RELEVANT SECTIONS OF THE COMPANIES ACT, 1956 :

1. Definition of “joint stock company” (Section 566): For the purposes of Part IX of the Act, a joint stock company means a company having:

(i) a permanent paid-up or nominal share capital of a fixed amount,

(ii) divided into shares also of fixed amount or held and transferable as stock, or

(iii) divided and held partly in shares and partly in stocks and

(iv) the members are the holders of these shares or stocks.

When such a company is registered under the Companies Act, 1956, then it shall be deemed to be a company limited by shares.

2. Requirements for registration of joint-stock companies (Section 567): Prior to the registration of a joint-stock company (under Part IX), the following documents have to be delivered to the Registrar:

(i) a list of names, addresses and occupations of all persons who on a day named in the list (not being more than 6 clear days before the day of registration) were members of the company. The list also embodies the shares or stock held by them respectively, distinguishing, in cases where the shares are numbered, each share by its member.

(ii) a copy of any Act of Parliament or other Indian Law, Act of Parliament of the U.K., Royal Charter, Letters Patent, Deed of Settlement, Deed of Partnership or other instrument constituting or regulating the company; and

(iii) if the company is intended to be registered as limited company, a statement specifying such particulars as:

(a) the nominal share capital of the company and the number of shares into which it is divided or the amount of stock of which it consists,

(b) the number of shares taken and the amount paid on each share,

(c) the name of the company with the addition of the word “Limited” or “Private Limited” as the last word or words; and

(d) in the case of a company intended to be registered as a company limited by guarantee, a copy of the resolution declaring the amount of the guarantee.

The application to the Registrar of Companies should be in Form 37. The list of numbers should be in Form No. 39. Particulars of capital should be in Form No. 40.

3. Requirements for registration of companies not being joint-stock companies (Section 568): This section lays down the procedure for registration of companies other than joint-stock companies. Prior to registration, the following documents have to be delivered to the Registrar, namely (i) a list showing the names, addresses and occupation of the directors, and the manager, if any; (ii) a copy of any Act of Parliament or other Indian Laws, Acts of the U.K. Parliament, Letters Patent, Deed of Settlement, Deed of Partnership or other instrument constituting or regulating the company; and (iii) in the case of a company intended to be registered as a company limited by guarantee, a copy of the resolution declaring the amount of the guarantee.

The application for the registration of companies should be in Form No. 38 and the particulars of directors or managers or secretaries etc. in Form No. 42.

4. Authentication of statements of existing companies (Section 569): The documents to be filed with the Registrar of Companies (mentioned above) have got to verify by the declaration of at least 2 directors or other principal officers of the company.

5. Power of the Registrar to require evidence as to nature of the company (Section 570): The Registrar has the discretion to call for such evidence as he thinks necessary for the purpose of satisfying himself, whether any company proposing to be registered is or is not a joint-stock company within the meaning of Section 566.

The Registrar has the discretion to refuse registration of a company, but he must not exercise this discretion arbitrarily. Against refusal by the Registrar, an application under Article 226 of the Constitution would lie in the High Court.

6. Change of name for purposes of registration (Section 572): It is open to the Registrar of Companies to refuse registration of a company if its name is undesirable. In such a situation, the company may, with the approval of the Central Government signified in writing, change its name with effect from the date of its registration (under Part IX). However, for changing the name as aforesaid, a resolution has to be passed at a meeting of the members comprising the same. The passage of such resolution must be by a majority as specified in Section 565.

7. Addition of “Limited” or “Private Limited” to name: Under Section 573, on registration (under Part IX), every company must have the word “Limited” or “Private Limited”, in its name. However, such a company may obtain a license under Section 25 (Section 8 of the Companies Act, 2013) for the omission of the word “Limited” or “Private Limited”.

8. Power to substitute Memorandum and Articles for Deed of Settlement (Section 579): A company registered in pursuance of Part IX may by a special resolution, alter the form of its constitution, memorandum or articles for a deed of settlement (i.e., any Deed of Partnership, Act of U.K., Parliament, Royal Charter and Letters Patent or other instrument constituting or regulating the company. But the term does not include any Indian Act).

The provisions of Sections 17, 18 and 19 regarding alteration of the objects, shall so far as applicable apply to any alteration under this Section with the following modifications:

(i) there shall be substituted for the printed copy of the altered memorandum required to be filed with the Registrar a printed copy of the substituted memorandum and articles; and

(ii) on the registration of the alteration being certified by the Registrar, the substituted memorandum and articles shall apply to the company in the same manner, as if it were a company registered under this Act with that memorandum and those articles, and company’s deed of settlement shall cease to apply to the company.

9. Power of Court to stay or restrain proceedings (Section 580): After the presentation of a petition for winding-up but before the order of winding-up is made, the Court may, on an application made under Section 442, stay any suit or legal proceedings already pending and may restrain any person from filing a suit or taking legal proceedings against the company. Under Section 580, the same jurisdiction of the Court may be exercised.

The company, a contributory and a creditor may apply for stay of any suit or legal proceedings against the company. A suit or legal proceedings pending against a contributory, who might have been previously personally liable for company’s debts, can
be stayed only on the application of the creditor Section 586 [discussion in Chapter 10] makes a similar provision in respect of unregistered companies.

