that property. : Such a charge is available only to companies as borrower. A Floating charge does attach to any definite property but covers the property of a circulating and fluctuating nature such as stock-in-trade, debtors, etc. It attaches to the property charged in the varying conditions in which happens to be from time to time. Such a charge remains dormant until the undertaking charge ceases to be a going concern or until the person in whose favour charge created takes steps to crystallise the floating charge. A floating charge on crystallisation becomes a fixed charge.

Crystallization of floating charge :

1. Where the company ceases to carry on the business, whether the principal money has become payable or not, unless the debenture or trust deed contains the stipulation to the contrary.

2. Upon the commencement of winding up of the company.

3. If a debentureholder, having become entitled to realise the securities by the reason of the fact that the principal money has become payable, intervenes for the purpose by appointing the receiver or by making an application to the court for appointment of the receiver.

What should be the proper way to give notice of meeting to the directors?
Notice of every meeting of the Board of directors of a company shall be given in writing to ever director for the time being in India, and at his usual address in India to every other director.

Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to one hundred rupees.

What should be the Quorum for meetings of Board of directors?
The quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher.

Provided that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of the remaining directors, that is to say, the number of the directors who are not interested, present at the meeting being not less than 2 shall be the quorum during such time.

Interested director means any director whose presence cannot, by reason of his being interested in some manner in the subject matter of discussion be counted for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter.

Procedure where meeting adjourned for want of quorum
If a meeting of the Board could not be held for wand of quorum, then, unless the articles otherwise provide, the meeting shall automatically stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

Passing or resolutions by circulation
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 to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board of committee, as the case may be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.

Validity of acts of directors
Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered 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.

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What are the General powers of Board?
Subject to the provisions of this Act, 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.

However, the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting.

What are the Certain powers  of  the  Board which are exercised only at meeting?
The Board of directors of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-

the power to make calls on shares holders in respect of money unpaid on their shares

the power to issue debentures

the power to borrow moneys otherwise than on debentures

the power to invest the funds of the company

the power to make loans

However, the Board may, by a resolution passed at a meeting delegate to any committee of directors, the managing director, or the manager of the company or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e), to the extent specified in the resolution and subject to such conditions as may be imposed.

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 moneys on deposit by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be borrowing of moneys or making of loans by a banking company for the purpose of these provisions.

These provisions also do not 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.

In respect of dealings betwwen a company and its bankers, the exercise by the company of its powers to borrow money otherwise than on debentures 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 of overdrafts, cash credit or other accounts.

Every resolution delegating the power referred to in clause (c) ( the power to borrow moneys otherwise than on debentures ) shall specify the total amount outstanding at any one time up to which moneys may be borrowed by the delegate.

Every resolution delegating the power referred to in clause (d) (the power to invest the funds of the company ) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the delegate.

Every resolution delegating the power referred to in clause (e) (the power to make loans ) shall specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made, and the maximum amount of loans which may be made for each such purpose in individual cases.

Nothing in this section 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 above.

What are the Restrictions on powers of Board?
The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting :-

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 such undertaking

remit, or give time for the re-payment of, any debt due by a director except in the case or renewal or continuance of any advance made by a banking company to its director in the ordinary course of business

invest, otherwise than in trust securities, the amount of compensation received by the company in respect of compulsory acquisition of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time

borrow moneys, where the moneys to be borrowed together with the moneys already borrowed by the company, (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves

contribute, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed fifty thousand rupees, or five per cent of its average net profits during the three financial years immediately preceding, whichever is greater.

The resolutions under clause (d) and (e) above must specify the total amount upto which the Board may borrow or the total amount which may be contributed in a financial year.

Temporary loans mean loans repayable on demand or within 6 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.

Any resolution passed by the company permitting any transaction such as is referred to in clause (a) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transaction:

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 moneys by the banking company within the meaning of clause (d).

No debt incurred by the company in excess of the limit imposed by clause by clause (d) 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

What is the minimum number of directors in any type of company?
Every public company ( other than a deemed public company ) must have at least three directors. Every other company must have at least two directors.

The directors of a company collectively are referred to as the “Board of directors” or “Board”. Only individuals can be appointed as directors. No body corporate, association or firm can be appointed director of a Company.

In case the first directors are not appointed by the promoters of a company, subscribers of the memorandum who are individuals, shall be deemed to be the directors of the company, until the directors are duly appointed.

Appointment of directors and proportion of those who are to be retire by rotation
Unless that articles provide for the retirement of all directors at every annual general meeting, at least two-thirds of the total number of directors of a public company, or of a private company which is subsidiary of a public company, must :-

(a) retire by rotation

(b) be appointed by the company in general meeting, except where otherwise provided by the Companies Act.

The remaining directors in the case of any such company, and the directors generally in the case of a private company which is not a subsidiary of a public company, must also be appointed by the company in general meeting, unless otherwise provided in any regulations in the articles of the company.

Ascertainment of directors retiring by rotation and filling of vacancies
At every annual general meeting of a public company, or a private company which is a subsidiary of a public company, one-third of the directors liable to retirement by rotation or if their number is not three or a multiple of three, then, the number nearest to one-third, shall retire from office.

The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who will have to retire is to be determined by lot, unless otherwise agreed to among themselves.

At the annual general meeting at which a director retires as aforesaid the company may fill up the vacancy by appointing the retiring director or some other person thereto. In other words, a retiring director is eligible for re-appointment at the same meeting.

If the place of the retiring director is not so filled up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

If at the adjourned meeting also, the place of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless

a resolution for the re-appointment of such director has been put to the meeting and lost

the retiring director, has by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed

he is not qualified or is disqualified for appointment

a resolution, whether special or ordinary, is required for his appointment or re-appointment in virtue of any provisions of this Act.

Right of persons other than retiring directors to stand for directorship
A person who is not a retiring director shall, subject to the provisions of this Act, be eligible for appointment to the office of director at any general meeting, if he or some member intending to propose him has, given notice in writing to the company at its registered office of at least 14 days before the meeting, signifying his candidature for the office of director or the intention of such member to propose him as a candidate for that office along with a deposit of rupees five hundred ( refundable on successful election ).

The company must inform its members of such candidature by giving at least 7 days prior notice. Such notice may not be required if the company advertises such candidature at least 7 days before the meeting in at least 2 newspapers circulating in the place where the registered office of the company is situated, one of which must be in English and the other in the regional language.

This provision shall not apply to a private company, unless it is a subsidiary of a public company.

Can a company has the right  to increase or reduce the number of directors?
A company, at a general meeting may, by ordinary resolution, increase or reduce the number of its directors within the limits fixed in that behalf by its articles.

Increase in number of directors to require Government sanction
In the case of a public company, or a private company which is a subsidiary of a public company, any increase in the number of its directors, beyond the maximum number of directors permitted by the Articles of the Company as first registered, shall not have any effect unless approved by the Central Government and shall become void if, and in so far as, it is disapproved by that Government.

However, where such permissible maximum is 12 or less, no approval of the Central Government is required provided the increase does not increase the number of directors beyond 12.

What are the powes of Additional directors?
The Board of directors may appoint additional directors if such power is conferred on it by the articles of the company. Such additional directors shall hold office only up to the date of the next annual general meeting of the company.

Provided further that the number of the directors and additional directors together shall not exceed the maximum strength fixed for the Board by the articles.

Can a  casual vacancy be filled  among directors?
In the case of a public company or a private company which is a subsidiary of a public company, if the office of any director appointed by the company in general meeting is vacated before his term of office will expire in the normal course, the resulting casual vacancy may, in default of and subject to any regulations in the articles of the company, be filled by the Board of directors at a meeting of the Board.

Any person so appointed shall hold office only up to the date up to which the director in whose place he is appointed would have held office if it had not been vacated as aforesaid.

What are  the terms and conditions of Appointment of alternate director?
The Board of directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

An alternate director so appointed shall not hold office for a period longer than the period for which the original director hold office and vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.

Appointment of directors to be voted on individually
At a general meeting of public company or of a private company which is a subsidiary of a public company, each director has to be appointed separately by a separate resolution. However, appointment of more than one director through the same resolution will be valid if it has been passed unanimously. A resolution moved in contravention of the aforesaid provision shall be void, whether or not objection was taken at the time to its being so moved:

Consent of candidate for directorship to be filled with Registrar
A person shall not act as director of a company unless he has, by himself or by his agent authorised in writing, signed and filed with the Registrar, a consent in writing to act as such director within 30 days of his appointment. This provision shall not apply to a private company unless it is a subsidiary of a public company.

Option to company to adopt proportional representation for the appointment of directors
If the articles of a company provide for the appointment of not less than two-thirds of the total number of the directors of a public company or of a private company which is a subsidiary of a public company, according to the principle of proportional, representation, whether by the single transferable vote or by a system of cumulative voting or otherwise. Such appointments may be made once in every three years and interim casual vacancies being filled by the Board of Directors as Casual Vacancies. This may enable minority shareholders to have a proportional representation on the Board of Directors of the company.

What are the Restrictions on appointment or advertisement of director?
A person shall not be capable of being appointed director of a company by the articles, unless before the registration of the articles, the publication of the prospectus, or the filing of the statement in lieu of prospectus, as the case may be , he has, by himself or by his agent authorised in writing

(a) signed and filed with the Registrar a consent in writing to act as such director; and

(b) either ;-

signed the memorandum for shares not being less in number or value than that of his qualification shares, if any, or

taken his qualification shares, if any, from the company and paid or agreed to pay for them; or

signed and filed with the Registrar and undertaking in writing to take from the company his qualification shares, if any, and pay for them; or

made and filed with the Registrar an affidavit to the effect that shares, not being less in number or value than that of his qualification shares, if any, are registered in his name.

Qualification shares are the minimum number of shares a person must own, as provided in the articles of the company, in order to qualify to become a director of the company. Qualification shares must be acquired by a director within 2 months of his appointment. The articles cannot require a director to acquire qualification shares within a shorter period. The face value of the qualification shares cannot exceed five thousand rupees, or if the face value of one share is more than five thousand rupees, then the qualification share will be one qualification share.

Every director, not being a technical director of a director appointed, by the Central or a State Government, shall within two months after his appointment file with the company a declaration specifying the qualification shares held by him. If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares, he shall be punishable with the fine which may extend to fifty rupees for every day between such expiry and the last day on which he acted as a director.

The above provisions do not apply to-

a company not having a share capital;

a private company;

a company which was a private company before becoming a public company; or

a prospectus issued by or on behalf of a company after the expiry of one year from the date on which the company was entitled to commence business.

What does the term Managing Directors refers  to?
Managing Director means a person who, by virtue of an agreement with the company or of a resolution passed by the company in a general meeting or by its Board of directors or by virtue of its memorandum or articles of association, is entrusted with substantial powers of management which could not otherwise be exercisable by him and includes a director occupying the position of a managing director, by whatever name called. The power merely 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 on 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 share certificate or to direct registration of share transfers will not be deemed to be included within substantial powers of management. The managing director must exercise his powers subject to the superintendence, control and direction of the Board.

What is the limitation to be a managing directors?
No company can, appoint or employ, orWhat is the  continue the appointment or employment of, any person as its managing or whole time director who-

is an undischarged insolvent, or has at any time been adjudged an insolvent

suspends, or has at any time suspended, payment to his creditors or makes, or has at any time made, a composition with them

is, or has at any time been, convicted by a Court in India of an offence involving moral turpitude.

Every public company or a private company which is a subsidiary of a public company, having a paid up share capital of Rs. 5 crores or more must have a managing director or wholetime director or manager.

Appointment of managing director or wholetime director or manager of a public company or a private company which is a subsidiary of a public company requires the approval of the Central Government unless the appointment is in accordance with the conditions specified in Schedule XIII of the Companies Act, 1956 and a returm in Form 25 C is filed within 30 days of appointment.

Application for approval must be made to the Central Government if Form 25 A within 90 days of appointment. The Central Government shall grant its approval if it is satisfied that :-

the managing director or wholetime director or manager is in its opinion, a fit and proper person

such appointment is not against public interest

the terms and conditions of the appointment are fair and reasonable.

The Central Government may grant approval for a period less that the period for which approval is sought.

In case the approval of the Central Government is refused, the appointed person shall vacate his office on the date of communication of the decision of the Central Government to the company and if he omits to do so, he shall be liable to a fine of Rs. 500/- for each day of default.

The Central Government, on information received by it or suo moto, is of the opinion that such appointment made without approval of the Central Government contravenes the conditions given in Schedule XIII, it may refer the matter to the Company Law Board for decision.

On receipt of the order of the Company Law Board against the company,:-

The company shall be liable to fine of upto Rs. 5000/-

Every officer of the company in default shall be liable to a fine of Rs. 10000/-

The appointment shall be deemed to have come to an end and the appointed person shall in addition to being liable to pay a fine of Rs. 10000/-, refund to the company the entire amount of remuneration received by him from such appointment.

What is the minimum  number of companies of which one person may be appointed managing director?
No public company or private company which is a subsidiary of a public company can, appoint or employ any person as managing director, of he is either the managing director or the manager of any other company, except as provided below.

A public company or a private company which is the subsidiary of a public company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company provided that such appointment or employment is made or approved by a unanimous resolution passed at a meeting of the Board and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

In addition to the above provision, the Central Government may, by order, permit any person to be appointed as a managing direct of more than two companies if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

What is the term of appointed of a Managing director?
No company can, appoint or employ any individual as its managing director for a term exceeding five years at a time.

However, a person may be re-appointed, re-employed, or his term of office extended by further periods not exceeding five years on each occasion. Such re-appointment, re-employment or extension cannot be sanctioned earlier than two years from the date on which it is to come into force.

This provision does not apply to a private company unless it is a subsidiary of a public company.

What are  the Disqualifications of directors?
A person shall not be capable of being appointed director of a company, if,

he has been found to be of unsound mind by a Court of competent jurisdiction and the finding is in force

he is an undischarged insolvent

he has applied to be adjudicated as an insolvent and his application is pending

he has been convicted by a Court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence

he has not paid any call in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call

an order disqualifying him for appointment as director has been passed by a court and is in force unless the leave of the court has been obtained for his appointment in pursuance of that section.

The Central Government may, by notification in the Official Gazette, remove :-

the disqualification incurred by any person in virtue of clause (d) either generally or in relation to any company or companies specified in the notification; or

the disqualification incurred by any person in virtue of clause (e)

A private company which is not a subsidiary of a public company may, by its articles, provide that a person shall be disqualified for appointment as a director on any grounds in addition to those specified above.

No person to be a director of more than twenty companies
No person shall, hold office at the same time as director in more than twenty companies.

Where a person already holding the office of director in twenty companies is appointed, as a director of any other company, the appointment :-

shall not take effect unless such person has, within fifteen days thereof, effectively vacated his office as director in any of the companies in which he was already a director; and

shall become void immediately on the expiry of the fifteen days if he has not, before such expiry effectively vacated his office as director in any of the other companies aforesaid.

Where a person already holding the office of director in nineteen companies or less is appointed, as a director of other companies, making the total number of his directorships more than twenty, he shall choose the directorships which he wishes to continue to hold or to accept so however that the total number of the directorships, old and new, held by him shall not exceed twenty.

None of the new appointments of director shall take effect until such choice, is made; and all the new appointments shall become void if the choice is not made within fifteen days of the day on which the last of them was made.

In calculating the number of companies of which a person may be a director, the following companies shall be excluded :-

a private company which is neither a subsidiary nor a holding company of a public company

an unlimited company

an association not carrying on business for profit or which prohibits the payment of dividend

a company in which such person is only an alternate director, that is to say, a director who is only qualified to act as such during the absence or incapacity of some other director.

Any person who holds office, or acts, as a director of more than twenty companies in contravention of the foregoing provisions shall be punishable with fine which may extend to five thousand rupees in respect of each of those companies after the first twenty.

