1.

Incorporation:

Incorporation of a company is a process by which a company becomes a legal

entity, It can be compared to the birth of a company. It is a legal process and is
governed by The Companies Act 2013. There are various types of companies, but
the major ones are namely private limited companies and public limited
companies. The companies are not just governed by this Act but have to follow
the provisions of Foreign Exchange Management Act, 1999, Shops and
Establishment Act, Income Tax Act, etc

Section 7 Companies Act, 2013 provides the procedure for incorporation of a

company. For the purpose of incorporation of a company the Central Government
framed ‘The Companies (Incorporation) Rules, 2014 which came into effect from
01.04.2014. The following are rules for incorporation of company-

Rule 9 to 11- Reservation of name

Rule 12- Application for incorporation of companies

Rule 13- Signing of memorandum and articles

Rule 14- Declaration of professionals

Rule 15- Affidavit from subscribers and first directors

Rule 17- Particulars of first directors of the company and their consent to act as such

Rule 18- Certificate of incorporation

The Rule prescribes various forms that are to be used for incorporation of company

Rule 38 was inserted by the Companies (Incorporation) (Fourth Amendment) Rules,

2016 with effect from 02.10.2016 introducing Simplified Proforma for Incorporating
Company Electronically (SPICe).Earlier SPICe was applicable for select companies
only. However now SPICe is applicable to all companies. As the entire process is now

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can be completed online, formation of Private Company formation takes around 10
to 15 days time.

• STEP – I: Apply for Name Approval under RUN or Spice

• STEP- II: Preparation of Documents for Incorporation of Company
• STEP – III: Fill the Information in Form:
• STEP – 4: Preparation of Memorandum and Article of Association
( MoA and AoA)
• STEP – 5: Submission of INC-32,33,34 on MCA ( Filling of e-Form No.32 –
Consent of directors, e-Form No.18 – Notice of Registered Address, e-
Form No.32. – Particulars of Directors and Statutory Declaration in e-
Form No.1. )
• STEP – 6 Payment of Registration Fees

Company has to pay the Stamp Duty irrespective of the capital because
Stamp Duty is state matter. Companies Act, has given exemptions for the
ROC fees not for the stamp duty with authorized Capital of Rs. 10 Lakh or
below

• STEP – V: Certificate of Incorporation- Incorporation certificate shall be

generating with CIN, PAN & TAN.

According to section 149[3] a private company can commence its business

now but there is an additional Step for Public Company to obtain Certificate
of Commencement of business

• Fill in declaration in e-Form 19 and 20.

Thus we can call SPICe as a Single Window Form This form can be used for the
following purposes:

• Application of DIN (upto 3 Directors)

• Application for Availability of Name
• No need to file separate form for first Director (DIR-12)
• No need to file separate form for address of registered office (INC-22)
• No need to file separate form for PAN & TAN

Landmark Judgements

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1)The State Trading Corporation Of India Ltd. & Ors V. The Commercial
Tax Officer, Visakhapatnam & Ors[7]

A writ was filed under Article 32[8] for enforcement of rights by The State Trading
Corporation. This appeal was dismissed as Article 32 applies only to citizens and
it was held that a company is not a citizen. It was further established that “all
citizens, indicating thereby that under the Constitution all citizens are persons but
all persons are not citizens”

2) Salomon V. Salomon & co. Ltd.[9]

In this case the principle of corporate veil was founded, which separates the
company from its shareholders. The same principle was later applied in Lee v
Lee’s Air Farming Ltd[10]. Mr Salomon incorporated a company with his wife, his
daughter and four sons for £39,0000. The issue arose that whether Mr. Salomon
should be held personally liable. It was held by Lord Halsbury that “once company
is legally incorporates it is an independent person with rights and liabilities of its
own and these aren’t influenced by the motives of the people involved in its
promotion. The company conducts its own business as a separate person.”

This corporate veil can also be lifted and was done so in the case of Steel &
Tube Holdings Ltd v Lewis Holdings Ltd.[11]

In a nutshell, The Companies Act 2013 reduced the number of sections as

compared to its predecessor and made the process easier. The advantages of
registration are plenty. It becomes a separate legal entity, can buy property in
its name. In times of conflict, it can sue. Thus, registration and incorporation is
very important

5. Directors
The term “director” is defined under Section 2 (34) of the Companies Act 2013 as
“a director appointed to the Board of a company,” where “Board of Directors” or
“Board” in relation to a Company refers to the collective body of the firm’s
directors. According to Chapter XI, Section 149 of the Companies Act 2013, every
company must have a Board of directors, the composition of which should be as
follows:
1. Public Company: A minimum of three and a maximum of fifteen
directors should be appointed. Also, at least one-third of the directors
must be independent.

