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The Companies Act, 1956

Title : The Companies Act, 1956

Year : 1956



Rep. by the Companies (Amendment) Act, 1965(31 of 1965), Section 37(w.e.f. 15-10-1965).



Rep. by the Companies (Amendment) Act, 1965 (31 of 1965), Section 38 (w.e.f. 15-10-1965).



(1)1*The office of a director shall become vacant if-

(a) He fails to obtain within the time specified in sub-section ( 1 ) of section 270 , or at any time thereafter ceases to hold, the share qualification, if any, required of him by the articles of the company;

(b) He is found to be of unsound mind by a court of competent jurisdiction;

(c) He applies to be adjudicated an insolvent;

(d) He is adjudged an insolvent;

2*(e) He is convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months;]

(f) He fails to pay any call in respect of shares of the company held by hi m whether alone or jointly with others, within six months from the last date fixed for the payment of the call3*[unless the Central Government has, by notification in the Official Gazette, removed the disqualification incurred by such failure];

(g) He absents himself from three consecutive meetings of the Board of directors, or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board;

(h)4*[He (whether by himself or by any person for his benefit or on hi s account), or any firm in which] he is a partner or any private company of which he is a director, accepts a loan, or any guarantee or security for a loan, from the company in contravention of section 295 ;

(i) He ads in contravention of section 299 ;

(j) He becomes disqualified by an order of court under section 203 ;5[***]

(k) He is removed in pursuance of section 284 ;3*[or]

(l) Having been appointed a director by virtue of hi s holding any office or other employment in the company,6[***] he ceases to hold such office or other employment in the company7[***].

(2) Notwithstanding anything in clauses (d), (e) and (j) of sub-section (1), the disqualification referred to in those clauses shall not take effect -

(a) For thirty days from the date of the adjudication, sentence or order;

(b) Where any appeal or petition is preferred within the thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence, or order until the expiry of seven days from the date on which such appeal or petition is disposed of; or

(c) Where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction, or order, and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of.

8*(2A) Subject to the provisions of sub-sections (1) and (2), if a person functions as a director when he knows that the office of director held by hi m has become vacant on account of any of the disqualifications, specified in the several clauses of sub-section (1), he shall be punishable with fine which may extend to9[five thousand rupees] for each day on which he so functions as a director.]

(3) A private company which is not a subsidiary of a public company may, by its articles, provide, that the office of director shall be vacated on any grounds in addition to those specified in sub-section (1).

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1. Substituted by Act 65 of 1960, sec 95, for "The office of a director shall be vacated if-" (w.e.f.28-12-1960).

2. Substituted by Act 65 of 1960, sec. 95, for clause (e) (w.e.f. 28-12-1960).

3. Added by Act 65 of 1960, sec, 95 (w.e.f. 28-12-1960).

4. Substituted by Act 65 of 1960, sec. 95, for "he or any firm in which" (w.e.f. 28-12-1960).

5. The word "or" omitted by Act 65 of 1960, sec, 95 (w.e.f. 28-12-1960).

6. The words "or a nominee of the managing agent of the company", omitted by Act 53 of 2000, sec. 137 (w.e.f. 13-12-2000).

7. The words "or, as the case may be, the managing agency comes to an end" omitted by Act 53 of 2000, sec. 137 (w.e.f. 13-12-2000).

8. Inserted by Act 65 of 1960, sec. 95 (w.e.f. 28-12-1960).

9. Substituted by Act 53 of 2000, sec. 137,  for "five hundred rupees" (w.e.f. 13-12-2000).
 
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(1) A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408 ) before the expiry of hi s period of office:-

Provided that this sub-section shall not, in the case of a private company, authorise the removal of a director holding office for life on the 1 st day of April, 1952 , whether or not he is subject to retirement under an age limit by virtue of the articles or otherwise:-

Provided further that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 265 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.

(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director (whether or not he is a member of the company) shall be entitled to be heard on the resolution at the meeting.

