CS (Company Secretary) Company Law and Corporate Governance Syllabus

Distinguish between equity share capital and preference share capital under Section 43.

Equity share capital is share capital that is not preference capital; equity shareholders carry voting rights and a residual claim on profits/assets (may be with voting rights or with differential rights as to dividend/voting - DVR). Preference share capital carries a preferential right to a fixed dividend and to repayment of capital on winding up, but generally limited voting rights.

Classify the different kinds of share capital used in company accounts.

(1) Authorised/Nominal capital - maximum stated in MoA; (2) Issued capital - portion offered for subscription; (3) Subscribed capital - part of issued capital taken up; (4) Called-up capital - amount called from subscribers; (5) Paid-up capital - amount actually paid; (6) Uncalled/Reserve capital - portion not yet called or reserved for winding up.

What are the different types of preference shares?

Cumulative vs Non-cumulative (arrears of dividend carried forward or not); Participating vs Non-participating (share in surplus profits or not); Convertible vs Non-convertible (convertible into equity or not); Redeemable vs Irredeemable - under Sec 55 a company can only issue redeemable preference shares (max tenure 20 years, or 30 years for infrastructure projects).

What is the difference between a public offer and a private placement of securities?

A public offer (Sec 23) involves issuing securities to the public at large via a prospectus and includes IPOs/FPOs/rights/bonus issues by public companies. A private placement (Sec 42) is an offer of securities to a select group of identified persons (not more than 200 in a financial year, excluding QIBs and ESOP) through a private placement offer letter (PAS-4), without a public invitation.

What is a prospectus and what are its main types?

A prospectus (Sec 2(70)) is any document inviting the public to subscribe to or purchase securities. Types: (1) Red Herring Prospectus - issued before price/quantum is finalised; (2) Shelf Prospectus - allows multiple issues over a validity period (max 1 year) without a fresh prospectus; (3) Abridged Prospectus - a memorandum containing salient features; (4) Deemed prospectus (offer for sale via issuing house).

What is meant by "misstatement in prospectus" and the resulting liability?

A misstatement is an untrue or misleading statement, or omission of a material fact, in a prospectus. It attracts civil liability (Sec 35) - compensation to subscribers who suffered loss, payable by directors, promoters and experts; and criminal liability (Sec 34) - punishable under Sec 447 for fraud. Allottees may also rescind the contract for misrepresentation.

What are the conditions for a valid allotment of shares under the Companies Act?

Allotment must satisfy: minimum subscription received (for public issue), application money (at least 5% of nominal value or as per SEBI) received and kept in a scheduled bank, statement in lieu of/prospectus filed, allotment by a proper authority (Board), within a reasonable/prescribed time, and an absolute & unconditional acceptance of the application offer; return of allotment (PAS-3) filed within 30 days.

What is the difference between issue at par, at premium and at discount, and the rule under Section 53?

Issue at par = at face value; at premium = above face value (premium credited to Securities Premium Account, governed by Sec 52); at discount = below face value. Under Section 53 a company is generally prohibited from issuing shares at a discount (any such issue is void), except sweat equity shares and shares issued to creditors under a debt-restructuring scheme.

What are sweat equity shares and ESOPs?

Sweat equity shares (Sec 54) are equity shares issued to directors/employees at a discount or for non-cash consideration in return for know-how, IP or value additions. An Employee Stock Option (ESOP) (Sec 62(1)(b)) is an option/right granted to employees, directors or officers to purchase or subscribe to the company's shares at a future date at a pre-determined price.

What is the rule on further issue of capital / rights issue under Section 62?

When a company proposes to increase subscribed capital by issuing further shares, they must first be offered to existing equity shareholders in proportion to their paid-up capital (pre-emptive right / rights issue). The offer is by notice specifying the number of shares and a period (15-30 days) to accept; rights are renounceable unless the articles state otherwise. Shares may also be issued to employees (ESOP) or to others on a preferential basis by special resolution.

Distinguish between transfer and transmission of shares.

