Whether SFIO needs to complete the investigation within the time specified by the Central Govt.?

The Apex Court held that the period that the Central Govt. may prescribe to complete investigation u/s.212(3) is directory and no fixed period is provided for completion of investigation by SFIO; transfer of investigation by other agencies to SFIO u/s.212(2) of the Companies Act 2013 is irrevocable; when accused is directed to remand by a competent court in exercise of judicial function then the same cannot be challenged by writ of habeas corpus; and about territorial jurisdiction of High Court held that even if the arrests were effected within the jurisdiction of the High Court, since the accused were produced before a competent court in pursuance of Sections 435, 436 of the Companies Act 2013, the High Court ought not to have entertained the writ petition.

Hon’ble Supreme Court in  SFIO vs. Rahul Modi and Another etc. 2019 SCC OnLine SC 423 vide judgement dt. 27/03/2019:

Factual matrix:

a) The investigation into the affairs of Adarsh Group of Companies and LLPs was assigned by the Central Government to SFIO vide Order dated 20.6.2018, per section 212(1)(c) of the Companies Act, 2013. This Order did stipulate in para 6 that the Inspectors should complete their investigation and submit their report to the Central Government within three months.

b) On 20.6.2018 itself, the Director, SFIO appointed investigating officers.

c) The period of three months expired on 19.09.2018. However, the investigation was not over.

d) The proposal to arrest three accused persons was placed by the Investigating Officers before the Director, SFIO and after being satisfied in terms of requirements of Section 212(8) of 2013 Act approval was granted by Director, SFIO on 10.12.2018.

e) After they were arrested on 10.12.2018, the accused were produced before the Judicial Magistrate, Gurugram, Haryana, who by his order dated 11.12.2018 remanded them to custody till 14.12.2018 and also directed that they be produced before the Special Court, Gurugram on 14.12.2018.

f) On 13.12.2018 a proposal seeking extension of time for completing investigation in respect of 57 cases including the present case was preferred by SFIO before the Central Government.

g) On 14.12.2018 the Special Court, Gurugram remanded the accused to custody till 18.12.2018.

h) On the same date i.e. on 14.12.2018 the proposal for extension was accepted by the Central Government in respect of the Group and extension was granted upto 30.06.2019.

i) On 17.12.2018 the Writ Petitions were preferred, inter alia, seeking prayer of writ of habeas corpus, which came up for the first time before the High Court of Delhi on 18.12.2018.

j) On 18.12.2018 itself the accused were further remanded to police custody till 21.12.2018 by the Special Court, Gurugram.

k) On 20.12.2018 Hon’ble High Court at Delhi issued notice returnable on 31.1.2019 and proceeded to consider ad interim relief for immediate release of the accused. It held arrest as illegal detention which cannot be sanctified by subsequent remand orders passed by the concerned Magistrate. And pursuant to said order, the original Writ Petitioners were released on bail. This ad interim relief was challenged by the SFIO before Hon’ble Supreme Court in the present case.

  1. Whether the the date with reference to which the legality of detention can be challenged in a Habeas Corpus proceeding is the date on which the return is filed in such proceedings and not with reference to the initiation of the proceedings?

Held yes, as decided by the Federal Court in Basanta Chandra Ghose vs. King Emperor (1945)7 FCR 81. Similar question was considered in Kanu Sanyal vs. District Magistrate, Darjeeling and Others (1974) 4 SCC 141. The law is thus clear that “in Habeas Corpus proceedings a Court is to have regard to the legality or otherwise of the detention at the time of the return and not with reference to the institution of the proceedings”.

Hon’ble Supreme Court also considered its recent decision of division bench in Manubhai Ratilal Patel through Ushaben vs. State of Gujarat and others (2013) 1 SCC 314; in Saurabh Kumar vs. Jailor, Koneila Jail and another (2014) 13 SCC 436 and a bench of three learned judges in State of Maharashtra and Others vs. Tasneem Rizwan Siddiquee (2018) 9 SCC 745 and held that act of directing remand of an accused is thus held to be a judicial function and the challenge to the order of remand is not to be entertained in a habeas corpus petition.

  1. Whether Delhi High Court have territorial Jurisdiction?

Section 435 of the Companies Act 2013 contemplates establishment of Special Courts for the purpose of providing speedy trial of offences under the said Act. Section 436 then provides that “offences specified under sub-section (1) of Section 435 shall be triable only by Special Court established or designated for the area in which the Registered Office of the Company, in relation to which the offence is committed ……”. Soon after the arrest, the accused were produced before the Judicial Magistrate, Gurugram and then before the Special Court, Gurugram. Special Court, Gurugram would be competent to deal with the matter in terms of Section 436.

However, Learned counsel for the writ petitioners, however, contend that since the accused were arrested in Delhi, were kept in custody in Delhi, and the SFIO office being in Delhi, the High Court of Delhi was competent to entertain and consider the writ petitions so preferred by the writ petitioners. Reliance was placed by them on the decision of this Court in Navinchandra N. Majithia v. State of Maharashtra and others (2000) 7 SCC 640.

However, the Apex Court found that the judgement in Navinchandra Majithia, was not dealing with the matter.  And it relied upon Dashrath Rupsingh Radhod vs. State of Maharashtra and another (2014) 9 SCC 129 and found that “It is true that the decision in Dashrath Rupsingh Radhod 15 was in the context of a criminal complaint under Section 138 of the Negotiable Instruments Act and not while dealing with an issue of maintainability of a writ petition under Article 226 of the Constitution. It cannot, therefore, be said that in the present case, the High Court completely lacked jurisdiction to entertain the petition. However, since the challenge was with respect to the detention pursuant to valid remand orders passed by the Judicial Magistrate and the Special Court, Gurugram, in our considered view, the High Court should not have entertained the challenge. If the act of directing remand is fundamentally a judicial function, correctness or validity of such orders could, if at all, be tested in a properly instituted proceedings before the appellate or revisional forum. In the circumstances even if the arrests were effected within the jurisdiction of the High Court, since the accused were produced before a competent court in pursuance of Sections 435, 436 of 2013 Act, the High Court ought not to have entertained the writ petition. “

  1. The period within which an investigation report is contemplated to be submitted to the Central Govt. u/s.212(3) is mandatory or directory? And where the initial Order of arrest itself was invalid then can such illegality be sanctified by subsequent Order of remand?

Under sub-Section (3) where the investigation is so assigned by the Central Government to SFIO, the investigation must be conducted in the manner and in accordance with the procedure provided in the Chapter and a report has to be submitted to the Central Government within such period as may be specified. This provision contemplates submission of a report within the period as may be specified. The subsequent provisions then contemplate various stages of investigation including arrest under sub-Section (8) and that SFIO is to submit an interim report to the Central Government, if it is so directed under sub Section (11). Further, according to sub-Section (12), on completion of the investigation, SFIO is to submit the “investigation report” to the Central Government. This report under sub-Section (12) may lead to further follow up actions. Under sub-Section (13) a copy of the “investigation report” could be obtained by any concerned person by making an application in that behalf to the Court while under sub-Section (14) on receipt of said “investigation report” the Central Government may direct SFIO to initiate prosecution against the Company. And the provisions of Section 43(2) of the Limited Liability Partnership Act, 2008 do not postulate any such period. Hon’ble Apex Court finds that Section 212(3) of 2013 Act by itself does not lay down any fixed period within which the report has to be submitted. Even under sub-Section (12) which is regarding “investigation report”, again there is no stipulation of any period. In fact such a report under sub-Section (12) is to be submitted “on completion of the investigation”. There is no stipulation of any fixed period for completion of investigation which is consistent with normal principles under the general law. For instance, there is no fixed period within which the investigation under Criminal Procedure Code must be completed.