N.B: (i) Section 422 applies to companies within the meaning of the Companies Act, 1956.

(ii) Section 580 applies to companies not incorporated under this Act but are allowed to be registered under the Act.

(iii) Section 586 can be invoked when an Indian Court is winding-up an “unregistered company” including a foreign company.

10. Suits stayed on winding-up order (Section 581): The provisions of this Section are similar to those of Section 446. No person can file or proceed with any suit or legal proceeding against the company or any contributory of the company except by leave of the court. This provision applies when a winding up order has been made or a provisional liquidator has been appointed and the company is registered under Part IX of the Act.

11. Composition of certain offences: Section 621A inserted by the Companies (Amendment) Act, 1988 provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973 any offence punishable under this act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine may, either before or after the institution of any prosecution be compounded by (i) the Company Law Board (ii) the Regional Director, where the fine imposed for such offence does not exceed ` 5,000 on payment or credit of such sum, as may be specified.

12. Jurisdiction to try offences: An offence against the Act shall be tried at least by the Court of Presidency Magistrate or a magistrate of the First Class (Section 622). In as much as a company is judicial person, it can be prosecuted like any other individual also it can be convicted and fined, if it is found guilty. Suppose an offence is punishable under the Act only by fine and nothing else. In such a situation, if the offence were committed within Presidency town, it would be punishable upon summary conviction by any Presidency Magistrate of that town (Section 623).

13. Compensation in the case of frivolous and vexations prosecution: For the institution of frivolous and vexatious prosecution against a company or an officer thereof by a share holder, he may be ordered by the trying Magistrate to pay to the aggrieved party by way of compensation an amount not exceeding ` 1,000. In case of default in payment of the said amount the shareholder may be ordered to undergo a simple imprisonment for a maximum period of two months. The shareholder, however, shall have the right to appeal against such order (Section 625).

14. Contracts by agents where a company is an undisclosed principal: Section 416 prescribes a special rule with regard to contracts entered into on behalf of a public company (or a private company which is a subsidiary of a public company) by the manager or other agent, in which the company is an undisclosed principal. It provides that any such person, when entering into such a contract, must draw up a memorandum of the terms of the contract, at the time of contract is entered into, specifying the names of the persons with whom it has been done. The memorandum must be placed in the record of the company and the copies thereof must be sent to all the directors. Subsequently, the memorandum should be placed before the Board at its next following meeting. In case of default, the contract, at the option of the company, shall be voidable as against the company, and the person who had entered into the contract or every officer of the company in default, as the case may be, would be liable to penalty, which may extend to ` 2000/-. However, the Central Government may grant relief under Section 463 of the Companies Act, 2013, to an officer in default, if it appears to it that the person has acted honestly and reasonably and that having regard to all the circumstances of the case, he ought fairly to be excused. The relief may be granted either wholly or partially.

15. Employees’ Security and Provident Funds: Sections 417-420 of the Companies Act, 1956 deal with the Employees‟ Securities and Provident Funds. They provide as follows:

(i) Any money or security deposit made by an employee of a company under the terms of his contract of services, must be kept or deposited by the company within 15 days from the date of deposit in a Post Office Savings Bank Account or in a special account to be opened with the State Bank of India or a Scheduled Bank or, where the company itself is a Scheduled Bank, in a special account to or be opened by it at or with the State Bank of India or any other Scheduled Bank.

The Company must not utilise any portion of such moneys or securities except for the purposes agreed to, in the contracts of service (Section 417).

(ii) Where a provident fund has been constituted by a company for its employees or any class of its employees, all money contributed to such fund (whether by the company or by the employees) or received or accruing by way of interest or otherwise to such fund, within 15 days from the date of contribution, receipt or accrual should be deposited in a Post Office Savings bank Account or in a special account in a Scheduled Bank or in the State Bank of India, or where the company itself is a Scheduled Bank in, a special account to be opened either in itself or in the State Bank of India, or in any other Scheduled Bank or suitably invested in securities mentioned or referred to in Sections 20(a) to (e) to the Indian Trusts Act, 1882 [Section 418(1)].

(iii) In no case will an employee be entitled to receive an interest in respect of the amount standing to his credit at a rate in excess of that yielded by the investment made in accordance with the requirements aforementioned [Section 418(2)].

(iv) An employee may obtain advances from the fund or with draw money standing to his credit in the fund, if the fund is a recognised provident fund within the meaning of Section 58A(a) of the Income Tax Act, 1922 or if the rules of the fund contain provisions
corresponding to the rules 4 to 9 of the Income-tax (Provident Funds Relief) Rules [Section 418(3)].

Tutorial Note: Section 2(38) of the Income Tax Act, 1961 defines a recognised provident fund and the relevant rules thereto are provided in Part XII (Rules 67 to 81) of the Income-tax Rules, 1962.

(v) If a trust has been created by the company with regard to any provident fund, the company must collect and pay the employee‟s contributions together with its own contributions to the trustees within 16 days from the date of their collection. Thereafter the trustees will be obliged to comply with the aforesaid requirements as regards their investment [Section 418(4)].

