Board Composition and Powers of the Board

The appointment of Juley as a consultant of Disha Beauty Products Limited attracting the relevant provisions regarding related party transaction are identified as below:

Related Party

Under Section 2(76) of Companies Act 2013, inclusive definition of “related party”, with reference to a company, has been given which include inter alia (i) a director or his relative;

Relative: As per Section 2(77) Companies Act, 2013 the sister is deemed to be a relative of another being related to another person.

Nature of Related Party Transactions:

Section 188 of the Companies Act, 2013 provides that except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as prescribed under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, no company shall enter into any contract or arrangement with a related party with respect to :

(vi)such related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company:

Office or Place of Profit

As per Explanation to Sub-Section (i) of Section 188 the expression “office or place of profit” means any office or place where such office or place is held by:

(a)a director, if the director holding it receives from the company anything by way of remuneration over and above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;

(ii)an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it receives from the company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise.

Prior Approval of the Company by a Resolution

First Proviso to the Section 188 (1) of the Act provides that no contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as prescribed, shall be entered into except with the prior approval of the company by a resolution.

Rule 15 of the Companies (Meetings of board and its Powers) Rules, 2014 provides that except with the prior approval of the company by a resolution, a company shall not enter into a transaction or transactions, where the transaction or transactions to be entered into, -

(a)as contracts or arrangements with respect to clauses (a) to I of sub-section (1) of section 188, with criteria as mentioned below-

Clause V: Appointment to any office or place of profit in the company, its subsidiary company or associate company- Monthly remuneration exceeding Rs. 2.50 lakh.

Disclosure in Board’s Report

Section 188(2) of the Companies Act, 2013 provides that every related party contracts or arrangement shall have to be disclosed in the Board’s report and referred to shareholders along with the justification for entering into such type of transactions in the prescribed form i.e., Form no. AOC-2 [pursuant to Section 134(3)(h) and Section 188(2)]. Form AOC-2 shall be signed by the persons who have signed the Board’s Report.

Analysis and Answer

Nature of transaction and approval compliance: Appointment of Juley who is a sister (i.e. relative) of Disha, a managing director of a company is a related party transaction by way of holding office or place of profit. Since the monthly remuneration involved in this related party transaction is exceeding Rs. 2.50 lakh (which is Rs. 2.75 lakh in this case) the prior approval of the Board of directors and the shareholders by passing an ordinary resolution in the general meeting of the company is required.

Disclosure compliance:

The related party transaction of appointing Juley shall be disclosed by the company in the Board’s report and referred to shareholders along with the justification for entering into such type of transactions in the prescribed form i.e., Form no. AOC-2.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(d) (Syllabus 2022).

According to Section 2(76) of the Companies Act 2013, “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 (2%) 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 body corporate which is—

—a holding, subsidiary or an associate company of such company ;

—a subsidiary of a holding company to which it is also a subsidiary;or

—an investing company or the venturer of the company.

Explanation.—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate

(ix)such other person as may be prescribed;

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2(d) (Syllabus 2017).

Woman Director

Second proviso to Section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 following class of companies must have at least one Women Director:

•All listed companies,

•Public companies with paid-up capital of Rs. 100 crore or more; or

With turnover of Rs. 300 crore or more.

Independent Director:

As per Section 149(4) of Companies Act 2013 read with rule 4 of the Companies (Appointment and Qualifications of Directors) Rules, 2014, every listed public company and certain classes of unlisted public companies (with paid-up share capital equal to or more than ₹10 crore or turnover equal to or more than ₹100 crore or outstanding loans, debentures and deposits equal to or more than ₹50 crore) shall have at least two directors as independent directors.

Conclusion: In the given case the turnover of the company is Rs. 300 crore. Hence, the company is required to appoint at least 1 woman director and 2 independent directors. The company may appoint 1 independent-woman director. In that case it will have to appoint one more independent director.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 5(c) (Syllabus 2022).

As per second proviso to section 149(1) read with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, any vacancy in the office of women director shall be filled by the board at the earliest but not later than-

i.Immediately in the next board meeting; or

ii.3 months from the date of such vacancy

Whichever is later.

In the given case, vacancy in the office of women director arose on 15th July, 2023 and vacancy was filled by the Board in the board meeting held on l6th September, 2023. The period of three months will expire on 15th October, 2023. The Board has filled the vacancy well before the expiry of three months i.e., l5th October, 2023. Thus, appointment of Sanchi as a women director is as per the provision of the Companies Act, 2013. If, Sanchi is appointed as a women director in the board meeting held on 1st October, 2023, then also her appointment is within the provisions of the Companies Act, 2023, as her appointment is before the expiry of 3 months i.e., 15th October, 2023.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 4(b) (Syllabus 2017).

As per section 149(1) read with Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014 following class of companies must have at least one woman director:

•All listed companies

•Public company-

—with paid up capital of Rs. 100 crore or more; or

—with turnover of Rs. 300 crore or more.

Applying the above provision, it can be suggested that:

•Maya ltd. is not compulsorily required to appoint woman director as its paid-up capital is less than Rs. 100 crore and turnover is less than Rs. 300 crore.

•Manna ltd. is compulsorily required to appoint at least one woman director as it is a listed company.

•Mopin ltd. is compulsorily required to appoint at least one woman director as its paid-up capital is more than Rs. 100 crore and turnover is more than Rs. 300 crore.

Based on above discussion, it can be advised to Riya that Manna ltd. and Mopin ltd. are mandatorily required to appoint at least one woman director.

According to Regulation 17 of SEBI (LODR) Regulations, 2015-Board of directors of top 500 listed companies shall have at least one independent woman director by 1st April, 2019 and Board of directors of the top 1000 listed companies shall have at least one independent woman director by 1st April, 2020. The top 500 and 1000 listed companies shall be counted on the basis of market capitalization, as at the end of the immediate previous financial year.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 4(b) (Syllabus 2017).

Second Proviso to section 149 of Companies Act, 2013 provides that such class or classes of companies as may be prescribed in Rule 3 of Companies (Appointment and Qualification of Directors) Rules, 2014, provides that the following class of companies shall appoint at least one woman director-

(i)every listed company;

(ii)every other public company having:-

(a)paid-up share capital of one hundred Crore rupees or more; or

(b)turn over of three hundred Crore rupees or more.

However, any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest but not later than immediate next Board meeting or three months from the date of such vacancy, whichever is later.

In the given case, as Destinations Ltd is a listed company hence, the company is required to appoint a woman director in its board irrespective of paid up capital, turnover and loss amounts.

The appointment of Ms. Lalita as woman director is to be made at the earliest but not later than immediate next board meeting i.e. 15th January, 2019 or 3 months from date of cause of vacancy i.e. 01st October, 2018; whichever is later, that means the appointment shall be made by 15th January, 2019.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5A(i) (Syllabus 2017).

(i)As per Section 149(4) of the Companies Act 2013, every listed public company is mandatorily required to have at least one-third of the total number of directors as independent directors. T Ltd should appoint 1/3 of its total Directors as an Independent Director and accordingly has to appoint (1/3 x9= 3) 3 independent directors.

(ii)As per Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 unlisted public companies having paid up share capital of ten crore rupees or more shall have at least two independent. Hence, Two independent directors have to be appointed by T Ltd as it is an unlisted company and its paid up share capital is more than Rs.10 crores.

(iii)Section 149(10) of the Companies Act,2013 states that subject to the provisions of Section 152, an independent director can be appointed for a term of up to five consecutive years on the Board. It has been clarified that as such while appointment of an Independent Director for a term of less than 5 years would be permissible, appointment for any term (whether for 5 years or less) is to be treated as a one term under section 149(10) of the Act. Therefore T Ltd cannot appoint an Independent Director for term of a six years in the second consecutive term.

(iv)Section 149(11) of the Act, no person can hold office of Independent Director(ID) for more than two consecutive term’s such a person shall have to demit office after two consecutive terms, even if the total number of years of his appointment in such two consecutive terms is less than 10 years. It is clarified by the Ministry that appointment for any term (whether 5 years or less) is to be treated as one term under section 149(10) of the Companies Act, 2013. Further, under section 149(11) of the Companies Act,2013 no person can hold office of independent director for more than two consecutive term’s such a person shall have to demit office after two consecutive terms, he shall be eligible for appointment only after the expiry of the requisite cooling -off period of 3 years. Therefore T Ltd cannot appoint an independent Director who has already completed two consecutive terms for 4 years for another period of two years.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(c) (Syllabus 2017).

Being a listed public company Aarav Ltd is required to comply with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act, 2013. Accordingly, it is required to have at least one-third of the total number of directors as independent directors (IDs). Any fraction contained in such one third numbers shall be rounded off as one. Accordingly, the company has complied with requirement of 1/3rd of its Board to have independent directors.

As per section 177(2) of the Companies Act, 2013, the Audit Committee shall consist of a minimum of three directors with independent directors forming a majority. Further as per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, every listed entity shall constitute a qualified and independent audit committee in accordance with the terms of reference, subject to the following:

(a)The audit committee shall have minimum three directors as members.

(b)Two-thirds of the members of audit committee shall be independent directors.

(c)All members of audit committee shall be financially literate and at least one member shall have accounting or related financial management expertise.

On the basis of the legal requirements as mentioned above the audit committee of Aarav Ltd. is non-compliant with regard to appointment of independent directors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 1(c) (Old syllabus).

According to Regulation 17 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors of the top 500 listed entities shall have at least one independent woman director by April 1, 2019 and the Board of Directors of the top 1000 listed entities shall have at least one independent woman director by April 1, 2020.

The top 500 and 1000 entities shall be determined on the basis of market capitalisation, as at the end of the immediate previous financial year.

Thus, every listed public company is not required to appoint independent woman director, but the listed entities falling under the above bracket must have an independent women director.

According to Section 151 of the Companies Act, 2013 r/w Rule 7 of the Companies (Appointment and Qualifications of Directors) Rules, 2014, a listed company may have one director elected by small shareholders upon notice by not less than one thousand small shareholders or one-tenth of the total number of such small shareholders, whichever is lower. However, a listed company may opt to have a director representing small shareholders suo-motu.

Thus, appointment of small shareholders by listed company is optional.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 4(a) (Syllabus 2017).

As per section 165(1) of the Companies Act, 2013, no person shall hold office as director including any alternate directorship, in more than 20 companies at the same time. Out of limit of 20, the maximum number of public companies in which a person can be appointed as director shall not exceed 10. Private companies that are either holding or subsidiary of a public company shall be included in reckoning the limit of public companies in which a person can be appointed as director.

In the instant case Amit was appointed as director in Edge Ltd. He was already holding directorship in eleven companies including ten public companies. He is a whole-time Chartered Accountant in practice. As he is already a director in ten public companies, his appointment in Edge Ltd. is not valid as it will lead to his directorship in eleven public companies.

In this case Romit holds directorship in eight public companies including managing directorship in one company and other directorship in seven companies. In addition, he also holds alternate directorship in three private companies. Hence, total holding of directorship in companies is 11 (8 public +3 Private) which is valid.

Hence, Romit can be appointed as director in Edge Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(b) (Syllabus 2022).

The following provisions are contained in Section 165 of the Companies Act, 2013 (the Act) for number of directorships a person can hold in companies.