Vacation of office by directors
The office of a director shall become vacant if :-

he fails to obtain within the time specified ( 2 months ) or at any time thereafter ceases to hold, the share qualification, if any, required of him by the articles of the company

he is found to be of unsound mind by a Court of competent jurisdiction

he applies to be adjudicated an insolvent

he is adjudged an insolvent

he is convicted by a Court of any offence involving moral turpitude and is sentenced in respect thereof to imprisonment for not less than six months

he fails to pay any call in respect of shares of the company held by him, whether alone or jointly with others, with in six months from the last date fixed for the payment of the call unless the Central Government has, by notification in the Official Gazette removed such disqualification.

he absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board, for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board

he, whether by himself or by any person for his benefit or on his account or any firm in which he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295 ( without due authorization of the Central Government )

he acts in contravention of section 299 ( failure to disclose interest in any transaction with the company )

he becomes disqualified by an order of Court under section 203

he is removed by the members by- resolution at a general meeting

having been appointed a director by virtue of his holding any office or other employment in the company, he ceases to hold such office or other employment in the company.

The disqualification referred to in clauses (d). (e) and (j) shall not take effect,-

for thirty days from the date of the adjudication sentence or order

where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence, or order until the expiry of seven days from the date on which such appeal or petition is disposed of

where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of.

If a person functions as a director, knowing that his office has vacated on account of the above provisions, shall be liable to a fine upto Rs. 500/- per day of default.

A private company which is not a subsidiary of a public company may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in above

How a director can be removed?
A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office. This provision shall not apply where the company has availed itself of the option given to it of proportional representation on the Board of Directors to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.

Special notice shall be required of any resolution to remove a director, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.

Where notice is given of a resolution to remove a director and the director concerned makes representations in writing to the company (not exceeding a reasonable length) and requests their notification to members of the company, the company shall, unless the representations are received by it too late for it to do so :-

in any notice of the resolution given to members of the company state the fact of the representations having been made; and

send a copy of the representations to every member of the company to whom notice of the meeting is sent

If a copy of the representations is not sent as aforesaid because they were received too late or because of the company’s default, the director may (without prejudice to his right to be heard orally) require that the representations shall be read out at the meeting.

However, copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the Company Law Board is satisfied that the rights conferred by this provision are being abused to secure needless publicity for defamatory matter and the Company Law Board may order the company’s costs on the application to be paid in whole or in part by the director.

A vacancy created by the removal of a director if he had been appointed by the company in general meeting or by the board in on a casual vacancy, be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has been given.

A director so appointed shall hold office until the date up to which his predecessor would have held office if he had not been removed as aforesaid.

If the vacancy is not filled, it may be filled as a causal vacancy in accordance with the provisions.

The above provisions of removal of a director shall not affect :-

any compensation or damages payable to him in respect of the termination of his appointment as director or of any appointment terminating with that as director

any other power to remove a director which may exist apart from this provision.

What are the matters which are accountable in the Books of Account to be kept by a Company?
Every company must maintain proper books of accounts of its affairs. The following transactions must be entered in the books of accounts of the company which must be kept at its registered office :-

all sums of money received and expended by the company and the matters in respect of which the respect of which the receipt and expenditure took place;

all sales and purchases of goods by the company; and

the assets and liabilities of the company.

in the case of a company engaged in production, processing, manufacturing or mining activities, such particulars relating to utilisation of material or other items of cost as may be prescribed relating to certain class of companies as the Central Government may require.

The books of accounts must comply with the following conditions :-

The books must give a true and fair view of the state of affairs of the company or the branch office, if any, and explain its transaction.

The books must be kept on accrual basis and according to double entry system of accounting.

Every company must keep its books of account at its registered office. However, some of the books of account may be kept at such other place in India as the Board of Directors may decide, provided a notice in writing giving full address of that other place alongwith requisite filing fee is filed with the Registrar of Companies within seven of such decision.

If the company has a branch office, the books of account relating to transactions at the branch office may be kept at that branch office, but proper summarised reports and statements must be sent to the registered office or such other place where the books are kept, at intervals of not more than three months. The books of account of the branch must give a true and fair view of the affairs of the branch and clearly explain its transactions.

They must not conceal any transaction and also not disclose any transaction which is fictitious. The books of accounts and other documents and records are open to inspection by any director during business hours. Similarly, they are open to inspection by the Registrar of Companies or an officer authorised by the Central Government.

These books and papers together with the vouchers pertaining to entries made must be maintained for at least 8 years. It has been clarified by the Department of Company Affairs in their Circular No. 2/83 dated 2/3/1983 that the books of account should be prepared and maintained in indelible ink (and not in pencil).

Who are responsible for maintaining the books of accounts of a company ?

The managing director or manager;

If the company has neither a managing director nor manager, then every director of the company;

Every officer and other employee who has been authorised and to whom responsibility to maintain the books has been alloted by the Board of Directors.

If any of the persons referred to above fails to take all reasonable steps to maintain proper books of accounts or has by his own willful act been the cause of any default by the company in this respect, he is punishable with imprisonment up to six months or with fine which may extend to Rs. 1,000 or with both. However, no person can be sentenced to imprisonment unless it is proved that the contravention was committed by him wilfully.

Preparation of Balance Sheet and Profit and Loss Account
The company has to prepare its balance sheet and profit & loss account from the books of account maintained by it. Every Balance Sheet of a company must give a true and fair view of the state of affairs of the company as at the end of the financial year and must be in the prescribed format.

If the responsible for maintaining proper books of account fails to take all reasonable steps to secure compliance by the company with the requirement of law relating to the form and contents of the balance sheet, he is liable for each offence to imprisonment for a term extending up to six months or to fine up to Rs.1,000/- or to both.

Form of Balance Sheet,
Part 1 to Schedule VI of the Companies Act, 1956 gives the format in which the balance sheet is to be prepared. The schedule specifies 2 types of formats, the horizontal format and the vertical format. A company can prepare its balance sheet in either of the 2 formats. In the horizontal format, the liabilities including the share capital are placed on the left side and assets of all types on the right. The main heads in this form are arranged as under:

(a)
Share Capital (a) Fixed assets

(b)
Reserves and surplus (b) Investments

(c)
Loans (c) Current assets, loans and advances

(d)
Current liabilities and (d) Miscellaneous expenditure to the provisions extent not written off or adjusted

(e)
Profit & Loss Account

———– ———–

Total

———– ———–

In the vertical format, the various heads of liabilities and assets are arranged vertically and current liabilities are shown as deduction, from current assets. Whatever information which is required to be given in the horizontal format must also be given in the vertical format. Summarised prescribed vertical form of balance sheet is given below:

I. Sources of Funds

(1)
Shareholders’ funds

(2)
Loan funds

———————-

Total

———————-

II Application of Funds

(1)
Fixed assets

(2)
Investments

(3)
Current assets, loans and advances

Less: Current liabilities & provisions

(4)
(a) Miscellaneous expenditure to the extent not written off or adjusted

(b) Profit & Loss Account

———————-

Total

———————-

The Central Government may, on the application or with the consent of the Board of Directors of the company, by order, modify in relation to that company, any of the requirements as to matters to be stated in the company’s balance sheet or profit and loss account for adapting them to the circumstances of the company.

What are the Contents of Profit and Loss Account?
Though no format has been prescribed for the profit and loss account, Part II to Schedule VI of the Companies Act, 1956 gives a list of items which must be disclosed in every profit & loss account. Every profit and loss account of a company must give a true and fair view of the company’s profit or loss for the financial year for which it is drawn up.

Adoption of Balance Sheet and Profit & Loss Account
The Board of directors must present to the shareholders of the company, the balance sheet and a profit and loss account for the financial year at every annual general meeting. In the case of companies which are not commercial organisations such as Section 25 companies, instead if the profit & loss account, an income & expenditure account may be prepared. The profit and loss account to be placed in the FIRST annual general meeting should relate to a period beginning with the incorporation of the company and ending with a day, the interval between which and the date of the meeting does not exceed nine months. In case of subsequent annual general meetings, the profit and loss account should relate to a period beginning with a day immediately after the period for which the preceding profit & loss account was made and ending with a day, the interval between which and the date of the meeting should not exceed six months. The financial year may be more or less than a calendar year, but it must not exceed 15 months or with the special permission of the Registrar, 18 months.

If any director fails to take all reasonable steps to comply with the aforesaid requirements he is, in respect of each offence liable to be punished with imprisonment up to six months or with fine up to Rs.1,000/- or with both.

Authentication of Balance Sheet and Profit & Loss Account
The balance sheet and profit & loss account of a company must be signed on behalf of the Board of directors by two directors out of whom one must be the managing director, where there is one and the manager, or secretary, if any. The balance sheet and profit and loss account must be approved by the Board of directors before they are submitted to the auditors for the purpose of audit. The report of the auditors must be attached to the balance sheet and profit & loss account.

The company and every officer of the company who is in default with the above provisions shall be punishable with the fine which may extend to Rs.500/-, if:

any copy of balance sheet and profit and loss account is issued, circulated or published, without being signed as required ; or

any copy of balance sheet is issued, circulated or published, without there being annexed or attached thereto, a copy each of the following :-

the profit and loss account;

any accounts, reports or statements pertaining to subsidiary companies which are required to be attached to the balance sheet,

the auditors’ report; and

the Report of the Board of Directors

Circulation of Balance Sheet and Auditors’ Report
A copy of every balance sheet, profit and loss account, auditors’ report and every other document required to be annexed or attached to the balance sheet must be sent not less than twenty-one days before the general meeting to every member, to every trustee for debenture holders, and to all other persons who are entitled to have a notice of general meetings. In the case of a company not having a share capital, the above documents need not be sent to a member, or debenture holder who is not entitled to have notice of general meetings.

In case of listed companies, the company may keep the aforesaid documents available for inspection at its registered office during working hours for a period of twenty-one days before the meeting and send to every member and trustee for debentureholders only a summarised statement containing the salient features of these documents in the prescribed format.

Filing of Annual Accounts with the Registrar
Every company must file with the Registrar within 30 days from the day on which the annual accounts, auditor’s report and the director’s report were presented at the annual general meeting, three certified copies of these documents signed by the managing director, manager or secretary of the company or if there be none of these by a director of the company.

These accounts may be inspected and copies thereof may be obtained by any member of the public at the Registrar of Companies on payment of the requisite fee. However, no person other than a member of the company is entitled to inspect, or obtain copies, of the profit and loss account in the case of the following types of companies :-

a private company which is not a subsidiary of public company;

a private company whose entire paid-up capital is held only by one or more bodies corporate incorporated outside India; or

a private company which is deemed to be a public company by virtue of Section 43A, if the Central Government directs that it is not in the public interest that any person other than a member of the company should be entitled to inspect or obtain copies of the profit and loss account of the company.

In case the annual general meeting of a company for any year has not been held, , 3 copies of the balance sheet and profit and loss account, duly signed, within thiry days from the latest day on or before which that meeting should have been held in accordance with the provisions of the Act must be filed with the Registrar of Companies. If for any reason, the annual general meeting before which a balance sheet is laid does not adopt it, or is adjourned without adopting the balance sheet or if the annual general meeting of a company for any year has not been held, a statement of the fact and reasons thereof must also be annexed to the balance sheet and to the copies thereof to be filed with the Registrar.

If default is made in complying with the above provisions, then the company and every officer of the company who is in default shall be punishable with fine which may extend to Rs.50 for every day during the period the default continues.

What should be the content in Directors’ Report?

The report of the Board of Directors must be attached to every balance sheet prsented at the annual general meeting. The report must contain information regarding the following matters :-

The state of affairs of the company

The amount, if any, which it proposes to carry to any reserves in such balance sheet

The amount of dividend recommended

Details of any material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the balance sheet relates and the date of the report

Conservation of energy, technology absorption, foreign exchange earnings and outgo.

Names, designations and other particulars of all employees drawing more than Rs. 50000/- p.m. in the company

Details necessary for a proper understanding of the state of the company’s affairs and which are not, in the Board’s opinion, harmful to the business of the company or of any of its subsidiaries, in respect of changes which have occured during the financial year :-

in the nature of company’s business;

in the company’s subsidiaries or in the nature of the business carried on by them; and

generally in the classes of business in which the company has an interest

Auditors of Company

Auditors of Government Companies
The auditor of a Government company is appointed or re-appointed by the Central Government on the advice of the Comptroller and Auditor-General of India provided that the audit would be within the number of acceptable audits available to each auditor.

The Comptroller & Auditor General of India has the power :-

to direct the manner in which the company’s accounts are to be be audited by the auditor so appointed and to give such auditor instructions in regard to any matter relating to the performance of his functions as such

to conduct supplementary or test audit of the company’s accounts by such person or persons or persons as he may authorise in this behalf; and for the purpose of such audit, to require additional information to be furnished to any person or persons so authorised, on such matters, by such person or persons, and in such form, as the Comptroller and Auditor-General may, by general or special order, direct.

The auditor must submit a copy of his audit report to the Comptroller and Auditor-General of India who shall have the right to comment upon or supplement, the audit report in such manner as he may think fit.

Any such comments upon, or supplement to, the audit report must be placed before the annual general meeting of the company at the same time and in the same manner as the auditors’ report.

Auditors of Other Companies
It is the duty of the auditor conduct the audit of the books of accounts of the company and to make his report to the members of the company on the accounts examined by him, and on every balance sheet, every profit and loss account and on every other document declared by the Act to be part of or annexed to the balance-sheet or profit and loss account and laid before the company in general meeting during his tenure of office. The auditor’s report, besides other things necessary in any particular case, must expressly state-

whether, in his opinion and to the best of his information and according to explanation given to him, the accounts give the information required by the Act and in the manner as required;

whether the balance-sheet gives a true and fair view of the company’s affairs as at the end of the financial year and the profit and loss account gives a true and fair view of the profit or loss for the financial year;

whether he has obtained all the information and explanations required by him for the purposes of his audit;

whether in his opinion, the profit & loss account and balance sheet refered to in his report comply with the accounting standards recommended by the Institute of Chartered Accountants of India;

whether, in his opinion, proper books of account as required by law have been kept by the company, and proper returns for the purposes of his audit have been received from the branches not visited by him;

whether the company’s balance sheet and profit and loss account dealt with by the report are in agreement with the books of account and returns.

In case any of the above matters is answered in the negative or with a qualification, the auditor’s report must state the reason for the same. Where the auditor is unable to express any opinion in answer to a particular question, his report shall indicate such fact together with the reasons why it is not possible for him to give an answer to such question.

The Central Government is empowered to issue orders requiring the auditor to include in his report a statement on such matters as may be specified. In exercise of this power the Central Government has issued an order called “The Manufacturing and other Companies (Auditor’s Report) Order, 1975. It is the duty of the auditor to comply with this order when making his report to the shareholders.

Only the person appointed as auditor of the company or where a firm of auditors is so appointed, only a partner of that the firm practising in India, can sign the auditor’s report or sign or authenticate any other document of the company required by law to be signed or authenticated by the auditor.

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Inter Corporate Loans and Investments

A company cannot :-

make any loan to any other body corporate

give guarantee or security in connection with any loan made by any person to another body corporate

acquire, by subscription, purchase or in any other manner, securities in any other body corporate

exceeding 60 % of its paid up share capital and free reserves or 100 % of its free reserves, whichever is more, unless approved by a special resolution passed at a general meeting of members.

The Board of the company may give a guarantee without being previously authorised by a special resolution of members if all the following conditions are satisfied :-

a Board resolution is passed to this effect

there exist exceptional circumstances which prevent the company from obtaining previous authorisation by special resolution

the Board resolution is confirmed within 12 months in a general meeting or its next Annual general meeting, whichever is earlier.

Notice of such resolution must clearly indicate the specific limits, the particulars of the body corporate in which the investment / loan / guarantee / security is proposed, the purpose of the investment / loan / guarantee / security, sources of funding, etc.

No investment / loan / guarantee / security may be made or given unless the Board resolution sanctioning it is with the consent of all directors present at the meeting and prior approval of the public financial institution ( if any term loan is outstanding ) is obtained.

Approval of the public financial institution is not required if the investment / loan / guarantee / security is with the 60 % limit as mentioned above and there has been no default in repaying the term loan and / or interest thereon.

No loan can be made at a rate of interest lower than the bank rate prescribed by the Reserve Bank of India.

A company which has defaulted in repaying public fixed deposits cannot make or give any investment / loan / guarantee / security unless the fixed deposit is fully repaid along with interest due as per the terms and conditions of the fixed deposit.

A register of such inter-corporate loans and investments must be maintained giving the relevant details.

