The Companies Act defines “books of account” as records covering company income, expenditure, sales, purchases, assets, liabilities, and prescribed cost items, requiring at least eight years of preservation and permitting physical or electronic formats. A “charge” signifies an interest or lien on company assets as security, encompassing various encumbrances like mortgages and pledges, with non-registration incurring penalties for the company and officers. “Control” includes the ability to appoint majority directors or direct management and policy, whether through shareholding, agreements, or other means, and can be de jure (legal) or de facto (actual influence). A “debenture” is an instrument evidencing debt, which may or may not involve a charge, and generally excludes instruments regulated by the Reserve Bank of India or those with voting rights. “Financial statements” comprise the balance sheet, profit and loss account, cash flow statement, statement of changes in equity, and explanatory notes, with consolidation required for subsidiaries unless exempted. The “financial year” typically ends on March 31st, though exceptions exist for companies with foreign holding/subsidiary relationships requiring a different year for consolidation, subject to government approval. A “holding company” controls a subsidiary by governing board composition or exercising majority voting power, noting that shares held in a fiduciary capacity are excluded for this determination. A “subsidiary company” is controlled by a holding company based on board composition control or majority voting power, with restrictions on layers of subsidiaries and shareholding in the holding company. “Key managerial personnel” include roles like CEO, MD, company secretary, and CFO, with mandatory appointments for certain company types and restrictions on holding multiple offices. A “managing director” is a director vested with substantial management powers via articles, agreement, or resolution, excluding routine administrative tasks. A “member” includes memorandum subscribers, those agreeing in writing and entered in the register, and beneficial owners in depository records; the term differs from “shareholder” as entry in the register is key to membership. An “officer who is in default” encompasses whole-time directors, KMPs, specified directors, persons under authority, those whose advice the board follows, and directors aware of or involved in contraventions, with specific protections for independent and non-executive directors. A “private company” restricts share transfer, limits members (with exceptions), and prohibits public security invitations, while a “public company” is defined as not being private and may have a minimum paid-up capital, with subsidiaries of public companies deemed public. A “promoter” is a person named in a prospectus or annual return, controls company affairs, or whose advice the board follows, excluding those acting solely professionally. A “related party” includes directors, KMPs, their relatives, and entities influenced or controlled by them, as well as holding, subsidiary, and associate companies, among others.
Chart of Key Definitions under Companies Act, 2013
| Particulars | Definition as per Act | Remarks | ||||||||||||||||
| 2 (13) books of account | includes records maintained in respect of—
(i) all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place; (ii) all sales and purchases of goods and services by the company; (iii) the assets and liabilities of the company; and (iv) the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section;
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All books accounts to be preserved for atleast 8 years.
· Licenses and approvals, contracts etc not included in the definition · Can be maintained in physical or electronic form (Rule 3) |
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| 2(16) “charge”
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means an interest or lien created on the property or assets of a company or any of its undertakings or both as security and includes a mortgage;
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Covering all types of encumbrances on Company’s property, like pledge of shares, vehicle hypothecation etc by the Company.
· Includes a Lien. · Lien is not defined in the Companies Act, but the Contract Act refers to Bankers Lien or General Lien. · 170 and 171 of the Contract Act contemplates Bailee’s Lien and Bankers General Lien. · In case of exercise of such lien, company will have to create a charge as per Section 77 of Companies Act 2013. Penalties in case of non- compliances For failure to register a charge under Section 77: Company: Fine between ₹1,00,000 and ₹10,00,000 Every officer in default: Imprisonment up to 6 months, or Fine between ₹25,000 and ₹1,00,000, or Both |
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| 2 (27) “control”* | shall include the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreements or voting agreements or in any other manner; | A Company would be considered to be controlled by other entities in 2 cases,
1. When first entity has right to appoint directors or control policy decisions by virtue of shareholding. 2 Secondly when above right is flowing from any agreement. For Ex. · Company A holds 49 % of paid Share Capital B. However, has invested additional capital in form of NCDs. · Pursuant to agreement, Company A gets right to appoint majority of directors. |
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| 2(30) Debenture
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includes debenture stock, bonds or any other instrument of a company evidencing a debt, whether constituting a charge on the assets of the company or not;
Provided that— (a) the instruments referred to in Chapter III-D of the Reserve Bank of India Act, 1934; and (b) such other instrument, as may be prescribed by the Central Government in consultation with the Reserve Bank of India, issued by a company, shall not be treated as debenture; |
· For it to be considered as debenture it need not necessarily be named as such. Even a bond which evidences a debt could also be considered as a debenture.
