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STUDY MATERIAL, EXECUTIVE PROGRAMME, , COMPANY LAW, MODULE 1, PAPER 2, , i
Page 2 : © THE INSTITUTE OF COMPANY SECRETARIES OF INDIA, , TIMING OF HEADQUARTERS, Monday to Friday, Office Timings – 9.00 A.M. to 5.30 P.M., Public Dealing Timings, Without financial transactions – 9.30 A.M. to 5.00 P.M., With financial transactions – 9.30 A.M. to 4.00 P.M., Phones, 011-41504444, 45341000, Fax, 011-24626727, Website, www.icsi.edu, E-mail,
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Page 3 : EXECUTIVE PROGRAMME, COMPANY LAW, In view of increasing emphasis on adherence to norms of good corporate governance, Company Law assumes, an added importance in the corporate legislative milieu, as it deals with structure, management, administration, and conduct of affairs of Companies. Paper on Company Law is divided into three parts:- Part I deals with, Company Law, Principles & Concepts, Part II deals with Company Administration and Meetings – Law and, Practices and Part III deals with Company Secretary as a Profession., , Part I emphasises on principles and legal fundamentals with respect to the raising of capital through various, sources, allotment of securities, maintaining of records, disclosure and transparency, members and their, shareholding, concerns of stakeholders. This also guides on the secretarial and strategic work involved in above, stated matters., , Part II relates to the fundamental role that a board of directors play in supporting, guiding the management, team in generating long term added value for the shareholders and society at large and to account to the, shareholders for companies long term performance. Right decision making is important for company’s growth,, board meetings leads to greater strategic decision making whereas the shareholder meetings leads to greater, transparency and accountability. Company secretary plays a vital role in preparation, convene and conduct of, the meetings., A key expectation of members of self-governing professions is that they accept legal and ethical responsibility, for their work and hold the interest of the public and society as paramount. One of the essential traits of a, profession is to be subject to strict codes of conduct enshrining rigorous ethical and moral obligations. In a self, regulated regime, Company Secretary subjected to a strict code of conduct is looked upon by the regulators, as, ethical and trustworthy professional whose professional judgment and competence has made a mark in the, corporate sector. It is a moral duty of all of us as Company Secretaries to strictly abide by the Code of Conduct, laid down by the Council of the Institute. Part III relates to conduct of company secretaries, discusses brief, about Secretarial Standards Board and future of professional practice i.e. mega firms., This study material is published to aid the students in preparing the paper on Company Law for Executive, Programme. It is part of the educational kit and takes the students step by step through each phase of preparation, emphasizing key concepts, principles, pointers and procedures. Company Secretaryship being a professional, course, the examination standards are set very high, with focus on knowledge of concepts, their application,, procedures and case laws, for which sole reliance on the contents of this study material may not be enough. This, study material may, therefore, be regarded as the basic material and must be read along with the Bare Acts,, Rules, Regulations, Case Law., , The legislative changes made upto July, 2021 have been incorporated in the study material. The students to be, conversant with the amendments to the laws made upto six months preceding the date of examination. It may, happen that some developments might have taken place during the printing of the study material and its supply, to the students. The students are therefore advised to refer to the updations at the Regulator’s website,, Supplement relevant for the subject issued by ICSI and ICSI Journal Chartered Secretary and other publications, for updation of study material. In the event of any doubt, students may contact the Directorate of Academics at,
[email protected]., Although due care has been taken in publishing this study material, the possibility of errors, omissions and/or, discrepancies cannot be ruled out. This publication is released with an understanding that the Institute shall, not be responsible for any errors, omissions and/or discrepancies or any action taken in that behalf., , Should there be any discrepancy, error or omission noted in the study material, the Institute shall be obliged if, the same is brought to its notice for issue of corrigendum in the e-bulletin ‘Student Company Secretary’., iii
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EXECUTIVE PROGRAMME – COMPANY LAW, This study material is divided into three parts with following weightage of marks:, Part I - Company Law, Principles & Concepts (50 Marks), Part II - Company Administration and Meetings – Law and Practices (40 Marks), Part III- Company Secretary as a Profession (10 Marks), , PART I- COMPANY LAW, PRINCIPLES & CONCEPTS, , Company Law is the collection of various legal aspects that govern the formation, running and winding up of a, Company. The Companies Act 2013 is about improving corporate governance which revolves around the Board, of Directors, Senior Management of the Company, their roles, responsibility and accountability, Rights and, equitable treatment of stakeholders, prompt disclosures, transparency, the legal and regulatory compliances, and appropriate risk management measures to protect and enhance interest of all stakeholders., , This part of the study deals with the evolution of company law whether indian or international, sources of, funding the company, shareholders, shareholding, responsibility & accountability of the company with respect, to transparency and disclosures, secretarial and strategic work involved., Company Secretaries, over a period of time, have developed themselves as professionals having core competence, in compliances and corporate governance, moving from their traditional role of Company Secretary of the, Company. Company law is the core area of practice for the company secretary professionals whether in practice, or employment. This part imparts expert knowledge of the various provisions of the Companies Act, its, schedules, rules, notifications, circulars including secretarial practice & case laws., PART II - COMPANY ADMINISTRATION AND MEETINGS – LAW AND PRACTICES, , Company directors are responsible for the management of their companies. They must act in a way most likely, to promote the success of the business and benefit its shareholders. The board of directors has an essential role, in company governance and setting the strategic direction of the business. The right board of directors brings, your company specialist knowledge and expertise in key business areas, such as management, finance or, technology. They also have responsibilities to the company’s employees, its trading partners, and the state., Companies use board meetings to create and improve key business strategies. Hence from company secretary, point of view meeting preparation is vital: from setting up right papers, circulating meeting papers in advance, to providing all kinds of supplementary support to the meeting. A collection of resources on company, administration including company filing, company records, company meetings and the responsebilities of, company secretaries., •, •, , The company secretary acts as the chief governance officer of the company, and shares various, responsibilities with the directors under the Companies Act., , According to Section 205 of the Companies Act, 2013 the Company Secretary shall discharge following, functions and duties, this is the first time that the duties of the company secretary have been specified in, the company law:, »», , To report to the Board about the compliance with the provisions of this Act., , »», , To provide to the directors of the company the guidance they require in discharging their duties,, responsibilities and powers., , »», »», , To ensure that the company complies with the applicable secretarial standards., , To facilitate the convening of meetings and attend Board, committee and general meetings and maintain, the minutes of these meetings., iv
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»», , To obtain approvals from the Board, general meeting, the government and such other authorities as, required under the provisions of the Act., , »», , To assist and advise the Board in ensuring good corporate governance and in complying with the, corporate governance requirements and best practices., , »», , To assist the Board in the conduct of the affairs of the company., , PART III- COMPANY SECRETARY AS A PROFESSION, , A Professional is a person who has completed formal education and training in a profession. A Professional is, subject to strict codes of conduct enshrining rigorous ethical and moral obligations. A Professional is an, interface between business and society. Professionals are expected to conduct themselves in such a manner so, as to uphold the grace, dignity and professional standing of their respective institutes. Any commitment to, complete a particular assignment as agreed by the person himself should be completed in a professional, manner. This section gives an overview of the code of conduct that applies on the professional conduct of, company secretaries, discusses brief about Secretarial Standards Board and future of professional practice i.e., mega firms., , v
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EXECUTIVE PROGRAMME, MODULE 1, PAPER 2, COMPANY LAW (MAX MARKS 100), Syllabus, Objective:, To impart expert knowledge of the various provisions of the Companies Act, its schedules, rules, notifications,, circulars including secretarial practice, case laws and Secretarial Standards., Detailed Contents, , Part I : Company Law, Principles & Concepts (50 Marks), 1., , 2., , 3., , 4., , 5., , 6., , 7., 8., , 9., , Introduction to Company Law: Jurisprudence of Company Law; Meaning, Nature, Features of a company;, Judicial acceptance of the company as a separate legal entity; Concept of Corporate Veil, Applicability of, Companies Act; Definitions and Key Concepts., , Share and Share Capital: Meaning and types of Capital; Concept of issue and allotment; Issue of Share, certificates; Further Issue of Share Capital; Issue of shares on Private and Preferential basis; Rights issue, and Bonus Shares; Sweat Equity Shares and ESOPs; Issue and Redemption of preference shares; Transfer, and Transmission of securities; Buyback of securities; dematerialization and rematerialization of shares;, Reduction of Share Capital., Members and Shareholders: How to become a member; Register of Members; Declaration of Beneficial, Interest; Rectification of Register of Members; Rights of Members; Variation of Shareholders’ rights;, Shareholders Democracy; Shareholder agreement, Subscription Agreements, Veto powers., , Debt Capital and Deposits: Issue and redemption of Debentures and Bonds; creation of security;, Debenture redemption reserve; debenture trust deed; conversion of debentures into shares; Overview of, Company Deposits., Charges: Creation of Charges; Registration, Modification and Satisfaction of Charges; Register of Charges;, Inspection of charges; Punishment for contravention; Rectification by Central Government in Register of, charges., , Distribution of Profits – Dividend: Profit and Ascertainment of Divisible Profits; Declaration and, Payment of Dividend; Unpaid Dividend Account; Investor Education and Protection Fund; Right to, dividend; rights shares and bonus shares to be held in abeyance., Corporate Social Responsibility: Applicability of CSR; Types of CSR Activities; CSR Committee and, Expenditure; Net Profit for CSR; Reporting requirements., , Accounts, Audit and Auditors: Books of Accounts; Financial Statements; National Financial Reporting, Authority; Auditors-Appointment, Resignation and Procedure relating to Removal, Qualification and, Disqualification; Rights, Duties and Liabilities; Audit and Auditor’s Report; Cost Audit; Secretarial Audit;, Internal Audit; Change in Financial Year., , Transparency and Disclosures: Board’s Report; Annual Return; Annual Report; Website disclosures;, Policies; Active; Disclosure in Financial Statement., , 10. An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party, Transactions., vi
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11. Registers and Records: Maintenance and Disposal., , 12. An Overview of Corporate Reorganization: Introduction of Compromises, Arrangement and, amalgamation, Oppression and Mismanagement, Liquidation and winding-up; Overview of Registered, Valuers; Registration Offices and Fees; Companies to furnish information and statistics., 13. An Introduction to MCA 21 and Filing in XBRL., , 14. Global Developments: Global Trends and Developments in Company Law. Case Laws, Case Studies and, Practical Aspects., PART II: Company Administration and Meetings – Law and Practices (40 Marks), , 15. Board Constitution and its Powers: Board composition; Restriction and Powers of Board; Board, Committees- Audit Committee, Nomination and Remuneration Committee, Stakeholder relationship, Committee and other Committees., 16. Directors: DIN requirement, Types of Directors; Appointment/ Reappointment, Disqualifications,, Vacation of Office, Retirement, Resignation and Removal, and Duties of Directors; Rights of Directors;, Loans to Directors; Disclosure of Interest; Declaration by the Directors; Director’s KYC., , 17. Appointment and Remuneration of Key Managerial Personnel: Appointment of Key Managerial, Personnel; Managing and Whole-Time Directors, Manager, Chief Executive Officer and Chief Financial, Officer; Company Secretary – Appointment, Role and Responsibilities, Company Secretary as a Key, Managerial Personnel; Functions of Company Secretary; Officer who is in default; Remuneration of, Managerial Personnel Declaration by the Directors., , 18. Meetings of Board and its Committees: Frequency, Convening and Proceedings of Board and Committee, meetings; Agenda Management; Meeting Management; Resolution by Circulation; Types of Resolutions;, Secretarial Standard – 1; Duties of Company Secretaries before, during and after Board/Committee, Meeting., 19. General Meetings: Annual General Meeting; Extraordinary general Meetings; Other General Meetings;, Types of Resolutions; Notice, Quorum, Poll, Chairman, Proxy; Meeting and Agenda; Process of conducting, meeting; Voting and its types-vote on show of hands, Poll, E-Voting, Postal ballot; Circulation of Members’, Resolutions etc.; Signing and Inspection of Minutes; Secretarial Standard-2; Duties of Company Secretaries, before, during and after General Meeting., 20. Virtual Meetings: Technological Advancement in conduct of Board, Committee & General Meetings., Part III: Company Secretary as a Profession (10 Marks), 21. Legal Framework Governing Company Secretaries: The Company Secretaries Act, 1980 along with, Rules and Regulations; Disciplinary Mechanism and Penalties for Professional Misconduct; Ethics in, Profession, Professional Liabilities., , 22. Secretarial Standards Board: Secretarial Standards Board of ICSI; Process of making Secretarial, Standards; Need and Scope of Secretarial Standards., , 23. Mega Firms: Concept of mega firms; Benefits of mega firms, Eligibility criteria for partner, Agreement, between partners; management of Firm; Collective multidisciplinary expertise; Public Relation and Brand, Building., , vii
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LESSON WISE SUMMARY, COMPANY LAW, Lesson 1: Introduction to Company Law, A Company is a legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply, to the regulators for an independent organization to be created, which can then focus on pursuing set objectives,, and empowered with legal rights which are usually only reserved for individuals, such as to sue and be sued,, own property, hire employees or loan and borrow money. These distinct fundamental legal features and, characteristics of a company makes it more advantageous over other forms of business like sole proprietorship,, Hindu undivided family, partnership, Limited Liablility Partnership, etc. The Lesson gives an insight of the, distinct features of the company and advantages otherwise., A company is regarded as a distinct legal entity and is said to cast a veil between the company and its human, constituents, ‘the corporate veil’. This veil can be pierced for the purpose of imposing some form of liability on, a company’s shareholders and / or directors. There are many court cases and exceptions to this which have, been discussed in detail in this Lesson., , To understand a piece of legislation it is important to understand what was the need of this legislation?, what, practices were being followed?, what were the expectation of the stakeholders?, what led to creation of, legislation?, Company Legislation in India owes its origin to the English Company Law. The Companies Acts passed from, time to time in India have been following the English Companies Acts, with certain modifications. Even the, Companies Act, 1956, was based on the U.K. Companies Act, 1948., , The first legislative enactment for registration of Joint Stock Companies n India was passed in the year 1850, which was based on the English Companies Act, 1844. This Act recognised companies as distinct legal entities, but did not introduce the concept of limited liability. The concept of limited liability, in India, was recognised for, the first time by the Companies Act, 1857 closely following the English Companies Act, 1856 in this regard. Till, 1956, the business companies in India were regulated by this Act of 1913. Based on Bhabha committee report, Companies Act 1956 was introduced., As the business evolved need was felt to introduce the Company Law in a fresh manner considering the changes, in the systems and procedures worldwide. Companies Act, 2013 was passed after decade long deliberations, with stakeholders., This Lesson gives an overview of the developments of company law and discusses the features of a company, form of business., Lesson 2: Share and Share Capital, , Importantly share capital refers to the funds that a company raises in exchange for issuing an ownership, interest in the company in the form of shares. “Share capital” may also describe the number and types of shares, that compose a company’s share structure. There are two general types of share capital, which are equity and, preference shares., For running a company it is important to understand the options available to fund the projects of the company., The Company Law permits various options which can be availed to generate funds. There are various ways to, raise capital which include preferential allotment, employee stock option, issue of rights shares and issue of, shares with differential voting rights. It involves various approvals, disclosures, filings, maintenance of records,, etc. which are prescribed under Chapter IV of the Companies Act, 2013 read with Companies (Share Capital and, Debentures) Rules, 2014., There are several compliances that need be done pre and post the securities are issued such as issue of share, certificates, dematerialization, register of members, allotment of securities. The Lesson also introduces to the, basic modalities of issue of securities and allotment thereunder., viii
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The shares of a company are freely transferable. The shareholding can either be maintained in physical form or, demat form. The law is very clear with the procedure to be followed to transfer the shares, still there remain, many practical issues in transfer of shares. The law also makes a provision for rectification of register of, members. This Lesson gives an insight on this., Buy back of shares is not reduction of capital. Buy-Back is a corporate action in which a company buys back its, shares from the existing shareholders usually at a price higher than market price. Reduction of capital by a, company is always subject to confirmation by the Tribunal on an application made by the company., As a prospected company secretary understanding of processes involved in raising of capital, issuance of, securities, reduction of share capital, buy-back is of utmost importance. This Lesson provides an overview on, the subject covering both theory and practical aspects., Lesson 3: Members and Shareholders, , Members may come and members may go but the company goes on for ever., , A person whose name is entered in the register of members of a company becomes a member of that company., The register includes every single detail about the member like name, address, occupation, date of becoming a, member, etc. It also includes every person who holds company’s shares and whose name is entered as the, beneficial owners in depository records. An individual who owns the share of a public or a private company is, known as a ‘Shareholder.’, The terms shareholders and members are commonly used as synonyms, as one can become a member of the, company, except by way of holding shares. In this way, a member is a shareholder and a shareholder is a member., The statement is true but not completely, as it is subject to certain exceptions, i.e. a person can become the, holder of shares through transfer, but is not a member, until the transfer is entered in the register of members., This Lesson gives an insight on secretarial practices expected to be known by the prospected company, secretaries on maintaining register of members, shareholder agreement etc., Lesson 4: Debt Capital and Deposits, , An issue of debenture plays a great role in long-term planning and decision-making. In modern competitive, business era, every company needs fund for any business opportunity. This financing can be fulfilled only by, issuing owner’s capital and debt capital. The issue of debenture, in one side creates the obligation for the, payment of interest at a fixed rate and in another side, it causes an increase in ‘ earning per share’ due to, comparatively less number of shares issued., Companies need to follow certain procedures for issue of debentures to raise money. These have been elaborated, under Companies Act, 2013 and have been discussed in this Lesson., , Deposits have been defined under the Companies Act, 2013 (“2013 Act”) to include any receipt of money by way of, deposit or loan or in any other form by a company. However what shall not constitute deposits has been prescribed, under law in consultation with the Reserve Bank of India. The Lesson provides an overview of the same., Lesson 5: Charges, , A charge is a right created by any person including a company referred to as “the borrower” on its assets and, properties, present and future, in favour of a financial institution or a bank, referred to as “the lender”, which, has agreed to extend financial assistance., Section 2(16) of the Companies Act, 2013 defines charges so as to mean 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 The, following are the essential features of the charge which are as under:, 1., , There should be two parties to the transaction, the creator of the charge and the charge holder., , 3., , The intention of the borrower to offer one or more of its specific assets or properties as security for, repayment of the borrowed money together with payment of interest at the agreed rate should be, manifested by an agreement entered into by him in favour of the lender, written or otherwise., , 2., , The subject-matter of charge, which may be current or future assets and other properties of the borrower., ix
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Companies Act, 2013 details the procedure for creation, modification and satisfaction of a charge. As a, prospected company secretary you are expected to advise the management on the subject and ensure, compliance to the same., Lesson 6: Distribution of Profits – Dividend, , Profit or a portion of profit that can be legally distributed as a dividend to the shareholders is known as Divisible, Profit. Considering the small shareholders and their concerns with regard to failure to transfer the dividend to, the shareholders the Companies Act, 2013 provides for elaborate mechanism where the shareholders can claim, the shares through an authority constituted for the purpose i.e. Investor Education and Protection Fund (IEPF)., , The Act clearly enunciates the procedure for transfer of unpaid dividend to separate account and thereafter, after particular time period to the authority. The company has to mandatorily comply with the legal requirement,, failure may attract penal provisions, as well as this may also be reflected in the Board’s report., A company secretary is also an investor relation officer of the company, he acts as a bridge between the, shareholder and company management. This Lesson shall enable the readers to understand the procedures, and implement the same while practically operating., Lesson 7: Corporate Social Responsibility, , The concept of Corporate Social responsibility (CSR) has been introduced for the first time in India through, Companies Act, 2013. With the enactment of the Companies Act, 2013, India has become the forerunner to, mandate spend on Corporate Social Responsibility (CSR) activities through a statutory provision. India has a, tradition of corporate philanthropy, while many corporate houses like TATA, Birlas have been traditionally, engaged in doing CSR activities voluntarily, the new CSR provisions has put a greater responsibility on companies, in India to set out clear CSR framework., The Act mandates the spending of atleast 2 % of the net profits towards CSR activities within the defined, parameters. The Board has been held responsible to ensure compliance with the provision. Non-compliance of, the provision has to be reflected in the Board’s report and may not be taken well by the investors., This Lesson details the framework that the company has to comply with right from the constitution of the, committee, to its role and manner in which a company can carry out its CSR activities, and CSR reporting. As a, company secretary you have to guide the Board on the subject., Lesson 8: Accounts, Audit and Auditors, , Maintaining of company Book of Accounts is mandatory for all types of companies under the Companies Act,, 2013. Private Limited Company, One Person Company and Limited Company including Small Companies are, required to maintain proper book of accounts. Further, the Books of Accounts of a Company is the basis on, which financial statements of a Company are prepared for company annual return filing. Therefore, maintenance, of proper company account is both mandatory and necessary., According to the Companies Act, 2013, a Company’s Book of Accounts is considered to be maintained properly, if it satisfies the following two conditions:, •, •, , Books which are necessary to give a true and fair view of the state of affairs of the company is kept along, with the documents required to explain the transactions., Books are kept on accrual basis and according to the double entry system of accounting., , Having an effective audit system is important for a company because it enables it to pursue and attain its various, corporate objectives. Business processes need various forms of internal control to facilitate supervision and, monitoring, prevent and detect irregular transactions, measure ongoing performance, maintain adequate, business records and to promote operational productivity., , Auditing is a means of evaluating the effectiveness of a company’s internal controls. Maintaining an effective, system of internal controls is vital for achieving a company’s business objectives, obtaining reliable financial, reporting on its operations, preventing fraud and misappropriation of its assets, and minimizing its cost of, capital. Both internal and independent auditors contribute to a company’s audit system in different but, important ways., x
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The Lesson details the maintenance of accounts in the company and how the auditors have to be appointed, role, of auditors and legal provisions relating to the same., A company has to undertake secretarial audit, cost audit, statutory audit as per the threshold requirement, under law., As a company secretary this is an important area and must be well understood by the readers., Lesson 9: Transparency and Disclosures, , Transparency and disclosure are fundamental to the way businesses are conducted. Transparency and, disclosure are essential elements of a robust corporate governance framework as they provide the base for, informed decision making by shareholders, stakeholders and potential investors in relation to capital allocation,, corporate transactions and financial performance monitoring. The new concept of transparency has put more, responsibilities on the corporation by imposing to disclose true and fair picture to every stakeholder and, different stakeholder groups., A company has to make disclosures in Board ‘s Report under various enactments. Companies Act, 2013, SEBI, (Listing obligations and Disclosure Requirement) Regulations, 2015 and, Sexual Harassment of Women at, Workplace (Prevention, Prohibition and Redressal) Act, 2013 have mandated disclosures at many places., , The Lesson also discusses the disclosures to be made by the company on the website, through its Annual report, and Annual return. SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 requires listed, entities to maintain various policies. This Lesson gives an overview of the same., As an important part of secretarial practice this Lesson shall enable prospected company secretaries to, understand the various disclosures required and would help them to guide the Board and management not only, on the legal parameters but also in terms of financial and non-financial benefits derived all kinds of true and fair, disclosures., Lesson 10: An overview of Inter Corporate Loans, Investments, Guarantees and Security, Related, Party Transactions, , Inter corporate loans and investments play a vital role in the growth of Industries since they result in flow of, funds to group companies or other companies in need of funds. The Companies Act, 2013 (Act) has come up, with a change in the concept of ‘Loan and Investment by Company. The new Act provides that inter-corporate, investments not to be made through more than two layers of investment companies., Transactions with related parties are a basic human instinct. This applies both for personal & commercial, transactions. Such transactions are sometimes influenced by consideration other than commercial. There is a, possibility that such transactions might have not occurred on ‘arm’s length’ consideration. Related party, transactions adopted by the companies could be a possible tool for corporate abuse. Transfer of economic, resources to the related party at less than arm’s length price is necessitated for host of reasons ranging from, evasion/avoidance of tax liability to siphon-off the resources. That’s why various laws and regulations stipulate, the deeper scrutiny and the greater disclosures of such transactions. The Companies Act, 2013 does provide for, a framework for transactions in which directors, etc., are interested with a view to avoid situation of conflict of, interest The lesson examines the legal provisions with respect to related party transaction; inter corporate, loans, investments, guarantees and security. This Lesson enables the students to understand the legal framework, and guide the board members and shareholders in future., Lesson 11: Registers and Records, , The Companies Act, 2013 and the rules made there under lays down that every company incorporated under, the Act has to maintain Statutory Registers., , The Registers need to maintained and updated eventually and should be kept at the registered office of the, company. Some of the Registers are required to be kept open for inspection by directors, members, creditors, and by other persons. A company is required to provide the extracts from the registers, if demanded by directors,, members, creditors and by other persons on payment of specified fees., The registers and records are to be preserved for certain period for some or the other reason. This is of absolute, xi
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importance for the secretarial practice whether by company secretary in employment or in practice. This, Lesson covers all the registers to be maintained by the company under the Act and shall enable the understanding, of the same., Lesson 12: An Overview of Corporate Reorganization, , Corporate reorganization requires compliances of Companies Act, 2013, SEBI (Listing Obligations & Disclosure, Requirements) Regulations, 2015, Indian Stamp Act 1899, income Tax Act, 1961 etc., Apart from complying with the rules and regulations of an organisation, the company secretary also plays a, pivotal role in corporate restructuring exercises., , This Lesson gives an overview of the legal and procedural requirement to be complied by the company. As a, prospected company secretary you are expected to guide the Board and management on the proper restructuring, model, legal and procedural technicalities etc. this Lesson would enable you to gain knowledge of the subject., Lesson 13: An Introduction to MCA21 and Filing in XBRL, , A very important area of work of company secretaries relate to secretarial practice. MCA 21 is a portal which, facilitates the electronic filing under Companies Act, 2013. This Lesson highlights the basic technicalities of the, portal and discusses certain details of various forms to be submitted to MCA., Lesson 14: Global Developments, , Indian Company Law is based on various best practices from around the world. This is a theory based Lesson, which gives you an idea of how the developments across various nations have impacted the country’s corporate, law. This Lesson covers salient features of company law emerged/ emerging in the following countries:, •, , United Kingdom, , •, , Australia, , •, •, •, •, •, , The United States of America, Canada, , Hong Kong, Singapore, Finland, , Lesson 15: Board Constitution and its Powers, , The Board of director is the ultimate decision – making body and determines the delegation of powers, throughout the company; it is considered to be the primary organ of the company. The role of the Board is, summarized as:, • Providing entrepreneurial leadership, • Setting strategy, • Ensuring the human and financial resources are available to achieve objectives, • Reviewing management performance, • Setting up company’s values and standards, • Ensuring robustness of financial controls and risk management, This Lesson guides on the constitution of the Board, its powers and restrictions. Board committees are, constituted in accordance with Companies Act, 2013 and SEBI (Listing Obligations & Disclosure Requirements), Regulations, 2015, the Lesson discusses the same and the major role assigned to them under law., Lesson 16: Directors, , The directors play a very important role in the day to day functioning of the company. It is the board, who is, responsible for the company’s overall performance. Only individuals can be appointed as directors of a company., The subscribers to the memorandum who are individuals are deemed to be the first directors of the company., xii
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Thereafter the shareholders or in many cases the board of directors appoint the directors., , The Act has brought in many new provisions such as appointment of women director, resident director,, independent director by certain class of companies. The Lesson discusses the procedure for appointing the, various types of directors, the rights, duties of a director., As a company secretary you should be in know of the subject., , Lesson 17: Appointment and Remuneration of Key Managerial Personnel, , The Companies Act 2013 has introduced a new concept for appointment of the Key Managerial Personnel at top, level of the organizational structure. In the new Act the position of company secretary has been enhanced, multifold, from record keeper to key managerial personnel. A present day company secretary is expected to do, statutory, administrative, managerial and strategic functions., This Lesson guides on the appointment, procedure for appointment and role to be undertaken as KMP., Lesson 18: Meetings of the Board and its Committees, , Under Companies Act, 2013 the Board has to meet atleast four times in a year and not more one hundred and, twenty days shall intervene between two consecutive Board meetings. The committees have to meet in, accordance with the terms of reference of the committee. As a company secretary you need to guide the, members on the conduct of affairs of the company and facilitate the convening of meetings and attend Board, and Committee meetings and maintain minutes of these meetings., This Lesson gives the basic idea of holding a meeting of the board or committee., Lesson 19: General Meetings, , A company may have many kinds of meetings; general meetings are one among them. In very simple terms, a, meeting of general body may be called general meeting. General meeting comprises of all general members of, an recognized on that is company in our case., A general meeting may be Annual General Meeting (AGM), Extraordinary General Meeting (EGM) and class, meetings., , A company secretary plays a critical role in preparation, convening, holding and conducting a meeting. This, Lesson gives an overall idea of not only legal framework but also secretarial work involved in conducting a, meeting., Lesson 20: Virtual meetings, , The new Act permits for meeting of Board of directors through video conferencing or audio conferencing. The, Lesson discusses the broad parameters of holding such meetings and the restrictions thereat., , E-voting at a general meeting has now been practiced and well recognized by the law but the concept E-AGM is, still not practiced in India., Lesson 21: Legal Framework Governing Company Secretaries, , Professionals are expected to conduct themselves in such a manner so as to uphold the grace, dignity and, professional standing of their respective Institutes. Any commitment to complete a particular assignment as, agreed by the person himself should be completed in a professional manner., The purpose of this Lesson is to explain to the students, expectation as a member with respect to various, aspects of the ethical conduct. This lesson has been designed to assist in defining appropriate personal and, professional conduct, to provide guidance in the identification and resolution of ethical issues, and to help the, students (the future members) of the Institute to maintain the culture of honesty, integrity, transparency and, accountability., Lesson 22: Secretarial Standards Board, , A company needs to comply with the mandatory requirement of compliance with the Secretarial Standards. A, company secretary in whole time employment is required to guide the Board of Directors of the company on the, xiii
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compliances of the secretarial standards. On the other hand a practicing company secretary while conducting, secretarial audit has to ensure the compliance. This Lesson shall give the readers a broader perspective of how, the standards are formulated and developed., Lesson 23: Mega Firms, , In a rapidly changing economy, industrial environment and emergence of the need for corporate governance, and ethical business practices of voluntary disclosures, role of a practicing company secretary has also changed, swiftly. Company Secretary in Practice has become a crucial player. The stakeholders are becoming vigilant, towards the compliances. It is the prime duty of a professional to meet the expectations of the stakeholders at, any given point of time., , Company Secretary in practice may face technical, time and knowledge constraint after certain point of time in, profession. There comes the need of having a practicing firm, mega firms. Keeping in view of the present needs, of the corporate and multi dimensional growth of CS profession especially in the areas of practicing in the areas, of Corporate Laws, Labour laws, RBI/ FEMA, acting as Secretarial Audit, Resolution Professional Insolvency, Bankruptcy Code, GST Practitioner there is a need to structure and build the mega firms., This chapter gives an overview of benefits, challenges of constituting mega firms., , xiv
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LIST OF RECOMMENDED BOOKS, COMPANY LAW, BOOKS FOR READINGS, 1., , Dr. Avtar Singh, , 3., , A. Ramaiya, , 2., , C.R. Datta, , :, , Company Law; Eastern Book Company, 34, Lalbagh, Lucknow – 226 001, , :, , Guide to the Companies Act; Lexis Nexis, Butterworths Wadhwa, Nagpur, , :, , Datta on the Company Law; Lexis Nexis, Butterworths Wadhwa, Nagpur, , 4., , K.C. Garg, R.C. Chawla,, :, Vijay Gupta , , Company Law; Kalyani Publishers, 1/1, Rajinder Nagar, Civil Lines,, Ludhiana – 141 001., , 6., , D.K. Jain, :, , , Company Law Ready Reckoner; Bharat Law House Pvt. Ltd.; T-1/95,, Mangolpuri Industrial Area, Delhi-110083., , 5., , 7., 8., 9., , A.K. Majumdar, Dr. G.K., :, Kapoor, Sanjay Dhamija , R. Suryanarayanan, :, , L.C.B. Gower, , :, , Taxmann’s, :, , , 10. Bare Act, :, , , Company Law and Practice; Taxmann, 59/32, New Rohtak Road,, New Delhi-110 005., , Company Law Ready Reckoner; Commercial Law Publishers, 151,, Rajinder Market, Opp. Tis Hazari Court, Delhi-110054., Principles of Modern Company Law; Stevens & Sons Ltd., London., , Circulars & Clarifications on Company Law; Taxmann, 59/32, New, Rohtak Road, New Delhi-110 005., Corporate, Laws;, New Delhi-110 005., , Taxmann,, , 59/32,, , New, , Rohtak, , Road,, , 11. Video, :, Primer on Company Law by ICSI (https:/www.youtube.com/user, icsicompaniesact2013), JOURNALS:, , 1., , Chartered Secretary, , 3., , Corporate Law Adviser, :, , , 2., , 4., , Student Company, Secretary, , :, :, , Company Law Journal, :, , , ICSI, New Delhi, ICSI, New Delhi, , Corporate Law Advisers, 613, Metro View Apt., Sector 13, Pocket B,, Dwarka, New Delhi-110075., Company Law Journal (India) Pvt. Ltd., 53/15, Old Rajinder Nagar, Post, Box No. 2844, New Delhi-110060., , Note: The latest edition of all the books referred to above should be read., , xv
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ARRANGEMENT OF STUDY LESSONS, Module-1 Paper-2, , COMPANY LAW, PART I: COMPANY LAW, PRINCIPLES & CONCEPTS, Sl. No. Lesson Title, 1, , Introduction to Company Law, , 3, , Members and Shareholders, , 2, 4, 5, 6, 7, 8, 9, , 10, 11, 12, 13, 14, 15, , Share and Share Capital, , Debt Capital and Deposits, Charges, , Distribution of Profits – Dividend, Corporate Social Responsibility, Accounts, Audit and Auditors, , Transparency and Disclosures, , An Overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, Registers and Records, , An Overview of Corporate Reorganization, , An Introduction to MCA 21 and Filing in XBRL, Global Developments, , PART II: COMPANY ADMINISTRATION AND MEETINGS – LAW AND PRACTICES, , Board Constitution and its Powers, , 16, , Directors, , 18, , Meetings of Board and its Committees, , 17, 19, 20, 21, 22, 23, , Appointment and Remuneration of Key Managerial Personnel, General Meetings, Virtual Meetings, , PART III : COMPANY SECRETARY AS A PROFESSION, , Legal Framework Governing Company Secretary, , Secretarial Standards Board, Mega Firms, , Test paper, , xvi
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CONTENTS, LESSON 1, INTRODUCTION TO COMPANY LAW, Origin of company law , , Introduction - Jurisprudence of Company Law , , History and Development of the Concept of Company Law in India, , The Companies Act, 1956-Based committee Recommendations , Concept Paper on Company Law, 2004 & J.J. Irani Report, The Companies Act, 2013, , Reading, Methodology of the Companies Act, 2013 and its legal Aura, How to read and understand a Section?, , Reforms Brought under the Companies Act, 2013 for Ease of Doing Business, Agencies under MCA-21, , , , Meaning and Definition of a Company, , Nature and Characteristics of a Company, , Exceptions to the principle of limited liability, Company vis-a-vis other forms of Business, , , , Distinction between Partnership frim and company, , Distinction between a Hindu Undivided Family Business and a Company, Doctrine of Lifting of or Piercing the Corporate Veil, Statutory Recognition of lifting of Corporate Veil, , , , Lifting of corporate veil under judicial interpretation, Lifting the corporate veil of small scale Industry, , , , Use of corporate veil for hiding criminal activities, , , , Applicability of the Companies Act, 2013 and Key Concepts, , Interpretation of definitions under the Companies Act, 2013, Key concepts under the companies Act, 2013, , Role and Responsibility under the companies Act, 2013, Formation and Incorporation of Companies, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , xvii, , , , , , , , , , , , , , 6, 8, 9, , 11, 14, 15, 16, 20, , , , Distinction between limited liability partnership (LLP) and a company, , 4, , , , , , , , 2, 8, , , , , , , , 2, , , , , , , , 2, , , , , , , , 23, , , 23, 24, 24, 24, 25, 25, , , , , , 28, 28, 28, 29, 30, 32, , 33, , 34, 34, 34, , 35, , 35
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LESSON 2, SHARE AND SHARE CAPITAL, PART A: MEANING AND TYPES OF SHARE CAPITAL 40, Meaning of the term ‘Capital’ , , 40, , Publication of Authorised, Subscribed and Paid-Up Capital , , 41, , Classification of Share Capital , , Share and Types of Share Capital , , 40, 42, , PART B: CONCEPT OF ISSUE AND ALLOTMENT , , 44, , Securities , , 46, , Overview of Issue of Securities , , 45, , Governing Laws , , 47, , Prospectus , , 47, , – Shelf Prospectus , , 48, , – Red Herring Prospectus , , 48, , – Abridged Prospectus , , 49, , – Offer for Sale -Deemed Prospectus , , 49, , Issue of Securities at Premium , , 50, , Prohibition to issue the shares at discount , , 51, , Concept of Allotment of Securities , , 52, , General Principles Regarding Allotment , , 53, , Share Certificate , , 54, , PART C: ISSUE OF SECURITIES , , 59, , Issue and Redemption of Preference Shares , , 62, , Equity Shares with Differential Voting Rights , , 59, , Further Issue of Share Capital , , Conditions for Further Issue of Shares to Equity Holders Rights Issue [Section 62(1)(A)] , Employee Stock Option Scheme , , Issue of Shares on Preferential Basis , , 65, 66, 68, 72, , Private Placement of Shares , , 75, , Bonus Shares , , 78, , Sweat Equity Shares , , 80, , PART D: ALTERATION IN SHARE CAPITAL, BUY-BACK AND REDUCTION OF SHARE CAPITAL 83, Alteration of Share Capital (Section 61) , , 83, , Reduction of Share Capital (Section 66) , , 89, , Buy Back of Securities (Section 68) , , 84, , Diminution of Share Capital is not a Reduction of Capital , , xviii, , 91
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Reduction of Share Capital without Sanction of the Tribunal , , 93, , Checklist for Company Secretary , , 98, , PART E: TRANSFERABILITY – A BRIEF OF PROVISIONS OF COMPANIES ACT, 2013 94, Transfer or Transmission of Securities , , 94, , Power of Board to Refuse Registration , , 100, , Delegation of Powers for Transfer , , 103, , Rectification of Register of Members (Section 59) , , 101, , Lost Transfer Deeds , , 102, , Transfer of Debentures , , 103, , Transfer of Shares to a Minor , , 103, , Transfer of Shares to Partnership Firm , , 103, , Transfer of Securities to a Body Corporate , , 104, , Transfer without the Authority of the Owner , , 104, , Position of Transferor , , 104, , Transfer in Violation of Articles , , 104, , Transmission of Securities , , 104, , Distinction between Transfer and Transmission , , 105, , Forged Transfer , , 109, , Death of a Joint Shareholder , , 110, , Transposition of Name , , 110, , Death of Transferor or Transferee before Registration of Transfer , , 110, , Rights of Transferor , , 111, , Effects of Transfer , , 112, , Legal Framework for Depository Systems , , 113, , Dematerialisation and Rematerialisation of Shares , , 114, , Procedure for Dematerialisation of Shares by the Shareholder , , 117, , Procedure for Dematerialisation of Shares by the Company , , 118, , Transfer of Dematerialised Shares , , 118, , Pledge or Hypothecation of Dematerialised Shares , , 119, , Rematerialisation of Securities , , 120, , Annexure I , , 120, , Annexure II , , Annexure III , , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , xix, , , , 120, 120, , , , 122, , , 123, 124, , 125, , 125
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LESSON 3, MEMBERS AND SHAREHOLDERS, Introduction - Who are Members? , , 129, , Modes of Acquiring Membership , , 130, , Definition of Member, , 129, , Who may Become a Member , , 131, , Cessation of Membership , , 134, , Register of Members Etc. , , 135, , Declaration by Persons not Holding Beneficial Interest in any Share , , 141, , Significant beneficial owners in a company – [Section 90 r/w the Companies, (Significant Beneficial Owners) Rules, 2018] , , 143, , Rights of Members , , 150, , Liability of Members , , 154, , Shareholders’ Democracy , , 155, , Shareholder’s Agreement , , 156, , Veto Power , , 157, , Assignment of Shares in a Company , , 158, , Annexure I , , 159, , Annexure II , , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 4, DEBT CAPITAL AND DEPOSITS, , , , 162, , , , 163, , , 163, 164, , 165, , 165, , PART A- BORROWING POWERS OF THE COMPANY AND DEBT CAPITAL 168, Borrowing , , 168, , Instruments for Corporate Funding-Debt Capital , , 173, , Types of Borrowings , , 172, , Definition of Debenture , , 173, , Kinds of Debenture , , 173, , Creation of Security – Role of Debenture Trustee , , 176, , PART B-OVERVIEW OF ACCEPTANCE OF DEPOSITS BY COMPANY 184, What is Deposit? , , xx, , 184
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Applicability , , 188, , The Companies (Acceptance of Deposits) Rules, 2014 , , 192, , Acceptance of Deposits , , 189, , Return of Deposits- Including Reports of 'What is not a Deposit' , , 199, , Forms related to Deposits, , 201, , Procedure of acceptance of Deposits-From Members and Public , , 201, , Checklist of Secretarial Compliance for Acceptance of Deposits as per the Companies Act, 2013 , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 5, CHARGES, , , , 205, , , , 207, , , 208, 209, , 210, , 210, , Introduction , , 213, , Definition of Charge , , 214, , Pledge, Hypothecation & Mortgage, , 213, , Meaning of Interest & Lien, , 214, , Depature from the Company Act, 1956, , 214, , Difference between Mortgage & Charge, , 214, , Charge & Pledge Distinguished, , 215, , Registrable Charges, , 215, , Need for creating a Charge on Company’s Assets , , 216, , Protection to the Lender, , 217, , Kinds of Charges , , 217, , Crystallization of floating Charge, , 218, , Effect of Crystallization of floating Charge, , 218, , Postponement of a floating charge , , Restraint on the power to create charges with priority to a floating charge , Invalidity of floating charge , , Registration of Charges under the Companies Act, 2013 , Registration of Charges –Section 77(1) , , Subsequent Registration shall not Prejudice any Right , , Non-Applicability to certain charges as prescribed in Consultation, , Application for registration of charge by the charge-holder (Financing Institution) , Certification of Registration of charge & Certificate of modification of charge , xxi, , 219, 219, 219, 220, 220, 222, 222, 222, 222
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Acquiring Property subject to a charge , , 222, , Verification of Instruments , , 223, , Registration of Creation or Modification of Charge , , 223, , Satisfaction of charges , , 223, , Power of registrar to make entries of satisfaction in absence of intimation from the company, , 224, , Certificate of registration of satisfaction of charge\notice of charge , , 224, , Register of Charges Maintained in ROC’s Office , , 224, , Intimation of appointment of receiver or manager, , 225, , Company’s Register of charges , , 225, , Inspection of charges-Section 85(2) , , 226, , Gist of forms under charge management , , 226, , Consequences of Non-Registration of Charge , , 226, , Punishment for contravention , , 227, , Particulars of Charges , , 227, , Rectification by Central Government in Register of Charges , , 228, , Procedure for Registration of Creation / Modification Satisfaction of Charge, , 228, , Registration of charges under the SARFAESI Act, 2002 by Banking Company , , 230, , Specimen Resolutions, , 233, , LESSON ROUND UP , , 236, , GLOSSARY , , 237, , TEST YOURSELF , , LIST OF FURTHER READINGS, OTHER REFERENCES , , , LESSON 6, DISTRIBUTION OF PROFITS – DIVIDEND, , 237, , 238, , 238, , Introduction , , 240, , Interest vs. Dividend , , 241, , Declaration of Dividend (Section 123) , , 243, , Meaning and Definition of Dividend , , 241, , Types of Dividend , , 242, , Unpaid Dividend Account (Section 124) , , Investor Education and Protection Fund (Section 125) , Utilisation of Investor Education and Protection Fund , , Right to Dividend, Rights Shares and Bonus Shares to be held in Abeyance Pending, Registration of Transfer of Shares , Punishment for Failure to distribute Dividends , , xxii, , 247, 248, 249, 258, 259
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Waiver of Right to receive Dividend , , 259, , Dividend in case of Beneficial Owner , , 259, , Revocation of Dividend , , 259, , Distribution of Profits in other types of Companies , , 259, , Procedure for Declaration and Payment of Interim Dividend , , 260, , Procedure for Declaration and Payment of Final Dividend , , 263, , Procedure for Declaration of Dividend out of Reserves , , 266, , Annexures , , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 7, CORPORATE SOCIAL RESPONSIBILITY, , , , 266, , , , 269, , , 269, 270, , 270, , 270, , Introduction, , 272, , The Indian Scenario, , 274, , Concept & Evolution of CSR , , 273, , CSR under Indian Legislation , , 274, , CSR under the Companies Act, 2013, , 276, , Cessation [Rule 3 of the CSR Rules, 2014], , Important Definitions under CSR [Rule 2 of the CSR Rules, 2014], CSR Committee, , The functions of CSR Committee, , 277, 278, 279, 280, , Meeting of CSR Committee, , 281, , Functions and Responsibilities of the Board, , CSR Implementation [Rule 4 of the CSR Rules, 2014] , , List of CSR Activities [Schedule VII of the Companies Act, 2013], MCA Clarifications, , Computation of net profit, , 281, 281, 283, 284, 285, , CSR Expenditure-[Rule 7 of the CSR Rules, 2014] 286, , Spending mandate and consequences of not spending (Change in CSR regime from Voluntary to Mandatory) 288, , Penalty291, Tax Benefits under CSR, , Non Applicabilty of CSR Provisions on Specified Companies, CSR Portal, , xxiii, , 293, , 293, , 293
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The National CSR Awards, , What are the Various other aspects that may be kept in mind while undertaking CSR?, , 293, 293, , ANNEXURES295, LESSON ROUND-UP , , 303, , TEST YOURSELF, , 305, , GLOSSARY, , 304, , LIST OF FURTHER READINGS, OTHER REFERENCES, , 305, LESSON 8, ACCOUNTS, AUDIT AND AUDITORS, , 305, , Introduction , , 310, , Requirement of Keeping Books of Account Etc. (Section 128) , , 311, , Important Terminologies w.r.t. Accounts of Companies , Financial Statement (Section 129) , , Form of Financial Statements (Schedule III) , , 310, 313, 314, , Consolidated Financial Statements , , 314, , Manner of Consolidation of Accounts , , 314, , Periodical Financial Results, , Re-Opening of Accounts on Court’s or Tribunal’s Orders (Section 130) , , Voluntary Revision of Financial Statements or Board’s Report (Section 131) , Signature of Financial Statement (Section 134) , , Right of Member to Copies of Audited Financial Statement (Section 136) , Copy of Financial Statement to be Filed with Registrar- (Section 137) , National Financial Reporting Authority (NFRA) , , Central Government to Prescribe Accounting Standards- (Section 133) , Audit and Auditors , , Eligibility & Qualifications of Auditor , , 315, 315, 316, 316, 317, 319, 320, 322, 325, 325, , Disqualifications of Auditor , , 325, , Appointment of Auditors (Section 139) , , 326, , Appointment of Auditor in Government Company , , 327, , Mandatory Rotation of Auditors , , 328, , Rotation of Auditors [Section 139(3)] , , 328, , Rotation of Auditors on Expiry of their Term , , Re-Appointment of Retiring Auditor [Section 139 (9)] , , Casual Vacancy in the office of Auditor [Section 139 (8)] , , Appointment of Auditor other than Retiring Auditor by Special Notice , xxiv, , 328, 329, 329, 330
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Powers of Tribunal [Section 140(5)] , , 331, , Resignation of Auditor , , 331, , Removal of Auditor , , 331, , Remuneration of Auditor (Section 142) , , 332, , Auditor Not to Render Certain Services (Prohibited Services) [Section 144] , , 332, , Auditor’s Right on Attend General Meeting , , 332, , Powers and Duties of Auditors , , 332, , Powers of Comptroller and Auditor–General of India in Case of Government Company, [Section143(5) & 143(7)] , , 333, , Audit Report , , 334, , Branch Audit , , 336, , Auditing Standards [Section 143(9) & (10)] , , 336, , Reporting of Frauds by Auditor , , 336, , Maintenance of Costing & Stock Records, , 337, , Cost Records & Audit (Section 148) , , 337, , Cost Audit , , 339, , Secretarial Audit, , 341, , Need For Secretarial Audit , , 345, , Role of Company Secretary , , 343, , Internal Audit (Section 138) , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 9, TRANSPARENCY AND DISCLOSURES, , 346, , , , , 347, 348, , , 349, , 349, 349, , Introduction , , 352, , Annual Report , , 352, , Disclosure by Board, , 352, , Disclosure in Board’s Report Pursuant to the Companies Act, 2013 , Approval of the Board’s Report , , Right of Members to Receive Copies of Financial Statements, Board’s Report, Etc. , Filing of the Board’s Report , , Procedure for Preparation of Board’s Report , Annual Return , , xxv, , 361, 375, 376, 376, 377, 379
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Website Disclosures , , 384, , Annexures , , 394, , Policies , , 389, , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , , , , , 402, , , LESSON 10, AN OVERVIEW OF INTER-CORPORATE LOANS, INVESTMENTS, GUARANTEES AND, SECURITY, RELATED PARTY TRANSACTIONS, , 402, 403, , 403, , 403, , Introduction , , 406, , Limits for Loans, Guarantees, Security and Investment – [Section 186(2)] , , 410, , Loans and Investments by Companies (Section 186) , , 409, , Meaning of the term Investment , , 410, , Procedures Involved in making Loan giving Guarantee and Providing Security , , 410, , Non Applicability of Section 186 , , 412, , Investments to be held in Company’s Own Name , , 414, , Register of Investments not held in Company’s own Name , , 415, , Related Party Transactions , , 416, , Role of Audit Committee in Related Party Transactions , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , , , 424, , , , 431, , , LESSON 11, REGISTERS AND RECORDS, , 431, 432, , 433, , 433, , Introduction- Register to be Maintained under the Companies Act, 2013 , , 437, , Preservation of Registers and Records , , 452, , Importance of Registers and Records , , 437, , Statutory Registers - A Bird Eye View , LESSON ROUND-UP, GLOSSARY, , , xxvi, , , , 452, 456, 456
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TEST YOURSELF, , , , LIST OF FURTHER READINGS, OTHER REFERENCES , , , , LESSON 12, AN OVERVIEW OF CORPORATE REORGANISATION, , 457, , 457, , 457, , Power to Compromise or make Arrangements with Members or Creditors , , 463, , Merger and Amalgamation of Companies , , 470, , Power of the Tribunal to enforce Compromise or Arrangement , , 469, , Merger and Amalgamation of Certain Companies , , 474, , Merger or Amalgamation of a Company with a Foreign Company , , Power to Acquire Shares of Shareholders Dissenting from Scheme or Contract Approved by Majority, [Section 235(1)] , Purchase of Minority Share Holding, , “Majority Rule and Minority Rights” , , 477, 478, 479, 484, , “Majority Rule and Minority Rights” Under Companies Act, 2013 , , 487, , Prevention of Oppression and Mismanagement , , 487, , Provisions under the Companies Act, 2013, , 490, , Application to Tribunal for Relief in Case of Oppression & Mismanagement (Section 241) , , 490, , Power of Tribunal , , 491, , Class Action Suits (Section 245) , , Application of Certain Provisions to Proceedings under Section 241 or Section 245 (Section 246) , Winding Up of Companies , , Legal provisions for Winding Up of Companies , , 494, 497, 498, 498, , Winding Up by the Tribunal , , 498, , Voluntary Winding Up , , 500, , Overview of Registered Valuers , , 505, , Institute of Company Secretaries of India – Registered Valuer Organisation (ICSI-RVO) , , 506, , Registration Offices and Fees , , Companies to Furnish Information or Statistics , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , xxvii, , , , 507, 508, , , , 509, , , 510, 510, , 510, , 510
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LESSON 13, AN INTRODUCTION TO MCA 21 AND FILING IN XBRL, E-Governance and MCA -21 , , 512, , Important aspects of MCA-21 , , 516, , MCA-21 and its Legal Validity , , 513, , Substantial Benefits of MCA-21 , , 517, , MCA Services , , 518, , E-Services , , 520, , RUN Facility , , 521, , Rule 9A of the Companies (Incorporation) Rules, 2014-Extension of reservation of name in certain cases 522, Simplified Proforma for Incorporating Company [Electronically Plus (SPICe+)]-Rule 38 of the Companies, (incorporation) Rules, 2014 , 522, Digital signature Certificate (DSC) , , 523, , Introduction of e-stamping facility by MCA and dispensation of physical submission thereof , , 524, , Payment of stamp Duty , , STP Forms [Rule 10 of the companies (Registration Offices and Fees) Rule 2014] , , Re-Submission [Rule 10 of the Companies (Registration Office and Fees) Rules 2014], , 525, 525, , Refund , , 525, , Online Inspection of Documents, , Inspection, Production and Evidence of documents kept by Registrar-Rule 14 of the Companies, (Registration Offices and Fees) Rule, 2014, All about Filing and Filing of E-Form, , Prerequisites for E-Filing on MCA-21 , , 526, 526, 526, 527, , Important Terms used in E-Filing , , 527, , Pre-Certification of certain E-Forms , , 529, , Necessity of Pre-certification , , 531, , Fees [Rule 12 of the Companies (Registration offices and Fees) Rules, 2014] , , Mode of payment [Rule 13 of the companies (Registration offices and fees) Rules, 2014] , Guidelines for Filing and Filing of E-Forms , XBRL Filing, , 531, 531, 531, 533, , Benefit of XBRL, , 533, , Description of E-Forms , , 537, , Penalty for Filling False Documents/Statements with the Registrar, , 590, , Mode of Payment of Fees, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , 524, , , xxviii, , , , , , 590, 591, 591, 591
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LIST OF FURTHER READINGS, , , , OTHER REFERENCES , , LESSON 14, GLOBAL DEVELOPMENTS, , 592, , 592, , Modernization of Company Law for Global Competitiveness , , 594, , United Kingdom (UK) , , 595, , Distinguishing Features of Company Law in Various Countries , , 594, , The United States of America (USA) , , 612, , Australia , , 622, , Canada , , 627, , Hong Kong , , 636, , Singapore , , 643, , Finland651, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , , , , , 654, , , , LESSON 15, BOARD CONSTITUTION AND ITS POWERS, , 654, 654, , 655, , 655, , Introduction , , 658, , Board Committees , , 666, , Board Composition , , 659, , Audit Committee , , 668, , Vigil Mechanism, , 672, , Nomination and Remuneration Committee , , 675, , Stakeholders Relationship Committee , , 680, , Risk Management Committee , , 682, , Corporate Social Responsibility Committee , , 684, , Other Board Committee, , 686, , Purpose Evaluation, Conclusion, , LESSON ROUND-UP, GLOSSARY, , xxix, , , , , , 686, 687, 687, 687
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TEST YOURSELF, , , , LIST OF FURTHER READINGS, OTHER REFERENCES , , , , LESSON 16, DIRECTORS, , 688, , 688, , 688, , Introduction692, Director Identification Number (DIN)692, Intimation of changes in particulars of Director specified in DIN Application [Rule 12 of the, Companies (Appointment and Qualifications of Directors) Rules, 2014], , 696, , General Provisions Regarding DIN , , 697, , Cancellation/Surrender/Deactivation of DIN [Rule 11 of the Companies, (Appointment and Qualifications of Directors) Rules, 2014] , , 696, , Impact of Non Compliance of DIR-3 KYC/DIR-3 KYC Web, , 698, , First Director, , 698, , Women Director, , 699, , Directors698, Resident Director, , 699, , Director elected by Small Shareholders [Section 151], , 699, , Independent Directors, , 701, , Additional Director, , 708, , Alternate Director, , 708, , Nominee Director, , 709, , Professional Director, , 710, , Appointment of Directors in Casual Vacancy , , Appointment/ Re-Appointment, Disqualifications, Vacation of Office, Retirement, Resignation, Appointment of Directors to be voted individually- Section 162(1), Number of Directorships [Section 165], , Minimum and Maximum Number of Directors in a Company, Appointment of First Director, , Appointment of Directors by Members at General Meeting, , Procedure for re-appointment of the retiring director at the Annual General Meeting, , Right of persons other than retiring directors to stand for Directorship [Section 160], , Procedure for appointment of a Director other than a retiring Director at the Annual General Meeting, Appointment of Independent Directors, , Re-appointment of Independent Directors, , 710, 710, 710, 710, 711, 712, 713, 713, 714, 714, 715, 716, , xxx
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Selection of Independent Directors [Section 150], , 717, , Creation and Maintenance of Databank of Independent Directors [Rule 3 of the Companies, (Creation and Maintenance of Databank of Independent Directors) Rules, 2019], , 718, , Enrollment in Data Bank of Independent Director [Rule 6 of the Companies (Appointment and, Qualifications of Directors) Rules, 2014], , 717, , Appointment of Directors by Board, , 721, , Procedure for appointment of Additional Director, , 721, , Procedure for appointing Directors in Casual Vacancy, , 722, , Procedure for appointment of an Alternate Director, , 722, , Appointment of Directors by Tribunal, , 722, , Appointment of Director by System of Proportional Representation, , 722, , Appointment of Nominee Directors, , 723, , Procedure for Appointment of Directors to be Elected by Small Shareholders, , 723, , Disqualifications for Appointment of Director, , 724, , Removal of Directors, , 725, , Removal of Director by Shareholders, , 725, , Procedure for Removal of Director, , 725, , Removal of Director by the National Company Law Tribunal, , 726, , Vacation of office by Director, , 726, , Resignation of Directors, , 728, , Rights and Duties of Directors [Section 166], , 728, , Loans to Directors (Section 185), , 729, , Exemption for applicability of section 185 to Private Company, , 730, , Disclosures by a Director of his Interest, , 730, , Register of Directors and Key Managerial Personnel and their Shareholding, , 731, , Members Right to Inspect (Section 171), , Declaration at the time of Commencement of Business [Section 10A r/w Rule 23A of the Companies , (Incorporation) Rules, 2014, MCA Clarifications, , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , xxxi, , , , , , 731, 732, 732, 733, , , , 733, 734, , 734, , 734
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LESSON 17, APPOINTMENT AND REMUNERATION OF KEY MANAGERIAL PERSONNEL, Introduction, , 736, , Provisions Governing Appointment of KMP, , 738, , Procedure to appoint Key Managerial Personnel, , 740, , Appointment of Key Managerial Personnel, , 738, , Appointment of Managing Director, Whole-Time Director or Manager, , 741, , Officer who is in Default , , 745, , Company Secretary Appointment, Role and Responsibilities , , 747, , Statutory Duties and Liabilities of a Company Secretary , , 753, , Removal of Company Secretary , , 755, , Procedure for Removal/Resignation of Company Secretary , , 755, , Remuneration of Managerial Personnel, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES, , LESSON 18, MEETINGS OF BOARD AND ITS COMMITTEES, , , , 758, , , , 771, , , 772, 772, , 773, , 773, , Introduction, , 777, , Frequency of the meeting of the board , , 777, , Meetings of the Board (Section 173), , 777, , Meeting of the board-SEBI (LODR) Regulation, 2015 , , 778, , Meetings of Committees, , Preparation of Notices for meetings of board/Committees of Board , Sample Notice of the Board/committee Meeting , Agenda of Board/Committees Meetings, , 781, 784, , Convening a Meting, , 785, , Penalty, , 785, , Quorum for board Meetings: Section 174, , 785, , Meeting of Committees , Leave of Absence, , 780, 782, , Sample Important Agenda Items for Board Meeting, , Attendance Registers, , 779, , 787, xxxii, , 787, 788
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Chairman of the meeting of the board/Committee , , 788, , Minutes , , 790, , Passing of resolution by circulation: section175, , 789, , Penalty , , 793, , Sample Minutes of the board Meeting , , 793, , Duties of company Secretary , , 796, , LESSON ROUND-UP, , 799, , GLOSSARY, , 799, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , , LESSON 19, GENERAL MEETINGS, , 800, , 800, , 800, , Introduction , , 802, , Extension of validity period of AGM , , 804, , Annual General Meeting (Section 96), , 803, , Date, Time and place for holding an Annual General Meeting , , Business to be transacted at Annual General Meeting: [Section 102], , Penalty for default in holding the Annual General Meeting [Section 99] , Convening of a valid general meeting , , Extra-Ordinary General Meeting (Section 100) , , 805, 805, 806, 806, , Class Meetings , , 808, , Types of Resolutions , , 809, , Resolutions requiring Special Notice , , Resolutions and Agreements to be filed with the Registrar , Notice of Meeting (Section 101) , Length of notice of meeting , , 809, 811, 813, 813, , Shorter notice, , 814, , Contents of Notice, , 815, , Place of meeting (section 96), , 815, , Day of meeting (Section 96), , 815, , Time of meeting (section 96(2)], , 816, , Agenda (section 102), , Proxy clause with reasonable prominence [section 105(2)], Notice through Electronic Mode , , 804, , xxxiii, , 816, 816, 816
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Persons entitled to receive Notice, , 817, , Statement to be annexed to Notice – Explanatory Statement (Section 102) , , 819, , Notice to Directors, Auditors & other specified persons under Secretarial standard-2 , , 818, , Quorum for Meetings (Section-103) , , 820, , Adjourned Meetings, , 822, , Resolution passed at adjourned meetings, , 823, , Charmain of meeting (section 104) , , 823, , Presence of Statutory Auditor and Secretarial Auditor , , 824, , Proxies (Section 105) , , 824, , Voting , , 828, , Restriction on voting Rights (Section 106), , 828, , Voting by show of hands (Section 107), , 828, , Voting through electronic means (section 108), , 828, , Voluntary Applicability of Rule 20 (i.e. voting by electronic Means) , , 829, , Procedure of E-Voting, , 830, , Demand for Poll (Section 109), , 833, , Manner to get Poll process scrutinized, , 834, , Postal Ballot (Section 110) , , 835, , Business to be transacted through postal ballot: [Rule 22 of the Companies (Management and, Administration) rules, 2014] , , 835, , Maintenance of Minutes of Meetings , , 840, , Circulation of Members’ Resolution (Section 111) , , 840, , Secretarial Standard on Minutes , , 841, , Report on Annual General Meeting , , 844, , Duties of Company Secretaries before, during and after General Meeting, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 20, VIRTUAL MEETINGS, , , , 845, , , , 847, , , 848, 848, , 849, , 849, , Introduction852, Virtual Meeting – Definition , , 852, , Brief Requirements for Virtual Meeting , Virtual Board Meetings , , The Attendance Registers , , 853, , xxxiv, , 854, 855
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Venue of the meeting, , 856, , Voting through Electronic Means in General Meeting under the Companies Act, 2013 , , 858, , Role of Chairperson and Company Secretary , , Procedures for convening and conducting Board’s Meetings through Video or Audio Visual Means , Virtual AGM/EGM , , Advantage of virtual AGM/EGMs, , Difficulties in holding Virtual Meeting of members, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , , , , , LIST OF FURTHER READINGS, OTHER REFERENCES , , 856, 856, 859, 859, 859, , 864, , , , , , LESSON 21, LEGAL FRAMEWORK GOVERNING COMPANY SECRETARIES, , 864, 864, , 865, , 865, , Introduction , , 868, , Associate and Fellows , , 868, , Some legal terminologies and interpretation, , 868, , Certificate of practice , , 869, , Register of Members, , 870, , Removal from the Register of members , , 870, , Disciplinary Mechanism , , 870, , Disciplinary Directorate , , 870, , Board of discipline, , 871, , Disciplinary committee, , 871, , Appeal to Authority, , 872, , Certain Provisions relating to Misconduct under the Company Secretaries Act, 1980’, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , LESSON 22, SECRETARIAL STANDARDS BOARD, , , , 872, , , , 898, , , 898, 898, , 899, , 899, , Introduction902, Functions of the Secretarial Standards Board , Need for Secretarial Standards , , xxxv, , 902, 902
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Scope of Secretarial Standards, , 902, , Secretarial Standard on Meetings of the Board of Directors, , 904, , Process of making Secretarial Standards, , 902, , Secretarial Standard on General Meetings, LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES, , , , 925, , , , 953, , , LESSON 23, MEGA FIRMS, , 953, 953, , 954, , 954, , Introduction , , 956, , Applicable Rules, regulation and Guidelines for PCS or firm of PCS , , 957, , Adoption of Mode of Practice , , 956, , What is Multidisciplinary/Mega Firm? , , 958, , Why such firms?, , 959, , Pre-Requisites , , 959, , Benefits , , 959, , Risks , , 960, , Process of Constitution, , 960, , Agreement between partners , , 961, , Management of firms, , 961, , Revenue sharing models , , 961, , Conclusion , , 962, , Annexure I, , LESSON ROUND-UP, GLOSSARY, , , , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES , , 962, , , , , 964, 964, , , 964, , 964, , 964, , TEST PAPER , , 965, , BIBLIOGRAPHY, , 968, , xxxvi
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Lesson 1, Key Concepts One, Should Know, •, , Company, , •, , Limited Liability, , •, •, •, •, •, , Corporate, Personality, , Small Company, , Introduction to Company Law, Learning Objectives, , Regulatory Framework, , To understand:, , The Companies Act, 2013, , •, , The concept and legal, provisions of Company Law, , •, , Reading Methodology of the, Companies Act, 2013 and, its legal aura, , •, , •, , One Person, Company, , •, , Dormant, Company, , •, , Holding &, Subsidiary, Company, , •, •, , Background and evolution, of corporate legislation in, India, The distinct features of, Company, , •, •, •, , Other forms of business, , Section 1- Applicability of, the Companies Act, 2013, Section-2 Key Definitions, Section 3-Formation of, Company, Section 406- Nidhi, Companies, , Section 455- Dormant, Company, , Key concepts under the, Companies Act, 2013, , Lesson Outline, •, •, •, •, •, •, •, •, •, •, •, •, •, , Introduction-Jurisprudence of Company Law, , History and development of Company Law in India, , •, •, , The Companies Act, 1956, , Concept Paper on Company Law, 2004 & JJ Irani Report, , Meaning and definition of Company, , Nature and characteristics of a Company, , Company vis-a vis other forms of business, , Doctrine of lifting of or piercing the corporate veil, , Applicability of the Companies Act, 2013 and Key Concepts, Important Definitions, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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2, , Lesson 1 • EP-CL, , , , ORIGIN OF COMPANY LAW, The BUBBLE ACT OF 1720, , The concept of corporate form was brought in for the first time in United Kingdom wherein the body corporate, could be brought into existence either by a Royal Charter or by a Special Act of Parliament. Both these methods, were very expensive and dilatory. Consequently, to meet the growing commercial needs of the nation, large, unincorporated partnerships came into existence, trading, however, in corporate form. The memberships of, each such concern being very large, the management of business was left to a few trustees resulting into, separation of ownership from management. Rules of law were not being developed by that time which gave a, chance to fraudulent promoters to exploit the public money. As a result, many spurious companies were created, which were formed only to disappear resulting in loss to the investing public., 1, , The English parliament, therefore, passed an Act known as the Bubbles Act of 1720, which, instead of prohibiting, the formation of fraudulent companies, made the very business of companies illegal., , Bubble Act is an English statute passed on 9, June 1720 to prevent corporate fraud. It forbade all joint-stock, companies not authorized by royal charter. One of the reasons for the act was to prevent other companies from, competing with the South Sea Company for investors’ capital. The Act was repealed in 1825., 2, , 1., , http://www.legalserviceindia.com/articles/eocin, , 2., , https://definitions.uslegal.com, , INTRODUCTION- JURISPRUDENCE OF COMPANY LAW, Company Law in India, is the cherished child of the English parents. Our various Companies Acts have been modelled, on the English Acts. Following the enactment of the Joint Stock Companies Act, 1844 in England, the first Companies, Act was passed in India in 1850., , The Indian Companies Act, 1866, the Indian Companies Act, 1882, the Companies Act, 1913, and the Companies, Act, 1956 was earlier law passed in India. Every Companies Act introduced new concepts. Like, before, Amending Act of 1857, there was not concept of limited liability which is now a fundamental concept of the, Companies Law., , HISTORY AND DEVELOPMENT OF THE CONCEPT OF COMPANY LAW IN INDIA, Joint Stock Company Act, 1850, Based on Company Legislation Act,, 1844, , Registration for companies only in, Madras, Calcutta & Bombay, , Limitation - only includes Unlimited, Liability Company, , Joint Stock Company Act, 1857, Includes both Limited & Unlimited liability Company, , Limitation - Banking & Insurance Company can only be, registered as Unlimited liability Company, , Joint Stock Company Act, 1860, Banking and Insurance Company can also be Limited Liability Company
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3, , Lesson 1 • Introduction to Company Law, Joint Stock Company Act, 1866, Altogether new law governing incorporation, regulation and winding up of Company, The Companies Act, 1913, Also includes the functioning of commercial organizations, institution of private company apart from company, The Companies Act, 1936, , Includes the functions of directors, managing agents & provisions for investigation of any fradulent activity and guaranting, the security & payment of provident fund to its employees, The Companies Act, 1956, Introduced after World War II (1944), & Independence (1947) on the report, of HC Bhabha Committee in 1952, , It applies to whole of India except, Nagaland, J&K and Goa, Daman & Diu, subject to some exceptions, , Based on social & ecoomic needs of the, Company, , The Companies Act, 2013, To encourage transparency and high standards of corporate governance, , Important Committees recommending changes to the Companies Act, , 1952 Bhabha, Committee, , 1957 Sastri, Committee, , 1978 Sachar, Committee, , 1997 Chandrate, Committee, , The Government of India appointed a Committee of twelve members, representing various interests under the chairmanship of Shri C.H. Bhabha,, to go into the entire question of the revision of the Companies Act, 1913., The Government of India appointed a Committee of six members under the, chairmanship of Shri A.V. Visvanatha Sastri to overcome such practical, difficulties in its working as may have been encountered since it came into, force, to remove such drafting defects and obscurities as may have interfered, with the working of the Companies Act, to ensure the better fulfilment of the, purposes underlying the Act and to consider what changes in the form or, structure of the Act, if any., , This Committee was constituted by Government under the Chairmanship of, Shri Rajindar Sachar to consider and report on what changes are necessary, in the Companies Act, 1956, with particular reference to the modifications, which are required to be made in the form and structure of the Companies, Act, 1956, so, as to simplify them and to make them more effective, wherever, necessary., Chandrate Committee was formed under the chairmanship of Dr. K.R., Chandratre.The main objective of the Group was to re-write the Companies, Act,1956 to facilitate a healthy growth of the Indian corporate sector under, a liberalised, fast changing and highly competitive environment.
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4, , Lesson 1 • EP-CL, , , , 2000 Eradi, Commitee, , Vaish Committeer Chairmanship of Shri Justice V. Balakrishna Eradi has, constituted a Committee consisting of experts to examine the existing law relating, to winding up proceedings of companies in order to remodel it in line with the, latest developments and innovations in the corporate law and governance., , 2002 Joshi, Committee, , The Committee was constituted under the Chairmanship of Shri R.D. Joshi to, examine the remanants of the Companies Bill, 1997., , 2003 Naresh Chandra, Committee, , This Committee was constituted by Government under the Chairmanship of, Shri. Naresh Chandra, to Regulate Private Companies and Partnerships., , 2005 Irani, Committee, , 2005 Vaish, Committee, , Company Law, Committee, , The Irani Committee was constituted under the chairmanship of Dr. J J Irani,, Director, Tata Sons, with the task of advising the Government on the proposed, revisions to the Companies Act, 1956., The Government of India appointed a Committee under the Chaimanship of, O.P. Vaish to streamline the prosecution mechanism under the Companies, Act, 1956 to make it more effective., The government of India has constituted a Company Law Committee for, examining and making recommendations to the Government on various, provisions and issues pertaining to implementation of the Companies Act,, 2013 and the Limited Liability Partnership Act, 2008., , The Companies Act, 1956 – Based on Bhabha Committee Recommendations, , On 28th October, 1950, the Government of India appointed a Committee of twelve members representing various, interests under the chairmanship of Shri C.H. Bhabha, to go into the entire question of the revision of the Companies, Act, with particular reference to its bearing on the development of trade and industry in the country. This Committee,, popularly known as the Bhabha Committee, submitted its report in March, 1952, recommending comprehensive, changes in the Companies Act of 1913., The report of the Bhabha Committee was again the subject of discussion and comment by Chambers of Commerce,, Trade associations, professional bodies, leading industrialists, shareholders and representatives of labour. The Bill,, which eventually emerged as the Companies Act, 1956, was introduced in Parliament on 2nd September, 1953. It, was a comprehensive and consolidating as well as amending piece of legislation. The Bill was referred to a Joint, Committee of both Houses of Parliament in May, 1954. The Joint Committee submitted its report in May, 1955,, making some material amendments to the Bill. The Bill, as amended by the Joint Committee, underwent some, further amendments in the Parliament and was passed in November, 1955. The new Companies Act came into force, from 1st April, 1956., It was enacted with a view to consolidate and amend the earlier laws relating to companies and certain other, associations. This Act was the longest piece of legislation ever passed by our Parliament. Amendments have been, made in this Act periodically. The Companies Act, 1956 consisted of 658 Sections and 15 Schedules., Full and fair disclosure of various matters in prospectus; detailed information of the financial affairs of company to, be disclosed in its account; provision for intervention and investigation by the Government into the affairs of a
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Lesson 1 • Introduction to Company Law, , 5, , company; restrictions on the powers of managerial personnel; enforcement of proper performance of their duties, by company management; and protection of minority shareholders were some of the main features of the Companies, Act, 1956., The Companies Act, 1956 was enacted with the object to amend and consolidate the law relating to companies. This, Act provided the legal framework for corporate entities in India and was a mammoth legislation. As the corporate, sector grew in numbers and size of operations, the need for streamlining this Act was felt and as many as 24, amendments had taken place since then., Amendments brought in the Companies Act, 1956, , The Companies, (Amendment) Act,, 1960, , Based on the recommendations of Shastri Committee, this introduced several new, provisions relating to various aspects of company management which were overlooked, in the 1956 Act., , The Companies, (Amendment) Act,, 1965, , Based on the recommendations of the Vivian Bose Commission, this introduced some, major changes, such as clear definition of the main and subsidiary objects of a company, in its Memorandum of Association; Strengthening the provisions relating to investigation, into the affairs of the company, etc. The Companies Act was further amended twice in 1966., , The Companies, (Amendment) Act,, 1963, , The Companies, (Amendment) Act,, 1969, The Companies, (Amendment) Act,, 1974, , This provided for the appointment of a Companies Tribunal and constitution of the, Board of Company Law Administration. It also empowered the Central Government to, remove managerial personnel involved in cases of fraud, etc., , Two important changes were introduced through this. The institutions of managing, agents and secretaries and treasurers were abolished with effect from April 3, 1970., Secondly, contributions by companies to any political party or for any political purpose, were prohibited., This introduced some important and major changes in the Companies Act, 1956. The, object of the Amendment Act was to inject an element of public interest in the working, of the corporate sector., , The Companies, This brought about certain changes in Sections 58A, 220, 293, 620 and 634A of 1956, (Amendment) Act, 1977 Act., The Companies, (Amendment) Act,, 1985, , The amending Act substituted Section 293A of Companies Act, 1956 with a new section, permitting Non-Government companies to make political contributions, directly or, indirectly., , The Companies, (Amendment) Act,, 1988, , Based on the recommendations made by the Expert Committee (Sachar Committee),, the Companies (Amendment) Act, 1988 substantially amended the Companies Act,, 1956 in order to streamline some of the existing provisions of the Companies Act, 1956, and to ensure better working and administration of the Act. The important changes, introduced by the Amendment Act of 1988 were:, , With a view that legitimate dues of workers rank pari passu with secured creditors in, the event of closure of the company and rank above even the dues to Government,, Sections 529 and 530 of the Companies Act, 1956, were amended and a new Section, 529A was introduced., , (a) Definition of Secretary brought in line with the definition of ‘Company Secretary’ in, the Company Secretaries Act, 1980 and includes an individual possessing the, prescribed qualifications., (b) The concept of Company Secretary in practice was introduced for the first time in, the Companies Act. The Amended Act, among other things, also set up an independent, Company Law Board to exercise such judicial and quasi-judicial functions, earlier, being exercised either by the Court or the Central Government.
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6, , Lesson 1 • EP-CL, , , , The Depositories Act,, 1996, The Companies, (Amendment) Act,, 1999, , Dematerialization of securities was introduced by the Depositories Act, 1996 and, accordingly amendments were made to register of members and several other, consequential things were incorporated., The following major changes to the Companies Act, 1956:a), , Companies allowed to issue Sweat Equity shares and to buy-back their own securities., , c), , An Investor Education and Protection Fund to be established., , b), d), e), , The Companies, (Amendment) Act,, 2000, , The Companies, (Amendment) Act,, 2006, , National Advisory Committee on Accounting Standards for companies to be, established., Prior approval of Central Government not required for inter-corporate, investment/lending proposals subject to certain conditions., , The following major amendments were introduced:, a), , Private Companies and Public Companies to have a minimum paid-up capital of, Rupees one lakh and five lakh respectively., , c), , SEBI given powers regarding issue and transfer of securities and non-payment of, dividend by listed public companies., , b), , d), The Companies, (Amendment) Act,, 2002 and Companies, (Second Amendment), Act, 2002 (not, enforced), , Facility for nomination provided for the benefit of share/debenture/deposit holders., , Provisions relating to deemed public companies became inoperative and a new, provision relating to conversion of a public company to a private company, inserted in the Companies Act, 1956., Every listed company making initial public offer of any security for a sum of Rupees, ten crores or more will have to issue the same only in a dematerialised form., , The following changes to the Companies Act, 1956:a), , New Part IXA consisting of Section 581A to 581ZT relating to Producer Companies, inserted., , c), , The Board for Industrial and Financial Reconstruction was to be abolished and, SICA was proposed to be repealed., , b), , The existing Company Law Board was proposed to be dissolved and in its place a, National Company Law Tribunal (Tribunal) was to be constituted., , This inserted new Sections 610B, 610C, 610D and 610E and also certain sections, pertaining to Director Identification Number (DIN). With the advent of new technologies, this amendment introduced electronic filing, DIN, maintenance of electronic records in, consistency with Information Technology Act, 2000., , CONCEPT PAPER ON COMPANY LAW, 2004 & J.J. IRANI REPORT, Background, •, •, , The Companies Act 1956 was enacted on the recommendations of the Bhaba Committee set up in 1950 with, the object to consolidate the existing corporate laws and to provide a new basis for corporate operation in, independent India. With enactment of this legislation in 1956, the Companies Act 1913 was repealed., The Companies Act, 1956, has since provided the legal framework for corporate entities in India. The need, for streamlining this Act was felt from time to time as the corporate sector grew in pace with the Indian
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Lesson 1 • Introduction to Company Law, , •, , •, , 7, , economy, with as many as 24 amendments taking place since 1956. Major amendments to the Act were made, through Companies (Amendment) Act, 1988 after considering the recommendations of the Sachar Committee,, and then again in 1998, 2000 and finally in 2002 through the Companies (Second Amendment) Act 2002,, consequent to the report of the Eradi Committee., , Many countries faced with the task of economic restructuring in response to the realities of a changing, economic environment, have undertaken comprehensive revisions of their respective corporate laws. UK, Companies Act was revised during the 1980s. Subsequently, many countries whose legal systems were, derived from UK, such as Australia, New Zealand, Canada etc also undertook reviews of their corporate laws, and brought about several comprehensive reforms. It is widely accepted that reform and updation of the, basic legal framework for corporate entities is essential to enable sustainable economic reform., It was felt there is a requirement for simplifying corporate laws so that they are amenable to clear, interpretation and provide a framework that would facilitate faster economic growth. It also recognized that, the framework for regulation of corporate entities has to be in tune with the emerging economic scenario,, encourage good corporate governance and enable protection of the interests of the investors and other, stakeholders. In the competitive and technology driven business environment, while corporates require, greater autonomy of operation and opportunity for self-regulation with optimum compliance costs, there is, a need to bring about transparency through better disclosures and greater responsibility on the part of, corporate owners and managements for improved compliance., , Thus, to frame a law that enables companies to achieve global competitiveness in a fast changing economy, the, Government had taken up a fresh exercise for a comprehensive revision of the Companies Act, 1956, albeit through, a consultative process. As the first step in this direction, a Concept Paper on Company Law drawn up in the legislative, format was exposed for public viewing on the electronic media so that all interested parties may not only express, their opinions on the concepts involved but may also suggest formulations on various aspects of Company Law., , The response to the concept paper on Company Law was tremendous. The Government, therefore, felt it appropriate, that the proposals contained in the Concept Paper and suggestions received thereon be put to merited evaluation, by an independent Expert Committee. A Committee was constituted on 2nd December, 2004 under the Chairmanship, of Dr. J J Irani, the then Director, Tata Sons, with the task of advising the Government on the proposed revisions to, the Companies Act, 1956 with the objective to have a simplified compact law that will be able to address the changes, taking place in the national and international scenario, enable the adoption of internationally accepted best practices as, well as provide adequate flexibility for timely evolution of new arrangements in response to the requirements of everchanging business models. The Committee submitted its report to the Government on 31st May 2005., Dr. J J Irani Expert Committee on Company Law had submitted its report charting out the road map for a flexible,, dynamic and user-friendly new company law. The Committee had taken a pragmatic approach keeping in view the, ground realities, and had sought to address the concerns of all the stakeholders to enable adoption of internationally, accepted best practices. As one wades through the report, one finds an arduous zeal to ensure that flexibility is, coupled with accountability and transparency. Be it the role of directors in the management of the company or the, role of promoters at the time of incorporation or the responsibility of professionals in ensuring better governance,, the report had made very dynamic and balanced recommendations. The Report of the Committee had also sought, to bring in multifarious progressive and visionary concepts and endeavored to recommend a significant shift from, the “Government Approval Regime” to a “Shareholder Approval and Disclosure Regime”., , The Expert Committee had recommended that private and small companies need to be given flexibilities and, freedom of operations and compliance at a low cost. Companies with higher public interest should be subject to a, stricter regime of Corporate Governance. Further, Government Companies and Public Financial Institutions should, be subject to similar parameters with respect to disclosures and Corporate Governance as other companies are, subjected to., , To attune the Indian Company Law with the global reforms taking place in the arena, the Report of the Committee, had sought to bring in multifarious visionary concepts, which if accepted and acted upon would really simplify the, voluminous and cumbersome Companies Act in the country.
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8, , , , The Companies Act, 2013, , Lesson 1 • EP-CL, , The Companies Act, 2013 received the assent of the President on August 29, 2013 and was notified in the Gazette of, India on August 30,2013. It empowers the Central Government to bring into force various sections from such date(s), as may be notified in the Official Gazette., , The Companies Act, stipulates enhanced self-regulations coupled with emphasis on corporate democracy and, provides for amongst others, business friendly corporate regulation / pro-business initiatives, e-governance, initiatives, good corporate governance, Corporate Social Responsibility (CSR), enhanced disclosure norms, enhanced, accountability of management, stricter enforcement, audit accountability, protection for minority shareholders,, investor protection and activism and better framework for insolvency regulation and institutional structure., The Companies Act, 2013 has undergone amendments five times so far. The Companies (Amendment) Act, 2015,, The Insolvency and Bankruptcy Code, 2016, The Companies (Amendment) Act, 2017, and The Companies, (Amendment) Act, 2019 and The Companies (Amendment) Act, 2020 amended The Companies Act, 2013. So far, Ministry has come out with several circulars, notifications, Orders and various amendment rules to facilitate better, and smooth implementation of the Act., The Companies Act 2013 introduced new concepts supporting enhanced disclosure, accountability, better board, governance, better facilitation of business and so on. It includes associate company, one person company, small, company, dormant company, independent director, women director, resident director, special court, secretarial, standards, secretarial audit, class action, registered valuers, rotation of auditors, vigil mechanism, corporate social, responsibility, E-voting etc., , Reading Methodology of the Companies Act, 2013 and its legal aura, , The Companies Act, 2013 is not a standalone piece of legislation but a complete ecosystem. It contains Orders,, Rules, Notifications and Circulars. One should read each Section of the Act, with relevant Rule, Notification and, Circular., The Act is a superior authority in law passed by the Legislature. Notifications and Rules are notified by the Executive, under the powers derived from the Act itself., Understanding the structure of Companies Act and the manner of identifying complementary legislations., The Principal Legislation/Statute, Statute law is the body of law contained in Acts of Parliament. The Companies Act, 2013 is principal legislation., , Schedules- It is appended to an Act, to form part of it. They are generally added to avoid encumbering the statutes, with matter of excessive details., Delegated Legislations, , Delegated legislation (subordinate legislation) is a legislation made under powers conferred by an Act of Parliament, (an enabling statute, of ten called the parent Act). Here Parent Act is The Companies Act and the delegated legislations, are Rules notified by Ministry of Corporate Affairs. Example Companies (Corporate Social Responsibility Policy), Rules 2014., , Rule, Regulation or By-Laws must not be ultra-vires, that is to say, if a power exists by statute to make rules,, regulations, by laws, forms etc., that power must be exercised strictly in accordance with the provisions of the, statute which confers the power, for a rule, etc.,if ultra-vires it will be held incapable of being enforced., Before a Rule can have the effect of a statutory provision, two conditions must be fulfilled, namely (1) It must, confirm to the provision of statute under which it is framed; and (2) It must also come within the scope and purview, of the rule making power of the authority framing the rule. If either of these two conditions is not fulfilled, the rules, so framed would be void.
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Lesson 1 • Introduction to Company Law, , 9, , Notifications/Circulars/Clarifications by Ministry of Corporate Affairs, A Notification means a notification published in the Official Gazette and the expression ‘notify’ and ‘notified’ shall, be construed accordingly., , In Bachu Lal vs. State-Allahabad High Court, it was held that the words “notification, orders, rules and by-laws” have, no reference to judicial orders the passing and cancellation whereof is subject to and regulated by the procedural, law of the land., The Ministry of Corporate Affairs (MCA) has been entrusted with the responsibility of administering the Companies, Act, 2013 (Act). The MCA, from time to time, issues circulars and clarifications to clarify the provisions of the Act, and the rules made thereunder (Rules)., , The Circulars are issued by the Department interpreting a particular provision of the Act or the Rule in certain, circumstances. The Companies Act, 2013 does not empower the Department to issue circular., In a series of judicial decisions, the Supreme Court has consistently held that clarificatory circulars cannot amend, or substitute statutory rules. But if the Act or the Rules are silent then the Government can issue clarifications to, supplement the Rules by issuing instructions., , Notifications under Section 462 exempt certain companies from the applicable provision of the Act. At the time of, reading a Section mentioned under an Exemption Notification dealing with a certain class of companies, one must, read such Section in respect of that class of companies as amended by the Exemption Notification for that class., Exemption notifications effectively amend these Sections for the purpose of the class of companies with which the, Exemption Notification deals., The Central Government may amend schedules of the Act using power given under Section 467. Schedules must be, read with the main Section., , Wherever a Section of the Companies Act, 2013 use words “as may be prescribed” it is an indication the Legislature, has delegated powers to the Executive on that particular point. Section 469 empowers the Central Government to, make rules for Sections which do not delegate such powers to the Central Government., While provisions of the Act along with Exemption Notifications and Schedules, deals with the policy framework of, the law; rules deals with the procedures. Rules cannot change policy framework in any manner and cannot override, substantial provision of the Section empowering the Rules., , Secretarial Standards are standards prepared by Institute of Company Secretaries of India to standardize secretarial, practices under the Companies Act and other areas related to Secretarial Practices. By virtue of Explanation to, Section 205(1), secretarial standards issued by the Institute of Company Secretaries of India constituted under, section 3 of the Company Secretaries Act, 1980 and approved by the Central Government are part of law itself., Further Section 118(10) mandates that every company shall observe secretarial standards with respect to General, and Board meetings., This whole ecosystem is called the Companies Law and should be read collectively and comprehensive., , How to read and understand a Section?, , The Companies Act, 2013 is to be read with relevant Rules, Schedules under Companies Act, Circulars/ Clarifications, issued by Ministry of Corporate Affairs., For example Section 135 (Relating to Corporate Social Responsibility) is to be read with the Companies (Corporate, Social Responsibility Policy) Rules 2014, Schedule VII (Activities relating to Corporate Social Responsibility) and, circulars/clarifications issued by Ministry of Corporate Affairs on Section 135 & Rules made thereunder., Reading provisions of Companies Act, 2013 with delegated legislations, , For example when you read sections relating to issue of capital you should read the sections with Companies (Share, Capital and Debentures) Rules, Companies (Prospectus and Allotment of Securities) Rules. Besides, other legislative
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10, , , , Lesson 1 • EP-CL, , aspects including the provisions of SEBI Act, SEBI (ICDR) Regulations, SEBI (LODR) Regulations, provisions of, Depositories Act for dematerialization provisions and even the provisions of FEMA when the shares are issued to, non-residents, wherever applicable, are required to be read in collusion., Breaking sections into parts and preparing notes for each section:, , Company law is so wide that it cannot be easily remembered after only one reading. Students may make notes for, each topic about sections, the genesis, amendments notified, reasons for amendments along with delegated, legislation. They may also make notes on exemptions provided, exceptions and the reasons behind such exemptions/, exceptions. This will help in understanding the background of the provisions, the spirit of law and would help in, remembering the provisions also. The exemptions provided for certain class of companies under Section 462 of, Companies Act are provided in the e-book at MCA portal under respective sections., Students may break the sections at relevant places and giving emphasis on critical words and read for getting more, clarity., For examples Section 2(6) deals with the Definition of “Associate Company” which may be read with the following, breaks., “associate company”, in relation to another company…………/,, , means a company in which that other company has a significant influence………./,, , but which is not a subsidiary company of the company having such influence and ………/., includes a joint venture company., , Explanation.—For the purpose of this clause,—, (a), , (b), , the expression “significant influence” means control of at least twenty percent of total voting power, or, control of or participation in business decisions under an agreement;, the expression “joint venture” means a joint arrangement whereby the parties that have joint control of the, arrangement have rights to the net assets of the arrangement;, , Thus the definition can be read by breaking at the places as indicated above, by understanding the terms ‘joint, venture company’, ‘significant influence’ and the definition of subsidiary as mentioned in section 2(87)., Interpretations of some standard words and Phrases used in Statutes, , “Proviso”- A clause, as in a document or statute, that begins with the words “Provided that” is called ‘proviso’. The, term ‘proviso’ is defined as a clause making some condition or stipulation; a clause in a statute, deed, or other legal, document introducing a qualification or condition to some other provision, frequently the one immediately, preceding the proviso itself., It is well settled that “the effect of an excepting or qualifying proviso, according to the ordinary rules of construction,, is to except out of the preceding portion of the enactment, or to qualify something enacted therein, which but for, the proviso would be within it.”, “Notwithstanding anything contained”, Notwithstanding means, in spite of; without being opposed or prevented by; nevertheless; although, regardless of., A provision in a statute beginning with the words ‘Notwithstanding anything contained’ is called a ‘non-obstante’, provision and is generally used in a statute to give an overriding effect to a particular section or the statute as a, whole. A non-obstante clause is used in a statutory drafting to create an exception to or override the provision, which this phrase follows., “Subject to”- The ordinary meaning of the phrase ‘subject to’ is being dependent upon; conditional upon;, subordinate to; subservient to something else to happen or to be true; that on the condition of the provisions of the, specified section being observed or complied with. It is used to express the intention that when while complying, with one statutory provision, another provision relating to the subject matter also must be complied with.
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Lesson 1 • Introduction to Company Law, , 11, , “Nothing contained in this section” shall apply, The phrase “Nothing in this section shall apply” or “Nothing contained in this section shall apply”, is frequently used, in legislative drafting. Literally, it means anything contained in the preceding part of the section would not apply, in the situation stated in the provision that begins with this phrase., “Without prejudice to the provisions contained in this Act/any other Act”, The phrase ‘without prejudice’ means without dismissing, damaging, or otherwise affecting; without detriment;, harm. So when one provision says ‘without prejudice to any other provision’, it means that no other provision is, affected by that provision or that other provisions remain unaffected. This is a qualifying phrase used in statutory, drafting in a provision to protect the operation of another provision which it refers to. In other words, both the, provisions operate independently., “That is to say”, This phrase explains or clarifies the preceding word, phrase or expression., “For the purposes of this section/provision/definition”, It has limited applicability; it apples to only the relevant section / provision/ definition but applies to the whole of it., “As the case may be”- The phrase is used when in a provision two or more things are covered and the provision is, applicable to both or all of them., “Shall”-When used in a statute, the presumption is that its use is mandatory and not merely directory., “May” is either permissive or directory., , Reforms brought under the Companies Act, 2013 for Ease of Doing Business, The enactment of the Companies Act, 2013 allowed India to have a modern legislation for growth and regulation of, corporate sector in India. The Act was enacted in light of the changing economic and business environment both, domestically and globally to facilitate business-friendly corporate regulations, improve corporate governance, norms, enhances accountability on the part of corporates and auditors, raise levels of transparency and protect, interests of investors, particularly small investors. The objective of the Companies Act, 2013 is to provide business, friendly corporate regulation/ pro-business initiatives; e-Governance Initiatives; good corporate governance and, CSR; enhanced disclosure norms; enhanced accountability of management; stricter enforcement of laws; audit, accountability; Protection for minority shareholders; Investor protection and Shareholder activism; Robust, framework for insolvency regulation; and Institutional structure. Initially, it seems that changes in the Companies, Act, 2013 will brought out the significant changes in the manner of doing business in India. It becomes true, when, the initial unrest of business community was taken to the Government and to address the practical difficulties faced, by the business community upon notification of the various provisions of the Act and Rules made thereunder and, the term “Ease of Doing Business” was popularised in India. On Ease of Doing Business front, the Government of, India has enacted the series of amendments, relaxation, exemptions and simplification in the various Acts, Rules,, Regulations etc. covering various business related issues and processes and also extends support to facilitate ease, of doing business. In the series the Companies Act, 2013 has also been amended to extend relief to the business, entities governed under the Companies Act, 2013. The object and rationale for such amendments are discussed, below:, The Companies (Amendment) Act, 2015, , The Companies (Amendment) Act, 2015 addressed the initial practical difficulties experienced from implementation, of the provisions of the Act and difficulties faced by the companies / stakeholders / Professionals in complying with, some of the provisions of the Companies Act, 2013.
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12, , , , Lesson 1 • EP-CL, , The Companies (Amendment) Act, 2015 was enacted after it received the President’s assent on 25th May 2015., Company Law Committee and The Companies (Amendment) Act, 2017, , During the consideration of the Companies (Amendment) Act, 2015 in the Rajya Sabha, views were expressed that, more amendments would be required; accordingly, the Government has constituted a Companies Law Committee, on 4th June, 2015. The terms of references of the Committee are:, (i), , (ii), , to make recommendations to the Government on issues arising from the implementation of the Companies, Act, 2013; and, , to examine the recommendations received from the Bankruptcy Law Reforms Committee, the High Level, Committee on CSR, the Law Commission and other agencies, while undertaking (i) above. The report of the, CLC was submitted to the Government on the 1st February, 2016 and the Companies (Amendment) Bill, 2016, introduced in Lok Sabha on 16 March, 2016 is based on the recommendations of the Companies Law, Committee after taking into account the comments received on the report. The amendments proposed,, inter-alia, include changes in definitions to remove ambiguities; allowing greater flexibility in incorporating, and running a company by simplifying Memorandum of Association and doing away with Central Government, approvals, etc.; easing raising of capital, procedures; rationalizing penal provisions related to auditors,, reconciling the competing objectives of improving corporate governance, incentivising individuals to take up, positions of responsibility in boards and reducing compliance cost. The report have also recommended some, changes to remove ambiguities in the CSR provisions based on the recommendations of the High Level, Committee on CSR., , The Companies (Amendment) Bill 2016, was referred to the Standing Committee on Finance on 12th April 2016 for, examination and report thereon. The Standing Committee on Finance Committee submitted it’s report on 07,, December, 2016, which was further placed before the Lok Sabha on 27th July, 2017 and Passed in Rajya Sabha on, 19th December, 2017., The Companies (Amendment) Act, 2017, , The subsequent amendments in Companies Act, 2013 was made through the Companies (Amendment) Act, 2017, which was expected to ensure better corporate governance and improve the ease of doing business by simplify, procedures, making compliance easier and taking stringent action against defaulting companies, strengthen, corporate governance standards, achieve better harmonization with other statutes and address difficulties in, implementation of the Companies Act, 2013., Committee on review of Offences under the Companies Act, 2013 & the Companies (Ordinance), 2018, , In order to review the framework dealing with offences under the Companies Act, 2013 and related matters and to, make recommendations to promote better corporate compliance, the Government of India has constituted a, Committee on review of Offences under Companies Act, 2013 in July, 2018 and the said Committee, submitted its, report in August, 2018., The Committee recommended that the existing rigour of the law should continue for serious offences, whereas the, lapses that are essentially technical or procedural in nature may be shifted to in-house adjudication process. The, Committee observed that this would serve the twin purposes of promoting of ease of doing business and better, corporate compliance. It would also reduce the number of prosecutions filed in the Special Courts which would in, turn facilitate speedier disposal of serious offences and the offenders shall be penalised., The liability under section 447 which deals with corporate fraud would continue to apply wherever fraud is noticed., The Committee also recommend suitable amendments for significant reduction in compounding cases before the, Tribunal, declaration of commencement of business, maintenance of a registered office, protection of depositors, registration and management of charge declaration of significant beneficial ownership and independence of, independent director.
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Lesson 1 • Introduction to Company Law, , 13, , After the submission of the Report, the immediate relief were expected by the Corporate and Stake holders, However,, at that time the parliament was not in session, to provides the immediate relief, the Ordinance in need to be issued, by the Government of India, accordingly the Companies (Amendment) Ordinance, 2018 was promulgated by the, President on the 2nd day of November, 2018., , In order to give continued effect to the Companies (Amendment) Ordinance, 2018, the President promulgated the, Companies (Amendment) Ordinance, 2019 and the Companies (Amendment) Second Ordinance, 2019 on the 12th, day of January, 2019 and the 21st day of February, 2019 respectively. With the constitution of new assembly, The, Companies (Amendment) Bill, 2019 was introduced in Lok Sabha on July 25, 2019, to replace the Companies, (Amendment) Second Ordinance, 2019 with certain other amendments which are considered necessary to ensure, more accountability and better enforcement to strengthen the corporate governance norms and compliance, management in corporate sector. The Companies (Amendment) Bill, 2019 passed in Lok Sabha on 26th July, 2019, and on 30th July, 2019 in the Rajya Sabha., The Companies (Amendment) Act, 2019, , The Companies (Amendment) Act, 2019 received the President assent on 31st July, 2019 and replaced the Companies, (Amendment) Second Ordinance, 2019. It provided certain additional amendments, inter-alia, for the Ease of Doing, Business, including:, i., , Amendment in clause (41) of section 2 of the Companies Act, 2013 so as to empower the Central Government, to allow certain companies to have a different financial year instead of as determined by the Tribunal;, , iii., , Amendment in section 135 of the Act so as to bring clarity to –, , ii., , iv., , Amendment in sixteen sections of the Act so as to modify the punishment as provided in the said sections, from fine to monetary penalties to lessen the burden upon the Special Courts;, (a), , (b), , carry forward the unspent corporate social responsibility amount, to a special account to be spent, within three financial years and transfer thereafter to the Fund specified in Schedule VII, in case of an, ongoing project; and, transfer the unspent amount to the Fund specified under Schedule VII, in other cases;, , Amendment in section 441 of the Act so as to enhance the jurisdiction of the Regional Director for compounding, the offences., , The Companies (Amendment) Act, 2020, , In view of constant effort of Government of India to facilitate ease of doing business in India to the corporates, a, Company Law Committee (CLC) consisting of representatives from Ministry of Corporate Affairs, industry chambers,, professional institutes and legal fraternity was constituted on the September 18, 2019 headed by Mr. Injeti Srinivas, (Secretary of MCA), to give recommendations to decriminalize some more provisions of the Companies Act, 2013, and facilitate ease of living related changes., Company Law Committee submitted its report on November 14, 2019. On the basis of this report, the Finance, Ministry has proposed some major amendments in the Companies Act, 2013 under the Companies Amendment Bill,, 2020 which was introduced in Lok Sabha on March 17, 2020. Later it was passed by the Lok Sabha on September, 19, 2020 and by the Rajya Sabha on September 22, 2020. Finally on September 28, 2020, the Companies (Amendment), Act, 2020 received the assent of Hon’ble President of India., , Based on the recommendations of the CLC and internal review by the Government, the government has amended, various provisions of the Act to decriminalise minor procedural or technical lapses under the provisions of the, said Act, into civil wrong; and considering the overall pendency of the courts, a principle based approach was, adopted to further remove criminality in case of defaults, which can be determined objectively and which, otherwise lack any element of fraud or do not involve larger public interest. In addition, the Government also, proposes to provide greater ease of living to corporates through certain other amendments to the Companies, Act, 2013.
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14, , Lesson 1 • EP-CL, , , , AGENCIES UNDER MCA-21, The Ministry of Corporate Affairs (MCA) is, primarily concerned with administration of the, Companies Act 2013, the Limited Liability, Partnership Act, 2008 & other allied Acts and rules, & regulations framed there-under mainly for, regulating the functioning of the corporate sector, in accordance with law., , Besides, it exercises supervision over the three, professional bodies, namely, Institute of Chartered, Accountants of India (ICAI), Institute of Company, Secretaries of India (ICSI) and the Institute of Cost, Accountants of India which are constituted under, three separate Acts of the Parliament for proper and, orderly growth of the professions concerned., The Ministry also has the responsibility of carrying, out the functions of the Central Government, relating to administration of Partnership Act,, 1932, the Companies (Donations to National, Funds) Act, 1951 and Societies Registration Act,, 1980 etc., , ROC, , NCLT/, NCLAT, , RD, , MCA, OL, , NFRA, , SFIO, , Registrar of Companies (ROC) as defined under Section 2 (75) of the Companies Act, 2013 means a Registrar, an, Additional Registrar, a Joint Registrar, a Deputy Registrar or an Assistant Registrar, having the duty of registering, companies and discharging various functions under this Act., Registrars of Companies (ROC) appointed in the various States and Union Territories are vested with the primary, duty of registering companies and LLPs floated in the respective states and the Union Territories and ensuring that, such companies and LLPs comply with statutory requirements under the Act. These offices function as registry of, records, relating to the companies registered with them, which are available for inspection by members of public on, payment of the prescribed fee. The Central Government exercises administrative control over these offices through, the respective Regional Directors., , Regional Director (RD) is in-charge of the respective region, each region comprising a number of States and Union, Territories. They supervise the working of the offices of the Registrars of Companies and the Official Liquidators, working in their regions. They also maintain liaison with the respective State Governments and the Central, Government in matters relating to the administration of the Companies Act and LLP Act. Certain powers of the, Central Government under the Act have been delegated to the Regional Directors. They have also been declared as, heads of Department., Official Liquidators (OL) means an Official Liquidator appointed under sub-section (1) of section 359 of the, Companies Act, 2013., , As per Section 359 (1) of the Companies Act, 2013, for the purposes of this Act, so far as it relates to the winding up, of companies by the Tribunal, the Central Government may appoint as many Official Liquidators, Joint, Deputy or, Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official Liquidator., The liquidators appointed shall be whole-time officers of the Central Government. The salary and other allowances, of the Official Liquidator, Joint Official Liquidator, Deputy Official Liquidator and Assistant Official Liquidator shall, be paid by the Central Government.
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Lesson 1 • Introduction to Company Law, , 15, , Serious Fraud Investigation Office (SFIO)- The Government in the backdrop of major failure of non-banking, financial institutions, phenomenon of vanishing companies, plantation companies and the recent stock market, scam had decided to set up Serious Fraud Investigation Office (SFIO), a multi-disciplinary organization to investigate, corporate frauds. The Organization has been established and it has started functioning since 1st October, 2003., , The SFIO is expected to be a multi-disciplinary organisation consisting of experts in the field of accountancy, forensic, auditing, law, information technology, investigation, company law, capital market and taxation for detecting and, prosecuting or recommending for prosecution white collar crimes/frauds., The National Financial Reporting Authority (NFRA) was constituted on 01st October, 2018 by the Government, of India under Sub Section (1) of section 132 of the Companies Act, 2013., As per Sub Section (2) of Section 132 of the Companies Act, 2013, the duties of the NFRA are to:, •, , Recommend accounting and auditing policies and standards to be adopted by companies for approval by the, Central Government;, , •, , Oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures for improvement in the quality of service;, , •, •, , Monitor and enforce compliance with accounting standards and auditing standards;, , Perform such other functions and duties as may be necessary or incidental to the aforesaid functions and duties., , Sub Rule (1) of Rule 4 of the NFRA Rules, 2018 , provides that the Authority shall protect the public interest and the, interests of investors, creditors and others associated with the companies or bodies corporate governed under Rule, 3 by establishing high quality standards of accounting and auditing and exercising effective oversight of accounting, functions performed by the companies and bodies corporate and auditing functions performed by auditors., National Company Law Tribunal/National Company Law Appellate Tribunal (NCLT/NCLAT) - The setting up, of the NCLT and NCLAT are part of the efforts to move to a regime of faster resolution of corporate disputes, thus, improving the ease of doing business in India. The Ministry of Company Affairs (MCA) on 1st June, 2016 notified the, Constitution of National Company Law Tribunal (NCLT) & The National Company Law Appellate Tribunal (NCLAT), in exercise of powers conferred under section 408 and 410 of the Companies Act, 2013., , The constitution of NCLT & NCLAT was a step towards improving and easing all the judicial matters relating to the, Company law under one roof., , MEANING AND DEFINITION OF A COMPANY, , Lets’ now understand what is a company and how it is positioned, The word ‘company’ is derived from the Latin word (Com=with or together; panis =bread), and it originally referred, to an association of persons who took their meals together. In the leisurely past, merchants took advantage of, festive gatherings, to discuss business matters. Nowadays, the company form of organization has assumed great, importance. When they forms their business relations they form a company. In popular parlance, a company or firm, denotes an association of likeminded persons formed for the purpose of carrying on some business or undertaking., A company under law is a corporate body and a legal person having status and personality distinct and separate, from the members constituting it., , It is called a body corporate because the persons composing it are made into one body by incorporating it, according to the law and clothing it with legal personality. The word ‘corporation’ is derived from the Latin, term ‘corpus’ which means ‘body’. Accordingly, ‘corporation’ is a legal person created by a process other than, natural birth. As a legal person, a corporate is capable of enjoying many rights and incurring many liabilities of, a natural person., An incorporated company owes its existence either to a Special Act of Parliament or to Company Law. Public, corporations like Life Insurance Corporation of India, SBI etc., have been brought into existence through special, Acts of Parliament, whereas companies like Tata Steel Ltd., Reliance Industries Limited have been formed under the, Company law i.e. Companies Act, 1956 which is replaced by the Companies Act, 2013.
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16, , Lesson 1 • EP-CL, , , , In the legal sense, a company is an association of both natural and artificial persons and is incorporated under the, existing law of a country., , In terms of the Companies Act, 2013 (Act No. 18 of 2013) a “company” means a company incorporated under, this Act or under any previous company law [Section 2(20)]., In common law, a company is a “legal person” or “legal entity” separate from, and capable of surviving beyond the, lives of its members. A company is rather a legal device for the attainment of social and economic end. It is, therefore,, a combined political, social, economic and legal institution. Thus, the term company has been described in many, ways. “It is a means of cooperation and organisation in the conduct of an enterprise”. It is “an intricate, centralised,, economic and administrative structure run by professional managers who hire capital from the investor(s)”., , Lord Justice Lindley has defined a company as “an association of many persons who contribute money or money’s, worth to a common stock and employ it in some trade or business and who share the profit and loss arising, therefrom. The common stock so contributed is denoted in money and is the capital of the company. The persons, who contributed in it or form it, or to whom it belongs, are members. The proportion of capital stock to which each, member has contributed entitled is his “share”. The shares are always transferable although the right to transfer, them may be restricted.”, , NATURE AND CHARACTERISTICS OF A COMPANY, , Since a corporate body (i.e. a company) is the creation of law, it is not a human being, it is an artificial juridical, person (i.e. created by law) and it is clothed with many rights, obligations, powers and duties prescribed by law., The most striking characteristics of a company are discussed below:, (i), , Corporate personality, , A company incorporated under the Act is vested with a corporate personality so it bears its own name, acts, under name, may has a seal of its own and its assets are separate and distinct from those of its members. It is, a different ‘person’ from the members who compose it. Therefore, it is capable of owning property, incurring, debts, borrowing money, having a bank account, employing people, entering into contracts and suing or, being sued in the same manner as an individual. Its shareholders are its notional owners and do not own, anything in it except ownership of shares issued and they can be its creditors simultaneously. A shareholder, cannot be held liable for the acts of the company even if he holds virtually the entire share capital., , The shareholders are not the agents of the company and so they cannot bind it by their acts. The company, does not hold its property as an agent or trustee for its members and they cannot sue to enforce its rights, nor, can they be sued in respect of its liabilities. Thus, ‘incorporation’ is the act of forming a legal corporation as a, juristic person. A juristic person is in law also conferred with rights and obligations and is dealt in accordance, with law. In other words, the entity acts like a natural person but only through a designated person, whose, acts are processed within the ambit of law [Shiromani Gurdwara Prabandhak Committee v. Shri Sam Nath Dass, AIR 2000 SCW 139]., , Case Law:, The case of Salomon v. Salomon and Co. Ltd., (1897) A.C. 22, The above case has clearly established the principle that once a company has been validly constituted, under the Companies Act, it becomes a legal person distinct from its members and for this purpose it is, immaterial whether any member holds a large or small proportion of the shares, and whether he holds, those shares as beneficially or as a mere trustee., In the case, Salomon had, for some years, carried on a prosperous business as a leather merchant and, boot manufacturer. He formed a limited company consisting of himself, his wife, his daughter and his four, sons as the shareholders, all of whom subscribed to 1 share each so that the actual cash paid as capital
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Lesson 1 • Introduction to Company Law, , 17, , was £7. Salomon sold his business (which was perfectly solvent at that time), to the Company formed by, him for the sum of £38,782. The company’s nominal capital was £40,000 in £1 shares. In part payment of, the purchase money for the business sold to the company, debentures of the amount of £10,000 secured, by a floating charge on the company’s assets were issued to Salomon, who also applied for and received, an allotment of 20,000 £ 1 fully paid shares. The remaining amount of £8,782 was paid to Salomon in, cash. Salomon was the managing director and two of his sons were other directors., , The company soon ran into difficulties and the debenture holders appointed a receiver and the, company went into liquidation. The total assets of the company amounted to £6050, its liabilities, were £10,000 secured by debentures, £8,000 owing to unsecured trade creditors, who claimed the, whole of the company’s assets, viz., £6,050, on the ground that, as the company was a mere ‘alias’ or, agent for Salomon, they were entitled to payment of their debts in priority to debentures. They, further pleaded that Salomon, as a principal beneficiary, was ultimately responsible for the debts, incurred by his agent or trustee on his behalf., Their Lordships of the House of Lords observed:, , “…the company is a different person altogether from the subscribers of the memorandum; and though it, may be that after incorporation the business is precisely the same as before, the same persons are, managers, and the same hands receive the profits, the company is not, in law, their agent or trustee. The, statute enacts nothing as to the extent or degree of interest, which may, be held by each of the seven or, as to the proportion of interest, or influence possessed by one or majority of the shareholders over, others. There is nothing in the Act requiring that the subscribers to the memorandum should be, independent or unconnected, or that they or any of them should take a substantial interest in the, undertakings, or that they should have a mind or will of their own, or that there should be anything like, a balance of power in the constitution of company.”, , Case Law:, The case of Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.), The above case illustrates the application of the principles established in Salomon’s case (supra). In this, case, a company was formed for the purpose of aerial top-dressing. Lee, a qualified pilot, held all but one, of the shares in the company. He voted himself the managing director and got himself appointed by the, articles as chief pilot at a salary. He was killed in an air crash while working for the company. His widow, claimed compensation for the death of her husband in the course of his employment. The company, opposed the claim on the ground that Lee was not a worker as the same person could not be the employer, and the employee. The Privy Council held that Lee and his company were distinct legal persons which had, entered into contractual relationships under which he became the chief pilot, a servant of the company., In his capacity of managing director he could, on behalf of the company, give himself orders in his other, capacity of pilot, and the relationship between himself, as pilot and the company, was that of servant and, master. Lee was a separate person from the company he formed and his widow was held entitled to get, the compensation. In effect the magic of corporate personality enabled him (Lee) to be the master and, servant at the same time and enjoy the advantages of both., The decision of the Calcutta High Court in Re. Kondoli Tea Co. Ltd., (1886) ILR 13 Cal. 43, recognised the, principle of separate legal entity even much earlier than the decision in Salomon v. Salomon & Co. Ltd., case. Certain persons transferred a Tea Estate to a company and claimed exemptions from ad valorem, duty on the ground that since they themselves were also the shareholders in the company, it was nothing, but a transfer from them in one name to themselves under another name. While rejecting this Calcutta, High Court observed:, “The company was a separate person, a separate body altogether from the shareholders and the transfer, was as much a conveyance, a transfer of the property, as if the shareholders had been totally different, persons.”