Again, sub-Section (2) of Section 213 of 2013 Act does not speak of any period for which the other Investigating Agencies are to hold their hands, nor does the provision speak of any re-transfer of the relevant documents and records from SFIO back to said Investigating Agencies after any period or occurring of an event (unlike Section 7 of the National Investigation Agency Act, 2008). The idea under sub-Section (2) is complete transfer of investigation. The transfer under sub-Section (2) of Section 213 would not stand revoked or recalled in any contingency.

“It is well settled that while laying down a particular procedure if no negative or adverse consequences are contemplated for non-adherence to such procedure, the relevant provision is normally not taken to be mandatory and is considered to be purely directory. Furthermore, the provision has to be seen in the context in which it occurs in the Statute. There are three basic features which are present in this matter:-

1. Absolute transfer of investigation in terms of Section 212(2) of 2013 Act in favour of SFIO and upon such transfer all documents and records are required to be transferred to SFIO by every other Investigating Agency.

2. For completion of investigation, sub-Section (12) of Section 212 does not contemplate any period.

3. Under sub-Section (11) of Section 212 there could be interim reports as and when directed.”

And held that In the absence of any clear stipulation an interpretation that with the expiry of the period, the mandate in favour of SFIO must come to an end, will cause great violence to the scheme of legislation. If such interpretation is accepted, with the transfer of investigation in terms of sub Section (2) of Section 212 the original Investigating Agencies would be denuded of power to investigate and with the expiry of mandate SFIO would also be powerless which would lead to an incongruous situation that serious frauds would remain beyond investigation. That could never have been the idea. The only construction which is, possible therefore, is that the prescription of period within which a report has to be submitted to the Central Government under sub-Section (3) of Section 212 is purely directory.

And further held that therefore it cannot be said that in the instant case the mandate came to an end on 19.09.2018 and the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was in any way illegal or unauthorised by law.


Commencement, scope and overriding effect:

The Ordinance called the Banning of Unregulated Deposit Schemes Ordinance, 2019 notified on 21st February 2019 came into force on the same date.

It extends to the whole of India except the State of Jammu and Kashmir. The Ordinance is in addition to provisions of other law Sec.35[/efn_not]. The Ordinance has overriding effect over other laws framed by the Central Govt or the State Governments. [Sec.34]. It amends the RBI Act, SEBI Act and the Multi-State Co-operative Societies Act. [Sec. 42, r/w the Second Schedule.].

It prohibits ‘deposit takers’ from accepting “unregulated deposits”. It provides for stringent penalties and most offences are made cognizable and non-bailable.

Though Chapter IIB of the Reserve Bank of India Act, 1934 prohibits acceptance and solicitation of deposits by unincorporated persons, it has not achieved its purpose as there is no mechanism to monitor the compliance of the same. The new Ordinance deals with the menace with fierce hands. It also provides for certain compliances to be done by the Companies and other entities.All money accepted falls under the definition of ‘deposit’ and hence deposit taker (other than Companies (NBNFCs) and NBFCs) need to check if it falls outside the exemption granted within the definition of the ‘deposit’ or not. If not, then one need to consider is it accepting and/or soliciting the deposit which is considered as ‘unregulated deposit’. If it is so, the same is banned/prohibited.

Deposit taker:

The Ordinance defines “deposit takers” as an individual, a group of individuals, or a company who asks for (solicits), or receives deposits.  Banks and entities incorporated under any other law are not included as deposit takers[efn_note]Sec.2(6)[/efn_note].

Every ‘deposit taker’ which carries on 21/2/2019 or commences business thereafter of accepting or soliciting deposits is required to intimate to the authority about its business. Even companies accepting deposits under Chapter V of the Companies Act 2013 need to intimate.[Sec.10].

‘Deposit taker’ of regulated deposits shall not make ‘fraudulent’ default in repayment or return or deposit on maturity or in rendering any specified services promised against such deposit [Sec.4]. And in case of any such fraudulent default by the deposit taker, punishment is of imprisonment up to 7 years or fine ranging from minimum Rs.  5 lakh to Rs.25 crore or 3 times the amount of profits made, whichever is higher or both [Sec.22].

Unregulated deposit:

The “unregulated deposit scheme” means a scheme or an arrangement under which deposits are accepted or solicited by any deposit taker by way of business and which is not a Regulated Deposit Scheme. [Sec.2(17)]

On and from the date of commencement of the Ordinance the “Unregulated Deposit Schemes” is banned and-

  1. No deposit taker should participate or enrol or accept deposits in pursuance of Unregulated Deposit Scheme.
  2. No Deposit taker should commit fraud in repaying or returning of deposit on maturity or in rendering any specified service promised against such deposit while accepting deposits pursuant to a Regulated Deposit Scheme.
  3. No person should knowingly make any statement, promise or forecast which is false, deceptive or misleading in material facts or deliberately conceal any material facts, to induce another person to invest or become a member or participant of Unregulated Deposit Scheme.
  4. A prize chit or money circulation scheme banned under the Prize Chits and Money Circulation Scheme (Banning) Act, 1978 should be deemed to be an Unregulated Deposit Scheme.

Regulated Deposit:

Following are recognised as the “regulated deposits” under the Ordinance:

  1. Deposits accepted by companies as per Companies Act,  2013,
  2. Deposits by Nidhi or mutual benefit Society u/s.406 of the Companies Act, 2013,
  3. Deposits by Chit funds registered with State Govt. under the Chit Funds Act, 1982,
  4. Deposits by money lenders under the laws of States / Union Territories,
  5. Any scheme or an arrangement by a prize chit or money circulation scheme under section 11 of the Prize Chit and Money Circulation Schemes (Banning) Act, 1978, (However, other banned Prize Chits or Money Circulation schemes under the said Act are treated as Unregulated Deposits),
  6. Deposits accepted by registered NBFCs,
  7. Deposits accepted by SEBI registered entities as Portfolio Managers, Mutual Funds, Collective Investment Scheme, Alternate Investment Funds, Employee Benefits (ESPS/ESOP), any other scheme or arrangement registered under the SEBI Act, 1992,
  8. Deposits from voting members by a registered Multi-State Co=operative Society,
  9. Deposits under PF, ESIC, Pension under respective laws,
  10. Deposits under a scheme or arrangement as per the National Housing Board Act, 1987,
  11. deposits accepted under any scheme or an arrangement registered with any regulatory authority established under a Statue; and
  12. any other scheme as may be notified by the Central Government.

The Ordinance defines a “deposit” as an amount of money received through an advance, a loan, or in any other form, with a promise to be returned with or without interest. Such deposit may be returned either in cash or as a service, and the time of return may or may not be specified. Further, the Ordinance defines certain amounts which shall not be included in the definition of deposits. [efn_note]Sec.2(4)[/efn_note] For example, loan received by an individual or partnership firm from relatives (relative of partners), amount received by partnership / LLP as capital, self help groups receiving periodic payments from its members subject to ceiling to be specified, amount received in the course of or for business purpose and bearing a genuine connection to such business. The definition of ‘deposit’ under the BUDs Ordinance u/s.2(4) excludes many things. One important exemption is under clause (l) which says ‘an amount received in the course of or for the purpose of business and bearing a genuine connection to such business’ is permitted. Then it gives a list of items which are only illustrations and such illustrated items are permitted category of receipt of money. 

For Companies, the meaning of ‘deposit’ is the same as that under Companies Act 2013 and for NBFCs, the meaning of ‘deposit’ is the same as under the RBI Act, 1934. 

