Category Archives: Chapter II – CA2013

INCORPORATION OF COMPANY AND MATTERS INCIDENTAL THERETO

Is Bank a Company?


I received an interesting query on Quora earlier this month. Another day, another reader asked on WhatsApp why Registrar of Companies or Serious Fraud Investigation Office is not taking action against “PMC Bank Limited”. The reader was ignorant of the word “co-operative” in the name of scam-hit banks. Last year, one member/shareholder of the State Bank of India queried about compliance by the bank under the Companies Act, 2013.

This clearly indicates the ignorance about organisation structures of banks in India. It is a flexible structure and to me, it is very innovative too.

Indian Banks have various structures from cooperative to departmental undertaking of the government to just a small cooperative society. Additionally, there are non-banking finance companies, nidhi companies and other microfinance companies and even self-help groups doing somewhat banking operations in a limited manner.

Central Bank – a Statutory Corporation

First thing first: the Reserve Bank of India is a bank – more precisely a Central Bank the banker of the Sovereign of India. This is a statutory corporation. A statutory corporation is a business organisation established by an Act of Parliament or state legislature. Life Insurance Corporation of India and State Bank of India is also Statutory Corporation. The important feature of the Reserve Bank of India is its regulatory powers provided by the incorporating and governing statute.

Statutory Banking Corporation

State Bank of India is a statutory corporation like Reserve Bank of India, Life Insurance Corporation of India etc. It is predecessor Imperial Bank of India was incorporated under the Imperial Bank of India Act, 1920 (47 of 1920). Later the State Bank of India Act, 1955 established the State Bank of India. The Imperial Bank had its roots in the Bank of Culcutta founded on 2nd June 1806 and renamed as Bank of Bengal on 2nd January 1809. Presently its authorised capital is five hundred crores of fully paid-up shares of ten rupees each. Itis not governed by the Companies Act, 2013 or any earlier companies law unless any provision of the companies law is specifically adopted by its governing statute.

Corresponding New Banks

Another structure is Government of India Undertakings – technically called corresponding new banks. There are two sets of corresponding new banks in India One set of corresponding new bank are defined in sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970). Another set of the corresponding new bank is defined in clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980).

CORRESPONDING NEW BANK UNDER BANK NATIONALIZATION 1969

Sub-section (d) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 defines corresponding new bank for the Bank Nationalization 1969. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule of that Act.

These are:

EXISTING BANK ON 19th day of July, 1969 CORRESPONDING NEW BANK
The Central Bank of India Limited Central Bank of India
The Bank of India Limited Bank of India
The Punjab National Bank Limited Punjab National Bank
The Bank of Baroda Limited Bank of Baroda.
The United Commercial Bank Limited UCO Bank
Canara Bank Limited Canara Bank
United Bank of India Limited United Bank of India
Dena Bank Limited Dena Bank
Syndicate Bank Limited Syndicate Bank
The Union Bank of India Limited Union Bank of India
Allahabad Bank Limited Allahabad Bank
The Indian Bank Limited Indian Bank
The Bank of Maharashtra Limited Bank of Maharashtra
The Indian Overseas Bank Limited Indian Overseas Bank

CORRESPONDING NEW BANK UNDER BANK NATIONALIZATION 1980

Clause (b) of section 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 defines corresponding new bank for the Bank Nationalization 1980. Accordingly “corresponding new bank”, in relation to an existing bank, means the body corporate specified against such bank in column 2 of the First Schedule.

These are:

EXISTING BANK ON 15th April 1980 CORRESPONDING NEW BANK
The Corporation Bank Limited Corporation Bank
The New Bank of India Limited New Bank of India
The Oriental Bank of Commerce Limited Oriental Bank of Commerce
The Punjab and Sind Bank Limited Punjab and Sind Bank
Vijaya Bank Limited Vijaya Bank

Subsidiary Bank

Subsidiary Bank is defined in clause (k) of section 2 of the State Bank of India (Subsidiary Bank) Act, 1959 (38 of 1959). Accordingly, “subsidiary bank” means any new bank and includes the Hyderabad Bank. According to Section 2(f) of that Act, “new bank” means any of the banks constituted under section 3. Accordingly to Section 3 of that Act, there shall be constituted the following new banks, namely:―

  • the State Bank of Bikaner;
  • the State Bank of Mysore;
  • the State Bank of Patiala; and
  • the State Bank of Travancore;

Private Banks Surviving Nationalisation

This is an interesting but significant group of Private Banks. Jammu and Kashmir Bank Ltd and Karnataka Bank Limited fall in this group but both are significantly different legal status.

State-owned Private Bank

The Jammu and Kashmir Bank was founded on 1 October 1938 under letters patent issued by the Maharaja of Jammu and Kashmir. Later this bank becomes a state (not State) owned bank where a state government has controlling holding and it was and still is a government banker of the state. Organizationally, it still is a private bank and a company under the Companies Act.

Private Bank surviving Nationalisation

Karnataka Bank Limited may be an example. This was not so significant to be nationalised at the time of nationalisation and is a company under the Companies Act.

New Private Banking companies

These essentially are banking companies registered under the Companies Act. Axis Bank Limited or Kotak Mahindra Bank Limited are two examples. All Payments banks are also companies under the Companies Act.

Cooperative Banks

These are Cooperative societies either under the Multistate Cooperative Societies Act, central legislation or a bank under Cooperative Societies Acts of respective States.

Multi-State Cooperative Banks

These are Multi-State Cooperative Banks under the Multi-State Co-operative Societies Act. Ministry of Agriculture of Government of India is administrative ministry of this Act.