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18, , Lesson 1 • EP-CL, , , , Case Law:, New Horizons Ltd. v. Union of India, (AIR 1994, Delhi 126), The experience of a shareholder of a company can be regarded as experience of a company. The tender of, the company, New Horizons Ltd., for publication of telephone directory was not accepted by the Tender, Evaluation Committee on the ground that the company had nothing on record to show that it had the, technical experience required to be possessed to qualify for tender. On appeal the rejection of tender was, upheld by the Delhi High Court., The judgment of the Delhi High Court was reversed by the Supreme Court which observed as under:, , “Once it is held that NHL (New Horizons Ltd.) is a joint venture, as claimed by it in the tender, the, experience of its various constituents namely, TPI (Thomson Press India Ltd.), LMI (Living Media India, Ltd.) and WML (World Media Ltd.) as well as IIPL (Integrated Information Pvt. Ltd.) had to be taken into, consideration, if the Tender Evaluation Committee had adopted the approach of a prudent business man.”, , “Seeing through the veil covering the face of NHL, it will be found that as a result of re-organisation in, 1992 the company is functioning as a joint venture wherein the Indian group (TPI, LMI and WML) and Mr., Aroon Purie hold 60% shares and the Singapore based company (IIPL) holds 40% shares. Both the groups, have contributed towards the resources of the joint venture in the form of machines, equipment and, expertise in the field. The company is in the nature of partnership between the Indian group of companies, and Singapore based company who have jointly undertaken this commercial enterprise wherein they will, contribute to the assets and share the risk. In respect of such a joint venture company, the experience of, the company can only mean the experience of the constituents of the joint venture i.e. the Indian group of, companies (TPI, LMI and WML) and the Singapore based company (IIPL) (New Horizons Ltd. and another, v. Union of India (1995) 1 Comp. LJ 100 SC)., (ii), , Company as an artificial person, A Company is an artificial person created by law. It is not a human being but it acts through human beings., It is considered as a legal person who can enter into contracts, possess properties in its own name, sue and, can be sued by others etc. It is called an artificial person since it is invisible, intangible, existing only in the, contemplation of law. It is capable of enjoying rights and being subject to duties., Case Law:, , Union Bank of India v. Khader International Construction and Other [(2001) 42 CLA 296 SC], In this case, the question which arose before the Court was whether a company is entitled to sue as an, indigent (poor) person under Order 33, Rule 1 of the Civil Procedure Code, 1908. The aforesaid Order, permits persons to file suits under the Code as pauper/indigent persons if they are unable to bear the, cost of litigation., The appellant in this case had objected to the contention of the company which had sought permission to, sue as an indigent person. The point of contention was that, the appellant being a public limited company,, it was not a ‘person’ within the purview of Order 33, Rule 1 of the Code and the ‘person’ referred to only, a natural person and not to other juristic persons. The Supreme Court held that the word ‘person’, mentioned in Order 33, Rule 1 of the Civil Procedure Code, 1908, included any company as association or, body of individuals, whether incorporated or not. The Court observed that the word ‘person’ had to be, given its meaning in the context in which it was used and being a benevolent provision, it was to be given, an extended meaning. Thus a company may also file a suit as an indigent person., , (iii) Company is not a citizen, , The company, though a legal person, is not a citizen under the Citizenship Act, 1955 or the Constitution, of India. In State Trading Corporation of India Ltd. v. C.T.O., A.I.R. 1963 S.C. 1811, the Supreme Court held
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Lesson 1 • Introduction to Company Law, , 19, , that the State Trading Corporation though a legal person, was not a citizen and can act only through, natural persons. Nevertheless, it is to be noted that certain fundamental rights enshrined in the, Constitution for protection of “person”, e.g., right to equality (Article 14) etc. are also available to, company. Section 2(f ) of Citizenship Act, 1955 expressly excludes a company or association or body of, individuals from citizenship., Case Law:, , In R.C. Cooper v. Union of India, AIR 1970 SC 564, In this case, the Supreme Court held that where the legislative measures directly touch the company of, which the petitioner is a shareholder, he can petition on behalf of the company, if by the impugned action,, his rights are also infringed. In that case, the court entertained the petition under Article 32 of the, Constitution at the instance of a director as shareholder of a company and granted relief. It is, therefore,, to be noted that an individual’s right is not lost by reason of the fact that he is a shareholder of the, company., Case Law:, Bennet Coleman Co. v. Union of India, AIR 1973 SC 106, In this case, the Supreme Court stated that:, , (iv), , “It is now clear that the Fundamental Rights of shareholders as citizens are not lost when they associate, to form a company. When their Fundamental Rights as shareholders are impaired by State action, their, rights as shareholders are protected. The reason is that the shareholders’ rights are equally and necessarily, affected if the rights of the company are affected.”, , Company has Nationality and Residence, , Though it is established through judicial decisions that a company cannot be a citizen, yet it has nationality,, domicile and residence. In Gasque v. Inland Revenue Commissioners, (1940) 2 K.B. 88, Macnaghten. J. held that, a limited company is capable of having a domicile and its domicile is the place of its registration and that, domicile clings to it throughout its existence. He observed in this case:, , “It was suggested that a body corporate has no domicile. It is quite true that a body corporate cannot have a, domicile in the same sense as an individual. But by analogy with a natural person the attributes of residence,, domicile and nationality can be given to a body corporate.”, Case Law:, In Tulika v. Parry and Co., (1903) I.L.R. 27 Mad. 315, Kelly C.B. observed, “A joint stock company resides where its place of incorporation is, where the meetings of the whole, company or those who represent it are held and where its governing body meets in bodily presence for, the purposes of the company and exercises the powers conferred upon it by statute and by the Articles of, Association.”, (v), , Limited Liability, “The privilege of limited liability for business debts is one of the principal advantages of doing business, under the corporate form of organisation.” The company, being a separate person, is the owner of its assets, and bound by its liabilities. The liability of a member as shareholder, extends to the contribution to the capital, of the company up to the nominal value of the shares held and not paid by him. Members, even as a whole, are, neither the owners of the company’s undertakings, nor liable for its debts. In other words, a shareholder is
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20, , , , Lesson 1 • EP-CL, , liable to pay the balance, if any, due on the shares held by him, when called upon to pay and nothing more,, even if the liabilities of the company far exceed its assets. This means that the liability of a member is limited., For example, if A holds shares of the total nominal value of 1,000 and has already paid Rs.500/- (or 50% of, the value) as part payment at the time of allotment, he cannot be called upon to pay more than Rs. 500/-, the, amount remaining unpaid on his shares. If he holds fully-paid shares, he has no further liability to pay even if, the company is declared insolvent. In the case of a company limited by guarantee, the liability of members is, limited to a specified amount of the guarantee mentioned in the memorandum., Buckley, J. in Re. London and Globe Finance Corporation, (1903) 1 Ch.D. 728 at 731, has observed: “The statutes, relating to limited liability have probably done more than any legislation of the last fifty years to further the, commercial prosperity of the country. They have, to the advantage of the investor as well as of the public,, allowed and encouraged aggregation of small sums into large capitals which have been employed in, undertakings of “great public utility largely increasing the wealth of the country”., , Exceptions to the principle of limited liability, •, , •, •, , •, , •, , •, , •, , Members are severally liable in certain cases- if at any time the number of members of a company is reduced,, in the case of a public company, below seven, in the case of a private company, below two, and the company, carries on business for more than six months while the number of members is so reduced, every person who, is a member of the company during the time that it so carries on business after those six months and is, cognisant of the fact that it is carrying on business with less than seven members or two members, as the case, may be, shall be severally liable for the payment of the whole debts of the company contracted during that, time, and may be severally sued therefor.[Section 3A], When the company is incorporated as an Unlimited Company under Section 3(2)(c) of the Act., , Where a company has been got incorporated by furnishing any false or incorrect information or representation, or by suppressing any material fact or information in any of the documents or declaration filed or made for, incorporating such company or by any fraudulent action, the Tribunal may, on an application made to it, on, being satisfied that the situation so warrants, direct that liability of the members of such company shall be, unlimited. [Section 7(7)(b)], , Further under section 339(1), where in the course of winding up it appears that any business of the company, has been carried on with an intent to defraud creditors of the company or any other persons or for any, fraudulent purpose, the Tribunal may declare the persons who were knowingly parties to the carrying on of, the business in the manner aforesaid as personally liable, without limitation of liability, for all or any of the, debts/liabilities of the company.[Section 339], Under Section 35(3), where it is proved that a prospectus has been issued with intent to defraud the applicants, for the securities of a company or any other person or for any fraudulent purpose, every person who was a, director at the time of issue of the prospectus or has been named as a director in the prospectus or every, person who has authorised the issue of prospectus or every promoter or a person referred to as an expert in, the prospectus shall be personally responsible, without any limitation of liability, for all or any of the losses, or damages that may have been incurred by any person who subscribed to the securities on the basis of such, prospectus., , As per section 75(1), where a company fails to repay the deposit or part thereof or any interest thereon, referred to in section 74 within the time specified or such further time as may be allowed by the Tribunal and, it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent, purpose, every officer of the company who was responsible for the acceptance of such deposit shall, without, prejudice to other liabilities, also be personally responsible, without any limitation of liability, for all or any, of the losses or damages that may have been incurred by the depositors., Section 224(5) states that where the report made by an inspector states that fraud has taken place in a, company and due to such fraud any director, key managerial personnel, other officer of the company or any, other person or entity, has taken undue advantage or benefit, whether in the form of any asset, property or, cash or in any other manner, the Central Government may file an application before the Tribunal for
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Lesson 1 • Introduction to Company Law, , (vi), , 21, , appropriate orders with regard to disgorgement of such asset, property, or cash, and also for holding such, director, key managerial personnel, officer or other person liable personally without any limitation of liability., Perpetual Succession, , An incorporated company never dies, except when it is wound up as per law. A company, being a separate, legal person is unaffected by death or departure of any member and it remains the same entity, despite total, change in the membership. Perpetual succession, means that the membership of a company may keep, changing from time to time, but that shall not affect its continuity., , The membership of an incorporated company may change either because one shareholder has sold/, transferred his shares to another or his shares devolve on his legal representatives on his death or he ceases, to be a member under some other provisions of the Companies Act. Thus, perpetual succession denotes the, ability of a company to maintain its existence by the succession of new individuals who step into the shoes of, those who cease to be members of the company. Professor L.C.B. Gower rightly mentions, “Members may, come and go, but the company can go on forever. During the war all the members of one private company, while, in general meeting, were killed by a bomb, but the company survived — not even a hydrogen bomb could have, destroyed it”., (vii) Separate Property, A company being a legal person and entirely distinct from its members, is capable of owning, enjoying and, disposing of property in its own name. The company is the real person in which all its property is vested,, and by which it is controlled, managed and disposed off. Their Lordships of the Madras High Court in, R.F. Perumal v. H. John Deavin, A.I.R. 1960 Mad. 43 held that “no member can claim himself to be the owner, of the company’s property during its existence or in its winding-up”. A member does not even have an, insurable interest in the property of the company., Case Law:, , Mrs. Bacha F. Guzdar v. The Commissioner of Income Tax, Bombay, A.I.R. 1955 S.C. 74, The Supreme Court in this case held that, though the income of a tea company is entitled to be exempted, from Income-tax up to 60% being partly agricultural, the same income when received by a shareholder in, the form of dividend cannot be regarded as agricultural income for the assessment of income-tax. It was, also observed by the Supreme Court that a shareholder does not, as is erroneously believed by some, people, become the part owner of the company or its property; he is only given certain rights by law, e.g.,, to receive notice of or to attend or vote at the meetings of the shareholders. The court refused to identify, the shareholders with the company and reiterated the distinct personality of the company., (viii) Transferability of Shares, The capital of a company is divided into parts, called shares. The shares are said to be movable property and,, subject to certain conditions, freely transferable, so that no shareholder is permanently or necessarily, wedded to a company. When the joint stock companies were established, the object was that their shares, should be capable of being easily transferred. Section 44 of the Companies Act, 2013 enunciates the principle, by providing that the shares held by the members are movable property and can be transferred from one, person to another in the manner provided by the articles. If the articles do not provide anything for the, transfer of shares and the Regulations contained in Table “F” in Schedule I to the Companies Act, 2013, are, also expressly excluded, the transfer of shares will be governed by the general law relating to transfer of, movable property., , A member may sell his shares in the open market and realise the money invested by him. This provides, liquidity to a member (as he can freely sell his shares) and ensures stability to the company (as the member, is not withdrawing his money from the company). The Stock Exchanges provide adequate facilities for the, sale and purchase of shares.
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22, , , , Lesson 1 • EP-CL, , Further, as of now, in most of the listed companies, the shares are also transferable through Electronic mode, i.e. through Depository Participants in dematerialised form instead of physical transfers., (ix), , However there are restrictions with respect to transferability of shares of a Private Limited Company. Even if, share of a Private Limited Company is in demat form, restrictions by the Articles of the company shall apply., Capacity to Sue and Be Sued, , A company being a body corporate, can sue and be sued in its own name. To sue, means to institute legal, proceedings against (a person) or to bring a suit in a court of law. All legal proceedings against the company, are to be instituted in its name. Similarly, the company may bring an action against anyone in its own name., A company’s right to sue arises when some loss is caused to the company, i.e. to the property or the personality, of the company. Hence, the company is entitled to sue for damages in libel or slander as the case may be, [Floating Services Ltd. v. MV San Fransceco Dipaloa (2004) 52 SCL 762 (Guj)]. A company, as a person distinct, from its members, may even sue one of its own members., , (x), , A company has a right to seek damages where a defamatory material published about it, affects its business., Where video cassettes were prepared by the workmen of a company showing, their struggle against the, company’s management, it was held to be not actionable unless shown that the contents of the cassette, would be defamatory. The court did not restrain the exhibition of the cassette. [TVS Employees Federation v., TVS and Sons Ltd., (1996) 87 Com Cases 37]. The company is not liable for contempt committed by its officer., [Lalit Surajmal Kanodia v. Office Tiger Database Systems India (P) Ltd., (2006) 129 Com Cases 192 Mad]., Contractual Rights, , A company, being a legal entity different from its members, can enter into contracts for the conduct of the, business in its own name. A shareholder cannot enforce a contract made by his company; he is neither a party, to the contract, nor be entitled to the benefit derived from it, as a company is not a trustee for its shareholders., Likewise, a shareholder cannot be sued on contracts made by his company. The distinction between a, company and its members is not confined to the rules of privity but permeates the whole law of contract., Thus, if a director fails to disclose a breach of his duties towards his company, and in consequence a, shareholder is induced to enter into a contract with the director on behalf of the company which he would, not have entered into had there been disclosure, the shareholder cannot rescind the contract., , (xi), , Similarly, a member of a company cannot sue in respect of torts committed against the company, nor can he, be sued for torts committed by the company. Therefore, the company as a legal person can take action to, enforce its legal rights or be sued for breach of its legal duties. Its rights and duties are distinct from those of, its constituent members., Limitation of Action, , A company cannot go beyond the power stated in its Memorandum of Association. The Memorandum of, Association of the company regulates the powers and fixes the objects of the company and provides the, edifice upon which the entire structure of the company rests. The actions and objects of the company are, limited within the scope of its Memorandum of Association. In order to enable it to carry out its actions, without such restrictions and limitations in most cases, sufficient powers are granted in the Memorandum of, Association. But once the powers have been laid down, it cannot go beyond such powers unless the, Memorandum of Association, itself altered prior to doing so., , (xii) Separate Management, , As already noted, the members may derive profits without being burdened with the management of the, company. They do not have effective and intimate control over its working and they elect their representatives, as Directors on the Board of Directors of the company to conduct corporate functions through managerial, personnel employed by them. In other words, the company is administered and managed by its managerial, personnel.
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23, , Lesson 1 • Introduction to Company Law, , (xiii) Voluntary Association for Profit, A company is a voluntary association for profit. It is formed for the accomplishment of some stated goals and, whatsoever profit is gained is divided among its shareholders or saved for the future expansion of the, company. Only a Section 8 company can be formed with no profit motive., , (xiv) Termination of Existence, , A company, being an artificial juridical person, does not die a natural death. It is created by law, carries on, its affairs according to law throughout its life and ultimately is effaced by law. Generally, the existence of a, company is terminated by means of winding up. However, to avoid winding up, sometimes companies adopt, strategies like reorganisation, reconstruction and amalgamation., To sum up, “a company is a voluntary association for profit with capital divisible into transferable shares with, limited liability, having a distinct corporate entity and a common seal with perpetual succession”., , COMPANY VIS-A-VIS OTHER FORMS OF BUSINESS, , Though there are a number of similarities between a limited company and other forms of associations, there are a, great number of dissimilarities as well. In the following paragraphs, a limited company is distinguished from a, partnership firm, a Hindu Undivided Family (HUF) business and a LLP., , Distinction between Partnership Firm and Company, , The principal points of distinction between a partnership firm and a company are as follows:, Partnership Firm, , Company, , A partnership firm is not distinct from the several A company is a distinct legal person., persons who form the partnership., , In a partnership, the property of the firm is the property In a company, it belongs to the company and not to the, of the individuals comprising it., individuals who are its members., , Creditors of a partnership firm are creditors of The creditors of a company can proceed only against, individual partners and a decree against the firm can be the company and not against its members., executed against the partners jointly and severally., Partners are the agents of the firm. A partner can Members of a company are not its agents. A member of, dispose of the property and incur liabilities as long as a company cannot dispose of the property and incur, he acts in the course of the firm’s business., liabilities in the course of the company’s business., A partner cannot contract with his firm., , A member can contract with his company., , A partner’s liability is always unlimited., , The liability of shareholder may be limited either by, shares or a guarantee., , A partner cannot transfer his share and make the A company’s share can ordinarily be transferred, transferee a member of the firm without the consent of, the other partners., , The death or insolvency of a partner dissolves the firm, A company has perpetual succession, i.e. the death or, unless otherwise provided., insolvency of a shareholder or all of them does not, affect the life of the company., , The accounts of a firm are audited at the discretion of A company is required to have its accounts audited, the partners., annually by a chartered accountant., A partnership firm, on the other hand, is the result of an A company, being a creation of law, can only be dissolved, agreement and can be dissolved at any time by as laid down by law., agreement among the partners.
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24, , , , Distinction between a Hindu Undivided Family Business and a Company, Hindu Undivided Family Business, , Lesson 1 • EP-CL, , Company, , A Hindu Undivided Family Business consists of A company may consists of homogenous, homogenous (unvarying) members since it consists of heterogeneous (varied or diverse) members., members of the joint family itself., , or, , In a Hindu Undivided Family business the Karta There is no such system in a company., (manager) has the sole authority to contract debts for the, purpose of the business, other coparceners cannot do so., , A person becomes a member of a Hindu Undivided There is no provision to that effect in the company., Family business by virtue of birth., No registration is compulsory for carrying on business Registration of a company is compulsory., for gain by a Hindu Undivided Family even if the number, of members exceeds twenty [Shyamlal Roy v., Madhusudan Roy, AIR 1959 Cal. 380 (385)]., , Distinction between Limited Liability Partnership (LLP) and a Company, , LLP is an alternative corporate business form that gives the benefits of limited liability of a company and the, flexibility of a partnership. LLP can continue its existence irrespective of changes in partners. It is capable of entering, into contracts and holding property in its own name. LLP is a separate legal entity, is liable to the full extent of its, assets but liability of the partners is limited to their agreed contribution in the LLP., Further, no partner is liable on account of the independent or un-authorized actions of other partners, thus, individual partners are shielded from joint liability created by another partner’s wrongful business decisions or, misconduct., Mutual rights and duties of the partners within a LLP are governed by an agreement between the partners or, between the partners and the LLP as the case may be. The LLP, however, is not relieved of the liability for its other, obligations as a separate entity., Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a, hybrid between a company and a partnership., , LLP is a body corporate and a legal entity separate from its partners, having perpetual succession. LLP form is a, form of business model which : (i) is organized and operates on the basis of an agreement. (ii) provides flexibility, without imposing detailed legal and procedural requirements (iii) enables professional/technical expertise and, initiative to combine with financial risk taking capacity in an innovative and efficient manner., A basic difference between an LLP and a company lies in that the internal governance structure of a company is, regulated by statute (i.e. Companies Act) whereas for an LLP it would be by a contractual agreement between, partners., , The management-ownership divide inherent in a company is not there in a limited liability partnership. LLP, have more flexibility as compared to a company. LLP have lesser compliance requirements as compared to a, company., , DOCTRINE OF LIFTING OF OR PIERCING THE CORPORATE VEIL, , The separate personality of a company is a statutory privilege and it must be used for legitimate business purposes, only. Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be allowed, to take shelter behind the corporate personality. The Court will break through the corporate shell and apply the, principle/doctrine of what is called as “lifting of or piercing the corporate veil”. The Court will look behind the, corporate entity and take action as though no entity separate from the members existed and make the members or, the controlling persons liable for debts and obligations of the company.
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25, , Lesson 1 • Introduction to Company Law, , The corporate veil is lifted when in defence proceedings, such as for the evasion of tax, an entity relies on its, corporate personality as a shield to cover its wrong doings. [BSN (UK) Ltd. v. Janardan Mohandas Rajan Pillai [1996], 86 Com Cases 371 (Bom).], However, the shareholders cannot ask for the lifting of the veil for their purposes. This was held in Premlata Bhatia, v. Union of India (2004) 58 CL 217 (Delhi) wherein the premises of a shop were allotted on a licence to the individual, licencee. She set up a wholly owned private company and transferred the premises to that company without, Government consent. She could not remove the illegality by saying that she and her company were virtually the, same person., , Statutory Recognition of Lifting of Corporate Veil, , The Companies Act, 2013 itself contains some provisions [Sections 7(7), 251(1) and 339] which lift the corporate, veil to reach the real forces of action. Section 7(7) deals with punishment for incorporation of company by furnishing, false information; Section 251(1) deals with liability for making fraudulent application for removal of name of, company from the register of companies and Section 339 deals with liability for fraudulent conduct of business, during the course of winding up., , Lifting of Corporate Veil under Judicial Interpretation, , Ever since the decision in Salomon v. Salomon & Co. Ltd., (1897) A.C. 22, normally Courts are reluctant or at least, very cautious to lift the veil of corporate personality to see the real persons behind it. Nevertheless, Courts have, found it necessary to disregard the separate personality of a company in the following situations:, (a), , Where the corporate veil has been used for commission of fraud or improper conduct. In such a, situation, Courts have lifted the veil and looked at the realities of the situation., Case Law:, In Jones v. Lipman, (1962) I. W.L.R. 832, A agreed to sell certain land to B. Pending completion of formalities of the said deal, A sold and transferred, the land to a company which he had incorporated with a nominal capital of £100 and of which he and a, clerk were the only shareholders and directors. This was done in order to escape a decree for specific, performance in a suit brought by B. The Court held that the company was the creature of A and a mask to, avoid recognition and that in the eyes of equity A must complete the contract, since he had the full control, of the limited company in which the property was vested, and was in a position to cause the contract in, question to be fulfilled., , (b), , Where a corporate facade is really only an agency instrumentality., Case Law:, In Re. R.G. Films Ltd. (1953) 1 All E.R. 615, An American company produced a film in India technically in the name of a British Company, 90% of, whose capital was held by the President of the American company which financed the production of the, film. Board of Trade refused to register the film as a British film which stated that English company acted, merely as the nominee of the American corporation.
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26, , (c), , Lesson 1 • EP-CL, , , , Where the conduct conflicts with public policy, courts lifted the corporate veil for protecting the, public policy., Case Law:, In Connors Bros. v. Connors (1940) 4 All E.R. 179, The principle was applied against the managing director who made use of his position contrary to public, policy. In this case the House of Lords determined the character of the company as “enemy” company,, since the persons who were de facto in control of its affairs, were residents of Germany, which was at, war with England at that time. The alien company was not allowed to proceed with the action, as that, would have meant giving money to the enemy, which was considered as monstrous and against, “public policy”., , (d), , Further, In Daimler Co. Ltd. v. Continental Tyre & Rubber Co., (1916) 2 A.C. 307, it was held that a, company will be regarded as having enemy character, if the persons having de facto control of its, affairs are resident in an enemy country or, wherever they may be, are acting under instructions from, or on behalf of the enemy., , (e), , Where it was found that the sole purpose for which the company was formed was to evade taxes the, Court will ignore the concept of separate entity and make the individuals concerned liable to pay the, taxes which they would have paid but for the formation of the company., Case Law:, Re. Sir Dinshaw Maneckjee Petit, A.I.R. 1927 Bombay 371, The facts of the case are that the assessee was a wealthy man enjoying large dividend and interest income., He formed four private companies and agreed with each to hold a block of investment as an agent for it., Income received was credited in the accounts of the company but the company handed back the amount, to him as a pretended loan. This way he divided his income in four parts in a bid to reduce his tax liability., , But it was held “the company was formed by the assessee purely and simply as a means of avoiding supertax and the company was nothing more than the assessee himself. It did no business, but was created, simply as a legal entity to ostensibly receive the dividends and interests and to hand them over to the, assessee as pretended loans”. The Court decided to disregard the corporate entity as it was being used for, tax evasion., Vodafone case, , One of the landmark case of the Supreme Court, is its decision in the case of Vodafone International, Holdings B.V. v. Union of India & Another [S.L.P. (C) No. 26529 of 2010].In judgment, the Supreme Court set, aside the Bombay High Court’s judgment directing Vodafone International Holdings BV (“Vodafone”), to, pay INR 110 billion, as withholding tax in a transaction that took place off-shore., , The facts, as briefly put, are that in May 2007, Vodafone, incorporated in the Netherlands, acquired from, Hong Kong based Hutchison Group, the entire share capital of CGP Investments (Holdings) Limited, (“CGP”), a company incorporated in the Cayman Islands, which in turn controlled a 67% interest in, Hutchison-Essar Limited (“HEL”), Hutchison’s Indian mobile business. The Indian income tax authorities, contended that capital gains were made by Hutchison in India and that Vodafone was therefore liable to pay, withholding tax thereon, amounting to approximately INR 110 billion (the sale price being USD 11.2 billion)., , Vodafone challenged the tax demand in the Bombay High Court, which ruled in favour of the income tax, authorities, holding that the essence of the transaction was a change in the controlling interest in HEL, which, constituted a source of income in India. Vodafone appealed to the Supreme Court, which overruled the High, Court and held that the transaction fell outside India’s territorial tax jurisdiction and was hence not taxable.
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Lesson 1 • Introduction to Company Law, , 27, , The judgment was not only important in the context of taxation, but also covers other issues of corporate, law. One of these are in the context of the principle of the corporate veil, and the circumstances under, which it may be lifted, particularly in the context of commercial cross-border transactions and tax, avoidance., , The Court recognised the fundamental principle of the corporate veil by noting that, “The approach of, both the corporate and tax laws, particularly in the matter of corporate taxation, generally is founded on, the abovementioned separate entity principle, i.e., treat a company as a separate person. The Indian, Income Tax Act, 1961, in the matter of corporate taxation, is founded on the principle of the independence, of companies and other entities subject to income-tax.” It observed in the context of parent / subsidiary, relationships, that it is generally accepted that the group parent company would give guidance to group, subsidiaries, but that by itself would not justify piercing the veil or imply that the subsidiaries are to be, deemed residents of the State in which the parent company resides, and that “a subsidiary and its parent, are totally distinct tax payers”., Six factors that may be considered to determine whether the transaction is a bogus and whether in a, specific case, the corporate veil may be lifted, are: “(i) the concept of participation in investment, (ii) the, duration of time during which the Holding Structure exists; (iii) the period of business operations in, India; (iv) the generation of taxable revenues in India; (v) the timing of the exit; and (vi) the continuity of, business on such exit.”, , (f), , In the final analysis, the Supreme Court decided against lifting the corporate veil in Vodafone, as the tax, authorities failed to establish that the transaction was a bogus or tax avoidance scheme., , Avoidance of welfare legislation is as common as avoidance of taxation and the approach in considering, problems arising out of such avoidance has necessarily to be the same and, therefore, where it was, found that the sole purpose for the formation of the new company was to use it as a device to reduce, the amount to be paid by way of bonus to workmen, the Supreme Court upheld the piercing of the veil, to look at the real transaction., Case Law:, The Workmen Employed in Associated Rubber Industries Limited, Bhavnagar v. The Associated Rubber, Industries Ltd., Bhavnagar and another, A.I.R. 1986 SC 1., , (g), , The facts of the case were that a new company was created wholly by the principal company with no, assets of its own except those transferred to it by the principal company, with no business or income of, its own except receiving dividends from shares transferred to it by the principal company i.e. only for the, purpose of splitting the profits into two hands and thereby reducing the obligation to pay bonus. The, Supreme Court of India held that the new company was formed as a device to reduce the gross profits of, the principal company and thereby reduce the amount to be paid by way of bonus to workmen. The, amount of dividends received by the new company should, therefore, be taken into account in assessing, the gross profit of the principal company., , Another instance of corporate veil arrived at by the Court arose in Kapila Hingorani v. State of Bihar., Case Law:, Kapila Hingorani v. State of Bihar, 2003(4) Scale 712, In this case, the petitioner had alleged that the State of Bihar had not paid salaries to its employees in, PSUs etc. for long periods resulting in starvation deaths. But the respondent took the stand that most of, the undertakings were incorporated under the provisions of the Companies Act, 1956, hence the rights, etc. of the shareholders should be governed by the provisions of the Companies Act and the liabilities of
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28, , (h), , , , Lesson 1 • EP-CL, , the PSUs should not be passed on to the State Government by resorting to the doctrine of lifting the, corporate veil. The Court observed that the State may not be liable in relation to the day-to-day functioning, of the PSUs but its liability would arise on its failure to perform the constitutional duties and the functions, of these undertakings. It is so because, “life means something more than mere ordinal existence. The, inhibition against deprivation of life extends to all those limits and faculties by which life is enjoyed”., , Where it is found that a company has abused its corporate personality for an unjust and inequitable, purpose, the court would not hesitate to lift the corporate veil. Further, the corporate veil could be, lifted when acts of a corporation are allegedly opposed to justice, convenience and interests of revenue, or workmen or are against public interest., Thus, in appropriate cases, the Courts disregard the separate corporate personality and look behind the legal, person or lift the corporate veil., , Lifting the Corporate Veil of Small Scale Industry, , Where small scale industries were given certain exemptions and the company owning an industry was controlled, by some group of persons or companies, it was held that it was permissible to lift the veil of the company to see, whether it was the subsidiary of another company and, therefore, not entitled to the proposed exemptions. [Inalsa, Ltd. v. Union of India, (1996) 87 Com Cases 599 (Delhi).], , Use of Corporate Veil for Hiding Criminal Activities, , Where the defendant used the corporate structure as a device or facade to conceal his criminal activities (evasion, of customs and excise duties payable by the company), the Court could lift the corporate veil and treat the assets of, the company as the realisable property of the shareholder., , For example, in a case, there was a prima facie case that the defendants controlled the two companies, the companies, had been used for the fraudulent evasion of excise duty on a large scale, the defendant regarded the companies as, carrying on a family business and that they had benefited from companies’ cash in substantial amounts and further, no useful purpose would have been served by involving the companies in the criminal proceedings. In all these, circumstances it was therefore appropriate to lift the corporate veil and treat the stock in the companies’ warehouses, and the companies’ motor vehicles as realisable property held by the defendants. The Court said that the excise, department is not to be criticized for not charging the companies. The more complex commercial activities become,, the more vital it is for prosecuting authorities to be selective in whom and what they charge, so that issues can be, presented in as clear and short form as possible. In the present case, it seemed that no useful purpose would have, been served by initiating criminal proceedings. [H. and Others (Restraint Order : Realisable Property), Re, (1996) 2, BCLC 500 at 511, 512 (CA).], , APPLICABILITY OF COMPANIES ACT, 2013 AND KEY CONCEPTS, , Applicability, According to section 1 of the Companies Act, 2013, the Act extends to whole of India and the provisions of the, Act shall apply to the following:(a), , companies incorporated under this Act or under any previous company law;, , (c), , banking companies, except in so far as the said provisions are inconsistent with the provisions of the, Banking Regulation Act, 1949 (10 of 1949);, , (b), , (d), , insurance companies, except in so far as the said provisions are inconsistent with the provisions of the, Insurance Act, 1938 (4 of 1938) or the Insurance Regulatory and Development Authority Act, 1999 (41, of 1999);, companies engaged in the generation or supply of electricity, except in so far as the said provisions are, inconsistent with the provisions of the Electricity Act, 2003 (36 of 2003);
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29, , Lesson 1 • Introduction to Company Law, , (e), (f), , any other company governed by any special Act for the time being in force, except in so far as the said, provisions are inconsistent with the provisions of such special Act; and, such body corporate, incorporated by any Act for the time being in force, as the Central Government, may, by notification, specify in this behalf, subject to such exceptions, modifications or adaptation, as, may be specified in the notification., , Companies Act, 2013 is not applicable to unincorporated companies., , By virtue of section 464 of the Companies Act, 2013 r/w Rule 10 of the Companies (Miscellaneous) Rules, 2014, no, association or partnership consisting of more than 50 persons shall be formed for the purpose of carrying on any, business that has for its object the acquisition of gain by the association or partnership or by the individual members, thereof, unless it is registered as a company under this Act or is formed under any other law for the time being in, force. The maximum number of persons which may be prescribed under this section shall not exceed 100., Section 464 of the Act does not apply to –, (1), , (2), , In the case of a Hindu undivided family carrying on any business whatever may be the number of its members., , In case of an association or partnership, if it is formed by professionals who are governed by special Acts., , Every member of an association or partnership carrying on business in contravention of sub-section (1) of Section, 464 shall be punishable with fine which may extend to one lakh rupees and shall also be personally liable for all, liabilities incurred in such business., , Interpretation of Definitions under the Companies Act, 2013, , A definition is a statement of the meaning as of a word or phrase., , Usually, every statute has a definitions sections (also called ‘interpretation clause’) which provides definitions of, various words and phrases used in the statute (e.g. Section 2 of the Companies Act, 2013)., , Definition:, •, •, •, •, , To Define : The Act of making something definite, distinct or clear., , Definition : An exact statement or description of the nature, scope, or meaning of something (Oxford dictionary), , In relation to a Statute : Definitions given in a statute are those of certain words or expressions used elsewhere in, the Statute., Object of using Definitions : - To avoid frequent repetitions - To aid interpretation of words for that specific statute, , Types of Definitions, , Restrictive Definitions, , Extensive Definitions, , - Use of the word “mean”, , - Use of the word “include”, , When in a definition the word “mean” is used, it means word is restricted to the scope indicated in the definition, section. It means definition is hard and fast definition and no other meaning can be assigned to the expression than, is put down in definition., , The word “include” gives a wider meaning to the words or phrases in the statute. The legislature does not intend to, restrict the definition, it makes the definition enumerative but not exhaustive. This is to say, the term defined will, retain its ordinary meaning may or may not compromise. The word “includes” by the legislature shows the intention, of the legislature that it wanted to give extensive and enlarged meaning to such expression.
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30, , Lesson 1 • EP-CL, , , , Example of few Definitions under the Companies Act, 2013, •, •, , •, •, , “Director” means a director appointed to the Board of a company;, , “Employees’ stock option” means the option given to the directors, officers or employees of a company, or of its holding company or subsidiary company or companies, if any, which gives such directors, officers, or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a future, date at a pre-determined price;, “Charge” 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;, “Body Corporate or Corporation” includes a company incorporated outside India, but does not include:, (i), , •, •, , (ii), , a co-operative society registered under any law relating to co-operative societies; and, , any other body corporate (not being a company as defined in this Act), which the Central, Government may, by notification, specify in this behalf;, , “Book and paper” include books of account, deeds, vouchers, writings, documents, minutes and registers, maintained on paper or in electronic form;, “Deposit” includes any receipt of money by way of deposit or loan or in any other form by a company, but does, not include such categories of amount as may be prescribed in consultation with the Reserve Bank of India;, , ‘Explanations’ in Statutes:, , Object and Purpose of explanations:, •, •, •, , To explain/clarify the meaning of words contained in the particular section,, Part and Parcel of the enactment,, , Does not widen the scope of the word explained., , For eg: “holding company”, 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 anybody corporate., , Key Concepts under the Companies Act, 2013, , Section 2 of Companies Act, 2013 contains definitions:, •, , Clause (20) “Company” means a company incorporated under this Act or under any previous company law., , •, , Clause (22) “Company Limited by Shares” means a company having the liability of its members limited by, the memorandum to the amount, if any, unpaid on the shares respectively held by them., , •, , •, , •, , Clause (21) “Company Limited by Guarantee” means a company having the liability of its members limited, by the memorandum to such amount as the members may respectively undertake to contribute to the assets, of the company in the event of its being wound up., Clause (71) “Public Company” means a company which –, (a), , (b), , is not a private company;, , 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;, Clause (46) “Holding Company”, in relation to one or more other companies, means a company of which, such companies are subsidiary companies;, Explanation : For the purpose of this Clause, the expression “Company” includes any Body Corporate.
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•, , Lesson 1 • Introduction to Company Law, , 31, , Clause (87) “Subsidiary Company” or “Subsidiary”, in relation to any other company (that is to say the, holding company), means a company in which the holding company –, (i), , (ii), , controls the composition of the Board of Directors; or, , exercises or controls more than one-half of the 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), •, •, , (b), , 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;, the composition of a company’s Board of Directors shall be deemed to be controlled by another., , Section 2(62)- “One-person Company”- The Companies Act, 2013 introduces a new type of entity to the, existing list i.e. apart from forming a public or private limited company, the Act enables the formation of a, new entity a ‘one-person company’ (OPC). An OPC means a company with only one person as its member., Section 2(68)- “Private Company” means a company having a minimum paid-up share capital as may be, prescribed, and which by its articles,—, (i), , (ii), , restricts the right to transfer its shares;, , 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), (b), , persons who are in the employment of the company; and, 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,, , (iii), , prohibits any invitation to the public to subscribe for any securities of the company;, , shall not be included in the number of members; and, •, , Section 2(85)- “Small Company”- Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules,, 2014 with effect from 1 April 2021 has amended the definition of Small Company stating that for the purposes, of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the, small company shall not exceed rupees two crores and rupees twenty crores respectively., Thus, the definition of “small company” under Section 2(85) read with Rule 2(1)(t) of the Companies, (Specification of definitions Details) Rules, 2014 with effect from 1 April 2021 is given hereunder:, A small company has been defined as a company, other than a public company., (i), , (ii), , (a), , (b), , paid-up share capital of which does not exceed 2 Crore rupees or such higher amount as may be, prescribed which shall not be more than 10 crore rupees; and, , turnover of which as per profit and loss account for the immediately preceding financial year does not, exceed 20 crore rupees or such higher amount as may be prescribed which shall not be more than 100, crore rupees:, , Provided that nothing in this clause shall apply to –, a holding company or a subsidiary company;, a company registered under section 8; or
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32, , •, , •, , , , (c), , a company or body corporate governed by any special Act; [section 2(85)]., , Lesson 1 • EP-CL, , Dormant company: A company formed and registered under this 2013 for a future project or to hold an asset or, intellectual property and has no significant accounting transaction such a company or an inactive company may, make an application to the Registrar for obtaining the status of a dormant company.(Section 455), Nidhi company: means a company which has been incorporated as a Nidhi with the object of cultivating the, habit of thrift and savings amongst its members, receiving deposits from, and lending to, its members only,, for their mutual benefit, and which complies with such rules as are prescribed by the Central Government for, regulation of such class of companies. (section 406)., , Section 2 (52) “Listed Company” means a company which has any of its securities listed on any recognised, stock exchange;, •, , Provided that such class of companies, which have listed or intend to list such class of securities, as may be, prescribed in consultation with the Securities and Exchange Board, shall not be considered as listed companies., Companies not to be considered as listed companies (Rule 2A of the Companies (Specification of, definitions details) Rules, 2014), The following classes of companies shall not be considered as listed companies, namely:a), , Public companies which have not listed their equity shares on a recognized stock exchange but have listed their –, , (i), , non-convertible debt securities issued on private placement basis in terms of SEBI (Issue and, Listing of Debt Securities) Regulations, 2008; or, , (iii), , both categories of (i) and (ii) above., , (ii), b), , •, , c), , non-convertible redeemable preference shares issued on private placement basis in terms of, SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013; or, , Private companies which have listed their non-convertible debt securities on private placement basis on, a recognized stock exchange in terms of SEBI (Issue and Listing of Debt Securities) Regulations, 2008., , Public companies which have not listed their equity shares on a recognized stock exchange but whose equity, shares are listed on a stock exchange in a jurisdiction as specified in section 23(3) of the Companies Act, 2013., , Section 2(45) “Government Company” means any company in which not less than fifty-one percent of the, paid-up share capital is held by the Central Government, or by any State Government or Governments, or, partly by the Central Government and partly by one or more State Governments, and includes a company, which is a subsidiary company of such a Government company., , Roles and Responsibilities under the Companies Act, 2013, 1., , 2., , Officer: “officer” includes any director, manager or key managerial personnel 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 [section 2(59)]., Key managerial personnel: The term ‘key managerial personnel’ has been defined in the Act which means :, (i), , the Chief Executive Officer or the Managing Director or the Manager;, , (iv), , the Chief Financial Officer;, , (ii), , (iii), (v), , (vi), , the Company Secretary;, , the Whole-Time Director;, , 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, such other officer as may be prescribed [section 2(51)]., , The role and liability have been defined at various places under the Companies Act, 2013.
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Lesson 1 • Introduction to Company Law, , 3., , 33, , Promoter: The term ‘promoter’ means a person –, (a), , who has been named as such in a prospectus or is identified by the company in the annual return; or, , (c), , in accordance with whose advice, directions or instructions the Board of Directors of the company is, accustomed to act:, , (b), , who has control over the affairs of the company, directly or indirectly whether as a shareholder,, director or otherwise; or, , 4., , Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity., [section 2(69)]., , 5., , Audit and auditors, , Independent Director: The term ‘Independent Director’ has been defined in the Act, along with several new, requirements relating to their appointment, role and responsibilities. “Independent Director” means an, independent director referred to in sub-section (6) of section 149 of the Companies Act, 2013. [Section 2(47), & Section 149(6)]., a., , b., , Mandatory auditor rotation and joint auditors: The Act mandates the rotation of auditors after the, specified time period. (Section 139)., Secretarial audit: The Act mandates Secretarial Audit for the following:, , i., , Listed companies;, , iii., , every public company having a turnover of two hundred fifty crore rupees or more;, , ii., , iv., , c., 6., , every public company having a paid-up share capital of fifty crore rupees or more;, , every company having outstanding loans or borrowings from banks or public financial, institutions of one hundred crore rupees or more., , The Secretarial Audit Report is required to be annexed to the Board’s Report (Section 204), , Secretarial Standards: The Act requires every company to observe secretarial standards specified by, the Institute of Company Secretaries of India with respect to general and board meetings [Section 118, (10)]., , Class Action Suits- The Act introduces a new concept of class action suits which can be initiated by, shareholders against the company and auditors., , FORMATION AND INCORPORATION OF COMPANIES, , Section 3(1) states that a company may be formed for any lawful purpose by –, (a), , seven or more persons, where the company to be formed is to be a public company;, , (c), , one person, where the company to be formed is to be One Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and complying with the requirements of this Act, in respect of registration., , (b), , two or more persons, where the company to be formed is to be a private company; or, , A company formed under Section 3(1) may be either –, (a), , a company limited by shares; or, , (c), , an unlimited company., , (b), , a company limited by guarantee; or, , Section 7 of the Act read with Rules made thereunder provides for the detailed procedure for incorporation of company., (Note: For details on Types of Companies and Formation of Companies - refer Paper 3 of Module 1 i.e. “Setting up of, Business Entities and Closure”)
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34, , Lesson 1 • EP-CL, , , , LESSON ROUND-UP, •, , The word ‘company’ is derived from the Latin word (Com = with or together; pan is = bread), and it, originally referred to an association of persons who took their meals together., , •, , The company, though a legal person, is not a citizen under the Citizenship Act, 1955 or the Constitution, of India. Though it has established through judicial decisions that a company cannot be a citizen, yet it has, nationality, domicile and residence., , •, , The main characteristics of a company are corporate personality, limited liability, perpetual succession,, separate property, transferability of shares, capacity to sue and be sued, contractual rights, limitation of, action, separate management, termination of existence etc., , •, , In India after independence, the Companies Act, 1956 was enacted with a view to consolidate and amend, the earlier laws relating to companies and certain other associations., , •, , Major Development in the Company Law in India., , •, , Where a fraudulent and dishonest use is made of the legal entity, the individuals concerned will not be, allowed to take shelter behind the corporate personality. The Court may break through the corporate, shell and apply the principle of what is known as “lifting of or piercing the corporate veil”., , GLOSSARY, Jurisprudence, Bill, , The study of law and the principles on which law is based., , A bill is proposed legislation under consideration by a legislature. A bill does not become, law until it is passed by the legislature. Once a bill has been enacted into law, it is called an, act of the legislature, or a statute., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., , Answer the following:, (a), , Four persons are the only members of a private company. All of them go for a pleasure trip in a car, and due to an accident all the four die. Does the private company exist?, , (a), , What types of associations are prohibited by the Companies Act, and what are the disabilities of, such associations?, , (b), , (b), (c), , The members of a private limited company consist of ‘A’ and ‘B’ who are also its directors. On 4th, August, 2019 ‘A’ left India for a foreign business tour and on 28th August, 2019 he died abroad. On, 1st September, 2019 ‘B’ purchased on credit of Rs. 10,000 worth of goods from ‘C’ on behalf of the, company. ‘C’ now proposes to make ‘B’ personally liable for the payment of the debt. Is ‘B’ liable?, “Members of a Limited Company may nevertheless have unlimited liability.” Comment., What do you understand by corporate veil and when is it disregarded?
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35, , Lesson 1 • Introduction to Company Law, , 3., 2., , State the consequences in each of the following cases giving reasons for your answers:, (a), , (b), , A Private Company has 210 members in total of which ten are the employees of the company. Five, of these employees leave the employment of the company., A private firm has 20 partners, including a private company which is having 30 shareholders., , 4., , “The fundamental attribute of corporate personality is that the company is a legal entity distinct from the, members.” Elucidate the above statement., , 6., , Write short notes on:, , 5., , What are the advantages of an incorporated company compared to partnership firms and unincorporated, companies?, (a), , Perpetual succession, , (d), , Corporate personality, , (b), (c), , 7., , (e), , Limited liability of shareholders, One person company., , Examine the following and say whether they are correct or wrong:, (a), , A company being an artificial person cannot own property and cannot sue or be sued., , (d), , Every member of an illegal association shall be personally liable for all liabilities incurred in, carrying on the business., , (b), (c), , 8., , Transferability of shares, , (e), , Members are the owners of the company’s undertaking., , The term “body corporate” connotes a wider meaning than the term “Company”., A company is a juristic legal person., , Comment on the following statements :, , A company is an artificial juristic person. It does not have citizenship, residence and domicile, , LIST OF FURTHER READINGS, •, •, , ICSI Premier on Company Law, , Bare Act- The Companies Act, 2013, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Share and Share Capital, , Lesson 2, Key Concepts One, Should Know, , Learning Objectives, , •, •, •, •, •, •, •, •, •, , The lesson is divided into five parts for easy understanding., , •, •, •, •, •, , Shares, Equity, Preference, Dividend, Preferential offer, Private Placement, Transfer, Transmission, Sweat Equity, Shares, Prospectus, Shelf Prospectus, Red-Herring, Prospectus, Dematerialisation, Rematerialisation, , To understand:, PART A: Meaning and types of Share Capital, • What is Capital?, • Classification of Share Capital., • Types of Share Capital., PART B: Concept of Issue and Allotment, • Various concept relating to Issue and Allotment of Shares., • What is Prospectus, Red Herring Prospectus, Shelf Prospectus & Abridged, Prospectus?, • When can the offer for sale construed as Deemed Prospectus?, • What is a Share Certificate? Various Provisions relating to Share Certificate., PART C: Issue of Securities, • The provisions related to Issue and Redemption of Preference Shares., • Provisions relating to further issue of Share Capital., • What is ‘Employee Stock Option’(ESOP)?, • Preferential Allotment of Shares and its procedure., • What is Bonus Shares? Sources and Conditions for issue of Bonus Shares., • What are Sweat Equity Shares?, PART D : Alteration in Share Capital, Buy Back of Securities and Reduction, of Share Capital, • Provision related to Alteration & Reduction of Share Capital., • Provision related to Buyback of Securities., PART E : Transferability - A brief on provisions of the Companies Act, 2013, • Provision related to Transfer or Transmission of Securities., • Dematerialisation/Rematerialisation of Securities., , Lesson Outline, •, •, •, •, •, •, •, •, , Meaning and types of Share, Capital, Concept of issue and allotment, Issue of Share certificates, Further Issue of Share Capital, Issue of shares on Private and, Preferential basis, Rights Issue and Bonus Shares, Sweat Equity Shares and ESOPs, Issue and Redemption of, Preference Shares, , •, •, •, •, •, •, •, •, •, , Transfer and Transmission of, Securities, Buy-back of Securities, Dematerialization and, Rematerialization of shares, Reduction of Share Capital, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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38, , Lesson 2 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 2(1), , Abridged Prospectus, , Section 2(50), , Issued capital, , Section 2(8), , Section 2(15), Section 2(64), Section 2(70), Section 2(84), Section 2(86), Section 23, Section 25, , Section 26(1), Section 28, Section 29, Section 31, Section 32, Section 33, Section 39, Section 42, Section 43, Section 44, Section 45, , Section 46(1), Section 46(2), Section 47, , Section 52(1), Section 52(2), Section 53, Section 54, Section 55, Section 56, Section 57, Section 58, Section 59, Section 60, Section 61, Section 62, , Authorised Capital, Called –up capital, , Paid-up share capital, Prospectus, Share, , Subscribed-capital, Issue of Securities, , Deemed Prospectus, , Matter to be stated in Prospectus, , Offer of sale of shares by certain members of a Company, Public Offer of Securities to be in Dematerialized Form, Shelf Prospectus, , Red-Herring Prospectus, , Issue of Application Forms for Securities, Allotment of Securities, Private Placement, , Kinds of Share Capital, Nature of Shares, , Numbering of Shares, Share Certificate, , Issue of Duplicate Share Certificate, Voting Rights, , Share Premium to be transferred to ‘Securities Premium Account’, Utilisation of Securities Premium, , Prohibition to Issue the Shares at Discount, Sweat Equity Shares, , Issue & Redemption of Preference Shares, Transfer and Transmission of Securities, , Punishment for Personation of Shareholders, , Refusal of Registration and Appeal Against Refusal, Rectification of Register of Members, , Publication of Authorised, Subscribed and Paid-Up Capital, Alteration of Share Capital, , Further Issue of Share Capital
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39, , Lesson 2 • Share and Share Capital, , Section 63, , Issue of Bonus Shares, , Section 68, , Buy-back of Securities, , Section 64, , Notice to be Given to Registrar for Alteration of Share Capital, , Section 66, , Reduction of Share Capital, , Section 69, , Transfer of certain sums to Capital Redemption Reserve Account, , Section 70(1), , Circumstances prohibiting buy-back, , The Companies (Share Capital & Debentures) Rules, 2014, , Rules, , Deals with, , Rule 3, , Application, , Rule 6, , Issue of Renewed or Duplicate Share Certificate, , Rule 4, , Equity Shares With Differential Rights, , Rule 5, , Certificate of Shares (Where Shares are Not in Demat Form), , Rule 7, , Maintenance of Share Certificate Forms and Related Books and Documents, , Rule 8, , Issue of Sweat Equity Shares, , Rule 9, , Issue and Redemption of Preference Shares, , Rule 10, , Issue and Redemption of Preference Shares by Company in Infra structural, , Rule 11, , Instrument of Transfer, , Rule 12, , Issue of Employee Stock Options, , Rule 13, , Issue of Shares on Preferential Basis, , Rule 14, , Issue of Bonus Shares, , Rule 15, , Notice to Registrar for Alteration of Share Capital, , Rule 16, Rule 17, , Provision of Money by Company for Purchase of its Own Shares by Employees or, by Trustees for the Benefit of Employees, Buy-back of Shares or Other Securities, , The Companies (Prospectus & Allotment of Securities) Rules, 2014, , Rules, , Deals with, , Rule 8, , Offer of Sale by Members, , Rule 10, , Shelf Prospectus and Information Memorandum, , Rule 9, , Dematerialization of securities, , Rule 9A, , Issue of securities in dematerialized form by unlisted public companies, , Rule 11, , Refund of Application Money, , Rule 12, , Return of Allotment, , Rule 14, , Private placement, , The SEBI (LODR), Regulations, 2015, , Regulation 29, 30(6), 31 and other disclosure requirements regarding, issue and Allotment of Shares, , Depositories Act, 1996, , Section 5, 6, 7, 8, 9, 10 and other Provisions related to Depositories, , The SEBI (Depositories and Participants) Regulations, 2018, The SEBI (ICDR) Regulations, 2018
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40, , Lesson 2 • EP-CL, , , , PART A: MEANING AND TYPES OF SHARE CAPITAL, MEANING OF THE TERM ‘CAPITAL’, The term ‘Capital’ has a variety of meanings. It may mean one thing to an economist, another to an accountant, while, another to a businessman or a lawyer. A layman views capital as the money, which a company has raised by issue of, its shares. It uses this money to meet its requirements by way of acquiring business premises and stock-in-trade,, which are called the fixed capital and the circulating capital respectively., The phrase “loan or borrowed capital” is sometimes used to mean money borrowed by the company and secured by, issuing debentures and other securities. This, however, is not the proper use of the word ‘capital’., , In relation to a company limited by shares, the word ‘capital’ means the share capital i.e., the capital in terms of, rupees divided into specified number of shares of a fixed amount each. For example, share capital of a company is, Rs.1,00,000 which can be divided into 10,000 shares of Rs.10 each or 1,000 shares of Rs.100 each, whichever is, feasible to the company., , CLASSIFICATION OF SHARE CAPITAL, , In Company Law, Capital is the share capital of a company, which is classified as:, , Nominal,, Authorised or, Registered Capital, , Issued Capital, , Called-up Capital, , Subscribed Capital, , Paid-up Share, Capital, , S. No., , Type of Capital, , Section under, Companies Act,, 2013, , Definition, , (a), , Share, , 2(84), , (b), , Nominal, Authorised or, Registered Capital, , 2(8), , “share” means a share in the share capital of a company, and includes stock., , (c), , Issued Capital, , 2(50), , (d), , Subscribed, Capital, , 2(86), , Such capital as is authorised by the memorandum of a, company to be the maximum amount of share capital, of the company., Such capital as the company issues from time to time, for subscription., , It is that part of the authorised or nominal capital, which the company issues for the time being for public, subscription and allotment. This is computed at the, face or nominal value., , Such part of the capital which is for the time being, subscribed by the members of a company., It is that portion of the issued capital at face value, which has been subscribed for or taken up by the, subscribers of shares in the company. It is clear that, the entire issued capital may or may not be subscribed.
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Lesson 2 • Share and Share Capital, , 41, , (e), , Called-up, Capital, , 2(15), , (f), , Paid-up Share, Capital, , 2(64), , (g), , Equity &, Preference, Share Capital, , Explanation under, Section 43, , Such part of the capital, which has been called for, payment., It is that portion of the subscribed capital which has been, called up or demanded on the shares by the company., , Such aggregate amount of money credited as paid-up, as is equivalent to the amount received as paid-up in, respect of shares issued and also includes any amount, credited as paid-up in respect of shares of the company,, but does not include any other amount received in, respect of such shares, by whatever name called., (i)‘‘equity share capital’’, with reference to any, company limited by shares, means all share capital, which is not preference share capital;, (ii)‘‘preference share capital’’, with reference to any, company limited by shares, means that part of the, issued share capital of the company which carries or, would carry a preferential right with respect to-, , a) payment of dividend, either as a fixed amount or, an amount calculated at a fixed rate, which may, either be free of or subject to income-tax; and, , b) repayment, in the case of a winding up or repayment, of capital, of the amount of the share capital paid-up, or deemed to have been paid-up, whether or not,, there is a preferential right to the payment of any fixed, premium or premium on any fixed scale, specified in, the memorandum or articles of the company., , Capital shall be deemed to be preference capital,, notwithstanding that it is entitled to either or both of, the following rights, namely:(a) that in respect of dividends, in addition to the, preferential rights to the amounts specified in subclause (a) of clause (ii), it has a right to participate,, whether fully or to a limited extent, with capital not, entitled to the preferential right aforesaid;, (b) that in respect of capital, in addition to the, preferential right to the repayment, on a winding up, of, the amounts specified in sub-clause (b) of clause ( ii), it, has a right to participate, whether fully or to a limited, extent, with capital not entitled to that preferential, right in any surplus which may remain after the entire, capital has been repaid., , PUBLICATION OF AUTHORISED, SUBSCRIBED AND PAID-UP CAPITAL, , It is provided under section 60 of the Act that where any notice, advertisement or other official publication, or any, business letter, bill head or letter paper of a company contains a statement of the amount of the authorised capital, of the company, such notice, advertisement or other official publication, or such letter, bill head or letter paper shall, also contain a statement, in an equally prominent position and in equally conspicuous characters, of the amount of, the capital which has been subscribed and the amount paid-up. In case of failure in complying with the afore, mentioned requirements, the company shall be liable to pay a penalty of ten thousand rupees and every officer of, the company who is in default shall be liable to pay a penalty of five thousand rupees, for each default.
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42, , Lesson 2 • EP-CL, , , , SHARE AND TYPES OF SHARE CAPITAL, , According to Section 2(84) of the Companies Act,2013, ‘share’ means a share in the share capital of a company and, includes stock., , Nature of a Share, , (a), , A share is a right to a specified amount of the share capital of a company, carrying with it certain rights and, liabilities while the company is a going concern and in its winding up. (Halsbury’s Laws of England)., , (c), , Section 44 of the Companies Act, 2013 provides that a share or debentures or other interest of any member, in a company is a movable property transferable in the manner provided by the articles of the company., , (b), (d), (e), , A share is a right to participate in the profits made by a company, while it is a going concern., , In India, a share is regarded as goods. According to the Sale of Goods Act, 1930, “Goods” means any kind of, movable property other than actionable claim and money, and includes stock and shares., , According to Section 45 of the Companies Act, 2013 every share in a company having a share capital shall be, distinguished by its distinctive number but this provision shall not apply to a share held by a person whose, name is entered as holder of beneficial interest in such share in the records of a depository., , Types of Share Capital, , Share Capital is of two kinds- Preference Share Capital and Equity Share Capital., , Share Capital, , Preference Share Capital, , Equity Share Capital, , Cumulative and, Non-Cumulative, Preference Shares, , With voting rights, , Participating and, Non-Participating, Preference Shares, , With differential right, as to dividend /voting, or otherwise, , Convertible and, Non-Convertible, Preference Shares, Redeemable and, Irredeemable, Preference Shares
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Lesson 2 • Share and Share Capital, , 43, , Preference Share Capital, , Explanation to Section 43 : Preference share capital means a part of share capital with a preferential right with, respect to:, •, •, , Payment of dividends, it must carry a preferential right to fixed amount or amount calculated at a fixed rate, and, , As regards the capital, in the event of a winding up or other arrangement to repayment of capital, there must, be a preferential right to be repaid the amount of the capital paid up on such share., , Section 47(2) states that every member of a company limited by shares and holding any preference share capital, therein shall, in respect of such capital, have a right to vote only on resolutions placed before the company which, directly affect the rights attached to his preference shares and, any resolution for the winding up of the company, or for the repayment or reduction of its equity or preference share capital and his voting right on a poll shall be in, proportion to his share in the paid-up preference share capital of the company:, Provided that the proportion of the voting rights of equity shareholders to the voting rights of the preference share, holders shall be in the same proportion as the paid-up capital in respect of the equity shares bears to the paid-up, capital in respect of the preference shares., , Provided further that where the dividend in respect of a class of preference shares has not been paid for a period, of two years or more, such class of preference shareholders shall have a right to vote on all the resolutions placed, before the company., , Types of Preference Shares, Cumulative and, Non-Cumulative, , Convertible and, Non-Convertible, , Participating and, Non-participating, , Redeemable and, Non-Redeemable, , •, , Cumulative preference shares: the dividends are accumulated and therefore paid before, paid before anything paid to equity shares., , •, , Convertible preference shares possess an option or right whereby they can be converted, into an ordinary equity share at some agreed terms and conditions., , •, , •, , Non-Cumulative preference shares: if company does not pay dividend in current year, claim, preference shareholder is lost to that extent., , Non-Convertible preference shares do not have the option to convert but has all other, normal characteristic of a preference share., , •, , Participating preferences share has an additional benefit of participating in ‘surplus profits or, ‘surplus assets’ of the company apart from preferential dividend., , •, , Redeemable preference share has a maturity date on which date the company will repay the, capital amount to the preference shareholders. The paying back of capital is called redemption, dividend., , •, , •, •, , The Non-participating preference share are those which are not entitled to participate in the, ’surplus profits’ or surplus assets’’ of the company. They are entitled to only a fixed rate of dividend., , Preferences share shall be redeemed within a period not exceeding 20 years (however, infrastructure companies can issue preferences shares redeemable within a period not, exceeding 30 years)., Irredeemable Preference Share do not have any maturity date and are repayable only at the, time of winding up of the company. However as per section 55 of the Companies Act, 2013 no, company can issue irredeemable preference shares., , Point to remember:, As per section 55 of the Companies Act, 2013, no company limited by shares shall, issue any preference shares, which are irredeemable.
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44, , Lesson 2 • EP-CL, , , , Equity Share Capital, All share capital, not falling within the above description, of preference capital,is equity share capital, which has, no guaranteed amount of dividend but carries voting, rights., According to explanation(i) to Section 43 of the, Companies Act, 2013 ‘‘equity share capital’’, with, reference to any company limited by shares, means all, share capital which is not preference share capital., , Equity capital is also known as “Common Stock” or, common share capital that represents ownership in a, company. Common share capital is generally divided, into units known shares. These unit holders are called, equity shareholders. They are the real owners of the, company and policy makers of the company. However,, they do not have access to the day to day affairs of the, company. They appoint their representatives called, Board of Directors to look after the affairs of the, company., , Important characteristics of Equity Shares are, given below:, 1), 2), , 3), , Equity Shares have voting rights at all general, meetings of the company. These votes have the, affect of the controlling the management of the, company., , Equity Shares have the right to share the profits, of the company in the form of dividend (cash), and bonus shares. However, even equity share, holders cannot demand declaration of dividend, by the company which is left to the discretion of, the Board of Directors., When the company is wound up, payment, towards the equity share capital will be made to, the respective shareholders only after payment, of the claims of all the creditors and the, preference share capital., , According to section 47, subject to the provisions of section 43, sub-section (2) of section 50 and sub-section (1) of, section 188 –, (a), , (b), , every member of a company limited by shares and holding equity share capital therein, shall have a right to, vote on every resolution placed before the company; and, his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company., , Section 43 of the Companies Act, 2013 further provides for equity share capital:, (i), , (ii), , with voting rights, or, , with differential rights as to dividend, voting or otherwise in accordance with such rules as may be prescribed., , PART B: CONCEPT OF ISSUE AND ALLOTMENT, , Financial markets have an important relationship with economic development. A company decides to issue, securities for different reasons; the main reason being raising capital to meet its financial requirements may be for, starting a new venture, repaying debts, expansion and diversification. This actually reflects indulgence of enormous, investor wealth for the sublime reason of economic development. This economic dependence of the corporate, sector is a compelling rationale for an orderly regulated environment that boosts investor confidence and assures, conformity with prescribed norms. It helps in creating conducive ownership base and wide capacities to create an, impact on the national economy. When an investor buys securities he is enabling the company to carry on its, business using those funds.
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45, , Lesson 2 • Share and Share Capital, , In India a company planning to issue securities shall abide by relevant provisions of :, The Securities, Contracts, (Regulation), Act, 1956, , The Securities, and Exchange, Board of India, Act, 1992 and, its rules &, regulations, , Issue of, securities, , The Securities, Contracts, (Regulation), Rules, 1957, , The, Companies, Act, 2013, , OVERVIEW OF ISSUE OF SECURITIES, Primarily, issues can be classified as a Public issue, Rights or Preferential issues (also known as private placements)., While public and rights issues involve a detailed procedure, private placements or preferential issues are relatively, simpler., , Chapter III of the Companies Act, 2013 deals with “Prospectus and allotment of securities”, the, chapter is divided into two parts:, •, •, , Part I deals with Public Offer and, , Part II deals with Private Placement., , Section 23 of the Companies Act, 2013 provides that a company whether public or private may issue securities., , As per Section 23(1), a public company may issue securities:, (a), , to public through prospectus (“public offer”) by complying with the, provisions of Part I of Chapter III of the Companies Act, 2013; or, , (c), , through a rights issue or a bonus issue in accordance with the provisions, of the Companies Act, 2013 and in case of a listed company or a company, which intends to get its securities listed also with the provisions of the, SEBI Act, 1992 and the rules and regulations made there under., , (b), , through private placement by complying with the provisions of Part II of, Chapter III of the Companies Act, 2013; or, , Public offer includes initial, public offer or further public, offer of securities to the, public by a company, or an, offer for the sale of securities, to the public by an existing, shareholder, through issue, of prospectus.
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46, , , , Lesson 2 • EP-CL, , For a private company, Section 23(2) provides that a private company may issue securities:, (a), , (b), , by way of rights issue or bonus issue in accordance with the provisions of this Act; or, , through private placement by complying with the provisions of Part II Chapter III of the Act., , The section deals with issue of securities,which is a wider term not restricted to equity, preference or debentures., , Such class of public companies may issue such class of securities for the purposes of listing on permitted stock, exchanges in permissible foreign jurisdictions or such other jurisdictions, as may be prescribed., , The Central Government may, by notification, exempt any class or classes of public companies referred to in subsection (3) from any of the provisions of this Chapter, Chapter IV, section 89, section 90 or section 127 and a copy of, every such notification shall, as soon as may be after it is issued, be laid before both Houses of Parliament., , SECURITIES, , ‘Securities’ has been defined under section 2(81) of Companies Act, 2013 to mean the securities as defined in clause, (h) of section 2 of the Securities Contracts (Regulation) Act, 1956. The relevant section lays that securities include:As per Section 2(h) of the Securities Contracts (Regulation) Act, 1956, ‘securities’ include(i), , shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature in, or of any incorporated company or a pooled investment vehicle or other body corporate;, , (ia), , derivative;, , (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;, , (ib), , (id), , units or any other instrument issued by any collective investment scheme to the investors in such, schemes;, units or any other such instrument issued to the investors under any mutual fund scheme;, , Explanation.- For the removal of doubts, it is hereby declared that “securities” shall not include any unit, linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a, combined benefit risk on the life of the persons and investment by such persons and issued by an insurer, referred to in clause (9) of section 2 of the Insurance Act, 1938;, , (ida) units or any other instrument issued by any pooled investment vehicle;, (ie), (ii), (iii), , any certificate or instrument (by whatever name called), issued to an investor by any issuer being a, special purpose distinct entity which possesses any debtor including mortgage debt, assigned to such, entity, and acknowledging beneficial interest of such investor in such debt or receivable including, mortgage debt, as the case may be;, , Government securities;, , (iia) such other instruments as may be declared by the Central Government to be securities; and, rights or interests insecurities., , Thus, the word ‘securities’ includes shares and other instruments., , A public company may issue any of the aforesaid securities by way of a public offer or rights/bonus issue or private, placement. Public Offer here includes Initial Public Offer (IPO) or Further Public Offer (FPO) of securities to the, public by a company, or an Offer For Sale (OFS) of securities to the public by an existing shareholder, through issue, of a prospectus., To increase the accountability of companies and enhance protection to small investors the term private placement, has been defined for the first time in the Act.
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47, , Lesson 2 • Share and Share Capital, , Explanation I to Section 42 defines private placement as any offer or invitation to subscribe or issue of, securities to a select group of persons by a company (other than by way of public offer) through private placement, offer- cum-application, which satisfies the conditions specified in this section., , GOVERNING LAWS, , Issue of Securities is governed in the following manner:, , In the case of a Public Company, which is a listed entity or is desirous of listing its securities on the recognized stock, exchange in India, the issue of securities is governed by the Companies Act, 2013, Securities Contract Regulation, Act, 1956, the SEBI Act, 1992 and the SEBI (ICDR) Regulations, 2018., , In the case of all issues by Private Companies, the same is governed by the Companies Act and the power of, administration is exercised by the Central Government, the Tribunal or the Registrar of Companies as the case may be., Section 24 of the Act empowers the SEBI to regulate the matters relating to issue and transfer of security nonpayment of dividend by listed companies or those companies which intend to get their securities listed. The, explanation to Section 24 provides that all powers relating to all other matters relating to prospectus, return of, allotment, redemption of preference shares and any other matter specifically provided in the Act shall be exercised, by the Central Government, the tribunal or the Registrar of Companies as the case may be. Further the power, relating to forward dealing and insider trading has been delegated to SEBI for listed companies or the companies, which intend to get their securities listed., , PROSPECTUS, , In general parlance prospectus refers to an information booklet or offer document on the basis of which an investor, invests in the securities of an issuer company. It has been defined under section 2(70) so as to mean any document, described or issued as a prospectus and includes a red-herring prospectus referred to in Section 32 or shelf, prospectus referred to in section 31 or any notice, circular, advertisement or other document inviting offers from, the public for the subscription or purchase of any securities of a body corporate., Red-herring Prospectus under Explanation to section 32 has been referred to mean a prospectus which does not, include complete particulars of the quantum or price of the securities included therein., , Shelf Prospectus under Explanation to section 31 has been referred to mean a prospectus in respect of which the, securities or class of securities included therein are issued for subscription in one or more issues over a certain, period without the issue of a further prospectus., Include Red-herring, Prospectus, , Prospectus, , Includes shelf prospectus, Any document described or, issued as a prospectus, Any notice, circular,, Advertisement or other, documents inviting offer
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48, , , , Lesson 2 • EP-CL, , The definition clarifies that any notice,circular, advertisement or any other document inviting offers from public for, the subscription or purchase of securities shall be included in the definition of Prospectus., , Matters to be stated in the prospectus, , According to Section 26(1), every Prospectus shall state such information and set out such reports on financial, information as may be specified by the Securities and Exchange Board in consultation with the Central Government:, Provided that until the Securities and Exchange Board specifies the information and reports on financial information, under this sub-section, the regulations made by the Securities and Exchange Board under the Securities and, Exchange Board of India Act,1992, in respect of such financial information or reports on financial information shall, apply., To make a declaration about the compliance of the provisions of this Act and a statement to the effect that nothing, in the prospectus is contrary to the provisions of this Act, the Securities Contracts (Regulation) Act, 1956 (42 of, 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) and the rules and regulations made, thereunder., , SHELF PROSPECTUS, , Shelf Prospectus means a prospectus in respect of which the securities or class of securities included therein are, issued for subscription in one or more issues over a certain period without the issue of a further prospectus. In, simple terms Shelf Prospectus is a single prospectus for multiple public. Issuer is permitted to offer and sell, securities to the public without a separate prospectus for each act of offering for a certain period., , Under the Act any class or classes of companies, as the Securities and Exchange Board (SEBI) may provide by, regulations in this behalf, may file a shelf prospectus with the Registrar. Such prospectus is to be submitted at the, stage of the first offer of securities which shall indicate a period not exceeding one year as the period of validity of, such prospectus. The validity period shall commence from the date of opening of the first offer of securities under, that prospectus, and in respect of a second or subsequent offer of such securities issued during the period of validity, of that prospectus, no further prospectus is required., An information memorandum is required to be filed by a company filing a shelf prospectus which shall contain all, material facts relating to., •, , new charges created,, , •, , such other changes as may be prescribed., , •, , changes in the financial position of the company as have occurred between the first offer of securities or the, previous offer of securities and the succeeding offer of securities, and, , with the Registrar with in the prescribed time, prior to the issue of a second or subsequent offer of securities under, the shelf prospectus., The section also provides a benefitting provision for the, investors, the proviso provides that where a company, or any other person has received applications for the, allotment of securities along with advance payments of, subscription before the making of any such change, the, company or other person shall intimate the changes to, such applicants and if they express a desire to withdraw, their application, the company or other person shall, refund all the monies received as subscription within, fifteen days thereof., , According to Rule 10 of the Companies (Prospectus and, Allotment of Securities) Rules, 2014, the information, memorandum shall be prepared in Form PAS-2 and, filed with the Registrar along with the fee as provided in, the Companies (Registration Offices and Fees) Rules,, 2014 within one month prior to the issue of a second or, subsequent offer of securities under the shelf prospectus., , RED-HERRING PROSPECTUS, , Red-herring Prospectus means a prospectus which does not include complete particulars of the quantum or price, of the securities included therein. In simple terms a red-herring prospectus contains most of the information
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Lesson 2 • Share and Share Capital, , 49, , pertaining to the company’s operations and prospects, but does not include key details of the issue such as its price, and the number of shares offered., , According to section 32 a company proposing to make an offer of securities may issue a red-herring prospectus, prior to the issue of a prospectus. Such company proposing to issue a red herring prospectus shall file it with the, Registrar at least three days prior to the opening of the subscription list and the offer., A red-herring prospectus shall carry the same obligations as are applicable to prospectus and any variation between, the red herring prospectus and a prospectus shall be highlighted as variations in the prospectus., , Upon the closing of the offer of securities under this section, the prospectus stating therein the total capital raised,, whether by way of debt or share capital, and the closing price of the securities and any other details as are not, included in the red-herring prospectus and shall be filed with the Registrar and the Securities and Exchange Board., , ABRIDGED PROSPECTUS, , Section 33 of the Act provides that no form of application for the purchase, of any of the securities of a company shall be issued unless such form is, accompanied by an abridged prospectus. A copy of the prospectus, on are, quest being made by any person before the closing of the subscription list,, be furnished to him., Nothing aforesaid shall apply if it is shown that the form of application was, issued—, (a) in connection with a bonafide invitation to a person to enter into an, underwrite with respect to such securities; or, (b), , According to section 2(1) of the Act, “abridged prospectus” means a, memorandum containing such, salient features of a prospectus as, may be specified by the Securities, and Exchange Board by making, regulations in this behalf., , in relation to securities which were not offered to the public., , The penal provisions provide that a company which makes any default in complying with the provisions shall be, liable to a penalty of fifty thousand rupees for each default., , OFFER FOR SALE -DEEMED PROSPECTUS, , Public Offer includes or an Offer for Sale (OFS) of securities to the public by an existing shareholder, through issue, of a prospectus., Under section 25 of the Act where a company allots or agrees to allot any securities of the company with a view to, all or any of those securities being offered for sale to the public, any document by which the offer for sale to the, public is made shall, for all purposes, be deemed to be a prospectus issued by the company. In simple terms any, document by which the offer or sale of shares or debentures to public is made shall for all purposes be treated as, prospectus., , The document “Offer for Sale” is an invitation to the general public to purchase the shares of a company through an, intermediary, such as an issuing house or a merchant bank. A company may allot or agree to allot any shares or, debentures to an “Issue house” without there being any intention on the part of the company to make shares or, debentures available directly to the public through issue of prospectus. The issue house in turn makes an “Offer for, Sale” to the public., All enactments and rules of law as to the contents of prospectus and as to liability in respect of misstatements, in, and omissions from, prospectus, or otherwise relating to prospectus, shall apply to such Offer for Sale. Following, additional information to the matters required to be stated in a prospectus:, (a), , (b), , the net amount of the consideration received or to be received by the company in respect of the securities to, which the offer relates; and, , the time and place at which the contract where under the said securities have been or are to be allotted may, be inspected;
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50, , , , Lesson 2 • EP-CL, , According to the section in order to construe “Offer for Sale” either of the following conditions needs to be fulfilled:, (a), , (b), , “Offer for Sale”to the public was made with in six months after the allotment or agreement to allot; or, , at the date when the offer was made, the whole consideration to be received by the company in respect of the, securities had not been received by it., , As for the signing of the Prospectus the section provides that where a person making an offer to which this section, relates is a company or a firm, it shall be sufficient if the offer document is signed on behalf of the company by two, directors of the company and in case of a firm by not less than one-half of the partners in the firm, as the case may, be., , Offer for Sale of shares by certain members of a company, , Section 28 of the Act permits certain members of a company, in consultation with Board of Directors, to offer, in, accordance with the provisions of any law for the time being in force, the whole or a part of their holdings of shares, to the public. The document by which the offer of sale to the public is made shall, for all purposes, be deemed to be, a prospectus issued by the company., , All laws and rules made hereunder as to the contents of the prospectus and as to liability in respect of mis-statements, in and omission from prospectus or otherwise relating to prospectus shall apply as if this is a prospectus issued by, the company., , The section lays that the members, whether individuals or bodies corporate or both,whose shares are proposed to, be offered to the public, shall collectively authorise the company, whose share were offered for sale to the public, to, take all actions in respect of offer of sale for and on their behalf and they shall reimburse the company all expenses, incurred by it on this matter., The rules in this context provide that the provisions of Part I of Chapter III namely “Prospectus and Allotment of, Securities”and rules made there under shall be applicable to an offer of sale referred to in section 28 except for the, following, namely:(a), , the provisions relating to minimum subscription;, , (c), , the provisions requiring any statement to be made by the Board of Directors in respect of the utilization of, money; and, , (b), (d), , the provisions for minimum application value;, , any other provision or information which cannot be compiled or gathered by the offer or, with detailed, justifications for not being able to comply with such provisions., , Further the rules provide that such offer document or prospectus issued under the section shall disclose the name, of the entity bearing the cost of making the offer for sale along with reasons., , Issue of Securities at a Premium, , A company may issue securities at a premium when it is able to sell them at a price above par or above nominal, value. The Companies Act, 2013, does not stipulate any conditions or restrictions regulating the issue of securities, by a company at a premium. However, the Companies Act does impose conditions regulating the utilization of the, amount of premium collected on securities., , Share Premium to be transferred to ‘Securities Premium Account’, , Section 52(1) states that when a company issues shares at a premium, whether for cash or otherwise, a sum equal, to the aggregate amount of the premium received on those shares shall be transferred to a “securities premium, account”and the provisions of this Act relating to reduction of share capital of a company shall, except as provided, in this section, apply as if the securities premium account were the paid-up share capital of the company.
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51, , Lesson 2 • Share and Share Capital, , Utilisation of Securities premium, In accordance with the provisions of Section 52(2) of the Act, the securities premium can be utilised only for:, (a), , issuing fully paid bonus shares to members;, , (c), , writing off commission paid or discount allowed, or the expenses incurred on issue of shares or debentures, of the company;, , (b), (d), (e), , writing off the balance of the preliminary expenses of the company;, , for providing for the premium payable on redemption of any redeemable preference shares or debentures of, the company; or, for the purchase of its own shares or other securities under section 68., , Section 52(3) further states that the securities premium, account may, notwithstanding anything contained in subsections (1) and (2), be applied by such class of companies, as, may be prescribed and whose financial statement comply, with the accounting standards prescribed for such class of, companies under section 133,–, (a), , (b), (c), , in paying up unissued equity shares of the company to, be issued to members of the company as fully paid, bonus shares; or, , Where a company issues shares at a premium,, even though the consideration may be other, than cash, a sum equal to the amount or value, of the premium must be transferred to the, securities premium account. [Head (Henry), & Co. Ltd. v. Ropner Holding Ltd. (1951) 2 All, ER 994: (152) Ch 124 (Ch D)]., , in writing off the expenses of or the commission paid or discount allowed on any issue of equity of the, company; or, for the purchase of its own shares or other securities under section 68., , Firstly, the premium cannot be treated as profit and as such the amount of premium is not available for distribution, as dividend. Secondly, the amount of premium whether received in cash or in kind must be kept in a separate, account, known as the “Securities Premium Account”. Thirdly, the amount of premium is to be maintained with the, same sanctity as the share capital ., , Any premium paid does not give the shareholder any preferential rights in case of a winding up. Monies in the, securities premium account cannot be treated as free reserves, as they are in the nature of capital reserve, [Departmental Circular No. 3/77 dated 15.4.1977]., , PROHIBITION TO ISSUE THE SHARES AT DISCOUNT, , ¾, ¾, , ¾, , Section 53 states that except as provided in section 54 (i.e. issue of sweat equity shares), a company shall not, issue shares at a discount. Any share issued by a company at a discount shall be void., , A company may issue shares at a discount to its creditors when its debt is converted into shares in pursuance, of any statutory resolution plan or debt restructuring scheme in accordance with any guidelines or directions, or regulations specified by the Reserve Bank of India under the Reserve Bank of India Act, 1934 or the Banking, (Regulation) Act, 1949., , Where any company fails to comply with the provisions of this section, such company and every officer who, is in default shall be liable to a penalty which may extend to an amount equal to the amount raised through, the issue of shares at a discount or five lakh rupees, whichever is less, and the company shall also be liable, to refund all monies received with interest at the rate of twelve percent per annum from the date of issue of, such shares to the persons to whom such shares have been issued.
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52, , , , Lesson 2 • EP-CL, , Let us Remember!, 1., 2., , Issue of shares at discount is prohibited except by issue of sweat equity., Share premium amount is not available for distribution of dividend., , CONCEPT OF ALLOTMENT OF SECURITIES, , Section 39 of the Companies Act, 2013 read with Rule 12 of the Companies (Prospectus and Allotment of Securities), Rules, 2014 deals with Allotment of Securities., Allotment, •, •, •, •, •, •, , •, •, , Allotment of any securities of a company offered to the public for subscription shall be made only when the, amount stated in the prospectus as the minimum amount has been subscribed and payable on application for, the amount so stated have been paid to and received by the company by cheque or other instrument., Whenever a company having a share capital makes any allotment of securities, it shall file with the Registrar, a return of allotment, within thirty days thereafter, in Form PAS-3, along with the fee as specified in the, Companies (Registration Offices and Fees) Rules, 2014., Along with Form PAS-3 a certified list of allottees stating their names, address, occupation, if any, and number, of securities allotted to each of the allottees, shall be attached., , The list shall be certified by the signatory of Form PAS-3 as being complete and correct as per the records of, the company., , Further, in the case of securities (not being bonus shares) allotted as fully or partly paid up for consideration, other than cash, a copy of the contract, duly stamped, pursuant to which the securities have been allotted, together with any contract of sale if relating to a property or an asset, or a contract for services or other, consideration shall be attached to the Form PAS-3., When a contract is not reduced to writing, the company shall furnish along with the Form PAS-3 complete, particulars of the contract stamped with the same stamp duty as would have been payable if the contract had, been reduced to writing and those particulars shall be deemed to be an instrument within the meaning of the, Indian Stamp Act, 1899 (2 of 1899), and the Registrar may, as a condition of filing the particulars, require that, the stamp duty payable thereon be adjudicated under section 31 of the Indian Stamp Act, 1899. Further a, report of a registered valuer in respect of valuation of the consideration shall also be attached along with the, contract of sale if relating to property or an asset or a contract for services, as the case may be., In the case of issue of bonus shares, a copy of the resolution passed in the general meeting authorise the issue, of such shares shall be attached to the Form PAS-3., The amount payable on application on every security shall not be less than five percent of the nominal amount, of the security or such other percentage or amount, as may be specified by the SEBI by making regulations in, this behalf., , Refund of money, , In cases where the stated minimum a mount has not been subscribed and the sum payable on application received, with in a period of thirty days from the date of issue of the prospectus, or such other period as may be specified by, the SEBI, the amount received as above shall be returned. The application money shall be repaid within a period of, fifteen days from the closure of the issue and if any such money is not so repaid within such period, the directors of, the company who are officers in default shall jointly and severally be liable to repay that money with interest at the, rate of fifteen percent per annum.
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Lesson 2 • Share and Share Capital, , 53, , Penalty for default [Section 39(5)], In case of any default, the company and its officer who is in default shall be liable to a penalty, for each default, of, one thousand rupees for each day during which such default continues or one lakh rupees, whichever is less., Let us Remember!, Whenever a company having a share capital makes any allotment of securities, it shall file with the Registrar a, return of allotment in Form PAS-3 within thirty days from the date of allotment., , Case Laws:, , Related to return of allotment, (A), , (B), (C), (D), , In case of Sri Gopal Jalan & Co. vs. Calcutta Stock Exchange Association Ltd. 1963-(033)-Com Cases- 0862-SC,, the Supreme Court held that the exchange was not liable to file any return of the forfeited shares under, Section 75(1)of the Companies Act,1956 [Corresponds to section 39 of the Companies Act, 2013] when, the same were re-issued. The Court observed that when a share is forfeited and re-issued, there is no, allotment, in the sense of appropriation of shares out of the authorised and unappropriated capital and, approved the observations of Harries C.J. in S.M. Nandy’s case that: “On such forfeiture all that happened, was that the right of the particular shareholder disappeared but the shares considered as a unit of issued, capital continued to exist and was kept in suspense until another shareholder was found for it”;, In case of Alote Estate vs. R.B. Seth Hiralal Kalyanmal Kasliwal [1970] 40 Com Cases 1116 (SC), of inadequacy, of consideration, the shares will be treated as not fully paid and the shareholder will be liable to pay for, them in full, unless the contract is fraudulent;, , Harmony and Montage Tin and Copper Mining Company; Spargo’s case (1873)., Any payment which is presently enforceable against the company such as consideration payable for, property purchased, will constitute payment in cash;, In case of Chokkalingam vs. Official Liquidator AIR 1944, allotment of shares against promissory notes shall, not be valid., , GENERAL PRINCIPLES REGARDING ALLOTMENT, , “Allotment” of shares means the act of appropriation by the Board of Directors of the company out of the previously, un-appropriated capital of a company of a certain number of shares to persons who have made applications for shares, (In Re Calcutta Stock Exchange Association, AIR 1957 Cal. 438). It is on allotment that shares come into existence., The following general principles should be observed with regard to allotment of securities:, 1., , The allotment should be made by proper authority. The proper authority may be the Board of Director of the, company, or a committee authorised to allot securities on behalf of the Board., , 3., , The allotment should be absolute and unconditional. Securities must be allotted on same terms on which, they were applied for and as they are stated in the application for securities. Allotment of securities subject, to certain conditions is also not valid. Similarly, if the number of securities alloted is less than those applied, for, it cannot be termed as absolute allotment., , 2., , 4., 5., , Allotment of securities must be made within a reasonable time (As per Section 6 of the Indian Contract Act,, 1872, an offer must be accepted within a reasonable time). What is reasonable time is a question of fact in, each case. An applicant may refuse to take securities if the allotment is made after along time. (As per Section, 56 within a period of two months from the date of allotment in the case of allotment of any of its shares), , The allotment must be communicated. As mentioned earlier posting of letter of allotment or allotment advice, will be taken as a valid communication even if the letter is lost in transit., Allotment against application only. Section 2(55) of the Act requires that a person should agree in writing to, become a member.
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54, , 6., , , , Lesson 2 • EP-CL, , Allotment should not be in contravention of any other law. If securities are allotted on an application of a, minor, the allotment will be void., , Case Laws:, , Related to allotment, (A), , An allotment may be valid even if some defect was there in the appointment of Directors but which was, subsequently discovered. [Section 290 and the Rule in Royal British Bank vs. Turquand (1856)];, , (C), , A director who has joined in an allotment to himself will be estopped from alleging the invalidity of the, allotment [Yark Tramways Co. vs. Willows, (1882)];, , (B), , (D), (E), , An allotment by a Board irregularly constituted may be subsequently ratified by a regular Board [Portugese, Consolidated Copper Mines, (1889) 42 Ch. D 160 (CA)];, , Grant applied for certain shares in a company, the company dispatched letter of allotment to him which, never reached him. It was held that he was liable for the balance amount due on the shares. [Household, Fire And Carriage Accident Insurance Co. Ltd. vs. Grant (1879)];, There can be no proper allotment of shares unless the applicant has been informed of the allotment, [British and American Steam Navigation Co. Re. (1870)]., , SHARE CERTIFICATE, What is a share certificate?, A share certificate is a certificate issued to the members, by the company, specifying the number of shares held In terms of Section 46(1) of the Act, a share certificate, by him and the amount paid on each share. According issued under the common seal, if any, of the company, to Section 45 of the Companies Act, 2013 each share of or signed by two Directors or by a Director and the, the share capital of the company shall be distinguished Company Secretary, wherever, the company has, with a distinct number for its individual identification. appointed a Company Secretary is a prima facie, However, such distinction shall not be required, as per evidence of the title of the person to such share., provison to Section 45, if the shares are held by a person, whose name is entered as holder of beneficial interest in such share in the records of a depository., , Thus, the certificate is the only documentary evidence of title in the possession of the shareholder. But it is not a, warranty of title by the company issuing it., , When can a company issue Duplicate Share Certificate?, , Section 46 (2) states that a duplicate certificate of shares may be issued, if such certificate —, (a), , (b), , is proved to have been lost or destroyed; or, , has been defaced, mutilated or torn and is surrendered to the company., , Manner of issuing Share Certificates/ Duplicate Share Certificates, , Section 46(3) states that notwithstanding anything contained in the articles of a company, the manner of issue of a, certificate of shares or the duplicate thereof, the form of such certificate, the particulars to be entered in the register, of members and other matters shall be such as may be prescribed.
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55, , Lesson 2 • Share and Share Capital, , ISSUE OF SHARE CERTIFICATE, , ISSUE OF RENEWED OR DUPLICATE, SHARE CERTIFICATE, , Board Resolution be passed and Letter of allotment Renewal to be made only on surrender of old certificate., or fractional coupons of requisite value, must be, surrendered to company. In case the letter of allotment, is lost or destroyed, the Board may impose reasonable, terms, , Certificate shall be issued in Form No. SH-1 and shall Company may charge fee for duplicate share certificate, specify the name of person in whose favour the as the Board decides but not exceeding Rs. 50 per, certificate is issued, shares to which it relates and the certificate., amount paid-up thereon., , Every certificate shall specify the shares to which it Company shall not issue any duplicate share certificate, relates and the amount paid-up thereon and shall be in lieu of those lost or destroyed without the prior, signed by two Directors or by a Director and the CS, consent of Board., wherever the company has appointed CS., If the company is listed then the duplicate share, In case the company has a common seal it shall be affixed certificates shall be issued within 45 days and if the, in the presence of persons required to sign the certificate. company is unlisted it shall issue the certificates within, 3 months from the date of submission of complete, In case of an One Person Company, it shall be sufficient documents with the company., if the certificate is signed by a Director and the CS or, any other person authorised by the Board for the, purpose., A Director or Company Secretary shall be deemed to, have signed the share certificate if his signature is, printed thereon as facsimile signature by means of any, machine, equipment or other mechanical means such, as engraving in metal or lithography or digitally signed,, but not by means of rubber stamp, provided that the, Director or Company Secretary shall be personally, responsible for permitting the affixation of his, signature thus and the safe custody of any machine,, equipment or other material used for the purpose., , Particulars of shares certificates to be entered in the The particulars of renewed and duplicate share, Register of Members., certificate to be entered in Register of Renewed and, Duplicate Share Certificates maintained in Form No., SH.2.
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56, , Lesson 2 • EP-CL, , , , The register shall be kept at the registered office of the, company or at such other place where the Register of, Members is kept and it shall be preserved permanently, and shall be kept in the custody of the Company, Secretary of the company or any other person, authorized by the Board for the purpose., On fraudulent issue the company shall be punishable, with: fine which shall not be less than five times the face, value of shares involved which may extend to ten times, or rupees 10 crore whichever is higher., Officer in default shall be liable under section 447., , Maintenance of share certificate forms and related books and documents [Rule 7 of the Companies, (Share Capital and Debenture) Rules, 2014], (1), , (2), , All blank forms to be used for issue of share certificates shall be printed and the printing shall be done only, on the authority of a resolution of the Board and the blank form shall be consecutively machine-numbered, and the forms and the blocks, engravings, facsimiles and hues relating to the printing of such forms shall be, kept in the custody of the Secretary or such other person as the Board may authorise for the purpose; and the, Company Secretary or other person aforesaid shall be responsible for rendering an account of these forms to, the Board., The following persons shall be responsible for the maintenance, preservation and safe custody of all books, and documents relating to the issue of share certificates, including the blank forms of share certificates, referred above, namely:–, , (a), , (3), , (b), , the committee of the Board, if so authorized by the Board or where the company has a Company, Secretary, the Company Secretary; or, , where the company has no Company Secretary, a Director specifically authorised by the Board for such, purpose., , All books mentioned above shall be preserved in good order not less than thirty years and in case of disputed, cases, shall be preserved permanently, and all certificates surrendered to a company shall immediately be, defaced by stamping or printing the word “cancelled” in bold letters and may be destroyed after the expiry of, three years from the date on which they are surrendered, under the authority of a resolution of the Board and, in the presence of a person duly appointed by the Board in this behalf., , The above mentioned provisions shall not apply to cancellation of the certificates of securities, under sub-section, (2) of section 6 of the Depositories Act, 1996 (22 of 1996), when such certificates are cancelled in accordance with, the SEBI (Depositories and Participants) Regulations, 2018., , Record of depository is prima facie evidence for shares in depository form, , Section 46(4) states that where a share is held in depository form, the record of the depository is the prima facie, evidence of the interest of the beneficial owner., , Issuing duplicate share certificates to defraud, , According to Section 46(5), if a company with an intention to defraud, issues a duplicate certificate of shares, the, company shall be punishable with fine which shall not be less than five times the face value of the shares involved, in the issue of the duplicate certificate but which may extend to ten times the face value of such shares or rupees ten, crores whichever is higher and every officer of the company who is in default shall be liable for action under section, 447, for fraud.
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Lesson 2 • Share and Share Capital, , 57, , Time of issue of Certificate of Securities, Under Section 56(4) of the Act, every company, unless prohibited by any provision of law or any order of any Court,, Tribunal or other authority must deliver the certificates of all securities allotted, transferred or transmitted:(a), , within a period of 2 months from the date of incorporation, in the case of subscribers to the memorandum;, , (c), , within a period of 1 month from the date of receipt by the company of the instrument of transfer or, as the, case may be, of the intimation of transmission, in the case of a transfer or transmission of securities;, , (b), (d), , within a period of 2 months from the date of allotment, in the case of any allotment of any of its shares;, within a period of 6 months from the date of allotment in the case of any allotment of debenture., , However, where the securities are dealt within a depository, the company shall intimate the details of allotment of, securities to depository immediately on allotment of such securities [Proviso to Section 56(4)]., Where any default is made in complying with the above provisions, the company and every officer of the company, who is in default shall be liable to a penalty of fifty thousand rupees [Section 56(6)]., In case of Specified IFSC Public Company/Specified IFSC Private Company- It shall deliver the certificates of all, securities to subscribers after incorporation, allotment, transfer or transmission with in a period of 60 days.Notification dated 4th January, 2017., , Significance of Share Certificate, , A certificate of shares is evidence to the effect that the allottee is holding a certain number of shares of the company, showing their nominal and paid-up value and distinctive numbers. This certificate is a prime facie evidence of title, to the shares in the possession of shareholders [Society Generale De Paris vs. Walker, (1885) 11A AC 20, 29]., , Moreover, when the company issues a certificate, it holds that the facts contained therein are true. Any person, acting on the faith of the share certificate of the company, can compel the company to pay compensation for any, damage caused by reason of any misstatement in the share certificate as the company is bound by any statements, made in the certificate., Share certificate is the only documentary evidence of title and that the share certificate is a declaration by the, company that the person in whose name the certificate is issued is a shareholder in the company [Ghanshyam, Chhaturbhuj vs. Industrial Ceramics (Pvt.) Ltd. (1995) 4 Com LJ 51]., Also the company cannot dispute the amount mentioned on the certificate as already paid [Bloomenthal v. Ford, (1897) AC 156(HL)]., , Damages against Company and Directors for wrong certificates, , As already mentioned, a person acting on the share certificate issued by the company may recover compensation, for the damages suffered by him. The measure of damage is the value of the shares at the time of the refusal by the, company to recognize him as a shareholder together with interest from that date. [Bahla and San Francisco Rly. Co.,, (1868) LR 3 QB584]., , Where Directors issue a certificate of title of shares which the company has no power to issue, they may be held, personally liable to damages on an implied warranty of authority to any person who acts on such certificate., , Split Certificate, , A split certificate means a separate certificate claimed by a shareholder for a portion of his holding. The advantages, of a split certificate are that the shareholder may benefit in case of a transfer by way of sale or mortgage in small lots, and the right to multiply the certificates into as many shares held by the shareholder., , Purpose and Form of Share Certificate, , With the help of a share certificate a member of a company may deal with his shares in the market whether it is one, of sale, mortgage or pledge by showing a good prima facie marketable title to the shares. A share certificate is a
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58, , , , Lesson 2 • EP-CL, , documentary evidence of title to shares in the possession of the shareholder. It is a prima facie evidence of his title, to the shares., , Section 46(4) provides that where a share is held in depository form, the record of the depository is the prima facie, evidence of the interest of the beneficial owner., , Let us remember!, •, •, , Every certificate of share or shares shall be in Form No. SH.1 or as near thereto as possible., , The particulars of every share certificate issued shall be entered forthwith in a Register of Renewed and, Duplicate Share Certificates maintained in Form No. SH.2., , Whether Share Certificate an Official Publication, , The question whether a share certificate is an official publication within the meaning of Section 12(3)(c) was, considered by the Department of Company Affairs (Now, Ministry of Corporate Affairs) and the Department has, clarified vide Circular No. 3/73[8/10(47)]/72-CL-V dated 3.2.1973 as follows:, “It will be seen that in terms of section 44 of the Companies Act, 2013, the shares in a company are movable property, transferable in the manner provided in the articles of the company., , Section 46 of the Companies Act, 2013 provides that a certificate under the common seal of the company specifying, any share held by any member shall be prima facie evidence of the title of the member to such share. [With the, Companies (Amendment) Act, 2015 coming into force the common seal is no more mandatory. The implications, and signatories have been discussed earlier]., Thus, shares are movable property transferable in the manner provided in the articles of the company and that the, share certificates are certificates of title and are movable property but are not publications in the nature of, prospectus, balance sheet, profit and loss account, notice or advertisement., , Legal Effect of Share Certificate, , We have already stated that a share certificate is prima facie evidence to the title of the person whose name is, entered on it. It means that the share certificate is a statement by the company that the moment when it was issued,, the person named in it was the legal owner of the shares specified in it, and those shares were paid-up to the, extent stated. It does not constitute title but it is merely evidence of title. It is, however a statement of considerable, importance, for it is made with the knowledge that other persons may act upon it in the belief that it is true and this, fact brings into operation the doctrine of estoppel. As a result, a share certificate once issued by the company binds, it in two ways,namely:, (a), , (b), , by estoppel as to title, and, , by estoppel as to payment., , Estoppel as to Title: A share certificate once issued binds the company in two ways. In the first place, it is a, declaration by the company to the entire world that the person in whose name the certificate is made out and to, whom it is given is a shareholder in the company. In other words the company is estopped from denying his title to, the shares., , Estoppel as to Payment: If the certificate states that on each of the shares full amount has been paid, the company, is estopped as against a bonafide purchaser of the shares, from alleging that they are not fully paid., If a person knows that the statements in a certificate are not true, he cannot claim an estoppel against the company, Barrow case (1880) 14 Ch D 432: 42LT 891CA., , Despite everything, a certificate must be issued by someone who has the authority. For example, where the secretary, forged the signature of two Directors in a company, the company had refused to register the holder of shares as a, member. Further a certificate is not evidence as to the equitable interest in, where an individual is aware of the false, statements in a certificate, he will not be entitled to claim an estoppel.
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59, , Lesson 2 • Share and Share Capital, , Personation of Shareholders [Section 57], Where any person deceitfully personates as an owner of any security or interest in, a company, or of any share warrant or coupon issued in pursuance of this Act, and, (i), , (ii), , thereby obtains or attempts to obtain any such security or interest or any, such share warrant or coupon; or, receives or attempt to receive any money due to any such owner., , He shall be punishable with imprisonment for a term which shall not be less than 1, year but which may extend to 3 years and with fine which shall not be less than 1, lakh rupees but which may extend to 5 lakh rupees., , PART C: ISSUE OF SECURITIES, , To ‘personate’ means to, pretend to be someone else,, especially for fraudulent, purpose such as casting a, vote in another person’s, name. Personation and, impersonation imply the, same thing., , EQUITY SHARES WITH DIFFERENTIAL VOTING RIGHTS, While Section 43 enables companies to issue equity shares with differential rights as to dividend, voting rights etc.,, Rule 4 of the Companies (Share Capital and Debentures) Rules, 2014 states the conditions regarding shares with, differential voting rights., Further, Rule 3 states that the provisions of these rules shall apply to:, (i), , all unlisted public companies;, , (iii), , listed companies so far as they do not contradict or conflict with any other regulation framed in this regard, by the Securities and Exchange Board of India., , (ii), , all private companies; and, , Conditions for issuing shares with differential rights [Rule 4 of the Companies (Share Capital and, Debentures) Rules, 2014], , Only a company limited by shares can issue equity shares with differential rights as to dividend, voting or otherwise., Such company has to comply with the following conditions, namely:(a), , the articles of association of the company authorizes the issue of shares with differential rights;, , (c), , the voting power in respect of shares with differential rights of the company shall not exceed seventy four, percent of total voting power including voting power in respect of equity shares with differential rights issued, at any point of time;, , (b), , (d), (e), (f), , the issue of shares is authorized by an ordinary resolution passed at a general meeting of the shareholders., When the equity shares of a company are listed on a recognized stock exchange, the issue of such shares shall, be approved by the shareholders through postal ballot. (Though with Companies (Amendment) Act, 2017, coming into force, any item of business required to be transacted by means of postal ballot, may be transacted, at a general meeting by a company which is required to provide the facility to members to vote by electronic, means under section 108);, , the company has not defaulted in filing financial statements and annual returns for three financial years, immediately preceding the financial year in which it is decided to issue such shares;, the company has no subsisting default in the payment of a declared dividend to its shareholders or repayment, of its matured deposits or redemption of its preference shares or debentures that have become due for, redemption or payment of interest on such deposits or debentures or payment of dividend;, , the company has not defaulted in payment of the dividend on preference shares or repayment of any term, loan from a public financial institution or State level financial institution or scheduled Bank that has become
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60, , Lesson 2 • EP-CL, , , , repayable or interest payable thereon or dues with respect to statutory payments relating to its employees to, any authority or default in crediting the amount in Investor Education and Protection Fund to the Central, Government;, (g), , A company may issue equity shares with differential rights upon expiry of five years from the end financial, year in which such default was made good., , the company has not been penalized by Court or Tribunal during the last three years of any offence under the, RBI Act, 1934, the SEBI Act, 1992, the Securities Contracts Regulation Act, 1956, the Foreign Exchange, Management Act,1999 or any other Special Act,under which such companies being regulated by sectoral, regulators., , Disclosures in the explanatory statement to the notice of the meeting, , While taking a decision it is important that all information is provided with regard to the matter, hence rule 4(2) of, the Companies (Share Capital and Debentures) Rules, 2014 requires that the explanatory statement shall be, annexed to the notice of the general meeting or of a postal ballot. The explanatory statement shall contain the, following particulars, namely:(a), , the total number of shares to be issued with differential rights;, , (c), , the percentage of the shares with differential rights to the total post issue paid up equity share capital, including equity shares with differential rights issued at any point of time;, , (b), (d), (e), (f), , (g), , the details of the differential rights;, , the reasons or justification for the issue;, , the price at which such shares are proposed to be issued either at par or at premium;, the basis on which the price has been arrived at;, , (i) in case of private placement or preferential issue:, (a), , (b), , (h), (i), , (j), , (k), (l), , details of total number of shares proposed to be allotted to promoters, directors and key managerial, personnel;, , details of total number of shares proposed to be allotted to persons other than promoters, directors, and key managerial personnel and their relationship if any with any promoter, director or key, managerial personnel;, , (ii) in case of public issue - reservation, if any, for different classes of applicants including promoters, directors, or key managerial personnel;, the percentage of voting right which the equity share capital with differential voting right shall carry the total, voting right of the aggregate equity share capital;, the scale or proportion in which the voting rights of such class or type of shares shall vary;, , the change in control, if any, in the company that may occur consequent to the issue of equity differential, voting rights;, , the diluted Earning Per Share pursuant to the issue of such shares, calculated in accordance with the, applicable accounting standards;, the pre and post issue share holding pattern along with voting rights as per Regulation 31 of the SEBI (Listing, Obligations and Disclosure Requirements) Regulations, 2015.
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Lesson 2 • Share and Share Capital, , 61, , Conversion of existing equity share capital into differential voting rights and vice-versa not, possible, The company shall not convert its existing equity share capital with voting rights into equity share capital carrying, differential voting rights and vice versa., , Disclosures in the Boards’ Report, , The Board of Directors are required to disclose the details of the issue of equity shares with differential rights in the, Board’s Report for the financial year in which was completed., The details are given in Lesson-9 “Transparency and Disclosure”, later in this study., , Rights of holders of equity shares with differential voting rights, The holders of the equity shares with differential rights enjoys all other rights such as bonus shares, rights shares, etc., which the holders of equity shares are entitled to, subject to the differential rights with which such shares have, been issued., , Register of Members to contain the details of equity shareholders having differential voting rights, , When a company issues equity shares with differential rights, the Register of Members maintained under section, 88 shall contain all the relevant particulars of the shares so issued along with details of these., , Procedure for Issue of Equity Shares with Differential Voting Rights, 1., , Check whether the Articles of Association of the company authorizes issue of equity shares with differential, rights and if not, the name and the Articles of Association of the company., , 3., , Before issuing equity shares with differential rights as to dividend, voting or otherwise, ensure that the, conditions of issue are fully satisfied., , 2., , 4., 5., 6., 7., 8., 9., 10., 11., , Hold the Board meeting to issue the notice of general meeting for issuance of equity share with differential, rights., , If the company is listed with any of the recognized stock exchange, then within 30 minutes of the closure of, the aforesaid Board Meeting intimate to the concerned Stock Exchange about the decision taken at the Board, Meeting., Pass the ordinary resolution in the general meeting or through Postal Ballot under section 110 of the Act., , Once the company makes any allotment, then it shall, within 30 days thereafter, file with the Registrar a, return allotment in Form PAS-3, along with the fees as specified in the Companies (Registration Offices and, Fees) Rules, 2014., The company shall not convert its existing equity share capital with voting rights into equity share capital, carrying differential voting rights and vice–versa., , In case of listed company, send copies of the notice and a copy of the proceedings of the general meeting to, the stock exchange within 24 hours of the occurrence of event. [Regulation 30 (6) of the SEBI (Listing, Obligations and Disclosure Requirements), Regulations 2015], , Complete all other proceedings for the issue of certificate of shares with differential voting rights making, necessary entries in various registers. In case of a company whose shares are dematerialized form, inform, the depositories about the same for credit to the respective accounts., Intimate the details of allotment of shares to the Depository immediately on allotment of such shares., , Maintain the Register of Members under section 88 containing all the relevant particulars of the shares so, issued along with details of the shareholders.
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62, , , , ISSUE AND REDEMPTION OF PREFERENCE SHARES, , Lesson 2 • EP-CL, , Company cannot issue irredeemable preference shares or redeemable preference shares with the redemption, period beyond 20 years., Section 55 (1) states that no company limited by shares shall issue any preference shares which are irredeemable., , Section 55 (2) further states that a company limited by shares may, if so authorised by its articles, issue preference, shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue, subject to such conditions as may be prescribed., Exceptions, , Issue and redemption of preference shares by company in infrastructure projects, A company engaged in the setting up and dealing with of infrastructural projects may issue preference shares for, a period exceeding 20 years but not exceeding 30 years, subject to the redemption of a minimum 10% of such, preference shares per year from the twenty first year onwards or earlier, on proportionate basis, at the option of, the preference shareholders., The term ‘‘Infrastructure Projects’’ means the infrastructure projects specified in Schedule VI., , Other conditions attached, , Proviso to Section 55(2) states that:, (a), , Preference Shares shall be redeemed out of the profits of the company which would otherwise be available, for dividend or out of the proceeds of a fresh issue of shares made for the purposes of such redemption;, , (c), , where such shares are proposed to be redeemed out of the profits of the company, there shall, out of such, profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed, to a reserve, to be, called the Capital Redemption Reserve Account., , (b), , (d), , Such shares shall be redeemed only if they are fully paid;, , (i) in case of such class of companies, as may be prescribed and whose financial statement comply with the, accounting standards prescribed for such class of companies under section 133, the premium, if any, payable, on redemption shall be provided for out of the profits of the company, before the shares are redeemed., Premium, if any, payable on redemption of any preference shares issued on or before the commencement of, this Act by any such company shall be provided for out of the profits of the company or out of the company’s, securities premium account, before such shares are redeemed., (ii) in a case not falling under sub-clause (i) above, the premium, if any, payable on redemption shall be, provided for out of the profits of the company or out of the company’s securities premium account, before, such shares are redeemed., , Section 55(3) states that when a company is not in a position to redeem any preference shares or to pay dividend,, if any, on such shares in accordance with the terms of issue (such shares here in after referred to as unredeemed, preference shares), it may, with the consent of the holders of three-fourths in value of such preference shares and, with the approval of the Tribunal on a petition made by it in this behalf, issue further redeemable preference shares, equal to the amount due, including the dividend thereon, in respect of the unredeemed preference shares, and on, the issue of such further redeemable preference shares, the unredeemed preference shares shall be deemed to have, been redeemed., The issue of further redeemable preference shares or the redemption of preference shares under this section shall, not be deemed to be an increase or, as the case may be, a reduction, in the share capital of the company., , The capital redemption reserve account may, notwithstanding anything in this section, be applied by the company,, in paying up unissued shares of the company to be issued to members of the company as fully paid bonus shares.
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Lesson 2 • Share and Share Capital, , 63, , Prescriptions under the Companies (Share Capital and Debentures) Rules, 2014 with regard to, issue and redemption of Preference shares (Rule 9), Conditions, A company having a share capital may, if so authorised by its articles, issue preference shares subject to the following, conditions, namely:(a) the issue of such shares has been authorized by passing a special resolution in the general meeting of the, company;, (b), , the company, at the time of such issue of preference shares, has no subsisting default in the redemption of, preference shares issued earlier or in payment of dividend due on any preference shares., , Resolution authorising preference shares to set out certain particulars, , A company issuing preference shares shall set out in the resolution, particulars in respect of the following matters, relating to such shares, namely:(a), , the priority with respect to payment of dividend or repayment of capital vis-a-vis equity shares;, , (c), , the participation in surplus assets and profits, on winding-up which may remain after the entire capital has, been repaid;, , (b), (d), (e), (f), , (g), , the participation in surplus fund;, , the payment of dividend on cumulative or non-cumulative basis;, the conversion of preference shares into equity shares;, the voting rights;, , the redemption of preference shares., , Explanatory statement to special resolution to set out certain particulars, While taking a decision it is important that all information is provided with regard to the matter, hence rule 9(3), states that the explanatory statement to be annexed to the notice of the general meeting which shall provide the, material facts concerned with and relevant to the issue of such shares, including (a), , the size of the issue and number of preference shares to be issued and nominal value of each share;, , (c), , the objectives of the issue;, , (b), (d), (e), (f), , (g), , (h), (i), , (j), , (k), , the nature of such shares i.e. cumulative or non-cumulative, participating or non-participating, convertible or, non-convertible;, the manner of issue of shares;, , the price at which such shares are proposed to be issued;, the basis on which the price has been arrived at;, , the terms of issue, including terms and rate of dividend on each share, etc.;, , the terms of redemption, including the tenure of redemption, redemption of shares at premium and if the, preference shares are convertible, the terms of conversion;, the manner and modes of redemption;, , the current share holding pattern of the company;, , the expected dilution in equity share capital upon conversion of preference shares., , Register of Members to contain the particulars of preference share holder(s), , When a company issues preference shares, the Register of Members maintained under section 88 shall contain the, particulars in respect of such preference shareholder(s).
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64, , , , Redemption of preference shares, , Lesson 2 • EP-CL, , Rule 9 (6) states that a company may redeem its preference shares only on the terms on which they were issued or, as varied after due approval of preference shareholders under section 48 of the Act and the preference shares may, be redeemed:(a), , at a fixed time or on the happening of a particular event;, , (c), , any time at the shareholder’s option., , (b), , any time at the company’s option; or, , Procedure to issue and redemption of Preference Shares, , (1), (2), (3), (4), , (5), (6), (7), (8), , For issue of preference shares the articles of the company should authorize for it, if not, then amendment in, the articles of the company is required. Also ensure that there is no subsisting defaults in redemption of, preference shares earlier or in payment of dividend due on any preference shares., Ensure that the resolution for issuing preference shares contains all the relevant particulars as mentioned, above., Issue the notice of general meeting along with the explanatory statement, to provide the required details., , In the case of listed entity, intimate the stock exchange at least two working days in advance of board meeting, (Regulation 29 of Listing Regulations)., , Pass special resolution and file with the Registrar Form MGT-14 along with the fee so specified in the, Companies (Registration of Offices and Fees) Rules, 2014 within 30 days of passing the resolution., , Note: in case of One Person Company for the purpose of passing of ordinary and special resolution in general, meeting, it shall be sufficient if the resolution is communicated by the member to the company and entered, in the minutes book and signed and dated by the member and such date shall be deemed to be the date of, meeting for all purpose under this act., Within 30 days of allotment file with the Registrar, the Return of allotment in Form PAS-3 along with fee as, specified in companies (Registration of Offices and Fees), Rules 2014., Update the register of members maintained under section 88 after issue of preference shares., , The company may redeem the preference shares only on the terms on which they were issued or as varied, after due approval of preference shareholders., The preference shares may be redeemed as given below:, , (a), , At affixed time or happening of a particular event;, , (c), , Any time at the shareholders option., , (b), (9), , Any time at the company’s option;, , The notice of redemption of preference shares shall be filed by the company with the Registrar in Form SH-7, along with altered MOA with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014, within 30 days of redemption of preference shares., , (10) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return of, allotment in Form PAS. 3, along with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014., (11) Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment., (12) Intimate the details of allotment of shares to the Depository immediately on allotment of such shares.
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65, , Lesson 2 • Share and Share Capital, , Case Law:, Remedies available for Preference shareholders in relation to redemption of preference shares, The National Company Law Appellate Tribunal (NCLAT) in the matter of Bank of Baroda (Appellant) vs. Aban, Offshore Limited (Respondent) held that intention of the legislature while promulgating Section 55 of the, Companies Act, 2013 was to compulsorily provide for redemption of preference shares by doing away with the, issue of or redeemable preference shares. Therefore, even though there is no specific provision stipulated under, the Companies Act, 2013 through which relief can be sought by preference shareholders in case of nonredemption by the company or consequent non-filing of petition under Section 55 of the said Act, the intention, of the legislature being clear and absolute, Tribunal’s inherent power can be invoked to get an appropriate relief, by an aggrieved preference shareholder(s)., Alternatively, preference shareholders coming within the definition of ‘member(s)’ under Section 2(55) read, with Section 88 of the Companies Act, 2013, may file a petition under Section 245 of the said Act, as a class action, suit, being aggrieved by the conduct of affairs of the company. Thereby, it was held that preference shareholders, are not remediless and for redemption of preference shares, they can file an application under Section 55(3) of, the Companies Act, 2013 or alternatively they may also file application under Section 245 of the Companies Act,, 2013 as a class action suit and the NCLT while exercising the inherent power viz. Rule 11 of NCLT Rules, 2016, can pass appropriate order., , FURTHER ISSUE OF SHARE CAPITAL, , (A), PERSONS, , (B), EMPLOYEES, , [u/s 62(1)(a)], •, , Who, at the date of the offer,, are holders of equity shares, of the company, • In proportion to the paid-up, share capital on those shares, • By sending a letter of offer, Subject to such conditions as, may be prescribed., , (C), ANY PERSONS, , [u/s 62(1)(b)], •, , Under, a, Scheme, of, Employees Stock Option, • Subject to special resolution, passed, by, company, (Ordinary Resolution in, Private Company), Subject to such conditions as, may be prescribed., , [u/s 62(1)(c)], •, , Whether or not those persons, include the persons referred to in, Clause (a) or (b), • If it is authorised by a special, resolution either for cash or, for a consideration other than, cash, if the price of such shares, is determined by the valuation, report of a registered valuer, Subject to such conditions as may be, prescribed.