The above provisions do not apply to :-

Any loan / guarantee / security made or given 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 financing industrial enterprises or providing infrastructural facilities

a company whose principal business is the acquisition of shares, stocks, debentures or other securities

a private company unless it is a subsidiary of a public company

Investment made under Rights issue of securities

Loan made by holding company to its wholly subsidiary company

Guarantee or security given by a holding company for loan to its wholly owned subsidiary

Acquisition of securities by a holding company in its wholly owned subsidiary

What are the situations in which a company has the power to compromise or make arrangements with creditors and members?

Where a compromise or arrangements is proposed-

between a company and its creditors or any class or them; or

the Court may, on the application of the company or of any creditor or member of the company, or, in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of class or members, as the case may be to be called, held and conducted in such manner in the court directs.

If 3/4 in value of the creditors, or class of creditors, or members or class of members, present and voting either in person or, where proxies are allowed, under rules made by the Court, by proxy, at the meeting, agree, to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also, on the company, or, in the case of a company which is being would up, on the liquidator and contributories of the company.

The Court shall not approve of such a scheme unless it is satisfied that the Company or the applicant has disclosed to the Court all material facts relating to the company such as the latest financial position of the company, the latest auditor’s report, details of any investigation pending against the company, etc.

An order made by the Court shall have no effect until a certified copy of the order has been filed with the registrar.

A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed, as aforesaid.

If default is made in complying with the above provisions, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ten rupees for each copy in respect of which default is made.

The Court may, at any time after an application has been made to it under this section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Court thinks fit, until the application is finally disposed of.

An appeal shall lie from any order made by a Court exercising original jurisdiction under this section to the Court empowered to hear appeals from the decisions of that Court, or if more than one Court is so empowered to the Court of inferior jurisdiction.

Power of High Court to enforce compromises and arrangements

Where a High Court makes an order as above sanctioning a compromise or an arrangements in respect of a company, it-

shall have power to supervise the carrying out of the compromise or arrangement; and

may, at the time of making such order or at any time thereafter, give such directions in regard to any matter or make such modifications in the compromise or arrangement as it may consider necessary for the proper working of the compromise or arrangement.

If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under the above provisions cannot be worked satisfactorily with or without modifications, it may, either on its own motion or on the application of any person interested in the affairs of the company, make an order winding up the company.

Information as to compromises or arrangements with creditors and members

Where a meeting of creditors, or any class of creditors, or of members or any class of members, is called: -

with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting for the terms of the compromise or arrangement and explaining its effect; and in particulars, stating any material interests of the directors, managing director or manager of the company, whether in their capacity as such or as members or creditors of the company or otherwise, and the effect on those interest, of the compromise or arrangement, if, and in so far as, it is different from the effect on the like interests of other persons; and

in every notice calling the meeting which is given by advertisement there shall be included either such a statement as aforesaid or a notification of the place at which and the manner in which creditors or members entitled to attend the meeting may obtain copies of such a statement as aforesaid.

Where the compromise or arrangement affects the rights of debenture holders of the company, the said statement shall give the like information and explanation as respects the trustees of any deed for securing the issued of the debentures as it is required to give as respects the company’s directors.

Where a notice given by advertisement includes a notification that copies of a statement setting forth the terms of the compromise or arrangement proposed and explaining its effect can be obtained by creditors or members entitled to attend the meeting, every creditor or member so entitled shall, on making an application in the manner indicated by the notice, by furnished by the company, free of charge, with a copy of the statement.

Provisions for facilitating reconstruction and amalgamation of companies

Where an application is made to the Court as above for the sanctioning of a compromise or arrangement proposed between a company and any such persons as are mentioned in that section, and it is shown to the Court-

that the compromise or arrangement has been proposed for the purposes of , or in connection with, a scheme for the reconstruction of any company or companies, or the amalgamation of any two or more companies; and

that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme is to be transferred to another company : -

the Court may, either by the order sanctioning the compromise or arrangement or by a subsequent order, make provision for all or any of the following matters:-

the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of any transferor company;

the allotment or appropriation by the transferee company of any shares, debentures, policies, or other like interests in that company which, under the compromise or arrangement, are to be allotted or appropriated by that company to or for any person;

the continuation by or against the transferee company of any legal proceedings pending by or against any transferor company;

the dissolution, without winding up, of any transferor company;

the provision to be made for any persons who, within such time and in such manner as the court directs, dissent from the compromise or arrangement; and

such incidental, consequential and supplemental matters as are necessary to secure that the reconstruction or amalgamation shall be fully and effectively carried out.

Where an order provides the transfer or any property or liabilities then, by virtue of the order, that property shall be transferred to and vest, and those liabilities shall be transferred to and become the liabilities of, the transferee company; and in the case of any property, it the order so directs, freed from any charge which is, by virtue of the compromise or arrangement, to cease to have effect.

Within fourteen days after the making of an order under this section, every company in relation to which the order is made shall cause a certified copy thereof to be filed with the Registrar for registration.

Power and duty to acquire shares of shareholders dissecting from scheme or contract approved by majority

Where a scheme or contract involving the transfer of shares or any class of shares in a company to another company has, within four months after the making of the offer in that behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares whose transfer is involved (other than shares already held at the date of the officer by, or by a nominee for, the transferee company or its subsidiary), the transferee company may, at any time within two months after the expiry of the said four months, give notice in the prescribed manner to any dissenting shareholder, that it desires to acquire his shares; and when such a notice is given, the transferee company, shall, unless, on an application made by the dissenting shareholder within one month from the date on which the notice was given, the Court thinks fit to order otherwise, be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares of the approving share holders are to be transferred to the transferee company.

However, where shares in the transferor company of the same class as the shares whose transfer is involved are already held as aforesaid to a value greater than one-tenth of the aggregate of the values of all the shares in the company of such class, the foregoing provisions shall not apply, unless :-

the transferee company offers the same terms to all holders of the shares of that class (other than those already held as aforesaid) whose transfer is involved; and

the holders who approve the scheme or contract, besides holding not less than nine-tenths in value of the shares (other than those already held as aforesaid) whose transfer is involved are not less than three-fourths in number of the holders of those shares.

Where, in pursuance of any such scheme or contract, as aforesaid, shares or shares of any class, in a company are transferred to another company or its nominee, and those shares together with any other shares or any other shares of the same class, as the case may be, in the first- mentioned company held at the date of the transfer by, or by a nominee for, the transferee company or its subsidiary comprise nine-tenths in value of the shares, or the shares of that class, as the case may be, in the first-mentioned company, then :-

the transferee company shall, within one month from the date of the transfer (unless on a previous transfer in pursuance of the scheme or contract it has already complied with this requirement) give notice of that fact in the prescribed manner to the holder so the remaining shares or of t remaining shares of that class, as the cast may be, who have not assented to the scheme or contract; and

any such holder may, within three months from the giving of the notice to him, require the transferee company to acquire the shares in question; and where a shareholder gives notice under clause (b) with respect to any shares, the transferee company shall be entitled and bound to acquire those shares on the terms on which, under the scheme or contract, the shares, of the approving shareholders were transferred to it, or on such other terms as may be agreed, or as the Court on the application of either the transferee company or the shareholder thinks fit to order.

Where a notice has been given by the transferee company and the Court has not, on an application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the expiry of one month from the date on which the notice has been given, or, if an application to the Court by the dissenting shareholder is then pending, after that application has been disposed of, transmit a copy of the notice to the transferor company together with an instrument of transfer executed of behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company, and pay or transfer to the transferor company the amount or other consideration representing the price payable by the transferee company for the shares which, by virtue of this section, that company is entitled to acquires; and the transferor company shall thereupon register the transferee company as the holder of those shares.

Any sums received by the transferor company shall be paid into a separate bank account, and any such sums and any other consideration so received shall be held by that company in trust for the several persons entitled to the shares in respect of which the said sums or other consideration were respectively received.

Power of Central Government to provide for amalgamation of companies in national interest

Where the Central Government is satisfied that it is essential in the national interest that two or more companies should amalgamate, then the Central Government may, by order notified in the Official Gazette, provide for the amalgamation of those companies into a single company with such constitution; with such property, powers, rights, interest, authorities, and privileges; and with such liabilities duties, and obligations ; as may be specified in the order.

The order aforesaid may contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

Every number or creditor (including a debenture holder) of each of the companies before the amalgamation shall have, as nearly as may be, the same interest in or rights against the company resulting from the amalgamation as he had in the company of which he was originally a member or creditor; and to the extent to which the interest or rights of such member or creditor in or against the company resulting from the amalgamation are less than his interest in or rights against the original company, he shall be entitled to compensation which shall be assessed by such authority as may be prescribed.

The compensation so assessed shall be paid to the member or creditor concerned by the company resulting from the amalgamation.

No such order shall be made, unless-

a copy of the proposed order has been sent in draft to each of the companies concerned; and

the Central Government has considered, and made such modifications if any, in the draft order as may seem to it desirable in the light of any suggestions and objections which may be received by it from any such company within such period as the Central Government may fix in that behalf, not being less than two months from the date on which the copy aforesaid is received by that company, or from any class of shareholders, therein, or from any creditors or any class of creditors thereof.

Copies of every order made under this section shall, as soon as may be after it has been made, be laid before both Houses of Parliament.

How  the Remuneration of Directors be paid ?

The remuneration payable to the directors of a company, including any managing or whole-time director, shall be determined, in accordance the provisions given below either by the articles of the company, or by a resolution ( special resolution if the articles so require ), passed by the company in general meeting and the remuneration payable to any such director determined as per the said provisions shall be inclusive of the remuneration payable to such director for services rendered by him in any other capacity. However, any remuneration for services will not be so included if the services are of a professional nature and in the opinion of the Central Government, the director possesses the requisite qualifications.

A director may receive remuneration by way of fees for attending each meeting of the Board or of any committee thereof ( Sitting Fees ).

A director who is in whole time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of net profits of the company or partly by one and partly by the other. Such remuneration cannot exceed 5 % of the net profits of the company, except with the approval of the Central Government in case of one director and 10 % for all such directors.

The total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its directors and its manager in any financial year must not exceed 11 % of the net profits of the company calculated in accordance with the provisions of section 349, 350 and 351.

In the case of a director who is neither in the whole-time employment of the company nor a managing director may be paid remuneration either by way of a monthly, quarterly or annual payment with the approval of the Central Government or by way of commission if the company by special resolution authorises such payment. Such special resolution to in sub-section (4) shall not remain in force for a period of more than five years; but may be renewed, from time to time, by special resolution for further periods of not more than five years at a time. Remuneration payable to such directors cannot exceed :-

1. if the company has a managing or whole-time director or a manager, one per cent, of the net profits of the company;


2. in any other case, three percent of the net profits of the company.

If any director earns remuneration from a company in excess of the above limits without prior approval of the Central Government, he shall refund the excess to the company and until such repayment, hold the money in trust with him.

The Company cannot waive recovery of such sum due from the director unless approved by the Central Government.

No approval of the Central Government is required in case the remuneration is within the limits mentioned in Schedule XIII to the Companies Act, 1956.

No director of a company who is in receipt of any commission from the company and who is either in the whole-time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.

The above provisions pertaining to remuneration do not apply to a private company unless it is a subsidiary of a public company.  

What are the provision for increase in remuneration to require Government sanction?

 is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or

1. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the Government.

 What should be the Increase in remuneration of managing director on reappointment or appointment after Act to require government sanction? 

1. is within the limits specified in Schedule XIII, where Schedule XIII is applicable ; or


2. approved by the Central Government

and the amendment shall become void if, and in so far as, it is disapproved by the Government.

 Can a Director  hold office or place of profit ? 

1. No partner or relative of such a director ( i.e. a director holding an office or place of profit in the company ), no firm in which such a director or relative is a partner, no private company of which such a director is a director or member, and no director, or manger of such a private company can hold any office or place of profit carrying monthly remuneration in excess of the prescribed amount ( Rs. 10000/-).

However, the above restrictions are not applicable to the office of managing director, manager, banker, or trustee for the holders of debentures of the company either :-

1. in the company ; or


2. in any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place is paid over to the company or its holding company.

The special resolution required for the above purpose may be passed at the first general meeting after the appointment. Such special resolutions will required at subsequent re-appointments also on a higher remuneration not covered by the earlier special resolution.

However, if the monthly remuneration is not less than Rs. 20000/- per month, the special resolution mentioned above has to be obtained prior to the appointment and in addition to the special resolution, approval of the Central Government will also be required for the appointment.

If any office or place of profit under the company or a subsidiary thereof is held in contravention of the above provisions, the director, partner, relative, firm, private company or, manager shall be deemed to have vacated his office, with effect from the day following the date of general meeting mentioned above. Such person will also be liable to refund to the company any remuneration received, or the monetary equivalent of any perquisites or advantage enjoyed by him, in respect of such office or place of profit. The company will not be able to waive recovery of such amounts, except with the approval of the Central Government.

Any office or place in a company shall be deemed to be an office or place or profit under the company for these provisions :-

1. in case the office or place is held by a director, if the director holding it obtains from the company anything by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;


2. in case the 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 obtains from the company anything by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.

None of the above provisions apply to a director appointed by the Central Government u/s 408 of the Companies Act, 1956

  What should be the Compensation for loss of office to directors? 

However, such payment cannot be made by the company to any other director.

No payment shall be made to a managing or other director in the following cases :-

1. where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation;


2. where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid;


3. where the office of the director is vacated


4. where the company is being wound up, whether by or subject to the supervision of the Court or voluntarily, provided the winding up was due to the negligence or default of the director;


5. where the director has been guilty of fraud or breach of trust in relation to, or gross negligence in or gross mismanagement or, the conduct of the affairs of the company or any subsidiary or holding company thereof;


6. whether the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.

Any such payment made to a managing or other director shall not exceed the remuneration which he would have earned if he had been in office for the unexpired residue of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately proceeding the date on which he ceased to hold the office, or where he held the office for a lesser period than three years, during such period.

No such payment shall be made to the director in the event of the commencement of the winding up of the company, whether before, or at any time within twelve months after, the date on which he ceased to hold office, if the assets of the company on the winding up, after deducting the expenses thereof , are not sufficient to repay to the share-holders the share capital (including the premiums, if any) contributed by them.

These provisions do not prohibit the payment to a managing director or a director holding the office of manager, of any remuneration for services rendered by him to the company in any other capacity. 

 What should be the Payment to director for loss of office in connection with transfer of undertaking or property? 

1. from such company; or


2. from the transferee of such undertaking or property or from any other person, unless particulars 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.

Where a director of a company receives payment of any amount in contravention of the above provisions, the amount shall be deemed to have been received by him in trust for the company. 

 What should be the    Payment to director for loss of office, etc., in connection with transfer of shares? 

1. an offer made to the general body of shareholders;


2. an offer made by or on behalf of some other body corporate with a view to the company becoming a subsidiary of such body corporate or a subsidiary of its holding company;


3. 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 meetings of the company; or


4. 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,-

1. 
   

   from such company; or



2. 
   

   from the transferees of the shares or from any other person except as provided below.

It shall be the duty of the director concerned to take all reasonable steps to secure that details with respect to the payment proposed to be made by the transferees or other person (including the amount thereof) are sent with, any notice of the offer made for their shares which is given to any shareholders.

If :-

1. any such director fails to take reasonable steps as aforesaid; or


2. any person who has been properly required by any such director to include the said details in the aforesaid notice fails so to do;

he shall be punishable with fine which may extend to two hundred and fifty rupees.

If-

1. the above provisions are not complied with ; or


2. the making of the proposed payment is not, before the transfer of any shares in pursuance of the offer, approved by a meeting, called for the purpose ,of the concerned shareholders

any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any persons who have sold their shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.

If at a meeting called for the purpose of approving any payment, a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, the payment shall, be deemed to have been approved. 

Tell about the liability of a Director in a Limited Compancy?

In a limited company in which the liability of a director or manager is unlimited, the directors, and the manager of the company, and the member who proposes a person for appointment, to the office of director or manager, shall add to that proposal a statement that the liability of the person holding that office will be unlimited and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be given to him.

If any director, manager or proposer makes default in adding such a statement, or if any promoter, director, manager or officer of the company makes default in giving such a notice, he shall be punishable with fine which may extend to one thousand rupees and shall also be liable for any damage which the person so appointed may sustain from the default; but the liability of the person appointed shall continue to remain unlimited. 

What is the  Special resolution of limited company  to make liability of directors unlimited? 