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 2. Private Company: Minimum of two and a maximum of fifteen directors
are required for a private company.
3. One Person Company (OPC): A minimum of one director must be
appointed.
In every Company format, a maximum of 15 directors can be appointed (OPC,
Public, Private). By passing a special resolution in the company, the number of
directors can be increased above 15. Out of all the appointed directors, one must
have resided for more than 182 days in India in the preceding calendar year. Also,
at least one of the directors among all the directors should be a woman director.
Powers of Directors
According to Companies Act 2013, the Board of Directors of a Company has the
following powers in the Company.
• Power to make calls in respect of money unpaid on shares
• Call meetings on suo moto basis.
• Issue shares, debentures, or any other instruments in respect of the
Company.
• Borrow and invest funds for the Company
• Approve Financial Statements and Board Report
• Approve bonus to employees
• Declare dividend in the Company
• Power to grant loans or give guarantee in respect of loans
• Authorize buy back of securities
• Approve Amalgamation/Merger/ Takeover
• Diversify the business of the Company
Duties of Directors
Board of Directors acts as agent of the Company. However while acting for
Company, Director needs to take care of his duties which are as follows:-
• To act in good faith
• Act in accordance with the Articles of Association of the Company
• To act so as to promote the objects of the Company
• Act in best interest of the Company and its stakeholders

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 • Exercise duties with due and reasonable care
• To exercise independent judgement
• Not to get involved in a situation where his interest conflicts with the
interest of the Company
• He cannot assign his office to any other person.
• Not to achieve undue gain or advantage

Duties of a company’s directors under the Companies Act, 2013

Section 166 of the Companies Act 2013 stipulates the following duties of the
directors of a Company:
1. A director must function in line with the company’s Articles of
Association.
2. A director must act in the best interests of the company’s stakeholders, in
good faith and promote the company’s objectives.
3. A director shall use independent judgment in carrying out his
responsibilities with due care, skill and diligence.
4. A director should constantly be aware of potential conflicts of interest and
endeavour to avoid them in the best interests of the firm.
5. Before authorizing related party transactions, the director must verify that
appropriate considerations have taken place and that the transactions are
in the company’s best interests.
6. To assure that the company’s vigilance mechanism and users are not
prejudicially affected on such use.
7. Confidentiality of sensitive proprietary information, trade secrets,
technology, and undisclosed prices must be protected and should not be
released unless the board has approved it or the law requires it.
8. A company’s director may not assign his or her office, and any such
assignment shall be invalid.
9. If a corporate director violates the terms of this section, he or she will be
fined not less than one lakh rupees but not more than five lakh rupees.

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The Companies Act of 2013 additionally assigns specific obligations to

independent directors in order to ensure the Board’s independence and fairness.

Types of directors

Residential director
According to Section 149(3) of the Companies Act of 2013, every company must
have one director who has spent at least 182 days in India in the previous calendar
year.

Independent director
According to Section 149(6), an independent director with reference to a company
is one who is not a managing director, whole-time director, or nominee director.
Companies that must appoint an independent director are mentioned in Rule 4 of
the Companies (Appointment and Qualification of Directors) Rules, 2014.

Small shareholders directors

A single director can be appointed by small shareholders in a listed
company. However, this action requires an appropriate procedure, such as issuing
a notice to at least 1000 shareholders, or one-tenth of the total shareholders.

Women director
According to Section 149 (1) (a) second proviso, certain kinds of corporations
must have at least one female director on their board. Such companies include any
listed company and any public company, having:
1. Paid-up capital of at least Rs. 100 crore, or more,
2. Turnover of Rs. 300 crore or higher.

Additional directors
Section 161(1) of the 2013 Act allows a company to designate any individual as an
additional director.

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Alternate directors
According to Section 161(2), a company may appoint an alternate director if the
Articles of Incorporation grant such authority to the company or if a resolution is
approved. An alternate director is appointed if one of the company’s directors is
abroad from India for at least three months and in his/her absence, the alternate
director is appointed

Shadow director
A person who is not appointed to the Board but whose instructions the Board is
accustomed to act is responsible as a director of the company unless he or she is
offering advice in his or her professional role.

Nominee directors
They can be nominated by certain shareholders, third parties via contracts, lending
public financial institutions or banks, or the Central Government in cases of
tyranny or mismanagement

Difference between the executive and non-executive director

An executive director of a company can be either a whole-time director (one who
devotes his whole working hours to the company and has a significant personal
interest in the company as his source of income) or a managing director (i.e., one
who is employed by the company as such and has substantial powers of
management over the affairs of the company subject to the superintendence,
direction, and control of the Board). A non-executive director, on the other hand, is
a director who is neither a whole-time director nor a managing director.
4. corporate social responsibility should be taken seriously - The concept
of corporate social responsibility has gained prominence from all avenues.
Organizations must realize that government alone will not be able to get success
in its endeavor to uplift the downtrodden of society. The present societal
marketing concept of companies is constantly evolving and has given rise to a
concept-Corporate Social Responsibility. Ideally, CSR policy would function as
a built-in, self-regulating mechanism whereby business would monitor and

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 ensure its support to law, ethical standards, and international norms. CSR-
focused businesses should proactively promote the public interest by encouraging
community growth and development, and voluntarily eliminating practices that
harm the public, regardless of legality.