(1)As per Section 165 (1) of the Companies Act, 2013, after commencement of the Act, no person shall hold office of a director, including any alternate directorship in more than twenty companies at the same time, provided that maximum number of public companies in which a person can be appointed shall not exceed ten.

(2)As per the explanations provided in Section 165(1) of the Companies Act, 2013:

(i)for reckoning the limit of public limited companies in which a person can be appointed as director, the directorship in private companies that are either holding or subsidiary company of a public company shall be included.

(ii)for reckoning the limit of directorships in twenty companies, the directorship in a dormant company shall not be included.

In view of the above provisions for calculating the directorships held by Sukanya, the directorship held in 1 dormant public limited company shall be excluded.

Therefore, she can accept the invitation of Green Ltd. for directorship and after appointment in Green Ltd., the directorships held by her will be within the overall prescribed limit of 20 companies (including not more than 10 Public companies) as indicated under:

1)10 public limited companies

2)1 dormant public limited company (excluded from the limit as above)

3)10 private companies

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(d) (Syllabus 2017).

According to Section 165 of the Companies Act, 2013, no person shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time. The maximum number of public companies in which a person can be appointed as a director shall not exceed ten. For reckoning the limit of public companies in which a person can be appointed as director, directorship in private companies that are either holding or subsidiary company of a public company shall be included. For reckoning the limit of directorships of twenty companies, the directorship in a dormant company shall not be included.

Additionally, for listed entities SEBI vide recent notification in regulation 17A of SEBI (LODR) Regulation, 2015 provides that the directors of listed entities shall comply with the following conditions with respect to the maximum number of directorships, including any alternate directorships that can be held by them at any point of time -

(1)A person shall not be a director in more than eight listed entities with effect from April 1, 2019 and in not more than seven listed entities with effect from April 1, 2020:

Further it has been provided that a person shall not serve as an independent director in more than seven listed entities.

(2)Notwithstanding the above, any person who is serving as a whole time director / managing director in any listed entity shall serve as an independent director in not more than three listed entities.

For the purpose of this regulation, the count for the number of listed entities on which a person is a director / independent director shall be only those whose equity shares are listed on a stock exchange.

(i)Pandole can be appointed in three more listed companies as independent director.

(ii)She could be appointed in five more private companies as director which will be well within the limits of total directorship.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5(a) (Syllabus 2017).

(a)Establishment of vigil mechanism:

Section 177(9) of the Companies Act 2013 read with Rule 7(1) of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for establishment of Vigil Mechanism for their directors and employees to report their genuine concerns or grievances as under:

(1)Every listed company:

(2)the companies which accept deposits from the public;

(3)the companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.

Regulation 4(2)(d)(iv) of SEBI (LODR) Regulations, 2015 provides that the listed company shall devise an effective vigil mechanism/whistle blower policy enabling stakeholders, including individual employees and their representative bodies, to freely communicate their concerns about illegal or unethical practices.

(2 Marks)

(b)Safeguards: Section 177(9) of the Companies Act, 2013 read with Rule 7(4) of the Companies (Meetings of Board and its Powers) Rules, 2014- The vigil mechanism set up as above, shall provide for adequate safeguards against victimisation of employees and Directors who use such mechanism and make provision for direct access to the Chairperson of the Audit Committee or the Director nominated to play the role of Audit Committee in appropriate or exceptional cases.

In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director nominated to play the role of audit committee may take suitable action against the concerned director or employee including reprimand.

Further, Regulation 22 of the SEBI (LODR) Regulations, 2015 provides that the listed company shall formulate a vigil mechanism/ whistle blower policy for directors and employees to report genuine concerns and such mechanism shall provide for adequate safeguards against victimization of director(s) or employee(s) or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit committee in appropriate or exceptional cases.

It may therefore be noted that while section 177(9) of the Companies Act, 2013 mandates to establish a vigil mechanism for directors and employees to report genuine concerns, in case of a listed company, such mechanism is available to all stakeholders.

(c)To oversee the vigil mechanism: Rule 7(2) and (3) of the Companies (Meetings of Board and its Powers) Rules, 2014-The companies which are required to constitute an Audit Committee shall oversee the vigil mechanism through the Committee and if any of the members of the Committee have a conflicted of interest in a given case, they should recuse themselves and the others on the Committee would deal with the matter on hand.

In case of other companies (not required to constitute Audit Committee), the Board of Directors shall nominate a Director to play the role of Audit Committee for the purpose of vigil mechanism to whom other Directors and employees may report their concerns.

Regulation 18(3) of SEBI (LODR) Regulations, 2015 prescribes the role of committee as specified in PART C of Schedule II to review the functioning of whistle blower mechanism.

(d)Disclosure requirement: As per proviso to section 177(10) of the Companies Act, 2013-The details of establishment of the Vigil Mechanism is required to be disclosed by the company on its website, if any, and in the Board’s report.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6A(ii) (Syllabus 2022).

Every listed company and every public company with a paid-up capital of Rs. 10 crore or more or turnover of Rs. 100 crore or more or outstanding loans of Rs. 50 crore or more is required to constitute an Audit Committee under section 177 of the Companies Act, 2013.

Every listed company and every unlisted public company having a paid-up capital of Rs.50 crore or more or turnover of Rs. 200 crore or more or outstanding loans of Rs. 100 crore or more or outstanding deposit of Rs. 25 crore or more is required to appoint an internal auditor under section 138 of the Act read with Rule 13 of Companies (Accounts) Rules, 2014. Private companies with a turnover of Rs.200 crore or more or outstanding loans of Rs. 100 crore or more are also required to appoint an internal auditor.

The role of audit committee of a listed company is prescribed under Part C of Schedule II of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

The audit committee of a listed company shall evaluate the internal financial controls and risk management systems as per section 177 of the Companies Act, 2013 and the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 [SEBI (LODR) Regulations]. In addition, the SEBI (LODR) Regulations, 2015 requires that the audit committee shall review the structure of the internal audit department, staffing, scrutiny of officials handling the internal audit department, reporting structure and frequency of conducting internal audits.

Thus, the role and scope of internal audit function in a listed company is much wider than the requirements of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5(c) (Syllabus 2017).

“RESOLVED THAT pursuant to Section 177 of the Companies Act, 2013 an Audit Committee consisting of the following Directors, who are financially literate, be and is hereby constituted:

(1)Mr—Independent Director

(2)Mr—Independent Director

(3)Mr—Independent Director

(4)Mr—Independent Director

(5)Mr—Managing Director

(6)Mr—Chief Financial officer

“RESOLVED FURTHER THAT Mr. ............(DIN), an Independent Director of the Company, having accounting and / or related financial management expertise, be an is hereby appointed as Chairman of the Audit Committee, and he shall preside the meeting of the Audit Committee from time to time, and as per SS - 2 read with other applicable provisions of the Companies Act, 2013, the Chairman of the audit committee shall be present at Annual general meeting of the Company to answer shareholders’ queries.”

“RESOLVED FURTHER THAT the quorum for a meeting of the Audit Committee shall be three directors (other than the Managing Director), out of which at least two shall be independent directors”.

“RESOLVED FURTHER THAT the Audit Committee shall perform all the functions as laid down in section 177(4) of the Companies Act, 2013 including but not limited to:

(a)Make the recommendation for appointment, remuneration and terms of appointment of the auditors of the company;

(b)Revise and monitor the independence and performance of auditors of the company and the effectiveness of the audit process.”

“FURTHER RESOLVED THAT the Audit Committee shall review the quarterly and annual financial statements and submit the same to the Board with its recommendation”.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6(a) (Syllabus 2022).

Section 177 of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of the Board and its Powers) Rules, 2014 provides that the Board of directors of following companies are required to constitute an Audit Committee of the Board:

•Every listed company;

•All public companies with paid up capital of Rs. 10 crore or more; or

•All public companies having turnover of Rs. 100 crore or more; or

•All public companies, having in aggregate outstanding loans, debentures and deposits exceeding Rs. 50 crore or more

In view of the above provisions, it can be suggested that:

•A Ltd. is required to constitute Audit Committee as it has aggregate outstanding loans, deposit and debenture of Rs. 55 crore (in excess of Rs. 50 crore).

•B Ltd. is required to constitute Audit Committee as it is a listed company.

•C Pvt. Ltd. is not required to constitute Audit Committee as it is a private company.

•D Ltd. is required to constitute Audit Committee as it has a paid up capital of Rs. 10 crore.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5A(iv) (Syllabus 2017).

Difference between Constitution of Audit Committee and Constitution of Corporate Social Responsibility Committee

Audit Committee

Section 177 of the Companies Act, 2013 provides for the requirement of mandatory constitution of Audit Committee by:

(a)Every Listed Public Company; and

(b)The following class of companies –

(i)public companies with a paid-up share capital of Rs.10 crore or more; or

(ii)public companies having turnover of Rs.100 crore or more; or

(iii)public companies, having in aggregate, outstanding loans, debentures and deposits exceeding Rs.50 crore.

However, the following classes of unlisted public company shall not be required to have an Audit Committee:

(a)a joint venture;

(b)a wholly owned subsidiary; and

(c)a dormant company as defined under section 455 of the Companies Act, 2013.

The Audit Committee shall comprise of minimum three directors with independent directors forming a majority.

Corporate Social Responsibility Committee (CSR Committee)

Every company having:

•net worth of Rs.500 crore or more; or

•turnover of Rs.1000 crore or more; or

•net profit of Rs.5 crore or more

during the immediately preceding financial year is required to constitute a Corporate Social Responsibility Committee of the Board.

The CSR committee shall consist of three or more directors, out of which at least one director shall be an independent director.

Where a company is not required to appoint an independent director under Section 149 (4) of the Companies Act, 2013, it shall have in its Corporate Social Responsibility Committee two or more directors.

Rule 5 of the Companies (Corporate Social Responsibility Policy) Rules, 2014 provides that a private company having only two directors on its Board shall constitute its CSR Committee with two such directors.

With respect to a foreign company covered under the Companies (Corporate Social Responsibility Policy) Rules, 2014, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under clause (d) of section 380(1) of the Companies Act, 2013 and another person shall be nominated by the foreign company.

Section 380(1)(d) of the Companies Act, 2013 requires foreign companies to notify to the Registrar, one or more persons resident in India authorised to accept on behalf of the company, any notices or other documents required to be served on the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(c) (Old syllabus).

Presence of Independent Director in various Committees of the Board

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5A(i) (Syllabus 2017).

Role of Audit Committee on Related Party Transactions

Section 177(4)(iv) of the Companies Act, 2013 specifies that the terms of reference of Audit Committee includes approval or any subsequent modification of transactions of the company with related parties.

The Audit Committee may make omnibus approval for related party transactions proposed to be entered into by the company subject to such conditions as prescribed under Rule 6A of the Companies (Meetings of Board and its Powers) Rules, 2014, namely–

(i)The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making the omnibus approval which shall include the following, namely: -

(a)maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a year;

(b)the maximum value per transaction which can be allowed;

(c)extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus approval;

(d)review, at such intervals as the Audit Committee may deem fit, related party transaction entered into by the company pursuant to each of the omnibus approval made;

(e)transactions which cannot be subject to the omnibus approval by the Audit Committee.

(ii)The Audit Committee shall consider the following factors while specifying the criteria for making omnibus approval, namely: -

(a)repetitiveness of the transactions (in past or in future);

(b)justification for the need of omnibus approval.

