The Companies Act, 2013 - Complete Guide

🏛️ THE COMPANIES ACT, 2013

Act No. 18 of 2013 | Complete Chapter-wise Guide for LLB Students

⚠️ DISCLAIMER: This resource is for educational purposes only and does NOT constitute legal advice. Always consult a qualified legal professional.

🏛️ The Companies Act, 2013 — At a Glance

What is the Companies Act, 2013?

Full Name: The Companies Act, 2013 (Act No. 18 of 2013)
Enacted: 29th August, 2013 by Parliament of India
Purpose: To consolidate and amend the laws relating to companies in India
Replaces: The Companies Act, 1956 (which had become outdated)
Coverage: Applies to the whole of India
Total Chapters: 29 Chapters
Total Sections: 470 Sections + 7 Schedules

📌 Simple Explanation

Think of the Companies Act as the "Constitution for Companies". Just like our Constitution tells citizens how to govern themselves, this Act tells companies how to form, run, and close down. Every company in India must follow this law — from a tiny one-person company to a giant corporation like Tata or Infosys!

Structure of the Act

Chapter	Title	Key Sections	What It Covers
I	Preliminary	1-2	Title, extent & definitions
II	Incorporation	3-22	How to form a company
III	Prospectus & Securities	23-42	Raising money from public
IV	Share Capital & Debentures	43-72	Types of shares, issue of shares
V	Acceptance of Deposits	73-76	Borrowing from public
VI	Registration of Charges	77-87	Loans secured on assets
VII	Management & Administration	88-122	Registers, meetings, records
VIII	Dividend	123-127	Paying profit to shareholders
IX	Accounts	128-138	Financial records & statements
X	Audit & Auditors	139-148	Independent checking of accounts
XI	Directors: Qualifications	149-172	Who can be a director
XII	Board Meetings & Powers	173-195	How the board functions
XIII	Managerial Remuneration	196-205	Paying managers & directors
XIV	Inspection & Investigation	206-229	Government inspection of companies
XV	Compromises & Mergers	230-240	Mergers, acquisitions, takeovers
XVI	Oppression & Mismanagement	241-246	Protecting minority shareholders
XX	Winding Up	270-365	Closing down a company
XXVII	NCLT & Appellate Tribunal	407-434	Courts for company disputes
XXIX	Miscellaneous	447-470	Fraud, penalties & general provisions

Types of Companies Under the Act

Type	Minimum Members	Max Members	Key Feature
One Person Company (OPC)	1	1	Single person owns & runs the company
Private Company	2	200	Cannot invite public to invest
Public Company	7	Unlimited	Can list on stock exchange
Government Company	—	—	51%+ shares held by Government
Section 8 Company	2	Unlimited	Non-profit / charitable purpose

📖 Chapter I — Preliminary (Sections 1–2)

Section 1 — Short Title, Extent & Application

Name: This Act is called "The Companies Act, 2013"
Extent: Applies to the whole of India
Commencement: Section 1 came into force immediately on 12th Sept 2013; other sections notified separately
Applies to: Companies incorporated under this Act or any previous company law; insurance, banking, electricity, and other specified companies (with certain exceptions)

📌 Example

When Ravi starts a new software company "TechStar Pvt Ltd" in Bengaluru in 2024, this Act governs everything — how he registers it, how he runs it, and what happens if he ever closes it. Even Tata Motors, incorporated decades ago, is still governed by this Act.

Section 2 — Key Definitions (Most Important!)

Term	Simple Meaning	Example
Accounts Books	All financial records of a company	Receipts, payments, assets, liabilities
Auditor	An independent Chartered Accountant who checks the company's accounts	Like a doctor checking company's financial health
Board of Directors	The group of people who manage the company	Like the "Cabinet" of a company
Called-up Capital	Money that has been demanded from shareholders	If shares are ₹100 each, and company asks for ₹60, that ₹60 is called-up capital
Charge	Security/lien on company's property for a loan	Bank takes mortgage on company's factory as security for a loan
Company	A legal entity formed under this Act	Infosys Ltd, Tata Motors Ltd
Debenture	A document acknowledging a loan/debt by the company	Company borrows ₹10 crore and issues debentures to lenders
Director	A person appointed to the Board of the company	Like a minister in the government
Financial Statement	Balance sheet, P&L account, cash flow statement	Annual report showing company's financial position
Government Company	51%+ shares held by Central/State Government	BHEL, ONGC, Air India
Key Managerial Personnel (KMP)	CEO, CFO, CS, MD — top officials of a company	Like the "senior bureaucrats" of a company
Member	A person who holds shares in the company	If you buy 100 shares of Reliance, you become a member
NCLT	National Company Law Tribunal — the special court for company matters	If two shareholders fight, they go to NCLT
One Person Company (OPC)	A company with only ONE member	Priya starts "PriyaDesigns OPC Pvt Ltd" alone
Private Company	Max 200 members; cannot list publicly	Most small/medium businesses
Promoter	Person who conceives and starts the company	Dhirubhai Ambani was promoter of Reliance Industries
Prospectus	Document inviting public to buy company shares	IPO document of Zomato, Paytm
Public Company	Company that can invite public to invest; min 7 members	Tata Steel Ltd, Wipro Ltd
Registrar	The Registrar of Companies (ROC) — who keeps record of all companies	Like the "birth registrar" of companies
SEBI	Securities and Exchange Board of India — regulator for securities markets	Controls stock market operations
Share	Unit of ownership in a company	Buying 1 share of TCS = owning a tiny part of TCS
Small Company	Company with paid-up capital ≤ ₹4 crore & turnover ≤ ₹40 crore	Gets easier compliance requirements
Subsidiary Company	Company controlled by another company (holding company)	TCS is a subsidiary of Tata Sons
Sweat Equity Shares	Shares given to employees/directors at discount for their expertise	Company gives shares to software engineer for his IP contribution
Tribunal	The NCLT — National Company Law Tribunal	Special court that handles company disputes
Whole-time Director	A director employed full-time in the company	Unlike an independent director who just attends meetings

🏗️ Chapter II — Incorporation of Company (Sections 3–22)

Section 3 — Formation of Company

How many people needed?
- Public Company: Minimum 7 persons
- Private Company: Minimum 2 persons
- One Person Company: Just 1 person
Types of liability: Company can be limited by shares, limited by guarantee, or unlimited

📌 Example — Section 3A

If a Public Company's members drop below 7 and it still runs for more than 6 months, ALL remaining members become personally liable for the company's debts! So if only 5 members remain and the company owes ₹50 lakh to creditors, those 5 people must pay from their own pockets.