Society’s expectations are increasing towards the social development by the

companies. So, it has become necessary for the companies to practice social
responsibilities to enhance their image in the society. Even though companies are
taking serious efforts for the sustained development, some critics still are
questioning the concept of CSR. There are people who claim that Corporate Social
Responsibility underlies some ulterior motives while others consider it as a myth.
The reality is that CSR is not a tactic for brand building; however, it creates an
internal brand among its employees. Indulging into activities that help society in one
way or the other only adds to the goodwill of a company. Corporate Social
Responsibility is the duty of everyone i.e. business corporations, governments,
individuals because of the reasons: the income is earned only from the society and
therefore it should be given back; thus wealth is meant for use by self and the public;
the basic motive behind all types of business is to quench the hunger of the mankind
as a whole; the fundamental objective of all business is only to help people. CSR
cannot be an additional extra - it must run into the core of every business ethics, and
its treatment of employees and customers. Thus, CSR is becoming a fast-developing
and increasingly competitive field. Being a good corporate citizen is increasingly
crucial for commercial success and the key lies in matching public expectations and
priorities, and in communicating involvement and achievements widely and
effectively.
After the enactment of the Companies Act-2013, it is estimated that approximately
2,500 companies have come in the ambit of mandated CSR; the budget could touch

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approximately INR 15,000 – 20,000 crores. It is very likely that the new legislation
will be a game-changer, infusing new investments, strategic efforts and
accountability in the way CSR is being conceived and managed in India. It has
opened new opportunities for all stakeholders (including the corporate sector,
government, not-for-profit organizations and the community at large) to devise
innovative ways to contribute to equitable social and economic development.
The Companies Act, 2013 came into force on 12th September 2013. But the
provisions of section 135 relating to CSR came into effect on 1st April 2014. The
features of Section 135 read with Schedule VII and (Corporate Social Responsibility
Policy) Rules, 2014
Three Levels of Corporate Social Responsibility From The View Point of A
Corporate
When one evaluates social responsibility from the point of view of corporate, one
can decipher three levels of corporate social responsibility.
The first level is the minimum compliance. Here the managers comply with the
minimum social requirements of the law. The corporate undertakes its business
initiatives within the ambit of law and does not go beyond that. This is guided by
transaction ethics.
The second level is enlightened self-interest. Corporate Social Responsibility is used
here as a strategic weapon to inform the marked that they are bigger and better than
their competitors. Investments in Corporate Social Responsibility today is said to
bring long-term benefits to the company with an understanding that the consumers
the community and the society at large would be more happy to transact with an
organization that is engaged in social activities. This is guided by recognition ethics
and enlightened self-interest.
The third level of aims to actively improve society in general. This level of CSR is
usually seen in highly matured organizations. It is not dependent upon direct benefit

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to business. The firm positions itself to CSR because it firmly believes it is in their
DNA to be socially responsible to the society in which they are engaging. This is
guided by change ethics.

Implementing the CSR activites by the Corporates not only benefits the outside
world but also the inside environment of the organization. Contributions develops
the sense of responsibility among the employees and staff of the organization that
they are the part of the contribution. Each person of the organization is responsible
for the achievement of the turnover, profits of the organization and which in return
benefits the society by implementing the CSR activities. Employees develop a habit
of working together for a social cause. The Organization which thinks about the
development of the society builds the positive image among the employees which
results in retention of the employees for a longer period of time and build their
loyalty towards the Organization
3. Role of Courts in Protection of Shareholders and Creditors

Different provisions have been specified under the Companies Act, 2013 for the
security and protection of the Investors and creditors. Investors are generally known
as shareholders or members of the company. They contribute to the equity share
capital, have the right of voting in each issue, and are qualified for getting the
dividend. The security of investors implies the protection and enforcement of the
rights and claims of an individual in his role as an investor.

Provisions for Protection of Creditors and Shareholders

1. Section 62 of the Companies Act, 1956 sets down civil liability for error or
misstatement in the prospectus. Where a prospectus welcomes people to buy shares in
or debentures of a company, the director, promoter ( and individual who has approved

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 the issue of the prospectus, will be obligated to pay to each individual who buys any
share or debentures on the faith of the prospectus for any losses or damage he may
have supported because of any false statement included in that. Any individual who
has bought in for shares against the public issue and sustained losses or damage
because of such error is qualified for relief under this particular section.
2. Section 63 of the Companies Act, 1956 sets down criminal liability for fraud or
misrepresentation in the prospectus. Each individual who has approved the issue of
the prospectus containing any false statements will be punishable with imprisonment
which may extend out to two years, or with a fine which may extend out to Rs. 50,000
or both.
3. Section 34 of the Companies Act, 2013 gives that where a prospectus contains any
explanation which is false or misleading in structure or context in which it is
incorporated or where any consideration or exclusion of any issue is probably going
to mislead, then each individual who approves the issue of such prospectus will be
punished with imprisonment for a term which will be at least 6 months however which
may extend out to 10 years and will likewise be subject to a fine which will not be not
exactly the amount associated with the fraud, yet which may extend out to 3 times the
amount involved in the fraud.[1]
4. Section 88(1)(a) of the Companies Act, 2013 gives that each organization will keep a
register of individuals showing independently for each class of equity and preference
shares held by every member living in or outside India.
5. Section 88 (5) gives punishment to default in maintaining such Register. if an
organization doesn’t keep a register of members, the organization and each official of
the organization who is in default will be punished with a fine which will be a
minimum of Rs. 50,000 however which may extend out to Rs. 3 lakh and where the
failure is a continuing one, with a further fine which may extend out to Rs. 1,000 per
day afterward.