(iii)The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature and that such approval is in the interest of the company.

(iv)The omnibus approval shall contain or indicate the following: -

(a)name of the related parties;

(b)nature and duration of the transaction;

(c)maximum amount of transaction that can be entered into;

(d)the indicative base price or current contracted price and the formula for variation in the price, if any; and

(e)any other information relevant or important for the Audit Committee to take a decision on the proposed transaction:

However, where the need for related party transaction cannot be foreseen and aforesaid details are not available, audit committee may make omnibus approval for such transactions subject to their value not exceeding ₹1 crore per transaction.

(v)Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval after the expiry of such financial year.

(vi)Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of the company.

(vii)Any other conditions as the Audit Committee may deem fit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iii) (Old syllabus).

(1)Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of the Board and its Powers) Rules, 2014, provides that the Board of directors of following companies are required to constitute an Audit Committee of the Board-

(i)Every listed Public companies;

(ii)All public companies with a paid up capital of 10 Crore rupees or more;

(iii)All public companies having turnover of 100 Crore rupees or more;

(iv)All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 Crore rupees or more.

Accordingly RPK Ltd. is liable to constitute the audit committee as its long term loan is more than the prescribed limit of Rs. 50 Crore.

(2)Yes, the company is liable to constitute an audit committee as it will then become a listed company.

(3)Para 2.2 of the Secretarial Standard-1 provides that Committee shall meet as often as necessary subject to the minimum number and frequency prescribed by any law or any authority or as stipulated by the board.

Para 3.5 of the Secretarial Standard -1, unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum for meeting of any Committee constituted by the Board shall be as specified by the Board. If no such Quorum is specified, the presence of all the members of any such Committee is necessary to form the Quorum.

Accordingly, RPK Ltd. In case of unlisted public companies, minimum number of meetings and quorum may be decide by the Board of Directors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5A(v) (Syllabus 2017).

Section 177(9) read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014 provides that every listed company and the following class or classes of companies shall establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances.

Class or Classes of companies are as follows:

(a)Companies which accept deposits from the public;

(b)Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.

Section 4(1) of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 mandates that every employer of a workplace shall by an order in writing constitute a committee to be known as the “Internal Complaint Committee”.

It may be noted that where the offices or administrative units of the workplace are located at different places or divisional or sub-divisional level, the Internal Committee shall be constituted at all administrative units or offices.

As per section 6(1) of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013, every District Officer shall constitute in the district concerned, a committee to be known as the “Local Complaints Committee” to receive complaints of sexual harassment from establishment where the Internal Complaints Committee has not been constituted due to having less than ten workers or if the complaint is against the employer himself.

As per section 2(O) of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 "workplace" includes ·

(i)any department, organisation, undertaking, establishment, enterprise, institution, office, branch or unit which is established, owned, controlled or wholly or substantially financed by funds provided directly or indirectly by the appropriate Government or the local authority or a Government company or a corporation or a co-operative society;

(ii)any private sector organisation or a private venture, undertaking, enterprise, institution, establishment, society, trust, non-governmental organisation, unit or service provider carrying on commercial, professional, vocational, educational, entertainment, industrial, health services or financial activities including production, supply, sale, distribution or service;

(iii)hospitals or nursing homes;

(iv)any sports institute, stadium, sports complex or competition or games venue, whether residential or not used for training, sports or other activities relating thereto:

(v)any place visited by employee arising out of or during the course of employment including transportation provided by the employer for undertaking such journey

(vi)a dwelling place or a house

Therefore the statement that Vigil Mechanism and Sexual Harassment Complaints Committee is mandatory only for listed company is incorrect.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 1(d) (Old syllabus).

Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meeting of the Board and its Powers) Rules, 2014, provides that the Board of directors of the following companies are required to constitute an Audit Committee of the Board -

(i)Every listed public companies;

(ii)All public companies with a paid up share capital of 10 crore rupees or more;

(iii)All public companies having turnover of 100 crore rupees or more;

(iv)All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore rupees or more.

The paid up share capital or turnover or outstanding loans or borrowings or debentures or deposits, as the case may be, as existing on the date of last audited financial statements shall be taken into account for the purpose.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 5(b) (Syllabus 2017).

Section 177(9) of Companies Act, 2013 read with Rule 7 of Companies (Meetings of Board and its Powers) Rules, 2014 the following companies are required to establish a vigil mechanism for their directors and employees to report their genuine concerns or grievances.

(a)every listed company;

(b)the Companies which accept deposits from the public;

(c)the Companies which have borrowed money from banks and public financial institutions in excess of fifty crore rupees.

Further the sub-section (10) provides that the details of establishment of such mechanism shall be disclosed by the company on its website, if any, and in the Board’s report.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 1(b) (Syllabus 2017).

According to Rule 6 of the Companies (Meetings of Board and Its Powers) Rules, 2014, the Board of directors of every listed public company and a company covered under Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014 shall constitute an Audit Committee of the Board.

Class of companies defined in Rule 4(1) of the Companies (Appointment and Qualification of Directors) Rules, 2014:-

(i)all public companies with a paid up capital of ten crore rupees or more; or

(ii)all public companies having turnover of one hundred crore rupees or more; or

(iii)all public companies, having in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

Further, Rule 4(2) of the Companies (Appointment and Qualification of Directors) Rules, 2014 provides that the following classes of unlisted public companies shall not be covered under above rule, namely:-

(a)a Joint venture

(b)a wholly owned subsidiary and

(c)a dormant company.

Hence it is clear that the wholly owned subsidiary company XY Ltd is not covered under Rule 4 and so need not constitute Audit Committee of the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(b) (Old syllabus).

Stakeholders Relationship Committee

Constitution of Stakeholders Relationship Committee (SRC)

Section 178(5) of the Companies Act, 2013 provides for constitution of the stakeholder’s relationship committee.The Board of Directors of a company which consists of more than 1000 shareholders, debenture-holders, deposit- holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee.

As per regulation 20 of the SEBI (LODR) Regulations, 2015, the listed entity shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of interest of shareholders, debenture holders and other security holders.

Composition of Stakeholders Relationship Committee

Functions of SRC:

Section 178(6) of the Companies Act, 2013, the main function of the committee is to consider and resolve the grievances of security holders of the company.

On similar terms Regulation 20 read with Part D of the Schedule II of the SEBI (LODR) Regulations, 2015 provides the role of the committee which inter-alia include the following:

•Resolving the grievances of the security holders of the listed entity including complaints related to transfer/ transmission of shares, non-receipt of annual report, nonreceipt of declared dividends, issue of new/ duplicate certificates, general meetings etc.

•Review of measures taken for effective exercise of voting rights by shareholders.

•Review of adherence to the service standards adopted by the listed entity in respect of various services being rendered by the Registrar & Share Transfer Agent.

•Review of the various measures and initiatives taken by the listed entity for reducing the quantum of unclaimed dividends and ensuring timely receipt of dividend warrants/annual reports/statutory notices by the shareholders of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 6(b) (Syllabus 2022).

Answer of the given question is as below under the provisions of the Companies Act, 2013-

i.Section 178(5) of the Companies Act, 2013 provides the constitution of the Stakeholders relationship committee. The Board of directors of company which consist of more than 1000 shareholders, debenture holders, deposit holders and any other security holders at any time during a financial year shall constitute a Stakeholders relationship Committee. All Company i.e., Sun Ltd., Moon Ltd. and Neptune Ltd. meets the above criteria. Hence, all are required to constitute SRC.

ii.As per SS-1, Stakeholders Relationship Committee shall meet as often as necessary subject to the minimum number and frequency prescribed any law or any authority or as stipulated by the Board. Under the regulation 20(3A) of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 [SEBI (LODR) Regulations], the Stakeholders Relationship Committee shall meet at least once in a year.

iii.As per Section 178(5) of the Companies Act, 2013, Stakeholders Relationship Committee shall consist of chairperson who shall be a non-executive director and such other members as may be decided by the Board. Under Regulation 20 of SEBI (LODR) Regulations, 2015 the listed company shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of interest of shareholders, debenture holders, and other security holders. It shall consist of at least 3 directors, with at least 1 being an independent director.

iv.As per Section 178(5) of the Companies Act, 2013, the chairperson of this committee shall be a non-executive director.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 5A(iv) (Syllabus 2017).

i.As per Regulation 19 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), a listed company shall constitute the Nomination and Remuneration Committee (NRC) with at least three directors all of whom shall be non-executive directors with at least fifty percent of the directors of NRC being independent directors. According to Section 178 of Companies Act, 2013 (Act), read with Rule 6 of the Companies (Meetings of Board and its Power) Rules, 2014 and Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014,-

(i)Every listed Public Company;

(ii)All Public companies with a paid up capital of 10 crore rupees or more; or

(iii)All Public companies having turnover of 100 crore rupees or more; or

(iv)All Public companies, having in aggregate, outstanding loans, debentures and deposits exceeding 50 crore rupees are required to constitute NRC consisting of three or more non-executive directors out of which not less than one half shall be independent directors. According to proviso to Section 2(71) of the Companies Act, 2013) a company which is a subsidiary of a public company, not being a private company, shall be deemed to be a public company as per this Act even when it continues to be a private company in its Articles. Hence all the three companies viz., Sky Ltd, Earth Ltd and Water (Private) limited are required to constitute NRC of their Board as they are either listed or their paid-up share capital or turnover or borrowings exceed the prescribed limits.

ii.Proviso to Section 178 states that the Chairman of the company may be appointed as a member of the committee but shall not chair the NRC. Hence the chairman of the company cannot be appointed as chairman of NRC. The Chairman of the NRC shall be an Independent Director. iii.Since NRC is constituted with non-executive directors and independent directors in majority, the minimum number of executive directors on NRC is NIL and the minimum number of independent directors of NRC is half i.e two (rounded off to the nearest number) where the total strength of NRC is three directors. iv.The quorum for NRC is as specified by the Board. Where no quorum is specified in the Articles, all the members of NRC shall be quorum as per para 3.5 of SS-1. According to SEBI LODR Regulations, quorum for NRC meeting shall be either two members or one third of the members of the Committee, whichever is greater, including at least one Independent Director in attendance. SEBI LODR Regulations stipulates at least 1 NRC meeting in a year.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5A(v) (Syllabus 2017).

Section 178(5) of the Companies Act, 2013 provides for constitution of the stakeholders relationship committee.

(a)The company that has more than one thousand shareholders, debenture-holders, deposit- holders and any other security holders at any time during a financial year is required to constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. Hence, the claim of the director is correct.

(b)As per regulation 20 of the SEBI (LODR) Regulations, 2015, the listed entity shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of interests of shareholders, debenture holders and other security holders.

•The chairperson of this committee shall be a non-executive director.

•At least three directors, with at least one being an independent director, shall be members of the Committee.

•The Chairperson of the Stakeholders Relationship Committee shall be present at the annual general meetings to answer queries of the security holders.

(c)The quorum for the SRC shall be as specified by the Board. If no such quorum specified than all the members of the SRC will for the quorum as per SS-I.

(d)As per SS-1 para 2.2, Stakeholders Relationship Committee shall meet as often as necessary subject to the minimum number and frequency prescribed by any law or any authority or as stipulated by the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 5A(iv) (Syllabus 2017).