Section 4 — Memorandum of Association (MOA)

The MOA is like the "Constitution" or "birth certificate" of a company
Must contain:
- Name Clause — Company's name
- Registered Office Clause — State where office is located
- Objects Clause — What the company will do
- Liability Clause — Type of liability (limited/unlimited)
- Capital Clause — Amount of share capital (if applicable)
Name rules: Cannot use "India", "National", "Union", without Government approval
Name reservation: Can apply to Registrar to reserve a name for 20 days

Section 5 — Articles of Association (AOA)

AOA is the internal rulebook of the company — like the "bylaws"
Contains rules for management, meetings, voting, dividends, etc.
Company may adopt Model Articles prescribed by the Central Government
Company can modify or exclude model articles through its own AOA

Section 7 — Incorporation of Company

To incorporate, file with ROC: MOA, AOA, address of registered office, details of subscribers
ROC issues Certificate of Incorporation — the company is "born" on this date!
Providing false information = liable under Section 447 (Fraud)

Section 8 — Section 8 Companies (Non-Profit)

Companies formed for charitable, educational, scientific, or social purposes
Profits cannot be distributed; must be used for the object
Gets exemption from using "Limited" or "Private Limited" in name

Section	Topic	Key Point
3	Formation	OPC=1, Pvt=2+, Public=7+
4	Memorandum (MOA)	Constitution of company; name, objects, capital clauses
5	Articles (AOA)	Internal rulebook; can modify model articles
6	Act overrides MOA/AOA	If MOA/AOA conflicts with Act, the Act prevails
7	Incorporation	File documents → ROC issues Certificate of Incorporation
8	Section 8 Company	Non-profit / charitable purpose companies
9	Effect of Registration	Company becomes a legal person / body corporate
10	Effect of MOA & AOA	Bind company and members like a contract
12	Registered Office	Must have registered office; notice of change within 30 days
13	Alteration of MOA	Change objects, name, capital by special resolution
14	Alteration of AOA	By special resolution; certain changes need Central Govt approval
18	Conversion	Company can convert from one type to another

📌 Practical Example — Incorporating a Company

Arjun and his 3 friends want to start "GreenTech Solutions Pvt Ltd" in Mumbai. Steps: (1) They draft MOA and AOA, (2) File online with ROC, Mumbai, (3) ROC checks documents, (4) ROC issues Certificate of Incorporation with CIN number, (5) Company is now born! All 4 friends are members, and the company has a separate legal identity from them.

📄 Chapter III — Prospectus & Allotment of Securities (Sections 23–42)

Section 23 — Public vs. Private Offer

Public Company can issue shares to the public through a prospectus (IPO) OR by rights issue, employee stock options, etc.
Private Company can only issue shares privately (not to the general public)
SEBI regulations govern listed companies; Central Govt governs others

Section 25-28 — Prospectus Rules

A Prospectus is a document that invites the public to subscribe to company's shares or debentures
Must include: Company details, directors, financial statements, objects of issue, terms of securities, risk factors
Prospectus must be filed with ROC before publication
Misrepresentation in prospectus is a serious offence — directors face civil and criminal liability

Section 36-38 — Punishment for Fraud in Securities

Sec 36: Fraudulently inducing people to invest = imprisonment up to 10 years + fine
Sec 37: Any affected person can file a suit for compensation
Sec 38: Personation (fake identity) to acquire securities = criminal offence

Section 42 — Private Placement

A company can offer shares/debentures to a selected group of people (not general public)
Maximum 200 persons in a financial year (excluding QIBs and employees)
Must file private placement offer letter with ROC
Payment only through banking channels (no cash)

Type	Definition	Who Can Do It	Example
IPO (Initial Public Offer)	First time a company offers shares to public	Public Companies	Zomato IPO in 2021
FPO (Further Public Offer)	Subsequent public offer of shares	Already listed companies	Yes Bank FPO
Rights Issue	Offering shares to existing shareholders	All companies	Infosys rights issue
Private Placement	Offering to select group (max 200)	All companies	Startups raising seed capital
ESOP	Shares offered to employees	All companies	Swiggy giving shares to employees

📌 Example — IPO

LIC of India became a public company and filed a Prospectus with SEBI & ROC in 2022. The IPO document had LIC's balance sheet, risk factors, and details of ₹21,000 crore they wanted to raise. Millions of Indians invested. This entire process is governed by Sections 23-41 of the Companies Act plus SEBI regulations.