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6. The corresponding section of the Companies Act, 1956 in Section 150. If there should
be an occurrence of default in keeping up the register of its members, the organization
and each official of the organization who is in default will be punishable with a fine
which may be extended out to Rs. 500 for every day during which the default
proceeds.

Other Key Provisions for Protection of Investors

• Restriction on forwarding dealings in Securities of the organization by a key

managerial personnel
• Restriction or Prohibition on insider trading of securities of
• Casting a vote through electronic methods
• No mid-night Annual regular meeting – The hour of calling of AGM has been
determined to be in hours of business,
• A quorum of Meetings – fixed according to the membership base of the Company
rather than determined number regardless of size.
• Minutes of procedures of meeting, a meeting of Board of Directors and other meetings
and resolutions passed postal ballot
• Maintenance and examination of documents in electronic form

Role of Courts in Protection of Shareholders and Creditors

• The court of law protects the interests of creditors and shareholders under the
creditor protection law.
• The court of law uses the process of the legislation to help the creditors with the
clearing of the debt amount through the insurance companies.
• The shareholders are also protected by the court of law for maintaining a standard
of living.

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• There are various methods by which the shareholders can return the money to the
creditors as provided by the court of law.

Case Laws

• In R. v. Lord Kylsant[2], a table was set out in the prospectus indicating that the
organization had paid dividends fluctuating from 8 to 10 percent in the former years,
aside from two years where no dividend was paid. The announcement indicated that
the organization was in a sound financial position yet the fact of the matter was that
the organization had generous trading losses during the seven years going before the
date of a prospectus and the dividend had been paid, not out of the current income, yet
out of the assets which had been acquired during the abnormal time of war. The
prospectus was held to be false because of the oversight of the reality which was
important to appreciate the statement made in the prospectus.
• In Glass v. Atkin[3] an organization was controlled similarly by two plaintiffs and
defendants. The two plaintiffs brought an action against the defendants charging that
they had fraudulently converted the resources of the organization for their advantage.
The court permitted the action and saw that ordinarily, it is for the organization itself
to bring an action where its advantage is unfavorably influenced, however in the case
the two plaintiffs were justified in bringing the action for the benefit of the
organization since the two defendants being in equal control would effortlessly
prevent the organization from suing.
• In Bajaj Auto Ltd. v. Company Law Board[4] the Supreme Court saw that regardless
of whether the appellants have attempted to buy shares to get a controlling interest in
the Company, that itself can’t be a ground for declining to transfer the shares except
if and until it tends to be proved that the buyers are undesirable persons and after
overseeing the Company, they will act against the Company and interest of
shareholders.

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• In Reliance Industries Ltd. v. Securities And Exchange Board of India[5] Reliance
Industries Limited, had been holding more than 5 percent shares in the target
company, Larsen and Toubro Limited since 1988-89 and had been having two of its
agents working as Non-Executive Directors on the Board of Directors of L&T.
Securities and Exchange Board of India informed the Substantial Acquisition of
Shares and Takeovers Regulations, 1994 requiring disclosure of holdings over 5
percent. RIL kept on buying the portions of L&T in the securities market because its
shareholding came to as high as 10.98 percent. The Court held that the appealing party
RIL was under a duty or an obligation under Regulation 7 to inform the target
company about its shareholding having exceeded 5 percent.

Q2. B Role of Courts in Winding-up of Company

The process of a company’s dissolution is called winding up of a company. It is a

process in which a company’s assets are collected and then sold in order to clear its
debts. The company ceases to do its business like they did before while winding up
too. The sole purpose of winding up of a company is to sell off the stocks, pay off
the creditors, and distribute the remaining assets to partners or shareholders. After
the completion of the winding up of the company, it is formally dissolved and it
ceases to exist. Winding up of a company is the condition when the life of a company
is brought to an end.
Section 2(94A) of Companies Act, 2013 means winding up under this act or
liquidation under the Insolvency and Bankruptcy Code, 2016. It states that the
company is dissolved by the liquidator to pay off its debts. In this the assets are
released, liabilities are paid off and the surplus is distributed among its members. A
company can be Private Limited Company, Public Limited Company as well as a
One-Person Company. A company can now be wound up under this act only by the
Tribunal.

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According to Section 270 of the Companies Act, 2013, the procedure of winding up
of the company can be done by the two process, one by the tribunal and another by
voluntarily.
Reasons for winding up of a company

1. The company’s objective for its establishment has been fulfilled.

2. The company is incapable to carry business.
3. Death of promoters.
4. Bankruptcy.
5. The company is unable to pay its creditors.
6. The company disposes of its business to another company or an individual.
Grounds and circumstances in which company may be wound up by the Tribunal?

• Compulsory winding up by the Tribunal under Section 271 of the Companies

Act, 2013 can be applicable on five grounds-
1. Special resolution
2. Sovereignty and integrity
3. Fraudulent activity
4. The annual and financial return
5. Just and equitable
powers of Tribunal

• Section 273 of the Company’s Act, 2013 states the tribunal to make decisions
stated below within 90 days.
1. Dismiss with or without cost.
2. NCLT can make an order for winding up with or without cost.
3. If the NCLT thinks fit, can go for an interim order.
4. If NCLT thinks fit then he has the power to appoint a provisional liquidator
to check the financial statements, assets, and liabilities, etc.