Depositors have priority except under SARFAESI and IBC:

Save as otherwise provided in the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 or the Insolvency and Bankruptcy Code, 2016, any amount due from a deposit taker shall be paid in priority over all debts and all revenues, taxes, cesses and other rates payable to the Appropriate Government or the local authority. The Competent Authority shall open an account in a scheduled bank for crediting and dealing with money realized under this Ordinance. [efn_note]Sec.12[/efn_note]. Also, provisional attachment by the Competent Authority has priority, to the extent of the claims of the depositors, over any attachment any authority, except under SARFAESI or IBC, for repayment of any debt, revenue, taxes and cesses and other rates payable to State Govts. or local authorities.[Sec.13]


1. Authority for online database:

The Central Govt. to establish an authority (existing or new) to create an online central database for information on “deposit takers”. And such authority to seek information on ‘deposit takers’ operating in India from Competent Authority or any regulator. [Sec.9]. The Competent Authority will be required to share all information on unregulated deposits with the authority. All deposit takers will be required to inform the database authority about their business. 

2. Competent Authority with a power to attach property, search and seize documents etc.

It intends to appoint ‘competent authority’ who shall be a person designated by the State Government and can be of the rank of Secretary of the State or higher.[Sec.7]. State Govt may nominate more than one such person. And any officer can be notified by State Govt. as an assistant to the Competent Authority. Competent Authority or any officer assisting him (and as notified by State Govt), after recording in writing reasons, provisionally attach the deposits of ‘deposit taker’ who are accepting or soliciting Unregulated deposits. It can also attach money or any property of ‘deposit taker’[Sec.7(3)]. Further, officers may enter, search and seize any property believed to be connected with an offence under the Ordinance, with or without a warrant.  The Competent Authority may: (i) provisionally attach the property of the deposit taker, as well as all deposits received, (ii) summon and examine any person it considers necessary for the purpose of obtaining evidence, and (iii) order the production of records and evidence. He may impound and retain in his custody, the records produced (after recording reasons for such impounding) for such period as may be prescribed by the Rules. For retaining records beyond three months, officers require the prior approval of the Competent Authority. The Competent Authority will have powers similar to those vested in a civil court. And proceedings before him are judicial proceedings u/s.193 and 228 of IPC.

3. Sharing of information with investigating agency:

Banks, State Govts., any regulator, income tax authorities or any investigating agency if having any information in respect of offence investigated by the Police or the CBI, shall share the same to the Police or the CBI.[Sec.11(2) and (3)].

4. Designated Courts:

The Ordinance provides for Designated Courts.  This Court will be headed by a judge, not below the rank of a district and sessions judge, or additional district and sessions judge. After provisional attachment of the deposit takers’ assets, the Competent Authority will approach within 30 days (extendable to 60 days)[Sec.14] the Designated Court to: (i) make the provisional attachment absolute, and (ii) ask for permission to sell the assets. It will also open a bank account to realise and disburse money to depositors under the instructions of the Designated Court.

The Designated Court will have the power to: (i) make the provisional attachment absolute, (ii) vary or cancel the provisional attachment, (iii) finalise the list of depositors and their respective dues, and (iv) direct the Competent Authority to sell the property and equitably distribute the money realised among the depositors. The Court will seek to complete the process within 180 days of being approached by the Competent Authority.[Sec.15(6)]

The Designated Court may take cognizance of offences under the Ordinance without accused being committed to it for Trial.[Sec.32] Thus, it appears that upon the filing of charge sheet by police or the CBI, the Magistrate need to not take any cognizance and remit the matter to the Designated Court.

The Designated Court may also try the accused of an offence other than under the Ordinance, with which the accused may be charged under the Criminal Procedure Code, at the same trial as under the Ordinance. Designated Court is also given the power of disgorgement.[Sec.18(1)(f)]

Designated Court to take cognizance of an offence under the Ordinance only upon a complaint filed by the RBI, SEBI, IRDAI, NHB, PFRDA, EPFO, Central Registrar of Multi-State Co-op. Societies, MCA or any State Govt./Union Territories. However, where a company is accused, cognizance can be taken upon complaint of any person.[Sec.27]

The Competent Authority needs to file an application for making provisional attachment absolute and permission to sell the property. Upon receipt of an application, the Designated Court shall issue a notice to the deposit taker, any person whose property is attached to show cause notice., all other persons represented to it. The Designated Court shall then pass the necessary order.

Appeal from the order of the Designated Court shall be to High Court within 60 days.[Sec.19]

4. Rules

The Ordinance is intended to be implemented by State Governments. It authorises the Union and State Government to frame rules. The Rules are expected to provide for, inter alia, the following:

(i) manner in which and the period for which property may be impounded by the Competent Authority or his assistant officers,

(ii) particulars in the application to be made by the Competent Authority to the Designated Court,

(ii) procedure to be adopted by the Designated Court in dealing with provisionally attached property.

5. Offences and penalties

The Ordinance defines three types of offences, and penalties related to them.  These offences are: (i) running (advertising, promoting, operating or accepting money for) unregulated deposit schemes, (ii) fraudulently defaulting on regulated deposit schemes, and (iii) wrongfully inducing depositors to invest in unregulated deposit schemes by willingly falsifying facts.  For example, accepting unregulated deposits will be punishable with imprisonment between two and seven years, along with a fine ranging from three to 10 lakh rupees.  Defaulting in repayment of unregulated deposits will be punishable with imprisonment between three and 10 years, and a fine ranging from five lakh rupees to twice the amount collected from depositors.  Repeated offenders under the Ordinance will be punishable with imprisonment between five to 10 years, along with a fine ranging from Rs 10 lakh to five crore rupees.[Sec.24]


With the Ordinance in place, now the entire gamut of financial transactions are governed by the law. Unregulated deposits have been the last lag over which there were many legal points remained unanswered. Now the ordinance fills the gap and aggrieved parties, as well as regulators, get clarity on the matter.

Companies (Restriction on number of layers) Rules, 2017

Indian Companies can have only two layers of subsidiaries under the Companies Act 2013, with the government putting in place stricter norms as it continues with the clampdown on illicit fund flows.

The Companies (Restriction on number of layers) Rules, 2017, notified (G.S.R. 1176(E)) by Central Government, came into effect from 20th September 2017.

  1. Meaning of Layers of Subsidiary

The Rules has not defined layers of subsidiaries. As per explanation (d) to Section 2(87) which defines ‘subsidiary’, layer in relation to a holding company means its subsidiary(ies).

As per the Rules, the following are not to be considered as layers of subsidiaries.

  • One layer which consist of one or more wholly owned subsidiary(ies) shall not be taken for computing the numbers of layers.


For instance:

  1. One Layer of Wholly Owned Subsidiary (WOS)

One Layer:

XYZ Ltd is holding 100% equity of A Ltd, B Ltd, C Ltd and D Ltd. Layer one consists of 4 Wholly Owned Subsidiaries, which shall not be included for computation of layers

  • The provisions of the Rules are not in derogation of the proviso to sub-section (1) of section 186 of the Companies Act, 2013 i.e.
  1. A company can acquire any other foreign company ( a company incorporated outside India), where such foreign company has investment subsidiaries beyond two layers as per law of such country.
  2. A subsidiary company may have any investment subsidiary for the purposes of meeting requirements under any law or under any rule or regulation.
  • Section 186 (1) of the Act provides that if a company invests through layers of companies, then such number of layers for making investments shall not exceed two layers.


  1. Companies who already have more than 2 layers of subsidiaries

While the Rules are applicable prospectively, companies that already have more than two layers of subsidiaries have to furnish details to the Registrar of Companies (ROC).