(4) Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company (not exceeding a reasonable length) and requests (heir notification to members of the company, the company shall, unless the representations are received by it too late for it to do so,-

(a) In any notice of the resolution given to members of the company state the fact of the representations having been made; and

(b) Send a copy of the representations to every member of the company to whom notice of the me eting is sent (whether before or after receipt of the representations by the company);and if a copy of the representations is not sent as aforesaid because they were received too late or because of the company's default, the director may (without prejudice to hi s right to be heard orally) require that the representations shall be read out at the meeting:-

Provided that copies of the representations need not be sent out and the representations need not be read out at the meeting if, on the application either of the company or of any other person who claims to be aggrieved, the1*[Central Government] is satisfied that the rights conferred by this sub-section are being abused to secure needless publicity for defamatory mailer; and the1*[Central Government] may order the company's costs on the application to be paid in whole or in part by the director notwithstanding that he is not a party to it.

(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board in pursuance of section 262 , be filled by the appointment of another director in his stead by the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).

A director so appointed shall hold office until the date up to which hi s predecessor would have held office if he had not been removed as aforesaid.

(6) If the vacancy is not filled under sub-section ( 5 ), it may be filled as a casual vacancy in accordance with the provisions, so far as they may be applicable, of section 262 , and all the provisions of that section shall apply accordingly:-

Provided that the director who was removed from office shall not be re-appointed as a director by the Board of directors.

(7) Nothing in this section shall be taken-

(a) As depriving a person removed there under of any compensation or damages payable to hi m in respect of the termination of hi s appointment as director or of any appointment terminating with that as director; or

(b) As derogating from any power to remove a director which may exist apart from this section.

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1. Substituted by Act 31 of 1988, sec. 67, for "Court" (w.e.f. 31-5-1991) and again substituted by Act 11 of 2003, sec. 34, for "Company Law Board".

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In the case of every company, a meeting of its Board of directors shall be held at least once in every2*[three months and at least four such meetings shall be held in every year]:-

Provided
that the Central Government may, by notification in the Official Gazette, direct that the provisions of this section shall not apply in relation to any class of companies or shall apply in relation thereto subject to such exceptions, modifications or conditions as may be specified in the notification.]

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1. Substituted by Act 65 of 1960, sec. 96, for section 285 (w.e.f. 28-12-1960).

2. Substituted by Act 31 of 1965, sec. 39, for certain words (w.e.f. 15-10-1965).

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(1) Notice of every meeting of the Board of directors of a company shall be given in writing to every director for the time being in India, and at hi s usual address in India to every other director.

(2) Every officer of the company whose duty it is to give notice as aforesaid and who fails to do so shall be punishable with fine which may extend to1*[one thousand rupees].

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1. Substituted  by Act 53 of 2000, sec. 138, for "one hundred rupees" (w.e.f. 13-12-2000).

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( 1 ) In this section -

(a) "Total strength" means the total strength of the Board of directors of a company as determined in pursuance of this Act, after deducting therefrom the number of the directors, if any, whose places may be vacant at the time; and

(b) "Interested director" means any director whose presence cannot, by reason of section 300 , count for the purpose of forming a quorum at a meeting of the Board, at the time of the discussion or vote on any matter.

(2) The quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors whichever is higher:-

Provided
that where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength, the number of the remaining directors, that is to say, the number of the directors who are not interested,1*[present at the meeting being not less than two], shall be the quorum during such time.

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1. Inserted by Act 65 of 1960, sec. 97 (w.e.f. 28-12-1960).

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(1) If a meeting of the Board could not be held for want of quorum, then, unless the articles otherwise provide, themeeting shall automatically stand adjourned till the same day in the next week, at the same time and place, or if that day is a public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

(2) The provisions of section 285 shall not be deemed to have been contravened merely by reason of the fact that a meeting of the Board which had been called in compliance with the terms of mat section could not be held for want of a quorum.



No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or to all the members of the committee, then in India (not being less in number than the quorum fixed for a meeting of the Board or committee, as the case may be), and to all other directors or members at their usual address in India, and has been approved by such of the directors as are then in India, or by a majority of such of them, as are entitled to vote on the resolution.



Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles:-

Provided that nothing in this section shall be deemed to give validity to acts done by a director after his appointment has been shown to the company to be invalid or to have terminated.



(1) Subject to the provisions of this Act, the Board of directors of a company shall be entitled to exercise all such powers, and to do all such acts and things, as the company is authorised to exercise and do:

Provided that the Board shall not exercise any power or do any act or thing which is directed or required, whether by this or any other Act or by the memorandum or articles of the company or otherwise, to be exercised or done by the company in general meeting:-

Provided further that in exercising any such power or doing any such act or thing, the Board shall be subject to the provisions contained in that behalf in this or any other Act, or in the memorandum or articles of the company, or in any regulations not inconsistent therewith and duly made there under, including regulations made by the company in general meeting.

(2) No regulation made by the company in general meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.



(1) The Board of directors, of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolutions passed at meetings of the Board:-

(a) The power to make calls on shareholders in respect of money unpaid on their shares;

1*(aa) The power to authorise the buy-back referred to in the first proviso to clause (b) of  sub-section (2) of section 77A;

(b) The power to issue debentures;

(c) The power to borrow moneys otherwise than on debentures;

(d) The power to invest the funds of the company; and

(e) The power to make loans:-

2*[Provided that the Board may, by a resolution passed at a meeting, delegate to any committee of directors, the managing director,3[***] the manager or any other principal officer of the company or in the case of a branch office of the company, a principal officer of the branch office, the powers specified in clauses (c), (d) and (e) to the extent specified in sub-sections ( 2 ), ( 3 ) and ( 4 ) respectively, on such conditions as the Board may prescribe:-

Provided further that the acceptance by a banking company in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise, or the placing of moneys on deposit by a banking company with another banking company on such conditions as the B oard may prescribe, shall not be deemed to be a borrowing of moneys or, as the case may be, a making of loans by a banking company within the meaning of this section.

Explanation I. -Nothing in clause (c) of sub-section ( 1 ) shall apply to borrowings by a banking company from other banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or under any Act.

Explanation II. -In respect of dealings between a company and its bankers, the exercise by the company of the power specified in clause (c) of sub-section ( 1 ) shall me an the arrangement made by the company with its bankers for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day to day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of.]

(2) Every resolution delegating the power referred to in clause (c) of sub-section (1) shall specify the total amount4[outstanding at any one time] up to which moneys may be borrowed by the delegate.

(3) Every resolution delegating the power referred to in clause (d) of sub-section (1) shall specify the total amount up to which the funds may be invested, and the nature of the investments which may be made, by the delegate.

(4) Every resolution delegating the power referred to in clause (e) of sub-section (1) shall specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made, and the maximum amount of loans which may be made for each such purpose in individual cases.

(5) Nothing in this section shall be deemed to affect the right of the company in general meeting to impose restrictions and conditions on the exercise by the Board of any of the powers specified in sub-section ( 1 ).

292A - 5* Audit Committee

(1) Every public company having paid-up capital of not less than five crores of rupees-shall constitute a committee of the Board knows as Audit Committee which shall consist of not less than three directors and such number of other directors as the Board may determine of which two-thirds of the total number of members shall be directors, other than managing or whole-time directors.

(2) Every Audit Committee constituted under sub-section (1) shall act in accordance with terms of reference to be specified in writing by the Board.

(3) The members of the Audit Committee shall elect a chairman from amongst themselves.

(4) The annual report of the company shall disclose the composition of the Audit Committee.

(5) The auditors, the internal auditor, if any, and the director-in-charge of finance shall attend and participate at meetings of me Audit Committee but shall not have the right to vote.

(6) The Audit Committee should have discussions with the auditors periodically about internal control systems, the scope of audit including the observations of the auditors and review the half-yearly and annual financial statements before submission to the Board and also ensure compliance of internal control systems.

(7) The Audit Committee shall have authority to investigate into any matter in relation to the items specified in this section or referred to it by the Board and for this purpose, shall have full access to information contained in the records of the company and external professional advice, if necessary.

