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Important Definitions under Companies Act, 1956

Written By Admin on Monday, 10 December 2012 | Monday, December 10, 2012

Sec.2(1) "Abridged Prospectus" means a Memorandum containing such salient features of a prospectus as may be prescribed.

Sec. 2 (7) Body Corporate or corporation includes a company incorporated outside India but does not include –

a. A Corporation Sole

b. A Co-operative Society registered under any law relating to co-operative societies and

c. Any other body corporate (not being a Company as defined in this Act), which the Central Government may by notification in the Official Gazette, specify in this behalf.

Sec. 2(8) "book and paper" and "book or paper" includes accounts, deeds, vouchers, writings and documents.

Sec. 2(15) "document" includes summons, notice, requisition, order, other legal process, and registers, whether issued, sent or kept in pursuance of this or any other Act or otherwise.

Sec. 2(15A) "employees stock option" means the option given to the whole-time directors, officers or employees of a company, which gives such directors, officers or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determined price.

Sec. 2(17) "financial year" means, in relation to any body corporate, the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not:

Provided that, in relation to an insurance company, "financial year" shall mean the calendar year referred to in sub-section (1) of section 11 of the Insurance Act, 1938 (4 of 1938).

Sec 2(19AB) "industrial undertaking" means any undertaking pertaining to any industry carried on in one or more factories or units by any company as defined in Clause (aa) of Section 3 of Industries (Development and Regulation) Act, 1951 but does not include a small scale industrial undertaking as defined in clause (j)).

Sec. 2(19B) "information memorandum" means a process undertaken prior to the filing of prospectus by which the demand for securtities proposed to be issued by a company is elicited, and the price and the terms of issue for such securities is assessed, by means of a notice, circular, advertisement or document.

Sec. 2(26) "managing director" means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with [substantial powers of management] which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called:

Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within substantial powers of management:

Provided further that a managing director of a company shall exercise his powers subject to the superintendence, control and direction of its Board of directors.]

Sec. 2(27) "member", in relation to a company, does not include a bearer of a share-warrant of the company issued in pursuance of section 114.

Sec. 2(29A) "net worth" means the sum total of the paid-up capital and free reserves after deducting the provisions or expenses as may be prescribed.

Explanation— for the purposes of this clause, "free reserves" means all reserves created out of the profits and share premium account but does not include reserves created out of revaluation of assets, write back of depreciation provisions and amalgamation.

Sec. 2(30) "officer" includes any director, manager or secretary, or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act.

Sec. 2(31) "officer who is in default", in relation to any provision referred to in section 5, has the meaning specified in that section.

Sec 2(31AA) "operating agency" means any group of experts consisting of persons having special knowledge of business or industry in which the sick industrial undertaking is engaged and includes public financial institution, State level institution, scheduled bank or any other person as may be specified as the operating agency by the Tribunal.

Sec. 5. Meaning of "officer who is in default" — For the purpose of any provision in this Act which enacts that an officer of the company who is in default shall be liable to any punishment or penalty, whether by way of imprisonment, fine or otherwise, the expression "officer who is in default" means all the following officers of the company, namely –

the managing director or managing directors;

the whole-time director or whole-time directors;

the manager;

the secretary;

any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act;

any person charged by the Board with the responsibility of complying with that provision:

Provided that the person so charged has given his consent in this behalf to the Board;

where any company does not have any of the officers specified in clauses (a) to (c), any director or directors who may be specified by the Board in this behalf or where no director is so specified, all the directors:

Provided that where the Board exercises any power under clause (f) or clause (g), it shall, within thirty days of the exercise of such powers, file with the Registrar a return in the prescribed form.

Sec. 2(36) "prospectus" means [any document described or issued as a prospectus and includes any] notice, circular, advertisement or other document [inviting deposits from the public or] inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate;

Sec. 2(38) "public holiday" means a public holiday within the meaning of the Negotiable Instruments Act, 1881 (26 of 1881):

Provided that no day declared by the Central Government to be a public holiday shall be deemed to be such a holiday, in relation to any meeting, unless the declaration was notified before the issue of the notice convening such meeting;

Sec. 2(41) "relative" means, with reference to any person, any one who is related to such person in any of the ways specified in section 6, and no others.