However no alteration of the memorandum making the liability of any of the officers unlimited shall apply to such officer, if he was holding the office from before the date of the alteration, until the expiry of his then term, unless he has accorded his consent to his liability becoming unlimited.

 Can a company apply to the Company Law Board for relief in cases of oppression?

If, on any application, the Company Law Board is of the opinion :-

1. that the company’s affairs are being conducted in a manner oppressive to any member or members; and


2. that to wind up the company would unfairly prejudice such member or members and would be a very serious step, but that otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be would up;

the Company Law Board may, with a view to bringing to an end the matters complained of, make such order as it thinks fit. 

 Can a company Apply to Court for relief in cases of mismanagement? 

1. that the affairs of the company are being conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company; or


2. that a material change has taken place in the management or control of the company, whether by an alteration in its Board of directors, or manager or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company;

may apply to the Company Law Board for an order of relief provided such members have a right so to apply as given below.

If, on any such application, the Company Law Board is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the court may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit. 

 When a company has the Right to apply to the Company Law Board? 

1. in the case of a company having a share capital, not less than one hundred members of the company or not less than one tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares;


2. in the case of a company not having a share capital, not less than one-fifth of the total number of its members.

Where any share or shares are held by two or more persons jointly, they shall be counted only as one number.

Where any members of a company, are entitled to make an application, any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.

The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board, notwithstanding that the above requirements for application are not fulfilled.

The Central Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the Court dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.

If the managing director or any other director, or the manager, of a company or any other person, who has not been impleaded as a respondent to any application applies to be added as a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

 What are the Powers of Company Law Board on application?

1. the regulation of the conduct of the company’s affairs in future;


2. the purchase of the shares or interests of any members of the company by other members thereof or by the company;


3. in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;


4. the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand, and any of the following persons, on the other namely:-

1. 
   

    

   
   
   
   
   1. the managing director,
   
   
   2. any other director,
   
   
   3. the manager,

upon such terms and conditions as may, in the opinion of the Company Law Board, be just and equitable in all the circumstances of the case;

1. the termination, setting aside or modification of any agreement between the company and any person not referred to in clause (d), provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;


2. the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;


3. any other matter for which in the opinion of the Company Law Board it is just and equitable that provision should be made. 

 What is the Effect of alteration of memorandum or articles of company by order?

The alterations made by the order shall, in all respects, have the same effect as if they had been duly made by the company in accordance with the provisions of this Act.

A certified copy of every order altering or giving leave to alter, a company’s memorandum or articles, must within thirty days after the making thereof, be filed by the company with the Registrar who shall registrar the same.

If default is made in complying with the above provisions, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five thousand rupees. 

 What are the Consequences of termination or modification of certain agreements? 

1. the order shall not give rise to any claim whatever against the company by any person for damages or for compensation for loss of office or in any respect, either in pursuance of the agreement or otherwise;


2. no managing or other director or manager whose agreement is so terminated or set aside, shall for a period of five years from the date of the order terminating the agreement, without the leave of the Company Law Board, be appointed, or act, as the managing or other director or manager of the company.

Any person who knowingly acts as a managing or other director or manager of a company in contravention of the above provision, every director of the company, who is knowingly a party to such contravention shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to five thousand rupees, or with both.

The Company Law Board will not grant leave for appointment as managing director or director or manager of the company unless notice of the intention to apply for leave has been served on the Central Government and that Government has been given an opportunity of being heard in the matter. 

 In which situation the Central Government has the power  to prevent oppression or mismanagement?  

1. on a reference being made to it by the Central Government ; or


2. on an application of not less than one hundred members of the company or of members of the company holding not less than one-tenth of the total voting power therein,

is satisfied, after such inquiry as it deems fit to make, that it is necessary to make the appointment or appointments in order to prevent the affairs of the company being conducted either in a manner which is oppressive to any members of the company or in a manner which is prejudicial to the interests of the company or to public interest.

However, in lieu of passing order as aforesaid, the Company Law Board may, if the company has not availed itself of the option given to it of proportional representation to minority shareholders on the Board of the company, direct the company to amend its articles in the manner provided section 265 and make fresh appointments of directors in pursuance of the articles as so amended within such time as may be specified in that behalf by the Company Law Board.

In case the Central Government passes such an order it may, if thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, not more than two members of the company specified by the Company law Board shall hold office as additional directors of the company. The Central Government shall appoint such additional directors on such directions.

The person appointed as a director by the Central Government in accordance with the above provisions, need not hold any qualification shares nor need to retire by rotation. However, his office as director may be terminated at any time by the Central Government and another person appointed in his place.

No change in the constitution of the Board of Directors can take place after an additional director is appointed by the Central Government in accordance with these provisions unless approved by the Company Law Board.

The Central Government in such cases may also issue such directions to the company as it may consider necessary or appropriate in regard to its affairs. 

Shall the Company Law Board has the power to prevent change in Board of directors ?

 Any such order shall have effect notwithstanding anything to the contrary contained in any other provision of this Act or in the memorandum or articles of the company, or in any agreement with, or any resolution passed in general meeting by, or by the Board of directors or, the company.

The Company Law Board shall have power when any such complaint is received by it, to make an interim order to the effect set out above, before making or completing the inquiry aforesaid.

Nothing contained above shall apply to a private company, unless it is a subsidiary of a public company 

Where a complaint is made to the Company Law Board by the managing director or any other director or the manager of a company that, as a result of a change which has taken place or is likely to take place in ownership or any shares held in the company, a change in the Board of directors is likely to take place which (if allowed) would affect prejudicially the affairs of the company, the Company Law Board may, if satisfied, after such inquiry as it thinks fit to make that it is just and proper to do so, by order direct that no resolution passed or that may be passed or no action taken or may be taken to effect a change in the Board of directors after the date of the complaint shall have effect unless confirmed by the Company Law Board.

 
Where an order terminates, sets aside or modifies an agreement :-

The Central Government may appoint such number of persons as the Company Law Board may, by order in writing, specify as being necessary to effectively safeguard the interests of the Company or its shareholders or public interests, to act as directors thereof for such period not exceeding 3 years on any one occasion as it deems fit if the Company Law Board :- 

Where an order makes any alteration in the memorandum or articles of a company, then, notwithstanding any other provision of this Act, the company shall not have power, except to the extent, if any permitted in the order, to make without the leave of the Company Law Board, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles. 

Pending the making by it of a final order, the Company Law Board may, on the application of any party to the proceedings, make any interim order which it thinks fit for regulating the conduct of the company’s affairs, upon such terms and conditions as appear to it to be just and equitable. 

  Without prejudice to the generality of the powers of the Company Law Board, any under either section may provide for :-

The Central Government may itself apply to the Company law Board for an order, or cause an application to be made to the Company Law Board for such an order by any person authorised be it in this behalf. 

The Company Law Board must give notice of every application made to it as above to the Central government, and shall take into consideration the representations, if any, made to it by that Government before passing a final order. 

The following members of a company shall have the right to apply as above:-

Any members of a company who complain :-
Any members of a company who complain that the affairs of the company are being conducted in a manner prejudical to public interest or in a manner oppressive to any member or members may apply to the Company Law Board for an order for relief, provided such members have a right so to apply as given below.  

The word ‘Company’ is an amalgamation of the Latin word ‘Com’ meaning “with or together” and ‘Pains’ meaning “bread”. Originally, it referred to a group of persons who took their meals together. A company is nothing but a group of persons who have come together or who have contributed money for some common person and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose. Under Halsbury’s Laws of England, the term “company” has been defined as a collection of many individuals united into one body under special domination, having perpetual succession under an artificial form and vested by the policies of law with the capacity of acting in several respect as an individual, particularly for taking and granting of property, for contracting obligation and for suing and being sued, for enjoying privileges and immunities in common and exercising a variety of political rights, more or less extensive, according to the design of its institution or the powers upon it, either at the time of its creation or at any subsequent period of its existence. However, the Supreme Court of India has held in the case of State Trading Corporation of India v/s CTO that a company cannot have the status of a citizen under the Constitution of India.?

On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.Limited Liability :

The liability of the members of the company is limited to contribution to the assets of the company upto the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. On the other hand, partners of a partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities of the firm, the creditors can force the partners to make good the deficit from their personal assets. This cannot be done in case of a company once the members have paid all their dues towards the shares held by them in the company.Perpetual Succession:

A company does not die or cease to exist unless it is specifically wound up or the task for which it was formed has been completed. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of member does not affect the existence of the company.Separate Property:

A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company’s property during the existence of the company.Transferability of Shares:

Shares in a company are freely transferable, subject to certain conditions, such that no share-holder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares.Common Seal:

A company is a artificial person and does not have a physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.Capacity to sue and being sued:

A company can sue or be sued in its own name as distinct from its members.Separate Management:

A company is administered and managed by its managerial personnel i.e. the Board of Directors. The shareholders are simply the holders of the shares in the company and need not be necessarily the managers of the company.One Share-One Vote:

The principle of voting in a company is one share-one vote. I.e. if a person has 10 shares, he has 10 votes in the company. This is in direct contrast to the voting principle of a co-operative society where the “One Member – One Vote” principle applies i.e. irrespective of the number of shares held, one member has only one vote.?

Liability of the partners is unlimited. However, the liability of shareholders of a limited company is limited to the extent of unpaid share or to the tune of the unpaid amount guaranteed by the shareholder.

Property of the firm belongs to the partners and they are collectively entitled to it. In case of a company, the property belongs to the company and not to its members.

A partner cannot transfer his shares in the partnership firm without the consent of all other partners. In case of a company, shares may be transferred without the permission of the other members, in absence of provision to contrary in articles of association of the company.

In case of partnership, the number of members must not exceed 20 in case of banking business and 10 in other businesses. A Public company may have as many members as it desires subject to a minimum of 7 members. A Private company cannot have more than 50 members.

There must be at least 2 members in order to form a partnership firm. The minimum number of members necessary for a public limited company is seven and two for a private limited company.

In case of a partnership, 100 % consensus is required for any decision. In case of a company, decision of the majority prevails.

On the death of any partner, the partnership is dissolved unless there is provision to the contrary. On the death of the shareholder the company’ existence does not get terminated.

However, this provision does not apply in the following cases :-

A Joint Hindu Family business comprising of family members only. But where two or more Joint Hindu families come together for business through partnership, the total number of members cannot exceed 10 or 20 as the case may be, but in computing the number of persons, minor members of such family will be excluded.

Any association of charitable, religious, scientific trust or organisation which is not formed with a profit motive

Foreign companies.

When the number of members exceed the prescribed maximum, members must register it under Companies Act or any other Indian law.?

Public Limited

Restricts the right of members to transfer its shares

Limits the number of its members to fifty. In determining this number of 50, employee-members and ex-employee members are not to be considered.

Prohibits an invitation to the public to subscribe to any shares in or the debentures of the company.

If a private company contravenes any of the aforesaid three provisions, it ceases to be private company and loses all the exemptions and privileges which a private company is entitled.

Following are some of the privileges and exemptions of a private limited company:-

Mimimum number is members is 2 (7 in case of public companies)

Prohibition of allotment of the shares or debentures in certain cases unless statement in lieu of prospectus has been delivered to the Registrar of Companies does not apply.

Restriction contained in Section 81 related to the rights issues of share capital does not apply. A special resolution to issue shares to non-members is not required in case of a private company.

Restriction contained in Section 149 on commencement of business by a company does not apply. A private company does not need a separate certificate of commencement of business.

Provisions of Section 165 relating to statutory meeting and submission of statutory report does not apply.

One (if 7 or less members are present) or two members (if more than 7 members are present ) present in person at a meeting of the company can demand a poll.

In case of a private company which not a subsidiary of a public limited company or in the case of a private company of which the entire paid up share capital is held by the one or more body corporates incorporated outside India, no person other than the member of the company concerned shall be entiled to inspect or obtain the copies of profit and loss account of that company.

Minimum number of directors is only two. (3 in case of a public company)

The Company Law Board on being satisfied that the infringement of the aforesaid 3 conditions was accidental or due to inadvertence or that on other grounds, it just an equitable to grant relief, may grant relief to the company from the consequences of such infringement. The infringement of the aforesaid 3 conditions does not automatically convert a private company into a public company. It continues to remain a private company; it merely ceases to be entitled to the privileges and exemptions available to a private company.  

Where at least 25% of the paid up share capital of a private company is held by one or more bodies corporate, the private company shall automatically become the public company on and from the date on which the aforesaid percentage is so held.

Where the annual average turnover of the private company during the period of three consecutive financial years is not less than Rs 25 crores, the private company shall be, irrespective of its paid up share capital, become a deemed public company.

Where not less than 25% of the paid up capital of a public company limited is held by the private company, then the private company shall become a public company on and from the date on which the aforesaid percentage is so held.

Where a private company accepts deposits after the invitation is made by advertisement or renews deposits from the public (other than from its members or directors or their relatives), such companies shall become public company on and from date such acceptance or renewal is first made.

Company limited by shares In this case, the liability of members is limited to the amount of uncalled share capital. No member of company limited by the shares can be called upon to pay more than the face value of shares or so much of it as is remaining unpaid. Members have no liability in case of fully paid up shares.

Company limited by the guarantee A company limited by guarantee is a registered company having the liability of its members limited by its memorandum of association to such amount as the members may respectively thereby undertake to pay if necessary on liquidation of the company. The liability of the members to pay the guaranteed amount arises only when the company has gone into liquidation and not when it is a going concern. A guarantee company may be a company with share capital or without share capital.

Unlimited Company: The liability of members of an unlimited company is unlimited. Therefore their liability is similar to that of the liability of the partners of a partnership firm.

5.Section 25 Companies: Under the Companies Act, 1956, the name of a public limited company must end with the word ‘Limited’ and the name of a private limited company must end with the word ‘Private Limited’. However, under Section 25, the Central Government may allow comapnies to remove the word “Limited / Private Limited” from the name if the following conditions are satisfied :-

The company is formed for promoting commerce, science, art, religion, charity or other socially useful objects

The company does not intend to pay dividend to its members but apply its profits and other income in promotion of its objects.?

Holding and Subsidiary companies

A company shall be deemed to be subsidiary of another company if :-

That other company controls the composition of its board of directors ; or

That other company holds more than half in face value of its equity share capital

Where the first mentioned company is subsidiary company of any company which that other’s subsidiary. eg Company B is subsidiary of the Company A and Company C is subsidiary of Company B, therefore Company C is subsidiary of Company A.

The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove all or majority of directors of the subsidiary company without consent or concurrence of any other person.?

He must make full disclosure to the company of all relevant facts including to any profit made by him in transaction with the company.

In case of default on the part of the promoter in fulfilling the above duties, the company may :-

Rescind or cancel the contract made and if he has made profit on any related transaction, that profit also may be recovered

Retain the property paying no more for it then what the promoter has paid for it depriving him of the secret profit.

If these are not appropriate (eg cases where the property has altered in such a manner that it is not possible to cancel the contract or where the promoter has already received his secret profit), the company can sue him to for breach of trust. Damages upto the difference between the market value of the property and the contract price can be recovered from him.

A promoter may be rewarded by the company for efforts undertaken by him in forming the company in several ways. The more common ones are :-

The company may to pay some remuneration for the services rendered.

The promoter may make profits on transactions entered by him with the company after making full disclosure to the company and its members.

The promoter may sell his property for fully paid shares in the company after making full disclosures.

The promoter may be given an option to buy further shares in the company.

The promoter may be given commission on shares sold.

The articles of the Company may provide for fixed sum to be paid by the company to him. However, such provision has no legal effect and the promoter cannot sue to enforce it but if the company makes such payment, it cannot recover it back.

If the promoter fails to disclose the profit made by him in course of promotion or knowingly makes a false statement in the prospectus whereby the person relying on that statement makes a loss, he will be liable to make good the loss suffered by that other person. The promoter is liable for untrue statements made in the prospectus. A person who subscribes for any shares or debenture in the company on the faith of the untrue statement contained in the prospectus can sue the promoter for the loss or damages sustained by him as the result of such untrue statement.?

The memorandum of association should be in any of the one form specified in the tables B,C,D and E of Schedule 1 to the Companies Act, 1956. Form in Table B is applicable in case of companies limited by the shares , form in Table C is applicable to the companies limited by guarantee and not having share capital, form in Table D is applicable to company limited by guarantee and having a share capital whereas form in table E is applicable to unlimited companies.?

