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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956



Any assignment of his office made after the commencement of this Act by any director of a company shall be void.



(1) The Board of directors of a company may, if so authorised by its articles or by a resolution passed by the company in general meeting, appoint an alternate director to act for a director (hereinafter in this section called "the original director") during his absence for a period of not less than three months from the State in which meetings of the Board are ordinarily held.

1*[(2) An alternate director appointed under sub-section (1) shall not hold office as such for a period longer than that permissible to the original director in whose place he has been appointed and shall vacate office if and when the original director returns to the State in which meetings of the Board are ordinarily held.]

(3) If the term of office of the original director is determined before he so returns to the State aforesaid, any provision for the automatic re-appointment of retiring directors in default of another appointment shall apply to the original, and not to the alternate, director.

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1 . Substituted by Act 65 of 1960, Section 115, for sub-section (2) ( w.e.f. 28-12-1960).

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1*[(1) Except with the 2*[consent] of the company accorded by a special resolution,-

(a) No director of a company shall hold any office or place of profit, and

(b) 3*[No partner or relative of such director, no firm in which such director, or a relative of such director, is a partner, no private company of which such director is a director or member, and no director or manager of such a private company shall hold any office or place of profit carrying a total monthly remuneration of4*[such sum as may be prescribed17],except that of managing director or manager, banker, or trustee for the holders of debentures of the company-

(i) Under the company; or

(ii) Under any subsidiary of the company, unless the remuneration received from such subsidiary in respect of such office or place of profit is paid over to the company or its holding company:-

5*[Provided that it shall be sufficient if the special resolution according the consent of the company is passed at the general meeting of the company held for the first time after the holding of such office or place of profit:-

Provided further that where a relative of a director or a firm in which such relative is a partner, is appointed to an office or place of profit under the company or a subsidiary thereof without the knowledge of the director, the consent of the company may be obtained either in the general meeting aforesaid or within three months from the date of the appointment, whichever is later.]

Explanation
.-For the purpose of this sub-section, a special resolution according consent shall be necessary for every appointment in the first instance to an office or place of profit and to every subsequent appointment to such office or place of profit on a higher remuneration not covered by the special resolution, except where an appointment on a time scale has already been approved by the special resolution,

(1A) Nothing in sub-section (1), shall apply where a relative of a director or a firm in which such relative is a partner holds any office or place of profit under the company or a subsidiary thereof having been appointed to such office or place before such director becomes a director of the company.]

6*[(1B) Notwithstanding anything contained in sub-section (1),-

(a) No partner or relative of a director or manager,

(b) No firm in which such director or manager, or relative of either, is a partner,

(c) No private company of which such a director or manager, or relative of either, is a director or member,shall hold any office or place of profit in the company which carries a total monthly remuneration of not less than7*[such sum as may be prescribed] except with the prior consent of the company by a special resolution and the approval of the Central Government:

8[***]]

9*[(2) 10*[(a)] If any office or place of profit is held in contravention of the provisions of sub-section (1) the director, partner, relative, firm, private company, 11[***] or the manager, concerned, shall be deemed to have vacated his or its office as such on and from the date next following the date of the general meeting of the company referred to in the first proviso or, as the case may be, the date of the expiry of the period of three months referred to in the second proviso to that sub-section, and shall also be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him or it for the period immediately preceding the date aforesaid in respect of such office or place of profit.]

6*[(b) The company shall not waive the recovery of any sum refundable to it under clause (a) unless permitted to do so by the Central Government.]

12*[(2A) Every individual, firm, private company or other body corporate proposed to be appointed to any office or place of profit to which this section applies shall, before or at the time of such appointment, declare in writing whether he or it is or is not connected with a director of the company in any of the ways referred to in subsection (t).]

6*[(2B) If, after the commencement of the Companies (Amendment) Act, 1974 any office or place of profit is held, without the prior consent of the company by a special resolution and the approval of the Central Government the partner, relative, firm or private company appointed to such office or place of profit shall be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him on and from the date on which the office was so held by him.]

6*[(2C) If any office or place of profit is held in contravention of the provisions of the proviso to sub-section (1B), the director, partner, relative, firm, private company or manager concerned shall be deemed to have vacated his or its office as such on and from the expiry of six months from the commencement of the Companies (Amendment) Act, 1974 of the date next following the dale of the general meeting of the company referred to in the said proviso, whichever is earlier, and shall be liable to refund to the company any remuneration received or the monetary equivalent of any perquisite or advantage enjoyed by him or it for the period immediately preceding the date aforesaid in respect of such office or place of profit.]

6*[(2D) The company shall not waive the recovery of any sum refundable to it under sub-section (2B) 13[***] unless permitted to do so by the Central Government.]

