Companies Act, 1956, Sections 324-409

bounties and subsidies received from any Government, or any public authority constituted or authorised in this behalf, by any Government, unless and except in so far as the Central Government otherwise directs.

(3) In making the computation aforesaid, credit shall not be given for the following sums:-

(a) profits, by way of premium, on shares or debentures of the company, which are issued or sold by the company;

(b) profits on sales by the company of forfeited shares;

(c) ⁷⁴[profits of a capital nature including profits from the sale] of the undertaking or any of the undertakings of the company or of any part thereof,

(d) profits from the sale of any immovable property or fixed assets of a capital nature comprised in the undertaking or any of the undertakings of the company, unless the business of the company consists, whether wholly or partly, of buying and selling any such property or assets:

⁷⁵[Provided that where the amount for which any fixed asset is sold exceeds the written-down value thereof referred to in section 350, credit shall be given for so much of the excess as is not higher than the difference between the original cost of that fixed asset and its written-down value.]

(4) In making the computation aforesaid, the following sums shall be deducted:-

(a) all the usual working charges;

(b) directors' remuneration;

(c) bonus or commission paid or payable to any member of the company's staff, or to any engineer, technician or person employed or engaged by the company, whether on a whole-time or on a part-time basis;

(d) any tax notified by the Central Government as being in the nature of a tax on excess or abnormal profits;

(e) any tax on business profits imposed for special reasons or in special circumstances and notified by the Central Government in this behalf;

(f) interest on debentures issued by the company;

(g) interest on mortgages executed by the company and on loans and advances secured by a charge on its fixed or floating assets;

(h) interest on unsecured loans and advances;

(i) expenses on repairs, whether to immovable or to movable property, provided the repairs are not of a capital nature;

⁷⁶[(j) outgoings inclusive of contributions made under clause (e) of sub-section (1) of section 293;]

(k) depreciation to the extent specified in section 350;

⁷⁶[(l) the excess of expenditure over income, which had arisen in computing the net profits in accordance with this section in any year which begins at or, after the commencement of this Act, in so far as such excess has not been deducted in any subsequent year preceding the year in respect of which the net profits have to be ascertained;]

(m) any compensation or damages to be paid in virtue of any legal liability including a liability arising from a breach of contract;

(n) any sum paid by way of insurance against the risk of meeting any liability such as is referred to in clause (m);

⁷⁷[(o) debts considered bad and written off or adjusted during the year of account.]

(5) In making the computation aforesaid, the following sums shall not be deducted:-

(a) ⁷⁸[***]

(b) income-tax and super-tax payable by the company under the Indian Income-tax Act, 1922⁷⁹, or any other tax on the income of the company not falling under clauses (d) and (e) of sub-section (4);

(c) any compensation, damages or payments made voluntarily, that is to say, otherwise than in virtue of a liability such as is referred to in clause (m) of sub-section (4);

⁷⁷[(d) loss of a capital nature including loss on sale of the undertaking or any of the undertakings of the company or of any part thereof not including any excess referred to in the proviso to section 350 of the written-down value of any asset which is sold, discarded, demolished or destroyed over its sale proceeds or its scrap value.]

80[350. Ascertainment of depreciation

The amount of depreciation to be deducted in pursuance of clause (k) of sub-section (4) of section 349 shall be ^80A[the amount of depreciation on assets] as shown by the books of the company at the end of the financial year expiring at the commencement of this Act or immediately thereafter and at the end of each subsequent financial year ⁸¹[at the rate specified in Schedule XIV]:

Provided that if any asset is sold, discarded, demolished or destroyed for any reason before depreciation of such asset has been provided for in full, the excess, if any, of the written-down value of such asset over its sale proceeds or, as the case may be, its scrap value, shall be written off in the financial year in which the asset is sold, discarded, demolished or destroyed.]

[Sections 351 to 354 omitted by the Companies (Amendment) Act, 2000, w.e.f. 14th. December, 2000]

355. Saving

Sections ^81A[349 and 350] shall not apply to a private company unless it is a subsidiary of a public company.

[Sections 356 to 369 omitted by the Companies (Amendment) Act, 2000, w.e.f. 14th. December, 2000]

370. Loans, etc., to companies under the same management

(1) No company (hereinafter in this section referred to as "the lending company") shall-

(a) make any loan to, or

(b) give any guarantee, or provide any security, in connection with a loan made by any other person to, or to any other person by,

any body corporate ⁸²[***] unless the making of such loan, the giving of such guarantee or the provision of such security has been previously authorised by a special resolution of the lending company:

⁸³[Provided that no special resolution shall be necessary in the case of loans made to other bodies corporate not under the same management as the lending company where the aggregate of such loans does not exceed ⁸⁴[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed]:

Provided further that the aggregate of the loans made to all bodies corporate shall not exceed without the prior approval⁸⁵ of the Central Government-

(a) ⁸⁶[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed] where all such other bodies corporate are not under the same management. as the lending company;

(b) ⁸⁷[such percentage of the aggregate of the subscribed capital of the lending company and its free reserves as may be prescribed] where all such other bodies corporate are under the same management as the lending company.

⁸⁸[Explanation] I.-If a special resolution has been passed by the lending company authorising the making of loans up to the limit of ⁸⁹[the percentage of the aggregate specified in clause (a), or as the case may be, the percentage of the aggregate specified in clause (b) of the second proviso], then, no further special resolution or resolutions shall be deemed to be necessary for the making of any loan or loans within such limit.]

⁹⁰[Explanation II.-If a special resolution has been passed by the lending company authorising the Board of directors to give any guarantee or provide any security up to a limit specified in the resolution, then, no further special resolution or resolutions shall be deemed to be necessary for giving any guarantee or providing any security within such limit.]

⁹¹[(1A) Where the lending company-

(a) makes any loan to, or

(b) gives any guarantee, or provides any security, in connection with a loan made by any other person to, or to any other person by,

a firm in which a partner is a body corporate, under the same management as the lending company-

(i) the loan shall be deemed to have been made to, or

(ii) the guarantee or the security shall be deemed to have been given or provided in connection with the loan made by such other person to, or to such other person by, a body corporate under the same management.]