· Any instrument cannot be considered to be a security, one has to look at the intent whether the instrument was representing commercial loan or was it issued for investment and trading. Money market instruments (CP) are regulated by RBI · Debentures cannot be issued with voting rights. |
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| 2(40) Financial statement
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in relation to a company, includes—
(i) a balance sheet as at the end of the financial year; (ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year; (iii) cash flow statement for the financial year; (iv) a statement of changes in equity, if applicable; and (v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):(i) |
As the term has been defined inclusively in the Act, the financial statement prepared for interim periods(quarterly) as required under listing regulations also comes within the ambit of the definition. (As per Ramaiya)
· If a company has one or more subsidiaries it will have to prepare a consolidated financial statement of the company and of all the subsidiaries in the form provided in the new schedule III of Companies Act, 2013. · Cash Flow statement is not mandatory for small companies, OPCs & Dormant companies · The FS shall be laid in the AGM within six months form the end of the financial year. · A company will disclose the list of subsidiaries or associates or joint ventures, which have not been consolidated along with the reasons for non consolidation. |
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| 2(41) Financial year
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in relation to any company or body corporate, means the period ending on the 31st day of March every year, and where it has been incorporated on or after the 1st day of January of a year, the period ending on the 31st day of March of the following year, in respect whereof financial statement of the company or body corporate is made up:
Provided that where a company or body corporate, which is a holding company or a subsidiary or associate company of a company incorporated outside India and is required to follow a different financial year for consolidation of its accounts outside India, the Central Government may, on an application made by that company or body corporate in such form and manner as may be prescribed, allow any period as its financial year, whether or not that period is a year |
The rationale for mandating a uniform financial year under the Companies Act, 2013 is to bring alignment with the provisions of the Income Tax Act, 1961, which also prescribes a uniform financial year
While companies under the Sembcorp group may opt for a different financial year based on global consolidation requirements (subject to necessary approvals under the Companies Act, 2013), such deviation is not permissible for Income Tax filings. · In the different provisions of the Companies Act, 2013, if the word year is used, then it’s generally referred to as Calendar Year. For example, Section 173 provides that every company shall hold at least four board meetings each year. Here, year means calendar year and the same is provided in the Guidance Note issued by the ICSI. · The company shall hold its First Annual General Meeting within Nine months from the end of the financial year. · Annual General Meeting of different companies based on the date of their incorporation.
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| 2(46) Holding company
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in relation to one or more other companies, means a company of which such companies are subsidiary companies;
[Explanation.—For the purposes of this clause, the expression “company” includes any body corporate. |
The explanation was added to include the foreign companies under the purview.
· If company B is a subsidiary of company A, and company C is a subsidiary of company B than company C is a subsidiary of company A. Further, if company D is a subsidiary of company C, than company D will be a subsidiary to company B and consequently to company A. · The shares held by a company or power exercisable by it in another company in a ‘fiduciary capacity’ shall not be counted for the purpose of determining the holding subsidiary relationship as clarified by General Circular No. 20/2013, dated 27.12.2013. |
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| 2(87) Subsidiary company or subsidiary
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in relation to any other company (that is to say the holding company), means a company in which the holding company—
(i) controls the composition of the Board of Directors; (ii) exercises or controls more than one-half of the or total voting power either at its own or together with one or more of its subsidiary companies: Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed. Explanation.—For the purposes of this clause,— (a) a company shall be deemed to be a subsidiary company of the holding company even if the control referred to in sub-clause (i) or sub-clause (ii) is of another subsidiary company of the holding company (b) the composition of a company’s Board of Directors shall be deemed to be controlled by another company if that other company by exercise of some power exercisable by it at its discretion can appoint or remove all or a majority of the directors; (c) the expression “company” includes any body corporate; ##(d) “layer” in relation to a holding company means its subsidiary or subsidiaries; |
‘At its discretion’ means that it does not require the ‘consent or concurrence’ of any other person.
