Insight on Section 192 & Section 194 of Companies Act -2013

The Companies Act, 2013 has introduced some new Concepts which were not present in 1956 Act.

1. Restriction on Non- Cash Transactions Involving Directors (Section 192)
   • Restriction and Legal requirements:-No Company shall enter into an arrangement by which:-
     1. a director of the company or its holding, subsidiary or associate company or a person connected with him acquires or is to acquire assets for consideration other than cash, from the company; or
     2. the company acquires or is to acquire assets for consideration other than cash, from such director or person so connected,

     unless prior approval for such arrangement is accorded by a resolution of the company in General Meeting and if the director or connected person is a director of tis holding company, approval under this sub- section shall also be required to be obtained by passing a resolution in General Meeting of the holding company.

   • Requirement of Notice  (192(2))The notice for approval of the resolution by the company or holding company in General Meeting shall include the particulars of the arrangement along with the value of the assets involved in such arrangement duly calculated by a registered valuer.
   • Effects of Contravention (192(3))Any arrangement entered into by a company or its holding company in contravention of the provisions of this section shall be voidable at the instance of the company unless:-
     1. the institution of any money or other consideration which is the subject matter of the arrangement is no longer possible and the company has been indemnified by any other person for any loss or damage caused to it; or
     2. any rights are acquired bona fide for value and without notice of the contravention of the provisions of this section by any other person.
2. Prohibition on Forward Dealings in Securities of Company by Director or Key managerial Personnel (Section 194).
   • Prohibition on Forward Dealings :-No director of a company or any of its key managerial personnel shall buy in the company, or in its holding, subsidiary or associate company:-
     1. a right to call for delivery or a right to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures; or
     2. a right, as he may elect, to call for delivery or to make delivery at a specified price and within a specified time, of a specified number of relevant shares or a specified amount of relevant debentures.
   • Effects of Contravention  (194(2))Punishment:  Imprisonment upto 2 years; orFine minimum Rs. 1 lac , maximum upto 5 lacs or both
   • Securities not to be registered  (194(3))The director or other key managerial personnel shall be liable to surrender to the company the securities acquired in contravention of this section, and the company shall not register the securities so acquired in his name in the register and if they are in dematerialized form, it shall inform the depository not to record such acquisition and such securities, in both the cases, shall continue to remain in the names of the transferors.
   • Meaning of certain terms:For the purposes of this section, “ relevant shares” and “ relevant debentures” mean shares and debentures of the company in which the concerned person is a whole time director or other key managerial personnel or shares and debentures of its holding and subsidiary  companies.