⁹²[(1B)] ⁹³[For the purposes of sub-sections (1) and (1A)] two bodies corporate shall be deemed to be under the same management-

(i) if the ⁷[***] managing director or manager of the one body, ⁹[***] is-

(a) ⁷[***] managing director or manager of the other body; or

(b) ¹⁸[***]

(ii) if a majority of the directors of the one body constitute, or at any time within the six months immediately preceding Constituted, a majority of the directors of the other body; ⁹¹[or]

⁹[(iii) if not less than one-third of the total voting power with respect to any matter relating to each of the two bodies corporate is exercised or controlled by the same individual or body corporate; or

(iv) if the holding company of the one body corporate is under the same management as the other body corporate within the meaning of clause (i), clause (ii) or clause (iii); or

(v) if one or more directors of the one body corporate while holding, whether by themselves or together with their relatives, the majority of shares in that body corporate also hold, whether by themselves or together with their relatives, the majority of shares in the other body corporate.]

⁹[(1C) Every lending company shall keep a register showing-

(a) the names of all bodies corporate under the same management as the lending company and the name of every firm in which a partner is a body corporate under the same management as the lending company, and

(b) the following particulars in respect of every loan made, guarantee given or security provided by the lending company ⁹⁴[in relation to any such body corporate] under this section,-

(i) the name of the body corporate to which the loan has been made whether such loan has been made before or after that body corporate came under the same management as the lending company,

(ii) the amount of the loan,

(iii) the date on which the loan has been made,

(iv) the date on which the guarantee has been given or security has been provided in connection with a loan made by any other person to, or to any other person by, any body corporate or firm referred to in subsection (1) or (1A) together with the name of the person, body corporate or firm.

(1D) Particulars of ¹³⁷[every loan, guarantee or security referred to in sub-section (1C)] shall be entered in the register aforesaid within three days of the making of such loan, or the giving of such guarantee or the provision of such security or in the case of any loan made, guarantee given or security provided before the commencement of the Companies (Amendment) Act, 1960, within three months from such commencement or such further time not exceeding six months as the company may by special resolution allow.

(1E) If default is made in complying with the provisions of sub-section (1C) or (ID), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees and also with a further fine which may extend to fifty rupees for every day after the first during which the default continues.

(1F) The register aforesaid shall be kept at the registered office of the lending company and-

(a) shall be open to inspection at such office, and

(b) extracts may be taken therefrom or copies thereof may be required,

by any member of the company to the same extent and in the same manner and on the payment of the same fees as in the case of the register of members of the company; and the provisions of section 163 shall apply accordingly.]

⁹⁶[(1G) A company, which has defaulted in the repayment of any deposit referred to in section 58A or part thereof or interest thereupon in accordance with the terms and conditions of such deposit, shall not make any loan or give guarantee under this section till the default is made good.]

⁹⁷[(2) Nothing contained in the foregoing provisions of this section shall apply to-

(a) any loan made-

(i) by a holding company to its subsidiary; or

(ii) ¹⁸[***]

⁹⁸[(iii) by a banking company, or an insurance company, in the ordinary course of it's business; ⁹⁰[or]

(iv) by a private company, unless it is a subsidiary of a public company; ⁹[or]

(v) by a company established with the object of financing industrial enterprises;]

(b) any guarantee given or any security provided-

(i) by a holding company in respect of any loan made to its subsidiary; or

(ii) ¹⁸[***]

⁹⁹[(iii) by a banking company, or an insurance company, in the ordinary course of its business; or

(iv) by a private company, unless it is a subsidiary of a public company; or

(v) by a company established with the object of financing industrial enterprises.]

(3) Nothing in this section shall apply to a book debt unless the transaction represented by the book debt was from its inception in the nature of a loan or an advance.

(4) For the purposes of this section, any person in accordance with whose directions or instructions the Board of directors of a company is accustomed to act shall be deemed to be a director of the company.]

¹⁰⁰[(5) Where before the commencement of the Companies (Amendment) Act, 1965, any loan, guarantee or security has been made, given or provided by a company which could not have been made, given or provided under this section as amended by that Act, and such loan, guarantee or security is outstanding at such commencement, the company shall, within six months from such commencement, enforce the repayment of the loan made or, as the case may be, revoke the guarantee given or the security provided, notwithstanding any agreement to the country:

Provided that the aforesaid period of six months may be extended by the Central Government on an application made to it in that behalf by the company.]

¹⁰¹[Explanation.-For the purposes of this section, "loan" includes any deposit of money made by one company with another company, not being a banking company.]

¹⁰²[(6) Nothing contained in this section shall apply to a company on and after the commencement of the Companies (Amendment) Act, 1999.]

103[370A. Provisions as to certain loans which could not have been made if sections 369 and 370 were in force

Where any loan made, guarantee given or security provided by a company and outstanding at the commencement of the Companies (Amendment) Act, 1960 would not have been made, given or provided if ^103A[***] section 370 had been in force at the time when such loan was made, guarantee given or security provided, the company shall, within six months from the commencement of that Act, enforce the repayment of the loan made or, as the case may be, revoke the guarantee given or the security provided, notwithstanding any agreement to the contrary:

Provided that the period of six months within which the company is required by this section to enforce the repayment of the loan or to revoke the guarantee or security, may be extended-

(a)^2A[***]

(b) in the case of a loan, guarantee or security under section 370, by a special resolution of the company.]

371. Penalty for contravention of section 369, 370 or 370A

(1) Every person who is a party to any contravention of ¹⁰⁴[^103A[***] section 370 [excluding sub-section (1C) or (1D)], or section 370A] including in particular any person to whom the loan is made, or in whose interest the guarantee is given or the security is provided, shall be punishable with fine which may extend to ^3A[fifty thousand rupees] or with simple imprisonment for a term which may extend to six months:

Provided that where any such loan, or any loan in connection with which any such guarantee or security has been given or provided by the lending company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section; and where rite loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be proportionately reduced.

(2) All persons who are knowingly parties to any such contravention shall be liable, jointly and severally, to the lending company for the repayment of the loan, or for making good the sum which the lending company may have been called

upon to pay in virtue of the guarantee given or the security provided by such company.

¹⁰⁵[372. Purchase by company of shares, etc., of other companies

¹⁰⁶[(1) A company, whether by itself or together with its subsidiaries (hereafter in this section and section 373 referred to as the investing company), shall not be entitled to acquire, by way of subscription, purchase or otherwise (whether by itself, or by any individual or association of individuals in trust for it or for its benefit or on its account) the shares of any other body corporate except to the extent, and except in accordance with the restrictions and conditions, specified in this section.]