💹 Chapter IV — Share Capital & Debentures (Sections 43–72)

Section 43 — Types of Share Capital

Type	Description	Rights
Equity Shares	Regular shares with full voting rights	Vote in all decisions; get dividend after preference shareholders
Preference Shares	Special shares with preferential dividend	Get dividend first; get money back first on winding up; usually no voting

Types of Preference Shares

Type	Meaning
Cumulative	Unpaid dividend accumulates and must be paid later
Non-cumulative	Unpaid dividend lapses; no carry-forward
Convertible	Can be converted to equity shares after a period
Non-convertible	Always remains as preference shares
Redeemable	Company will buy back these shares at a future date
Participating	Also participates in surplus profits after equity holders

Key Sections on Share Capital

Sec 44 — Nature of Shares: Shares are movable property; transferable as per AOA
Sec 46 — Share Certificate: Company must issue share certificate within 2 months of allotment. Share certificate is prima facie evidence of ownership
Sec 47 — Voting Rights: Every equity share has equal voting right. Preference shares vote only on matters affecting them
Sec 48 — Variation of Shareholders' Rights: Company can vary rights of a class of shareholders only with consent of 3/4 of that class
Sec 54 — Sweat Equity Shares: Company can issue shares to directors/employees at discount for IP/know-how. Requires special resolution; lock-in period of 3 years
Sec 55 — Preference Shares Redemption: Preference shares must be redeemed within 20 years of issue
Sec 62 — Further Issue of Share Capital: New shares must first be offered to existing shareholders (rights issue) unless decided otherwise by special resolution
Sec 63 — Bonus Shares: Company can issue free shares to existing shareholders from accumulated profits or reserves
Sec 66 — Reduction of Share Capital: Company can reduce its capital by special resolution + Tribunal approval
Sec 68 — Buy-back of Shares: Company can buy its own shares from market; maximum 25% of total paid-up capital in a year

📌 Example — Bonus Shares (Sec 63)

If you hold 100 shares of "ABC Ltd" and the company declares a 1:1 bonus issue, you get 100 MORE shares FREE! These are issued from the company's free reserves (accumulated profits). Your total becomes 200 shares without paying anything extra. The company's total capital increases but money doesn't come in from outside.

Debentures (Sections 71)

A debenture is a way for a company to BORROW money from the public
Secured Debentures — backed by company's assets (like a mortgage)
Unsecured Debentures — not backed by specific assets
Convertible Debentures — can be converted into shares after specified period
Company must create a Debenture Redemption Reserve to repay debenture holders
Debenture Trustee must be appointed to protect debenture holders' interests

🏦 Chapter V — Acceptance of Deposits (Sections 73–76A)

What are Deposits?

When a company borrows money from the public (not banks), that money is called a "deposit"
Like a fixed deposit in a bank, but given to a company
Very strict rules to protect depositors from fraud

Section 73 — Prohibition on Acceptance of Deposits

No company can accept deposits from the public without following strict rules
Must issue a circular with all details (like a mini-prospectus)
Must file circular with ROC before inviting deposits
Must get credit rating from a recognized agency
Must create deposit repayment reserve (20% of deposits maturing next year)
Must provide security for deposits (if not repaid from reserve)

Section 74 — Repayment of Deposits

All deposits must be repaid within specified time
If company cannot repay, it must approach Tribunal (NCLT) within 3 months
Tribunal can allow extension or impose penalties

Section 76 — Deposits from Public by Eligible Companies

Only specified "eligible companies" (net worth ≥ ₹100 crore or turnover ≥ ₹500 crore) can accept public deposits
Must get prior approval from shareholders by special resolution

Section 76A — Punishment for Violation

Failure to repay deposits = Fine of ₹1 crore – ₹10 crore
Officer in default = imprisonment 7 years + fine ₹25 lakh to ₹2 crore

📌 Example

The Sahara Group case is a classic example! Sahara collected thousands of crores from millions of investors through instruments that were actually "deposits" but bypassed regulations. The Supreme Court ordered Sahara to refund all money. This led to stricter deposit regulations in the Companies Act, 2013.

Particulars	Requirement
Who can accept deposits?	Only "eligible companies" (net worth ₹100 Cr+ or turnover ₹500 Cr+)
Maximum deposit period	36 months (3 years)
Minimum deposit period	6 months
Deposit repayment reserve	Minimum 20% of deposits maturing next year
Credit rating	Must obtain and disclose credit rating
ROC filing	Circular/advertisement must be filed with ROC

⚓ Chapter VI — Registration of Charges (Sections 77–87)

What is a Charge?

A charge is a security interest created on the company's property when it takes a loan
Like when you mortgage your house to take a home loan — the bank creates a "charge" on your house
If the company doesn't repay, the lender can sell that property

Section 77 — Duty to Register Charges

Every charge created by the company must be registered with the ROC
Must be registered within 30 days of creation
If ROC allows, can be registered within 60 more days (with fee)
If not registered = charge is void against creditors and liquidator (but not against the company itself)

Section 82 — Satisfaction of Charge

When loan is fully repaid, charge must be removed from ROC records
Company must inform ROC within 30 days of satisfaction (loan repayment)

Section	Topic	Key Rule
77	Registration of Charge	Register within 30 days; max 60 more days with fee
78	Application by Lender	If company fails, lender can apply to ROC for registration
80	Date of Notice	Registered charge gives constructive notice to everyone
81	Register of Charges	ROC maintains register open for public inspection
82	Satisfaction of Charge	Company informs ROC within 30 days of repayment
84	Company's Register	Company must also maintain its own register of charges
86	Punishment	Default = fine ₹1 lakh/day (max ₹10 lakh) + officer imprisonment

📌 Example

"ABC Manufacturing Ltd" takes a ₹50 crore loan from SBI and creates a charge on its factory. Within 30 days, the company files Form CHG-1 with the ROC, Mumbai. The charge is now registered. If ABC fails to repay and goes bankrupt, SBI can sell the factory to recover its money BEFORE other unsecured creditors.