· A subsidiary company is prohibited under Section 19 of CA 2013 from holding shares in its holding company with certain exceptions being subsidiary holding shares as a legal representative.
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| 2(51) Key managerial personnel | in relation to a company, means—
(i) the Chief Executive Officer or the managing director or the manager; (ii) the company secretary; (iii) the whole-time director; (iv) the Chief Financial Officer; (v) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and (vi) such other officer as may be prescribed |
Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel i.e. MD or CEO or Manager and in their absence a WTD, CS and CFO.
· Every private company which has a paid-up share capital of ten crore rupees or more shall have a whole-time company secretary. · Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time. · The CLC Committee, 2015 was of the view that whole-time key managerial personnel may hold office in more than one subsidiary company. However, it is advised that the KMP should not hold office in more than one subsidiary company. · The KMPs shall be appointed or removed in a duly called BM only – Section 179(3).
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| 2(54) Managing director | means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
Explanation.—For the purposes of this clause, 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 the 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 the substantial powers of management; |
A Director who, by virtue of –
a. the articles b. an agreement with the company (Ex. An agreement with the holding company to control the affairs of the subsidiary company shall not be covered herein) c. resolution passed in its GM/BM entrusted with substantial powers of management · A person need not necessarily be designated as MD, as long as he is a director and wielding the powers of MD – He would be deemed to be a MD · A managing director can tender his resignation in the capacity of managing director and continue to be the director of the company but whereas once a director has tendered his resignation he cannot be deemed to continue as the managing director of the company. |
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| 2(55) Member
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in relation to a company, means—
(i) the subscriber to the memorandum of the company who shall be deemed to have agreed to become member of the company, and on its registration, shall be entered as member in its register of members; (ii) every other person who agrees in writing to become a member of the company and whose name is entered in the register of members of the company; (iii) every person holding shares of the company and whose name is entered as a beneficial owner in the records of a depository; |
· The term ‘member’ is different from that of ‘shareholder’. A shareholder can be shareholder by acquiring shares but will not be member till his name entered in the Register of Members of the company. This definition is relaxed in case of section 244 where even a shareholder is treated as a ‘member’ · In case of a company limited by guarantee and not having share capital the person who provides the guarantee will become its member as soon as his name is entered in the Register of Members · A person whose name is entered in the Register of Member shall be treated as member irrespective of whether he holds the beneficial interest or not. (in our wholly owned subsidiary companies, we have nominee shareholders who do not hold any beneficial interest in the shares. However, they are still counted as members of the company) |
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| 2(60) Officer who is in default
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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 penalty or punishment by way of imprisonment, fine or otherwise, means any of the following officers of a company, namely:—
(i) whole-time director; (ii) key managerial personnel; (iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified; (iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default; (v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity; (vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance; (vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer; |
· This only covers the defaults under Companies Act, 2013 only. · where there is failure to comply with a statutory provision and the mere failure is made punishable, it is a clear indication that mens rea is ruled out. · The term ‘any person’ under point V covers non individuals also. · Section 149(12) of the Act carves out a safe harbour for independent directors (“IDs”); and non-executive directors who do not qualify as promoters or key managerial personnel of the company (“NEDs”). It stipulates that they shall only be held liable “in respect of such acts of omission or commission by a company which had occurred with his knowledge, attributable through Board processes, and with his consent or connivance or where he had not acted diligently |
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| 2(68) Private company
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means a company having a minimum paid-up share capital as may be prescribed, and which by its articles],—
(i) restricts the right to transfer its shares; (ii) except in case of One Person Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that— (A) persons who are in the employment of the company; and (B) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and (iii) prohibits any invitation to the public to subscribe for any securities of the company; |
· The first restriction talks only about the shares
· The third restriction talks about all securities |
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| 2(71) “Public company”
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means a company which—