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66, , Lesson 2 • EP-CL, , , , CONDITIONS FOR FURTHER ISSUE OF SHARES TO EQUITY SHARE HOLDERS-RIGHTS ISSUE, [SECTION 62(1)(A)], The offer shall be made by notice:, , , , , , , , , , specifying the number of shares offered; and, , limiting a time not being less than fifteen days or such lesser, number of days as may be prescribed and not more than 30, days from the date of the offer within which the offer, if not, accepted, shall be deemed to have been declined;, , The offer shall be deemed to include right of renunciation,, unless the articles of the company otherwise provide; and the, notice referred above shall contain a statement of this right;, If the offer is rejected by the equity shareholders after the, expiry of the time specified in the notice aforesaid; or, on receipt of earlier intimation from the person to whom such, notice is given that he declines to accept the shares offered;, , Period of Notice for offer under, Right Issue under Section 62(1), (a)(i), As per Rule 12A of the, Companies(Share, Capital, and, Debenture) Rules, 2014, the time, period within which the offer shall be, made to shareholders for acceptance, shall be not less than seven days, from the date of offer., [Inserted by the the Companies (Share, Capital and Debentures) Amendment, Rules, 2021; Effective from 01st April,, 2021]., , the Board of Directors may dispose of them in such manner which is not dis-advantageous to the, shareholders and the company., , The said notice shall be dispatched through registered post or speed post or through electronic mode or courier or any, other mode having proof of delivery to all the existing shareholders at least three days before the opening of the issue., Unless the articles of the company otherwise provide, the Directors must state in the notice of offer of rights shares, the fact that the shareholder has also the right to renounce the offer in whole or in part, in favour of some other, persons. However, in case of a private company case ninety percent of the members of a private company have given, their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or subsection shall apply., The provisions of section 62 are applicable to all types of companies except the Nidhi companies., , The restrictions contained in Section 62 of the Act regarding issue of further shares do not apply to:(a), , (b), , Increase of the subscribed capital of a company caused by the exercise of an option as a term attached to the, debentures issued or loans raised by the company to convert such debentures or loans into shares in the, company [Section 62(3)]., , The terms of issue of such debentures or loan containing such an option have been approved before the issue, of such debentures or the raising of loans by a special resolution passed by the company in the general meeting., conversion of part or whole of the debentures issued to or loans obtained from any Government in shares of, the company in pursuance of a direction issued by that Government in public interest on such terms and, conditions as appear to be fair and reasonable to the Government even if the terms of issue of such debentures, or loans do not contain a term providing for an option for such conversion [Section 62(4)]., Where the terms and conditions of such conversion are not acceptable to the company, it may, within sixty, days from the date of communication of such order, appeal to the Tribunal which shall after hearing the, company and the Government pass such order as it deems fit., , In determining the terms and conditions of conversion under section 62(4), the Government shall have due regard, to the financial position of the company, the terms of issue of debentures or loans, as the case may be, the rate of, interest payable on such debentures or loans and such other matters as it may consider necessary [Section 62(5)]., Where the Government has, by an order made under section 62(4), directed that any debenture or loan or any part, thereof shall be converted into shares in a company and where no appeal has been preferred to the Tribunal under, section 62(4) or where such appeal has been dismissed, the memorandum of such company shall, where such order
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Lesson 2 • Share and Share Capital, , 67, , has the effect of increasing the authorised share capital of the company, stand altered and the authorised share, capital of such company shall stand increased by an amount equal to the amount of the value of shares which such, debentures or loans or part thereof has been converted into [Section 62(6)]., , Case Law:, , Related to further issue of shares by a company, (1) Nanalal Zaver vs. Bombay Life Assurance Co. Ltd., AIR 1950 SC 172: (1950): Section 81 (Corresponding to, section 62 of the Companies Act, 2013) is intended to cover cases where the Directors decide to increase, the capital by issuing further shares within the authorised limit, because it is within that limit that the, Directors can decide to issue further shares, unless, of course, they are precluded from doing that by the, Articles of Association of the company. Accordingly, the section becomes applicable only when the Directors, decide to increase the capital within the authorised limit, by issue of further shares., The above judgement was followed by the Supreme Court in Needle Industries (India) Ltd. vs. Needle, Industries Newey (India) Holding Ltd.(1981). The Court pointed out that the Directors of a company must, exercise their powers for the benefit of the company. The Directors are in a fiduciary position and if they, does not exercise powers for the benefit of the company but simply and solely for personal aggrandisement, and to the detriment of the company, the Court will interfere and prevent the Directors from doing so;, , (2) Needle Industries (India) Ltd. vs. Needle Industries Newey (India) Holding Ltd.: The power to issue shares, need not be used only when there is a need to raise additional capital. The power can be used to create a, sufficient number of shareholders to enable a company to exercise statutory powers or to enable it to, comply with statutory requirements., , The Department of Company Affairs, now Ministry of Corporate Affairs has clarified that ‘one year’ specified, in the section is to be counted from the date on which the company has allotted any share for the first time;, , (3) Balkrishan Gupta vs. Swadeshi Polytex Ltd. (1985): Although the term ‘holders of the equity shares’ is used, in Sub-section (1)(a) and ‘members’ in Sub-section (1A)(b) of Section 81 (Corresponding to section 62 of, the Companies Act, 2013), the two terms are synonymous and mean persons whose names are entered in, the register of members;, (4) In Worldwide Agencies (P) Ltd. vs. Margaret T. Desor, (1990), it was held that persons who have become, entitled to the shares of a deceased member can exercise all the membership rights of the deceased, irrespective of the fact whether their name is in the register of members or not;, (5) Mathalone (R) vs. Bombay Life Assurance Co. Ltd. AIR 1953 SC 385: (1954): The Court held that the transferor, could not be compelled by the transferee to take up on his behalf the rights shares offered to the transferor, and all that he could require the transferor to do was to renounce the rights issue in the transferee’s, favour., , Procedure for issue of Right Shares, (i), , Check whether the rights issue results in increase of authorized capital., , (ii) If so call a board Meeting to approve the notice of General Meeting to pass necessary Special Resolutions at, the General Meeting to amend Memorandum/Articles of Association., (iii) Convene the General Meeting and obtain shareholders’ approval through Special Resolution., , (iv) The offer should be made by notice, specifying the number of shares offered and limiting a time not being, less than seven days and not exceeding thirty days from the date of the offer within which the offer, if not, accepted, shall be deemed to have been declined. This notice shall be dispatched through registered post or, speed post or through electronic mode to all the existing shareholders at least three days before the opening, of the issue. However, in case of private companies in case 90% of members have given their consent in, writing or in electronic mode, the lesser period than the specified period shall apply.
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68, , (v), , , , Check the copy of Form SH7, MGT14 filed with ROC., , Lesson 2 • EP-CL, , (vi) The shares declined by the existing shareholder can be disposed off by the company in manner which is not, disadvantageous to the shareholders and the company., , (vii) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return, of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014., (viii) Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment., (ix) Intimate the details of allotment of shares to the Depository immediately on allotment of such shares, , EMPLOYEE STOCK OPTION SCHEME, , The term ‘Employee Stock Option’ (ESOP) has been defined under sub-section (37) of Section 2 of the Companies, Act, 2013, according to which “employees’ stock option” means the option given to the directors, officers or, employees of a company or of its holding company or subsidiary company or companies, if any, which gives such, directors, officers or employees, the benefit or right to purchase, or to subscribe for, the shares of the company at a, future date at a pre-determined price., As discussed earlier, Section 62(1)(b) provides that a company may issue further shares to its employees under a, scheme of employees’ stock option, subject to special resolution passed by company and subject to such conditions, as may be prescribed. In case of private company special resolution has been substituted by ordinary resolution., , Rule 12 of the Companies (Share Capital and Debentures) Rules, 2014, , A company, other than a listed company, which is not required to comply with Securities and Exchange Board of, India Employee Stock Option Scheme Guidelines shall not offer shares to its employees under a scheme of employees’, stock option (hereinafter referred to as “Employees Stock Option Scheme”), unless it complies with the following, requirements, namely:The issue of Employees Stock Option scheme has been approved by the shareholders of the company by passing a, special resolution (exception in case of private company where ordinary resolution is required)., Who is an employee for the purpose of Section 62 (1)(b), (a), , a permanent employee of the company who has been working in India or outside India; or, , (c), , an employee as defined in clauses (a) or (b) of a subsidiary, in India or outside India, or of a holding company, of the company but does not include -, , (b) a Director of the company, whether a whole time Director or not but excluding an Independent Director; or, (i), , an employee who is a promoter or a person belonging to the promoter group; or, , (ii) a Director who either himself or through his relative or through any body corporate, directly or, indirectly, holds more than ten percent of the outstanding equity shares of the company., , In case of a startup company, as defined in notification number [G.S.R. 127(E), dated 19th February, 2019 issued, by the Department for Promotion of industry and Internal Trade, Ministry of Commerce and Industry, Government of India, Government of India] the conditions mentioned in sub-clause (i) and (ii) shall not apply, upto ten years from the date of its incorporation or registration., , Details in explanatory statement, , While taking a decision it is important that all information is provide with regard to the matter, hence rule 12(2), states that the company shall make the following disclosures in the explanatory statement annexed to the notice for, passing of the resolution–, (a), , total number of stock options to be granted;
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Lesson 2 • Share and Share Capital, , 69, , (b) identification of classes of employees entitled to participate in the Employees Stock Option Scheme;, (c), , the appraisal process for determining the eligibility of employees to the Employees Stock Option Scheme;, , (e), , the maximum period within which the options shall be vested;, , (d) the requirements of vesting and period of vesting;, (f), , the exercise price or the formula for arriving at the same;, , (g) the exercise period and process of exercise;, (h) the Lock-in period, if any;, (i), , (j), , the maximum number of options to be granted per employee and in aggregate;, the method which the company shall use to value its options;, , (k) the conditions under which option vested in employees may lapse e.g. in case of termination of employment, form is conduct;, (l), , the specified time period within which the employee shall exercise the vested options in the event of a, proposed termination of employment or resignation of employee; and, , (m) a statement to the effect that the company shall comply with the applicable accounting standards., , Free pricing in conformity with accounting policies, , The companies granting option to its employees pursuant to Employees Stock Option Scheme will have the freedom, to determine the exercise price in conformity with the applicable accounting policies, if any., Rule 12(4) states that the approval of shareholders by way of separate resolution shall be obtained by the company, in case of –, (a), , grant of option to employees of subsidiary or holding company; or, , (b) grant of option to identified employees, during any one year, equal to or exceeding one percent of the issued, capital (excluding outstanding warrants and conversions) of the company at the time of grant of option., , Varying the terms of ESOP requires special resolution, , Rule 12(5) states that the company may by special resolution, vary the terms of Employees Stock Option Scheme, not yet exercised by the employees provided such variation is not prejudicial to the interests of the option holders., The notice for passing special resolution for variation of terms of Employees Stock Option Scheme shall disclose full, of the variation, the rationale therefor, and the details of the employees who are beneficiaries of such ., Minimum one year vesting period, , Rule 12 (6)(a) states that there shall be a minimum period of one year between the grant of options and vesting of, option. In a case where options are granted by a company under its Employees Stock Option Scheme in lieu of, options held by the same person under an Employees Stock Option Scheme in another company, which has merged, or amalgamated with the first mentioned company, the period during which the options granted by the merging or, amalgamating company were held by him shall be adjusted against the minimum vesting period required under, this clause., Company has freedom to specify lock-in period, , Rule 12(6)(b) states that the company shall have the freedom to specify the lock-in period for the shares issued, pursuant to exercise of option., No right of dividend or voting till exercise of option, , Rule 12 (6)(c) states that the Employees shall not have right to receive any dividend or to vote or in any manner
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70, , , , Lesson 2 • EP-CL, , enjoy the benefits of a shareholder in respect of option granted to them, till shares are issued on exercise of option., Forfeiture/refund, , Rule 12 (7) states that the amount, if any, payable by the employees, at the time of grant of option –, (a), , may be forfeited by the company if the option is not exercised by the employees within the exercise period;, or, , (b) the amount maybe refunded to the employees if the options are not vested due to non-fulfillment of, conditions relating to vesting of option as per the Employees Stock Option Scheme., , Conditions, , Rule 12(8) states the following conditions:, •, , The option granted to employees shall not be transferable to any other person., , •, , No person other than the employees to whom the option is granted shall be entitled to exercise the option., , •, , The option granted to the employees shall not be pledged, hypothecated, mortgaged or otherwise, encumbered or alienated in any other manner., , Death/Permanent disability/Resignation of employees who were granted with options, , Rule 12(8) states that in the event of the death of employee while in employment, all the options granted to him till, such date shall vest in the legal heirs or nominees of the deceased employee., , In case the employee suffers a permanent incapacity while in employment, all the options granted to him as on the, date of permanent incapacitation, shall vest in him on that day., , In the event of resignation or termination of employment, all options not vested in the employee as on that day shall, expire. However, the employee can exercise the options granted to him which are vested within the period specified, in this behalf, subject to the terms and conditions under the scheme granting such options as approved by the Board., Disclosure in the Board’s Report, , Rule 12(9) states that the Board of Directors, shall, inter alia, disclose in the Directors’ Report for the year, the, following details of the Employees Stock Option Scheme issued during the year., , The details are given in lesson-9 “Transparency and Disclosures”, later in this study., Maintenance of Register, , Rule 12(10) states that the company shall maintain a Register of Employee Stock Options in Form No. SH.6 and, shall forthwith enter therein the particulars of option granted under clause (b) of sub-section (1) of section 62., , The Register of Employee Stock Options shall be maintained at the registered office of the company or such other, place as the Board may decide. The entries in the register shall be authenticated by the Company Secretary of the, company or by any other person authorized by the Board for the purpose., Listed companies has to comply with the SEBI guidelines, , Where the equity shares of the company are listed on a recognized stock exchange, the Employees Stock Option, Scheme shall be issued, in accordance with the regulations made by the Securities and Exchange Board of India in, this behalf., , Procedure for issue of securities to employees through “Employees Stock Option Scheme”, , (1) Convene a Board Meeting to approve the notice of the General meeting along with special resolution,, explanatory statement etc., to be approved by the shareholders through special resolution., In case of private company, it is sufficient that they obtain ordinary resolution.
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Lesson 2 • Share and Share Capital, , 71, , (2) Ensure that the company has made the prescribed disclosures in the explanatory statement annexed to the, notice for passing of there solution., Ensure that the special resolution is filed with ROC in Form MGT 14 within 30 days of passing the resolution., , (3) The companies granting option to its employees pursuant to Employees Stock Option Scheme will have the, freedom to determine the exercise price in conformity with the applicable accounting policies, if any., (4) The approval of shareholders by way of separate resolution shall be obtained by the company in case of(a), , Grant of option to employees of subsidiary or holding company;or, , (b) Grant of option to identified employees, during any one year, equal to or exceeding one per cent of the, issued capital (excluding outstanding warrants and conversions)of the company at the time of grant, of option., , (5) (a) The company may by special resolution, vary the terms of Employees Stock Option Scheme not yet, exercised by the employees provided such variation is not prejudicial to the interests of the option holders., , (b) The notice for passing special resolution for variation of terms of Employees Stock Option Scheme, shall disclose full of the variation, the rationale therefore, and the details of the employees who are, beneficiaries of such variation., , (6) (a) There shall be a minimum period of one year between the grant of options and vesting of option., , Provided that in a case where options are granted by a company under its Employees Stock Option Scheme, in lieu of options held by the same person under an Employees Stock Option Scheme in another company,, which has merged or amalgamated with the first mentioned company, the period during which the options, granted by the merging or amalgamating company were held by him shall be adjusted against the minimum, vesting period required under this clause;, (b) The company shall have the freedom to specify the lock-in period for the shares issued pursuant to, exercise of option., (c), , The Employees shall not have right to receive any dividend or to vote or in any manner enjoy the, benefits of a shareholder in respect of option granted to them, till shares are issued on exercise of, option., , (7) The amount, if any, payable by the employees, at the time of grant of option (a), , May be forfeited by the company if the option is not exercised by the employees within the exercise, period; or, , (b) The amount may be refunded to the employees if the options are not vested due to non-fulfillment of, conditions relating to vesting of option as per the Employees Stock Option Scheme., , (8) (a) The option granted to employees shall not be transferable to any other person., , (b) The option granted to the employees shall not be pledged, hypothecated, mortgaged or otherwise, encumbered or alienated in any other manner., (c), , No person other than the employees to whom the option is granted shall been titled to exercise the, option., , (e), , In case the employee suffers a permanent incapacity while in employment, all the options granted to, him as on the date of permanent incapacitation, shall vest in him on that day., , (d) In the event of the death of employee while in employment, all the options granted to him till such date, shall vest in the legal heirs or nominees of the deceased employee., (f), , In the event of resignation or termination of employment, all options not vested in the employee as on
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72, , , , Lesson 2 • EP-CL, , that day shall expire. However, the employee can exercise the options granted to him which are within, the period specified in this behalf, subject to the terms and conditions under the scheme granting such, options as approved by the Board., , (9) The details to be disclosed in Board of Directors should be ensured., , (10) (a) The company shall maintain a Register of Employee Stock Options in Form No. SH.6 and shall enter, there in the particulars of option. Such Register shall be maintained at the registered office of the, company or such other place as the Board may decide., (b) The entries in the register shall be authenticated by the Company Secretary of the company or by any, other person authorized by the Board for the purpose., , (11) Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar are turn, of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014., (12) Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment., (13) Intimate the details of allotment of shares to the Depository immediately on allotment of such shares., , (14) Where the equity shares of the company are listed on a recognized stock exchange, the Employees Stock, Option Scheme shall be issued, in accordance with the regulations made by the Securities and Exchange, Board of India in this behalf., , ISSUE OF SHARES ON PREFERENTIAL BASIS, , As discussed earlier, section 62(1)(c) deals with issue of shares to persons other than existing shareholders and, provides that a company can issue further shares to persons other than existing shareholders either for cash or for, a consideration other than cash, if —, (a), , (b), , The company in General Meeting passes a special resolution to this effect; and, , The price of such shares is determined by the valuation report of a registered valuer, subject to the compliance, with the applicable provisions of Chapter III and any other conditions as may be prescribed., , RULE 13 OF THE COMPANIES (SHARE CAPITAL AND DEBENTURES) RULES, 2014, Preferential offer [Rule 13(1)], , The expression ‘Preferential Offer’ means an issue of shares or other securities, by a company to any select person, or group of persons on a preferential basis and does not include shares or other securities offered through a public, issue, rights issue, employee stock option scheme, employee stock purchase scheme or an issue of sweat equity, shares or bonus shares or depository receipts issued in a country outside India or foreign securities., , Preferential offer by unlisted companies to comply with the rules [Rule 13(2) &(3)], , When the preferential offer of shares or other securities is made by a company whose share or other securities are, listed on a recognized stock exchange, such preferential offer shall be made in accordance with the provisions of the, Act and regulations made by the SEBI, and if they are not listed, the preferential offer shall be made in accordance, with the provisions of the Act and rules made hereunder and subject to compliance with the under mentioned, requirements:, (a), , The issue is authorized by its articles of association;, , (c), , While taking a decision it is important that all information is provided with regard to the matter, hence the, company shall make the following disclosures in the explanatory statement to be annexed to the notice of, , (b) The issue has been authorized by a special resolution of the members;
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Lesson 2 • Share and Share Capital, , 73, , the general meeting:, (i), , The objects of the issue;, , (ii) The total number of shares or other securities to be issued;, , (iii) The price or price band at/within which the allotment is proposed;, , (iv) Basis on which the price has been arrived at along with report of the registered valuer;, (v) Relevant date with reference to which the price has been arrived at;, , (vi) The class or classes of persons to whom the allotment is proposed to be made;, , (vii) Intention of promoters, directors or key managerial personnel to subscribe to the offer;, (viii) The proposed time within which the allotment shall be completed;, , (ix) The names of the proposed allottees and the percentage of post preferential offer capital that may be, held by them;, (x), , The change in control, if any, in the company that would occur consequent to the preferential offer;, , (xi) The number of persons to whom allotment on preferential basis have already been made during the, year, in terms of number of securities as well as price;, , (xii) The justification for the allotment proposed to be made for consideration other than cash together, with valuation report of the registered valuer;, (xiii) The pre-issue and post-issue share holding pattern of the company in the prescribed format., , (d) The allotment of securities on a preferential basis shall be completed within a period of twelve months from, the date of passing of the special resolution;, (e), (f), , If the allotment of securities is not completed within twelve months from the date of passing of the special, resolution, another special resolution shall be passed for the company to complete such allotment thereafter;, The price of the shares or other securities to be issued on a preferential basis, either for cash or for, consideration other than cash, shall be determined on the basis of valuation report of a registered valuer;, , (g) where convertible securities are offered on a preferential basis with an option to apply for and get equity, shares allotted, the price of the resultant shares pursuant to conversion shall be determined(i), , either up front at the time when the offer of convertible securities is made, on the basis of valuation, report of the registered valuer given at the stage of such offer, or, , (ii) at the time, which shall not be earlier than thirty days to the date when the holder of convertible, security becomes entitled to apply for shares, on the basis of valuation report of the registered valuer, given not earlier than sixty days of the date when the holder of convertible security becomes entitled, to apply for shares., , The company should take a decision on sub-clauses (i) or (ii) at the time of offer of convertible security, itself and make such disclosure in explanatory statement;, , (h) Where shares or other securities are to be allotted for consideration other than cash, the valuation of such, consideration shall be done by a registered valuer who shall submit a valuation report to the company, giving justification for the valuation;, (i), , Where the preferential offer of shares is made for a non-cash consideration, such non-cash consideration, shall be treated in the following manner in the books of account of the company (i), , where the non-cash consideration takes the form of a depreciable or amortizable asset, it shall be, carried to the balance sheet of the company in accordance with the accounting standards; or
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74, , Lesson 2 • EP-CL, , , , (ii) where clause (i) is not applicable, it shall be expensed as provided in the accounting standards., , According to Rule 13(3), the price of shares or other securities to be issued on preferential basis shall not be less, than the price determined on the basis of valuation report of a registered valuer., , (Further in case of listed companies the price of shares to be issued on a preferential basis is not required to be, determined by the valuation report of a registered valuer)., In case the preferential offer is made by a company to one or more existing members only, few provisions relating to, private placement in PAS-5 & offer letter in PAS-4 shall not apply., , Procedure for issue of shares on Preferential basis, (a), , Check whether the issue is authorized by the Articles. If not make necessary amendments to alter the, articles of association, through special resolution passed at the shareholders’ meeting., , (b) Convene a Board Meeting to approve the notice of General Meeting and pass necessary Resolution/s along, with explanatory statements as required., , (c), , It is to be noted that preferential issue of share are required to comply with section 42 also which relates to, private placement. However, incase of preferential offer to one or more existing members the aspects, relating to letter offer as stated in rule 14(1) and provision to rule 14(3) of Companies (Prospectus &, Allotment of Securities) Rules, 2014 shall not apply., , The company shall ensure that all the disclosures in the explanatory statement are annexed to the notice of, the general meeting pursuant to section 102 of the Act., , (d) Convene General Meeting and pass necessary Special Resolution/s., (e), (f), , Ensure to file Form MGT-14 with Registrar of Companies within 30 days of passing the Resolution., , The allotment of securities on a preferential basis made pursuant to the special resolution passed shall be, completed with in a period of 12 months from the date of passing of the special resolution. If the allotment, of securities is not completed within 12 months from the date of passing of the special resolution, another, special resolution shall be passed for the company to complete such allotment thereafter., , (g) The price of the shares or other securities to be issued on a preferential basis, either for cash or for, consideration other than cash, shall be determined on the basis of valuation report of a registered valuer;, and when convertible securities are offered on a preferential basis with an option to apply for and get, equity shares allotted, the price of the resultant shares pursuant to conversion shall be determined:, (i), , either up front at the time when the offer of convertible securities is made on the basis of valuation, report of the registered valuer given at the stage of such offer, or, , (ii) at the time, which shall not be earlier than thirty days to the date when the holder of convertible, security becomes entitled to apply for shares, on the basis of valuation report of the registered valuer, given not earlier than sixty days of the date when the holder of convertible security becomes entitled, to apply for shares., , The company shall take a decision on the above clause (i) and (ii) at the time of offer of convertible security, itself and make such disclosure in the explanatory statement to be annexed to the notice., , (h) Where shares or other securities are to be allotted for consideration other than cash, the valuation of such, consideration shall be done by a registered valuer who shall submit a valuation report to the company, giving justification for the valuation;, (i), , Where the preferential offer of shares is made for a non-cash consideration, such non-cash consideration, shall be treated in the following manner in the books of account of the company;, (i), , where the non-cash consideration takes the form of a depreciable or a amortizable asset, it shall be, carried to the balance sheet of the company in accordance with the accounting standards; or
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Lesson 2 • Share and Share Capital, , (j), , 75, , (ii) where clause (i) is not applicable, it shall be expensed as provided in the accounting standards., , Once the allotment is made, the company shall within 30 days of allotment, file with the Registrar a return, of allotment in Form PAS.3, along with the fee as specified in Companies (Registration of Offices and Fees), Rules, 2014., , (k) Deliver the share certificates of allotted shares within a period of 2 months from the date of allotment., (l), , Intimate the details of allotment of shares to the Depository immediately on allotment of such shares., , PRIVATE PLACEMENT OF SHARES, , As per Explanation I to Section 42(3), “private placement” means any offer or invitation to subscribe or issue of, securities to a select group of persons by a company (other than by way of public offer) through private placement, offer-cum-application, which satisfies the conditions specified in this section., , Private Placement offer-cum-application, , Section 42(1) provides that a company may, subject to the provisions of this section, make a private placement of, securities., Section 42(3) reads, a company making private placement shall issue private placement offer and application in, such form and manner as may be prescribed to identified persons, whose names and addresses are recorded by the, company in such manner as may be prescribed. The private placement offer and application shall not carry any, right of renunciation., , Maximum number of persons to whom offer can be made and other incidental matters, , As per section 42(2), a private placement shall be made only to a select group of persons who have been identified, by the Board (herein referred to as “identified persons”), whose numbers hall not exceed fifty or such higher number, as may be prescribed [200 as prescribed under Sub-rule (2) to Rule 14 of the Companies (Prospectus & Allotment, of Securities) Rules, 2014], [excluding the qualified institutional buyers and employees of the company being, offered securities under a scheme of employees stock option in terms of provisions of clause(b) of sub-section(1) of, section 62], in a financial year subject to such conditions as may be prescribed., It is further clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is, equity share, preference share or debenture., , “Qualified institutional buyer” means the qualified institutional buyer as defined in the Securities and Exchange, Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended from time to time,, made under the Securities and Exchange Board of India Act, 1992., Accordingly any offer or invitation made to qualified institutional buyers, or to employees of the company under a, scheme of employees stock option as per provisions of clause (b) of sub-section (1) of section 62 shall not be, considered while calculating the number of identified persons., , Where a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an, agreement to allot, securities to more than the prescribed number of persons, whether the payment for the securities, has been received or not or whether the company intends to list its securities or not on any recognised stock, exchange in or outside India, the same shall be deemed to be the public offer and shall be accordingly dealt., , Applying to Private Placement, , As per section 42(4) states that every identified person willing to subscribe to the private placement issue shall, apply in the private placement and application issued to such person along with subscription money paid either by, cheque or demand draft or other banking channel and not by cash:, Hence all the payments have to be made either by cheque or demand draft or other banking channel and not by, cash., , However, a company shall not utilise monies raised through private placement unless allotment is made and the, return of allotment is filed with the Registrar.
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76, , Lesson 2 • EP-CL, , , , According to section 42(5) the company shall not make any fresh offer or invitation with respect to private placement, unless the allotments with respect to any offer or invitation made earlier have been compel offer or invitation has, been withdrawn or abandoned by the company., , A company may, at anytime, make more than one issue of securities to such class of identified persons as may be, prescribed subject to the maximum number of identified persons as stated above., , Time limit for allotment and payment of interest/refund of subscription money otherwise, , Section 42(6) states that a company making an offer or invitation under this section shall allot its securities within, sixty days from the date of receipt of the application money for such securities and if the company is not able to allot, the securities within that period, it shall repay the application money to the subscribers within fifteen days from the, expiry of sixty days and if the company fails to repay the application money within the aforesaid period, it shall be, liable to repay that money with interest at the rate of twelve percent per annum from the expiry of the sixtieth day., , Allot the securities wthin, 60 days from receipt of, application money, , If not allotted, Repay the, application money within, 15 days from the expiry of, 60 days, , If not repaid, liable to pay, interest @12% p.a. from, the expiry of the 60th day, , Subscription money to be kept in a separate bank account, Proviso to Section 42(6) states that monies received on application received by the company shall be kept in a, separate bank account in a scheduled bank and shall not be utilised for any purpose other than(a), , for adjustment against allotment of securities; or, , (b) for the repayment of monies where the company is unable to allot securities., , Offer to be made specifically addressing persons, , Section 42(7) states that no company issuing securities under this section shall release any public advertisements, or utilise any media, marketing or distribution channels or agents to inform the public at large about such an issue., , Return of allotment, , Section 42(8) states that a company making any allotment of securities, shall file with the Registrar a return of, allotment within fifteen days from the date of the allotment in such manner as may be prescribed, including a, complete list of all allottees, with their full names, addresses, number of securities allotted and such other relevant, information as may be prescribed., , Where a company defaults in filing there turn of allotment within the period mentioned above, the company, its, promoters and directors shall be liable to a penalty for each default of one thousand rupees for each day during, which such default continues but not exceeding twenty-five lakh rupees., , Penalty, , According to section 42(10), if a company makes an offer or accepts monies in contravention of this section, the, company, its promoters and directors shall be liable for a penalty which may extend to the amount raised through, the private placement or two crore rupees, whichever is lower, and the company shall also refund all monies with, interest to subscribers within a period of thirty days of the order imposing the penalty.
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Lesson 2 • Share and Share Capital, , 77, , Section 42(11) states that notwithstanding anything contained in sub-section (9) and sub-section (10), any private, placement issue not made in compliance of the provisions of the sub-section (2) shall be deemed to be a public offer, and all the provisions of this Act and the Securities Contracts (Regulation) Act, 1956 and the Securities and Exchange, Board of India Act, 1992 shall be applicable., , Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 prescribes the, following procedure in connection with Private Placement:, , Special Resolution of Shareholders, A Company shall not make an offer or invitation to subscribe to securities through private placement unless the, proposal has been previously approved by the shareholders of the company, by a special resolution for each of the, offers or invitation., The explanatory statement annexed to the notice for shareholders’ approval shall contain the following disclosure:, (a), , particulars of the offer including date of passing of Board Resolution;, , (c), , basis or justification for the price (including premium, if any) at which the offer or invitation is being made;, , (e), , amount which the company intends to raise by way of such securities;, , (b) kinds of securities offered and the price at which such security is being offered;, (d) name and address of valuer who performed valuation;, (f), , material terms of raising such securities, proposed time schedule, purposes or objects of offer, contribution, being made by the promoters or directors either as part of the offer or separately in furtherance of objects;, principle terms of assets charged as securities:, , Where the amount to be raised through such offer or invitation does not exceed the limit specified in Section 180(1), (c) in such cases relevant Board Resolution under Section 179(3)(c) would be adequate., In case of offer or invitation for non-convertible debentures, where the proposed amount to be raised through such, offer or invitation exceeds the limit specified in Section 180(1)(c), it shall be sufficient if the company passes a, previous special resolution only once in a year for all the offers or invitations for such debentures during the year., , In case of offer or invitation of any securities to qualified institutional buyers, it shall be sufficient if the company, passes a previous special resolution only in a year for all the allotments to such buyers during the year., Maximum Number of persons to whom offer can be made:, , Sub-rule (2) to Rule 14 provides that an offer or invitation to subscribe securities under private placement shall not, be made to persons more than two hundred in the aggregate in a financial year. The limit of two hundred persons, shall exclude the qualified institutional buyers and employees of the company being offered securities under a, scheme of employees stock option in terms of provisions of clause (b) of sub-section (1) of section 62., It is further clarified that the restrictions aforesaid would be reckoned individually for each kind of security that is, equity share, preference share or debenture., Further sub-rule (7) provides that the provisions of sub-rule (2) shall not be applicable to:, (a), , Non-banking financial companies which are registered with the Reserve Bank of India under the Reserve Bank, of India Act, 1934; and, , (b) Housing finance companies which are registered with the National Housing Bank under the National Housing, Bank Act,1987., If they are complying with regulations made by the Reserve Bank of India or the National Housing Bank in respect, of offer or invitation to be issued on private placement basis.
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78, , , , Prescribed form for private placement cum application letter:, , Lesson 2 • EP-CL, , A private placement offer cum application letter shall be in the form of an application in Form PAS-4 serially, numbered and addressed specifically to the person to whom the offer is made and shall be sent to him, either in, writing or in electronic mode within 30 days of recording the name of such person pursuant to sub-section (3) of, section 42., , Provided that no person other than the person so addressed in the private placement offer cum application letter, shall be allowed to apply through such application form and any application not conforming to this condition shall, be treated as invalid., Record of private placement to be maintained by the Company:, , The Company shall maintain a complete record of private placement offers in Form PAS-5, , Payment for subscription to be made from the Bank Account of the person subscribing to securities:, The payment to be made for subscription to securities shall be made from the bank account of the person subscribing, to such securities and the company shall keep the record of the bank account from where such payment for, subscription has been received., Return of Allotment:, , A return of allotment of securities under section 42 shall be filed with the Registrar within fifteen days of allotment, in Form PAS-3 with prescribed fees along with complete list of allotees containing the details like the full name,, address, PAN No. and e-mail id of security holder, the class of security held, the date of allotment of security, the, number of securities held, nominal value and amount paid on such securities and particulars of consideration, received if the securities were issued for consideration other than cash., Mandatory filing of Special Resolution or Board Resolution with the Registry:, , A Company shall issue private placement offer cum application letter only after the relevant special resolution or, Board resolution has been filed in the Registry., Provided that private companies shall file with the Registry copy of the board resolution or special resolution with, respect to approval under clause (c) of subsection (3) of section 179., , BONUS SHARES, , A company may, if its Articles provide, capitalize its profits by issuing fully-paid bonus shares. The issue of bonus, shares by a company is a common feature. When a company is prosperous and accumulates large distributable, profits, it converts these accumulated profits into capital and divides the capital among the existing members in, proportion to their entitlements. Members do not have to pay any amount for such shares. They are given free. The, bonus shares allotted to the members do not represent taxable income in their hands. Issue of bonus shares is bare, machinery for capitalizing undistributed profits. The vesting of rights in bonus shares takes place when the shares, are actually allotted; and not from any earlier date., Advantages of Issuing Bonus Shares:, 1., , Fund flow is not affected adversely., , 3., , Market value of the members’ share holdings increases with the increase in number of shares in the company., , 2., 4., 5., , Market value of the company’s shares comes down to their nominal value by issue of bonus shares., ‘Bonus shares’ is not an income. Hence, it is not a taxable income., Paid-up share capital increases with the issue of bonus shares.
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Lesson 2 • Share and Share Capital, , 79, , Sources for issue of Bonus Shares, According to section 63(1), a company may issue fully paid-up bonus shares to its members, in any manner, whatsoever, out of(i), , its free reserves;, , (iii), , the capital redemption reserve account., , (ii), , the securities premium account; or, , No issue of bonus shares shall be made by capitalising reserves created by the revaluation of assets, , Conditions for issue of Bonus Shares, In terms of section 63(2), no company shall capitalise its profits or reserves for the purpose of issuing fully paid-up, bonus shares, unless(a), , it is authorised by its articles;, , (c), , it has not defaulted in payment of interest or principal in respect of fixed deposits or debt securities issued, by it;, , (b), (d), (e), , it has, on the recommendation of the Board, been authorised in the general meeting of the company;, , it has not defaulted in respect of the payment of statutory dues of the employees, such as, contribution to, provident fund, gratuity and bonus;, the partly paid-up shares, if any outstanding on the date of allotment, are made fully paid-up., , No Bonus shares in lieu of dividend, , The bonus shares shall not be issued in lieu of dividend. [Section 63(3)], , SEBI has issued regulations for Bonus Issue which are contained in Chapter IX of the SEBI (Issue of Capital and, Disclosure Requirements) Regulations, 2018 with regard to bonus issues by listed companies., , According to Rule 14 of the Companies (Share Capital and Debentures) Rules, 2014, the company which has once, announced the decision of its Board recommending a bonus issue, shall not subsequently withdraw the same., , Procedure for issue of Bonus share, , 1., , Check whether the Article of Association authorizes issue of bonus share. If not, the name and the Articles of, Association of the company by passing the Special Resolution., , 3., , In the case of listed entity, give prior intimation to the stock exchange at least two working days in advance of, the date of Board Meeting excluding the date of intimation and the date of the meeting [Refer Regulation 29, of Listing Regulations]., , 2., , 4., , Check whether the Bonus issue results in increase of authorized capital. If so, make necessary alterations in, the Memorandum/Articles of Association by passing Special Resolution., , Hold the Board Meeting and get the following proposal to be approved by the Board:, , (i), , (ii), , To recommend the bonus issue;, , To approve the resolution to be passed at a general meeting:, , (a), , to authorize the Bonus issue;, , (c), , to enable the Articles to authorize the issue, if necessary., , (b), , to approve requisite resolution for increase of the capital and consequential alteration of the, Memorandum of Association/Articles of Association (if necessary);
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80, , , , Lesson 2 • EP-CL, , 5., , Ensure that bonus issue has been made out of free reserves built out of the genuine profits or securities, premium or capital redemption reserve account., , 7., , Ensure that the company has not defaulted in payment of interest or principal in respect of fixed deposits and, or debt securities issued by it or in respect of the payment of statutory dues of the employees such as, contribution to provident fund, gratuity, bonus etc., , 6., , 8., 9., , 10., 11., 12., 13., 14., 15., 16., , Ensure that reserves created by revaluation of assets are not capitalised., , Ensure that the bonus issue is not made in lieu of dividend., , The company which has once announced the decision of its Board recommending a bonus issue shall not, subsequently withdraw the same., , If there are any partly paid-up shares, ensure that these are made fully paid-up before the bonus issue is, recommended by the Board of Directors., Hold the general meeting and get the resolution/s for issue of bonus shares passed by the members., , Once Special Resolution is passed file Form MGT-14 along with the fees with the Registrar with in 30 days of, passing of the resolution along with the altered article of association., Within 30 days of allotment file with the Registrar the Return of allotment in Form PAS-3 along with fee as, specified in Companies (Registration of Offices and Fees), Rules 2014., , All share certificates shall be delivered to the shareholders within two months from the date of allotment of, bonus issue as required under section 56(4). In case of a Specified IFSC public and private company, the share, certificates shall be delivered within sixty days of allotment., Intimate the details of allotment of shares to the Depository immediately on allotment of such shares., , In case of listed companies, the conditions prescribed under SEBI (LODR), Regulations, 2015 and SEBI (ICDR), Regulations, 2018 are to be complied with., , SWEAT EQUITY SHARES, , Issue of Sweat Equity Shares, According to section 2 (88), sweat equity shares means such equity shares issued by a company to its directors or, employees at a discount or for consideration, other than cash for providing their know-how or making available, rights in the nature of intellectual property rights or value additions, by whatever name called., According to Explanation to Rule 8(1) of the Companies (Share Capital and Debentures) Rules, 2014:, For the purposes of this rule(i), , the expressions ‘‘Employee’’means -, , (a), , a permanent employee of the company who has been working in India or outside India;, , (c), , an employee or a director as defined in sub-clauses (a) or (b) above of a subsidiary, in India or outside, India, or of a holding company of the company., , (b), (ii), , a director of the company, whether a whole time director or not; or, , the expression ‘Value additions’ means actual or anticipated economic benefits derived or to be by the, company from an expert or a professional for providing know-how or making available rights in the nature, of intellectual property rights, by such person to whom sweat equity is being issued for which the consideration, is not paid or included in the normal remuneration payable under the contract of employment, in the case of, an employee., , Section 54 permits issue of such equity shares to employees or directors in recognition of their contribution for, providing know-how etc. as aforesaid. As the contribution made by employees/directors results in increased profits, to the company for a number of years, sweat equity shares provide a new form of adequate return. , .
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Lesson 2 • Share and Share Capital, , 81, , Conditions for Issue of Sweat Equity Shares, Section 54(1) provides that notwithstanding anything contained in Section 53, a company can issue sweat equity, shares, of a class of shares already issued, if the following conditions are satisfied:, (i), , (ii), , the issue has been authorized by a special resolution passed by the company in the general meeting., the following are clearly specified in there solution:, , (a), , number of shares;, , (c), , consideration, if any; and, , (b), (iii), (iv), , (d), , current market price;, , class or classes of directors or employees to whom such equity shares are to be issued., , where shares are listed on a recognized stock exchange, the company issuing sweat equity shares should, comply with the regulations made in this behalf by SEBI., a company whose shares are not so listed should issue sweat equity shares in compliance with the rules, made in this behalf by the Central Government i.e., Companies (Share Capital and Debentures) Rules, 2014., , Holders of Sweat Equity Shares to be ranked pari passu with other Equity shareholders, , Section 54(2) provides that the rights, limitations, restrictions and provisions as are for the time being applicable to, equity shares shall be applicable tot he sweat equity shares issued under this section and the holders of such shares, shall rank pari passu with other equity shareholders., , Explanatory Statement to Special Resolution to contain certain particulars [Rule 8 of the, Companies (Share Capital and Debentures) Rules, 2014], , While taking a decision it is important that all information is provide with regard to the matter, hence rule 8(2), states that the explanatory statement to be annexed to the notice of the general meeting shall contain the following, particulars, namely:(a), , the date of the Board meeting at which the proposal for issue of sweat equity shares was approved;, , (c), , the class of shares under which sweat equity shares are intended to be issued;, , (b), (d), (e), (f), , (g), , (h), (i), , (j), , (k), (l), , (m), , the reasons or justification for the issue;, , the total number of shares to be issued as sweat equity;, , the class or classes of directors or employees to whom such equity shares are to be issued;, , the principal terms and conditions on which sweat equity shares are to be issued, including basis of valuation;, the time period of association of such person with the company;, , the names of the directors or employees to whom the sweat equity shares will be issued and their relationship, with the promoter or/and Key Managerial Personnel;, the price at which the sweat equity shares are proposed to be issued;, , the consideration including consideration other than cash, if any to be received for the sweat equity;, , the ceiling on managerial remuneration, if any, be breached by issuance of such sweat equity and how it is, proposed to be dealt with;, a statement to the effect that the company shall conform to the applicable accounting standards; and, , diluted Earning Per Share pursuant to the issue of sweat equity shares, calculated in accordance with the, applicable accounting standards.
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82, , , , Validity of Special Resolution authorizing sweat equity shares, , Lesson 2 • EP-CL, , Rule 8(3) states the special resolution authorising the issue of sweat equity shares shall be valid for making the, allotment within a period of not more than twelve months from the date of passing of the special resolution., Limits on issue of sweat equity shares, , Rule 8(4) states that the company shall not issue sweat equity shares for more than fifteen percent of the existing, paid up equity share capital in a year or shares of the issue value of rupees five crores, whichever is higher. The, issuance of sweat equity shares in the company shall not exceed twenty five percent, of the paid up equity capital of, the company at any time., Provided further that a startup company, as defined in notification number [G.S.R. 127(E), dated the 19th February,, 2019 issued by the Department for Promotion of Industry and Internal Trade], Ministry of Commerce and Industry,, Government of lndia, may issue sweat equity shares not exceeding fifty percent of its paid up capital upto ten years, from the date of its incorporation or registration., Sweat Equity Shares to be locked for three years, , The sweat equity shares issued to directors or employees shall be locked for a period of three years from the date, of allotment and the fact that the share certificates are under lock-in and the period of expiry of lock in shall be, stamped in bold or mentioned in any other prominent manner on the share certificate. [Rule 8(5)], Valuation aspects, •, , Rule 8(6) states that the sweat equity shares to be issued shall be valued at a price determined by a registered, valuer as the fair price giving justification for such valuation., , •, , Rule 8(8) states that a copy of gist along with critical elements of the valuation report obtained under Rule, 8(6) and Rule 8(7) shall be sent to the shareholders with the notice of the general meeting., , •, , Rule 8(7) states that the valuation of intellectual property rights or of know how or value additions for which, sweat equity shares are to be issued, shall be carried out by a registered valuer, who shall provide a proper, report addressed to the Board of Directors with justification for such valuation., , Sweat equity shares for non-cash consideration, , Rule 8(9) states that when sweat equity shares are issued for a non-cash, consideration on the basis of a valuation report in respect thereof obtained from, the registered valuer, such non-cash consideration shall be treated in the, following manner in the books of account of the company –, (a), , (b), , where the non-cash consideration takes the form of a depreciable or, amortizable asset, it shall be carried to the balance sheet of the company, in accordance with the accounting standards; or, , Sweat equity shares issued, to Director or manager, shall be treated as a part of, managerial remuneration, for the purposes of section, 197 and 198., , where clause (a) is not applicable, it shall be expensed as provided in the accounting standards., , Sweat equity shares forming part of managerial remuneration, , Rule 8(10) states that the amount of sweat equity shares issued shall be treated as part of managerial remuneration, for the purposes of sections 197 and 198 of the Act, if the following conditions are fulfilled, namely –, (a), , (b), , the sweat equity shares are issued to any director or manager; and, , they are issued for consideration other than cash, which does not take the form of an asset which can be, carried to the balance sheet of the company in accordance with the applicable accounting standards.
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83, , Lesson 2 • Share and Share Capital, , Sweat equity shares and compensation aspects, •, , If the sweat equity shares are not issued pursuant to acquisition of, an asset, , •, , If the shares are issued pursuant to acquisition of an asset, , Rule 8(11) states that in respect of sweat equity shares issued, during an accounting period, the accounting value of sweat equity, shares (i.e., fair value by Registered valuer shall be treated as a, form of compensation to the employee or the director in the, financial statements of the company., , Accounting value shall be the fair, value of sweat equity shares as, determined by a registered valuer, under Rule 8(6) of the Companies, (Share Capital & Debentures) Rules,, 2014., , Rule 8(12) states that if the shares are issued pursuant to acquisition of an asset, the value of the asset, as, determined by the valuation report, shall be carried in the balance sheet as per the Accounting Standards and, such amount to the accounting value of the sweat equity shares that is in excess value of the asset acquired,, as per the valuation report, shall be treated as a form of compensation to the employee or the director in the, financial statements of the company., , Board’s Report to disclose the details of sweat equity shares, , According to rule 8(13) the details of issue during the year in which such shares are issued are to be in the board’s, report of the company., The details are given in lesson-9 “Transparency and Disclosures”, later in this study., Maintenance of Register, Rule 8(14) states that the company shall maintain a Register of Sweat Equity Shares in Form No. SH.3 and shall, forthwith enter therein the particulars of Sweat Equity Shares issued under section 54. The Register of Sweat Equity, Shares shall be maintained at the registered office of the company or such other place as the Board may decide. The, entries in the register shall be authenticated by the Company Secretary of the company or by any other person, authorized by the Board for the purpose., , PART D: ALTERATION IN SHARE CAPITAL, BUY-BACK AND, REDUCTION OF SHARE CAPITAL, , ALTERATION OF SHARE CAPITAL (SECTION 61), Section 61 of the Companies Act, 2013 provides that a limited company having a share capital may, if so authorised, by its articles, alter its memorandum in its general meeting to:, (a), , increase its authorised share capital by such amount, as it thinks expedient;, , (c), , convert all or any of its fully paid-up shares into stock or reconvert that stock into fully paid-up shares of any, denomination;, , (b), , (d), (e), , consolidate and divide, all or any of its existing shares into a larger denomination than of its existing shares, e.g., by consolidating ten shares of Rs. 10/- each into one share of Rs. 100/- each. Proviso to Section 61(1)(b), states that no consolidation and division which results in changes in the voting percentage of shareholders, shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;, sub-divide its existing shares or any of them, into shares of smaller amount than is fixed by the Memorandum,, so however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid, on each reduced shall be the same as it was in the case of the share from which the reduced share is derived;, cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken up or, agreed to be taken by any person and diminish the amount of the share capital by the amount of the shares, so cancelled.
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84, , , , Lesson 2 • EP-CL, , However, such cancellation of shares will not be deemed to bear eduction of share capital, within the meaning of, Section 66 of the Companies Act, 2013. In other words, it is cancellation of un-issued share capital not being taken, or agreed to be taken up by any person., , In order to alter its capital clause in the Memorandum, the company requires authority in its articles. But if the, articles give no power to this effect, the articles must be amended by a special resolution before the power to alter, the capital clause can be exercised by the company [Re. Patent Invert Sugar Co. (1885) 31 Ch. D. 166]., Further, the power to alter capital clause should be exercised bona fide and in the interest of the company and not, for the benefit of any group. An ordinary resolution will be enough for altering capital clause in the Memorandum, of Association., Section 64(1) states that when(a), , a company alters its share capital in any manner specified in sub-section (1) of section 61;, , (c), , a company redeems any redeemable preference shares, the company shall file a notice in the prescribed, Form SH-7 with the Registrar with in a period of thirty days of such alteration or increase or redemption, as, the case may be, along with an altered memorandum., , (b), , an order made by the Government under sub-section (4) read with sub-section (6) of section 62 has the effect, of increasing authorised capital of a company; or, , Rule 15 of the Companies (Share Capital and Debentures) Rules, 2014 states that when a company alters its, share capital in any manner specified in sub-section (1) of section 61, or an order is passed by the Government, increasing the authorized capital of the company in pursuance of sub-section (4) read with sub-section (6) of, section 62 or a company redeems any redeemable preference shares, the notice of such alteration, increase, or redemption shall be filed by the company with the Registrar in Form No.SH.7 along with the fee., As per Section 64 (2), contravention in this case will make the such company and every officer who is in, default shall be liable to a penalty of five hundred rupees for each day during which such default, continues, subject to a maximum of five lakh rupees in case of a company and one lakh rupees in case of an, officer who is in default., , BUY-BACK OF SECURITIES (SECTION 68), Meaning of Buy-Back, , The term buy-back implies the act of purchasing its own shares/securities by a company. This facility enables the, Company to go back to the holders of its own shares/securities and make an offer to purchase such shares/securities, from them., , Advantages of Buy-Back, 1., , It is an alternative mode of reduction in capital without requiring approval of the Court/NCLT;, , 3., , to improve return on capital, return on net worth and to enhance the long-term shareholders value;, , 2., 4., 5., 6., 7., 8., 9., , 10., , to improve the earnings per share;, , to provide an additional exit route to shareholders when shares are under valued or thinly traded;, to enhance consolidation of stake in the company;, to prevent unwelcome takeover bids;, , to return surplus cash to shareholders;, to achieve optimum capital structure;, , to support share price during periods of sluggish market condition;, to serve the equity more efficiently.
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Lesson 2 • Share and Share Capital, , 85, , The buy-back of securities is governed by Sec 68, 69 and 70 of the Companies Act, 2013 and Rule 17 of the Companies, (Share Capital and Debentures) Rules, 2014. For Listed Companies, the SEBI Regulations for Buy-Back will also be, applicable., , Sources, , According to Section 68(1) of the Companies Act, 2013 a company may purchase its own shares or other specified, securities (hereinafter referred to as “buy-back”) out of:, (i), , its free reserves; or, , (iii), , the proceeds of the issue of any shares or other specified securities., , (ii), , the securities premium account; or, , However, no buy-back of any kind of shares or other specified securities can be made out of the proceeds of an, earlier issue of the same kind of shares or same kind of other specified securities., , Thus, the company must have at the time of buy-back, sufficient balance in any one or more of these accounts to, accommodate the total value of the buy-back., , Free reserves has been defined under section 2(43) of the Act as such reserves which, as per the latest audited, balance sheet of a company, are available for distribution as dividend: Further it has been provided that the following, shall not be treated as free reserves:, (i), , (ii), , any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as a, reserve or otherwise, or, any change in carrying amount of an asset or of a liability recognised in equity, including surplus in profit and, loss account on measurement of the asset or the liability at fair value, shall not be treated as free reserves., , Authorisation [Section 68(2)], , The primary requirement is that the articles of association of the company should authorise buy-back. In case, such, a provision is not available, it would be necessary to alter the articles of association to authorise buy-back. Buy-back, can be made with the approval of the Board of Directors at a Board meeting and/or by a special resolution passed, by shareholders in a general meeting, depending on the quantum of buy-back., In case of a listed company, approval of shareholders shall be obtained only by postal ballot., , Quantum [Section 6 8(2)], , Board of Directors can approve buy-back up to 10% of the total paid-up equity capital and free reserves of the, company and authorize such buy-back by means of a resolution passed at the meeting., , Shareholders by a special resolution can approve buy-back up to 25% of the total paid-up capital and free reserves, of the company, in respect of any financial year., , In respect of buy-back of equity shares in any financial year the reserve of 25% shall be construed with respect to, its paid-up eauity capital in that financial year., , Special Resolution to be accompanied by Explanatory Statement [Section 68(3)], , The notice of the meeting at which the special resolution is proposed to be passed shall be accompanied by an, explanatory statement stating•, , a full and complete disclosure of all material facts;, , •, , the class of shares or securities intended to be purchased under the buy-back;, , •, , the necessity for the buy-back;
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86, , •, •, , , , the amount to be invested under the buy-back; and, , Lesson 2 • EP-CL, , the time-limit for completion of buy-back., , Explanatory statement to contain certain disclosures [Rule 17(1) of the Companies (Share, Capital and Debentures) Rules, 2014], , Explanatory statement to the special resolution authorising buy-back to be annexed to the notice of the general, meeting pursuant to section 102 shall contain the following disclosures:, (a), , the date of the Board meeting at which the proposal for buy-back was approved by the Board of Directors of, the company;, , (c), , the class of shares or other securities intended to be purchased under the buy-back;, , (b), (d), (e), (f), , (g), , (h), (i), , (j), , the objective of the buy-back;, , the number of securities that the company proposes to buy-back;, the method to be adopted for the buy-back;, , the price at which the buy-back of shares or other securities shall be made;, the basis of arriving at the buy-back price;, , the maximum amount to be paid for the buy-back and the sources of funds from which the buy-back would, be financed, the time-limit for the completion of buy-back;, , the aggregate share holding of the promoters and of the directors of the promoter, where the promoter is a, company and of the directors and key managerial personnel as on the date of the notice convening the general, meeting;, , (i), , (k), , (ii), , (m), , the maximum and minimum price at which purchases and sales referred to in (ii) above were made, along with the relevant date;, , if the persons mentioned in sub-clause (i) of clause (j) intend to tender their shares for buy-back–, , (i), , (ii), (l), , the aggregate number of equity shares purchased or sold by persons mentioned in (i) above during a, period of twelve months preceding the date of the board meeting at which the buy-back was approved, and from that date till the date of notice convening the general meeting;, , the quantum of shares proposed to be tendered;, , the details of their transactions and their holdings for the last twelve months prior to the date of the, Board meeting at which the buy-back was approved including in formation of number of shares, acquired, the price and the date of acquisition., , a confirmation that there are no defaults subsisting in repayment of deposits, interest payment thereon,, redemption of debentures or payment of interest thereon or redemption of preference shares or payment of, dividend due to any shareholder, or repayment of any term loans or interest payable thereon to any financial, institution or banking company;, a confirmation that the Board of Directors have made a full enquiry in to the affairs and prospects of the, company and that they have formed the opinion –, , (i), , (ii), , that immediately following the date on which the general meeting is convened there will be no grounds, on which the company could be found unable to pay its debts;, , as regards its prospects for the year immediately following that date, that, having regard to their, intentions with respect to the management of the company’s business during that year and to the, amount and character of the financial resources which will in their view be available to the company
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Lesson 2 • Share and Share Capital, , (iii), (n), , 87, , during that year, the company will be able to meet its liabilities as and when they fall due and will not, be rendered insolvent within a period of one year from that date; and, , informing their opinion for the above purposes, the directors have taken in to account the liabilities, (including prospective and contingent liabilities); as if the company were being wound-up under the, provisions of the Companies Act, 2013., , a report addressed to the Board of Directors by the company’s auditors stating that:, , (i), , they have inquired into the company’s state of affairs;, , (iii), , that the audited accounts on the basis of which calculation with reference to buy-back is done is not, more than six months old from the date of offer document; and, , (ii), , (iv), , the amount of the permissible capital payment for the securities in question is in their view properly, determined;, However, where the audited accounts are more than six months old, the calculations with reference to, buy-back shall be on the basis of un-audited accounts not older than six months from the date of offer, document which are subjected to limited review by the auditors of the company;, the Board of Directors have formed the opinion as specified in clause (m) on reasonable grounds and, that the company, having regard to its state of affairs, will not be rendered insolvent within a period of, one year from that date., , Letter of Offer to be Filed with Registrar of Companies before Buy-Back [Rule 17(2)], , The company which has been authorized by a special resolution shall, before the buy-back of shares, file with the, Registrar of Companies a letter of offer in Form No. SH. 8, along with the fee as prescribed. Such letter of offer, shall be dated and signed on behalf of the Board of directors of the company by not less than two directors of the, company, one of whom shall be the managing director, where there is one., , Dispatch of letter of offer to shareholders [Rule 17(4)], , The letter of offer shall be dispatched to the shareholders or security holders immediately after filing the same with, the Registrar of Companies but not later than 21 days from its filing with the Registrar of Companies., , Period of offer for buy-back [Rule 17(5)], , The offer for buy-back shall remain open for a period of not less than 15 days and not exceeding 30 days from the, date of dispatch of the letter of offer., Provided that where all members of a company agree, the offer for buy-back may remain open for a period less than, fifteen days., , Post buy-back debt-equity ratio [Section 68 (2)(d)], , The ratio of the aggregate of secured and unsecured debts owed by the company after buy-back is not more than, twice the paid-up capital and its free reserves. However, the Central Government may, by order, notify a higher ratio, of the debt to capital and free reserves for a class or classes of companies., As per S.O. 702(E), dated 10th March 2016 the Central Government hereby notifies that the debt to capital and, free reserves ratio shall be 6:1 for Government companies within the meaning of clause (45) of section 2 of the, Companies Act, 2013 which carry on Non-Banking Finance Institution activities and Housing Finance activities., , Shares/Securities being Bought Back are to be Fully Paid-up [Section 68(2)], , No company shall purchase its own shares or other specified securities unless all the shares or other specified, securities for buy-back are fully paid-up.
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88, , , , Time gap between two buy-backs [Proviso to Section 68(2)(g)], , Lesson 2 • EP-CL, , No offer of buy-back under Section 68(2) shall be made within a period of one year reckoned from the date of the, closure of the preceding offer of buy-back, if any., , Time limit for completion of buy-back [Section 68(4)], , Every buy-backs hall be completed within a period of one year from the date of passing of the special resolution, or, as the case may be, the resolution passed by the Board., , Methods of buy-back [Section 68(5)], , Buy–Back under section 68(1) may be, From the existing, shareholders or security, holders on a, proportionate basis, , From the, open market, , By purchasing the securities, issued to employees of the, company pursuant to a, scheme of stock option or, sweat equity, , Filing Declaration of Solvency with SEBI/ROC [Section 68(6) read with Rule 17(3)], When a company proposes to buy-back its own shares or other specified securities under this section in pursuance, of a special resolution or board resolution as the case may be, it shall, before making such buy-back, file with the, Registrar and the Securities and Exchange Board (in case of listed companies), a declaration of solvency signed by, at least two directors of the company, one of whom shall be the managing director, if any, in Form No. SH.9 and, verified by an affidavit to the effect that the Board of Directors of the company has made a full inquiry into the, affairs of the company as a result of which they have formed an opinion that it is capable of meeting its liabilities, and will not be rendered insolvent with in a period of one year from the date of declaration adopted by the Board., , Extinguishment of securities bought back [Section 68(7)], , When a company buys-back its own shares or other specified securities, it shall extinguish and physically destroy, the shares or securities so bought back within seven days of the last date of completion of buy-back., , Prohibition of further issue of shares or securities [Section 68(8)], , When a company completes a buy-back of its shares or other specified securities it shall not make a further issue of, the same kind of shares or other securities including allotment of new shares under clause (a) of sub-section (1) of, section 62 or other specified securities within a period of six months except by way of a bonus issue or in the, discharge of subsisting obligations such as conversion of warrants, stock option schemes, sweat equity or conversion, of preference shares or debentures into equity shares., , Register of buy-back [Section 68(9)], , When a company buys-back its shares or other specified securities under this section, it shall maintain a register of, the shares or securities so bought, the consideration paid for the shares or securities bought back, the date of, cancellation of shares or securities, the date of extinguishing and physically destroying the shares or securities and, other particulars., Rule 17(12) of the Companies (Share Capital and Debentures) Rules, 2014 provides that the company shall maintain, a register of shares or other securities which have been bought-back in Form No. SH-10., , The said register shall be maintained at the registered office of the company and shall be kept in the custody of, Secretary of the company or any other person authorized by the Board in this behalf., , The entries in the register shall be authenticated by the Secretary of the company or any other person authorized, by the Board in this behalf.
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Lesson 2 • Share and Share Capital, , 89, , Return of Buy-back [Section 68(10)], A company shall, after the completion of the buy-back under this section, file with the Registrar and the Securities, and Exchange Board (in case of listed companies) a return containing such particulars relating to the buy-back, within thirty days of such completion, as may be prescribed., Rule 17(13) of the Companies (Share Capital and Debentures) Rules, 2014 states that the return shall be filed in, Form No. SH-11 along with the fee., Rule 17(14) of the Companies (Share Capital and Debentures) Rules, 2014 states that a certificate in Form No., SH.15 signed by two directors of the company including the managing director, if any, certifying that the buy-back, of securities has been made in compliance with the provisions of the Act and the rules made there under shall be, annexed to the return filed with the Registrar in Form No. SH.11., , Punishments [Section 68(11)], , If a company makes any default in complying with the provisions of Section 68 or any regulation made by the, Securities and Exchange Board, in case of listed companies, the company shall be punishable with fine which shall, not be less than one lakh rupees but which may extend to three lakh rupees and every officer of the company who, is in default shall be punishable with fine which shall not be less than one lakh rupees but which may extend to, three lakh rupees., , Transfer to and application of Capital Redemption Reserve Account [Section 69], , When a company purchases its own shares out of free reserves or securities premium account, a sum equal to the, nominal value of the shares so purchased shall be transferred to the capital redemption reserve account and details, of such transfer shall be disclosed in the balance sheet. The capital redemption reserve account may be applied by, the company, in paying up unissued shares of the company to be issued to member so the company as fully paid, bonus shares., , Circumstances prohibiting buy-back [Section 70(1)], , No company shall directly or indirectly purchase its own shares or other specified securities•, , through any subsidiary company including its own subsidiary companies;, , •, , if a default, is made by the company, in the repayment of deposits accepted either before or after the, commencement of this Act, interest payment thereon, redemption of debentures or preference shares or, payment of dividend to any shareholder, or repayment of any term loan or interest payable thereon to any, financial institution or banking company: However, the buy-back is not prohibited, if the default is remedied, and a period of three years has lapsed after such default ceased to subsist. [Proviso to Section 70(1)], , •, , through any investment company or group of investment companies; or, , No company shall, directly or indirectly, purchase its own shares or other specified securities in case such, company has not complied with the provisions of sections 92 (Annual Return), section 123 (Declaration of Dividend),, section 127 (punishment for failure to distribute dividend) and section 129 (Financial Statement)., , REDUCTION OF SHARE CAPITAL (SECTION 66), , The need of reducing share capital may arise in various circumstances, for example, accumulated business losses,, assets of reduced or doubtful value or having paid up capital in excess of wants of the Company etc. As a result, the, original capital may either have become lost or a company may find that it has more resources that it can profitably, employ. In either of these cases, the need may arise to reduce the share capital., , Approval by Special Resolution and confirmation by the Tribunal [Section 66(1)], , Subject to confirmation by the Tribunal on an application by the company, a company limited by shares or limited, by guarantee and having a share capital may, by a special resolution, reduce the share capital in any manner and in, particular, may –
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90, , (a), , (b), , , , Lesson 2 • EP-CL, , extinguish or reduce the liability on any of its shares in respect of the share capital not paid-up; or, either with or without extinguishing or reducing liability on any of its shares,–, , (i), , (ii), , cancel any paid-up share capital which is lost or is unrepresented by available assets; or, , pay off any paid-up share capital which is in excess of the wants of the company, alter its memorandum, by reducing the amount of its share capital and of its shares accordingly:, , No Reduction of Capital would be allowed incase of Arrears in the Repayment of Deposits and Interest there on, [Proviso to Section 66(1)]., , Notice by Tribunal [Section 66(2)], , The Tribunal shall give notice of every application made to it under sub-section (1) to:, •, , Central Government (Powers have been delegated to Regional Director),, , •, , The Securities and Exchange Board, in the case of listed companies, and, , •, •, , Registrar,, , The Creditors of the company., , It shall take into consideration there presentations, if any, made to it by that Central Government, Registrar, the, Securities and Exchange Board and the creditors within a period of three months from the date of receipt of the, notice., , If no representation has been received from the Central Government, Registrar, the SEBI or the creditors within the, said period, it shall be presumed that they have no objection to the reduction. [Proviso to Section 66(2)], , Confirmation of Reduction of Capital [Section 66(3)], , The Tribunal may, if it is satisfied that the debt or claim of every creditor of the company has been discharged or, determined or has been secured or his consent is obtained, make an order confirming the reduction of share capital, on such terms and conditions as it deems fit., , No sanction for reduction unless complied with accounting standards, , Proviso to Section 66(3) provides that no application for reduction of share capital shall be sanctioned by the, Tribunal unless the accounting treatment, proposed by the company for such reduction is in conformity with the, accounting standards specified in section 133 or any other provision of this Act and a certificate to that effect by the, company’s auditor has been filed with the Tribunal., , Publication of the order of the Tribunal [Section 66(4)], , The order of confirmation of the reduction of share capital by the Tribunal under Section 66(3) shall be published, by the company in such manner as the Tribunal may direct., , Deliver a copy of order of Tribunal to Registrar [Section 66(5)], , The company shall deliver a certified copy of the order of the Tribunal under sub-section (3) and of a minute (which, means document submitted to Tribunal detailing the reduction and approved by the tribunal. Here the word minute, has different meaning from the word minutes used for proceedings) approved by the Tribunal showing (i), , the amount of share capital;
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Lesson 2 • Share and Share Capital, , 91, , (ii), , the number of shares into which it is to be divided;, , (iv), , the amount, if any, at the date of registration deemed to be paid-up on each share, to the Registrar within, thirty days of the receipt of the copy of the order, who shall register the same and issue a certificate to that, effect., , (iii), , the amount of each share; and, , No liability of member, , A member of the company, past or present, shall not be liable to any call or contribution in respect of any share held, by him exceeding the amount of difference, if any, between the amount paid on the share, or reduced amount, if any,, which is to be deemed to have been paid thereon, as the case may be, and the amount of the share as fixed by the, order of reduction., , Action under Section 447 i.e. Punishment for Fraud, , If any officer of the company:, •, , knowingly conceals the name of any creditor entitled to object to the reduction;, , •, , abets or is privy to any such concealment or misrepresentation as aforesaid;, , •, , knowingly misrepresents the nature or amount of the debt or claim of any creditor; or, , He shall be liable under section 447., , DIMINUTION OF SHARE CAPITAL IS NOT A REDUCTION OF CAPITAL, , As per section 61(1)(e) of the Companies Act, 2013, diminution of capital is the cancellation of the unsubscribed, part of the issued capital. It can be effected by an ordinary resolution provided articles of the company authorises, to do so. According to section 61(2), cancellation of shares under section 61(1) shall not be deemed to be reduction, of share capital. It does not need any confirmation of the Tribunal under section 66., Reduction of share capital by following methods also do not need any sanction/approval of the Tribunal:, (a), , Redemption of redeemable preference shares., , (c), , Buy-back of its own securities under Section 68., , (b), , Purchase of shares of a member by the Company on order of the Tribunal under Section 242 of the Companies, Act, 2013., , In the following cases, the diminution of share capital is not to be treated as reduction of the capital:, (i), , Where the company cancels shares which have not been taken or agreed to be taken by any person [Section, 61(1)(e) Companies Act, 2013];, , (iii), , Where any shares are forfeited for non-payment of calls and such forfeiture amounts to reduction of capital;, , (ii), , (iv), (v), , Where redeemable preference shares are redeemed in accordance with the provisions of Section 55, [Explanation to section 55(3) of the Companies Act, 2013];, Where the company buys-back its own shares under Section 68 of the Act [Section 66(6)];, , Where the reduction of share capital is effected in pursuance of the order of the Tribunal sanctioning any, compromise or arrangement under section 230., , In all these cases, the procedure for reduction of capital as laid down in Section 66 is not attracted.
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92, , Lesson 2 • EP-CL, , , , Case Laws:, (A), , (B), , (C), , (D), (E), , SIEL Ltd., Inre. [(2008)144 Com Cases 469 (Del)], the view was that reduction of the share capital of a, company is a domestic concern of the company and the decision of the majority would prevail. If the, majority by special resolution decides to reduce the share capital of the company, it has the right to, decide to reduce the share capital of the company and it has the right to decide how this should be, effected. While reducing the share capital, the company can decide to extinguish some of its shares, without dealing in the same manner with all other shares of the same class. A selective reduction is, permissible within the frame work of law for any company limited by shares., Indian National Press (Indore) Ltd., In re. (1989), the need for reducing capital may arise in various, circumstances for example trading losses, heavy capital expenses and assets of reduced or doubtful, value. As a result, the original capital may either have become lost or a capital may find that it has more, resources than it can profitably employ. In either case, the need may arise to adjust the relation between, capital and assets., , Elpro International Ltd., In re [(2009) 149 Com Cases 646 (Bom.)], a company proposed to extinguish and, cancel 8,89,169 shares held by shareholders constituting 25 percent of the issued and paid up share, capital and return capital to such shareholders at Rs. 183 per equity share of Rs. 10 each so cancelled and, extinguished in accordance with Section 100 of the Act (corresponds to section 66 of the Companies Act,, 2013). According to the scheme as approved by the shareholders, the reducing of 25 percent of the, issued and paid up capital was to take place from amongst 3,835 shareholders which included 112, shareholders who voted for the resolution, and 3,723 shareholders who did not object to the resolution., It was held that a selective reduction of share capital is legally permissible. The shareholders who did not, cast their votes were those who had abstained from voting at the meeting. Moreover, there was no, objection from any of the shareholders to the proposed reduction., , British and American Trustee and Finance Corpn. vs. Couper, (1894) AC 399, 403: (1991-4), the Act does, not prescribe the manner in which the reduction of capital is to be effected. Nor is there any limitation of, the power of the Court to confirm the reduction except that it satisfied that all the creditors entitled to, object to the reduction have either consented or been paid or secured., British and American Trustee Corpn. vs. Couper, (1894) (ibid), when exercising its discretion, the Court, must ensure that the reduction is fair and equitable. In short the Court shall consider the following, while, sanctioning the reduction:, , (i), , The interests of creditors must be safeguarded;, , (iii), , Lastly, the public interest must be considered as well., , (ii), (F), , (G), , The interests of shareholders must be considered; and, , Borough Commercial and Bldg. Society, (1893), Reduction in shares capital of an unlimited company: An, unlimited company to which Section 100 (corresponds to section 66 of the Companies Act, 2013) does, not apply, can reduce its capital in any manner that its Memorandum and Articles of Association allow. It, is not governed by Sections 61 and 66 of the Act (corresponds to section 27 and 30 of the Companies Act,, 2013). Section 13 (corresponds to section 4 of the Companies Act, 2013) does not provide that its capital, shall be stated in the Memorandum. However, even if its capital is stated in the Memorandum, the, Companies Act impliedly gives power to the member to alter it., , Great Universal Stores Ltd., Re (1960), Reduction of capital when company is defunct: The Registrar of, Companies has been empowered under Section 560 (corresponds to section 248 of the Companies Act,, 2013) to strike off the name of the company from register on the ground of non-working. Therefore,, where the company has ceased to trade and Registrar exercises his power under Section 560 (corresponds, to section 248 of the Companies Act, 2013) a reduction of capital cannot be prevented.
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Lesson 2 • Share and Share Capital, , (H), , (I), , 93, , Marwari Stores Ltd. vs. Gouri Shanker Goenka, (1936), Equal Reduction of Shares of One Class: Where, there is only one class of shares, prima facie, the same percentage should be paid off or cancelled or, reduced in respect of each share, but where different amounts are paid-up on shares of the same class,, the reduction can be effected by equalising the amount so paid-up. The same principle is to be followed, where there are different classes of shares [Bannatyne v. Direct Spanish Telegraph Co., (1886) 34 Ch D, 287]., Asian Investments Ltd. Re, (1992), It is, however, not necessary that extinguishment of shares in all cases, should necessarily result in reduction of share capital. Accordingly where reduction is not involved, Section 100 (corresponds to section 66 of the Companies Act, 2013) would not be attracted., , REDUCTION OF SHARE CAPITAL WITHOUT SANCTION OF THE TRIBUNAL, The following are cases which amount to reduction of share capital and where no confirmation by the Tribunal is, necessary:, (a), , Surrender of shares — “Surrender of shares” means the surrender to the company on the part of the, registered holder of shares already issued. Where shares are surrendered to the company, whether by way of, settlement of a dispute or for any other reason, it will have the same effect as a transfer in favour of the, company and amount to a reduction of capital. But if, under any arrangement, such shares, instead of being, surrendered to the company, are transferred to a nominee of the company then there will be no reduction of, capital [Collector of Moradabad vs. Equity Insurance Co. Ltd., (1948). Surrender may be accepted by the, company under the same circumstances where forfeiture is justified. It has the effect of releasing the, shareholder whose surrender is accepted from further liability on shares., The Companies Act contains no provision for surrender of shares. Thus, surrender of shares is valid only, when Articles of Association provide for the same and:, , (a), , (b), (b), , Where forfeiture of such shares is justified; or, , When shares are surrendered in exchange for new shares of same nominal value., , Both forfeiture and surrender lead to termination of membership. But in the former case, it is at the initiative, of company and in the latter case at the initiative of member or shareholder., Forfeiture of shares — A company may if authorised by its articles, forfeit shares for non-payment of calls, and the same will not require confirmation of the Tribunal., , Where power is given in the articles, it must be exercised strictly in accordance with the regulations regarding, notice, procedure and manner stated therein, otherwise the forfeiture will be void. Forfeiture will be effected by, means of Board resolution. The power of forfeiture must be exercised bonafide and in the interest of the company., , Effect of Forfeiture, , When the shares have been forfeited, the defaulting shareholder ceases to be member of the company and he loses, all rights or interests in his shares. But notwithstanding the forfeiture he remains liable to pay to the company all, monies which at the date of forfeiture were payable by him to the company in respect of the shares., , Re-issue of forfeited shares, , The Company may re-issue the forfeited shares to any willing buyer after having specific powers to that effect in the, Articles. The shares are generally issued at a price at par with other shares as reduced by amounts already received, in respect of the said shares., , Reissue of forfeited shares is a sale of shares and it does not amount to an allotment. The company should duly, record the particulars of the members who acquire those shares as if it were a transfer of shares., , The directors would fix a price for the forfeited share that should not be lower than the amount of the call(s) due, and unpaid on the share at the time of forfeiture.
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94, , , , Lesson 2 • EP-CL, , In the case of a company whose shares are listed in a recognized stock exchange, re-issue of forfeited shares shall be, as per Guidelines for Preferential Issue of the Securities and Exchange Board of India and the listing agreement., , Conclusiveness of certificate for reduction of capital, , Where the Registrar had issued his certificate confirming the reduction, the same was held to be conclusive although, it was discovered later that the company had no authority under its articles to reduce capital [Re Walkar & Smith, Ltd., (1903) 88 LT 792 (Ch D)]. Similarly, in a case the special resolution for reduction was an invalid one, but the, company had gone through with the reduction. It was held that the reduction was not allowed to be upset [Ladies’s, Dress Assn. v. Pulbrook, (1900) 2 QB376]., , PART E: TRANSFERABILITY – A BRIEF OF PROVISIONS OF COMPANIES ACT, 2013, , One of the most important characteristics of a company is that its shares are transferable. Section 44 of the, Companies Act, 2013 states that the shares or debentures or other interest of any member in a company shall be, movable property, transferable in the manner provided by the articles of the company., , As per section 58(2), the securities or other interest of any member in a public company shall be freely transferable., Proviso to section 58(2) provides that any contract or arrangement between two or more persons in respect of, transfer of securities shall be enforceable as a contract. In terms of Section 2(68), a private company is required to, restrict the right to transfer its shares by its articles. Section 56 of the Companies Act deals with transfer and, transmission of securities., , TRANSFER OR TRANSMISSION OF SECURITIES, Transferability of securities, , PRIVATE COMPANIES, Shares of a private company are not marketable securities due to restriction on right to transfer. Such shares by, their very nature are not freely transferable in the market. The objective behind the right of restriction on the, transfer of shares is to preserve the composition of the share holding., •, •, , The section 2(68) of the Companies Act, 2013 restricts the right to transfer shares but does not prohibit the, right to transfer shares. In case of transfer of shares of a private company, the provisions or restrictions, contained in the Articles of Association should be duly complied with by the transferor and transferee., , As per the provisions of section 44 of the companies Act, 2013, shares or debentures or other interest are, movable property, transferable in the manner provided by the Articles of the company. Therefore, there, cannot be an absolute prohibition on the right to transfer shares. The right to transfer may be subjected to, restrictions contained in the articles and there cannot be total prohibition or ban on transferability of shares., However, only permissible restriction on transferability may be contained Articles of association. Restrictions, upon transfer of shares in private companies are not applicable in following cases:(a), , On the right of a member to transfer his/her shares in a case where the shares are to be transferred to, his/her representative(s)., , (c), , In respect of shares which are proposed to be issued on a right basis, existing members would have a, right to renounce shares likely to be allotted to them. If the existing share holders renounce their, shares then these shares will be allotted to the renounces for the first time and therefore no transfer, of shares will take place., , (b), , •, , In the event of death of a shareholder, legal representatives may require the registration of shares in, the names of heirs, on whom the shares have been devolved., , Restriction on right to transfer shares is generally placed by using following two methods:, (a), , Right of pre-emption: If a member wishes to sell some or all of his shares, such shares shall first be, offered to other existing members of the company at a price determined by the directors or by the, auditor of the company or by the use of formula set out in the articles. If no existing member is
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Lesson 2 • Share and Share Capital, , (b), , (c), , 95, , determined to acquire shares, then shares can be transferred by the transferor to the proposed, transferee. A member is not bound to sell his shares to other members under pre-emption clause, unless any other member or members agree to buy all the shares proposed to be sold. The transfer, between the members is outside the purview of pre-emption clause. The pre-emption clause cannot, place a complete ban on right to transfer; they cannot completely prohibit the transfer., Valuation of Shares under Preemption clause: Articles of Association of private company provide, that the shares are to be sold under pre-emption clause at a fair price determined by the directors or, the auditor of the company. It may also be provided that the fair price would be certified by the auditor, of the company. If the pre-emption clause requires that the shares are required to be offered to other, members at a price certified by the directors or auditor(s), the Court is not in a position to enquire into, the correctness of valuation, unless there is evidence that valuation was not correctly made. If the, person who made the valuation has acted negligently and failed to take into account all the necessary, factors for arriving at the value of share, in such case the transferor may sue for the damages to the, person who made the valuation for difference between the value of the share as computed by the, valuer, and the real value of shares., , Powers of directors to refuse registration of transfer of shares: The Powers of directors to refuse, registration of transfer of shares are specified in the articles of association of the company. This power, is to be exercised by the Board of Directors in good faith., , PUBLIC COMPANY, , As per section 58(2), the securities or other interest of any member in a public company shall be freely transferable., The Board of Directors of a company or the concerned depository has no discretion to refuse or withhold transfer, of any security. The transfer has to be effected by the company/depository automatically and immediately., However, proviso to section 58(2) provides that any contract or arrangement between two or more persons in, respect of transfer of securities shall be enforceable as a contract. It is now possible to contractually agree on terms, such as right of first refusal, right of first offer, tag along, call option, put option, etc. in the shareholder agreements/, investment agreements, in the case of a public company as well. These terms would now be binding on the investors., Therefore, private arrangements or contracts between two or more persons would be enforceable contracts., Instruments of transfer to be presented to the company, , According to Section 56(1) a company, shall not register a transfer of securities of, the company, unless a proper, instrument of transfer duly stamped, dated and executed by or on behalf of the transferor and the transferee has, been delivered to the company by the transferor or transferee within a period of 60 days (irrespective of the nature, of the company, whether listed or unlisted) from the date of execution along with the certificate relating to the, securities, or if no such certificate is in existence, then along with the related certificate or letter of allotment of, securities. In case of loss of the instrument, the company may register the transfer on terms as to indemnity., Such instrument of transfer of securities held in physical form shall be in Form No. SH.4. Where a company not, having share capital, the instrument of transfer herein should also be in Form No. SH.4 and other conditions be, complied where the references therein to securities were references instead to the interest of the member in the, company., However, nothing in section 56(1) shall prejudice any power of the company to register, on receipt of an intimation, of transmission of any right to securities by operation of law from any person to whom such right has been, transmitted [Section56(2)]., Registration of partly paid up shares – Notice to the transferee, , According to section 56(3), where an application is made by the transferor alone and relates to partly paid shares,, the transfer shall not be registered, unless the company gives the notice in Form No. SH.5 to the transferee and the, transferee gives ‘no objection’ to the transfer within two weeks from the receipt of the notice.
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96, , , , Time Limit for Delivery of certificates, , Lesson 2 • EP-CL, , Every company, unless prohibited by any provision of law or any order of Court, Tribunal or other authority, deliver, the certificates fall securities transferred or transmitted within a period of one month in case of transfer or, transmission of securities., Intimation to depository, , Proviso to Section 56(4) states that where the securities are dealt with in a depository, the company shall intimate, the details of allotment of securities to depository immediately on allotment of such securities. No transfer deed is, required for transfer of shares, where the shares are held in dematerialized form., Transfer of securities by legal representative, , Section 56(5) of the Act provides that in case of death of holder of any security, the transfer of such security by the, legal representative of the deceased shall be valid•, •, , Even though the legal representative is not the holder of such security;, As if the legal representatives were the holder of such security., , Penalties, , According to 56(6) ,where any default is made in complying with the provisions of sub-sections (1) to (5) of Section, 56, the company and every officer of the company who is in default shall be liable to a penalty of fifty thousand, rupees., Transfer of shares by depository with an intent to defraud, is liable under Section 447 for fraud, , As per section 56(7), without prejudice to any liability under the Depositories Act, 1996, where any depository or, depository participant, with an intention to defraud a person, has transferred shares, it shall be liable under section, 447 for fraud., Stamp duty payable and affixation/ cancellation of stamps at the time of transfer of shares, , Before the transfer is lodged with the company, it should be duly stamped. The transfer of securities attracts, prescribed stamp duty under the Indian Stamp Act, 1899., , The amount of consideration is required to be mentioned in the share transfer deed as otherwise the companies, cannot verify whether share transfer stamp duty has been correctly charged thereby attracting the penal provisions, of the Stamp Act in case of a default., Under Section 56(1), a company cannot register the transfer of securities unless a instrument of transfer duly, stamped, dated and executed by or on behalf of the transferor and the transferee has been delivered to the company, along with the certificate relating to the securities in question., , The expression ‘duly stamped’ has not been defined in the Companies Act. Under Section 2(11) of the Indian Stamp, Act, 1899, ‘duly stamped’ as applied to an instrument, means that the instrument bears an adhesive or impressed, stamp of not less than the proper amount and that such stamp has been affixed or used in accordance with the law, for the time being in force in India., , Under Section 12(1) of the Indian Stamp Act,1899, whoever affixes an adhesive stamp to an instrument which has been, executed by any person shall, when affixing such stamp, cancel the same so that it cannot be used again. Sub-section (2), thereof makes it clear that any instrument bearing an adhesive stamp which has not been cancelled so that it cannot be, used again, shall, so far as such stamp is concerned, be deemed to be unstamped. Sub-section (3) thereof provides the, manner in which the adhesive stamp can be cancelled and provides that the stamp be cancelled by writing on or a cross, the stamp his name or initials or the name or initials of his firm. Section 17 of the Indian Stamp Act, 1899 makes it clear, that all instruments chargeable with duty and executed shall be stamped before, or at the time of execution. Therefore,, the legal requirement is that the stamp must be cancelled either before or at the time of execution.
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97, , Lesson 2 • Share and Share Capital, , It is necessary that the value of the consideration paid for a transfer must be determined as a part of the agreement, because in the absence of such valuation it would not be possible to know whether stamp duty has been paid, according to the value or not. A transfer form which does not indicate the value of the shares purposes of transfer, would be void and not capable of being accepted., The “value of the shares” means the price which the shares would fetch at the time of the transfer and not the face, value of the shares. The consideration actually paid or agreed to be paid is the value of the shares. So long as there, is nothing to indicate that the consideration was not truly stated in the transfer, the one mentioned therein should, be accepted as the consideration that was paid [Union of India vs. Kulu Valley Transport Ltd. (1958)., Stamp Duty Rates w.e.f. 1st July 2020 as per Amended Indian Stamp Act, , S.No., 1., , Transfer and Re-issue of debenture, , 3, , Transfer of security other than debenture on non-delivery basis, , 2., , Case Laws:, , Type of transfer, , Transfer of security other than debenture on delivery basis, , Rate of, Stamp Duty, 0.0001%., 0.015%, 0.003%, , A company cannot register transfer of shares unless the instrument of transfer is duly stamped and is delivered, to the company. The expression “duly stamped” has to be construed with reference to the provisions of Section, 2(11) of the Indian Stamp Act, 1899 and the document in question would be an invalid one if the stamp affixed, there on has not been cancelled. Under Section 108(1) of the Companies Act, 1956 [Corresponds to section 56(1), of the Companies Act, 2013] it is mandatory that the company shall not register the transfer of shares unless a, properly executed instrument of transfer duly stamped has been delivered to the company. [Shri Parveen Sharda, vs. Chopsani Ice Aerated Water and Oils Mills Ltd., Appeal No. 1 of 1982 decided on 10.1.1983(CLB)]., In Vardhaman Publishers Ltd. vs. Mathrubhumi Printing & Publishing Co. Ltd. (1990), the Kerala High Court held, that affixing stamps on a separate sheet of paper and attaching it to the transfer application or cancellation of, stamps by drawing a line across the stamp was not improper and would not invalidate the said application. On, the question of whether a newly added Article empowering the Board to reject transfer of shares would affect, transactions of sale of shares entered into before the insertion of the Article, the Court held that the property in, the shares passes on the date of transfer and the right to have the shares registered in the transferee’s name, becomes crystallised on that day itself. Any alteration of articles will not affect concluded transactions and in, respect of such transactions, the existing articles would prevail. So, if the original (unaltered) Articles as on the, date of transfer permit free transfer of shares, the Board cannot refuse registration of the transfer., , Procedure for transfer of shares as per the Companies Act, 2013, (i), , Obtain the transfer deed in the prescribed form i.e. Form SH-4, endorsed by the prescribed authority., , (ii) The instrument of transfer may not be in the prescribed form in the following cases:•, , Shares transferred by a direct or nominee on behalf of an other body corporate under section 187 of the, Companies Act, 2013;, , •, , Shares transferred by way of deposit as a security for repayment of any loan or advance, if they are made, with any of the following:-, , •, , Shares transferred by a director or nominee on behalf of a corporation owned or controlled by the Central, or State Government;, (a), , State Bank of India; or, , (b) Any scheduled bank; or
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98, , , , (c), , Any other banking company; or, , (e), , Central Government; or, , Lesson 2 • EP-CL, , (d) Financial Institution; or, (f), , State Government; or, , (g) Any corporation owned or controlled by the Central or State Government; or, (h) Trustees who have filed the declarations., , (iii) For transferring debentures, the instrument of transfer need not be in prescribed form but standard format, can be used, being convenient to do so., , (iv) Get the transfer deed duly executed either by the transferor and the transferee or on their behalf in accordance, with section 56 of the Companies Act, 2013 and the Articles of Association, in case of shares, and also in, accordance with trust deed in the case of debentures., , (v), , (vi), , Requirement of execution of the transfer form by each of the joint shareholders cannot be met by execution of, the transfer form by one of the shareholders even though between the shareholders inter se there is an, agreement that one shareholder can sign on behalf of all other shareholders [Claude- Lila Parulekar vs. Sakal, Papers (P) Ltd. (2005)124 Comp Cas 685(SC): (2005) 59 SCL 414(SC)]., The transfer deed should bear stamps according to Indian Stamp Act and stamp duty notify force in the state, concerned., See that stamp affixed on the transfer deed is cancelled at the time or before signing of the transfer deed., , (vii) The signatures of the transferor and the transferee in the share/debentures transfer deed must be witnessed, by a person giving his signature, name and address., (viii) Attach the relevant share or debenture certificate or allotment letter with the transfer deed and deliver the, same to the company., (ix), (x), , (xi), , Where the application is made by the transferor and relates to partly paid shares, the company has to give, due notice of the amount due on shares/debentures to the transferee and the transferee shall raise objections,, if any within two weeks from the date of receipt of the said notice., , If signed transfer deed has been lost, affix the same stamp on a written application. In such case, the Board, may, if it thinks fit to do so, register the transfer on such terms of indemnity as it thinks fit., , If the shares of the company are listed in a recognized stock exchange, then the company cannot charge any, fee for registration of transfers of shares and debentures., , CHECKLIST FOR COMPANY SECRETARY, , A Company Secretary is required to put up before the Board or the Share Transfer Committee of the company for, consideration and approval, only those cases of registration of share transfers, which have been checked up by him, and have been found to be strictly in accordance with the provisions of section 56 and other applicable provisions, of the Companies Act, 2013 and the articles of association of the company. If the Instrument received is deficient in, any respect, the same should be returned to the person who had lodged the same with the company for making, good the deficiency. The following checklist has been designed to help a Company Secretary in his work of processing, of cases of share transfers:, (1), , Each column of transfer deed (SH-4) is properly and adequately filled in., , (3), , Name of the company and its Corporate Identification Number (CIN) is correctly given., , (2), (4), , Date of execution is to be filled up properly., , Names of the recognized stock exchange, where dealt in, if any, have been given in the Instrument.
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Lesson 2 • Share and Share Capital, , (5), (6), (7), (8), (9), , 99, , Description of shares, viz., equity, preference etc. is correctly given. Kind or class of securities, nominal value, of each unit, amount called up and amount paid up, number of securities being transferred (both in figures, and words) and consideration received (both in figures and words) are to be mentioned clearly., Distinctive numbers of the shares mentioned in the share certificate(s) are to be mentioned in the deed., Corresponding share certificate numbers are to be entered in the transfer deed., , Folio number of the transferor as given in the enclosed share certificate(s) is to be correctly entered in the, transfer deed., , Name and address of the witness to the signature(s) of the transferor(s) are legibly written in the transfer, deed and the witness has signed the transfer deed., , (10) Signature(s) of the transferor(s) must tally with the specimen signature available with the company., (11), , In case of joint share holdings, form shall be signed by all joint transferors., , (12) Particulars of transferee viz. Name, Father’s name, address, E-mail Id, occupation and existing folio number, are to be correctly entered in the transfer deed., (13) The transferee(s) or the buyer(s) has/have signed the Instrument., , (14) Relevant certificate(s) of shares or debentures or other securities is/are to been closed., (15) If certificate was not issued, letter of allotment is to be enclosed., , (16) Share Transfer Stamps of appropriate value have been affixed on the Instrument and they have been properly, cancelled by a rubber stamp or defaced otherwise. If the shares are listed, the valuation of the Share Transfer, Stamps is to be determined based on their quoted value., (17) Where the transfer is proposed to be in the name of the minor(s), whether the articles of association of the, company permit such registration of transfer and the shares are fully paid., , (18) Whether the transferor(s) and/or transferee(s) is/are non-resident Indians and if so, whether the transfer is, permitted under the Foreign Exchange Management Act, 1999, and if not, whether specific permission of the, Reserve Bank of India has been obtained., (19) Where the transferor is a body corporate, whether board resolution of the transferor is passed to this effect, and proper authority has been given by the Board of Directors to the person signing as the transferor on, behalf of the company., (20) In case of listed company, comply with the formalities of the SEBI (LODR) Regulation, 2015 and other SEBI, Guidelines., , (21) Check whether the shares under registration are subject to a lien of the company and if so, whether the, company has lifted the lien., (22) The transfer of shares must not contravene the provisions of SEBI (Substantial Acquisition of Share and, Takeovers) Regulations, 2011., , Transmission of Securities, , Where any person acquires any right to securities by operation of any law, the company may register the transmission, of shares in favour of such person if the company receives intimation of transmission from such person, and in such, a case no transfer deed shall be necessary., According to Section 56(2), a company shall have power to register on receipt of an intimation of transmission of, any right to securities by operation of law from any person to whom such right has been transmitted.
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100, , , , Lesson 2 • EP-CL, , Let us remember !, A company shall not register a transfer of partly paid shares, unless the company has given a notice in Form No., SH.5 to the transferee and the transferee has given no objection to the transfer within two weeks from the date of, receipt of notice., , POWER OF BOARD TO REFUSE REGISTRATION, , STATUTORY REMEDY AGAINST REFUSAL [SECTION 58], Section 58 of the Companies Act, 2013, deals with process of the company to be followed by on refusal to register, the transfer of securities., (i), , (ii), (iii), , (iv), , (v), , If a private company limited by shares refuses (whether in pursuance of any power of the company under its, articles or otherwise) to register the transfer of, or the transmission of the right to any securities or interest, of a member in the company, then the company shall send notice of the refusal to the transferor and the, transferee or to the person giving intimation of such transfer, within a period of thirty days from the date on, which the instrument of transfer, or the intimation of such transmission, was delivered to the company. Notice, shall contain the reasons for refusal to register the transfer or transmission., The transferee may appeal to the Tribunal against the refusal within a period of thirty days from the date of, receipt of the notice or in case no notice has been sent by the company, within a period of sixty days from the, date on which the instrument of transfer or the intimation of transmission, was delivered to the company, [Section 58(3)]., , If a public company without sufficient cause refuses to register the transfer of securities within a period of, thirty days from the date on which the instrument of transfer or the intimation of transmission, is delivered, to the company, the transferee may, within a period of sixty days of such refusal or where no intimation has, been received from the company, within ninety days of the delivery of the instrument of transfer or intimation, of transmission, appeal to the Tribunal [Section 58(4)]., The Tribunal, while dealing with an appeal may, after hearing the parties, either dismiss the appeal, or by, order-, , (a), , (b), , direct that the transfer or transmission shall be registered by the company and the company shall, comply with such order within a period of ten days of the receipt of the order; or, , direct rectification of the register and also direct the company to pay damages, if any, sustained by any, party aggrieved [Section 58(5)]., , If a person contravenes the order of the Tribunal he shall be punishable with imprisonment for a term not, less than one year but may extend to three years and with fine not less than one lakh rupee may extend to five, lakh rupees [Section58(6)]., , Case Laws:, , (A) Refusal to register share transfer on suspicion that the employee if admitted as a member will attend, general meetings of the company and may create nuisance by raising irrelevant issues and also obtain, access to the records to the company as a shareholder is not a valid reason. [Appeal to the CLB No. 27, of, 1975 dated 17th August, 1976, Shri Nirmal Kumar vs. Jaipur Metal and Electrical Limited];, (B) The mere attempts of a person to wind up a company more than once cannot be a ground for refusing to, register transfer by the directors [Rangpur Tea Association Ltd. vs. Makkan Lal Samaddar (1979)];, (C) The power to refuse registration of shares which is conferred on the directors by the articles, is a, discretionary power and must be exercised reasonably, and in good faith for the benefit of the company., Unless the contrary is proved, the power is deemed to have been exercised properly. [Berry & Stewart vs., Tottenham Hostpur Football and Athletic Co. Ltd., 1936];
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Lesson 2 • Share and Share Capital, , 101, , (D) Where the articles of association of a company confers a discretion on the directors with regard to, acceptance of transfers, this discretion is a fiduciary one to be exercised bona fide in what the Board, considers to be in the interest of the company. If on a true construction of the articles, the directors are, only given the powers to reject on certain prescribed grounds and it is proved that on these grounds the, request for transfer was rejected, the Court cannot substitute the opinion of the Board. If the articles of, association give an unfettered discretion, the Court would interfere with it only on proof of bad faith. [M.J., Amrithalingam vs. Gudiyatham Textiles Pvt. Ltd., (1972)];, , (E) The Supreme Court, in Bajaj Auto Limited vs. N.K. Firodia, AIR 1971, S.C. 321, observed, “discretion implies, just and proper consideration of the proposal under the facts and circumstances of the case. In the exercise, of that discretion, the directors will act in the paramount interest of the company and in the general, interest of the shareholders because the directors are in a fiduciary position both towards the company, and towards every shareholder. The directors are, therefore, required to act bona fide and not arbitrarily, and not for any collateral motive”. It was observed further that where the articles permitted the directors, to decline to register transfer of shares without stating reasons, the Court would not draw unfavourable, inferences against the directors because they did not give reasons. The Court would assume that the, directors acted reasonably and bona fide and those who allege to the contrary would have to prove and, establish the same by evidence. However, if the directors gave reasons, the Court would consider whether, they were legitimate and whether the directors proceeded on right or wrong principle.The Court has also, laid down three tests to determine the proper exercise of power by the Board of directors. The tests are:, 1., , Whether the directors acted in the interest of the company;, , 3., , Whether they acted on oblique motive or for a collateral purpose., , 2., , Whether they acted on a wrong principle; and, , If the directors have uncontrolled and absolute discretion in regard to declining registration of transfer of, shares, the Court would consider whether the reasons were legitimate or the directors acted on a wrong, principle, or from corrupt motive. If the reasons for refusal given by the directors were legitimate, the, Court would not over-rule that decision merely on the ground that the Court would not have come to the, same conclusion. The discretion of the directors was to be tested as the opinion of any fair and sensible, man in the interest of the company;, , (F) Where the appellant transferee and respondent company were in the same line of business and were rivals,, the refusal on the ground of rivalry will be justified in terms of the decision rendered by the Supreme Court, in the Bajaj Auto Case. Under these circumstances, the investment cannot be considered to have been, made bona fide with the intention of making profits. The respondent company is entitled to refuse the, registration even in the absence of an enabling provision in articles in view of the provisions of Section, 111(2)[Corresponds to section 58(3) and 58(4) of the Companies Act, 2013] [Modi Carpets Ltd. v. TransAsia Carpets Ltd., Appeal No. 2 of 1980 decided on 26.12.1981(CLB)];, , (G) In Shri T.N. Kuriakos vs. Premier Tyres Ltd., decided on 13.6.1983 (CLB), the appeal against the refusal by the, respondent company to register transfer of shares was allowed by the Company Law Board (Now Tribunal), on the ground that the refusal of the respondent to register transfer of shares in favour of the appellant was, based on the decision of the Transfer Committee, a sub-committee of the Board of Directors and not that of, the Board of Directors as such, and, therefore, the said decision was not a valid and legal decision., , RECTIFICATION OF REGISTER OF MEMBERS (SECTION 59), , Section 59 of the Companies Act, 2013 provides the procedure for the rectification of register of members after the, transfer of securities. The provision states that –, 1., , Remedy to the aggrieved for not carrying the changes in the register of members:, Grounds of appeal: If, without sufficient cause–
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102, , , , (i), , The name of any person is entered in the register of members; or, , (iii), , Default or unnecessary delay is being made in entering in the register, the fact of any person having, become a member; or, , (ii), , (iv), (v), 2., , 3., , Lesson 2 • EP-CL, , The name of any person having entered in the register of members is without sufficient reason omitted, there from; or, , Default or unnecessary delay is being made in entering in the register, the fact of any person having, ceased to be a member; or, , The person aggrieved, or any member of the company, or the company may appeal in such form as may, be prescribed, to the Tribunal. In case of foreign members or debenture holders residing outside India,, the appeal shall be filed in a competent Court outside India as may be specified by the Central, Government by notification., , Order of the Tribunal: The Tribunal may, after hearing the parties to the appeal by order, either dismiss the, appeal or direct that the transfer or transmission shall be registered by the company within a period of ten, days of the receipt of the order, or direct rectification of the records of the depository or the register and in, the latter case, direct the company to pay damages, if any, sustained by the party aggrieved., , 4., , Right to transfer not restricted: Section 59 of the Act shall not restrict the right of a holder of securities, to, transfer such securities. Any person acquiring such securities shall been titled to voting rights unless the, voting rights have been suspended by an order of the Tribunal., , 5., , Specific instances of rectification:, , Contravention of provisions of the law: Where the transfer of securities is in contravention of any of the, provisions of the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act,, 1992 or this Act or any other law for the time being in force, the Tribunal may, on an application made by the, depository, company, depository participant, the holder of the securities or the Securities and Exchange, Board, direct any company or a depository to set right the contravention and rectify its register or records, concerned., Rectification has been held to be permissible in the following cases:, , (a), , Applicant induced to take shares by misrepresentation;, , (c), , Irregular allotment;, , (b), (d), (e), 6., , (f), , Shareholders’ name removed under unlawful surrender of his shares;, Name of nominee entered in register without his knowledge or consent;, , Allotment of shares to a non-resident without taking necessary permission for foreign exchange., Allotment in violation of memorandum of association of the company., , Mutation of name in other Company’s register of members: The Company which has changed its name, would been titled to ask those companies in which it is holding shares to substitute a company’s new name, in their register of members in the place of old name. [Sulphur Dyes v. Hicks on & Dadajee Ltd. (1995) 83 Com, Cases 533(Bom)], , (Note: Students may also see Lesson 3 Members & Shareholders in this context), , LOST TRANSFER DEEDS, It is sometimes found that the transfer documents sent to companies are lost, say, in transit. In such a case,the provision, to section 56(1) of the Act provides that where the instrument of transfer has been lost or the instrument of transfer, has not been delivered within the prescribed period (within 60 days from the date of execution of the instrument of, transfer), the company may register the transfer on such terms as to indemnity as the Board may think fit.
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Lesson 2 • Share and Share Capital, , 103, , The Board of Directors of the company should be satisfied that the instrument of transfer signed by or on behalf of, the transferor and by or on behalf of the transferee has been lost. The proof may be in the form of an affidavit from, the transferor or the transferee and supported by the purchase or sale note of the broker and the registration, receipt issued by the postal authorities., In addition, the Board can take an indemnity on such terms as it may think fit to safeguard its position and after that, company may register the transfer., , DELEGATION OF POWERS FOR TRANSFER, , It is the articles of the company which authorise the Board of Directors to accept or refuse transfer of securities, at, their discretion. The Board further have the power to delegate all or any of their powers to any of the company or, any person even not in the employment of the company. Therefore, the articles of association should authorise the, Board of Directors to delegate the powers suitably. Only in the case of refusal to register a transfer, the directors are, required to exercise their discretion., , TRANSFER OF DEBENTURES, , In case of transfer of debentures, a proper instrument of transfer duly stamped, dated and executed by or on behalf, of the transferor and the transferee should be delivered to the company by the transferor or transferee with in a, period of 60 days from the date of execution along with the certificate relating to the debentures or if no such, certificate is in existence with the letter of allotment of debentures., , After registering the transfer, the particulars thereof have to be recorded in the Debenture Transfer Register and, should be initialed by the appropriate authority. After making appropriate endorsements, the debenture certificate, may be sent to the party concerned., , TRANSFER OF SHARES TO MINOR, , In India, a minor is not competent to enter into any contract, as under Section 11 of the Indian Contract Act, 1872,, a person who has attained the age of majority is only competent to contract. Since a minor cannot enter into a, contract or agreement except through a guardian, and since as per Section 153, no notice can be taken of the fact, that the guardian holds a share in trust for a minor, it follows that his name cannot be entered in the Register of, Members and therefore, he cannot become a member of a company. There is, however, no objection in law to the, guardian of a minor entering into a contract on behalf of a minor, by virtue of the statutory right conferred on the, guardian of a minor under Section 8 read with Section 4 to 6 of the Hindu Minority and Guardianship Act,1956., Since Section 56 of the Companies Act, 2013 enables execution of transfer deed by or on behalf of the transferor or, the transferee, the transfer deed can be executed by a minor through his natural guardian as transferee, and the, contract so entered into by a minor through his natural guardian is a binding and valid contract under Section 8 of, the Hindu Minority and Guardianship Act, 1956., The articles of association of a company cannot impose a blanket ban prohibiting transfer of shares in favour of a, minor, as such a restriction is unreasonable and not sustainable. Section 44 of the Companies Act, 2013 provides, that shares in a company are movable property and are transferable in the manner provided by the Articles. The, expression ‘in the manner provided by the articles of association of the company’ can only be interpreted to mean, the procedure to be adopted for transfer and impose restrictions, which are meaningful and reasonable. In case, the, restriction imposed on transfer to a minor is accepted, it would mean that the shares of a deceased member can, never be inherited by the legal heir who might be a minor. This would lead to a highly unjust situation and cannot, be accepted as tenable. Accordingly, if the shares can be transmitted in favour of a minor, there is no reason why the, shares which are fully paid-up and in respect of which no financial liability devolves on the minor are to be held as, not transferable merely because of the ban imposed in the articles of association [Saroj v. Britannia Industries Ltd.,, Appeal No.5/80 decided on 14.12.81 by CLB]., , TRANSFER OF SHARES TO PARTNERSHIP FIRM, , A firm is not a person and as such is not entitled to apply for membership. The Department of Company Affairs, (Now, Ministry of Corporate Affairs) has in its Circular No. 4/72 dated 9.2.1972 stated that a firm not being a person, cannot be registered as a member of a company except where the company is licensed under Section 25 (Corresponds, to section 8 of the Companies Act, 2013).
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104, , , , TRANSFER OF SECURITIES TO A BODY CORPORATE, , Lesson 2 • EP-CL, , An incorporated body being a legal person can acquire securities in its own name. Where a company is a transferee,, the following documents are required to be submitted to the company:, (a), , A certified true copy of the Board resolution and/or power of attorney authorizing the signatory of the, instrument of transfer to execute the instruments;, , (c), , A certified true copy of Memorandum and Articles of Association of a company., , (b), , A certified true copy of a Board resolution passed under Section 179(3)(e) of the Companies Act; and, , TRANSFER WITHOUT THE AUTHORITY OF THE OWNER, , Shares in a company can be transferred either by registered owner or by anyone else with his authority. A sale by, any unauthorized person will be void. Accordingly, the Supreme Court held that, transfer of shares by the husband, of a lady owner without her authority was void and the transferee obtained no rights., , POSITION OF TRANSFEROR, , When a transferor makes a transfer, he makes an implied representation that the transfer will be registered by the, company in the name of the transferee in the place of transferor. If the company refuses to register the transfer for, no fault or default of the transferee, the transferor, by reason of the shares continuing to stand in his name, will, in, cases where he has received consideration for the transfer, be treated as trustee for the transferee and bound to act, in accordance with his direction and for his benefit in respect of the shares, unless the transferee rescinds the, contract and seeks to recover his money on consideration which has failed., However, after the transfer form has been executed the transferor cannot be compelled to undertake any financial, burden in respect of the shares at the instance of transferee where, after the transfer of shares, but before the, company had registered the transfer, the company offered rights shares to its members. The transferor could not be, compelled by the transferee to take up on his behalf the rights shares offered to the transferor., , TRANSFER IN VIOLATION OF ARTICLES, , Where the article of a private company requires that transfers of the company shares should be made with the, previous sanction of the company’s Board of Directors, the Supreme Court held that any transfer without such, approval would be invalid. John Tinson & co. P. Ltd. v. Surjeet Malhan (Mrs.) (1997) 88 Com Cases 750: AIR 1997 SC, 1411., Where a transfer was made in violation of a private company’s articles requiring that shares must be first offered to, existing members, it was held that the transferor was not the proper person to object., , TRANSMISSION OF SECURITIES, , Transmission of securities has not been defined by the Companies Act, 2013. ‘Transmission by operation flaw’ is not, a transfer. It refers to those cases where a person acquires an interest in property by operation of any provision of, law, such as by right of inheritance or succession or by reason of the insolvency or lunacy of the holder of securities, or by purchase in a Court-sale., , Thus, transmission of securities takes place when the registered holder of, Transmission of shares do, securities dies or is adjudicated as an insolvent, or if the holder of securities is, not require the execution, a company, it goes into liquidation. Because a deceased person cannot own, through instrument of, anything, the ownership of all his property passes, after his death, to those who, transfer in Form SH-4, legally represent him. Similarly, when a person is declared insolvent, his entire, property vests in the Official Assignee or Official Receiver. Upon the death of a, sole registered holder of security, so far as the company is concerned, the legal representatives of the deceased, holder of securities are the only persons having title to the securities unless securities-holder had appointed a, nominee, in which case he would been titled to the exclusion of all others.
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105, , Lesson 2 • Share and Share Capital, , Transmission in Case of Sole Owner, On the death of a sole owner of shares, vesting of rights and liabilities goes in favor of the legal heirs. They are, entitled to be registered as the holders of shares. [Scott v. Scott (London) Ltd., (1940) Ch. 794; Safeguard Industrial, Investments Ltd. vs. National West minister Bank Ltd., (1980) 3 AII ER 849.] But the legal heirs do not by itself become, members of the company. The company cannot register them as members without the consent. [Re, Cheshire, Banking Co. Duff’s Executor’s case, (1886) 32 Ch D 301.] A company cannot compel them to become member nor it is, a duty to do so.[State of Kerala vs. West Coast Planters Agencies Ltd.,(1958) 28 Com Cases 13 (Ker).] The company can, justifiably register them as members when they apply for it., Transmission of shares to widow, , If a widow applies for transmission of the shares standing in the name of her deceased husband without producing, a succession certificate and if the articles of association of the company so authorises, the directors may dispense, with the production of succession certificate, probate or letter of administration upon such terms as to indemnity, as the directors may consider necessary, and transmit the shares to the widow of the deceased by obtaining an, indemnity bond., Transmission of joint holdings, , In case some shares are registered in joint names and the articles of the company provide that the survivor shall be, the only person to be recognised by the company as having any title to the shares, the company is justified in, refusing to register the transmission of title by operation of law in favour of the son of the deceased holder even, though he may obtain succession certificate from the Court., , Section 56(1) of the Companies Act, 2013 states that the transfer of securities must be effected by a proper, instrument of transfer and that a provision in the articles of an automatic transfer of securities of a deceased, securities-holder is illegal and void. Such transfer does not amount to transmission which takes place by operation, of law. Section 56(2) of the Act provides that nothing in the sub-section (1) shall prejudice the powers of the, company to register, on receipt of an intimation of transmission of any right to securities by operation of law from, any person to whom such right has been transmitted. It follows that, for such transmission, instrument of transfer, is not required, and, merely an application addressed to the company by the legal representative is sufficient., Articles of companies generally provide for formalities to be observed for transmission of shares. In the absence of, such provision in the articles of the company, Regulations 23 to 27 of Table F of Schedule I to the Act will govern the, procedure for transmission. According to these regulations, the legal representatives are entitled to the shares held, by deceased member and the company must accept the evidence of succession e.g., a succession certificate or letter, of administrations or probate or any other evidence properly required by the Board of Directors. He is, however, not, a member of the company by reason only of being the legal owner of the shares. But he may apply to be registered, as a member. On the contrary, instead of being registered himself as a member, he may make such transfer of the, shares as the deceased or insolvent member could have made. The Board of directors also have the same right to, decline registration as they would have had in the case of transfer of shares before death. But if the company unduly, refuses to accept a transmission, the same remedies are available to the legal representative as in the case of a, transfer namely, an appeal to the Tribunal under Section 58., , Distinction between Transfer and Transmission, S. No., 1., 2., 3., , Transfer of Securities, , Transmission of Securities, , Transfer takes place by a voluntary or, deliberate act of the parties by way of a, contract., , Transmission is the result of the operation of, law. For example, due to death, insolvency or, lunacy of a member., , Transfer is a normal course of transferring, property., , Transmission takes place on death or, insolvency of a holder of securities., , An instrument of transfer is required in case, of transfer., , No instrument of transfer is required in case, of transmission.
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106, , , , Lesson 2 • EP-CL, , 4., , Transfer of securities is generally made for some Transmission of securities is generally made, consideration., without any consideration., , 6., , As soon as transfer is complete, the liability of the Shares continue to be subject to the original, transferor ceases., liabilities., , 5., , Stamp duty is payable on transfer of securities by No stamp duty is payable on transmission of, a holder of securities., securities., , The Board of Directors of a company or the concerned depository has no discretion to refuse or withhold transfer, of any security., , Rejected Documents, , Documents which are not duly stamped or where stamps are not cancelled should be returned to the person lodging, them pointing out the errors so as to enable them to rectify the error. In Feder. vs. Smt. Sarla Devi Rathi (1997), the, company had not registered 100 shares that Smt. Sarla Devi Rathi, the respondent, had purchased and neither they, returned the share certificates to her. The company urged that since the respondent had not become a shareholder, of the company, no cognizance of the complaint could be taken. The High Court held that there was a prima-facie, case against the company., The CLB had pointed out that the company on not registering the transfer should have returned the documents to, the party who lodged them (the transferee in this case) and not the transferor as the transferor loses his right in the, shares as soon as he executes the transfer in blank., , Time for pointing out Insufficiency of Stamps, , Where a company by mistake or otherwise registers a transfer which should have been refused because of, insufficient or uncancelled stamps, or because of the instrument being unstamped, it should point out the error, to the transferee within such time (within one year from the date of execution) that the transferee can have the, matters rectified through the orders of the Collector. Afterwards it would be too late. [Kothari Industrial Corpn. Ltd., vs. Lazor Detergents P. Ltd. (1994) 1 Comp LJ 178 (CLB – Mad)]., , Impounding of Documents Relating to Share Transfer, , The Board of directors are not persons to impound or regularise an instrument of transfer which is not duly, stamped, Mathrubhumi Co. Ltd. vs. Vardhaman Publishers Ltd., (1992) 73 Com Cases 8093 (Ker) as they have no, authority under Sections 33 and 42 of the Stamp Act., , Case Laws:, , Related to Transfer of Shares, (A) In Dove Investments P. Ltd. vs. Gujarat Industrial Investment Corpn. Ltd. (2005), the respondent company, lodged with the appellant company shares pledged with it for effecting transfer of the same in its name., The appellant registered some of the shares and refused to regiter the balance on the ground that the, respondent had failed to comply with the provisions of Section 108(1A) and 108(1C) [Corresponds to, section 56 of the Companies Act, 2013]. The respondent was successful before the CLB which held that, provisions of Section 108(1C) [Corresponds to section 56 of the Companies Act, 2013] are directory and, directed the appellant to register the shares. The appellant challenged the order of the CLB (Now Tribunal), before the High Court. The Appeal was dismissed. According to the High Court, insofar as Sub-section (1C), is concerned, if the transfer of shares falls within any one of the exempted cases mentioned in that Subsection, the requirements as to presentation of the instrument of transfer in favour of the prescribed, authority and delivery thereof to the company within the prescribed time limit, as contemplated in Subsection (1A) are not applicable, provided the conditions stipulated in Sub-section (1C) are satisfied. In, view of the same, if any bank or financial institution or the Central Government or a State Government or, any corporation owned or controlled by the Central Government or a State Government, or a corporation
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Lesson 2 • Share and Share Capital, , 107, , granting a loan against the security of shares, intends to get such shares registered in its own name, in the, event of failure on the part of the borrower to repay the amount of loan, it shall complete the instrument of, transfer and lodge it with the company for registration of the transfer in its own name. In such a circumstance,, they will have to stamp or otherwise endorse on the instrument of transfer the date on which the bank or, financial institution decides to get such share registered in its own name and the instrument so stamped or, endorsed will have to be delivered to the company, together with the share certificate, for registration of the, transfer within two months from the date so stamped or endorsed. It was not in dispute that the instruments, of transfer were neither stamped nor endorsed by the petitioner, as required under Sub-section (1C), however, stamped by the prescribed authority contemplated under Sub-section(1A)., , (B) Mukundlal Manchanda vs. Prakash Raodlines Ltd. (1971), it was held that the requirement of Sub-section, 1A(b)(ii) has to be read reasonably, so as to enable its smooth functioning; a delivery of instrument of, transfer within a reasonable time should be held as a proper delivery. Further, where the company opines, that the instrument of transfer has become stale and that it is improper to act upon it, the instrument of, transfer has to be held as liable to be ignored. Further, even the belated delivery can be acted upon under, certain circumstances while moving the Central Government under sub-section(1) of Section108(1A), [Corresponds to section 56 of the Companies Act, 2013]. In the light of the said provision, even though the, discretion lies in the company either to recognize the transfer or not to recognize it depending upon the, staleness of the instrument, the affected person can very well move the Central Government under subsection(1D) by explaining the circumstances under which the delay occurred and the hardship that resulted, by the non-recognition of the transfer. It was rightly concluded that in the light of the scheme of Section 108, [Corresponds to section 56 of the Companies Act,2013], particularly after the insertion of sub-section(1A),, (1B), (1C) and(1D), the Court have to bear in mind that the trivialities would not render an act futile and, technical formalities required to be complied with for a valid transaction cannot outweigh the importance, to be given to the substance of the transaction. Though the matter was taken up by way of appeal before, the Divisional Bench of the Karnataka High Court, the Division Bench had not gone into the said aspect,, namely, whether mandatory or directory, however, confirmed the judgment of the Single Judge in Mukundlal, Manchanda’s case was to be upheld and accordingly it was held that except Section108(1)[Corresponds to, section 56 of the Companies Act, 2013]other provisions namely sub-sections (1A) and (1C) are directory, and not mandatory in nature., (C) Life Insurance Corporation of India vs. Escorts Ltd., (1986), 59 AIR 1986 SC 1370, the Supreme Court held that, “a transfer effective between transferor and the transferee is not effective as against the company and any, person without notice of the transfer being registered in the company’s register., , (D) Vickers System International Ltd. vs. Mahesh P. Keshwani (1992) (CLB), transfer of shares by HUF Section 108, [Corresponds to section 56 of the Companies Act, 2013] enables the execution of a transfer deed by or on, behalf of the transferor or the transferee. In the case of a joint family, the transfer form would be executed, by the holding member or, in his absence, by the manager (Karta) of the family who represents the family., The same would be true when the family is transferee. The CLB directed the company to register shares in, the name of the Hindu undivided family showing Mahesh P. Keshwani as its Karta., (E) Castrol India Ltd. vs. S.S. Transfer of Mehta (1993) 78 Com Cases 146 (1993) 2 Comp LJ 8 (CLB), where special, permission is necessary, the transfer in question could be effected only with the permission of Special, Court, (Trial of Offences Relating to Transactions in Securities Ordinance, 1992), it was held that the refusal, by the company to accept the transfer without such permission was justified., , (F) Vallur Mohammad Saheb vs. Golden Agro-Tech Industries Ltd. (2008) 83 SCL 391(CLB- Chennai), the transferee, purchased 2700 shares of the company and lodged the transfer deed along with the original share certificates, to the Registrar and Share Transfer Agent (RSTA) of the company. The company did not register the shares in, the name of the transferee inspite of the transferor taking up the matter with the company. The transferee,, therefore, filed petition under section 111/111A [Corresponds to section 58 & 59 of the Companies Act, 2013], to direct the company as well as its RSTA to pay damages with future interest from the date of filing the, petition till the date of realization, or to issue duplicate share certificates to the petitioner. Allowing the
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108, , , , Lesson 2 • EP-CL, , petition, it was held that the bar embodied in section 22 of the SICA does not extend to any direction which, may be issue by the CLB (Tribunal) under section 111/111A [Corresponds to section 58 & 59 of the Companies, Act, 2013] for rectification of the register of members of the company. In view of this legal position, the, resistance of the company for not registering the transfer of shares constituting miniscule 2700 shares only, in favour of the transferee was not tenable., , (G) Hindustan Mercantile Bank Ltd. vs. D.N. Choudhury Cotton Mills Ltd. (2008) 83 SCL 399 (CLB–KOL.), the legal, opinion on which the transferor company had relied upon was on the basis that the transferee company, along with a few other companies was acting in concert to acquire shares in violation of the SEBI (Substantial, Acquisition of Shares and Takeovers) Regulations, 1997 [Replaced by SEBI (Substantial Acquisition of, Shares and Takeovers) Regulations, 2011]. To come to the conclusion that the transferee along with others, was acting in concert, reliance had been placed on commonality of directors both in the transferee-company, and other companies. Since the company was not a listed company, the SEBI (Substantial Acquisition of, Shares and Takeovers) Regulations,1997, were not applicable. Further, it was found that neither the, transferee company nor other companies had acquired shares of the transferor company. Accordingly, the, company was to be directed to register the transfer of shares in favour of the transferee., , (H) Sham Sunder Kukreja vs. Hindustan Lever Ltd. (2001) 44 CLA 38 (CLB), if, by virtue of Section 111A(3) of the, Companies Act, 1956 [Corresponds to section 59(1) of the Companies Act, 2013], the petition should have, been filed within 2 months of the registration of the securities submitted for transfer, and where on the, basis of facts and circumstances of the case, the transfer was effected in a fraudulent manner, the period of, limitation (2 months) shall not apply., (I), , Dr. Rajiv Das v. The United Press Ltd. (2001) (CLB), in the case, where the shares of a company were held in, joint names and one of these joint holders requested the company to split the shares equally between the, joint holders by issuing fresh certificates, the company shall not be legally bound to do so unless the share, transfer deeds executed by both the joint holders duly completed and stamped were lodged with the, company together with the relevant share certificates, in terms of the provisions of Section 108 of the, Companies Act, 1956 [Corresponds to section 56 of the Companies Act, 2013]., , (J) T.S. Premkumar vs. Tamil Nadu Mercantile Bank Ltd. 2001 (CLB). there shall be no justification, if a company/, bank asks for information on Income Tax Returns (including that of the nominees of the transferee), the, sources of the consideration paid for the purchase of share, the details of the group to which the transferee, is attached, for the purposes of registration of transfer of shares, if the number of the shares which are, subject matter of transfer, is insignificant, and after the registration of which the controlling of interest in, the company/bank is not changing., , (K) Transferor Holds Bonus Shares Only as a Trustee for the Transferee. Charanjiv Lal vs. ITC Ltd. and Another, (2005) 5 COMP LJ 138 (CLB), the petitioner-transferee purchased 100 equity shares of ITC limited of bearing, and lodged the same through post, which were received by the company on 10th December, 1991. However,, the company did not take any action to register the shares in name of the petitioner and informed him that, it had not received the share certificates and the transfer instrument. To prevent any unauthorized transfer, of the shares, he obtained a status quo order from Senior Civil Judge, Delhi. In theme an while, the company, declared 60 bonus shares on two occasions against the impugned 100 shares of which the certificate, relating to first 60 bonus shares had been sent to the transferor. The suit filed by the transferee-petitioner, was dismissed for want of jurisdiction and hence the petitioner-transferee approached the Company Law, Board. The Petition was allowed. The view expressed by the Judge was that the bonus shares always go, with the original shares and the transferor holds bonus shares only as a trustee for the transferee., Considering that the original shares have been sold before the record date, in the absence of denial by the, transferor nearly a month before the record date, it is the petitioner transferee who is entitled to the bonus, shares and not the transferor.