(8) The recommendations of the Audit Committee on any matter relating to financial management including the audit report, shall be binding on the Board.

(9) If the Board does not accept the recommendations of the Audit Committee, it shall record the reasons therefore and communicate such reasons to the shareholders.

(10) The chairman of the Audit Committee shall attend the annual general meetings of the company to provide any clarification on matters relating to audit.

(11) If a default is made in complying with the provisions of this section, the company, and every officer who is in default, shall be punishable with imprisonment for a term which may extend to one year, or with fine which may extend to fifty thousand rupees, or with both.]

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1. Inserted by Act 53 of 2000, sec. 140 (w.e.f. 13-12-2000).

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(1) The Board of directors of a public company, or of a private company which is a subsidiary of a public company, shall not, except with the consent of such public company or subsidiary in general meeting,-

(a) Sell, lease or otherwise dispose of the whole, or substantially the whole, of the undertaking of the company, or where the company owns more than one undertaking, of the whole, or substantially the whole, of any such undertaking;

(b) Remit, or give time for the re-payment of, any debt due by a director1*[except in the case of renewal or continuance of an advance made by a banking company to its director in the ordinary course of business];

(c) Invest, otherwise than in trust securities,2[the amount of compensation received by the company in respect of the compulsory acquisition, after the commencement of this Act], of any such undertaking as is referred to in clause (a), or of any premises or properties used for any such undertaking and without which it cannot be carried on or can be carried on only with difficulty or only after a considerable time;

(d) Borrow moneys after the commencement of this Act, where the moneys to be borrowed, together with the moneys already borrowed by the company (apart from temporary loans obtained from the company's bankers in the ordinary course of business), will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, reserves not set apart for any specific purpose; or

(e) Contribute after the commencement of this Act, to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts the aggregate of which will, in any financial year, exceed3[fifty thousand rupees], or five per cent, of its average net profits as determined in accordance with the provisions of sections 349 and 350 during the three financial years immediately preceding whichever is greater.

4*[Explanation I.-Every resolution passed by the company in general meeting in relation to the exercise of the power referred to in clause (d) or in clause (e) shall specify the total amount up to which moneys may be borrowed by the Board of directors under clause (d) or as the case may be, the total amount which may be contributed to charitable and other funds in any financial year under clause (e).

Explanation II. -The expression "temporary loans" in clause (d) means loans repayable on demand or within six months from the date of the loan such as short term, cash credit arrangements, the discounting of bills and the issue of other short- term loans of a seasonal character, but does not include loans raised for the purpose of financing expenditure of a capital nature.]

Explanation5*[III]. -Where a portion of a financial year of the company falls before the commencement of this Act, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning, and for the purposes, of clause (e).

(2) Nothing contained in clause (a) of sub-section ( 1 ) shall affect -

(a) The title of a buyer or other person who buys or takes a lease of any such undertaking as is referred to in that clause, in good faith and after exercising due care and caution; or

(b) The selling or leasing of any property of the company where the ordinary business of the company consists of, or comprises, such selling or leasing.

(3) Any resolution passed by the company permitting any transaction such as is referred to in clause (a) of sub-section (I) may attach such conditions to the permission as may be specified in the resolution, including conditions regarding the use, disposal or investment of the sale proceeds which may result from the transaction:-

Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in its capital except in accordance with the provisions contained in that behalf in this Act.

(4) The acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdraw able by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of moneys by the banking company within the meaning of clause (d) of sub-section (1).

(5) No debt incurred by the company in excess of the limit imposed by clause (d) of sub-section (1) shall be valid or effectual, unless the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed by that clause had been exceeded.

293A - 6* Prohibitions and restrictions regarding political contributions

(1) Notwithstanding anything contained in any other provision of this Act,-

(a) No Government company; and

(b) No other company which has been in existence for less than three financial years,shall contribute any amount or amounts, directly or indirectly,-

(i) To any political party; or

(ii) For any political purpose to any person.