As per section 178(5) of the Companies Act, 2013, the Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholder Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board.

Further, as per Regulation 20 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 every listed entity shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of interest of shareholders, debenture holders and other security holders. The chairperson of this committee shall be a non-executive director.

In view of the above provisions, a listed company even if having less than 1000 shareholders is required to constitute a Stakeholder Relationship Committee. In case X Ltd. is an unlisted company, it is not required to constitute a Stakeholder Relationship Committee under Companies Act, 2013.

As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, at least three directors, with at least one being an independent director, shall be members of the Committee and in case of a listed entity having outstanding SR equity shares, at least two thirds of the Stakeholders Relationship Committee shall comprise of independent directors.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 5(e) (Syllabus 2017).

According to Section 178(1) of the Companies Act, 2013 the following companies are required to constitute a nomination and remuneration Committee:

(a)All listed companies

(b)All public companies with a paid up capital of Rs.10 crores or more

(c)All public companies having a turnover of Rs.100 crores or more

(d)All public companies having in aggregate outstanding loans or borrowing s or debentures or deposits exceeding Rs. 50 crores.

(a)Accordingly, ABC Ltd being a Public company with a paid-up capital of Rs. 50 crores and also having a turnover of Rs 101 crores, will be required to appoint a Nomination & Remuneration Committee under Section 178 (1) of Companies Act, 2013.

(b)According to Section 178(5) of the Companies Act, 2013, the Board of every company that has more than one thousand shareholders, debenture –holders, deposit holders and any other security holders at any time during a financial years required to constitute a stakeholders relationship Committee.

In the instant case, ABC Ltd. has 1300 stakeholders (800 equity shareholders +500 deposit holders). Therefore, ABC Ltd. is required to constitute a stakeholders relationship committee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 2A(i) (Old syllabus).

According to section 178 of Companies Act, 2013 The Board of Directors of every listed public company shall constitute the Nomination and Remuneration Committee consisting of three or more non-executive directors out of which not less than one-half shall be independent director. The chairperson of the company (whether executive or non-executive) may be appointed as a member of the Nomination and Remuneration Committee but shall not chair such Committee.

In present case the CSR Committee cannot serve as Nomination and Remuneration committee as the composition is different.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 4(c) (Syllabus 2017).

(a)As per Section 179(3)(e) of the Companies Act, 2013, the Board of Directors of a company shall exercise the powers to invest the funds of the company of Rs. 15 Lakhs in ABC Mutual funds by means of resolutions passed at meetings of the Board;

(b)As per Section 180(1)(d) of the Companies Act, 2013, the Board of Directors of a company shall exercise the power to remit, or give time for the repayment of, any debt due from a director only with the consent of the company by a special resolution;

(c)As per Section 180(1)(b) of the Companies Act, 2013, the Board of Directors of a company shall exercise the power to invest otherwise in trust securities, the amount of compensation received by it as a result of any merger or amalgamation with the consent of the company by a special resolution;

(d)As per Section 179(3)(j) of the Companies Act, 2013, the Board of Directors of a company shall exercise the powers to take over a company or acquire a controlling or substantial stake in another company by means of resolutions passed at meetings of the Board.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 5A(v) (Syllabus 2017).

There is no restriction on delegation of powers of the board of directors of the company except as provided in first proviso to section 179(3) of Companies Act, 2013. It provides that The Board may delegate power to borrow money, to invest the fund of the company and to grant loan or give guarantee or provide security in respect of loans, by way of resolution to any committee of directors, the managing director, manager or any other principal officer, or principal officer of a branch of the company.

Apart from this the board of directors may delegate all or any of its powers to any person including a person not in employment of the company if the Articles of Association so provides.

Accordingly, in present case the Board of Directors of XYZ Ltd. may delegate the powers relating to transfer of securities only when the Articles of association allows delegation of the powers to any of the directors of the company or any person not in employment of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3(c) (Syllabus 2017).

Provision:

As per rule 22 of the Companies (Management and Administration) Rules, 2014, pursuant to clause

(a)of sub-section (1) of section 110, the following item of business, inter alia, shall be transacted only by means of voting through a postal ballot –

Sale of the whole or substantially the whole of an undertaking of a company as specified under section 180(1)(a).

Section 180(1)(a) of the Companies Act 2013 provides that the Board of directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely, to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the undertaking owns more than one undertaking of the whole or substantially the whole of any of such undertakings. For the purpose of this clause, undertaking shall mean an undertaking in which the investment of the company exceeds twenty percent of its net worth or an undertaking which generates twenty percent of total income of the company during the previous financial year.

Analysis and Answer

In the given situation, an undertaking MU303 generated 23% of the total income of the company in the previous year which is more than twenty percent threshold limit. Therefore, Board can sell, lease or otherwise dispose of the undertaking only with the consent of the company by special resolution. Interestingly, ‘lease’ of undertaking does not fall within the purview of rule 22 of Companies (Management and Administration) Rules, 2014. Only ‘sale’ is covered there.

Thus, there is no requirement of passing of resolution by postal ballot and contention of shareholder challenging the action of the Board of directors is not valid. However, an ordinary resolution is not sufficient, a special resolution needs to be passed by the company for this purpose.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 6A(i) (Syllabus 2022).

Authority: Members of the company

Type of resolution: Special Resolution

“RESOLVED THAT pursuant to the provisions of section 180(1)(a) and other applicable provisions, if any, of the Companies Act, 2013, as amended from time to time and the Articles of Association of the company, consent of the shareholders be and is hereby accorded to the Board of directors for creation of security in any form or manner on the movable or immovable properties of the company whether tangible, intangible or otherwise both present and future of the whole or substantially the whole of the undertaking(s) of the company in such form and manner as the Board of directors may deem fit, in favour of such lenders from time to time, together with interest at the agreed rate(s), in the event of default, accumulated interest, liquidated damages, all other charges, expenses and costs payable by the company in respect of such borrowings, made by the Board in accordance with the authorizations given to it by the company, from time to time.

RESOLVED FURTHER THAT the Board of directors be and are hereby authorised to negotiate and settle the terms and conditions of the securities, finalize and execute all agreements, deeds and documents as may be necessary, desirable or expedient, settle any question, doubt or difficulties that may arise in this regard, do all such acts, deeds, things or matters, as they may in their absolute discretion deem proper, necessary or desirable and to delegate all or any of these powers to any Committee of directors or to the Managing Director or Whole-time Director or any officer of the company. “

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 6(c) (Syllabus 2022).

According to the provisions of Section 180(1)(c) of the Companies Act, 2013, pertaining to restrictions on powers of the Board of Directors (BOD), the BOD shall exercise only with the consent of the company by a special resolution, inter alia, the power to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and security premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.

In the given scenario the aggregate of paid up share capital Rs. 16 crore (12+4), GR i.e. FR Rs. 40 crore and Securities Premium A/c Rs. 24 crore that comes to Rs. 80 crore. The outstanding term loans of the company, excluding temporary short-term loan, is Rs. 65 crores. Hence, the company can borrow further loan up to Rs. 15 crore under the exclusive authority of the Board of directors. However, the proposed further loan is Rs. 25 crore which is beyond the authority of the Board and hence the approval of the shareholders in a general meeting by way of a special resolution would be required.

Accordingly, in this case the proposed further loan can be obtained under the authority of a special resolution to be passed in the general meeting of the shareholders.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 4(d) (Syllabus 2017).

Section 180(1)(c) of the Companies Act, 2013 restricts the borrowing powers of the Board of Directors. The powers to borrow has to be exercised by the Board in a duly convened Board Meeting. The Board cannot borrow beyond its authority as stipulated by the Articles of Association of the company and by the Act. Section 180(1) prescribes that the Board shall, inter alia, borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed the aggregate of the paid-up capital, free reserves and security premium only with the consent of members in a general meeting by passing a special resolution.

In the instant case, the aggregate of paid-up capital and free reserves and security premium of the company is 5+2+1 = Rs. 8 crore. As the company already has an outstanding long-term loan of Rs. 8 crore, no further loan can be borrowed just by passing a Board Resolution. To borrow any further sum, the approval of members by a special resolution is necessary. Thus, as Venus Hospitality Limited is a public company, the Board Resolution is not valid as per the above mentioned provisions.

If the company is a private limited company, as per exemption given vide Notification dated 05/06/2015 the private companies are exempted from complying with the requirements of Section 180 of the Act. Even then the company cannot borrow a further sum of Rs. 5 crore as in this case as, the Articles provide that the company cannot borrow beyond its net worth.

The net worth of the company is 5+2+1=Rs. 8 crore. Revaluation reserve is not taken into account for ascertaining the net worth of a company as per Section 2(57). The long-term loan outstanding is Rs. 8 crore. Hence, the company cannot borrow the additional loan of Rs. 5 crore as the stricter provisions of Articles will prevail even if it is a private company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 1(c) (Syllabus 2017).

Section 180 of the Companies Act, 2013 deals with the restrictions on the power of Board. As per Section 180(1)(c) of the Companies Act, 2013, the Board of Directors of a company, without obtaining the approval of shareholders in a general meeting by passing special resolution, can borrow money including money already borrowed upto an amount which does not exceed the aggregate of paid-up capital of the company, free reserve and securities premium. Such borrowing shall not include temporary loans obtained from the company’s bankers in ordinary course of business. Here, free reserves do not include the reserves set apart for specific purpose.

Since the decision to borrow is to be taken in a meeting to be held on 15th October 2023, the figures relevant for this purpose are the figures as per the Balance Sheet as at 31.03.2023. According to the above provisions, the Board of Directors of GCL Textiles Limited can borrow, without obtaining approval of the shareholders in general meeting, upto an amount calculated as follows:

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(iii) (Syllabus 2022).

i)According to Section 180 of the Companies Act, 2013, the Board of Directors shall exercise their powers only with the consent of the members of the company by a special resolution in the following cases:

•To sell, lease or otherwise dispose of the whole or substantially whole of the company;

•To invest otherwise than in trust securities the amount of compensation received as a result of merger or amalgamation;

•To borrow money, where the money borrowed, together with the money already borrowed by the company will exceed aggregate of paid-up capital and free reserves. However, a board resolution is sufficient if the company wants to borrow money, where the money to be borrowed is less than the aggregate of the paid-up share capital, free reserves and securities premium.

In the instant case, the money to be borrowed together with the money already borrowed as long term loans from financial institutions is rupees 780 Crore (480+300) and aggregate of the paid-up capital and free reserve rupees 1220 crore (300+120+500+300 = rupees 1220 crore.

Hence, a special resolution is not required. Board Resolution is sufficient.

ii)According to section 180 of the Act, a Special Resolution is required only in case the compensation on account of merger or amalgamation is invested otherwise than in trust securities. In the instant case, as the compensation money on account of divestment of Cycle Division was invested only in trust securities, board resolution is sufficient.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 5(a) (Syllabus 2017).

As per section 180(1)(c), the board of directors of a company with the consent of the company by a special resolution shall borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company's bankers in the ordinary course of business.

Temporary loans means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature.

In view of the above provision the eligible amount which can be borrowed by the Board is given below:

Re-valuation Reserve is not treated as free reserve as per Section 2(43).