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Lesson 2 • Share and Share Capital, , 109, , Transfer of Shares in Depository Mode, Depository system maintains the ownership records of securities in the book entry form while in physical mode, every share transfer is required to be accompanied by physical movement of share certificates to, and registration, with the company concerned. The process of physical movement of share certificates often involves long delays and, a significant portion of transactions end up as bad deliveries due to the faulty completion of paperwork, or signature, differences with the specimens on record with the companies, or for other procedural lapses. Investors also face, problems on account of loss of share certificates, forgery and mutilation. The significant time involved in effecting, ownership changes also impounds a substantial volume of shares at any given time leading to lower trading, volumes., , FORGED TRANSFER, , It may happen that a forged instrument of transfer is presented to the company for registration. In order to avoid, the consequences which will follow a forged transfer, companies normally write to the transferor about the, lodgement of the transfer instrument so that he can object if he wishes. The company informs him that if no objection, is made by him before a day specified in the notice, it would register the transfer. The consequences of a forged, transfer are detailed here under:, (a), , (b), (c), , A forged transfer is a nullity and, therefore, the original owner of the shares continues to be the shareholder, and the company is bound to restore his name on the register of members [People’s Ins. Co. vs. Wood and Co.,, 1961]. A forged document never has any legal effect. It can never move ownership from one person to another,, however, genuine it may appear. Thus, a forged instrument of transfer leaves the ownership of the shares, exactly where it always was in the so-called transferor. It follows that if a company registers a forged transfer,, the true owner can apply so as to be replaced on the register and his name will be restored. But the company, does not incur any liability in damages by putting the name on the register., However, if the company issues a share certificate to the transferee and he sells the shares to an innocent, purchaser, the company is liable to compensate such a purchaser, if it refuses to register him as a member, or, if his name has to be removed on the application of the true owner., If the company is put to loss by reason of the forged transfer, as it may have paid damages to an innocent, purchaser, it may recover the same independently from the person who lodged the forged transfer., , EXAMPLE, , Let us take an example to illustrate the consequences of forged transfer. Suppose, ‘A’ is a registered share holder, and his name is entered on the register of members in respect of certain number of shares. By fraud or theft, ‘B’, obtains possession of ‘A’ share certificate and having forged a document purporting to be a transfer of shares to, himself from A, succeeds in getting himself registered as a member and obtains from the company a new shares, certificate made out in his name. In spite of this, ‘A’ does not cease to be the owner of the shares and a member, of the company, as a forged document, being a nullity, does not move ownership from him to ‘B’ or any other, person. Producing the new certificate as evidence of his title, ‘B’ purports to sell the shares to ‘C’, an innocent, purchaser, who in reliance upon B’s certificate, buys the shares in good faith and without notice of B’s fraud., , The company then registers ‘C’ as a member and issues the share certificate to him in respect of the shares, purchased by him. When ‘A’ discovers the fraud, he being entitled for the rectification of register, has C’s name, struck off the register of members and has his own name restored as the registered holder of the shares. ‘A’ never, ceased to be the owner of the shares, although the company issued successive certificates to ‘B’ and ‘C’. The, company will be liable in damages to ‘C’ and for other incidental loss. But it would be entitled to indemnity as, against ‘B’, and if the forged transfer were lodged by a broker acting for ‘B’, against the broker also, even though, the broker was innocent to the fraud for a person who brings a transfer to the registering authority and, requests him to register it, impliedly warrants that it is a genuine document., , The fact that the transferee was a bona fide purchaser for valued id not make any difference and the transferee was, bound to return the scrips to the person to whom the same rightfully belong. [Kaushalya Devi vs. National Insulated, Cable Company of India 1977 Tax LR 1928(Del)]
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110, , , , Lesson 2 • EP-CL, , In case of joint share holdings, a transfer to be effective must be executed by all and if the signature of any one be, forged, the transfer will be void., A person acting in good faith, sends in and procures registration of the transfer and the issue of a fresh certificate, on the basis of a forged deed is bound to indemnify the company against the untoward consequences. This happens, when a stock broker, trusting his clients innocently forwards forged document to the company. [Yeung vs. Hongkong, and Shanghai Banking Corpn., (1980)]., , Further Section 57 states that if any person deceitfully personates as an owner of any security or interest in a, company, or of any share warrant or coupon issued in pursuance of this Act, and thereby obtains or attempts to, obtain any such security or interest or any such share warrant or coupon, or receives or attempts to receive any, money due to any such owner, he shall be punishable with imprisonment for a term which shall not be less than one, year but which may extend to three years and with fine which shall not be less than one lakh rupees but which may, extend to five lakh rupees., A forged transfer cannot pass any title and is a nullity., , DEATH OF A JOINT SHAREHOLDER, , Where shares are held in joint names, and one of the joint shareholder dies, the survivor alone will be recognized, as the holder of the said shares. It would be sufficient for the company to delete the name of the deceased shareholder, after obtaining satisfactory evidence of his death. This of course does not prevent a third person from calling on the, company to register his name as holder of the shares after obtaining evidence such as probate of a will for the, purpose of proving his title to the shares as against the surviving joint holders., , TRANSPOSITION OF NAME, , In the case of joint-shareholders, one or more of them may require the, company to alter or rearrange order of their names in the register of, members of the company. In this process, there will be need for effecting, consequential changes in the share certificates issued to them. If the, company provides in its articles that the senior-most among the jointholders will be recognised for all purposes like service of notice, a copy of, balance sheet, profit and loss account, voting at a meeting etc., the request, of transposition may be duly considered and approved by the Board or other authorised officer of the company., Since no transfer of any interest in the shares take place on such transposition, the question of insisting on filling, transfer deed with the company, may not arise. Transposition also does not require stamp duty., Transposition of names of, shareholders in the register of, members do not require the, execution through instrument, of transfer in Form SH-4., , The Stock Exchange Division of the Department of Economic Affairs has clarified that there is no need of execution of, transfer deed for transposition of names if there quest for change in the order of names was made in writing, by all the, joint-holders. If transposition is required in respect of a part of the holding, execution of transfer deed will be required., , DEATH OF TRANSFEROR OR TRANSFEREE BEFORE REGISTRATION OF TRANSFER, , Where the transferor dies and the company has no notice of his death the company would obviously register the, transfer. But if the company has notice of his death, the proper course is not to register until the legal representative, of the transferor has been referred to., , Where the transferee dies and company has notice of his death, a transfer of shares cannot be registered in the, name of the deceased. With the consent of the transferor and the legal representatives of the transferee, the transfer, may be registered in the names of the later. But if there is a dispute, an order of Court will have to be insisted upon., , In KillickNixon Ltd. vs. Dhanraj Mills Ltd., it was held that the company is not bound to enquire into the capability of, the transferee to enter into a contract. The company has to act on the basis of what is presented in the transfer deed., , Proof in a transfer by representative, , Where a transfer is executed by a person in a representative capacity such as an officer of a body corporate or by an, attorney, proof of the authority and the Board resolution authorizing the representative to execute the transfer on, behalf of body corporate must be produced, before the transfer can be registered.
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Lesson 2 • Share and Share Capital, , 111, , Relationship between Transferor and Transferee, Pending registration, the transferee has only an equitable right to the shares transferred to him. He does not become, the legal owner until his name is entered on the Register of Members in respect of the shares. But as between the, transferor and the transferee, immediately after the transfer is made, the contract of transfer will subsist and the, transferee becomes the beneficial owner of the shares so transferred to him. A relation of trustee (transferor) and, beneficiary (transferee) is thereby established between them. The transferor is under obligation to comply with all, reasonable directions of the transferee. The transferee should, however, take prompt steps to get himself registered, as a member., , Section 126 of the Companies Act, 2013 provides that where the transferor gives a mandate to pay the dividend to, the transferee pending registration of transfer, the same should be paid to the transferee, otherwise the dividend in, relation to such shares should be transferred to the Unpaid Dividend Account mentioned in Section 124. It is further, provided that in the case of offer of rights shares or fully paid bonus shares, the same should be kept in abeyance till, the title to the shares is decided., , RIGHTS OF TRANSFEROR, , In JRRT (Investments) Ltd. vs. Haycraft, (1993), it was held that, the transferor is not deprived off his valuable rights,, the right to dividend and the right to vote even where the purchaser has failed to make payment. An unpaid vendor, has the right to exercise voting rights in respect of shares registered in his name. He is not obliged to comply with, the directions of the purchaser in respect of the shares taken by him., But on the other hand, the company refuses to register the transfer for no fault or default of the transferee, the, transferor, by reason of the shares continuing to stand in his name, will, in cases where he has received consideration, for the transfer, be treated as trustee for the transferee and bound to act in accordance with his directions and for, his benefit in respect of the shares, unless the transferee rescinds the contract and seeks to recover his money on a, consideration which has failed. However, after the transfer form has been executed, the transferor cannot be, compelled to undertake any additional financial burden in respect of the shares at the instance of the transferee, where, after the transfer of shares, but before the company had registered the transfer, the company offered rights, shares to its members, the Supreme Court held that the transferor could not be compelled by the transferee to take, up on his behalf the rights shares offered to the transferor. [Mathalone (R) vs. Bombay Life Assurance Co. Ltd. AIR, 1953 SC 385 : (1954). See also Life Insurance Corporation of India vs. Escorts Ltd. (1986) 59 Com Cases 548 : AIR 1986, SC 1370]. But where, due to the transferee’s own default, the transfer of shares is not registered the transferor, cannot be held to be a trustee for the defaulting transferee simply because the share continues to remain in the, transferor’s name in the books of the company., The seller’s duty is complete when he hands over to the transferee a duly executed transfer form. [Skinner v. City of, London Marine Insurance Corpn., (1885)]., , Where a transferor transfers his share for consideration and delivers along with the share certificate the form duly, signed by him, but the transferee, instead of completing the transfer by signing his own name as transferee and, presenting it for registration to the company, chooses to keep the transfer in blank and passes it on to others along, with the share certificate, it cannot be said that the transferor, simply because the share continues to stand in his, name, should be treated as a trustee for a series of unknown holders of the blank transfer., , When he sold his share to the original transferee he could not be deemed to have represented to the transferee, anything more than that the share was transferable nor to have agreed to the transferee keeping or passing on the, transfer in blank from hand to hand for an indefinite duration, without its being presented to the company for, registration., Where a shareholder executes a blank transfer to enable another to deal with the shares, he is bound not to do, anything to obstruct registration of the transfer and if he improperly intervenes he is liable in damage, Hooper vs., Herts, (1906) 1 Ch 549: (1904-7) ALL ER Rep 849(CA)., , Transferor’s right to indemnity for calls - Where a transferor has paid for calls to the company after the shares, are transferred, there arises an implied promise by the transferee to indemnify the transferor. Such a promise to, indemnify can be implied even in the case of blank transfers [Ashworth Partington & Co.,(1925)1K].
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112, , , , Lesson 2 • EP-CL, , Transferee’s right to Dividends, Bonus and Rights Shares - Where the transferor, by reason of the shares, standing in his name, has received after the transfer, any dividend on shares, bonus or other benefit accruing in, respect thereof, the transferee being the person lawfully entitled thereto, can recover the same from the transferor,, provided that he has not allowed his claim to become time barred under the provisions of the Limitation Act., [Chunnilal Khushaldas Patel vs. H.K. Adhyaru, (1956) 26 Com Cases 168 : AIR 1956 SC 655]., , Dividend to transferee after transfer - In one case the transfer was registered and dividends paid to the transferee., Later, the register was rectified by removing the transferee’s name from the register on the ground of a technical, nature, like inadequacy of stamps, it was held that the transferee was not bound to hand over the dividend amount, to the transferor. [Kothari Industrial Corpn. Ltd. vs. Lazor Detergents P. Ltd., (1994)1 Comp LJ 178 (CLB-Mad)]., However the Madras High Court held that the company should not be allowed to rectify the register on a technical, ground after transferring the shares., Position under the Securities Contracts (Regulation) Act, 1956 - As regards the position of a transferor after, transfer, Section 27 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) may also be noted. It provides as, follows:, Title to dividends 1., , It shall be lawful for the holder of any security whose name appears on the books of the company issuing the, said security to receive and retain any dividend declared by the company in respect thereof for any year,, notwithstanding that the said security has already been transferred by him for consideration, unless the, transferee, who claims the dividend from the transferor has lodged the security and all other documents, relating to the transfer which may be required by the company with the company for being registered in his, name within fifteen days of the date on which the dividend became due., , Explanation: The period specified in this section shall be extended (i), , in case of death of the transferee, by the actual period taken by his legal representative to establish his, claim to the dividend;, , (iii), , in case of delay in the lodging of any security and other documents relating to the transfer due to, causes connected with the post, by the actual period of the delay., , (ii), , 2., , in case of loss of transfer deed by theft or any other cause beyond the control of the transferee, by the, actual period taken for the replacement thereof; and, , Nothing contained in Sub-section (1) shall affect -, , (a), , (b), , the right of a company to pay any dividend which has become due to any person whose name is for the, time being registered in the books of the company as the holder of the security in respect of which the, dividend has become due; or, , the right of the transferee of any security to enforce against the transferor or any other person his, rights, if any, in relation to the transfer in any case where the company has refused to register the, transfer of the security in the name of the transferee., , EFFECTS OF TRANSFER, , Once a transfer form has been executed, the transfer is complete as between the transferor and the transferee and, the transferee acquires the right to have his name entered in the register of members. No further application is, necessary for having the name of the transferee entered in the register of members and the transferee perfects his, title to the share after the entry in the Register of Members. Once the transferee becomes a member of the company,, a contractual relationship arises with the company, [Killick Nixon Ltd. vs. Dhanraj Mills Pvt. Ltd., (1983) 54 Com Cases, 432 (DB)(Bom)]., A company cannot refuse to register a transfer on the ground that the transfer was without consideration or that there, was a collusion and connivance between the transferor and transferee. Any objection about inadequate consideration, can be raised only by the transferor himself and not by the company particularly where the shares are fully paid.
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113, , Lesson 2 • Share and Share Capital, , Where the transfer is in a spot delivery contract, Section 108 [Corresponds to section 56 of the Companies Act, 2013], is not applicable. [Sanatan Investment Co. Pvt. Ltd. vs. Prem Chand Jute Mills Ltd. (1983) 54 Com Cases 186(Cal)]., Case Law:, , The National Company Law Appellate Tribunal (NCLAT) held that the Company has to register the transfer of, 60,000 shares in the name of legal heirs of one of its deceased shareholders which were due to him on right, basis as Letter of Administration for succession has been submitted by legal heirs, so company could not insist, for production of affidavit and indemnity bond in the matter of DLF Ltd. & Anr. vs. Satya Bhushan Kaura & Anr.,, dated January 13, 2020., , Priority among Transferees, It was held in Society General De Paris vs. Jonet Walker and other (1886), that where a share holder has fraudulently, sold his shares to two different transferees, the first purchaser will, on the ground of time alone, be entitled to the, shares in priority to the second., , For example, a person as signed his property, including some shares, for the benefit of his creditor. The assignee, failed to get the share certificates registered in his name, but gave notice of assignment to the company. The assignor, sold the shares to an other who applied for registration. It was held that the assignee’s claim was prior in time and, therefore, entitled to registration. [Peat vs. Clayton, (1906) 1 Ch.659]., , Pledging of Shares, , Shares of a company can be a subject matter of a valid pledge. Section 2(7) of the Sale of Goods Act, 1930, defines, the term ‘goods’ as meaning every kind of moveable property other than actionable claim and money and includes, stocks and shares. Shares are goods under the Sale of Goods Act, 1930 and therefore can be a subject matter of, pledge under the Indian Contract Act, 1872. In Kanhaiyalal Jhanwar vs. Pandit Shirali And Co. And Ors [AIR 1953 Cal, 526], the Calcutta High Court held that the deposit of share certificates themselves is sufficient to create a pledge, thereon., On the death of a sole owner of shares, the rights and liabilities goes in favour of the legal heirs. They are entitled to, be registered as the holder of the shares. But the company can register them as members with only their consent, and when they apply for it. Re Cheshire Banking Co.,Duff’s executor’s case (1886) 32 Ch D 301., , LEGAL FRAMEWORK FOR DEPOSITORY SYSTEMS, Two depositories in India are:, • Central Depository Services, Ltd., • National Securities, Depository Ltd., , The legal framework for depository system in the Depositories Act provides, for the establishment of single or multiple depositories., , In the depository system, share certificates belonging to the investors are, dematerialised and their names are entered in the records of depository as, beneficial owners. Consequent to these changes, the investors’ names in the, companies register are replaced by the name of depository as the registered, owner of the securities. The depository however, does not have any voting, rights or other economic rights in respect of the shares as a registered owner. The beneficial owner continues to, enjoy all the rights and benefits and be subject to all the liabilities in respect of the securities held by a depository., Shares in the depository mode are fungible and do not have distinctive numbers. The ownership changes in the, depository are done automatically on the basis of delivery payment., The companies which enter into an agreement with the depository will give an option to the holders of eligible, securities to avail the services of the depository through participants. The investors desiring to join the depository, are required to surrender the certificates of securities to the issuer company in the specified manner and on receipt, of information about dematerialisation of securities by the issuer company, the depository enters in its records the, names of the investors as beneficial owners. Similarly, the beneficial owner has right to opt out of a depository in, respect of any security and claim the share certificates and get his name substituted in the register of members as, the registered owner in place of the depository.
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114, , , , Lesson 2 • EP-CL, , There has to be regular, mandatory flow of information about the details of ownership in the depository record to, the company concerned. In case of any reservation about the acquisition of securities on the ground that the transfer, of securities is in contravention of any of the provisions of the Securities Contracts (Regulation) Act, 1956, SEBI Act,, 1992 or Companies Act, 2013 or any other law for the time being in force, the depository, company, depository, participants, the holder of securities or SEBI shall have a right to make an application to the Tribunal for rectification, of register or records concerned. Pending decision of the Tribunal, the holder of securities can transfer such, securities and the transferee concerned shall be entitled to voting rights unless voting rights have been suspended, by an order of the Tribunal., The Act provides for detailed regulations to be framed by SEBI and detailed bye-laws to be framed by depositories, with the approval of SEBI., How does an investor avail services of a depository?, (a), , In the case of existing securities:, , An investor before availing the services of a depository, shall enter into an agreement with the depository through, a participant and then shall surrender security certificates to the issuer. The issuer on receipt of security certificate, shall cancel them and substitute in its records the name of the depository as the registered owner in respect of that, security and inform the depository accordingly. The depository shall there after enter the name of the investor in its, records as beneficial owner., (b), , In the case of fresh issue:, , At the time of initial offer the investor would indicate his choice in the application form. If the investor opts to hold, a security in the depository mode, the issuer shall intimate the concerned depository about the details of allotment, of a security made in the favour of investors and records the depository as registered owner of the securities. On, receipt of such information, the depository shall enter in its records the names of allottees as beneficial owners. In, such case a prior agreement by the investor with the depository as well as an agreement between the issuer, company and depository may be necessary., (c), , In the case of exit from the depository:, , If a beneficial owner or a transferee of a security desires to take a way a security from depository, he shall inform, the depository of his intention. The depository in turn shall make appropriate entries in its records and inform the, issuer. The issuer shall make arrangements for the issue of certificate of securities to the investor within 30 days of, the receipt of intimation from the depository., (d), , In the case of transfer within the depository:, , The depository shall record all transfers of securities made among the beneficial owners on receipt of suitable, intimation to the effect that a genuine purchase transaction has been settled., (e), , In the case of pledge:, , Before creation of any pledge or hypothecation in respect of a security, the beneficial owner is required to obtain, prior approval of the depository and on creation of pledge or hypothecation; the beneficial owner shall give, intimation of such pledge or hypothecation to the depository. The depository shall make appropriate entries in its, records which will be admissible as evidence., , DEMATERIALISATION AND REMATERIALISATION OF SHARES, Dematerialisation of Shares, , Dematerialisation of securities means holding of securities in electronic form in lieu of physical certificates., Dematerialisation is comparable to keeping your money in a bank account. In demat form, physical share certificates, are replaced by electronic book entries; purchase of shares are reflected as credits in demat account and sales are, reflected as debits. The risk associated with physical share certificates such as loss, replacement, theft, damage, etc., are overcome in the share certificates held in Dematerialisation form which are totally risk free.
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•, , Lesson 2 • Share and Share Capital, , •, •, , 115, , Dematerialisation of shares of a company is regulated by the Depositories Act, 1996., , According to the Depositories Act, 1996, an investor has the option to hold securities either in physical or, electronic form. Part of holding can be in physical form and part in demat form. However, SEBI has notified, that settlement of market trades in listed securities should take place only in the demat mode., , Section 29 of the Companies Act, 2013 provides that every company making public offer; and such other, prescribed companies shall issue the securities only in dematerialised form by complying with the provisions, of the Depositories Act, 1996 and the regulations made there under. In case of such class or classes of unlisted, companies as may be prescribed, the securities shall be held or transferred only in dematerialised form in the, manner laid down in the Depositories Act, 1996 and the regulations made thereunder., Any company, other than a company mentioned above, may convert its securities into dematerialised form or, issue its securities in physical form in accordance with the provisions of this Act or in dematerialised form in, accordance with the provisions of the Depositories Act, 1996 and the regulations made there under., , As per Rule 9 of the Companies (Prospectus & Allotment of Securities) Rules, 2014 the promoters of every public, company making a public offer of any convertible securities may hold such securities on in dematerialised form:, , Provided that the entire holding of convertible securities of the company by the promoters held in physical form, up to the date of the initial public offer shall be converted into dematerialised form before such offer is made and, thereafter such promoter shareholding shall be held in dematerialised form only., , As per Rule 9A of the Companies (Prospectus & Allotment of Securities) Rules, 2014 i.e. Issue of securities in, dematerialised form by unlisted public companies., 1., , Every unlisted public company shall -, , (a), , (b), 2., 3., , 5., , Facilitate dematerialisation of all its existing securities, , in accordance with provisions of the Depositories Act, 1996 and regulations made there under., , Every unlisted public company making any offer for issue of any securities or buy-back of securities or issue, of bonus shares or rights offer shall ensure that before making such offer, entire holding of securities of its, promoters, directors, key managerial personnel has been demateriarised in accordance with provisions of, the Depositories Act, 1996 and regulations made thereunder., Every holder of securities of an unlisted public company:, , (a), (a), , 4., , Issue the securities only in dematerialised form; and, , who intends to transfer such securities on or after 2nd October, 2018, shall get such securities, dematerialised before the transfer; or, who subscribes to any securities of an unlisted public company (whether by way of private placement, or bonus shares or rights offer) on or after 2nd October, 2018 shall ensure that all his existing securities, are held in dematerialised form before such subscription., , Every unlisted public company shall facilitate dematerialisation of all its existing securities by making, necessary application to a depository as defined in clause (e)of sub-section(1) of section 2 of the Depositories, Act, 1996 and shall secure International Security Identification Number (ISIN) for each type of security and, shall inform all its existing security holders about such facility., Every unlisted public company shall ensure that–, , (a), , (b), , it makes timely payment of fees (admission as well as annual) to the depository and registrar to an, issue and share transfer agent in accordance with the agreement executed between the parties;, , it maintains security deposit at all times, of not less than two years, fees with the depository and, registrar to an issue and share transfer agent in such form as may be agreed between the parties; and
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116, , , , (c), 6., 7., , 8., 8A., 9., , 10., 11., , Lesson 2 • EP-CL, , it complies with the regulations or directions or guidelines or circulars, if any, issued by the Securities, and Exchange Board or Depository from time to time with respect to dematerialisation of shares of, unlisted public companies and matters incidental or related thereto., , No unlisted public company which has defaulted in sub-rule (5) of Rule 9A of the Companies (Prospectus, & Allotment of Securities) Rules, 2014 shall make offer of any securities or buy-back its securities or issue any, bonus or right shares till the payments to depositories or registrar to an issue and share transfer agent are, made., , Except as provided in sub-rule (8) of Rule 9A of the Companies (Prospectus & Allotment of Securities) Rules,, 2014, the provisions of the Depositories Act, 1996, the Securities and Exchange Board of India (Depositories, and Participants) Regulations, 2018 and the Securities and Exchange Board of India (Registrars to an Issue, and Share Transfer Agents) Regulations, 1993 shall apply mutatis mutandis to dematerialisation of securities, of unlisted public companies., Every unlisted public company governed by this rule shall submit Form PAS-6 to the Registrar with such fee, as provided in Companies (Registration Offices and Fees) Rules, 2014 within sixty days from the conclusion, of each half year duly certified by a Company Secretary in practice or Chartered Accountant in practice., , The company shall immediately bring to the notice of the depositories any difference observed in its issued, capital and the capital held in dematerialised form., The grievances, if any, of security holders of unlisted public companies under this rule filed before the Investor, Education and protection Fund Authority., , The Investor Education and protection Fund Authority shall initiate any action against a depository or, participant or Registrar to an issue and share transfer agent after prior consultation with the securities and, Exchange Board of India., This rule shall not apply to an unlisted public company which is:-, , (a), , a Nidhi;, , (c), , a wholly owned subsidiary., , (b), •, , •, •, •, •, , •, , a Government company; or, As per SEBI (ICDR) Regulations, 2018, in case of a public issue or rights issue, the specified securities, issued shall be issued only in dematerialized form in compliance with the Companies Act, 2013,, statement that furnishing the details of depository account is mandatory and applications without, depository account shall be treated as incomplete and rejected. Investors will not have the option of, getting the allotment of specified securities in physical form. However, they may get the specified, securities rematerialised subsequent to allotment., Currently, there are two depositories registered with SEBI and are licensed to operate in India:, NSDL (National Securities Depository Ltd.), , CDSL (Central Depository Services (India) Ltd.), , Section 8 of the Depositories Act, 1996 provides that every person subscribing to shares offered by a, company shall have the option either to receive the share certificates or hold shares with a depository, in electronic form. Where a person opts to hold his shares with, the company shall intimate such, depository the details of allotment of the shares and on receipt of such information the depository shall, enter in its records the name of the allottee as the beneficial owner of the shares[Sub-section(2) of, Section 8]., Section 9 of the Depositories Act, 1996 clarifies that all the securities held by a depository shall be, dematerialised and shall be in a fungible form that is, they do not bear any notable feature like distinctive, number, folio number or certificate number. Once shares get dematerialised, they lose their identity in
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Lesson 2 • Share and Share Capital, , •, , •, , 117, , terms of share certificate, distinctive numbers and folio numbers., , According to Section 10 of the Depositories Act, 1996, a depository shall be deemed to be the registered, owner of the shares for the purposes of effecting transfer of ownership of the security on behalf of a, beneficial owner and the depository as a registered owner shall not have any voting rights or any rights, in respect of the shares held by it. It is only the beneficial owner of the shares who shall be entitled to, all the rights and benefits and be subject to all the liabilities in respect of his shares held by a depository., Every depository shall maintain a register and an index of beneficial owners in the manner provided in, Section 88 of the Companies Act, 2013. [Section 11], , SEBI has amended relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations,, 2015 to disallow listed companies from accepting request for transfer of securities which are held in physical form,, with effect from April 1, 2019. The shareholders who continue to hold shares and other types of listed companies, in physical form even after this date, will not be able to lodge the shares with company/its RTA for further transfer., They will need to convert them to demat form compulsorily if they wish to effect any transfer. Only the requests for, transmission and transposition of securities in physical form, will be accepted by the listed companies/their RTAs., , As per SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the listed entity shall ensure that, hundred percent of share holding of promoter and promoter group is in dematerialised form and the same is, maintained on a continuous basis in the manner as specified by the SEBI., , PROCEDURE FOR DEMATERIALISATION OF SHARES BY THE SHAREHOLDER, , (1), (2), (3), (4), (5), (6), (7), (8), , For the purpose of Dematerialisation of the shares of a registered shareholder of a company, the shareholder, has to enter into an agreement with a depository through a participant in the manner specified by the byelaws, for availing of its services [Section 5 of the Depositories Act.], Section 6(1) of the Act lays down that a person who has entered into an agreement under Section 5 shall, surrender the certificate of the shares, for which he seeks to avail the services of a depository, to the company, in the manner specified in the SEBI (Depositories and Participants) Regulations, 2018., , According to Sub-section (2) of Section 6 of the Act, the company, on receipt of the certificate of security, under Sub-section (1) from such a shareholder, shall cancel the certificate, (which action is referred to as, Dematerialisation of shares) and substitute in its records, the name of the depository as the registered owner, in respect of those shares and accordingly inform the depository., On receipt of the information from the company under Sub-section (2), the depository shall enter the name, of the shareholder in its records as the beneficial owner of the shares and inform the company, who shall in, turn inform the shareholder that his shares have been dematerialised and his name has been entered in the, depository’s electronic records [Sub-section (3) of Section 6 of Depositories Act, 1996.], , A Dematerialisation Request Form (DRF) issued by the Depository Participant is to be filled and deposited, with the concerned DP together with certificates after writing “Surrendered for Dematerialisation”on the, face of each certificate., The DP will send DRF along with the certificates to the concerned company for confirmation of its genuineness, simultaneously to Share Transfer Agents electronically through the Depository (NSDL or CDSL as the case, maybe)., , After checking the genuineness of the certificates and DRF the company/ Share Transfer Agents destroy the, certificates and send a confirmation to the NSDL or CDSL which, in turns, confirm the dematerialisation of, securities to DPs., DPs on receipt of such confirmation should inform the investor accordingly.
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118, , , , PROCEDURE FOR DEMATERIALISATION OF SHARES BY THE COMPANY, , Lesson 2 • EP-CL, , A company proposing to have its shares dematerialised is required to take the following procedural steps:, (1), , (2), , (3), , (4), , (5), , (6), (7), (8), (9), , It should ensure that its articles of association do contain an article which authorizes the company to have its, securities dematerialised. If the articles of the company do not contain such a provision, it shall be required, to alter its articles by passing a special resolution in general meeting in accordance with the provisions of, Section 14 of the Companies Act, 2013 so as to include such a provision and thereafter comply with the, provisions of the Depositories Act, 1996 and the SEBI (Depositories and Participants) Regulations, 2018 for, dematerialisation of its securities., The said company, which is desirous of dematerialising any of its above-detailed securities, after having, altered its articles of association to incorporate an article to authorize the company to dematerialise its, securities, will have to approach a depository for the purpose. The depository shall enter into an agreement, with the company in respect of securities that are to be declared as eligible to be held in dematerialised form., Further, no such agreements shall be required to be entered into where t or the Central Government is the, issuer of such securities., , If the company has appointed a Registrar to the issue, in case of a new issue, or a share transfer agent for, transfer/transmission of its existing shares, who has been granted certificate of registration by SEBI under, SEBI Act, 1992, the depository shall enter into a tripartite agreement with the company and the registrar to, the issue or share transfer agent, as the case may be, in respect of the securities to be declared by the, depository as eligible to be held in dematerialised form., , Thereafter, the shareholders may surrender their share certificates to the company and the company shall, inform the depository accordingly. According to Sub-section (2) of Section 6 of the Act, the company, on, receipt of the share certificates under Sub-section (1) from its shareholders, shall cancel the certificates,, (which action is referred to as dematerialisation of shares) and substitute in its records, the name of the, depository as the registered owner in respect of all those shares and accordingly the depository., On receipt of the information from the company under Sub-section (2), the depository shall enter the names, of the shareholders in its records as the beneficial owners of the shares and inform the company, who shall in, turn inform the shareholders that their shares have been dematerialised and their names have been entered, in the depository’s electronic records as beneficial owners of the shares [Sub-section (3) of Section 6 of, Depositories Act, 1996]., , Every depository shall have systems and procedures which will enable it to coordinate with the company or, its agent, and the participants, to reconcile the records of ownership of securities with the company or its, agent, as the case may be, and with participants, on a daily basis., Electronic means of communication with all its participants, issuer companies or companies’ agents, as the, case may be, clearing houses and clearing corporations of the stock exchanges and with other depositories., The depository shall satisfy the Board that it has a mechanism in place to ensure that the interests of the, persons buying and selling securities held in the depository are adequately protected., , Where records are kept electronically by the depository, it shall ensure that the integrity of the automatic, data processing systems is maintained at all times and take all precautions necessary to ensure that the, records are not lost, destroyed or tampered with and in the event of loss or destruction, ensure that sufficient, back up of records is available at all times at a different place., , TRANSFER OF DEMATERIALISED SHARES, , Section 7 of the Depositories Act, 1996 lays down that every depository shall, on receipt of intimation from a, participant, register the transfer of shares in the name of the transferee and where the beneficial owner or a, transferee of any shares seeks to have custody of such shares, the depository shall inform the issuer accordingly., The transfer deed and all other provisions stipulated in Section 56 of the Companies Act, 2013 shall not apply to the, transfers affected within the depository mode.
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Lesson 2 • Share and Share Capital, , Transfer of shares in dematerialised form do not, require execution of instrument of transfer in, Form SH-4., However, the stamp duty is payable as per new, Amended Stamp Act w.e.f. 1st July 2020., , 119, , The Stamp Duty is also to be paid on the transfer of securities, in dematerialised form w.e.f. 01/07/2020 which was earlier, exempted. Any number of securities can be transferred/, delivered with one delivery instruction. Therefore, the, paperwork and signing of multiple transfer forms is done, away with., , The procedure for sale of shares held in demat form is as under:•, , Sale shall be made through a broker who is a member of National Stock Exchange;, , •, , The broker shall give instructions to his DP for delivery to clearing corporation of the concerned stock;, , •, , •, , Shareholder, i.e., the Beneficial Owner (BO) will give delivery instruction through Delivery Instruction Slip, (DIS) to depository participant (DP) to debit his account and credit the broker’s account. Such instruction, should reach the DP’s office at least 24 hours before the pay-in, failing which, DP will accept the instruction, only at the BO’s risk;, exchange and receive payment from clearing corporation., , The broker shall make payment to the investor in physical form. The procedure for purchases of securities held in, demat form is as under–, (i), , broker will receive the securities in his account on the payout day;, , (iii), , BO will give ‘Receipt Instruction’ to DP for receiving credit by filling appropriate form. However, BO can give, standing instruction for credit to his account that will obviate the need of giving Receipt Instraction every time., , (ii), , broker will give instruction to its depository participant to debit his account and credit beneficial owner’s, account;, , PLEDGE OR HYPOTHECATION OF DEMATERIALISED SHARES, , A beneficial owner may, with the prior approval of the depository, pledge or hypothecate his shares held in a, depository. Upon receipt of intimation from the beneficial owner about the pledge or hypothecation of his shares,, the depository shall accordingly make entries in its records. Such an entry in the records of a depository shall be, evidence of a pledge or hypothecation [Section 12]. Both the pledger and pledgee must have a depository account., The procedure for pledge or hypothecation of shares held in demat form is as under:(i), , Investor shall submit the details of shares to be pledged to the DP in the prescribed format., , (iii), , Depository shall obtain confirmation from pledgee and record the pledge within 15 days of application., , (ii), , (iv), (v), , (vi), , DP shall verify the records and on being satisfied that the available for pledge, make a note in the records and, forward the application to the Depository for approval., Depository shall send intimation to the DP of both the pledger and pledgee who will inform the pledger and, pledgee respectively., , The pledgee may invoke the pledge in accordance with the terms of pledge and on such invocation the name, of pledgee is entered in the Register of Beneficial Owners by the Depository., During the period the pledge is in force, the DP shall not give effect to transfer of any security without the, concurrence of the pledgee., , (vii) On closure of the loan, the pledger shall request the DP to close the pledge. The pledgee, on getting payment,, shall make a request for closure of pledge to his DP., , (viii) For making hypothecation of shares held in demat form the above procedure is to be followed. However,, before registering the hypothecate as a beneficial owner, the Depository should obtain the consent from the, hypothecator.
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120, , Lesson 2 • EP-CL, , , , REMATERIALISATION OF SECURITIES, , Rematerialisation is conversion of electronic securities into physical certificates of such securities. This can be done, in the following manner:, (1), , Beneficial owner sends request to DP., , (3), , Depository confirms rematerialisation request to the company’s Share Transfer Agents., , (2), (4), (5), (6), (7), , DP intimates Depository (NSDL or CDSL) of such request electronically., , Share Transfer Agent updates accounts, prints certificates and confirms the Depository., Depository updates accounts and downloads the details to the DP., Share Transfer Agent dispatches certificates to holder thereof., , The DP also sends intimation about rematerialisation to its client., , ANNEXURE I, , SPECIMEN OF THE BOARD RESOLUTION APPROVING THE REGISTRATION OF TRANSFER OF SHARES, “RESOLVED THAT Registration of transfer of..................fully paid equity shares of the company as per details in the, register of share transfers of the company entered on page....to........,entries Nos......to.......(both inclusive), which was, placed before the meeting and each page was initialed by the chairman of the meeting as a mark of identification,, be and is hereby approved.”, , “RESOLVED FURTHER THAT Shri....................................... ,Company Secretary be and is hereby authorized to endorse, the relevant share certificates under his signature, arrange for their dispatch to the transferees of the shares and, make appropriate entries in the register of members and other records of the company.”, , ANNEXURE II, , SPECIMEN OF BOARD RESOLUTION APPROVING REGISTRATION OF TRANSMISSION OF SHARES, “RESOLVED THAT Transmission of...........………no.s of fully paid equity shares of the company bearing distinctive, numbers…....to…....(both numbers inclusive) presently registered in the name of Shri ………………..who has been, reported as deceased on………..……in the district of. .................which is situated in the state of…………, in the name of, Shri ……………son of Shri...............resident of …………………………………….be and is hereby approved.”, , “RESOLVED FURTHER THAT since the company has received a letter from the said Shri…........,intimating to the, company that he has decided to have the said shares registered in his name, the said shares be registered in his, name;” and, “RESOLVED FURTHER THAT Shri...................................,Company Secretary, be and is here by authorized to enter, the name of the said Shri..................................,in the register of members of the company and send the relevant share, certificates to him after appropriately endorsing them in his name.”, , ANNEXURE III, , SPECIMEN OF SPECIAL RESOLUTION FOR ALTERATION OF ARTICLES OF ASSOCIATION OF THE COMPANY TO, INCLUDE AN ARTICLE AUTHORISING THE COMPANY TO HAVE ITS SECURITIES DEMATERIALISED, “RESOLVED THAT pursuant to Section 14 of the Companies Act, 2013, the articles of association of the company be, and are hereby altered in the following manner:, After article No..., the following be inserted as article... :, Article. Dematerialisation of Securities, A. Definitions:
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Lesson 2 • Share and Share Capital, , 121, , For the purpose of this article:-, , ‘Beneficial Owner’ means a person or persons whose name is recorded as such with a depository. ‘SEBI’ means the, Securities and Exchange Board of India., , ‘Depository’ means a company formed and registered under the Companies Act, 2013, and which has been granted, a certificate of registration to act as a depository under the Securities and Exchange Board of India Act, 1992;and, ‘Security’ means such security as may be specified by SEBI from time to time., B. Dematerialisation of Securities, , Notwithstanding anything contained in these articles, the company shall be entitled to dematerialise its securities, and to offer securities in a dematerialised form pursuant to the Depositories Act, 1996., C. Options for investors, , Every person subscribing to securities offered by the company shall have the option to receive security certificates, or to hold the securities with a depository. Such a person who is the beneficial owner of the securities can at any, time opt out of a depository, if permitted by the applicable law in respect of any security in the manner provided by, the Depositories Act, 1996 and the company shall, in the manner and within the time prescribed, issue to the, beneficial owner the required certificates of securities., , If a person opts to hold his security with a depository, the company shall intimate such depository the details of, allotment of the security and/or transfer of securities in his name and on receipt of the information, the depository, shall enter in its record the name of the allottee and/or transferee as the beneficial owner of the security., D. Securities in Depositories to be in Fungible Form, , All securities held by a depository shall be dematerialised and be in fungible form. Nothing contained in Sections 89, and 186 of the Act shall apply to a depository in respect of the securities held by it on behalf of the beneficial, owners., E. Distinctive Numbers of Securities held in a Depository, , Nothing contained in the Act or these articles regarding the necessity of having distinctive numbers for securities, issued by the company shall apply to securities held with a depository., F. Rights of Depositories and Beneficial Owners, (i), (ii), , (iii), , Notwithstanding anything to the contrary contained in the Act or these articles, a depository shall be deemed, to be the registered owner for the purposes of effecting transfer of ownership of security on behalf of the, beneficial owner., Save as otherwise provided in (a) above, the depository as the registered owner of the securities shall not, have any voting rights or any other rights in respect of the securities held by it., , Every person holding securities of the company and whose name is entered as the beneficial owner in the, records of the depository shall be deemed to be a member of the company. The beneficial owner of securities, shall be entitled to all the rights and benefits and be subject to all the liabilities in respect of his securities, which are held by a depository., , G. Service of Documents, , Notwithstanding anything to the contrary contained in the Act or these articles, where securities are held in a, depository, the records of the beneficial ownership may be served by such depository on the company by means of, electronic mode or by delivery of floppies or discs., H. Transfer of Securities, , Nothing contained in Section 56 of the Act or these articles shall apply to a transfer of securities effected by a, transferor and transferee both of whom are entered as beneficial owners in the records of a depository., I. Allotment of Securities Dealt in a Depository
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122, , Lesson 2 • EP-CL, , , , Notwithstanding anything contained in the Act or these articles, where securities are dealt in a depository, the, company shall intimate the details thereof to the depository immediately on allotment and/or registration of, transfer of such securities., J. Register and Index of Beneficial Owners, , The register and index of beneficial owners maintained by a depository under the Depositories Act, 1996, shall be, deemed to be the register and index of members and security holders for the purposes of these articles., Explanatory Statement:, , With the enactment of the Depositories Act, 1996, and coming into operation of the depository system, some of the, provisions of the Companies Act, 2013, relating to the issue, holding, transfer, transmission of equity shares and, other securities of companies have been amended to facilitate the implementation of the depository system., , The depository system of holding securities in an electronic mode is a far safer and more convenient method of, securing, holding and trading in the securities of company., , Under the depository system, the securities can be dematerialised. The company intends joining a depository. It is,, therefore, proposed that the company’s articles of association be suitably altered, as set out in the proposed, resolution to enable it to dematerialise its securities. The resolution contains (i) definitions of some of the important, terms used in the system; (ii) dematerialization of securities; (iii) options for investors; (iv) securities in depositories, to be in fungible form; (v) distinctive numbers of securities held in a depository; (vi) rights of depositories and, beneficial owners; (vii) service of documents; (viii) transfer of securities; (ix) allotment of securities dealt in a, depository; and (x) register and index of beneficial owners., None of the directors, key managerial personnel or their relatives of the company is concerned or interested in the, proposed resolution except to the extent of the share holdings of the directors., , LESSON ROUND-UP, , •, , Share capital of a company can be classified as:, •, , nominal, authorized or registered capital;, , •, , called up and uncalled capital;, , •, •, , issued and subscribed capital;, Paid-up capital., , •, , A share is defined as a share in the share capital of a company and includes stock., , •, , A preference share or preference share capital is that part of share capital which carries a preferential, right with respect to both dividend and capital., , •, , •, •, •, •, •, , The Companies Act, 2013 permits a company limited by shares to issue two classes of shares, namely, equity share capital and preference share capital., Preference shares may be of various types, namely participating and non-participating, cumulative and, non-cumulative shares, redeemable and irredeemable preference shares., Equity share capital means all share capital which is not preference share capital., , SEBI has the power to deal with matters related to listed or proposed to be listed securities. Central, Government (MCA, Regional Director, ROC) has power to deal with matters related to unlisted securities., , Any notice, circular, advertisement or any other document inviting offers from public for the subscription, or purchase of securities shall be included in the definition of Prospectus., , Where a company allots or agrees to allot any securities of the company with a view to all or any of those, securities being offered for sale to the public, any document by which the offer for sale to the public is
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123, , Lesson 2 • Share and Share Capital, , •, •, •, •, •, •, •, •, •, •, , made shall, for all purposes, be deemed to be a prospectus issued by the company., , A share certificate is prima facie evidence to the title of the person whose name is entered on it., , A company may issue fully paid-up bonus shares to its members, in any manner whatsoever, out of (i) its, free reserves; (ii) the securities premium account; or (iii) the capital redemption reserve account., , Sweat equity shares means equity shares issued by a company to its 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., , A company may if authorised by its articles, forfeit shares for non-payment of calls and the same. The, power of forfeiture must be exercised bona fide and in the interest of the company., In general parlance, “transfer” takes place when title to the property is transferred from one person to, another whereas “transmission” refers to devaluation of title by operation of law., Transmission may takes place either by succession or by testamentary transfer., , According to Section 44 of the Companies Act, 2013, shares, debentures or other interest of a company are, movable property, transferable in the manner provided by the articles of association of the company., Section 56 of the Companies Act requires that where share transfer form is delivered to the company, should be adequately stamped., Shares of a private company are not marketable securities due to restriction on right to transfer. Such, shares by their very nature are not freely transferable in the market., , The securities of a public company are freely transferable, subject to the provisions that any contractor, arrangement between two or more persons in respect of transfer of securities shall be enforceable as, contract., , GLOSSARY, Explanatory Statement, , Special Resolution, , General Meeting, Share Capital, , To enable shareholders to take apt and a well informed decision, it is, necessary to provide them with requisite information. It covers all, the information and facts that may enable members to understand, the meaning, scope and implication of the proposed resolution., (Section 102 of Companies Act, 2013), A resolution is a Special Resolution when it is intended to be passed as a, special resolution. The votes cast in favour of such resolution by members, who, are required to be not less than three times the number of the votes,, if any, cast against the resolution by members so entitled and voting., (Section 114 of Companies Act, 2013), , Meeting of the members of the company with the Board of Directors. This, may be Extra ordinary General Meeting or Annual General Meeting., Funds raised by issuing shares in return for cash or other considerations., The amount of share capital a company can change over time because each, time a business sells new shares to the public in exchange for cash, the, amount of share capital will increase. Share capital can be composed of both, common and preferred shares.
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124, , Lesson 2 • EP-CL, , , , Red herring Prospectus, , Shelf Prospectus, , Abridged Prospectus, , Redemption of shares, , Employee Stock Option, (ESOP), , Sweat Equity Shares, , Rights Issue, Bonus Shares, , Under Explanation to section 32 has been referred to mean a prospectus, which does not include complete particulars of the quantum or price of the, securities included there in., , Under Explanation to section 31 has been referred to mean a prospectus, in respect of which the securities or class of securities included therein are, issued for subscription in one or more issues over a certain period without, the issue of a further prospectus., According to section 2(1) of the Act “abridged prospectus” means a, memorandum containing such salient features of a prospectus as may be, specified by the Securities and Exchange Board by making regulations in this, behalf., , Where a company issues shares on terms stating that they can be bought, back by the company. Not all shares can be redeemed, only those stated to, be redeemable when they were issued. The payment for the shares must, generally come from reserves of profit so that the capital of the company is, preserved., , As defined under sub-section (37) of Section 2 of the Companies Act,, 2013, “employees’ stock option” means the option given to the directors,, officers or employees of a company or of its holding company or subsidiary, company or companies, if any, which gives such directors, officers or, employees, the benefit or right to purchase, or to subscribe for, the shares of, the company at a future date at a pre-determined price., Sweat equity shares mean equity shares issued by a company to 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 or value, additions, by whatever name called., Rights issue is an issue of capital to be offered to the existing shareholders of, the company through a letter of offer., , When a company is prosperous and accumulates large distributable, it, converts these accumulated profits into capital and divides the capital, among the existing members in proportion to their entitlements. Members, do not have to pay any amount for such shares. A company may, if its Articles, provide, capitalize its profits by issuing fully-paid bonus shares, , TEST YOURSELF, (These are meant for recapitulation only. Answer to these questions are not to be submitted for evaluation)., 1., , Discuss the various kinds of share capital. How is preference share capital distinguished from equity, share capital?, , 3., , What are the various modes through which a public and private company may issue securities and the, governing laws for issue of securities?, , 2., 4., , Define and explain the term “share”. What are the different classes of shares which a company may issue?, Define Prospectus and its types. What is Offer for Sale?
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125, , Lesson 2 • Share and Share Capital, , 5., , What is a Share Certificate and its legal effects? When can a company issue duplicate share certificate?, , 7., , Discuss the procedure for issue of further shares to existing shareholders under Section 62 (1) of the, Companies Act, 2013., , 6., 8., 9., 10., 11., 12., 13., 14., 15., , State the provisions of the Companies Act, 2013 relating to issue of shares at premium and at discount., , ABC Limited wishes to issue 1:1 bonus to its members. As a company secretary detail the procedure to the, Board of Directors of your company., , Jacob, who is Managing Director in ‘Z’ Limited has been issued 5000 Sweat Equity Shares in consideration, of providing know-how without cost to ‘Z’ Limited last year. Jacob now wants to transfer half of these, shares in the name of his brother. Can he do so? if not, why?, XYZ Limited wants to alter capital clause of its Memorandum of Association. What are the ways in which, said clause may be altered under provisions of the Companies Act, 2013., , Sitcom Limited has completed buy back 8% of its shares in November 2019. Now the Board of Directors, want to further buy back 15% in January 2020 and asks CS to call EGM for passing special resolution., Advise the Board of Directors in the matter., The paid-up capital of ARC Limited is Rs. 50,00,000/- divided into 5,00,000 Equity Shares of Rs. 10/- each., The Board of Directors want to return a part of the paid-up the share capital as it feels that it is in excess, of the needs of the Company. Can the Company do so? What procedure is to be followed?, Parag has submitted the duly executed and stamped transfer deed in prescribed form for transfer of, shares of Reliable Ltd. from Parag to the Company. What steps the CS should take after receiving the same?, Enumerate the steps for transfer of dematerialised shares., Write short notes on the following:(a), , Shelf Prospectus, , (c), , Dematerialisation of securities, , (b), (d), (e), (f), , (g), , Personation of Shareholder, Transmission of shares, , Employee Stock Option Scheme, Transfer and Transmission., , Preferential Allotment of shares, , LIST OF FURTHER READINGS, •, •, , ICSI Premier on Company Law, , Bare Act - Companies Act, 2013, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Lesson 3, Key Concepts One, Should Know, •, , Subscribers, , •, , Members, , •, , Significant, Beneficial Owners, , •, •, •, , Shareholders, Debenture, holders, , Beneficial Interest, , •, , Reporting, Company, , •, , Veto Power, , •, , Registers &, Records, , Members and Shareholders, Learning Objectives, To understand:, • The term ‘Member’, • Modes of Acquiring Membership, • Who is eligible to become member in Company ?, • What are the situations where a person cease to be a member of, a company, • Maintaining the Register of Members, • Modalities of Maintaining the Resister of Members, • Who can inspect the Register?, • Foreign Register, • Significant Beneficial Owner, • What are the Rights and Liability of Members ?, • Concept of Shareholder’s Democracy, • Shareholder’s Agreement, • The term “Veto Power", , Lesson Outline, •, •, •, •, •, •, •, •, , Introduction-Who are, Members?, Member Definition, Modes of Acquiring, Membership, Who may become a member ?, Cessation of Membership, Register of Members, Declaration by persons not, Holding Beneficial Interest in, any Share, Significant Beneficial Owners in, a Company, , •, •, •, •, •, •, •, •, •, •, •, , Rectification of Register of, Members, Rights of Members, Liability of Members, Shareholders’ Democracy, Shareholders’ Agreement, Veto Power, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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128, , Lesson 3 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 2(55), , Definition of Member, , Section 72, , Power to Nominate, , Section 3(1), , Section 48(2), , Section 88 (1), Section 88(2), Section 88(3), Section 88(4), Section 89, Section 90, Section 91, Section 94, Section 95, Rule 3, Rule 4, Rule 5, Rule 6, Rule 7, Rule 8, Rule 9, , Rule 10, Rule 2, , Rule 2A, Rule 3, Rule 4, Rule 5, Rule 6, Rule 7, Rule 8, , Minimum No. of Members, , Rights of Dissenting Shareholders, Register of Members, Index of Members, , The register and index of beneficial owners maintained by a depository under section 11 of, the Depositories Act, 1996, Foreign Register, , Declaration in Respect of Beneficial Interest in any Share, Significant Beneficial Owner in a company, , Power to Close Register of Members or Debenture-Holders or Other Security Holders., Place of keeping and Inspection of Registers, Returns, etc., Register - An Evidence, , The Companies (Management and Administration) Rules, 2014, , Register of Members, , Register of Debenture Holders or Any Other Security Holders, , Maintenance of the Register of Members etc. Under Section 88, Index of Names to be Included in Register, , Foreign Register of Members, Debenture Holders, Other Security Holders or Beneficial, Owners Residing Outside India, Authentication of the Register, , Declaration in Respect of Beneficial Interest in Any Shares, , Closure of Register of Members or Debenture Holders or Other Security Holders, The Companies (Significant Beneficial Owners) Rules, 2018, , Definitions, , Duty of the reporting company., , Declaration of significant beneficial ownership under section 90, Return of significant beneficial owners in shares, Register of significant beneficial owners, , Notice seeking information about significant beneficial owners, Application to the Tribunal, Non-Applicability
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129, , Lesson 3 • Members and Shareholders, , INTRODUCTION - WHO ARE MEMBERS?, A company is composed of members, though it has its own separate legal entity. The members of a company are the, persons who, for the time being, constitute the company, as a corporate entity., •, , In case of a company limited by shares, the shareholders are the members. The terms “members” and, “shareholders” are usually used interchangeably, being synonymous, as there can be no membership, except through the medium of shareholding., , Thus, generally speaking every shareholder is a member and every member is a shareholder. However,, there may be exceptions to this statement, e.g., a person may be a holder of share(s) by transfer but will, not become its member until the transfer is registered in the books of the company in his favour and his, name is entered in the register of members., , •, •, , Similarly, a member who has transferred his shares, though he does not hold any shares yet he continues, to be member of the company until the transfer is registered and his name is removed from the register of, members maintained by the company [Section 88 of the Companies Act, 2013]., In a company limited by guarantee, the persons who are liable under the guarantee clause in its, Memorandum of Association are members of the company., In an unlimited company, the members are the persons who are liable to the company, each in proportion, to the extent of their interests in the company, to contribute the sums necessary to discharge in full, the, debts and liabilities of the company, in the event of its being wound-up., , In Herdilia Unimers Ltd. v. Renu Jain [1995] 4 Comp. LJ. 45 (Raj.), it was held that the moment the shares were, allotted and share certificate signed and the name entered in the register of members, the allottee became the, shareholder, irrespective of whether the allottee received the shares or not., , Definition of ‘Member’, , According to Section 2(55) of the Companies Act, 2013, member, in relation to a company, means,, 1., , The subscribers to the memorandum of a company who shall be deemed to have agreed to become members, of the company, and on its registration, shall be entered as members in its register of members;, , 3., , Every person holding shares of a company and whose name is entered as a beneficial owner in the records, of a depository shall be deemed to be a member of the concerned company., , 2., , Every other person who agrees in writing to become a member of a company and whose name is entered, in its register of members shall, be a member of the company;, , Member in relation to Company means, , Subscribers to the Memorandum, who shall be deemed to have, agreed to become members of the, company, , Person who agrees in writing to, become a member of a company, and whose name is entered in, register of members, , Every person holding shares of a, company and whose name is, entered as a beneficial owner in the, records of a depository, , Accordingly, there are two important elements which must be present before a person can acquire membership of, a company viz., –, (i), agreement to become a member; and, (ii), , entry of the name of the person so agreeing, in the register of members of the company.
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130, , , , Lesson 3 • EP-CL, , Both these conditions are cumulative. [Balkrishan Gupta v. Swadeshi Polytex Ltd. (1985) 58 Com Cases 563]., , The person desirous of becoming a member of a company must have the legal capacity of entering into an agreement, in accordance with the provisions of the Indian Contract Act, 1972. Section 11 of the Indian Contract Act lays down that,, Every person is competent to contract who:(i), is of the age of majority according to the law to which he is subject., (ii), , (iii), , is of sound mind., , is not disqualified from contracting by any law to which he is subject., , MODES OF ACQUIRING MEMBERSHIP, , As per Section 2(55) of the Companies Act, 2013, a person may acquire the membership of a company:, (a) by subscribing to the Memorandum of Association (deemed agreement); or, (b), , by agreeing in writing to become a member:, (i), , by making an application to the company for allotment of shares; or, , (iii), , by consenting to the transfer of share of a deceased member in his name; or, , (ii), (c), , (iv), , by executing an instrument of transfer of shares as transferee; or, by acquiescence or estoppel., , by holding shares of a company and whose name is entered as beneficial owner in the records of a depository, (Under the Depositories Act, 1996)., , and on his name being entered in the register of members of company. Also every such person holding shares of the, company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be the, member of the concerned company., , (a) Subscribers to the Memorandum, , In the case of a subscriber, no application or allotment is necessary to become a member. By virtue of his subscribing, to the memorandum, he is deemed to have agreed to become a member and he becomes ipso facto member on the, incorporation of the company and is liable for the shares he has subscribed., A subscriber to the memorandum cannot rescind the contract for the purchase of shares even on the ground of, fraud by the promoters. (In Re. Metal Constituents Co., (1902) 1.Ch. 707.), In accordance with the provisions of, Further, a subscriber to the memorandum must pay for his shares in, Section 10(2) of the Companies Act,, cash even if the promoters have promised him the shares for services, 2013 all monies payable by any, rendered in connection with the promotion of the company. Again, he, member to the company under the, must take the shares directly from the company, and not through transfer, memorandum or articles shall be debt, from other member(s)., due from him to the company., When a person signs a memorandum for any number of shares he, becomes absolutely bound to take those shares and no delay will relieve him from that liability unless he fulfills the, obligation. His liability remains right up to the time when the company goes into liquidation and he is bound to, bring the money for which he is liable to pay to the creditors of the company., , (b) Agreement in Writing, , (i) By an application and allotment, , A person who applies for shares becomes a member when shares are allotted to him, a notice of allotment is issued, to him and his name is entered on the register of members. The general law of contract applies to this transaction., There is an offer to take shares and acceptance of this offer when the shares are allotted. An application for shares, may be absolute or conditional. If it is absolute, an allotment and its notice to the applicant will be sufficient, acceptance. On the other hand, if the offer is conditional, the allotment must be made according to be condition as, contained in the application. If there is conditional application and unconditional allotment, there is no contract.
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Lesson 3 • Members and Shareholders, , 131, , (ii) By transfer of shares, , Shares in a company are movable property as provided in Section 44 of the Act and are transferable in the manner, as provided in the articles of the company and as provided in Section 56 of the Companies Act, 2013. A person can, become a member by acquiring shares from an existing member and by having the transfer of shares registered in, the books of the company, i.e. by getting his name entered in the register of members of the company., , (iii) By transmission of shares, , A person may become a member of a company by operation of law i.e. if he succeeds to the estate of a deceased, member. Membership by this method is a legal consequence. On the death of a member, his executor or the person, who is entitled under the law to succeed to his estate, gets the right to have the shares transmitted and registered, in his name in the company’s register of members. No instrument of transfer is necessary in this case., , If the legal representative of deceased member desires to be registered as a member in place of the deceased, member, the company shall do so or in the alternative he may request the company to transfer the shares in the, name of another person of his choice. The Official Assignee or Official Receiver is likewise entitled to be a member, in place of the shareholder, who has been adjudged insolvent., , (iv) By acquiescence or estoppels, , A person is deemed to be a member of a company if he allows his name, without sufficient cause, to be on the, register of members of the company or otherwise holds himself out or allows himself to be held out as a member., In such a case, he is estopped from denying his membership. He can, however, escape his liability by taking prompt, action for having his name removed from the register of members on permissible grounds., , (c) Holding Shares as Beneficial Owner in the Records of Depository, , Every person holding shares of the company and whose name is entered as a beneficial owner in the records of the, depository shall be deemed to be a member of the concerned company., , WHO MAY BECOME A MEMBER, , Subject to the Memorandum and Articles, any sui juris (a person who is competent to contract) except the company, itself, can become a member of a company. However, it is important to note the following points in relation to, certain organizations and persons:, (a), , Company as a member of another company: A company is a legal person and so is competent to contract., Therefore, it can become a member of any other company. However, it must be authorised by its Memorandum, of Association to invest in the shares of that company or any other company. Also a company cannot become a, member of itself. As per section 19 of the Companies Act, 2013, a subsidiary company cannot become a, member of its holding company. However, a subsidiary can hold shares in its holding company only under the, following exceptional circumstances–, (i) where the subsidiary company holds such shares as the legal representative of a deceased member of the, holding company; or, (ii) where the subsidiary company holds such shares as a trustee; or, , (iii) where the subsidiary company is a shareholder even before it became a subsidiary company of the, holding company., , (b) Partnership firm as a member of the company: A partnership firm is not a legal person and as such it cannot,, in its own name, become a member of a company except in company registered u/s 8 of Act., (c), , Limited Liability Partnership as a member of the company, being an incorporated body under Limited, Liability Partnership Act, 2008 can become a member of a company., , (d) Section 8 Company as a member of the company: A non-profit making company licensed under Section 8 of, the Act, can become a member of another company if it is authorised by its Memorandum of Association to, invest into shares of the other company.
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132, , (e), (f), , , , Lesson 3 • EP-CL, , Foreigners as members: A foreigner may take shares in an Indian company and become a member subject to, the provisions of the Foreign Exchange Management Act, 1999, but in the event of war with his country, he, becomes an alien enemy and his power of voting and his rights to receive notices are suspended., Minor as member: A member who is not a sui juris e.g., a minor, is wholly incompetent to enter into a contract, and as such cannot become a member of a company. Consequently, an agreement by a minor to take shares is, void ab-initio., , It has been held by the Company Law Board (replaced by the Tribunal under the Companies Act, 2013) that an, agreement in writing for a minor to become a member may be signed on behalf of the minor by his lawful, guardian and the registration of transfer of shares in the name of the minor, acting through his or her guardian,, especially where the shares are fully paid cannot be refused on the ground of the transferee being a minor, [Miss Nandita Jain v. Benett Coleman and Co. Ltd., Appeal No. 27 of 1972 dated 17.2.78]., After attaining majority, the minor, if he does not want to be a member, must repudiate his liability on the, shares on ground of minority, and if he does so, the company can not plead estoppel on the ground of his, having received dividends during his minority or that he had fraudulently misrepresented his age in his, application for shares [Sadiq Ali v. Jai Kishori, (1928) 30 Bom. L.R. 1346]., If shares are transferred to a minor, the transferor will remain liable for all future calls on such shares so long, as they are held by the minor even if the transferor was ignorant of his minority. If the company knows of his, minority it may refuse to register the transfer, unless the transfer was made through the guardian., , (g) Insolvent as member: An insolvent may be a member of a company as long as he is on the register of members., He is entitled to vote, but he loses all beneficial interest in the shares and company will pay dividend on his, shares to the Official Assignee or Receiver [Morgan v. Gray, (1953) All E.R. 213]., , (h) HUF as member: HUF is not a juristic person, although it is a person for purposes of the Income-tax Act, 1961., HUF is represented by its Karta. There is no legal bar on HUF to invest its money in shares and securities and, the Companies Act does not prohibit membership of HUF. In case of an HUF, the shares can be registered in the, name of ‘A’ as Karta of HUF as held in [Vickers Systems International Limited v. Mahesh P. Keshwani [(1992) 13, Com Cases 317 (CLB)]., (i), , (j), , Pawnee: A pawnee has no right of foreclosure since he never had the absolute ownership at law and his, equitable title cannot exceed what is specifically granted by law. In this sense, a pledge differs from a mortgage., In view of the above, a pawnee cannot be treated as the holder of the shares pledged in his favour, and the, pawner continues to be a member and can exercise the rights of a member [Balakrishna Gupta v. Swadeshi, Polytex Ltd., (1985) 58 Com Cases 563 (S.C.)]., Receiver: A receiver whose name is not entered in the register of members cannot exercise any of the, membership rights attached to a share unless in a proceeding to which company is a party and an order is, made therein. Mere appointment of a receiver in respect of certain shares of a company without more rights, cannot, deprive the holder of the shares whose name is entered in the register of members of the company, the, right to vote at the meeting of the company [Balakrishna Gupta v. Swadeshi Polytex Ltd., (1985) 58 Com Cases, 563 (S.C.)]., , (k) Society as a member -Department’s Clarification dated 24.11.1962 has clarified that “a society registered, under the Societies Registration Act, 1860 should not be deemed to be a ‘body corporate’ within the meaning, of the aforesaid provisions [Refer to Section 2(7) (i) of the Companies Act, 1956 (currently refer section sub, clause (i) of clause 11 of section 2 of the Companies Act ,2013) although such a society can be treated as a, ‘person’ having separate legal entity apart from the members constituting it and thereby capable of becoming, a member of a company under section 41(2) of the erstwhile Companies Act, 1956.”, (l), , Persons taking shares in fictitious names: A person who takes shares in the name of a fictious person,, becomes liable as a member besides incurring criminal liability under Section 38 of the Act, wherein, punishment is provided for commission of fraud. As per section 447 of the Companies Act, 2013, without, prejudice to any liability including repayment of any debt under this Act or any other law for the time being in, force, any person who is found to be guilty of fraud involving an amount of at least 10 lakh rupees or 1% of the, turnover of the company, whichever is lower shall be punishable with imprisonment for a term which shall not
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Lesson 3 • Members and Shareholders, , 133, , be less than 6 months but which may extend to 10 years and shall also be liable to fine which shall not be less, than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud., Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less, than 3 years., , Provided further that where the fraud involves an amount less than 10 lakh rupees or 1% of the turnover of, the company, whichever is lower, and does not involve public interest, any person guilty of such fraud, shall be punishable with imprisonment for a term which may extend to 5 years or with fine which may, extend to 50 lakh rupees or with both., , (m) Trade Union as member: A trade union registered under the Trade Union Act, can be registered as a member, and can hold shares in a company in its own corporate name [All India Bank Officers Confederation v., Dhanlakshmi Bank Ltd., (1997) 90 Com Cases 225]., , Clarification regarding status of a holder of Global Depository Receipts (GDRs), , It is clarified by the Ministry of Corporate Affairs, vide Circular No.1/2009 No.17/67/2009 CL-V dated, 16/6/2009 that:, (a) As per section 41(1) and (2) of the Companies Act, 1956, [Corresponds to section 2(55) (i) & (ii) of the, Companies Act, 2013] a person is a member of the company, –, (i), , (ii), (b), , (c), (d), , who is a subscriber to the Memorandum or, , whose name has been entered in the register of members. Since, holder of Global Depository Receipts, is neither the subscriber to the Memorandum nor a holder of the shares, his name cannot be entered, in the Register of Members. Therefore, a holder of Global Depository Receipts cannot be called a, member of the company., , As per Section 41(3) of the Companies Act, 1956, [Corresponds to section 2(55) (iii) of the Companies Act,, 2013] a person holding a share capital of the company and whose name is entered as beneficial owner in the, records of the depository, is deemed to be a member of the company. Since the Overseas Depository Bank as, referred in the ‘Scheme’ is neither the Depository as defined in the Companies Act, 1956 and the Depository, Act, 1996 nor holding the share capital, therefore, it cannot be deemed to be a member of the company., , A holder of Global Depository Receipts may become a member of the company only on transfer/ redemption, of the GDR into underlying equity shares after following the procedure provided in the “Scheme”/ provisions, of the Companies Act., , Since the underlying shares are allotted in the name of Overseas Depository Bank, the name of such Overseas, Depository Bank is to be entered in the Register of Members of the issuing company. However, until transfer/, redemption of such GDR’s into underlying shares, Overseas Depository Bank cannot be considered a nominee, of the holder of GDR for the purpose of Section 42 read with Section 41 of the Companies Act, 1956, [Corresponds to section 19 read with section 2(55) of the Companies Act, 2013]., , Joint Members, , If more than one person apply for shares in a company and shares are allotted to them, each one of such applicant, becomes a member (Narandas v. India Mfg. Co., A.I.R. 1953 Bom. 433]. Unless the Articles of the company otherwise, provide, joint members can insist on having their names registered in any order they may require. They may also, have their holding split into several joint holdings with their names in different orders so that all of them may have, a right to vote as first named holding in one or the other joint holdings. Burns v. Siemens Brothers Dynamo Works Ltd., (1919) 1 Ch. 225., , Nominee joint members, , Where the shares of a company were registered in the joint name of the company and one of the directors, it was, held that the director was a nominee of the company for that purpose. He could act jointly with the company and, not individually. He had no rights of his own in respect of the shares and was not entitled to bring proceedings on, the basis of being one of the registered holders as held in Exchange Travel (Holdings) Ltd., Re [(1991) BCLC 728 (Ch, D)].
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134, , , , Minimum Number of Members, , Lesson 3 • EP-CL, , Section 3(1) of the Companies Act, 2013 provides that a company may be formed for any lawful purpose by seven, or more persons, where the company to be formed is to be a public company; or two or more persons, where the, company to be formed is to be a private company; or one person, where the company to be formed is to be One, Person Company that is to say, a private company, by subscribing their names or his name to a memorandum and, complying with the requirements of this Act in respect of registration., , Restriction on Membership, , By virtue of Section 2(68)(ii) of the Companies Act, 2013, the maximum number of members of a private company, except in the case of One Person Company is limited to two hundred excluding the present and past employees of, the company who continue to be members of the company. There is no restriction with regard to the maximum, number of members of a public company., , CESSATION OF MEMBERSHIP, , A person ceases to be a member of a company when his name is removed from its register of members, which may, occur in any of the following situations:, (a) He transfers his shares to another person, the transfer is registered by the company and his name is removed, from the register of members;, (b), , His shares are forfeited;, , (d), , He dies (his estate, however, remains liable for calls);, , (c), , (e), (f), , (g), , (h), (i), , (j), , His shares are sold by the company to enforce a lien;, , He is adjudged insolvent and the Official Assignee disclaims his shares;, His redeemable preference shares are redeemed;, , He rescinds the contract of membership on the ground of fraud or misrepresentation or a genuine mistake;, , His shares are purchased either by another member or by the company itself under an order of the Tribunal, under Section 242 of the Companies Act, 2013;, The member is a company which is being wound-up in India, and the liquidator disclaims the shares;, The company is wound up., , Though one ceases to be a member, he remains liable as a contributory and is also entitled to share in the surplus,, if any., , Expulsion of a Member, , A controversy had arisen as to whether a public limited company had powers to insert an article in its Articles of, Association relating to expulsion of a member by the Board of Directors of the company where the directors were, of the view that the activities or conduct of such a member was detrimental to the interests of the company., , The Department of Company Affairs (now, Ministry of Corporate Affairs) clarified that an article for expulsion of a, member is opposed to the fundamental principles of the Company Jurisprudence and is ultra vires the company, the, reason being that such a provision against the provisions of the Companies Act relating to the rights of a member in, a company, the powers of the Central Government as an appellate authority under Section 111 of the Act and the, powers of the Court under Sections 107, 395 and 397 of the Companies Act, 1956. [These sections correspond to, sections 58, 48, 235 and 241 of the Companies Act, 2013 respectively.], According to Section 6 of the Companies Act, 2013, the Act overrides the Memorandum and Articles of Association, and any provision contained in these documents repugnant to the provisions of the Companies Act, is void., , The Department of Company Affairs (now MCA) has, therefore, clarified that any assumption of the powers by the, Board of Directors to expel a member by alteration of Articles of Association shall be illegal and void.
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Lesson 3 • Members and Shareholders, , 135, , As, under Article 141 of the Constitution, the law declared by the Supreme Court is binding on all courts within the, territory of India, any provision pertaining to the expulsion of a member by the management of a company which, is against the law as laid down by the Supreme Court will be illegal and ultra vires. In the light of the aforesaid, position, it is clarified that assumption by the Board of Directors of a company of any power to expel a member by, amending its articles of association is illegal and void [Circular: Letter No. 32/75, dated 1.11.1975]., , REGISTER OF MEMBERS ETC., , Section 88 of the Companies Act, 2013 lays down:, 1., Every company shall keep and maintain the following registers in such form and in such manner as may be, prescribed, namely:–, (a), , register of members indicating separately for each class of equity and preference shares held by each, member residing in or outside India;, , (c), , register of any other security holders., , (b), 2., 3., 4., 5., , register of debenture-holders; and, , Every register maintained under sub-section (1) of section 88 of the Act shall include an index of the names, included therein., , The register and index of beneficial owners maintained by a depository under section 11 of the Depositories, Act, 1996 (22 of 1996), shall be deemed to be the corresponding register and index for the purposes of this Act., A company may, if so authorised by its articles, keep in any country outside India, in such manner as may be, prescribed, a part of the register referred to in sub-section (1) of section 88 of the Act, called “foreign register”, containing the names and particulars of the members, debenture-holders, other security holders or beneficial, owners residing outside India., , If a company does not maintain a register of members or debenture-holders or other security holders or fails, to maintain them in accordance with the provisions of sub-section (1) or sub-section (2) of Section 88 of the, Companies Act, 2013, the company shall be liable to a penalty of three lakh rupees and every officer of the, company who is in default shall be liable to a penalty of fifty thousand rupees., , Modalities of Maintaining the Register, , In the case of a company not having share capital, the register of members shall contain the following particulars,, in respect of each member, namely:(a) name of the member; address (registered office address in case the member is a body corporate); e-mail, address; Permanent Account Number or CIN; Unique Identification Number, if any; Father’s/ Mother’s/, Spouse’s name; Occupation; Status; Nationality; in case member is a minor, name of the guardian and the date, of birth of the member; name and address of nominee;, (b) date of becoming member;, (c) date of cessation;, (d) amount of guarantee, if any;, (e) any other interest if any; and, (f), instructions, if any, given by the member with regard to sending of notices etc., Rule 3 & 5 of the Companies (Management and Administration) Rules, 2014 deal with maintenance of Register, under section 88. It is provided that every company limited by shares shall from the date of its registration, maintain a register of its members in Form No. MGT-1.
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136, , , , IMPORTANT POINTS, , Lesson 3 • EP-CL, , Rule 5 of the Companies (Management and Administration) Rules, 2014 provides that:, •, •, •, , •, •, •, •, •, , The entries in the registers maintained under section 88 of the Companies Act, 2013, shall be made within, 7 days after the Board of Directors or its duly constituted committee approves the allotment or transfer, of shares, debentures or any other securities, as the case may be., The registers shall be maintained at the registered office of the company unless a special resolution is, passed in a general meeting authorising the keeping of the register at any other place within the city, town, or village in which the registered office is situated or any other place in India in which more than onetenth of the total members entered in the register of members reside., , Consequent upon any forfeiture, buy-back, reduction, sub-division, consolidation or cancellation of, shares, issue of sweat equity shares, transmission of shares, shares issued under any scheme of, arrangements, mergers, reconstitution or employees stock option scheme or any of such scheme provided, under this Act or by issue of duplicate or new share certificates or new debenture or other security, certificates, entry shall be made within seven days after approval by the Board or committee, in the register, of members or in the respective registers, as the case may be., If any change occurs in the status of a member or debenture holder or any other security holder whether, due to death or insolvency or change of name or due to transfer to Investor Education Protection Fund or, due to any other reason, entries thereof explaining the change shall be made in the respective register., If any rectification is made in the register by the company pursuant to any order passed by the competent, authority under the Act, the necessary reference of such order shall be indicated in the respective register., If any order is passed by any judicial or revenue authority or by Security and Exchange Board of India, (SEBI) or Tribunal attaching the shares, debentures or other securities and giving directions for remittance, of dividend or interest, the necessary reference of such order shall be indicated in the respective register., , In case of companies whose securities are listed on a stock exchange in or outside India, the particulars of, any pledge, charge, lien or hypothecation created by the promoters in respect of any securities of the, company held by the promoter including the names of pledgee/pawnee and any revocation therein shall, be entered in the register within fifteen days from such an event., If promoters of any listed company, which has formed a joint venture company with another company have, pledged or hypothecated or created charge or lien in respect of any security of the listed company in, connection with such joint venture company, the particulars of such pledge, hypothecation, charge and, lien shall be entered in the register members of the listed company within fifteen days from such an event., , Authentication of the Register- Rule 8 of the Companies (Management and Administration), Rules, 2014, The entries in the registers maintained under section 88 and index included therein shall be authenticated by the, company secretary of the company or by any other person authorised by the Board for the purpose, and the date of, the board resolution authorising the same shall be mentioned., , The entries in the foreign register shall be authenticated by the company secretary of the company or person, authorised by the Board by appending his signature to each entry.
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Lesson 3 • Members and Shareholders, , 137, , Case Laws:, Related to Register of Members, 1., A person who claims to have purchased the shares of a member will be entitled to have his name entered, in the register by satisfying the requirement of either Section 108 or 109 [Corresponds to section 56 of, the Companies Act, 2013]. [Lalithamba Bai v. Harrisons Malayalam Ltd., (1988) 2 Comp LJ 41 (Ker)]., 2., , No company should enter in the register a statement that has a lien on the shares of a member, [W.Key &, Son Ltd., (1902) 1 Ch 467]., , 4., , In a voluntary winding up, the liquidator may accept share transfers and alter the register accordingly., [Taylor, Phillips and Richard’s Case, (1897) 1 Ch 298]., , 3., , 5., , A company cannot insist upon putting in the register anything except that which is required by the, section to be inserted in it. [T.H. Saunders & Co. Ltd. Re, (1908) 1 Ch 415]., A firm in its own name cannot be registered as a member, as a firm is not a legal person like a company, incorporated under the Act. Only the partners can be recognised and registered as joint holders. [See Re, Vagliano & Anthracite Collieries Ltd., (1910) 79 LJ Ch 769]., , Index of Members, Section 88(2) of the Companies Act, 2013 read with Rule 6 of Companies (Management and Administration) Rules,, 2014 requires that every register maintained under section 88(1) of the Act, shall include an index of the names, included therein., , Every register maintained under sub-section (1) of section 88 of the Act, shall include an index of the names entered, in the respective registers and the index shall, in respect of each folio, contain sufficient indication to enable the, entries relating to that folio in the register to be readily found., The maintenance of index is not necessary, in case, the number of members is less than 50., , The company shall make the necessary entries in the index simultaneously with the entry for allotment or transfer, of any security in such Register., Inspection must be allowed of the Index in the same manner as applicable to the register of members., , Place of keeping and inspection of the Registers, , Section 94 of the Companies Act, 2013 fixes the place for maintaining a company’s registers returns etc. and for, allowing their inspection., , According to Section 94(1), the registers required to be kept and maintained by a company under section 88 and, copies of the annual return filed under section 92 shall be kept at the registered office of the company:, Such registers or copies of return may also be kept at any other place in India in which more than one-tenth of the, total number of members entered in the register of members reside, if approved by a special resolution passed at a, general meeting of the company., , Inspection of Registers, , According to section 94(2) read with Rule 14 of the Companies (Management & Administration) Rules, 2014 the, registers and their indices, except when they are closed under the provisions of this Act, and the copies of all the, returns shall be open for inspection by any member, debenture-holder, other security holder or beneficial owner,, during business hours without payment of any fees and by any other person on payment of such fees as may be, specified in the articles of association of the company but not exceeding Rs. 50 for each inspection.
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138, , , , Lesson 3 • EP-CL, , As per Section 94(3) any such member, debenture-holder, other security holder or beneficial owner or any other, person may–, (a) take extracts from any register, or index or return without payment of any fee; or, (a), , require a copy of any such register or entries therein or return on payment of such fees as may be specified, in the Articles of Association of the company but not exceeding Rs 10 for each page., , Such particulars of the register or index or return as may be prescribed shall not be available for inspection under, section 94(2) or for taking extracts or copies under section 94(3)., , Rule 14 of the Companies (Management and Administration) Rules, 2014 provides that the registers and indices, maintained pursuant to section 88 and copies of returns prepared pursuant to section 92 of the Act, shall be open, for inspection during business hours, at such reasonable time on every working day as the board may decide, by any, member, debenture holder, other security holder or beneficial owner without payment of fee and by any other, person on payment of such fee as may be specified in the articles of association of the company but not exceeding, Rs. 50 for each inspection., Explanation: For the purposes of this sub-rule, reasonable time of not less than two hours on every working day, shall be considered by the company., , Further it is provided that any such member, debenture holder, security holder or beneficial owner or any other, person may require a copy of any such register or entries therein or return on payment of such fee as may be, specified in the articles of association of the company but not exceeding ten rupees for each page. Such copy or, entries or return shall be supplied within seven days of deposit of such fee., , Copies of the registers and annual return, , Rule 16 of the Companies (Management and Administration) Rule, 2014 provides copies of the registers maintained, under section 88 or entries therein and annual return filed under section 92 shall be furnished to any member,, debenture-holder, other security holder or beneficial owner of the company or any other person on payment of, such fee as may be specified in the Articles of Association of the company but not exceeding rupees ten for each page, and such copy shall be supplied by the company within a period of seven days from the date of deposit of fee to the, company., , Consequences if inspection is refused, , According to Section 94(4), if any inspection or the making of any extract or copy required under this section is, refused, the company and every officer of the company who is in default shall be liable, for each such default, to a, penalty of 1000 rupees for every day subject to a maximum of 1 lakh rupees during which the refusal or default, continues., Further section 94(5) provides that “the Central Government may also, by order, direct an immediate inspection of, the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it.”, , Register An evidence, , Section 95 of the Companies Act, 2013 provides, that the registers, their indices and copies of, annual returns maintained under sections 88 and, 94 shall be prima facie evidence of any matter, directed or authorised to be inserted therein by, or under this Act., A register of members is prima facie evidence of, the truth of its contents. Accordingly, if a person’s, name, to his knowledge, is there in the register of, members of a company, he shall be deemed to be, a member and onus lies on him to prove that he is, not a member. He must promptly appeal to the, , In Re. M.F.R.D. Cruz, A.I.R. 1939 Madras 803, the plaintiff, applied for 4,000 shares in a company but no allotment was, made to him. Subsequently 4,000 shares were transferred to, him without his request and his name was entered in the, register of members. The plaintiff knew it but took no steps, for rectification of the register of members. The company, went into liquidation and he was held liable as a contributory., The Court held “when a person knows that his name is, included in the register of shareholders and he stands by, and allows his name to remain, he is holding out to the public, that he is a shareholder and thereby he loses his right to, have his name removed”.
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Lesson 3 • Members and Shareholders, , 139, , Tribunal or a competent Court outside India specified by the Central Government by notification, in respect of, foreign members or debenture holder residing outside India for rectification of the register under Section 59 of the, Act to take his name off the register, failing which the doctrine of holding out will apply., , Foreign Register, , Section 88(4) of the Companies Act, 2013 empowers companies to keep foreign registers of members or debentureholders, other security holders or beneficial owners residing outside India. It states:, , “A company may, if so authorised by its articles, keep in any country outside India, in such manner as may be, prescribed, a part of the register referred to in sub-section (1), called “foreign register” containing the names and, particulars of the members, debenture-holders, other security holders or beneficial owners residing outside India.”, A foreign register is deemed to be a part of the company’s principal register and it should be kept in the same, manner as the principal register and be likewise open to inspection., , A duplicate of such register should be maintained at the registered office in India and all entries made in the foreign, register should be made in the duplicate register at the registered office as soon as possible., , A company may discontinue a foreign register at any time but all the entries made in it must be transferred to the, principal register., The decision of a competent Court in the State or Country in which a foreign register is kept, with regard to its, rectification, shall be as effective as if it were a decision of a competent Court in India, if the Central Government, by, notification in the Official Gazette, so directs., , Maintenance of Foreign Register, , Rule 7 of the Companies (Management and Administration) Rules, 2014 deals with maintenance of foreign register,, it is provided that a company which has share capital or which has issued debentures or any other security may, if, so authorised by its articles, keep in any country outside India, a part of the register of members or as the case may, be, of debenture holders or of any other security holders or of beneficial owners, resident in that country (hereafter, in this rule referred to as the “foreign register”)., The company shall, within 30 days from the date of the opening of any foreign register, file with the Registrar notice, of the situation of the office in Form No.MGT.3 along with the fee where such register is kept; and in the event of, any change in the situation of such office or of its discontinuance, shall, within 30 days from the date of such change, or discontinuance, as the case may be, file notice in Form No.MGT.3 with the Registrar of such change or, discontinuance., A foreign register shall be deemed to be part of the company’s register (hereafter in this rule referred to as the, “principal register”) of members or of debenture holders or of any other security holders or beneficial owners, as, the case may be., The foreign register shall be maintained in the same format as the principal register., , A foreign register shall be open to inspection and may be closed, and extracts may be taken there from and copies, thereof may be required, in the same manner, mutatis mutandis, as is applicable to the principal register, except that, the advertisement before closing the register shall be inserted in at least two newspapers circulating in the place, wherein the foreign register is kept., If a foreign register is kept by a company in any country outside India, the decision of the appropriate competent, authority in regard to the rectification of the register shall be binding., , Entries in the foreign register maintained under sub-section (4) of section 88 shall be made simultaneously after, the Board of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures, or any other securities, as the case may be.
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140, , , , The company shall, (a), , (b), , Lesson 3 • EP-CL, , transmit to its registered office in India a copy of every entry in any foreign register within fifteen days after, the entry is made; and, keep at such office a duplicate register of every foreign register duly entered from time to time., , Every such duplicate register shall, for all the purposes of this Act, be deemed to be part of the principal register., , Subject to the provisions of section 88 of the Act and the rules made thereunder, with respect to duplicate registers,, the shares or as the case may be, debentures or any other security, registered in any foreign register shall be, distinguished from the shares or as the case may be, debentures or any other security, registered in the principal, register and in every other foreign register; and no transaction with respect to any shares or as the case may be,, debentures or any other security, registered in a foreign register shall, during the continuance of that registration,, be registered in any other register., The company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be, transferred to some other foreign register kept by the company outside India or to the principal register., , Closing of Register of Members, , Section 91 of the Companies Act, 2013 contains guidelines for closing the register of members. It lays down:, (1) A company may close the register of members or the register of debenture-holders or the register of other, security holders for any period or periods not exceeding in the aggregate 45 days in each year, but not, exceeding 30 days at any one time, subject to giving of previous notice of at least 7 days or such lesser period, as may be specified by Securities and Exchange Board for listed companies or the companies which intend to, get their securities listed, in the prescribed manner., (2), , If the register of members or of debenture-holders or of other security holders is closed without giving the, notice as provided above, or after giving shorter notice than that so provided, or for a continuous or an, aggregate period in excess of the limits specified in that sub-section, the company and every officer of the, company who is in default shall be liable to a penalty of 5000 rupees for every day subject to a maximum of, 1 lakh rupees during which the register is kept closed., , In a decided case law it was held that the provisions contained in Section 154 of the Companies Act, 1956, (Corresponds to section 91 of the Companies Act, 2013) are permissive and not mandatory. The section has, application only when a company desires to close its register of members and in such a situation, the requirements, of the section are to be complied with. [Talyar Tea Co. v. Union of India, (1991) 71 Com Cases 95]., The power in this section is intended for the convenience of the company in order to enable the register of members, to be brought up to date for the purpose of calculating dividend and bonus, etc. However, even if the register of, members is closed, the company is obliged to make certain entries during the period of closure, such as entries, relating to registration and probates and letters of administration, notices of change of name and address and court, orders, such as changing orders, etc. [Killick Nixon Ltd. v. Dhanraj Mill Pvt. Ltd., (1983) 54 Com Cases 432 (DB) (Bom)]., The closure of the register is cloaked with the right to refuse the transfer of shares/debentures. Record date is an, alternate for closing the registers. The purpose of closing the registers is to get the registers updated and to fix a, cut-off date for the purpose of payment of dividend or issue of rights and bonus shares. This purpose can also be, achieved by fixing a record date for a day., , Further Rule 10 of the Companies (Management and Administration) Rules, 2014 in relation to Closure of register, of members or debenture holders or other security holders provides that a company closing the register of members, or the register of debenture holders or the register of other security holders shall give at least seven days previous, notice and in such manner, as may be specified by Securities and Exchange Board of India(SEBI), if such company is, a listed company or intends to get its securities listed, by advertisement at least once in a vernacular newspaper in, the principal vernacular language of the district and having a wide circulation in the place where the registered, office of the company is situated, and at least once in English language in an English newspaper circulating in that
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Lesson 3 • Members and Shareholders, , 141, , district and having wide circulation in the place where the registered office of the company is situated and publish, the notice on the website as may be notified by the Central Government and on the website, if any, of the Company., , The above mentioned provisions shall not be applicable to a private company provided that the notice has been, served on all members of the private company not less than seven days prior to closure of the register of members, or debenture holders or other security holders., , Preservation of Registers, , Rule 15 of the Companies (Management and Administration) Rules, 2014 provides that the register of members, along with the index shall be preserved permanently and shall be kept in the custody of the Company Secretary of, the company or any other person authorized by the Board for such purpose and the register of debenture holders, or any other security holders along with the index shall be preserved for a period of 8 years from the date of, redemption of debentures or securities, as the case may be, and shall be kept in the custody of the company secretary, of the company or any other person authorized by the Board for such purpose., The foreign register of members shall be preserved permanently, unless it is discontinued and all the entries are, transferred to any other foreign register or to the principal register. Foreign register of debenture holders or any, other security holders shall be preserved for a period of 8 years from the date of redemption of such debentures or, securities. The foreign register shall be kept in the custody of the company secretary or person authorised by the, Board., , Power of the Central Government to Investigate into the Ownership of Company, , Sometimes, the registered holder of shares in a company may be a nominee for some other person, who really owns, the shares. This enables persons, who in fact control a company, to conceal their real status from the shareholders, and from the public and practice fraud with regard to the management of the company. To check such a practice,, Sections 216 of the Act, empowers the Central Government to appoint an inspector to investigate into and report on, the ownership of a company., , DECLARATION BY PERSONS NOT HOLDING BENEFICIAL INTEREST IN ANY SHARE, , For the purpose of section 89 and 90, beneficial interest in a shares, includes, directly or indirectly, through any contract,, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to:, (i), , (ii), , exercise or cause to be exercised any or all of the rights attached to such share; or, , receive or participate in any dividend or other distribution in respect of such share., , Section 89(1) of the Companies Act, 2013 read with the Companies (Management and Administration) Rules, 2014, makes it obligatory on the part of a person, whose name is entered in the register of members of a company as the, holder of a shares in that company but who does not hold beneficial interest in such shares, a declaration to the, company specifying the name and other particulars of the person who holds the beneficial interest in such shares, , Section 89(2) of the Act, makes it obligatory for any person who, holds or acquires beneficial interest in a share of, a company to make a declaration to the company specifying the nature of his interest, the particulars of the person, in whose name the shares stand registered in the books of the company and such other particulars as may be, prescribed., , Section 89(3) of the Act, states that where any change occurs in the beneficial interest in such shares, the person, referred in sub-section (1) and the beneficial owner specified under sub-section (2) of Section 89 of the Act, shall, make a declaration within thirty days, from the date of such change to the company in the prescribed Form, containing the prescribed particulars., Section 89(4) of the Act, states that the Central Government may make rules to provide for the manner of holding, and disclosing beneficial interest and beneficial ownership under this section., Section 89(5) of the Act, provides that if any person fails to make a declaration as required under sub-section (1) or, sub-section (2) or sub-section (3) of Section 89, he shall be liable to a penalty of fifty thousand rupees and in case, of continuing failure, with a further penalty of two hundred rupees for each day after the first during which such, failure continues, subject to a maximum of five lakh rupees.
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142, , , , Lesson 3 • EP-CL, , Section 89(6) of the Act, makes it obligatory on the part of the company to make a note of such a declaration in the, register concerned and to file within thirty days from the date of receipt of declaration by it, with the Registrar of, Companies, a return in the prescribed form with regard to such a declaration with such fees or additional fees as, may be prescribed., In case of Specified IFSC Public Company/ Specified IFSC Private Company, in Section 89(6) the word “30 days” is, substituted as “60 days”. Notification dated 4th January, 2017., , Section 89(7) of the Act, says if a company, required to file a return under sub-section (6), fails to do so before the, expiry of the time specified therein, the company and every officer of the company who is in default shall be liable, to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five, lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default., Section 89(8) of the Act, says no right in relation to any share in respect of which a declaration is required to be, made under this section but not made by the beneficial owner, shall be enforceable by him or by any person claiming, through him., Section 89(9) of the Act, says that nothing in this section shall be deemed to prejudice the obligation of a company, to pay dividend to its members under this Act and the said obligation shall, on such payment, stand discharged., , Section 89(10) of the Act, provides that for the purposes of this section and section 90, beneficial interest in a share, includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person, alone or together with any other person to:, (i), , (ii), , exercise or cause to be exercised any or all of the rights attached to such share; or, , receive or participate in any dividend or other distribution in respect of such share., , Section 89(11) of the Act, provides that the Central Government may, by notification, exempt any class or classes of, persons from complying with any of the requirements of this section, except sub-section (10), if it is considered, necessary to grant such exemption in the public interest and any such exemption may be granted either, unconditionally or subject to such conditions as may be specified in the notification., In case of Government company - Section 89 shall not apply - Notification dated 5th June, 2015., , Step for declaration of beneficial interest in any shares [Rule 9 of the Companies (Management, and Administration) Rules, 2014], (1) A person whose name is entered in the register of members of a company as the holder of shares in that, company but who does not hold the beneficial interest in such shares (hereinafter referred to as “the registered, owner”), shall file with the company, a declaration to that effect in Form No. MGT 4, within a period of 30 days, from the date on which his name is entered in the register of members of such company:, , When any change occurs in the beneficial interest in such shares, the registered owner shall, within a period of, 30 days from the date of such change, make a declaration of such change to the company in Form No. MGT 4., , (2) Every person holding and exempted from furnishing declaration or acquiring a beneficial interest in shares of, a company not registered in his name (hereinafter referred to as “the beneficial owner”) shall file with the, company, a declaration disclosing such interest in Form No. MGT 5, within 30 days after acquiring such, beneficial interest in the shares of the company:, , Provided that where any change occurs in the beneficial interest in such shares, the beneficial owner shall,, within a period of thirty days from the date of such change, make a declaration of such change to the, company in Form No. MGT 5.
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Lesson 3 • Members and Shareholders, , 143, , (3) Where any declaration under section 89 of the Act, is received by the company, the company shall make a, note of such declaration in the register of members and shall file, within a period of 30 days from the date, of receipt of declaration by it, a return in Form No. MGT. 6 with the Registrar in respect of such declaration, with fee., Provided that nothing contained in this rule shall apply in relation to a trust which is created, to set up a, Mutual Fund or Venture Capital Fund or such other fund as may be approved by SEBI., , SIGNIFICANT BENEFICIAL OWNERS IN A COMPANY [SECTION 90 R/W THE COMPANIES, (SIGNIFICANT BENEFICIAL OWNERS) RULES, 2018], , Section 90(1) of the Act provides that every individual, who acting alone or together, or through one or more persons, or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than 25% or such, other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of, significant influence or control as defined in clause (27) of section 2 of the Act, over the company (herein referred, to as “significant beneficial owner”), shall make a declaration to the company, specifying the nature of his interest, and other particulars, in such manner and within such period of acquisition of the beneficial interest or rights and, any change thereof, as may be prescribed., Provided the Central Government may prescribe a class or classes of persons who shall not be required to make, declaration as stated above., In case of Government company - Section 90 shall not apply. - Notification dated 5th June, 2015., , Rule 2 of the Companies (Significant Beneficial Owners) Rules, 2018 as amended by the, Companies (Significant Beneficial Owners) Amendment Rules, 2019, KEY CONCEPTS, As per the definition provided in Section 90(1) of the Companies Act, 2013 the Government is empowered to, prescribe other threshold limit for the determination of the Significant Beneficial Owner. Accordingly, the revised, Rule 2 of the Companies (Significant Beneficial Owners) Rules, 2018 as amended by the Companies (Significant, Beneficial Owners) Amendment Rules, 2019 provides the following definition :As per Rule 2(h) of the Companies (Significant Beneficial Owners) Rules, 2018:, , “Significant beneficial owner” in relation to a reporting company means an individual referred to in sub-section, (1) of section 90,who acting alone or together ,or through one or more persons or trust, possesses one or more of, the following rights or entitlements in such reporting company, namely:, (i), , holds indirectly, or together with any direct holdings, not less than 10% of the shares;, , (iii), , has right to receive or participate in not less than 10% of the total distributable dividend, or any other, distribution, in a financial year through indirect holding alone, or together with any direct holdings;, , (ii), , (iv), , holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares;, , has right to exercise, or actually exercises, significant influence or control, in any manner other than through, direct holdings alone.
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144, , , , Who is a Significant Beneficial Owner?, , I), II), , Lesson 3 • EP-CL, , Explanation I: If an individual does not hold any right or entitlement indirectly under sub-clauses (i), (ii) or, (iii) as mentioned above, he shall not be considered to be a significant beneficial owner., Explanation II: Direct Holding of Right and Entitlement, , An individual shall be considered to hold a right or entitlement directly in the reporting company, if, he satisfies any of the following criteria, namely:, (i), III), , (ii), , the shares in the reporting company representing such right or entitlement are held in the name of the, individual;, , the individual holds or acquires a beneficial interest in the share of the reporting company under, Section 89(2), and has made a declaration in this regard to the reporting company., , Explanation III: Indirect Holding of Right and Entitlement, , An individual shall be considered to hold a right or entitlement indirectly in the reporting company,, if he satisfies any of the following criteria, in respect of a member of the reporting company, namely:
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Lesson 3 • Members and Shareholders, , Body, Corporate, Member, , (i) Where the member of the reporting company is a body corporate (whether incorporated or, registered in India or abroad), other than a limited liability partnership, and the individual,a) holds majority stake in that member; or, b) holds majority stake in the ultimate holding company (whether incorporated or, registered in India or abroad) of that member., , HUF, Member, , (ii) Where the member of the reporting company is a Hindu Undivided Family (HUF), (through karta), and the individual is the karta of the HUF., , 145, , (iii) Where the member of the reporting company is a Partnership Entity (through itself or a, partner), and the individual,(a) is a partner; or, Partnership, (b) holds majority stake in the body corporate which is a partner of the partnership entity;, or, Entity, (c) holds majority stake in the ultimate holding company of the body corporate which is a, Member, partner of the partnership entity., Trust, Member, , (iv) Where the member of the reporting company is a trust (through trustee), and the individual,(a) is a trustee in case of a discretionary trust or a charitable trust;, (b) is a beneficiary in case of a specific trust;, (c) is the author or settlor in case of a revocable trust., , (v) Where the member of the reporting company is,a) a pooled investment vehicle; or, b) entity controlled by the pooled investment vehicle; based in member State of the, Financial Action Task Force on Money Laundering and the regulator of the securities, Pool, market in such member State is a member of the International Organization of, Investement, Securities Commissions, and the individual in relation to the pooled investment, Vehicle, vehicle,Member, • is a general partner; or, • is an investment manager; or, • is a Chief Executive Officer where the investment manager of such pooled vehicle is, a body corporate or a partnership entity., , IV), , Explanation IV – Where the member of a reporting company is,, (i), , (ii), , a pooled investment vehicle; or, , an entity controlled by the pooled investment vehicle,, , based in a jurisdiction which does not fulfil the requirements referred to in clause (v) of Explanation, III, the provisions of clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation III, as the case, may be, shall apply., , Meaning of Key Terms:, •, , Acting together means- For the purpose of the aforesaid clause meaning of "Acting together" is given by, Explnation V as under:, If any individual, or individuals acting through any person or trust, act with a common intent or purpose of, exercising any rights or entitlements, or exercising control or significant influence, over a reporting company,, pursuant to an agreement or understanding, formal or informal, such individual, or individuals, acting through, any person or trust, as the case may be, shall be deemed to be ‘acting together’.
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146, , •, , , , Lesson 3 • EP-CL, , Shares: For the purpose of the aforesaid clause meaning of "Shares" is given by Explnation VI as under:, , As per Explanation VI of Rule 2 (h) of SBO Rules, For the purpose of calculation of 10% of beneficial interest in, shares, Shares includes instrument in form of:, », , Global Depository Receipts,, , », , Compulsorily Convertible Preference Shares, or, , », •, , Compulsory convertible debentures., , •, , Reporting Company - As per Rule 2(f) of SBO Rules, 2018, Reporting Company means a company as defined, in clause (20) of section 2 of the Companies Act, 2013 required to comply with the requirements of section 90, of the Companies Act, 2013, , •, , Majority stake means;-, , Partnership entity means a partnership firm registered under the Indian Partnership Act, 1932 (9 of 1,932), or a limited liability partnership registered under the Limited Liability Partnership Act, 2008, (i), , holding more than one-half of the equity share capital in the body corporate; or, , (iii), , having the right to receive or participate in more than one-half of the distributable dividend or any, other distribution by the body corporate., , (ii), •, , holding more than one-half of the voting rights in the body corporate; or, , Significant Influence means the power to participate, directly or indirectly, in the financial and operating, policy decisions of the reporting company but is not control or joint control of those policies., , Practical Scenarios for determining SBOs:, (i), , S holds directly 10% of equity in A Ltd. and he holds 55% of equity in H Ltd. which holds 1%, equity in A Ltd., S holds directly 10% of equity in A Ltd. and he holds 55% of equity in H Ltd. which holds 1% equity in, A Ltd. - S is a Significant Beneficial Owner since he holds 11% totally through indirect and direct, holdings., , (ii) S holds 8% of equity while M holds 7% of equity in A Ltd. and they are deemed to act together., , S holds 8% of equity while Mr. M holds 7% of equity in A Ltd. and they are deemed to act together - S, and M are not Significant Beneficial Owner, as there is no indirect holding and their acting together is, irrelevant., , (iii) S holds 8% of equity in A Ltd. directly. S is also the Karta of a HUF that holds 7% equity in A Ltd., , S holds 8% of equity in A Ltd. directly. Mr. S is also the Karta of a HUF that holds 7% of equity in A Ltd., S is a Significant Beneficial Owner since he holds total 15% equity through indirect and direct holdings., , (iv) S holds 8% of equity in A Ltd. directly. S is also the trustee of a discretionary trust that holds 3%, equity in A Ltd., S holds 8% of equity in A Ltd. directly. Mr S is also the trustee of a discretionary trust that holds 3%, equity in A Ltd. He is a Significant Beneficial Owner since he holds total 11% equity in A Ltd. through, indirect and direct holdings. Holding by way of being a trustee of a discretionary trust is considered to, be indirect holding., , Obligations of the Significant Beneficial Owner (Rule 3 of the Companies (Significant Beneficial, Owners) Rules, 2018, Initial Disclosure: On the date of commencement of the Companies (Significant Beneficial Owners) Amendment, Rules, 2019, every individual who is a significant beneficial owner in a reporting company, was required to file a
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147, , Lesson 3 • Members and Shareholders, , declaration in Form No. BEN-1 to the reporting company within ninety days from such commencement i.e.,, February 08, 2019., , Continual Disclosure: Every individual, who subsequently becomes a SBO/ or where his significant beneficial, ownership undergoes any change shall file a declaration in Form No. BEN-1 to the reporting company, within 30, days of acquiring such significant beneficial ownership or any change therein., , Duty of the Reporting Company, , Return of significant beneficial owners in shares, Upon receipt of a declaration from the Significant Beneficial Owner of the company and changes therein, the, reporting company shall file a return in Form No. BEN-2 with the Registrar in respect of such declaration, within a, period of 30 days from the date of receipt of such declaration, along with the prescribed fees., Notice to the Significant Beneficial Owner, , It should be noted that, the obligation of the individual to self-declare his significant beneficial holdings, and the, obligation of the company to send notice seeking information from members in terms of Rule 2A of the Companies, (Significant Beneficial Owners) Rules, 2018, are independent obligations., As per Rule 2A(1) of the Companies (Significant Beneficial Owners) Rules, 2018, every reporting company shall, take necessary steps to find out if there is any individual who is a significant beneficial owner, as defined in rule 2(h), of the Companies (Significant Beneficial Owners) Rules, 2018, in relation to that reporting company, and if so,, identify him and cause such individual to make a declaration in Form No. BEN-1., Further, according to Section 90(5) a company shall give notice, in the prescribed manner, to any person, (whether or not a member of the company) whom the company knows or has reasonable cause to believe(a) to be a significant beneficial owner of the company;, , (b) to be having knowledge of the identity of a significant, beneficial owner or another person likely to have such, knowledge; or, , (c) to have been a significant beneficial owner of the company at, any time during the three years immediately preceding the date, on which the notice is issued, and who is not registered as a, significant beneficial owner with the company as required under, this section., The abovementioned particulars should be submitted in writing, to the registered address of the company by concerned person, not later than 30 days of the date of this notice., , As per Rule 2A(2) of SBO Rules whereby, the, reporting company has members (other than, individual) holding 10% or more of, participating interest [either of shares,, voting rights, or right to receive or participate, in the dividend or any other distribution, payable in a financial year], shall give notice, to such member seeking information in, accordance with Section 90(5) about the, individual who is significant beneficial, owner in the reporting company in Form, BEN-4., , Consequences of Non-Reporting under Section 90 (5), , As per Rule 7 of The Companies (Significant Beneficial Owners) Rules, 2018, the reporting company shall apply to, the Tribunal within a period of 15 days of the expiry of the period specified in BEN-4,, (i) where any person fails to give the information required by the notice in Form No. BEN-4, within the time specified, therein; or, (ii) where the information given is not satisfactory,, , in accordance with section 90(7) of the Companies Act, 2013, for order directing that the shares in question be, subject to restrictions, including:, (a) restrictions on the transfer of interest attached to the shares in question;, , (b) suspension of the right to receive dividend or any other distribution in relation to the shares in question;, (c) suspension of voting rights in relation to the shares in question;
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148, , , , (d) any other restriction on all or any of the rights attached with the shares in question., , Lesson 3 • EP-CL, , Order of Tribunal, , NCLT on application moved by a company is not under a binding obligation to pass any restrictive order and the, concerned person or member shall have the opportunity to explain why he or she is not a significant beneficial, owner and retract the contentions made by the company., As per Section 90(8) of the Companies Act, 2013 the Tribunal may:, », », , After giving an opportunity of being heard to the parties concerned, make such order restricting the rights, attached with the shares, Within a period of 60 days of receipt of application or such other period as may be prescribed., , As per Section 90(9) of the Companies Act, 2013, the company or the person aggrieved by the order of the Tribunal, may make an application to the Tribunal for relaxation or lifting of the restrictions placed by the Tribunal within a, period of one year from the date of such order., However, if no such application has been filed within a period of one year from the date of the order, such shares, shall be transferred, without any restrictions, to the authority constituted under sub-section section 125(5) i.e.,, Investor Education and Protection Fund , in such manner as prescribed., The MCA vide notification dated June 09, 2021 has notified Rule 6A of the Investor Education and Protection Fund, Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 pertaining to the Manner of transfer of shares under, sub-section (9) of Section 90 of the Companies Act, 2013 to the Investor Education and Protection Fund (IEPF)., , Students will read the detailed Rule 6A of the Investor Education and Protection Fund Authority (Accounting,, Audit, Transfer and Refund) Rules, 2016 in Lesson 6 “Distribution of Profits – Dividend”., Register of Significant Beneficial Owners (Rule 5 of the Companies (Significant Beneficial Owners), Rules, 2018), The company shall maintain a register of significant beneficial owners in Form No. BEN-3 which includes the name, of individual, his date of birth, address, details of ownership in the company and such other details., , The register shall be open for inspection during business hours, at such reasonable time of not less than two hours,, on every working day as the board may decide, by any member of the company on payment of such fee as may be, specified by the company but not exceeding fifty rupees for each inspection., , Non-Applicability, , As Per Rule 8 of the Companies (Significant Beneficial Owners) Rules, 2018 shall not be made applicable to the, extent the share of the reporting company is held by:, », », », », », », , IEPF Authority, , It’s holding reporting company; however, the details of such holding reporting company shall be reported in, Form No. BEN-2, The Central Government, State Government or any local Authority, , Reporting co; or a body corporate; or an entity, controlled by the Central Government or by any State Government, or partially by the Central Government and partly by one or more State Governments, , SEBI registered Investment Vehicles such as mutual funds, alternative investment funds (AIF), Real Estate, Investment Trusts (REITs), Infrastructure Investment Trust (InVITs) regulated by SEBI, Investment Vehicles regulated by RBI, or IRDA, or Pension Fund Regulatory and Development Authority.
