Position Regarding Indian Business Accounts

Three copies of balance sheet and profit and loss account of Indian business accounts of a foreign company duly audited by a practising Chartered Accountant in India, in the form prescribed in Schedule VI (as modified in terms of Notification, dated 4-10-1957 and 6-1-1959) shall be filed with the Registrar within 9 months of the close of the financial year. The Registrar at New Delhi may extend this period by 3 months.

In order to be a foreign company it has to have a place of business in India. The aforesaid accounts have to be filed with the Principal Registrar (i.e. Registrar of Companies, New Deihl) and the concerned Registrar having jurisdiction over the principal place of business of the foreign company [Sec. 597].

It may be noted that the Indian accounts have to be drawn up in Indian rupees.

Inspection of Accounts of a Foreign Company

The profit and loss account of Indian business in respect of a foreign company which,

. if incorporated under this Act would be deemed to be that of a private company and shall not be open to inspection by any person other than a member of the company.

Where shares (other than Bonus Shares) whether fully paid-up or partly paid-up

constituting the title of the allottee to the sl.ares together with the relevant contracts of sale or service nmst be produced for examination by the Registrar. It

shall also file a return stating the number and nominal amount ofthe shares so allotted, the extent to which they are paid-up and the consider.ttion for

which they have been allotted.

(iii) Particulars about the bonus shares and the names, addresses and occupations of the allottees and a copy ofthe resolution authorising the. issue of

such shares.

(iv) A copy of the resolution passed by the company authorising issue of shares at a discount. and a copy of the Company Law Board’s order sanctioning

the issue.

. The return of allotment must be duly dated and signed by a director or the secretary. If default is made in complying with this Section, there is a fine on

every officer in default, which may extend to Rs. 5000. However, the validity of the allotment is not affected. .

It should be noted that no ‘retuf!1 as to allotment’ shall be filed when forfeited shares are reissued because reissue of forfeited shares is not an allotment

of shares in the strict legal sense but only a sale (Shri Gopa .laan & Co. r:. Calcutta Stock Exchange Association Ltd.). Further, there

is no lieed of filing any ‘return of allotment’ in the case of allotment of dehentures.

Every company-public or private-issues to its members after the allotment is complete specifYing the number of shares held by the members and the

amount paid up on these shares. The company issues only one share certificate to each member for share held by him unless the members ask for more

than one such certificate.

Share warrant is another document which is issued by a public company stating that the bearer of its holder is entitled to the shares specified therein. It is

transferable merely by delivery. Share warrants are issued only by a public company by converting fully paid !;hares. Th,ese are negotiable instmment.

A ‘share certificate’ is a document which specifies the shares held by any member. It is issued by the company i.mder its cmmon seal. Every person

whose name is entered as a member in the register of members is entitled to, receh’e share certificate from the company. The share certificate may be in

any form. But a valid share certificate must. satisfy the following requirements:

I. It must be issued by the company under its common seal.

. 2. It must specifY the number of shares. The nominal value of shares

and the amount actually paid should also be stated in it.

3. It must also state the name, address and occupation of the shareholder. , Share crtificate must be duly stamped.

Right of Indemnity [Section 62(4)].

expert who has escaped liability on the above grounds, shall be entitled to be indemnified by other directors or e”perts who continue to be liable, against

all damages, costs and expenses which he may have incurred.

(b) Right of Contribution [Section 62(5»). The right of contribution between persons jointly blble is there, if only one or few ofthem have paid damages for

loss arising out of misrepresentation.

3. Liability for Omissions. Section 56 imposes liability for omissions, i.e., leaving out items which the Hnd Schedule of the Act, requires to be disclosed in a

Prospectus. If any subscriber suffers any loss due to omission,

.all those persons who authorised the issue of Prospectus shall be liable to pay damage to each subscriber at his instance. The subscriber must

however, satisfy the court (i) that of the said omission had not been there in the prospectus. he would not have taken the shares and (ii) that he has

actually sustained the loss.

But a person can escape liability if he proves that:

· He was ignomnt of the omission; or

· The non-disclosure arose from an honest mistake of fact on his part; or

· The court regards such omission as immaterial and excusable. 4. Criminal Liability [Section 63]. Criminal liability involves a fine

or a term of imprisonment on the guilty party whereas civil liability involves a remedy to the aggrieved party, e.g., paying damages by way of compensation.

