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The Companies Act,1956

Title : The Companies Act,1956

Year : 1956



(1) The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration, shall be entered as members in its register of members.

(2) Every other person who 1*[agrees in writing] to become a member of a company and whose name is entered in its register of members, shall be a member of the company.

2*[(3) Every person holding equity share capital of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.]

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1. Substituted by Act 65 of 1960, Section 13, for "agrees" (w.e.f. 28-12-1960).

2. Inserted by Act 22 of 1996, Section 30 and Schedule (w.r.e.f. 20-9-1995).

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(1) Except in the cases mentioned in this section, a body corporate cannot be a member of a company which is its holding company and any allotment or transfer of shares in a company to its subsidiary shall be void.

(2) Nothing in this section shall apply-

(a) Where the subsidiary is concerned as the legal representative of a deceased member of the holding company; or

(b) Where the subsidiary is concerned as trustee, unless the holding company or a subsidiary thereof is beneficially interested under the trust and is not so interested only by way of security for the purposes of a transaction entered into by it in the ordinary course of a business which includes the lending of money.

(3) This section shall not prevent a subsidiary from continuing to be a member of its holding company if it was a member thereof either at the commencement of this Act or before becoming a subsidiary of the holding company, but, except in the cases referred to in sub-section (2), the subsidiary shall have no right to vote at meetings of the holding company or of any class of members thereof.

(4) Subject to sub-section (2), sub-sections (1) and (3) shall apply in relation to a nominee for a body corporate which is a subsidiary, as if references in the said sub-sections (1) and (3) to such a body corporate included references to a nominee for it.

(5) In relation to a holding company which is either a company limited by guarantee or an unlimited company, the reference in this section to shares shall, whether or not the company has a share capital, be construed as including a reference to the interest of its members as such, whatever the form of that interest.
 


Where the articles of a company include the provisions which, under clause (iii) of sub-section (1) of section 3, are required to be included in the articles of a company in order to constitute it a private company, but default is made in complying with any of those provisions, the company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under this Act, and this Act shall apply to the company as if it were not a private company:

Provided that the 1*[Central Government] on being satisfied that the failure to comply with the conditions was accidental or due to inadvertence or to some other sufficient cause, or mat on other grounds it is just and equitable to grant relief, may, on the application of the company or any other person interested and on such terms and conditions as seem to the 1*[Central Government] just and expedient, order that the company be relieved from such consequences as aforesaid.

43A -2* Private company to become public company in certain cases

(1) Save as otherwise provided in this section, where not less than twenty-five per cent of the paid-up share capital of a private company having a share capital, is held by one or more bodies corporate, the private company shall,-

(a) On and from the date on which the aforesaid percentage is first held by such body or bodies corporate, or

(b) Where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1960 (65 of 1960), on and from "the expiry of the period of three months from the date of such commencement unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the private company, become by virtue of this section a public company:-

Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven:-

Provided further that in computing the aforesaid percentage, account shall not be taken of any share in the private company held by a banking company, if, but only if, the following conditions are satisfied in respect of such share, namely:-

(a) That the share -

(i) Forms part of the subject-matter of a trust,

(ii) Has not been set apart for the benefit of any body corporate, and

(iii) Is held by the banking company either as a trustee of that trust or in its own name on behalf of a trustee of that trust; or

(b) That the share -

(i) Forms part of the estate of a deceased person,

(ii) Has not been bequeathed by the deceased person by his will to any body corporate, and

(iii) Is held by the banking company either as an executor or administrator of the deceased person or in its own name on behalf of an executor or administrator of the deceased person; and the registrar may, for the purpose of satisfying himself that any share is held in the private company by a banking company as aforesaid, call for at any time from the banking company such books and papers as he considers necessary.

3*[Explanation.-For the purposes of this sub-section, "bodies corporate" means public companies, or private companies which had become public companies by virtue of this section,]

4*[(1A) Without prejudice to the provisions of sub-section (1), where the average annual turnover of a private company, whether in existence at the commencement of the Companies (Amendment) Act, 1974 or incorporated thereafter, is not, during the relevant period 5*[less than such amount as may be provided] the private company shall, irrespective of its paid-up share capital, become, on and from the expiry of a period of three months from the last day of the relevant period during which the private company had the said average annual turnover, a public company by virtue of this sub-section:-

Provided
that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven.