(2) A company, not being a company referred to in clause (a) or clause (b) of sub¬section (1), may contribute any amount or amounts directly or indirectly, -

(a) To any political party, or

(b) For any political purpose to any person:-

Provided
that the amount or, as the case may be, the aggregate of the amounts which may be so contributed by a company in any financial year shall not exceed five per cent of its average net profits determined in accordance with the provisions of sections 349and 350 during the three immediately preceding financial years.

Explanation. -Where a portion of a financial year of the company falls before the commencement of the Companies (Amendment) Act,1985, and a portion falls after such commencement, the latter portion shall be deemed to be a financial year within the meaning, and for the purposes of this sub-section:-

Provided further
that no such contribution shall be made by a company unless a resolution authorising the making of such contribution is passed at a meeting of the Board of Directors and such resolution shall, subject to the other provisions of this section, be deemed to be justification in law for the making and the acceptance of the contribution authorised by it.

(3) Without prejudice to the generality of the provisions of sub-sections (1) and (2) -

(a) A donation or subscription or payment caused to be given by a company on its behalf or on its account to a person who, to its knowledge, is carrying on any activity which, at the time at which such donation or subscription or payment was given or made, can reasonably be regarded as likely to effect public support for a political party shall also be deemed to be contribution of the amount of such donation, subscription or payment to such person for a political purpose;

(b) The amount of expenditure incurred, directly or indirectly, by a company on advertisement in any publication (being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like) by or on behalf of a political party or for its advantage shall also be deemed, -

(i) Where such publication is by or on behalf of a political party, to be a contribution of such amount to such political party, and

(ii) Where such publication is not by or on behalf of but for the advantage of a political party, to be a contribution for a political purpose to the person publishing it.

(4) Every company shall disclose in its profit and loss account any amount or amounts contributed by it to any political party or for any political purpose to any person during the financial year to which that account relates, giving particulars of the total amount contributed and the name of the party or person to which or to whom such amount has been contributed.

(5) If a company makes any contribution in contravention of the provisions of this section,-

(a) The company shall be punishable with fine which may extend to three times the amount so contributed; and

(b) Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to three years and shall also be liable to fine.]

7*[Explanation. -- For the purposes of this section, "political party" means a political party registered under section 29A of the Representation of the People Act, 1951(43 of 1951).]

293B -8* Power of Board and other persons to make contributions to the National, Defence Fund, etc.

(1) The Board of directors of any company or any person or authority exercising the powers of the Board of directors of a company or of the company in general meeting, may, notwithstanding anything contained in sections 293 and 293A or any other provision of this Act or the memorandum, articles or any other instrument relating to the company, contribute such amount as it thinks fit to the National Defence Fund or any other Fund approved by the Central Government for the purpose of national defence.

(2) Every company shall disclose in its profits and loss account the total amount or amounts contributed by it to the Fund referred to in sub-section (1) during the financial year to which the amount relates.]

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1. Added by Act 65 of 1960, sec. 99 (w.e.f. 28-12-1960).

2. Substituted by Act 65 of 1960, sec. 99, for certain words (w.e.f.28-12-1960).

3. Substituted by Act 46 of 1977, sec. 6, for "twenty-five thousand rupees" (w.e.f. 24-12-1977).

4. Inserted by Act 65 of 1960, sec. 99 (w.e.f. 28-12-1960).

5. Former Explanation re-numbered as Explanation III by Act 65 of 1960, sec. 99 (w.e.f. 28-12-1960).

6. Section 293A inserted by Act 65 of 1960, sec. 100 (w.e.f. 28-12-1960) and substituted by Act 17 of 1969, sec. 3 (w.e.f. 28-5-1969) and again substituted by Act 35 of 1985, sec. 2 (w.e.f. 24-5-1985).

7. Inserted by Act 46 of 2003, sec, 7 (w.e.f. 11-9-2003).

8. Inserted by Act 80 of 1971, Section 2 ( w.r.e.f. 3-12-1971).

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Last updated on August, 2016

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