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149, , Lesson 3 • Members and Shareholders, , Penal Provisions, Section, , Nature of Violation, make, , Person Responsible, , Section 90(10), , Failure, to, declaration, , a SBO, , Section 90(11), , Failure, to, maintain •, register U/S 90(2) & file, information U/S 90(4) or, required to take necessary, steps under sub-section, 90(4A) and denial of, inspection, •, , Section 90(12), , Company, , penalty of Rs.50,000 and, in case of continuing, failure, with a further, penalty of Rs.1000 for, each day after the first, during which such failure, continues, subject to a, maximum of Rs.2 Lakhs, •, , Officer of the company •, who is in default, , Furnishing of false and Person declaring, incorrect information or Beneficial interest, suppressing any material, information, , Rectification of a Register of Members, , Penalty, , liable to a penalty of, Rs.1Lakh and in case, of continuing failure,, with a further penalty, of Rs.500 for each day,, after the first during, which such failure, continues, subject to a, maximum of Rs.5, Lakhs, , a penalty of Rs.25000, and in case of, continuing, failure,, with a further penalty, of Rs.200 for each day,, after the first during, which such failure, continues, subject to a, maximum of Rs.1, Lakh., , Liable to action under, Section 447 of the, Companies Act, 2013, (Fraud), , The register of members of a company contains names, addresses, occupations, if any etc. only of members of the, company. Any person, whose name is entered in the register of members of a company, considered to be its member,, although he may not own the shares which are shown in his name in the register of members. On the contrary, a, person, whose name is not entered in the register of members is not considered as member of the company even, though he may have done everything to entitle him to be put on the register of members. Injustice may, therefore,, result from such omission or commission., Section 59 of the Companies Act, 2013 confers powers on the Tribunal or a competent court outside India specified, by the Central Government by notification in respect of foreign members or debenture-holders residing outside, India to order rectification of register of members of a company if an appeal is made by the aggrieved person or by, any member of the company or the company on any of the following grounds:, (a), , where the name of a person is without sufficient cause, entered in the register of members of a company;, , (c), , where default is made or unnecessary delay takes place in entering in the register of members the fact of any, person having become, or ceased to be, a member of the company., , (b), , where his name, after having been entered in the register, is omitted without sufficient cause; or
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150, , Lesson 3 • EP-CL, , , , This may happen where a person has transferred his shares according to, law and the company either refuses or delays registration of transfer in, the transferee’s name., , The Tribunal may, after hearing the parties to the appeal for rectification, of register of members either dismiss the appeal or direct that the transfer, or transmission shall be registered by the company within ten days of the, receipt of the order or direct for rectification of records of the depository, or the register and in the latter case also direct the company to pay, damages if any, sustained by the party aggrieved., The provisions of this section shall not restrict the right of a holder of, securities, to transfer such securities and any person acquiring such, securities shall be entitled to voting rights unless the voting rights have, been suspended by an order of the Tribunal [Section 59(3)]., , It is pertinent to note that though, the time limit for filing an application, for rectification of register of, members has not been specified in, the Act, the provisions of Article 137, of the Limitation Act would apply, and in consequence, the application, for rectification must be made, within three years from the date on, which the right occurs [Ref. Anil, Gupta v. Delhi Cloth & General Mills, Co. Ltd., (1983) 54 Com Cases 301, (Delhi)]., , Where the transfer of securities is in contravention of any of the provisions of the Securities Contracts (Regulation), Act, 1956, the Securities and Exchange Board of India Act, 1992 or this Act or any other law for the time being in, force, the Tribunal may, on an application made by the depository, company, depository participant, the holder of, the securities or the Securities and Exchange Board, direct any company or a depository to set right the contravention, and rectify its register or records concerned. [Section 59(4)], (Note: Students may also refer lesson 2 - Share & Share Capital in this context.), , RIGHTS OF MEMBERS, , When once a person becomes a member he is entitled to exercise all the rights of a member until he ceases to, be a member in accordance with the provisions of the Act. The appointment of a receiver, the attachment of the, shares, the pledge of the shares or taking over of the management of a company which is holding shares in, another company will not alter the position. So long a person’s name stands registered in the books as a, member, even if he has sold the share and has given the share certificates and the blank transfer deed duly, signed, he alone is entitled to exercise the rights of membership [Balakrishna Gupta & Others v. Swadeshi, Polytex Ltd. and Others (1985) 58 Com Cases 563 (S.C.); and Life Insurance Corporation of India v. Escorts Ltd. &, Others (1986) 59 Com Cases 548 (S.C.)]. These rights are derived by virtue of the membership contract between, the company and the member and the general law. Some of these rights can be exercised by him individually, and others along with other members unless member himself holds shares equivalent to the minimum holding, prescribed under the various provisions of the Companies Act, 2013., , Individual Rights, , Members of a company enjoy certain rights in their individual capacity, which they can enforce individually. These, rights are contractual rights and cannot be taken away except with the written consent of the member concerned., These rights can be categorized as under:, (1) Right to receive copies of the following documents from the company:, (i), , (ii), , (iii), (2), , (iv), , A copy of the financial statements, including consolidated financial statements, if any, auditor’s report, and every other document required by law to be annexed or attached to the financial statements, (Section 136);, Abridged financial statement and auditor’s report in the case of a listed company (Section 136);, Report of the Cost Auditor, if so directed by the Government;, , Notices of the general meetings of the company (Sections 101-102)., , Right to inspect statutory registers/returns and get copies thereof without payment on any fee or on payment, of prescribed fee, The members have been given right to inspect the following registers etc.:
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Lesson 3 • Members and Shareholders, , (i), , Debenture trust deed (Section 71);, , (iii), , Copies of contract of employment with Managing or Whole-time Directors);, , (ii), , (iv), (v), (3), (4), , (vi), , 151, , Register of Charges and instrument of charges (Section 85 & 87);, Shareholders’ Minutes Book (Section 119);, , Register of Contracts, Companies and Firms in which Directors are interested (Section 189);, Register of directors and key managerial personnel and their shareholding (Section 170)., , Right to attend meetings of the shareholders and exercise voting rights at these meetings either personally or, through proxy (Sections 96, 100, 105 and 107)., Other rights., , Over and above the rights enumerated at Item Nos. 1 to 3 above, the members have the following rights:, (i), , To transfer shares (Sections 44 and 56 and Articles of Association of the company);, , (iii), , To receive dividend when declared (Section 123);, , (ii), , (iv), (v), , (vi), , To resist and safeguard against increase in his liability without his written consent;, To have rights shares (Section 62);, , To appoint directors (Section 152);, , To share the surplus assets on winding up (Section 320);, , (vii) Right of dissentient shareholders to apply to Tribunal (Section 48);, , (viii) Right to be exercised collectively by passing a special resolution and intimating the same to the Central, Government for investigation of the affairs of the company (Section 210);, (ix), , Right to make application collectively to the Tribunal for relief in cases of oppression and, mismanagement (Sections 241);, , (xi), , Right of Nomination. (Section 72);, , (x), , Right to file class action suits before the Tribunal (Section 245);, , (xii) Right to file a suit or take any other action in case of any misleading statement or the inclusion or, omission of any matter in the prospectus. (Section 37)., , Collective Membership Rights, , Members of a company have certain rights which can be exercised by members collectively by means of democratic, process, i.e. by majority of members usually unless otherwise prescribed. This involves the principle of submission, by all members to the will of the majority, provided that the will is exercised in accordance with the law and the, Memorandum and Articles of Association of the company. Thus, the shareholders in majority determine the policy, of the company and exercise control over the management of the company., However, if and when the majority becomes oppressive or is accused of mismanagement of the affairs of the, company, Section 241 read with section 244 of the Act, confers right, to not less than one hundred members of a, company or not less than one-tenth of the total number of its members whichever is less or any member or members, holding not less than one-tenth of the issued share capital of the company (but they must have paid all calls and, others sums due on their shares) and in the case of a company not having a share capital, not less than one-fifth of, the total number of its members, to apply to Board under Section 241 for relief in cases of oppression or for relief, in cases of mismanagement respectively., Section 100 of the Companies Act, 2013 confers on members, holding not less than one-tenth of the paid-up share, capital of a company, right to make a requisition to the Board of Directors to call an extraordinary general meeting, of the company. The section also confers on members having not less than one-tenth of the total voting power in a
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152, , , , Lesson 3 • EP-CL, , company not having a share capital, to make a requisition to the Board to call an extraordinary general meeting of, the company. If the Board of Directors of the company does not, within twenty-one days from the date of the deposit, of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of those matters on a, day not later than forty-five days from the date of deposit of the requisition, the meeting may be called and held by, the requisitionists themselves within a period of 3 months from the date of the requisition., , Voting Rights of Members, , The right of attending shareholders’ meetings and voting thereat is the most important right of a member of a, company, as shareholders’ meetings play a very important role in the company’s life. Directors are appointed by the, shareholders, who direct the affairs of the company, formulate short-term plans and long-term policies of the, company, appoint management personnel to constitute organisation to implement their plans and policies in order, to achieve the objects of the company., , In view of the importance of the general meetings of a company, the Companies Act has not left the members to the, will of the directors to call general meetings. If the members feel that the affairs of the company are not being, properly managed by the directors and the directors are avoiding to call a general meeting of the company, Section, 100 of the Companies Act confers right on members specified therein to deposit a requisition setting out the matters, for the consideration of which the meeting is to be called and if the Board does not, within twenty one days from the, date of receipt of a valid requisition in regard to any matter, proceed to call a meeting for the consideration of that, matter on a day not later than forty-five days from the date of receipt of such requisition, the meeting may be called, and held by the requisitonists themselves within a period of three months from the date of the requisition., Section 47 of the Act, provides that every member of a company limited by shares and holding equity share capital, therein, shall have right to vote on every resolution placed before the company and his voting right on a poll shall, be in proportion to his share in the paid up equity share capital of the company., , Section 43 of the Companies Act, 2013 provides that a company limited by shares shall be entitled to issue (i) equity, share capital with voting rights or (ii) with differential rights as to dividend, voting or otherwise in accordance with, such rules as may be prescribed by the Central Government., , Preference shareholders ordinarily vote only on matters directly affecting the rights attached to preference share, capital and on any resolution for winding up of the company or for the repayment or reduction of the equity or, preference share capital. The voting right of a preference shareholder on poll shall be in proportion to his share in, the paid-up preference share capital of the company. In respect of a resolution on a matter affecting both equity, shareholders and preference shareholders, the proportion of the voting rights of equity shareholders to the voting, rights of the preference shareholders shall be in the same proportion as the paid-up capital in respect of the equity, shares bears to the paid-up capital in respect of the preference shares. However, where the dividend in respect of a, class of preference shares has not been paid for a period of two years or more, such class of preference shareholders, shall have a right to vote on all the resolutions placed before the company (Section 47)., Section 50 of the Act lays down that a company may, if authorised by its articles, accept from any member the whole, or a part of the amount remaining unpaid on any shares held by him although no part of that amount has been called, up. Such advance payment, however, shall not confer on the member concerned any voting rights., , Shareholders’ Pre-emptive Rights with regard to further issue of share capital (Right Shares), , To preserve the shareholders’ proportionate dividend, liquidation and voting rights, pre-emptive rights are often, recognised, but their existence and scope can be effected by provisions in the articles. However, Section 62 of the, Companies Act, 2013 secures shareholders’ pre-emptive rights with regard to the further issue of share capital by, the company. The Section lays down:, , "(1) Where at any time, a company having a share capital proposes to increase its subscribed capital by the issue of, further shares, such shares shall be offered to persons who, at the date of the offer, are holders of equity shares of, the company in proportion, as nearly as circumstances admit, to the paid-up share capital" on those shares by, sending a letter of offer subject to the condition that unless the articles of the company otherwise provide, the offer, aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to, him or any of them in favour of any other person and the notice of offer shall contain a statement of this right [Subclause (a)].
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Lesson 3 • Members and Shareholders, , 153, , Rights of Dissenting Shareholders, Section 48(2) of the Companies Act, 2013 confers certain rights upon the dissenting shareholders. According to, section 48(2), where the rights of any class of shares are varied, the holders of not less than ten per cent of the, issued shares of that class, being persons who did not consent to such variation or vote in favour of the special, resolution for the variation, can apply to the Tribunal to have the variation cancelled. Where any such application is, made to the Tribunal, the variation will not be effective unless and until it is confirmed by the Tribunal., , The above application shall be made within twenty-one days after the date on which the consent was given or the, resolution was passed, as the case may be, and may be made on behalf of the shareholders entitled to make the, application by such one or more of their number as they may appoint in writing for the purpose., , Nomination by Security holders (including members) (Section 72), , Section 72(1) of the Act, states that every holder of securities of a company may, at any time, nominate, in the, prescribed manner, any person to whom his securities shall vest in the event of his death., , Section 72(2) of the Act, states that when the securities of a company are held by more than one person jointly, the, joint holders may together nominate, in the prescribed manner, any person to whom all the rights in the securities, shall vest in the event of death of all the joint holders., , Section 72(3) of the Act, states that notwithstanding anything contained in any other law for the time being in force, or in any disposition, whether testamentary or otherwise, in respect of the securities of a company, where a, nomination made in the prescribed manner purports to confer on any person the right to vest the securities of the, company, the nominee shall, on the death of the holder of securities or, as the case may be, on the death of the joint, holders, become entitled to all the rights in the securities, of the holder or, as the case may be, of all the joint holders,, in relation to such securities, to the exclusion of all other persons, unless the nomination is varied or cancelled in, the prescribed manner., Section 72(4) of the Act, states that when the nominee is a minor, it shall be lawful for the holder of the securities,, making the nomination to appoint, in the prescribed manner, any person to become entitled to the securities of the, company, in the event of the death of the nominee during his minority., Rule 19 of the Companies (Share Capital and debentures) Rules, 2014 deals with Nomination by Securities Holders., It provides that:(1) Any holder of securities of a company may, at any time, nominate, in Form No. SH.13, any person as his, nominee in whom the securities shall vest in the event of his death., (2), , On the receipt of the nomination form, a corresponding entry shall forthwith be made in the relevant register, of securities holders, maintained under section 88 of the Act., , (4), , The request for nomination should be recorded by the Company within a period of two months from the date, of receipt of the duly filled and signed nomination form., , (3), , (5), , Where the nomination is made in respect of the securities held by more than one person jointly, all joint, holders shall together nominate in Form No.SH.13 any person as nominee., , In the event of death of the holder of securities or where the securities are held by more than one person, jointly, in the event of death of all the joint holders, the person nominated as the nominee may upon the, production of such evidence as may be required by the Board, elect, either(a), , (6), (7), , (b), , to register himself as holder of the securities; or, , to transfer the securities, as the deceased holder could have done., , If the person being a nominee, so becoming entitled, elects to be registered as holder of the securities himself,, he shall deliver or send to the company a notice in writing signed by him stating that he so elects and such, notice shall be accompanied with the death certificate of the deceased share or debenture holder(s)., , All the limitations, restrictions and provisions of the Act relating to the right to transfer and the registration, of transfers of securities shall be applicable to any such notice or transfer as aforesaid as if the death of the
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154, , (8), , (9), , , , Lesson 3 • EP-CL, , share or debenture holder had not occurred and the notice or transfer were a transfer signed by that, shareholder or debenture holder, as the case may be., , A person, being a nominee, becoming entitled to any securities by reason of the death of the holder shall be, entitled to the same dividends or interests and other advantages to which he would have been entitled to if, he were the registered holder of the securities except that he shall not, before being registered as a holder in, respect of such securities, be entitled in respect of these securities to exercise any right conferred by the, membership in relation to meetings of the company., , The Board may, at any time, give notice requiring any such person to elect either to be registered himself or, to transfer the securities, and if the notice is not complied with within ninety days, the Board may thereafter, withhold payment of all dividends or interests, bonuses or other moneys payable in respect of the securities,, as the case may be, until the requirements of the notice have been complied with., A nomination may be cancelled, or varied by nominating any other person in place of the present nominee,, by the holder of securities who has made the nomination, by giving a notice of such cancellation or variation,, to the company in Form No. SH.14., , (10) The cancellation or variation shall take effect from the date on which the notice of such variation or, cancellation is received by the company., (11) When the nominee is a minor, the holder of the securities, making the nomination, may appoint a person in, Form No. SH.13 specified under sub-rule (1), who shall become entitled to the securities of the company, in, the event of death of the nominee during his minority., , LIABILITY OF MEMBERS, , The liability of a member depends on the nature of the company. If the company is registered with unlimited liability,, every member is liable in full for all the debts of the company contracted during the period of his membership., Where the company is limited by guarantee, each member will be bound to contribute in the event of winding up a, sum specified in the liability clause of the memorandum of association. In case of company limited by shares, each, member is bound to contribute the full nominal value of shares and his liability ends there. If before the full nominal, value of the shares is paid, the company goes into liquidation, the member becomes liable as contributory to pay the, balance when called upon to pay, by the liquidator of the company., Where a company has been incorporated by furnishing any false or incorrect information or representation or by, suppressing any material fact or information in any of the documents or declaration filed or made for incorporating, such company or by any fraudulent action, the Tribunal may, on an application made to it, on being satisfied that the, situation so warrants, direct that liability of the members shall be unlimited [Section 7(7) of the Act]., If a member ceased to be member of a company within one year prior to the commencement of the winding up of, the company he is liable to pay on the shares which he held to the extent of the amount unpaid thereon, if:, (i), on the winding up, debts exist which were incurred while he was a member, and, (ii), , it appears to the Tribunal that the present members are not able to satisfy the contribution required from, them in respect of their shares., , A person is liable as member inspite of a valid transfer of shares by him, if the name of the transferee is not placed, on the register of members, in place of the transferors’ name. If a person applies for shares in the name of a fictitious, person or a person not in existence or uses another person’s name for himself, or uses an alias, and shares are, allotted in that name or alias, he will be liable as a member., , Variation of Shareholder’s Rights, , Shareholder’s rights are determined by the Companies Act, Memorandum of association, Articles of association of, the company and the terms of issue of shares. Rights attached to a class of shares are known as “class rights”., , Shareholder’s rights relate to dividend, voting at members’ meetings and return of capital. Preference shareholders, may have rights to a fixed amount or a fixed rate of dividend or to cumulative dividend. Where the ordinary, shareholders are conferred the right to participate in the surplus assets on winding up of a company, it is not
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Lesson 3 • Members and Shareholders, , 155, , deemed to be a class right as it is implied even in the absence of any express provision in the articles., , Section 48 (1) of the Companies Act, 2013 lays down that where a share capital of the company is divided into, different classes of shares, the rights attached to the shares of any class can be varied with the consent in writing of, the holders of not less than three-fourths of the issued shares of that class or with the sanction of a special resolution, passed at a separate meeting of the holders of the issued shares of that class. Further, the variation of rights of, shareholders can be effected only:, (i), if provision with respect to such variation is contained in the Memorandum or Articles of association of the, company; or, (ii), , in the absence of any such provision in a Memorandum or Articles of association of the company, if such a, variation is not prohibited by the terms of issue of the shares of that class., , However, if variation by one class of shareholders affects the rights of any other class of shareholders, the consent, of three-fourths of such other class of shareholders shall also be obtained and the provisions of this section shall, apply to such variation., , SHAREHOLDERS’ DEMOCRACY, , The concept of shareholders’ democracy in the present day corporate world denotes the shareholders’ supremacy in, the governance of the business and affairs of corporate sector either directly or through their elected representatives., , Democracy means the rule of people, by the people and for the people. In that context the shareholders democracy, means the rule of shareholders, by the shareholders, and for the shareholders in the corporate enterprise, to which, the shareholders belong. Precisely it is a right to speak, congregate, communicate with co-shareholders and to learn, about what is going on in the company., Under the Companies Act the powers have been divided between two segments: one is the Board of Directors and, the other is of shareholders. The directors exercise their powers through meetings of Board of directors and, shareholders exercise their powers through General Meetings. Although constitutionally all the acts relating to the, company can be performed in General Meetings but most of the powers in regard thereto are delegated to the Board, of directors by virtue of the constitutional documents of the company viz. the Memorandum of Association and, Articles of Association., Under Section 179 of the Companies Act 2013 a general power has been conferred on the Board of directors. The, section provides that “Subject to the provisions of this Act, the Board of directors of a company shall be entitled to, exercise all such powers and to do all such acts and things, as the company is authorised to exercise and do.”, Proviso to this section restricts the power of the Board of Directors to do things which are specifically required to, be done by shareholders in the General Meetings under the provisions of Companies Act or Memorandum of, Association or the Articles of Association., , Thus the Companies Act has tried to demarcate the area of control of directors as well as that of shareholders., Basically all the business to be transacted at the meetings of shareholders is by means of an ordinary resolution or, a special resolution or by postal ballot., , Few businesses which are required to be transacted by shareholders, , 1., , Alteration of Memorandum of Association and Articles of Association., , 3., , To transfer some portions of uncalled capital to reserve capital to be called up only in the event of winding up, of the company., , 2., 4., 5., 6., , Further issue of share capital., , To reduce the share capital of the company., , To shift the registered office of the company outside the local limits of any city, town or village where the, registered office is situated., To decide a place other than the registered office of the company where the statutory books, required to be, maintained.
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156, , , , Lesson 3 • EP-CL, , 7., , Payment of interest on paid-up amount of share capital for defraying the expenses on construction when, plant cannot be commissioned for a longer period of time., , 9., , Any contract or arrangement with related party, above the threshold limits., , 8., 10., 11., 12., 13., 14., 15., 16., , To approach Central Government for investigation into the affairs of the company., , Payment of commission of more than statutory requirement to a managing or a whole-time director or a, manager., , To make loans, to extend guarantee or provide security to other companies or make investment beyond the, limit specified., To borrow money and to charge out the assets of the company to secure the borrowed money where the sums, to be borrowed along with money already borrowed exceeds the paid-up capital of the company and its free, reserves i.e. reserves not set apart for any specific purpose., To appoint directors., , To increase or reduce the number of directors within the limits laid down in Articles of Association., To cancel, redeem debentures etc., , To make contribution to funds not related to the business of the company., , In view of the rights conferred on shareholders to be exercised at General Meetings, the Act casts an obligation on, the directors to send notices for convening general meetings or else the meetings shall be declared to be void as also, all proceedings transacted thereat., Apart from the rights which are vested in the shareholders to be exercised in relation to the conduct of the business, of the company, the directors of the company have certain obligations towards the shareholders., The courts have determined two broad duties to be performed by a director:, 1., Duty of utmost care and skill in managing the affairs of the company or else be liable for damages., 2., , Fiduciary duty to act bona fide in the interest of the company, not to exercise powers for collateral benefit and, not to earn profit from the position as a director., , SHAREHOLDER’S AGREEMENT, , Shareholders’ agreements (SHA) are quite common in business. In India shareholder’s agreement have gained, popularity and currency only lately with bloom in newer forms of businesses. There are numerous situations where, such agreements are entered into – family companies, JV companies, venture capital investments, private equity, investments, strategic alliances, and so on. Shareholders’ agreement is a contractual arrangement between the, shareholders of a company describing how the company should be operated and the defining inter-se shareholders’, rights and obligations. SHAs are the result of mutual understanding among the shareholders of a company to which,, the company generally becomes a consenting party. Such agreements are specifically drafted to provide specific, rights, impose definite restrictions over and above those provided by the Companies Act. SHA creates personal, obligation between the members signing such agreement however, such agreements do not become a regulation of, the company in the way the provisions of Articles are., , Enforceability of the Shareholder’s Agreement, , Though the international view is split but to a large extent courts are inclined towards favouring SHA as long as they, are not found to be detrimental to the minority stakeholder’s rights. In the leading case of Russell v. Northern Bank, Development Corporation Ltd [1992] BCC 578; [1992] 1 WLR 588, the House of Lords found that though a company, cannot deprive itself of its power to alter its constitution, the members of the company could agree in a shareholders’, agreement as to how they will exercise their voting rights on a resolution to alter the articles/constitution. The US, Courts have largely accepted shareholder agreements. [Blount v. Taft [246 S.E.2d 763 at 769 (1978)], While shareholders’ agreements are enforceable in England regardless of whether they have been incorporated in, the articles of association of the company, in India courts have either refused to recognize clauses in shareholders, agreements or, even when consistent with company legislation, enforced such clauses only if they have been, incorporated in the articles of association of the company. There is a series of rulings where the courts have upheld
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Lesson 3 • Members and Shareholders, , 157, , that in case of any conflict between the Articles and the SHA, the former will always prevail. Some of these are:, •, , V.B. Rangaraj v. V.B. Gopalakrishnan (AIR 1992 SC 453), , •, , Shanti Prasad Jain v. Kalinga Tubes Ltd., (35 Com. Cas. 351 SC), , •, , Mafatlal Industries Ltd., v. Gujarat Gas Co. Ltd (97 Comp Cas 301 Guj),, , •, , Pushpa Katoch v. Manu Maharani Hotels Limited ([2006] 131 Comp Cas 42 (Delhi)], The Supreme Court in V.B. Rangaraj v. V.B. Gopalakrishnan, AIR 1992 SC 453 held that a restriction which is not, specified in the articles of association is not binding either on the company or on the shareholders. This decision, was reiterated by the Bombay High Court in IL & FS Trust Co. Ltd. v. Birla Perucchini Ltd. [2004] 121 Comp Cas, 335 (Bom)., , However, the Supreme Court in 2003 in its decision in M.S. Madhusoodhanan v. Kerala Kaumudi Pvt. Ltd. (2003, 117 Comp Cas 19 (SC) not disagreeing with the decision in V.B Rangaraj case mentioned above, but distinguishing, itself from the facts in that judgment, held that a restriction in relation to identified members on identified, shares of a private company did not amount to restriction of transferability of shares per se., In Western Maharashtra Development Corporation Ltd. v. Bajaj Auto Ltd. [(2010) 154 Company Cases 593, (Bom)], it was held that such clauses are to hamper the free transferability of shares and in violation of the, Companies Act, and hence, are not enforceable. Subsequently in the case of Messer Holdings Limited v. Shyam, Madanmohan Ruia and Ors [(2010) 98 CLA 325] the Division Bench of Bombay High Court overruled its, judgement in Western Maharashtra Development Corporation Ltd and provided a more liberal interpretation, and recognised the rights inter se among shareholders in case of restrictions on transfer of shares., , In Indian context, while the landmark decision of the Supreme Court in V.B. Rangaraj case mentioned above is, often cited in the context of shareholders’ agreements, most other decisions have been rendered by the High, Courts in various states especially the Bombay High Court. The decisions on shareholders’ agreements are not, uniformly inclined in a direction. The High Court decisions are limited in their applicability as they are, susceptible to disagreements by other High Courts, thereby conferring limited precedential value. It is difficult, to come to clear and crisp answers as to enforceability of Shareholder's agreement., , VETO POWER, , Meaning of the term – “veto”, A veto – Latin for “I forbid” – is the power to unilaterally stop an official action, especially the enactment of legislation., A veto may give power only to stop changes, thus allowing its holder to protect the status quo., , The Companies Act, 2013 introduced various provisions to essentially bridge the gap towards protection and, welfare of the minority shareholders under the Companies Act, 1956. As per the Companies Act, 1956, shareholders, who hold the majority of shares, rule the company. This majority principle is recognised in a land mark case Foss vs., Harbottle (1843). The decision taken by the majority shareholders was binding on the minority. Now this principal, has been replaced and minority shareholders have been given greater power under the Companies Act, 2013., , Veto Power or Rights, , A right is inherent. Shareholders rights refer to rights enshrined in the constitutional document of the company or, as provided by the law. A power has its genesis under the provisions of law., , As per the provisions of the Companies Act, 2013 there are some resemblance where the management can take, decisions on their own, by virtue of law. However, there are some instances where the consent of the shareholders, is mandatory to approve any decision or transaction which is said to be as the veto power or veto right of shareholders, of the company., For instance in case of related-party transactions, promoters, who are majority shareholders, cannot vote in, resolutions in cases of related-party transactions (however a company in which ninety percent or more members, in number are relatives of promoters or are related parties can vote in resolutions in cases of related-party, transactions).
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158, , , , Lesson 3 • EP-CL, , As stated under the provisions of Section 188 any related-party transaction that is not done in the ordinary course, of business and is not at an arm’s length will need approval of minority shareholders by way of a resolution., , Veto Power and Casting Vote, , Veto power is different than casting vote of Chairman. Casting vote is applicable in case of equality of votes in favour, and against. In case of equality the Chairman may give vote either in favour or against the resolution and it can be, carried accordingly. Veto power has not been defined in the Companies Act. However, dictionary meaning of veto, power is: “to refuse to admit or approve; specifically: to refuse assent to (a legislative bill) so as to prevent enactment, or cause reconsideration.”, , Shareholders Agreement and Articles of Association of a company may provide for certain rights to the minority, shareholder who has invested funds in the company. Such powers may include power to refuse capital expenditure, over certain specified limit. In case the representative of the minority group is not in favour of the capital expenditure, proposed by the company, he can exercise his right under the Articles which in common terminology is referred to, as “veto powers”., , Veto Rights and ‘Control’, , The introduction of the concept of 'control' in the 2013 Act has implications for investors in Indian companies., Under the 2013 Act, ‘control’ is understood to include the right to:, (i), , (ii), , appoint a majority of directors; or, , 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 shareholding, agreements or voting agreements, or in any other manner., , The definition is similar to the definition of ‘control’ under the Securities and Exchange Board of India (Substantial, Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Code”)., , The definition of ‘control’ and the jurisprudence surrounding the same under the Takeover Code has been developed, with the objective of protecting minority shareholders and providing an exit to them in the event of change in its control., , The definition of ‘control’ is linked closely with the definition of ‘promoter’. The 2013 Act provides that a person, having control over the affairs of the company would be regarded as its ‘promoter’., Given the similarity in the definition of ‘control’ under the Takeover Code and the 2013 Act and its linkage to the, definition of ‘promoter’ it is likely that the jurisprudence of control under the Takeover Code would be applied, under the 2013 Act, as well., , But, the scope of the term ‘control’ under the Takeover Code itself is not clear. The uncertainty around the, interpretation of control would impact negotiation of shareholder agreements. Affirmative voting rights in favour, of investors under a shareholders agreement are meant to be an effective tool for safeguarding investment or the, interest of the investors. These rights are negotiated and decided in the shareholders’ agreement, which are, subsequently incorporated into the articles of association of a target company., Accordingly, an investor or shareholder who has secured for itself certain rights which enable a degree of control, over ‘management or policy decisions’, whether by way of board representation or veto rights, may be regarded as, having ‘control’ of the company and therefore be classified as a ‘promoter’. Investors would need to carefully, consider the obligations and liabilities associated with the position of a promoter under the 2013 Act when, negotiating rights and powers in a company under the shareholders agreement., , ASSIGNMENT OF SHARES IN A COMPANY, , Section 44 of the Companies Act, 2013 defines the nature of property in the shares of a company. It lays down: “The, shares or debentures or other interest of any member in a company shall be movable property, transferable in the, manner provided by the articles of the company.”, The definition of “goods” in the Sale of Goods Act, 1930, specifically includes stocks and shares. Hence, it is necessary, to provide by the articles the manner in which transfer of shares are to be affected.
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159, , Lesson 3 • Members and Shareholders, , A “share” in a company is a right to a specified amount of the share capital of the company, carrying with it certain, rights and liabilities, while the company is a going concern and in the winding up. It represents the interest of the, holder measured for purposes of liability and dividend by a sum of a money., A company cannot refuse to transfer shares except as provided by its articles. It is well settled that unless the, articles otherwise provide, a shareholder has a free right to transfer his shares to whom he chooses. It is not, necessary to look to the articles for a power to transfer, since that power is given by the Act. It is only necessary to, look to the articles of association to ascertain the mode of transfer and the restrictions upon it., , As between buyer (transferee) and seller (transferor) of shares, the buyer is entitled to all dividends declared, after the contract of sale, unless otherwise agreed. Whatever may be the agreement, a transfer of shares after, declaration of dividend, does not, as against the company, carry the dividend, even though the transfer may be, cum-dividend., , ANNEXURE I, , Specimen Shareholder’s Agreement, , THIS AGREEMENT made the ................... day of ..................., 20..... BETWEEN MR. A residing at ...................(hereinafter, referred to as “A”) (which expression shall, unless repugnant to the context or meaning hereof, mean and include his, heirs, executors, administrators and assigns) of the First Part., And, , MR. B residing at .......................(hereinafter referred to as “B”) (which expression shall, unless repugnant to the context, or meaning hereof, mean and include his heirs executors, administrators and assigns) of the Second Part., And, , ................. (P) LTD., a Company incorporated under the Companies Act, 2013 and having its registered office at................, herein represented by its.....................(hereinafter referred to as “XYZ Pvt. Ltd.”) which expression shall, unless, repugnant to the context or meaning hereof, include its successors and assigns) of the Third Part;, WHEREAS:, (A) A and B hereto have agreed to jointly manage a company in India named “XYZ Pvt Ltd.”;, (B), , A and B have agreed to become Equity Partners by investing in the shares of the Company subject to the, condition that they shall enter into a Shareholders Agreement in terms of these presents;, , (D), , The parties hereto are desirous of recording the terms and conditions of their Agreement in writing., , (C), , The Company “XYZ PVT. LTD. “ has been requested to, and has agreed to, join in the execution of these presents, and to take this Agreement on record so that it is aware of the rights and obligations of A and B, the parties, hereto and ensure that they comply with the same;, , NOW IT IS HEREBY AGREED BY AND BETWEEN THE PARTIES HERETO AS FOLLOWS:1., , 2., , (a) A and B shall jointly invest in the Company which is an existing company limited by shares under the, Companies Act, 2013 and known as “XYZ PVT LTD”., (b) The registered office of the Company shall be situated at, or at such other places as may be mutually, agreed upon between the parties in writing., (c) The Company shall carry on the business of running and managing restaurants and (Description of the, business and complete address), either by itself or through other agencies or company industries and may, carry on any other business as may be decided by B hereto and shall ensure that no other business activity is, undertaken by the Company at any time without the consent of A hereto., The authorised share capital of the Company is Rs., Rs.10/- (Rupees ten) each., , /- (Rupees, , only) consisting of ( ) equity shares of
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160, , 3., 4., 5., , Lesson 3 • EP-CL, , , , The subscription by A hereto to the aforesaid authorised share capital of the Company shall be 1,00,000 (One, lakh) equity shares of Rs.10/- (Rupees ten only) and the subscription by B to the aforesaid authorised share, capital of the Company shall be 1,00,000 (One lakh) equity shares of Rs.10/-(Rupees ten only)., There shall be no further issue of capital without the consent of both the parties hereto, and unless otherwise, agreed upon in writing further investment shall be as mutually decided by both parties., (a) The Board of Directors of the Company shall consist of A and B., , (b) A shall have the right to nominate two (2) Additional Directors onto the Board and B shall have the right, to nominate three or more Additional Directors on the Board. Both parties shall be entitled at any time to, remove any of the representatives on the Board by written notice to the other party and to appoint another, or other/s in their place., (c) The day to day management of the Company shall be looked after by a Managing Director to be appointed, with the consent of B hereto. Any major acquisition of property, substantial expansion of business activities, or diversification or matters of policy shall be with the prior consent of B., , 6., , 7., 8., 9., 10., , 11., , (d) It is agreed as between the parties hereto that the position of Chairperson of the Company shall be held, by B or a nominee of B. The Chairman of the Board shall also be the Chairman of all general meetings of the, Company., , A and B hereto jointly and severally shall vote and act as members of the Company and with respect to the, shares of the Company held by them, so as to ensure that Directors of the Company are at all times appointed, and maintained in office in conformity with the provisions of this Agreement. If at any time the provisions of, this Agreement are not fully complied with, A and B jointly and severally agree to promptly take all necessary, steps to ensure that the provisions of this Agreement hereof are fully implemented in letter and spirit., (a) The Auditors of the Company shall be M/s., , ., , (b) The Auditors of the Company shall not be changed without the prior written consent of both A and B., Any sale or transfer of shares in the Company by either party shall be as provided in Clause B., , If at any time during the continuance of this Agreement either A or B, desire to sell or transfer all or any of, their respective shares held by them in the Company, they shall do so strictly in accordance with the provisions, hereinafter written., If either A or B desires at any time to sell the whole or part of their shares in the Company, he shall first offer, such shares in writing to the other. If the other does not accept in writing the offer within 15 days of receipt, of the offer, the first party shall then be at liberty within 30 days thereafter to sell the shares so offered to any, other persons of its choice at the same price and on the same terms and conditions as contained in its written, offer to the other party hereto in the first instance, failing which the procedure contained in this sub-clause, will have to be repeated by a party desiring to sell his shares., , B will bring in further working capital to run an F & B Unit(s) at (Address of registered office). Bank had, advanced loans of about Rs. 1,10,00,000/-(Rupees One Crore Ten Lakhs Only) to XYZ which loans have to be, repaid by them. B will be bringing further moneys upto Rs. (Rupees Only) to repay the loan. The Balance Rs./has been secured with the collateral security provided B. XYZ have entered into a Management and Royalty, Agreement with –––––– (P) Ltd., for the operation and management of the F & B unit(s) of XYZ and are, entitled to receive their share of profit. A and B are equally entitled to this share of profit being equal, shareholders of XYZ. It is hereby agreed that A shall not be entitled to a percentage of the profit which shall, not exceed Rs.–––/-(Rupees Only) per month from XYZ out of his share of profit subject to the terms contained, herein and/or in any other document executed by him on behalf of XYZ. The balance money attributable to A, shall be utilized to repay the loans and interest outstanding to, Bank, and the amount of Rs............./brought in by B and interest thereon, and towards the working capital brought in by B and interest thereon, and any other loans of the XYZ. This arrangement will continue till the entire sums (liabilities) together with, the interest thereon have been repaid. However B will be entitled to withdraw the profit attributable to his, share.
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Lesson 3 • Members and Shareholders, , 161, , 12., , B will be entitled to interest at the rate of 12% per annum on the sums brought in by him or his Associates/, concerns / businesses., , 14., , A and B jointly and severally undertake:-, , 13., , A and B agree and undertake not to disclose or divulge directly or indirectly to any third party any trade or, business secret or other secret or confidential information pertaining to the business, affairs or transactions, of each other or of the Company or of their clients or customers, that may have been disclosed, imparted to, or acquired by either of them from the other or from the Company., (a), , (b), , 15., 16., 17., 18., 19., , 20., , that they shall ensure that they, their representatives, proxies and agents representing them at general, meetings of the shareholders of the Company shall at all times exercise their votes in such manner so, as to comply with, and to fully and effectually implement, the provisions of this Agreement., , that if any resolution is proposed contrary to the terms of this Agreement, the parties, their, representatives, proxies and agents representing them shall vote against it. If for any reason such a, resolution is passed, the parties will, if necessary, join together and convene an extraordinary, general, meeting of the Company in pursuance of section 100 of the Companies Act, 2013 for implementing the, terms of this Agreement., , A and B shall jointly and severally procure and/or ensure that the Director or Directors of its choice on the, board of the Company shall at all times fully and effectually implement and comply with (including by exercise, of voting rights at meetings of the Board or resolutions by circulation and on resolutions passed at a meeting, of any Committee of the Directors) the provisions of this Agreement., If either A or B shall commit a breach of any of the terms or provisions of this Agreement and shall fail to, rectify such breach within Sixty (60) days from the receipt of written notice from the party complaining of the, breach, then the latter shall be entitled, without prejudice to its other rights and remedies under this, Agreement or at law, to terminate the Agreement recorded herein by written notice., , No modification of alteration of this Agreement or any of its terms or provisions shall be valid or binding on, A and/or B unless made in writing duly signed by both., This Agreement is personal to A and B and shall not be transferred or assigned in whole or in part by either, party without the prior written consent of the other., , If any dispute or difference shall at any time arise between A and B as to any terms, provisions or matters, contained herein on as to their respective rights, claims, duties or liabilities hereunder or otherwise,, howsoever in relation to or arising out of or concerning this Agreement, such dispute or difference shall be, referred to the arbitration. The venue of such arbitration shall be in Bangalore unless otherwise agreed in, writing. Such arbitration shall be held under and in accordance with the provisions of the Arbitration and, Conciliation Act, 1996., This Agreement represents the entire agreement between the parties hereto on the subject matter hereof, and cancels and supersedes all prior agreements, arrangements or understandings, if any, whether oral or in, writing, between the parties hereto on the subject matter hereof., , IN WITNESS WHEREOF the parties hereto have executed these presents the day and year first hereinabove written., SIGNED AND DELIVERED by MR. A , , in the presence of, , SIGNED AND DELIVERD by MR.B in the presence of, , , SIGNED AND DELIVERED, for and on behalf of XYZ, , by its SHAREHOLDERS AND AUTHORISED DIRECTORS MR. A & MR. B , , in the presence of
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162, , , , ANNEXURE II, , Lesson 3 • EP-CL, , A Specimen of Deed of Assignment of Shares in a Company, THIS ASSIGNMENT is made this ……………… day of …………………… between AB, son of , resident of…………………………, (hereinafter called “the Assignor”) of the one part, and CD, son of…………………………, resident of...............(hereinafter, called “the Assignee”) of the other part., THE DEED WITNESSES:, , That in consideration of the sum of Rs………………… (Rupees….............. ) paid by the assignee to the........assignor, the, receipt whereof the assignor hereby acknowledges, the said AB hereby assigns, sells and transfers to the said, CD………………… Equity Shares of Rs…............each, fully paid up, bearing consecutive Nos……………… to…………………, (inclusive), which stand in the name of the assignor in the Register of Members of… Co. Ltd. TO HOLD the same to, the assignee absolutely, subject nevertheless to the conditions on which the assignor held the same up to date., AND the assignee hereby agrees to take the said Equity Shares subject to such conditions., , IN WITNESS WHEREOF the assignor and the assignee do hereto affix their respective signatures on the day, month, and the year stated above., Assignor:, , Signed in the presence of :, Witness 1:, Witness 2:, , Assignee:
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163, , Lesson 3 • Members and Shareholders, , LESSON ROUND-UP, •, , A Company is composed of members, though it has its own entity distinct from members., , •, , Section 2(55) of the Companies Act, 2013 provides the modes by which a person may acquire membership, of a Company., , •, , Every shareholder is a member and every member is a shareholder, however, there may be exceptions to, this statement., », », », , •, •, •, •, •, , •, •, •, , by subscribing to the Memorandum,, , by agreeing in writing to become a member,, , by holding equity share capital of a Company as beneficial owner in the records of a depository., , A non-profit making Company licensed under Section 8 of the Companies Act can become member of, another company if it is authorised by its Memorandum of Association to invest into shares of the other, company., Foreigners, trade unions can hold shares in a company, and consequently become its members., , Person ceases to be a member when his name is removed from register of members of a company., , In accordance with Section 88, every Company shall keep register of its members. This register shall be, kept at the registered office of the Company subject to the provisions of Section 94 of the Companies Act,, 2013., , Every member of a public company limited by shares, holding equity shares, shall have votes in proportion, to his share of the paid-up equity share capital of the company. On the other hand, preference shareholders, ordinarily vote only on matters directly relating to rights attached to preference share capital and on any, resolution for winding up of the company or for the repayment or reduction of the equity or preference, share capital., On becoming member, a person is entitled to exercise all the rights of a member until he ceases to be a, member in accordance with the provisions of the Companies Act, 2013., , Under the Companies Act the powers have been divided between Board of Directors and the shareholders,, the directors exercises their powers through meetings of Board of Directors and Shareholders exercise, their powers through general meetings., , Shareholders can exercise Veto Power through various provisions under the Companies Act, 2013. For, instance,the shareholders can institute class action against the company as well as the auditors of the, company., , GLOSSARY, Ipso facto, Sui juris, Minor, Estoppel, Global Depository, Receipt(GDR), , By that very fact or act., , A person competent to contract, , Person below the age of majority., , The principle that precludes a person from asserting something contrary to what, is implied by a previous action or statement of that., , A GDR is an instrument in which a company located in domestic country issues one, or more of its shares or convertible bonds outside the domestic country
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164, , Lesson 3 • EP-CL, , , , Cessation of, membership, Joint Members, Class Rights, Veto, , A person ceases to be a member of a company when his name is removed from its, register of members., , If more than one person apply for shares in a company and shares are allotted to, them, each one of such applicant becomes a member., Rights attached to a class of shares are known as “Class Rights”, , A Veto (latin for “I forbid”),is the power to unilaterally stop an official action,, especially the enactment of legislation. Under the Act, there are some instances, where the consent of the shareholders is mandatory to approve any decisions or, transaction which is said to be as the veto power or veto right of shareholders of, the company., , Insolvent, , Insolvency is the inability of a debtor to pay their debt. If a person is unable to pay, his debt, he is said to be insolvent., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation.), 1., 2., , Every shareholder of a company is known as a member while every member may not be known as a, shareholder. Comment., , Who can become a member of the company? Can the following persons or institutions become member of, a company:, (a), , (b), , Minor; (b) Company; (c) Partnership firm; (d) Foreigner; (e) Insolvent., , Is the subscriber to the memorandum of the company would be termed as member of the company?, , 3., , Describe the circumstances under which a register of members may be rectified? Illustrate your answer, in the light of the relevant provisions of the Companies Act, 2013., , 5., , The name of X is found entered in the register of a company. But X contends that he is not a member of the, company. The company maintains that X had orally agreed to become a member and hence his name was, entered in the register and so he is a member. Is the contention of the company valid?, , 4., , 6., 7., 8., 9., , 10., , What are the particulars to be recorded in a register of members of a company? Where is the register to, be maintained and who has to maintain it? Can a member have access to the register?, , What are the obligations of a person whose name is entered in the register of members of a company as, holder of shares but does not hold beneficial interest in those shares?, What is the meaning and procedure for declaration of significant beneficial ownership? What are the, obligations of Company upon receipt of declaration of significant beneficial ownership?, What are the individual and group rights of a member?, , The Statement “Liability of the Members of the Company is always Limited” is False? Explain with, reasoning, Write short notes on:, (a), , Cessation of membership of a company;, , (c), , Index of members;, , (b), (d), , Foreign Register;, , Variation of members’ rights;
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165, , Lesson 3 • Members and Shareholders, , (e), (f), , Registration of shares in the name of public office;, Veto Power and Casting Vote., , 11., , Which all companies are required to comply with the provisions of Section 90?, , 13., , In case of non-convertible preference shares, where dividends distribution have consecutively failed for 2, years, will preference shares also be counted along with equity shares?, , 12., , What is the meaning of beneficial interest?, , LIST OF FURTHER READINGS, •, •, , ICSI Premier on Company Law, , Bare Act- The Companies Act, 2013, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Debt Capital and Deposits, , Lesson 4, Key Concepts One, Should Know, •, , Borrowing, , •, , Redemption, , •, •, •, •, •, , Debenture, Deposit, , Funding, , Learning Objectives, To understand:, •, •, •, , The borrowing powers of the Board, Provisions related to Debentures, , Overview of Acceptance of Deposits, , Eligible, Company, , Depositor, , Lesson Outline, •, , Borrowing Powers of company, , •, , Debentures, , •, , Debenture Redemption Fund, , •, •, •, •, •, •, •, •, •, •, •, , Ultra Vires and Intra Vires Borrowings, , Instruments for Corporate Funding-Debt Capital, Kinds of Debentures, , Debenture Redemption Reserve Account, Debenture Trustee, , Overview of Acceptance of Deposit by Company, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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168, , Lesson 4 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 2(30), , Definition of Debenture, , Section 73, , Prohibition on Acceptance of Deposits from Public, , Section 71, , Debentures, , Rule 18 of the Companies (Share Capital & Debentures) Rules, 2014-Debentures, , Section 74, Section 75, Section 76, , Section 76A, , Repayment of Deposits, etc., Accepted Before Commencement of this Act, Damages for Fraud, , Acceptance of Deposits from Public by Certain Companies, , Punishment for Contravention of Section 73 or Section 76., , Rule 2-21 of The Companies (Acceptance of Deposit) Rules, 2014, The SEBI (LODR) Regulations, 2015, , The SEBI (Issue and Listing of Debt Securities) Regulations, 2008, The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, PART A, BORROWING POWERS OF THE COMPANY AND DEBT CAPITAL, BORROWING, In order to run a business effectively and successfully, adequate amount of capital is necessary. In some cases capital, which is arranged through internal resources i.e. by way of issuing equity share capital or using accumulated profit, is not adequate and the organisation is resorted to external resources of arranging capital i.e. Bank Loan, Term, Loan, Working Capital Loan, Overdraft facility from Bank, Debentures, Public Fixed Deposits, External Commercial, borrowing (ECB) etc. Thus, borrowing is a mechanism used whereby the money is arranged through external, resources with an implied or expressed intention of returning money., , Governing Framework, , The SEBI (ICDR), Regulations,, 2018, , Reserve, Bank of, India, Guidelines, , The Companies, (Share Capital, and, , Debentures), Rules, 2014, , The, Companies, Act, 2013, , BROAD, REGULATORY, FRAMEWORK, FOR DEBT, , SECURITIES, , The SEBI, (LODR), Regulations,, 2015, , SEBI (Issue, and Listing, of Debt, Securities), Regulation,, 2008, , SEBI (Issue and, Listing of, Securitised Debt, Instruments and, Security Receipts), Regulations,, 2008
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•, •, , Lesson 4 • Debt Capital and Deposits, , Issue of debt securities that are convertible, either partially or fully or optionally into listed or unlisted equity, shall be governed by the disclosure norms applicable to equity or other instruments offered on conversion in, terms of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018., , SEBI issued (Issue and Listing of Debt Securities) Regulations, 2008 pertaining to issue and listing of debt, securities which are not convertible, either in whole or part into equity instruments. They provide for a, rationalized disclosure requirements and a reduction of certain onerous obligations attached to an issue of, debt securities., », », », , •, , •, , •, , •, , 169, , These Regulations are applicable to –, public issue of debt securities; and, , listing of debt securities issued through public issue or on private placement basis on a recognized stock, exchange., , Securitised debt instruments are regulated by the Securitization and Reconstruction of Financial Assets and, Enforcement of Security Interest Act, 2002, SEBI (Issue and Listing of Securitised Debt Instruments and, Security Receipts) Regulations, 2008 for listing of securitised debt instruments issued to public or any, person(s), on a recognised stock exchanges and the Securitization Companies and Reconstruction Companies, (Reserve Bank) Guidelines and Directions, 2003., , The Provisions of Chapter V of SEBI (LODR) Regulations, 2015 shall apply only to a listed entity which has, listed its ‘Non-Convertible Debt Securities’ and/or ‘Non-Convertible Redeemable Preference Shares’ on a, recognised stock exchange in accordance with SEBI (Issue and Listing of Debt Securities) Regulations, 2008 or, SEBI (Issue and Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 respectively., The provisions of this chapter shall also be applicable to “perpetual debt instrument” and “perpetual noncumulative preference share” listed by banks., , RBI has issued the guidelines for issuance of debentures through issuance of (i) Non-Convertible Debentures, (Reserve Bank) Directions, 2010 dated June 23, 2010 (for issuance of Non-Convertible Debentures (NCDs) of, original or initial maturity up to one year) (ii) Raising money through private placement of Non-Convertible, Debentures (NCDs) by NBFCs dated February 20, 2015 (for issuance of NCDs with maturity of more than one, year) and (iii) Raising Money through Private Placement by NBFCs-Debentures dated June 27, 2013., Section 71 of the Companies Act, 2013 prescribes the conditions for issue of debentures. The companies are, required to comply with section 71 (Debentures) read with Rule 18 of the Companies (Share Capital and, Debentures) Rules, 2014., , Power of Company to Borrow (Section 179), , The power of the company to borrow is exercised by its directors, who cannot borrow more than the sum authorized., The powers to borrow money and to issue debentures whether in or outside India can only be exercised by the, Directors at a duly convened meeting., , Pursuant to Section 179(3) (c) & (d) directors have to pass resolution at a duly convened Board Meeting to borrow money., The Companies Act, 2013 179(3) (c) & (d) prescribed that:, •, •, , 179(3)(c) - To issue securities, including debentures, whether in or outside India, 179 (3)(d) - to borrow monies, , The power to borrow monies can, be delegated by a resolution passed at a duly convened meeting of the directors, to a committee of directors, managing director, manager or any other principal officer of the company. However, the, resolution must specify the total amount up to which the monies may be borrowed by the delegates. Often the, power of the company to borrow is unrestricted, but the authority of the Directors acting as its agents is limited to, a certain extent. For example, Section 180(1)(c) of the Act prohibits the Board of Directors of a company from, borrowing a sum which together with the monies already borrowed exceeds the aggregate of the paid-up share, capital of the company, its free reserves and securities premium apart from temporary loans obtained from the, company’s bankers in the ordinary course of business unless they have received the prior sanction of the company, by a special resolution in general meeting.
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170, , , , Lesson 4 • EP-CL, , Explanation to section 180(1)(c) provides that the expression “temporary loans” means loans repayable on demand, or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills, and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of, financial expenditure of a capital nature., It is further provided in proviso to Section 180(1)(c) that the acceptance by a banking company, in the ordinary, course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable, by cheque, draft, order or otherwise, shall not be deemed to be borrowing of monies by the banking company, within the meaning of clause (c) of Sub-section (1) of Section 180. It is important at this stage to distinguish between,, borrowing which is ultra vires the company and borrowing which is intra vires the company but outside the scope, of the director’s authority., , The provisions of Sub-section (5) of Section 180 clearly lay down that debts incurred in excess of the limit fixed by, Section 180(1)(c) shall not be valid unless the lender proves that he lent his money in good faith and without, knowledge of the limit imposed by Sub-section (1) being exceeded., Exemption Notification:, , As per the exemption notification no 464(E) dated 5th June, 2015 private companies have been exempted to, comply the entire provisions of Section 180 of the Companies Act 2013, resultantly special resolution is not, required to exercise powers under section 180 for private companies., , Unauthorized or Ultra Vires Borrowing, Where a company borrows without the authority conferred on it by the articles or beyond the amount set out in the, Articles, it is an ultra vires borrowing. Any act which is ultra vires at the company is void. In such a case the contract, is void and the lender cannot sue the company for the return of the loan. The securities given for such ultra-vires, borrowing are also void and inoperative. Ultra vires borrowings cannot even be ratified by a resolution passed by, the company in general meeting. However, equity assists the lender where the common law fails to do so. If the, lender has parted with his money to the company under an ultra vires borrowing, and is, therefore, unable to sue for, its return, or enforce any security granted to him, he nevertheless has, in equity, the following remedies:, (a) Injunction and Recovery: Under the equitable doctrine of restitution he can obtain an injunction provided, he can trace and identify the money lent, and any property which the company has bought with it. Even if the, monies advanced by the lender cannot be traced, the lender can claim repayment if it can be proved that the, company has been benefited thereby., (b), , (c), , Subrogation: Where the money of an ultra vires borrowing has been used to pay off lawful debts of the, company, he would be subrogated to the position of the creditor paid off and to that extent would have the, right to recover his loan from the company. Subrogation is allowed for the simple reason that when a lawful, debt has been paid off with an ultra vires loan, the total indebtedness of the company remains the same. By, subrogating the ultra vires lender, the Court is able to protect him from loss, while debt burden of the company, is in no way increased., , Suit against Directors: In case of ultra vires borrowing, the lender may be able to sue the directors for breach, of warranty of authority, especially if the directors deliberately misrepresented their authority., , Intra vires Borrowing but outside the Scope of Agents’ Authority, , A distinction should always be made between a company’s borrowing powers and the authority of the directors to, borrow. Where the directors borrowed money beyond their authority but the borrowing is not ultra vires of the, company, such borrowing is called Intra vires borrowing but outside the Scope of Agents’ Authority. The company, will be liable to such borrowing if the borrowing is within the directors’ ostensible authority and the lender acted, in good faith or if the transaction was ratified by the company.
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Lesson 4 • Debt Capital and Deposits, , 171, , Where the borrowing is intra vires of the company but outside the authority of the directors e.g. where the articles, provide that the directors shall have the power only up to Rs. 100 lakhs and prior approval of the shareholders, would be required to borrow beyond Rs. 100 lakhs; any borrowing beyond Rs.100 lakhs without shareholders, approval i.e. intra vires borrowing by the company but outside the authority of directors and can be ratified by the, company, then it becomes binding on the company. The company would be liable, particularly if the money has been, used for the benefit of the company. Here the legal position is quite clear. The company has power or capacity to, borrow, but the authority of the directors is restricted either by the articles of the company or by the statute, and, they have exceeded it. The company may, if it wishes, ratify the agent’s act in which case the loan binds the company, and the lender as if it had been made with company’s authority in the first place., , On the other hand, the company may refuse to ratify the agent’s act. Here the normal principles of agency apply. The, doctrine of Indoor Management (also known as rule in Royal British Bank v. Turquand (1856) CI & B 327) shall, protect the lender, provided he can establish that he advanced the money in good faith. A third-party who deals with, an agent knowing that the agent is exceeding his authority has no right of action against the principal. Bearing in mind, that the memorandum and articles are public documents, the contents of which the third-party is deemed to know,, he will obviously have no right of action against the company if the agent’s lack of authority is obvious from reading, them. But a third-party is not effected by secret restrictions on the agent’s authority, as the lack of authority is not clear, from the public documents and the lender can not be aware of it from some other source. Therefore, the company, will be liable., , Case Laws:, , Related to borrowing power of a company, (a), , (b), (c), (d), (e), (f), , The behaviour of the directors, as the company’s agents, can have no effect whatsoever on the validity of, the loan for no agent can have more capacity than his principal. No agent can have a power which is not, with the principal. If, therefore, the borrowing is ultra vires the company, so that the company has no, capacity to undertake it, the lender can have no rights at common law. No debt is created and any security, which may have been created in respect of the borrowing is also void. The lender cannot sue the company, for the repayment of the loan. [Sinclain v. Brouguham (1914) 88 LJ Ch 465]., If the borrowing by the directors is ultra vires their powers, the directors may, in certain circumstances,, be personally liable for damages to the lender, on the ground of the implied warranty given by them, that, they had power to borrow [Firbank’s Executors vs. Humphreys, (1886) 18 QBD 54; Garrard v. James, 1925, Ch. 616]., , Sometimes it happens that a power to borrow exists but is restricted to a stated amount, in such a case if, by a single transaction an amount in excess is borrowed, only the excess would be ultra vires and not the, whole transaction [Deonarayan Prasad Bhadani v. Bank of Baroda, (1957) 27 Com Cases 223 (Bom)]., , The acquiescence of all shareholders in excess loans contracted by directors beyond their powers but not, ultra vires the powers of the company would be sufficient to validate such excess debts. [Sri Balasar, aswathi Ltd. v. Parameswara Aiyar, (1956) 26 Com Cases 298, 308: AIR 1957 Mad 122]., If the borrowing is unauthorized, the company will be liable to repay, if it is shown that the money had, gone into the company’s coffers [Lakshmi Ratan Cotton Mills Co. Ltd. v. J.K. Jute Mills Co. Ltd., (1957) 27 Com, Cases 660: AIR 1957 All 311]., , In V.K.R.S.T Firm v. Oriental Investment Trust Ltd., AIR 1944 Mad 532 under the authority of the company,, its managing director borrowed large sums of money and misappropriated it. The company was held, liable stating that where the borrowing is within the powers of the company, the lender will not be, prejudiced simply because its officer have applied the loan to unauthorised activities provided the lender, had no knowledge of the intended misuse.
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172, , (g), , (h), (i), , , , Lesson 4 • EP-CL, , In T.R. Pratt. (Bom) Ltd. v. E.D. Sassoon and Co. Ltd., (1936) 6 Com Cases 90, there was no limit, on the borrowing for business in the memorandum of the company. But the directors could not, borrow beyond the limit of the issued share capital of the company without the sanction of the general, meeting. The directors borrowed money from the plaintiff beyond their powers. It was held that the, money have been borrowed and used for the benefit of the principal either in paying its debts, or for its, debts, or for its legitimate business, the company cannot repudiate its liability on the ground that the, agent had no authority from the company to borrow. When these facts are established a claim on the, footing of money had been received would be maintainable. It was also held that under the general, principle of law when an agent borrows money for a principal without the authority of the principal, but, if the principal takes benefit of the money so borrowed or when the money so borrowed have gone into, the coffers of the principal, the law implies a promise to repay. In that connection it was observed that, there appears to be nothing in law which makes this principle inapplicable in the case of a joint stock, company and even in cases where the directors or the managing agent had borrowed money without, there being authorization for the company, if it has been used for the benefit of the company, the company, cannot repudiate its liability to pay., , In Equity Insurance Co. Ltd. v. Dinshaw& Co., AIR 1940 Oudh 202, it was held that “where the managing, agent of a company who is not authorised to borrow, has borrowed money which is not necessary, neither, bona fide, nor for the benefit of the company, the company is not liable for the amount borrowed”., In SurajBabu v. Jaitly & Co. AIR 1946 All 372, P & Co., were the managing agents of L & Co., which was in, liquidation. P the manager borrowed a sum of money from J in his own name. In one letter to J he indicated, that the loan was for a requirement of L & Co. and that company had actually benefited. It was held that, there was no intention to bind the company. “The mere fact that the company had benefited was not in, itself sufficient to bind the company”., , TYPES OF BORROWINGS, , A company uses various kinds of borrowing to finance its operations. The various types of borrowings can generally, be categorized into: 1) Long term/Short term borrowing/Medium term borrowing 2) Secured/Unsecured, borrowing 3) Syndicated/ Bilateral borrowing 4) Private/Public borrowing., 1A, Long Term Borrowing - Funds borrowed for a period ranging for five years or more are termed as long-term, borrowings. A long term borrowing is made for getting a new project financed or for making big capital, investment like purchase of property, plant, equipment and other fixed assets etc. Generally Long term, borrowing is made against charge on fixed assets of the company., 1B, 1C, 2A., 2B, , 3A, 3B, , Short Term Borrowing - Funds needed to be borrowed for a short period say for a period up to one year or, so are termed as short term borrowings. This is made to meet the working capital need of the company. Short, term borrowing is generally made on hypothecation of stock and debtors., Medium Term Borrowing - Where the funds to be borrowed are for a period ranging from one to five years,, such borrowings are termed as medium term borrowings. The commercial banks normally finance purchase, of land, machinery, vehicles etc., Secured Borrowing - A debt obligation is considered secured, if creditors have recourse to the assets of the, company on a proprietary basis or otherwise ahead of general claims against the company., , Unsecured Borrowing - Comprise financial obligations, where creditors do not have recourse to the assets, of the company to satisfy their claims., , Syndicated borrowing - If a borrower requires a large or sophisticated borrowing facility this is commonly, provided by a group of lenders known as a syndicate under a syndicated loan agreement. The borrower uses, one agreement covering the whole group of banks and different types of facility rather than entering into a, series of separate loans, each with different terms and conditions., Bilateral borrowing - Refers to a borrowing made by a company from a particular bank/financial institution., In this type of borrowing, there is a single contract between the company and the lender.
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Lesson 4 • Debt Capital and Deposits, , 4A, 4B, , 173, , Private borrowing - Comprises bank loan type obligations whereby the company takes loan from a bank/, financial Institution., , Public borrowing - Is a general definition covering all financial instruments that are freely tradable on a, public exchange or over the counter, with few, if any, restrictions i.e. Debentures, Bonds etc., , INSTRUMENTS FOR CORPORATE FUNDING-DEBT CAPITAL, , Funding is crucial for corporates to invest and to expand and also to operate their daily business. Some corporates, rely more intensively on internal funds, while others rely more intensively on external funding. The never ending, requirement for funds germinates from the continuous business expansion undertaken by corporates., Traditionally speaking, funds could be in the form of equity or debt. Equity would mean the money provided by, shareholders, without any repayment clause or charge creation on the assets, whereas debt would come along with, repayment clauses, security for the loan and high finance costs. Unlike Equity Financing, Debt Financing does not, result in dilution of ownership; but has higher costs associated with it., , Definition of Debentures, , The word ‘debenture’ has been derived from a Latin word ‘debere’ which means to borrow., According to Section 2(30) of the Companies Act, 2013, “debenture” 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., Further it is 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., , Kinds of Debentures, , Debentures are generally classified into different categories on the basis of:
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174, , , , On the basis of Convertibility of Instrument, (a), (b), , (c), , (d), , Lesson 4 • EP-CL, , Non Convertible Debentures (NCD): These instruments retain the debt character and cannot be converted, into equity shares., Partly Convertible Debentures (PCD): A part of these instruments are converted into Equity shares in the, future at notice of the issuer. The issuer decides the ratio for conversion. This is normally decided at the time, of subscription., , Fully convertible Debentures (FCD): These are fully convertible into Equity shares at the issuer’s notice., The ratio of conversion is decided by the issuer. Upon conversion the investors enjoy the same status as, ordinary shareholders of the company., Optionally Convertible Debentures (OCD): The investor has the option to either convert these debentures, into shares at price decided by the issuer/agreed upon at the time of issue., , On the basis of Security of Instrument, (a), , (b), , Secured Debentures: These instruments are secured by a charge on the fixed assets of the issuer company., So if the issuer fails on payment of the principal or interest amount, his assets can be sold to repay the liability, to the investors. Section 71(3) of the Companies Act, 2013 provides that secured debentures may be issued, by a company subject to such terms and conditions as may be prescribed by the Central Government through, rules., , Unsecured Debentures: These instrument are unsecured in the sense that if the issuer defaults on payment, of the interest or principal amount, the investor has to be along with other unsecured creditors of the, company, are also said to be naked debentures. Unlike secured debentures, unsecured debentures are issued, by the Company without creation of charge over the assets of the Company. In case a Company is unable to, pay the principal or interest on due date, these debentures do not offer any protection to the debenture, holders., , On the basis of Redemption Ability, (a), , (b), , Redeemable Debentures: It refers to the debentures which are issued with a condition that the debentures, will be redeemed at a fixed date or upon demand, or after notice, or under a system of periodical drawings., Debentures are generally redeemable and on redemption these can be reissued or cancelled. The person who, have been re-issued the debentures shall have the same rights and priorities as if the debentures had never, been redeemed., , Perpetual or Irredeemable Debentures: A Debenture, in which no time is fixed for the company to pay, back the money, is an irredeemable debenture. The debenture holder cannot demand payment as long as the, company is a going concern and does not make default in making payment of the interest. But all debentures,, whether redeemable or irredeemable become payable on the company going into liquidation. However, after, the commencement of the Companies Act, 2013, now a company cannot issue perpetual or irredeemable, debentures., , On the basis of Registration of Instrument, (a), , (b), , Registered Debentures: Registered debentures are made out in the name of a particular person, whose, name appears on the debenture certificate and who is registered by the company as holder on the Register of, debenture holders. Such debentures are transferable in the same manner as shares by means of a proper, instrument of transfer duly stamped and executed and satisfying the other requirements specified in Section, 56 of the Companies Act, 2013., Bearer debentures: Bearer debentures on the other hand, are made out to bearer, and are negotiable, instruments, and so transferable by mere delivery like share warrants. The person to whom a bearer, debenture is transferred become a “holder in due course” and unless contrary is shown, is entitled to receive
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175, , Lesson 4 • Debt Capital and Deposits, , and recover the principal and the interest accrued thereon. [Calcutta Safe Deposit Co. Ltd. v. Ranjit Mathuradas, Sampat (1971) 41 Com Cases 1063], , Nature of Debentures and transferability, As per Section 44 of the Act, the debentures of the company are movable property which will be transferable as per, the provisions given in the Articles of Association of the company., As per the provisions of Section 56, securities will be transferable vide Form SH-4. Transferability is governed by, the provisions of the Articles of Association., , Pari Passu Clause in case of Debentures, , Debentures are usually issued in a series with a pari passu clause and it follows that they would be on an equal, footing as to security and should the security be enforced, the amount realised shall be divided pro-rata, i.e.,, they are to be discharged rateably. In the event of deficiency of assets, they will abate proportionately. The, expression ‘pari passu’ implies with equal step, equally treated, at the same rate, or at par with. When it is said, that existing debentures shall be issued at pari passu clause, it implies that no difference will be made between, the old and new debentures., , If the words pari passu are not used, the debentures will be payable according to the date of issue, and if they are all, issued on the same day, they will be payable accordingly to their numerical order. However, a company cannot issue, a new series of debentures so as to rank pari passu with prior series, unless the power to do so is expressly reserved, and contained in the debentures of the previous series., , Debenture Stock, , A company, instead of issuing debentures, each in respect of separate and distinct debt, may raise one aggregate, loan fund or composite stock known as ‘debenture stock’. Accordingly, a debenture stock is a borrowed capital, consolidated into one mass for the sake of convenience. Instead of each lender having a separate bond or mortgage,, he has a certificate entitling him to a certain sum being a portion of one large loan. It is generally secured by a trust, deed. As in the case of shares, a person may subscribe for, or transfer any amount even a fraction amount. Debenture, stock is the indebtedness itself, and the debenture stock certificate furnishes evidence of the title or interest of the, holder in the indebtedness. Debenture is the document which furnishes evidence of the debt. Debenture stock must, be fully paid, while debenture may or may not be fully paid., Difference between Debenture and Debenture Stock, , Debenture is the description of an instrument, while ‘debenture stock’ is the description of a debt or sum secured, by an instrument. In the words of Lord Lindley, it is “borrowed capital consolidated into one mass for the sake of, convenience”., Distinction between Debenture and Loan, , A debenture means a document which creates or acknowledges a debt. A loan creates a right in the creditor to, demand repayment, and the substance of a debt is a liability upon the debtor to repay the money [Ram Ratan, Karmarkar v. Amulya Charan Karmarkar, 56 CWN 728 at p. 729]., Distinction between Debenture and Shares, S. No., , Debentures, , Shares, , 1, , Debentures constitute a loan., , Shares are part of the capital of a company., , 3, , Debenture holder gets fixed interest which Shareholder gets dividends with a varying rate., carries a priority over dividend., , 2, , Debenture holders are creditors., , Shareholders are members/owners of the company.
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176, , , , Lesson 4 • EP-CL, , 4, , Debentures generally have a charge on the Shares do not carry any such charge., assets of the company., , 6, , The rate of interest is fixed in the case of Whereas on equity shares the dividend varies from year, debentures., to year depending upon the profit of the company and, the Board of Directors decides to declare dividends or not., , 5, , 7, 8, 9, , Debentures can be issued at a discount without Shares cannot be issued at a discount., restrictions., Debenture holders do not have any voting rights. Shareholders enjoy voting rights., , Interest on debenture is payable even if there Dividend can be paid to shareholders only out of the, are no profits i.e. even out of capital., profits of the company and not otherwise., , Interest paid on debenture is a business Dividend is not allowable deduction as business, expenditure and allowable deduction from profits. expenditure., , CREATION OF SECURITY – ROLE OF DEBENTURE TRUSTEE, , Creation of security means mortgaging the property in favour of Debenture Trustee for the benefit of debenture, holders. This is an incidence of ownership of property and creation of security has to be done by the owner of the, property. However, the debenture holders are beneficiaries and they have no access to mortgaged property. The, Debenture Trustee holds the secured property on behalf of issuer of security and for benefit of debenture holders., In the event of default by the issuer of security, the Debenture Trustee will have the power and authority to bring the, secured property to sale following the procedure in the Transfer of Property Act and the proceeds of sale will have, to be applied to redeem the debentures., , Provisions of the Companies Act, 2013 – Issue of Debentures, , •, •, •, , Section 71(1) states that a company may issue debentures with an option to convert such debentures into, shares, either wholly or partly at the time of redemption. The issue of debentures with an option to convert such, debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting., Section 71(2) states that no company shall issue any debentures carrying any voting rights., , Section 71(3) read with Rule 18(1) of Companies (Share Capital and Debentures) Rules, 2014 provides that the, secured debentures may be issued only when the following conditions are compiled with: (a) An issue of secured debentures may be made, provided the date of its redemption shall not exceed ten, years from the date of issue. A company engaged in the setting up of infrastructure projects may issue, secured debentures for a period exceeding ten years but not exceeding thirty years;, Provided that the following classes of companies may issue secured debentures for a period exceeding, ten years but not exceeding thirty years,, , (i), , Companies engaged in setting up of infrastructure projects;, , (iii), , Infrastructure Debt Fund Non-Banking Financial Companies’ as defined in clause (b) of direction 3, of Infrastructure Debt Fund Non-Banking Financial Companies (Reserve Bank) Directions, 2011;, , (ii), , (iv), (b), , ‘Infrastructure Finance Companies’ as defined in clause (viia) of sub direction (1) of direction 2 of, Non-Banking Financial (Non-deposit accepting or holding) Companies Prudential Norms (Reserve, Bank) Directions, 2007;, Companies permitted by a Ministry or Department of the Central Government by Reserve Bank of, India or by the National Housing Bank or by any other statutory authority to issue debentures for a, period exceeding ten years., , Such an issue of debentures shall be secured by the creation of a charge on the properties or assets of the, company or its subsidiaries or its holding company or its associates companies, having a value which is, sufficient for the due repayment of the amount of debentures and interest thereon.
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177, , Lesson 4 • Debt Capital and Deposits, , (c), , the company shall appoint a debenture trustee before the issue of prospectus or letter of offer for subscription, of its debentures and not later than sixty days after the allotment of the debentures, execute a debenture trust, deed to protect the interest of the debenture holders; and, , (d), , the security for the debentures by way of a charge or mortgage shall be treated in favour of the debenture, trustee on –, , (i), , (ii), , any specific movable property of the company or its holding company or subsidiaries or associate, companies or otherwise;, any specific immovable property wherever situated, or any interest therein., , However, in case of a non-banking financial company, the charge or mortgage may be created on any movable property., , Further in case of any issue of debentures by a Government company which is fully secured by the guarantee given, by the Central Government or one or more State Government or by both, there is no requirement for creation of, charge under this sub-rule., In case of any loan taken by a subsidiary company from any bank or financial institution, the charge or mortgage, may also be created on the properties or assets of the holding company., , Key Points To Remember:, , Redemption, Period, , Debenture, Trustee’s, Appointment, , Creation of, Security, , • Not exceeding 10 years from the date of issue., , • Not exceeding 30 years from the date of issue in case of the company engaged in the setting up of, infrastructure projects, Infrastructure Finance Companies, Infrastructure Debt Fund Non-Banking, Financial Companies and Companies permitted by a Ministry or Department of the Central Government, by Reserve Bank of India or by the National Housing Bank or by any other statutory authority ., , • Appointment must be before the issue of prospectus or letter of offer for subscription of its debentures, and not later than sixty days after the allotment of the debentures, and execute a debenture trust deed, to protect the interest of debenture-holders thereon., , • Debentures are secured by creation of charge or mortgage on any specific movable property of the, company or its holding company or subsidiaries or associate companies or otherwise; any specific, immovable property wherever situated or any interest therein., • NBFCs: Charge is created on movable property., • Government Companies: Exempted to create charge if guaranteed by Central or State Government., • Any loan taken by a subsidiary company from any bank or financial institution: the charge or, mortgage may also be created on the properties or assets of the holding company., , Creation of Debenture Redemption Reserve Account, Section 71(4) read Rule 18(7) of the Companies (Share Capital and Debenture) Rules, 2014 provides that when, debentures are issued by a company, the company shall create a debenture redemption reserve account (DRR) out, of the profits of the company available for payment of dividend. The amount credited to such account shall not be, utilised by the company except for the redemption of debentures., , Quantum of Debenture Redemption Reserve, , The provisions for creation of DRR for various classes of companies as per Rule 18 of the Companies (Share Capital, and Debentures) Rules, 2014 are as follows:, S.No., 1, , Classes of Company, , Condition, , All India Financial Institutions (AIFIs) regulated by No DRR for debentures issued by for both public, Reserve Bank of India and Banking Companies, as well as privately placed debentures.
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178, , , , 2, , Lesson 4 • EP-CL, , Financial Institutions (FIs) within the meaning of DRR shall be as applicable to NBFCs registered, clause (72) of section 2 of the Companies Act, 2013, with RBI., , 3, , 3A, , For NBFCs registered with the RBI under Section 45-IA of the RBI Act, 1934 and Housing finance, companies registered with the National Housing Bank:, Listed NBFCs and Housing Finance Companies, , 3B, , Unlisted NBFCs and Housing Finance Companies, , 4B, , Unlisted companies, , 4A, , Listed Companies, , Disclosure in Directors Report, , No DRR required for debentures issued for, both public as well as privately placed, debentures, No DRR is required in case of privately placed, Debentures, , No DRR required for debentures issued for, both public as well as privately placed, debentures, Adequacy of DRR shall be 10% of the value of, outstanding debentures., , The amount which is transferred as Debenture Redemption Reserve is to be disclosed in Directors’ Report, , Creation of Debenture Redemption Fund (DRF), , Every listed company (including listed NBFCs and Housing Finance Companies) in case of public issue of debentures, or other unlisted company (other than unlisted NBFCs and Housing Finance Companies) shall on or before the 30th, day of April in each year, in respect of debentures issued by the above mentioned companies is required to invest or, deposit at least 15 % of the amount of its debentures maturing during the year ending on 31st day of March of next, year. The company may choose any of the below given methods:, (i), in deposits with any scheduled bank, free ;, (ii), , in unencumbered securities of the central methods of deposits or from any charge or lien; Government or any, State Government;, , (iv), , in unencumbered bonds issued by any other company which is notified under sub-clause (f) of section 20 of, the Indian Trusts Act, 1882;, , (iii), , in unencumbered securities mentioned in sub-clauses (a) to (d) and (ee) of section 20 of the Indian Trusts, Act, 1882;, , Provided that the amount remaining invested or deposited, as the case may be, shall not any time fall below fifteen, percent of the amount of the debentures maturing during the year ending on 31st day of March of that year., The amount invested or deposited as above shall not be used for any purpose other than for redemption of, debentures maturing during the year referred above., , In case of partly convertible debentures, Debenture Redemption Reserve shall be created in respect of nonconvertible portion of debenture issue in accordance with Rule 18(7) of the Companies (Share Capital and, Debentures) Rules, 2014., , Appointment of Debenture Trustees, , Section 71(5) read with Rule 18(2) of aforesaid rules, provide that a company before making issue of prospectus or, an offer or inviting public or members to more than 500 persons, shall appoint one or more debenture trustees. The, names of the debenture trustees shall be stated in letter of offer inviting subscription for debentures and also in all, the subsequent notices or other communications sent to the debenture holders., Before the appointment of debenture trustee or trustees, a written consent shall be obtained from such debenture
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Lesson 4 • Debt Capital and Deposits, , 179, , trustee or trustees proposed to be appointed and a statement to that effect shall appear in the letter of offer issued, for inviting the subscription of the debentures., The disqualifications for debenture trustees are as under:, (a), , beneficially holds shares in the company;, , (c), , is beneficially entitled to monies which are to be paid by the company otherwise than as remuneration, payable to the debenture trustee;, , (b), , (d), (e), (f), , (g), , is a promoter, director or key managerial personnel or any other officer or an employee of the company or its, holding, subsidiary or associate company;, is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such, holding company;, has furnished any guarantee in respect of the principal debts secured by the debentures or interest thereon;, , has any pecuniary relationship with the company amounting to 2% or more of its gross turnover or total, income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two, immediately preceding financial years or during the current financial year;, , is relative of any promoter or any person who is in the employment of the company as a director or key, managerial personnel., , Duties of Debenture Trustees, , Section 71(6) read with Rule 18(3) of aforesaid rules provide that a debenture trustee shall take steps to protect the, interests of the debenture holders and redress their grievances., It shall be the duty of every debenture trustee to –, (a), , satisfy himself that the letter of offer does not contain any matter which is inconsistent with the terms of the, issue of debentures or with the trust deed;, , (c), , call for periodical status or performance reports from the company;, , (b), (d), (e), , satisfy himself that the covenants in the trust deed are not prejudicial to the interest of the debenture holders;, , communicate promptly to the debenture holders defaults, if any, with regard to payment of interest or, redemption of debentures and action taken by the trustee therefor;, appoint a nominee director on the Board of the company in the event of:, , (i), , two consecutive defaults in payment of interest to the debenture holders; or, , (iii), , default in redemption of debentures., , (ii), (f), , (g), , (h), (i), , (j), , (k), , default in creation of security for debentures; or, , ensure that the company does not commit any breach of the terms of issue of debentures or covenants of the, trust deed and take such reasonable steps as may be necessary to remedy any such breach;, , inform the debenture holders immediately of any breach of the terms of issue of debentures or covenants of, the trust deed;, ensure the implementation of the conditions regarding creation of security for the debentures, if any, and, debenture redemption reserve;, , ensure that the assets of the company issuing debentures and of the guarantors, if any, are sufficient to, discharge the interest and principal amount at all times and that such assets are free from any other, encumbrances except those which are specifically agreed to by the debenture holders;, do such acts as are necessary in the event the security becomes enforceable;, call for reports on the utilization of funds raised by the issue of debentures;
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180, , , , Lesson 4 • EP-CL, , (l), , take steps to convene a meeting of the holders of debentures as and when such meeting is required to be held;, , (n), , perform such acts as are necessary for the protection of the interest of the debenture holders and do all other, acts as are necessary in order to resolve the grievances of the debenture holders., , (m), , ensure that the debentures have been converted or redeemed in accordance with the terms of the issue of, debentures;, , Section 71 sub-section (8) puts obligation on the company to pay interest and redeem the debentures in accordance, with the terms and conditions of their issue., Where at any time the debenture trustee comes to a conclusion that the assets of the company are insufficient or are, likely to become insufficient to discharge the principal amount as and when it becomes due, the debenture trustee, may file a petition before the Tribunal and the Tribunal may, after hearing the company and any other person, interested in the matter, by order, impose such restrictions on the incurring of any further liabilities by the company, as the Tribunal may consider necessary in the interests of the debenture-holders., Some of the obligations of Debenture Trustees provided in the Regulation 25 of SEBI (Issue and Listing of Debt, Securities) Regulations, 2008 are –, (i), The debenture trustee shall be vested with the requisite powers for protecting the interest of holders of debt, securities including a right to appoint a nominee director on the Board of the issuer in consultation with, institutional holders of such securities., (ii), , (iii), (iv), , The debenture trustee shall carry out its duties and perform its functions under these regulations, the, Securities and Exchange Board of India (Debenture Trustees) Regulations,1993, the trust deed and offer, document, with due care, diligence and loyalty., The debenture trustee shall ensure disclosure of all material events on an ongoing basis., , The debenture trustees shall supervise the implementation of the conditions regarding creation of security, for the debt securities and debenture redemption reserve., , Meeting of the Debenture Holders, , The meeting of all the debenture holders shall be convened by the debenture trustee on:, (a) requisition in writing signed by debenture holders holding at least one-tenth in value of the debentures for, the time being outstanding;, (b), , the happening of any event, which constitutes a breach, default or which in the opinion of the debenture, trustees affect the interest of the debenture holders., , Casual Vacancy in Office of Debenture Trustee, , The Board may fill any casual vacancy in the office of the trustee but while any such vacancy continues, the remaining, trustee or trustees, if any, may act., , However, where such vacancy is caused by the resignation of the debenture trustee, the vacancy shall only be filled, with the written consent of the majority of the debenture holders., , Removal of Debenture Trustee, , The debenture trustee may be removed from office before the expiry of his term only if it is approved by the holders, of not less than three fourth in value of the debentures outstanding, at their meeting.
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181, , Lesson 4 • Debt Capital and Deposits, , Case Laws:, The following kinds of documents have been held to be treated as debentures:, a), , A series of income-bonds by which a loan to the company was repayable only out of its profits [Lemon vs., Austin Friars Investment Trust Ltd. 1926 Ch 1 (CA)];, , c), , The definition of debenture is so wide as to include any security of a company whether constituting a, charge on the company’s assets or not [Cf. Pearl Assurance Co. Ltd. v. West Midlands Gas Board, (1950) 2, All ER 844 (ChD)]., , b), , A receipt or a certificate for a deposit made with a company (other than a bank) when the deposit was, repayable after a fixed period after it was made, [United Dominions Trust Ltd. v. Kirkwood, (1966) 2 QB 43]., , CASE STUDY, (Held, the Hon’ble SAT in the case of The canning Industries Cochin Ltd. (CAICO) v. SEBI dated 28.01.2020, Appeal No. 115 of 2019), The present appeal has been filed against the order dated 18th March, 2019 passed by the Whole Time Member, (WTM), Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) issuing various directions, under section 11, 11(4), 11A, 11B and 19 of the Securities and Exchange Board of India Act, 1992 (hereinafter, referred to as ‘SEBI Act’)., The contention of the appellant is, that Section 42 of the Companies Act is not applicable in the instant case and, that the issue of the share capital is under Section 62(3) of the Companies Act, 2013 which has not been, considered., , The contention of the learned senior counsel for SEBI is, that since the offer of FCDs was for more than 200, persons, the said offer is a deemed public offer and therefore part one of the Chapter 1 of the Companies Act is, required to be followed., Judgment:, , The Tribunal held that, as per Section 71(5) of the Companies Act, 2013- No company shall issue a prospectus, or make an offer or invitation to the public or to its members exceeding five hundred for the subscription of its, debentures, unless the company has, before such issue or offer, appointed one or more debenture trustees and, the conditions governing the appointment of such trustees shall be such as may be prescribed., A perusal of the aforesaid provision indicates that no offer can be made to its members exceeding 500 for the, subscription of its dentures unless the Company, before such offer or issue has appointed a trustee. Thus, the, restriction is that debentures could be issued to only 500 persons if there is no trustee appointed by the, Company., , However the restriction of 500 persons is done away if a trustee was appointed by the Company. In the instant, case, it is an admitted fact that a trustee was appointed. Thus there was no restriction to the number of, shareholders to whom the debentures would be issued. In the light of the aforesaid, the impugned order passed, by the Whole Time Member cannot be sustained. The interim order as well as the impugned order and the, directions so issued are all quashed. The appeal is allowed.
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182, , , , Lesson 4 • EP-CL, , Debenture Trust deed, Debenture Trust deed is a written instrument, legally conveying property to a trustee often for, the purpose of securing a loan or mortgage. It is, the document creating and setting out the, terms of a trust. It will usually contain the, names of the trustees, the identity of the, beneficiaries and the nature of the trust, property, as well as the powers and duties of the, trustees. It constitutes trustees charged with, the duty of looking after the rights and interests, of the debenture holders., , Trust Deed in SH-12 contains the following:, •, Description of Debenture issue., •, Details of charge created, •, Particulars of the appointment of Debenture Trustee, •, Events of defaults, •, Obligations of the company, •, Miscellaneous, , As per section 71(13) and sub-rule (1) of Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014 a, trust deed in Form No. SH. 12 or as near there to as possible shall be executed by the company issuing debentures, in favour of the debenture trustees within three months of closure of the issue or offer. [Rule18(5)]., Rule 18(8) states that a trust deed for securing any issue of debentures shall be open for inspection to any, member or debenture holder of the company, in the same manner, to the same extent and on the payment of, the same fees, as if it were the register of members of the company. Further, a copy of the trust deed shall be, forwarded to any member or debenture holder of the company, at his request, within seven days of the making, thereof, on payment of fee., , Exemptions clauses in the trust deed, , Section 71(7) states that any provision contained in a trust deed for securing the issue of debentures, or in any, contract with the debenture-holders secured by a trust deed, shall be void in so far as it would have the effect of, exempting a trustee thereof from, or indemnifying him against, any liability for breach of trust, where he fails to, show the degree of care and due diligence required of him as a trustee, having regard to the provisions of the trust, deed conferring on him any power, authority or discretion. The liability of the debenture trustee shall be subject to, such exemptions as may be agreed upon by a majority of debenture-holders holding not less than three-fourths in, value of the total debentures at a meeting held for the purpose., Section 71(12) states that a contract with the company to take up and pay for any debentures of the company may, be enforced by a decree for specific performance., , Filing petitions before the Tribunal, , Section 71(9), provides that where at any time the debenture trustee comes to a conclusion that the assets of, the company are insufficient or are likely to become insufficient to discharge the principal amount as and, when it becomes due, the debenture trustee may file a petition before the Tribunal (NCLT). Tribunal may, after, hearing the company and any other person interested in the matter, by order, impose such restrictions on the, incurring of any further liabilities by the company as the Tribunal may consider necessary in the interests of the, debenture-holders., , Further the Section 71(10) provides that where a company fails to redeem the debentures on the date of their, maturity or fails to pay interest on the debentures when it is due, the Tribunal may, on the application of any or all, of the debenture-holders, or debenture trustee and, after hearing the parties concerned, direct, by order, the company, to redeem the debentures forthwith on payment of principal and interest due thereon., A contract with the company to take up and pay for any debentures of the company may be enforced by a decree for, specific performance.
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183, , Lesson 4 • Debt Capital and Deposits, , Non-Applicability of Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014, •, , Nothing contained in this rule shall apply to any amount received by a company against issue of commercial, paper or any other similar instrument issued in accordance with the guidelines or regulations or notification, issued by the Reserve Bank of India., , •, , In case of any offer of foreign currency convertible bonds or foreign curency bonds issued in accordance with, the Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism), Scheme, 1993 or regulations or directions issued by the Reserve Bank of India, the provisions of this rule shall, not apply unless otherwise provided in such Scheme or regulations or directions., , •, , This rule shall not apply to rupee denominated bonds issued exclusively to overseas investors in terms of A.P., (DIR Series) Circular No. 17 dated September 29, 2015 of the Reserve Bank of India., , Do you know?, , •, , Which type of debentures is allowed to issue by Companies under Companies act, 2013?, , •, , You are a company secretary in SOP Ltd. The company has borrowed secured loans through issue of, debentures. The debenture trustee has been appointed for it by the company. The debenture trustee is, seeking your assistance for the preparation of debenture trust deed. Explain the provisions of debenture, trust deed., , •, , •, , Explain the meaning and significance of Pari Passu Clause in Debenture?, , N Ltd. is an unlisted public company incorporated in India. It issued 1 crore Partially Convertible, Debenture (PCD) with a face value of Rs.100 each. Against the above issue, out of the face value of, Rs.100; 50 will be converted into one equity share after 5 years and remaining 50 will be redeemed, equally in two financial years i.e. financial year 2019-20 and the financial year 2020-21 on 30th March, every year., Citing the relevant provisions of the Companies Act, 2013 :, , (i) Calculate the amount of investment the company is required to make for the financial year 2019-20; and, •, , (ii) Calculate the amount of Debenture Redemption Reserve as on 1st April, 2020., , You have been appointed as a Debenture Trustee in respect of debentures issued by a company. How, would you protect the interests of its debenture holders?
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184, , , , PART B, , Lesson 4 • EP-CL, , OVERVIEW OF ACCEPTANCE OF DEPOSITS BY COMPANY, Companies aim to secure finance by different cost-effective methods to suit their financial requirements. Companies, have always been attracted towards financing through deposits and, at times, problems have arisen in the context of, such deposits. In order to control the malpractices, the Companies Act, 2013 has introduced strict provisions under, the deposit regime., Sections 73 to 76 of the Companies Act 2013 read with the Companies (Acceptance of Deposits) Rules, 2014 made, under Chapter V of Companies Act, 2013 regulate the receipt of money not to be considered as deposit, invitation,, acceptance and repayment of deposits by Companies., , What is Deposit?, , According to the Section 2(31) of the Act read with Rule 2(1)(c) of Companies (Acceptance of Deposits) Rules, 2014,, ‘deposit’ includes any receipt of money by way of deposit or loan or in any other form by a company, but does not, include –, (i), any amount received from the Central Government or a State Government, or any amount received from any, other source whose repayment is guaranteed by the Central Government or a State Government or any amount, received from a local authority, or any amount received from a statutory authority constituted under an Act of, Parliament or a State Legislature;, (ii), , (iii), , (iv), (v), , (vi), , any amount received from foreign Governments, foreign/international banks, multilateral financial, institutions (including, but not limited to, International Finance Corporation, Asian Development Bank,, Commonwealth Development Corporation and International Bank for Industrial and Financial, Reconstruction), foreign governments owned development financial institutions, foreign export credit, agencies, foreign collaborators, foreign bodies corporate and foreign citizens, foreign authorities or persons, resident outside India subject to the provisions of Foreign Exchange Management Act, 1999 and rules and, regulations made there under;, , any amount received as a loan or facility from any banking company or from the State Bank of India or any of, its subsidiary banks or from a banking institution notified by the Central Government under section 51 of the, Banking Regulation Act, 1949 (10 of 1949), or a corresponding new bank as defined in clause (d) of section, 2 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 (5 of 1970) or in clause (b), of section (2) of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (40 of 1980),, or from a co-operative bank as defined in clause (b-ii) of section 2 of the Reserve Bank of India Act, 1934 (2 of, 1934);, any amount received as a loan or financial assistance from Public Financial Institutions notified by the, Central Government in this behalf in consultation with the Reserve Bank of India or any regional financial, institutions, Insurance Companies or Scheduled Banks as defined in the Reserve Bank of India Act, 1934;, any amount received against issue of commercial paper or any other instrument issued in accordance with, the guidelines or notification issued by the Reserve Bank of India;, any amount received by a company from any other company;, , (vii) any amount received and held pursuant to an offer made in accordance with the provisions of the Act towards, subscription to any securities, including share application money or advance towards allotment of securities, pending allotment, so long as such amount is appropriated only against the amount due on allotment of the, securities applied for:, (a), , if the securities for which application money or advance for such securities was received cannot be, allotted within 60 days from the date of receipt of the application money or advance for such, securities and such application money or advance is not refunded to the subscribers within 15, days from the date of completion of 60 days, such amount shall be treated as a deposit under these, rules.
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Lesson 4 • Debt Capital and Deposits, , (b), , 185, , any adjustment of the amount for any other purpose shall not be treated as refund., , (viii) any amount received from a person who, at the time of the receipt of the amount, was a director of the, company or a relative of the director of the Private company:, , (ix), , Provided that the director of the company or relative of the director of the private company, as the case may, be, from whom money is received, furnishes to the company at the time of giving the money, a declaration in, writing to the effect that the amount is not being given out of funds acquired by him by borrowing or accepting, loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s, report;, any amount raised by the issue of bonds or debentures secured by a first charge or a charge ranking pari, passu with the first charge on any assets referred to in Schedule III of the Act excluding intangible assets of, the company or bonds/ debentures compulsorily convertible into shares of the company within ten years. If, such bonds or debentures are secured by the charge of any assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such bonds or debentures shall not exceed the market value of, such assets as assessed by a registered valuer;, , (ixa) any amount raised by issue of non-convertible debenture not constituting a charge on the assets of the, company and listed on a recognised stock exchange as per applicable regulations made by Securities and, Exchange Board of India;, (x), , (xi), , any amount received from an employee of the company not exceeding his annual salary under a contract of, employment with the company in the nature of non-interest bearing security deposit;, any non-interest bearing amount received and held in trust;, , (xii) any amount received in the course of or for the purposes of the business of the company:, (a), , (b), (c), , (d), (e), (f), , (g), , as an advance for the supply of goods or provision of services accounted for in any manner whatsoever, provided that such advance is appropriated against supply of goods or provision of services within a, period of three hundred and sixty five days from the date of acceptance of such advance., In case of any advance which is subject matter of any legal proceedings before any court of law, the said, time limit of three hundred and sixty five days shall not apply., , as advance, accounted for in any manner whatsoever, received in connection with consideration for an, immovable property under an agreement or arrangement, provided that such advance is adjusted, against such property in accordance with the terms of agreement or arrangement., as security deposit for the performance of the contract for supply of goods or provision of services., , as advance received under long term projects or for supply of capital goods except those covered under, item (b) above., as an advance towards consideration for providing future services in the form of a warranty or, maintenance contract as per written agreement or arrangement, if the period for providing such, services does not exceed the period prevalent as per common business practice or five years, from the, date of acceptance of such service whichever is less., as an advance received and as allowed by any sectoral regulator or in accordance with directions of, Central or State Government., , as an advance for subscription towards publication, whether in print or in electronic to be adjusted, against receipt of such publications., If the amount received under (a) (b) and (d) above becomes refundable (with or without interest), because the company accepting the money does not have necessary permission or approval to deal in, the goods or properties or services for which the money is taken, then the amount received shall be, deemed to be a Deposit under these rules.
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186, , , , Lesson 4 • EP-CL, , Explanation: For the purpose of sub-clause the amount shall be deemed to be deposits on the expiry of, 15 days from the date they become due for refund., , (xiii) any amount brought in by the promoters of the company by way of unsecured loan in pursuance of the, stipulation of any lending financial institution or a bank subject to fulfillment of the following conditions:(a), , the loan is brought in pursuance of the stipulation imposed by the lending institutions on the, promoters to contribute such finance; and, , (c), , the exemption under this sub-clause shall be available only till the loans of financial institution or bank, are repaid and not thereafter., , (b), , the loan is provided by the promoters themselves or by their relatives or by both; and, , (xiv) any amount accepted by a Nidhi Company in accordance with the rules made under Section 406 of the Act For, the purposes of this clause, any amount (a), , (b), , received by the company, whether in the form of instalments or otherwise, from a person with promise, or offer to give returns, in cash or in kind, on completion of the period specified in the promise or offer,, or earlier, accounted for in any manner whatsoever, or, any additional contributions, over and above the amount under item (a) above, made by the company, as part of such promise or offer, shall be considered as deposits unless specifically excluded under this, clause., , (xv) any amount received by way of subscription in respect of a chit under the Chit Fund Act, 1982;, , (xvi) any amount received by the company under any collective investment scheme in compliance with regulations, framed by the Securities and Exchange Board of India;, , (xvii) an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note, (convertible into equity shares or repayable within a period not exceeding 10 years from the date of issue) in, a single tranche, from a person;, Explanation.- For the purposes of this sub-clause,I., “start-up company” means a private company incorporated under the Companies Act, 2013 or the, Companies Act, 1956 and recognised as such in accordance with notification number. G.S.R. 127(E), dated 19th February, 2019, issued by the Department for Promotion of Industry and Internal Trade., II., , ”convertible note” means an instrument evidencing receipt of money initially as a debt, which is, repayable at the option of the holder, or which is convertible into such number of equity shares of, the start-up company upon occurrence of specified events and as per the other terms and conditions, agreed to and indicated in the instrument., , (xviii) any amount received by a company from Alternate Investment Funds, Domestic Venture Capital Funds,, “Infrastructure Investment Trusts”, “Real Estate Investment Trusts” and Mutual Funds registered with the, Securities and Exchange Board of India in accordance with regulations made by it.
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187, , Lesson 4 • Debt Capital and Deposits, , Do You Know?, Please check which of the following source of funds are coming under the definition of deposits in case of a, company., (a) Rs.5 Crore from Government Agency, Financial institutions, Banks or by way of Commercial Paper., (b), , Rs.50 Lakhs by way of Share Application money., , (d), , Rs.50 Lakhs from issue of bonds and debentures., , (c), , (e), (f), , (g), , (h), (i), , (j), , (k), , Rs.50 Lakhs from one of its director by way of loan., Rs.50 Lakhs by means of inter corporate deposit., Rs.25 Lakhs from its employees., , Rs.50 Lakhs as business advance from customers., , Rs.50 Lakhs as advance against consideration for an immovable property., Rs.25 Lakhs as security deposit for performance of provision of services., Rs.50 Lakhs from its promoter., , Rs.25 Lakhs raised by issue of non-convertible debentures. These are not constituting charge on assets, of the company., , Solution, (a), , The said amount is to be received or borrowed from any Government agency or Financial Institution or, Bank or by way of Commercial paper is not covered under deposits., , (c), , Company can receive loan from its director (or relative of director of the private company) provided they, give a declaration to the company that the loan given is from own funds and not from borrowed money, and the same shall not be treated as deposits., , (b), , (d), (e), (f), , (g), , (h), (i), , (j), , Company must allot share within 60 days of receipt of share application money or it must refund the, share application money to the subscribers within 15 days from the date of completion of sixty days,, otherwise, such amount shall be treated as a deposit., , Company can raise money by way of bonds and debentures provided amount is secured by a first charge, against property; or such bonds or debentures should be compulsorily convertible into shares within 10, years; otherwise, it would come under the definition of deposits., Inter corporate deposits are not covered in the definition of deposits., , If amount received from employee doesn’t exceed their total annual salary; and such deposits should be, non-interest bearing security deposit it would not come under the definition of deposit., , Advance can be raised from customers however; such advance should be adjusted within 365 days from, the date of receipt of advance. Otherwise, it would be termed as deposits., Such amount should be adjusted against such property only; otherwise, it would be termed as deposits., , Security deposits are out of the ambit of definition of deposits. It is suggested to accept security deposits, under specific agreement., Amount brought in by the promoters of the company by way of unsecured loan in pursuance of the, stipulation of any lending financial institution or a bank is not deposits subject to fulfillment of the, following conditions, namely:-
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188, , Lesson 4 • EP-CL, , , , (i), , the loan is brought in pursuance of the stipulation imposed by the lending institutions on the, promoters to contribute such finance;, , (ii) the loan is provided by the promoters themselves or by their relatives or by both; and, , (iii) the exemption under this sub-clause shall be available only till the loans of financial institution or, bank are repaid and not thereafter., (k) This amount is not a deposit in term of rule 2(1)(c) (ixa) provided these non-convertible debenture, are listed on recognized stock exchange., , Who is Depositor?, , According to Rule 2(1)(d) of the Companies (Acceptance of Deposits) Rules 2014 ‘Depositor’ means –, (i), any member of the company who has made a deposit with the company in accordance with sub-section (2), of section 73 of the Act; or, (ii), , any person who has made a deposit with a public company in accordance with section 76 of the Act., , Meaning of Eligible Company for accepting the deposits from public, , ‘Eligible Company’ means a public company as referred to in sub-section (1) of Section 76, having a net worth of not, less than one hundred crore rupees or a turnover of not less than five hundred crore rupees and which has obtained, the prior consent of the company in general meeting by means of a special resolution and also filed the said, resolution with the Registrar of Companies before making any invitation to the public for acceptance of deposits., has to obtain prior consent of members by, Special Resolution and filing the same with, ROC before making invitation from public, , Eligible company for accepting, deposits from public, , Turnover not less than, Rs. 500 crores; or, , Net worth not less than, Rs.100 crores, , However, an eligible company, which is accepting deposits within the limits specified under clause (c) of subsection (1) of section 180, may accept deposits by means of an ordinary resolution., , Prohibition on Acceptance of Deposits, , In terms of Section 73(1) of the Companies Act, 2013, on and after the commencement of this Act, no company shall, invite, accept or renew deposits under the Companies Act, 2013 from the public except in a manner provided under, Chapter V of the Act., , Applicability, , The provisions under Sections 73 to 76 of the Companies Act 2013 and the Companies (Acceptance of Deposits) Rules,, 2014 shall apply to all companies except •, a banking company; and
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•, •, •, , 189, , Lesson 4 • Debt Capital and Deposits, , a non- banking financial company as defined in the Reserve Bank of India Act, 1934; and, , a housing finance company registered with the National Housing Bank established under the National, Housing Bank Act, 1987; and, , such other company as the Central Government may, after consultation with the Reserve Bank of India, specify, in this behalf. [Section 73(1) read with Rule 1(3)]., , Acceptance of Deposits, , Acceptance of Deposit, , From Members, , Private Companies, , Companies other, than Private, Companies, , From Public, , Eligible Companies
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190, , , , Conditions for Acceptance of Deposits from its Members, , Lesson 4 • EP-CL, , Section 73(2) states that a company may, subject to:, (i), the passing of a resolution in general meeting; and, (ii), , subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits, from its members on such terms and conditions, including the provision of security, if any, or for the repayment, of such deposits with interest ,as may be agreed upon between the company and its members, subject to the, fulfillment of the following conditions:, , a), , b), c), , d), e), , Issuance of a circular to its members including therein a statement showing the financial position of, the Company ,the credit rating obtained, the total number of depositors and the amount due towards, deposits in respect of any previous deposits accepted by the Company and such other particulars in, such form and in such manner as may be prescribed;, Filing a copy of the circular along with such statement with the Registrar within thirty days before the, date of issue of the circular;, , Depositing on or before the thirtieth day of April each year, such sum which shall not be less than twenty, percent of the amount of its deposits maturing during the following financial year and kept in a, scheduled bank in a separate bank account to be called deposit repayment reserve account;, , Certifying that the company has not committed any default in the repayment of deposits accepted either, before or after the commencement of this Act or payment of interest on such deposits and where a, default has occurred, the company made good the default and a period of five years had elapsed since, the date of making good the default; and, Providing security, if any for the due repayment of the amount of deposit or the interest thereon, including the creation of such charge on the property or assets of the company;, , Where a company does not secure the deposits or secures such deposits partially, then, the deposits, shall be termed as “unsecured deposits” and shall be quoted in every circular, form, advertisement or, in any document related to invitation or acceptance of deposits., , Exemption for Private companies, , Chapter V - clause (a) to (e) of Section 73(2) shall not apply to a private company., MCA vide notification dated 5th June, 2015 & 13th June, 2017 has given exemption to Private Companies vide, which it need not comply with the provisions of Section 73(2) (a) to (e) of the Companies Act, 2013, if any of, the conditions are fulfilled:, (A) Private Company which accepts from its members monies not exceeding one hundred per cent. of, aggregate of the paid up share capital, free reserves and securities premium account; or, (B), (C), , Private Company which is a start-up, for five years from the date of its incorporation; or, Private Company which fulfils all of the following conditions, namely: -, , (a), , which is not an associate or a subsidiary company of any other company;, , (c), , such a company has not defaulted in the repayment of such borrowings subsisting at the time of, accepting deposits under this section., , (b), , if the borrowings of such a company from banks or financial institutions or any body corporate is, less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and, , Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the, Registrar in such manner as may be specified.
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Lesson 4 • Debt Capital and Deposits, , 191, , Exemption for Specified IFSC Public Company, Clauses (a) to (e) of sub-section (2) of section 73 shall not apply to a Specified IFSC public company which accepts, from its members, monies not exceeding one hundred per cent of aggregate of the paid up share capital and free, reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may, be specified. – vide MCA Notification Date 4th January, 2017, , Repayment of Deposits, Every deposit accepted by a company shall be repaid with interest in accordance with the terms and conditions of, the agreement [Section 73(3)]., , Failure on the repayment of Deposits, , When a company fails to repay the deposit or part thereof or any interest thereon under subsection (3), the depositor, concerned may apply to the Tribunal for an order directing the company to pay the sum due or for any loss or damage, incurred by him as a result of such non-payment and for such other orders as the Tribunal may deem fit [Section, 73(4)]., , Deposit Repayment Reserve, , The deposit repayment reserve account referred to in clause (c) of sub-section (2) shall not be used by the company, for any purpose other than repayment of deposits [Section 73(5)]., , Deposit accepted before the commencement of the Act, , Section 74(1) states that when, in respect of any deposit accepted by a company before the commencement of this, Act, the amount of such deposit or part thereof or any interest due thereon remains unpaid on such commencement, or becomes due at any time thereafter, the company shall –, (a), , (b), , file, within a period of three months from such commencement or from the date on which such payments, are, due, with the Registrar a statement of all the deposits accepted by the company and sums remaining unpaid, on such amount with the interest payable thereon along with the arrangements made for such repayment,, notwithstanding anything contained in any other law for the time being in force or under the terms and, conditions subject to which the deposit was accepted or any scheme framed under any law; and, , repay within three years from such commencement or on or before expiry of the period for which the deposits, were accepted, whichever is earlier. Renewal of any such deposits shall be done in accordance with the, provisions of Chapter V and the rules made thereunder., , Section 74(2) states that the tribunal may on an application made by the company, after considering the financial, condition of the company, the amount of deposit or part thereof and the interest payable thereon and such other, matters, allow further time as considered reasonable to the company to repay the deposit., , Section 74(3) states that if a company fails to repay the deposit or part thereof or any interest thereon within the, time specified in sub-section (1) or such further time as may be allowed by the Tribunal under sub-section (2), the, company shall, in addition to the payment of the amount of deposit or part thereof and the interest due, be punishable, with fine which shall not be less than one crore rupees but which may extend to ten crore rupees and every officer, of the company who is in default shall be punishable with imprisonment which may extend to seven years or with, fine which shall not be less than twenty-five lakh rupees but which may extend to two crore rupees, or with both., , Damages for fraud, , Section 75(1) states that when a company fails to repay the deposit or part thereof or any interest thereon referred, to in section 74 within the time specified in sub-section (1) of that section or such further time as may be allowed, by the Tribunal under sub-section (2) of that section, and it is proved that the deposits had been accepted with
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192, , , , Lesson 4 • EP-CL, , intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible, for the acceptance of such deposit shall, without prejudice to the provisions contained in sub-section (3) of that, section and liability under section 447, be personally responsible, without any limitation of liability, for all or any of, the losses or damages that may have been incurred by the depositors., , Section 75(2) states that any suit, proceedings or other action may be taken by any person, group of persons or any, association of persons who had incurred any loss as a result of the failure of the company to repay the deposits or, part thereof or any interest thereon., , Acceptance of Deposits from Public by certain Companies, , Section 76(1) states that notwithstanding anything contained in section 73, a public company, (Eligible Company), having net worth of not less than one hundred crore rupees or turnover of not less than five hundred crore rupees,, may accept deposits from persons other than its members subject to compliance with the requirements provided, in sub-section (2) of section 73 and subject to such rules as the Central Government may, in consultation with the, Reserve Bank of India, prescribe., , Further, such a company shall be required to obtain the rating (including its networth, liquidity and ability to pay its, deposits on due date) from a recognised credit rating agency for informing the public the rating given to the company, at the time of invitation of deposits from the public which ensures adequate safety and the rating shall be obtained, for every year during the tenure of deposits., Provided further that every company accepting secured deposits from the public shall within thirty days of such, acceptance, create a charge on its assets of an amount not less than the amount of deposits accepted in favour of the, deposit holders in accordance with such rules as may be prescribed., , The provisions of this Chapter shall, mutatis mutandis, apply to the acceptance of deposits from public under this, section., , THE COMPANIES (ACCEPTANCE OF DEPOSITS) RULES, 2014, Terms and conditions as to acceptance of deposits [Rule 3], , (1), , Time period : No company under sub-section (2) of section 73 and no eligible company shall accept or renew, any deposit, whether secured or unsecured, which is repayable on demand or upon receiving a notice, within, a period of less than six months or more than thirty-six months from the date of acceptance or renewal of, such deposit., , Exceptions:, , A company may, for the purpose of meeting any of its short term requirements of funds, accept or renew such, deposits for repayment earlier than six months from the date of deposit or renewal, as the case may be, subject to the, condition that(a) such deposits shall not exceed ten per cent of the aggregate of the paid up share capital, free reserves and, securities premium account of the company, and, (b), (2), (3), , such deposits are repayable not earlier than three months from the date of such deposit or renewal thereof., Joint Names: Where depositors desire, deposits may be accepted in joint names not exceeding three, with or, without any of the clauses, namely, “Jointly”, “Either or Survivor”, “First named or Survivor”, “Anyone or Survivor.”, , Acceptance Limit for Deposit: No company referred to in sub-section (2) of section 73 shall accept or renew, any deposits from its members if the amount of such deposits together with the amount of other deposits, outstanding as on the date of acceptance or renewal of such deposits exceeds 35 per cent of the aggregate of, the paid-up share capital, free reserves and securities premium account of the company.
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193, , Lesson 4 • Debt Capital and Deposits, , Exception:, A Specified IFSC Public Company and a private company may accept from its members monies not exceeding, one hundred percent of aggregate of the paid up share capital, free reserves and securities premium account, and such company shall file the details of monies so accepted to the Registrar in Form DPT-3., , Explanation. - For the purpose of this rule, a Specified IFSC Public company means an unlisted public company, which is licensed to operate by the Reserve Bank of India or the Securities and Exchange Board of India or the, Insurance Regulatory and Development Authority of India from the International Financial Services Centre, located in an approved multi services Special Economic Zone set-up under the Special Economic Zones Act 2005, (28 of 2005) read with the Special Economic Zones Rules, 2006., Further the maximum limit in respect of deposits to be accepted from members shall not apply to following, classes of private companies, namely:(i), a private company which is a start-up, for 10 years from the date of its incorporation;, (ii), , a private company which fulfils all of the following conditions, namely:-, , (a), , which is not an associate or a subsidiary company of any other company;, , (c), , such a company has not defaulted in the repayment of such borrowings subsisting at the time of, accepting deposits under section 73., , (b), , the borrowings of such a company from banks or financial institutions or any body corporate is, less than twice of its paid up share capital or fifty crore rupees, whichever is less ; and, , All the companies accepting deposits shall file the details of monies so accepted to the Registrar in Form DPT-3., , (4), , No Eligible company shall accept or renew:, , (a), (b), (5), , Any deposit from its members, if the amount of such deposit together with the amount of deposits, outstanding as on the date of acceptance or renewal of such deposits from members exceeds ten per cent, of the aggregate of the paid-up share capital, free reserves and securities premium account of the company;, Any other deposit, if the amount of such deposit together with the amount of such other deposits, other, than the deposit referred to in clause (a) above, outstanding on the date of acceptance or renewal, exceeds twenty-five per cent of aggregate of the paid-up share capital, free reserves and securities, premium account of the Company., , Deposits by Government Companies – No Government company eligible to accept deposits under section 76, shall accept or renew any deposit, if the amount of such deposits together with the amount of other deposits, outstanding as on the date of acceptance or renewal exceeds thirty five per cent. of the aggregate of its paid up, share capital paid-up share capital, free reserves and securities premium account of the company., , The Quantum of deposits in nutshell:, Type of company, , Members, , Public, , Eligible Company, , Upto 10% of aggregate of the paid up Upto 25% of aggregate of the paid, share capital, free reserves and securities up share capital, free reserves and, premium account, securities premium account, , Company referred in section Upto 35% of aggregate of the paid up Prohibited, 73(2), i.e., Non-eligible share capital, free reserves and securities, Companies, premium account, Government C o m p a n y(eligible –, under section 76), , Upto 35% of aggregate of the paid, up share capital, free reserves and, securities premium account
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194, , Lesson 4 • EP-CL, , , , Maximum Limit in Respect of, Acceptance of Deposits, Companies referred in Section, 73(2)-Non-Eligible Company, From Members-Upto 35% of, the aggregate of paid-up share, capital, Free Reserves &, Securities Premium account, , From, PublicProhibited, , Exemptions, Private Company from Members- Upto, 100% of aggregate of the paid up share, capital, free reserves and securities, premium account, , (6), , Maximum limit in respect of deposits to be, accepted from members shall not apply to, following classes of Private Companies:, (i) a private company which is a start-up, for 10, years from the date of its incorporation,, (ii) a private company which fulfils all of the, following conditions, namely:(a) which is not an associate or a subsidiary, company of any other company;, (b) the borrowings of such a company from, banks or financial institutions or anybody, corporate is less than twice of its paid up, share capital or 50 crore rupees,, whichever is less; and, (c) such a company has not defaulted in the, repayment of such borrowings subsisting, at the time of accepting deposits under, section 73., , Specified IFSC Public, Company from, Members-Upto 100%, of aggregate of the paid, up share capital, free, reserves and securities, premium account, , Eligible Company, From, Members, , From, Public, , Upto 10% of, its aggregate, Paid up Share, Capital, Free, Reserves and, Securities, Premium, Account, , Upto 25%, of, aggregate, of the, Paid-up, share, capital,, Free, Reserves, and, Securities, Premium, Account, , Rate of interest of deposits/payment of brokerage - No company under sub-section (2) of section 73 or any, Eligible company shall invite or accept or renew any deposits in any form, carrying a rate of interest or pay, brokerage thereon at a rate exceeding the maximum rate of interest or brokerage prescribed by the Reserve, Bank of India for acceptance of deposits by non-banking financial companies., , Who is eligible to receive brokerage ?, , Only the person who is authorized, in writing, by a company to solicit deposits on its behalf and through whom, deposits are actually procured will be entitled to the brokerage and payment of brokerage to any other person, for procuring deposits shall be deemed to be in violation of these Rules., , (7), , Alteration of terms and conditions - The company shall not reserve to itself either directly or indirectly a, right to alter, to the prejudice or disadvantage of the depositor, any of the terms and conditions of the deposit,, deposit trust deed and deposit insurance contract after circular or circular in the form of advertisement is, issued and deposits are accepted.
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Lesson 4 • Debt Capital and Deposits, , (8), , 195, , Credit Rating, , (a), (b), , Every eligible company shall obtain, at least once in a year, credit rating for deposits accepted by it and, a copy of the rating shall be sent to the Registrar of Companies along with the return of deposits in, Form DPT-3., , The credit rating referred to in clause (a) shall not be below the minimum investment grade rating or, other specified credit rating for fixed deposits, from any one of the approved credit rating agencies as, specified for non-Banking Financial Companies in the Non-Banking Financial Companies Acceptance, of Public Deposits (Reserve Bank) Directions,1998, issued by the Reserve Bank of India, as amended, from time to time., , Form and Particulars of Advertisements/Circulars [Rule 4], (1), , (2), , (3), (4), (5), , Every company referred to in sub-section (2) of section 73 intending to invite deposit from its members shall, issue a circular to all its members by registered post with acknowledgement due or speed post or by electronic, mode in Form DPT-1. In addition to issue of such circular to all members in the manner specified above, the, circular may be published in English language in an English newspaper and in vernacular language in a, vernacular newspaper having wide circulation in the State in which the registered office of the company is, situated., , Additionally, a certificate of the statutory auditors shall be attached in Form DPT-1,stating that the company, has not committed default in the repayment of deposits or in the payment of interest on such deposits, accepted either before or after the commencement of the Act and in case the Company had committed a, default in the repayment of deposits accepted either before or after the commencement of the act or in the, payment of interest on such deposits, a certificate of the statutory auditor of the company shall be attached, in Form DPT- 1,stating that the Company has made good the default and a period of five years has lapsed, since the date of making good the default ,as the case may be., , Every eligible company intending to invite deposits shall issue a circular in the form of an advertisement in, Form DPT-1 for the purpose in English language in an English newspaper having country wide circulation, and in vernacular language in a vernacular newspaper having wide circulation in the State in which the, registered office of the company is situated and shall also place such circular on the website of the company,, if any., Every company inviting deposits from the public shall upload a copy of the circular on its website, if any., , No company shall issue or allow any other person to issue or cause to be issued on its behalf, any circular or, a circular in the form of advertisement inviting deposits, unless such circular or circular in the form of, advertisement is issued on the authority and in the name of the Board of Directors of the company., , No circular or a circular in the form of advertisement shall be issued by or on behalf of a company unless, not, less than thirty days before the date of such issue, there has been delivered to the Registrar for registration a, copy thereof signed by a majority of the directors of the company as constituted at the time the Board, approved the circular or circular in the form of advertisement, or their agents, duly authorised by them in, writing., , Validity of the circular, (6), , A circular or circular in the form of advertisement issued shall be valid until the expiry of six months from the, date of closure of the financial year in which it is issued or until the date on which the financial statement is, laid before the company in annual general meeting or, where the annual general meeting for any year has not, been held, the latest day on which that meeting should have been held in accordance with the provisions of, the Act, whichever is earlier, and a fresh circular or circular in the form of advertisement shall be issued, in, each succeeding financial year, for inviting deposits during that financial year., , Explanation: For the purpose of this rule, the date of the issue of the newspaper in which the advertisement, appears shall be taken as the date of issue of the advertisement and the effective date of issue of circular shall, be the date of dispatch of the circular.