The total borrowing of the company for the purpose of this sub section is -

Short Term Borrowings (Cash Credit Loan) of Rs. 50 Lakhs is considered as temporary loan and loan for construction of building in not consider as temporary loan as per the explanation for temporary loan mentioned above.

Therefore, the company can borrow a further sum upto Rs. 25 Lakh without seeking the approval from the members. So, the board cannot borrow a sum of Rs. 50 Lakhs as Long Term Loan without obtaining the consent of the members in general meeting by special resolution.

In case of private company the provision of section 180 does not apply vide exemption notification dated 05th June, 2015, hence the board can borrow without approval.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 4(a) (Syllabus 2017).

As per Section 180 (1) of the Companies Act, 2013, board can exercise the following powers only with the consent of the company by special resolution, namely:

To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings.

"Undertaking" shall mean an undertaking in which the investment of the company exceeds twenty per cent of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty percent of the total income of the company during the previous financial year;

Accordingly, the net-worth of Lala Ltd as on 31st March 2019 is Rs. 580 crore and investment made in the power plant is Rs. 150 Crore. As per the Explanation to Section 180 (1) (a), power plant is an undertaking of the company being the investment exceeds 20% of the net-worth, so there is a requirement of passing of Special Resolution at the general meeting of the company for disposing off the same.

As per Section 180(1)(c) of Companies Act, 2013, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business, the consent of the company is required by passing special resolution.

In the given case, the Lala Ltd. is intend to raise Rs. 200 crores for funding the installation of a new furnace, together with the money already borrowed by the Company i.e. Rs. 680 crores, exceeds its aggregate paid-up share capital and free reserves of the Company being Rs. 580 Crores. So there is a requirement of passing of Special Resolution at the general meeting of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 6(c) (Old syllabus).

Special Business

To consider and, if thought fit, to pass with or without modification(s), the following resolution as Special Resolution:

“RESOLVED THAT pursuant to the provisions of Section 180(3)(c) and other applicable provisions, if any, of the Companies Act, 2013, and subject to such approval as may be necessary, consent of the company be and is hereby accorded to the Board of directors of the company for borrowing, from time to time, such sum of money as may not exceed Rs. .................................. (Rupees ................................. ), for the purpose of the business of the company, notwithstanding that the moneys to be borrowed together with the monies already borrowed (apart from temporary loans obtained from the company’s bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the company and its free reserves, that is to say, the reserves not set apart for any specific purpose, provided that the total amount upto which the monies may be borrowed by the Board of directors of the company shall not exceed the aggregate of the paid-up capital and free reserves of the company by more than the sum of ‘....................................... (Rupees .....................................) at any one time. Resolved further that the Board be and is hereby authorized to do all the acts, deed and things as it may in its absolute discretion deem necessary and appropriate to give effect to the above resolution”.

Explanatory Statement

The shareholders of the company had, at the extraordinary general meeting of the company held on ........................, passed a special resolution under Section 180 (3)

(c)for borrowing the maximum amount of Rupees ........................, upto which the Board of directors of the company could borrow funds from financial institutions and banks in excess of the company’s paid-up capital and free reserves. However, in view of the increased business activities of the company, the said ceiling of Rupees (........................) has been found to be inadequate. Your directors are of the opinion that the ceiling of borrowings by the Board be raised to rupees ___________.

Hence the proposed resolution for consideration and approval by the members of the company. None of the directors is concerned or interested in the proposed resolution.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 4(d) (Syllabus 2017).

As per section 181 of the Companies Act, 2013, the Board of directors of a Company without obtaining the approval of shareholders in a general meeting, can make contributions to genuine charitable and other funds upto an amount which, in a financial year, does not exceed five per cent of its average net profits during the three financial year’s immediately preceding, the financial year.

Accordingly, to the above provisions, the Board of Directors of GCL Textiles Limited can make contributions to charitable funds, without obtaining approval of the shareholders in a general meeting, upto an amount calculated as follows:

Net Profit for the three years (as calculated in accordance with the provisions of the Companies Act, 2013):

Hence, the maximum amount that can be donated by the Board of Directors to charitable funds by GCL Textiles Limited during the financial year 2023-24 will be Rs. 55,000 without seeking the approval of the shareholders in a general meeting.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 6A(iv) (Syllabus 2022).

As per section 181 of the Companies Act, 2013, company can contribute to bonafide charitable funds or other funds which are not directly connected to business of company upto 5% of its average net profits during the preceding three financial years.

If the contribution is proposed for more than this limit, prior approval in General Meeting is required.

In present case, we assume Well Ltd. has incurred Loss of Rs. 2,00,000 during the financial year 2021-22

Average net profits = 12,00,000+5,00,000-2,00,000/3= Rs. 5,00,000

5% of Average Net Profits = 5% of 5,00,000= Rs. 25,000

Pursuant to Section 181, if contribution to charitable trust is more than 5% of average net profits for three financial years , it requires prior approval in General Meeting.

Hence, in the above case, where Well Ltd. wants to contribute more than Rs. 25000 i.e. Rs. 60,000 (in the present case) to charitable fund, the directors have to ensure that:

a)Prior approval by ordinary resolution in the general meeting is obtained to make contribution to charitable fund.

b)The trust is bonafide.

Contribution towards Gratuity Fund for employees of company cannot be considered as contribution towards charitable fund or trust. Gratuity Fund is directly related to business of company or welfare of employees.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 5A(ii) (Syllabus 2017).

(i)According to Section 182 of the Companies Act, 2013, a company, other than a government company and a company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party. Further the contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

Accordingly, the answer is as under:

(ii)If the contribution is in contravention of the provisions of this section, the company shall be punishable for an amount of which may extend to five times of the amount so contributed and every officer who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times of the amount so contributed.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 4(d) (Syllabus 2017).

(i)According to Section 182 of the Companies Act, 2013, a company, other than a government company and a Company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party.

The Finance Act, 2017 amended section 182 of the Companies Act, 2013, accordingly the limit on the maximum amount that can be contributed by a company to a political party has been removed. Hence a company now can contribute any percentage without any limit.

(ii)Further, prior to the amendment to Section 182 by the Finance Act, 2017, the limit of contribution to political parties was 7.5% of the average net profits during the three immediately preceding financial years.

Hence, earlier to 2017, it can have contributed only 7.5% of average net profits at the maximum.

(iii)As per Section 182(1) of the Companies Act, 2013 the contribution must be authorised by board in its meeting by resolution and such resolution shall be deemed to be the justification in law for making of such contribution.

As per Section 182(3A) of the Companies Act, 2013, further, contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

Accordingly, the chairman cannot direct the payment to be made unless he is duly authorised by a Board resolution passed at a meeting and the payment is to be made through account payee cheque/Bank Draft or through electronic clearing system only.

(iv)As per Section 183 of the Companies Act, 2013 the Board is authorised to contribute such amount as it thinks fit to the National Defence Fund or any other fund approved by the Government for the purpose of National Defence.

Further, the company is required to disclose in its profit and loss account the total amount or amounts contributed by it during the financial year.

Accordingly, it is not possible to avoid the disclosure in the Profit and loss account about the amount of the contribution made to the National Defence Fund.

(v)If the expenditure incurred on advertisement in any publication souvenir, brochure, tract, pamphlet or the like is deemed as political contribution if such publication is by or on behalf of political party or if not, then for the advantage to such political party for a political purpose.

Hence, this amount to be treated as political contribution and shown in profit and loss account under the head political contribution.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(c) (Syllabus 2017).

(i)(i) According to Section 182 of the Companies Act, 2013, a company, other than a government company and a company which has been in existence for less than three financial years, may contribute any amount directly to any political party, on obtaining approval from the Board of Directors in their meeting. Further the contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account. Therefore as per above provision DEF Limited cannot contribute Rs.33.75 Crore directly to a political party through a bearer cheque.

(ii)As per section 182 of the Companies Act, 2013, a company, other than a Government company and a company which has been in existence for less than three financial years, may contribute any amount directly or indirectly to any political party. Hence DEF Ltd can contribute any amount to a Political Party.

(iii)According to Section 182 of the Companies Act, 2013 Government Company are not allowed to make contribution to the political party. Considering DEF Limited as a Government Company, it cannot make any contribution to a political party even by way of an account payee cheque.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(c) (Syllabus 2017).

As per SEBI (LODR) Regulations, 2015, the Annual Report shall make certain Related Party Disclosures. Further as per Regulation 27(2) of SEBI (LODR) Regulations, 2015 details of all material transactions with related parties shall be disclosed along with the quarterly compliance report on corporate governance in the format as specified by the Board from time to time to the recognised stock exchange(s) within fifteen days from close of the quarter.

(1)The listed entity shall make disclosures in compliance with the Accounting Standard on “Related Party Disclosures”.

(2)The disclosure requirements shall be as follows:-

Disclosures of amounts at the year end and the maximum amount of loans/ advances/ investments outstanding during the year, in the books of accounts of:

(i)Holding Company: -

(a)Loans and advances in the nature of loans to subsidiaries by name and amount.

(b)Loans and advances in the nature of loans to associates by name and amount.

(c)Loans and advances in the nature of loans to firms/companies in which directors are interested by name and amount.

(ii)Subsidiary : - Same disclosures as applicable to the parent company in the accounts of subsidiary company.

(iii)Holding Company : - Investments by the loanee in the shares of parent company and subsidiary company, when the company has made a loan or advance in the nature of loan.

For the purpose of above disclosures directors’ interest shall have the same meaning as given in Section 184 of Companies Act, 2013.

Disclosures of transactions of the listed entity with any person or entity belonging to the promoter/promoter group which holds 10% or more shareholding in the listed entity, in the format prescribed in the relevant accounting standards for annual results. (Notified on 9th May, 2018, applicable in respect of Annual reports filed for the year ended March 31, 2019 and thereafter.)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 2(b) (Syllabus 2017).

According to section 185(2) of Companies Act 2013, a company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that –

(a)A special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact; and

(b)the loans are utilised by the borrowing company for its principal business activities.

Explanation-For the purposes of this sub-section, the expression “any person in whom any of the director of the company is interested” means –

(a)any private company of which any such director is a director or member;

(b)anybody corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(c)anybody corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Analysis and Answer

Section 185(2) of the Companies Act, 2013 is applicable in the situation where the lending corporate is giving loan or providing guarantee or security in connection with the loan taken by the other corporate in which the director/s of lending are interested. Harshal and Sujit, directors of lending company- Disha Beauty Products Limited are together holding 25% voting powers in Rupa Chemicals Limited, Hence, in term of clause (b) of explanation to Section 185(2) Rupa Chemicals Limited is a body corporate in which the directors of the lending company are interested. The transaction of providing security shall be valid, if the following two conditions are fulfilled:

1.Disha Beauty Products Limited should pass a special resolution in the general meeting, and

2.A declaration should be given by Rupa Chemicals Limited that the loans are utilised for its principal business.

The transaction would be invalid if Disha Beauty Products Limited had passed a resolution in the general meeting but not a special resolution. The requirement of declaration has been satisfied.

In view of above, as Disha Beauty Products Limited (the lending company) failed to pass a special resolution in the general meeting the security has been provided in violation of section 185(2) of the Companies Act, 2013 and hence the observation of the Secretarial Auditor that the transaction is invalid is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 5(b) (Syllabus 2022).