(2) ¹⁰⁷[The Board of directors of the investing company shall be entitled to invest in any shares of any other body corporate up to such percentage of the subscribed equity share capital, or the aggregate of the paid-up equity and preference share capital, of such other body corporate, whichever is less, as may be prescribed:]

Provided that the aggregate of the investments so made by the Board in all other bodies corporate shall not exceed ¹⁰⁸[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed:]

Provided further that the aggregate of the investments made in all other bodies corporate in the same group shall not exceed ¹⁰⁹[such percentage of the aggregate of the subscribed capital and free reserves of the investing company, as may be prescribed].

(3) In computing at any time the percentages specified in sub-section (2) and the provisos thereto, the aggregate of the investments made by the investing company in other body or bodies corporate [whether before or after the commencement of the Companies (Amendment) Act, 1960] up to that time shall be taken into account.

⁹⁶[(3A) A company, which has defaulted in the repayment of any deposit referred to in section 58A or part thereof or interest due thereupon in accordance with the terms and conditions of such deposit, shall riot make any investment under this section till the default is made good.]

(4) The investing company shall not make any investment in the shares of any other body corporate in excess of the percentages specified in sub-section (2) and the proviso thereto, unless the investment is sanctioned by a resolution of the investing company in general meeting and ¹¹⁰[unless previously approved¹¹¹] by the Central Government:

Provided that the investing company may at any time invest up to any amount in shares offered to it under clause (a) of sub-section (1) of section 81 (hereafter in this section referred to as rights shares) irrespective of the aforesaid percentages:

Provided further that when at any time the investing company intends to make any investments in shares other than rights shares, then, in computing at that time any of the aforesaid percentages, all existing investments, if any, made in rights shares up to that time shall be included in the aggregate of the investments of the company.

(5) No investment shall be made by the Board of directors of an investing company in pursuance of sub-section (2), unless it is sanctioned by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting, except those not entitled to vote thereon, and unless further notice of the resolution to be moved at the meeting has been given to every director in. the manner specified in section 286.

(6) Every investing company shall keep a register of all investments made by it in shares of any other body or bodies corporate (whether in the same group or not and whether in the case of a body corporate in the same group, such investments were made before or after that body came within the same group as the investing company), showing in respect of each investment the following particulars:-

(a) the name of the body corporate in which the investment has been made;

(b) the date on which the investment has been made;

(c) where the body corporate is in the same group as the investing company, the date on which the body corporate came in the same group;

(d) the names of all bodies corporate in the same group as the investing company.

(7) Particulars of every investment to which sub-section (6) applies shall be entered in the register aforesaid within seven days of the making thereof or in the case of investments made before the commencement of the Companies (Amendment) Act, 1960, within six months from such commencement, or such further time as the Central Government may grant on an application by the company in that behalf.

(8) If default is made in complying with the provisions of sub-section (6) or (7), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees and also with a further fine which may extend to fifty rupees for every day after the first during which the default continues.

(9) The register aforesaid shall be kept at the registered office of the investing company and-

(a) shall be open to inspection at such office, and

(b) extracts may be taken therefrom and copies thereof may be required,

by any member of the investing company to the same extent, in the same manner, and on the payment of the same fees as in the case of the register of members of the investing company; and the provisions of section 163 shall apply accordingly.

(10) Every investing company shall annex in each balance sheet prepared by it after the commencement of the Companies (Amendment) Act, 1960, a statement showing the bodies corporate (indicating separately the bodies corporate in the same group) in the shares of which investments have been made by it (including all investments, whether existing or not, made subsequent to the date as at which the previous balance sheet was made out) and the nature and extent of the investments so made in each body corporate:

Provided that in the case of a company whose principal business is the acquisition of shares, stock, debentures or other securities (hereafter in this section referred to as an investment company), it shall be sufficient if the statement shows only the investments existing on the date as at which the balance sheet to which the statement is annexed has been made out.

(11) For the purposes of this section, a body corporate shall be deemed to be in the same group as the investing company-

(a) ¹⁸[***]

(b) if the body corporate and the investing company should, in virtue of subsection (1B) of section 370, be deemed to be under the same management.

(12) References in the foregoing provisions of this section to shares shall in the case of investments made by the investing company in other bodies corporate in the same group, be deemed to include references to debentures also.

(13) The provisions of this section except the first proviso to sub-section (2) ¹¹²[and sub-section (5)] shall also apply to an investment company.

(14) This section shall not apply-

(a) to any banking or insurance company;

(b) to a private company, unless it is a subsidiary of a public company;

(c) to any company established with the object of financing, whether by way of making loans or advances to, or subscribing to the capital of, private industrial enterprises in India, in any case where the Central Government has made or agreed to make to the company a special advance for the purpose or has guaranteed or agreed to guarantee the payment of moneys borrowed by the company from any institution outside India;

¹¹³[(d) to investments by a holding company in its subsidiary, other than a subsidiary within the meaning of clause (a) of sub-section (1) of section 4.]

(e) ¹⁸[***]

¹⁰²[(15) Nothing contained in this section shall apply to a company on and after the commencement of the companies (Amendment) Act, 1999.]

102[372A. Inter-corporate loans and investments

(1) No company shall, directly or indirectly-

(a) make any loan to any other body corporate;

(b) give any guarantee or provide security, in connection with a loan made by any other person to, or to any other person, by any body corporate; and

exceeding sixty per cent of its paid-up share capital and free reserves, or hundred per cent of its free reserves, whichever is more:

Provided that where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceeds the aforesaid limits, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting:

Provided further that the Board may give guarantee, without being previously authorised by a special resolution, if,-

(a) a resolution is passed in the meeting of the Board authorising to give guarantee in accordance with the provisions of this section;

(b) there exists exceptional circumstances which prevent the company from obtaining previous authorisation by a special resolution passed in a general meeting for giving a guarantee; and

(c) the resolution of the Board under clause (a) is confirmed within twelve months, in a general meeting of the company or the annual general meeting held immediately after passing of the Board’s resolution, whichever is earlier:

Provided also that the notice of such resolution shall indicate clearly the specific limits, the particulars of the body corporate in which the investment is proposed to be made or loan or security or guarantee to be given, the purpose of. the investment, loan or security or guarantee, specific sources of funding and such other details.

(2) No loan or investment shall be made or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors Present at the meeting and the prior approval of the public financial institution referred to in section 4A, where any term loan is subsisting, is obtained..

Provided that prior approval of a public financial institution shall not be required where the aggregate of the loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, alongwith the investments, loans, guarantee or security proposed to be made or given does not exceed the limit of sixty per cent specified in sub-section (1), if there is no default in repayment of loan instalments or payment of interest thereon as per the terms and Conditions of such loan to the public financial institution.