📋 Chapter VII — Management & Administration (Sections 88–122)

Important Registers a Company Must Maintain

Register	Section	What It Contains
Register of Members	88	Name, address, shares held of every member
Register of Debenture Holders	88	Details of all debenture holders
Register of Significant Beneficial Owners	90	Persons who truly own 10%+ stake
Register of Directors & KMP	170	Details of all directors and key officers
Register of Charges	85	All charges/mortgages on company assets
Minute Books	118	Records of all board and general meetings

Annual Return (Section 92)

Every company must file an Annual Return with ROC every year
Contains: Members list, directors list, shareholding, changes during year
Must be filed within 60 days of AGM
Listed companies must file within 60 days; others within 60 days of AGM
Must be signed by a Company Secretary (or director if no CS)

Meetings

AGM (Annual General Meeting) — Sec 96: Every company (except OPC) must hold AGM every year within 6 months of financial year end (i.e., by 30th September). Not more than 15 months between two AGMs
EGM (Extraordinary General Meeting) — Sec 100: Called for urgent matters; directors can call, or members holding 10%+ shares can demand it
Board Meetings — Sec 173: Minimum 4 board meetings per year; gap between two meetings must not exceed 120 days

Resolutions (Section 114)

Type	Voting Required	Used For
Ordinary Resolution	Simple majority (>50%)	Routine matters like appointment of directors
Special Resolution	75% majority	Important matters: changing MOA/AOA, buy-back, reduction of capital

📌 Example — AGM

"Sunrise Industries Ltd" has its financial year ending March 31, 2024. It must hold its AGM by September 30, 2024. At the AGM, shareholders will vote on the Annual Report, approve dividends, appoint auditors, and re-elect directors. All decisions are recorded in the Minute Book and filed with ROC.

💰 Chapter VIII — Declaration & Payment of Dividend (Sections 123–127)

Section 123 — Rules for Declaring Dividend

Dividend can only be declared from current year profits or free reserves (accumulated profits)
Must provide for depreciation before declaring dividend
Company can declare interim dividend (before year-end) at board meeting
Final dividend is declared at AGM by shareholders
If paying dividend out of past reserves (due to loss), max 10% of paid-up capital per year
Cannot declare dividend if company has unpaid deposits or debentures

Section 124 — Unpaid Dividend Account

Dividend must be paid within 30 days of declaration
If not claimed within 30 days, the amount goes to a special "Unpaid Dividend Account"
If unclaimed for 7 years → transferred to Investor Education and Protection Fund (IEPF)
Shareholders can reclaim money from IEPF even after transfer

Section 125 — IEPF (Investor Education and Protection Fund)

Government fund that protects investors' unclaimed money
Also used for investor awareness and education programs
Managed by Central Government

Section 127 — Punishment for Failure to Pay Dividend

If declared dividend not paid within 30 days without valid reason:
Company = fine ₹1,000 per day during default period
Every officer = imprisonment up to 2 years + fine ₹1,000 per day

📌 Example

Reliance Industries declares a final dividend of ₹9 per share for FY2023-24 at its AGM in June 2024. It must pay this to all shareholders within 30 days (by July 2024). Shareholders who hold shares on the "record date" get the dividend. If someone hasn't claimed their dividend for 7 years, that money goes to IEPF, but the shareholder can still reclaim it later by applying to IEPF Authority.

📊 Chapter IX — Accounts of Companies (Sections 128–138)

Section 128 — Books of Account

Every company must maintain proper books of account
Must record: all receipts & expenditure, sales & purchases, assets & liabilities
Can be kept in electronic form
Must be kept at the registered office
Must be preserved for 8 years
MD, WTD, and CFO are responsible for proper maintenance

Section 129 — Financial Statements

Financial statements must give a "true and fair view" of the company's state
Must prepare: Balance Sheet, Profit & Loss Account, Cash Flow Statement, Statement of Changes in Equity
Must follow the Schedule III format
Holding company must prepare consolidated financial statements (including subsidiaries)
Must be placed before the AGM every year

Section 134 — Board's Report

Board must prepare an annual report attached to financial statements
Must include: state of company affairs, dividend declared, material changes, conservation of energy, technology absorption, CSR activities
Must include a Directors' Responsibility Statement confirming accounts are properly prepared

Section 135 — Corporate Social Responsibility (CSR)

Companies with net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore MUST spend on CSR
Must spend at least 2% of average net profit of last 3 years on CSR activities
CSR activities: education, health, environment, rural development, etc. (Schedule VII)
Must constitute a CSR Committee with at least 3 directors (including 1 independent director)

Section	Topic	Key Rule
128	Books of Account	8 years preservation; at registered office; electronic form allowed
129	Financial Statements	Balance Sheet + P&L + Cash Flow; Schedule III format
130	Re-opening of Accounts	Only by NCLT or High Court order
131	Voluntary Revision	Board can voluntarily revise accounts with NCLT permission
134	Board's Report	Annual directors' report attached to financial statements
135	CSR	Eligible companies must spend 2% of net profit on CSR
136	Right of Member	Members can inspect financial statements; 21 days' notice before AGM

🔍 Chapter X — Audit & Auditors (Sections 139–148)

Section 139 — Appointment of Auditor

Every company must appoint an auditor (Chartered Accountant or CA firm)
First auditor appointed by Board within 30 days of incorporation
Subsequent auditors appointed at AGM
Tenure: Individual CA — max 1 term of 5 years; CA Firm — max 2 terms of 5 years = 10 years total
After completing maximum tenure, must not be reappointed for 5 years (cooling off period)
Government companies: First auditor appointed by Comptroller and Auditor General (CAG)

Section 143 — Powers & Duties of Auditor

Powers: Access all books, documents, vouchers at any time; ask any officer for information
Duty: Report whether financial statements give true and fair view; report on CARO (Companies Auditor's Report Order)
If fraud detected involving ≥ ₹1 crore → Auditor must report to Central Government

Section 144 — Services Auditor Cannot Provide

Auditor cannot provide NON-AUDIT services to the company — this ensures independence
Banned services include: accounting & bookkeeping, actuarial, investment advisory, internal audit, management services, design & implementation of financial information systems

Section 147 — Punishment for Auditor

If auditor violates duties: Fine ₹25,000 to ₹5 lakh (individual); Fine ₹1 lakh to ₹25 lakh (firm)
If auditor involved in fraud = Fine ₹1 lakh to ₹25 lakh + imprisonment 1 year

📌 Example — Auditor Independence

The Satyam Computers scandal (2009) exposed how auditors PricewaterhouseCoopers failed to detect a ₹7,136 crore fraud. This led to stricter auditor rotation rules in the Companies Act 2013 — to prevent auditors from becoming too "close" to a company and missing fraud. Now, companies must change their CA firm every 10 years!