(1B) Where not less than twenty-five per cent of the paid-up share capital of a public company, having share capital, is held by a private company, the private company shall,-

(a) On and from the date on which the aforesaid percentage is first held by it after the commencement of the Companies (Amendment) Act, 1974, or

(b) Where the aforesaid percentage has been first so held before the commencement of the Companies (Amendment) Act, 1974 on and from the expiry of the period of three months from the date of such commencement, unless within that period the aforesaid percentage is reduced below twenty-five per cent of the paid-up share capital of the public company, become by virtue of this sub-section, a public company, and thereupon all other provisions of this section shall apply thereto:-

Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be reduced, below seven.]

3*[(1C) Where, after the commencement of the Companies (Amendment) Act, 1988 a private company accepts, after an invitation is made by an advertisement, or renews, deposits from the public, other than its members, directors or their relatives, such private company shall, on and from the date on which such acceptance or renewal as the case may be, is first made after such commencement, become a public company and thereupon all the provisions of this section shall apply thereto:-

Provided that even after the private company has so become a public company, its articles of association may include provisions relating to the matters specified in clause (iii) of sub-section (1) of section 3 and the number of its members may be, or may at any time be, reduced below seven.]

(2) Within three months from the date on which a private company becomes a public company by virtue of this section, the company shall inform the Registrar that it has become a public company as aforesaid, and thereupon the Registrar shall delete the word "Private" become the word "Limited" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association.

6*[(2A) Where a public company referred to in sub-section (2) becomes a private company on or after the commencement of Act 53 of 2000, such company shall inform the Registrar that it has become a private company and thereupon the Registrar shall substitute the word "private company" for the word "public company" in the name of the company upon the register and shall also make the necessary alterations in the certificate of incorporation issued to the company and in its memorandum of association within four weeks from the date of application made by the company."]

(3) Sub-section (3) of section 23 shall apply to a change of name under sub-section (2) as it applies to a change of name under section 21.

(4) A private company which has become a public company by virtue of this section shall continue to be a public company until it has, with the approval of the Central Government and in accordance with the provisions of this Act, again become a private company.

(5) If a company makes default in complying with sub-section (2), the company and every officer of the company who is in default, shall be punishable with fine which may extend to five hundred rupees for every day during which the default continues.
7[***]

(8) Every private company having a share capital shall, in addition to the certificate referred to in sub-section (2) of section 161, file with the Registrar along with the annual return a second certificate signed by both the signatories of the return, stating either -

(a) That since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, no body or bodies corporate has or have held twenty-five per cent or more of its paid-up share capital, 8[***]
9[***]

4*[(c) that the private company, irrespective of its paid-up share capital, did not have during the relevant period, an average annual turnover of 10*[such amount as is referred to in sub-section (1 A) or more;]

3*[(d) that the private company did not accept or renew deposits from the public.]

4*[(9) Every private company, having share capital, shall file with the Registrar along with the annual return a certificate signed by both the signatories of the return, stating that since the date of the annual general meeting with reference to which the last return was submitted, or in the case of a first return, since the date of the incorporation of the private company, it did not hold twenty-five per cent or more of the paid-up share capital of one or more public companies.

3*[(10) Subject to the other provisions of this Act, any reference in this section to accepting, after an invitation is made by an advertisement, or renewing deposits from the public shall be construed as including a reference to accepting, after an invitation is made by an advertisement or renewing deposits from any section of the public and the provisions of section 67 shall, so far as may be, apply, as if the reference to invitation to the public to subscribe for shares or debentures occurring in that section, includes a reference to invitation from the public for acceptance of deposits.]

Explanation
, -For the purposes of this section, -

(a) "Relevant period" means the period of three consecutive financial years, -

(i) Immediately preceding the commencement of the Companies (Amendment) Act, 1974, or

(ii) A part of which immediately preceded such commencement and the other part of which immediately, followed such commencement, or

(iii) Immediately following such commencement or at any time thereafter;

(b) "Turnover", of a company, means the aggregate value of the realisation made from the sale, supply or distribution of goods or on account of services rendered, or both, by the company during a financial year;]

3*[(c) "Deposit" has the same meaning as in section 58A.]

6*[(11) Nothing contained in this section, except sub-section (2A), shall apply on and after the commencement of Act 53 of 2000."]

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1. Substituted by Act 31 of 1998, Section 67, for "Court" (w.e.f. 31-5-1991) and again Substituted by the Companies (Second Amendment) Act, 2002 (Act 11 of 2003,) w.e.f. 12.08.2012 Section 8 for "Company Law Board".