•As per Section 185 of Companies Act, 2013, no company shall advance any loan to a director of the company or his relative.

•However, a company may advance any loan to a director of a company by passing a special resolution by the company in general meeting. The explanatory statements to notice for the general meeting shall disclose full particulars of the proposed loan.

•As per Section 185(3) of the Act, the provisions of subsection shall not apply to giving of any loan to the Managing Director or Whole Time Director by the company as part of service conditions extended by the company to all its employees or as per any scheme approved by members by a special resolution.

As Rakesh is neither the Managing Director nor a whole time director of the company, the provisions of Section 185(1) & 185(2) are applicable to it. Hence, without passing a special resolution in the general meeting, no loan can be given to Rakesh.

If Happy Travels Ltd would have been a private company, the private company can give loan to a director as per Notification dated 5th June 2015 subject to the following conditions:

a)No other body corporate has invested in the share capital of the private company

b)The borrowings from banks is less than twice the paid up capital or rupees 50 crore whichever is lower.

c)The private company has not defaulted on its borrowings from banks.

As Happy Travels Limited has availed a term loan of rupees 65 crore from a bank which is more than the ceiling of rupees 50 crore as per Notification dated 5th June 2015, it cannot grant the housing loan to Rakesh even if it is a private company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(a) (Syllabus 2017).

According to section 185(1) of the Companies Act, 2013, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by:

(a)any director of company, or of a company which is its holding company or any partner or relative of any such director; or

(b)any firm in which any such director or relative is a partner.

(i)Accordingly, based on the above provisions of Section 185(1) of the Companies Act, 2013, Megha Ltd. cannot grant loan to M/s. Total, since it is a partnership firm in which wife of Raman (Director of the lending company) is a partner.

Section 185(2) of the Companies Act, 2013 prescribes that a company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that-

(a)A special resolution is passed by the company in general meeting:

Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact; and

(b)the loans are utilised by the borrowing company for its principal business activities.

The expression “any person in whom any of the director of the company is interested” includes any private company of which any such director is a director or member.

(ii)Accordingly, by complying with the conditions as prescribed above under Section 185(2) of the Companies Act, 2013, Megha Ltd. can grant loan to Zimba Pvt. Ltd. in which Raman is a member holding 100 shares.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(b) (Syllabus 2017).

Section 185 of the Companies Act 2013 provides that no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by any firm in which any such director or relative is a partner.

However, MCA vide its exemption notification dated 5th June, 2015 provides that section 185 shall not apply to a Private Company:

a)in whose share capital no other body corporate has invested any money;

b)if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid-up share capital or Rs. 50 crore, whichever is lower; and

c)such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

Further, the benefits of the Exemption Notification dated 05th June, 2015 are available only to such private companies which have not committed a default in filing its financial statements under Section 137 of the Companies Act, 2013 or annual return under Section 92 of the Companies Act, 2013 with the Registrar of Companies.

Therefore, ABC Pvt. Ltd. can grant loan to Aman Udyog(Partnership Firm) where Rahul is a director in ABC Pvt Ltd and partner in Aman Udyog only if all the above-mentioned conditions (for availing the benefits of exemption notification dated 05th June, 2015) in respect of ABC Pvt. Ltd. are fulfilled.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(d) (Old syllabus).

As per Section 185(1) of the Companies Act, 2013, no company can directly or indirectly advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by:

—any of its directors or of a company which is its holding company or any partner or relative of any such director; or

—any firm in which any such director or relative is a partner.

However, Section 185(2) of the Companies Act, 2013, subject to fulfilling of certain conditions prescribed therein, does allows a company to advance any loan including any loan represented by a book debt, or give guarantee, or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested. Further, Section 185(3) of the Companies Act, 2013 allows giving of loans by the companies to their Managing or Whole-time Directors if the loan is given as a part of conditions of service extended by the company to all its employees or pursuant to any scheme approved by the members by way of a special resolution.

Whereas Section 186 of the Companies Act, 2013, is more of a procedural requirement only which prescribes that a company shall unless otherwise prescribed, make investment through not more than two layers of investment companies and that no company shall directly or indirectly give any loan to any person or other body corporate, give any guarantee or provide security in connection with a loan to any other body corporate or person and acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more unless previously authorised by Special Resolution.

Accordingly, the statement, that “Section 186 and Sec 185 of the Companies Act, 2013 dealing with Loans and investments by companies speak about loan given to directors and employees and not about any investment made by one corporate body in another” is not fully correct as while Section 185 of the Companies Act, 2013 does talks about loans to directors and employees, Sec 186 of the Companies Act, 2013 specifically talks about loans and investments by one corporate entity into another.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 3(a) (Old syllabus).

Section 185(2) of the Companies Act, 2013 provides that a company may advance any loan to a person in whom any of the directors of the Company is interested subject to passing a special resolution and the loan being utilized by the borrowing company for its principal business activities.

(i)As per Explanation (b) to Section 185(2), while defining the “person in whom the director is interested” includes bodies corporate in which not less than 25% of the voting power is exercised by such director whether alone with one or more other Director of the lending company.

Hence, unless Krishna, whether alone or with one or more, other Directors of A Ltd., exercises not less than 25% of the voting power in Maxima LLP, the loan given by A Ltd to Maxima LLP need not comply with requirements of Section 185(2).

(ii)Section 185 of Companies Act, 2013 exempts any loan given to the managing director or whole-time director as a part of condition of service extended by the company from the application of Section185(2). However a part-time director is not covered under the exemption and hence the case has to comply with Section 185(2).

(iii)Any loan made by a holding company to its wholly owned subsidiary company is exempt from the application of Section 185(2). In this case, S Ltd is not wholly owned subsidiary of R Ltd and hence this case requires compliance with Section 185(2) of Companies Act, 2013.

(iv)Since, Shyam was not a director at the time of advancing the loan, hence, this case does not requires compliance with Section 185(2) of Companies Act, 2013.

The provisions of Section 185(2) require compliance only at the time of the transaction and any subsequent change in the status of the employee does not invalidate the transaction.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 3(b) (Old syllabus).

According to section 185(1) of the Companies Act, 2013, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by,—

(a)any director of company, or of a company which is its holding company or any partner or relative of any such director; or

(b)any firm in which any such director or relative is a partner.

Further, vide Exemption Notification dated 05th June, 2015, Section 185 of Companies Act, 2013 shall not apply to Private Company meeting the following conditions:

(a)In whose share capital no other body corporate has invested any money;

(b)If the borrowings of such company from banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty Crore rupees, whichever is lower; and

(c)Such a company has not defaulted in repayment of such borrowings subsisting at the time of making transactions under this section.

Now, considering that the Paid up Capital of the Company is 11 Crores and borrowing from HDFC Bank is Rs. 15 Crore, it can be seen that the amount of borrowings by the company from Banks (Rs. 15 Crores) is less than twice the amount of paid up capital (i.e. 2 X 11 Cr. = 22 Crores). So as per exemptions conditions available to private company borrowing from the bank is less than 2 times of Paid up Capital of the Company.

To avail exemption, the company need to fulfill all conditions as provided in the Exemption Notification. Hence, if all the above conditions are fulfilled, the loan to Rajesh Gowda is exempted under section 185 and the company is not in violations of the provisions of the Companies Act, 2013 and the claim of CS is not justified.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 4(a) (Syllabus 2017).

Section 186(2) of the Companies Act, 2013 stipulates that, no company shall directly or indirectly -

a)give any loan to any person or other body corporate;

b)give any guarantee, or provide security, in connection with a loan to any other body corporate or person; and

c)acquire, by way of subscription, purchase or otherwise the securities of any other body corporate;

exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more.

Section 186(3) states where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under sub-section (2) of Section 186 of the Act i.e. 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account whichever is more, investment or loan can be made or guarantee can be given or security can be provided only with the previous authorisation by a special resolution passed in a general meeting.

Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of section 186(3) of the Act shall not apply i.e. prior special resolution is not required.

Sub-section 7 provides that no loan shall be given under section 186 at a rate of interest lower than the prevailing yield of one year, three-year, five year or ten-year government security closest to the tenure of loan.

In the given problem, Edge Ltd. has to provide interest free loan to its wholly owned subsidiary. The maximum amount of loan Edge Ltd. can provide to other body corporate is Rs. 168 lakh [higher of {60% of (160+120)} or {100% of 120}]. Edge Ltd. has already provided loan of Rs.128 lakh to other companies. Thus, if Edge Ltd. proposes to provide loan beyond Rs. 40 lakh (Rs. 168 lakhs – Rs. 128 lakhs = Rs. 40 lakhs), it requires shareholders’ approval.

However, Edge Ltd. can give loan to its wholly owned subsidiary without passing of special resolution. Again, the Section 186(7) of the Act prohibits giving interest free loan. So, Edge Ltd. cannot provide interest free loan even to its wholly owned subsidiary.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2025, Q. 5(c) (Syllabus 2022).

According to section 186(2)(a) and (3) of the Companies Act, 2013 read with Rule 13 of the Companies (Meeting of Board and its Powers) Rules, 2014, no company shall directly or indirectly, give any loan to any person or other body corporate exceeding 60% of its (paid-up share capital + free reserves + security premium account) or 100% of its (free reserves+ security premium account) whichever is more, without the approval of the members by passing a special resolution.

In this case, 60% of net worth of the company is {0.6 * (24+8+80+48 = 160 crore)} = Rupees 96 crore. The total of free reserve and security premium is (80+48) = Rupees 128 crore. Hence, the company can, theoretically, give loan upto the higher of the two amounts which is Rupees. 128 crore.

As the Board of Directors are considering granting of only Rupees. 50 crore to Lamps and Shades Limited, the loan is, prima facie, within the prescribed limits of the Board itself. No special resolution by members is necessary in this case.

However, Section 186(5) states that no investment shall be made or loan or guarantee or security by the company unless the resolution sanctioning the loan is passed at the meeting of the Board with the consent of all the directors present at the meeting.

In this case, as the board resolution has not been passed unanimously, the resolution is not valid.

The company cannot grant the loan to Lamps and Shades Limited even if members’ approval by special resolution is obtained as required u/s 186(3) as the unanimous board approval was not obtained in the first place.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2024, Q. 1(c) (Syllabus 2017).

Section 186 of the Companies Act, 2013(the Act) deals with the provisions relating to Loan and Investment by a Company. According to Section 186(2) of the Act, no Company shall directly or indirectly -

(a)give any loan to any person or other body corporate;

(b)give any guarantee or provide security in connection with a loan to any other body corporate or person; and

(c)acquire, by way of subscription, purchase or otherwise, the securities of any other body corporate,

exceeding 60% of its paid-up share capital (equity and preference), free reserves and securities premium account or 100% of its free reserves and securities premium account, which ever is more.

As per Section 186 (3) of the Act, where the aggregate of the loan and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan guarantee or security proposed to be made or given by the Board, exceed the limits specified under Section 186(2) of the Act, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorized by a special resolution passed in a general meeting.

As per Section 186 (5) of the Act, any investment shall be made or loan or guarantee or security given by the Company only after the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the Public financial Institution concerned where any term loan is subsisting shall also be obtained.