Section	Topic	Key Point
139	Appointment	Individual CA: max 5 years; CA Firm: max 10 years (two 5-year terms)
140	Removal	By special resolution + Central Govt approval
141	Eligibility	Only CA with valid CoP; no director/employee of company
143	Powers & Duties	Access all books; report fraud to Govt if ≥ ₹1 Cr
144	Restrictions	Cannot do non-audit services (accounting, actuarial, investment)
145	Auditor to Sign	Only auditor (not partner's employee) can sign audit report
147	Punishment	Fine up to ₹25 lakh; imprisonment if fraud involved
148	Cost Audit	Central Govt can order cost audit for specified companies

👔 Chapter XI — Appointment & Qualifications of Directors (Sections 149–172)

Section 149 — Minimum & Maximum Directors

Type of Company	Minimum Directors	Maximum Directors
Public Company	3	15 (more allowed by special resolution)
Private Company	2	15 (more allowed by special resolution)
One Person Company	1	15

Independent Directors (Section 149)

Listed companies must have at least 1/3 of directors as Independent Directors
Independent Director = one who has no financial or personal relationship with the company
Their job is to provide unbiased judgment and protect minority shareholders
Tenure: Max 2 consecutive terms of 5 years each (10 years total), then 3-year cooling off
Get only sitting fees; no stock options
Schedule IV — Code for Independent Directors

Woman Director (Section 149)

Listed companies + public companies with paid-up capital ≥ ₹100 crore or turnover ≥ ₹300 crore MUST have at least ONE woman director
This promotes gender diversity in corporate governance

Director Identification Number — DIN (Section 153-155)

Every person wanting to be a director must get a DIN from Central Government
DIN is a unique 8-digit number — like an Aadhaar for directors
Only ONE DIN per person (getting two DINs = offence)
Must be quoted in all returns/forms

Section 166 — Duties of Directors

Act in good faith for the benefit of the company and its members
Act in the best interest of the company, employees, shareholders, community, and environment
Exercise independent judgment (not blindly follow instructions)
Avoid conflicts of interest
Avoid direct or indirect benefits from third parties

Disqualifications of Director (Section 164)

Declared insolvent (bankrupt)
Convicted of an offence with imprisonment ≥ 6 months
Convicted of offences relating to fraud
Director of a company that failed to file financial statements for 3 years (disqualified for 5 years)
Court/Tribunal orders disqualification

📌 Example — Independent Director

Tata Consultancy Services (TCS) has several independent directors — people like retired judges, academics, and senior professionals who have NO financial ties to TCS. When the TCS board discusses a major acquisition, these independent directors provide objective opinions. Their goal is to ensure the decision benefits ALL shareholders, not just the promoters.

🤝 Chapter XII — Meetings of Board & Its Powers (Sections 173–195)

Section 173 — Board Meetings

Minimum 4 Board Meetings per year required
Maximum gap between any two meetings: 120 days
Notice of at least 7 days must be given to each director
Meetings can also be conducted via video conferencing
OPC (One Person Company) — only ONE director, so meetings requirements are relaxed

Section 174 — Quorum

Quorum = minimum number of directors needed to conduct valid meeting
Board Meeting quorum = 1/3 of total strength OR 2 directors, whichever is HIGHER
Interested director (with personal stake in matter) cannot be counted in quorum

Section 177 — Audit Committee

Listed companies and certain others must have an Audit Committee
Minimum 3 directors; majority must be independent directors
Must include directors with ability to read financial statements
Role: Oversee financial reporting, audit processes, internal controls

Section 178 — Nomination & Remuneration Committee

Listed companies must have NRC with minimum 3 non-executive directors (majority independent)
Role: Identify, recommend directors; decide remuneration for directors & KMP

Section 179 — Powers of Board

Board has general authority to exercise all powers of the company
Specific powers only by Board Resolution (cannot be delegated):
- Make calls on shares
- Issue debentures
- Borrow money
- Invest company funds
- Grant loans
- Approve financial statements
- Diversify into new business

Section 180 — Restrictions on Board's Powers

These actions need SHAREHOLDERS' approval (special resolution):
- Selling/leasing the company's main undertaking
- Investing in trust securities
- Borrowing beyond paid-up capital + free reserves
- Remitting debt to directors

📌 Example — Board vs. Shareholder Powers

When Tata Steel wanted to acquire Corus (a UK steel company) for $12 billion in 2007, Tata Steel's Board couldn't decide this alone! Since the borrowing for acquisition exceeded their paid-up capital + reserves, shareholder approval was required under Section 180. The shareholders held an EGM and voted YES, and the historic acquisition happened.