Name clause

The name of the company is mentioned in the name clause. A public limited company must end with the word ‘Limited’ and a private limited company must end with the words ‘Private Limited’. The company cannot have a name which in the opinion of the Central Government is undesirable. A name which is identical with or the nearly resembles the name of another company in existence will not be allowed. A company cannot use a name which is prohibited under the Names and Emblems (Prevntion of Misuse Act, 1950 or use a name suggestive of connection to government or State patronage.

Domicile clause

The state in which the registered office of company is to be situated is mentioned in this clause. If it is not possible to state the exact location of the registered office, the company must state it provide the exact address either on the day on which commences to carry on its business or within 30 days from the date of incorporation of the company, whichever is earlier. Notice in form no 18 must be given to the Registrar of Comapnies within 30 days of the date of incorporation of the company. Similarly, any change in the registered office must also be intimated in form no 18 to the Registrar of Companies within 30 days. The registered office of the company is the official address of the company where the statutory books and records must be normally be kept. Every company must affix or paint its name and address of its registered office on the outside of the every office or place at which its activities are carried on in. The name must be written in one of the local languages and in English.

Objects clause

This clause is the most important clause of the company. It specifies the activities which a company can carry on and which activities it cannot carry on. The company cannot carry on any activity which is not authorised by its MA. This clause must specify :-

Main objects of the company to be pursued by the company on its incorporation

Objects incidental or ancillary to the attainment of the main objects

Other objects of the company not included in (i) and (ii) above.

In case of the companies other than trading corporations whose objects are not confined to one state, the states to whose territories the objects of the company extend must be specified.

Doctrine of the ultra-vires Any transaction which is outside the scope of the powers specified in the objects clause of the MA and are not reasonable incidentally or necessary to the attainment of objects is ultra-vires the company and therefore void. No rights and liabilities on the part of the company arise out of such transactions and it is a nullity even if every member agrees to it.?

The company cannot sue any person for enforcement of any of its rights.

No person can sue the company for enforcement of its rights.

The directors of the company may be held personally liable to outsiders for an ultra vires

However, the doctrine of ultra-vires does not apply in the following cases :-

If an act is ultra-vires of powers the directors but intra-vires of company, the company is liable.

If an act is ultra-vires the articles of the company but it is intra-vires of the memorandum, the articles can be altered to rectify the error.

If an act is within the powers of the company but is irregualarly done, consent of the shareholders will validate it.

Where there is ultra-vires borrowing by the company or it obtains deliver of the property under an ultra-vires contract, then the third party has no claim against the company on the basis of the loan but he has right to follow his money or property if it exist as it is and obtain an injunction from the Court restraining the company from parting with it provided that he intervenes before is money spent on or the identity of the property is lost.

The lender of the money to a company under the ultra-vires contract has a right to make director personally liable.

Liability clause A declaration that the liability of the members is limited in case of the company limited by the shares or guarantee must be given. The MA of a company limited by guarantee must also state that each member undertakes to contribute to the assets of the company such amount not exceeding specified amounts as may be required in the event of the liquidation of the company. A declaration that the liability of the members is unlimited in case of the unlimted companies must be given. The effect of this clause is that in a company limited by shares, no member can be called upon to pay more than the uncalled amount on his shares. If his shares are already fully paid up, he has no liabilty towards the company.?

The following are exceptions to the rule of limited liability of members :-

If a member agrees in writing to be bound by the alteration of MA / AA requiring him to take more shares or increasing his liability, he shall be liable upto the amount agreed to by him.

If every member agrees in writing to re-register the company as an unlimited company and the company is re-registered as such, such members will have unlimited liability.

If to the knowledge of a member, the number of shareholders has fallen below the legal minimum, (seven in the case of a public limited company and two in case of a private limited company ) and the company has carried on business for more than 6 months, while the number is so reduced, the members for the time being constituting the company would be personally liable for the debts of the company contracted during that time.

Capital clause The amount of share capital with which the company is to be registered divided into shares must be specified giving details of the number of shares and types of shares. A company cannot issue share capital greater than the maximum amount of share capital mentioned in this clause without altering the memorandum.

Association clause A declaration by the persons for subscribing to the Memorandum that they desire to form into a company and agree to take the shares place against their respective name must be given by the promoters.?

The Articles of Association (AA) contain the rules and regulations of the internal management of the company. The AA is nothing but a contract between the company and its members and also between the members themselves that they shall abide by the rules and regulations of internal management of the company specified in the AA. It specifies the rights and duties of the members and directors.

The provisions of the AA must not be in conflict with the provisions of the MA. In case such a conflict arises, the MA will prevail.

Normally, every company has its own AA. However, if a company does not have its own AA, the model AA specified in Schedule I – Table A will apply. A company may adopt any of the model forms of AA, with or without modifications. The articles of association should be in any of the one form specified in the tables B,C,D and E of Schedule 1 to the Companies Act, 1956. Form in Table B is applicable in case of companies limited by the shares , form in Table C is applicable to the companies limited by guarantee and not having share capital, form in Table D is applicable to company limited by guarantee and having a share capital whereas form in table E is applicable to unlimited companies. However, a private company must have its own AA.The important items covered by the Articles of Association include :-

Powers, duties, rights and liabilities of Directors

Powers, duties, rights and liabilities of members

Rules for Meetings of the Company

Dividends

Borrowing powers of the company

Calls on shares

Transfer & transmission of shares

Forfeiture of shares

Voting powers of members, etc?

A company can alter any of the provisions of its AA, subject to provisions of the Companies Act and subject to the conditions contained in the Memorandum of association of the company. A company, by special resolution at a general meeting of members, alter its articles provided that such alteration does not have the effect of converting a public limited company into a private company unless it has been approved by the Central Government.

The articles must be printed, divided into paragraphs and numbered consequently and must be signed by each subscriber to the Memorandum of Association who shall add his address, description and occupation in presence of at least one witness who must attest the signature and likewise add his address, description and occupation. The articles of association of the company when registered bind the company and the members thereof to the same extent as if it was signed by the company and by each member.?

Once all the above documents have been filed and they are found to be in order, the Registrar of Companies will issue Certificate of Incorporation of the Company. This document is the birth certificate of the company and is proof of the existence of the company. Once, this certificate is issued, the company cannot cease its existence unless it is dissolved by order of the Court.?

A private company or a company having no share capital can commence its business immediately after it has been incorporated. However, other companies can commence their activities only after they have obtained Certificate of Commencement of Business. For this purpose, the following additional formalities have to be complied with :-

1. If a company has share capital and has issued a prospectus, then :-

Shares upto the amount of minimum subcription must be alloted

Every director has paid to the company on each of the shares which he has taken the same amount as the public have paid on such shares

No money is or may become payable to the applicants of shares or debentures for failure to apply for or to obtain permission to deal in those shares or debentures in any recognised stock exchange.

A statutory declaration in Form 19 signed by one director or the employee – company secretary or a Company secretary in whole time practice that the above provisions have been complied with must be filed

2. If a company has share capital but has not issued a prospectus, then :-

It must file a statement in lieu of prospectus with the Registrar of Companies

Every director has paid to the company on each of the shares which he has taken the same amount as the other members have paid on such shares

A statutory declaration in Form 20 signed by one director or the employee – company secretary or a Company secretary in whole time practice that the above provisions have been complied with must be filed

Once the above provisions have been complied with, the Registrar of Companies grants “Certificate of Commencement of Business” after which the company can commence its activities.

A. People have various conceptions about Arbitration. The very old concept about Arbitration was Panchaiti. It was a sort of undefined conception of people to settle their disputes, by referring to a person of their choice who would contact the parties and try to settle their disputes. This was an attempt to settle civil disputes by and through a private party or parties of their choice.

Q.2. What is the modern concept of Arbitration ?

A. The modern concept about Arbitration has greatly changed. On the one hand the parties are given the liberty to enter into an Arbitration agreement of their choice, they also have the liberty to agree to an arbitrator or arbitrators of their choice mutually acceptable to them and also have the liberty to agree to the procedure as to how the arbitrator or arbitrator are to be selected or appointed in case of any existing or any future disputes, but once they agree to go to an Arbitration, the said agreement becomes binding on both the parties and the arbitrators get the Jurisdiction to decide finally all the disputes which the parties have agreed to refer to them for settlement. Thus where as ordinarily the disputes between the parties are decided by a court of law, whose Jurisdiction and power to decide is governed by the law of the land and not by the volition of the parties, the parties by the law of Arbitration have been given the choice to get their disputes and or particular disputes, the nature whereof is defined within the mutual agreement, to be decided by the person or persons or a body of their own choice.

The whole intent behind accepting Arbitration as a mode of settlement of disputes is to make it easy, convenient and expeditious remedy to be available to the parties instead of going to a court of law and the long drawn procedures and formalities applicable in case of settlement of disputes which apply to the courts.

In India we had our own Arbitration Act 1940, which was mostly following the British Law on the subject. Similarly most of the countries had their own laws of Arbitration, which varied largely and created lots of problems with the increase of international trade and commerce and the agreements relating there to usually provided for Arbitration to solve the Disputes.

The United Nations commission on International Trade Law (UNCITRAL) had adopted the UNCITRAL model law on International commercial Arbitration in 1985. The general assembly of United Nation also recommended that all countries should give due consideration to the said model Law in view of the desirability of uniformity of the law of Arbitral procedures and the specific needs of the international commercial Arbitration practice. India was a signatory party to the said UNCITRAL. Furthermore we in India did not have any legislation with regard to conciliation proceedings and there was a recommendation by the general assembly of the United Nations for use of the rules as recommended by them in context of international commercial disputes and where the parties sought amicable settlement of the disputes by recourse to conciliation proceedings.

In the context aforesaid a bill was introduced in the parliament to consolidate and amend the law relating to domestic Arbitration, International commercial Arbitration and enforcement of foreign arbitral award; as also to define the law relating to conciliation and for matters connected there with or incidental there to.

At first an ordinance was issued, since the parliament was not in session and thereafter the act was passed.

Q.3. How to enter into an Arbitration agreement ?

A. An Arbitration agreement may be in the form of Arbitration clause in a contract or in the form of a separate agreement.

An Arbitration agreement has to be in writing.

The requirement as to Arbitration agreement being in writing is fulfilled ;-

a) If the document is signed by the parties

b) If the Arbitration is entered into by exchange of letters, telex, telegrams or other means of communication which provide as a record of the agreement; or

c) An exchange of statements of claim and defense in which the existence of the agreement is alleged by one party and not denied by the other.

The reference in a contract to a document containing an Arbitration clause constitutes an Arbitration agreement if the contract is in writing and the reference is such as to make that Arbitration clause part of the contract. The example of such an Arbitration agreement may be given when the parties simply agree “Arbitration; Bengal Chamber of Commerce and Industry”. Similarly “Arbitration; London Chamber of Commerce and Industries”. This agreement will import the entire rules of the concerned chambers which are in writing in the contract itself and the requirement of Law that the Arbitration agreement has to be in writing will be fulfilled by incorporation of the concerned rules of the concerned chambers. Of course an Arbitration agreement should specify the nature of disputes which are intended to be referred to Arbitration. It should be noted that an oral Arbitration agreement is not permissible in Law.

Q.4. How to get Interim Reliefs in a case where there is an Arbitration agreement ?

A. Under the 1940 Act an interim relief could be sought for after commencement of the Arbitration reference. This situation has been basically altered and now as provided in section 9 of The Arbitration and Conciliation Act, 1996. Interim relief may be sought by a party before or during arbitral proceeding or anytime after the making of the award.

The nature of the Interim Relief that may be asked for are enumerated as hereunder.

For the appointment of a guardian for a minor or a person of unsound mind for the purposes of Arbitral proceedings; or

For an Interim measure of protection in respect of any of the following matters, namely:-

the preservation, interim custody or sale of any goods which are the subject matter of the arbitration agreement ;

Securing the amount in dispute in the Arbitration;

The detention, preservation or inspection of any property or thing which is the subject-matter of the dispute in arbitration, or as to which any question may arise therein and authorising for any of the aforesaid purposes any person to enter upon any land or building in the possession of any party, or authorising any samples to be taken or any observation to be made, or experiment to be tried, which may be necessary or expedient for the purpose of obtaining full information or evidence;

interim injunction or the appointment of a receiver;

such other interim measure of protection as may appear to the court to be just and convenient.

This interim relief has to be asked from the court, which has the same power for making interim orders as it has for the purpose of and in relation to any proceedings before it. The “court” means the principal civil court of original Jurisdiction in a district and includes the High Court in exercise of its ordinary original civil Jurisdiction, having Jurisdiction to decide the questions forming the subject matter of the Arbitration if the same had been the subject matter of a suit, but does not include any civil court of a grade inferior to such principal civil court of or any court of small causes.

Under section 17 of the present Act the arbitral tribunal may also at the request of the party, order a party to take any interim measure of protection as the arbitral tribunal may consider necessary in respect of the subject matter of the dispute. The Arbitral tribunal may also require a party to provide appropriate security in connection with a measure ordered under sub-section 1 of Section 17 of the present Act. This is a change in Law as under the old Act “ that is the 1940 Act “ the arbitrator could make an interim award but there was no provision equivalent to Section 17 of the present Act.

Q.5. What can a party to an Arbitration agreement do if the other party to the Arbitration agreement institutes a suit in a Court of Law praying for decision on matters, which are covered by the Arbitration agreement ?

A. This situation very often used to arise and the other party had no option but to make an application for the stay of the suit under Section 34 of the old Act. If a party commenced a suit and gave notice there of to the other side all further proceedings in Arbitration would become void and ineffective and the award made after such notice would have been void.

The 1996 Act has ameliorated the situation to a great extent. It has been provided under Section 8(3) that not with his tending the issue is pending before the Judicial Authority, an Arbitration may be commenced or continue an Arbitral award made.

The further step that is required is to make an application before the Judicial Authority before which an action is brought in a matter which is the subject of an Arbitration agreement and the court shall, if a party so applies not later than when submitting his first statement on the substance of the dispute, refer the party to a Arbitration. This application as aforesaid shall not be entertained unless it is accompanied by the original Arbitration agreement or a duly certified copy thereof. Notwithstanding that an application has been made under sub-section 8(1) before the Judicial Authority and that the issue is pending before the Judicial Authority, an arbitration may be commenced or continue and an arbitral award made.

Q.6. How and what number of Arbitrators are to be appointed ?

A. The parties are free to determine the number of arbitrators, provided that such numbers shall not be an even number. Feeling the determination referred to by the parties, the Arbitral Tribunal shall consist of a sole Arbitrator. If the procedure for appointment of Arbitrator or Arbitrators is not agreed, in an Arbitration with three arbitrators each party shall appoint an arbitrator and the two appointed arbitrators shall appoint the third arbitrator who shall act as the presiding Arbitrator.

In case a party fails to appoint his Arbitrator within 30 days from the receipt of the request to do so from the other party or the two appointed Arbitrators fail to agree on the third Arbitrator within 30 days from the date of their appointment, the appointment shall be made upon request of a party, by the Chief Justice or any person or institution designated by him.

In an Arbitration with a sole Arbitrator if the party fail to agree on the Arbitrator within 30 days from receipt of request by one party from the other party to so agree, the appointment shall be made upon request of the party by the Chief Justice or any person or institution designated by him. This applies in cases where the agreement on the appointment procedure does not provide other means for securing their appointments. The appointment made by the Chief Justice is final.

Q.7. What about the appointment of sole or third Arbitrator in an International Commercial Arbitration ?

A. In case of an International Commercial Arbitration the Chief Justice of India or the person or institution designated by him may appoint an Arbitrator of a nationality other than the nationality of the parties where the parties belong to different nationalities. The Chief Justice may make such scheme as he may deal appropriate for dealing with matters entrusted to him under Section 11 of the 1996 Act. Where the matters referred to in Section 11and the sub-sections their under regarding appointment of an Arbitrator or the third Arbitrator arise in an International Commercial Arbitration, the reference to Chief Justice in the relevant sub-sections under Section 11 shall be construed as a reference to the “Chief Justice of India”. In any other Arbitration the reference to “Chief Justice” shall be construed as a reference to the Chief Justice of the High Court within whose limits the principal civil court which has Jurisdiction is situate and where the High Court itself is the Court referred to the Chief Justice of that High Court.

Q.8. Can a party challenge the appointment of an Arbitrator?