Calculation

According to the information given in the problem:

60% of paid-up share capital (equity and preference), Free reserves and securities premium account is Rs. 168 Lakh

(i.e. 60% of [Rs. 240 + 20+20] = Rs.168 Lakh) or

100% percent of its free reserves and securities premium account is Rs. 20 lakh;

Hence, investment up-to Rs. 168 lakh is allowed without seeking prior authority by special resolution passed in a general meeting.

Bunny Ltd has already given guarantee to the tune of Rs. 100 Lakh to a Nationalized Bank in connection with the loan granted to Richa Ltd.

The aggregate of the loans and investments so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made is Rs. 180 Lakh (i.e. Rs. 100 Lakh existing guarantee + proposed investment of Rs. 80 Lakh) which is exceeding the limit of Rs. 168 Lakh.

Therefore, the proposed investment shall be first approved by the Board with the consent of all the directors present at the meeting (i.e. unanimously) and then approved by the members by passing a Special resolution.

Note:

The MCA has clarified that loans and/or advances made by the companies to their employees, other than the Managing or Whole Time Director are not governed by Section 186 of the Act. Hence, it is not considered in the computation of limit.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(a) (Syllabus 2022).

(i)In terms of Section 186(5) of the Companies Act, 2013, prior approval of the Public Financial Institution (PFI) shall not be required where:

•the aggregate of the loan and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan guarantee or security proposed to be made or given by the Board, does not exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free reserves and securities premium account, whichever is more under Section 186(2) of the Act; and

•there is no default in repayment of loan installments or payment of interest thereon as per the terms and conditions of such loan to the PFI.

However, in this case, for the Bunny Limited, the aggregate of the amount for which guarantee or security so far provided, along with the investments, proposed to be made is Rs. 180 Lakh (i.e. Rs. 100 Lakh existing guarantee + proposed investment of Rs. 80 Lakh) which has exceeded the limit of Rs. 168 Lakh (i.e.the limits specified under Section 186(2) of the Act).

Since the proposed investment will exceed the limits specified under section 186(2) of the Act, prior approval of the Public Financial Institution will be required.

(ii)Section 186(2) stipulates that no company shall directly or indirectly.

give any loan to any person or other body corporate;

give any guarantee or provide security in connection with a loan to any other body corporate or person; and

acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, exceeding sixty per cent. of its paid-up share capital, free reserves and securities premium account or one hundred per cent. of its free reserves and securities premium account, whichever is more.

Accordingly, Section 186 of the Companies Act, 2013 is applicable to both public and private companies.

Hence, no exemption is available to Bunny Ltd. in case it is a private company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(b) (Syllabus 2022).

It is clarified by way of clause (a) of Explanation to Section 186 of the Companies Act, 2013 that the expression “investment company” means a company whose principal business is the acquisition of shares, debentures or other securities.

Further, a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities:

•if its assets in the form of investment in shares, debentures or other securities constitutes not less than fifty percent of its total assets; or

•if its income derived from investment business constitutes not less than fifty percent as a proportion of its gross income.

From the above provisions, it is clear that even if a company satisfies any one out of two criteria, it would be treated as an investment company.

Investment Test

The total assets of Hunny Investment Pvt Ltd. as on 31.03.2023 is Rs.330 Lakh.

Investment in shares and debentures of a body corporate is Rs. 200 lakh which is more than 50% of the total assets.

Income Test

Income derived from investment in shares and debentures is Rs. 30 Lakh which is less than 50% of the gross income of Rs. 100 Lakh

Since, Hunny Investment Pvt. Ltd satisfies the Investment Test, it is an Investment Company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2024, Q. 5(c) (Syllabus 2022).

As per section 186 of the Companies Act, 2013 there are some conditions on the Company to grant loan to any other body corporate or person. These conditions are as under-

1)A resolution is to be passed in the Board Meeting with the consent of all the directors present in the board meeting and the prior approval of the public financial institution (PFI) concerned where any term loan is subsisting, is obtained. However, prior approval of PFIs is not required in case aggregate of loans and guarantees so made alongwith the amount of loan or guarantees proposed to be made does not exceed the limit prescribed under section 186(2) and there is no default in repayment of loan instalments or payment of interest thereon as per the terms and conditions of such loan to the public financial institution. [Section 186(5)]

2)Approval of the members by special resolution required, if the limit specified under section 186(2) is exceeded. [Section 186(3)]

3)No company which is in default in the repayment of any deposits accepted before or after the commencement of this Act or in payment of interest thereon, shall give any loan or give any guarantee or provide any security or make an acquisition till such default is subsisting. [Section 186(8)]

4)The lending company shall make the required disclosure in its financial statements. [Section 186(4)]

5)The company shall, within 7 days, enter the prescribed particulars in the register maintained as per section 186(9)

In the given case, PQR Ltd. is the lending company which intends to grant a loan of Rs. 125 crore to XYZ Ltd. (borrowing company), the fact that XYZ Ltd. has taken loan from public financial institution or has accepted deposits from public are not relevant for the purpose of section 186.

In the Board meeting of PQR Ltd. the approval to grant a loan of Rs 125 crore was passed with consent of 4 directors out of 5 directors present in the Board meeting. However, section 186 provides that unanimous approval is required to make a loan to body corporate or person, thus the approval of 4 directors does not comply the requirement of section 186.

Hence, PQR Ltd. cannot make a loan of Rs. 125 crore to XYZ Ltd.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 3(a) (Syllabus 2017).

A company shall, unless otherwise prescribed, make investment through not more than two layers of investment companies. [Sub-section (1) of section 186]

However, the aforesaid provisions shall not affect-

(i)a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;

(ii)a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force. [Proviso to sub-section (1) of section 186]

Therefore, Section 186 (1) restricts a company from making investment through more than 2 layers of investment companies.

As stated above, for the purpose of Section 186 of the Act, Investment Company means a company whose principal business is the acquisition of shares, debentures or other securities and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty per cent. of its total assets, or if its income derived from investment business constitutes not less than fifty per cent. as a proportion of its gross income.

The definition of Investment Company is exhaustive. Further, the restriction under section 186(1) is about investment through Investment Companies only. Therefore, investment through any company other than the Investment Company is not covered under sub-section (1) of Section 186 of the Act.

A Ltd. is ultimate holding company of B Ltd., C Ltd., and D Ltd. Hence, investment of A Ltd. Into B Ltd. and B Ltd. into C Ltd. is allowed. But, investment of C Ltd. into D Ltd. shall not be allowed/valid as the investment will be beyond two layers.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2022, Q. 2A(i) (Syllabus 2017).

As per section 186(8) of the Companies Act, 2013, a company which is in default in repayment of public deposits and/or interest thereon is not permitted to make or give any loan or investment or to provide any guarantee or security till the default is subsisting. But it is to be noted that in the given question, company has defaulted in repaying security deposit received from its dealers which were received for performance of contract of supply of goods or provisions of services. Such security deposits accepted for performance of contracts for supply of goods or provision of services are not considered as deposits within meaning of Rule 2(1)(c) of the Companies (Acceptance of Deposits) Rules, 2014. Therefore, the provisions of section 186(8) are not attracted.

Hi-Fi Ltd. can make investment into equity shares of Wi-Fi Ltd. subject to fulfillment of other provisions of the Companies Act, 2013.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2022, Q. 3(c) (Syllabus 2017).

As per the explanation given under section 186 of the Companies Act, 2013, investment company means a company whose principal business is the acquisition of shares, debentures or other securities and a company will be deemed to be principally engaged in the business of acquisition of shares, debentures or other securities, if its assets in the form of investment in shares, debentures or other securities constitute not less than fifty per cent of its total assets, or if its income derived from investment business constitutes not less than fifty per cent as a proportion of its gross income.

In light of the above explanation, the assets of XYZ Ltd. in form of investment in shares or debentures is less than fifty percent of the total assets of the company and also the income derived from the investment business is less than fifty percent of the total income of the company. Hence, either of the two conditions need to be satisfied to make an investment company and, in this case, neither of this condition is satisfied. So, XYZ Ltd. cannot be an investment company for the purpose of Section 186.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2(d) (Syllabus 2017).

As per section 186(5) of the Companies Act, 2013, no investment shall be made or loan or guarantee or security given by the company, unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution concerned where any term loan is subsisting is obtained.

So, in this case the Board of Directors of XYZ Ltd. while considering the proposal for making the investment in ABC Ltd. has not complied with the provision of section 186(5) of the Companies Act, 2013, where the consent of all the directors present at the meeting is required. The resolution of the board of directors therefore is not valid and has no legal effect.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 2A(ii) (Syllabus 2017).

As per section 186(2) of the Companies Act, 2013, no company shall, directly or indirectly:

(a)give any loan to any person or other body corporate;

(b)give any guarantee or provide security in connection with a loan to any other body corporate or person; and

(c)acquire by way of subscription, purchase or otherwise, the securities of any other body corporate,

exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more.

Further, where the aggregate of the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board, exceed the limits specified under Section 186(2) of the Companies Act, 2013, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorised by a special resolution passed in a general meeting.

Therefore, further investment that can be made by Jupiter Ltd. without passing special resolution will be higher of D or E reduced by investment already made i.e. (Rs.864- Rs.780= Rs.84 Crore)

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 2(c) (Syllabus 2017).

Section 186 (2) of the Companies Act, 2013 provides that, no company shall directly or indirectly give any loan to any person or other body corporate exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more.

Further, Section 186(3) of the Companies Act, 2013 provides that where the aggregate of the loans and investment so far made, along with the investment or loan, proposed to be made or given by the Board, exceed the limits specified under section 186(2), no investment or loan shall be made unless previously authorised by a special resolution passed in a general meeting.

Hence, as per section 186(2) of the Companies Act, 2013, the limits for the loan and investment will be the amount whichever is more of the following:

(a)60% of paid up share capital, free reserves and securities premium account= ₹15 lakh or

(b)100% of free reserves and securities premium account = ₹5 lakh

In the instant case, since the company has already given loans of ₹14 lakh to KLM Traders Ltd and further proposed to grant loan, of ₹2 Lakh to KLM Cement Ltd, it will exceed the limit of ₹15 lakh, hence prior approval by special resolution in the general meeting will be required to be passed by HIJ. Engineers Ltd. in terms of Section 186(3) of the Companies Act, 2013.

As per Explanation w.r.t. to Section 186(2) of the Companies Act, 2013, the word person, used under this sub-section does not include any individual who is in the employment of the company.

Accordingly, there are no limit imposed on the right of a company to sanction a loan to an employee of the company under Section 186(2) of the Companies Act, 2013, the Board of directors can grant a loan of ₹3 lakhs to the employee. It does not require any approval from the members.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2020, Q. 2A(iii) (Syllabus 2017).

Section 186(5) of Companies Act, 2013 provides that no investment shall be made or loan or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution concerned where any term loan is subsisting, is obtained.

However, the prior approval of Public Financial Institution (FI) shall not be required where the aggregate of loans and investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies corporate, along with the investments, loans, guarantee or security proposed to be made or given does not exceed the limit of 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more and there is no default in repayment of loan installments or payment of interest thereon as per the terms and conditions of such loan to the public financial institution.

In the given case the Company is passing the special resolution under Section 186(2) of Companies Act, 2013, indicating thereby that the proposed loan together with the loans already given is already in excess of the limits given under Section 186 (2) of Companies Act, 2013.

