Legislative Framework of Corporate Governance in India: formula sheet

Key formulas

Three pillars of the Act's framework

Board (manages) + Shareholders (decide and own) + Gatekeepers (check)

Use this as the skeleton of any overview answer.

Section 113(1): corporate representative

Body corporate member or creditor → authorises a person by resolution of its directors or governing body

For members, the meeting is of the company or a class of members. For creditors, it is a creditors' meeting under the Act, its rules, or a debenture or trust deed.

Section 113(2): rights of representative

Authorised person has the same rights and powers as an individual member or creditor, including voting by proxy and postal ballot

The rights are those of the body corporate, exercised through the representative.

Section 290(1): Liquidator's powers

Powers listed in clauses (a) to (n), subject to the Tribunal's directions

They include carrying on business, selling property or the whole undertaking as a going concern, suing, settling claims and distributing proceeds.

Section 290(2) and (3): control

Exercise of powers = under the overall control of the Tribunal; the Liquidator also does other duties the Tribunal specifies

This is the accountability point examiners look for.

Core application rule

Sections 380 to 386 and 392, 393 → apply to ALL foreign companies

Section 379(1). This applies whatever the shareholding.

Fifty per cent test

Indian holding of paid-up capital ≥ 50% → comply as if an Indian company

Section 379(2). Holders can be Indian citizens, Indian companies or bodies corporate, singly or in aggregate. Equity and preference capital both count.

Filing on setting up

Documents to Registrar within 30 days of establishing a place of business in India

Section 380(1). Alterations: return within 30 days (section 380(3)).

Annual accounts

Balance sheet + profit and loss account every calendar year + list of places of business

Section 381. A non-English document needs a certified English translation. The Central Government may exempt or modify by notification.

Name display

Name + country of incorporation; limited liability notice if members' liability is limited

Section 382. Outside every office in English and local language; in English on letters, bills, notices and publications.

Merger with an Indian company

Foreign company may merge into or with an Indian company with prior RBI approval

Section 234(2). Consideration may be cash, Depository Receipts, or both.

Section 376 rule

Foreign body corporate + carried on business in India + ceased to carry on business in India ⇒ may be wound up as an unregistered company

Dissolution or ceasing to exist in the home country is no bar to winding up in India.

Voluntary winding up bar

Unregistered company ⇒ no voluntary winding up (Section 375(2))

Only winding up by the Tribunal is available.

Grounds for winding up an unregistered company

Dissolved / ceased business / business only to wind up affairs; unable to pay debts; just and equitable (Section 375(3))

Three grounds. Apply them to the facts.

Deemed inability to pay debts: creditor demand

Debt due > ₹1,00,000 + written demand served + 3 weeks of non-payment, non-securing or non-compounding

Section 375(4)(a). The amount must exceed one lakh rupees and be then due.

Deemed inability to pay: suit against member

Notice of suit against a member for company debt + no action within 10 days

Section 375(4)(b). The company must pay, secure or compound, get a stay, or indemnify the defendant.

Route 1: consultation with CJI (s 412(1))

President of Tribunal + Chairperson and Judicial Members of Appellate Tribunal → appointed after consultation with the Chief Justice of India

The text says 'after consultation'. It does not say 'on recommendation'.

Route 2: Selection Committee (s 412(2))

Members of Tribunal + Technical Members of Appellate Tribunal → appointed on recommendation of the Selection Committee

Sub-section (2) was substituted with effect from 9-2-2018.

Composition of Selection Committee

(a) CJI or his nominee – Chairperson; (b) senior Supreme Court Judge or High Court Chief Justice – Member; (c) Secretary, MCA – Member; (d) Secretary, Ministry of Law and Justice – Member

Four persons in all. Two are judicial and two are Secretaries to the Government.

Casting vote (s 412(2A))

Equality of votes → Chairperson has a casting vote

Only the Chairperson has it.

Convener and procedure (s 412(3), (4))

Convener = Secretary, MCA; the Committee determines its own procedure

The Convener role is separate from being a Member.

Saving clause (s 412(5))

No appointment invalid merely by reason of any vacancy or any defect in constitution of the Selection Committee

Protects appointments already made.

Quick revision

• The Companies Act, 2013 extends to the whole of India.
• It applies to companies incorporated under this Act or any previous company law.
• For insurance companies, the Act applies except where inconsistent with the Insurance Act, 1938 or the IRDA Act, 1999.
• For banking companies, it applies except where inconsistent with the Banking Regulation Act, 1949.
• For electricity companies, it applies except where inconsistent with the Electricity Act, 2003.
• Section 379: if not less than 50% of paid-up capital of a foreign company is held by Indian citizens or Indian bodies corporate, it complies as if Indian.
• Section 376: a foreign body corporate that ceases business in India can be wound up as an unregistered company, even if dissolved abroad.
• Section 412(1): the Tribunal President and the Appellate Tribunal chairperson and Judicial Members are appointed after consulting the Chief Justice of India.
• Selection Committee: Chief Justice of India or nominee (Chairperson), a senior Supreme Court Judge or a High Court Chief Justice, Secretary MCA, and Secretary Law and Justice.
• The Chairperson has a casting vote on equality of votes; the MCA Secretary is Convener.
• No appointment is invalid merely because of a vacancy or a defect in the Committee's constitution.

Common mistakes

• Writing a general essay on governance without citing the Act's provisions. Fix: Tie every point to a provision or a mechanism of the Act, then apply it to the facts.
• Saying the Company Liquidator can act on his own without any control. Fix: Always add that powers are subject to the Tribunal's directions and its overall control under section 290(2).
• Applying the 50% test to voting rights or control. Fix: The test is paid-up share capital, equity or preference or both.
• Saying the Chapter applies only when Indians hold 50% or more. Fix: Sections 380 to 386 and 392, 393 apply to all foreign companies. The 50% test adds the Indian-company treatment.
• Saying a foreign company dissolved abroad cannot be wound up in India. Fix: Quote the words 'notwithstanding that the body corporate has been dissolved' from Section 376.
• Applying Section 376 to a foreign company that is still carrying on business in India. Fix: Check the trigger first. Section 376 needs cessation of business in India.
• Saying the Selection Committee recommends every Tribunal appointment. Fix: Tie the Committee only to Members of the Tribunal and Technical Members of the Appellate Tribunal. The President, NCLAT Chairperson and Judicial Members need consultation with the CJI.
• Listing the Committee with the wrong people, such as the Chairperson of NCLAT or the Attorney General. Fix: Memorise four: CJI or nominee, senior SC Judge or HC Chief Justice, MCA Secretary, Law and Justice Secretary.

Exam tips

• Build every answer on provision, analysis, conclusion. Examiners reward the application to facts.
• Begin an overview answer with the three pillars: board, shareholders and gatekeepers.
• For sections 113 and 290, quote the conditions exactly, such as board resolution and Tribunal control.
• Close each answer with a practical compliance point, such as a resolution to pass or a document to carry.
• If unsure of a section number, state the rule in words and move on.
• Always cite section 379(1) and 379(2) separately. Examiners reward the distinction.
• In shareholding problems, combine equity and preference capital before computing the percentage.
• List the section 380 documents by category and mention the 30-day deadline.