  1. Need to file CLR-1 with the ROC within 150 days (i.e. by 17th February 2018) disclosing the details of layers of subsidiaries.
  2. Not allowed to have the additional layer of subsidiaries over and above the layers existing as on 20th September 2017.
  • Once the one or more layers are subsequently reduced (post 20th September 2017), then the Company shall not add number of layers of subsidiaries beyond the permitted layers after such reduction.

There is no provision upto what time such companies can continue to have more layers of subsidiaries than two permitted layers. Hence, it seems that they can continue until so required by them.


  1. Companies acquiring /creating subsidiary(ies) on or after 20th September 2017.



A company acquiring/creating any other Indian company as its subsidiary cannot have more than two layers of subsidiaries.

  • For calculating two layers of subsidiaries, holding company need to check how many layers of subsidiaries it already has.
  • Secondly, check whether holding company could further acquire any of the India company.


For Instance:-

  • When a Company already have subsidiaries before enforcement of these rules

B Ltd is wholly owned subsidiary of A Ltd. And C Ltd is a subsidiary of B Ltd. And D Ltd is a subsidiary of C Ltd.

NOTE: B Ltd is wholly owned subsidiary of A Ltd. Hence, it’s not treated as layer one. B Ltd is a holding company of C Ltd and hence A Ltd is the ultimate holding company of C Ltd. This will be treated as the first layer.

C Ltd is the holding company of D Ltd and hence A Ltd is the ultimate holding company of D Ltd. This will be treated as the second layer.

  • A Ltd already owns two layers of subsidiaries, hence further it can’t acquire/create any more of layers of subsidiaries below D Ltd. The restriction on A Ltd also prohibits C Ltd[1] from creating/acquiring subsidiary below it. This is so because if C Ltd which is having only one layer of subsidiary D Ltd, if it acquires/creates subsidiary below D Ltd, it will consequently have the effect of having the third layer of a subsidiary for A Ltd.
  • However, A Ltd can acquire/create another subsidiary (not below D Ltd) either directly below it or below C Ltd.


3.2 Foreign Company

A company acquiring a foreign company ( a company incorporated outside India) can have subsidiaries beyond two layers as per the laws of such country.



  • A Ltd is an Indian holding company of B Inc (foreign company) – this is layer 1
  • B Inc is holding company of C Inc (foreign company) – this is layer 2
  • C Inc is holding company of D Inc (foreign company) – this is layer 2

In the above example, A Ltd acquires and becomes holding company of B Inc (foreign company), which is having two layers of subsidiary (C Inc and D Inc) and the law of the country where B Inc is incorporated permits such layers of subsidiaries. A Ltd thus becomes an ultimate holding company of C Inc. and D Inc. Thus, in such a case, Indian company may have more than two layers of subsidiaries.

  • After the acquisition of a foreign company, an Indian company is not required to file any information on layers of subsidiaries with ROC as per the Rules.


  1. Penalty for non-compliance

If any company contravenes any provision of the Rules, the company and every officer of the company who is in default shall be punishable with fine UPTO Rs. 10,000/- and where the contravention is a continuing one, with a further fine UPTO Rs.1000/- for every day after the first during which such contravention continues.

Amount of penalty is similar to prescribed under section 450 of the Act which prescribes the general amount of penalty where no penal amount for contravention of any provisions of the Act is specified.

Amount of penalty is discretionary and can be adjudicated by ROC u/s.454 of the Act. The offence of non-compliance with the Rules is compoundable u/s.441 of the Act.

[1] due to explanation (a) under section 2(87) of the Companies Act 2013


Transition from High Court to NCLT, compromise, arrangement, winding-up and other matters

The Insolvency and Bankruptcy Code, 2016 (31 of 2016)


Key words of Preamble to the Insolvency and Bankruptcy Code, 2016 (IBC):-

  • reorganization and insolvency resolution of- corporate person, partnership firms and individuals

– in a time bound manner

  • for maximization of value of assets
  • to promote entrepreneurship

  • availability of credit

  • balance the interest of all the stakeholders (including alteration in the order of priority of payment of Government dues)

  • to establish an Insolvency and Bankruptcy Board of India (IBB or IBBI)


What happened and when:


Date What
28/5/2016 IBC notified
05/08/2016 IBB related provisions notified
19/08/2016 Provisions empowering CG notified
29/08/2016 Salary Rules notified
01/10/2016 IBB established with office at New Delhi

Mr. M. S. Sahoo Chairperson

Ex-officio of Ministry of Finance, Ministry of Corporate Affairs, Ministry of Law and Justice and the Reserve Bank of India notified

01/11/2016 Provisions empowering IBB notified.

Also, Schedules to IBC notified – change in Central Excise, Service Tax, SICA

15/11/2016 Regulations for IPA and IP notified

Also, Schedules to IBC notified – change in SARFAESI, LLP Act 2008, Companies Act 2013, Payment and Settlement Systems Act, 2007

21/11/2016 IBBI (IPA) Regulations 2016 notified w.e.f. 21/11/2016
23/11/2016 IBBI (IP) Regulations 2016 notified w.e.f. 29/11/2016
30/11/2016 Ss. 4 to 32 – Provisions relating to Insolvency Resolution Process for Corporate Persons notified w.e.f. 01/12/2016

S. 236 Offences under IBC, triable by Special Court under CA 2013 – notified w.e.f. 01/12/2016

S.237 IBC overrides all other laws – notified w.e.f. 01/12/2016

S.231 No injunction notified w.e.f. 01/12/2016

S.239(2)(a) to (f) – CG to make Rules for application to NCLT

IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 notified w.e.f. 01/12/2016

01/12/2016 Ss. 4 to 32 of IBC notified (except for individuals, partnership firm and voluntary liquidation)

S. 60 transitory – for Court to NCLT for Personal Guarantor

01/12/2016 IB (Application to Adjudicating Authorities) Rules, 2016 notified

For filing applications u/s.7,8,9 of IBC




The Insolvency and Bankruptcy Code, 2016 (the ‘IBC’).


As you might be aware that the Government of India has notified the substantive provisions of the IBC with effect from 01 December 2016. The Government has also issued notifications for repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 (the ‘SICA’). Thus, SICA is repealed with effect from 01st December 2016 and all proceedings, reference, inquiry or appeal before BIFR and AAIFR stands abated with effect from 01st December 2016.


Further with effect from 01st December, 2016, all matters relating to winding-up (except voluntary winding-up) of Companies and Limited Liability Partnerships (LLPs) are dealt with by the NCLT. Thus, High Courts (and in some part of the Country District Courts) do not have jurisdiction for dealing with new cases of winding-up on and after 01 December 2016. Cases of Voluntary winding-up to be dealt with by the NCLT on and after 01 April 2017.


Further, with effect from 15th December, 2016, cases relating to compromise, arrangement and reconstruction (including merger, amalgamation and demerger), reduction of share capital, variation of shareholder’s rights, recovery of property of company in wrongful possession of employees or ex-employees of Company etc. would be dealt with exclusively by the NCLT.


To have birds eye view of the transitory provisions for transfer of cases from High Courts to the NCLT, a tabular presentation is given below:




The Insolvency and Bankruptcy Code, 2016 (the ‘IBC’).

National Company Law Tribunal (NCLT).


Section 434 (1) (c) of the Companies Act 2013 – as amended by Eleventh Schedule of IBC and further amendment by Order S.O. 3676(E) dated 7th December 2016.


Subject Matter Transferred to NCLT Retained with High Court
Winding-up under supervision of Court No. Yes.
Voluntary winding-up (Sec.484 of CA 1956)

(Rule 4)


New cases to be filed with NCLT w.e.f. 01 April, 2017 as per the IBC.