💼 Chapter XIII — Managerial Remuneration (Sections 196–205)

Section 196 — Appointment of MD/WTD/Manager

Company can appoint Managing Director (MD), Whole-time Director (WTD), or Manager
Appointment needs approval at General Meeting
Tenure: Maximum 5 years at a time; can be reappointed
Age limit: 21-70 years (above 70 needs Central Govt approval or special resolution)

Section 197 — Maximum Managerial Remuneration

Total remuneration to ALL managers cannot exceed 11% of net profits
To ONE MD/WTD/Manager: max 5% of net profit
To ALL MDs/WTDs together: max 10% of net profit
To ALL directors (including non-executive): max 1% of net profit (if no MD/WTD)
If company has NO profits or inadequate profits → remuneration as per Schedule V

Schedule V — Remuneration Without Profit

Limits set based on company's effective capital
Without Central Government approval, limited to certain maximums
With CG approval, no upper limit

Section 199 — Recovery of Remuneration

If accounts are restated due to fraud or misstatement → company can recover excess remuneration paid to KMP
Recovery period: 3 years preceding financial restatement
This is called "clawback" provision

📌 Example

ABC Ltd has net profits of ₹100 crore. Its MD can be paid a maximum of ₹5 crore (5% of ₹100 crore). If the company pays more, it violates Section 197. If later it's discovered that profits were inflated due to fraud and actual profit was ₹50 crore, the company can recover excess salary from the MD under Section 199 (clawback provision).

🔎 Chapter XIV — Inspection, Inquiry & Investigation (Sections 206–229)

Section 206 — Inspection of Books

Registrar (ROC) can inspect any company's books and papers
Company must produce books as required
Can be done on written complaint or on the ROC's own initiative

Section 210 — Investigation of Company Affairs

Central Government can order investigation into a company's affairs:
- On application by 100+ members (or 10% of members)
- If Court/Tribunal orders
- In the public interest
Investigators get wide powers to access all records

Section 211 — Serious Fraud Investigation Office (SFIO)

SFIO is a multi-disciplinary body under Ministry of Corporate Affairs
Investigates complex corporate frauds
Has police powers — can arrest and file chargesheet directly in Special Court
SFIO officials are designated as "Police Officers" for investigation purposes

Section 212 — Investigation by SFIO

Central Government can refer any company to SFIO for investigation
No other investigation agency can investigate simultaneously
SFIO's special courts can try the cases

📌 Example — SFIO in Action

When the IL&FS Group crisis erupted in 2018 (debt of ₹91,000 crore!), the Central Government immediately ordered SFIO to investigate. SFIO arrested several top directors including former MD and CFO. The investigation revealed mismanagement, diversion of funds, and false financial statements — exactly what Section 211 was designed to address!

🔄 Chapter XV — Compromises, Arrangements & Amalgamations (Sections 230–240)

Section 230 — Compromise or Arrangement

A company can make a compromise/arrangement with its creditors or members with NCLT approval
Process: Company applies → NCLT orders meeting → members/creditors vote → NCLT approves/rejects
At least 75% in value of those present and voting must agree

Section 232 — Merger / Amalgamation

Two companies can merge (amalgamate) into one with NCLT approval
NCLT examines: whether merger is in interest of shareholders and public
After NCLT approves → property, liabilities, employees of both companies transfer to the merged entity
Transferor company is dissolved without winding up

Section 233 — Fast-track Merger

Merger between two small companies, or holding + wholly-owned subsidiary = FASTER PROCESS
No NCLT approval needed; Central Government approves within 60 days
If no objection raised by any party within 30 days, merger is deemed approved

Section 235-236 — Acquisition of Shares (Takeover)

If 90% of shareholders agree to sell → can force the remaining 10% (dissenting minority) to also sell (squeeze-out)
Protects majority from minority veto in hostile takeovers
Section 236 — Purchase of minority shareholding at fair price determined by registered valuer

📌 Example — Merger

HDFC Ltd (housing finance) and HDFC Bank merged in 2023 to create one of India's largest banks! This mega-merger was done under Chapter XV. Both boards approved, shareholders voted (75% majority), NCLT reviewed, and RBI/SEBI/competition authorities gave approvals. The merger resulted in HDFC Ltd shareholders getting shares of HDFC Bank. HDFC Ltd ceased to exist as a separate company.

⚖️ Chapter XVI — Prevention of Oppression & Mismanagement (Sections 241–246)

What is Oppression?

When the majority shareholders use their power to harm the minority shareholders unfairly
Example: Majority passes resolutions that benefit themselves at the expense of minority
This chapter provides a remedy to protect minority shareholders

Section 241 — Who Can Apply?

Members can apply to NCLT if affairs are conducted in a manner:
- Prejudicial to public interest, OR
- Prejudicial or oppressive to any member, OR
- Prejudicial to the interests of the company
Minimum applicants: 100 members OR 10% of members (whichever is less)
For companies limited by shares: members holding 10%+ share capital
Central Government can also apply if it thinks necessary

Section 242 — Powers of NCLT

NCLT can make any order it thinks fit, including:
Regulation of company's affairs in future
Purchase of shares by one group from another at a fair price
Termination of agreement with Managing Director
Removal of any director
Recovery of undue gains made by any director

Section 244 — Class Action Suits

Members or depositors can file a class action suit against the company, its directors, or auditors
Threshold: 100+ members OR 10% of members, OR 100+ depositors OR 10% of depositors
NCLT can award damages to affected members/depositors

📌 Example — Oppression Case

The famous "Tata vs. Mistry" case (2019-2021) involved Cyrus Mistry (former chairman of Tata Sons) filing a petition under Section 241-242 claiming oppression and mismanagement by the Tata Group. The NCLAT initially ruled in Mistry's favor, but the Supreme Court overturned it. This landmark case defined the scope of "oppression and mismanagement" under the Companies Act, 2013.

☠️ Chapter XX — Winding Up (Sections 270–365)

What is Winding Up?