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196, , , , Creation of Security [Rule 6], (1), , Lesson 4 • EP-CL, , For the purposes of providing security, every company referred to in sub-section (2) of section 73 and every, eligible company inviting secured deposits shall provide for security by way of a charge on its assets as, referred to in Schedule III of the Act excluding intangible assets of the company for the due repayment of the, amount of deposit and interest thereon for an amount which shall not be less than the amount remaining, unsecured by the deposit insurance., In the case of deposits which are secured by the charge on the assets referred to in Schedule III of the Act, excluding intangible assets, the amount of such deposits and the interest payable thereon shall not exceed the, market value of such assets as assessed by a registered valuer., , (2), , Explanation I: For the purposes of this sub-rule it is clarified that the company shall ensure that the total, value of the security either by way of deposit insurance or by way of charge or by both on company’s assets, shall not be less than the amount of deposits accepted and the interest payable thereon., The security (not being in the nature of a pledge) for deposits as specified in sub-rule (1) shall be created in, favour of a trustee for the depositors on:, , (a), , (b), , specific movable property of the company, or, , specific immovable property of the company wherever situated, or any interest therein., , Appointment of Trustees for Depositors [Rule 7], (1), , Consent of deposit trustees with respect to their appointment, , (2), , Execution of deposit trust deed before issuing advertisement, , (3), , No company under sub-section (2) of section 73 or any eligible company shall issue a circular or advertisement, inviting secured deposits unless the company has appointed one or more trustees for depositors for creating, security for the deposits. A written consent shall be obtained from the trustees for depositors before their, appointment and a statement shall appear in the circular or circular in the form of advertisement with, reasonable prominence to the effect that the trustees for depositor have given their consent to the company, to be so appointed., The company shall execute a deposit trust deed in Form No. DPT-2 at least 7 days before issuing the circular, or circular in the form of advertisement., Certain persons not to be appointed as deposit trustees, , No person including a company that is in the business of providing trusteeship services shall be appointed as, a trustee for the deposit holders, if the proposed trustee –, , (a), , is a director, key managerial personnel or any other officer or an employee of the company or of it, sholding, subsidiary or associate company or a depositor in the company;, , (c), , has any material pecuniary relationship with the company;, , (b), (d), (4), , (e), , is indebted to the company, or its subsidiary or its holding or associate company or a subsidiary of such, holding company;, has entered into any guarantee arrangement in respect of principal debts secured by the deposits or, interest thereon;, is related to any person specified in clause (a) above., , Removal of deposit trustees, , No trustee for depositors shall be removed from office after the issue of circular or advertisement and before the, expiry of his term except with the consent of all the directors present at a meeting of the board. In case the company, is required to appoint independent directors, at least one independent director shall be present in such meeting of the, Board.
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Lesson 4 • Debt Capital and Deposits, , 197, , Duties of deposit trustees [Rule 8], It shall be the duty of every trustee for depositor to –, , (1), (2), (3), (4), (5), (6), (7), (8), , Ensure that the assets of the company on which charge is created together with the amount of deposit, insurance are sufficient to cover the repayment of the principal amount of secured deposits outstanding and, interest accrued thereon;, Satisfy himself that the circular or advertisement inviting deposits does not contain any information which is, inconsistent with the terms of the deposit scheme or with the trust deed and is in compliance with the rules, and provisions of the Act;, Ensure that the company does not commit any breach of covenants and provisions of the trust deed;, , Take such reasonable steps as may be necessary to procure a remedy for any breach of covenants of the trust, deed or the terms of invitation of deposits;, Take steps to call a meeting of the holders of depositors as and when such meeting is required to be held;, , Supervise the implementation of the conditions regarding creation of security for deposits and the terms of, deposit insurance;, Do such acts as are necessary in the event the security becomes enforceable;, , Carry out such acts as are necessary for the protection of the interest of depositors and to resolve their, grievances., , Meeting of depositors through deposit trustee [Rule 9], , The meeting of all the depositors shall be called by the trustee for depositors on –, (1) Requisition in writing signed by at least one tenth of the depositors in value for the time being outstanding;, (2), , The happening of any event, which constitutes a default or which, in the opinion of the trustee for, depositors, affects the interest of the depositors., , Form of application for deposits [Rule 10], (i), (ii), , On and from the commencement of these rules, no company shall accept, or renew any deposit, whether secured, or unsecured, unless an application, in the form prescribed by the company, is submitted by the intending, depositor for the acceptance of such deposit., The application referred to in rule (i) shall contain a declaration by the intending depositor to the effect that, the deposit is not being made out of any money borrowed by him from any other person., , Nomination [Rule 11], , Every depositor may, at any time, nominate any person to whom his deposits shall vest in the event of his death and, the provisions of section 72 shall, as far as may be, apply to the nomination made under this rule., , Furnishing of deposit receipts to depositors [Rule 12], , Every company shall, on the acceptance or renewal of a deposit, furnish to the depositor or his agent a receipt for the, amount received by the company, within a period of twenty one days from the date of receipt of money or realization, of cheques or date of renewal., , Deposit receipt referred to above shall be signed by an officer of the company duly authorized by the Board in this, behalf and shall state the date of deposit, the name and address of the depositor, the amount received by the, company as deposit, the rate and periodicity of interest payable thereon and the date on which the deposit is, repayable.
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198, , Lesson 4 • EP-CL, , , , Maintenance of liquid assets and creation of Deposit Repayment Reserve Account [Rule 13], Deposit, Repayment, Reserve Account: 20%, of the amount of deposits, maturing during the, financial year., , Every company referred to in sub-section (2) of section 73 and every eligible, company shall on or before the 30th day of April of each year deposit the sum as, specified in clause (c) of the said sub-section with any scheduled bank and the, amount so deposited shall not be utilised for any purpose other than for the, repayment of deposits. The amount remaining deposited shall not at any time fall, below twenty per cent of the amount of deposits maturing during the financial year., , Registers of deposits [Rule 14], (1), , Every company accepting deposits shall maintain at its registered office one or more separate registers for, deposits accepted/renewed, in which there shall be entered separately in the case of each depositor the, following particulars, namely:, , (a), , Name, address and PAN of the depositor/s;, , (d), , Deposit receipt number;, , (b), (c), , (e), (f), , (g), , (h), (i), , (j), , (k), (2), (3), , (l), , Particulars of guardian, in case of a minor;, Particulars of the nominee;, , Date and amount of each deposit;, , Duration of the deposit and the date on which each deposit is repayable;, Rate of interest or such deposits to be payable to the depositor;, Due date(s) for payment of interest;, , Mandate and instructions for payment of interest and for non-deduction of tax at source, if any;, Date or dates on which payment of interest will be made;, Particulars of other security/ charge created;, Any other particulars relating to the deposit;, , Entries in the register shall be made within seven days from the date of issuance of the receipt duly, authenticated by a director or secretary of the company or by any other officer authorized by the Board for, this purpose., , The register or registers referred to in sub-rule (1) shall be preserved in good order for a period of not less, than eight years from the financial year in which the latest entry is made in the register., , General provisions regarding premature repayment of deposits [Rule 15], , When a company makes a repayment of deposits, on the request of the depositor, after the expiry of a period of six, months from the date of such deposit but before the expiry of the period for which such deposit was accepted, the, rate of interest payable on such deposit shall be reduced by one per cent from the rate which the company would, have paid had the deposit been accepted for the period for which such deposit had actually run and the company shall, not pay interest at any rate higher than the rate so reduced., Nothing contained in this rule shall apply to the repayment of any deposit before the expiry of the period for which, such deposit was accepted by the company, if such repayment is made solely for the purpose of –, (a) complying with the provisions of rule 3; or, (b), , providing war risk or other related benefits to the personnel of the naval, military or air forces or to their, families, on an application made by the associations or societies formed by such personnel, during the period, of emergency declared under article 352 of the Constitution., , When a company referred to in under sub-section (2) of section 73 or any eligible company permits a depositor to, renew his deposit, before the expiry of the period for which such deposit was accepted by the company, for availing
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199, , Lesson 4 • Debt Capital and Deposits, , of a higher rate of interest, the company shall pay interest to such depositor at the higher rate if such deposit is, renewed in accordance with the other provisions of these rules and for a period longer than the unexpired period, of the deposit., For the purposes of this rule, where the period for which the deposit had run contains any part of a year, then, if such, part is less than six months, it shall be excluded and if such part is six months or more, it shall be reckoned as one year., , RETURN OF DEPOSITS - INCLUDES REPORTING OF ‘WHAT IS NOT A DEPOSIT’, , Every company to which the Companies (Acceptance of Deposit), Rules, 2014 applies, shall on or before 30th day of June, of every year,, filed with the Registrar, a return in Form DPT-3 along with the fee as, provided in Companies (Registration Offices and Fees) Rules, 2014, and furnish the information contained therein as on the 31st day of, March of that year duly audited by the auditor of the company., , It has been clarified that Form DPT-3, shall be used for filing return or, particular transaction not considered as, deposit or both by every company other, than government company., , Thus, every company (other than exempted companies) is required to file the following returns with the, Registrar of Companies:, •, A periodic return in Form DPT-3 for filing return of deposits or particulars of transactions which are not, considered as deposits as per Rule 2(1)(c) of the Rules on or before 30th June of every year containing, details as on 31st March of that year., •, , Additionally, there has also been a requirement of filing a one time return of outstanding receipt of money, or loan by a company but not considered as deposits, in terms of clause (c) of sub-rule 1 of rule 2 from the, 01st April, 2014 to 31st March 2019, as specified in Form DPT-3 within ninety days from 31st March,, 2019 along with fee as provided in the Companies (Registration Offices and Fees) Rules, 2014., , Disclosure in financial statement [Rule 16A], (1), (2), , Every company ,other than a private company, shall disclose in its financial statement, by way of notes, about, the money received from the director., , Every private company shall disclose in its financial statement ,by way of notes, about the money received, from the directors or relatives of directors., , Disclosure in Board Report, , Following disclosures are required to be made pertaining to Deposits in the Board Report:, •, , The details relating to deposits, covered under Chapter V of the Companies Act, 2013, (a), , accepted during the year;, , (c), , whether there has been any default in repayment of deposits or payment of interest thereon during the, year and if so, number of such cases and the total amount involved -, , (b), , remained unpaid or unclaimed as at the end of the year;, (i), , at the beginning of the year;, , (iii), , at the end of the year; are to be disclosed., , (ii), , maximum during the year;, , •, , The details of deposits which are not in compliance with the requirements of Chapter V of the Companies Act,, 2013;, , •, , Loan taken from the director to be disclosed., , •, , The amount of Deposit Payment Reserve are to be disclosed.
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200, , Lesson 4 • EP-CL, , , , Penal rate of interest [Rule 17], , Every company shall pay a penal rate of interest of eighteen per cent per annum for the overdue period in case of, deposits, whether secured or unsecured, matured and claimed but remaining unpaid., , Power of Central Government to decide certain questions [Rule 18], , If any question arises as to the applicability of these rules to a particular company, such question shall be decided, by the Central Government in consultation with the Reserve Bank of India., , Applicability of sections 73, 74 and 75 to eligible companies [Rule 19], , Pursuant to provisions of sub-section (2) of section 76 of the Act, the provisions of sections 73 and 74 shall, mutatis, mutandis, apply to acceptance of deposits from public by eligible companies., , Explanation: For the purposes of this rule, it is hereby clarified that in case of a company which had accepted or invited, public deposits under the relevant provisions of the Companies Act, 1956 and rules made under that Act (hereinafter, known as “Earlier Deposits”) and has been repaying such deposits and interest thereon in accordance with such, provisions, the provisions of clause (b) of sub-section (1) of section 74 of the Act shall be deemed to have been, complied with if the company complies with requirements under the Act and these rules and continues to repay such, deposits and interest due thereon on due dates for the remaining period of such deposit in accordance with the, terms and conditions and period of such Earlier Deposits and in compliance with the requirements under the Act, and these rules., The fresh deposits by every eligible company shall have to be in accordance with the provisions of Chapter V of the, Act and these rules., , Statement Regarding Deposits Existing as on the Date of Commencement of the Act [Rule 20], , For the purposes of clause (a) of sub-section (1) of section 74, the statement shall be in Form DPT-4., , Punishment for contravention [Rule 21], , If any company referred to in sub-section (2) of section 73 or any eligible company inviting deposits or any other, person contravenes any provision of these rules for which no punishment is provided in the Act, the company and, every officer of the company who is in default shall be punishable with fine which may extend to five thousand, rupees and where the contravention is a continuing one, with a further fine which may extend to five hundred, rupees for every day after the first day during which the contravention continues., , Punishment for contravention of Section 73 or Section 76, , Section 76A states that where a company accepts or invites or allows, or causes any other person to accept or invite on its behalf any deposit, in contravention of the manner or the conditions prescribed under, section 73 or section 76 or rules made thereunder or if a company fails, to repay the deposit or part thereof or any interest due thereon within, the time specified under section 73 or 76 or rules made thereunder or, such further time as may be allowed by the tribunal under Section 73:, (a) the company shall, in addition to the payment of the amount of, deposit or part thereof and the interest due, be punishable with, fine which shall not be less that one crore rupees or twice the, amount of deposit accepted by the company, whichever is lower, but which may extend to ten crore rupees; and, (b), , Punishment u/s 76A, Company: Fine not less than Rs. 1, crore or twice the amount of deposit, accepted, whichever is lower at, maximum to Rs. 10 crore., Officer: Imprisonment upto 7 years, Fine not less than Rs. 25 lakh but may, extend to Rs. 2 crore., , every officer of the company who is in default shall be punishable with imprisonment which may extend to, seven years and with fine which shall not be less that twenty-five lakh rupees but which may extend to two, crore rupees., , Further, if it is proved that the officer of the company who is in default, has contravened such provisions, knowingly or willfully with the intention to deceive the company or its shareholders or depositors or creditors, or tax authorities, he shall be liable for action under section 447.
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201, , Lesson 4 • Debt Capital and Deposits, , Case Law:, 19/09/2018, , M/s Ind-Swift Limited (Appellant) v., (Respondent), , Registrar of Companies NCLAT, , Repayment of Deposits accepted before Commencement of the Companies Act, 2013, The Company filed application before CLB and obtained relief under Section 58AA read with Section 58A(9) of, the Companies Act, 1956 and got instalments fixed to repay deposits, Appellant sought re-fixing of periods,, instalments and rate of interest from NCLT, New Delhi under Section 74 of the Companies Act, 2013 which was, rejected by NCLT, New Delhi bench. This Appeal is against rejection of the application/s., The NCLAT observed that the NCLT considered that the Appellant had at the time of first grant of time got relief, of huge extension and that there was no reason to accept the plea for further extension. The NCLT appears to, have found that when big relief had already been granted to the Company, further extension was not justified., , Section 76 makes it clear that legislature has put in many safeguards when deposits are to be taken from public., One of the important provisions is to ensure that the Company creates a charge of its assets of an amount not, less than the amount of deposits accepted in favour of the deposit holders., , Section 76(2) read with Sections 73 and 74 would apply to acceptance of deposits from public by eligible, Companies but it saves the Company which had accepted or invited public deposits under the relevant provisions, of the old Act and Rules thereunder and has been repaying such deposits and interests thereon in accordance, with such provisions, then the provisions of Clause (b) of Sub-Section (1) of Section 74 of the new Companies, Act, 2013 shall be deemed to have been complied with. This is, however, subject to the fact that the Company, complies with the requirements under the Act and the Rules and “continues to repay such deposits and interest, due thereon on due dates for the remaining period” as per the terms and conditions., Considering these provisions, it appears to us that Section 74(1)(b) was attracted and when it appears from, record that the Appellant defaulted, the penal provisions would get attracted., , Thus, when once a scheme had been got settled, from CLB, default on the part of the Appellant would attract, penal provisions as the earlier scheme itself laid down. Hence, present appeal for further extension is dismissed., , FORMS RELATED TO DEPOSITS, (1), , DPT 1 - Circular or circular in the form of advertisement inviting deposits, , (3), , DPT 3 - Return of Deposits, , (2), (4), , DPT 2 - Deposit Trust Deed, , DPT 4 - Statement regarding deposits existing on the commencement of the Act., , PROCEDURE OF ACCEPTANCE OF DEPOSITS-FROM MEMBERS AND PUBLIC, , Procedure of acceptance of deposits can be discussed under two broad headings i.e. procedure of acceptance of, deposits from members and procedure of acceptance of deposits from public (other than members) because noneligible companies are allowed to accept deposits from its directors, members and their relatives where as eligible, companies are allowed to accept deposits from members as well as public., , Procedure of Acceptance of Deposits from Members, , A company may, subject to the passing of a resolution in general meeting and subject to such rules as maybe, prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and, conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be, agreed upon between the company and its members.
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202, , , , The procedure to accept deposits from members can be summarized as under:1., 2., , Lesson 4 • EP-CL, , The companies intending to invite deposits from its members shall convene a Board meeting to consider and, approve the business to propose and accept deposits from members and decide the day, date, time and place, of the general meeting., Issue notice of general meeting to the members of the company., , 3., , Hold the general meeting and pass resolution for acceptance of deposits., , 4., , Comply with the Companies (Acceptance of Deposits) Rules, 2014 prescribed in consultation with RBI and, terms and conditions mutually agreed by the company and deposit holders either for acceptance or for, repayment of deposits., , 5., , Appointment of trustee for depositors and the statement of his consent to be appeared in the circular., , The company shall execute a deposit trust deed in Form DPT-2 at least seven days before issuing circular or, circular in the form of advertisement., , 6., 7., , *8., , 9., , Issue circular to the members of the company including therein a statement showing the financial position of, the company, the credit rating obtained, the total number of depositors and the amount due towards, depositors in respect of any previous deposits and such other particulars as may be prescribed. These details, indicate the soundness of the company or a warning about risks involved. The circular shall be published at, least once in English language in a leading English newspaper having wide circulation and in vernacular, language in a vernacular newspaper having wide circulation in the State in which the registered office of the, company is situated., , File the copy of aforesaid circular in the Form DPT-1 along with such statement with the Registrar within, thirty days before the date of issue of circular along with Certification by statutory auditor of the company, that the Company has not committed any default in the repayment of deposits accepted either before or after, the commencement of the Companies Act, 2013 or payment of interest on such deposits and where a default, had occurred, the company made good the default and a period of five years had lapsed since the date of, making good the default, as an attachment to the Form DPT-1 shall be termed as “unsecured deposits” and, shall be so quoted in every circular, form, advertisement or in any document related to invitation or acceptance, of deposits., , A company inviting secured deposits shall provide for security by way of a charge on its assets for the due, repayment of the amount of deposit and interest thereon. The company shall submit Form CHG-1 with, Registrar for assets other than intangible assets. Secured deposits including interest thereon can in no case, exceed the market value of the charged assets assessed by the registered valuer., , *10. After the expiry of 30 days of filing Form DPT-1, the circular in Form DPT-1 along with application form is, sent to all members by registered post with acknowledgement due/speed post/electronic mail., 11., , Collect duly signed application form along with money from the members., , 13., , Maintain register of deposits at its registered office which shall contain the details as prescribed under rule, 14 Companies (Acceptance of Deposits) Rules, 2014 from the date of such acceptance and the entries specified, in sub-rule (1) shall be made within seven days from the date of issuance of the receipt., , 12., 14., , Issue receipts of deposits within 21 days of the receipts of money/realization of cheque., Pay interest as per the rate proposed on agreed terms., , 15*. Deposit on or before the thirtieth day of April each year such sum which shall not be less than twenty percent, of the amount of its deposits maturing during the financial year and keeping it in a separate bank account, called deposit repayment reserve account., 16., , Submit return of deposits in Form DPT-3 on or before 30th June each year for information as on 31st March, of respective year.
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Lesson 4 • Debt Capital and Deposits, , 203, , *Exempted for private companies:, •, if it accepts from its members monies not exceeding 100 percent of aggregate of paid-up share capital, free, reserves and securities premium account; or, •, •, , is a start –up for five years from the date of its incorporation; or, which fulfils all of the following conditions:, a., , which is not an associate or a subsidiary company of any other company;, , c., , It has not defaulted in the repayment of such borrowings subsisting at the time of accepting, deposits and the company files the details of monies so accepted to Registrar., , b., , if the borrowings from banks or financial institutions or any other body corporate is less than twice, of its paid-up capital or rupees fifty crore,whichever is lower;, , Conditions for Acceptance of Deposits from Public (Other than Members), , A public company having net worth of not less than Rs.100 Crores or turnover of not less than Rs. 500 Crores, (Eligible Company) and which has obtained the prior consent of the members in a general meeting by means of, special resolution and also filed the special resolution with the Registrar of Companies before making any invitation, to the public for acceptance of deposits can accept deposits from public. Eligible company, which is accepting, deposits within the limit specified under clause (c) of sub-section (1) of section 180 (Borrowing Powers) may, accept deposits by means of an ordinary resolution., Further, no Government company eligible to accept deposits under section 76 shall accept or renew any deposits, if, the amount of such deposits together with the amount of other deposits outstanding as on the date of acceptance, or renewal exceeds thirty five percent of the aggregate of its paid up share capital and free reserves., The procedure to accept deposits from public (other than members) can be summarized as under:1., Convene a Board meeting to consider and approve the business to propose and accept deposits from public, and to decide the day, date, time and place of the general meeting., 2., , Hold the general meeting and pass special resolution, for acceptance of deposits., , 4., , Once the proposal is approved, Directors are required to approach to the credit rating agency for the grant of, rating, execution of deposit insurance contract, appointment of deposit trustee and execution of trust deed, if, the deposits are secured, appointment of registered valuer, discussion and preparation of circular for the issue, of deposits may be given., , 3., , 5., 6., 7., , 8., , Submit Form MGT-14 with the Registrar of Companies within 30 days of passing the resolution., , Appointment of trustee for depositors and the statement of his consent to be appeared in the circular., , The company shall execute a deposit trust deed in Form DPT-2 at least seven days before issuing circular or, circular in the form of advertisement., , Circular shall be issued to its members of the company by registered post with acknowledgement due or by, speed post or by electronic mode in Form DPT-1 and in addition to such issue of circular to publish the same in, one English newspaper and one vernacular language in vernacular newspaper having wide circulation in the, state of registered office of the company. The eligible companies have to file a copy of the text of advertisement, signed by a majority of directors with the Registrar before 30 days of publication. They shall upload the same, on their website, if any., File the copy of aforesaid circular in the Form DPT-1 along with such statement with the Registrar within thirty, days before the date of issue of circular., , In case, a company does not secure the deposits or secures such deposit partially, then, the deposits shall be, termed as “unsecured deposits” and shall be so quoted in every circular, form, advertisement or in any, document related to invitation or acceptance of deposits.
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204, , 9., 10., , 11., 12., 13., 14., 15., 16., 17., , , , Lesson 4 • EP-CL, , Eligible company inviting secured deposits shall provide for security by way of a charge on its assets for the, due repayment of the amount of deposit and interest thereon. The company shall submit Form CHG-1 with, Registrar for assets other than intangible assets. Secured deposits including interest there on can in no case, exceed the market value of the charged assets assessed by the registered valuer., , Eligible companies proposed to accept deposits from public is required to issue advertisement one in English, newspaper having countrywide circulation and one newspaper in vernacular language having wide, circulation in the state in which the registered office of the company is situated. Said circular/ advertisement, shall be valid till before the expiry of six months from the end of respective financial year in which it was, issued or up to the date of Annual General Meeting (or last due date of AGM), if not held) wherein the financial, statement is laid before members, whichever is earlier., Upload the circular/advertisement on the company Website, if any., , Collect duly signed application form along with money from the members., , Issue receipts of deposits within 21 days of the receipts of money/realization of cheque., , Maintain register of deposits at its registered office which shall contain the details as prescribed under Rule, 14 Companies (Acceptance of Deposits) Rules, 2014, within 7 days from the date of such issuance of deposit, receipt., Pay interest as per the rate proposed on agreed terms., , Deposit on or before the thirtieth day of April each year such sum which shall not be less than twenty percent, of the amount of its deposits maturing during the financial year and the financial year next following and, keeping it in a separate bank account called deposit repayment reserve account., , Submit return of deposits in Form DPT-3 on or before 30th June each year for information as on 31st March, of respective year., , Do you Know?, •, , The following information as per latest balance sheet figures as on 31st March, 2019 is made available to, you:, », », », », , •, , •, •, , Paid-up Share Capital Rs. 150 Crore, Free Reserve Rs. 50 Crore, , Securities Premium Account Rs. 20 Crore, Capital Redemption Reserve Rs. 10 Crore, , The company has not accepted any deposits as of now. The Board of Directors want to know what is the, maximum amount it can accept by way of deposits from (i) members and (ii) the public. Advise them., , Arnav is the Senior Manager (Purchase) of Future Products Ltd. The company is not listed in any stock, exchange. It took Rs. 7 lakh from Arnav under an employment contract @ 4% interest per annum. Arnav, is paid a salary of Rs. 75,000 per month. The auditor of the company has pointed out that there is a, noncompliance of provisions of Companies Act, 2013. Examine the observation of the auditor with, reference to the provisions of the Companies Act, 2013., A public company may issue secured irredeemable debentures. Comment., , A real estate company took advance money from its customers in the course of business on which no, interest is supposed to be paid to the customers. At the end of financial year, company is in dilemma, whether to treat this advance as ‘advance’ or ‘deposit’. Advise the company on how to treat this amount, without interest.
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Lesson 4 • Debt Capital and Deposits, , 205, , CHECKLIST OF SECRETARIAL COMPLIANCE FOR ACCEPTANCE OF DEPOSITS AS PER COMPANIES, ACT, 2013, Checklist of secretarial compliance for acceptance of deposits under Companies act, 2013, are discussed below. The, Company Secretary should check:, 1., , Whether proper Board meeting has been held and the matter of acceptance of deposit has been proposed and, issue of notice for holding general meeting for obtaining approval of the shareholder has been taken place., , 3., , Whether the said resolution has been filed with Registrar in Form MGT-14 within 30 days of passing of such, resolution., , 2., , 4., 5., 6., 7., 8., 9., , 10., 11., 12., 13., , 14., , Whether general meeting has been held and approval of the shareholders by means of a special or ordinary, resolution has been passed., , Whether Board meeting has been held to obtain the approval for the draft Circular/Form of Advertisement, from the Board and the said draft Circular/Form of Advertisement has been signed by majority of the directors, of the Company., Whether copy of Circular/Form of Advertisement approved by the Board has been filed with the Registrar of, Companies in Form DPT-1 for registration., , Whether one or more deposit trustees for creating security for the secured deposits has been appointed and, the company has executed a deposit trust deed in Form DPT-2 at least seven days before issuing circular or, circular in the form of advertisement., Whether the company has obtain the rating unless exempted,(including its net worth, liquidity and ability to, pay its deposits on due date) from a recognized credit rating agency for informing the public the rating given, to the Company., Whether the company has issued circular/form of advertisement after 30 days from the date of filing of a, Copy of Circular/Form of Advertisement with the Registrar., , Whether the circular has been issued to members by registered post with acknowledgement due or speed, post or by electronic mode or publish the circular in the form of an advertisement in Form DPT-1 and in, addition to such issue of circular, the company has published the same in one English newspaper having, country wide circulation and one vernacular language in vernacular newspaper having wide circulation in, the state of registered office of the company., Whether the company has uploaded the copy of the circular on the Company’s website, if any., , Whether the company has issued deposit receipt in the prescribed form at and under the signature of officer, duly authorized by Board, within a period of 21 days from the date of receipt of money or realization of, cheques., Whether the company has made entries in the register as per the instruction provided in the rules within, seven days from the date of issuance of the deposit receipt and such entries shall be authenticated by a, director or secretary of the company or by any other officer authorized by the Board., Whether the company has filed deposit return in Form DPT-3 by furnishing information contained therein, as on 31st day of March duly audited by auditors before 30th June every year., , Whether the company has prepared and filed with the Registrar the statement regarding deposits existing as, on the date of commencement of the act in Form DPT-4., , These are some of the checklist which are to be taken care of from compliance point of view.
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206, , Lesson 4 • EP-CL, , , , ANNEXURES, SPECIMEN RESOLUTION FOR ACCEPTANCE OF DEPOSITS FROM, MEMBERS AND/OR PUBLIC, “RESOLVED THAT pursuant to the provisions of Section 73 and 76 of the Companies Act, 2013 (the Act) read with, the Companies (Acceptance of Deposits) Rules, 2014 (the Rules) and other applicable provisions, if any, and, subject to such conditions, approvals, permissions, as may be necessary, consent of the members be and is hereby, accorded to the Company to invite/accept/renew/receive money by way of unsecured/secured deposits from its, members and public.”, , “RESOLVED FURTHER THAT Mr. C, Chairman & Managing Director, be and is here by authorized to issue the, circular or circular in the form of advertisement, which has been approved by the Board of Directors of the, company at their meeting held on the (day) of (month) of (year) and which delineates the silent features of the, deposit scheme of the company and other relevant particulars as prescribed by the Act and the Rules.”, “RESOLVED FURTHER THAT Mr. C, Chairman & Managing Director, be and is hereby authorized to have the, circular or circular in the form of advertisement, which has been duly signed by the majority of directors, filed, with the Registrar of Companies, NCT of Delhi & Haryana, New Delhi, pursuant to the Rules, and to publish the, same in English language in Times of India (Delhi edition) and in Hindi in Dainik Jagran (Delhi edition).”, , “RESOLVED FURTHER THAT for the purpose of giving effect to this Resolution, the Board of Directors be and is, hereby authorized to do such acts, deeds, matters and things as Board of Directors may in its absolute discretion, consider necessary, proper, expedient, desirable or appropriate for such invitation/acceptance/renewal/receipts, as aforesaid and matters incidental thereto.”, (The aforesaid specimen resolution is drafted on the assumption that the registered office of the company is in, the state of Delhi and Times of India (Delhi edition) and Dainik jagran (Delhi edition) are widely circulated, newspaper in the state of Delhi.)
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207, , Lesson 4 • Debt Capital and Deposits, , LESSON ROUND-UP, •, , All companies are given power to borrow by their articles which fix the maximum limit of borrowings., , •, , Where the company borrows without the authority conferred on it by the Articles or beyond the amount, set out in the Articles, it is an ultra vires borrowing and hence void. Ultra vires borrowings cannot even be, ratified by a resolution passed by the company in general meeting. In case of ultra vires borrowings the, lender has the following remedies: (a) Injunction and Recovery, (b) Subrogation, (c) Suit against Directors., , •, , •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , The power to borrow monies and to issue debentures (whether in or outside India) can only be exercised, by the Directors at a duly convened meeting., , A debenture is a document given by a company under its seal as an evidence of a debt to the holder, usually arising out of a loan and most commonly secured by a charge., , Debentures may be of different kinds, viz. redeemable debentures, registered and bearer debentures,, secured and unsecured or naked debentures, convertible debentures., A debenture stock is a borrowed capital consolidated into one mass for the sake of convenience., , A loan creates a right in the creditor to demand repayment, and the substance of a debt is a liability upon, the debtor to repay the money., A debenture trust deed is one of the several instruments required to be executed to secure redemption of, debentures and payment of interest on due dates., , Section 71(4) of the Act required every company to create a debenture redemption reserve account to, which adequate amount shall be credited out of its profits available for payment of dividend until such, debentures are redeemed and shall utilize the same exclusively for redemption of a particular set or, series of debentures only., Certificate of deposit is a document of title to a time deposit., , Commercial paper refers to unsecured promissory notes issued by credit worthy companies to borrow, funds on a short term basis., The convertible debentures are regulated by SEBI (ICDR) Regulations, 2018., , The non-convertible debentures are regulated by SEBI (Issue and Listing of Debt Securities) Regulations,, 2008., , Section 73 prohibits a company to invite, accept or renew deposits from public except in the manner, provided under Chapter V. This prohibition however shall not apply in case of banking company and nonbanking financial company and such other company as the Central Government may specify., A company can invite deposits from its members subject to the passing of a resolution in general meeting, subject to some conditions., The company inviting deposits shall issue a circular to its members in Form DPT-1., , No company under sub-section (2) of section 73 or any eligible company shall issue a circular or, advertisement inviting secured deposits unless the company has appointed one or more deposit trustees, for creating security for the deposits., For appointing deposit trustees the company shall execute deposit trust deed in Form DPT-2., , The Company accepting deposits shall, on or before 30th day of April each year, deposit a sum not less, than twenty percent of the amount of deposits maturing during the following year in a scheduled bank in
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208, , •, •, •, , Lesson 4 • EP-CL, , , , a separate bank account to be called deposit repayment reserve account. The said reserve shall not be, used by the Company for any purpose other than repayment of deposits., , The company accepting deposits shall maintain at its registered office one or more registers for deposits, accepted or renewed., The Return of Deposits shall be filed in Form DPT-3 with the Registrar., , There are stringent penal provisions (Section 75 and 76A) to safeguard the interest of depositors., , GLOSSARY, Ultra Vires, Intra vires, Pari passu, Debentures, Bonds, , Debenture Trustee, Debenture Trust, Deed , Deposit, , Depositor, , Beyond the powers, Within the powers, On equal footing or proportionately, , A debenture is an instrument of debt executed by the company acknowledging its, obligation to repay the sum at a specified rate and also carrying an interest., , A bond is an instrument of indebtedness of the bond issuer to the holders. It is a debt, security, under which the issuer owes the holders a debt and, depending on the terms, of the bond, is obliged to pay them interest (the coupon) and/or to repay the principal, at a later date, termed the maturity. Interest is usually payable at fixed intervals, (semiannual, annual, sometimes monthly). Very often the bond is negotiable, i.e. the, ownership of the instrument can be transferred in the secondary market., Debenture trustee means the trustee of the trust deed for securing any issue of, debentures of a body corporate., Debenture trust deed is a written instrument legally conveying a property to the trustee, often for the purpose of securing a loan or mortgage., , “Deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include such categories of amount as may be prescribed in, consultation with the Reserve Bank of India.[Section 2(31) of Companies Act,2013], ‘Depositor’ means –, (i), , Eligible Company, , (ii), , any member of the company who has made a deposit with the company in, accordance with sub-section (2) of section 73 of the Act, or, any person who has made a deposit with a public company in accordance with, section 76 of the Act. [Rule 2(1)(d)], , ‘Eligible Company’ means a public company as referred to in sub-section (1) of Section, 76, having a net worth of not less than one hundred crore rupees or a turnover of not, less than five hundred crore rupees and which has obtained the prior consent of the, Company in general meeting by means of a special resolution and also filed the said, resolution with the Registrar of Companies before making any invitation to the public, for acceptance of deposits., , However, an eligible company ,which is accepting deposits within the limits specified, under clause (c) of sub-section (1) of section 180, may accept deposits by means of an, ordinary resolution.
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209, , Lesson 4 • Debt Capital and Deposits, , TEST YOURSELF, , 1., , 2., 3., 4., 5., 6., , (These are meant for recapitulation only. Answer to these questions are not to be submitted for evaluation)., , What are the restrictions imposed on the borrowing powers of the Board of Directors? If a company, borrows beyond its powers, examine the remedies open to such creditor:, , (i), , (iii), , What is debenture? What are the kinds of debentures?, , What is a convertible debenture? What are the provisions of the Companies Act, 2013 regarding, convertible debentures or loans?, Is it compulsory to maintain a Debenture Redemption Reserve Account? If yes, how?, Write short notes on the following:, , (i), , Ultra vires borrowings, , (iii), , Security for borrowings, , (iv), , 8., , (v), , Types of borrowings, Commercial Papers, , Whether the following can be appointed as Debenture Trustee:, , (i), , A shareholder who has no beneficial interest, , (iii), , Spouse of Mr. X, director of the Company, , (iv), , A creditor whom the Company owes Rs. 500 only, A person who has given a guarantee for repayment of amount of debentures issued by the Company?, , Which of the following Companies can accept deposits from Public:, , a., , XYZ Private Limited having a net worth of 200 Crore, , c., , B Limited having a net worth of 90 Crore and turnover of 440 Crore, , b., 10., , Intra vires borrowings, , Who is a debenture trustee? Why is it compulsory to appoint a trustee in connection with the issuance of, debentures? What are the duties of a trustee?, , (ii), 9., , When the money has been spent to pay the debts of the company., , What is the difference between debenture and a loan? Is fixed deposit a Debenture or Loan?, , (ii), , 7., , When the money has not been spent;, , A Limited having a turnover of 550 Crore, , Write short note on the following:, , (i), , Depositor, , (iii), , Secured and Unsecured Deposits, , (ii), , (iv), (v), , (vi), , Eligible Company, , Return of Deposits, , Deposit Repayment Reserve Account, Register of Deposits
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210, , Lesson 4 • EP-CL, , , , 11., , What are the consequences of failure to invite or accept deposits or repay deposits by a Company in, contravention of manner or conditions prescribed under the provisions under Chapter V., , 13., , What is the procedure for accepting deposits from members?, , 12., 14., , Prepare a checklist of secretarial compliance to be made by a company secretary for acceptance of, deposits., , What are the exemptions available to companies for not complying with provisions under Chapter V., Name the class of companies exempted and which conditions are to be fulfilled for availing such, exemptions?, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , Bare Act- the Companies Act, 2013, , •, , Securities Laws and Capital Markets, , Other Modules of ICSI having reference on Debentures and Deposits, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Charges, , Lesson 5, Key Concepts One, Should Know, •, , Mortgage, , •, , Interest, , •, •, •, •, •, •, •, , Learning Objectives, To understand:, •, , The meaning and Concept of Charges, , Hypothecation, , •, , Satisfaction, , •, , Procedural aspects relating to registration modification and, satisfaction of charges, , Pledge, Lien, , Charges, , Modification, Creation, , •, , •, •, •, •, •, , Regulatory provisions related to registration, modification and, satisfaction of charges under the Companies Act, 2013 and Rules, made thereunder, Authority relating to creation of charges, , Format of Resolutions (Board and General Meetings), Understanding Forms prescribed by MCA, , Regulatory requirements under SARFAESI, , Judicial Pronouncements and its relevance to various regulatory, provisions, Clarifications/Circulars issued by Ministry of corporate affairs, , Lesson Outline, •, , Introduction, , •, , Registration of charges, , •, •, •, •, •, •, •, •, , Definition of charge, , Kinds of a charge viz. fixed charge, floating Charge, Satisfaction of charges, , Modification of charges, , Purchase or Acquisition of a property subject to charge, Consequences on non-registration of charge, Rectification by Central Government, Procedural Aspects, , •, , LESSON ROUND-UP, , •, , LIST OF FURTHER READINGS, , •, •, •, , GLOSSARY, , TEST YOURSELF, , OTHER REFERENCES
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212, , Lesson 5 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 2(16), , Definition of Charge, , Section 77, , Duty to Register Charges etc., , Section 78, , Application for Registration of Charges, , Section 79, , Application of section 77 on certain matters, , Section 80, , Date of Notice of Charge., , Section 81, , Register of Charges to be kept by Registrar, , Section 83, , Power of Registrar to make entries of satisfaction & release in absence of intimation from, company, , Section 82, Section 84, Section 85, Section 86, Section 87, , Section 117, Section 179, Section 180, , Company to Report Satisfaction of Charges, , Intimation of appointment of Receiver or Manager, Company’s Register of Charges, Punishment for contravention, , Rectification by Central Government in Register of Charges, Resolutions and Agreements to be Filed with the Registrar, Power of Board read with Rules made thereunder, , Restriction on Power, of Board read with Rules made there under, , The Companies (Registration of Charges) Rules, 2014 as amended from time to time, , Rule 12 of Companies (Registration of offices and Fees) Rules, 2014 read with Annexure to the, said rules, Registration of Charges by Secured Creditor with Central Registry under SARFAESI
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213, , Lesson 5 • Charges, , INTRODUCTION, A charge is a security given for securing loans or debentures by way of a mortgage, hypothecation, pledge etc on the, assets of the company. A company, like a natural person, can offer security for its borrowings. Normally, the debentures, and other borrowings of the company are secured by a charge on the assets of the company. Where property, both, existing and future, is agreed to be made available as a security for the repayment of debt and creditors have a, present right to have it made available, a charge is created. The legal right of the creditor can only be enforced at, some future date if certain conditions governing the loan are not met., In simple terms a charge is a right created by a company i.e. “Borrower” on its assets or properties or any of its, undertakings present or future, in favor of a financial institution or a bank or any other lender, i.e. “creditor” who has, agreed to extend financial assistance., , Pledge, Hypothecation and Mortgage, Pledge:, Section 172 of the Indian Contract Act,1872 defines pledge as “The bailment of goods as a security for the payment, of a debt or performance of a promise”. The bailor in this case is called a Pawnor and the bailee is called Pawnee., To create a valid pledge in the eyes of Law, the three important points needs to be noted:, (a), , (b), (c), , Delivery of Possession: As in bailment, in pledge too delivery of possession is required. For example, in, Revenue Authority vs Sundarsanam Pictures, AIR 1968, it was held not to be pledge because the film producer, borrowed a sum of money from a financier and agreed to deliver the final prints of the film when ready. Thus,, there was no delivery of the goods at the time of agreement;, Delivery is on return of a loan or promise to perform something. Therefore, if your friend gives you his Motorcycle to go to college, it is not pledge but can be called simple bailment;, It should be in pursuance of a contract: The delivery must be done under a contract (oral or written). However,, it is not necessary that delivery and loan take place at the same time. Delivery can be made even after the loan, is received., , Hypothecation:, , Hypothecation was not defined under Indian Law for long time and was used more on the basis of practice. However,, under the Secruitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (also known as SARFAESI Act, 2002) hypothecation is defined as “a charge in or upon any movable property, existing, or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable, property to such creditor, as a security for financial assistance, and includes floating charge and crystallization into, fixed charge on movable property”., Mortgage:, , Mortgage is defined in section 58 of the Transfer of Property Act, 1882. It, is the transfer of an interest in specific immovable property for the, purpose of securing payment of money advanced by way of loan., , A mortgage is the transfer of an interest in specific immoveable property, for the purpose of securing the payment of money advanced or to be, advanced by way of loan, an existing or future debt or the performance of, an agreement which may give rise to pecuniary liability., , In the matter of Ranjit Ray vs. D.A., David, it was held that an, assignment of Book debts as, security is a mortgage requiring, registration as a charge under the, Companies Act, 2013
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214, , Lesson 5 • EP-CL, , , , Hypothecation or pledge of movable property shall also be registered. Hypothecation is only an extension of pledge, wherein the creditor is permitting the debtor to retain a possession on the assets and also deal within, till the, default is made by the debtor in payment of principle or interest. That means the creditor can fix the charge on the, asset and can takeover the possession of asset in the event of default or winding up of the Company., , Definition of Charge, , The Charge here has the following essential features:, •, , There are minimum two parties to the transaction, the creator of, the charge and the charge- holder., , •, , The intention of the borrower to offer one or more of its specific, asset or properties as security for repayment of the borrowed, money together with payment of interest at the agreed rate etc.,, should manifest from an agreement entered by him in favour of the lender, written or otherwise., , •, , The subject matter of charge may be on current or future assets and, properties of the borrower., , As per Section 2(16), “Charge”, 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., , According to section 100 of the Transfer of Property Act, 1882, charge means where an immovable property of one, person is by act of parties or operation of law made security for the payment of money to another and the transaction, does not amount to a mortgage, the latter person is said to have a charge on the property, and all the provisions which, apply to a simple mortgage shall, so far as may be, apply to such charge., , Meaning of ‘Interest’ and ‘Lien’, The key words, mentioned in, the definition, of Charge are, “interest” and, “lien”., , The meaning of “interest” as per Black’s law dictionary is ‘legal share in something: all or, part of a legal or equitable claim to a right in property, right, title, and interest. Collectively,, the word includes any aggregation of rights, privileges, powers and immunities;, distributively, it refers to anyone right, privilege, power, or immunity.’, , The meaning of “lien” as per the Black’s Law dictionary is a legal right or interest that a, creditor has in another’s property lasting usually until a debt or duty it secures is satisfied., `Lien’ strictly, is simply a right to possess and retain property until some claim attaching to, it is satisfied or discharged.’, , In both the cases whether “interest” and “lien” a charge is to be created., , Departure from the Companies Act, 1956, , In Companies Act, 1956, the definition of charge was inclusive. The term was defined to include a mortgage, whereas, the definition of charge in clause (16) of section 2 of the Companies Act, 2013 is – “an interest or lien created on the, property of the company or its assets or any of its undertakings or both as security and includes a mortgage.” Under, the Companies Act, 1956, only 9 types of charge were required to be registered whereas the provisions under the, Companies Act, 2013 covers any kind of interest or lien created on the property of the company or its assets as a, security including mortgage., , Difference Between Mortgage and Charge, S. No., 1., 2., , Mortgage, , Charge, , A mortgage is created by the act of the A charge may be created either through the act of, parties., parties or by operation of law., , A mortgage requires registration under the A charge created by operation of law does not require, Transfer of Property Act,1882., registration but a charge created by act of parties, requires registration.
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215, , Lesson 5 • Charges, , 3., , 4., 5., 6., , A mortgage is a transfer of an interest in A charge only gives a right to receive payment out of a, specific immovable property., particular property. There is no such transfer of, interest in the case of a charge. Charge does not operate, as transfer of an interest in the property and a, transferee of the property gets the property free from, the charge provided, he purchases it for value without, notice of the charge., A mortgage is for a fixed term., , The charge may be in perpetuity., , A mortgage is good against subsequent A charge is good against subsequent transferees with, transferees., notice., A simple mortgage carries personal liability In case of charge, no personal liability is created. But, unless excluded by express contract., where a charge is the result of a contract, there may be, a personal remedy., , CHARGE AND PLEDGE DISTINGUISHED, , According to the generally accepted definition, a ‘pledge’ is a bailment of personal property as security for some debt, or engagement, redeemable on certain terms, and with an implied power of sale on default. It consists of a delivery, of goods by a debtor to his creditor as security for a debt or other obligation, to be held until the debt is repaid along, with interest or other obligation of the debtor is discharged, and then to be delivered back to the pledger, the title not, being changed during the continuance of the pledge., Unlike a pledge, a ‘charge’ is not a transfer of property of one to another. It is a right created in favour of one,, referred to as “the lender” in the immovable property of another, referred to as “the borrower”, as security for, repayment of the loan and payment of interest on the terms and conditions contained in the loan documents, evidencing charge., Both a pledge and a charge are the result of voluntary act of parties. Both create security but the nature of the, security is different., In a charge, the right to sell the property is contractual and can be defeated by a bona fide purchaser for value, without notice, whereas, in the case of a mortgage, the right to sell will consist of interest in the property being, transferred to the mortgagee. In the case of a charge as well as in the case of a mortgage two elements are common., First, that there is a loan and secondly, that there is a security for the repayment of the loan. The only difference, between a charge and a mortgage is that in the case of a mortgage there is transfer of interest but in the case of a, charge there is no transfer of interest., , The above dictum was propounded in In Re. Calcutta National Bank Ltd. v. Rangaroon Tea Co. Ltd [(1970) 40 Comp., Cas. 565(Cal.)]. Clause 16 of section 2 of the Act states that “charge” 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. A charge, includes a lien and also an equitable charge., Deposit of title deeds creates a charge on land even if the depositor is not the debtor, as held in [Dublin City, Distillery Co. v Doherty [1914 AC 823], , Registerable charges, Section 2(16) and section 77 of the Act require to register the charge created by way of every kind of interest or lien, (including negative lien) on the property or assets, tangible or otherwise, of a company as security, including, mortgage. The section does not list down types of charge to be registered unlike provisions of section 125 of the, Companies Act, 1956., The following is an indicative list of charges to be registered with the Registrar:—, I., , a charge created for the purpose of securing any issue of debentures or deposits;
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216, , , , Lesson 5 • EP-CL, , II., , a charge on uncalled share capital of the company;, , IV., , a charge on any book debt of the company. Assignment of book-debts as security is covered. [Paul and Frank, Ltd v Discount Bank Overseas Ltd [(1966) 2 All ER 9221 (Ch D)]], , III., , V., , VI., , VII., , a charge on any immovable property, wherever situate, or any interest therein. This includes mortgage by, deposit of title deeds. [Wallis v Simmonds (Builders) Ltd[(1974) 1 All ER 561];, a lien on sub freight is a charge on book-debt of the company. [Welsh Irish Ferries Ltd. [(1985) [ECLE 327 (Ch, D)]]; Ladenberg& Co. v Goodwin [(1912) 3 KB 275]]., a charge, on any movable property of the company;, , a floating charge on the undertaking or any property of the company including stock-in-trade;, , VIII. a charge on calls made but not paid;, IX., , a charge on a ship or any share in a ship;, , XI., , a charge or assignment on insurance policies obtained by the company;, , X., , XII., , a charge on intangible assets, including goodwill, patent, a licence under a patent, trade mark, copy right or a, license under a copyright;, all and every kind of pledge margin money, including shares, is a pledge. Lien on shares in the company (e.g., company A has invested in shares of company B. The latter, through its Articles has lien over shares including, fully paid shares for any debts due from member including trade debts. Company B supplies goods to company, A on credit. On such supply, lien is created and should be registered as charge)., , NEED FOR CREATING A CHARGE ON COMPANY’S ASSETS, , Almost all the large and small companies depend upon share capital and borrowed capital for financing their, projects. Borrowed capital may consist of funds raised by issuing debentures, which may be secured or unsecured,, or by obtaining financial assistance from financial institution or banks., The financial institutions/banks do not lend their monies unless they are sure that their funds are safe and they, would be repaid as per agreed repayment schedule along with payment of interest. In order to secure their loans, they resort to creating right in the assets and properties of the borrowing companies, which is known as a charge, on assets. This is done by executing loan agreements, hypothecation agreements, mortgage deeds and other similar, documents, which the borrowing company is required to execute in favour of the lending institutions/ banks, etc., As a matter of convenience and practice, as and when more funds are required by companies, they approach the, same institutions/banks or certain new institutions/ banks and offer same assets as security for fresh loans., , However, when the same assets are charged for second and subsequent times, a very important question arises as, to priority in respect of the charges in favour of different institutions. This situation is managed by securing consent, of the earlier lending institutions to the creation of second and subsequent charges on the same assets. With their, consents, the charges of all the lending institutions ranks pari passu, i.e., on the same footing., , However, the earlier lending institution may not give its consent to the creation of second charge on the ground that, the realisable value of the asset charged in its favour is not adequate to cover its loan and as such it cannot share its, right of charge with the lending institutions which seek second and subsequent charges., The real question which alerts the lending institutions is how to ensure that the assets being offered as security for, their proposed loans are not already encumbered., , Every financial institution insists for registration of a charge created on personal or third party property provided to, secure loan granted to the company. Charge documents are registered in the MCA Portal under the Straight through
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Lesson 5 • Charges, , 217, , Process (STP) and hence, there is possibility that the charge is registered on such assets on the personal wherein, the charges is not required or registered with the wrong or incomplete details. Company Secretary being a certified, professional for charge related forms, need to be aware that what is registerable charge and what could be the, implications of registration of such wrong charges on the charge creator more particularly when personal insolvency, is at door steps, charge holder and certifying professionals., , Protection to the Lender, , The legislative intent behind the section 77 of the Act, is to ensure that all encumbrances made by the company on its, property or assets or any of its undertakings are made public. This is especially required to protect the interest of, the lenders to ensure that the assets being offered as security for their proposed facilities are not already encumbered., Once a charge is registered, it will be in the public domain and the lender can verify the details of financial facilities, obtained and charge created on property or assets or any of its undertakings. This section serves two fold purpose:, preventing the company from simultaneously borrowing on the same assets without notice to previous lender and, providing clear information to the new lender about the status of the assets., The Government of India launched CERSAI (Central Registry of Securitisation Asset Reconstruction and Security, Interest) with an objective of eliminating fraudulent and dubious activities related to taking out loans by pledging, the same asset as mortgage to various lenders at the same time., , The CERSAI also maintain a single, centralised registry of all equitable mortgages. The CERSAI registry essentially, contains all the relevant and necessary information regarding mortgage loans taken out on a single property., Additionally, lenders can also find information about the party sanctioning the loan against the property in question, as well all the necessary information about the borrower., , Kinds of Charges, , A., , On the basis of the nature of charge:, , A charge on the property of the company as security for debts may be of the following kinds, namely:, (i), (i), , Fixed or specific charge;, Floating charge., , Fixed or Specific Charge, A charge is called fixed or specific when it is created to cover assets which are ascertained and definite or are, capable of being ascertained and defined, at the time of creating the charge e.g., land, building, or plant and, machinery. A fixed charge, therefore, is a security in terms of certain specific property and the company gives up its, right to dispose off that property until the charge is satisfied. In other words, the company can deal with such, property, subject to the charge so that the charge holder’s interest in the property is not affected and the charge, holder gets priority over all subsequent transferees except a bona fide transferee for consideration without notice, of the earlier charge. In the winding-up/liquidation of the company, a debenture holder secured by a specific charge, will be placed in the highest ranking class of creditors., Floating Charge, , A floating charge, as a type of security, is peculiar to companies as borrowers. A floating charge is not attached to any, definite property but covers property of a fluctuating type e.g., stock-in-trade and is thus necessarily equitable. A, floating charge is a charge on a class of assets present and future which in the ordinary course of business is, changing from time to time and leaves the company free to deal with the property as it sees fit until the holders of, charge take steps to enforce their security. “The essence of a floating charge is that the security remains dormant, until it is fixed or crystallised”. But a floating security is not a future security. It is a present security, which presently, affects all the assets of the company expressed to be included in it. On the other hand, it is not a specific security;, the holder of such charge cannot affirm that the assets are specifically mortgaged to him. The assets are mortgaged, in such a way that the mortgagor i.e. the company can deal with them without the concurrence of the mortgagee.
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218, , Lesson 5 • EP-CL, , , , The advantage of a floating charge is that the company may continue to deal in any way with the property which has, been charged. The company may sell, mortgage or lease such property in the ordinary course of its business if it is, authorised by its memorandum of association., B. On the basis on the conditions of the charge, •, , Pari-passu charge - Under, this the charge is shared by more than one lender in the ratio of their outstanding, amount. The prior consent of the existing charge holder is required by the company., , •, , Exclusive charge - The security under the exclusive charge is provided to a particular lender only., , •, , Further charge - With the consent on the first charge holder, the particular assets on which charge is already, created may be provided to other lenders as second charge. In case of liquidation of assets, the first charge, holder has the right to recover his dues and the balance is recovered by the second charge holder followed by, others., , Crystallisation of Floating Charge, , A floating charge attaches to the company’s property generally and remains dormant till it crystallizes or becomes, fixed. The company has a right to carry on its business with the help of assets over which a floating charge has been, created till the happening of some event which determines this right. A floating charge crystallises and the security, becomes fixed in the following cases:, (a), , when the company goes into liquidation;, , (c), , when the creditors or the debenture holders take steps to enforce their security e.g. by appointing receiver to, take possession of the property charged;, , (b), (d), , when the company ceases to carry on its business;, , on the happening of the event specified in the deed., , In the aforesaid circumstances, the floating, charge is said to become fixed or to have, crystallised. Until the charge crystallises, or attaches or becomes fixed, the company, can deal with the property so charged in, any manner it likes., , Although a floating charge is a present, security, yet it leaves the company free to, create a specific mortgage on its property, having priority over the floating charge., , In Government Stock Investment Co. Ltd. v. Manila Railway Co., Ltd., (1897) A.C. 81, the debentures were secured by a floating, charge. Three months’ interest became due but the debenture, holders took no steps and so the charge did not crystallize but, remained floating. The company then made a mortgage of a, specific part of its property. Held, the mortgagee had priority. The, security for the debentures remained merely a floating security, as the debenture holders had taken no steps to enforce their, security., , Effect of Crystallisation of a Floating Charge, , In Parmanent Houses (Holdings) Ltd. 1988 BCLC 563(CH, D), where a company issued debenture creating a charge in favor, of a lending bank mentioning that the charge shall crystallize on, happening of an event or default in payment. When the payment, was not made on demand by bank, it was held that the charge, was no longer a floating charge at the time when receiver was, appointed., , On crystallization, the floating charge converts, into a fixed charge on the property of the, company. It has priority over any subsequent, equitable charge and other unsecured, creditors. But preferential creditors who have, priority for payment over secured creditors in, the winding-up get priority over the claims of, the debenture holders having floating charge.
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Lesson 5 • Charges, , 219, , Postponement of a Floating Charge, The creation of a floating charge leaves the company free to create a legal and equitable mortgage on the same, property until the floating charge crystallises. Where such a mortgage is created it has priority over the floating, charge which gets postponed. The floating charge is postponed in favour of the following persons, if they act before, the crystallization of the security:, (a), , a landlord who distrains for rent;, , (c), , a judgment creditor who attaches goods of the company and gets them sold (But if the goods are not sold and, the debenture holders take action in the meantime, the floating charge has priority);, , (b), (d), (e), , a creditor who obtains a garnishee order absolute;, , the employees of the company, as well as other preferential creditors in the event of winding-up of the, company;, , the supplier of goods to the company under a hire-purchase agreement on terms that goods are to remain, the property of the seller until they are paid for in full, has priority over the floating charge, whether, such hire-purchase agreement is made before or after the issue of the debentures with a floating charge., , Debenture-holders with a floating charge do not, therefore, enjoy the same rights as the secured creditors, for, claims against the company. The deed creating the floating charge may, however, contain a clause restricting the, power of the company to create charges in priority to or pari passu with it. But even in such a case a person who takes, mortgage without notice of floating charge gets priority. But such a contingency can be safeguarded by registering, the charge. In terms of Section 80 of the Act, where a mortgage or charge on any property or assets of a company or, any of its undertakings required to be registered under Section 77 of the Act has been so registered, any person, acquiring such property, assets, undertakings or any part thereof or any interest or share therein shall be deemed, to have notice of the charge as from the date of such registration., , Restraint on the Power to create Charges with Priority to a Floating Charge, , As the floating charge allows wide powers to the company to deal with its property, it is common to insert a clause, restricting the powers of the company to create charge with priority to or pari passu with it. Thus, if the company, creates a mortgage in favour of any person who has notice of the floating charge and restriction, such person ranks, after the floating charge. But a person who obtains a valid mortgage, and can show either (i) that he was not aware, of the existence of the floating charge; (ii) that though he was aware of the charge, he was not aware of the restriction,, is entitled to priority by virtue of the legal estate. Furthermore, where a specific charge is created expressly subject, to a floating charge, the specific charge is postponed as from the date when the floating charge crystallises by the, appointment of a receiver., , Invalidity of Floating Charge, , A floating charge remains afloat until a winding up commences, unless it has already crystallised through the, intervention of the debenture holders or the creditors. Also, a floating charge is valid only against the unsecured, creditors, whether in a winding- up/liquidation or otherwise. But the Act prevents an unsecured creditor to get, priority over the other creditors by obtaining a liquidation/floating charge when he learns that the company’s, liquidation is imminent., , Accordingly, Section 332 of the Companies Act, 2013 provides that a floating charge on the undertakings or property, of the company, which is created within 12 months immediately preceding the commencement of the winding up, proceedings of a company shall be invalid, unless it is proved that the company was solvent immediately after the, creation of the charge. But the charge will be valid to the extent of the amount of any cash paid to the company at, the time of or after the creation of, and in consideration for the charge, together with interest on that amount at 5, per cent per annum or such other rate as may be notified by the Central Government.
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220, , Lesson 5 • EP-CL, , , , REGISTRATION OF CHARGES UNDER COMPANIES ACT, 2013, CHARGES TO BE REGISTERED (SECTION 77), , Charges created within/, outside India, , Charges created on its Property, or Assets or Any of its, Undertaking, , Charges created whether Tangible /, Intangible or Otherwise and situated, in or outside India, , To be registered with Registrar in from, CHG- 1(other Than Debentures) or From, CHG-9 (Debenture) within 30 Days of, Creation/ Modification, Company failing to register the charges within 30 days from the date of creation of charge, may register the same with Registrar with additional fees (section 77), In case of charges created before commencement, of the Companies (Amendment) Act, 2019 within, 300 days of such creation and if not registered, within 300 days, within 6 months from the date of, commencement of the Companies (Amendment), Act, 2019 after payment of such additional fees., , In case of charges created after commencement, of the Companies (Amendment) Act, 2019,, with in 60 days on payment of such additional, fees of such creation and if not registered, within 60 days, within further 60 days after, payment of ad valorem fees., , Registration of Charges- Section 77(1), Proviso to Section 77(1) states that the Registrar may, on an application by the company, allow such registration to be, made, (a), , (b), , in case of charges created before the commencement of the Companies (Amendment) Act, 2019 i.e. 02.11.2018,, within a period of three hundred days of such creation; or, in case of charges created on or after the commencement of the Companies (Amendment) Act, 2019 i.e. on or, after 02.11.2018, within a period of sixty days of such creation, on payment of such additional fees as may be, prescribed:, , Provided further that if the registration is not made within the period specified:, (a), , (b), , in clause (a) to the first proviso, the registration of the charge shall be made within six months from the date, of commencement of the Companies (Amendment) Act, 2019 i.e. 02.11.2018, on payment of such additional, fees as may be prescribed and different fees may be prescribed for different classes of companies;, in clause (b) to the first proviso, the Registrar may, on an application, allow such registration to be made, within a further period of sixty days after payment of such ad valorem fees as may be prescribed.
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221, , Lesson 5 • Charges, , The MCA has prescribed the following additional fees or ad valorem fees as the case may be, payable with effect, from 01.08.2019 on the charges created after 01.08.2019: Period of delay, , Small Companies and One Person Other than Small Companies and, Company, One Person Company, , Up to 30 days of Delay (up to 60 3 times normal fee, Days from the date of Creation), , More than 30 days and up to 90 3 times of normal fees plus an ad, days delay (up to 120 days from the valorem fee of 0.025 per cent. of the, date of Creation), amount secured by the charge,, subject to the maximum of rupees, one lakh., , 6 times normal fee, , 6 times of normal fees, plus an ad, valorem fee of 0.05 per cent. of the, amount secured by the charge,, subject to the maximum of rupees five, lakhs., , After amendments in Section 77 of the Act, the provisions restricts the ability of the company to register charge after, expiry of 120 days resulting beyond 120 days the charge cannot be registered. In such case the lending institution, or the company should ensure that before 120 days otherwise the entire purpose of registration of charge to have, transparent information in public domain will defeat. This situation also deprives genuine lenders to recover their, dues. This also gives wrong picture of charges on the property of the company, when third party takes search of MCA, for registration of charges., , Illustration, Particulars, , Date, , Date of creation, , December 1, 2020, , Upto 30 days, , December 30, 2020, , No additional fees, , January 30, 2021 to March 29,, 2021, , Additional fees + ad valorem fees, as per table below, , Amount secured, More than 30 days and up to 60, days, , More than 60 days and up to 120, days, , Calculations of Fees:, , Rs. 500 crores, , December 31, 2020 to January 29,, 2021, , Remarks, , Additional fees 3 times or 6, times as the case may be, , Date of Filing, , Additional Fee applicable, (assuming normal fees of Rs. 400), in case of Small companies and, One Person Company, , Additional Fee applicable, (assuming normal fees of Rs., 400) in case of other than, Small companies and One, Person Company, , December 30, 2020, , 400, , 400, , December 31, 2020 to January 29, 2021 3 times of normal fees i.e. 1200, January 30, 2021 to March 29, 2021 (a) Additional fees, , 3 times of normal fees 1200, , Maximum Ad valorem fees, , Rs. 1 lakh, , (b) Ad valorem fees, Actual fee payable, , 6 times of normal fees i.e. 2400, -, , 6 times of normal fees =2400, , 0.025% of Rs. 500 crores = Rs.12.5 0.05% of Rs. 500 crores = Rs. 25, lakhs, lakhs, 1,01,200, , Rs. 5 lakhs, 5,02400
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222, , , , Subsequent Registration shall not Prejudice any Right, , Lesson 5 • EP-CL, , Third Proviso to Section 77(1) states that any subsequent registration of a charge shall not prejudice any right, acquired in respect of any property before the charge is actually registered which means that the rights of the, former charge holder will not be affected in case of the creation of the subsequent charge., , NON-APPLICABILITY TO CERTAIN CHARGES AS PRESCRIBED IN CONSULTATION, , Fourth Proviso to Section 77(1) states that the section w.r.t. registration of charges, shall not apply to such charges, as may be prescribed in consultation with the Reserve Bank of India., , Application for registration of charge by the charge-holder (Financing Institution), , According to Section 78 where a company fails to register the charge within the period of 30 days referred to in, sub-section (i) of Section 77, the person in whose favor the charge is created may apply to the Registrar for, registration of the charge along with the instrument created for the charge in Form No.CHG-1 or Form No.CHG9, as the case may be, within the period as specified in Section 77 duly signed along with payment of additional, fee or ad valorem fee., The registrar may, on such application, give notice to the company about such application. The company may either, itself register the charge or shows sufficient cause why such charge should not be registered., On failure on part of the company, the Registrar may allow registration of such charge within fourteen days after, giving notice to the company shall allow such registration., Where registration is affected on application of the person in whose favour the charge is created, that person shall, be entitled to recover from the company, the amount of any fee or additional fees paid by him to the Registrar for, the purpose of registration of charge., , Certificate of Registration of Charge & Certificate of Modification of Charge, , According to Section 77(2) read with Rule 6 of, Companies (Registration of Charges) Rules, 2014,, when a charge is registered with the Registrar, he shall, issue a certificate of registration of charge in Form, No.CHG-2 and for registration of modification of, charge in Form No.CHG-3 to the company and to the, person in whose favour the charge is created., , The certificate issued by the Registrar whether in, case of registration of charge or registration of, modification, as the case may be shall be conclusive, evidence that the requirements of Chapter VI of the Act, (Registration of Charges) and the rules made, thereunder as to registration of creation or, modification of charge, as the case may be, have been, complied with., , Further, Section 77(3) provides that no charge created, by the company shall be taken into account by the, liquidator appointed under this Act or the Insolvency, and Bankruptcy Code, 2016, as the case may be, or any other creditor unless it is duly registered and a certificate of, registration is given by the Registrar. However, this does not prejudice any contract or obligation for the repayment, of the money secured by a charge., , Acquiring Property subject to a Charge, , Section 79 of the Companies Act, 2013 provides that the provisions of section 77 relating to registration of charges, shall, so far as may be, apply to a company acquiring any property subject to a charge within the meaning of that, section; or any modification in the terms or conditions or the extent or operation of any charge registered under, that section., Company acquiring any property subject to a Charge, , When the modification in the particulars of charge by Asset Reconstruction Company (ARC) in terms of Securitization, and Reconstruction of Financial Assets and Enforcement of Interest Act, 2002 (SERFASAI). The Charge is required to, be registered as required in case of the registration of Charge under section 77 of the Companies Act, 2013.
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Lesson 5 • Charges, , 223, , The time limit provided under the section 77 shall apply from the date of completion of acquisition as the assets, become assets of the company form such date., Modification of Charge, , The term ‘modification’ includes variation of any of the terms of the agreement including variation of rate of interest,, increase / decrease in amount of borrowings, change / swap of security, extension of time for repayment, which, may be by mutual agreement or by operation of law. Even if the rights of a charge holder are assigned to a third party,, it will be regarded as a modification., The provisions applicable to the registration of a charge under Section 77 shall apply to modification of the charge., , Section 79 of the Act makes it clear that the requirement of registering the charge shall also apply to a company acquiring, any property subject to charge or any modification in terms and conditions of any charge already registered., , The provisions relating to application to Registrar under Rule 4 shall apply, mutatis mutandis, to the registration of, charge on any property acquired subject to such charge and modification of charge under section 79 of the Act., , REGISTRATION OF CREATION OR MODIFICATION OF CHARGE, , According to Rule 3(1) of the Companies (Registration of Charges) Rules, 2014, for registration of charge as provided, in sub-section (1) of Section 77, Section 78 and Section 79, the particulars of the charge together with a copy of the, instrument, if any, creating or modifying the charge in Form No. CHG-1 (for other than debentures) or Form No., CHG-9 (for debentures), as the case may be, duly signed by the Company and the charge holder shall be filed with, the Registrar within a period of thirty days of the date of creation or modification of charge along with the fee., If the particulars of a charge are not filed in accordance with sub-rule (1), such creation or modification shall be, filed in Form No.CHG-1 or Form No.CHG-9 within the period as specified in Section 77 on payment of additional fee, or ad valorem fee as prescribed in Companies (Registration Offices and Fees) Rules, 2014 ., , Where the company fails to register the charge in accordance with sub-rule (1) and the registration is effected on, the application of the charge-holder, such charge-holder shall be entitled to recover from the company the amount, of any fees or additional fees or ad valorem fees paid by him ‘to the Registrar for the purpose of registration of, charge., , Verification of Instruments, , According to Rule 3(4) of the Companies (Registration of Charges) Rules, 2014, a copy of every instrument, evidencing any creation or modification of charge and required to be filed with the Registrar in pursuance of section, 77, 78 or 79 shall be verified as follows:, (a), , (b), , where the instrument or deed relates solely to the property situated outside India, the copy shall be verified, by a certificate issued either under the seal if any of the company, or under the hand of any Director or, Company Secretary of the company or an authorised officer of the charge holder or under the hand of some, person other than the company who is interested in the mortgage or charge;, where the instrument or deed relates, whether wholly or partly, to the property situated in India, the copy shall, be verified by a certificate issued under the hand of any Director or Company Secretary of the company or an, authorised officer of the charge holder., , Satisfaction of Charges, , According to section 82 read with the rules, the company shall give intimation to the Registrar of the payment or, satisfaction in full of any charge within a period of thirty days from the date of such payment or satisfaction in Form, No.CHG-4 along with the fee., , The Registrar may, on an application by the company or the charge holder, allow such intimation of payment or, satisfaction to be made within a period of three hundred days of such payment or satisfaction on payment of such, additional fees as may be prescribed.
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224, , Lesson 5 • EP-CL, , , , On receipt of such intimation, the Registrar shall issue a notice to the holder of the charge calling a show cause within, such time not exceeding fourteen days, as to why payment or satisfaction in full should not be recorded as intimated, to the Registrar. If no cause is shown, by such holder of the charge, the Registrar shall order that a memorandum of, satisfaction shall be entered in the register of charges maintained by the registrar under section 81 and shall, inform the company. If the cause is shown to the Registrar shall record a note to that effect in the register of charges, and shall inform the company accordingly., However the aforesaid notice shall not be sent, in case intimation to the registrar is in specified form along with the, Letter of the charge holder stating that the amount has been satisfied, which is a mandatory attachment in all cases, of CHG-4 and is signed by the holder of charge [Proviso to Section 82(2)]., Particular, , Time Period, , Days, , Fees, , Satisfaction of Charge with ROC, , Within 30 days of Satisfaction, , 0+30= 30, , Normal Fees, , If fails to file with in 30, days, If fails to file with in 300, days, , within a period of 300 days of such 0+30+270= 300 Normal Fees +, Additional Fees, satisfaction, Filing of form with RD for satisfa 0+30+270+---tion of Charge, = ------, , Normal Fees +, Additional Fees +, Condonation fees, , Power of registrar to make entries of satisfaction in absence of intimation from the company, There may be times where a company may fail to send intimation of satisfaction of charge to the Registrar but, according to section 83 of the Act, registrar may on receipt of satisfactory evidence of satisfaction register, memorandum of satisfaction. The evidences may be –, (a), , The debt for which the charge was given has been paid or satisfied in whole or in part; or, , (c), , Part of the property or undertaking ceased to form part of the company’s property or undertaking. The, Registrar may enter in the register of charges a memorandum of satisfaction., , (b), , Part of the property or undertaking charged has been released from the charge;, , Section 83(2) states that the Registrar shall inform affected parties within thirty days of making the entry in the, registrar of charges., , Certificate of registration of satisfaction of charge, , As per Rule 8 of the Companies (Registration of Charges) Rules, 2014 the Registrar enters a memorandum of, satisfaction of charge in full in pursuance of section 82 or 83, he shall issue a certificate of registration of satisfaction, of charge in Form No.CHG-5., , Notice of Charge, , According to section 80, where any charge on any property or assets of a company or any of its undertakings is, registered under section 77, any person acquiring such property, assets, undertakings or part thereof or any share, or interest therein shall be deemed to have notice of the charge from the date of such registration. The section, clarifies that if any person acquires a property, assets or undertaking for which a charge is already registered, it, would be deemed that he has complete knowledge of charge from the date the charge is registered., , Register of Charges Maintained in ROC’s Office, , In accordance with section 81 and the rules the Registrar of Companies shall maintain a register containing, particulars of the charges registered in respect of every company. The particulars of charges maintained on the, Ministry of Corporate Affairs portal (www.mca.gov.in/MCA21) shall be deemed to be the register of charges for the, purposes of section 81 of the Act., This charge register shall be open to inspection by any person on payment of fee for each inspection.
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Lesson 5 • Charges, , 225, , The MCA-21 provides the company specific details of the history of all charges created, modified and satisfied since, its Incorporations. However, sometimes it may be happen that the some charge document were not available online,, which has filed in physical mode before the MCA-21, These documents can be viewed by taking physical inspection, at the Registrar office., , Intimation of appointment of receiver or manager, , Section 84 provides that if any person obtains an order for the appointment of a receiver of, or of a person to, manage, the property, subject to a charge, of a company or if any person appoints such receiver or person under any, power contained in any instrument, he shall, within a period of thirty days from the date of the passing of the order, or of the making of the appointment, give notice of such appointment to the company and the Registrar along with, a copy of the order or instrument and the Registrar shall, on payment of the prescribed fees, register particulars of, the receiver, person or instrument in the register of charges., Section 84(2) states that any person so appointed shall, on ceasing to hold such appointment, give to the company, and the Registrar a notice to that effect and the Registrar shall register such notice., As per Rule 9 the notice of appointment or cessation of a receiver of, or of a person to manage, the property, subject, to charge, of a company shall be filed with the Registrar in Form No. CHG.6 along with fee., , Company’s Register of Charges, , Section 85 read with rule 10 provides that every company shall keep at its registered office a register of charges in, Form No. CHG.7 which shall include therein all charges and floating charges affecting any property or assets of the, company or any of its undertakings, indicating in each case such particulars as may be prescribed., The entries in the register of charges maintained by the company shall be made forthwith after the creation,, modification or satisfaction of charge, as the case may be., , Such register of charges shall contain the particulars of all the charges registered with the Registrar on any of the, property, assets or undertaking of the company and the particulars of any property acquired subject to a charge as, well as particulars of any modification of a charge and satisfaction of charge., All the entries in the register shall be authenticated by a director or the secretary of the company or any other, person authorised by the Board for the purpose., , The register of charges shall be preserved permanently and the instrument creating a charge or modification, thereon shall be preserved for a period of eight years from the date of satisfaction of charge by the company., , A copy of the instrument creating the charge shall also be kept at the registered office of the company alongwith the, register of charges., The following details is required to be entered in to form CHG-7 maintained by Company., i., , S.No., , iii., , Date of creation of charge or date of acquisition of property subject to charge, , ii., , iv., v., , vi., , vii, , viii., ix., , Charge ID, , Date of registration of creation of charge, , Short description of the property charged, , Period and amount secured by the charge, , Names and addresses of the charge holder, , Particulars of the terms and conditions of the charge, Description of the instrument creating the charge
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226, , , , x., , Date of modification of charge, , xii., , Description of the instrument modifying the charge, , xi., , Lesson 5 • EP-CL, , Date of registration of modification of charge, , xiii., , Particulars of modification, , xiv., , Date of satisfaction, , xv., , Date of registration of satisfaction, , xvi., , Facts and date of condonation of delay, if any, , xvii. Reasons for delay in filing for registration of creation, modification or satisfaction of the charge, if any., , Inspection of Charges – Section 85(2), , The register of charges and the instrument of charges kept by the company shall be open for inspection –, (a), , by any member or creditor of the company without fees;, , (b), , by any other person on payment of fee subject to reasonable restriction as the company by its articles impose., Liquidator or any other creditor take into account the unregistered charges., , GIST OF FORMS UNDER CHARGE MANAGEMENT, S. No., , E-Form, , Purpose, , 1, , CHG-1, , 3, , CHG-3, , Application for registration of creating or modifying the charge (for other than, Debentures), , 2, 4, 5, 6, 7, 8, 9, , CHG-2, CHG-4, CHG-5, CHG-6, CHG-7, CHG-8, CHG-9, , Certificate of registration of charge, , Certificate of modification of charge, , Intimation of the satisfaction to the Registrar, Memorandum of satisfaction of charge, , Notice of appointment or cessation of receiver or manager, Register of charges, , Application to CG for extention of time for filing of particular of registration of satisfaction, of charge or rectification of ommission or mis-statement of any particular in respect of, creation/modification/satisfaction of charge, Creating or modifying the charge in (for debentures including rectification), , CONSEQUENCES OF NON-REGISTRATION OF CHARGE, , According to Section 77 of the Companies Act, 2013, all types of charges created by a company are to be registered, by the ROC, where they are non-compliant and are not filed with the Registrar of Companies for registration, it shall, be void as against the liquidator and any other creditor of the company., , Void against the liquidator means that the liquidator on winding up of the company can ignore the charge and can, treat the concerned creditor as unsecured creditor. The property will be treated as free of charge i.e. the creditor, cannot sell the property to recover its dues., , Void against any creditor of the company means that if any subsequent charge is created on the same property and, the earlier charge is not registered, the earlier charge would have no consequence and the latter charge if registered
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227, , Lesson 5 • Charges, , would enjoy priority. In other words, the, latter charge holder can have the property, sold in order to recover its money., , Thus, non-filing of particulars of a charge, does not invalidate the charge against the, company as a going concern. It is void only, against the liquidator and the creditors at the, time of liquidation. The company itself cannot, have a cause of action arising out of nonregistration [Independent Automatic Sales, Ltd. v. Knowles &Foster (1962) 32 Comp Cas]., , In the case of ONGC Ltd v. Official Liquidators of Ambica, Mills Co. Ltd. (2006) 132 Comp Cas 606 (Guj), , The ONGC had not been able to point out whether the so called, charge, on the basis of which it was claiming preference as a, secured creditor, was registered or not. It was held that in the, light of this failure, ONCG could not be treated as a secured, creditor in view of specific provisions of section 125 under the, erstwhile Companies Act, 1956 and the statutory requirement, under the said section., This does not, however, mean that the charge is altogether void, and the debt is not recoverable. So long as the company does not, go into liquidation, the charge is good and may be enforced., , In light of the expression “Notwithstanding, anything contained in any other law for the, time being in force, no charge created by a, company shall be taken into account by the, liquidator appointed under this Act or the Insolvency and Bankruptcy Code, 2016, as the case may be, or any other, creditor unless it is duly registered under sub-section (1) of Section 77 and a certificate of registration of such, charge is given by the Registrar under sub-section., In other words, the liquidator or other creditor of the company need not consider the said unregistered charge, against assets of the company., , Punishment for Contravention, , Section 86(1) of the act provides that if any company contravenes any provision of Chapter VI of the Companies Act,, 2013, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default, shall be liable to a penalty of fifty thousand rupees., Section 86(2) of the act provides that if any person wilfully furnishes any false or incorrect information or knowingly, suppresses any material information, required to be registered in accordance with the provisions of section 77, he, shall be liable for action under section 447., , PARTICULARS OF CHARGES, , The following particulars in respect of each charge are required to be filed with the Registrar:, (a), , date and description of instrument creating charge;, , (c), , total amount secured by the charge;, , (b), (d), (e), (f), , (g), , (h), (i), , type of charge;, , date of the resolution authorising the creation of the charge (in case of issue of secured debentures only);, general description of the property charged;, , in case of acquisition of property subject to charge, details relating to the existing charge on the property so, acquired;, , a copy of the deed/instrument containing the charge duly certified or if there is no such deed, any other, document evidencing the creation of the charge to be enclosed;, principal terms and conditions and extent and operation of the charge and name and address of the charge, holder particulars of all joint charge holders is mandatory if number of charge holder is more than one;, , In case the e-Form is to be filed for modification of charge, enter the charge identification number allotted at, the time of registration of the charge and such charge ID entered for modification should be open charge ID, and not satisfied;
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228, , (j), , (k), , , , Lesson 5 • EP-CL, , Details relating to involvement of consortium finance is involved, joint charge is involved pari passu, ranking if applicable the charge holder(s), In case the asset charged is an immoveable property, the details like a ‘Plot Unit’ or ‘Dwelling Interest’ and, furnish the related details viz.,, , •, , Evaluated Price of Asset as on Security Interest Creation date, , •, , All other location related field details, , •, •, •, , Nature of Property, Plot ID number, , The fields for latitude and longitude are mandatory in the Charge Forms., , RECTIFICATION BY CENTRAL GOVERNMENT IN REGISTER OF CHARGES, , Section 87 provides that the Central Government (Power Delegated to Regional Director w.e.f. 21.05.2014) on being, satisfied that –, (a), , (b), , The omission to give intimation to the Registrar of the payment or satisfaction of a charge, within the time, required under Chapter VI of Companies Act, 2013; or, The omission or misstatement of any particulars, in any filing previously made to the registrar with respect, to any charge or modification thereof or with respect to any memorandum of satisfaction or other entry, made in pursuance of section 82 or section 83., , was accidental or due to inadvertence or some other sufficient cause or it is not of a nature to prejudice the position, of creditors or shareholders of the company, it may, on the application of the company or any person interested and,, on such terms, and conditions as it deems just and expedient, direct that the time for the giving of intimation of, payment or satisfaction shall be extended or, as the case may be, require, that the omission or misstatement shall be, rectified., In terms of Rule 12 of the Companies (Registration of Charges) Rules, 2014, the Central Government may on an, application filed in Form No. CHG-8 in accordance with Section 87:, (a), , (b), , direct rectification of the omission or misstatement of any particulars, in any filing, previously recorded with, the Registrar with respect to any charge or modification thereof, or with respect to any memorandum of, satisfaction or other entry made in pursuance of Section 82 or 83,, direct extension of time for satisfaction of charge, if such filing is not made within a period of three hundred days, from the date of such payment or satisfaction., , The Central Government is empowered to permit rectification only in respect to mis-statement or commission of, particulars and does not permit rectification which would amount to determination of validity of a charge and, consequent deletion of a charge from the register of charges from register of charges. [Times Bank Ltd. vs Shri Sharda, Parmeshwari textiles Ltd.], , PROCEDURE FOR REGISTRATION OF CREATION / MODIFICATION / SATISFACTION OF CHARGE, , Procedure and checklist for registration and satisfaction of Charge, A. Authorisation of the Board:, •, , Ensure that the Special Resolution under section 180(1)(a) has been passed by the Company authorizing, Board of directors to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking, of the company in favour of the financial institutions/banks or lenders Execution of the Agreement.
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•, •, •, •, , Lesson 5 • Charges, , 229, , In case of Private company the provisions of Section 180 is not applicable. Hence, Unless the articles provides,, Private companies are not required to pass special Resolution for to sell, lease or otherwise dispose of the, whole or substantially the whole of the undertaking of the company., Ensure that such borrowing is within the limits fixed by the company. If it exceeds, the resolution is passed, by the company. (NOT APPLICABLE IN CASE OF PRIVATE COMPANY), Ensure the specific Board resolution is passed at the meeting of the board with respect to borrow money., Ensure that the Board has authorised the director/Managing Director of the Company to execute the, Agreement, signing of the charge Document and filing and registration of the charge documents with the, registrar., , B. Filing of Forms:, , e-form MGT-14, •, •, •, •, , •, •, , MGT-14 for Company Special Resolution under section 180(1)(a ) and (1) (c) by all companies except the, Private Company. However, If the Borrowing is within the limits prescribed or approved by the company the, filing of form is not required., , MGT-14 on the Board Resolution to power exercised under section 179(3) to Borrow money by all companies, except the Private Company. Registration of Charge/ Modification of Charge e-Form CHG-1/CHG-9., The particulars of the charge in Form No.CHG-1 (for other than Debentures) or Form No.CHG-9 (for, debentures) for creating/ modifying a charge shall be filed with the concerned Registrar of Companies within, thirty days of creation., , If the particulars of charge cannot be filed within thirty days due to unavoidable reasons, then it may be filed, within the period next 30 days after payment of such additional fee and supported by a declaration from the, company signed by its secretary or director that such belated filing shall not adversely affect rights of any, other intervening creditors of the company., If the particulars of charge cannot be filed within 60 days as above due to unavoidable reasons, then the, Registrar may on an application, allow such registration to be made within the period next 60 days by paying, additional fees and ad valorem fee., Attach the following documents with e-Form No. CHG-1/CHG-9:, (a), , (b), , A certified true copy of every instrument evidencing any creation or modification of charge;, , Instrument(s) evidencing creation or modification of charge in case of acquisition of property, which is already subject to charge together with the instrument evidencing such acquisitions., , e-Form CHG-4, •, •, , The Company is required to intimate the satisfaction in full of any charge registered to the Registrar in Form, No.CHG-4 within a period of thirty days from the date of the payment with normal fees., , In case the satisfaction of charge is not filed with the Registrar within thirty days, it can be filed within three, hundred days from the date on such payment of satisfaction with additional fees, along with an application, for extension of time in filing of satisfaction of charge, which shall be filed with the Central Government in, Form No.CHG-8 along with the Fees.
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230, , , , e-Form CHG-8, , Lesson 5 • EP-CL, , •, , The purpose of the form is to application to the Central Government to, , •, , with respect to any memorandum of satisfaction or other entry made in pursuance of section 82 or section 83,, , •, •, •, , direct rectification of the omission or misstatement of any particulars, in any filing, previously recorded with, the Registrar with respect to any charge or modification thereof, or, direct extension of time for satisfaction of charge, if such filing is not made within a period of three hundred, days from the date of such payment or satisfaction., , The order passed by the Central Government shall be required to be filed with the Registrar in Form No., INC.28 along with the fee as per the conditions stipulated in the said order., , C. Entries in the Register of charge, •, •, •, •, •, , The register of charges maintained by the company in Form No. CHG.7 and enter therein particulars of, creation, modification and satisfaction of charge registered with the Registrar on any of the property, assets, or undertaking of the company, The particulars of any property acquired subject to a charge as well as particulars of any modification of a, charge and satisfaction of charge., The register is to be kept at the registered office of the company., , All the entries in the register shall be authenticated by a director or the secretary of the company or any other, person authorised by the Board for the purpose., , The register of charges shall be preserved permanently and the instrument creating a charge or modification, thereon shall be preserved for a period of eight years from the date of satisfaction of charge by the company., , Registration of Charges under the SARFAESI Act, 2002 by Banking Company, , The Central Registry of Securitization, Asset Reconstruction and Security Interest of India (CERSAI) is a Central, Registration System set up under Chapter IV of the SARFAESI Act., The object of setting up the Registration System under Chapter IV of the SARFAESI Act is to create a public data base, about encumbrances created on properties to secure loans and advances given by the banks and financial institutions,, as also transactions of securitisation or asset reconstruction undertaken pursuant to the provisions of the SARFAESI Act., As the provisions of SARFAESI Act now stand following transactions are not covered by the Central Registry System., , The registration of creation of security interest by the securitisation company or reconstruction company or the, secured creditor, as the case may be, with the Central Registry as per the provisions of section 23 of the said Act read, with Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Central Registry), Rules, 2011 as amended, is mandatory and is an additional compliance., The following types of security interest on the CERSAI portal:, a., , Particulars of creation, modification or satisfaction of security interest in immovable property by mortgage, other than mortgage by deposit of title deeds., , c., , Particulars of creation, modification or satisfaction of security interest in intangible assets, being know how,, patent, copyright, trademark, licence, franchise or any other business or commercial right of similar nature., , b., , Particulars of creation, modification or satisfaction of security interest in hypothecation of plant and, machinery, stocks, debts including book debts or receivables, whether existing or future.
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Lesson 5 • Charges, , d., , 231, , Particulars of creation, modification or satisfaction of security interest in any ‘under construction’, residential or commercial or a part thereof by an agreement or instrument other than mortgage., , The registration of securitisation, asset reconstruction or creation of security interest by the securitisation company, or reconstruction company or the secured creditor, as the case may be, with the Central Registry as per the provisions, of section 23 of the said Act is an additional compliance. As per the provisions of sub-section 4 of section 20 of the, said Act, such registration with Central Registry is not in derogation of the provisions of the Act and has no effect on, priority and validity of the charge., , Understanding the provisions relating to charges through judicial pronouncements and, clarifications issued by the Ministry of Corporate Affairs, , i., , Case Laws, , 1., , Official Liquidator vs. Sri Krishna Deo, (1959) 29 Com Cases 476: AIR 1959 All 247 and Roy& Bros. v. Ramnath, Das, (1945) 15 Com Cases 69, 75 (Cal)]. The plant and machinery of a company embedded in the earth or, permanently fastened to things attached to the earth became a part of the company’s immovable property, and therefore apart from the registration under the Companies Act, registration under the Indian Registration, Act would also be necessary to make the charge valid and effective., , 2., 3., , 4., 5., 6., , 7., , Cosslett (Contractors) Ltd., Re, (1996) 1 BCLC 407 (Ch D) A construction company’s washing machine which, was in use at the site was declared under the terms of the contract to be the employer’s property during the, period of construction. This was held to have created a fixed charge and not a floating charge on the machine, because the machine was only one fixed item and was not likely to change., In Lord Macnaghten in Government Stock Investment Company Ltd. vs. Manila Rly. Company Ltd., (1897) A.C. 81,, observed “is an equitable charge on the assets for the time being of a going concern. It attaches to the subject, charged in the varying condition in which it happens to be from time to time. It is the essence of such a charge, that it remains dormant until the undertaking charged ceases to be a going concern, or until the person in, whose favour the charge is created intervenes”., , Illingworth & Another vs. Holdsworth & Another, (ibid). “A floating charge is ambulatory and shifting in its, nature hovering over and so to speak floating with the property which it is intended to affect until some event, occurs or act is done which causes it to settle and fasten on the subject of the charge within its reach and grasp., Maturi U. Rao vs. Pendyala A.I.R. 1970 A.P. 225 When the floating charge crystallizes it becomes fixed and the, assets comprised therein are subject to the same restrictions as the fixed charge., , In Smith vs. Bridgend County Borougn Council (2002) 1 BCLC 77 (HC), the agreement was held to constitute a, floating charge, in so far as it allowed the employer, in various situations of default by the contractor,to sell, the contractor’s plant and equipment and apply the proceeds in discharge of its obligations. A right to sell an, asset belonging to a debtor and appropriate the proceeds to payment of the debt could not be anything other, than a charge. It was a floating charge because the property in question was a fluctuating body of assets, which could be consumed or removed from the site in the ordinary course of the contractor’s business., Registration of Charges does not apply to a charge arising by operation of law, , Section 125 of Companies Act 1956 (Currently Section 77) is applicable only to a charge created by a company, by a contract, and not to a charge arising by operation of law. (Praga Tools Ltd vs. Official Liquidator, Bengal, Engineering Co. (1984) 56 CC. 214; T. V. Sundaram Iyengar & Sons P. Ltd. vs. Official Liquidator, High Court,, Madras (1972) 42 CC 359; K. Saradambal vs. Jagannathan and Brothers (Automobile Engineers & Motor Works, (P) Ltd. (1972) 42 CC. 359 (Mad)., The Managing Director and Ors. vs. The Official Liquidator, High Court of A.P., Hyderabad and Ors. (20.06.2012, - APHC) : MANU/AP/0407/2012
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232, , , , Lesson 5 • EP-CL, , 8., , It is obligatory to intimate Registrar in respect of a charge created by partnership which was later, converted into a company., , 9., , Unsecured creditor could not challenge the validity of a charge or claim right over the property on the, ground that he incurred the liability prior to its registration., , 10., , 11., , 12., , It was held in the case of Maharashtra State Financial Corpn. vs. Official Liquidator, Sidhu Tyres (P) Ltd.[(1988), 64 Comp Cas 641 (Bom)] that ‘When a charge is created by a partnership which is later converted into a, company, registration is not necessary but it is obligatory on directors to bring it to notice of Registrar., , In the case of C.K. Siva Sankara Panicker vs. Kerala Financial Corpn.(1980) 50 Comp Cas 817 (Ker)] it was held, that an unsecured creditor could not challenge the validity of a charge or claim right over the property on the, ground that he incurred the liability prior to its registration., Guarantees do not require registration, , Corporate Guarantee does not create any Charge per-se, unless mortgage or hypothecation etc is created on, assets/undertaking. It may be noted that corporate guarantee provided by companies in the course of its, business does not amount to a charge, since the guarantee given in case of a loan or a borrowing is contingent, in nature and does not amount to a charge., In S. T. Patil And Ors. vs. Registrar Of Companies on 13 May, 1997 Equivalent citations: 1998 91 Comp Cas 578, CLB, the Hon’ble Company Law Board was of view that “Guarantees do not require registration under Section, 125 of the Act. It is in this connection, reference may be made to the decision in Paul and Frank Ltd. vs., Discount Bank (Overseas) Ltd. and the Board of Trade [1967] 37 Comp Cas 76 {Ch D), wherein it has been held, that contracts of insurance, guarantee, indemnity, etc., do not require registration”)., An attachment itself does not create any charge in property, , In Kerala State Financial Enterprises Ltd vs. Official Liquidator, High Court of Kerala(2006), it was observed, that ordinarily a charge should be registered in terms of Section 125 of the Companies Act 1956 (Section 77, of Companies Act 2013). If the charges are not registered, the same would be void against the liquidator or, creditors. The question which arises for consideration is as to whether if the properties are attached by a, Revenue Recovery Court, Section 125 of the Act would be applicable? An attachment itself does not create, any charge in the property. By reason of attachment, no decree is passed., , ii. MCA Clarification and Exemptions, a., , b., , Delegation of powers, MCA has delegated powers, its powers to Regional Directors at Mumbai, Kolkata, Chennai, New Delhi,, Ahmedabad, Hyderabad and Shillong under Sections 8(4)(i) for alteration of memorandum in case of, conversion into another kind of company, 8(6), 13(4) and (5), 16, 87, 111(3), 140(1) and proviso (i) to 399(1), vide notification number S.O.1352(E) dated 21st May, 2014., Exemption to IFSC Companies under section 462 of Companies Act, 2013, , In case of Specified IFSC Public Company, the Registrar may, on an application by the company, allow such, registration to be made within a period of three hundred days of such creation on payment of such additional, fees as may be prescribed. - Notification Date 4th January, 2017., , In case of Specified IFSC Private Company, the Registrar may, on an application by the company, allow such, registration to be made within a period of three hundred days of such creation on payment of such additional, fees as may be prescribed. -Notification Date 4th January, 2017.
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Lesson 5 • Charges, , 233, , SPECIMEN RESOLUTIONS, , 1. Specimen Special Resolution under Section 180 (3) (c) authorising the Board to borrow for company’s, business upto a limit beyond paid up capital and free reserves, “RESOLVED THAT pursuant to the provisions of Section 180(1)(c) and other applicable provisions, if any, of the, Companies Act, 2013, and subject to such approval as may be necessary, consent of the company be and is hereby, accorded to the Board of directors of the company for borrowing, from time to time, such sum of money as may not, exceed Rs. .................................. (Rupees..............), for the purpose of the business of the company, notwithstanding that, the moneys to be borrowed together with the monies already borrowed (apart from temporary loans obtained from, the company’s bankers in the ordinary course of business) will exceed the aggregate of the paid-up capital of the, company, its free reserves, that is to say, the reserves not set apart for any specific purpose and securities premium,, provided that the total amount upto which the monies may be borrowed by the Board of directors of the company, shall not exceed the aggregate of the paid-up capital, free reserves and securities premium of the company by more, than the sum of Rs........................................ (Rupees..............) at any one time., , “RESOLVED FURTHER that the Board be and is hereby authorized to do all the acts, deeds and things, as it may, in, its absolute discretion deem necessary and appropriate to give effect to the above resolution”., Explanatory Statement, , The shareholders of the company had, at the extraordinary general meeting of the company held on, ........................, passed a special resolution under Section 180 (1) (c) for borrowing the maximum amount of Rs. ..........., ....................... (Rupees............), upto which the Board of directors of the company could borrow funds from financial, institutions and banks in excess of the company’s paid-up capital and free reserves and security Premium. However,, in view of the increased business activities of the company, the said ceiling of Rs. .................................. (Rupees), has, been found to be inadequate. Your directors are of the opinion that the ceiling of borrowings by the Board be raised, to Rs. .................................. (Rupees................)., Hence the proposed resolution for consideration and approval by the members of the company. None of the, directors, key managerial personnel of the company or their relative is concerned or interested, financially or, otherwise in the proposed resolution., Specimen Resolution under Section 180(1)(a) for creating charge on company’s assets and properties, , 2(i). “RESOLVED THAT consent of the Company be and is hereby accorded in terms of Section 180(1) (a) and, other applicable provisions, if any, of the Companies Act, 2013 or any modification or re-enactment thereof,, to mortgaging and/or charging by the Board of directors of the Company by way of equitable and/or legal, mortgage on such immovable and movable properties of the Company, both present and future, together with, power to takeover the assets of the Company in certain events, to or in favour of and The Industrial Finance, Corporation of India Ltd. (IFCI) by way of first pari passu Charge to secure the Rupee Term Loans of Rs.1000.00, lacs and Rs.880.00 lacs respectively granted to the Company together with interest at the agreed rate(s),, liquidated damages, front end fees, premia on pre payment, costs, charges, expenses and all other moneys, payable by the Company under the Loan Agreements, Deeds of Hypothecation and other documents executed/, to be executed by the Company in respect of the Term Loans of IDBI and IFCI”., “RESOLVED FURTHER THAT the Board of directors be and is hereby authorised and shall always be deemed, to have been authorised to finalise with IDBI and IFCI the documents for creating the aforesaid mortgage, and/ or charge and to do all acts, deeds and things as may be necessary for giving effect to the above, resolution.”, , 2(ii). Specimen Special Resolution under Section 180 (1) (a), , “RESOLVED THAT consent of the Company be and is hereby accorded in terms of Section 180(1)(a) and, other applicable provisions, if any, of the Companies Act, 2013 or any modification or re-enactment thereof, to, mortgaging and/or charging by the Board of directors of the Company by way of equitable and/or legal, mortgage on such immovable and movable properties of the Company, both present and future, in favour of
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234, , , , Lesson 5 • EP-CL, , State Bank of India, New Delhi the Company’s Bankers by way of Second Charge to secure the various fund, based/non-fund based credit facilities granted/to be granted to the Company and the interest at the agreed, rate, costs, charges, expenses and all other moneys payable by the Company under the Deed(s) of, Hypothecation and other documents executed/to be executed by the Company in respect of credit facilities, of State Bank of India, in such form and manner as may be acceptable to State Bank of India., , “RESOLVED FURTHER THAT the Board of directors be and is hereby authorised and shall always be deemed, to have been authorised to finalise with State Bank of India the documents for creating the aforesaid mortgage, and/or charge and to do all acts, deeds and things as may be necessary for giving effect to the above resolution.”, Explanatory Statement Item No. 1 & 2, , Industrial Development Bank of India (IDBI) and The Industrial Finance Corporation of India Ltd. (IFC) have, sanctioned Term Loans of Rs. 1000.00 lacs and Rs. 880.00 lacs respectively to the company. These loans are to, be secured by First Charge on immovable and movable properties of the Company, both present and future, in, the manner, as may be required by IDBI and IFCI. Such mortgage/charge shall rank first pari passu Charge, with the Charges already created/to be created in favour of the participating Institutions/Banks for their, assistances., State Bank of India, New Delhi has also agreed to grant, in principle, various fund based/non-fund based Cash, Credit facilities to the Company. According to the conditions of granting such facilities to the Company, these, facilities are required to be secured by a second charge by way of equitable and/or legal mortgage on all the, immovable and movable properties of the Company, both present and future on such terms as may be agreed, to between the Company, State Bank of India and other existing lenders., , Section 180(1)(a) of the Companies Act, 2013 provides, inter alia, that the Board of directors of a public, company shall not, without the consent of a public company in general meeting, sell, lease or otherwise, dispose of the whole, or substantially the whole, of the undertaking(s) of the Company or where the Company, owns more than one undertaking, of the whole or substantially the whole of any such undertaking., Mortgaging/charging of the immovable and movable properties of the Company as aforesaid to secure Rupee, Term Loans and the various Cash Credit facilities may be regarded as disposal of the whole or substantially, the whole of the said undertaking(s) of the Company and therefore requires consent of the Company pursuant, to Section 180(1)(a) of the Companies Act, 2013., The Directors recommend the resolutions for approval of the shareholders as Special Resolutions under, Section 180(1)(a) of the Companies Act, 2013., 3., , None of the directors, key managerial personnel of the company or their relative is concerned or interested,, financially or otherwise in the proposed resolution., Specimen of the Board Resolution under Section 179(3)(d) to borrow Moneys within the authority of, the Board., , The Chairman informed the Board that The Industrial Finance Corporation of India Ltd. (IFCI), New Delhi,, has at the request of the company, sanctioned Rupee Term Loan of Rs. to meet a part of the cost of, Modernisation-cum-Expansion scheme comprising replacement of the existing old stainless steel Distillation, plant by copper Distillation Plant, installation of an additional MS. Digester and construction of storage, lagoons as stipulated by the Pollution Control Board at the Company’s existing factory at ......................., A copy of the letter of sanction no................. dated.............received from IFCI (a copy whereof duly signed bythe, Chairman for the purpose of identification was placed on table of the meeting). After some discussions, the, following resolution was passed unanimously:-, , (I) RESOLVED, 1., , That the Company do accept the offer of The Industrial Finance Corporation of India Ltd. (IFCI) vide their, letter no.............. dated ........................ to grant to the company rupee term loan of Rs. ............ (Rupees only), (hereinafter referred to as ‘the said Term Loan’) on the terms and conditions contained in the Letter of Intent
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Lesson 5 • Charges, , 2., , 3., , 4., 5., 6., 7., 8., , no ..................... dated received from IFCI (copy whereof duly initialed by the Chairman was placed on the table, at the meeting)., , That Shri......................... and Shri......................... be and are hereby authorised severally to convey to IFCI acceptance, on behalf of the Company of the said offer for financial assistance on the terms and conditions contained in their, Letter of Intent referred to above and agree to such changes and modifications in the said terms and conditions, as may be suggested and acceptable to IFCI from time to time and to execute such deeds, documents and, other writings as may be necessary or required for this purpose., , That the company do borrow from IFCI the said term loan of Rs. ................ (Rupees......................only) on the, terms and conditions set out in the General Conditions No. GC-1-99 applicable to assistance provided by IFCI, (hereinafter referred to as ‘The General Conditions’) and in the Standard Form of Loan Agreement for rupee, term loan in addition to the special terms and conditions mentioned in the Letter of Intent no....................... dated, received from IFCI (Copies whereof, duly initialed by the Chairman were placed on the table at the meeting), and also avail of interim disbursement(s) from time to time as may be allowed by IFCI., That the IFCI will be at liberty to appoint and remove, at its sole discretion, Nominee Director(s) on the Board, of directors of the Company from the date of the passing of this resolution and that the appointment of the, Nominee director(s) shall not be construed as any commitment on the part of IFCI to grant/ disburse and, sanctioned assistance., That the aforesaid Standard Forms of Loan Agreement(s) be and are hereby approved and Shri......................., and Shri.......................... be and are hereby severally authorised to accept on behalf of the Company such, modifications therein as may be acceptable to IFCI and finalise the same., That the Common Seal of the Company be affixed to the stamped engrossment(s) in duplicate of the loan, agreement(s) (as per the standard form(s) with such modifications as may be agreed to between IFCI and the, company) in the presence of one of the officers i.e. Shri ........................... and Shri.......................... who shall sign the, same in token thereof., , That the Company shall execute the Loan Agreement(s) relating to the above facilities within the period, stipulated by IFCI, the condition being that till such agreement being executed there is no binding obligation, or commitment on the part of IFCI to advance any money or incur any obligation thereunder., That the standard forms of the following documents namely:, (i), , Deed of Hypothecation, , (iii), , Undertaking regarding non-disposal of shareholdings, , (ii), , (iv), 9., 10., , 235, , Undertaking for meeting shortfall/overrun, , General Declaration and Undertaking(s) placed before the meeting be and are here by approved and, that Shri. of the Company be and are hereby severally authorised to finalise, on behalf of the company, the, said documents and also to approve and finalise such other deeds, documents and writings as may be, required by IFCI in connection with the above facilities., , That the Common Seal of the Company be affixed to the stamped engrossment(s) of the Deed of Hypothecation, and to such other documents as may be required to be executed under the Common Seal of the company in, favour of IFCI to secure the aforesaid facilities in the presence of one of the officers i.e. Shri ............................... and, Shri.......................... who shall sign the same in token thereof., , That Shri................................. and Shri................................ of the Company be and are hereby severally authorised, to accept amendments to such executed loan agreement/deed of hypothecation and other documents as and, when become necessary and to sign letter(s) of undertakings, declarations, agreements and other papers, which the company may be required to sign for availing of the required facilities and, if so required, the Common, Seal of the Company be affixed thereto in the presence of any one of the said officers, who shall sign the same, in token thereof as required by the Articles of Association of the Company.
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236, , 11., 12., , Lesson 5 • EP-CL, , , , That the company do file the particulars of the charge(s) to be created in favour of the IFCI with the concerned, Registrar of Companies within the time prescribed by law therefor., That the copies of foregoing resolutions certified to be true copy by the Company Secretary be Furnished, to the IFCI and they be requested to act thereon., , LESSON ROUND-UP, •, •, •, •, •, •, •, •, •, •, •, •, , A charge is a right created by any person including a company referred to as “the borrower” on its assets, and properties, present and future, in favour of a financial institution or a bank, referred to as “the lender”,, which has agreed to extend financial assistance. The power of the company to borrow includes the power, to give security also., , Mortgage is created by the act of parties whereas a charge may be created either through the act of, parties or by operation of law., A company is required to file e-form CHG-1 or CHG-9 through MCA portal giving complete particulars, together with the instrument creating charge within 30 days of creation of charge under Section 77 of the, Companies Act, 2013., For intimating modification of charge, e-form CHG-1 or CHG-9 is required to be filed within 30 days of, modification. A variation in the rate of interest payable on the loan amount by the borrowing company to, the lending institution or the bank will constitute a modification of charge, unless the terms of variation, are covered in the original charge., A registration of charge constitutes a notice to whosoever acquires a future interest in the charged assets., In e-governance era, there is a facility for inspection of charge through electronic means using internet., , The certificate issued by the Registrar whether in case of registration of charge or registration of, modification, shall be conclusive evidence that the requirements of Chapter VI of the Act (Registration of, Charges) and the rules made thereunder as to registration of creation or modification of charge, as the, case may be, have been complied with., The Company shall give intimation to Registrar of payment or satisfaction in full of any charge within a, period of 30 days from the date of such payment or satisfaction., , The Registrar may, on an application by the company or the charge holder, allow such intimation of, payment or satisfaction to be made within a period of three hundred days of such payment or satisfaction, on payment of such additional fees as may be prescribed., , On receipt of such intimation, the Registrar issues a notice to the holder calling a show cause within such, time not exceeding 14 days as to why payment or satisfaction in full should not be regarded as intimated, to the Registrar., In case the company fails to send intimation of satisfaction of charge to the Registrar, the Registrar may, enter in the Register of Charges, Memorandum of Satisfaction on receipt of evidence to his satisfaction., , When Registrar enters a Memorandum of Satisfaction in full, he shall issue a Certificate of Registration of, satisfaction of charge.
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237, , Lesson 5 • Charges, , •, , Every company is required to keep at its registered office a register of all charges as well as a copy of every, instrument creating any charge., , •, , Company or any person interested in the charge can make an application to the Central Government for, rectification of Register of charges in form CHG-8., , •, , Company may apply to Central Government for extension of time for filing particulars to ROC for, satisfaction of charge in form CHG-8., , •, , For intimating memorandum of satisfaction of charge to ROC, e-form CHG-5 is required to be filed within, 30 days from the date of such satisfaction., , GLOSSARY, Garnishee Charge, Crystallizaion of, Floating Charge, , Modification of, charge, Mortgage, , Pledge, Ibid, , Pari Passu, , An individual who holds money or property that belongs to a debtor subject to an, attachment proceeding by a creditor., , A floating charge attaches to the company’s property generally and remains dormant till, it crystallizes or becomes fixed. The company has a right to carry on its business with the, help of assets having a floating charge till the happening of some event which determines, this right., The term ‘modification’ includes variation of any of the terms of the agreement including, variation of rate of interest which may be by mutual agreement or by operation of law., , A mortgage is the transfer of an interest in specific immoveable property for the purpose, of securing the payment of money advanced or to be advanced by way of loan, an existing, or future debt or the performance of an agreement which may give rise to pecuniary, liability., ‘Pledge’ is a bailment of personal property as security for some debt or engagement,, redeemable on certain terms, and with an implied power of sale on default., , (Latin, short for ibidem, meaning “in the same place”) is the term used to provide an, endnote, footnote, or bibliography citation or reference for a source that was cited in the, preceding note or list item., On equal footing or proportionately., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., , Does assignment of debt amounts to modification of charge? Please explain., , 3., , Whether pledge requires registration under Companies Act 2013. Please explain., , 2., , Do you think hypothecation of vehicle require registration of charge? Please explain with reasons.
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238, , Lesson 5 • EP-CL, , , , 4., , What is a charge? State the procedure to be followed by a company for registration of a charge., , 6., , State the procedure to be adopted by the company for satisfaction of a registered charge., , 5., 7., 8., 9., , What are the different types of charges. What is the effect of crystallization of a floating charge., ABC Ltd. created charge on its fixed assets on 01st May,2018 in favor of X Ltd.,but failed to register it with, the Registrar of Companies. Can the Company register it now? what are the consequences of nonregistration ?, What are the consequences of non-registration of charge?, Write short note on :, , i., , Crystallization of Floating Charge, , iii., , Notice of Charge, , ii., , iv., v., , vi., , vii., 10., , viii., , Postponement of Floating Charge, Register of Charges, , Inspection of Charges, Distinguish between:, , Charge and Mortgage, Charge and Pledge., , Draft a resolution:, , a., , b., , to borrow for company’s business upto a limit beyond paid-up capital ,free reserves and securities, premium., for creating a charge on the company’s assets and properties, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , Other Modules of ICSI having reference on Registration of Charges, , •, , Bare Act- Companies Act, 2013, •, , Search Report – SACMDD, , •, , Resolution of Corporate Disputes, , •, •, , Corporate Funding, , Multidisciplinary case studies, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Lesson 6, Key Concepts One, Should Know, •, , Dividend, , •, , Investor Education, Protection Fund, , •, •, •, •, , Interim Dividend, Final Dividend, Record Date, Claim, , Distribution of Profits – Dividend, Learning Objectives, To understand:, •, , The meaning of Divisible profits., , •, , The legal and procedural aspects relating to distribution of, dividend, transfer of unpaid or unclaimed dividend to Unpaid, Dividend Account., , •, •, •, •, , The meaning and Concept of Dividend., Types of Dividend., , The legal and procedural aspects relating to transfer of Unpaid, Dividend to Investor Education and Protection Fund (IEPF)., The utilization of Investor Education and Protection Fund, (IEPF)., , Lesson Outline, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , Introduction, Meaning and Definition of Dividend, Interest vs. Dividend, Types of Dividend, Declaration of Dividend, Unpaid Dividend Account, Investor Education and Protection Fund (IEPF), Procedure for Transfer of Unpaid or Unclaimed Dividend to The, Investor Education And Protection Fund, Shares in respect of Unpaid Dividend to be transferred to Investor, Education and Protection Fund (IEPF), Refund to Claimant from Investor Education and Protection Fund, Punishment for failure to distribute Dividends, Procedure of declaration & payment of Interim Dividend, Procedure of declaration & payment of Final Dividend, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, FURTHER READINGS, OTHER REFERENCES
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240, , Lesson 6 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 2(35), , Definition of Dividend, , Section 125, , Investor Education & Protection Fund, , Section 123, Section 124, Section 126, Section 127, , Declaration of Dividend, , Unpaid Dividend Account, , Right to Dividend, Rights Shares and Bonus Shares to be Held in Abeyance, Pending Registration of Transfer of Shares, Punishment for Failure to Distribute Dividends., , The Companies (Declaration and Payment of Dividend) Rules, 2014, , Rule 3, Rule 3, Rule 5, Rule 6, , Rule 6A, Rule 7, , Declaration of Dividend out of Reserve, , IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016, , Fund, , Statement to be furnished to the Fund, , Manner of transfer of shares under Section 124(6) to the Fund, , Manner of transfer of shares under Section 90(9) of the Companies Act, 2013 to, the Fund, Refunds to claimants from Fund, , Secretarial Standard-3, , The SEBI(LODR)Regulations, 2015, , Regulation 29, , Prior Intimations, , Regulation 43, , Dividends, , Regulation 30, Regulation 42, INTRODUCTION, , Disclosure of events or information, , Record Date or Date of closure of transfer books, , The word “Dividend” has origin from the Latin word “Dividendum”. It means a thing to be divided. Profit or a, portion of profit that can be legally distributed as a dividend to the shareholders is known as “Divisible Profit”. All, profit of the company is not divisible and number of factors should be considered while determining divisible profit, of the company. Hence, profits available for dividend to shareholders are known as divisible profits. On the other, hand dividend refers to a reward that a company gives to its shareholders. A company’s dividend is decided by its, board of directors and it requires the shareholders’ approval. Dividend is usually, a part of the profit that the, company shares with its shareholders., Dividend is a return on the investment made in the share capital of a company, as distinct from the return on, borrowed capital, which is in the form of interest. In commercial usage, the term “Dividend” refers to the share of, profits of a company that is distributed amongst its Members. The term “Dividend” has been inclusively defined in, the Act to the effect that it includes Interim Dividend., , Dividends cannot be declared except out of profits. If a company declares and pays a dividend in the absence of, profits, the directors will have to make good the amount to the company from their own pockets.
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241, , Lesson 6 • Distribution of Profits – Dividend, , MEANING AND DEFINITION OF DIVIDEND, Dividend is defined under section 2(35) of the Companies Act, 2013, the term dividend includes any interim, dividend. A dividend is a distribution of a portion of a company’s earnings, decided by the board of directors, to a, class of its shareholders. A share of the after-tax profit of a company, distributed to its shareholders according to, the number and class of shares held by them is called dividend. The amount and timing of the dividend is decided, by the board of directors, who also determine whether it is paid out of current earnings or the past earnings kept as, reserve., Holders of preference shares receive dividend at a predetermined fixed rate and are paid first. However, preference, shareholders are not entitled to treat the preference dividend as a debt and sue for its payment. However, if the, articles specify that the company’s profit shall be applied, by way of payment of the preference dividend, the preference, shareholder can sue for it even though it has not been declared. [Evling v. Israel & Oppenheimer Ltd. (1918) 1 Ch. 101]., Holders of equity shares are entitled to receive any amount of dividend, based on the level of profit and the, company’s need for cash for expansion or other purposes., SS-3 defines dividend so as to mean a distribution of any sums to Members out of profits and wherever permitted, out of free reserves available for the purpose., , The power to pay dividend is inherent in a company and is not derived from the Companies Act, 2013 or the, Memorandum or Articles of Association although the Act and the Articles regulate the manner in which dividends, are to be declared., Right to claim dividend will only arise after a dividend is declared by the company in general meeting and until and, unless it is so declared, the shareholder has no claim against the company in respect of it. The observation of the, Bombay High Court in Bacha F Guzdar v. CIT (1952) 22 Com Cases 198 (Bom) was improved upon by the Supreme, Court saying that the right to participation in the profits exists independent of any declaration by the company with, only difference that the enjoyment of profits is postponed until dividends are declared [Bacha F Guzdar (Mrs.) v. CIT, (1955) 25 Com Cases 1 at p. 6]., SS-3 clarifies that distribution of discount coupons to all the Shareholders shall not be treated as deemed Dividend., , INTEREST VS. DIVIDEND, Interest and dividend are completely different concepts. The key difference between Interest and Dividend is as, follows:, Nature of Difference, , Interest, , Dividend, , Meaning, , Interest is the charge against the money, that is offered to the borrower, , Dividend is a percentage of profit that is, offered to the shareholder of a company., , The lenders, creditors and debenture, holders, , Equity Shareholders and Preference, Shareholders., , Nature, Paid to, Mandatory, , Rate, , It is a charge against profit, , Interest is to be paid even if there is no, chance of making profit, Fixed, , It is appropriation of profit., , To distribute dividend, profits are, necessary., , Remains constant in the case of, preference shares, but fluctuates in case, of equity shares.