(3) Any office or place 14[***] shall be deemed to be an office or place of profit under the company 15[within the meaning of this section]-

(a) In case the office or place is held by a director, if the director holding it 16*[obtains from the company anything] by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary. fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;

(b) In case the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it 16*[obtains from the company anything] by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.

6*[(4) Nothing in this section shall apply to a person, who being the holder of any office of profit in the company, is appointed by the Central Government, under section 408, as a director.]

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1. Substituted by Act 65 of 1960, Section 116, for sub-section (1) ( w.e.f. 28-12-1960).

2. Substituted by Act 31 of 1965, Section 44, for "previous consent" ( w.e.f. 15-10-1965).

3. Substituted by Act 41 of 1974, Section 29 for certain words ( w.e.f. 1-2-1975).

4. Substituted by Act 31 of 1988, Section 49, for "five hundred rupees or more" ( w.e.f. 15-6-1988).

5. Substituted by Act 31 of 1965, Section 44, for proviso ( w.e.f. 15-10-1965).

6. Inserted by Act 41 of 1974, Section 29 ( w.e.f. 1-2-1975).

7. Substituted by Act 31 of 1988, Section 49, for "three thousand rupees" ( w.e.f. 15-6-1988).

8. Proviso omitted by Act 31 of 1988, Section 49 ( w.e.f. 15-6-1988).

9. Substituted by Act 31 of 1965, Section 44, for sub-section (2) ( w.e.f. 15-10-1965).

10. Sub-section (2) re-lettered as clause (a) thereof by Act 41 of 1974, Section 29 ( w.e.f. 1-2-1975).

11. The words "managing agent, secretaries and treasurers," omitted by Act 53 of 2000, Section 154 (w.e.f. 13-12-2000).

12. Inserted by Act 65 of 1960, Section 116 ( w.e.f. 28-12-1960).

13. The words "or (2C), as the case may be," omitted by Act 31 of 1988, Section 49 ( w.e.f. 15-6-1988).

14. The words "in a company" omitted by Act 65 of 1960, Section 116 ( w.e.f. 28-12-1960).

15. Substituted by Act 41 of 1974, Section 29, for "within the meaning of sub-section (1)" ( w.e.f. 1-2-1975).

16. Substituted by Act 65 of 1960, Section 116, for "obtain anything" ( w.e.f. 28-12-1960).

17. Sixty lakh rupees per financial year or five lakh rupees per month vide Notification No. GSR 298 (E) dated 31.03.2011, prior to substitution "Rs. 2,00,000 per month (w.e.f. 17-4-2002)"
 
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Rep. by the Companies (Amendment) Act, 1960 (65 of 1960), Section 117.



(1)1*[No public company and no private company which is a subsidiary of a public company] shall, after the commencement of this Act, appoint or employ any person as managing director, if he is either the managing director or the manager of2*[any other company (including a private company which is not a subsidiary of a public company)], except as provided in sub-section (2).

(2)3*[A public company or a private company which is a subsidiary of a public company] may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one,4[other company (including a private company which is not a subsidiary of a public 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 managing director or of manager in more than5*[two companies of which each one or at least one is a public company or a private company which is a subsidiary of a public company], he shall, within one year from the commencement of6*[the Companies (Amendment) Act, 1960, choose not more than two of those companies as companies in which he wishes to continue to hold the office of managing director or manager, 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 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 managing director of more than two companies if the Central Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

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1. Substituted by Act 65 of 1960, Section 118, for "No company" ( w.e.f. 28-12-1960).

2. Substituted by Act 65 of 1960, Section 118, for "any other company" ( w.e.f. 28-12-1960).

3. Substituted by Act 65 of 1960, Section 118, for "A company" ( w.e.f. 28-12-1960).

4. Substituted by Act 65 of 1960, Section 118, for "other company" ( w.e.f. 28-12-1960).

5. Substituted by Act 65 of 1960, Section 118, for "two companies" ( w.e.f. 28-12-1960).

6. Substituted by Act 65 of 1960, Section 118, for "this Act" ( w.e.f. 28-12-1960).

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(1) No company shall after, the commencement of this Act, appoint or employ any individual as its managing director for a term exceeding five years at a time.

(2) Any individual holding at the commencement of this Act the office of managing director is a company shall unless his term expires earlier, be deemed to have vacated his office immediately on the expiry of five years from the commencement of this Act.

(3) Nothing contained in sub-section (1) shall be deemed to prohibit the re-appointment, re-employment, or the extension of the term of office, of any person by further periods not exceeding five years on each occasion:-

Provided that any such re-appointment, re-employment or extension shall not be sanctioned earlier than two years from the date on which it is to come into force.

1*[(4) This section shall not apply to a private company unless it is a subsidiary of a public company.]

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1 . Inserted by Act 65 of 1960, Section 119 ( w.e.f. 28-12-1960).