Note that provisions relating to voluntary winding-up under the Companies Act, 2013 are omitted by the IBC.


Yes, for cases filed upto 31st March 2017.
Winding-up for inability to pay (Sec. 433(e) of CA 1956)

(Rule 5)

Yes, where petition has not been served on the Respondent.

Such petition to be treated as application u/Ss. 7, 8 or 9 of IBC.

Petitioner to submit additional information, including proposed insolvency professional, within 60 days from date of notification of the Rules on 07 December 2016. Thus, by 05 February, 2017. Failing which petition shall abate.

Yes, where petition has been served on the Respondent
Winding-up by Court

[Sec. 433(a) and (f)]

(Rule 6)

Only those cases where the petition has not been served on the respondent. Yes, where the petition has been served on the respondent.
BIFR u/s.20 of SICA

[S. 434(1)(d) of CA 2013 r/w Rule 5(2)]

w.e.f. 01/12/2016 Sick Industrial Companies (Special Provisions) Repeal Act, 2003 brought to force, including section 4(b) thereof.



Proceedings before BIFR and AAIFR abates.

However, reference within 180 days can be made to NCLT as per Companies Act 2013.

Yes, where opinion has been forwarded by BIFR and no appeal is pending and winding up is initiated u/s. 20 of SICA.
Arbitration, Compromise, arrangement and reconstruction

(Second proviso to Section 434(1)(c) of CA 2013 read with Rule 3)

Yes, except those cases reserved for orders for allowing or otherwise, i.e. final disposal (cases heard but orders reserved) w.e.f. 15th December, 2016 Those cases reserved for orders for allowing or otherwise (Cases heard and pronouncement of order is pending or reserved) w.e.f. 15th December, 2016
Reduction of Capital (Sec. 100 of CA 1956 – corresponding Sec. 66 of CA 2013) As above As above
Cancellation or variation of rights of shareholders (Sec. 106 of CA 1956  –corresponding sec. 48(1) of CA 2013) As above As above
To restrain fraudulent persons from managing companies (Sec. 203 of CA 1956) As above As above
For order that affairs of a Company ought to be investigated (Sec. 237 of CA 1956 – corresponding sec. 213 of CA 2013) As above As above
Applications under section 439 for the winding-up of a company, or under section 583 for the winding up of an unregistered company, or under section 584 for the winding-up of a foreign company

(Corresponding Sec.376 of CA 2013)

As above As above
Applications for a declaration under section 542 (XI Schedule) in the course of proceedings under section 397 or 398 that a person who was knowingly a party to carrying on business in a fraudulent manner shall be personally liable for all or any of the debts or other liabilities of the company

(Corresponding Sec.339 of CA 2013)

As above As above
Applications by a creditor or member under section 543 (XI Schedule) in the course of proceedings under section 397 or 398, to enquire into the conduct of any of the persons mentioned in section 543 (XI Schedule) and compel him to repay or restore any money or property to the company or pay compensation.

(Corresponding Sec.340 of CA 2013)

As above As above
Applications under section 633(2) by an officer of a company for relief.

(Corresponding Sec.463 of CA 2013)

As above As above
Applications under section 560(6) to restore a company’s name to the Register of Companies

(Corresponding Sec.248 of CA 2013 – does not contain similar provision)

As above As above
Applications under section 579 to confirm the alteration in the form of the constitution of a company by substituting a memorandum and articles for a deed of settlement.

(No corresponding provision under CA 2013)

As above As above


All proceedings transferred from High Court to NCLT, to be dealt with as per the Companies Act, 1956 and the Company (Court) Rules, 1959. [Third proviso to Section 434(1)(c) of the Companies Act 2013].

All proceedings transferred from High Court to NCLT, to be dealt with from the same stage as were before their transfer. [Section 434(1)(c) of the Companies Act 2013].

Promoters and Whole Time Directors in case of compulsory delisting

Where stock exchange makes compulsory delisting of equity shares of a Company under SEBI (Delisting of Equity Shares) Regulations, 2009 AND if the fair value to be paid to public shareholders is positive (which is determined by an Independent valuer appointed by Stock exchange), then such company and the depositories (both) shall not effect transfer, by way of sale, pledge, etc., of any of the equity shares of promoter/promoter group.

Further such company and depositories shall ensure that entitlement to corporate benefits to promoters and promoter group be frozen.

Both, not effecting transfer, pledge etc. and freezing of corporate benefits to promoter and promoter group shall by until the point of time the promoters of such company provide an exit option to the public shareholders.

Further, the promoters and whole-time directors of the compulsorily delisted company shall also not be eligible to become directors of any listed company till the exit option is provided.

SEBI Circular number SEBI/HO/CFD/DCR/CIR/P/2016/81 dated 07th September, 2016, which can be accessed from http://www.sebi.gov.in/cms/sebi_data/attachdocs/1473248605168.pdf

Companies Amendment Bill 2016: Analysis

An attempt is made to present an analysis of the Companies Amendment Bill, 2016.

Posting analysis of definitions only. Analysis on other provisions would be posted in staggering mode.

CLC = Companies Law Committee of Ministry of Corporate Affairs (MCA) which submitted its report in February 2016.

LODR = Securities and Exchange Board (Listing Obligations and Disclosure Requirements) Regulations, 2015.

After taking into consideration suggestions made by a high level panel on further possible changes to the law, the government came up with the Bill as part of larger efforts to address difficulties faced by stakeholders and improve the the ease of doing business in the country.

Lok Sabha Speaker Sumitra Mahajan has referred the Bill to the Standing Committee on Finance, which is chaired by senior Congress leader Veerappa Moily.

The Speaker has referred the Companies (Amendment) Bill, 2016, as introduced in the Lok Sabha to the Standing Committee on Finance for examination and report within three months, according to intimation published in Bulletin-Part II, dated 12 April, 2016, vide para No. 3288.

Thus, relaxations (inter alia private placement process, remove restrictions on layers of subsidiaries and investment companies, amend CSR (Corporate Social Responsibility) provisions to bring greater clarity and exempt certain class of foreign entities from the compliance regime under this law.) to Corporate is deferred for atleast 3 months. It also results in further delay in formation of National Company Law Tribunal (NCLT) and Appellate Tribunal (NCLAT) which will transfer powers of High Court in relation to winding-up and compromise or arrangements to NCLT. Also proceedings before BIFR / AAIFR would abate. Thus, large part of Companies Act 2013 would not be brought to force until the Bill is enacted by Parliament.

Section 2(6) Associate Company

Explanation.—For the purpose of this clause—

(a) the expression “significant influence” means control of at least twenty per cent. of total voting power, or control of or participation in business decisions under an agreement;

(b) the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement;

Section 2(6)

In relation to another company, means a company in which the other company has a significant influence, but is not a subsidiary company of the company having such influence, and includes a joint venture company.

Explanation-For the purpose of this clause “significant influence” means control of at least twenty percent of total share capital or business decisions under an agreement;

It may be noted that the term “total share capital” has been defined in Rule 2(1) (r) of the Companies (Specification of Definitions Details) Rules, 2014, to mean the aggregate of (a) paid-up equity share capital; and (b) convertible preference share capital.



Amendment is as per recommendation of the CLC.


To ascertain whether a company is associate or not, determining factor would be total voting power instead of total share capital.


It may be noted that LODR also refers to definition of ‘associate’ as under Companies Act or accounting standards.


The term “joint venture” is now defined and is in line with Indian Accounting Standard 28 on Investments in Associates and Joint Ventures.