Sec. 6. Meaning of "relative" — A person shall be deemed to be a relative of another if, and only if,

they are members of a Hindu Undivided Family; or

they are husband and wife; or

the one is related to the other in the manner indicated in Schedule IA.


1. Father 2. Mother (including step mother) 3. Son (including step son) 4. Son’s wife 5. Daughter (including step daughter) 6. Father’s father 7. Father’s mother 8. Mother’s mother 9. Mother’s father 10. Son’s son 11. Son’s son’s wife 12. Son’s daughter 13. Son’s daughter’s husband 14. Daughter’s husband 15. Daughter’s son 16. Daughter’s son’s wife 17. Daughter’s daughter 18. Daughter’s daughter’s husband 19. Brother (including step brother) 20. Brother’s wife 21. Sister (including step sister) 22. Sister’s husband

Sec. 2(45AA) "securities" means securities as defined in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), and includes hybrids;

Sec. 2(h) of Securities Contracts (Regulation) Act defines "securities" as follows:

"Securities" include —

shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in or of any incorporated company or other body corporate.

(ia) derivative

(ib) units or any other instrument issued by any collective investment scheme to the investors in such schemes.

(ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

(id) units or any other such instrument issued to the investors under any mutual fund scheme.

Government securities.

(iia) such other instruments as may be declared by Central Government to be securities; and

rights or interest in securities.

Sec. 2(46A) "shares with differential rights" means a share that is issued with differential rights in accordance with the provisions of Section 86).

Sec. 2(46AA) "sick industrial company" means an industrial company which has —

the accumulated losses in any financial year equal to fifty per cent or more of its average net worth during four years immediately preceding such financial year; or

failed to repay its debts within any three consecutive quarters on demand made in writing for its repayment by a creditor or creditors of such company.

Sec. 2(48) "total voting power" , in regard to any matter relating to a body corporate, means the total number of votes which may be cast in regard to that matter on a poll at a meeting of such body, if all the members thereof and all other persons, if any, having a right to vote on that matter are present at the meeting, and cast their votes.


Sec. 4A Public Financial Institutions —

Each of the financial institutions specified in this sub-section shall be regarded, for the purposes of this Act, as a public financial institution, namely —

the Industrial Credit and Investment Corporation of India Limited, a company formed and registered under the Indian Companies Act, 1913 (7 of 1913);

the Industrial Finance Corporation of India, established under section 3 of the Industrial Finance Corporation Act, 1948 (15 of 1948);

the Industrial Development Bank of India, established under section 3 of the Industrial Development Bank of India Act, 1964 (18 of 1964);

the Life Insurance Corporation of India, established under section 3 of the Life Insurance Corporation Act, 1956 (31 of 1956);

the Unit Trust of India, established under section 3 of the Unit Trust of India Act, 1963 (52 of 1963);

the Infrastructure Development Finance Company Limited, a company formed and registered under this Act.

Subject to the provisions of sub-section (1), the Central Government may, by notification in the Official Gazette, specify such other institution as it may think fit to be a public financial institution:

Provided that no institution shall be so specified unless —

it has been established or constituted by or under any Central Act, or

not less than fifty-one per cent of the paid-up share capital of such institution is held or controlled by the Central Government.

Sweat Equity Shares as referred to in section 79A, is defined in Explanation II of that section as follows:

— For the purposes of this Act, the expression "sweat equity shares" means equity shares issued by the company to employees or directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

Small shareholders: as referred to in Sec. 252 is defined in explanation to that section as follows:

— For the purpose of this sub-section "small shareholders" means a shareholder holding shares of nominal value of twenty thousand rupees or less in a public company to which this section applies.

Office or place of profit: as referred to in Sec. 314(3) is defined as follows:

Any office or place shall be deemed to be an office or place of profit under the company [within the meaning of this section] —

in case the office or place is held by a director, if the director holding it [obtains from the company anything] by way of remuneration over and above the remuneration to which he is entitled as such director, whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise;

in case the office or place is held by an individual other than a director or by any firm, private company or other body corporate, if the individual, firm, private company or body corporate holding it [obtains from the company anything] by way of remuneration whether as salary, fees, commission, perquisites, the right to occupy free of rent any premises as a place of residence, or otherwise.
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