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(1) Payment may be made by a company, except in the cases specified in sub-section (3), and subject to the limit specified in sub-section (4), to a managing director, or a director holding the office of manager or in the whole-time employment of the company, by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement.

(2) No such payment shall be made by the company to any other director.

(3) No payment shall be made to a managing or other director in pursuance of subsection (1), in the following cases, namely: -

(a) Where the director resigns his office in view of the reconstruction of the company, or of its amalgamation with any other body corporate or bodies corporate, and is appointed as the managing director, 1 [***] 2 [***] manager or other officer of the reconstructed company or of the body corporate resulting from the amalgamation;

(b) Where the director resigns his office otherwise than on the reconstruction of the company or its amalgamation as aforesaid;

(c) Where the office of the director is vacated by virtue of section 203, 3 [***] or any of the clauses (a) to 4[(1)], of sub-section (1) of section 283;

(d) Where the company is being wound up, whether by 5 [order of the Tribunal] or voluntarily, provided the winding up was due to the negligence or default of the director;

(e) Where the director has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross mismanagement of, the conduct of the affairs of the company or any subsidiary or holding company thereof;

(f) Where the director has instigated, or has taken part directly or indirectly in bringing about, the termination of his office.

(4) Any payment made to a managing or other director in pursuance of sub-section (1) shall not exceed the remuneration which he would have earned if he had been in office for the unexpired residue of his term or for three years, whichever is shorter, calculated on the basis of the average remuneration actually earned by him during a period of three years immediately preceding the date on which he ceased to hold the office, or where he held that office for a lesser period than three years, during such period:-

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

(5) Nothing in this section shall be deemed to prohibit the payment to a managing director, or a director holding the office of manager, of any remuneration for services rendered by him to the company in any other capacity.

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1. The words "managing agent," omitted by Act 53 of 2000, Section 155 (w.e.f. 13-12-2000).

2. The words "secretaries and treasurers" omitted by Act 65 of 1960, Section 120 (w.e.f. 28-12-1960).

3. The word and figures "section 280" omitted by Act 31 of 1965, Section 45 (w.e.f. 15-10-1965).

4. Substituted by Act 65 of 1960, Section 120, for "(k)" (w.e.f. 28-12-1960).

5. Substituted by Act 11 of 2003, section 36, for "or subject to the supervision of the Court".

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(1) No director of a company shall, in connection with the transfer of the whole or any part of any undertaking or property of the company, receive any payment, by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement -

(a) From such company; or

(b) From the transferee of such undertaking or property or from any other person (not being such company), unless particulars with respect to the payment proposed to be made by such transferee or person (including the amount thereof) have been disclosed to the members of the company and the proposal has been approved by the company in general meeting.

(2) Where a director of a company receives payment of any amount in contravention of sub-section (1), the amount shall be deemed to have been received by him in trust for the company.

(3) Sub-sections (1) and (2) shall not affect in any manner the operation of section 318.



(1) No director of a company shall, in connection with the transfer to any person of all or any of the shares in a company, being a transfer resulting from -

(i) An offer made to the general body of shareholders;

(ii) An offer made by or on behalf of some other body corporate with a view to the company becoming a subsidiary of such body corporate or a subsidiary of its holding company;

(iii) An offer made by or on behalf of an individual with a view to his obtaining the right to exercise, or control the exercise of, not less than one-third of the total voting power at any general meeting of the company; or

(iv) Any other offer which is conditional on acceptance to a given extent,receive any payment by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement,-

(a) From such company; or

(b) Except as otherwise provided in this section, from the transferees of the shares or from any other person (not being such company).

(2) In the case referred to in clause (b) of sub-section (1), it shall be the duty of the director concerned to take all reasonable steps to secure that particulars with respect to the payment proposed to be made by the transferees or other person (including the amount thereof) are included in, or sent with, any notice of the offer made for their shares which is given to any shareholders.

(3) If -

(a) Any such director fails to take reasonable steps as aforesaid; or

(b) Any person who has been properly required by any such director to include the said particulars in, or send them with, any such notice as aforesaid fails so to do,he shall be punishable with fine which may extend to1*[two thousand five hundred rupees].

(4) If -

(a) The requirements of sub-section (2) are not complied with in relation to any such payment as is governed by clause (b) of sub-section (1); or

(b) The making of the proposed payment is not, before the transfer of any shares in pursuance of the offer approved by a meeting called for the purpose, of the holders of the shares to which the offer relates and other holders of shares of the same class (other than shares already held at the date of the offer by, or by a nominee for, the offerer, or where the offerer is a company, by, or by a nominee for, any subsidiary thereof) as any of the said shares,any sum received by the director on account of the payment shall be deemed to have been received by him in trust for any persons who have sold their shares as a result of the offer made, and the expenses incurred by him in distributing that sum amongst those persons shall be borne by him and not retained out of that sum.