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242, , , , Lesson 6 • EP-CL, , TYPES OF DIVIDEND, A. On the basis of time, , Final dividend, Dividend is said to be a final dividend if it is declared at the annual general meeting of the company. Final dividend, once declared becomes a debt enforceable against the company. Final Dividend can be declared only if it is recommended, by the Board of Directors of the Company. In accordance with Section 134(3)(k) of the Companies Act, 2013, Board of, Directors must state in the Directors’ Report the amount of dividend, if any, which it recommends to be paid., SS-3 defines final dividend so as to mean the dividend recommended by the Board of Directors and declared by the, Members at an Annual General Meeting., , Interim dividend, Dividend is said to be an interim dividend, if it is declared by the Board of Directors between two Annual General, Meetings of the company. All the provisions relating to the payment of dividend shall be applicable on the interim, dividend also., SS-3 defines interim dividend so as to mean the Dividend declared by the Board of Directors., , B. On the basis of Nature of Shares
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Lesson 6 • Distribution of Profits – Dividend, , 243, , Preference Shares, As per Section 43 of the Companies Act, 2013, Preference Shares carry a preferential right with respect to payment, of dividend, either at a fixed amount or calculated at a fixed rate. On the basis of payment of dividend, Preference, Shares are classified into:, (a), , (b), , Cumulative Preference Shares: A cumulative Preference Share is one that carries right to a fixed amount of, dividend or dividend at a fixed rate. Such a dividend is payable even out of future profit if current year’s, profits are insufficient for the purpose. This means that dividend on these shares accumulates unless it is, paid in full and, therefore, the shares are called Cumulative Preference Shares., , Non-Cumulative Preference Shares: A non-cumulative Preference Share carries with it the right to a fixed, amount of dividend .In case no dividend is declared in a year due to any reason, the right to receive such dividend, for that year expires. It implies that the holder of such a share is not entitled to arrears of dividend in future., , Equity Shares, , Equity Shares are those shares which are not preference shares. They do not enjoy any preferential rights in the, matter of payment of dividend or repayment of Capital. The rate of dividend on Equity Shares is recommended by, Board of Directors and may vary from year to year. Rate of dividend depends upon the dividend policy and the, availability of profits after satisfying the rights of preference shareholders., , DECLARATION OF DIVIDEND (SECTION 123), , Section 51 of the Act, states that a company may, if so authorized by its articles, pay dividend in proportion to the, amount paid up on each share., According to SS-3 a dividend shall be declared only on the recommendation of the Board, made at a meeting of the, Board. As per Regulation 43 of the SEBI (LODR) Regulations, 2015, the listed entity are mandated to declare and, disclose the dividend on per share basis only., , A., , Sources of declaration of dividend: Section 123(1) of Companies Act 2013 provides that the dividend shall, be declared or paid by a company for any financial year only out of —, (a), , (i) the profits of the company for that year arrived at after providing for depreciation in accordance, with the provisions of sub-section (2), or, (ii) out of the profits of the company for any previous financial year or years arrived at after providing, for depreciation in accordance with the provisions of that sub-section and remaining undistributed, or, (iii) out of both (i) and (ii), or, , (b), , In computing profits of any amount representing unrealised gains, notional gains or revaluation of, assets and any changes in carrying amount of an asset or of a liability on measurement of the asset or, the liability at fair values shall be excluded; or,, , out of money provided by the Central Government or a State Government for the payment of dividend, by the company in pursuance of a guarantee given by that Government., In accordance with SS-3, a company shall not declare Dividend on its equity shares in case of noncompliance of provisions relating to the acceptance of deposits under the Act, till such time the deposits, accepted have been repaid with interest in accordance with the terms and conditions of the agreement, entered with the depositors., , A company shall also not declare any Dividend, if it has defaulted in –, (a), , Redemption of debentures or payment of interest thereon or creation of debenture redemption, reserve,, , (c), , Payment of Dividend declared in the current or previous financial year(s), or, , (b), , Redemption of preference shares or creation of capital redemption reserve,
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244, , (d), , B., , C., , , , Lesson 6 • EP-CL, , Repayment of any term loan to a bank or financial institution or interest thereon, till such time, the default is subsisting., , No Dividend shall be declared by the company during the extended time, if any, granted by the Tribunal/, Court for repayment of above liabilities., , Transfer of profits to reserves: A company may, before the declaration of any dividend in any financial year,, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of, the company., , Dividend in case of absence or inadequacy of profits:- According to third proviso to Section 123(1) of the, Companies Act, 2013 read with rule 3 of the Companies (Declaration and Payment of Dividend) Rules, 2014,, in case of inadequacy or absence of profits in any financial year, any company proposes to declare dividend out, of the accumulated profits earned by it in previous years and transferred by the company to the free reserves,, such declaration of dividend shall be made in accordance with such the following conditions, namely:(1), (2), (3), , The rate of dividend declared shall not exceed the average of the rates at which dividend was declared, by it in the three years immediately preceding that year. This shall not apply to a company which has, not declared any dividend in each of preceding 3 financial years., The total amount to be drawn from such accumulated profits shall not exceed one-tenth of the sum of, its paid-up share capital and free reserves as appearing in the latest audited financial statement., , The amount so drawn shall first be utilized to set off the losses incurred in the financial year in which, dividend is declared before any dividend in respect of equity shares is declared., The balance of reserves after such withdrawal shall not fall below fifteen per cent of its paid up share, capital as appearing in the latest audited financial statement., The above conditions prescribed pursuant to third proviso to sub-section (1) of Section 123 of the Act, shall not apply to a Government Company in which the entire paid up share capital is held by the Central, Government or State Government(s) or jointly by both. [MCA exemption notification G.S.R. 463(E) dated, 5th June 2015]., Illustration:, XYZ Ltd., which has inadequacy of profits, proposes to declare Dividend out of general reserves., Following are the facts of the case:, •, , 17,500 preference shares of Rs. 100 each fully paid; (Dividend @ 9%), , •, , 7,00,000 equity shares of Rs. 10 each, , •, , Securities premium: Rs. 3,50,000, , •, •, •, •, •, •, •, •, , General reserves: Rs. 21,00,000, Capital reserves: Rs. 3,50,000, Surplus (P&L): Rs. 63,000, , Net profit for the year: Rs. 3,57,000, , Average rate of Dividend during the last three years: 15%, , Board of directors of the company wishes to declare 10% Dividend., , Maximum amount that can be withdrawn: Rs. 10,91,300 [1/10 of (Rs. 17,50,000 + Rs., 70,00,000 + Rs. 21,00,000 + 63000)], Permissible withdrawal from the balance of Reserves: Rs. 8,50,500, , Calculate how company can declare Dividend?
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245, , Lesson 6 • Distribution of Profits – Dividend, , Illustration:, The profits of X Ltd. for F.Y. 2020-21 are inadequate and considering the different scenarios the, declaration of dividend may be as under:, Financial Year, 2017-18, 2018-19, D., , 2019-20, , Dividend paid during the year, , Case-1, , Case-2, , Case-3, , 5%, , Nil, , Nil, , 10%, Nil, , Nil, Nil, , Nil, , 12%, , Dividend to be declared from free reserves only: No dividend shall be declared or paid by a company from, its reserves other than free reserves., , Free reserves as defined under section 2(43) of the Companies Act, 2013 means such reserves which, as per, the latest audited balance sheet of a company, are available for distribution as dividend: Provided that the, following shall not be treated as free reserves;—, (1), E., , F., , G., , (2), , any amount representing unrealised gains, notional gains or revaluation of assets, whether shown as, a reserve or otherwise, or, any change in carrying amount of an asset or of a liability recognised in equity, including surplus in, profit and loss account on measurement of the asset or the liability at fair value., , Declaration of Dividend by set off of previous losses and depreciation against the profit of the, Company: No Company shall declare dividend unless carried over previous losses and depreciation not, provided in previous year or years are set off against profit of the Company for the current year., , Manner of providing depreciation: According to Section 123(2) of the Companies Act, 2013 for the purpose, of declaration of divided by a company as per Section 123(1)(a) of the Act, it shall provide depreciation in, accordance with Schedule II of the Companies Act, 2013., , Declaration of interim dividend: Section 123(3) of the Companies Act, 2013 provides that the Board of, Directors of a company may declare interim dividend during any financial year or at any time during the, period from closure of financial year till holding of the annual general meeting out of the surplus in the profit, and loss account or out of profits of the financial year for which such interim dividend is sought to be declared, or out of profits generated in the financial year till the quarter preceding the date of declaration of the interim, dividend., In case the company has incurred loss during the current financial year up to the end of the quarter, immediately preceding the date of declaration of interim dividend, such interim dividend shall not be declared, at a rate higher than the average dividends declared by the company during immediately preceding three, financial years., SS-3 while clarifying the interim dividend provides that while declaring the Interim Dividend, the Board shall, consider the financial results for the period for which Interim Dividend is to be declared and should be, satisfied that the financial position of the company justifies and supports the declaration of such Dividend., The financial results shall take into account –, (a), Depreciation for the full year,, (b), Tax on profits of the company including deferred tax for full year,, (c), Other anticipated losses for the financial year,, (d), Dividend that would be required to be paid at the fixed rate on preference shares., (e), The losses incurred, if any, during the current financial year upto the end of the quarter, immediately, preceding the date of declaration of Interim Dividend.
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246, , , , Lesson 6 • EP-CL, , Further, in case of clause (e) above, Interim Dividend shall not be declared at a rate higher than average, Dividend declared during the immediately preceding three financial years., Further SS-3 provides that Interim Dividend shall be declared at a meeting of the Board. In the event of a loss or, inadequacy of profits during a financial year, no Interim Dividend shall be declared/ paid out of Free Reserves., Illustration:, On 10th July 2020 the Board of Directors of ABC Limited intends to consider and declare Interim Dividend, for the following Financial Year (F.Y.):, i. 2019-20: Out of the profits earned in the F.Y. 2019-20;, , ii. 2020-21: Out of the profits earned during the first quarter of F.Y. 2020- 21, , In case of Sl. No. (i) above, the Board may declare Interim Dividend before the approval of financial, statements for the F.Y. 2019-20. If the financial statements are already approved by the Board, then the, declaration of Interim Dividend for the F.Y. 2019-20 will not be possible., , Note: Though sub-section (3) of Section 123 of the Companies Act, 2013 provides that the Board of Directors, of a company may declare Interim Dividend during any financial year or at any time during the period from, the closure of the financial year till the holding of the Annual General Meeting. In the given example if the, financial statements for F.Y. 2019-20 are already approved by the Board, then it is practically not possible to, declare any Interim Dividend for the F.Y. 2019- 20, as the books of accounts would be closed for that financial, year. However, in case of Sl. No. (ii) above, the Board may declare Interim Dividend out of the profits earned, during the first quarter of F.Y. 2020-21., H., , Amount of Dividend to be deposited in Special Account of a Schedule Bank: Section 123(4) of the, Companies Act, 2013 provides that the amount of the dividend, including interim dividend, shall be deposited, in a scheduled bank in a separate account within five days from the date of declaration of such dividend., SS-3 hereby clarifies that the Dividend shall be deposited in a separate bank account within five days from the, date of declaration and shall be paid within thirty days of declaration. The intervening holidays, if any, falling, during such period shall be included., , By virtue of MCA exemption notification G.S.R.463(E) dated 5th June 2015 the requirement of deposit of Dividend, amount in a separate bank account within five days from the date of its declaration, as provided under Section, 123(4) shall not apply to a Government Company in which the entire paid up share capital is held by the Central, Government or State Government(s) or jointly by both or by one or more Government Company., Illustration:, , I., , If the Board of Directors of XYZ Ltd. declared an Interim Dividend on 13th August 2020, then the amount, of Dividend should be deposited in a separate bank account within ?, , Dividend only to registered shareholder: Section 123(5) of the Companies Act, 2013 explains that no, dividend shall be paid by a company in respect of any share therein except to the registered shareholder of, such share or to his order or to his banker and shall not be payable except in cash., By virtue of MCA exemption notification G.S.R.465(E) dated 5th June 2015, in case of a Nidhi Company any, Dividend payable in cash may be paid by crediting the same to the account of the member, if the Dividend is not, claimed within 30 days from the date of declaration of the Dividend., , J., , Payment of Dividend: Inferring from Section 124(1) of the Companies Act, 2013, dividend must be paid, within 30 days from the date of declaration of dividend. SS-3 hereby clarifies that the Dividend shall be
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Lesson 6 • Distribution of Profits – Dividend, , K., , L., , M., , 247, , deposited in a separate bank account within five days from the date of declaration and shall be paid within, thirty days of declaration. The intervening holidays, if any, falling during such period shall be included., , Capitalization of Profits: Nothing in this Section i.e. 123(5) of the Companies Act, 2013 shall be deemed to, prohibit the capitalization of profits or reserves of a company for the purpose of issuing fully paid-up bonus, shares or paying up any amount for the time being unpaid on any shares held by the members of the company., , Mode of payment: Any dividend payable in cash may be paid by cheque or warrant or in any electronic mode, to the shareholder entitled to the payment of the dividend., , No dividend to be declared/paid in case of failure of repayment of deposits: Section 123(6) of the, Companies Act, 2013 provides that a company which fails to comply with the provisions of sections 73, (prohibition of acceptance of deposits except in the manner provided) and 74 (Repayment of deposits etc., accepted before commencement of the Companies Act 2013) shall not, so long as such failure continues,, declare any dividend on its equity shares., , UNPAID DIVIDEND ACCOUNT (SECTION 124), Section 124(1) of the Companies Act, 2013 states that when a dividend has been declared by a company but has not, been paid or claimed within thirty days from the date of the declaration to any shareholder entitled to the payment, of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days,, transfer the total amount of dividend which remains unpaid or unclaimed to a special account to be opened by the, company on that behalf in any scheduled bank to be called the Unpaid Dividend Account., , Section 124(4) of the Companies Act, 2013 states that any person claiming to be entitled to any money transferred, under section 124(1) of the Act, to the Unpaid Dividend Account of the company may apply to the company for, payment of the money claimed., •, , Details of unpaid dividend to be placed at the website: Section 124(2) of the Companies Act, 2013, provides that the company shall, within a period of ninety days of making any transfer of an amount under, Section 124(1) of the Act, to the Unpaid Dividend Account, prepare a statement containing the names, their
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248, , , , Lesson 6 • EP-CL, , last known addresses and the unpaid dividend to be paid to each person and place it on the website of the, company, if any, and also on any other website approved by the Central Government for this purpose in, prescribed form., , •, , Effect of Non-Transfer of the Dividend: Section 124(3) of the Companies Act, 2013 provides that if any, default is made in transferring the total amount referred to in section 124(1) of the Act or any part thereof to, the Unpaid Dividend Account of the company, it shall pay, from the date of such default, interest on so much, of the amount as has not been transferred to the said account, at the rate of twelve per cent per annum and, the interest accruing on such amount shall ensure to the benefit of the members of the company in proportion, to the amount remaining unpaid to them., , Claiming of Unclaimed/Unpaid Dividend, , In accordance with Section 124 of the Companies Act, 2013, a dividend which has been declared by a company but has, not been paid, or claimed, within thirty days from the date of the declaration, to/by any shareholder entitled to the, payment of the dividend, the company shall, within seven days from the date of expiry of the said period of thirty days,, transfer the total amount of dividend which remains unpaid or unclaimed within the said period of thirty days, to a, special account to be opened by the company in that behalf in any scheduled bank, to be called “Unpaid Dividend, Account of Company Limited/Company (Private) Limited”., Under the explanation, the expression “dividend which remains unpaid” means any dividend the warrant in respect, thereof has not been encashed or which has otherwise not been paid or claimed., , Any person claiming to be entitled to any money transferred to the Unpaid Dividend Account of the company may, apply to the company for payment of the money claimed. The person can claim this amount from company only, within seven years of its transfer to Unpaid Dividend Account. After this period not only his dividend amount but, also shares shall be transferred to the Invest or Education and Protection Fund (IEPF)., , Transfer to Investor Education and Protection Fund (IEPF): Section 124(5) of the Companies Act, 2013 states, that any money transferred to the Unpaid Dividend Account of a company in pursuance of this section which, remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be transferred by the, company along with interest accrued, if any, thereon to the Fund established under sub- section (1) of section 125, (Investor Education and Protection Fund) and the company shall send a statement in the prescribed form of the, details of such transfer to the authority which administers the said Fund and that authority shall issue a receipt to, the company as evidence of such transfer., , INVESTOR EDUCATION AND PROTECTION FUND (SECTION 125), , For administration of Investor Education and Protection Fund Government of India has on 7th September, 2016, established Investor Education and Protection Fund Authority under the provisions of section 125 of the Companies, Act, 2013., The Authority is entrusted with the responsibility of administration of the Investor Education Protection Fund, (IEPF), make refunds of shares, unclaimed dividends, matured deposits/debentures etc. to investors and to promote, awareness among investors., The Central Government shall establish a Fund to be called the Investor Education and Protection Fund. Section, 125(2) of the Companies Act, 2013, prescribes that the following shall be credited to the Fund –, (a), , the amount given by the Central Government by way of grants after due appropriation made by Parliament, by law in this behalf for being utilised for the purposes of the Fund;, , (c), , the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub section (5) of, section 124 of the Companies Act, 2013;, , (b), , (d), , donations given to the Fund by the Central Government, State Governments, companies or any other, institution for the purposes of the Fund;, the amount in the general revenue account of the Central Government which had been transferred to that, account under sub-section (5) of section 205A of the Companies Act, 1956, as it stood immediately before the
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Lesson 6 • Distribution of Profits – Dividend, , (e), (f), , (g), , (h), (i), , (j), , (k), (l), , (m), (n), , 249, , commencement of the Companies (Amendment) Act, 1999, and remaining unpaid or unclaimed on the, commencement of this Act;, the amount lying in the Investor Education and Protection Fund under section 205C of the Companies Act, 1956;, the interest or other income received out of investments made from the Fund;, the amount received under sub-section (4) of section 38;, , the application money received by companies for allotment of any securities and due for refund;, matured deposits with companies other than banking companies;, matured debentures with companies;, , interest accrued on the amounts referred to in clauses (h) to (j);, , sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation for, seven or more years;, redemption amount of preference shares remaining unpaid or unclaimed for seven or more years; and, such other amount as may be prescribed., , As per Rule 3 of the IEPF Authority(Accounting, Audit, Transfer and Refund) Rules, 2016, there shall be credited to, the Fund, the following amounts, namely:(i), , all amounts payable as mentioned in clause (a) to (n) of sub-section (2) of section 125 of the Companies Act,, 2013;, , (iii), , all the resultant benefits arising out of shares held by the Authority under clause (b);, , (ii), , (iv), (v), , (vi), , all shares in accordance with sub-section (6) of section 124 of the Companies Act, 2013;, all grants, fees and charges received by the Authority under these rules;, , all sums received by the Authority from such other sources as may be decided upon by the Central Government;, all income earned by the Authority in any year;, , (vii) all amounts payable as mentioned in sub-section (3) of section 10B of the Banking Companies (Acquisition, and Transfer of Undertakings) Act, 1970, section 10B of the Banking Companies (Acquisition and Transfer of, Undertakings) Act, 1980, sub-section (3) of section 38A of the State Bank of India Act, 1955 and section 40A, of the State Bank of India (Subsidiary Bank) Act, 1959; and, (viii) all shares held by authority in accordance with Section 90(9) of the Act & the resultant benefits arrising out, of such shares, without restriction;, (ix), , all other sums of money collected by the Authority as envisaged in the Act., , Provided that no such amount referred to in clauses (h) to (j) shall form part of the Fund unless such amount, has remained unclaimed and unpaid for a period of seven years from the date it became due for payment., , Utilisation of Investor Education and Protection Fund, , Section 125(3) of the Companies Act, 2013, provides the Fund shall be utilised for –, (a), , the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money, due for refund and interest thereon;, , (c), , distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures,, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person,, in accordance with the orders made by the Court which had ordered disgorgement;, , (b), , (d), , promotion of investors’ education, awareness and protection;, , reimbursement of legal expenses incurred in pursuing class action suits under sections 37 and 245 by, members, debenture-holders or depositors as may be sanctioned by the Tribunal; and
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250, , (e), , , , Lesson 6 • EP-CL, , any other purpose incidental thereto, in accordance with Rule 3 of the IEPF Authority (Accounting, Audit,, Transfer and Refund) Rules, 2016., , Provided that the person whose amounts referred to in clauses (a) to (d) of sub-section (2) of section 205C, transferred to Investor Education and Protection Fund, after the expiry of the period of seven years as per, provisions of the Companies Act, 1956, shall be entitled to get refund out of the Fund in respect of such claims, in accordance with rules made under this section., , Any money transferred to the Unpaid Dividend Account of a company in pursuance of Section 124 of the Companies, Act, 2013 which remains unpaid or unclaimed for a period of seven years from the date of such transfer shall be, transferred by the company along with interest accrued, if any, thereon to the Investor Education and Protection Fund, (IEPF) and the company shall send a statement in the prescribed form of the details of such transfer to the Investor, Education and Protection Fund Authority and it shall issue a receipt to the company as evidence of such transfer., , Procedure for Transfer of Unpaid or Unclaimed Dividend to The Investor Education And, Protection Fund, , Rule 5 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016,, details the procedure for transfer of Unpaid or Unclaimed Dividend to the IEPF. The procedure is explained as under:, (1), (2), , (3), (4), (5), (6), (7), , The amount of unclaimed or unpaid dividend required to be credited by the companies to the Fund shall be, remitted online along with a statement in Form No. IEPF-1 containing details of such transfer to the, Authority within a period of thirty days of such amounts becoming due to be credited to the Fund.(Rule 5(1)], The companies which have transferred any amount referred to in clauses (a) to (d) of sub-section (2) of, section 205C of the Companies Act, 1956 (1 of 1956) to Investor Education and Protection Fund or Central, Government, but have not filed the statement or have filed the statement in any format other than in excel, template, as required under sub-rule (1) of rule 5 of the Investor Education and Protection Fund Authority, (Accounting, Audit, Transfer and Refund) Rules, 2016, have to submit details mentioned in sub-rule (1) of, rule 5 in Form No. IEPF – 1A along with excel template within sixty days of notification of these amended, rule [inserted by the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and, Refund) Second Amendment Rules, 2019, Effective from 20th August 2019]., The amount may also be remitted by Electronic Fund Transfer in such manner, as may be specified by the, Central Government., On receipt of the statement, the Authority shall enter the details of such receipt in a Register maintained, physically or electronically by it in respect of each company every year, and reconcile the amount so remitted, and collected, with the concerned designated bank on monthly basis., Each designated bank shall furnish an abstract of such receipts during the month to the Authority within, seven days after the close of every month., The company shall maintain the record filed under sub-rule 5(1) as above in the same format along with all, supporting documents and the Authority shall have the powers to inspect such records., Every company shall within a period of sixty days after holding of the Annual General Meeting or the date on, which it should have been held as per the provisions of section 96 of the Act, whichever is earlier and every, year thereafter till completion of the seven years period, identify the unclaimed amount as referred in subsection (2) of section 125 of the Act, dividend, as on the date of closure of financial year the account of which, are to be adopted in the Annual General Meeting, separately furnish and upload on its own website and also, on website of Authority or any other website as may be specified by the Government, a statement or, information of unclaimed and unpaid amounts through Form No.IEPF-2, separately for each of the previous, seven financial years, containing following information, namely:(a), the names and last known addresses of the persons entitled to receive the sum;, (b), the nature of amount;, (c), the amount to which each person is entitled;, (d), the due date for transfer into the Invest or Education and Protection Fund; and, (e), such other information as may be considered necessary
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Lesson 6 • Distribution of Profits – Dividend, , 251, , Shares in respect of unpaid dividend to be transferred to Investor Education and Protection Fund, (IEPF):, Section 124(6) of the Companies Act, 2013, provides that all shares in respect of which dividend has not been paid, or claimed for seven consecutive years or more shall be transferred by the company in the name of IEPF along with, a statement containing such details as may be prescribed. Rule 6(5) of the Investor Education and Protection Fund, Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 prescribes Form IEPF-4 for this purpose., , The shares shall be credited to DEMAT Account of the Authority to be opened by the Authority for the said purpose,, within a period of thirty days of such shares becoming due to be transferred to the Fund. Further, in case the, beneficial owner has encashed any dividend warrant or any dividend amount has been credited to bank account of, the owner of such shares during the last seven years, such shares shall not be required to be transferred to the Fund, even though some dividend warrants may not have been encashed. Transfer of shares by the companies to the Fund, shall be deemed to be transmission of shares and the procedure to be followed for transmission of shares shall be, followed by the companies while transferring the shares to the fund., For the purposes of effecting transfer of such shares, the Board shall authorise the Company Secretary or any other, person to sign the necessary documents., Rule 6(5) of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and, Refund) Rules, 2016: The company shall follow the following procedure while transferring the shares,, namely:(a), , (b), , (c), , (d), , The company shall inform, at the latest available address, the shareholder concerned regarding transfer, of shares three months before the due date of transfer of shares and also simultaneously publish a notice, in the leading newspaper in English and regional language having wide circulation informing the, concerned that the names of such shareholders and their folio number or DP ID - Client ID are available, on their website duly mentioning the website address., In case, where there is a specific order of Court or Tribunal or statutory Authority restraining any transfer, of such shares and payment of dividend or where such shares are pledged or hypothecated under the, provisions of the Depositories Act, 1996 or shares already been transferred as above, the company shall, not transfer such shares to the Fund. Further, the company shall furnish details of such shares and unpaid, dividend to the Authority in Form No. IEPF 3 within thirty days from the end of financial year., For the purposes of effecting the transfer, where the shares are dealt with in a depository(i), , (ii), , on receipt of such intimation, the depository shall effect the transfer of shares in favour of DEMAT, account of the Authority., , For the purposes of effecting the transfer shares held in physical form(i), , (ii), , (iii), , (e), , the Company shall inform the depository by way of corporate action, where the shareholders have, their accounts for transfer in favour of the Authority., , (iv), , the Company Secretary or the person authorised by the Board shall make an application, on behalf, of the concerned shareholder, to the company, for issue of a new share certificate;, , on receipt of the application under clause (a), a new share certificate for each such shareholder, shall be issued and it shall be stated on the face of the certificate that, “Issued in lieu of share certificate No..... for the purpose of transfer to IEPF” and the same be, recorded in the register maintained for the purpose;, , particulars of every share certificate shall be in Form No. SH-1 as specified in the Companies (Share, Capital and Debentures) Rules, 2014;, , after issue of a new share certificate, the company shall inform the depository by way of corporate, action to convert the share certificates into DEMAT form and transfer in favour of the Authority.", , The company shall make such transfers through corporate action and shall preserve copies for its records.
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252, , (f), (g), (h), (i), , (j), (k), , , , Lesson 6 • EP-CL, , While effecting such transfer, the company shall send a statement to the Authority in Form No. IEPF-4, within thirty days of the corporate action taken under clause (c) of sub-rule (3) of rule 6 containing details, of such transfer and the company shall also attach a copy of the public notice published under clause (a), of sub-rule (3) of rule 6 in Form No IEPF-4., , The voting rights on shares transferred to the Fund shall remain frozen until the rightful owner claims the, shares. Further for the purpose of the Securities and Exchange Board of India (Substantial Acquisition of, Shares and Takeovers) Regulations, 2011, the shares which have been transferred to the Authority shall, not be excluded while calculating the total voting rights., The company shall maintain all such statements filed under sub – rule (5) in the same format along with, all supporting documents and the Authority shall have the powers to inspect such records., , All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and the like, except right issue shall also be credited to such DEMAT account by the company which shall send a, statement to the Authority in Form No. IEPF-4 within thirty days of the corporate action containing, details of such transfer., , The shares held in such DEMAT account shall not be transferred or dealt with in any manner whatsoever, except for the purposes of transferring the shares back to the claimant as and when he approaches the, Authority or in accordance with sub-rule (10) and (11)., , As per Rule 6 (13) of Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and, Refund) Rules, 2016, any amount required to be credited by the companies to the Fund as provided under, sub-rules (10) (11) and (12) of Rule 6 of IEPF Rules, 2016 shall be remitted into the specified account of, the IEPF Authority maintained in the Punjab National Bank and the details thereof shall be furnished to, the Authority in Form No. IEPF 7 within thirty days from the date of remittance or within thirty days from, the date of enforcement of the Rules, as the case may be., Sub-rule 10- If the company is getting delisted, the Authority shall surrender shares on behalf of the, shareholders in accordance with the Securities and Exchange Board of India (Delisting of Equity Shares), Regulations, 2009 and the proceeds realised shall be credited to the Fund and a separate ledger account, shall be maintained for such proceeds., Sub-rule-11- In case the company whose shares or securities are held by the Authority is being wound, up, the Authority may surrender the securities to receive the amount entitled on behalf of the security, holder and credit the amount to the Fund and a separate ledger account shall be maintained for such, proceeds., , (l), , Sub-rule-12- Any further dividend received on such shares shall be credited to the Fund and a separate, ledger account shall be maintained for such proceeds., Authority shall furnish its report to the Central Government as and when noncompliance of the rules by, companies came to its knowledge., , Claim of shares transferred to Investor Education and Protection Fund: any claimant of shares transferred above, shall be entitled to claim the transfer of shares from Investor Education and Protection Fund in accordance with, such procedure and on submission of such documents as may be prescribed.
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Lesson 6 • Distribution of Profits – Dividend, , Refund to Claimant from Investor Education and Protection Fund, , FOR INVESTORS: How to Claim?, 1 First Step, 2, , Second Step, , 3, , Third Step, , 4, , Fourth Step, , 5, , Fifth Step, , 6, 7, , Sixth step, Seventh Step, , Register yourself on IEPF website: www.iepf.gov.in, Fill the new web form IEPF-5 Online, Attach scanned copy of requisite documents with form, Take print out of auto generated advance receipt and, indemnity bond (IEPFF website->forms-> web Form, IEPF-5 -> MCA Services), Send all original documents to the company, Company to e-verify the claim in 30 days, On the basis of verification report, refund of share, and amount by IEPF Authority, , FOR COMPANIES: How to Process?, 1, , First Step, , 2, , Second Step, , File Details of nodal officer in new e-form IEPF-2, (IEPF website->forms->register for filling web form), e-verify the form IEPF 5 within 30 days of filling of, the form, , Company to retrain all original documents, , Companies may note that delay in verifying the claim will attract, payment of additional fee, , 253
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254, , , , Lesson 6 • EP-CL, , Rule 7 of the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules,, 2016, details the procedure which may be adopted by any claimant. The procedure is explained as under:, •, , •, •, •, , Any person whose shares, unclaimed dividend, matured deposits, matured debentures, application, money due for refund, or interest thereon, sale proceeds of fractional shares, redemption proceeds of, preference shares etc., has been transferred to the Fund, may claim the shares under proviso to Section, 124 (6) of the Companies Act, 2013 or apply for refund under clause (a) of Section 125(3) or under, proviso to Section 125(3) of the Companies Act, 2013, as the case may be, to the Authority by submitting, an online application in Form IEPF-5 available on the website www.iepf.gov.in along with fee specified by, the Authority from time to time in consultation with the Central Government., Upon submission, Form No. IEPF-5 shall be transmitted online to the Nodal Officer of the company for, verification of claim., , Further, the claimant after making an application in Form No. IEPF-5, shall send original physical share, certificate, original bond, deposit certificate, debenture certificate, as the case may be, along with Indemnity, Bond, Advance Receipts, and any other document as enumerated in Form No. IEPF-5, duly signed by him,, to the Nodal Officer of the concerned company at its registered office for verification of the claim., , Every company which is required to credit amounts or shares to the fund or has deposited the amount or, transferred the shares to the Fund shall nominate a Nodal Officer, who shall either be a Director or Chief, financial Officer or Company Secretary of the company, for the purposes of verification of claims and, coordination with Investor Education and Protection Fund Authority:, Provided that a company may appoint one or more Officer as Deputy Nodal Officer to assist the Nodal, Officer for the purposes of verification of claim and for coordination with Investor Education and, Protection Fund Authority:, , Provided further that the Nodal Officer shall be solely liable for all actions of any officer appointed as, Deputy Nodal Officer:, •, , •, , •, •, , Provided also that in case a company fails to appoint Nodal Officer, every director of the company shall be, deemed to be nodal officer and be liable for any failure to comply with requirement of these rules., The details of the Nodal Officer and Deputy Nodal Officer duly indicating his or her designation, postal, address, telephone and mobile number and company authorized e-mail ID shall be communicated to the, Investor Education and Protection Fund Authority in Form No. IEPF – 2 within fifteen days from the date, of publication of these rules and the company shall display the name of Nodal Officer and his e-mail ID on, its website:, , Provided that any change in the Nodal Officer or his details shall be communicated to the Authority, through Form No. IEPF-2 within seven days of such change along with board resolution thereof., , The company shall, within 30 days from the date of receipt of claim, send an online verification report to, the Authority after verification of details in Form No. IEPF-5 in the format specified by the Authority, along with all the documents submitted by the claimant and shall attach the scanned copy of all the, original documents submitted by the claimant in physical form duly certified by its nodal officer along, with the e-verification report along with a scanned copy of both sides of original physical share certificate, or original bond or deposit or debenture certificate/s duly cancelled and certified., If the online verification report is not sent by the company within 30 days of filing of claim, the company, may do so by paying additional fee of Rs.50 for every day subject to maximum of Rs.2500. Further, the, company shall be liable to maintain the original documents submitted to it by the claimant and shall, produce such documents whenever required., , In case of non-receipt of verification report along with documents by the Authority after the expiry of 60, days from the date of filing of Form No. IEPF-5, the Authority may reject Form No. IEPF-5, after sending a, communication to the claimant and the concerned company, on the e-mail address of the claimant and the, company, to furnish response within a period of 15 days.
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Lesson 6 • Distribution of Profits – Dividend, , •, , After verification of the entitlement of the claimant:, •, •, , •, •, , •, , •, , •, •, , •, , •, •, , 255, , to the amount claimed, the Authority and then Drawing and Disbursement Officer of the Authority, shall present a bill to the Pay and Accounts Office for e-payment as per the guidelines,, , to the shares claimed, the Authority shall issue a refund sanction order with the approval of the, Competent Authority and shall credit the shares to the DEMAT account of the claimant to the extent, of the claimant’s entitlement., , An application received for refund of any claim duly verified by the concerned company shall be disposed, off by the Authority within 60 days from the date of receipt of the verification report from the company,, complete in all respects and any delay beyond 60 days shall be recorded in writing specifying the reasons, for the delay and the same shall be communicated to the claimant in writing or by electronic means., Where the Authority, on examining any application for claim, finds it necessary to call for further, information or finds such application or e-form or document to be defective or incomplete in any respect,, the Authority shall give intimation of such information called for or defects or incompleteness, by e-mail, on the email address of the claimant and the company, which has filed such application or eform or, document, directing him or it to furnish such information or to rectify such defects or incompleteness or, to re-submit such application or e-Form or document within 15 days from the date of receipt of such, communication, failing which the Authority may reject the claim or Form No. IEPF-5., , If such information or incompleteness is called from the claimant, he shall file the Form and shall send, such documents as called for within 15 days, duly signed by him, to the Nodal Officer of the concerned, company at its registered office for verification of the claim and company shall send a revised verification, report. Provided further, if any such information or incompleteness is called from the company, the, company shall file the revised verification report and shall send such documents as called for within 30, days., In case, claimant is a legal heir or successor or administrator or nominee of the registered share holder,, the claimant shall ensure to submission of self-attested scanned copy of all prescribed documents online, along with the Form No. IEPF-5. In case of loss of securities held in physical form, he has to ensure to, submission of self-attested scanned copy of additional documents detailed in Schedule III of these rules, online along with the Form No. IEPF-5:, Provided further that the claimant shall submit in original all these documents duly signed by him, to the, Nodal Officer of the concerned company at its registered office for verification of the claim., , In case, claimant is a legal heir or successor or administrator or nominee of any other registered security, or in cases where request of transfer or transmission of shares is received after the transfer of shares by, company to the Authority, the company shall verify all requisite documents required for registering, transfer or transmission and shall issue letter to the claimant indicating his entitlement to the said, security and furnish a copy of the same to the Authority while verifying the claim of such claimant through, its e-verification report. Further, the authority shall dispose such request of transfer or transmission, based on the e-verification report of the company subject to verification of such request., The company shall be liable under all circumstances whatsoever to indemnify the Authority in case of any, dispute or lawsuit that may be initiated due to any incongruity or inconsistency or disparity in the, verification report or otherwise and the Authority shall not be liable to indemnify the security holder or, Company for any liability arising out of any discrepancy in verification report submitted etc., leading to, any litigation or complaint arising thereof., Any fraudulent claim by the claimant shall be deemed to be fraud within the meaning of Section 447 of the, Companies Act, 2013 and the claimant shall be liable accordingly., , If any person deceitfully personates an owner of any security or of any share warrant or coupon issued in, pursuance of this Act and thereby files any claim to obtain or attempts to obtain any such security or, interest or any such warrant or coupon due to the lawful owner, he shall be punishable under sections 57,, 447 and 448 of the Act.
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256, , Lesson 6 • EP-CL, , , , Manner of transfer of shares under sub-section (9) of section 90 of the Act to the Fund.- [Rule 6A of The, Investor Education And Protection Fund Authority (Accounting, Audit, Transfer And Refund) Rules, 2016:, The MCA vide notification dated June 09, 2021 has notified Rule 6A of the Investor Education and Protection Fund, Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 pertaining to the Manner of transfer of shares, under Section 90(9) of the Companies Act, 2013 w.r.t. Significant Beneficial Owner to the Investor Education and, Protection Fund (IEPF)., , As per the Rule 6A, the shares shall be credited to DEMAT Account of the IEPF Authority to be opened by the, Authority for the said purpose, within a period of 30 days of such shares due to be transferred to the Investor, Education Protection Fund(IEPF) with the following important conditions:, a), , b), c), , d), , Transfer of shares by the companies to the IEPF shall be deemed to be transmission of shares and the, procedure to be followed for transmission of shares shall be followed by the companies while transferring, the shares to the Investor Education Protection Fund;, Such shares shall be transferred to the IEPF Authority without any restrictions and no application shall be, filed for claiming back such shares from the IEPF Authority;, , The voting rights on shares transferred to the IEPF Fund shall remain frozen. However, for the purpose of, the SEBI (SAST) Regulations, 2011, the shares which have been transferred to the IEPF Authority shall not, be excluded while calculating the total voting rights., For the purposes of effecting transfer of such shares, the Board shall authorise the Company Secretary or, any other person to sign the necessary documents., , While under Section 124, shares on which dividend remains unpaid or unclaimed for seven years, are also required, to be transferred to IEPF Authority but the significant difference with respect to shares transferred to IEPF Authority, under Section 90(9), is that such shares once transferred can’t be claimed back, as opposed to shares transferred, under Section 124, which can be claimed back from IEPF authority., It is because of the restriction on claiming back the shares transferred to IEPF Authority under Section 90 (9) that, both the disclosure of significant beneficial ownership and obligation cast on a company, are of great importance., The Company shall follow the following procedure while transferring the Shares namely:, A Where the shares are dealt with in a depository:, , Where the shares are held in physical form:, , Step 1: Company shall inform the depository by way of Step 1:the Company Secretary or the person authorised, corporate action, where the shareholders have their by the Board shall make an application, on behalf of the, accounts for transfer in favour of the IEPF Authority;, concerned shareholder, to the company, for issue of a, new share certificate;, Step 2: On receipt of such intimation, the depository Step 2: on receipt of the application, a new share, shall effect the transfer of shares in favour of DEMAT certificate in Form SH-1, for each such shareholder shall, account of the IEPF Authority;, be issued and it shall be stated on the face of the, certificate that “Issued in lieu of share certificate No....., for the purpose of transfer to IEPF under sub section, (9) of section 90 of the Act” and the same be recorded in, the register maintained for the purpose;
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Lesson 6 • Distribution of Profits – Dividend, , Step 3: While effecting such transfer, the company shall, send a statement to the IEPF Authority in Form IEPF-4, within 30 days of the corporate action containing details, of such transfer and attach the following documents:, , a) A copy of order of the NCLT under section 90(8) of the, Act; and, , b) A declaration that no application under section 90(9), of the Act has been made or is pending before the NCLT., , 257, , Step 3: After issue of a new share certificate, the, company shall inform the depository by way of, corporate action to convert the share certificates into, DEMAT form and transfer in favour of the Authority;, , Step 4: While effecting such transfer, the company shall, send a statement to the IEPF Authority in Form IEPF-4, within 30 days of the corporate action containing details, of such transfer and attach the following documents:, a) A copy of order of the NCLT under section 90(8) of, the Act; and, , b) A declaration that no application under section 90(9), of the Act has been made or is pending before the NCLT., , Other Corporate Actions, •, All benefits accruing on such shares like bonus shares, split, consolidation, fraction shares and the like, except right issue shall also be credited to such DEMAT account [by the company which shall send a, statement to the Authority in Form No. IEPF-4 within 30 days of the corporate action containing details of, such transfer., •, •, •, •, •, , If the company is getting delisted, the Authority shall surrender shares on behalf of the shareholders in, accordance with the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, and the proceeds realised shall be credited to the Fund and a separate ledger account shall be maintained, for such proceeds., In case the company whose shares or securities are held by the IEPF Authority is being wound up, the IEPF, Authority may surrender the securities to receive the amount entitled on behalf of the security holder and, credit the amount to the Fund and a separate ledger account shall be maintained for such proceeds., Any further dividend received on such shares shall be credited to the Fund and a separate ledger account, shall be maintained for such proceeds., , Any amount required to be credited by the companies to the Fund as provided under sub-rules (9), (10) and, sub-rule (11) shall be remitted into the specified account of the IEPF Authority maintained in the Punjab, National Bank and the details thereof shall be furnished to the Authority in Form No. IEPF-7 within thirty, days from the date of remittance., , Authority shall furnish its report to the Central Government as and when non-compliance of the rules by, companies came to its knowledge., , Offence & penalty: Section 124(7) of the Companies Act, 2013, provides that If a company fails to comply with any, of the requirements of Section 124, such company shall be liable to a penalty of one lakh rupees and in case of, continuing failure, with a further penalty of five hundred rupees for each day after the first during which such, failure continues, subject to a maximum of ten lakh rupees and every officer of the company who is in default shall, be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of one, hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh, rupees.
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258, , , , Lesson 6 • EP-CL, , Illustrations:, 1), , In case a company declares dividend, what shall be the last date of payment of dividend?, , 3), , Can dividend be declared to certain class of shareholders only?, , 2), , 4), 5), 6), 7), 8), 9), , 10), 11), 12), 13), 14), 15), 16), 17), 18), 19), 20), 21), , Can a company which has inadequate profits or has incurred loss in the immediately preceding financial, year declare final dividend out of the accumulated profits of the previous financial years? Also, is there, any restriction on the rate of dividend?, Whether shareholder can give right to director of the Company to pay his dividend to any third person?, , In case of Transfer of shares, shares are still not registered on the name of the transferee then who will be, entitled to receive the dividend on the point of view of the Company?, In case of shares held in electronic mode, who will be entitled to receive dividend?, Whether Company can declare dividend in EGM instead of AGM?, , Whether dividend will be payable on call money paid in advance?, , Whether Company has to open the Demat A/c of the IEPF Authority or the Authority would open it?, , Whether the underlying shares of unpaid or unclaimed dividends are required to be transferred to IEPF, when the amount of unpaid or unclaimed dividend is being transferred?, , Whether it is mandatory to transfer the unclaimed or unpaid dividend amount and the underlying shares, for the same on the same day to the IEPF?, , What are the consequences in case a company defaults in transferring the unpaid/unclaimed dividend, amount to the Unpaid Dividend Account?, Does the shareholder ceases to be owner once the shares are transferred to the IEPF?, , Can claimant file more than one consolidated claim in respect of a company in a financial year?, , What will happen if online verification report for IEPF-5 is not sent by the company within thirty days of, filing of claim?, What details should be published in newspaper to be published 3 months prior to transfer of shares?, , What are the consequences in case a company defaults in transferring the unpaid/unclaimed dividend, amount to the Unpaid Dividend Account?, Up to what time the records mentioned under rule 5 (6) (c) of the IEPF Rules, 2016 are to be maintained, and kept by the Companies?, Whether the shares will be transferred in case the pledge is revoked?, What is the purpose of e-Form IEPF-5?, Who is a Nodal officer (IEPF)?, , RIGHT TO DIVIDEND, RIGHTS SHARES AND BONUS SHARES TO BE HELD IN ABEYANCE PENDING, REGISTRATION OF TRANSFER OF SHARES, Section 126 of the Companies Act, 2013 provides that when any instrument of transfer of shares has been delivered, to any company for registration and the transfer of such shares has not been registered by the company, it shall,, notwithstanding anything contained in any other provision of this Act, –, (a), , transfer the dividend in relation to such shares to the Unpaid Dividend Account referred to in section 124 of, the Act, unless the company is authorised by the registered holder of such shares in writing to pay such, dividend to the transferee specified in such instrument of transfer; and
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Lesson 6 • Distribution of Profits – Dividend, , (b), , 259, , keep in abeyance in relation to such shares, any offer of rights shares under clause (a) of sub-section of, section 62 and any issue of fully paid-up bonus shares in pursuance of first proviso to sub-section (5) of, section 123 of the Act., , PUNISHMENT FOR FAILURE TO DISTRIBUTE DIVIDENDS, , Section 127 of the Companies Act, 2013 provides that when a dividend has been declared by a company but has not, been paid or the warrant in respect thereof has not been posted within thirty days from the date of declaration to, any shareholder entitled to the payment of the dividend, every director of the company shall, if he is knowingly a, party to the default, be punishable with imprisonment which may extend to two years and with fine which shall not, be less than one thousand rupees for every day during which such default continues and the company shall be liable, to pay simple interest at the rate of eighteen per cent per annum during the period for which such default continues., , Exceptions: Proviso to section 127 of the Act has provided a list where no offence under this section shall be deemed, to have been committed:–, (a), , where the dividend could not be paid by reason of the operation of any law;, , (c), , where there is a dispute regarding the right to receive the dividend;, , (b), , (d), (e), , where a shareholder has given directions to the company regarding the payment of the dividend and those, directions cannot be complied with and the same has been communicated to him;, , where the dividend has been lawfully adjusted by the company against any sum due to it from the shareholder;, or, where, for any other reason, the failure to pay the dividend or to post the warrant within the period under, this section was not due to any default on the part of the company., In case of Nidhi company - Section 127 shall apply, subject to the modification that where the dividend payable, to a member is one hundred rupees or less, it shall be sufficient compliance of the provisions of the section, if the, declaration of dividend is announced in the local language in one local newspaper of wide circulation and, announcement of the said declaration is also displayed on the notice board of the Nidhis for at least three, months. – Notification dated 5th June, 2015., , WAIVER OF RIGHT TO RECEIVE DIVIDEND, Receipt of dividend is a right of shareholder and not an obligation. There is no provision under the Act to deal with, the waiver of dividend. Hence, such provisions may be contained in the articles of the company. Further, such waiver, can either be full or partial., , REVOCATION OF DIVIDEND, , Dividend once declared becomes a debt to the company and therefore cannot be revoked once declared., , DIVIDEND IN CASE OF BENEFICIAL OWNER, , As provided sub-section (9) of section 89 of the Companies Act, 2013, the obligation of the company of payment of, dividend is towards the member and not towards the beneficial owner. However, the dividend may be paid to a, beneficial owner where the shareholder instructs the company to do so. Since sub-section (5) of section 123 of the, Act includes payment of dividend to registered shareholder or “to his order”, the company shall pay the dividend, according to the instructions given., , DISTRIBUTION OF PROFITS IN OTHER TYPES OF COMPANIES, , Dividend can be paid by all types of companies except section 8 companies (i.e companies with charitable objects, etc.) which prohibit the payment of any dividend to its members. The dividend in other types of entities is as follows:, (a), , Section 8 Companies: According to Section 8(1) of the Companies Act, 2013 the company having license, under Section 8 (Formation of Companies with Charitable Objects etc.) are prohibited from paying any dividend, to its members. Their profits are intended to be applied only in promoting the objects of the Company.
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260, , (b), , , , Nidhi Companies:In terms of Rule 18 of Nidhi Rules, 2014, a Nidhi shall not declare dividend exceeding, twenty five percent or such higher amount as may be specifically approved by the Regional Director for, reasons to be recorded in writing and further subject to the following conditions:, (i), , an equal amount is transferred to General Reserve;, , (iii), , it has complied with all rules as applicable to Nidhis., , (ii), (c), , (d), , Lesson 6 • EP-CL, , there has been no default in repayment of matured deposits and interest; and, , Producer Companies: In case of producer companies, dividend is termed as ‘Limited Return’ as defined in, clause (d) of section 378A of the Companies Act, 2013. It is the maximum rate of dividend as the Articles of, the producer company may specify. According to Section 378 E of the Companies Act, 2013, in producer, Companies, the surplus if any, remaining after making provision for payment of limited return and reserves, referred, may be disbursed as patronage bonus, amongst the Members, in proportion to their participation in, the business of the Producer Company, either in cash or by way of allotment of equity shares, or both, as may, be decided by the Members at the general meeting., Companies Limited by Guarantee: A Company Limited by Guarantee is primarily used for non- profit, purposes and the profits are reinvested and used for promoting its non-profit activities. Although the, Companies Act, 2013 does not specifically prohibit distribution of dividend in such companies, however, the, Articles of such companies usually provides that all the income of the company shall be applied solely towards, the promotion of the objects of the Company and that no portion shall be paid or transferred directly or, indirectly by way of dividends or bonus or by way of profit to its members., , PROCEDURE FOR DECLARATION AND PAYMENT OF INTERIM DIVIDEND, 1., , Verify from company’s Articles of Association that they authorize the directors to declare interim dividend; if, not, then alter the Articles of Association accordingly., , 3., , In case of listed companies, notify Stock exchange(s) where the securities of the company are listed, at least, 2 working days (excluding the date of intimation and date of the meeting) in advance of the date of the, meeting of its Board of Directors at which the recommendation of interim dividend is to be considered., [Regulation 29 of SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015]., , 2., , 4., , Issue not less than 7 days notice or a shorter notice in case of urgent business for holding a meeting of the, Board of Directors of the company to consider the matter. It must state time, date and venue of the meeting, and details of the business to be transacted there at and be sent to all the directors for the time being in India, and to all other directors, at their usual address in India., , At the Board meeting, the Board of Directors considers in detail all the matters with regard to the declaration, and payment of an interim dividend including:, (a), , (b), (c), , (d), (e), , Before declaring an interim dividend, the directors must satisfy themselves that the financial position, of the company allows the payment of such a dividend out of profits available for distribution. The, company must have earned adequate profits to pay interim dividend after providing for depreciation, for the full year. The directors of a company may be held personally liable in the event of wrong, declaration of an interim dividend. Therefore, it is prudent on the part of the directors to have a, proforma profit and loss account and balance sheet of the company prepared up to the latest possible, date of the financial year in respect of which interim dividend is proposed to be declared and provision, must be made for all the working expenses and depreciation for the whole year. In case, a company is, incurring loss as per financials of latest quarter, interim dividend shall not be higher than average, dividend declared by the company during last three financial years., quantum of dividend,, entitlement,, , closure of register of members for the purpose of payment of interim dividend or fixation of record date,, , publication of notice in newspapers for closure of share transfer register and the register of members, of the company at least 7 days before the proposed closure (applicable for listed companies),
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Lesson 6 • Distribution of Profits – Dividend, , (f), , opening of a separate bank account,, , (h), , authority for signing the dividend warrants and pass appropriate resolutions covering all these aspects, of the matter,, , (g), (i), , (j), , (k), , 5., , 6., , 9., 10., 11., , posting of the dividend warrants,, , pass a suitable resolution for declaration and payment of interim dividend on equity shares of the, company, and, Interim dividend on preference shares: Generally, dividend on preference shares is paid annually., , In case of a listed company, immediately within 30 minutes of the conclusion of the Board meeting, but only, after the close of the market hours, intimate the stock exchanges with regard to the Board’s decision about, declaration and payment of interim dividend with the prescribed financial information is also required to be, given to the concerned stock exchange(s) [Regulation 30 of the SEBI (Listing Obligation and Disclosure, Requirements) Regulations, 2015]., In case of listed company:, (i), , (iii), 8., , printing of dividend warrants,, , However, the dividend at a fixed rate on the preference shares can be paid more than once during a year, in, proportion to the period of completion of current financial period over the whole financial year, by declaring, it as interim dividend, in the Board Meeting by the Board of Directors. A suitable resolution should be passed, to the effect that the dividend will be paid to the registered preference shareholders whose names appear in, the register of preference shareholders as on the date of commencement of closure of share transfer books., , (ii), , 7., , 261, , (iv), , Publish notice of book closure in a newspaper circulating in the district in which the registered office, of the company is situated at least seven days before the date of commencement of book closure., To give notice in advance of at least 7 working days (excluding the date of intimation and the record, date) or as many days as the stock exchange may prescribe, before the closure of transfer books or, record date, specifying the purpose of Record Date., , The company shall recommend or declare all dividend at least five working days (excluding the date of, intimation and the record date) before the record date fixed for the purpose., Time gap between two book closures and record date would be at least 30 days., To declare and disclose the dividend on per share basis only., , Close the register of members and the share transfer register of the company., , Hold a Board/committee meeting for approving registration of transfer/transmission of the shares of the, company, which have been lodged with the company prior to the commencement of book closure. In, compliance with the Board resolution, register transfer/transmission of shares lodged with the company, prior to the date of commencement of the closure of the register of members and dispatch the share certificates, to the transferees after endorsing the shares in their names., Round off the amount of interim dividend to the nearest rupee and where such amount contains part of a, rupee consisting of paise then if such part is fifty paise or more, it should be increased to one rupee and if, such part is less than fifty paise, it should be ignored., Open the “Interim Dividend Account of. Ltd.” with the bank as resolved by the Board and deposit the amount, of dividend payable in the account with in five days of declaration and give a copy of the Board resolution, containing instructions regarding opening of the account and give the authority to Bank to honour the, dividend warrants when presented., , If the company is listed, then for payment of dividend it has to mandatorily use, either directly or through its, Registrars to an Issue and Share Transfer Agent (RTI & STA), any RBI (Reserve Bank of India) approved electronic, mode of payment such as Electronic Clearing Services (ECS) [LECS (Local ECS)/ RECS (Regional ECS)/NECS, (National ECS)], National Electronic Fund Transfer (NEFT), etc. In order to enable usage of electronic payment, instruments, the company (or its RTI & STA) shall maintain requisite bank details of its investors as under-
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262, , , , (a), (b), (c), , 12., 13., , 14., 15., 16., 17., 18., 19., 20., , (d), , Lesson 6 • EP-CL, , For investors that hold securities in Demat mode, company or its RTI & STA shall seek relevant bank, details from the depositories. To this end, vide circular SEBI/MRD/DEP/Cir-3/06 dated February 21,, 2006 and letter MRD/DEP/PP/123624/2008 dated April 23, 2008, depositories have been advised to, ensure that correct account particulars of investors are available in the database of depositories., For investors that hold physical share/debenture certificates, company or its RTI & STA shall take, necessary steps to maintain updated bank details of the investors at its end., , In cases where either the bank details such as MICR (Magnetic Ink Character Recognition), IFSC (Indian, Financial System Code), etc. that are required for making electronic payment are not available or the, electronic payment instructions have failed or have been rejected by the bank, company or its RTI &, STA may use physical payment instruments for making cash payments to the investors. Company shall, mandatorily print the bank account details of the investors on such payment instruments., Depositories are directed to provide to companies (or to their RTI & STA) updated bank details of their, investors. [Refer SEBI Circular No. CIR/MRD/DP/10/2013 dated March 21, 2013]., , Make arrangements with the bank and in collaboration with other banks if required, for payment of the, Dividend Warrants at par at the centers as determined by the Stock Exchanges in case of listed company., Prepare a statement of dividend in respect of each share-holder containing the following details:, (a), , Name and address of the shareholder with ledger folio No., , (c), , Dividend payable., , (b), , No. of shares held., , W.e.f. Assessment year 2021-22, the domestic company isn’t required to pay dividend distribution tax on any, amount declared, distributed or paid by such company by way of dividend. Dividend received from domestic, company is taxable in hands of shareholders., To have sufficient number of dividend warrants printed in consultation with the company’s banker appointed, for the purpose of dividend. To get approval of RBI for printing the warrants with MICR facility. Get the, dividend warrants filled in and signed by the persons authorized by the Board., No RBI approval is required for payment of dividend to shareholders abroad, in case of investment made on, repatriation basis., , Prepare two copies of the list of members with names and addresses only for mailing purposes–one to cut, and paste on envelopes which could even be printed on self sticking labels and the other for securing receipt, from the Post Office., , Where an instrument of transfer has been received by company prior to book closure but transfer of such, shares has not been registered when the dividend warrants were posted, then keep the amount of dividend, in special A/c called “Unpaid Dividend Account” opened unless the registered holder of these shares, authorizes company in writing to pay dividend to the transferee specified in the said instrument of transfer., Dispatch dividend warrants within thirty days of the declaration of dividend. In case of joint shareholders,, dispatch the dividend warrant to the first named shareholder., Send sufficient number of cancelled dividend warrant forms with MICR code allotted by the RBI, to the bank, for circulation to the branches where the dividend warrants will be payable at par., , 21., , Instructions to all the specified branches of the bank that dividend should be paid at par should be sent by the Bank., , 23., , Issue bank drafts and/or cheques to those members who inform that they received the dividend warrants, after the expiry of their currency period or their dividend warrants were lost in transit after satisfying that, the same have not been encashed., , 22., , Publish a Company notice in a newspaper circulating in the district in which the registered office of the, company is situated to the effect that dividend warrants have been posted and advising those members of the, company who do not receive them within a period of fifteen days, to get in touch with the company for, appropriate action (in the case of listed companies, as a good practice).
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Lesson 6 • Distribution of Profits – Dividend, , 24., 25., , 263, , Arrange for transfer of unpaid or unclaimed dividend to a special account named “Unpaid dividend A/c, within 7 days after expiry of the period of 30 days of declaration of final dividend., Confirm the interim dividend in the next Annual General Meeting., , PROCEDURE FOR DECLARATION AND PAYMENT OF FINAL DIVIDEND, , The following steps are required to be taken by a company in respect of declaration and payment of final dividend:, 1., 2., 3., , Issue notice for holding a meeting of the Board of directors of the company to consider the matter. It must, contain time, date and venue of the meeting and details of the business to be transacted there at and must be, sent to all the directors for the time being in India and to all other directors, at their usual address in India., , In case of listed companies notify stock exchange(s) where the securities of the company are listed, at least 2, working days in advance of the date of the meeting of its Board of Directors at which the recommendation of, final dividend is to be considered. [Regulation 29 of SEBI (Listing Obligation and Disclosure Requirements), Regulations, 2015]., Hold Board meeting for the purpose of passing the following resolutions:, (a), , (b), , approving the annual accounts (balance sheet and profit and loss account of the company for the year, ended on 31st March.);, recommending the quantum of final dividend to be declared at the next annual general meeting and, the source of funds for the payment there of, i.e.:, (i), , (ii), , out of profits of the company after providing for depreciation for the current financial year and, also for earlier years, if not already provided and amount to be transferred from the current, profits to reserves; or, out of reserves in accordance with the provisions of Rule 3 of the Companies (Declaration and, Payment of Dividend), Rules, 2014., , (c), , fixing time, date and venue for holding the next annual general meeting of the company, inter alia, for, declaration of dividend recommended by the Board;, , (e), , determining the date of closure of the register of members and the share transfer register of the, company as per requirements of Section 91 of the Companies Act and SEBI (LODR) Regulations, 2015, (in the case of listed companies) signed by the company with the stock exchanges where the securities, of the company are listed. In the case of listed companies, the date of commencement of closure of the, transfer books should not be on a day following a holiday. The dates so fixed should also not clash with, the clearance programme in the stock exchanges. It is advisable to consult in advance the regional, stock exchange and then fix the dates for closure of books., , (d), , approving notice for the annual general meeting and authorizing the company secretary or any, competent person if company does not have a company secretary to issue the notice of the AGM on, behalf of the Board of directors of the company to all the members, directors and auditors of the, company and other persons entitled to receive the same., , 5., , The company may transfer to reserves such percentage as it consider appropriate of the current profits., , 7., , Publish notice of book closure in a newspaper circulating in the district in which the registered office of the, company is situated at least seven days before the date of commencement of book closure., , 6., , In case of a listed company, immediately within 30 minutes of the conclusion of the Board meeting, intimate, the stock exchanges with regard to the Board’s decision about declaration and payment of dividend and the, amounts appropriated from reserves, capital profits, accumulated profits of past years or other special source, to provide wholly or partly for the dividend [Regulations 29 and 30 of SEBI (Listing Obligation and Disclosure, Requirements) Regulations, 2015], In case of listed companies:, (i), , To give notice in advance of at least 7 working days (excluding the date of intimation and the record, date) or as many days as the stock exchange may prescribe, before the closure of transfer books or
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264, , , , Lesson 6 • EP-CL, , record date, specifying the purpose of Record Date [Regulation 42 of the SEBI (Listing Obligation and, Disclosure Requirements) Regulations, 2015]., , 8., 9., , (ii), , The company shall recommend or declare all dividend at least five working days (excluding the date of, intimation and the record date) before the record date fixed for the purpose., Time gap between two book closures would be at least 30 days [Regulation 42(4) of SEBI (Listing, Obligation and Disclosure Requirements) Regulations, 2015]., , To declare and disclose the dividend on per share basis only. The listed entity shall not forfeit unclaimed, dividends before the claim becomes barred by law and such forfeiture of effected, shall be annulled in, appropriate cases. (Regulation 43 of Listing Regulations read with section 51 of Companies Act, 2013)., , Regulation 43A of SEBI (LODR) Listing Regulation provided that the top 1000 listed entities based on market, capitalization (calculated as on March 31 of every financial year) shall formulate a dividend distribution, policy which shall be disclosed on the website & web link shall be provided in their annual reports and on, their websites. The dividend distribution policy shall include the following parameters:, (a), , the circumstances under which the shareholders of the listed entities may or may not expect dividend;, , (c), , internal and external factors that shall be considered for declaration of dividend;, , (b), , (d), (e), , the financial parameters that shall be considered while declaring dividend;, policy as to how the retained earnings shall be utilized; and, , parameters that shall be adopted with regard to various classes of shares:, , Provided that if the listed entity proposes to declare dividend on the basis of parameters in addition to clauses, (a) to (e) or proposes to change such additional parameters or the dividend distribution policy contained in, any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report, and on its website., 10., 11., 12., , 13., , The listed entities other than top 1000 listed entities based on market capitalization may disclose their, dividend distribution policies on a voluntary basis in their annual reports and on their websites & provide, web link in their annual report., Close the register of members and the share transfer register of the company., , The amount of dividend as recommended by the Board of directors shall be shown in the Directors’ Report, as appropriation of profits for the financial year to which the Report relates. The same amount is shown in, the Balance Sheet as at the end of the related financial year as “Proposed Dividend” under the head “Current, Liabilities & Provisions”, Sub-head “Provisions”., , Hold a Board/committee meeting for approving registration of transfer/transmission of the shares of the, company, which have been lodged with the company prior to the commencement of book closure. In, compliance with the Board resolution, register transfer/transmission of shares lodged with the company, prior to the date of commencement of the closure of the register of members and mail the share certificates, to the transferees after endorsing the shares in their names., , Hold the annual general meeting and pass an ordinary resolution declaring the payment of dividend to the, shareholders of the company as per recommendation of the Board. The shareholders cannot declare the final, dividend at a rate higher than the one recommended by the Board. However, they may declare the final dividend, at a rate lower than the one recommended by the Board. The following should be noted in this regard:, (a), , (b), , Once a company has declared a dividend for a financial year at an annual general meeting, it cannot, declare further dividend at an extraordinary general meeting in relation to the same financial year; it, is beyond the powers of the company to do so, although the Companies Act does not prohibit the, declaration of a dividend at a general meeting other than an annual general meeting., , Pro-rata means in proportion or proportionately, according to a certain rate. It denotes a method of, dividing something between a number of participants in proportion to some factor. The profits of a
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Lesson 6 • Distribution of Profits – Dividend, , (c), (d), 14., , 15., 16., 17., 18., , 19., 20., 21., 22., , 23., 24., 25., , 265, , company are shared, pro rata, among the shareholders, i.e. in proportion to the number of shares each, shareholder holds., In the case of preference shares, dividend is always paid at a fixed rate. However, in the case of equity, shares, a dividend must be declared and paid according to the amounts paid or credited as paid on the, shares, i.e., according to the paid-up value of the shares., , All dividends shall be apportioned and paid proportionately to the amounts paid or credited as paid on, the shares during any portion or portions of the period in respect of which the dividend is paid; but if, any share is issued on terms providing that it shall rank for dividend as from a particular date such, share shall rank for dividend accordingly. [Schedule I, Table F, Article 83(3)]., , Prepare a statement of dividend in respect of each shareholder containing the following details:, (a), , (b), (c), , Name and address of the shareholder with ledger folio no., No. of shares held., Dividend payable., , W.e.f. Assessment year 2021-22, the domestic company isn’t required to pay dividend distribution tax on any, amount declared, distributed or paid by such company by way of dividend. Dividend received from domestic, company is taxable in hands of shareholders., Round off the amount of interim dividend to the nearest rupee and where such amount contains part of a, rupee consisting of paise then if such part is fifty paise or more it should be increased to one rupee and if such, part is less than fifty paise it should be ignored., Open a separate bank account for making dividend payment and credit the said bank account with the total, amount of dividend payable within five days of declaration of dividend., , If the company is listed, then for payment of dividend it has to mandatorily use, either directly or through its, Registrars to an Issue and Share Transfer Agent (RTI & STA), any RBI (Reserve Bank of India) approved, electronic mode of payment such as Electronic Clearing Services (ECS) [LECS (Local ECS)/ RECS (Regional, ECS)/NECS (National ECS)], National Electronic Fund Transfer (NEFT), etc. In order to enable usage of, electronic payment instruments, the company (or its RTI & STA) shall maintain requisite bank details of its, investors as per SEBI Circular No. CIR/MRD/DP/10/2013 dated March 21, 2013 in the manner as stated, aforesaid under the procedure for declaration and payment of interim dividend., To have sufficient number of dividend warrants printed in consultation with the company’s banker appointed, for the purpose of dividend. To get approval of the RBI for printing the warrants with MICR facility. Get the, dividend warrants filled in and signed by the persons authorized by the Board., No RBI approval required for payment of dividend to shareholders abroad, in case of investment made on, repatriation basis., , Prepare two copies of the list of members with names and addresses only for mailing purposes–one to cut, and paste on envelopes which could even be printed on self sticking labels and the other for securing receipt, from the Post Office., , Where an instrument of transfer has been received by company prior to book closure but transfer of such, shares has not been registered when the dividend warrants were posted, then keep the amount of dividend, in special A/c called “Unpaid Dividend Account” unless the registered holder of these shares, authorizes, company in writing to pay dividend to the transferee specified in the said instrument of transfer. (Section 126, of Companies Act, 2013), Dispatch dividend warrants within thirty days of the declaration of dividend. In case of joint shareholders,, dispatch the dividend warrant to the first named shareholder., Send sufficient number of cancelled dividend warrant forms with MICR code allotted by the RBI, to the bank, or circulation to the branches where the dividend warrants will be payable at par., , Instructions to all the specified branches of the bank that dividend should be paid at par should be sent by the, Bank.
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266, , 26., 27., 28., , Lesson 6 • EP-CL, , , , Publish a Company notice in a newspaper circulating in the district in which the registered office of the, company is situated to the effect that dividend warrants have been posted and advising those members of the, company who do not receive them within a period of fifteen days, to get in touch with the company for, appropriate action (in the case of listed companies, as a good practice)., Issue bank drafts and/or cheques to those members who inform that they received the dividend warrants, after the expiry of their currency period or their dividend warrants were lost in transit after satisfying that, the same have not been encashed., Arrange for transfer of unpaid or unclaimed dividend to a special account named “Unpaid dividend A/c”within, 7 days after expiry of the period of 30 days of declaration of final dividend., , PROCEDURE FOR DECLARATION OF DIVIDEND OUT OF RESERVES, , The procedure is as follows:, (1), , (2), (3), (4), (5), (6), (7), (8), (9), , Give notice to all the directors of the company for holding a Board meeting. In the meeting, take decision to, declare dividend out of company’s reserves because of inadequacy or absence of profits and also fix the date,, time and place of the Annual General Meeting. Authorise the Company Secretary or any competent person if, company does not have a company secretary to issue the notice of the AGM on behalf of the Board of directors, of the company to all the members, directors and auditors of the company and other persons entitled to, receive the same., Ensure that the Companies (Declaration and Payment of Dividend), Rules 2014 are complied with., While calculating the profits of the previous years, take only the net profit after tax., , Ensure that while computing the amount of profits, the amount transferred from the Development Rebate, Reserve is included and all items of capital reserves including reserves created by revaluation of assets are, excluded., , In the case of listed companies, inform the Stock Exchange with which the shares of the company are listed, within 30 minutes of closure of Board meeting about decision to recommend declaration of dividend out of, Company’s Reserves. [Regulation 30 of SEBI (LODR) Regulations, 2015]., Issue notices in writing at least 21 days before the date of the Annual General Meeting and hold the meeting, and pass the necessary resolution., In the case of listed companies, forward copies of the notice and a copy of the proceeding of the general, meeting to the Stock Exchange., Open a separate bank account for making dividend payment and credit the said bank account with the total, amount of dividend payable within five days of declaration of dividend., , Issue dividend warrants within 30 days from the date of declaration of dividend. Rest of the procedural steps, are same as in case of payment of final dividend., , ANNEXURES, ANNEXURE-I, SPECIMEN BOARD RESOLUTION FOR DECLARATION OF INTERIM DIVIDEND ON EQUITY SHARES, "RESOLVED THAT in accordance with the provisions of Section 123 and other applicable provisions, if any, of the, Companies Act, 2013 and the Companies (Declaration and Payment of Dividend) Rules, 2014, an interim dividend, of Rs. 2/- (Rupees Two Only) per equity share on each fully paid. no. of equity shares of Rs.10/-(Rupees Ten) each, of the Company amounting to Rs...........[Rupees (in words)] be paid out of the profits of the Company for the half year, ended..............20.. to those members of the Company whose names would appear on the register of members of the, company on the................day of.............., 20...", "RESOLVED FURTHER THAT a bank account to be designated as “Interim Equity Dividend (20..) Account of
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Lesson 6 • Distribution of Profits – Dividend, , 267, , ..........................Limited” be opened in the name of the Company with..............Bank at its Branch at................ and a sum of, Rs. [Rupees (in words)], being the total interim dividend amount, be deposited in the said account within five days.", "RESOLVED FURTHER THAT Shri........................................., Managing Director and Shri..............................., the Company, Secretary be and are hereby authorized to open the bank account by signing the account opening form and by, furnishing to the said bank the required papers, documents, information etc. and completing all other required, formalities for the purpose of opening the bank account and to make arrangements with the said bank for the, payment at par, of the interim dividend within thirty days from the date of this resolution.", , "RESOLVED FURTHER THAT Shri..................................., Managing director and Shri......................................., Company, Secretary of the company for the time being, be and are hereby authorized to jointly sign the dividend warrants to, be issued on the said bank and the said bank be and is hereby authorized to honour the interim dividend warrants, jointly signed by the said authorised signatories, as and when presented for encashment.", , ANNEXURE-II, SPECIMEN BOARD RESOLUTION FOR DECLARING INTERIM DIVIDEND ON PREFERENCE SHARES, “RESOLVED THAT in accordance with the provisions of Section 123 and other applicable provisions, if any, of the, Companies Act, 2013 and the Companies (Declaration and Payment of Dividend) Rules, 2014, dividend at the fixed, rate of 8 per cent per annum on the (no. of shares) cumulative redeemable preference shares of Rs.100 each of the, company, for the six months commencing from July 1, .........20.. and ending on December 31, .........20.. aggregating, Rs., [Rupees (in words)], be paid to the registered holders thereof whose names would appear on the register, of holders of the said shares on the...................20.., the date of commencement of the closure of the share transfer, books of the company.", "RESOLVED FURTHER THAT a bank account to be designated as “Interim Preference Dividend (20..) Account, of................Limited” be opened in the name of the company with...............Bank at its Branch at. and a sum of Rs., [Rupees (in words)], being the total interim dividend amount, be deposited in the said account within five days.", , "RESOLVED FURTHER THAT Shri...................., Managing Director and the Company Secretary, Shri., be and is hereby, authorized to open the bank account by signing the account opening form and by furnishing to the said bank the, required papers, documents, information etc. and completing all other required formalities for the purpose of, opening the bank account and to make arrangements with the said bank for the payment at par, of the interim, dividend within 30 days from the date of this resolution.", , "RESOLVED FURTHER THAT Shri.............., Managing director and Shri.........., Company Secretary of the Company for, the time being, be and are hereby authorised to jointly sign the dividend warrants to be issued on the said bank and, the said bank be and is hereby authorized to honour the interim dividend warrants jointly signed by the said, authorized signatories, as and when presented for encashment.”, Name of Company:........................ Registered Office:........................, , ANNEXURE-III, NOTICE OF BOOK CLOSURE, Notice, Pursuant to Section 91 of the Companies Act, 2013 and Regulation 42 of the SEBI(LODR) Regulations, 2015, notice, is hereby given that the register of members and the share transfer register of the company will remain closed, for, the purpose of payment of interim dividend/final dividend, from (Day), the...........th day of.................(month),, ................20.. to (Day), the.............th day of............(month) ...... 20.. (both days inclusive)., Members of the company are requested to intimate to the Company at its registered office above, their latest postal, addresses, where the dividend warrants may be sent by the Company.
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268, , , , Lesson 6 • EP-CL, , Place: For Limited, , Date:.......................(. ), , Company Secretary, , Note for publication, , Messrs. Advertising Agents,, , Please arrange for the publication of the above company notice in the earliest editions of. , English daily newspaper, and.........................., Hindi daily newspaper, not later than the.........th day of.......... , 2018. Kindly ensure that the Hindi, newspaper must carry the notice in Hindi language after it is appropriately translated into Hindi., For Limited, , Dated…….. (… ), , ANNEXURE-IV, , Company Secretary, , SPECIMEN OF BOARD RESOLUTION RECOMMENDING PAYMENT OF DIVIDEND ON EQUITY SHARES OUT OF, CURRENT PROFITS, “RESOLVED THAT in accordance with the provisions of Section 123 and other applicable provisions, if any, of the, Companies Act, 2013 and the Companies (Declaration and Payment of Dividend) Rules, 2014, the Board of directors, of the Company do hereby recommend a dividend at the rate of ............. per cent(Rs. per equity share) out of the, current profits of the Company for the year ended on 31st March 20.. on the. fully paid equity shares of the company, absorbing Rs. ..............out of the profits and that, subject to the declaration by the members of the Company at the, ensuing Annual General Meeting, such dividend be paid to the registered holders of the equity shares whose names, would appear on the register of members on............20.., being the record date for payment of Dividend.”, , ANNEXURE-V, , SPECIMEN EXTRACTS OF MINUTES CONTAINING THE BOARD RESOLUTION FOR RECOMMENDING, DECLARATION OF DIVIDEND OUT OF RESERVES, The Chairman informed the meeting that the profits of the current year, i.e. the financial year ended on the 31st, March, 20.. are inadequate for payment of a reasonable amount of dividend to the members of the company., He further informed that the free reserves of the company do, however, permit the distribution of dividend not, exceed the average of the rates at which dividend was declared by it in the three years immediately preceding that, year., The directors considered the matter and passed the following resolution:, , “RESOLVED THAT in accordance with the provisions of Section 123 and other applicable provisions, if any, of the, Companies Act, 2013 and the Companies (Declaration and Payment of Dividend) Rules, 2014, the Board of directors, of the Company do hereby recommend to the members of the Company, the declaration and payment of a dividend, at the rate of ten per cent on all the fully paid equity shares of the Company out of the free reserves of the Company, that stood in the books of the Company on. ………20.. absorbing a total……..of`…….. , with due compliance of the, Companies (Declaration and Payment of Dividend) Rules, 2014, and that, subject to the declaration by the members, at the forthcoming Annual General Meeting, to the holders of the equity shares whose names will appear on the, register of members on...........20.. being the record date for payment of Dividend.”
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269, , Lesson 6 • Distribution of Profits – Dividend, , LESSON ROUND-UP, •, , Under Section 2(35) of the Companies Act, 2013, ‘dividend’ includes any interim dividend., , •, , Final Dividend means a Dividend declared at the Annual General Meeting of the company., , •, •, •, •, •, •, •, •, •, , Dividend is the share of the company’s profit distributed among the members., , The Board may declare interim dividend during any financial year out of the surplus in the Profit and Loss, Account at any time between two AGM of the company., In case of inadequacy of profits the company can declare the dividend with accordance with the Rule 3 of, Companies (Declaration and Payment of Dividend) Rules 2014., The amount of dividend shall be deposited in a schedule bank in a separate account within 5 days from, the date of declaration., , Dividend may be paid by cheque or warrant or in any electronic mode to the shareholders entitled to the, payment of dividend., Where the dividend is not paid or claimed within 30 days, the company shall, within 7 days transfer the, amount to Unpaid Dividend Account which shall be opened in a scheduled bank., In case of any default in transferring the amount, the company shall be liable to pay interest on the amount, as has not been transferred., , The amount remaining unpaid/unclaimed along with interest accrued thereon for 7 years and the shares, shall be transferred to Investor Education and Protection Fund., In case any dividend is paid or claimed for any year during the said period of seven consecutive years, the, shares shall not be transferred to the Investor Education and Protection Fund., , GLOSSARY, Divisible Profit, Dividend, Interim Dividend, Final Dividend, Book Closure, Demat Account, , Dividend Warrant, , Profit or a portion of profit that can be legally distributed as a dividend to the shareholders, is known as Divisible Profit., A dividend is a distribution of a portion of a company’s earnings, decided by the board of, directors, to a class of its shareholders., Dividend declared in between two Annual General Meetings., , Dividend recommended by the Board of Directors and declared by the members at an, Annual General Meeting, , Register of Members or other security holders are closed for the purpose of dividend, distribution (See section 91 of the Companies Act,2013), A Demat Account is an account that allows investors to hold their shares in an electronic, form. Stocks in Demat account remain in dematerialized form. Dematerialization is the, process of converting physical shares into electronic format., An order of payment (such as a cheque payable to a shareholder) in which a dividend is paid.
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270, , Lesson 6 • EP-CL, , , , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., 2., 3., 4., 5., , 6., , Define the term ‘Dividend’. State briefly the provisions related to declaration of dividend under the, Companies Act 2013., State the procedure for transfer of unpaid or unclaimed dividend to the Investor Education and Protection, Fund. Explain the law relating to declaration and payment of Final Dividend?, While adopting accounts for the year, the Board of directors of Prima Ltd. decided to consider the interim, dividend @ 12% as final dividend and did not consider transfer of profit to reserves. Explain whether, decisions of the Board were justified referring to relevant provisions., Distinguish between ‘Interim Dividend’ and ‘Final Dividend’., Write short notes on the following:(i), Investor Education and Protection Fund (IEPF)., (ii), , Punishment of failure to distribute dividend, , (b), , to declare the interim dividend on Preference Shares., , (2), , The company is a defaulter in the repayment of deposits and proposes to repay its all deposit after the, payment of dividend within 10 days., , Draft a resolution:, (a), to declare the interim dividend on Equity Shares., (c), , To recommend payment of dividend on Equity Shares out of reserves., , The Board of Directors of Peculiar Ltd. proposes to recommend a final dividend of Rs. 25 each to all the, equity shareholders of the company. The company seeks your opinion on the following :, (1) The company wants to deposit the dividend amount to co-operative bank., (3), (4), , Dividend will be declared out of the capital reserves of the company., , The company wants to pay such dividend through the cash counter by way of cash voucher., , LIST, LISTOF, OFFURTHER, FURTHER READINGS, READINGS, •, •, , Bare Act- The Companies Act, 2013, Secretarial Standard (SS-3), , OTHER REFERENCES (Including Websites/Video Links), •, •, , http://www.iepf.gov.in/, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Corporate, Social Responsibility, , Lesson 7, Key Concepts One, Should Know, •, •, •, •, •, •, , Corporate Social, Responsibility, CSR Committees, CSR Activities, Philanthropy, Impact, Assessment, , Annual Action, Plan, , Learning Objectives, To understand:, •, •, •, •, •, •, , Origin of “CSR”, , Regulatory, Framework, The Companies Act, 2013, , Legal provisions of the, Companies Act, 2013 and, rules made thereunder,, related to CSR, , •, , Section 135- Corporate, Social Responsibility, , CSR Expenditure, , •, , Rule 2-10, , Formation of CSR, Committee, CSR Activities, , Disclosure Requirements, , The Companies (Corporate, Social Responsibility Policy), Rules, 2014, Schedule VII of the Companies, Act, 2013- CSR Activities, , Lesson Outline, •, , Origin of CSR, , •, , CSR Implementation, , •, •, •, •, •, •, •, •, •, •, •, •, , CSR under the Companies Act, 2013, CSR Activities of Company, CSR Expenditure, , Computation of Net Profits, Disclosure Requirements, , Consequences of Non- Compliance, CSR portal, , LESSON ROUND UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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272, , , , INTRODUCTION, , Lesson 7 • EP-CL, , Meaning & definition of Corporate Social Responsibility:, CSR is a concept whereby companies not only consider their profitability and growth, but also the interests of, society and the environment by taking responsibility for the impact of their activities on stakeholders, environment,, consumers, employees, communities, and all other members in the public sphere. The basic premise is that when, the corporations get bigger in size, apart from the economic responsibility of earning profits, there are many other, responsibilities attached to them which are more of non-financial/social in nature. These are the expectations of, the society from the corporates to give something in return to the society with whose explicit or implicit help these, entities stand where they are., , CSR aims to fulfil expectations that society has of businesses and it is viewed as a comprehensive set of social policies,, practices and programs that are integrated throughout business operations. The concept of CSR has evolved over the, years and now used as strategy and a business opportunity to earn stakeholder goodwill., Corporate Social Responsibility and Corporate, Governance are inseparably intertwined. In the, recent scenario, there is a growing perception, among enterprises that sustainable business, success and shareholder value cannot be achieved, solely through maximizing short-term profits, but, instead through market-oriented and responsible, behavior. Companies are aware that they can, contribute to sustainable development by managing, their operations in such a way as to enhance, economic growth and increase competitiveness, whilst ensuring environmental protection and, promoting social responsibility, including consumer, interests., The United Nations Industrial Development, Organisation (UNIDO) puts forward the following, definition of Corporate Social Responsibility, (CSR) –, , "Corporate Social Responsibility is a, management concept whereby companies, integrate social and environmental concerns, in their business operations and interactions, with their stakeholders. CSR is generally, understood as being the way through which a, company achieves a balance of economic,, environmental and social imperatives (“TripleBottom-Line Approach"), while at the same, time addressing the expectations of, shareholders and stakeholders.", , Shri., Mohandas, Karamchand, Gandhi, advocated, the, "Trusteeship Concept",, saying that one holds, large wealth only as a, trustee of the society.
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273, , Lesson 7 • Corporate Social Responsibility, , Concept & Evolution of CSR, , The term CSR was coined in the 20th century. It has evolved from the long history of the industrial revolution, the, period that depicts the labor movement, the creation of the business enterprise and the years of perfecting Corporate, Giving as a power to do good for the society. To look at CSR as a much deeper process of evolving solutions to, societal concerns and be proactive about the future, would involve exploring the possibility of how institutions, could cultivate practices that will serve as a constant reminder to putting a “human purpose” to any endeavor., , All ideas on “Giving” have their roots in the virtues and forms of re-distributing wealth. Triggered by religious as, well as humanistic moral codes, “Giving back” has assumed several creative and cultural forms., The concept of Corporate Social Responsibility has evolved during last few decades from simple philanthropic, activities to integrating the interest of the business with that of the communities in which it operates. By exhibiting, socially, environmentally and ethically responsible behavior in governance of its operations, the business can, generate value and long term sustainability for itself while making positive contribution in the betterment of the, society., , Sustainability, , Similar examples resembling the idea of present day corporate social responsibility came from different sociological, settings of each era to influence the way businesses adopted a more considerate and responsible behavior., Businesses conducted these activities through specially dedicated charities or foundations and it developed to what, we today have by way of charity work, philanthropy, welfare programs and recently under connotations of social, responsibility., , t, , ofi, r, P, , Strategic, Giving, , Evolution, of CSR, from profit to, sustainability, Increasing, integration with, business process Phil, an, , thr, op, y, , Co, Pa mmu, r, t, ne nity, r, s, h, ip, , ity, un t, mm en, Co estm, Inv
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274, , , , The Indian Scenario, , Lesson 7 • EP-CL, , The philosophy of giving back to the society has been an integral part of the culture, which has also been imbibed in, traditional Indian businesses since time immemorial. India’s ancient wisdom, which is still relevant today, inspires, people to work for the larger objective of the well-being of all stakeholders. These sound and all-encompassing, values are even more relevant in current times, as organizations grapple with the challenges of modern-day, enterprise, the aspirations of stakeholders and of citizens eager to be active participants in economic growth and, development., , Indian business has traditionally been socially responsible and some of the business houses have demonstrated, their efforts on this front in a laudable manner. However, the culture of social responsibility needs to go deeper in, the governance of all business entities., In order to integrate CSR into the core business philosophy, the Government has obligated companies, those meeting, certain threshold in terms of turnover, net worth or net profit to set apart two per cent of their net profit for CSR, activities., Factors influencing CSR, , Many factors and influences, including the following, have led to increasing attention being devoted to CSR:, (i), , (ii), (iii), (iv), (v), , (vi), , Globalization coupled with focus on cross border trade, multinational enterprises and global supply chains is, increasingly raising CSR concerns related to human resource management practices, environmental, protection, and health and safety, among other things., , Governments and regulatory bodies, legal prescription, international organisations such as the United, Nations, the Organisation for Economic Co-operation and Development and the International Labour, Organization have developed compacts, declarations, guidelines, principles and other instruments that, outline social norms for acceptable conduct., , Advances in communications technology, such as the Internet, cellular phones and personal digital assistants,, are making it easier to track corporate activities and disseminate information about them. Non-governmental, organizations now regularly draw attention through their websites to business practices they view as, problematic., Consumers and investors responsible business practices and are demanding more information on how, companies are addressing risks and opportunities related to social and environmental issues., , Breaches of corporate ethics have contributed to elevated public mistrust of corporations and highlighted the, need for improved corporate governance, transparency, accountability and ethical standards. There is, increasing awareness, Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business disruptions,, open up new opportunities, and enhance brand and company reputation., , The importance of inclusive growth is widely recognized as an essential part of India’s quest for development. It, reiterates the commitment to include those sections of the society in the growth process, which had hitherto, remained excluded from the mainstream of development., , CSR under Indian Legislation, , The importance of inclusive growth is widely recognized as an essential part of India's quest for development. It, reiterates the commitment to include those sections of the society in the growth process, which had hitherto, remained excluded from the mainstream of development., , In line with this national endeavor, Corporate Social Responsibility (CSR) was conceived as an instrument for, integrating social, environmental and human development concerns in the entire value chain of corporate business., The Ministry of Corporate Affairs has been taking various initiatives for ensuring responsible business conduct by, companies. As a first step towards mainstreaming the concept of business responsibility, the ‘Voluntary Guidelines
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Lesson 7 • Corporate Social Responsibility, , 275, , on Corporate Social Responsibility’ were issued in 2009. These guidelines were subsequently revised as ‘National, Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011 (NVGS)’ after, extensive consultations with business, academia, civil society organisations and the government. The NVGs were, developed based on India’s socio-cultural context and priorities as well as global best practices., , There have been various national and international developments in the past decade that have nudged businesses, to be sustainable and more responsible, prior most being the United Nations Guiding Principles on Business &, Human Rights (UNGPs). These became the key drivers for further revision of the guidelines. Some of these include, the thrust of Companies Act, 2013 on businesses to be more mindful of their stakeholders. The Act casts fiduciary, duties on the Directors of a Company (Section. 166) requiring them to promote the objects of the company for the, benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the, community and for the protection of environment. There was also a need to demonstrate more visibly India’s, implementation of the UNGPs based on UNHRC’s ‘Protect, Respect & Remedy’ Framework and also make evident, India’s commitment to Sustainable Development Goals (SDGs)., The National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011, (NVGs) have been revised by the MCA and formulated the National Guidelines on Responsible Business Conduct, (NGRBC) in the year 2019. These guidelines urge businesses to actualise the principles in letter and spirit., These principles are:, 1. , 2., , Businesses should conduct and govern themselves with integrity in a manner that is Ethical, Transparent and, Accountable., Businesses should provide goods and services in a manner that is sustainable and safe, , 3. Businesses should respect and promote the well-being of all employees, including those in their value chains., 4., 5., 6., 7., 8., 9., , Businesses should respect the interests of and be responsive to all their stakeholders., Businesses should respect and promote human rights., , Businesses should respect and make efforts to protect and restore the environment., , Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is, responsible and transparent., Businesses should promote inclusive growth and equitable development., , Businesses should engage with and provide value to their consumers in a responsible manner., , The 21st Report of the Parliamentary Standing Committee on Finance is one of the prime movers for bringing the, CSR provisions within the statute. It was observed by the Standing Committee, that annual statutory disclosures on, CSR required to be made by the companies under the Act would be a sufficient check on non-compliance. Section, 135(4) of the Companies Act 2013 mandates every company qualifying under Section 135(1) to make a statutory, disclosure of CSR in its Annual Report of the Board. Rule 8 of the Companies (Corporate Social Responsibility Policy),, Rules, 2014 prescribes the format in which such disclosure is to be made., SIGNIFICANT MILESTONES IN EVOLUTION OF RESPONSIBLE BUSINESS CONDUCT IN INDIA, , 2009, 2011, 2011, 2012, 2013, 2014, , Corporate Voluntary Guidelines released to encourage corporates to voluntarily achieve high standards, of Corporate Governance., Endorsement of United Nations Guiding Principles on Business & Human Rights by India., , National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, (NVGs) released to mainstream the concept of business responsibility., Securities and Exchange Board of India (SEBI) mandates top 100 listed companies by market, capitalization to file Business Responsibility Reports (BRR) based on NVGs., Enactment of the Companies Act, 2013., , Section 135 of Companies Act, 2013 on Corporate Social Responsibility (CSR) comes in to force.
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276, , 2015, 2015, 2016, 2018, 2018, 2018, 2019, 2019, 2020, , , , Lesson 7 • EP-CL, , High Level Committee on CSR (HLC-2015) under the chairmanship of Shri. Anil Baijal makes, Recommendations on the CSR framework and stakeholder concerns., The SEBI extends BRR reporting to top 500 companies by market capitalization., , The Companies Law Committee reviews the recommendations of HLC-2015 for adoption., , The second High Level Committee on CSR constituted under the Chairmanship of Shri. Injeti Srinivas,, Secretary, Corporate Affairs to review the CSR framework., , Committee on Business Responsibility reporting constituted under the chairmanship of Shri., Gyaneshwar Kumar Singh, Joint Secretary, Corporate Affairs., Zero Draft of National Action Plan on Business and Human Rights released by Ministry of Corporate, Affairs., National Guidelines on Responsible Business Conduct released., , The Companies (Amendment) Act, 2019 amended the CSR provisions., , The CSR (Amendment) Rules, 2021 and the Companies (Amendment) Act, 2020 has decriminalised, and brought a revolutionary changes in the CSR provisions., , Source: Report of the High Level Committee on Corporate Social Responsibility, 2018, CSR under the Companies Act, 2013, , The Companies Act, 2013 is a legislation which officially embarked on one of the world’s largest experiments of, introducing the concept of CSR as a mandatory provision. The inclusion of CSR is an attempt by the government to, engage the businesses with the national development agenda. With the introduction of new Act, there is a statutory, obligation for the corporates to take initiatives towards Social, Environmental and Economic Responsibilities., Applicability, , As per section 135(1) of the Companies Act 2013, the CSR provision is applicable to companies which fulfills any of, the following criteria during the immediately preceding financial year:•, •, •, , Companies having net worth of Rs. 500 crore or more; or, , Companies having turnover of Rs. 1000 crore or more; or, Companies having a net profit of Rs. 5 crore or more., , The Companies (Corporate Social Responsibility Policy) Rules, 2014 have widen the ambit for compliance, obligations to include the holding and subsidiary companies as well as foreign companies whose branches or, project offices in India which fulfills the criteria specified above., , According to the Rule 3 of the CSR Rules, the CSR provision will also be applicable to every company including its, holding or subsidiary, and a foreign company having its branch office or project office in India having net worth of, Rs. 500 crore or more, or turnover of Rs. 1000 crore or more or a net profit of Rs. 5 crore or more during the, immediately preceding financial year., Whether a holding or subsidiary of a company fulfilling the criteria under section 135(1) has to comply, with the provisions of section 135, even if the holding and subsidiary itself does not fulfill the criteria?, , Applicability of provisions of Section 135 of the Act is company specific. Hence, every company whether holding, or subsidiary satisfying the prescribed criteria shall comply with the provisions. By mere relationship between, two companies as Holding and Subsidiary, shall not extend the applicable provisions to the other company., , A Holding or subsidiary of a company falling within the ambit of section 135 of the Act, is not required to comply, with section 135(1) unless the holding or subsidiary, as the case may be, itself fulfills the criteria [General, Circular No. 1/2016 dated 12th January, 2016].
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277, , Lesson 7 • Corporate Social Responsibility, , For example: Company A is covered under the criteria mentioned in section 135. Company B is holding company, of company A. Since, Company B by itself does not satisfy any of the criteria mentioned in section 135, therefore, Company B is not required to comply with the provisions of section 135., If a company has not completed the period of three financial years since incorporation, is it required to, comply with the CSR provisions?, , As per the provisions of section 135(5), if the Company has not completed the period of three financial years since, incorporation, but it satisfies any of the criteria mentioned in section 135(1), then it has to comply with CSR provisions., The Company will be required to constitute a CSR committee and comply with other requirements of section 135, including spending of at least two percent of the average net profits of the company made during such immediately, preceding financial years since the date of incorporation., Source-ICSI FAQ on CSR, , Companies falling under CSR preview, Every company (including Foreign Company) having, , Net worth of, Rs. 500 Cr. or more, , Or Turnover of, Rs. 1000 Cr. or more, , Or Net Profit of, Rs. 5 Cr. or more, , During immediately, preceding Financial Year, , Needs to constitute CSR Committee, Where the amount to be spent by a company under Section 135 (5) of the Companies Act, 2013 does not exceed Rs., 50 Lakh, the requirement under Section 135 (1) for constitution of the Corporate Social Responsibility Committee, shall not be applicable and the functions of such Committee provided under this section shall, in such cases, be, discharged by the Board of Directors of such company. [Inserted by the Companies (Amendment) Act, 2020., Notification dated 28th September, 2020; Effective from 22nd January 2021.], , Cessation [Rule 3 of the CSR Rules, 2014], , Rule 3 of the CSR Rules, 2014 specify that every company which ceases to be a company covered under sub-section, (1) of section 135 of the Act for three consecutive financial years shall not be required to:, a), , b), , constitute a CSR Committee; and, , comply with the provisions contained in [sub-section (2) to (6)] of Section 135, , till such time it meets the criteria specified in sub-section (1) of section 135., , Thus, company which does not satisfy the specified criteria for a consecutive period of three financial years is not, required to comply with the CSR obligations, implying that a company not satisfying any of the specified criteria in
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278, , Lesson 7 • EP-CL, , , , a subsequent financial year would still need to undertake CSR activities unless it ceases to satisfy the specified, criteria for a continuous period of three years., Important Definitions under CSR [Rule 2 of the CSR Rules, 2014, [Amended by the Companies (Corporate, Social Responsibility Policy) Amendment Rules, 2021], , •, , •, , “Administrative overheads” means the expenses incurred by the company for ‘general management and, administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses, directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate, Social Responsibility project or programme;, , “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its, statutory obligation laid down in section 135 of the Act in accordance with the provisions contained in these, rules, but shall not include the following, namely:-, , (i), , activities undertaken in pursuance of normal course of business of the company., , However, any company engaged in research and development activity of new vaccine, drugs and, medical devices in their normal course of business may undertake research and development activity, of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22,, 2022-23 subject to the conditions that-, , (a), (ii), , (iii), (iv), (v), , (vi), , (b), , such research and development activities shall be carried out in collaboration with any of the, institutes or organisations mentioned in item (ix) of Schedule VII to the Act;, , details of such activity shall be disclosed separately in the Annual report on CSR included in the, Board’s Report;, , any activity undertaken by the company outside India except for training of Indian sports personnel, representing any State or Union territory at national level or India at international level;, contribution of any amount directly or indirectly to any political party under section 182 of the Act;, , activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on, Wages, 2019 (29 of 2019);, activities supported by the companies on sponsorship basis for deriving marketing benefits for its, products or services;, activities carried out for fulfilment of any other statutory obligations under any law in force in India.
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•, •, •, •, , 279, , Lesson 7 • Corporate Social Responsibility, , “CSR Committee” means the Corporate Social Responsibility Committee of the Board referred to in section, 135 of the Act;, , “CSR Policy” means a statement containing the approach and direction given by the board of a company,, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection,, implementation and monitoring of activities as well as formulation of the annual action plan;, “International Organisation” means an organisation notified by the Central Government as an international, organisation under section 3 of the United Nations (Privileges and Immunities) Act, 1947 (46 of 1947), to, which the provisions of the Schedule to the said Act apply;, , “Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its CSR obligation, having timelines not exceeding three years excluding the financial year in which it was commenced, and, shall include such project that was initially not approved as a multi-year project but whose duration has, been extended beyond one year by the board based on reasonable justification., , Multi year Project undertaken by a, company, , In fulfillment of CSR obligation, , Ongoing Project, , Timeline not exceeding 3 years, Excluding the financial in which it was, commenced, , Include project that was initially not, approved as a multi-year project but, whose duration has been extended, beyond 1 year by the board based on, reasonable justification, , Does the term ‘ongoing project’ mean projects involving capital assets like Building, Hospital and, any other Infrastructure related CSR Project which generally takes more than a year to complete?, Ongoing project has been defined under Rule 2(i) of the amended Rules so as to mean a multi-year project, undertaken by a company in fulfilment of its CSR obligation having timelines not exceeding three years excluding, the financial year in which it was commenced and shall include such project that was initially not approved as a, multi-year project but whose duration has been extended beyond one year by the board based on reasonable, justification., Such ongoing project may or may not involve capital assets or development of any other infrastructure., Source-ICSI FAQ on CSR, •, , “Public Authority” means ‘Public Authority’ as defined in clause (h) of section 2 of the Right to Information, Act, 2005., , CSR Committee, , Companies that trigger any of the aforesaid conditions must constitute a Corporate Social Responsibility Committee, of the Board to formulate and monitor the CSR policy of a company. Section 135(1) of the Act requires the CSR Committee, to consist of three directors or more, including atleast one independent director.
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280, , , , Lesson 7 • EP-CL, , Where a company is not required to appoint an independent director under sub-section (4) of section 149, it shall, have in its Corporate Social Responsibility Committee two or more directors., , Rule 5 of CSR Rules, 2014 further state that, where a private company has only two directors on the Board, the CSR, Committee can be constituted with these two directors., , The CSR Committee of a foreign company shall comprise of at least two persons of which one person should be, resident in India and the other person nominated by the foreign company., The Board’s report shall disclose the composition of the Corporate Social Responsibility Committee., Do you know?, , Brave Ltd. is listed at Bombay Stock Exchange and has a net worth of over 600 crore. The company has constituted, a corporate social responsibility (CSR) committee with Jay and Vijay as its members. Both Jay and Vijay are, directors of the company, Jay being an independent director., Explaining the provisions of the Companies Act, 2013 relating to ‘corporate social responsibility’, examine, whether the company has complied with the provisions of the Act in this regard?, , The functions of CSR Committee, , The role and responsibilities of the CSR Committee are:, •, •, •, , The CSR Committee, shall formulate CSR, policy and establish, the steps for the, effective, implementation,, maintenance, periodic, review and, improvement of CSR, system, , To formulate and recommend to the Board, a CSR Policy which would indicate the activities to be undertaken, by the company in areas or subject, specified in Schedule VII of the Act., , To recommend the amount of the expenditure to be incurred on the activities undertaken in pursuance of the, CSR policy., To monitor the CSR policy of the company time to time., , {As per Rule 5(2) of the CSR Rules, 2014: The CSR Committee shall formulate and recommend to the Board, an, annual action plan in pursuance of its CSR policy, which shall include the following, namely:(a), , the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in, Schedule VII of the Act;
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Lesson 7 • Corporate Social Responsibility, , (b), , the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4;, , (d), , monitoring and reporting mechanism for the projects or programmes; and, , (c), , (e), , 281, , the modalities of utilisation of funds and implementation schedules for the projects or programmes;, details of need and impact assessment, if any, for the projects undertaken by the company., , However, the Board may alter such plan at any time during the financial year, as per the recommendation of its CSR, Committee, based on the reasonable justification to that effect. [Amended by the Companies (Corporate Social, Responsibility Policy) Amendment Rules, 2021 Dated 22.01.2021; Effective date 22nd January 2021}., , Meeting of CSR Committee, , Number of CSR Meetings: Law is silent w.r.t. number of CSR Committee meetings in a year. But as per Secretarial, Standard 1 “Committees shall meet as often as necessary subject to the minimum number and frequency stipulated, by the Board or as prescribed by any law or authority.”, Quorum for CSR Meetings: Law is also silent w.r.t. quorum for the committee meeting. But as per Secretarial, Standard 1: The presence of all the members of any Committee (applicable to CSR Committee also) constituted by, the Board is necessary to form the Quorum for Meetings of such Committee unless otherwise stipulated in the Act, or any other law or the Articles or by the Board., , A member of the Committee appointed by the Board or elected by the Committee as Chairman of the Committee, in, accordance with the Act or any other law or the Articles, shall conduct the Meetings of the Committee. If no Chairman, has been so elected or if the elected Chairman is unable to attend the Meeting, the Committee shall elect one of its, members present to chair and conduct the Meeting of the Committee, unless otherwise provided in the Articles., , Functions and Responsibilities of the Board, , The Board of the Company shall be fully accountable and responsible for the execution and implementation of the, CSR policy and all of the projects that are formulated thereunder and ensure:, (i), , Provisions of the resources for the establishment, implementation, maintenance and continual improvement, of the system required for CSR;, , (iii), , Awareness and promotion of CSR as an integral part of the business and culture., , (ii), , Involvement of all concerned stakeholders in CSR Implementation;, , CSR Implementation [Rule 4 of the Companies (Corporate Social Responsibility Policy) Rules, 2014], [Amended by the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021], , The Board shall ensure that the CSR activities are undertaken by the company itself or through (a), (b), (c), , (d), , a company established under section 8 of the Companies Act, 2013 or a registered public trust or a registered, society, registered under section 12A and 80 G of the Income Tax Act, 1961 (43 of 1961), established by the, company, either singly or along with any other company; or, a company established under section 8 of the Companies Act, 2013 or a registered trust or a registered, society, established by the Central Government or State Government; or, any entity established under an Act of Parliament or a State legislature; or, , a company established under section 8 of the Companies Act, 2013, or a registered public trust or a registered, society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track, record of at least three years in undertaking similar activities.
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282, , Lesson 7 • EP-CL, , , , Undertaking CSR activities by, company itself, Section 8 company/registered public trust /, registered society, registered under section, 12A and 80G of the Income Tax Act, 1961,, established by the company, either singly or, along with any other company, , Implementation of CSR projects, can be undertaken through, , Section 8 company/registered trust/, registered society, established by the, Central Government or State Government, Any entity established under an Act of, parliament or a State legislature, , Section 8 company/registered public trust/, registered society, registered public trust/, registered society, registered under section, 12A and 80G of Income Tax Act, 1961, and, having an established track record of at least, three years in undertaking similar activities, , Illustration:, A company is having ongoing projects carried out by an implementing agency which is not registered, under section 12A and 80G of the Income Tax Act, 1961. Will the company become non-compliant under, law if it continues with the same implementing agency?, As per Rule 4 of the amended Rules, the requirement of registration for an implementing agency under section, 12A and 80G of the Income Tax Act, 1961 is effective from 22nd January, 2021. In the given case, since the, company has already assigned projects which are being carried out by the implementing agency, such agency, should obtain the requisite registration at the earliest and in the meanwhile may continue to carry on with the, projects assigned., However, in case of new assignment, the implementing agencies should have prior registration., Source-ICSI FAQ on CSR, •, , •, , Mandatory Registration of CSR Entity: Every eligible entity who intends to undertake any CSR activity, shall, register itself with the Central Government by filing the form CSR-1 electronically with the Registrar, with, effect from the 01st day of April 2021:, , However, the provisions of this sub-rule shall not affect the CSR projects or programmes approved prior, to the 01st day of April 2021., Certification of Professional: Form CSR-1 shall be signed and submitted electronically by the entity and, shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a, Cost Accountant in practice.
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•, , Lesson 7 • Corporate Social Responsibility, , 283, , On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated, by the system automatically., , Example: Company A carries out its CSR project X through an implementing agency during the FY 2020-21., Company A intends to start a new CSR project Y in the FY 2021-22. The implementing agency will have to register, itself for project Y by filing form CSR-1. As project X is an ongoing project, the implementing agency is not required, to file form CSR-1., •, •, •, •, , Role of International Organisation: A company may engage international organisations for designing,, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity, building of their own personnel for CSR., , A collaboration of other Companies for CSR Expenditure: A company may also collaborate with other, companies for undertaking projects or programmes or CSR activities in such a manner that the CSR, committees of respective companies are in a position to report separately on such projects or programmes in, accordance with these rules., CFO Certification: The Board of a company shall satisfy itself that the funds so disbursed have been utilised, for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible, for financial management shall certify to the effect., Ongoing Projects: In case of ongoing project, the Board of a Company shall monitor the implementation of the, project with reference to the approved timelines and year-wise allocation and shall be competent to make, modifications, if any, for smooth implementation of the project within the overall permissible time period., , List of CSR Activities [Schedule VII of the Companies Act, 2013], , Some activities are specified in Schedule VII as the activities which may be included by companies in their Corporate, Social Responsibility Policies. The entries in the said Schedule VII must be interpreted liberally so as to capture the, essence of the subjects enumerated in the said Schedule. The items enlisted in the amended Schedule VII of the Act,, are broad-based and are intended to cover a wide range of activities as illustratively. These are activities related to:, (i), , (ii), , (iii), (iv), (v), (vi), , eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and, sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the, promotion of sanitation and making available safe drinking water;, promoting education, including special education and employment enhancing vocation skills especially, among children, women, elderly and the differently abled and livelihood enhancement projects;, , promoting gender equality, empowering women, setting up homes and hostels for women and orphans;, setting up old age homes, day care centres and such other facilities for senior citizens and measures for, reducing inequalities faced by socially and economically backward groups;, ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agro, forestry, conservation of natural resources and maintaining quality of soil, air and water including contribution, to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga;, , protection of national heritage, art and culture including restoration of buildings and sites of historical, importance and works of art; setting up public libraries; promotion and development of traditional arts and, handicrafts;, measures for the benefit of armed forces veteran, war widows and their dependents, Central Armed Police, Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows;, , (vii) training to promote rural sports, nationally recognized sports, paralympic sports and Olympic sports;, , (viii) contribution to the Prime Minister’s National Relief Fund or Prime Minister’s Citizen Assistance and Relief in, Emergency Situations Fund (PM Cares Fund) or any other fund set up by the Central Government for socioeconomic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward, classes, minorities and women;
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284, , (ix), , , , [a), (b), , (x), , (xi), , Lesson 7 • EP-CL, , Contribution to incubators or research and development projects in the field of science, technology,, engineering and medicine, funded by the Central Government or State Government or Public Sector, Undertaking or any agency of the Central Government or State Government; and, , Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories, and autonomous bodies established under Department of Atomic Energy (DAE); Department of, Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals;, Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of, Electronics and Information Technology and other bodies, namely Defense Research and Development, Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical, Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting, research in science, technology, engineering and medicine aimed at promoting Sustainable Development, Goals (SDGs) –Substituted by Notification dated 24th August, 2020]., , rural development projects;, , slum area development where ‘slum area’ shall mean any area declared as such by the Central Government, or any State Government or any other competent authority under any law for the time being in force;, , (xii) disaster management, including relief, rehabilitation and reconstruction activities., , However, in determining CSR activities to be undertaken, preference would need to be given to local areas and the, areas around where the company operates., , As per Clarification issued by MCA on 18th June, 2014; following may be noted with regard to provisions mentioned, under section 135:, •, •, , One-off events such as marathons/ awards/ charitable contribution/ advertisement/sponsorships of TV, programmes etc. do not be qualified as part of CSR expenditure., Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws,, Land Acquisition Act etc.) are not count as CSR expenditure under the Companies Act., How has the CSR spending pertaining to COVID-19 been inculcated in the Companies Act, 2013?, As per item no. (viii) of the Schedule VII of the Companies Act, 2013, which enumerates activities that may be, undertaken by companies in discharge of their CSR obligations, inter alia provides that contribution to any fund, set up by the Central Government for socio-economic development and relief qualifies as CSR expenditure. The, PM-CARES Fund has been set up to provide relief to those affected by any kind of emergency or distress situation, such as that posed by COVID 19 pandemic. Accordingly, it is clarified that any contribution made to the PM, CARES Fund shall qualify as CSR expenditure under the Companies Act 2013. [eF. No. CSR-05/1/2020-CSR-MCA, OFFICE MEMORANDUM dated 28.03.2020]., , Keeping in view the spread of novel corona virus (COVID-19) in India, its declaration as pandemic by the world, health organisation (WHO), and decision of Government of India to treat this as a notified disaster, it is hereby, clarified that spending of CSR Funds for COVID-19 is eligible CSR activity. Funds may be spent for various, activities related to COVID-19 under item nos. (i) to (xii) of schedule VII relating to promotion of health care, including preventive health care and sanitation, an, disaster management. [General Circular no. 10/2020 dated, 23.03.2020]., MCA CLARIFICATIONS, 1) Clarification on spending of CSR funds for Awareness and public outreach on COVID-19 Vaccination, programme (General Circular, Dated January 13, 2021), In continuation to MCA General Circular No. 10/2020 dated March 23, 2020 wherein it was clarified that spending of CSR, funds for COVID-19 is an eligible CSR activity, it is further clarified that spending of CSR funds for carrying out awareness, campaigns/programmes or public outreach campaigns on COVID-19 Vaccination programme is an eligible CSR activity
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Lesson 7 • Corporate Social Responsibility, , 285, , under item no. (i), (ii) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of health care, including, preventive health care and sanitization, promoting education, and, disaster management respectively., The companies may undertake the aforesaid activities subject to fulfilment of Companies (CSR Policy) Rules, 2014, and the circulars related to CSR, issued by the MCA from time to time., 2) Clarification on spending of CSR funds for setting up makeshift hospitals and temporary COVID Care, facilities-reg. (General Circular No. 05/2021, dated April 22, 2021), , The MCA has clarified that spending of CSR funds for ‘setting up makeshift hospitals and temporary COVID Care, facilities ‘ is an eligible CSR activity under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating, to promotion of health care, including preventive health care, and, disaster management respectively. The companies, may undertake the aforesaid activities in consultation with State Governments subject to fulfilment of Companies, (CSR Policy) Rules, 2014 and the circulars related to CSR issued by MCA from time to time., 3) Clarification on spending of CSR funds for ‘creating health infrastructure for COVID care’, ‘establishment, of medical oxygen generation and storage plants’ etc. - reg. (General Circular No. : 09/ 2021, dated May 05, 2021), , The MCA has further clarified that spending of CSR funds for ‘creating health infrastructure for COVID care’,, ‘establishment of medical oxygen generation and storage plants’, ‘manufacturing and supply of Oxygen concentrators,, ventilators, cylinders and other medical equipment for countering COVID-19’ or similar such activities are eligible, CSR activities under item nos. (i) and (xii) of Schedule VII of the Companies Act, 2013 relating to promotion of, health care, including preventive health care, and, disaster management respectively., , The companies including Government companies may undertake the activities or projects or programmes using, CSR funds, directly by themselves or in collaboration as shared responsibility with other companies, subject to, fulfillment of the Companies (CSR Policy)Rules, 2014 and the guidelines issued by the MCA from time to time, The companies may undertake the aforesaid activities subject to fulfilment of Companies (CSR Policy) Rules, 2014, and the circulars related to CSR, issued by the MCA from time to time., 4) Clarification on spending of CSR funds for COVID-19 vaccination General Circular No: 13/2021, dated July, 30, 2021, , In continuation to General Circular No. 10/2020 dated March 23, 2020 wherein it was clarified that spending of CSR, funds for COVID-19 is an eligible CSR activity, the MCA has further clarified that spending of CSR funds for COVID19, vaccination for persons other than the employees and their families, is an eligible CSR activity under item no. (i) of, Schedule VII of the Companies Act, 2013 relating to promotion of health care including preventive health care and, item no. (xii) relating to disaster management., The companies may undertake the aforesaid activity subject to fulfilment of Companies (CSR Policy) Rules, 2014, and the circulars related to CSR issued by the MCA from time to time., How should the list provided in Schedule VII of the Companies Act be construed for the purpose of, undertaking CSR Activities?, , The statutory provision and provisions of CSR Rules, 2014, are to ensure that activities undertaken in, pursuance of the CSR policy must relate to Schedule VII of the Companies Act, 2013. The entries in the said, Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said, Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide, range of activities. It is for the Board of the company to take a call on this. [General Circular No. 1/2016 dated, 12th January, 2016 and General Circular No. 21/2014 dated June 18, 2014]., , Computation of net profit, “Net profit” as per explanation of Section 135(5) shall not include such sums as may be prescribed, and shall be, calculated in accordance with the provisions of section 198. The net worth, turnover and net profits are to be, computed in terms of Section 198 of the Companies Act, 2013 as per the profit and loss statement prepared by the, company in terms of Section 381 (1) (a) and Section 198 of the Companies Act, 2013. Every company will have to
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286, , Lesson 7 • EP-CL, , , , report its standalone net profit during a financial year for the purpose of determining whether or not it triggers the, threshold criteria as prescribed under Section 135(1) of the Companies Act., •, , •, , Indian company: The CSR Rules have clarified the manner in which a company’s net worth will be computed, to determine if it fits into the ‘spending’ norm. In order to determine the ‘net profit’, dividend income received, from another Indian company or profits made by the company from its overseas branches have been excluded., Moreover, the 2% CSR is computed as 2% of the average net profits made by the company during the, immediately preceding three financial years., , Foreign company: The CSR Rules prescribe that in case of a foreign company that has its branch or a project, office in India, CSR provision will be applicable to such offices. CSR Rules further prescribe that the balance, sheet and profit and loss account of a foreign company will be prepared in accordance with Section 381(1)(a), and net profit to be computed as per Section 198 of the Companies Act, 2013. It is not clear as to how the, computation of net worth or turnover would be arrived at in case of a branch or project office of a foreign, company., , Profits from any overseas branch of the company, including those branches that are operated as a separate company, would not be included in the computation of net profits of a company. Besides, dividends received from other, companies in India which need to comply with the CSR obligations would not be included in the computation of net, profits of a company., Net Profit, , Indian Company, Net profit of a company as, per its financial statement, prepared in accordance, with the applicable, provision of the C. A., 2013, but shall not include the, following namely:, , As per explanation to, Sec 135(5) of the Act,, “net profit” shall be, calculated in accordance, with the provisions of, Section 198., , (i) Any profit arising from any overseas branch, or branches of the company, whether, operated as a separate company or, otherwise; and, , Foreign Company, covered under CSR Rules, Net profit means the net, profit of such company, as per profit and loss, account prepared in, terms of clause(a) of, sub-section(1) of, section381, read with, section 198 of the Act., , (ii) Any dividend from other companies in, India, which are covered under and, complying with the provisions of section, 135 of the C. A., 2013., , Source: ICSI FAQ on CSR, , CSR Expenditure-Rule 7 of the CSR Rules, 2014 [Amended by the Companies CSR(Amendment), Rules, 2021], The Board of every eligible company u/s 135 (1) shall ensure that the company spends, in every financial year, at, least two per cent of the average net profits of the company made during the three immediately preceding financial
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287, , Lesson 7 • Corporate Social Responsibility, , years or where the company has not completed the period of three financial years since its incorporation, during, such immediately preceding financial years in pursuance of its Corporate Social Responsibility Policy, this amount, will be CSR expenditure., , The company shall give preference to the local area and areas around it where it operates, for spending the amount, earmarked for Corporate Social Responsibility activities., Administrative Overheads, , The board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of, the company for the financial year., , Administrative overheads, , •, , Includes expenses, incurred by the, company on:, , General management, Administration, Designing, , Excludes expenses, directly incurred on, CSR project for:, , Implementation, Evaluation, Monitoring, , Surplus arising out of the CSR Activities, •, , Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall, be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in, pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund, specified in Schedule VII, within a period of six months of the expiry of the financial year., , This means in case the project is income generating by way of fees etc., such income should be ploughed back into, the same project but not form part of the business profit of the company., Excess CSR spends may be set off, •, , Where a Company spent on CSR in excess of the requirement (i.e. 2%), such excess amount may be set-off, against the requirement of the CSR Spending u/s 135(5) upto the immediate succeeding 3 financial year, subject to the conditions that:, , , , The excess amount available for set off shall not include the surplus arising out of the CSR activities, if, any, in pursuance of sub-rule (2) of this rule;, The Board of the company shall pass a resolution to that effect.