A. Yes, if circumstances exist that give rise to justifiable doubts as to the Arbitrators independent or impartiality, or if he does not possess the qualification agreed to by the parties. A party may challenge an Arbitrator appointed by him, or in whose appointment he has participated only for reasons, of which he becomes aware, after the appointment has been made.

Q.9. What is the procedure for challenging the appointment of an Arbitrator ?

A. The parties are free to agree on a procedure for challenging the appointment of an Arbitrator. Failing any agreement as aforesaid a party who intends to challenge an Arbitrator shall, within 15 days after becoming aware of the constitution of the Arbitral Tribunal or after becoming aware of any circumstances for challenging the appointment of any Arbitrator, send a return statement of the reasons for the challenge to the Arbitral Tribunal. Unless the Arbitrator so challenged withdraws from his office or the other party agrees to the challenge, the Arbitral Tribunal shall decide on the challenge. If the challenge is not successful, the Arbitral Tribunal shall continue the Arbitral proceedings and make an Arbitral award.

Where an Arbitral award is made in a case where there was unsuccessful challenge to the appointment of the Arbitrator, the party challenging the Arbitrator make an application for setting aside such an Arbitral award in accordance with Section 34 of the Act of 1996. Where an Arbitral award is set aside on an application made in case of challenge for appointment of an Arbitrator, the Court may decide as to weather the Arbitrator who is challenged is entitled to any fees.

Q.10. What is to be done in case of failure or impossibility to act on the part of the Arbitrator or any of the Arbitrators ?

A. The power and authority of an Arbitrator shall terminate if he becomes de jure or de facto unable to perform his functions or for other reasons fails to act without undue delay and he withdraws from his office or the parties agree to the termination of his mandate.

If a controversy remains concerning inability of the Arbitrator to perform his functions or his failure to act without undue delay, a party may, unless otherwise agreed by the parties, apply to the court to decide on the termination on the mandate.

Where the mandate of an Arbitrator terminates a substitute Arbitrator shall be appointed according to the rules that were applicable to the appointment of the Arbitrator being replaced. Section 12 to 15 of the Act of 1996 deal with the matters relating to grounds of challenge the procedures of challenge of Arbitrator, failure or impossibility to act by the Arbitrator, substitution of the Arbitrator and the procedure to be followed in case of substituted Arbitrator in the further conduct.

Q.11. What is the extent of Jurisdiction of an Arbitrator or the Arbitral Tribunal and who is to decide about same?

A. The Arbitral Tribunal may rule on its on Jurisdiction, including ruling on any objections with respect to the existence of the validity of the Arbitration agreement and for that purpose an Arbitration clause shall be treated as an agreement independent of the other terms of the contract and a decision by the Arbitral Tribunal that the contract is null and void shall not entail if so jure the invalidity of the Arbitration clause. A plea with regard to Jurisdiction shall be raised not later than the submission of the statement of defense. However, a party shall not be precluded from raising such a plea merely because he has appointed or participated in the appointment of an Arbitrator. A plea that the Arbitral Tribunal is exceeding the scope of its authority shall be raised as soon as practicable during the Arbitral proceeding. The Arbitral Tribunal shall decide on a plea as to Jurisdiction and in case the plea is rejected by the Tribunal, they will continue with the Arbitral proceeding and make an Arbitral award. The party aggrieved by such an Arbitral award may make an application foe setting aside such an Arbitral award in accordance with Section 34.

Q.12. What is the procedure for conduct of Arbitral proceedings ?

A. The Law provides that the parties shall be treated with equality and each party shall be given full opportunity to present his case. The Arbitral Tribunal shall not be bound by the court civil procedure 1908 or the Indian evidence Act, 1872. Subject to the above rules the parties are free to agree on the procedure by the Arbitral Tribunal in conducting its proceedings. In absence of any agreement as to the procedure to be followed, the Tribunal may subject to the rules led down above conduct the proceedings in the manner it considers appropriate. The power of the Arbitral Tribunal includes the power to determine the admissibility relevance, materiality and weight of any evidence.

Q.13. What would be the place of Arbitration ?

A. The parties are free to agree on the place of Arbitration. Failing any agreement between the parties the place of Arbitration shall be determined by the Arbitral Tribunal having regard to the circumstance of the case, including the convenience of the party.

Notwithstanding with the above rules the Tribunal may, unless otherwise agreed by the parties, meet at any place it considers appropriate for consultation among its members, for hearing witnesses, experts or the parties, or for inspection of documents, or goods or other property.

Q.14. When does the Arbitration commence ?

A. Unless otherwise agreed by the parties the Arbitration proceedings commence on the date on which a request for the dispute to be referred to Arbitration is received by the respondent.

Q.15. What is the procedure generally to be followed in an Arbitration proceeding ?

A. First of all the claimant is to file within the period of time agreed upon by the parties or determined by the arbitrator a statement of facts supporting his claim, the points at issue and the relief or remedy sought and the respondent thereafter shall state his defense in respect of and in answer to the statement of claim, unless the parties have otherwise agreed.

The parties may submit with their statements all documents they consider to be relevant or may add a reference to the documents or other evidence they will submit.

Unless otherwise agreed by the parties, either party may amend or supplement his claim or defense during the course of the arbitral proceedings, unless the arbitrator considers it inappropriate to allow the amendment or supplement having regard to the delay in making it.

Unless otherwise agreed by the parties the Arbitrator shall decide whether to hold oral hearings for the presentation of evidence or for oral argument or whether the proceedings shall be conducted on the basis of documents and other materials. However it has been provided that the Arbitrator shall hold oral hearings at an appropriate stage of the proceedings on a request by a party, unless the parties have agreed that no oral hearing shall be held.

The parties shall be given sufficient advance notice of any hearing and of any meeting of the Arbitrator for the purposes of inspection of documents, goods or other property.

All statement documents or other information supplied to or application mate to the Arbitrator by one party shall be communicated to the other party and any expert report or evidentiary document on which the Arbitrator may rely in making his decision shall be communicated to the parties.

What happens if either of the parties commits default in course of the conduct of the Arbitration ?

A. If the claimant fails to communicate his statement of claim the Arbitrator shall terminate the proceedings unless otherwise agreed by the parties and without showing sufficient cause.

If the respondent fails to communicate his statement of defense in time without showing sufficient cause and unless otherwise agreed the Arbitrator shall continue the proceeding without treating the failure in itself as an admission of the allegations by the claimant.

If a party fails to appear at an oral hearing or to produce documentary evidence than the Arbitrator may continue the proceedings and make the award on the evidence before it.

Q.17. Can the Arbitrator appoint an expert ?

A. Yes, unless otherwise agreed by the parties the Arbitrator may appoint one or more experts to report to him on specific issues to be determined by the Arbitrator and require a party to give the expert any relevant information or to produce or to provide access to, any relevant document, goods or other property for his inspection.

Unless otherwise agreed by the parties, if a party so requests or if the Arbitrator considers it necessary, the expert shall after delivery of his written or oral report, participate in an oral hearing where the parties have the opportunity to put questions to him and to present expert witnesses in order to testify on the points at issue.

Unless otherwise agreed by the parties the expert shall on the request of a party make available to that party for examination all documents, goods or other property in the possession of the expert with which he was provided in order to prepare his report.

Q.18. How Court assistance may be taken in taking evidence ?

A. The Arbitrator being a private Tribunal cannot or does not have the authority or power to issue summons to witnesses or to require anyone to produce documents. The Law however as provided in Section 27 of the Act of 1996 gives the Arbitral Tribunal, or a party with a approval of the Arbitral Tribunal the power to apply to the court for assistance in taking evidence. The application has to be made giving the particulars as mentioned in Section 27 of the Act of 1996 and the manner in which the Courts assistance is required mainly for calling witness or expert witnesses or a statement of the subject matter of the testimony required or the description of any document to be produced or property to be inspected.

The Court may, within its competence and according to its rules on taking evidence, execute the request by ordering that the evidence be provided directly to the Arbitrator.

The Court may issue the same processes to the witnesses as it may issue in suits tried before it.

Persons failing to attend in accordance with such process, or making any other default or refusing to give their evidence or guilty of any contempt to the Arbitrator during the conduct of Arbitration proceedings, shall be subject to the like disadvantages, penalties and punishments by the order of the court on the representation of the Arbitrator as they would incur for the like offences in suits tried before the court. The expression processes include summonses and commissions for the examination of witnesses and summonses to produce the documents.

Q.19. What is the Law applicable in case of Arbitrations within India and in case on International Commercial Arbitration ?

A. In an Arbitration other than an International Commercial Arbitration, the Arbitral Tribunal (Arbitrator/Arbitrators) shall decide the disputes in accordance with the substantive Law for the time being in force in India;

In International Commercial Arbitration :-

(i) the dispute is to be decided in accordance with the Law as agreed by the parties to be applicable to the dispute.

(ii) Such agreed Law or legal system as agreed to be applicable shall be construed unless otherwise expressed, as directly referring to the substantive Law of that country and not to its conflict of Laws rules;

(iii) Failing any agreement as to the Law applicable by the parties, the Arbitrator shall apply the rules of Law it considers to be appropriate, given all the circumstances surrounding the disputes.

In all cases the Arbitrator shall decide in accordance with the terms of the contract and shall take in to account the usages of the trade applicable to the transaction.

Q.20. How would a panel of Arbitrators decide the case ?

A. Unless otherwise agreed by the parties any decision of the Arbitrators shall be made by a majority of all its members.

If authorized by the parties or all the members of the panel of Arbitrators, questions of procedure may be decided by the presiding Arbitrator. (Sec.29)

Q.21. Can the Arbitrator encourage settlement of the disputes or may use mediation, conciliation or other procedures during the proceedings of Arbitration ?

A. Yes, he can do so and it is not incompatible with an Arbitration agreement. If the matter is settled and if requested by the parties and not objected to by the Arbitral Tribunal, record the settlement in the form of an award on agreed terms. An award on agreed terms shall be made in accordance with Section 31 and shall state that it is an award. An award on agreed terms shall have the same status and effects as any other award on the substance of the dispute (Section 30).

Q.22. What should be the form of an award?

A. An award has to be in writing and the same has to be signed by the Arbitrator or Arbitrators. However if there are more than one Arbitrator, the signatures of the majority of all the members of the Tribunal shall be sufficient so long as the reason for any omitted signature is stated (Section 31).

Q.23. What should be the contents of the award ?

A. The former Law on the point did not require the Arbitrators to give any reasons for their award unless of course the Arbitration agreement itself required reasons to be given by the Arbitrator.

With the coming into force of the 1996 Act an Arbitrator has to give the reasons in the award for his decision unless the parties have agreed that no reasons are to be given or the award is an award on agreed terms under Section 30.

The award shall state its date and the place of Arbitration as determined in accordance with Section 20 of the 1996 Act and the award shall be deemed to have been made at that place. [Section 31(3) and(4)].

Q.24. What are the duties of the Arbitrator after the award is made ?

A. The Arbitrator has to supply as signed copy to each party and deliver the same to them [Section 31(5)].

Q.25. Does the Arbitrator have power to make an Interim award with respect to any matter which the Arbitrator may make a final award ?

A. Yes, the Arbitrator may at any time during the Arbitration proceedings make an interim award on any matter with respect to which it may make a final award- Section 31(6).

Q.26. What is the power of an Arbitrator to award interest ?

A. The Law on this point has been clarified by the Section 31(7). The Law says that unless otherwise agreed by the parties where in and so far an award where an award is foe payment of money the Arbitrator may include in the sun for which the award is made interests, at such rate as it deems reasonable, for the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the day on which the award is made.

Section 31(7)(a) gives the Arbitrator the full power to award interest right from the date of accrual of the cause of action until the date of the award at such reasonable rate as the Arbitrator thinks fit and proper.

The other salutary provision in sub-section B is that the some directed to be paid by an award shall, unless the award otherwise directs, carry interests at the rate of a eighteen per centum per annum from the date of the award to the date of payment. This provision applies whether there is any provision in the award or not for future interest from the date of the award to the date of payment.

Q.27. What about the costs of Arbitration; who has to pay and to what extent ?

A. Unless otherwise agreed by the parties, the cost of Arbitration shall be fixed by the arbitrator. The Arbitrator shall specify the party entitled to cost, the party who shall pay the cost the amount of cost or method of determining that amount and the manner in which the cost shall be paid. Cost means reasonable costs relating to the fees and expenses of the Arbitrators and witnesses, legal fees and expenses, any administration fees of the institution supervising the Arbitration and any other expenses incurred in connection with the proceedings and the award-Section 31(8).

Q.28. When does the Arbitration proceeding terminate ?

A. By the final award or when the claimant withdraws his claim, or when the parties agree on the termination of the proceedings or when the Arbitrator finds that the continuation of the proceedings has for any other reason become unnecessary or impossible.(Section 32).

Q.29. Can the Arbitrator correct or interpret the award or make an additional award ?

A. Yes, within 30days from the receipt of the award a party with notice to the other party may request the Arbitrator to correct any computation errors any clerical or hypographical errors or any other errors of a similar nature occurring in the award.

If so agreed by the parties, a party with notice to the other party, may request the Arbitrator to give an interpretation of a specific point or part of the award.

If the Arbitrator considers a request made by any party to be justified, it shall make the correction or give the interpretation within 30 days from the receipt of the request and the interpretation shall form part of the award. The Arbitrator may correct any error as specified in Section 33 on his own motive, within 30 days from the date of the award.

Unless otherwise agreed by the parties, a party with notice to the other party, may request within 30 days from the receipt of the award, to make an additional award as to claims presented in the arbitration proceedings but omitted from the award.

If the Arbitrator considers the request made for additional award to be justified, it shall make the additional award within 60 days from the receipt of such request.

The Arbitrator may extent if necessary, the period of time within which he shall make a correction give an interpretation or make an additional award. The correction and/or the interpretation and/or the additional award shall form part of the award (Section 33).

Q.30. What is the legal consequences which follow the making of the award ?

A. The award shall be final and binding on the parties and person claming under them and where the time for making a application to set aside the award under Section 34 has expired or such application having been made, it has been refused, the award shall be in forced under the Court of civil procedure, 1908 in the same manner as if it were a decree of the Court.

This is a significant departure from the old Law of Arbitration. Under the old Law the procedure was that the Arbitrator shall file the award and then the same will come for judgement upon award and if an application for setting aside the award has been made or disposed of and dismissed a judgement and decree terms of the award will follow. This procedure has given a go by and the present Law is that upon the expiry of the time for making an application to set aside the award or upon dismissal of such application is made the award itself shall be enforced as a decree of Court. (Section 35 and 36).

Q.31. Can the party aggrieved make an application for setting aside an award .

A. Yes, but the grounds are extremely limited. The party making the application if it furnishes prove that a party was under some incapacity, or that the arbitration agreement is not valid under the Law or that the party making the application was not given proper notice of the appointment of the Arbitrator or of the Arbitration proceedings or was otherwise enable to present his case. The award may be set aside.

The other grounds for setting aside the awards are that the award deals with a dispute not contemplated while or not falling within the terms of the submission to Arbitration, or it content decisions on matters beyond the scope of the submission to Arbitration.

Provided always that if the decisions on matters submitted to Arbitration can be separated from those not so submitted, only that part of the award which content decisions on matters not submitted to Arbitration may be set aside.

If the composition of the Arbitration Tribunal or the procedure follow was not in accordance with the agreement of the parties.

Apart from the above grounds for setting aside the awards, the award can be set aside if the subject matter of the dispute is not capable of settlement by Arbitration under the Law for the time being inforce or if the award is in conflict with the public policy on India. If the award was procure by fraud or corruption or was in violation of Section 75 or Section 81 the award will be treated as in conflict with the public policy in India-Section 34(1)and (2).

Q.32. Is there any limitation for making an application for setting aside the award ?

A. An application for setting aside may not be made after 3 months have elapsed from the date on which the party making that application, had received the Arbitral award or if a request have been made for correction, interpretation or for additional award, than from the date on which that request had been disposed of by the Arbitrator.

Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the set period of three months, it may entertain the application within a further period of 30 days but not there after Section 34(3). This shows that the outer limit even for the Court to entertain an application for setting aside an award is 60 days even after extension of time.

Is there any other alternative to uphold the award, after the making of the application for setting aside the same and before decision thereon by the Court ?