(3) No loan to any body corporate shall be made at a rate of interest lower than the prevailing bank rate, being the standard rate made public under section 49 of the Reserve Bank of India Act, 1934.

(4) No company, which has defaulted in complying with the provision of section 58A, shall, directly or indirectly-

(a) make any loan to any body corporate;

(b) give any guarantee or provide security in connection with a loan made by any other person to, or to any other person by, any body corporate; and

till such default is subsisting.

(5)(a) Every company shall keep a register showing the following particulars in respect of every investment or loan made, guarantee given or security provided by it in relation to any body corporate under sub-section (1), namely:-

(i) the name of the body corporate;

(ii) the amount, terms and purpose of the investment or loan or security or guarantee;

(iii) the date on which the investment or loan has been made; and

(iv) the date on which the guarantee has been given or security has been provided in connection with a loan.

(b) The particulars of investment, loan, guarantee or security referred to in clause (a) shall be entered chronologically in the register aforesaid within seven days of the making of such investment or loan, or the giving of such guarantee or the provision of such security.

(6) The register referred to in sub-section (5) shall be kept at the registered a office of the company concerned and-

(a) shall be open to inspection at such office; and

(b) extracts may be taken therefrom and copies thereof may be required,

by any member of the company to the same extent, in the same manner, and on payment of the same fees as in the case of the register of members of the company, and the provisions of section 163 shall apply accordingly.

(7) The Central Government may, prescribe guidelines for the purposes of this section.

(8) Nothing contained in this section shall apply,-

(a) to any loan made, any guarantee given or any security provided or any investment made by-

(i) 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 of providing infrastructural facilities;

(ii) a company whose principal business is the acquisition of shares, stock, debentures or other securities;

(iii) a private company, unless it is a subsidiary of a public company;

(b) to investment made in shares allotted in pursuance of clause (a) of subsection (1) of section 81;

(d) to any guarantee given or any security provided by a holding company in respect of loan made to its wholly owned subsidiary; or

(e) to acquisition by a holding company, by way of subscription, purchases or otherwise, the securities of its wholly owned subsidiary.

(9) If default is made in complying with the provisions of this section, other than sub-section (5), the company and every officer of the company who is in default shall be punishable with imprisonment which may extend to two years or with fine which may extend to fifty thousand rupees:

Provided that where any such loan or any loan in connection with which any such guarantee or security has been given, or provided by the company, has been repaid in full, no punishment by way of imprisonment shall be imposed under this sub-section, and where such loan has been repaid in part, the maximum punishment which may be imposed under this sub-section by way of imprisonment shall be appropriately reduced

Provided further that all persons who are knowingly parties to an v such contravention shall be liable, jointly and severally, to the company or the repayment of the loan or for making good the same which the company may have been called upon to pay by virtue of the guarantee given or the securities provided by such company.

(10) If default is made in complying with the provisions of sub-section (5), the company and every officer of the company who is in default shall be punishable with fine which may extend to five thousand rupees and also with a further fine which may extend to five hundred rupees for every day after the first during which the default continues.

Explanation.-For the purposes of this section,-

(a) "loan" includes debentures or any deposit of money made by one company, with another company, not being a banking company;

(b) "free reserves" means those reserves which, as per the latest audited balance sheet of the company, are free for distribution as dividend and shall include balance to the credit of the securities premium account bat shall not include share application money.]

373. Investments made before commencement of Act

Where any investments have been made by a company ¹¹⁴[in any other body corporate in the same group] at any time after the first day of April, 1952, which, if section 372 had been then in force, could not have been made except on the authority of a resolution passed by the investing company and the approval of the Central Government, the authority of the company by means of a resolution and the approval of the Central Government shall be obtained to such investments, within six months from the commencement of this Act; and if such authority and approval are not so obtained, the Board of directors of the company shall dispose of the investments, in so far as they may be in excess of the limits specified in subsection (2) of section 372 and ¹¹⁵[the second proviso to that sub-section], within two years from the commencement of this Act.

374. Penalty for contravention of section 372 or 373

If default is made in complying with the provisions of ¹¹⁶[section 372 [excluding sub-sections (6) and (7)] or section 373], every officer of the company who is in default shall be punishable with fine which may extend to ^3A[fifty thousand rupees].

375. ¹¹⁷[***]

^117A[376. Conditions prohibiting reconstruction or amalgamation of company

Where any provision in the memorandum or articles of a company, or in any resolution passed in general meeting by, or by the Board of Directors of the company, or in an agreement between the company and any other person, whether made before or after the commencement of this Act, prohibits the reconstruction of the company or its amalgamation with any body corporate or bodies corporate, either absolutely or except on the condition that the managing director or manager of the company is appointed or reappointed as managing director or manager of the reconstructed company or of the body resulting from amalgamation, as the case may be, shall become void with effect from the commencement of this Act, or be void, as the case may be.]

[Section 377 omitted by the Companies (Amendment) Act, 2000, w.e.f. 14th. December, 2000]

CHAPTER IV: SECRETARIES ⁷[***]

[Sections 378 to 383 omitted by the Companies (Amendment) Act, 2000, w.e.f. 14th. December, 2000]

¹¹⁸[383A. Certain companies to have secretaries

(1) Every company ¹¹⁹[having such paid-up share capital as may be prescribed] shall have a whole-time secretary, and where the Board of directors of any such company comprises only two directors, neither of them shall be the secretary of the company.

^119A[Provided that every company not required to employ a whole-time secretary under sub-section (1) and having a paid-up share capital of ten lakh rupees or more shall file with the Registrar a certificate from a secretary in whole-time practice in such form and within such time and subject to such conditions as may be prescribed, as to whether the company has complied with all provisions of this Act and a copy of such certificate shall be attached with Board's report referred to in section 217.]

¹²⁰[(1A) If a company fails to comply with the provisions of sub-section (1), the company and every officer of the company who is in default, shall be punishable with fine which may extend to ^3B[five hundred rupees] for every day during which the default continues:

Provided that in any proceedings against a person in respect of an offence under this sub-section, it shall be a defence to prove that all reasonable efforts to comply with the provisions of sub-section (1) were taken or that the financial position of the company was such that it was beyond its capacity to engage a whole-time secretary.]