An employee, on making request to the company or to the trustees, as the case may be, may look into the receipts issued by banks for provident fund money and securities deposited with them as well as the bonds or securities in respect of investments in trust securities (Section 419). But such a right can be exercised only by an existing employee and not by an ex-employee or past employee or a person whose service has been terminated. [The State vs. Girdhari Bajaj, 63 Bom. L.R. 743].

Any contravention of the provisions of Sections 417, 418 & 419 by an officer of the company or by a trustee of the provident fund will render him punishable with imprisonment for a period extending up to six months or with fine extending to ` 10,000 (Section 420).

The status of Trust continues even though the balance in the Fund has been misapplied. Even if the balance standing to the credit of the provident fund, or the amounts deposited by the employees, is wrongfully invested and profits accrue to the company out of these wrongful investments the character of trust attaching to the fund is not altered. Neither would such a use have the effect of converting it into a loan. It will continue to remain a fund irrespective of the fact that the employees knew that the company had wrongfully employed the fund in its own business. It would not preclude the employees from claiming the funds from the company when it is in liquidation, as preferential creditors. This is because the company shall continue to be the trustee in respect of these funds and will not become mere debtor. [Alliance Bank of Simla Ltd. (1924) 21 C.W.N. 721, Re. Bengal Zamindari and Banking Co. (1937) 2 Cal. 305].

16. Receivers and Managers: A receiver of the property of a company should furnish the Registrar of Companies once in every half year while he remains in possession and also on his ceasing to act as receiver an abstract of receipts and payments during the period to which the abstract relates in Form No. 36 of the Companies (Central Government‟s) Rules and Forms, 1956. Moreover, on the appointment of the Receiver, an entry to this effect should appear in every invoice, order for goods or business letter issued by or on behalf of the company or the receiver. In the event of these provisions being contravened, the company and every officer thereof, who is in default, shall be liable to pay a fine of ` 2000 (Sections 421-423).

17. Security for costs by Limited Company: When a limited company is the plaintiff of petitioner in a suit or in any other legal proceedings, if the Court having the jurisdiction in the matter has reason to believe that the company will not be able to pay the cost of the defendant, if he is successful in his defence, it may require the company to furnish sufficient security for costs, and may stay all proceedings until the security is provided (Section 632).

18. Enforcement of duty of a company to make returns etc. to Registrar: Where a company is required under the Act to file or register any return, account or other document or notice, and the company defaults in doing so for a period of 14 days, then any member or creditor of the company or the Registrar may make an application to the Company Law Board for such compliance. On such an application, the Company Law Board may direct the company and any officer thereof to make good the default within such time as may be specified in the order. But this provision does not affect the levying of any penalty on the company or its officers in respect of any such default (Section 614).

19. Power of the Court trying offences under the Act to direct the filing of documents with Registrar: Any Court trying an offence for a default in compliance with any provisions of the Act, which requires a company or its officers to file or register with or deliver or send to the Registrar any return, account or other document, may, at the time of sentencing, acquitting or discharging the accused, as the case may be, compel such compliances by order on payment of the fee including the additional fee required to be paid under Section 611 within the time specified in the order. If such an order is not complied with, the defaulting officer or employee of the company shall be liable to be punished with imprisonment for a maximum period of 6 months or with fine, or with both (Section 614A). Further, if a director fails to comply with the order of the Court under the Companies Act to submit a return to the Registrar within the stipulated time, he shal l be guilty of contempt of Court and the High Court has power to punish the direct or for contempt of the Court [State of U.P. vs. Tikka Ram Uniyal (1964) 34 Comp. Cas. 5].

20. Enforcement of orders: Any order made by a Court under the Companies Act is enforceable in the same manner as a decree made by the Court in a suit pending with it (Section 634).

21. Enforcement of orders of Company Law Board: Section 634A which has been added by the Companies (Amendment) Act, 1977 and as amended by the Companies (Amendment) Act, 1988 provides that any order made by the Company Law Board may be enforced by the Board in the same manner as if it were a decree by a Court in a suit pending therein and it shall be lawful for that Board to send in the case of its inability to execute such order, to the Court within the local limits of whose jurisdiction: (a) in the case of an order against a company the registered office of the company is situated; or (b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

22. Enforcement of orders of one Court by other Court: Where the order of the Company Court, which is deemed to be decree, is to be executed outside its jurisdiction, a certified copy of the order has to be produced before the other Court [Section 635(1)]. The production of such certified copy shall be sufficient evidence of the order. Upon the production of such certified copy of the Court shall take the requisite steps for enforcing the order, in the same manner as if it had been made by itself [Sections 635(2) & (3)].
Where, any order made by the Company Law Board required to be enforced by a Court a certified copy of the order shall be produced to the proper officer of the Court required to enforce the order and the provisions of sub-sections (2) & (3) shall, as far as may be, apply to every such order in the same manner and to the same extent as they apply to an order made by a Court [Section 635(4) added by the Amendment Act, 1977 as amended by the Companies (Amendment) Act, 1988].