Transfer is a voluntary act by which a member conveys shares to another person by a valid instrument of transfer (Form SH-4) for consideration. Transmission is the automatic passing of shares by operation of law on the death, insolvency or lunacy of a member to the legal representative/heir - no instrument of transfer is required, only proof of entitlement (e.g., succession certificate/probate).

What is the time limit for registering a transfer of shares and issuing certificates?

An instrument of transfer (SH-4) must be delivered to the company within 60 days of execution. The company must deliver share certificates within: 2 months of allotment, and 1 month of receipt of the instrument of transfer (Sec 56). Refusal to register a transfer must be notified within 30 days; appeal lies to the NCLT.

What is a debenture and how does it differ from a share?

A debenture (Sec 2(30)) is an instrument acknowledging a debt of the company, usually carrying a fixed rate of interest and a fixed repayment date. A debenture-holder is a creditor (gets interest, a prior claim on winding up, no voting rights), whereas a shareholder is an owner/member (gets dividend out of profits, voting rights, residual claim). Debenture interest is a charge against profits; dividend is an appropriation of profits.

What are the main types of debentures?

By security: Secured (charge on assets) vs Unsecured/Naked; by convertibility: Convertible (FCD/PCD) vs Non-convertible (NCD); by tenure: Redeemable vs Irredeemable/Perpetual; by registration: Registered vs Bearer; by priority: First vs Second mortgage debentures. A Debenture Redemption Reserve (DRR) and debenture trustees (for public issues) are required as per the Act/Rules.

What is a "charge" under the Companies Act and the difference between a fixed and a floating charge?

A charge (Sec 2(16)) is an interest/lien created on the company's property or assets as security for a debt. A fixed charge is on specific, identifiable assets (e.g., land/building) - the company cannot deal with them freely. A floating charge is on a class of fluctuating assets (e.g., stock-in-trade) leaving the company free to deal with them until it "crystallises" (becomes fixed) on default or winding up.

What is the requirement and time limit for registration of charges?

Every charge created by a company must be registered with the Registrar (Form CHG-1/CHG-9) within 30 days of creation; the Registrar may allow a further 30 days (with additional fee) and beyond, up to 60/120 days total as per amended provisions, with ad valorem fees. An unregistered charge is void against the liquidator and creditors, though the underlying debt remains payable. Satisfaction of charge is filed in CHG-4 within 30 days.

What are the sources from which a company may pay dividend and the key conditions under Section 123?

Dividend may be paid out of: (1) current year's profits after providing depreciation; (2) accumulated past profits transferred to reserves; or (3) money provided by Central/State Government for that purpose. Conditions: depreciation must be provided, past losses and depreciation set off, and dividend cannot be declared out of capital or reserves not free for distribution. The Board recommends and members declare (final) dividend.

What is interim dividend and what is the Unpaid Dividend Account / IEPF rule?

Interim dividend is declared by the Board between two AGMs out of profits of the current financial year (or surplus). Dividend declared must be paid within 30 days. Unpaid/unclaimed dividend must be transferred to a special "Unpaid Dividend Account" within 7 days; amounts unclaimed for 7 years are transferred to the Investor Education and Protection Fund (IEPF), along with the underlying shares.

Who is a "director" and what are the types/categories of directors under the Companies Act, 2013?

A director (Sec 2(34)) is a person appointed to the Board. Types: Executive vs Non-executive; Managing Director and Whole-time Director; Independent Director (Sec 149(6)); Woman Director; Resident Director (stay 182 days in India); Nominee Director; Additional, Alternate and Casual directors; Small shareholders' director.

What are the limits on the number of directors and the requirement of a resident director?

Minimum directors: 3 for a public company, 2 for a private company, 1 for an OPC. Maximum 15 directors (can be exceeded by special resolution). Every company must have at least one director who has stayed in India for at least 182 days during the financial year (resident director - Sec 149(3)).

What are the eligibility and tenure requirements for an Independent Director?

An independent director (Sec 149(6)) must have integrity, relevant expertise, must not be a promoter/related to promoters or directors, and must have no pecuniary relationship that may affect independence. Tenure: up to two consecutive terms of 5 years each, after which a 3-year cooling-off is required. They are not liable for stock options and their names must be in the data bank maintained by IICA.