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 5. Any other order as NCLT thinks fit.
• Section 274 talks about the directions for filing the statement of affairs. Firstly

the company is entitled to prepare the list of assets and liabilities and then
gives details about books of accounts within 30 days.
• According to Section 277 company has to establish a winding-up committee
which is-
1. Secured creditor
2. Official liquidator
3. Professionals
4. A liquidator has to submit a preliminary report to NCLT within 60 days as
stated under Section 281. The preliminary report includes assets, liabilities,
paid-up share capital, receivables, guarantees, intellectual rights, contracts,
details of the fraud, viability, list of contributory, etc.

A. Winding up of a company by a Court or a Tribunal

A court can legally force the company to wind up. The company is ordered by a
court to appoint a liquidator who will manage the sale of assets and liabilities and
the distribution of the proceeds to the creditors.
When a company’s creditors files a suit against a company then the court orders to
wind up. They are often the one to realize that a company is insolvent as the bills
have remained unpaid. The winding up of a company is often is the final conclusion
of a bankruptcy. A company may not have sufficient assets to fulfill all its debtors
need, and then the creditors will have to face an economic loss.
Compulsory winding up of a company happens when a creditor of an insolvent
company asks the court for a wind up. If a company goes into liquidation then the
tribunal appoints a liquidator for liquidation.
1. The liquidator has to raise funds which are needed to pay the creditors.

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 2. The name of the company will be struck off from the companies list in
the registrar’s office and then the company will be dissolved.
3. The surplus money if left will be distributed amongst the shareholders
of the company.
4. The company ceases to exist anymore once the name of the company is
stuck off from the companies list.
Winding up involves –
1. Each and every contract of the company including individual contracts
are completed or transferred or ended. So the company is not able to do
business further.
2. Any legal disputes are settled.
3. The assets of the company are sold.
4. Creditors collect the funds raised.
5. Shareholder collects the surplus funds left with the company.
According to Companies Act, 2013, a tribunal or a court can wind up the company
on the basis of the following reasons:
1. Special resolution passed by the company asking winding up of the
company by the tribunal.
2. When the company fails to report a statutory report at the registrar’s
office.
3. Non commencement of a company within one year from the
incorporation.
4. For the public company the number of members reduced below 7 and
for private company below 2.
5. Company is not able to pay the debts,
6. Balance sheet or annual return for five financial years consecutively not
filed by the company.

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 7. When the company acted against the sovereignty and integrity of the
country
Filing of Winding Up Petition
According to Section 272 of the Companies Act, 2013, a winding up petition has to
be filed. The petition for winding up can be presented by the following persons:
1. The Company
2. The creditors
3. Any contributories
4. By the central or state government
5. By the registrar of any person authorized by central government for that
purpose.
Effects of Winding Up of a Company by Court Order
When a court or tribunal orders winding up of a company, the winding up should be
deemed to have commenced at the time of making of the application for the winding
up of the company.
The directors and the secretary of the company should deliver the statement of
company’s affairs to the liquidator who then files a copy of the statement to the
tribunal within 14 days of the winding up order. The statement of affairs delivered
by the directors and the secretary of the company contain the company’s details of
assets and liabilities and information required by the Official Receiver or the
liquidator and enables the liquidators to investigate into the matters of the company.
The company or its creditors or its shareholders can apply to restrain any pending
proceedings against the company in the court after filing the application of winding
up. No action against the company can be started or continued without the leave of
the court after the winding up order has been made by the court. No transfer of shares
and disposition of the company’s property are allowed after the commencement of
the winding up order of court and shall be void unless the Court orders otherwise.

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The Second Schedule of the Insolvency, Restructuring and Dissolution (Corporate
Insolvency and Restructuring) Rules 2020 defines the proceedings of Court Fees
payable for filing of documents for Compulsory Winding up.

GTC Industries Ltd v. Parasrampuria Trading[1] it was held that exclusive High
Court where the enrolled office is arranged has ward in winding up, regardless of
whether there was assention between gatherings will be settled under the watchful
eye of High Court where enlisted office isn’t arranged.

NATIONAL TEXTILE WORKERS V. RAMAKRISHNA[5]

This case related to matter of employees, that whether they have locus standi in the
winding up of company. In this case there were three workers union which had
applied that they should be impleaded as respondents or interveners as their interest
was being adversely effected because the winding up order of the company was
passed and the court had restrained the company from borrowing any money from
banks, financial institutions or from any other. The resources of the company were
blocked and it was the employees who had to suffer at last for their wages. This
application was rejected by the court and this decision was upheld by the division
bench on appeal. The unions filed for special leave which was then granted to them.
The five judge bench by majority held that the employees had a locus standi in the
petition. As the principle of natural justice, audi alteram partem suggests that the
other party should be heard and no decision should be given without hearing the
other party. Although the employees may not have a say when the winding up order
has been finalized but they must be given a opportunity of being heard before that.
The workmen are the people whose livelihood will be put at risk as their services
will end and they will have to search for work again in this situation. There is no
provision in the law which bars the workers from having any say in these

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proceedings. Therefore, both the lower courts were in error for not allowing the stand
of workmen in the winding up petition where their interests were seriously and
adversely affected.