(2) Where, at the commencement of the Companies (Amendment) Act, 1974,-

(a) any firm or body corporate is holding office, as the secretary of company, such firm or body corporate shall, within six months from such commencement, vacate office as secretary of such company;

(b) any individual is holding office as the secretary of more than one company having a paid-up share capital of rupees twenty-five lakhs or more, he shall, within a period of six months from such commencement, exercise his option as to the company of which he intends to continue as the secretary and shall, on and from such date, vacate office as secretary in relation to all other companies].

B. MANAGERS

384. Firm or body corporate not to be appointed manager

¹²¹[No company] shall, after the commencement of this Act, appoint or employ, or after the expiry of six months from such commencement, continue the appointment or employment of, any firm, body corporate or association as its manager.

385. Certain persons not to be appointed managers

(1) No company shall, after the commencement of this Act, appoint or employ, or continue the appointment or employment of, any person as its manager who-

(a) is an undischarged insolvent, or has at any time within the preceding five years been adjudged an insolvent; or

(b) suspends, or has at any time within the preceding five years suspended, payment to his creditors; or makes, or has at any time within the preceding five years made, a composition with them; or

(c) is, or has at any time within the preceding five years been, convicted by a Court in India of an offence involving moral turpitude.

(2) The Central Government may, by notification in the Official Gazette, remove the disqualification incurred by any person in virtue of clause (a), (b) or (c) of sub-section (1), either generally or in relation to any company or companies specified in the notification.

386. Number of companies of which a person may be appointed manager

(1) No company shall, after the commencement of this Act, appoint or employ any person as manager, if he is either the manager or the managing director of any other company, except as provided in sub-section (2).

(2) A company may appoint or employ a person as its manager, if he is the. manager or managing director of one, and not more than one, other company:

Provided that such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting, and of which meeting and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

(3) Where, at the commencement of this Act, any person is holding the office either of manager or of managing director in more than two companies, he shall, within one year from the commencement of this Act, choose not more than two of those companies as companies in which he wishes to continue to hold the office of manager or managing director, as the case may be; and the provisions of clauses (b) and (c) of sub-section (1) and of sub-sections (2) and (3) of section 276 shall apply mutatis mutandis in relation to this case, as those provisions apply in relation to the case of a director.

(4) Notwithstanding anything contained in sub-sections (1) to (3), the Central Government may, by order, permit any person to be appointed as a manager 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 manager.

¹²²[***]

387. Remuneration of manager

The manager of a company may, subject to the provisions of section 198, receive remuneration either by way of a monthly payment, or by way of a specified percentage ¹²³[***] of the "net profits" of the company calculated in the manner laid down in sections 349 ^123A[and 350] or partly by the one way and partly by the other:

¹²⁴[Provided that except with the approval³⁶ of the Central Government such remuneration shall not exceed in the aggregate five per cent of the net profits.]

388. Application of sections 269, 310, 311, 312 and 317 to managers¹²⁵

The provisions of sections ¹²⁶[269, 3101, 311 and 317 shall apply in relation to the manager of a company as they apply in relation to a managing director thereof, and those of section 312 shall apply in relation to the manager of a company, as they apply to a director thereof.

¹²⁷[388A. Sections 386 to 388 not to apply to certain private companies.-

Sections 386, 387 and 388 shall not apply to a private company unless it is a subsidiary of a public company.]

¹²⁸[CHAPTER IVA: POWERS OF CENTRAL GOVERNMENT TO REMOVE MANAGERIAL PERSONNEL FROM OFFICE ON THE RECOMMENDATION OF THE.¹²⁹[COMPANY LAW BOARD]

388B. Reference to ⁹[Company Law Board] of cases against managerial personnel.-

(1) Where in the opinion of the Central Government there are circumstances suggesting -

(a) that any person concerned in the conduct and management of the affairs of a company is or has been in connection therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and functions under the law, or breach of trust; or

(b) that the business of a company is not or has not been conducted and managed by such person in accordance with sound business principles or prudent commercial practices; or

(c) that a company is or has been conducted and managed by such person in a manner which is likely to cause, or has caused, serious injury or damage to the interest of the trade, industry or business to which such company pertains; or

(d) that the business of a company is or has been conducted and managed by such person with intent to defraud its creditors, members or any other persons or otherwise for a fraudulent or unlawful purpose or in a manner prejudicial to public interest,

the Central Government may state a case against the person aforesaid and refer the same to the ¹²⁹[Company Law Board] with a request that the ⁹[Company Law Board] may inquire into the case and ¹³⁰[record a decision] as to whether or not such person is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.

(2) Every case under sub-section (1) shall be stated in the form of an application which shall be presented to the ¹²⁹[Company Law Board] or such officer thereof as it may appoint in this behalf.

(3) The person against whom a case is referred to the ⁹[Company Law Board] under this section shall be joined as a respondent to the application.

(4) Every such application-

(a) shall contain a concise statement of such circumstances and materials as the Central Government may consider necessary for the purpose of the inquiry, and

(b) shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, for the signature and verification of a plaint in a suit by the Central Government.

(5) The ⁹[Company Law Board] may at any stage of the proceedings allow the Central Government to alter or amend the application in such manner and on such terms as may be just, and all such alterations or amendments shall be made as may be necessary for the purpose of determining the real questions in the inquiry.

388C. Interim order by ⁹[Company Law Board]

(1) Where during the pendency of a case before the ⁹[Company Law Board] it appears necessary to the ⁹[Company Law Board] so to do in the interest of the members or creditors of the company or in the public interest, the ⁹[Company Law Board] may on the application of the Central Government or on its own motion, by an order-

(a) direct that the respondent shall not discharge any of the duties of his office until further orders of the ¹²⁹[Company Law Board], and

(b) appoint a suitable person in place of the respondent to discharge the duties of the office held by the respondent subject to such terms and conditions as the ⁹[Company Law Board] may specify in the order.

(2) Every person appointed under clause (b) of sub-section (1) shall be deemed to be a public servant within the meaning of section 21 of the Indian Penal Code, 1860.

388D. Decision of the ⁹[Company Law Board]

At the conclusion of the hearing of the case, the ¹³¹[¹²⁹[Company Law Board] shall record its decision] stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office of director or any other office connected with the conduct and management of any company.]

388E. Power of Central Government to remove managerial personnel on the basis of ⁹[Company Law Board's] decision

(1) Notwithstanding any other provision contained in this Act, the ¹³²[Central Government shall] by order, remove from office any director, or any other person concerned in the conduct and management of the affairs, of company, against whom there is a ¹³³[decision of the ¹²⁹[Company Law Board] under this Chapter]:

¹³⁴[***]

(2) ^2A[***]

(3) The person against whom an order of removal from office is made under this section shall not hold the office of a director or any other office connected with the conduct and management of the affairs of any company during a period of five years from the date of the order of removal:

Provided that the Central Government may, with the previous concurrence of the ¹²⁹[Company Law Board], permit such person to hold any such office before the expiry of five years.