What is the Director Identification Number (DIN) and the rule on number of directorships?

DIN (Sec 153) is a unique identification number allotted to an individual intending to be a director (applied via Form DIR-3). A person cannot hold office as director in more than 20 companies at a time, of which not more than 10 can be public companies (Sec 165).

What are the grounds on which the office of a director becomes vacant or a person is disqualified?

Disqualifications (Sec 164) include: unsound mind, undischarged insolvent, conviction with imprisonment of 6 months+ within 5 years, unpaid calls, non-filing of financial statements/returns for 3 continuous years, etc. Office is vacated (Sec 167) on incurring a disqualification, absence from all Board meetings for 12 months, failure to disclose interest, or being removed/convicted.

What are the mandatory Board committees under the Companies Act, 2013 / Listing Regulations?

(1) Audit Committee (Sec 177); (2) Nomination and Remuneration Committee (Sec 178); (3) Stakeholders Relationship Committee (Sec 178); (4) Corporate Social Responsibility Committee (Sec 135); and under SEBI LODR, the Risk Management Committee (top listed entities). These ensure delegated oversight on audit, remuneration, grievances, CSR and risk.

What is the composition and key function of the Audit Committee?

The Audit Committee (Sec 177) must have a minimum of 3 directors with a majority being independent directors, and the majority (including the chairperson) able to read and understand financial statements. It oversees the financial reporting process, recommends appointment/remuneration of auditors, reviews internal controls, related party transactions, and operates the vigil mechanism (whistle-blower).

Who are Key Managerial Personnel (KMP) under Section 2(51), and which companies must appoint them?

KMP comprise: (i) the CEO or Managing Director or Manager; (ii) the Company Secretary; (iii) the Whole-time Director; (iv) the Chief Financial Officer (CFO); and (v) such other officer (not more than one level below directors) as may be prescribed. Every listed company and every other public company with paid-up share capital of Rs.10 crore or more must appoint whole-time KMP (Sec 203).

What are the types of company meetings and their key timelines?

(1) Annual General Meeting (AGM) - Sec 96, held yearly; first within 9 months of close of first financial year, subsequent within 6 months of close of financial year and gap not exceeding 15 months; (2) Extraordinary General Meeting (EGM) - Sec 100, for urgent business; (3) Board Meetings - Sec 173 (min 4 per year, gap not exceeding 120 days); (4) Class meetings and meetings ordered by the NCLT.

What are the rules for quorum of a general meeting under Section 103?

For a public company: 5 members personally present if members are up to 1,000; 15 if more than 1,000 up to 5,000; 30 if more than 5,000. For a private company: 2 members personally present. If quorum is not present within half an hour, the meeting (if called on requisition) stands dissolved; otherwise it is adjourned to the same day next week.

Distinguish between an ordinary resolution and a special resolution.

An ordinary resolution (Sec 114) is passed by a simple majority - votes cast in favour exceed votes against. A special resolution requires the votes in favour to be not less than three times the votes against (i.e., a 75% majority), and the intention to propose it as a special resolution must be specified in the notice. Special resolutions are needed for major decisions (e.g., altering MoA/AoA, reducing capital).

What are the key statutory registers and annual filings a company must maintain/file?

Registers include: Register of Members (Sec 88), Register of Directors and KMP and their shareholding (Sec 170), Register of Charges (Sec 85), Register of Contracts/Related Party Transactions (Sec 189), and Register of Loans/Investments. Annual filings: Financial Statements in Form AOC-4 (within 30 days of AGM) and Annual Return in Form MGT-7 (within 60 days of AGM) with the Registrar.

What is corporate governance and what does its evolution reflect (key committees)?

Corporate governance is the system of rules, practices and processes by which a company is directed and controlled, balancing the interests of stakeholders (shareholders, management, customers, suppliers, regulators, community). In India it evolved through the Kumar Mangalam Birla Committee (1999), Naresh Chandra Committee (2002), N.R. Narayana Murthy Committee (2003), Clause 49 of the Listing Agreement, and now SEBI (LODR) Regulations, 2015 and the Companies Act, 2013.