A. Yes, on receipt on an application for setting aside the award the Court may where it is appropriate and it is so requested by a party, adjourned the proceeding for a period of time determine by it, in order to give the Arbitrator an opportunity to resume the proceedings or to take such other action as in the opinion of the Arbitrator will eliminate the grounds for setting aside the award. [Section 34(4)].

This is a new concept in the Law of Arbitration. Incases where it is appropriate and it is so requested by a party the Court may give an opportunity to the Arbitrator to resume the proceedings and to take such other action as in the opinion of the Arbitrator will illuminate the grounds for setting aside the Arbitral award. This could not be done under the old Law.

Q.34. In what cases a party can go in appeal from an order of the Court?

A. An appeal shall lie from the following orders (and from no others) to the Court authorized by Law to hear appeals from original decrease of the Court passing the order namely:-

(a) Granting or refusing to grant any measure under Section 9.

(b) Setting aside or refusing to set aside an award under Section 34.

An appeal shall also lie from an order granting or refusing to grant an interim measure under Section 17 to a Court. (It is to be remembered that Section 17 relates to interim measures to be granted by an Arbitrator).

No second appeal shall lie from an order passed in appeal under this section that is Section 37, but nothing in this section shall effect or take away any right to appeal to the Supreme Court. (Section 37).

Q.35. Can the Arbitrator Tribunal ask for deposit on account of cost ?

A. Yes, it can do so and fix the amount of the deposit or supplementary deposit as the case may be, as an advanced for the cost and in a case where there is a counter claim it may fix separate amount of deposit for the counter claim.

The deposit shall be payable in equal share by the parties. Provided where one party fails to pay his share of the deposit, the other party may pay that share. Provided further that where the other party also does not pay the aforesaid share in respect of the claim or the counter claim, the Arbitrator may suspend or terminate the proceedings in respect of such claim or counter claim, as the case may be.

Upon termination of the proceedings, the Arbitrator share render an accounting to the parties of the deposits received and shall return any unexpended balance to the party or parties as the case may be. (section 38)

Q.36. Does the Arbitrator have lien on the award and deposit as to costs ?

A. Unless otherwise agreed the Arbitrator shall have a lien on the award for any unpaid costs of the Arbitration.

If in any case the Arbitrator refuses to deliver its award except on payment of the costs, demand by it, the Court may, on an application in this behalf, order that the Arbitrator shall deliver the award to the applicant on payment into Court by the applicant of the costs demanded, and shall after such inquiry, if any, as it thinks fit, further order that out of the money so paid into Court there shall be paid to the Arbitrator by way of costs such some as the court may consider reasonable and that the balance of the money if any, shall be refunded to the applicant. (Section 39)

Q.37. Does an Arbitration agreement stand discharge by death of party there to ?

A. No, and in case of death of the party the same is enforceable by or against the legal representative of the deceased. Similarly the mandate of an Arbitrator shall not be terminated by the death of any party by whom he was appointed.

Nothing is this Section shall affect the operation of any Law by Virtue of which any right of action is extinguished by death of a person. (Section 40).

Q.38. What is the position in case of insolvency of a party ?

A. Where the contract so provides and where the receiver in insolvency adopts the contract, the Arbitration agreement shall be enforceable by or against him so far as it relates to any such disputes.

Where a person who has been adjudged an insolvent had, before the commencement of the insolvency proceedings, became a party to an Arbitration agreement, and any matter to which the agreement applies, is required to be determined in connection with, or for the purposes of, the insolvency proceedings, than, any other party or the receiver may apply to the judicial authority having Jurisdiction in the insolvency proceedings, for an order directing that the mattering question shall be submitted to Arbitration and the judicial authority may make an order accordingly. (Section 41) .

Q.39. Which Court will have Jurisdiction in a case where an application has already been made with respect to an Arbitration agreement?

A. Notwithstanding anything contained elsewhere in this Part or in any other law for the time being in force, where with respect to an Arbitration agreement any application under this Part has been made in the court, that court alone shall have jurisdiction over the arbitral proceedings and all subsequent applications arising out of that agreement and the arbitral proceedings shall be made in that court and in no other court. (Section 42)

Q.40. Does the limitation Act apply to an Arbitration?

A. Yes, the limitation Act 1963 applies to Arbitration as it applies to proceedings to court. For the purposes of limitation Act 1963 the Arbitration shall be dimmed to have commenced on the date on which a request for that dispute to be referred to Arbitration is made and received by the respondent.

Where an Arbitration agreement to submit future dispute to Arbitration provides that any claim to which agreement applies shall be bar unless some step to commence Arbitration is taken within a time fixed by the agreement and a dispute arises to which the agreement applies, the court, if it is of opinion that in the circumstances of the case undue hardship would otherwise be caused, and not withstanding that the times of fixed has expired, may on such terms if any as the justice of the case may require, extend the time for such period as it thinks proper.

Where the court orders that the arbitral award be set aside, the period between the commencement of the Arbitration and the date of the order of the court shall be excluded in computing the time prescribed by the Limitation Act, for the commencement of the proceedings (including Arbitration) with respect to the dispute so submitted.

What is a foreign award under the New York Convention Awards ?

A. Part II of The Arbitration and Conciliation Act, 1996, Chapter 1 deals with New York Convention Awards. Unless the context otherwise requires, ‘foreign award’ means an award on differences between persons arising out of legal relationships, whether contractual or not, considered as commercial under the law enforced in India, made on or after 11th October, 1960 –

(a) in pursuance of an agreement in writing for arbitration to which the Convention set forth in the First Schedule applies, and

(b) in one of such territories as the Central Government, being satisfied that reciprocal provisions have been made may, by notification in the Official Gazette, declare to the territories to which the said Convention applies. (Section 44).

The term ‘First Schedule’ refers to the New York Convention on the recognition and enforcement of foreign arbitral awards.

Q.42. Is a foreign award within the meaning of New York Convention, binding ?

A. Any foreign award which would be enforceable under Chapter 1 of Part II shall be treated as binding for all purposes on the persons as between whom it was made, and may accordingly be relied on by any of those persons by way of defence, set off or otherwise in any legal proceedings in India and any references in Chapter 1 Part II of the said Act of 1996, to enforcing a foreign award shall be construed as including references to relying on an award. (Section 46)

Q.43. What evidence has to be produced at the time of applying for the enforcement of a foreign award ?

A. The party applying for the enforcement of a foreign award shall, at the time of the application, produce before the court–

(a) the original award or a copy thereof, duly authenticated in the manner required the law of the country in which it was made;

(b) the original agreement for arbitration or a duly certified copy thereof; and

(c) such evidence as may be necessary to prove that the award is a foreign award.

If the award or agreement to be produced under sub-section (1) is in a foreign language, the party seeking to enforce the award shall produce a translation into English certified as correct by a diplomatic or consular agent of the country to which that party belongs or certified as correct in such other manner as may be sufficient according to the law in force in India. (Section 47)

Q.44. What are the grounds on which the enforcement of a foreign award may be refused ?

A. Enforcement of a foreign award may be refused at the request of the party against whom it is invoked, only if that party furnishes to the court proof that –

(a) the parties to the agreement referred to in Section 44 were, under the law applicable to them, under some incapacity, or the said agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law of the country where the award was made; or

(b) the party against whom the award is invoked was not given proper notice of the appointment of the arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or

(c) the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:

However it has been provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, that part of the award which contains decisions on matters submitted to arbitration may be enforced; or

(d) the composition of the arbitral authority or the arbitral procedure was not in accordance with the agreement of the parties, or, failing such agreement, was not in accordance with the law of the country where arbitration took place; or

(e) the award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made.

Enforcement of an arbitral award may also be refused if the court finds that –

(a) the subject-matter of the difference is not capable of settlement by arbitration under the law of India; or

(b) the enforcement of the award would be contrary to the public policy of India.

Explanation – Without prejudice to the generality of clause (b) of this section, it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption.

If an application for the setting aside or suspension of the award has been made to a competent authority referred to in clause (e) of sub-section (1) the court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. (Section 48)

Q.45. What is the position of a foreign award, after the court is satisfied that the award is enforceable ?

A. Where the court is satisfied that the foreign award is enforceable under chapter 1 of part II, the award shall be deemed to be a decree of that court. (Section 49)

Q.46. From which orders made under chapter 1 of Part II an appeal lies ?

A. An appeal shall lie from the order refusing to –

(a) refer the parties to arbitration under section 45

(b) enforce a foreign award under section 48,

No second appeal shall lie from an order passed in appeal, but nothing shall affect or take away any right to appeal to the Supreme Court. (Section 50)

Q.47. What happens if a party institutes an action in a matter in respect of which the parties have made an agreement referred to in Section 44, that is, the chapter relating to the enforcement of certain foreign awards under the New York Convention ?

A. In such cases the court shall at the request of one of the parties or any person claiming through or under him, refer the parties to arbitration, unless it finds that the said agreement is null and void, inoperative or incapable of being performed. (Section 45)

Q.48. What happens if Chapter 1 of Part II relating to New York Convention Awards applies? Does Chapter 2 relating to Geneva Convention Awards also apply ?

A. It may be noted that there are two chapters in part II relating to foreign awards and the enforcement thereof. Chapter 1 relates to New York Convention Awards. And Chapter 2 relates to Geneva Convention Awards. Chapter 2 relating to Geneva Convention Awards shall not apply in relation to foreign awards to which Chapter 1 relating to New York Convention Awards applies. (Section 52). Both these conventions cover mutually exclusive areas relating to foreign awards. 

The Geneva Convention ( covered in Sections 53 to 60 of the 1996 Act) contains practically similar provisions as those relating to New York Convention Award (Sections 44 to 52 of the said Act). Hence no further questions need be framed relating to Geneva Convention Awards.

INTRODUCTION TO LAW RELATING TO CONCILIATIONS

Conciliation: Mutual Conciliation of Civil Disputes has always been permissible in law. But it has been given a statutory form for the first time by the said Act, that is, the Arbitration and Conciliation Act, 1996 (Sections 61 to 85).

Q.49. How a conciliation proceeding is commenced ?

A. (a) The party initiating conciliation shall send to the other party a written invitation to conciliate under Part III of the said Act, briefly identifying the subject of the dispute.

(b) The conciliation proceedings shall commence when the other party accepts in writing the invitation to conciliate.

(c) If the other party rejects the invitation, there will be no conciliation proceedings.

(d) If the party initiating conciliation does not receive a reply within 30 days from the date on which he sends the invitation, or within such other period of time as specified in the invitation, he may elect to treat this as a rejection of the invitation to conciliate and if he so elects, he shall inform in writing the other party accordingly. (Section 62)

Q.50. What would be the number of conciliators and how they are to be appointed ? What would be the number of conciliators and how they are to be appointed ?

A. There will one conciliator unless the parties agree that there shall be two or three conciliators. Where there is more than one conciliator, they ought, as a general rule, to act jointly.

In conciliation proceeding with one conciliator, the parties may agree on the name of a sole conciliator. In conciliation proceedings with two conciliator each party may appoint one conciliator. In conciliation proceedings with three conciliators, each party may appoint one conciliator and the parties may agree on the name of the third conciliator who shall act as the presiding conciliator.

Alternatively the parties may enlist the assistance of a suitable institution or person in connection with the appointment of conciliators, and in particular,

(a) A party may request such an institution or person to recommend the names of suitable individuals to act as conciliator or

(b) the parties may agree that the appointment of one or more conciliators be made directly by such an institution or person.

This is subject to the provision that in recommending or appointing individuals to act as conciliator, the institution or person shall have regard to such considerations as are likely to secure the appointment of an independent and impartial conciliator and, with respect to sole or third conciliator, shall take into account the advisability of appointing a conciliator of a nationality other than the nationalities of the parties. (Sections 63 & 64).

Q.51. What is the procedure to be followed before the conciliator ?

A. (a) The conciliator upon his appointment may request each party to submit to him a brief written statement describing the general nature of the dispute and the points at issue. Each party shall send a copy of such statement to the other party.

(b) The conciliator may request to each party to submit to him further written statement of his position and the facts and grounds in support thereof, supplemented by any documents and other evidence that such party deems appropriate. The party shall send a copy of such statement, document and other evidence, to the other party.

(c) At any stage of the conciliation proceedings, the conciliator may request a party to submit to him such additional information as he thinks appropriate.

Any reference to conciliator in this part includes reference to a sole conciliator, two or three conciliators as the case may be. (Section 65)

Q.52. What about the law applicable to the proceedings before the conciliator ?

A. As in the case of an arbitrator, the conciliator also is not bound by the code of Civil Procedure, or the Indian Evidence Act. (Section 66)

Q.53. What is the role of the conciliator ?

(a) The conciliator shall assist the parties in an independent and impartial manner in their attempt to reach an amicable settlement of their dispute.

(b) The conciliator shall be guided by principles of objectivity, fairness and justice, giving consideration to , among other things, the rights and obligations of the parties, the usages of trade concern and the circumstances surrounding the dispute including any previous business practices between the parties.

(c) The conciliator may conduct the conciliation proceedings in such a manner as he considers appropriate, taking into account the circumstances of the case, the wishes the parties may express, including any request by a party that the conciliator hear oral statements, and the need for a speedy settlement of the dispute. (Section 67)

Q.54. Can the conciliator take administrative assistance from other institutions or person ?

A. Yes, in order to facilitate the conduct of the conciliation proceedings, the parties, or the conciliator with the consent of the parties, may arrange for administrative assistance by a suitable institution or person. (Section 68)

Q.55. What about the communication between conciliator and parties ?

A. The conciliator may invite the parties to meet him or may communicate with them orally or in writing. He may meet or communicate with the parties together or with each of them separately.

Unless the parties have agreed upon the place where meetings with the conciliator are to be held, such place shall be determined by the conciliator, after consultation with the parties, having regard to the circumstances of the conciliation proceedings. (Section 69)

Q.56. Is the conciliator bound to disclose the informations that he receives to the other side ?

A. When the conciliator receives factual information concerning the dispute from a party, he shall disclose the substance of that information to the other party in order that the other party may have the opportunity to present any explanation which he considers appropriate. This is subject to the Proviso that when a party gives any information to the conciliator subject to a specific condition that it be kept confidential, that conciliator shall not disclose that information to the other party. (Section 70)

Q.57. What are the other duties of the parties in a conciliation proceeding to facilitate a conciliation ?

A. The parties shall in good faith cooperate with the conciliator and in particular, shall endeavour to comply with request by the conciliator to submit written materials, provide evidence and attend meetings.

The parties may on their own initiative or at the invitation of the conciliator, submit to the conciliator suggestions for the settlement of the dispute. (Sections 71 & 72)

Q.58. How and in what manner a settlement is to be or may be arrived at ?

A. When it appears to the conciliator that there exists elements of settlement which may be acceptable to the parties, he shall formulate the terms of a possible settlement and submit the same to the parties for their observations. After receiving the observations of the parties the conciliator may reformulate the terms of a possible settlement in the light of such observations.

If the parties reach agreement on a settlement of a dispute, they may drop and sign a written settlement agreement. If requested by the parties, the conciliator may drop or assist the parties in drawing up, the settlement agreement.

When the parties sign the settlement agreement, it shall be final and binding on the parties and persons claiming under them respectively.

The conciliator shall authenticate the settlement agreement and furnish a copy thereof to each of the parties. (Section 73)

Q.59. What is the status and effect of settlement agreement ?

A. The settlement agreement shall have the same status and effect as if it is an arbitral award on agreed terms on the substance of the dispute rendered by an arbitral tribunal under Section 30. (Section 74)

Q.60. Is there any duty cast upon the parties and the conciliator to keep the matters relating to conciliations as confidential ?

A. Yes, that is so. The confidentiality also extends to the settlement agreement except where its disclosure is necessary for purposes of implementation and enforcement. (Section 75)

Q.61. When do the conciliation proceedings terminate ?

A. The conciliation proceedings shall be terminated in the manner as follows :-

a) By the signing of the settlement agreement by the parties on the date of the agreement; or

b) By a written declaration of the conciliator, after consultation with the parties to the effect that further efforts at conciliation are no longer justified, on the date of the declaration; or

c) By a written declaration of the parties addressed to the conciliator to the effect that the conciliation proceedings are terminated on the date of the declaration; or

d) By a written declaration by a party to the other party and the conciliator, if appointed, to the effect that the conciliation proceedings are terminated, on the date of the declaration. (Section 76)

Q.62. Can a party or parties resort to arbitration or judicial proceedings during the course of the conciliation proceedings ?