However, the terms ‘associate’ and ‘significant influence’ under the Companies Act and Indian Accounting Standards continue to differ.



Section 2(28)

“Cost Accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountant Act, 1959 and who holds a valid certificate of practice under sub-section (1) of section 6 of that Act

Section 2(28)

“cost accountant” means a cost accountant as defined in clause (b) of sub-section (1) of section 2 of the Cost and Works Accountant Act ,1959 (23 of1959)

Term Cost Accountant wherever appears in Companies Act has been assigned meaning of Practising Cost Accountant.
Section 2(30) Debenture

ADDITION: “Provided that-

(a)   The instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934;and

(b)   Such other instrument as may be prescribed by the Central Government in consultation with Reserve Bank of India, issued by a company,

Shall not be treated as Debenture.”

Amendment is as per recommendation of the CLC.

Certain instruments like commercial papers and other money market instruments, which are often used as an important short-term fund raising source by eligible companies; and are well regulated under RBI regulations.

MCA had recognizing this, had clarified that Commercial Papers and similar instruments if issued as per guidelines of RBI would not attract debentures related provision under Rule 18 of the Companies (Share Capital and Debenture) Rules, 2014.


Now, the Bill provides to exclude all instruments specified in Chapter III-D of RBI Act 1934 from the definition of ‘Debenture’. Thus, money market instruments (which includes call or notice money, term money, repo, reverse repo, certificate of deposit, commercial usance bill, commercial paper and such other debt instrument of original or initial maturity up to one year as may be specified by RBI from time to time),  derivatives, repo, reverse repo.


The Bill also authorizes MCA to exclude other instruments also from the purview of Debenture in consultation with RBI.

It is not clear whether Bonds of Central Government, State Government and local bodies would be outside the purview of ‘debenture’.

Section 2(41) Financial Year

In the first proviso, after the word “subsidiary” the words “or associate company” shall be inserted.

Amendment is as per recommendation of the CLC.


An associate company of a foreign company may follow different financial year (other than 01 April to 31 March) if it is required to follow different financial year for consolidation of its accounts outside India. And for this purpose it need to approach National Company Law Tribunal.


Section 2(46) Holding Company

the following Explanation shall be inserted, namely:—

‘Explanation.—For the purposes of this clause, the expression “company” includes any body corporate;’

Amendment is as per recommendation of the CLC.


While foreign company is treated as subsidiary company for the purpose of Companies Act 2013 but similar provision for holding company was not present. This anomaly is now being rectified.


With the new explanation, a company incorporated outside India could be considered to be the holding company of another company, for the purpose of the Companies Act 2013.


Section 2(49)


Section 2(49)

“interested director” means a director who is in any way, whether by himself or through any of his relatives or firm, body corporate or other association of individuals in which he is or any of the relatives is a partner, director or member, interested in a contract or arrangement, or proposed contact or arrangement, entered into or to be entered into by or on behalf of a company.

Amendment is as per recommendation of the CLC.

Definition of the term ‘interested director’ is being omitted.

The only reference to the term ‘interested director’ in the Act was in Section 174 (3) (relating to quorum at Board meeting), and an Explanation to that provision clarified that the meaning of the term ‘interested director’ would be the same as for the purposes of Section 184 (2).

And Section 184 (2) provides nature of interests to be disclosed by directors, but does not use the phrase ‘interested director’.


However, despite omission of the definition, no change in effect from governance or legal perspective would be on Directors, as wordings of section 184 are similar to erstwhile definition of interested director u/s.2(49).

Section 2(51) (iv)

The word “and” shall be omitted AND

The following shall be substituted-

“(v) such officer, not more than one level below the directors who is in whole-time employment, designated as Key managerial personnel by the Board; and

(vi) such other officer as may be prescribed”

Section 2(51)

“key managerial personnel”, in relation to a company, means—

(i) the Chief Executive Officer or the managing director or the manager;

(ii) the company secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed;

Amendment is as per recommendation of the CLC.


The J.J. Irani Committee observed that “stakeholders / Board look towards certain key managerial personnel for formulation and execution of policies.”

The definition of KMP is now being modified to give flexibility to the Board of Companies to designate its whole time officers, who are one level below the directors, as KMP.










Section 2(57) Net worth

For the words “and securities premium account”, the words “,securities premium account and debit or credit balance of profit and loss account,” shall be substituted

Section 2(57)

“net worth” means the aggregate value of the paid up share capital and free reserves created out of profits and securities premium account, after deducting the aggregate value of accumulated losses, deferred expenditure and miscellaneous expenditure not written off, as per the audited balance sheet, but does not include reserves created out of assets, written back of depreciation and amalgamation;

Amendment is as per recommendation of the CLC.


An obvious error in the definition is being recified.

Section 2(71)

In sub-clause (a) after the word “company”, the word “and” shall be inserted.

Section 2(71)

“public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital, as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ;

Conjunction ‘and’ is being inserted to ensure that it is not a private company AND has a minimum prescribed capital.
Section 2(76)

For sub-clause (viii) the shall be substituted, namely-

“(viii) any body corporate which is-

(A)   a holing, subsidiary or an associate company of such company;

(B)   a subsidiary of a holding company to which it is also a subsidiary; or

(C)   an investing company or the venture of a company,”

Section 2(76)

“related party”, with reference to a company, means—

(i)                 a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager or his relative is a member or  director;

(v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi)any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the  advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice,

directions or instructions given in a professional capacity;

(viii) any company which is—

(A) a holding, subsidiary or an associate company of such company; or

(B) a subsidiary of a holding company to which it is also a subsidiary;

(ix) such other person as may be prescribed;


Amendment is as per recommendation of the CLC.


Scope of related party is expanded.


Substitution of the words ‘body corporate’ for the word ‘company’ in the definition of ‘related party’ has expanded the scope of related party, which now includes foreign company which is holding, subsidiary or an associate of Indian Company.

Further sister subsidiary in India or abroad would also be a related party.


It seems term ‘investing company’ would mean investor company which could be Indian or foreign and would be treated as related party.



Section 2(85) Small Company

In sub-clause (i), for the words “five crore rupees” the word “ten crore rupees” shall be substituted


In sub-clause (ii)-

(A)   For the words “as per its last profit and loss account”, the words “as per  profit and loss account for the immediately presiding financial year” shall be substituted;

(B)   For the words “twenty crore rupees” the words “one hundred crore rupees” shall be substituted;


Section 2(85)

‘‘small company’’ means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not

exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

Amendment is as per recommendation of the CLC.


Criteria for a private company to be treated as small company includes paid-up share capital or turnover.

Limits for both are being expanded.


Drafting error corrected to ascertain turnover from its profit and loss account of the preceding financial year.

Section 2(87) Subsidiary Company

(a)   In sub-clause (ii) for the words “total share capital”, the words “total voting power” shall be substituted;

(b)   The proviso shall be omitted

(c)    In the explanation, item (d) shall be omitted;



Section 2(87)

“subsidiary company” or “subsidiary”, in relation to any other company

(that is to say the holding company), means a company in which the holding company—

(i) controls the composition of the Board of Directors; or

(ii) exercises or controls more than one-half of the total share capital

either at its own or together with one or more of its subsidiary companies:

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Explanation.—For the purposes of this clause,—

(a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company;

(b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors;

(c) the expression “company” includes any body corporate;

(d) “layer” in relation to a holding company means its subsidiary or


Amendment is as per recommendation of the CLC.


In defining ‘subsidiary company’ anomaly arose due to inclusion of preference share capital in total share capital. The same is now being rectified by making reference to total voting power. Thus, where holding company controls more than one-half of total voting power, it becomes subsidiary.