Winding up means closing down a company permanently
Like death for a company — assets are sold, debts are paid, remaining money distributed to shareholders
After winding up, the company is dissolved (ceases to exist)

Types of Winding Up

Type	Who Decides	When Used
Winding Up by Tribunal (NCLT)	NCLT orders	Company unable to pay debts; fraud; just and equitable reasons
Voluntary Winding Up	Members themselves	Company achieves its purpose OR members decide to close

Section 271 — Grounds for Winding Up by Tribunal

Company is unable to pay its debts (most common ground)
Company has passed a special resolution to wind up
Company acted against the sovereignty and integrity of India
Securities regulator has applied for winding up
Affairs conducted in a fraudulent manner
NCLT finds it just and equitable to wind up (when company has no future)

Section 275 — Company Liquidator

NCLT appoints a Company Liquidator to manage the winding up process
Liquidator takes control of all assets, realizes them (converts to cash), and pays off debts
Must be an insolvency professional with IBBI registration

Priority of Payments in Winding Up (Section 326-327)

Priority	Who Gets Paid First
1st	Secured creditors (banks with mortgage/charge on assets)
2nd	Workmen's dues (employee wages for last 2 years)
3rd	Preferential creditors (government dues, PF dues)
4th	Unsecured creditors (suppliers, vendors)
5th (Last)	Equity shareholders (get whatever's left)

📌 Example — Winding Up in Real Life

When Jet Airways collapsed in 2019, it couldn't pay its debts (₹8,500 crore+). NCLT admitted a winding up petition (later switched to IBC insolvency proceedings). The Court Liquidator took control of Jet's planes, hangars, office equipment, and brand. Assets were auctioned, and proceeds used to pay employees, then banks, then unsecured creditors. Shareholders of Jet Airways got almost nothing — they are always last in line!

⚖️ Chapter XXVII — NCLT & NCLAT (Sections 407–434)

Section 408-409 — Constitution of NCLT

NCLT = National Company Law Tribunal
Replaces the old Company Law Board (CLB) and High Court jurisdiction in company matters
Consists of a President + Judicial and Technical Members
Has benches in multiple cities (Delhi, Mumbai, Chennai, Kolkata, Hyderabad, etc.)

Section 410-411 — NCLAT (Appellate Tribunal)

NCLAT = National Company Law Appellate Tribunal
If you are unhappy with NCLT's order → appeal to NCLAT
NCLAT is at New Delhi; also has circuit benches
NCLAT orders can be appealed further to the Supreme Court

Jurisdiction of NCLT

Oppression and mismanagement (Sec 241-246)
Company mergers and amalgamations (Sec 230-240)
Winding up of companies (Sec 270+)
Insolvency and bankruptcy proceedings under IBC, 2016
Reduction of share capital
Rectification of register of members
Investigation orders

Section 432 — Right to Legal Representation

Parties before NCLT have the right to be represented by lawyers, CAs, CSs, or Cost Accountants

Forum	Jurisdiction	Appeal Goes To
NCLT (First Bench)	Company matters	NCLAT
NCLAT (Delhi)	Appeals from NCLT	Supreme Court
Supreme Court	Final appeals	—

📌 Example — NCLT in Action

The Insolvency of Essar Steel (₹49,000+ crore debt) was handled by NCLT, Ahmedabad bench. After a long process, ArcelorMittal was approved as the resolution applicant. The decision was challenged before NCLAT and then the Supreme Court. This entire process — from NCLT admission to Supreme Court final order — showed how the adjudicatory hierarchy under the Companies Act works in practice.

⚠️ Chapter XXIX — Miscellaneous (Sections 447–470)

Section 447 — Punishment for Fraud (The Most Important Section!)

"Fraud" means any act, omission, concealment of facts, abuse of position done with dishonest intention
Punishment: Imprisonment 6 months to 10 years + fine equal to the amount involved (or ₹3 lakh minimum)
If fraud involves public interest or ₹10 lakh+ → minimum imprisonment 3 years
Covers directors, officers, auditors, KMP — anyone who commits fraud related to the company

Section 448 — Punishment for False Statements

Making false statements in any return, report, certificate = liable under Section 447 (fraud)
Very serious — filing false annual returns or fake financial statements = fraud

Section 452 — Wrongful Withholding of Property

If any officer/employee wrongfully holds or misapplies company's property → NCLT can order its restoration
Also: punishment of imprisonment up to 2 years + fine up to ₹5 lakh

Section 462 — Power to Exempt Classes of Companies

Central Government can exempt private companies, small companies, OPCs, Section 8 companies from certain provisions
This is why Private Companies have fewer compliance requirements than public companies!

Section 469-470 — Rule Making Powers

Central Government has power to make rules to implement the Act
Rules supplement the Act; must be consistent with the Act
Rules are updated regularly through Companies (Amendment) Acts

Section	Topic	Punishment
447	Fraud	6 months – 10 years imprisonment + fine
448	False Statements	Same as Section 447
449	False Evidence	Imprisonment 7 years + fine
450	Punishment for Officer in Default	Fine ₹50,000 (if no specific penalty)
452	Wrongful Withholding of Property	2 years + ₹5 lakh fine + restoration
454	Adjudication by ROC	ROC can impose penalties for defaults

📌 Example — Section 447 in Action

When Nirav Modi defrauded Punjab National Bank of ₹13,500 crore using fake LoUs (Letters of Undertaking), the SFIO invoked Section 447 along with IPC fraud sections. Multiple directors, company secretaries, and bank officers were prosecuted. Section 447's wide definition of "fraud" ensured everyone involved in the conspiracy — not just Nirav Modi himself — could be prosecuted.

📊 Flowchart — Company Incorporation Process

🚀 IDEA TO START A COMPANY

📝 STEP 1: Decide Type of Company
(OPC / Private / Public)

🔤 STEP 2: Apply for Name Reservation
(Section 4 — Apply to ROC; Reserved for 20 days)

✅ NAME APPROVED BY ROC?