2. Inserted by Act 65 of 1960, Section 14 (w.e.f. 28-12-1960).

3. Inserted by Act 31 of 1988, Section 7 (w.e.f. 15-6-1988).

4. Inserted by Act 41 of 1974, Section 6 (w.e.f. 1-2-1975).

5. Substituted by Act 31 of 1988, Section 7, for "less than rupees one crore" (w.e.f. 15-6-1988).

6. Inserted by 53 of 2000, Section 12 (w.e.f. 13-12-2000).

7. Sub-sections (6) and (7) omitted by Act 31 of 1988, Section 7 (w.e.f. 15-6-1988).

8. The word "or" omitted by Act 31 of 1988, Section 7 (w.e.f. 15-6-1988).

9. Clause (b) omitted by Act 31 of 1988, Section 7 (w.e.f. 15-6-1988).

10. Substituted by Act 31 of 1988, Section 7, for "rupees one crore or more" (w.e.f. 15-6-1988).

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(1) If a company, being a private company, alters its articles in such a manner that they no longer include the provisions which, under clause (iii) of sub-section (1) of section 3, are required to be included in the articles of a company in order to constitute it a private company, the company -

(a) Shall, as on the date of the alteration, cease to be a private company; and

(b) Shall, within a period of1[thirty] days after the said date, file with the Registrar either a prospectus or a statement in lieu of prospectus, as specified in sub-section (2).

(2) (a) Every prospectus filed under sub-section (1) shall state the matters specified in Part I of Schedule II and set out the reports specified in Part II of that Schedule, and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.

(b) Every statement in lieu of prospectus filed under sub-section (1) shall be in the form and contain the particulars set out in Part I of Schedule IV, and in the cases mentioned in Part II of the Schedule, shall set out the reports specified therein, and the said Parts I and II shall have effect subject to the provisions contained in Part III of that Schedule.

(c) Where the persons making any such report as is referred to in clause (a) or (b) have made therein, or have, without giving the reasons indicated therein, any such adjustments as are mentioned in clause 32 of Schedule II or clause 5 of Schedule IV, as the case may be, the prospectus or statement in lieu of prospectus filed as aforesaid, shall have enforced thereon or attached thereto, a written statement signed by those persons, setting out the adjustments and giving the reasons therefore.

(3) If default is made in complying with sub-section (1) or (2), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to2*[five thousand rupees] for every day during which the default continues.

(4) Where any prospectus or statement in lieu of prospectus filed under this section includes any untrue statement, any person who authorised the filing of such prospectus or statement shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to2[fifty thousand rupees], or with both, unless he proves either that the statement was immaterial or that the had reasonable ground to believe, and did up to the-time of the filing of the prospectus or statement believe, that the statement was true.

(5) For the purposes of this section -

(a) A statement included in a prospectus or a statement in lieu of prospectus shall be deemed to be untrue if it is misleading in the form and context in which it is included; and

(b) Where the omission from a prospectus or a statement in lieu of prospectus of any matter is calculated to mislead, the prospectus or statement in lieu of prospectus shall be deemed, in respect of such omission, to be a prospectus or a statement in lieu of prospectus in which an untrue statement is included.

(6) For the purposes of sub-section (4) and clause (a) of sub-section (5), the expression "included" when used with reference to a prospectus or statement in lieu of prospectus, means included in the prospectus or statement in lieu of prospectus itself or contained in any report or memorandum appearing on the face thereof, or by reference incorporated therein.

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1. Substituted by Act 31 of 1965, Section 62 and Schedule, for "fourteen" (w.e.f. 15-10-1965).

2. Substituted by Act 53 of 2000, Section 13, for "five hundred rupees" (w.e.f. 13-12-2000).

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Reduction of number of members below legal minimum
If at any time the number of members of a company is reduced in the case of a public company, below seven, or in the case of a private company, below two, and the company carries on business for more than six months while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with fewer than seven members or two members, as the case may be, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefore.



(1) Contracts on behalf of a company may be made as follows:-

(a) A contract which, if made between private persons, would by law be required to be in writing signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under its authority, express or implied, and may in the same manner be varied or discharged;

(b) A contract which, if made between private persons, would by law be valid although made by parole only and not reduced into writing, may be made by parole on behalf of the company by any person acting under its authority, express or implied, and may in the same manner be varied or discharged.

(2) A contract made according to this section shall bind the company.
Last updated on September, 2016

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