• British Water Gas Syndicate V. Notts Derby Water Gas Co. Ltd. (1889)[1]
If members of the company want to wound up then they can do so by passing a
special resolution.
• West Hills Realty Private Ltd. and Ors V. Neelkamal Realtors Tower Private
Ltd. on 23rd December 2016[2]
The Hon’ble High Court stated that the petitions which are at the pre-admission stage
and have not been served on the respondent will be transferred to the Tribunal.
• Allan Ellis (Transport and packing) Services, Re (1989)[3]
If a voluntary liquidator of three companies failed to fulfill the requirements or court
orders were disobeyed under section 551 of the Company’s Act, 2013 then they shall
be liable with 3 months of imprisonment.
• Bidyut Baran Bose V. Official Liquidator 535(1980) 151 Cal[4]
In this, the property of the company was sold and the possession was delivered
within 1 year of the commencement of winding up of the company. The transaction
and the deed were not done in good faith therefore it was held that the transaction is
void ab initio under Section 531 A and 536(2) of the Company’s Act, 2013.
• Pabna Dhanbhandar Co. Ltd., Re (488 1936)6 CC 425 (Cal)[5]
In this case, it was held that the maintenance of a bank account is an integral part of
carrying on liquidation.

According to Section 270 of the Companies Act, 2013, the procedure of winding up
of the company can be done by the two process discussed above, one by the tribunal
and another by voluntarily. These are the two ways by which the company can be

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winded. The winding-up or liquidation of the company is the process by which a
company’s assets are collected and sold to pay debts of the company

Cross Border Mergers

Cross border mergers are growing significantly with the shrinking of the globe.
Moreover, India is steadily mountain climbing the ease of enterprise scores and is
turning into a desired business vacation spot. Such a Conducive financial
environment has spurred the boom of move border mergers.
MEANING OF CROSS BRODER MERGER & ACQUISITION
A move border merger explained in simplistic phrases is a merger of companies that
are positioned in distinctive nations ensuing in a third enterprise. A move border
merger could contain an Indian business enterprise merging with a foreign company
or vice versa. A enterprise in a single country can be received via an entity (some
other enterprise) from different international locations. The nearby enterprise may
be private, public, or nation-owned organisation. In the occasion of the merger or
acquisition through foreign investors referred to as pass-border merger and
acquisitions. Cross border merger will bring about the switch of manipulate and
authority in running the merged or received business enterprise. Assets and liabilities
of the 2 groups from distinct nations are blended into a brand new felony entity in
phrases of the merger, While in terms of Cross border acquisition, there may be a
change technique of property and liabilities of nearby organization to overseas
business enterprise (overseas investor), and routinely, the neighbourhood employer
may be affiliated.

Challenges with Cross Border Mergers & Acquisitions

– Legal issues in one of a kind countries

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– Accounting demanding situations & Taxation components
–Technological differences
– Political landscape & Strategic troubles
– Overpayment within the deal
– Failure to integrate & HR demanding situations
Cross-border mergers and acquisitions have been hastily ascending in quantum and
value in current years.

Laws govern cross border mergers in India

Section 234 of the Companies Act, 2013 notified by the Ministry of Corporate
Affairs offers the prison framework for go border mergers in India. This has been
added into impact from 13th April 2017, hence operational sing the idea of cross
border merger.
The following laws govern go border mergers in India:
• Companies Act, 2013
• SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011
• Foreign Exchange Management (Cross Border Merger) Regulations, 2018
• Competition Act, 2002
• Insolvency and Bankruptcy Code, 2016
• Income Tax Act, 1961
• The Department of Industrial Policy and Promotion (DIPP)
• Transfer of Property Act, 1882
• Indian Stamp Act, 1899
• Foreign Exchange Management Act, 1999 (FEMA)
• IFRS three Business Combinations

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Laws That Are Applicable In Mergers And Acquisitions
The laws that are applicable for a non-resident company are as follows:
• Foreign Exchange Management Act 1999 and the rules and regulations
related to it.
• The Foreign Investment Policy of the Government of India.[26]
The following are the laws that are applicable for listed companies:
• Securities and Exchange Board of India Act 1992 (SEBI) and its rules
and regulations are applicable.[27]
• SEBI (Securities Acquisition of Shares and Takeovers) Regulations
2011 (Takeover code).[28]
• SEBI (Issue of Capital and Disclosure Requirements) Regulations 2009
(ICDR Regulations).[29]
• SEBI (Listing Obligations and Disclosure Requirements) Regulations
2015 (LODR Regulations).
• Indian Contract Act 1872.[30]
Following are the laws that are applicable if the acquisition is financed through debt:
• Transfer of Property Act 1882.[31]
• Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Act 2002 (SARFAESI Act).[32]
• Recovery of Debts due to Banks and Financial Institutions Act 1993.
• Old Companies Act and Companies Act are prevalent in today’s date.
• Income Tax Act 1961

TYPES OF CROSS BORDER MERGERS

The most famous forms of mergers are horizontal, vertical, marketplace extension
or marketing/technology associated concentric, product extension, conglomerate,
congeneric and reverse. Recently, the concept of inbound and outbound mergers was