(4) Notwithstanding anything contained in any other provision of this Act or any other law or any contract, memorandum or articles, on the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, that person shall not be entitled to, or be paid, any compensation for the loss or termination of the office.

(5) On the removal of a person from the office of a director or, as the case may be, any other office connected with the conduct and management of the affairs of the company, the company may with the previous approval of the Central Government, appoint another person to that office in accordance with the provisions of this Act.]

CHAPTER V: ARBITRATION, COMPROMISES, ARRANGEMENTS AND RECONSTRUCTIONS

[389. Power for companies to refer matters to arbitration- Repealed by the Companies (Amendment) Act, 1960]

390. Interpretation of sections 391 and 393

In sections 391 and 393,-

(a) the expression "company" means any company liable to be wound up under this Act;

(b) the Expression "arrangement" includes a reorganisation of the share capital of the company by the consolidation of shares of different classes, or by the division of shares into shares of different classes or, by both those methods; and

(c) unsecured creditors who may have filed suits or obtained decrees shall be deemed to be of the same class as other unsecured creditors.

391. Power to compromise or make arrangements with creditors and members

(1) Where a compromise or arrangement is proposed-

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them;

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 or class of members, as the case may be, to be called, held and conducted in such manner as the Court directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed ¹³⁵[under the rules made under section 643], 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 wound up, on the liquidator and contributories of the company:

¹³⁶[Provided that no order sanctioning any compromise or arrangement shall be made by the court unless the court is satisfied that the company or any other person by whom an application has been made under sub-section (1) has disclosed to the Court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like.]

(3) An order made by the Court under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) 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, or in the case of a company not having a memorandum, to every cc y so issued of the instrument constituting or defining the constitution of the company:

(5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ^136A[one hundred rupees] for each copy in respect of which default is made.

(6) 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.

(7) 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.

The provisions of sub-sections (3) to (6) shall apply in relation to the appellate order and the appeal as they apply in relation to the original order and the application.

392. Power of High Court to enforce compromises and arrangements

(1) Where a High Court makes an order under section 391 sanctioning a compromise or an arrangement in respect of a company, it-

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

(b) 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.

(2) If the Court aforesaid is satisfied that a compromise or arrangement sanctioned under section 391 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 the company, and such an order shall be deemed to be an order made under section 433 of this Act.

(3) The provisions this section shall, so far as may be, also apply to a company in respect of which an order has been made before the commencement of this Act under section 153 of the Indian Companies Act, 1913, sanctioning a conipron4se or an arrangement.

393. Information as to compromises or arrangements with creditors and members

(1) Where a meeting of creditors or any class of creditors, or of members or any class of members, is called under section 391

(a) with every notice calling the meeting which is sent to a creditor or member, there shall be sent also a statement setting forth the terms of the compromise or arrangement and explaining its effect, and in particular, stating any material interests of the, directors, managing director, ^7A[***] 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 interests, 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

(b) in every notice calling the meeting which is given by the 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.

(2) 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 issue of the debentures as it is required to give as respects the company's directors.

(3) 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, be furnished by the company, free of charge, with a copy of the statement.

(4) Where default is made in complying with any of the requirements of this section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ^3A[fifty thousand rupees]; and for the purpose of this sub-section any liquidator of the company and any trustee of a deed for securing the issue of debentures of the company shall be deemed to be an officer of the company:

Provided that a person shall not be punishable under this sub-section if he shows that the default was due to the refusal of any other person, being a director, managing director, ^7A[***] manager or trustee for debenture holders, to supply the necessary particulars as to his material interests.

(5) Every director, managing director, ^7A[***] or manager of the company, and every trustee for debenture holders of the company, shall give notice to the company of such matter relating to himself as may be necessary for the purposes of this section; and if he fails to do so, he shall be punishable with fine which may extend to ^20A[five thousand rupees].

394. Provisions for facilitating reconstruction and amalgamation of companies

(1) Where an application is made to the Court under section 391 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,

(a) 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

(b) that under the scheme the whole or any part of the undertaking, property or liabilities of any company concerned in the scheme (in this section referred to as a "transferor company") is to be transferred to another company (in this section referred to as the "transferee 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:-

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

(ii) 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 any person;

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

(iv) the dissolution, without winding up, of any transferor company;

(v) the provision to be made for any person who, within such time and in such manner as the Court directs, dissent from the compromise or arrangement; and

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

¹³⁷[Provided that no compromise or arrangement proposed for the purposes of, or in connection with, a scheme for the amalgamation of a company, which is being wound up, with any other company or companies, shall be sanctioned by the Court unless the Court has received a report from the Company Law Board or the Registrar that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest:

Provided further that no order for the dissolution of any transferor company under clause (iv) shall be made by the Court unless the Official Liquidator has, on scrutiny of the books and papers of the company, made a report to the Court that the affairs of the company have not been conducted in a manner prejudicial to the interests of its members or to public interest.]

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

(3) Within ¹³⁸[thirty] 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.

If default is made in complying with this sub-section, the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ^3B[five hundred rupees].

(4) In this section-

(a) "property" includes property, rights and powers of every description; and "liabilities" includes duties of every description; and

(b) "transferee company" does not include any company other than a company within the meaning of this Act; but "transferor company" includes any body corporate, whether a company within the meaning of this Act or not.

139[394A. Notice to be given to Central Government for applications under sections 391 and 394

The Court shall give notice of every application made to it under section 391 or 394 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing any order under any of these sections.]

395. Power and duty to acquire shares of shareholders dissenting from scheme or contract approved by majority

(1) Where a scheme or contract involving the transfer of shares or any class of shares in a company (in this section referred to as "the transferor company") to another company (in this section referred to as "the transferee 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 offer 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 manner¹⁴⁰ 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 shareholders are to be transferred to the transferee company:

Provided that 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 of this sub-section shall not apply, unless-

(a) 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

(b) 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.

(2) 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,-

(a) 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 holders of the remaining shares or of the remaining shares of that class, as the case may be, who have not assented to the scheme or contract, and

(b) 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.