A. The parties shall not initiate, during the conciliation proceedings, any arbitration or judicial proceedings in respect of a dispute that is the subject matter of the conciliation proceedings except that a party may initiate arbitration or judicial proceedings where, in his opinion such proceedings are necessary for preserving his rights. (Section 77)

Q.63. What about the costs regarding conciliation proceedings ?

A. Upon termination of the conciliation proceedings, the conciliator shall fix the cost of the conciliation and give written notice thereof to the parties. The word ‘costs’ here means reasonable costs relating to :

1) the fees and expenses of the conciliator and witnesses requested by the conciliator with the consent of the parties;

2) any expert advice requested by the conciliator with the consent of the parties;

3) any assistance provided to the conciliator in the manner as provided in sections 64 and 68; for any other expenses incurred in connection with the conciliation proceedings and the settlement agreement.

The costs shall be borne equally by the parties, unless the settlement agreement provides for a different apportionment. All other expenses incurred by a party shall be borne by that party.

Regarding costs the conciliator may direct each party to deposit an equal amount as an advance for the costs which he expects will be incurred.

During the course of the conciliating proceedings the conciliator may direct supplementary deposits in an equal amount from each party.

If the required deposits are not paid in full by both parties within 30 days, the conciliator may suspend the proceedings or may make a written declaration of termination of the proceedings to the parties effective on the date of that declaration.

Upon termination of the proceedings, the conciliator shall render an accounting to the parties of the deposits received and shall return any unexpended balance to the parties. (Section 78 & 79).

Q.64. What is the role if any that the conciliator can discharge in other proceedings ?

A. Unless otherwise agreed by the parties, the conciliator shall not act as an arbitrator or as a representative or counsel of a party in any arbitral or judicial proceeding in respect of a dispute that is the subject of the conciliation proceedings.

The conciliator shall not be presented by the parties as a witness in any arbitration or judicial proceedings. (Section 80)

Q.65. How far and to what extent the parties can use the evidence given in conciliation proceedins, in other proceedings ?

A. The parties shall not rely on or introduce as evidence in arbitration or judicial proceedings, whether or not such proceedings relate to the dispute that is the subject of the conciliation proceedings to the extent as follow :-

i) Views expressed or suggestions made by the other parties in respect of a possible settlement of the dispute;

ii) admissions made by the other party in the course of the conciliation proceedings;

iii) proposals made by the conciliator;

iv) the fact that the other party had indicated his willingness to accept a proposal for settlement made by a conciliator. (Section 81)

Notes for general information :-

1) The High Court may make rules consistent with the said Act as to all proceedings before the Court under the said Act. (Section 82)

2) The Central Government has been given the power to make such provisions by order, published in Official Gazette not inconsistent with the provisions of the said Act as appear to it, to be necessary to expedient for removing the difficulty if any within a period of two years from the period of commencement of the said Act. (Section 83)

3) The Central Government may by notification in the Official Gazette, make rules for carrying out the provisions of the said Act. (Section 84)

4) The arbitration (Protocol and Convention) Act 1937, the Arbitration Act 1940 and the foreign awards (recognition and enforcement), 1961 are repealed with the commencement of the said Act. However, it may be noted that not withstanding such repeal the provisions of the old enactments which have been repealed shall apply in relation to arbitration proceedings which commenced before the said Act came into force, unless otherwise agreed by the parties, but the said Act shall apply in relation to arbitration proceedings which commenced on or after the said Act came into force.

Furthermore all rules and notifications published, under the said enactments shall to the extent to which they are not repugnant to the said Act, be deemed respectively to have been made or issued under the said Act.

SCHEME FOR APPOINTMENT OF ARBITRATORS, 1996

Q.66. Has the Chief Justice of the High Court at Calcutta framed any scheme for the purposes of appointment of arbitrators as per the provisions of the said Act of 1996 ?

A. Yes, by Notification number R.353-A-21st January, 1997 the Chief Justice of the High Court at Calcutta notified the scheme framed in exercise of powers conferred by subsection 10 of Section 11 of the Arbitration and Conciliation Act, 1996.

Q.67. What is the procedure, if any,for submission of request to the Chief Justice under subsection 4 or subsection 5 or subsection 6 of Section 11 of the Act ?

A. Such request shall be made in writing to the Chief Justice and shall be accompanied by :

(a) the original arbitration agreement or a duly certified copy thereof;

(b) the names and addresses of the parties to the arbitration agreement;

(c) the names and addresses of the arbitrators, if any, already appointed ;

(d) the name and address of the person or institution, if any, to whom or which any function has been entrusted by the parties to the arbitration agreement under the appointment procedure agreed upon by them;

(e) the qualifications required, if any, of the arbitrators by the agreement of the parties;

(f) a brief written statement describing the general nature of the dispute and the points at issue;

(g) the relief or remedy sought; and

(h) an affidavit, supported by the relevant documents, to the effect that the condition to be satisfied under sub-section (4) or sub-section (5) or sub-section (6) of section 11, as the case may be, before making the request to the Chief Justice has been satisfied.

Q.68. What are the other salient features of the Scheme ?

A. The Scheme Inter-alia makes provisions as to the manner of selection of arbitrators, the authority to deal with the request for appointment of arbitrator, circumstances when the request is to be forwarded to designated persons or institutions, circumstances in which the request may be rejected, when notices are to be issued to affected persons, the manner and circumstances in which the authority given to the person or institution may be withdrawn by the Chief Justice, the persons or parties to whom intimation is to be given of action taken on request, costs of processing request etc. A copy of the Scheme may be referred to if and when so required. A copy of the Arbitration and Conciliation Act, 1996 as also the said Scheme for appointment of arbitrators, 1996 are made available herein for the information of the parties.

Mediation is a process in which a neutral third party (the mediator) assists the parties to a dispute to reach a mutually acceptable resolution.

How does the mediator assist the parties?

No two mediations are exactly alike because no two disputes are exactly alike. However, among the things that a mediator may do to facilitate settlement is to make certain each party is clear on what the dispute is really about and that each party understands (not necessarily agrees with) the position of the other parties.

A mediator may help to formulate alternatives and help a party clarify how those alternatives fit in with that party’s goals and how they might work. A mediator also serves as a conduit for information between the parties, especially where the parties have difficulty communicating directly with one another.

Note that a mediator is not an advocate for any party. Mediators are trained to remain completely impartial.

What are some of the advantages of mediation?

Mediation can be much less expensive than litigation which generally requires payment of filing fees, fees for service of documents, court fees and, of course, advocate fees. Additionally, in mediation there is no resolution unless and until there is an agreement that you accept.

In litigation, a judge you do not know will decide for you how your dispute will be resolved. Thus, mediation offers you greater control over the outcome. Further, studies have shown that, not surprisingly, parties are much more likely to actually obey the terms of an agreement they entered than they are to obey a resolution that was forced upon them. This can help bring a sense of closure that allows you to put the dispute behind you and concentrate with your business and your life.

How long does it take?

There is no way to answer this question. Typically, a mediation session lasts from thirty minutes to four hours. However, some mediations are over in just a few minutes. Others, particularly in very large or complex disputes, may require multiple sessions spread over weeks or even months. Different Mediation Centers have different time limit.

What if I do not like the mediator’s decision?

Mediators are not judges and they do not make decisions for the parties. No mediator can or will attempt to force you to accept a settlement. If the parties to a mediation cannot agree on a settlement of any issues, the mediator will, after exploring all reasonable avenues of reaching an agreement, simply declare an impasse.

Copyright is a right given to creator or owner of an artistic, literary or dramatic work to reproduce work for publication and performance in public.

2. Can an Idea be copyright?

No, an idea which is not expressed in a tangible form is not protected under Copyright.

3. What work can be copyright protected?

Any original work which is expressed in written form or in the form of a drawing or painting or any other form of expression except oral are eligible for copyright protection. Mere oral expression of an idea is not entitled for copyright protection.

4. Is the Copyright Registration mandatory?

No, the copyright is an in built right which is available from the moment the work (literary, dramatic, artistic) came into existence.

5. What are the rights available to owner against the infringers of copyright?

The owner can avail both the civil and criminal action against the infringers under the Copyright Act.

6. What is the duration of Copyright?

The duration of the protection under the copyright depends on the nature of work;

in case of literary work, the term is life of author plus 50 years from the day of calendar year preceding the death.

Copyright in photograph, a cinematographic film and sound recording is 60 years from the next Calendar year of publication.

7. Is Copyright transferable?

Yes, like any other property a copy right can be transferred absolutely e.g sale or assignment or can be transferred for a limited period of time under licensing arrangement.

8. Is the Copyright protection worldwide?

The laws governing copyright are almost similar in many countries. Moreover, there are international treaties and agreement which govern the protection extended to national of different countries under Copyright. The main Conventions are Universal Copyright Convention, Berne Convention, WIPO Copyright Treaty etc. Many countries require that work should be published in their territory to avail the protection under the Copyright Law.

9. Is reproduction in all form amounts to infringement?

No, the reproduction for educational purposes, for news articles or for delivering lectures does not amount to infringement. However, if the reproduction is done for commercial gains, it amounts to infringement e.g. photocopying a text book might be for educational purpose amounts to violation of Copyright. (This is very general view and to have more precise insight into the relevant provisions, please consults an advocate)

According to Indian Patents Act, 1970 “invention means a new product and process involving an inventive step and capable of industrial application.

2. What inventions are not patentable under Indian Patent Law?

Section 3 of Indian patents Act defines as non patentable invention.

· an invention which is frivolous or which claims anything obvious contrary to well established natural laws;

· an invention the primary or intended use of which would be contrary to law or morality or injurious to public health;

· the mere discovery of a scientific principle or the formulation of an abstract theory;

· the mere discovery of any new property of new use for a known substance or of the mere use of a known process, machine or apparatus unless such known process results in a new product or employs at least one new reactant;

· a substance obtained by a mere admixture resulting only in the aggregation of the properties of the components thereof or a process for producing such substance;

· the mere arrangement or re-arrangement or duplication of known devices each functioning independently of one another in a known way;

· a method or process of testing applicable during the process of manufacture for rendering the machine, apparatus or other equipment more efficient or for the improvement or restoration of the existing machine, apparatus or other equipment or for the improvement or control of manufacture;

· a method of agriculture or horticulture;

· any process for the medicinal, surgical, curative, prophylactic or other treatment of human beings or any process for a similar treatment of animals or plants to render them free of disease or to increase their economic value or that of their products;

· plants and animals in whole or any part thereof other than micro-organisms but including seeds, varieties and species and essentially biological processes for production or propagation of plants and animals;

· a computer programme per se other than its technical application to industry or a combination with hardware;

· a mathematical method or a business method or algorithms

· a literary, dramatic, musical or artistic work or any other aesthetic creation whatsoever including cinematographic works or television productions;

· a mere scheme or rule or method of performing mental act or method of playing game;

· a presentation of information;

· topography of integrated circuits;

· an invention which in effect, is traditional knowledge or which is an aggregation or duplication of known properties of traditionally known component or components;

Further, Section 4 of Patents Act provides that No patent shall be granted in respect of an invention relating to atomic energy.

3. What inventions are considered patentable?

Inventions which are Novel, inventive and have industrial applicability are considered patentable.

4. What are the languages for filing a patent application?

An application for patent can be filed in English or Hindi. However, for the sake of convenience it is advisable to file the application in English. No other language is accepted by patent office except English or Hindi.

5. What is specification?

Specification is the detailed application clearly outlining the present invention, its comparison with the prior art, the novel and inventive features of present invention and the claims. Specification is a techno-legal document which covers the complete invention along with the protection sought (claims) by the inventor. It can also have drawings relating to the invention. Though submission of drawings in not compulsory, it is advisable to give drawings wherever possible.

6. What is provisional specification? How different it is from complete specification?

A provisional specification is an abstract or in lay man’s language one can say that it is just an outline about the invention to claim and prior filing date. Once provisional specification is filed, the applicant can file complete specification within 12 months time. In case the applicant fails to do so, the application for patent shall be deemed to be abandoned.

7. Is it possible to amend the specification filed?

Yes, a patent specification can be amended. However, the amendments should not go beyond the scope of the invention disclosed in the specification.

8. Can an inventor file application for patent if different countries?

Yes, an inventor or his assignee can file an application for grant of patent in different countries. The applicant can either opt for convention route or PCT route to reach different jurisdictions for the patent.

9. Is there a single patent, enforceable in all the countries?

No, there is nothing called global patent. The applicant has to approach the respective patent office to get a patent granted in his name for the invention.

10. What is the duration of a patent in India?

A patent is valid for 20 years from the date of filing of the application for patent. Once the patent is granted, the owner of the patent is required to pay annuity to keep the patent in force.

A trademark is a word, name, sign, symbol, logo or device which is used in relation to the articles of commerce or the services to distinguish it from the other same or similar goods or services coming from a different source.

2. For the registration of the trademark, is it necessary that the mark is used?

No, a trademark can be registered for intended use or proposed use.

3. How to adopt a trademark?

A trademark should be easy to speak, spell and remember. The proprietor should avoid using laudatory words such as best, superb, perfect etc. It is always advisable to conduct a market survey and trademark search with the Registry before using a trademark.

4. Who can apply for the trademark registration?

Any person or legal entity claiming to be the proprietor can apply for trademark registration.

5. Are the trademarks transferable?

Yes, like any other property trademarks can also be transferred by way of assignment or transmission.

6. Can a third party use the trade mark?

Yes, a third party can use the trademark under a license from the proprietor of the trademark.

7. Can the trademark be removed from the register of trademarks?

Yes, the trademark can be removed from the register of trademarks. This can be done on the ground that the mark is wrongly remaining on the register.

8. Can a registered trademark be amended at a later date?

Yes, the trademark can be amended. However, the amendment should not amount to substantial change in the original character of the trademark.

9. Is the registration needs to be renewed?

Yes, the registration of a trademark is valid for a period of 10 years. However, it can be renewed every 10 years, perpetually.

10. Is the trademark required to be used in India?

No, the export of the goods originating from India also amounts to be use in the territory of India.

11. Is the trade mark liable to be cancelled on the ground of non use?

Yes, a trademark registration can be cancelled on the basis of non use.

12. Is the registration of a trademark compulsory?

Registration of a trademark is not compulsory. However, the registration is the prima facie evidence of the proprietorship of the trademark under registration.

13. Whether foreign proprietors can apply for registration of their trademark in India?

Yes, foreign proprietors can also apply for registration in India. The trademark law in India is TRIPS compliant and provides for protection of well-known trademarks and recognizes trans border reputation.

14. Can a foreign applicant claim the priority based on earlier application.

Yes, the applicant can claim priority based on earlier application made in a convention country. The application needs to be filed in 6 months from the date of earlier application.

Design is the ornamental value which appeals to the eyes of the user. The article to qualify for design protection must be related only to the appearance of the goods and not to the functions of the product. In other words, under Designs Act, only the aesthetic appeal of the product is protected and not the functions.

2. What is difference between Copyright and Design?

The Copyright is an inherent right which comes into existence along with the work under protection. Whereas, design is a statutory right granted by state to the author or owner of the Design. In cases where the work was to be protected under Designs Act and has not been done so, the automatic protection of Copyright extended to it will cease after 50 industrial reproductions. Hence it is advisable to seek protection under Designs Act for the articles of commerce which needs to be reproduced industrially.

3. Is registration compulsory to avail Design protection?

Yes to avail protection under the Designs Act, the article should be registered under Designs Act. Otherwise, the automatic protection of copyright will cease after 50 industrial reproductions.

4. What Designs are not registrable under Designs Act?

The following designs are not registrable according to designs act;

A design which is not novel or original;

The design which is anticipated by prior use or publication;

A design which is not significantly distinguishable from known designs or combination of known designs;

Comprises scandalous or obscene matter;

5. What is the term of Design Registration?

The term of design is 15 years, subject to the design being renewed after 10 years. The renewal is for another 5 years making the total duration up to 15 years.

6. What are the remedies available for Design Infringement?

The remedies available under the Designs Act are compensation payable which shall not exceed Rs. 50000/- (Rs. Fifty Thousand only). Apart from the compensation we can also pray for injunction.