YES ↓

📄 STEP 3: Draft MOA & AOA
(Memorandum & Articles of Association — Section 4, 5)

💻 STEP 4: File SPICe+ Form Online with ROC
(MOA, AOA, Registered Office Address, Directors' details)

💰 STEP 5: Pay Registration Fees
(Based on authorized share capital)

✅ ROC VERIFIES DOCUMENTS?

APPROVED ↓

📜 ROC ISSUES CERTIFICATE OF INCORPORATION
(Company is now BORN! Gets CIN Number)

🔢 OBTAIN PAN, TAN, GST, BANK ACCOUNT
(Post-incorporation formalities)

👔 APPOINT DIRECTORS, AUDITOR, KMP
(Within 30 days — Section 139, 149)

🏢 COMPANY IS FULLY OPERATIONAL!
All annual compliances now apply

📊 Flowchart — Winding Up of a Company (By NCLT)

⚠️ COMPANY UNABLE TO PAY DEBTS (Section 271)

📝 CREDITOR / MEMBER files Petition for Winding Up before NCLT (Section 272)

📢 NCLT issues notice; Company gets chance to reply (Section 272-273)

NCLT satisfied grounds exist for winding up?

YES ↓

⚖️ NCLT passes Winding Up Order (Section 278)

👤 NCLT appoints Company Liquidator (Section 275)

💼 Liquidator takes control of ALL assets; makes inventory

📢 Liquidator calls for creditors' claims; verifies all claims

🏭 Assets are SOLD / AUCTIONED to raise money

💰 DISTRIBUTION: Secured Creditors → Employees → Govt dues → Unsecured Creditors → Shareholders (Section 326-327)

📋 Liquidator submits Final Report to NCLT

✅ NCLT passes DISSOLUTION ORDER — Company CEASES to EXIST (Section 302)

🧠 Mind Map — The Companies Act, 2013

🗺️ Roadmap — Life Cycle of a Company Under Companies Act, 2013

STAGE 1

🌱 CONCEPTION & PLANNING

Promoters decide to form a company. They decide: type of company (OPC / Private / Public), name, objects, capital structure. Governed by Chapter I-II (Sec 1-22). Key documents: MOA, AOA.

STAGE 2

📝 INCORPORATION

Apply to Registrar of Companies (ROC) with all documents. ROC issues Certificate of Incorporation. Company gets CIN (Corporate Identification Number). Company is now a legal person. Governed by Section 7, 9.

STAGE 3

🚀 POST-INCORPORATION

Appoint Directors (get DINs), Appoint Auditor within 30 days (Sec 139), Open bank account, Obtain GST registration, PAN, TAN. First Board Meeting within 30 days of incorporation. Issue share certificates (Sec 46).

STAGE 4

💰 RAISING CAPITAL

Private companies: private placement (Sec 42), rights issue (Sec 62). Public companies: can also do IPO (Sec 23-41) — issue prospectus, list on stock exchange. Register charges with ROC if borrowing against assets (Sec 77).

STAGE 5

🏃 ONGOING OPERATIONS

Hold minimum 4 Board Meetings/year; AGM within 6 months of FY end (Sec 96). Maintain all statutory registers. File Annual Return within 60 days of AGM (Sec 92). CSR spending if eligible (Sec 135). Pay dividends if profits available (Sec 123).

STAGE 6

📊 ANNUAL COMPLIANCE CYCLE

Prepare Financial Statements (Balance Sheet, P&L, Cash Flow — Sec 129). Auditor audits accounts (Sec 139-148). Board prepares Directors' Report. Place accounts before AGM. File forms with ROC: AOC-4 (accounts), MGT-7 (annual return). Pay statutory dues.

STAGE 7

🔄 MAJOR EVENTS (OPTIONAL)

Merger/Acquisition (Sec 230-240): Need NCLT approval + 75% shareholder vote. Change of name, objects, registered office: MOA amendment + ROC filing (Sec 13). Conversion of company type (Sec 18). SFIO investigation if fraud alleged (Sec 211-212).

STAGE 8

⚠️ DISPUTES & REMEDIES

Oppression & Mismanagement: Minority can approach NCLT (Sec 241-246). Class Action Suits available (Sec 244). NCLT has wide powers to give relief. Fraud punishable under Sec 447. Regulator can investigate through SFIO.

STAGE 9

🏁 STRIKING OFF / REVIVAL

If company is defunct: ROC can strike off the name (Sec 248). Company can also voluntarily apply for strike-off. Struck-off companies can be revived within 20 years by NCLT (Sec 252). Applicable for non-functional companies.

STAGE 10

☠️ WINDING UP & DISSOLUTION

Company decides or is forced to close (Sec 270-365). NCLT appoints Liquidator. Assets realized → Debts paid in priority order (secured → employees → unsecured → shareholders). Final accounts submitted. NCLT passes Dissolution Order. Company ceases to exist permanently.

🗺️ Compliance Roadmap — Annual Deadlines

Timeline	Activity	Section	Who Does It
Within 30 days of incorporation	Appoint first auditor	Sec 139	Board of Directors
Within 30 days of incorporation	First Board Meeting	Sec 173	Directors
Within 30 days of AGM	Report change in registered office	Sec 12	Company
By 30th September (each year)	Hold Annual General Meeting (AGM)	Sec 96	Company (shareholders)
Within 60 days of AGM	File Annual Return (Form MGT-7)	Sec 92	Company Secretary / Director
Within 30 days of AGM	File Financial Statements (Form AOC-4)	Sec 137	Company
Within 30 days of declaration	Pay declared dividend to shareholders	Sec 127	Company
Every quarter (min 4/year)	Hold Board Meetings	Sec 173	Board of Directors
Within 30 days of creation	Register charge with ROC	Sec 77	Company
By October 30 (for FY Apr-Mar)	File Income Tax Return	Income Tax Act	Company