(3) Where a notice has been given by the transferee company under subsection (1) and the Court has not, on 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 on 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 acquire; and ¹⁴¹[the transferor company shall-

(a) thereupon register the transferee company as the holder of those shares, and

(b) within one month of the date of such registration, inform the dissenting shareholders of the fact of such registration and of the receipt of the amount or other consideration representing the price payable to them by the transferee company:]

Provided that an instrument of transfer shall not be required for any share for which a share warrant is for the time being outstanding.

(4) Any sums received by the transferor company under this section 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 considerations were respectively received.

¹⁴²[(4A)(a) The following provisions shall apply in relation to every offer of a scheme or contract involving the transfer of shares or any class of shares in the transferor company to the transferee company, namely:-

(i) every such offer or every circular containing such offer or every recommendation to the members of the transferor company by its directors to accept such offer shall be accompanied by such information as may be prescribed¹⁴³;

(ii) every such offer shall contain a statement by or on behalf of the transferee company, disclosing the steps it has taken to ensure that necessary cash will be available;

(iii) every circular containing or recommending acceptance of, such offer shall be presented to the Registrar for registration and no such circular shall be issued until it is so registered;

(iv) the Registrar may refuse to register any such circular which does not contain the information required to be given under sub-clause (i) or which sets out such information in a manner likely to give a false impression; and

(v) an appeal shall lie to the Court against an order of the Registrar refusing to register any such circular.

(b) Whoever issues a circular referred to in sub-clause (iii) of clause (a) which has not been registered, shall be punishable with fine which may extend to ^20A[five thousand rupees].]

(5) In this section

(a) "dissenting shareholder" includes a shareholder who has not assented to the scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company in accordance with the scheme or contract;

(b) "transferor company" and "transferee company" shall have the same meaning as in section 394.

(6) In relation to an offer made by the transferee company to shareholders of the transferor company before the commencement of this Act, this section shall have effect.-

(a) with the substitution, in sub-section (1), for the words "the shares whose transfer is involved (other than shares already held at the date of the offer by, or by a nominee for, the transferee company or its subsidiary)," of the words "the shares affected" and with the omission of the proviso to that sub-section;

(b) with the omission of sub-section (2);

(c) with the omission in sub-section (3) of the words "together with an instrument of transfer executed on behalf of the shareholder by any person appointed by the transferee company and on its own behalf by the transferee company" and of the proviso to that sub-section; and

(d) with the omission of clause (b) of sub-section (5).

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

(1) Where the Central Government is satisfied that it is essential in the ¹⁴⁴[public interest] that two or more companies should amalgamate, then, notwithstanding anything contained in section 394 and 395 but subject to the provisions of this section, 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 such liabilities, duties, and obligations; as may be specified in the order.

(2) ¹⁴⁵[The order aforesaid may provide for the continuation by or against the transferee company of any legal proceedings pending by or against may transferor company and may also] contain such consequential, incidental and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to the amalgamation.

(3) Every member 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 ¹⁴⁶[as may be prescribed and every such assessment shall be published in the Official Gazette].

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

¹⁴⁷[(3A) Any person aggrieved by any assessment of compensation made by the prescribed authority under sub-section (3) may, within thirty days from the date of publication of such assessment in the Official Gazette, prefer an appeal to the Company Law Board and thereupon the assessment of the compensation shall be made by the Company Law Board.]

(4) No order shall be made under this section, unless-

(a) a copy of the proposed order has been sent in draft to each of the companies concerned; ¹⁴⁸[***]

¹⁴⁹[(aa) the time for preferring an appeal under sub-section (3A) has expired, or where any such appeal has been preferred, the appeal has been finally disposed of; and]

(b) 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.

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

150[396A. Preservation of books and papers of amalgamated company

The books and papers of a company which has been amalgamated with, or whose shares have been acquired by, another company under this Chapter shall not be disposed of without the prior permission, of the Central Government and before granting such permission, that Government may appoint a person to examine the books and papers or any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in connection with the promotion or formation, or the management of the affairs, of the first-mentioned company or its amalgamation or the acquisition of its shares.]

CHAPTER VI: PREVENTION OF OPPRESSION AND MISMANAGEMENT

A. Powers of ¹⁵¹[Company Law Board]

397. Application to ¹⁵¹[Company Law Board] for relief in cases of oppression

(1) Any member of a company who complain that the affairs of the company ¹⁵²[are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members (including any one or more of themselves) may apply to the ¹⁵¹[Company Law Board] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1) the ¹⁵¹[Company Law Board] is of opinion-

(a) that the company's affairs ¹⁵²[are being conducted in a manner prejudicial to public interest or] in a manner oppressive to any member or members; and

(b) that to wind up the company would unfairly prejudice such member or members, 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 wound up;

the ¹⁵¹[Company Law Board] may, with a view to bringing to an end the matters complained of, make such order as it thinks fit.

398. Application to ¹⁵¹[Company Law Board] for relief in cases of mismanagement

(1) Any members of a company who complain:

(a) that the affairs of the company ¹⁵³[are being conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; or

(b) that a material change (not being a change brought about by, or in the interests of, any creditors (including debenture holders, or any class of shareholders, of the company has taken place in the management or control of the company, whether by an alteration in its Board of directors, ^2A[***] ¹⁵⁴[or manager], ^2A[***] 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 ¹⁵⁵[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 ¹⁵¹[Company Law Board] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the ¹⁵¹[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 ¹⁵¹[Company Law Board] may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

399. Right to apply under sections 397 and 398

(1) The following members of a company shall have the right to apply under section 397 or 398:-

(a) 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;

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

(2) For the purposes of sub-section (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), 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.

(4) 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 ¹⁵¹[Company Law Board] under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled.

(5) 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 ¹⁵¹[Company Law Board] dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.

400. Notice to be given to Central Government of applications under sections 397 and 398

The ¹⁵¹[Company Law Board] shall give notice of every application made to it under section 397 or 398 to the Central Government, and shall take into consideration the representations, if any, made to it by that Government before passing final a order under that section.

401. Right of Central Government to apply under sections 397 and 398

The Central Government may itself apply to the ¹⁵¹[Company Law Board] for an order under section 397 or 398, or cause an application to be made to the ¹⁵¹[company Law Board] for such an order by any person authorised by it in this behalf.

402. Powers of ¹⁵¹[Company Law Board] on application under section 397 or 398

Without prejudice to the generality of the powers of the ¹⁵¹[Company Law Board] under section 397 or 398, any order under-either section may provide for-

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

(b) the purchase of the shares or interests of any members of the company by other members thereof or by the company;

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

(i) the managing director,

(ii) any other director,

(iii) ^2A[***],

(iv) ^2A[***] and

(v) the manager,

upon such terms and conditions as may, in the opinion of the ¹⁵¹[Company Law Board] be just and equitable in all the circumstances of the case;

(e) 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;

(f) 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 under section 397 or 398, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

(g) any other matter for which in the opinion of the ¹⁵¹[Company Law Board] it, is just and equitable that provision should be made.