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additionally added inside the Companies Act, 2013 as a part of Section 234 of the
Act.
A cross-border merger is of two types:
• Inbound merger
• Outbound merger
An inbound merger occurs when a foreign business merges with a domestic firm to
form a domestic firm. In a cross-border merger, the resulting entity is a domestic or
foreign organization that takes over the assets and liabilities of another company. An
outbound merger occurs when a domestic corporation joins forces with a foreign
company to form a new entity. E.G. Daichii Acquiring Ranbaxy
Key provisions:
Issuance of Securities - As a consideration, the Indian firm would issue or transfer
securities to the transferor entity's shareholders, which might include both Indian
and non-Indian citizens. The issuing of securities by a person residing outside of
India must follow the price standards, sectoral caps, and other applicable guidelines
set forth in the Cross-Border Regulation. If the foreign firm is a joint venture or a
wholly owned subsidiary, it must adhere to the restrictions set out in the Foreign
Exchange Management (Transfer or Issue of any Foreign Security) Regulations,
2004. Furthermore, if the inward merger of the JV/WOS leads in the Resultant
Indian firm acquiring one or more step-down subsidiaries of the Indian party, such
purchase must comply with Regulations 6 and 7 of the ODI Regulations.
Assets & Liabilities- ● Any borrowings or guarantees of the transferor firm will
become the resulting business's borrowings or guarantees. To comply with the
external commercial borrowings compliance, a two-year schedule has been
specified. In such circumstances, the end-use limitations would not apply. ● Any
asset purchased by the resulting corporation can be transferred in any way allowed
by the Act or regulations. If such an asset is not authorised to be bought, the resulting

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business must sell it within two years of the National Company Law Tribunal
(NCLT) issuing the decision, and the sale revenues must be immediately returned to
India through banking channels. Where the resultant firm is not authorised to have
any responsibility outside of India, the liability may be erased from the sale profits
of such foreign assets within two years. ● For a maximum of two years after the
NCLT approves the plan, the resultant business is allowed to open a bank account
in the other country's jurisdiction to manage activities linked to the merger.
Valuation - The valuation shall be performed in accordance with Rule 25A of the
Companies (Compromises, Arrangements, and Amalgamations) Rules 2016, that is,
by Registered Valuers who are members of recognised professional bodies in the
transferee company's prescribed jurisdictions, and in accordance with internationally
accepted accounting and valuation principles.

As per the law in India, an outbound merger happens when an Indian company
merges with a foreign company, and the Indian company's shareholders have the
option to buy the resulting company's shares. The foreign company will become a
wholly-owned subsidiary or joint venture of the Indian company. E.G. Tata metal
Acquires Corus , Eg.The acquisition of Jaguar and Land Rover by Tata Motors
in 2011

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Procedure to be followed in an Outbound Merger in India
Cross-border mergers are complex procedures, and there has often been a schism
between countries because the laws and regulations regulating such transactions
differ from country to country.

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By facilitating international mergers, the Indian government has been able to help
reduce certain possible problems. To facilitate and control cross-border mergers, the
Indian government released the Foreign Exchange Management (Cross-Border
Merger) Regulation, 2018 under the Foreign Exchange Management Act, 1999.
Acquisition of a foreign company can be achieved by investment, according to the
RBI's overseas direct investment rule.
Section 234 of the Companies Act, 2013 (Companies Act) and Rule 25A of the
Companies (Compromises, Arrangements and Amalgamations) Rules, 2016
(Companies Merger Rules) permit mergers and amalgamations between Indian
agencies and agencies incorporated in sure jurisdictions. These provisions mandate
prior approval of the Reserve Bank of India (RBI) for the sort of go-border mergers.
After tremendous public consultations, the RBI issued the Foreign Exchange
Management (Cross Border Merger) Regulations, 2018 (FEMA Regulations) on 20
March 2018 to cope with various issues which could get up in relation to cross border
mergers from an alternate manage perspective.

Different Types of Mergers and Acquisitions

• Horizontal merger and acquisition: In this type, two entities merge,
posing similar products or services. The companies simply expand their
range of products or services. There is no diversification. The best
example is when Hewlett Packard had acquired Compaq for $24.2
billion on September 03, 2001, to merge the computer products[6].
• Vertical merger and acquisition: Two entities merge belonging to the
same industry but are at different points on the supply chain. The
logistics get improved and thereby reducing the time to market the
products.[7]

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 • Conglomerate merger and acquisition: When two entities from different
industries join hands to diversify their product or service lines. This can
help cut costs by uniting back-office activities and reducing the risk by
operating in various industries.[8]
• Concentric merger and acquisition: Two entities share their customer
bases with a different product or service lines. The best example would
be Columbia Pictures with Sony on September 28, 1989, where films
of Columbia Pictures could be well played on Sony DVD players.
Through this, Sony could introduce Sony Blu-Ray DVD players.[9]

What are the conditions to be fulfilled for cross-border outbound mergers in India
• Prior Approval of RBI is mandatory.
• Provision of Section 230-232 of Companies Act, 2013, are to be followed
during outbound mergers.
• Prior Approval of SEBI, National Company Law Tribunal (NCLT),
Shareholders, Creditors, Income Tax Authorities should be taken.
• Shareholders of a merging company should be provided payment of
consideration in cash or depository receipts or partly in cash and partly in
depository receipts.
• Foreign companies incorporated should be in a permitted jurisdiction.
• The resultant company (foreign company) in case of outbound merger is
required to submit reports from time to time as per RBI guidelines. The
company should also consult the government of India while preparing a
report.
• Valuation of surviving should be submitted to RBI. The Valuation should be
done according to the internationally accepted principles on Accounting and

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 Valuation and the report is to be made by a valuer who is the member of a
recognized body in its jurisdiction.