Hence the contention of the director is correct as the company aggregate of loans and investments so far made, exceed the limit under Section 186(2) of Companies Act, 2013.

However, if the aggregate loans/ investments are well within the limits approval and the company is passing the Special Resolution either in terms of its Article of Association or voluntarily only due to some other commercial requirement other than Section 186(2) of Companies Act, 2013, then the prior approval from Financial Institution will not be required.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2019, Q. 5(e) (Syllabus 2017).

According to section 186(2) of the Companies Act, 2013 no company shall directly or indirectly —

(a)Give any loan to any person or other body corporate

(b)Give any guarantee or provide any security in connection with a loan to any other body corporate or person

(c)Acquire by way of subscription, purchase or otherwise, the securities of any other body corporate, exceeding 60% of its paid-up share capital & free reserves and securities premium account or 100% of its free reserves and securities premium account whichever is more

According to section 186(3) of the said Act where the giving of any loan or giving any guarantee or providing any security acquisition or purchase exceeds the limits specified above, prior approval by means of a special resolution passed at general meeting is necessary.

However, according to Rule 11 of the Companies (Meetings of Board and its Powers) Rules 2014.

Where a loan or guarantee is given or security has been provided by a company to its wholly owned subsidiary or a joint venture company the provisions of section 186(3) shall not apply. However, Section 186(4) provides that the company shall disclose to the members in the financial statement the full particulars of the loans given, investment made or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security.

Accordingly, in the present case, the guarantee given by XYZ Ltd. to its wholly owned subsidiary company without passing any resolution in the General meeting is valid. However the company is required to make disclosure to its members the particulars and the purpose of such guarantee as per the requirement of section 186(4).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2019, Q. 4(a) (Old syllabus).

In terms of sec 186 (2) of the Companies Act, 2013, no Company shall, directly or indirectly:

(a)give any loan to any person or other body corporate;

(b)give any guarantee, or provide security, in connection with a loan to any other body corporate or person; and

(c)acquire, by way of subscription, purchase or otherwise the securities of any other body corporate; exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free reserves and securities premium account, whichever is more.

Where a loan and investment made, the amount for which guarantee or security provided to or in all other bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board exceeds the limits as specified above, no investment or loan shall be made or guarantee shall be given or security shall be provided unless previously authorized by a special resolution passed at a general meeting.

There is no requirement to mention the amount in such resolution however, all relevant details may be given in the resolution and explanatory statement as good corporate governance practice.

According to section 186(5), no investment shall be made or loan or guarantee or security given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all the directors present at the meeting and the prior approval of the public financial institution concerned where any term loan is subsisting, is obtained.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 3A(iv) (Old syllabus).

The above statement is not fully true, as the law does provide an exception to this general rule.

Subject to certain exceptions, Section 187 of the Companies Act, 2013 mandates, all investments made or held by a company in any property, security or other asset shall be made and held by it in its own name.

However, there is an exception to this rule company may hold any shares in its subsidiary company in the name of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of the subsidiary company is not reduced below the statutory limit.

Further, if company holds shares in dematerialised form, the name of depository is entered in the register of members as member of the company and the name of the investing company as the beneficial owner of the said shares. Where the shares of a company were registered in the joint names of the company and one of its directors, it was held that the director was a nominee of the company for that purpose and could only act jointly as he had no rights of his own. [Exchange Travel (Holdings) Ltd. Re, (1991) BCLC 728 (Ch D)].

Hence, normally investments will be held in companies' name but it is not compulsory. In the above situations it may be held in other names too.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2021, Q. 1(c) (Old syllabus).

Section 188 of the Companies Act 2013 deals with related party transactions. As per section 2(76) of the Companies Act, 2013 related party with reference to a company includes any company which is holding, subsidiary or associate company of such company. According to section 188, except with consent of the Board of directors given by a resolution at a meeting of the board and subject to such conditions as prescribed under rule 15(1) of the Companies (Meeting of Board & its Powers) Rules, 2014, no company shall enter into any contract or arrangement with a related party with respect to such transaction where there is a related party’s appointment to any office or place of profit in the company, its subsidiary or associate company.

Appointment of Anil:

In the given case Anil, a director of Ruby Cements Ltd., which is a subsidiary of Greenstone Cements Ltd. was appointed as a general manager on the salary of ₹ 180,000 per month. Accordingly, related party’s appointment i.e. of Anil to an office or place of profit in Greenstone Cements Ltd. will not require approval of members in general meeting as the monthly remuneration is not exceeding ₹ 250,000. Such transactions as to a related party’s appointment to any office or place of profit in the company, its subsidiary company or associate company shall require consent of the board of directors given by a resolution at a meeting of the board. Hence, the approval of the board for the appointment of Anil is necessary and appointment in general meeting is not required.

The effect on continuation of Kamal in the employment due to appointment of Parimal as a director

As per section 2(76) of the Companies Act, 2013 related party with reference to a company includes a director or his relative. So, Parimal appointed as a director of Greenstone Ltd. on 1st July, 2025 is a relative of Kamal who was appointed as assistant production manager by the managing director in Greenstone Ltd. on the same day. This falls within the purview of section 188 of the Companies Act, 2013 which relates to the related party transaction with related party.

Yes, continuation of Kamal as production manager will lead to conflict of interest and will affect the continuation unless approved / ratified by the Board under section 188(3).

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2025, Q. 5(a) (Syllabus 2022).

Section 188 of the Act, provides that except with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as prescribed under Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014, no company shall enter into any contract or arrangement with a related party with respect to —

i.sale, purchase or supply of any goods or materials;

ii.selling or otherwise disposing of, or buying, property of any kind;

iii.leasing of property of any kind;

iv.availing or rendering of any services;

v.appointment of any agent for purchase or sale of goods, materials, services or property;

vi.such related party's appointment to office or place of profit in the company, its subsidiary company or associate company; and

vii.underwriting the subscription of any securities or derivatives thereof, of the company.

However, such approval by the Board of Directors will not be required for transactions entered in the ordinary course of business and on an arm's length basis. In other words, approval of the Board of Directors will only be required for related party transactions which are either not in the ordinary course of business or not on an arm's length basis.

•Under regulation 23 of SEBI Listing Obligations and Disclosure Requirements) Regulations, 2015, (LODR), transaction with a related party shall be considered material if the transaction(s) to be entered into individually or taken together with previous transactions during a financial year exceeds rupees one thousand crore or ten percent of the consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower. The transaction entered here in case of Shortwalkers Ltd., shall be approved by Audit Committee as well as by the members in a general meeting, if the same exceeds 10% (Rs. 500Crores* 10%= Rs. 50 Crores) of the annual consolidated turnover as stated above.

•According to Section 2(76) of the Act, related party includes a KMP or his relative. As per Section 2(77) of the Act, relative includes wife and daughters. Hence, the contention of the Board that the supplier, i.e, Fitness Solutions (Pvt) Limited has neither a director nor his relative of Shortwalkers Limited as its director is not acceptable.

•Section 188(1) does not apply to any transaction entered into by the company in the ordinary course of business which are on arm's length basis.

•According to Section 188(2) of the Act, arm's length transaction means a transaction between two related parties that were conducted as if they were not related so that there was no conflict of interest.

In the instant case, since the transaction was between two related parties, due process should have been followed including approval of audit committee and approval of the company in general meeting by an ordinary resolution. The contention of auditor is correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 1(c) (Syllabus 2017).

Section 188(1) of the Companies Act, 2013 prohibits the Board from dealing with an item of business pertaining to a contract or arrangement with a related party through a circular resolution. However, the law is silent on dealing with any item of business by the Audit Committee through a circular resolution.

Here, the intention of the Legislature is required to be gathered from the language used; which means that attention should be paid to what has been said as also to what has not been said. As a consequence, though it cannot be added that the law imposes any restriction, the principle applicable on meetings of the Board would be applicable to the meetings of the Audit Committee too, while dealing with items of business on related party transactions.

As per the Secretarial Standard on Meetings of the Board of Directors (SS-1), the Audit Committee should discuss related party transactions which are not in the ordinary course of business or which are not on arm's length basis at its meetings and not through circulation. However, there is no bar on omnibus approval of limits being passed by a circular resolution by the Audit Committee.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2021, Q. 4(d) (Syllabus 2017).

i.Section 189(1) of the Companies Act, 2013 read with Rule 16 of the Companies (Meeting of Board and its Powers) Rules, 2014, requires that every company shall keep a register giving separate details of contracts or arrangements referred to in Section 184(2) and under section 188 in Form MBP-4.

ii.The register should contain details of:

a.company or companies or bodies corporate, firms or other association of individuals, in which any director has any concern or interest, as mentioned under sub-section (1) of section 184:However, the particulars of the company or companies or bodies corporate in which a director himself together with any other director holds two percent. or less of the paid-up share capital would not be required to be entered in the register;

b.contracts or arrangements with a body corporate or firm or other entity as mentioned under sub-section (2) of section 184, in which any director is, directly or indirectly, concerned or interested; and

c.contracts or arrangements with a related party with respect to transactions to which section 188 applies.

Such register or registers shall be placed before the next meeting of the Board and signed by all the Directors present at the meeting.

iii.The register shall be kept at the registered office of the company and the register shall be preserved permanently and shall be kept in the custody of the company secretary of the company or any other person authorised by the Board for the purpose.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2023, Q. 2(b) (Syllabus 2017).

•As per Regulation 21 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR), the Board of top 1000 listed companies shall constitute a Risk Management Committee (RMC). The top 1000 listed entities shall be determined on the basis of market capitalization as at the end of immediate preceding financial year and high value debt listed entities.

•The Risk Management Committee shall have minimum three members with majority being members of Board of Directors (BOD) including at least one independent director. In case of a listed entity having SR equity shares, at least two thirds of the members of RMC shall be independent directors.

•The chairman of RMC shall be a member of the BOD. Senior executives may be members of RMC.

•The RMC shall meet at least twice in a year. The quorum for the meeting of RMC shall be either two members or one third of the members of the RMC whichever is higher including at least one member of the BOD in attendance. Not more than 180 days shall lapse between two consecutive RMC meetings.

•The BOD shall define the role and responsibility of RMC and may delegate monitoring the risk management plans of the company to the RMC including cyber security.

In the instant case, as the company is among the top 20 public listed companies based on market capitalization, it is required to constitute RMC with independent directors, members of Board of Directors and senior executives. However, the Chairman of RMC has to be a Director of the company. Hence, the Company Secretary may be included as a member of the RMC, his contention that he should be made Chairman is wrong. Also, the contention of the CFO to constitute RMC only with senior officers of the company is not correct.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, June 2023, Q. 4(d) (Syllabus 2017).

In a decided case of V.K.R.S.T Firm v. Oriental Investment Trust Ltd. under the authority of the company, its managing director borrowed large sums of money and misappropriated it. The company was held liable stating that where the borrowing is within the powers of the company, the lender will not be prejudiced simply because its officer have applied the loan to unauthorized activities provided the lender had no knowledge of the intended misuse.

Applying the principles of the above decided case in the given case Wood Ltd. will be held liable for repayment of the loan of Rupees 30 lakhs which well within the sanctioned limits of the company.

Source⁠​‌​‌‌​‌​⁠: ICSI Guideline Answers, December 2018, Q. 2A(v) (Syllabus 2017).