(a) is not a private company [and]; (b) has a minimum paid-up share capital, as may be prescribed: Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles ; |
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| 2(69) “Promoter”
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means a person—
(a) who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92; or (b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or (c) in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act: Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity; (Professional Capacity: Not defined in the Act. Hence dictionary meaning: “Professional” means relating to a person’s work, especially work that requires special training.) |
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| 2(76) “Related party” | with reference to a company, means—
(i) a director or his relative; (ii) a key managerial personnel(also includes a person if designated) or his relative; (iii) a firm, in which a director, manager or his relative is a partner; (iv) a private company in which a director or manager 1[or his relative] is a member or director; (v) a public company in which a director or manager is a director and holds along with his relatives, more than two per cent of its paid-up share capital; (vi) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager; (vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity; (viii) any body corporate which is— (A) a holding, subsidiary or an associate company of such company; (B) a subsidiary of a holding company to which it is also a subsidiary; or (C) an investing company or the venturer of the company; Explanation.—For the purpose of this clause, “the investing company or the venturer of a company” means a body corporate whose investment in the company would result in the company becoming an associate company of the body corporate. (ix) such other person as may be prescribed; (a director other than an independent director] or key managerial personnel of the holding company or his relative with reference to company, shall be deemed to be a related party |
Control in a Corporate Context
In the realm of corporate governance, control is generally divided into two primary categories: de jure control and de facto control. These two concepts help distinguish between authority granted by legal statutes and influence that arises through other means.
As interpreted from legal lexicons like Black’s Law Dictionary, the term de jure implies authority that exists by virtue of law—legally sanctioned and formally acknowledged. Conversely, de facto denotes control that may not be legally conferred but exists and functions in reality, often shaping decisions or outcomes in practice.
Nature of De Jure Control
De jure control arises from express legal provisions. For instance, under corporate law, shareholders are empowered to appoint directors—a power enshrined in statutory provisions like Section 152(2) of the Companies Act. This clause enables shareholders to elect directors through a voting process during general meetings. When a person or group can influence the company’s board composition through such lawful means, that influence is categorized as de jure control. It is legally authorized and procedurally structured.
Nature of De Facto Control
On the other hand, de facto control emerges not through direct legal assignment, but through influence acquired via contractual rights or practical circumstances. A typical example includes shareholder agreements that allow certain parties to participate in significant policy or managerial decisions. Although these rights do not stem from legislation, they are often enforceable in practice and significantly shape how the company is run. Thus, when influence is exercised through such non-statutory arrangements, it is recognized as de facto control.
Judicial Perspective on Control
The Indian judiciary has acknowledged both forms of control in interpreting the legal scope of the term. A notable instance is the Supreme Court judgment delivered on 4th October 2018 in the case of ArcelorMittal India Private Limited v. Satish Kumar Gupta & Others. The Court held that:
“Control is interpreted in a dual sense. The first relates to legal (de jure) control, such as the right to appoint a majority of directors. The second is actual (de facto) control, which may exist even if not formally granted by law. If any individual or group, directly or indirectly, can significantly steer the company’s policy or management decisions, such influence amounts to control.”
The court further differentiated between management decisions—pertaining to day-to-day operations—and policy decisions—which involve long-term strategic direction. Whether influence arises from legal ownership, contractual rights, or informal arrangements, the determining factor is the ability to shape decisions.
Final Thoughts
To sum up, the framework of control under corporate law is not restricted solely to legal entitlements. It also embraces situations where practical influence exists without statutory backing. De jure control is rooted in law and procedure—like appointing directors via majority voting. De facto control, in contrast, comes into play where parties exercise sway over company affairs through agreements or indirect influence. The comprehensive definition ensures all routes of exercising control—legal or practical—are taken into account.
Can a Veto Right Constitute Control?
This question has also been judicially tested. In the matter of Subhkam Ventures (I) Pvt. Ltd. vs SEBI (2010), the ruling made it clear that:
“A mere ability to block or prevent certain actions does not in itself constitute control. Control implies a proactive capacity to influence or direct decisions, not just obstruct them.”
In essence, negative rights or veto powers that do not translate into affirmative decision-making authority cannot be equated with control.
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