Companies Act 2013

Section 2 contains over 95 defined terms that govern interpretation across the entire Act. Critical definitions include: "associate company" (20%+ voting power held, or control over composition of the board), "holding company"/"subsidiary company" (majority of voting power or control over board), "relative" (comprehensive list relevant for RPT and prohibition provisions), "key managerial personnel" (MD, CEO, CFO, CS, WTD), "independent director" (no material pecuniary relationship), "financial year" (April 1 to March 31 mandatorily, except 15-month transitional for new companies), "free reserves" (accumulated balance excluding revaluation reserves), and "net worth" (paid-up capital + free reserves + securities premium — accumulated losses). These definitions directly determine compliance obligations under S.135 (CSR), S.186 (loans/investments), S.188 (RPT), and S.197 (managerial remuneration).

Section 42 governs private placement — the issue of securities (shares, debentures, CCDs, OCDs etc.) to a select group of persons without a public offer. Key restrictions: maximum 200 persons in a financial year (aggregated across all tranches of the same class); no public advertisements; application money only in bank; no right of renunciation. Private placement requires a Special Resolution for each tranche; a PAS-3 return must be filed within 15 days of allotment. Non-compliance with S.42 can result in the allotment being voided and the company being ordered to refund all application money with interest at 12% per annum. This section is central to funding rounds for private companies.

Buy-back of shares or other specified securities is permitted subject to conditions: (1) buy-back cannot exceed 25% of the total paid-up capital and free reserves (board-approved route is capped at 10%); (2) post buy-back, debt-equity ratio cannot exceed 2:1; (3) all shares of the same class must be fully paid up; (4) buy-back must be from free reserves, securities premium, or proceeds of a fresh issue. Methods: open market through stock exchange (listed), tender offer, or odd-lot scheme. S.68 is increasingly used by listed companies to return capital to shareholders when dividends are tax-inefficient. A buy-back cannot be made within 1 year of a previous buy-back.

Every charge created by a company — whether on movable/immovable property, book debts, goodwill, patents, or any asset — must be registered with the ROC within 30 days of creation using Form CHG-1. If not filed within 30 days, it can be registered with condonation of delay (additional fees) for up to 300 days with NCLT approval. An unregistered charge is void against the liquidator and any other creditor of the company — meaning secured lenders who miss the filing window may find themselves treated as unsecured creditors in insolvency proceedings. This makes charge registration the most critical post-transaction filing for lending transactions.

Section 135 mandates CSR spending for companies meeting any of three thresholds: net worth ≥ Rs 500 crore, turnover ≥ Rs 1,000 crore, or net profit ≥ Rs 5 crore (in the immediately preceding financial year). Such companies must spend at least 2% of the average net profits of the immediately preceding 3 financial years on CSR activities listed in Schedule VII (poverty, education, gender equality, environment, national heritage, etc.). Unspent CSR amounts must be transferred to a specified fund (for ongoing projects: within 3 years; for other amounts: within 6 months). Non-compliance is an offence — the company must explain the reason in the Board's Report, and starting 2021, unspent amounts not transferred are punishable.

Every public company must have at least 3 directors; private companies at least 2; OPCs at least 1. Listed companies must have at least one-third of the board as independent directors (IDs). Public companies with paid-up capital ≥ Rs 10 crore, turnover ≥ Rs 100 crore, or aggregate outstanding loans/debentures ≥ Rs 50 crore must also have at least 2 IDs. An independent director must not be a promoter, employee, or relative of a KMP, and must not have had any material pecuniary relationship with the company in the preceding 3 years. Every listed company must appoint at least one woman director. IDs serve for 5-year terms (renewable once by special resolution) — they cannot serve more than 2 consecutive terms (10 years total).

Section 166 codifies the fiduciary duties of directors for the first time in Indian company law. Directors must: act in good faith to promote the objects of the company for the benefit of its members as a whole; act in the best interests of the company, its employees, shareholders, the community, and environment; exercise duties with due and reasonable care, skill, and diligence; not involve in a situation of conflict of interest; not achieve or attempt to achieve any undue gain or advantage; and not assign their office (directorship is not transferable). Breach of these duties by a director is actionable by the company, and the director is liable to pay compensation. These duties are owed to the company, not directly to shareholders.