Companies are free to have any number of subsidiaries and restrictions on layers of subsidiaries as provided in the proviso is being omitted. Also consequential explanation (d) is being omitted.

It is pertinent to note that the said proviso was not brought to force by MCA.

Corresponding amendment is being made in Section 186(1) also so that companies can make investments in layers of subsidiaries.


The J. J. Irani Report also noted that proper disclosures accompanied by mandatory consolidation of financial statements should address the concern attendant to the lack of transparency in holding-subsidiary structure.

A register of beneficial owners of a company, which would address the need to know the ultimate beneficial owners in complex corporate structures.



Section 2(91) Turnover

“turnover” means the gross amount of revenue recognized in the profit and loss account from the sale, supply, or distribution of goods or on account of services rendered, or both, by a company during a financial year,

Section 2(91)

“turnover” means the aggregate value of the realisation of amount made from the sale, supply or distribution of goods or on account of services rendered, or

both, by the company during a financial year;

Amendment is as per recommendation of the CLC.

The new definition of turnover is verbatim as recommended by CLC.

Earlier definition created practical difficulty of taxes being excluded to arrive at ‘turnover’.

New Section 3A Members serverally liable in certain cases

The following shall be inserted after section 3


“3A.If at any time the number of members of a company is reduced, in the case of a public company, below seven, in the case of a private company, below two, and the company carries on business for more than six months while the number of members 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 cognisant of the fact that it is carrying on business with less 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 therefor.”.

Amendment is as per recommendation of the CLC.


New provision is same as section 45 of the Companies Act 1956, which was not part of new Companies Act 2013.


It makes members knowing that number of members of a company is below minimum required and the company carries on business for more than six months, then such members are personally liable for the debt contracted during such period.

One Person Company (OPC)

One Person Company

  • by CS Prakash K. Pandya, assisted by Ms. Krinjal Shah

In India, one can have three types of limited company viz. Public Company, Private Company and One Person Company. The concept of One Person Company (OPC) was first recommended by the expert committee of Dr. J.J. Irani in 2005. It is introduced through the Companies Act, 2013. One Person Company means a company which has only one person as a member[1]. It is commonly known as OPC.

The concept of OPC is set to organize the unorganized sector of proprietorship firms and other entities. Small business persons will grow in Indian entrepreneurship, be it weaver, traders, artisans, small to mid-level entrepreneurs, OPC is having an optimistic future and will help them to grow and get globally recognised.

Those who want to start their own ventures with a structure of organized business, OPC provides good option as compared to proprietorship. Similarly, limited liability partnership (LLP) provides structure of organized business as compared to traditional partnership.

How is OPC different from proprietorship?

Paramount difference is that OPC has a legal existence separate from individual who has created it. Consequently, OPC can own assets / property in its own name, including trade mark / other intellectual property rights. Thus, property owned by an individual is different from property owned by OPC created by the same individual.

Liability of OPC is different from its owner. Whereas in proprietorship liability is not distinct and hence liability of partnership extends to its owner and in unfortunate event can extend to personal assets of owner of proprietorship.

OPC can enter into contracts and can file suit against any other person in the name of OPC and not in the name of proprietor. Similarly, liability of OPC is separate from that of its owner.

Whereas in traditional proprietorship, there is no legal existence of proprietorship entity from its owner. Property of proprietorship is the property of the owner and also liability of proprietorship is that of owner. Thus, there is no distinction between owner of proprietorship entity and the proprietorship entity itself.

What business can be carried out by OPC?

Any commercial business, except the following, can be carried out by OPC:

  • Non Banking Financial Investment activities,
  • Investment in securities of any body corporate; and
  • Activities of section 8 company.

How many persons required to form OPC?

As the name suggests, only one individual is required. S/he can be member as well as director of OPC. While there cannot be more than one member in OPC, number of directors can be more than one.

In case of private company, minimum two persons are required as member and same two can be Directors if they are individuals.

And in case of public company, minimum two persons are required as member and three persons as Directors.

In all cases, only individual can be Director.

LLP requires minimum two persons as it’s a partnership with limited liability.

Digital Signature Certificate (DSC) and Director Identification Number (DIN) is mandatorily required for the proposed applicant to be a Director.

Who can form OPC?

Any individual having citizenship of India and stayed in India for atleast 182 days in during the immediately preceding calendar year. Minor cannot neither incorporate OPC nor be entitled to hold shares of OPC beneficial interest.

An OPC can be formed under any of below categories:

  1. Company limited by guarantee.
  2. Company limited by shares.

An OPC limited by shares shall comply with following requirements:

  1. Restricts the right to transfer its shares
  2. Prohibits any invitations to public to subscribe for the securities of the company.

How many OPC can be formed by an individual?

Only OPC can be formed by an individual.

In how many OPC can an individual be nominee?

An individual can be nominee in only one OPC. Where same individual has incorporated an OPC and is nominee in another OPC and he becomes member of such other OPC due to disability of member of such other OPC, then such an individual has to decide within 180 days to remain member in any one of the two OPCs.

What are audit and auditor requirements for OPC?

OPC is mandatorily required to get its books of accounts audited from a Chartered Accountant, as by any other limited company. However, provision relating to rotation of auditor is not applicable to OPC.

What are the compliance requirement for OPC?

Some of the compliance requirements for OPC under the Companies Act 2013 are:

  1. OPC shall have one member and one director. Same individual can be both member and director of the OPC.
  2. Every OPC shall appoint Chartered Accountant as auditor for audit of its books of accounts.
  3. OPC shall have share certificate, where it is limited by shares.
  4. OPC shall maintain register of members, register of contracts and books of accounts with vouchers for every receipt and payment.
  5. OPC need to maintain minutes book of Board Meetings and General Meetings.
  6. OPC need not hold Annual General Meeting of its members, as it’s a single member company. Hence, OPC need not call any general meeting of its members. However, for matters requiring consent of members under the Companies Act 2013 either by ordinary resolution or special resolution, shall be communicated by sole member of OPC to the OPC in writing and it shall be recorded in minutes of meetings of OPC.
  7. While OPC may have more than one Director, even one Director suffices. So in case, OPC has only one Director, decision of a sole Director shall be in writing, signed and dated by such sole director. Such signing date is treated as date of Board Meeting for the purpose of law and needs to be recorded in minutes of meetings.
  8. Where OPC has more than one Director, atleast one Board meeting is required to be held by such OPC in each half of calendar year (01 January to 31 December). While there can be any number of Board meetings by such OPC, gap between two Board meetings in each half of the calendar year shall not be less than 90 days.
  9. OPC having more than one Director, need to hold board meetings in compliance of Secretarial Standard-1.
  10. Annual financial statement of OPC shall be signed by sole / any one Director of OPC.
  11. Along with financial statement, Director(s) of OPC need to give report of Board of Director(s). It shall contain, inter alia, explanation or comments on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report.
  12. Every year, OPC shall file copy of its financial statement with Registrar of Companies (ROC) within 180 days from closure of its financial year i.e. by 30 September every year. Under law, it is mandatory to follow financial year from 01 April to 31 March.
  13. Every year, OPC shall file annual return with ROC.
  14. Any change in nominee shall be intimated to ROC.
  15. For contracts between OPC and its sole member is permitted under law, in case of any such contract where sole member is also the Director of the OPC and if the contract is not in the ordinary course of business of the OPC, then either the contract shall be in writing or if not in writing, terms of contract shall be recorded in writing by way of a summary or entered in minutes of the first meeting of the Board of Directors held immediately after entering into such contract. And in case of a written contract also, the same shall be approved at the first meeting of the Board of Directors held immediately after entering into such contract. Also OPC need to inform ROC about the contract within 15 days of approval of the Board of Directors of the OPC.