What does "Board effectiveness" encompass in corporate governance?

Board effectiveness is the Board's ability to perform its role of strategic direction, oversight and control well. It encompasses appropriate board composition and diversity, mix of independent/executive directors, clear roles, separation of Chairman and CEO, board evaluation/performance review (Sec 134 & 178), induction and training of directors, quality of board information, and effective functioning of committees.

What are the key disclosure/compliance requirements under SEBI (LODR) Regulations, 2015?

Listed entities must: have a compliant board (min independent directors, woman director), constitute mandatory committees, make timely disclosure of material events/price-sensitive information, file quarterly/annual financial results, submit a Corporate Governance Report, Business Responsibility and Sustainability Report (BRSR for top entities), maintain a code of conduct, and enter a Listing Agreement with the stock exchange (Reg 27/Reg 30/Reg 33).

What is the applicability and spending requirement of Corporate Social Responsibility (CSR) under Section 135?

CSR applies to companies having, in the immediately preceding financial year, net worth of Rs.500 crore or more, OR turnover of Rs.1,000 crore or more, OR net profit of Rs.5 crore or more. Such companies must constitute a CSR Committee and spend at least 2% of the average net profits of the immediately preceding three financial years on CSR activities specified in Schedule VII.

What happens to unspent CSR amounts under the Companies Act?

Unspent CSR amounts relating to ongoing projects must be transferred within 30 days of the financial year-end to a separate "Unspent CSR Account" and spent within 3 financial years (else transferred to a Schedule VII fund). Unspent amounts not relating to ongoing projects must be transferred to a fund specified in Schedule VII (e.g., PM CARES) within 6 months of the financial year-end.

What is a compromise or arrangement under Section 230-232 of the Companies Act, 2013?

A compromise/arrangement is a scheme between a company and its creditors and/or members (including mergers, demergers and reorganisation of share capital). It requires an application to the NCLT, approval at a meeting by a majority in number representing three-fourths in value of the creditors/members present and voting, and sanction by the NCLT, after which it binds all parties.

What is the difference between amalgamation, merger and demerger?

Merger/Amalgamation is the combining of two or more companies into one (the transferor company's undertaking vests in the transferee). Absorption = an existing company takes over another; Amalgamation = a new company is formed to take over two or more. Demerger is the splitting/transfer of one or more undertakings of a company into another company. These are effected through schemes under Sec 230-232 (fast-track mergers of small/holding-subsidiary companies under Sec 233).

What constitutes "oppression and mismanagement" and who can apply for relief under Sections 241-242?

Oppression is conduct of the company's affairs in a manner prejudicial/oppressive to any member(s) or to public interest; mismanagement is conduct prejudicial to the company's interests or a material change in management/control likely to be prejudicial. Members holding the prescribed minimum (generally not less than 100 members or 1/10th of members, or members holding 1/10th of issued share capital - Sec 244) may apply to the NCLT, which has wide powers to grant relief.

What are the modes of winding up of a company under the present legal framework?

Winding up is the process of dissolving a company by realising assets and paying liabilities. Under the Companies Act (as amended), winding up is by the Tribunal (NCLT) - on grounds such as a special resolution, acting against sovereignty/integrity of India, fraudulent conduct, default in filing financial statements/returns, or just and equitable grounds. Voluntary winding up and insolvency-driven liquidation are now governed mainly by the Insolvency and Bankruptcy Code, 2016 (IBC).

What is the order of priority of payments (waterfall) on winding up / liquidation of a company?

Broadly: (1) costs and expenses of winding up/liquidation including the liquidator's fee; (2) workmen's dues and secured creditors' debts (which rank pari passu); (3) wages and other employee dues; (4) financial debts of unsecured creditors; (5) Government dues and remaining debts; (6) preference shareholders; and finally (7) equity shareholders. (Under the IBC, Section 53 lays down this distribution waterfall.)