State Cooperative Banks

These Banks are cooperative Societies registered under state cooperative societies.

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Founder of a Company


The founder is not a legal term in relation to a company. General Public usually uses this term to refer to the original promoters of any company.

Interestingly, the definition of the term “promoter” also do not indicate directly to “founders” as the definition is drafted with the perspective of an existing company.

Now, I must subscribers to the Memorandum of Association (MoA), the founding or constituting documents of a company are first promoters. They satisfy two conditions of the definition of promoters also.

Subscribers of the MoA took initiatives to form a company and give a legal birth to it. Sometimes one of them actually leads and recognised by other subscribers as founder subscriber.

In short, the mind has a seed of the company in it may be called the founder of the company.

Notarised- Apostilled Documents


What docuemnts should I notarize or apostilled for the purpose of incorporation of a company in India? This is one common question asked by a person with citizenship or resident outside India.

Firstly, we should know, who needs notarized and apostilled documents. The reply depends upon the country where the person presently residing. This is not based on citizenship but the resident status on the day of requirement. We need not go through his ordinary residentship status for tax laws or foreign exchange laws. If British citizen ordinary resident in England is present somewhere in China today, he will notarise and apostilled documents there if the need arises today else he will wait till his return to England, Once he reached England, his signature and notarization will be enough.

Rule 13(5) of the Companies (Incorporation) Rules 2014 gives specific exemption for Indian citizens (resident anywhere in the world) and all person resident in India (irrespective of citizenship status).

For a resident of British Commonwealth countries, No documents required to be apostilled. In their case, notarised documents are enough.

For resident outside British Commonwealth and signatory countries of Hague convention, notarised and apostilled documents are required.

Rule 13(5) of the Companies (Incorporation) Rules 2014 cast the following requirement:

(a) where a subscriber to the memorandum is a foreign national residing outside India but in a country which is a part of (British) Commonwealth, his signature and address on the memorandum and articles of association and proof of identity shall be notarized by a notary public in the country of his residence.

(b) where a subscriber to the memorandum is a foreign national residing outside India (and  British Commonwealth) but in a country which is a party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity shall be notarized before the Notary (Public) of the country of his origin and be duly apostilled in accordance with the said Hague Convention.

(c) where a subscriber to the memorandum is a foreign national residing outside India and British Commonwealth and his country or residence is not party to the Hague Apostille Convention, 1961, his signatures and address on the memorandum and articles of association and proof of identity, shall be notarized before the Notary (Public) of such country and the certificate of the Notary (Public) shall be authenticated by a Diplomatic or Consular Officer empowered in this behalf under section 3 of the Diplomatic and Consular Officers (Oaths and Fees) Act, 1948 (40 of 1948) or, where there is no such officer by any of the officials mentioned in section 6 of the Commissioners of Oaths Act, 1889 (52 and 53 Vic.C.10), or in any Act amending the same.

(d) However, any foreign national visiting India on Business Visa, he will not required notary and apostilled documents as per clause (a), (b) and (c) above. Any person citizen of India, Overseas Citizen of India, Person of Indian Origin, or resident of Indian origin need not have any visa.

Recently a question posed before me that incorporation was denied because persons are here in India on employment visa and are directors of holding the company of the company to be incorporated but incorporation form was rejected. The simple representation that these people are in employment in India and more importantly presently are resident in India is enough. The business visa requirement is only for a foreign citizen who is not resident in India.

Following documents are to be notarized and apostilled:

  1. Copy of Passport – pages with name, address and issuing authority details;
  2. any one Address Proof – Telephone, Electricity or mobile Bill (bank statement is acceptable as proof but not advisable) pages where name and date of the bill are mentioned.
  3. a declaration called DIR-2 in case the person is going to be a director;
  4. a declaration of compliance in case the person is going to be a director; and
  5. Memorandum and articles of association signatory page.

A few documents may additionally be required if the proposed company is under a sector-specific regulator.

LICENSE FOR PROPOSED COMPANIES WITH CHARITABLE OBJECT


With notification of the Companies (Incorporation) 6th Amendment Rules, 2019 on 7th June 2019 to come into force with effect from 15th August 2019, the Government of India further centralized incorporation and registration of new companies to Central Registration Centre, Manesar in Haryana. Let us discuss the law.

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Propaganda against Compliance Tools


Politics is claimed to be a dirty game of propaganda in India and the public already accepted it as a reality of life. Unfortunately, Indian professionals start using similar tools against compliance regime and compliance professionals. Role of the media is also come to under strong protest recently. This is evident that Indian media do no research and do not cross verify the facts. Recently published propaganda titled “FM Nirmala Sitharaman urged to waive e-form 22A for firms” published by Deccan Chronicle on 12th June 2019 and copied by few others seems to be published without cross-checking on law and facts.

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The Active Extension


Among practitioners and followers of corporate law in India, the year 2019 brought a surprise in the form of Form INC – 22A. This was claimed to be a form to identify active companies and checking inactive companies. Unlike earlier attempt aim to boost the image of the country and government, this form lost its shine within few hours of its introduction. Unlike earlier, this form had no mention in government communications of success.

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AGILE A COMPANY


This is another experiment to achieve ease of doing business. I always pointed out combining so many forms into one without cutting numbers of licences required may not actually help businesses. Form – INC – 35 names as AGILE by the Ministry of Corporate Affairs is another such step. Whether a company under incorporation want to apply GST or not, it is required to fill and file Form AGILE.  In this post, we will discuss the same.

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