403. Interim order by ¹⁵¹[Company Law Board]

Pending the making by it of a final order under section 397 or 398, as the case may be, the ¹⁵¹[Company Law Board] may, on the application of any party to the proceeding, 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.

404. Effect of alteration of memorandum or articles of company by order under section 397 or 398

(1) Where an order under section 397 or 398 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 ¹⁵¹[Company Law Board] any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the articles.

(2) Subject to the provisions of sub-section (1), 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; and the said provisions shall apply accordingly to the memorandum or articles as so altered.

(3) A certified copy of every order altering or giving leave to alter a company's memorandum or articles, shall within ¹⁵⁶[thirty] days after the making thereof, be filed by the company with the Registrar who shall register the same.

(4) If default is made in complying with the provisions of sub-section (3), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to ^3A[fifty thousand rupees].

405. Addition of respondents to application under section 397 or 398

If the managing director or any other director ^7A[***] or the manager, of a company, or any other person, who has not been impleaded as a respondent to any application under section 397 or 398 applies to be added as a respondent thereto, the ¹⁵⁷[Company Law Board] shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

406. Application of sections 539 to 544 to proceedings under sections 397 and 398

In relation to an application under section 397 or 398, sections 539 to 544, both inclusive, shall apply in the form set forth in Schedule XI.

407. Consequences of termination or modification of certain agreements

(1) Where an order ¹⁵⁸[***] made under section 397 or 398 terminates, sets aside, or modifies an agreement such as is referred to in clause (d) or (e) of section 402,-

(a) the order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in any other respect, either in pursuance of the agreement or otherwise;

(b) no managing or other director, ^7A[***] or manager whose agreement is so terminated or set aside ^7A[***] shall, for a period of five years from the date of ¹⁵⁹[the order terminating or setting aside the agreement, without the leave of the ¹⁵⁷[Company Law Board] be appointed or act, as the managing or other director, ^7A[***] or manager of the company.

(2)(a) Any person who knowingly acts as a managing or other director, ^7A[***] or manager of a company in contravention of clause (b) of sub-section (1);

(b) ^2A[***]; and

(c) every other director or every director, as the case may be, 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 ^3A[fifty thousand rupees], or with both.

(3) ¹⁶⁰[No leave shall be granted] under clause (b) of sub-section (1) 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.

B. Powers of Central Government

408. Powers of Government to prevent oppression or mismanagement

¹⁶¹[(1) Notwithstanding anything contained in this Act, 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 the public interests to hold office as directors thereof for such period, not exceeding three years on any one occasion, as it may think fit, if the Company Law Board on a reference made to it by the Central Government or on an application of not less than one hundred members of the company or of the 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:

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

(2) In case the Company Law Board passes an order under the proviso to subsection (1), it may, if it thinks fit, direct that until new directors are appointed in pursuance of the order aforesaid, such number of persons as the Company Law Board may, by orders specify as being necessary to effectively safeguard the interests, of the company, or its shareholders or the public interest, shall hold office as additional directors of the company and on such directions, the Central Government shall appoint such additional directors].

(3) For the purposes of reckoning two-thirds or any other proportion of the total number of directors of the company, any director or directors appointed by the Central Government under sub-section (1) or (2) shall not be taken into account.

¹⁶²[(4) A person appointed under sub-section (1) to hold office as a director or a person directed under sub-section (2) to hold office as an additional director, shall not be required to hold any qualification shares nor his period of office shall be liable to determination by retirement of directors by rotation; but any such director or additional director may be removed by the Central Government from his office at any time and another person may be appointed by that Government in his place to hold office as a director or, as the case may be, an additional director.

(5) No change in the Board of directors made after a person is appointed or directed to hold office as a director or additional director under this section shall, so long as such director or additional director holds office, have effect unless confirmed by the ¹⁶³[Company Law Board].

¹⁶⁴[(6) Notwithstanding anything contained in this Act or in any other law for the time being in force, where any person is appointed by the Central Government to hold office as director or additional director of a company in pursuance of sub-section (1) or sub-section (2), the Central Government may issue such directions to the company as it may consider necessary or appropriate in regard to its affairs ¹⁶⁵[and such directions may include directions to remove an auditor already appointed and to appoint another auditor in his place or to alter the articles of the company, and upon such directions being given, the appointment, removal or alteration, as the case may be, shall be deemed to have come into effect as if the provisions of this Act in this behalf have been complied with without requiring any further act or thing to be done.]

(7) The Central Government may require the persons appointed as directors or additional directors in pursuance of sub-section (1) or sub-section (2) to report to the Central Government from time to time with regard to the affairs of the company.]

409. Power of ¹⁶⁶[Company Law Board] to prevent change in Board of directors likely to affect company prejudicially

(1) Where a complaint¹⁶⁷ is made to the ¹⁶⁶[Company Law Board] by the managing director or any other director, ^7A[***] ¹⁶⁸[or the manager], of a company that as a result of a change which has taken place or is likely to take place in the ownership of 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 ¹⁶⁹[Company Law Board] may, if satisfied, after such inquiry as it thinks fit to make that it is just and proper so to do, by order, direct that ¹⁷⁰[no resolution passed or that may be passed or no action taken or that 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 ¹⁶⁹[Company Law Board]; and 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 m any agreement with, or any resolution passed in general meeting by, or by the Board of directors of, the company.

(2) The ⁹[Company Law Board] shall have power when any such complaint is received by it, to make an interim order to the effect set out in sub-section (1), before making or completing the inquiry aforesaid.

(3) Nothing contained in sub-sections (1) and (2) shall apply to a private company, unless it is a subsidiary of a public company.

105[372. Purchase by company of shares, etc., of other companies

117A[376. Conditions prohibiting reconstruction or amalgamation of company

118[383A. Certain companies to have secretaries

127[388A. Sections 386 to 388 not to apply to certain private companies.-

¹⁰⁵[372. Purchase by company of shares, etc., of other companies

^117A[376. Conditions prohibiting reconstruction or amalgamation of company

¹¹⁸[383A. Certain companies to have secretaries

¹²⁷[388A. Sections 386 to 388 not to apply to certain private companies.-