Update: Companies Act, 2013

Vide notification dated 9^th September, 2016, the Ministry of Corporate Affairs (“MCA”) has notified certain provisions of the Companies Act, 2013 (“Act”). The central government has in exercise of its power, under Section 1 (3) of the Act, notified the sections as provided below:

Section 227 – Legal advisers and bankers not to disclose certain information.

This section has been notified and gives special power to legal advisors and bankers to withhold certain information. Legal adviser is not liable to reveal any privileged communication made to him in that capacity by the client, except for the name and address of the client. Further, the bankers of any body corporate, company or other person are not obligated to reveal any information as to the affairs of any of their customers.

Section 242 (1) (b) – Powers of Tribunal to make order as it deems fit, if the application is made under oppression and mismanagement for winding up of the company.

The aim of this section is to set right the wrongs and take remedial action to prevent occurrence of wrongs in future. Additionally, in case of H. R. Harmer[1], court stated that it is not enough that only just and equitable case for winding up of the company should be made out. It must also be found that conduct of the majority shareholders was oppressive to the minority members. Once it is established that there have been acts of oppression, winding up of the company on the just and equitable ground should naturally follow and the company law board has only to consider whether such course would be in the interest of shareholders.[2]

Section 242 (2)(c) – Powers of Tribunal to make order of the tribunal may provide for reduction of shares in the share capital.

If the tribunal is of the consideration that mala fide intention is involved in the transaction or in the process, then the tribunal can order the cancellation of allotted shares. In the case of Martin Castelino v. Alpa Omega[3] the company law board found that capital was increased and shares were allotted the results of which was to convert the majority shareholders into a minority and since all this was done without mentioning it in the agenda of the meeting of the of the board and without giving notice of the general body meeting to the complaining members, the company law board ordered cancellation of the allotment.

Section 242 (2) (g) – Power to set aside any transaction entered by the company within 3 (three) months from the date of application made under of the Act which might be deemed in his insolvency to be a fraudulent preference.

Further, the central government has also notified Section 246 and Section 337 to Section 341 to the extent of its applicability with the provisions dealing with penalty for frauds by officers i.e. in cases where the liability is due to not maintenance of proper accounts, liability for fraudulent conduct of business, etc.

The text of the notifications can be accessed at:

http://www.mca.gov.in/Ministry/pdf/Notification_10092016.pdf.

[1] H. R. Harmer Limited (1958) 3 All ER 689.

[2] Navin Ramji Shah v. Simplex Engineering & Foundry Works P.Ltd., (2007) 76 CLA 1 CLB.

[3] Martin Castelino v. Alpa Omega (2001) 104 Com Cases 687