Section 185 prohibits a company from directly or indirectly making loans to, giving guarantees on behalf of, or providing security in connection with loans to: (a) any director of the company or its holding company; (b) any partner/relative of such director; (c) any firm in which such director or relative is a partner; (d) any private company in which such director is a director or member. Exceptions: a loan to an MD/WTD as part of conditions of service (approved by a special resolution disclosing full terms) is permitted. Loans to holding company subsidiaries are also exempt subject to conditions. Violation is a serious offence — fine on the company (Rs 5–25 lakh) and fine/imprisonment on every officer in default.

A company can make investments, give loans, guarantees, or securities only up to a ceiling of 60% of its paid-up share capital, free reserves, and securities premium, or 100% of its free reserves and securities premium — whichever is higher ("aggregate ceiling"). Beyond this threshold, prior shareholder approval by special resolution is required. Companies cannot make investments through more than 2 layers of investment companies ("investment company layers" restriction). Every loan/guarantee/investment must be recorded in a register (Form MBP-2). Interest on loans must be at a rate not lower than the prevailing yield on 3-year Government Security. This provision interacts with FEMA regulations for cross-border investments.

Section 188 requires Board approval (and in some cases shareholder approval) for transactions between the company and its related parties (directors, their relatives, key managerial personnel, subsidiaries, associate companies, etc.). Contracts of sale/purchase of goods or services, contracts for sale/disposal/lease of property, availing/rendering services, appointment to office/place of profit, and underwriting subscription — all need Board/shareholder approval if they are material (exceed the prescribed threshold). For listed companies, SEBI LODR 2015 (Reg. 23) additionally requires prior approval from public shareholders (majority of minority) for RPTs above 1,000 crore or 5% of annual consolidated turnover. Directors who are "interested" cannot vote on the resolution.

Section 230 is the foundational provision for NCLT-driven mergers, demergers, arrangements, and restructuring. Any company (or its liquidator/creditor) can apply to NCLT for sanction of a compromise or arrangement between the company and its creditors or members. NCLT calls meetings of creditors/members; the arrangement is approved if a majority in number representing 75% in value vote in favour. Once sanctioned by NCLT, the scheme binds all creditors and members including dissenters. S.230 covers: debt restructuring, merger of group companies, demergers, capital reductions, conversion of loans to equity, and schemes of arrangement in distressed situations. Regulatory approvals (Competition Commission, SEBI, RBI as applicable) must be obtained before NCLT sanction.

Section 233 provides a simplified merger route — bypassing NCLT — for: (1) merger of a holding company with its wholly-owned subsidiary; or (2) merger of two or more small companies (paid-up capital ≤ Rs 4 crore AND turnover ≤ Rs 40 crore). The merger scheme is filed with the ROC, who invites objections from the Registrar/OL and the Central Government. If no objections are received within 30 days, the scheme is deemed approved. This route is widely used in group restructuring to eliminate intermediate holding companies. The fast-track route reduced merger timelines from 12–24 months (NCLT) to 3–6 months in practice.

Any member of a company who has held shares for at least 2 years (or 10% of issued capital for public company) can petition the NCLT for relief if: (a) the affairs of the company are being conducted in a manner oppressive or prejudicial to the interests of the members (or any class of members) or the public interest; or (b) there has been a material change in management leading to prejudice. The Central Government or SEBI can also file such a petition. NCLT has broad powers: it can wind up the company, regulate the conduct of affairs going forward, purchase minority shares at a fair price, terminate agreements, and even remove directors. This is the primary remedy for minority shareholder oppression in private and unlisted public companies.

Section 447 is the omnibus fraud provision of the Companies Act. "Fraud" is defined broadly: any act, omission, concealment of any fact, or abuse of position committed with intent to deceive, to gain undue advantage, or to injure the interests of the company/shareholders/creditors. Punishment: imprisonment from 6 months to 10 years, and a fine equal to the amount involved in the fraud (minimum: fine must not be less than 3x the amount involved). If fraud involves public interest, minimum imprisonment is 3 years. The SFIO (Serious Fraud Investigation Office) has exclusive jurisdiction to investigate S.447 cases. S.447 is predicate offence under PMLA — meaning proceeds of fraud are attachable by the ED under PMLA.