(5) If at a meeting called for the purpose of approving any payment as required by clause (b) of sub-section (4), a quorum is not present and, after the meeting has been adjourned to a later date, a quorum is again not present, me payment shall, for the purposes of that sub-section, be deemed to have been approved.

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1. Substituted by Act 53 of 2000, section 156, for "two hundred and fifty rupees" (w.e.f. 13-12-2000).

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(1) Wherein proceedings for the recovery of any payment as having, by virtue of sub-section (2) of section 319 or sub-section (4) of section 320, been received by any person in trust, it is shown that -

(a) The payment was made in pursuance of any arrangement entered into as part of the agreement for the transfer in question, or within one year before, or within two years after, that agreement or the offer leading thereto; and

(b) The company or any person to whom the transfer was made was privy to that arrangement,the payment shall be deemed, except insofar as the contrary is shown, to be one to which that sub-section applies.

(2) If in connection with any such transfer as is mentioned in section 319 or in section 320,-

(a) The price to be paid, to a director of the company whose office is to be abolished or who is to retire from office, for any shares in the company held by him is in excess of the price which could at the time have been obtained by other holders of the like shares; or

(b) Any valuable consideration is given to any such director;
the excess or the money value of the consideration, as the case may be, shall for the purposes of that section, be deemed to have been a payment made to him by way of compensation for loss of office, or as consideration for retirement from office, or in connection with such loss or retirement.

(3) References in sections 318, 319 and 320 to payments made to any director of a company by way of compensation for loss of office, or as consideration for retirement for office or in connection with such loss or retirement, do not include any bona fide payment by way of damages for breach of contract or by way of pension in respect of past services; and for the purposes of this sub-section the expression "pension" includes any superannuation allowance, superannuation gratuity or similar payment.

(4) Nothing in sections 319 and 320 shall be taken to prejudice the operation of any rule of law requiring disclosure to be made with respect to any such payments as are therein mentioned or with respect to any other like payments made or to be made to the directors of a company.



(1) In a limited company, the liability of the directors or of any director1[***] or manager may, if so provided by the memorandum, be unlimited.

(2) In a limited company in which the liability of a director2[***] or manager is unlimited, the directors3[***] and the manager of the company, and the member who proposes a person for appointment to the office of director2[***] or manager, shall add to that proposal a statement that the liability of the person holding that office will be unlimited; and before the person accepts the office or acts therein, notice in writing that his liability will be unlimited, shall be given to him by the following or one of the following persons, namely, the promoters of the company, its directors,4[***] or manager, if any, and its officers.

(3) If any director,2[***] manager or proposer makes default in adding such a statement, or if any promoter director,2[***] manager or officer of the company makes default in giving such a notice, he shall be punishable with fine which may extend to5*[ten thousand rupees] and shall also be liable for any damage which the person so appointed may sustain from the default; but the liability of the person appointed shall not be affected by the default.

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1. The words "or of the managing agent, secretaries and treasurers" omitted by Act 53 of 2000, Section 157 (w.e.f. 13-12-2000).

2. The words, "managing agent, secretaries and treasurers," omitted by Act 53 of 2000, Section 157 (w.e.f. 13-12-2000).

3. The words, "the managing agent, secretaries and treasurers," omitted by Act 53 of 2000, Section 157 (w.e.f. 13-12-2000).

4. The words, "its managing agent, secretaries and treasurers," omitted by Act 53 of 2000, Section 157 (w.e.f. 13-12-2000).

5. Substituted by The Companies (Amendment) Act, 2000, Section 157, for "one thousand rupees" (w.e.f. 13-12-2000).

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(1) A limited company may, if so authorised by its articles, by special resolution, alter its memorandum so as to render unlimited the liability of its directors or of any director1[***] or manager.

(2) Upon the passing of any such special resolution, the provisions thereof shall be as valid as if they had been originally contained in the memorandum:-

Provided that no alteration of the memorandum making the liability of any of the officers referred to in sub-section (1) unlimited shall apply to such officer, if he was holding the office from before the date of the alteration, until the expiry of his then term, unless he has accorded his consent to his liability becoming unlimited.

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1. The words "or of its managing agent, secretaries and treasurers" omitted by Act 53 of 2000, Section 157 (w.e.f. 13-12-2000).

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Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).

324A - 1* Abolition of managing agencies and secretaries and treasures [Repealed]

Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).

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1. Section 324A Inserted by Act 17 of 1969, Section 4 (w.e.f. 28-05-1969).

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Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).

325A - 1*Subsidiary of a body corporate not to be appointed as managing agent [Repealed]

Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).

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1. Section 325A Inserted by Act 65 of 1960, Section 121 (w.e.f. 28-12-1960).

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Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).



Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).



Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).



Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).



Rep. by the Companies (Amendment) Act, 2000 (53 of 2000), sec. 159 (w.e.f. 13-12-2000).
Last updated on September, 2016

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