Section 192 of CA 2013 : Section 192: Restriction On Non-Cash Transactions Involving Directors

Explanation using Example

Imagine a company called "Tech Innovations Ltd." where Mr. Smith is a director. Mr. Smith owns a patent that Tech Innovations Ltd. is interested in acquiring. According to Section 192 of The Companies Act, 2013, Tech Innovations Ltd. cannot simply acquire this patent from Mr. Smith in exchange for shares in the company (consideration other than cash) without following a certain process.

First, Tech Innovations Ltd. must call a general meeting of its shareholders to get their approval. The notice of this meeting must include details about the patent and its value, which must be assessed by a registered valuer. If Mr. Smith is also a director of the holding company of Tech Innovations Ltd., then the holding company's shareholders must also approve this transaction in their general meeting.

If Tech Innovations Ltd. were to ignore this requirement and proceed with the acquisition without shareholder approval, the arrangement would be voidable. This means the company could choose to cancel the transaction, unless the patent cannot be returned and Tech Innovations Ltd. has been compensated for any losses, or if a third party has already purchased the patent in good faith without knowing about the violation of the law.