What are limitations of OPC?

  1. Every OPC must nominate a nominee (who can be, but need not be, friend, spouse, relative of the applicant) who will become the owner of the OPC in case the promoter of OPC is disabled for any reason. Such nominee shall give consent in writing to be a nominee. And such nominee shall be an individual who is citizen of India and residing in India (for atleast 182 days in during the immediately preceding calendar year). Owner of OPC can change nominee at anytime. Similarly, nominee can withdraw consent any time by giving written intimation to OPC.
  2. Since, OPC is incorporate as private limited company, it need to write ‘One Person Company’ below its name to indicate that it’s a OPC.
  3. OPC cannot convert itself into section 8 Company.
  4. OPC cannot be converted into private or public limited company within two years of its incorporation, except in following cases:
  5. If paid-up capital of OPC exceeds Rs,50 lakh or
  6. If its average annual turnover during relevant period exceeds Rs. 2 crore.

After two years of incorporation, OPC can convert itself voluntarily into private / public limited company.

    • OPC need to mandatorily convert itself into Private / Public limited company within six months of happening the following event:
    • If paid-up capital of OPC exceeds Rs,50 lakh AND
    • If its average annual turnover during relevant period also exceeds Rs. 2 crore.

And OPC need to give intimation of having crossed aforesaid limits to ROC within 60 days/

Sole proprietor can convert its business into OPC. It can have tax advantage (income tax and service tax), however it needs to be planned considering impact of capital gain tax and stamp duty.

[1] Section 2(62) of the Companies Act, 2013

SEBI and insider trading

Gist of provisions of SEBI Act, 1992 dealing with Insider Trading.

  1. Section 12A(d) prohibits, inter alia, engaging in insider trading.
  2. Section 11(2)(g) empower SEBI to take appropriate measures to protect the interest of investors in securities and to promote the development of securities market and to regulate securities market. Such measure of SEBI includes, inter alia, to prohibit insider trading.
  3. Section 11(2A) Where SEBI has reasonable grounds to believe that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has been indulging in, insider trading or FUTP, it (SEBI) may order inspection of books and records of such company.
  4. Proviso to Section 11(4) Where SEBI has reasonable grounds to believe that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has been indulging in, insider trading or FUTP, it (SEBI) may – (i) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (ii) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the first class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of SEBI Act, or the rules or the regulations made thereunder : Provided that only the bank account or accounts or any transaction entered therein, so far as it relates to the proceeds actually involved in violation of any of the provisions of SEBI Act, or the rules or the regulations made thereunder shall be allowed to be attached; or (iii) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation.
  5. Section 11C(9): SEBI may order investigation, inter alia, in the affairs of any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) and only in case of insider trading or market manipulation by such company, the Magistrate or Judge of the Designated Court after considering the application and hearing the Investigating Authority may, by order, authorise the Investigating Authority – (a) to enter, with such assistance, as may be required, the place or places where such books, registers, other documents and record are kept; (b) to search that place or those places in the manner specified in the order; and (c ) to seize books, registers, other documents and record, it considers necessary for the purposes of the investigation.
  6. Section 11D:After inquiry, if SEBI finds that any listed public company or other public company intending to get its securities listed on any recognised stock exchange (other than market intermediary) has indulged in insider trading or market manipulation, then SEBI may pass an order requiring such company to cease and desist from committing or causing such violation:
  7. Section 15G:  prescribes penalty for insider trading. If any insider who,—

(i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price-sensitive information; or
(ii) communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or
(iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information,

shall be liable to a penalty which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.

SEBI has framed SEBI (Prohibition of Insider Trading) Regulations – also known as PIT Regulations.

PIT Regulations, 1992 which were brought to force from 19th November 1992 hold ground till 15th May 2015, From 16th May 2015, new PIT Regulations, 2015 is brought to force. Comparison of 2015 and 1992 PIT Regulations is here.


Supreme Court on copyright in title

Supreme Court on copyright in title.

Respondent claims copyright in a synopsis of a story written by him with the title “Desi Boys” which was also registered with the Film Writers Association. He sent the synopsis of the story by email to accused through his friend. Later the complainant saw the promos of a film bearing the title “Desi Boys”, actually spelt as “Desi Boyz”.

He contended that the adoption of the title “Desi Boyz” was infringement of the copyright in the film title “Desi Boys”. And hence filed complaint being criminal case u/s. 63 of the Copyright Act and charges were also levied u/Ss. 406 and 420 of IPC r/w s. 34 of IPC. Upon issue of process by Metropolitan Magistrate, accused appealed to Bombay High Court u/s. 482 of Cr.P.C. for quashing the complaint and the process. Hon’ble dismissed the appeal and thus matter came before the Supreme Court.

On 15th October 2015, the bench of Hon’ble Supreme Court comprising Justice Lokur and Justice Bobde in Krishika Lulla v. Shyam Vithalrao Devkatta held that generally there would not be any copyright protection for titles of literary works. Such protection can only be claimed in exceptional circumstances, where the title itself was of an inventive nature.

The Court noted that S. 13 of the Copyright Act, 1957 provides protection for original literary works. The Court stated that title by itself is in the nature of a name of a work and is not complete by itself, without the work. A title does not qualify for being described as “work”. It is incomplete in itself and refers to the work that follows.

The Court also referred to precedent from the Madras high Court (( In E.M. Forster and Anr. v. A.N. Parasuram reported in AIR 1964 Madras 331, and in R. Radha Krishnan v. Mr. A.R. Murugadoss & Ors. reported in 2013-5-L.W. 429 )) and Delhi High Court (( In Kanungo Media (P) Ltd. v RGV Film Factory & Ors. reported in (2007) ILR 1 Delhi 1122 )) as well as foreign Courts (( In Hogg v. Maxwell reported in (1866-67) L.R.2 Ch. App. 307, and in Francis Day & Hunter Ltd. v. Twentieth Century Fox Corporation Ltd. and Ors. reported in AIR 1940 Privy Council 55 )) which evidenced the well- settled position that there can be no copyright in the title of a work.

It may be noted that ‘title’ can be protected as trademark. P. K. Pandya & Co. provides service related to trademarks and copyright.

RBI approval for holding assets under Black Money Act

RBI approval for holding assets under Black Money Act

Reserve Bank has issued the Foreign Exchange Management (Regularization of assets held abroad by a person resident in India) Regulations, 2015 notified though Notification No. FEMA 348/2015-RB dated September 25, 2015 vide G.S.R. No. 738 (E) dated September 25, 2015.

Accordingly, it is clarified that:

a) No proceedings shall lie under the Foreign Exchange Management Act, 1999 (FEMA) against the declarant with respect to an asset held abroad for which taxes and penalties under the provisions of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (Black Money Act) have been paid.

b) No permission under FEMA will be required to dispose of the asset so declared and bring back the proceeds to India through banking channels within 180 days from the date of declaration.

c) In case the declarant wishes to hold the asset so declared, she/ he may apply to the Reserve Bank of India within 180 days from the date of declaration if such permission is necessary as on date of application. Such applications will be dealt by the Reserve Bank of India as per extant regulations. In case such permission is not granted, the asset will have to be disposed of within 180 days from the date of receipt of the communication from the Reserve Bank conveying refusal of permission or within such extended period as may be permitted by the Reserve Bank and proceeds brought back to India immediately through the banking channel.

P. K. Pandya & Co. provides FEMA services including obtaining necessary RBI approval.