Section 63 states that every person who authorises the issue of a prospectus containing an untrue statement is liable .to imprisonment for a term which

may extend to 2 years, or with fine which may extend to Rs. 50,000, or both. He may, however, escape liability ifhe proves:

Reduction of Share Colloidal. A company limited by shares or a company

Reduction of Share Colloidal. A company limited by shares or a company limited by guarantee and having a share capital may reduce its share capital in

any way and in particular may: extrinsic or reduce the liability on any of its shares in respect of share capital not called-up.
- cancel any paid-up share capital which is lost or is unrepresented by any tangible asset.
- payoff any paid-up share capital which is in excess often needs of the company.
- payoff paid up capital on the condition that it may be called up again, if necessary.
The above mentioned ways of reducing share capital are given only as illustrations. The share capital may be reduced in any other way.
Company can reduce its Share Capital only if authorized by its Articles. If Articles of the company do' not provide for reduction, it i necessary first to
amend the Articles by calling an e}.1raordinary general meeting of the company and only then reduction in share capital is possible after passing a special
resolution and sanction of the court. Procedure for Reduction. The following procedure may be followed for effecting the reduction of share capital-Sec.
100-103].
(i) Articles must 11rovide for the reduction of share capital.
(ii) Special Resolution. A special resolution effecting the reduction of
share capital must be passed and a copy thereof should be filed with the Registrar within 30 days of passing the resolution.
(iii) Petition to the Court. Petition to the court for obtaining confirmation order for the reduction of capital. Before confining tile reduction, the court will
satisfy itself that reduction of capital does not affect the interests of the creditors and the shareholders adversely. The court will see (a) that sufficient
notice has been given to every person whose interests may be affected by the alteration, (b) that every creditor who objects such reduction, should be
either paid off or, his or her payment should be sufficiently secured or his or her consent has been obtained (c) that the proposed reduction of these capital

is fair and equitable to all kinds of shareholders.
(iv) Confirmation Order Sec. 102] If the court is satisfied in all respects (particularly in regard to objections raised by the creditors), the court lay confirm
the resolution of reduction of share capital on such terms and conditions as it thinks fit. For example, the court may order that the company should add to
its name 'and reduced' for a specified period.
(v) Filing of Order with the Registrar Sec. 103]. A certified copy of the court's confim1ation order together with changed Memorandum should be filed witll
tile Registrar of Companies for registration within three months frolU the date of court's order. The Registrar shall then register the same and issue a
certificate of registration within one month. Reduction will take effect from tile date of registration of order.

Issue of Certificate of Incorporation

Along with the above documents necessary filing fees and registration fees at the prescribed rates are also to be paid.
Issue of Certificate of Incorporation. The Registrar will scrutinize these documents and if they are found in order, he will register me company and will
issue a certificate of incorporation (the company's "birth" certificate). The certificate of incorporation is a certification by the Registrar that the company is
incorporated and in the case of a limited company, that the company is limited Section 34 (I)]. On obtaining this certificate the company becomes a body
corporate, with perpetual succession and a coning seal Section 34 (2)]. .
The Registrar of Companies will allocate 'Corporate Identity Number' .(CIN) to each company registered in India' on or after 1st November 2000. All
companies registered before 1st November 2000, will also be allotted Certificate Identity Number within a year upto April 2002 in a phased manner.
Conclusiycness of Certificate of Incorporation-Section 35. The
Certificate of incorporation is conclusive as to tile following: That the association has been duly registered
Once a certificate of incorporation has been granted no-one can question the regularity of incorporation. In tile famous Peel's case Lofd
Cairns observed " when once the certificate of incorporation is given nothing is to be inquired into as to the regularity of the prior proceedings". It is

conclusive even if it was legally impossible that the company could have been properly registered e.g. where all the signatories arc.a1inors or signatures

to the memorandum are forged. The date appearing on the certificate of incorporation is conclusive even if it is wrong. For instance in.Jubilee Cotton Mills

v:_. Lewies (1924) A.C. 958, the necessary documents for the registration of the company were delivered to the Registrar on 6th January. Two days later

he issued the certificate of incorporation but dated it 6th January instead of 8th-the day on which the certificate was actually issued. On 6th January some

shares were allotted to Lewis. The question arose whether the allotment made before the certificate was actually issued was void. It was held that the

certificate of incorporation is conclusive evidence of all that it contains. Therefore, in law the company was formed on 6th January and allotment of shares

was valid.