SEBI’s Takeover Code:

SEBI published a take-over rule for the regulation of major acquisitions of shares on
November 4, 1994, with the goal of improving transparency and reducing the
incidence of secret agreements. According to the code's requirements, every
purchase in a firm that increases the acquirer's aggregate ownership to more than
15% requires the acquirer to make a public offer. Negotiated takeovers, open market
takeovers, and bail-out takeovers are all covered by the takeover code4 .
Meaning- The term "takeover" refers to the purchase or exchange of shares to gain
control of a company that is already registered. In order to seize control of a
corporation, a takeover typically involves acquiring or purchasing the shares of the
firm's shareholders at a stipulated price to the degree of at least controlling interest5
.
The necessity of Takeover Code- With the declaration of a globalisation strategy,
the Indian economy became more accessible to foreign investment. However, in
order to compete on a global basis, the company's size had to be enlarged. Given the
time element required in grasping the opportunities made accessible by
globalisation, mergers and acquisitions were the greatest choice open to corporations
in this new environment.
Although the corporate armoury proved to be advantageous, predators with large
amounts of discretionary income quickly took advantage of the opportunity, to the
detriment of regular investors. This necessitated some regulation to protect investors'
interests and ensure that the process of takeovers and mergers is utilised to develop
rather than destroy the securities market. With the approval of the SEBI Act in 1992,

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SEBI was established as a regulatory organisation to promote the growth of the
securities industry and to safeguard the interests of investors in the securities
market.It also has the authority to enact rules to achieve the aforementioned goals.
As a result, SEBI established a committee chaired by P.N. Bhagwati to evaluate the
impact of takeovers and mergers on the securities market and propose legislation to
regulate them.

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pg. 31 – Company Law 70 Marks
The two companies took a step forward towards this multi-dollar merger. In the deal,
Sony Pictures Entertainment invested $1.575 billion. The grand merger was
successful in 2021, where the Directors had given their permission to execute a non-
binding term sheet with Sony Pictures Network India (SPNI). The two parties have
signed a non-competent agreement.[75]
The second most successful merger in India was between Vodafone and India in the
year 2021. The merger is valued at $23 billion. Even though the deal had resulted in
a telecom giant that the two companies had pushed Reliance Jio and the price war
had begun. The deal between Idea and Vodafone India had been successful, where
Vodafone held 45.1 per cent stake in the combined entity, and Aditya Birla held 26
per cent. The remaining share is held by Vodafone India. [76]
The third example of a successful merger is the Arcelor Mittal merger in the year
2006. The deal was valued at $38.3 billion, where Mittal steel had announced an
initial bid of$23 billion for Arcelor, which later increased to $38.3 billion. After the
deal, the steel production in the global market had increased to 10%.[77]
Even though these examples seem rosy, there have been promising mergers that
could never establish a competent association.
Firstly, the merger between HDFC and Max Life. This merger was initiated in the
year 2016 and was valid till the year 2017. Max Life is the fourth largest private
insurance company in India. It is a joint venture between Max Financial Services
and Mitsui Sumitomo Insurance Company, a Japanese company holding 26 per cent
of the world stake. HDFC Standard Life Insurance was a formerly unlisted company
and a joint venture between (HDFC) Housing Development Financial Corporation
Limited holding 61.5% shares and Standard Life Aberdeen PLC, holding 35 per cent
merger of Standard Life and Aberdeen Asset Management rest by others.
The reason for the failure is that the proposed merger was not approved by the
sectoral authorities and by the Insurance Development Authority of India

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(IRDAI). Section 35 of the Insurance Act also bards the merger between an
insurance company with a non-insurance company.[78]
The second most renowned failure was the merger between IDFC and Shriram
Finance, attempted in 2017. The proposed merger was between a Non-Banking
Financial Institution (NBFC) and an infrastructure company. The shareholding
pattern of Shriram Limited, a listed entity during the merger time, was 33.77% held
by the promoters, Domestic Institutional Investor (5.58%) and Foreign Institutional
Investor (22.42%).

Conclusion- To effectively accomplish cross-border mergers, a variety of

challenging obstacles must be overcome. Each cross-border merger is unique, and
how these challenges are handled will be determined in large part by the facts,
dynamics, scale, and geographic extent of both organisations. Because the Cross-
Border Regulations are still relatively new, many practical concerns have yet to be
uncovered and will be handled as they arise. This should serve as a wake-up call for
Indian policymakers, as the current situation of globalisation necessitates that it not
be a one-time occurrence. Complex merger strategies are preferred by companies in
order to better serve their commercial goals7 . As a result, the need of the hour is to
make required changes to the law and regulatory procedures that are interconnected
and do not result in a scenario where one legislation modification contradicts
another. To avoid such a situation from reoccurring, and to discourage businesses
from attempting rear door admissions when a legally controlled front door access is
available, a comprehensive strategy is required.

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