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288, , Lesson 7 • EP-CL, , , , Acquisition of Capital Assets, •, , The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by –, , Section 8 Company, or a Registered Public Trust or Registered Society, having charitable objects and, CSR Registration Number, , beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities;, , a public authority, , However, any capital asset created by a company prior to the commencement of the Companies (Corporate Social, Responsibility Policy) Amendment Rules, 2021, shall within a period of one hundred and eighty days from such, commencement comply with the requirement of this rule, which may be extended by a further period of not more, than ninety days with the approval of the Board based on reasonable justification., , Spending mandate and consequences of not spending (Change in CSR regime from Voluntary to, Mandatory), Second proviso to sec. 135 (5), read with section 135 (6), elaborates the mandatory spending requirement:, •, •, , If the company fails to spend the CSR target, the Board in its report shall specify the reasons for not spending, the amount., Analysis of the “unspent amount” related to ongoing project:, , , , •, , Unspent amount relating to an ongoing project, undertaken by a company in pursuance of its Corporate, Social Responsibility Policy, shall be transferred by the company within a period of 30 days from the, end of the financial year to a special account (Unspent CSR Account) to be opened by the company in, that behalf for that financial year in any scheduled bank, and such amount shall be spent by the, company in pursuance of its obligation towards the Corporate Social Responsibility Policy within a, period of 3 financial years from the date of such transfer., , failing which, the company shall transfer the same to a Fund specified in Schedule VII of the Companies, Act, 2013, within a period of thirty days from the date of completion of the third financial year. Or else,, , Unspent amount not relating to ongoing projects to be transferred to Funds notified in Schedule VII of the, Companies Act, 2013 within a period of 6 months of the end of the financial year., CSR unspent, , Source: ICSI FAQ on CSR, , Ongoing project, , No ongoing project, , Transfer to “unspent, CSR Account for, relevant FY”, , Transfer to fund, specified in schedule, VII, , Within 30 days from, the end of the FY, , Within 6 months from, the end of the FY
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Lesson 7 • Corporate Social Responsibility, , 289, , Transfer of unspent CSR amount- Until a fund is specified in Schedule VII for the purposes of sub-section (5) and, (6) of section 135 of the Companies Act, 2013 the unspent CSR amount, if any, shall be transferred by the company, to any fund included in schedule VII of the Companies Act, 2013 [Rule 10 of CSR Rules, 2014 as Inserted by The, Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 Dated 22.01.2021]., •, , Expenditure incurred on specified activities that are carried out in India only will qualify as CSR expenditure., Such expenditure includes contribution to the corpus or on projects or programs relating to CSR activities., , •, , Any expenditure on an item not in conformity or not in line with activities which fall within the areas or, subjects, specified in Schedule VII of the Act shall not be permissible., , If a CSR project was planned for a certain amount to be executed during specified period by the Board, and the CSR project is completed before the prescribed time with funds remaining untilised. In such, case, is the Board free to use the unutilised amount in other project or it has to transfer the same to, fund specified in Schedule VII after 3 years or completion of the project?, In terms of the provisions of Rule 5 (2) of the amended CSR Rules, the CSR Committee shall formulate and, recommend to the Board, an annual action plan in pursuance of its CSR policy which shall specifically include:, a), , b), c), , d), e), , the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified, in Schedule VII of the Act;, the manner of execution of such projects or programmes;, , the modalities of utilisation of funds and implementation schedules for the projects or programmes;, monitoring and reporting mechanism for the projects or programmes; and, , details of need and impact assessment, if any, for the projects undertaken by the company., , It is further provided that the Board may alter such plan at any time during the financial year, as per the, recommendation of its CSR Committee, based on the reasonable justification to that effect., , Accordingly, in the given case if the CSR project could be completed and the amount of money left unutilised,, be considered by the Board for spending for other CSR projects / activities after amending the Annual Action, Plan accordingly. This fact should also be disclosed in the CSR Report., Source-ICSI FAQ on CSR, , PENALTY, CSR Amendments- from ‘comply or explain’ to ‘comply or suffer’ to ‘comply or pay’, •, , Earlier CSR provisions was following “comply or explain” approach-If a company did not comply, it only had, to mention the reasons for non-compliance in their Board Report., , •, , However, it is again amended by subsequent amendments brought in by the Companies (Amendment) Act,, 2020 which in view of Decriminalisation and Ease of Doing Business, has removed the prosecution provision., , •, , •, , Since there were serious compliance gaps, the Companies (Amendment) Act 2019 introduced Penalty for, Non-Compliance of Section 135(5) & (6) that included imprisonment, and hence, the approach shifted to, “comply or pay fine”, but it was not notified., , The respective provision of the Companies (Amendment) Act, 2019 never came into force as both 2019 &, 2020 Companies (Amendment) Act provision related to penal provisions of CSR came to force on the same day, i.e. 22nd January, 2021., , Section 135(7) of the Companies Act, 2013, clearly states that, If a company is in default in complying with the, provisions of Section 135(5) or 135(6) of the Companies Act, 2013:
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290, , , , Penalty on the Company:, , , , Lesson 7 • EP-CL, , Upto twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the, Unspent Corporate Social Responsibility Account, as the case may be, or, Rs.1 Crore, whichever is less,, , Penalty on every officer of the company who is in default, , , , 1/10th of the amount required to be transferred by the company to such Fund specified in Schedule VII of the, Companies Act, 2013, or the Unspent Corporate Social Responsibility Account, as the case may be, or, Rs.2 Lakhs, whichever is less., , The Central Government may give such general or special directions to a company or class of companies as it, considers necessary to ensure compliance of provisions of this section and such company or class of companies, shall comply with such directions., 1) Are the above mentioned penal provisions specific to not transferring the unspent amount or is, applicable for any other non-compliance relating to CSR provisions?, Section 135 (7) clearly states the penalty for default in complying with the provisions of sub-section (5) or, sub-section (6). In case of any other non-compliance/default under any other provision of the section, or, Rules, then the provisions of general penalty under section 450 of the Act shall be applicable., 2) If a company has unspent amount Rs. 10 Lacs as on 31.03.2021, whether such amount will be transfer, to said fund before 30.09.2021 or company may spend any amount (out of unspent amount) during, the said six months after close of financial year and can transfer remaining unspent amount in Fund?, No. If, on or before the last day of the relevant FY falling on or after January 22, 2021 to which the unspent, amount relates, and the said unspent amount was not already allocated to an Ongoing Project already, approved by the Board, then the Company cannot allocate or use such unspent amount for any other project, and shall mandatorily transfer the same to the Fund specified in Schedule VII within the said 6 months from, the end of the relevant FY., 3) If a company has unspent CSR amount for the financial years 2014-15, 2015-16, 2016-17, 201718,2018-19 and 2019-20, is the company required to transfer the entire unspent amount for the, said years in the financial year ended 31st March, 2021?, Section 135 of Companies Act, 2013 was amended w.e.f 22nd January 2021 by inserting a new sub-section, (6) which states the treatment of unspent amount of CSR in case of on-going projects. The second proviso to, Sub section (5) of section 135 was also amended w.e.f 22nd January 2021, which now states that if the, Company fails to spend the amount prescribed in Section 135(5) and unless the unspent amount relates to, any on-going project referred to in sub-section (6), the Company shall transfer such amount to a Fund, specified in Schedule VII, within a period of 6 months of the expiry of the financial year., The applicability of this amendment is prospective and therefore the unspent amount for the financial year, 2020-21 onwards shall be transferred to the fund specified in Schedule VII within six months of the expiry, of the said financial year, unless the same pertains to any ongoing project., However, if the Company has created a provision for unspent CSR obligation for the financial years 2014-15,, 2015,-16, 2016- 17, 2017-18, 2018-19 and 2019-20, and if such provision remains outstanding as on 31st, March, 2021, such amount should be transferred to separate bank account or Fund specified in Schedule, VII, as the case may be., 4) If a company plans to spend 2.5% of its average net profits but out of this 0.5% remains unspent, will, the penal provisions and requirement for transfer of unspent amount apply to the Company over, and above the mandatory 2% spend?, In terms of the provisions of section 135 of the Act, the penal provision under sub-section 7 and requirement, for transfer of unspent amount under sub-section (5) & (6) shall not be applicable on non-mandatory CSR, expenditure., 5) In case, the registration of trust is not mandatory, then what would be constituted as ‘Registered, trust’ or ‘Registered public trust’?
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Lesson 7 • Corporate Social Responsibility, , 291, , ‘Registered Trust’ or ‘registered public trust’ (as referred in Rule 4(1) of the Companies (CSR) Rules, 2014), would include Trusts registered under Income Tax Act 1961, for those States where registration of Trust is, not mandatory. [General Circular No. 21/2014 dated 18th June, 2014]., 6) Can the Board, for sufficient cause and reasons, change the ongoing project completely within 3, years’ of time? E.g. If the Board approved a project of Rs. 80 lacs for Rain water harvesting for 3 years, but after 2 years, the Company which has already spent Rs. 40 lacs on Rain water harvesting is not, satisfied with the outcome. Can the Board divert the remaining funds of Rs. 40 Lacs to different, project say related to Health and Medical for remaining one year?, As per the amended Rules, the Board shall be competent to make modifications, if any, for smooth, implementation of the project within the prescribed time period. The Board may alter such plan at any time, during the financial year, as per the recommendation of its CSR Committee, based on the reasonable, justification to that effect, change the ongoing project partially or wholly. However, changing the allocation, completely would not be viable., Source: ICSI FAQ on CSR, , CSR Reporting (Rule 8 of CSR Rules, 2014) [Amended by the Companies (Corporate Social, Responsibility Policy) Amendment Rules, 2021], Preparation of CSR Report, It is mandatory to include an Annual Report on CSR in the prescribed format, in the Board’s report of the Company., The report containing the details of CSR Activities undertaken by the company and contents of CSR policy shall be, made available on Company’s website., Directors Report:, , The Company shall annex with its Board Report an annual report on CSR containing particulars specified in, Annexure I (for F.Y. Commenced prior to 1st day of April, 2020) or Annexure II (w.e.f. F.Y. Commencing on or after, 1st day of April, 2020), as applicable., In case of a Foreign Company:, , The Balance sheet filed u/s 381(1) (b) of the Companies Act, 2013 shall contain ‘an annual report on CSR containing, particulars specified in Annexure I (for F.Y. Commenced prior to 1st day of April, 2020) or Annexure II (w.e.f. F.Y., Commencing on or after 1st day of April, 2020), as applicable., Impact Assessment for big CSR projects in terms of the provisions of Rule 8(3)(a) of the Companies, (Corporate Social Responsibility Policy) Rules, 2014, •, , •, •, , Companies with average CSR obligation of Rs.10 Crore or more in the 3 immediately preceding financial, years shall undertake impact assessment through an independent agency of their CSR projects having outlays, of Rs.1 crore rupees or more which have been completed not less than 1 year before undertaking the impact, study., The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on, CSR., A Company undertaking impact assessment may book the expenditure towards Corporate Social, Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for that, financial year or Rs. 50 Lakh, whichever is less.
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292, , Lesson 7 • EP-CL, , , , Website Disclosure (Rule 9 of the CSR Rules, 2014) [Amended by the Companies (Corporate Social, Responsibility Policy) Amendment Rules, 2021], The Board of every eligible company referred to in sub-section (1) of Section 135 shall, after taking into account the, recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social, Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the, company’s website, if any and ensure that the activities as are included in Corporate Social Responsibility Policy of, the company are undertaken by the company., , The Board of Directors of the Company shall ensure essential disclosure of the following on the website of the, Company, if any:, •, , The composition of the CSR Committee, , •, , CSR Policy and Projects approved by the Board, , CSR Spent: Top Companies (2019-20), , Source:https://www.csr.gov.in/index_across.php, , Do You Know ?, Snow Ltd. is a closely held public company in the manufacturing sector. The company's net worth is Rs.250 crore, as on 31st March, 2015. The turnover of the company for the year 2019-20 is Rs.750 crore. The profits earned, by the company during the last five years are as under :, Year, , 2019-20, 2018-19, 2017-18, 2016-17, , Profit (Rs.in crore), 7.50, 6.00, 4.50, 3.60, , 2015-16, 3.00, The company has spent Rs.14 lakh during the year 2019-20 in an approved Corporate Social Responsibility, (CSR) project for the benefit of weaker sections of the society. Examine whether the company is mandatorily, required to comply with the CSR initiative and whether the action of the company is in adherence to the relevant, provisions of the Companies Act, 2013 ?
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Lesson 7 • Corporate Social Responsibility, , 293, , TAX BENEFITS UNDER CSR, , No specific tax exemptions have been extended to CSR expenditure per se. The Finance Act, 2014 also clarifies that, expenditure on CSR does not form part of business expenditure. While no specific tax exemption has been extended, to expenditure incurred on CSR, spending on several activities like contributions to Prime Minister’s Relief Fund,, scientific research, rural development projects, skill development projects, agricultural extension projects, etc.,, which find place in Schedule VII, already enjoy exemptions under different sections of the Income Tax Act,1961., [General Circular No. 1/2016 dated 12th January, 2016]., , NON APPLICABILTY OF CSR PROVISIONS ON SPECIFIED COMPANIES, , In case of Specified IFSC Public Company/Specified IFSC Private Company - Section 135 shall not apply for a period, of five years from the commencement of business of a Specified IFSC public company/ Specified IFSC Private, Company - Notification Dated 4th January, 2017., , CSR Portal, , The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs, Government, of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by, the companies registered with it., The CSR ambit is getting bigger and for upcoming years it would turn as a unique knowledge base for analyzing and, achieving sustainability goals as among various large economies India is a country which has assured by mandating, CSR through its legislative action., , The National CSR Awards, , Ministry of Corporate Affairs, Government of India has instituted National Corporate Social Responsibility (CSR), Awards to recognize companies that have made a positive impact on the society through their innovative &, sustainable CSR initiatives., The National CSR Awards seek to:, •, , Recognize the companies that have positively impacted both business and society by taking a strategic, approach to CSR through collaborative program., , •, , Recognize companies for implementing measures for conservation and sustainable management of the, biodiversity and ecosystem in the value chain., , •, •, , Recognize the companies that are leading transformation by integrating sustainability in their core business, model., Identifying innovative approaches and employing application and technologies that will help to build a robust, CSR programs to further the cause of inclusive and sustainable development., , This Award seeks to recognize the companies that have made a transformative impact on society. The NCSRA seeks, to recognize outstanding projects in following three categories:, i), , ii), , iii), , Four awards for excellence in CSR, based on CSR spend, Five awards for CSR projects in Aspirational Districts, , Eleven awards for CSR projects in National Priority Areas., , Three separate awards are for micro, small and medium enterprises (MSMEs)., , What are the Various other aspects that may be kept in mind while undertaking CSR?, , (i), , It should be noted that companies, while undertaking Corporate Social Responsibility activities under, provision of the Companies Act, 2013, shall not contravene any other prevailing laws of the land including, Cigarettes and Other Tobacco Products Act (COTPA), 2003. [General Circular No. 05/2016 dated 16th May,, 2016].
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294, , (ii), , (iii), , (iv), , , , Lesson 7 • EP-CL, , Contribution and involvement of employees in CSR activities of the company will no doubt generate interest, / pride in CSR work and promote transformation from Corporate Social Responsibility (CSR) as an obligation, to Socially Responsible Corporate (SRC) in all aspects of their functioning. Companies therefore, should be, encouraged to involve their employees in CSR activities. However monetization of pro bono services of, employees would not be counted towards CSR expenditure. [General Circular No. 1/2016 dated 12th January,, 2016]., , It is further clarified that CSR activities should be undertaken by the companies in project/ programme, mode [as referred in Rule 4 (1) of Companies CSR Rules, 2014]. One-off events such as marathons/, awards/ charitable contribution/ advertisement/ sponsorships of TV Programmes etc. would not be, qualified as part of CSR expenditure. [General Circular No. 21/2014 18th June, 2014], Expenses incurred by companies for the fulfillment of any Act/ Statute of regulations (such as Labour Laws,, Land Acquisition Act etc.) would not count as CSR expenditure under the Companies Act. [General Circular, No. 21/2014 18th June, 2014- also covered in rules]., , TATA STEEL – A COMPANY THAT ALSO MAKES STEEL, , “Businesses need, to go beyond the, interests of their, Companies to the, communities they, serve”., , Tata Steel’s Vision strikes a balance between economic value as well as, ecological and societal value by aspiring to be “a Global Benchmark in, Value Creation and Corporate Citizenship”. In the initial years, Tata Steel’s, CSR interventions were more as a ‘provider’ to society where the, community was given support for its overall needs, both for sustenance, and development. Gradually, the shift in approach led to Tata Steel being, an ‘enabler’ focusing on building community capacity through training, programmes; focusing on providing technical support rather than giving, aid. At present, CSR interventions of Tata Steel focus on ‘sustainable, development’ to enhance the quality of life of people. It guides the, Company in its race to excel in all areas of sustainability. J R D Tata the, Chairman of the Tata Group believed that, “to create good working, conditions, to pay the best wages to its employees and provide decent, housing to its employees are not enough for the industry, the aim of an, industry should be to discharge its overall social responsibilities to the, community and the society at large, where industry is located.”, Guided by this mandate, Tata Steel has for decades uses its skills and, resources, to the extent it can reasonably afford, to give back to the, community a fair share of the product of its efforts., , It was the first to establish labour welfare practices, even before these were made statutory laws across the, world. The Company also instituted an eight-hour workday in 1912, free medical aid in 1915, a Welfare, Department in 1917, leave with pay, Workers Provident Fund and Workmen’s Compensation in 1920 and, Maternity Benefit for ladies in 1928., The Company supports and propagates the principles of the United Nations Global Compact as a Founder, Member, is a signatory to the Worldsteel Sustainability Charter and supports the Affirmative Action programme, of the Confederation of Indian Industry., , Tata Steel’s approach to business has evolved from the concept that the wealth created must be continuously, returned to society. The responsibility of combining the three elements of society - social, environmental,, and economic - is of utmost importance to the way of life at Tata Steel. Today, Tata Steel’s CSR activities in, India encompass the Company’s Steel Works, Iron ore mines and collieries, reaching out to the city of, Jamshedpur, its peri-urban areas and over 800 villages in the states of Jharkhand, Odisha and Chhattisgarh., Community involvement is a characteristic of all Tata Steel Group companies around the world. It can take, the form of financial support,
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295, , Lesson 7 • Corporate Social Responsibility, , provision of materials and the involvement of time, skills and enthusiasm of employees. The Group, contributes to a very wide range of social, cultural, educational, sporting, charitable and emergency, assistance programmes. The Company works in partnership with the Government, national and international, development organisations, local NGOs and the community to ensure sustainable development. The, Corporate ServicesDivision delivers these responsibilities through several institutionalised bodies:, •, •, •, •, , Tata Steel Corporate Social Responsibility and Accountability Policy l Corporate Social Responsibility, Tata Steel Rural Development Society (TSRDS), Tribal Cultural Society (TCS), Tata Steel Family Initiatives Foundation (TSFIF), , •, , Medical Services, , •, •, •, •, •, •, •, •, , Tata Steel Skill Development Society (TSSDS), Education, , Urban Services, , Sports Department, , Tata Steel Adventure Foundation, JUSCO, , Other societies like Ardeshir Dalal Memorial Hospital, Blood Banks, Kanti Lal Gandhi Memorial Hospital, etc.), Tata Relief Committee, , Source: ICSI Professional Programme Governance, Risk Management, Compliances And Ethics study material, , ANNEXURES, [Annexure - I], Format for the Annual Report on CSR Activities to be included in the Board's Report For Financial Year, Commenced Prior To 1st Day of April, 2020, 1., 2., 3., 4., 5., , A brief outline of the company's CSR policy, including overview of projects or programs proposed to be, undertaken and a reference to the web-link to the CSR policy and projects or programs., The Composition of the CSR Committee., , Average net profit of the company for last three financial years, , Prescribed CSR Expenditure (two per cent of the amount as in item 3 above), Details of CSR spent during the financial year., , (a) Total amount to be spent for the financial year;, (b) Amount unspent, if any;, , (c) Manner in which the amount spent during the financial year is detailed below.
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296, , Lesson 7 • EP-CL, , , , (1), , (2), , S.No CSR project, or activity, identified, , (3), , Sector in, which the, Project is, covered, , 1, 2, , (4), , Projects or, programs, (1) Local area, or other, , (5), , Amount, outlay, (budget), project or, programs, (2) Specify the wise, State and, district where, projects or, programs was, undertaken, , (6), , Amount spent, on the projects, or programs, Sub-heads:, , (1) Direct, expenditure on, projects or, programs., , (7), , Cumulative, expenditure, upto to the, reporting, period., , (8), , Amount, spent:, , Direct or, through, implementing, agency*, , (2)Overheads:, , 3, TOTAL, , *Give details of implementing agency:, 6., , 7., , In case the company has failed to spend the two per cent of the average net profit of the last three, financial years or any part thereof, the company shall provide the reasons for not spending the, amount in its Board report., A responsibility statement of the CSR Committee that the implementation and monitoring of CSR, Policy, is in compliance with CSR objectives and Policy of the company., Sd/-, , (Chief Executive Officer or Managing Director or Director), , Sd/-, , (Chairman CSR Committee), , [Annexure -II], , Sd/-, , (Person specified under clause (d), of sub-section (1) of section 380 of, the Act) (wherever applicable), , Format for The Annual Report on CSR Activities to be included in the Board's Report for Financial Year, Commencing on or After 1st Day of April, 2020, 1., 2., , Brief outline on CSR Policy of the Company., Composition of CSR Committee:, , Sl. No., , Name of Director, , Designation /, Nature of Directorship, , Number of meetings, of CSR Committee, held during the year, , Number of meetings of CSR Committee attended, during the year
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297, , Lesson 7 • Corporate Social Responsibility, , 3., , Provide the web-link where Composition of CSR committee, CSR Policy and CSR projects approved by the, board are disclosed on the website of the company., , 5., , Details of the amount available for set off in pursuance of sub-rule (3) of rule 7 of the Companies (Corporate, Social responsibility Policy) Rules, 2014 and amount required for set off for the financial year, if any, , 4., , Provide the details of Impact assessment of CSR projects carried out in pursuance of sub-rule (3) of rule 8 of, the Companies (Corporate Social responsibility Policy) Rules, 2014, if applicable (attach the report)., Sl. No., , Financial, Year, , Amount available for set-off from, preceding financial years (in Rs), , Amount required to be set-off for the, financial year, if any (in Rs), , 1, 2, 3, Total, 6., 7., , 8., , Average net profit of the company as per section 135(5)., (a), , Two percent of average net profit of the company as per section 135(5), , (d), , Total CSR obligation for the financial year (7a+7b-7c)., , (b), (c), , (a), , Surplus arising out of the CSR projects or programmes or activities of the previous financial years., Amount required to be set off for the financial year, if any, CSR amount spent or unspent for the financial year:, , Total Amount, Spent for the, Financial, Year. (in Rs.), , Amount Unspent (in Rs.), , Total Amount, transferred to, Unspent CSR, Account as per, section 135(6)., Amount., , (b), , Amount transferred to any fund specified under Schedule VII, as per second proviso to section 135(5)., Date of transfer., , Name of the, Fund, , Amount., , Details of CSR amount spent against ongoing projects for the financial year:, , Date of, transfer.
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298, , (c), , Details of CSR amount spent against other than ongoing projects for the financial year:, , (d), , Amount spent in Administrative Overheads, , (g), , Excess amount for set off, if any, , (e), (f), Sl. No., , Total amount spent for the Financial Year (8b+8c+8d+8e), Amount (in Rs.), , Two percent of average net profit of the company as per section 135(5), , (ii), , Total amount spent for the Financial Year, , (iii), , Excess amount spent for the financial year [(ii)-(i)], , (iv), , Surplus arising out of the CSR projects or programmes or activities of the, previous financial years, if any, , (v), , Sl., No., , Amount spent on Impact Assessment, if applicable, , Particular, , (i), , 9., , Lesson 7 • EP-CL, , , , (a), , Amount available for set off in succeeding financial years [(iii)-(iv)], , Details of Unspent CSR amount for the preceding three financial years:, , PreAmount, ceding, transferred to, Financial Unspent CSR, Year., Account under, section 135 (6), (in Rs.), , Amount spent, in the reporting, Financial Year, (in Rs.)., , Amount transferred to any fund, specified under Schedule VII as per, section 135(6), if any., Name, of the, Fund, , Amount, (in Rs)., , Date of, transfer., , Amount remaining, to be spent in succeeding financial, years. (in Rs.), , 1., 2., 3., Total, (b), , Details of CSR amount spent in the financial year for ongoing projects of the preceding financial year(s):
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299, , Lesson 7 • Corporate Social Responsibility, , (1), , (2), , (3), , (4), , (5), , (6), , (7), , (8), , (9), , Sl., No., , Project, ID., , Name, , Financial, Year in, which the, project, was commenced., , Project, duration., , Total, amount, allocated, for the, project, (in Rs.)., , Amount, spent, on the, project, in the, reporting Financial, Year (in, Rs)., , Cumulative, amount, spent at, the end of, reporting, Financial, Year. (in, Rs.), , Status of, the project - Completed /, Ongoing., , of the, Project., , 1, 2, 3, Total, 10., , In case of creation or acquisition of capital asset, furnish the details relating to the asset so created or, acquired through CSR spent in the financial year (asset-wise details)., (a), , Date of creation or acquisition of the capital asset(s)., , (d), , Provide details of the capital asset(s) created or acquired (including complete address and location, of the capital asset)., , (b), (c), 11., , Amount of CSR spent for creation or acquisition of capital asset., , Details of the entity or public authority or beneficiary under whose name such capital asset is, registered, their address etc., , Specify the reason(s), if the company has failed to spend two per cent of the average net profit as per, section 135(5)., , Sd/(Chief Executive Officer or, Managing Director or Director)., , Sd/(Chairman CSR Committee)., , Sd/[Person specified under clause (d), of sub-section (1) of section 380 of, the Act] (Wherever applicable)., , CSR: Case Studies, 01., , 13.11.2019, , Apurvanatvar & Company India (P) Limited vs. Registrar of, Companies, Mumbai, , NCLT,, Mumbai, , Company Violated provisions of Section 135 read with Section 134(3) of the Companies Act, 2013, Background, Apurva Natvar Parikh & Co Private Limited is a Private incorporated on 26th June 1959. It is classified as Nongovt company and is registered at Registrar of Companies, Mumbai. It is inolved in supporting and auxiliary, transport activities; activities of travel agencies. The Company had violated the provision of Section 135 read, with Section 134(3)(o) of the Companies Act, 2013 read with Rule 8 of Companies (Corporate Social Responsibility, Policy) Rules, 2014 wherein the Company had not made CSR Expenditure and has not explained the reasons in, Board’s Report of F. Y. 2014-15 for non-spending of the CSR amount along with other disclosure as required, under Section 135(2) of the Act.
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300, , , , Lesson 7 • EP-CL, , Timeline of Events, Apurva Natvar Parikh & Co Private Limited filed a compounding application with NCLT, Mumbai on January 10,, 2018 as it has violated the CSR provisions. It received a notice dated December 8, 2017 from ROC, Mumbai, stating that the Company has not complied with the provisions of Section 135 read with Section 134(3)(o) of the, Companies Act,2013 by not disclosing the details in the Financial Year 2014-15, the Composition of CSR, Committee of the Company and/or not specifying any reasons for under spending the CSR amount in its Boards, Report for F.Y. 2014-15 as required under Section 135 r/w Section 134(3)(o) of the Act and with Rule 8 of, Companies(Corporate Social Responsibility Policy) Rules, 2014 r/w General Circular 21/2014 issued by the, Ministry of Corporate Affairs., Pursuant to the receipt of the Notice, the Company sent a reply dated December 16, 2017 to Registrar of, Companies enclosing the Directors Report of the Company dated September 2, 2015, issued by the Board of, Directors of the Company in respect of the Company’s activities for the F.Y. 2014-15., , Thereafter, on February 01, 2018, the Applicants received another notice from the ROC dated January 3, 2018, wherein the ROC has asked the Company and the officers in default to file the necessary application in order to, compound the above-mentioned offence committed by them as per the procedure prescribed, under the, Companies Act, 2013., , It is submitted that as per Section 135 of the Act, the Company was required to spend an amount of Rs. 5,26,047.30, towards its Corporate Social Responsibility objectives in the F.Y. 2015-16. In compliance with the provisions of, the Act, the Company spent an amount of Rs. 35,08,500/- towards its Corporate Social Responsibility objectives, in the F.Y. 2015-16. However, in spite of having spent the requisite amount, the Company inadvertently did not, attach the CSR Policy of the Company to the Director’s Report for the F.Y. 2015-2016. In order to rectify the, inadvertent error, the Company has written to the ROC vide letter dated February 9, 2018, whereby the Company, has informed the ROC of the said violation of Section 134(3)(0) of the Act., It is further submitted that to make default good the Board in its Board Meeting held of July 18, 2014 framed the, CSR Policy in accordance with the Schedule VII of the Companies Act, 2013., , It is further submitted that the Company had constituted the CSR Committee, framed the CSR Policy as per, the provisions of the Act and made the necessary disclosures as required under Section. 134 (3) (o) in the, Board of Directors Report for the F. Y. 2015-16. Consequently, the Default has been made good., Provisions of Companies Act, 2013, Section 135(5), According to the provision of Section135 (5) of the Act, the Board of the Company was required to spend, in, every financial year, at least 2% of the average net profit of the Company during the three immediately preceding, financial years, in pursuance of its Corporate Social Responsibility (CSR) policy, applicable to every company, having net worth of Rs. Five Hundred Crore or more, or turnover of Rs. One thousand crore or more, or having, net profit of Rs. Five Crore or more, during Financial Year., Section 134(3)(o), , Further the provision of Section 134 (3) (o) provides that, if company fails to comply with the provision of, Section 135 (5), then the Board in its report shall specify the reasons for not spending the amount., Judgment, , The Bench gone through the pleadings on record and the submissions made by the ApurvaNatvar Parikh & Co
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Lesson 7 • Corporate Social Responsibility, , 301, , Private Limited and ROC reply herein and said that the Applicants/Defaulters had violated the provision of S., 134 (3) (o) of the Act, and for the said violation the punishment is provided u/Section 134 (8) of Companies Act,, 2013., , The ROC has also reported that, the Company has made the said default good by formulating the Corporate, Social Responsibility (CSR) Policy, constituting the CSR Committee and giving the requisite disclosure as per the, relevant provisions of the Act, in the Board Report of the Company for the F.Y. 2015-16 and onwards., The bench considered the entire records, pleadings of the Applicants and submissions of the Ld. Authorised, Representative and imposed a Compounding Fee of Rs 1,00,000/- on the Company and Rs. 1,00,000/- each on, the Directors of the Company that the Compounding fee should be paid within a period of three weeks from the, date of order in the account of “Prime Minister’s National Relief Fund.”, , https://nclt.gov.in/sites/default/files/final-orders-pdf/CP%20311-441-MB-20178-%20APURVA%20NATVAR%20, %26%20COMPANY%20PRIVATE%20lIMITED.pdf, 02., , 28/11/2018, , In the Matter of M/s. Hira Power and Steels Limited, , NCLT, Mumbai, , The determination of the Quantum of the CSR responsibility can only be ascertained after the finalization, of accounts at the close of the Books of Accounts of a particular financial year., Background, Hira Power & Steels Limited, promoted by the Agrawal family is a leading player in the Steel Segment in Central, India. The Company’s main business interests are in Ferro Alloys, Power and Mining and it has its manufacturing, facilities in Chhattisgarh, India, an area known for low cost production of Steel due to the easy availability of Raw, Materials, Cheap Labour and Supportive Government Policies. The Company filed a Compounding application, before Registrar of Companies (ROC), Chattisgarh and the same has been forwarded to the NCLT, Mumbai along, with ROC Report., Timeline of Events, , ROC had informed that, this application was filed because the Company had violated the provision of Section, 134 (3) (o) of the Companies Act, 2013 read with Rule 8 of Companies (Corporate Social Responsibility Policy), Rules, 2014 wherein the Company fails to give explanation for the non-spending of the CSR amount for the, Financial Year 2014-15 in Director’s Report., , Hira Power & Steels Limited submitted that due to inadvertent mistake the Company has failed to comply with, the provisions of the S. 134 (3) (o) and were willing to comply with the provisions of the Act bona fidely. They, had made all endeavours to comply with the provisions of the Act however, because of number of Circulars, which were issued by the Ministry of Corporate Affairs with respect to CSR there was ambiguity in the correct, implementation of the provisions., It is further stated that the Company had constituted the CSR Committee as per the provisions of the Act on, August 05, 2015 and made the necessary declarations as per Section 134 (3) (o) in the Director’s Report for the, F. Y. 2015-16. Consequently, the Default has been made good., , It is also submitted that, due to number of Circulars / Notifications issued by the Government the Applicants /, Defaulters herein, could not ascertain the actual position of the CSR amount to spend and therefore the said, contravention has happened., In light of above submissions it is submitted that since, the Applicants / Defaulters herein had not deliberately, contravened the provisions of the Companies Act, 2013 and subsequently, after ascertaining the correct position,, made the committed default hence, this Application may be allowed and minimum Compounding Fee may be, imposed.
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302, , , , Lesson 7 • EP-CL, , Judgment, The Bench said that, this provision regarding CSR is newly incorporated in the Statute and thereafter number of, circulars was issued and as a result of those circulars no clear clarification regarding the provision can be, recorded by the Company or its Directors. It is also noticed that the Company had made the default good by, constituting the CSR committee and by furnishing declaration in the Director’s Report for the F. Y. 2015-16., The determination of the Quantum of the CSR responsibility can only be ascertained / quantified after the, finalisation of accounts at the close of the Books of Accounts of a particular financial year. As a result, the amount, to be contributed for charitable purpose as CSR responsibility can be intimated to the concerned authorities, thereafter only i.e. after the finalisation of accounts of a particular financial year., , Compounding Fee of Rs. 10,000/- by the each Applicant / Defaulter herein (i.e. Rs. 50,000/- in total) was levied, on the Company., , https://nclt.gov.in/sites/default/files/final-orders-pdf/Hira%20Power%20and%20Steels%20Limited%2027072018%20NCLT%20ON%2028.11.2018%20FINAL.pdf, 03., , 01.07.2019 M/S Shri Santosh Meenakshi Textiles (P) Ltd. vs. Roc, Tamilnadu,, Coimbatore, , NCLT,Chennai, , CSR Committee must be constituted if net profit exceeds the prescribed threshold limit, Background, Sree Santhosh Meenakshi textiles private limited is established at thekkalur, the Manchester of South India. The, company has carved niche of its own in the competitive yarn market. Shri Santosh Meenakshi Textiles Pvt Ltd., filed an appeal under Section 421 of the Companies Act, 2013 against the impugned order of National Company, Law Tribunal, Chennai by which the appellant company is held liable to spend the amount of Corporate Social, Responsibility (CSR) for the FY 2014-15 taking into account only the net profit for the FY 2013-14; the appellant, company is held liable to adhere to the other provisions of Section 135 of the Act and the company is permitted, to file an application for revision of financial statement or Board report after incorporating the information of CSR., When the appellant filed its financial statement along with Board Report with the ROC, the ROC observed the, same and issued a Show Cause Notice to the Company as to why they have not complied with Section 135(1),, 135(5) and Section 134(3)(o) of the Companies Act, 2013. The appellant filed Company Petition before the, NCLT, Chennai under Section 131 of the Companies Act, 2013 and the NCLT passed the impugned order wherein, it held that – “…… Petitioner Company is liable to spend the amount on account of CSR for FY 2014-15 taking into, account only the net profit before tax for the FY 2013-14….”, Issues involved, , NCLAT identifies the issue involved as whether the appellant is covered under Section 135(1) of the Act or not., NCLAT observes that as per the appellant’s own calculation the net profit is Rs.5,68,70,023/- for the FY 2013-14, which is apparently more than Rs. 5 crores i.e. threshold limited prescribed under Section 135(1) of the Act., Therefore, the company is covered under Section 135(1) of the Act and as such appellant was liable to constitute, Corporate Social Responsibility Committee of the Board in the year 2014-15. Section 135(5) of the Act stipulates, that Board of every company who comes under Section 135(1) of the Act shall ensures that the company spends, in every year at least 2% of the average net profit of the company made during the three immediately preceding, financial years in pursuance of the CSR. The net profit will be calculated as per Section 198 of the Companies Act,, 2013 and that the profit before tax will be taken as ‘Net Profit’., Further, NCLAT examines the next issue argued by the appellant that even if it is the company is deemed to be
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303, , Lesson 7 • Corporate Social Responsibility, , covered under Section 135(1) of the Act, then also it is not liable to expend any sum towards CSR in as much, since the company had incurred losses in FY 2011-2012 and 2012-13 and the average net profit calculated for, the three FY comes in negative. NCLAT disagrees with the observations of the NCLT which directed the appellant, herein to spend the amount on account of CSR for the FY 2014-15 taking into account only the net profit before, tax for the FY 2013-14 as it is clearly against the mandate of law that the amount to be spent is to be at least 2%, of the average net profit of the company made during the three immediately preceding financial years in, pursuance to its CSR Policy. NCLAT observes that the calculations submitted by the appellant shows that in the, last three years the company is made a profit of Rs.1,38,69,595/- and average net profit of three years will come, to Rs.46,23, 198/- and further that the company would never be covered under the average net profit of three, preceding years., NCLAT observed that that the appellant has resorted to deducting the losses twice over to somehow arrives at a, negative figure to show that it is not required to spend any amount on the CSR for the FY 2014-15. NCLAT states, that the method of calculation of average net profit for immediately preceding three years as directed by the, NCLT will not be applicable., NCLAT further observes that the company is a defaulter for spending an amount on CSR activities during the, year 2014-15 since company has not constituted the CSR Committee and no proof substantiating the amount, spent by the company on CSR activities has been placed., Judgment, , NCLAT passes an order modifying the impugned order holding that the appellant is liable to constitute Corporate, Social Responsibility Committee of the Board in terms of Section 135(1) in 2014-15 as net profit of the company, in the preceding year was more than Rs.5 crores; and further prescribes a method of calculation for the purpose, of Section 135(5)., , NCLAT holds appellant liable to constitute CSR committee of the Board in terms of Section 135(1) as the net, profit of the company exceeds the threshold limit under Section 135(1) of the Act; prescribes method for calculation, of average net profit for immediately preceding three years for the purpose of Section 135(5)., https://nclat.nic.in/Useradmin/upload/9058688895d19bba10e01d.pdf, , LESSON ROUND-UP, •, , As per section 135 of the Companies Act 2013, the CSR provision will be applicable companies which, fulfills any of the following criteria during the immediately preceding financial year:», », », , •, •, , Companies having net worth of rupees five hundred crore or more, or, Companies having turnover of rupees one thousand crore or more or, Companies having a net profit of rupees five crore or more, , The Board of every company shall ensure that the company spends, in every financial year, at least two, per cent of the average net profits of the company made during the three immediately preceding financial, years, in pursuance of its Corporate Social Responsibility Policy. This amount will be CSR expenditure, It is mandatory for companies to disclose in Board’s Report, an annual report on CSR.
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304, , Lesson 7 • EP-CL, , , , GLOSSARY, Registered Trust, , As per section 3 of Indian Trust Act 1882 “A Trust is an obligation annexed to the, ownership of the property, and arising out of a confidence reposed in and accepted, by the owner, or declared and accepted by him, for the benefit of another, or of, another and the owner”., A trust may either be a private trust or public trust., , Registered Society, , As per section 5 of the Indian Trusts Act, a private Trust in relation to an immovable, property must be created by a non-testamentary instrument in writing, signed by, the author of the trust or the trustee and registered(under Section 17 of Indian, Registration Act) . Thus, registration of a trust is necessary when it is declared by a, non-testamentary instrument. This registration would still be required, even if the, instrument declaring the trust is exempt from registration under the Indian, Registration Act. In case of a Private Trust declared by a will, registration will not be, necessary, even if it involves an immovable property. Registration will not be, required, of a trust in relation to movable property. In case of Public Trust, whether, in relation to movable property or an immovable property and whether created, under a will or inter vivos, registration is optional but desirable., , A society registration can be done for the development of fine arts, science, or, literature or else for diffusion of purposeful knowledge or charitable purposes of, political education. According to section 20 of The Society Registration Act, 1860 a, society registration can be done for following purposes:, •, Promotion of fine arts, •, , Diffusion of political education, , •, , Creation of military orphan funds, , •, •, •, •, •, Section 8 Company, , Promotion of science and literature, , Maintenance or foundation of galleries or public museum, Maintenance or foundation of reading rooms or libraries, , Promotion or diffusion or instruction of useful knowledge, , Un- registered societies have certain disadvantages., , A limited company can be incorporated under section 8 of Companies Act, 2013, with the following:, (a) It has in its objects the promotion of commerce, art, science, sports,, education, research, social welfare, religion, charity, protection of, environment or any such other object;, (b), (c), , Net profit, , Grant of charitable assistance, , it intends to apply its profits, if any, or other income in promoting its objects;, and, it intends to prohibit the payment of any dividend to its members., , Importantly, these are incorporated with the object of promotion of commerce, art,, science, sports, education, research, social welfare, religion, charity, protection of, environment or any such other object., , For the purposes of section 135 of Companies Act, 2013 "net profit" shall not include, such sums as may be prescribed, and shall be calculated in accordance with the, provisions of section 198.
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305, , Lesson 7 • Corporate Social Responsibility, , Further according to Rule 2(f) of the Companies (Corporate Social Responsibility, Policy ) Rules, 2014 “Net profit” means the net profit of a company as per its, financial statement prepared in accordance with the applicable provisions of the, Act, but shall not include the following, namely:(i), any profit arising from any overseas branch or branches of the company,, whether operated as a separate company or otherwise; and, (ii), , any dividend received from other companies in India, which. Are covered, under and complying with the provisions of section 135 of the Act:, , Provided further that in case of a foreign company covered under these rules, net, profit means the net profit of such company as per profit and loss account prepared, in terms of clause (a) of sub-section (1) of section 381 read with section 198 of the Act., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., Is every company required to constitute CSR committee? Explain the role and function of CSR Committee, constituted by the company., 2., , ABC Ltd. Failed to contribute towards CSR despite falling under the category of section 135(1). Explain, the consequences., , 4., , Can the CSR expenditure be spent on the activities beyond Schedule VII?, , 3., 5., 6., 7., , 8., , What are the means/channel a company can adopt to pursue its CSR activities?, , In case of companies having multi-locational operations, which local area of operations should the, company choose for spending the amount earmarked for CSR operations?, Whether resolution can be pass by Circulation resolution by CSR Committee?, , Zeba Ltd. has a net worth of Rs. 400 crore, turnover for the financial year 2019-20 at Rs. 1,200 crore and, a net profit for the financial year ended 31st March, 2020 at Rs. 25 crore. The company has asked you as a, Company Secretary to prepare a check-list of compliances with respect to Corporate Social Responsibility, (CSR) as per the provisions contained in the Companies Act, 2013. Also state the circumstances in which, a company is required to constitute a CSR Committee?, Can CSR Funds to be utilized to fund Government Scheme?, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , MCA FAQ on CSR - August, 2021, , •, •, , Bare Act- Companies Act, 2013, ICSI FAQ on CSR-April, 2021, , OTHER REFERENCES (Including Websites/Video Links), •, •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, https://www.mca.gov.in/Ministry/pdf/FAQ_CSR.pdf
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Lesson 8, Key Concepts One, Should Know, •, , Free Reserve, , •, , Related Party, , •, •, •, •, •, •, •, •, , Securities, , Body Corporate, , Inter-Corporate, Loan, Related Party, Transaction, , Arms length basis, , Ordinary Course of, Business, Omnibus Approval, Place of Profit, , Accounts, Audit and Auditors, Learning Objectives, To understand:, •, , Keeping books of account,, , •, , Accounting Standards, , •, •, , Inspection of books of account and other provisions for, Financial Statement & Consolidated Financial Statements, , Provisions for audit and auditors, their appointment,, qualifications, resignation, removal, duties and liabilities., , Lesson Outline, •, , Introduction, , •, , Financial statements, , •, •, •, •, •, •, •, •, •, •, •, •, •, , Accounts of Companies, , Requirement of keeping books of account., Consolidated financial statements, , National Financial Reporting Authority (NFRA), Internal audit, , Appointment, qualification, disqualification & removal of auditors, Casual vacancy in the office of auditor, Audit Report, Branch audit, , Secretarial Audit, , Cost records and audit, LESSON ROUND-UP, GLOSSARY, , •, , TEST YOURSELF, , •, , LIST OF FURTHER READINGS, , •, , OTHER REFERENCES
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308, , Lesson 8 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section 2(12), , Definition of book and paper and book or paper, , Section 2(40), , Definition of financial statement, , Section 2(13), Section 2(41), Section 128, Section 129, Section 130, Section 131, Section 132, Section 133, Section 134, Section 136, Section 137, Section 138, Section 139, Section 140, Section 141, Section 142, Section 143, Section 144, Section 145, Section 146, Section 147, Section 148, Section 177, Section 204, , Definition of books of account, Definition of financial year, , Books of Account to be kept by Company, Financial Statement, , Re-Opening of Accounts on Court’s or Tribunal’s Orders, , Voluntary Revision of Financial Statements or Board’s Report, , Constitution of National Financial Reporting Authority (NFRA), Central Government to prescribe Accounting Standards, Financial Statement, , Right of Member to Copies of Audited Financial Statement, Copy of Financial Statement to be Filed With Registrar, Internal Audit, , Appointment of Auditors, , Removal, Resignation of Auditor and Giving of Special Notice, Eligibility, Qualifications and Disqualifications of Auditors, Remuneration of Auditor, , Powers and Duties of Auditors and Auditing Standards, Auditor Not to Render Certain Services, Auditor to Sign Audit Reports, etc., , Auditors to Attend General Meeting, Punishment for contravention, , Central Government to Specify Audit of Items of Cost in Respect of Certain Companies, Audit Committee, , Secretarial Audit for Bigger Companies, , The Companies (Accounts) Rules, 2014, Rules, , Deals with, , Rule 2A, , Notice of Address at Which Books of Account are to be Maintained, , Rule 3, , Manner of Books of Account to be Kept in Electronic Mode
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309, , Lesson 8 • Accounts, Audit and Auditors, , Rule 4, , Conditions Regarding Maintenance and Inspection of Certain Financial Information by, Directors, , Rule 5, , Form of Statement Containing Salient Features of Financial Statements of Subsidiaries, , Rule 4A, Rule 6, , Rule 10, Rule 11, Rue 12, , Rule 13, , Forms and Items contained in Financial Statements, Manner of Consolidation of Accounts., , Statement Containing Salient Features of Financial Statements., Manner of Circulation of Financial Statements in Certain Cases, Filing of Financial Statements and Fees to be Paid Thereon, Companies Required to Appoint Internal Auditor, , The Companies (Indian Accounting Standards) Rules, 2015, Rules, , Deals with, , Rule 3, , Applicability of Accounting Standards., , Rule 5, , Companies exempted under the Companies (Indian Accounting Standards) Rules, 2015, , Rule 4, , Obligation to comply with Indian Accounting Standards (Ind AS)., The Companies (Audit and Auditors) Rules, , Rule, , Deals with, , Rule 3, , Manner and Procedure of Selection and Appointment of Auditors, , Rule 5, , Class of Companies, , Rule 4, Rule 6, Rule 7, Rule 8, , Rule 12, Rule 13, , Conditions for Appointment and Notice to Registrar, , Manner of Rotation of Auditors by the Companies on Expiry of their Term, Removal of the Auditor Before Expiry of his Term, Resignation of Auditor, , Duties and Powers of the Company’s Auditor with Reference to the Audit of the Branch and, the Branch Auditor, Reporting of Frauds by Auditor and Other Matters, , SEBI (LODR) Regulations, 2015, Regulations, , Deals with, , Regulation 24A, , Secretarial Audit, , Regulation 29, , Prior Intimation
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310, , , , Lesson 8 • EP-CL, , INTRODUCTION, The shareholders provide capital to the company for running the business. They are in a way, the owners of the, company. But, all of them cannot take part in managing the affairs of the company as their number is usually much, more. But they have every right to know as to how their money has been dealt with by the directors in a particular, period. This is why perhaps compulsory disclosure through annual information to the shareholders by the directors, about the working and financial position of the company enables them to exercise a more intelligent and purposeful, control over the affairs of the company. For preparation of annual accounts the maintenance of proper books of, account is a must. Section 128 of the Companies Act, 2013 contains the provisions for books of account etc. to be, kept by company., , IMPORTANT TERMINOLOGIES W.R.T. ACCOUNTS OF COMPANIES, , The terms “books of accounts”, “books and papers” “financial statement” and financial year have been defined, under the Companies Act, 2013 [“the Act”]., •, , •, , “Book and paper” and “Book or paper”- As per section 2(12) of the Act, “book and paper” and “book or, paper” include books of account, deeds, vouchers, writings, documents, minutes and registers maintained, on paper or in electronic form., “Books of Account”- As per section 2(13) of the Act, “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;, , (iii), , the assets and liabilities of the company; and, , (ii), , •, , (iv), , the items of cost as may be prescribed under section 148 of the Act in the case of a company which, belongs to any class of companies specified under that section., , “Financial Statement”- As per section 2(40) of the Act, financial statement in relation to a company,, includes, (i), , a balance sheet as at the end of the financial year;, , (iii), , cash flow statement for the financial year;, , (ii), , (iv), •, , all sales and purchases of goods and services by the company;, , (v), , 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;, a statement of changes in equity, if applicable; and, , any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to, sub- clause (iv)., , “Financial Year”- According to 2(41) of the Act “financial year”, 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:, , An application may be made by 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, if it is satisfied,, allow any period as its financial year, whether or not that period is a year:, , Any application pending before the Tribunal as on the date of commencement of the Companies, (Amendment) Act, 2019 shall be disposed of by the Tribunal in accordance with the provisions applicable, to it before such commencement., Provided also that a company or body corporate, existing on the commencement of this Act, shall, within, a period of two years from such commencement, align its financial year as per the provisions of this clause.
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Lesson 8 • Accounts, Audit and Auditors, , 311, , REQUIREMENT OF KEEPING BOOKS OF ACCOUNT ETC. [SECTION 128], Every company shall prepare and keep at its registered office books of account and other relevant books and papers, and financial statement for every financial year., Section 128 of the Act, specifies that: –, (i), , (ii), , (iii), , The company must prepare and keep at its registered office the books of account and other relevant books, and papers and financial statement for every financial year., The books of account must give a true and fair view of the state of the affairs of the company or its branches., The books of account must be kept on accrual basis and according to the double entry system of accounting., , Place of Keeping Books of Account, , Section 128(1) of the Act requires every company to prepare and keep the books of account and other relevant, books and papers and financial statements at its registered office. However, all or any of the books of accounts may, be kept at such other place in India as the Board of directors may decide. When the Board so decides, the company, is required within seven days of such decision to file with the Registrar of Companies [“RoC”] a notice in writing, giving full address of that other place. Such intimation is to be made in e-form AOC 5 to the RoC., , Maintenance of Books of account in electronic form (Rule 3 of the Companies (Accounts) Rules, 2014), , •, •, , •, •, •, , •, , The maintenance of books of account or other relevant papers in electronic mode is permitted. Such books of, accounts or other relevant books and papers maintained in electronic mode shall remain accessible in India, so as to be usable for subsequent use [“The Companies (Accounts) Rules, 2014 hereinafter referred in this, Chapter as “Rule”] (Rule 3(1) of the Rules)., , For the financial year commencing on or after the 1st day of April, 2022, every company which uses accounting, software for maintaining its books of account, shall use only such accounting software which has a feature of, recording audit trail of each and every transaction, creating an edit log of each change made in books of, account along with the date when such changes were made and ensuring that the audit trail cannot be, disabled. The information contained in the records shall be retained completely in the format in which they, were originally generated, sent or received, or in a format which shall present accurately the information, generated, sent or received and the information contained in the electronic records shall remain complete, and unaltered (Rule 3(2) of the Rules)., The information received from branch offices shall not be altered and shall be kept in a manner where it shall, depict what was originally received from the branches (Rule 3(3) of the Rules)., , The information in the electronic record of the document shall be capable of being displayed in a legible form, (Rule 3(4) of the Rules)., There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit, Committee, if any, or the Board may deem appropriate and such records shall not be disposed of or rendered, unusable, unless permitted by law:, , Provided that the back-up of the books of account and other books and papers of the company maintained in, electronic mode, including at a place outside India, if any, shall be kept in servers physically located in India, on a periodic basis (Rule 3(5) of the Rules)., The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement (a), , the name of the service provider;, , (c), , the location of the service provider (wherever applicable);, , (b), , (d), , the internet protocol address of service provider;, , where the books of account and other books and papers are maintained on cloud, such address as, provided by the service provider (Rule 3(6) of the Rules).
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312, , , , Lesson 8 • EP-CL, , Explanation.- For the purposes of this rule, the expression “electronic mode” includes “electronic form” as defined, in clause (r) of sub-section (1) of section 2 of Information Technology Act, 2000 (21 of 2000) and also includes an, electronic record as defined in clause (t) of sub-section (1) of section 2 of the Information Technology Act, 2000 (21, of 2000) and “books of account “ shall have the meaning assigned to it under the Act., , Books of Account in Respect of Branch Office, , The branches of the company, if any, in India or outside India shall also keep the books of account in the same, manner as specified in sub- section (1) of Section 128 of the Act, for the transaction effected at the branch office., , The books of account and other books and papers maintained by the company within India shall be open for, inspection at the registered office of the company or at such other place in India by any director during business, hours., The inspection in respect of any subsidiary of the company shall be done only by the person authorised in this, behalf by a resolution of the Board of Directors., , Where an inspection is made, the officers and other employees of the company shall give to the person making such, inspection all assistance in connection with the inspection which the company may reasonably be expected to give., , Further proper summarized return of the books of account of the company kept and maintained outside India shall, be sent to the registered office at quarterly intervals, which shall be kept and maintained at the registered office of, the company and which shall be kept open to directors for inspection [Rule 4(1) of the Rules]., , Where any other financial information maintained outside the country is required by a director, the director shall, furnish a request to the company setting out the full details of the financial information sought, the period for which, such information is sought [Rule 4(2) of the Rules]., The company shall produce such financial information to the director within fifteen days of the date of receipt of the, written request [Rule 4(3) of the Rules]., The financial information required under sub-rules (2) and (3) shall be sought for by the director himself and not, by or through his power of attorney holder or agent or representative [Rule 4(4) of the Rules]., , Preservation of books of accounts, , The books of account of every company relating to a period of not less than eight financial years immediately, preceding a financial year, or where the company had been in existence for a period less than eight years, in respect, of all the preceding years together with the vouchers relevant to any entry in such books of account shall be kept in, good order., , Where an investigation has been ordered in respect of the company under Chapter XIV of the Companies Act, 2013, i.e. Inspection, Inquiry and Investigation, the Central Government may direct that the books of account may be kept, for such longer period as it may deem fit [Section 128(5)]., , Persons responsible to maintain books, , According to section 128(6) of the Act, the following persons are responsible to take all reasonable steps to secure, compliance by the company with the requirement of maintenance of books of accounts etc., (i), , Managing Director,, , (iv), , Any other person of a company charged by the Board with duty of complying with provisions of section 128, of the Act., , (ii), , (iii), , Whole-Time Director, in charge of finance, Chief Financial Officer; or
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Lesson 8 • Accounts, Audit and Auditors, , 313, , Penalty, In case the aforementioned persons referred to in Section 128(6) of the Act (i.e. MD, WTD, CFO etc.) contravene such, provisions, they shall in respect of each offence, be punishable with fine which shall not be less than fifty thousand, rupees but which may extend to five lakh rupees ., , FINANCIAL STATEMENT [SECTION 129], , This section provides that the financial statements shall give a true and fair view of the state of affairs of the company, or companies in the form as provided for different class or classes in Schedule III and shall comply with accounting, standards notified under section 133 of the Act., However, insurance companies, banking company, companies engaged in generation/ supply of electricity or any, other class of companies shall make financial statements in the form as has been specified in or under the Act, governing such companies [Section 129(1)]., The financial statement shall be laid in the annual general meeting of that financial year [Section 129(2)]., , Any reference to the financial statement shall include any notes annexed to or forming part of such financial, statement, giving information required to be given and allowed to be given in the form of such notes under the, Companies Act, 2013., , True and Fair view, As per provisions of sub-sections (1) and (2) of Section 128, every financial statement of the company must give, true and fair view of the state of affairs of the company at the end of financial year. True and Fair view in respect of, financial statement means•, , financial statements and items contained should comply with accounting standards notified under section, 133 of the Act;, , •, , in case of financial statement of any insurance or banking company or any company engaged in the generation, or supply of electricity or to any other class of company for which a form of financial statement has been, specified in or under the Act governing such class of company, shall not be treated as not disclosing a true and, fair view of the state of affairs of the company, merely by the reason of the fact that they do not disclose -, , •, , financial statement shall be in form or forms as provided for different class or classes of companies in, Schedule III;, , •, , in the case of an insurance company, any matters which are not required to be disclosed by the, Insurance Act, 1938, or the Insurance Regulatory and Development Authority Act, 1999;, , •, , in the case of a company engaged in the generation or supply of electricity, any matters which are not, required to be disclosed by the Electricity Act, 2003;, , •, •, •, , in the case of a banking company, any matters which are not required to be disclosed by the Banking, Regulation Act, 1949;, in the case of a company governed by any other law for the time being in force, any matters which are, not required to be disclosed by that law., , where the financial statements of a company do not comply with the accounting standards referred to, in Section 129 (1), the company shall disclose in its financial statements, the deviation from the, accounting standards, the reasons for such deviation and the financial effects, if any, arising out of such, deviation., , Persons responsible for compliance, , The persons responsible to take all reasonable steps to secure compliance by the company with the requirement of, Section 129 of the Act, are [Section 129(7)]-
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314, , , , Lesson 8 • EP-CL, , •, , Managing Director, , •, , Other person of a company charged by the Board with the duty of complying with the requirements of section, 129., , •, •, , Whole-Time Director in charge of finance, CFO, , Where any of the aforementioned officers are absent, all the directors shall be responsible and punishable., , Penalty, , The Central Government may, on its own or on an application by a class or classes of companies, by notification,, exempt any class or classes of companies from complying with any of the requirements of this section 129 or the, rules made thereunder, if it is considered necessary to grant such exemption in the public interest and any such, exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification., In case persons referred to in section 129 (7) fail to take reasonable steps to secure compliance or contravene, provisions of Section 129 of the Act, they shall in respect of each offence be punishable with imprisonment for a, term which may extend to one year or with fine which shall not be less than fifty thousand rupees but which may, extend to five lakh rupees or with both., In case of Government company - Section 129 shall not apply to the extent of application of Accounting Standard 17, (Segment Reporting) to the companies engaged in defence production. - Notification dated 5th June, 2015., , Form of Financial Statements (Schedule III), The financial statements shall be in the form or forms as may be provided for different class or classes of companies., Schedule III contains general instructions for preparation of balance sheet and statement of profit and loss account., , CONSOLIDATED FINANCIAL STATEMENTS, , The Companies Act, 2013 has made preparation of consolidated accounts mandatory for all companies including, unlisted companies and private companies having one or more subsidiaries or associates or joint ventures., , According to sub-section 3 of the section 129 of the Companies Act, 2013, where a company has one or more, subsidiaries or associates. It shall, in addition to its financial statements for the financial year, prepare a consolidated, financial statement of the company and of all the subsidiaries and associates companies in the same form and, manner as that of its own and in accordance with applicable accounting standard, which shall also be laid before the, annual general meeting of the company along with the laying of its financial statement., The company shall also attach along with its financial statement, a separate statement containing the salient, features of the financial statement of its subsidiary/ies or associate/s or joint venture/s in Form AOC-1 (Rule 5)., , The provisions of the Companies Act, 2013 applicable to the preparation, adoption and audit of the financial, statements of a holding company shall, mutatis mutandis, apply to the consolidated financial statements referred to, in Section 129 (3)., , Manner of Consolidation of Accounts [Rule 6 of the Companies (Accounts) Rules, 2014], , The consolidation of financial statements of the company shall be made in accordance with the provisions of, Schedule III of the Act and the applicable accounting standards., , Provided that in case of a company covered under sub-section (3) of section 129 of the Act, which is not required to, prepare consolidated financial statements under the Accounting Standards, it shall be sufficient if the company, complies with provisions on consolidated financial statements provided in Schedule III of the Act., Provided further that nothing in this rule shall apply in respect of preparation of consolidated financial statements, by a company if it meets the following conditions:-
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Lesson 8 • Accounts, Audit and Auditors, , (i), , (ii), , 315, , it is a wholly-owned subsidiary, or is a partially-owned subsidiary of another company and all its other, members, including those not otherwise entitled to vote, having been intimated in writing and for which the, proof of delivery of such intimation is available with the company, do not object to the company not presenting, consolidated financial statements;, , it is a company whose securities are not listed or are not in the process of listing on any stock exchange,, whether in India or outside India; and, , (iiii) its ultimate or any intermediate holding company files consolidated financial statements with the Registrar, which are in compliance with the applicable Accounting Standards., , PERIODICAL FINANCIAL RESULTS [SECTION 129A], , The Central Government may, require such class or classes of unlisted companies, as may be prescribed,—, (a), , to prepare the financial results of the company on such periodical basis and in such form as may be prescribed;, , (c), , file a copy with the Registrar within a period of thirty days of completion of the relevant period with such fees, as may be prescribed., , (b), , to obtain approval of the Board of Directors and complete audit or limited review of such periodical financial, results in such manner as may be prescribed; and, , Inserted by the Companies (Amendment) Act, 2020. Notification dated 28th September, 2020; Effective from, 22nd January, 2021., , RE-OPENING OF ACCOUNTS ON COURT’S OR TRIBUNAL’S ORDERS [SECTION 130], Section 130 of the Act, provides for provisions relating to re-opening or re-casting of books of accounts of the, company. Accordingly,, (i), , A company shall not re-open its books of account and shall not recast its financial statements, unless an, application to the tribunal, in this regard is made by any one or more of the following (a), , the Central Government, or, , (c), , the Securities and Exchange Board of India (SEBI), or, , (b), , (d), (ii), , (iii), , (e), , any other statutory regulatory body or authority or any person concerned, and, , an order in this regard is made by a court of competent jurisdiction or the Tribunal., , The re- opening and recasting of financial statements is permitted only for the following reasons –, (i), , (ii), , the relevant earlier accounts were prepared in a fraudulent manner; or, , the affairs of the company were mismanaged during the relevant period, casting a doubt on the, reliability of financial statements., , The Tribunal shall give the notice to(a), , (b), (c), , (d), (iv), , the Income-tax authorities, or, , the Central Government,, , the Income-tax authorities,, , the Securities and Exchange Board,, , any other statutory regulatory body or authority concerned or any other person concerned and shall, take into consideration the representations, if any, made by Central Government or the authorities,, Securities and Exchange Board or the body or authority concerned or any other person concerned, before passing any order under this section., , The accounts so revised or re-cast under this section shall be final., , No order shall be made under Section 130 (1) in respect of re-opening of books of account relating to a period, earlier than eight financial years immediately preceding the current financial year.
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316, , , , Lesson 8 • EP-CL, , Provided that where a direction has been issued by the Central Government under the proviso to sub-section of, section 128 for keeping of books of account for a period longer than eight years, the books of account may be, ordered to be re-opened within such longer period., , Case Law:, , In the matter of Hari Sankaran (Appellant) vs. Union of India & Ors. (Respondents) (The Supreme Court, of India) dated 04/06/2019, NCLAT order of allowing re-opening of books and re-casting of financial statements of IL&FS is valid, The Supreme Court of India inter-alia observed that the Tribunal may, under Section 130 of the Act, pass an, order of re-opening of accounts if it is of opinion that (i) the relevant earlier accounts were prepared in a, fraudulent manner; or (ii)the affairs of the company were mismanaged during the relevant period casting a, doubt on the reliability of the financial statements. Thus, the Tribunal would be justified in passing the order, under Section 130 of the Act upon fulfillment of either of the said two conditions., In view of the above referred legal position in addition to the reports of SFIO & ICAI, the specific observations, made by the learned Tribunal while passing the order under Section 241/242 of the Companies Act and, considering the fact that the Central Government has entrusted the investigation of the affairs of the company to, SFIO in exercise of powers under Section 242 of the Companies Act, the Apex Court observed that it cannot be, said that the conditions precedent while invoking the powers under Section 130 of the Act are not satisfied., , The Supreme Court of India upheld the order passed by NCLAT under Section 130 of the Companies Act for reopening of the books of accounts and re-casting the financial statements of the Infrastructure Leasing & Financial, Services Limited; IL&FS Financial Services Limited and IL&FS Transportation Networks Limited for the last five, years, viz. from Financial Year 2012-13 to the Financial Year 2017-18 in larger public interest., , VOLUNTARY REVISION OF FINANCIAL STATEMENTS OR BOARD’S REPORT [Section 131], , Section 131 of the Act, allows the directors to prepare revised financial statement or a revised Board’s report in, respect of any of the three preceding financial years after obtaining approval of the Tribunal, if it appears to them, that the company’s financial statement or the Board’s Report has not been complied with the requirements of, Section 129 or Section 134 of the Act., , The Tribunal shall give notice to the Central Government and the Income-tax authorities and shall take into, consideration the representations, if any, made by that Government or the authorities before passing any order, under this section., Such revised financial statement or report shall not be prepared or filed more than once in a financial year., , The detailed reasons for revision of such financial statement or report shall also be disclosed in the Board’s report, in the relevant financial year in which such revision is being made., Where copies of the previous financial statement or report have been sent out to members or delivered to the, Registrar or laid before the company in general meeting, the revisions must be confined to—, (a), , (b), , the correction in respect of which the previous financial statement or report do not comply with the provisions, of section 129 or section 134 of the Act; and, the making of any necessary consequential alternation., , SIGNATURE OF FINANCIAL STATEMENT [SECTION 134], , The financial statement, including consolidated financial statement, if any, shall be approved by the Board of, Directors before they are signed on behalf of the Board by the chairperson of the company where he is authorised, by the Board or by two directors out of which one shall be managing director, if any, and the Chief Executive Officer,, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case, of One Person Company, only by one director, for submission to the auditor for his report thereon., The auditors’ report shall be attached to every financial statement. A report by its Board of Directors shall also be, attached to statements laid before a company in general meeting.
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317, , Lesson 8 • Accounts, Audit and Auditors, , RIGHT OF MEMBER TO COPIES OF AUDITED FINANCIAL STATEMENT [SECTION 136], According to section 136 of the Act, a, copy of financial statements including, consolidated financial statement, if any,, auditor’s report along with every other, document required by law to be annexed, or attached to the financial statements, which are to be laid before a company in, its general meeting, shall be sent to every, member of the Company, every trustee, for the debenture holder and all other, persons who are so entitled, not less than, twenty one days before the date of the, meeting., , The copies of the documents can be sent less than twenty-one days, before the date of the meeting, they shall, notwithstanding that fact,, be deemed to have been duly sent if it is so agreed by members –, (a), , (b), , In case of the company having share capital, majority in, number entitled to vote and who represent not less than, ninety-five per cent. of such part of the paid-up share capital, of the company as gives a right to vote at the meeting; or, In case of company not having share capital, not less than, ninety-five per cent. of the total voting power exercisable at, the meeting., , Exceptions:, , In case of section 8 company - A copy of financial statements including consolidated financial statement, if any,, auditor’s report along with every other document required by law to be annexed or attached to the financial, statements which are to be laid before a company in its general meeting, shall be sent to every member of the, Company, to every trustee for the debenture holder and all other persons who are so entitled, not less than, fourteen days before the date of the meeting – Notification dated 5th June, 2015., , In case of Nidhi company - Section 136 (1) shall apply, subject to the modification that, in the case of members, who do not individually or jointly hold shares of more than one thousand rupees in face value or more than, one per cent, of the total paid-up share capital whichever is less, it shall be sufficient compliance with the, provisions of the section if an intimation is sent by public notice in newspaper circulated in the district in which, the Registered Office of the Nidhi is situated stating the date, time and venue of Annual General Meeting and the, financial statement with its enclosures can be inspected at the registered office of the company, and the financial, statement with enclosures are affixed in the Notice Board of the company and a member is entitled to vote either, in person or through proxy – Notification dated 5th June, 2015., , Obligation of listed company, , In the case of a company whose shares are listed on a recognised stock exchange, provisions of section 136 shall be, deemed to have been complied with, if the copies of the documents are made available for inspection at its registered, office, during working hours, for a period of twenty-one days before the date of the meeting and a statement, containing the salient features of such documents in the prescribed form [Form AOC-3] or copies of the documents,, as the company may deem fit, is sent to every member of the company and to every trustee for the holders of any, debentures issued by the company not less than twenty-one days before the date of the meeting., The Companies which are required to comply with Companies (Indian Accounting standards) Rules, 2015 shall, forward their statement in Form AOC-3A., Manner of Circulation of Financial Statements in Certain Cases (Rule 11 of the Companies (Accounts) Rules,, 2014, , Every listed company is required to supply a copy of the complete financial statements with auditor’s report and, director’s report, to such shareholders who ask for full financial statements., , Further in case of all listed companies and such public companies which have a net worth of more than one crore, rupees and turnover of more than ten crore rupees, the financial statements may be sent(a), , by electronic mode to such members whose shareholding is in dematerialised format and whose email Ids, are registered with Depository for communication purposes;
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318, , (b), (c), , , , Lesson 8 • EP-CL, , where shareholding is held otherwise than by dematerialised format, to such members who have positively, consented in writing for receiving by electronic mode; and, by dispatch of physical copies through any recognised mode of delivery as specified under section 20 of the, Companies Act, 2013, in all other cases., , Every listed company is also required to place its financial statements including consolidated financial, statements, if any, and all other documents required to be attached thereto, on its website, which is maintained, by or on behalf of the company., •, •, •, •, , According to Regulation 29 of SEBI (LODR) Regulations,2015, the listed entity shall give prior intimation, to stock exchange about the meeting of the board of directors regarding financial results viz. quarterly, half, yearly, or annual, as the case may be., Intimation shall be given at least five days in advance (excluding the date of the intimation and date of the, meeting), and such intimation shall include the date of such meeting of board of directors., , Every listed company having a subsidiary or subsidiaries shall place separate audited accounts in respect, of each of subsidiary on its website, if any., A listed company which has a subsidiary incorporated outside India (herein referred to as “foreign, subsidiary”)—, (a), , (b), , where such foreign subsidiary is statutorily required to prepare consolidated financial statement, under any law of the country of its incorporation, the requirement of this proviso shall be met if, consolidated financial statement of such foreign subsidiary is placed on the website of the listed, company;, , where such foreign subsidiary is not required to get its financial statement audited under any law of, the country of its incorporation and which does not get such financial statement audited, the holding, Indian listed company may place such unaudited financial statement on its website and where such, financial statement is in a language other than English, a translated copy of the financial statement, in English shall also be placed on the website., , Financial statements of subsidiaries, , Every company having a subsidiary or subsidiaries shall provide a copy of separate audited or unaudited financial, statements, as the case may be, as prepared in respect of each of its subsidiary to any member of the company who, asks for it., , Right to inspect, , Every company shall be under an obligation to allow every member or trustee of the holder of any debentures, issued by the company to inspect the financial statements and documents to be attached thereto at its registered, office during business hours., , In case if the listed company has sent the salient features of financial statements to members and debenture trustees, in prescribed form then copy of financial statements including consolidated financial statement, if any, auditor’s, report along with every other document required by law to be annexed or attached to the financial statements shall, be available for inspection at its registered office during working hours for a period of 21 days before the date of, meeting., , Penal provisions, , If any default is made in complying with the provisions of Section 136 of the Act, the company shall be liable to a, penalty of –, (i), , (ii), , twenty-five thousand rupees and, , every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
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Lesson 8 • Accounts, Audit and Auditors, , 319, , COPY OF FINANCIAL STATEMENT TO BE FILED WITH REGISTRAR- [SECTION 137], Section 137 of the Act, requires every company to file the financial statements including consolidated financial, statement together with Form AOC- 4 and AOC-4 (CFS) with the Registrar of Companies (RoC) within 30 days from, the day on which the annual general meeting held and adopted the financial statements with such fees or additional, fee as specified in Companies (Registration Offices and Fees) Rules, 2014., , If the financial statements are not adopted at the annual general meeting or adjourned annual general meeting,, such unadopted financial statements along with the required documents be filed with the RoC with in thirty days of, the date of annual general meeting. The RoC shall take them in his record as provisional, until the adoption at, annual general meeting., Financial statements adopted in the adjourned annual general meeting shall be filed with the Registrar within thirty, days of the date of such adjourned annual general meeting with such fees or such additional fees as may prescribed., The One Person Company shall file the copy of financial statements duly adopted by its member within a period, of one hundred and eighty days from the closure of financial year., , The company shall also attach the accounts of subsidiaries incorporated outside India and which have not, established their place of business in India with the financial statements., , Provided also that in the case of a subsidiary which has been incorporated outside India (herein referred to as, “foreign subsidiary”), which is not required to get its financial statement audited under any law of the country of its, incorporation and which does not get such financial statement audited, the requirements of the fourth proviso, (accounts of subsidiaries) shall be met if the holding Indian company files such unaudited financial statement along, with a declaration to this effect and where such financial statement is in a language other than English, along with, a translated copy of the financial statement in English., Where the annual general meeting of a company for any year has not been held, the financial statements along with, the documents required to be attached, duly signed along with the statement of facts and reasons for not holding, the annual general meeting shall be filed with the Registrar within thirty days of the last date before which the, annual general meeting should have been held and in such manner, with such fees or additional fees as prescribed., , The class of companies as may be notified by the Central Government from time to time, shall mandatorily file their, financial statement in Extensible Business Reporting Language (XBRL) format and the Central Government may, specify the manner of such filing under such notification for such class of companies [Rule 12(2) of the Companies, (Accounts) Rules, 2014]., , Rule 3 of the Companies (Filing of Documents and Forms in XBRL) Rules, 2015, , (1) The following class of companies shall file their financial statements and other documents under section 137 of, the Act with the Registrar in e-Form AOC-4 XBRL:, (i), , companies listed with stock exchanges in India and their Indian subsidiaries;, , (iv), , all companies which are required to prepare their financial statements in accordance with Companies (Indian, Accounting Standards) Rules, 2015, , (ii), , (iii), , companies having paid up capital of five crore rupees or above;, , companies having turnover of one hundred crore rupees or above;, , Provided that the companies preparing their financial statements under the Companies (Accounting Standards), Rules, 2006 shall file the statements using the Taxonomy provided in Annexure-II and companies preparing their, financial statements under Companies (Indian Accounting Standards) Rules, 2015, shall file the statements using, the Taxonomy provided in Annexure-II A of the Companies (Filing of Documents and Forms in XBRL) Rules, 2015, Further non-banking financial companies, housing finance companies and companies engaged in the business of, banking and insurance sector are exempted from filing of financial statements under these rules.
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320, , , , Lesson 8 • EP-CL, , The companies which have filed their financial statements under sub-rule (1) of Rule 3 of XBRL Rules, shall continue, to file their financial statements and other documents though they may not fall under the class of companies, specified therein in succeeding years., , The companies which have filed their financial statements under the erstwhile rules, namely the Companies (Filing, of Documents and Forms in Extensible Business Reporting Language) Rules, 2011, shall continue to file their, financial statements and other documents as prescribed in Rule 3(1) of XBRL Rules though they do not fall under, the class of companies specified therein., Every Non-Banking Financial Company (NBFC) that is required to comply with Indian Accounting Standards (Ind, AS) shall file the financial statements with Registrar together with Form AOC-4 NBFC (Ind AS) and the consolidated, financial statement, if any, with Form AOC-4 CFS NBFC (Ind AS) vide MCA Notification dated 30th January 2020., , Penalty for non-compliance, If company fails to comply with the requirement of submission of financial statement with RoC:, •, •, , the company shall be liable to a penalty of: Rs.10000 and in case of continuing failure, with a further penalty, of Rs.100 for each day during which such failure continues, subject to a maximum of Rs. 2 lakhs, and, , the Managing Director and the Chief Financial Officer of the company, if any, and, in the absence of the, Managing Director and the Chief Financial Officer, any other director who is charged by the Board with the, responsibility of complying with the provisions of section 137, and, in the absence of any such director, all the, directors of the company, shall be liable to a penalty of: Rs.10000 and in case of continuing failure, with, further penalty of Rs.100 for each day after the first during which such failure continues, subject to a maximum, of Rs.50,000., , NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA), , Through Section 132 of the Companies Act, 2013, the Central Government has introduced a new regulatory authority, named as National Authority for Financial Reporting known as National Financial Reporting Authority (NFRA), with wide powers to recommend, enforce and monitor the compliance of accounting and auditing standards. The, erstwhile Companies Act, 1956 has empowered the Central Government to form a Committee for recommendations, on Accounting Standards which is National Advisory Committee on Accounting Standards (NACAS). This has now, been renamed with enhanced independent oversight powers and authority as National Financial Reporting, Authority (NFRA).The National Financial Reporting Authority performs its functions through such divisions as may, be prescribed., NFRA is responsible for monitoring and enforcing compliance of auditing and accounting standards and for that, purpose, oversee the quality of professions associated with ensuring such compliances. The Authority has power to, investigate professional and other misconducts which may be committed by Chartered Accountancy members and, firms. There is also a provision for appellate authority., The National Financial Reporting Authority is a quasi – judicial body to regulate matters related to accounting and, auditing. With increasing demand of non–financial reporting, it may be referred to as a National level business, Reporting Authority to regulate standards of all kind of reporting- financial as well as non–financial, by the, companies in future., National Financial Reporting Authority shall give its recommendations on accounting standards and auditing, standards. It shall only recommend and it is the Central Government who shall prescribe such standards., , Objective, , The objectives of National Financial Reporting Authority inter alia shall be as follows:, (1), (2), , Make recommendations to the Central Government on formulation of accounting and auditing policies and, standards for adoption by companies, class of companies or their auditors;, Monitor and enforce the compliance with accounting standards, monitor and enforce the compliance with, auditing standards;
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Lesson 8 • Accounts, Audit and Auditors, , (3), (4), , 321, , Oversee the quality of service of professionals associated with ensuring compliance with such standards and, suggest measures required for improvement in quality of service, and, Perform such other functions as may be prescribed in relation to aforementioned objectives., , Constitution of NFRA, , The constitution of National Financial Reporting Authority (NFRA), which is supposed to be constituted as an, oversight regulatory body to recommend accounting and auditing standards, is governed by sub -section and (4) of, section 132 of the Act. Accordingly,, (i), , (ii), , (iii), , (iv), (v), (vi), , It consists of a chairperson, who shall be a person of eminence & having expertise in accountancy, auditing,, finance, or law, to be nominated by Central Government, and such other prescribed members not exceeding, 15 consisting of part-time and full-time members as prescribed., Each division of the National Financial Reporting Authority shall be presided over by the Chairperson or a, full-time Member authorised by the Chairperson., , There shall be an executive body of the National Financial Reporting Authority consisting of the Chairperson, and full-time Members of such Authority for efficient discharge of its functions under sub-section (2) of, Section 132 of the Act [other than clause (a)] and sub-section (4) of Section 132 of the Act. Provided that the, terms and conditions and the manner of appointment of the chairperson and members shall be such as, prescribed., The chairperson and all members shall make a declaration in prescribed form about no conflict of interest or, lack of independence in respect of their appointment. The chairperson and all full–time members shall not, be associated with any audit firm or related consultancy firm during course of their appointment and two, years after ceasing to hold such appointment., , The Central Government may appoint a secretary and such other employees as it may consider necessary for, the efficient performance of functions by the National Financial Reporting Authority under the Companies Act,, 2013 and the terms and conditions of service of the secretary and employees shall be such as prescribed., The head office of National Financial Reporting Authority is at New Delhi and it may, meet at such other, places in India, as it deems fit., , (vii) The National Financial Reporting Authority shall meet at such times and places and shall observe such rules, of procedure in regard to the transaction of business at its meetings in such manner as prescribed., , Maintenance of Books and Accounts, , The National Financial Reporting Authority shall cause to be maintained such books of account and other books in, relation to its accounts in such form and in such manner as the Central Government may, in consultation with the, Comptroller and Auditor-General of India prescribe., , Audit of NFRA, , The accounts of the National Financial Reporting Authority is required be audited by the Comptroller and Auditor, General of India at such intervals as may be specified by him and such accounts as certified by the Comptroller and, Auditor General of India together with the audit report thereon shall be forwarded annually to the Central, Government by the National Financial Reporting Authority., , The National Financial Reporting Authority shall prepare in such form and at such time for each financial year as, may be prescribed its annual report giving a full account of its activities during the financial year and forward a copy, thereof to the Central Government and the Central Government shall cause the annual report and the audit report, given by the Comptroller and Auditor General of India to be laid before each House of Parliament., , Jurisdiction, Powers of and Imposition of Penalties by NFRA, , The National Financial Reporting Authority have the power to investigate, either suo moto or on a reference made, to it by the Central Government, for such class of bodies corporate or persons, in such manner as prescribed into
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322, , , , Lesson 8 • EP-CL, , the matters of professional or other misconduct committed by any member or firm of chartered accountants,, registered under the Chartered Accountants Act, 1949., , Provide that no other institute or body shall initiate or continue any proceedings in such matters of misconduct, where the National Financial Reporting Authority has initiated an investigation under Section 132 of the Companies, Act, 2013., The Authority shall have powers as are vested in a civil court under Code of Civil Procedure, 1908 in respect of, following matters:, 1., 2., 3., 4., , Discovery and production of books of accounts and other documents at such place and at such time as may, be specified by the National Financial Reporting Authority;, Summoning and enforcing the attendance of persons and examining them on oath;, Inspection of any books, registers and other documents of any person;, Issuing commission for examination of witness or documents., , Where professional or other misconduct is proved, the Authority shall have powers to make an order in relation to:, A., , Imposing penalty of:, , B., , Debarring member or the firm from:, , (i), , (ii), (i), , (ii), , not less than one lakh rupees which may extend to five times of the fees received in case of individuals; and, not less than five lakh rupees which may extend to ten times of the fees received in case of firms., , being appointed as an auditor or internal auditor or undertaking any audit in respect of financial, statements or internal audit of the functions and activities of any company or body corporate; or, , performing any valuation as provided under section 247, for a minimum period of six months or such, higher period not exceeding ten years as may be determined by the National Financial Reporting, Authority., , Appeals and Appellate Authority, , Any person aggrieved by any order of the National Financial Reporting Authority may prefer appeal before the, Appellate Tribunal in such manner and on payment of such fee as prescribed., , CENTRAL GOVERNMENT TO PRESCRIBE ACCOUNTING STANDARDS- [SECTION 133], , The Central Government may prescribe the standards of accounting or any addendum thereto, as recommended by, the Institute of Chartered Accountants of India, constituted under section 3 of the Chartered Accountants Act, 1949,, in consultation with and after examination of the recommendations made by the National Financial Reporting, Authority. The Ministry has subsequently clarified that till the Standards of Accounting or any addendum, thereto is prescribed by Central Government in consultation and recommendation of the National Financial, Reporting Authority, the existing Accounting Standards notified under the Companies Act 1956 shall continue, to apply., •, , On 6th February 2015 the Ministry of Corporate Affairs (MCA), the Central Government, in consultation with, the National Advisory Committee on Accounting Standards (NACAS), notified the Companies (Indian, Accounting Standards) Rules, 2015 in exercise of the powers conferred by section 133 and section 469 of the, Companies Act, 2013 and sub-section (1) of section 210A of the Companies Act, 1956. These rules came into, force on 1st April 2015., As a result of this notification, notifying the Companies (Indian Accounting Standards) Rules, 2015, there, shall be two separate sets of Accounting Standards –, 1., 2., , Indian accounting Standards (Ind AS) as specified in the Annexure to Companies (Indian Accounting, Standards) Rules, 2015, Accounting standards as specified in Annexure to the Companies (Accounting Standards) Rules, 2006
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323, , Lesson 8 • Accounts, Audit and Auditors, , Indian Accounting Standards (Ind AS), Indian Accounting Standards (Ind AS) are the accounting standards prescribed under Section 133 of the Companies, Act, 2013. Indian Accounting Standards (Ind AS) are specified in the Annexure to the Companies (Indian Accounting, Standards) Rules, 2015. These accounting standards are converged with corresponding International Financial, Reporting Standards., , Applicability under Rule 3 of the Companies (Indian Accounting Standards) Rules, 2015, 1., 2., , Indian Accounting Standards (Ind AS) as •, specified in the Annexure to Companies (Indian, Accounting Standards) Rules, 2015, Accounting standards as specified in Annexure •, to the Companies (Accounting Standards), Rules, 2006., Applicability, , Voluntary basis, , Applicable to classes of company specified in Rule, 4(1) of the Companies (Indian Accounting, Standards) Rules, 2015., , Applicable to the companies other than the classes, of companies specified in Rule 4(1) of the Companies, (Indian Accounting Standards) Rules, 2015., w.e.f., , Rule 4(1)(i)- Any company and its holding, subsidiary,, joint venture or associate company may comply with the, Indian Accounting Standards (Ind AS) for financial, statements for accounting periods beginning on or after, 1st April, 2015, with the comparatives for the periods, ending on 31st March, 2015, or thereafter., , Mandatory basis for the accounting periods beginning Rule 4(1)(ii)- The following companies shall mandatorily, on or after April 1, 2016 with the comparatives for the comply with Ind AS namely:periods ending on 31st March, 2016, or thereafter, •, Companies whose equity or debt securities are, listed or are in the process of being listed on any, stock exchange (except SME Exchange) in India or, outside India and having net worth of rupees five, hundred crore or more;, •, •, , Unlisted companies having net worth of rupees, five hundred crore or more;, holding, subsidiary, joint venture or associate, companies of companies covered above., , Mandatory basis for the accounting periods beginning Rule 4(1)(iii)- The following companies shall comply Ind, on or after April 1, 2017, with the comparatives for AS namely:the periods ending on 31st March, 2017, or thereafter •, Companies whose equity or debt securities are, listed or are in the process of being listed on any, stock exchange (except SME Exchange) in India or, outside India and having net worth of less than, rupees five hundred crore;, •, •, , Unlisted companies having net worth of rupees, two hundred and fifty crore or more but less than, rupees five hundred crore;, holding, subsidiary, joint venture or associate, companies of companies covered above.
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324, , Lesson 8 • EP-CL, , , , In case of NBFCs, for accounting periods beginning Rule (4)(1)(iv)(a)The following NBFCs shall comply with, on or after the 1st April, 2018, with comparatives for the Ind (AS):, the periods ending on 31st March, 2018, or, (A) NBFCs having net worth of rupees five hundred crore, thereafter., or more;, (B), , holding, subsidiary, joint venture or associate, companies of companies covered under item (A)., , In case of NBFCs, for accounting periods beginning on Rule (4)(1)(iv)(b)The following NBFCs shall comply with, or after the 1st April, 2019, with comparatives for the Ind (AS):, the periods ending on 31stMarch, 2019, or thereafter., (A) NBFCs whose equity or debt securities are listed or, in the process of listing on any stock exchange in, India or outside India and having net worth less, than rupees five hundred crore;, (B), (C), , NBFCs, that are unlisted companies, having net worth, of rupees two-hundred and fifty crore or more but, less than rupees five hundred crore; and, holding, subsidiary, joint venture or associate, companies of companies covered under item or, item (B)., , Companies exempted under Rule 5 of the Companies (Indian Accounting Standards) Rules, 2015, , The Companies (Indian Accounting Standards) Rules, 2015 shall not be applicable on Banking Companies and, Insurance Companies. The Banking Companies and Insurance Companies shall apply the Ind AS as notified by the, Reserve Bank of India (RBI) and Insurance Regulatory Development Authority (IRDA) respectively. An insurer or, insurance company shall however, provide Ind AS compliant financial statement data for the purposes of preparation, of consolidated financial statements by its parent or investor or venturer, as required by the parent or investor or, venturer to comply with the requirements of these rules., The Companies(Accounting Standards) Rules, 2021 for Small and Medium sized Companies, The MCA vide notification dated June 23, 2021 has notified the Companies (Accounting Standards) Rules, 2021, for Small and Medium sized companies (SMCs), with which the turnover and borrowing limits has been revised, as well as disclosure requirements has been made less onerous for SMCs., The revised definition of “Small and Medium Sized Company” (SMC) means, a company(i), whose equity or debt securities are not listed or are not in the process of listing on any stock exchange,, whether in India or outside India;, (ii) which is not a bank, financial institution or an insurance company;, (iii) whose turnover (excluding other income) does not exceed two hundred and fifty crore rupees in the, immediately preceding accounting year;, (iv) which does not have borrowings (including public deposits) in excess of fifty crore rupees at any time, during the immediately preceding accounting year; and, (v) which is not a holding or subsidiary company of a company which is not a small and medium-sized, company., Explanation.- For the purposes of this clause, a company shall qualify as a Small and Medium Sized Company, if the, conditions mentioned therein are satisfied as at the end of the relevant accounting period., The main objective was to mirror the existing accounting standards under the Companies Act, 1956, in the 2013, act, and while doing so, the SMC definition, which has since been revised, has also been revised in the accounting, standards.
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Lesson 8 • Accounts, Audit and Auditors, , 325, , Obligation to comply with Accounting Standards, (1) Every company, other than companies on which Indian Accounting Standards as notified under Companies, (Indian Accounting Standards) Rules, 2015 are applicable, and its auditor(s) shall comply with the, Accounting Standards in the manner specified., (2), , The Accounting Standards shall be applied in the preparation of Financial Statements., , Qualification for exemption of relaxation in respect of SMC, , An existing company, which was previously not a Small and Medium sized Company (SMC) and subsequently, becomes a SMC, shall not be qualified for exemption or relaxation in respect of Accounting Standards available, to a SMC until the company remains a SMC for two consecutive accounting periods., https://mca.gov.in/bin/dms/getdocument?mds=RKk43Bmg99ksfV0bUGr6XA%253D%253 D&type=open, , AUDIT AND AUDITORS, An auditor is a person who is authorized to review and verify the accuracy of financial records and ensure that the, companies are complying with tax laws. The Auditor protects businesses from fraud, point out discrepancies in, accounting methods and, on occasion, work on a consultancy basis, helping organizations to spot ways to boost, operational efficiency. The Auditors work in various capacities within different industries., , Eligibility & Qualifications of Auditor, , Section 141 (1) & (2) of the Act prescribed the following eligibility and qualifications of auditor which are as under:(i), , (ii), , Only a Chartered Accountant (individual) or a firm where majority of partners practicing in India are, Chartered Accountants can be appointed as auditor., Where a firm including a limited liability partnership (LLP) is appointed as an auditor of a company, only the, partners who are chartered accountants shall be authorized to act and sign on behalf of the firm., , Disqualifications of Auditor, , Section 141 (3) of the Act read with Rule 10 prescribed the following persons shall not be eligible for appointment, as an auditor of a company, namely:, •, , A body corporate, except LLP;, , •, , A person who himself or his relative/partner is holding any security or interest in the company, or its, subsidiary, or of its holding or associate company or a subsidiary of such holding company ;, , •, •, , An officer or employee of the company;, , A person who is a partner, or who is in the employment, of an officer or employee of the company;, », , », , », , », , However, the relative may hold security or interest in the company of face value not exceeding rupees, one lakh. This shall wherever relevant be also applicable in the case of a company not having share, capital or other securities., In the event of acquiring any security or interest by a relative, above the threshold prescribed, the, corrective action to maintain the limits as specified above shall be taken by the auditor within sixty days, of such acquisition or interest., , A person who or whose relative or partner is indebted to the company or its subsidiary or its holding or, associate company or a subsidiary of such holding company, in excess of rupees five lakh shall not be, eligible for appointment., , A person who or whose relative or partner has given a guarantee or provided any security in connection, with the indebtedness of any third person to the company, or its subsidiary, or its holding or associate, company or a subsidiary of such holding company, in excess of one lakh rupees shall not be eligible for, appointment.
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326, , •, , , , Lesson 8 • EP-CL, , A person or a firm who, whether directly or indirectly, has “business relationship” with the company, or its, subsidiary, or its holding or associate company;, , The term “business relationship” shall be construed as any transaction entered into for a commercial purpose,, except –, •, •, , •, , commercial transactions which are in the ordinary course of business of the company at arm’s length, price-like sale of products or services to the auditor, as customer, in the ordinary course of business, by, companies engaged in the business of telecommunications, airlines, hospitals, hotels and such other, similar businesses., , A person whose relative is a director or is in the employment of the company as a director or KMP;, , •, , •, , commercial transactions which are in the nature of professional services permitted to be rendered by an, auditor or audit firm under the Act and the Chartered Accountants Act, 1949 and the rules or the, regulations made under those Acts;, , A person who is in full time employment elsewhere or a person or a partner of a firm holding appointment, as its auditor, if such persons or partner is at the date of such appointment or reappointment holding, appointment as auditor of more than twenty companies;, , In case of private company a person is ineligible to be appointed as an auditor, if such person or partner is at the, date of such appointment or reappointment holding appointment as auditor of more than twenty companies, other than one person companies, dormant companies, small companies and private companies having paid-up, share capital less than one hundred crore rupee., , A person who has been convicted by a court of an offence involving fraud and a period of ten years has not, elapsed from the date of such conviction;, , •, , A person who, directly or indirectly, renders any service referred to in section 144 to the company or its, holding company or its subsidiary company., , Explanation. – For the purposes of this clause, the term “directly or indirectly” shall have the meaning assigned, to it in the Explanation to section 144., , Explanation to Section 144 defines the term ‘directly or indirectly’ to include rendering of services by the auditor,(i), , (ii), , in case of auditor being an individual, either himself or through his relative or any other person connected or, associated with such individual or through any other entity, whatsoever, in which such individual has, significant influence or control, or whose name or trade mark or brand is used by such individual;, , in case of auditor being a firm, either itself or through any of its partners or through its parent, subsidiary or, associate entity or through any other entity, whatsoever, in which the firm or any partner of the firm has, significant influence or control, or whose name or trade mark or brand is used by the firm or any of its, partners., , According to section 141 (4) of the Act where a person appointed as an auditor of a company incurs any of the, disqualifications mentioned as above after his appointment, he shall vacate his office as such auditor and such, vacation shall be deemed to be a casual vacancy in the office of the auditor., , APPOINTMENT OF AUDITORS (SECTION 139), , The Board of Directors of a company shall appoint an individual or firm as the first auditor of a company, other than, a Government company, within thirty days from the date of registration of the company. In the case of failure of the, Board to appoint the first auditor, it shall inform the members of the company, who shall within ninety days at an, extraordinary general meeting appoint such auditor and such auditor shall hold office till the conclusion of the first, annual general meeting of the company.
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Lesson 8 • Accounts, Audit and Auditors, , 327, , Every company shall, at the first annual general meeting, appoint an individual or a firm as an auditor who shall, hold the office from the conclusion of that meeting till the conclusion of sixth annual general meeting and thereafter, till the conclusion of every sixth meeting., If at any annual general meeting, no auditor is appointed or re-appointed, the existing auditor shall continue to be, the auditor of the company., , Manner and procedure of selection and appointment of auditors, , In case of a company that is required to constitute an Audit Committee under section 177 of the Act, such committee,, and, in cases where such a committee is not required to be constituted, the Board shall take into consideration the, qualifications and experience of the individual or the firm proposed to be considered for appointment as auditor, and whether such qualifications and experience are commensurate with the size and requirements of the company., •, , While considering the appointment of auditor, the Audit Committee or the Board, as the case may be, shall, consider any pending proceeding relating to professional matters of conduct against the proposed auditor, before the ICAI or any competent authority or any Court. Further they may call for such other information, from the proposed auditor as it may deem fit., , •, , Where a company is required to constitute the Audit Committee, the committee shall recommend the name, of an individual or a firm as auditor to the Board for consideration and in other cases, the Board shall consider, and recommend an individual or a firm as auditor to the members in the AGM for appointment., , •, , If the Board agrees with the recommendation of the Audit Committee, it shall further recommend the, appointment of auditor to the members in the AGM otherwise; it shall refer back the recommendation to the, committee for reconsideration citing reasons for such disagreement., , •, , Thereafter if the Audit Committee decides not to reconsider its original recommendation, then Board shall, record reasons for its disagreement with the Audit committee and send its own recommendation for, consideration of the members in the AGM and if the Board agrees with the recommendations of the Audit, Committee, it shall place the matter for consideration by members in the AGM., , •, , The auditor appointed in the AGM meeting shall hold office from the conclusion of that meeting till the, conclusion of the sixth annual general meeting, with the meeting wherein such appointment has been made, being counted as the first meeting., , Conditions for Appointment and Notice to Registrar [Rule 4 of the Companies (Audit and Auditors), Rules, 2014, , As per second proviso of section 139(1) of the Act read with rule 4 stipulates that written consent of the auditor, must be taken before appointment. The auditor appointed shall submit a certificate that:, (a), , (b), (c), , (d), , the individual/firm is eligible for appointment and is not disqualified for appointment under the Act, the, Chartered Accountants Act, 1949 and the rules or regulations made thereunder;, the proposed appointment is as per the term provided under the Act;, , the proposed appointment is within the limits laid down by or under the authority of the Act;, , the list of proceedings against the auditor or audit firm or any partner of the audit firm pending with respect, to professional matters of conduct, as disclosed in the certificate, is true and correct., , The Certificate shall also indicate whether the auditor satisfies the criteria provided in section 141 of the Act., , The Company shall inform the auditor concerned of his or its appointment and also file a notice of such, appointment with the Registrar in Form ADT-1 within 15 days of the meeting in which the auditor is appointed., , Appointment of Auditor in Government Company- SECTION 139(5) &139(7), , The appointment of auditor in Government Company or government controlled (directly/indirectly) company shall, be held in accordance with the following provisions:
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328, , , , Lesson 8 • EP-CL, , The First auditor shall be appointed by the Comptroller and Auditor General within 60 days from the date of, incorporation and in case of failure to do so, the Board shall appoint auditor within next 30 days and on failure to, do so by Board of Directors, it shall inform the members, who shall appoint the auditor within 60 days at an, extraordinary general meeting (EGM), such auditor shall hold office till conclusion of first Annual General Meeting., In case of subsequent auditor for existing Government Companies, the Comptroller & Auditor General shall appoint, the auditor within a period of 180 days from the commencement of the financial year and the auditor so appointed, shall hold his position till the conclusion of the Annual General Meeting., , MANDATORY ROTATION OF AUDITORS, , The Companies Act, 2013 has introduced the system of rotation of auditors under section 139 (2) of the Act and, Rule 5 which is applicable to•, , all listed companies;, , •, , all companies having paid up share capital of below threshold limit mentioned in (a) and (b) above, but, having public borrowings from financial institutions, banks or public deposits of rupees 50 crore or more., , •, •, •, •, , all unlisted public companies having paid up share capital of rupees 10 crore or more;, all private limited companies having paid up share capital of rupees 50 crore or more;, , The concept of rotation of auditors shall not apply to one person companies and small companies., , All the companies mentioned above shall not appoint or re-appoint an individual as an auditor of the company, for more than one term of 5 consecutive years. An individual auditor, who has completed his term of 5, consecutive years, shall not be eligible for re-appointment as auditor in the same company for 5 years from, the date of completion., All the companies mentioned above shall not appoint or re-appoint an audit firm as an auditor of the company, for more than two terms of 5 consecutive years. An audit firm which has completed its two terms of 5, consecutive years shall not be eligible for re-appointment as auditor in the same company for 5 years from, the completion of such terms., , As on the date of appointment no audit firm having a common partner or partners to the other audit firm, whose, tenure has expired in a company immediately preceding the financial year, shall be appointed as auditor of the same, company for a period of five years., , The right of the company to remove the auditor or the right of the auditor to resign from such office of the company is, not affected by this sub-section. Thus, an auditor can resign or be removed by the shareholders before completion of his, term as discussed above. The firm shall include a limited liability partnership incorporated under the Limited Liability, Partnership Act, 2008., , Rotation of Auditors [Section 139(3)], Members of a company subject to provisions of the Act, can provide for following by passing a resolution:, (a), , (b), , In the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may, be resolved by members; or, The audit shall be conducted by more than one auditor., , Rotation of Auditors on Expiry of their term [Section 139 (4) and Rule 6 of the Companies, (Audit and Auditors) Rules, 2014], , Rotation of auditors on expiry of auditor’s term then same procedure will be followed as required for appointment, of auditors. The procedure is as under:1., 2., , The Audit Committee shall recommend to the Board, the name of an individual auditor or of an audit firm, who may replace the incumbent auditor on expiry of the term of such incumbent., Where a company is required to constitute an Audit Committee, the Board shall consider the recommendation, of such committee, and in other cases, the Board shall itself consider the matter of rotation of auditors and, make its recommendation for appointment of the next auditor by the members in annual general meeting.
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329, , Lesson 8 • Accounts, Audit and Auditors, , For the purpose of rotation, the period for which the auditor is holding office prior to the commencement of this act, will also be counted in calculating the period of 5 years or 10 years as the case may be. The incoming auditor/audit, firm shall not be eligible if such auditor/audit firm is associated with the outgoing auditor/audit firm under the, same network of audit firms i.e. includes the firms operating/ functioning under the same brand name, trade name, or common control, hitherto or in future., , If a partner, who is in charge of an audit firm and also certifies the financial statements of the company, retires from, the said firm and joins another firm of chartered accountants, such other firm shall also be ineligible to be appointed, for a period of five years., , Where a company has appointed two or more persons as joint auditors, the company may follow the rotation of, auditors in such a manner that both or all of the joint auditors, as the case may be, do not complete their term in the, same year., , Re-Appointment of Retiring Auditor [Section 139 (9)], , At any annual general meeting, a retiring auditor shall be reappointed as auditor of the company except under the, following circumstances:, (a) he is not qualified for re-appointment., (b) he has given the company a notice in writing of his unwillingness to be re-appointed., (c) a special resolution has been passed at that meeting appointing somebody else instead of him or providing, expressly that retiring auditor shall not be re-appointed., Section 139 (10) lays that where at any annual general meeting, no auditor is appointed or re-appointed, the existing, auditor shall continue to be the auditor of the company., , Casual Vacancy in the office of Auditor [Section 139 (8)], , The provisions for filling of casual vacancy in the office of auditor are as follows:, (a) The Board of the company shall have power to fill the casual vacancy in the office of auditor within 30 days., (b) In case casual vacancy has occurred due to resignation of auditor, such appointment should also be approved, by the company in general meeting convened within 3 months of the recommendation of the Board and, auditor shall hold the office till the conclusion of the next annual general meeting., (c) In case of a company whose accounts are subject to audit by an auditor appointed by the Comptroller and, Auditor General of India, such vacancy should be filled by the Comptroller and Auditor General of India within, 30 days. In case the Comptroller and Auditor General of India does not fill the vacancy within the said period,, the Board of Directors shall fill the vacancy within next 30 days., (d) Appointment of auditors to fill casual vacancy shall be made after taking into account the recommendation of, the audit committee., , SUMMARY, , Particulars, , Non Government, Company/Non, Specified Class of, Companies, , Listed/Specified Class of, Companies, , Government Company, , Appointment of 1st Auditor, after Incorporation, , By BOD (Within 30 days, from the date of, Registration.), , BY BOD, (Within-30 days from the, date of Registration.), , BY CAG, (Within-60 days from the, date of Registration.), , Or, , Or, , Or
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330, , Lesson 8 • EP-CL, , , , By Members at EGM, (Within-90 days of, Information), First auditor shall hold, office till the conclusion, of the first AGM, , By Members at EGM, (Within-90 days of, Information), First auditor shall hold, office till the conclusion of, the first AGM, , In case the CAG does not, appoint such auditor, within the given period, BOD, (within-30 days), Or, In case of failure of the, BoD to appoint such, auditor within the given, period Member at EGM, (Within-60 days of, Information), , Subsequent Auditor, , The written consent and a, certificate (appointment, shall be in accordance with, the conditions) from the, auditor., Casual Vacancy due to, •, •, , Resignation, Other Reasons, , By Members, , By Members, , First auditor shall hold, office till the conclusion of, the first AGM, By CAG, , To hold office till, conclusion of every 6th, AGM., , (for maximum one term of, 5/10 consecutive years), , (Within-180 days from 1st, April), , Approved by Members, within 3 months of, recommendation of, Board and hold office till, next AGM., , Approved by Members, within 3 months of, recommendation of Board, and hold office till next, AGM., , By CAG within 30 days Or, , BOD within 30 days, , Cooling off period of 5, years before next reappointment, , By BOD within next 30, days, , BOD within 30 days, , APPOINTMENT OF AUDITOR OTHER THAN RETIRING AUDITOR BY SPECIAL NOTICE (SECTION, 140 (4)), Special notice shall be required from members proposing to move a resolution at the next annual general meeting, to appoint a person other than the retiring auditor or to provide that the retiring auditor shall not be re- appointed., Such special notice shall not be required in case where the retiring auditor has completed a consecutive tenure of, five years or, as the case may be, ten years, as provided under sub-section (2) of section 139., Following points are relevant for the purpose of special notice:, (i), , (ii), , Company, on receipt of such special notice for removing auditor, should forthwith send a copy of the same to, the retiring auditor., , If the auditor makes a representation in writing to the company and requests for its notification to the, members, the company shall, (a), , state the fact of representation in any notice of resolution, and, , (c), , if the copy of representation is not so sent , copy thereof should be filed with the Registrar., , (b), (iii), , send copy of representation to members to whom notice of meeting is sent, whether before or after the, receipt of representation by the company., , such representation should be of a reasonable length and not too long.
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Lesson 8 • Accounts, Audit and Auditors, , (iv), (v), , 331, , For circulation to members, it should not be received by the company too late., , Auditor may require the company to read out the representation in the meeting if it is not so notified to, members because it was too late or because of company’s default., , Provided that if the Tribunal is satisfied on an application either of the company or of any other aggrieved person, that the rights conferred by this sub- section are being abused by the auditor, then, the copy of the representation, may not be sent and the representation need not be read out at the meeting., , POWERS OF TRIBUNAL [SECTION 140 (5)], , A National Company Law Tribunal (NCLT) can either, (i), , (ii), , (iii), , suo moto or, , on an application from Central Government, or, on an application from person concerned,, , can direct the company to change the auditor if it is satisfied that the Auditor of a Company has, whether directly or, indirectly, acted in a fraudulent manner or abetted or colluded in any fraud by, or in relation to, the company or its, directors or officers., , In the case of application being made by the Central Government and the NCLT being satisfied that change of auditor, is required, it shall within 15 days of the receipt of such application, make an order that the Auditor shall not, function as an auditor of the company and the Central Government may appoint another auditor in his place. This, will happen only when an application is made by the Central Government and not by any other person., Where the auditor, whether individual or firm, against whom the final order as aforementioned is passed by the, NCLT under this section, he shall not be eligible to be appointed as an auditor of any company for a period of 5 years, from the date of passing of such order. Further, the auditor shall also be liable for action under Section 447 of the, Act which provides for punishments for frauds., , It has been clarified by way of explanation that in case a firm is appointed as auditor of the company, the liability, shall be of the firm and every partner or partners who acted in fraudulent manner or abetted or colluded in any, fraud by, or in relation to, the company or its directors or officers shall be liable and not be eligible to be appointed, as auditor of any company for a period of 5 years., , REMOVAL OF AUDITOR [SECTION 140 (1)] AND RULE 7 OF THE COMPANIES (AUDIT AND, AUDITORS RULES, 2014], , The auditor appointed under section 139 of the Act may be removed from his office before the expiry of his term, only by a special resolution of the company, after obtaining the previous approval of the Central Government in that, behalf in the manner prescribed in Rule 7., As per Rule 7, the auditor appointed under section 139 of the Act, may be removed from his office before the expiry, of the term only by –, (i), , Obtaining the prior approval of the Central Government by filling an application in Form ADT-2 within 30, days of resolution passed by the Board, , (iii), , The auditor concerned shall be given a reasonable opportunity of being heard., , (ii), , The company shall hold the general meeting within sixty days of receipt of approval of the Central Government, for passing the special resolution., , RESIGNATION OF AUDITOR [SECTION 140(2), 140 (3) AND RULE 8 OF THE COMPANIES (AUDIT, AND AUDITORS) RULES, 2014], , The auditor who has resigned from the company shall file a statement in Form ADT-3 indicating the reasons and, other facts as may be relevant with regard to his resignation as follows:
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332, , (i), , (ii), , , , Lesson 8 • EP-CL, , In case of other than Government Company, the auditor shall within 30 days from the date of resignation, file, such statement to the company and the registrar., In case of Government Company or government controlled company, auditor shall within 30 days from the, resignation, file such statement to the company and the Registrar and also file the statement with the, Comptroller and Auditor General of India (CAG)., , If the auditor does not comply with the provisions of section 140(2) of the Act, he or it shall be liable to a penalty of, fifty thousand rupees or an amount equal to the remuneration of the auditor, whichever is less, and in case of, continuing failure, with further penalty of five hundred rupees for each day after the first during which such failure, continues, subject to a maximum of two lakh rupees., , REMUNERATION OF AUDITOR (SECTION 142), , Section 142 of the Act prescribed that the remuneration of the auditor of a company shall be fixed in its general, meeting or in such manner as may be determined therein. The Board may fix remuneration of the first auditor, appointed by it. The remuneration will be in addition to the out of pocket expensed incurred by the auditor in, connection with the audit of the company but does not include any remuneration paid to him for any other service, rendered by him at the request of the company., , AUDITOR NOT TO RENDER CERTAIN SERVICES (PROHIBITED SERVICES) [SECTION 144], , An auditor shall provide to the company only such other services as are approved by the Board of Directors/ the, audit committee, but which shall not include any of the following services (whether such services are rendered, directly or indirectly to the company or its holding company or subsidiary company, namely:(a), , accounting and book keeping services;, , (d), , actuarial services;, , (b), (c), , (e), (f), , (g), , (h), (i), , internal audit;, , design and implementation of any financial information system;, investment advisory services;, investment banking services;, , rendering of outsourced financial services;, management services; and, , any other kind of services as may be prescribed., , AUDITOR’S RIGHT TO ATTEND GENERAL MEETING, , According to section 146 of the Act, notice of all the general meetings shall also be forwarded to the auditor of the, company and he must attend any general meeting either by himself or through his authorised representative, (qualified to be an auditor) and shall have right to be heard at such meeting on any part of the business which, concerns him as the auditor., , POWERS AND DUTIES OF AUDITORS, , Section 143(1) of the Act provided that every auditor can access at all times to the books of accounts, vouchers and, seek such information and explanation from the company and enquire such matters as he considers necessary,, including the matters specified in sub-Clauses (a) to (f). It is the duty of every auditor to make proper enquiry, regarding these matters, besides other matters and if he is satisfied, it is not necessary to disclose this fact in his, report. However, on enquiry, if he finds some adverse features, it is his duty to report the same. Specific enquiries to, be made by the auditor under this sub-Section are as under–, (a), , Loans and Advances made by the Company, , Auditor shall inquire into “whether loans and advances made by the company on the basis of security have, been properly secured and whether the terms on which they have been made are not prejudicial to the
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Lesson 8 • Accounts, Audit and Auditors, , (b), , (c), , (d), , 333, , interest of the company or its members.” It is applicable to all loans and advances made on the basis of, security. The auditor should verify that the security held against the loans and advances made by the company, are legally enforceable and also ascertain the valuation of securities to see whether the loan is fully secured, or partly secured., Transactions represented by book entries, , Auditor is required to inquire “whether the transactions of the company which are represented merely by, book entries are not prejudicial to the interests of the company ”. He should verify the all book entry, transactions and determine whether such transactions have actually taken place and are not prejudicial to, the interest of the company., Sale of investments, , Auditor should inquire, “whether so much of the assets of the company (except an investment company or a, banking company) as consists of shares, debentures and other securities, have been sold at a price less than, that at which they were purchased by the company”. Auditor must verify the cases where securities are sold, at a price less than their cost of acquisition and if he finds that such sale is bona fide and the price realised is, considered to be reasonable, having regards to the circumstances of each case, no further reporting is, required., Loans and Advances shown as deposits, , Auditor must verify “whether loans and advances made by the company have been shown as deposits”., (e), , (f), , The auditor must inquire in respect of all the deposits shown by the company and satisfy himself that the, loans and advances have not been shown as deposits., Charging of Personal expenses to revenue account, , Auditor should inquire as to “whether personal expenses have been charged to revenue account”. Auditor, must ensure that no personal expenses of directors and officers of the company have been charged to revenue, account., Allotment of shares for cash, , Auditor should inquire as to “whether cash has actually been received in respect of shares stated to have been, allotted for cash and if no cash has actually been so received, whether the position as stated in the account, books and balance sheet is correct, regular and not misleading”. In this connection, auditor must ensure in, respect of shares allotted in cash by the company that cash has actually been received in respect of such, allotment by the company., He should verify and report the cases where cash was not received and that the position, as stated in books, of accounts and balance sheet, is correct, regular and not misleading., , Auditor will have access to books of accounts and vouchers, not only to those kept at registered office of the, company but also to those kept at any other place. Such access shall be available at all times. Also, auditor of, a holding company shall have access to the books of all of its subsidiary and associate companies for the, purpose of consolidation of financial statements of holding company and its subsidiaries and associate, companies., , POWERS OF COMPTROLLER AND AUDITOR GENERAL OF INDIA IN CASE OF GOVERNMENT, COMPANY [SECTION 143 (5) to 143 (7)], , In the case of a Government company or any other company owned or controlled, directly or indirectly, by the, Central Government, or by any State Government or Government, or partly by the Central Government and partly, by one or more State Government, the Comptroller and Auditor General of India shall appoint the auditor under, sub-section (5) or sub-section (7) of section 139 of the Act, and direct such auditor the manner in which the accounts, of the company are required to be audited and thereupon the auditor so appointed shall submit a copy of the audit, report to the Comptroller and Auditor General of India which, among other things, include the directions, if any,
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334, , , , Lesson 8 • EP-CL, , issued by the Comptroller and Auditor General of India, the action taken thereon and its impact on the accounts and, financial statement of the company., The CAG shall have a right to the conduct a supplementary audit of financial statement of the company and comment, upon or supplement such audit report within 60 days from the date of receipt of the audit report u/s 143 (5)., Any comments given by the CAG upon, or supplement to, the audit report shall be sent by the company to every, person entitled to copies of audited financial statements u/s 136 (1) and also be placed before the annual general, meeting of the company at the same time and in the same manner as the audit report., , The CAG may, by an order, cause test audit to be conducted of the accounts of company covered u/s 139 (5) or 139, (7) and the provisions of section 19A of the Comptroller and Auditor General’s (Duties, Powers and Conditions of, Service) Act, 1971, shall apply to the report of such test audit., The National Company Law Appellate Tribunal (NCLAT) held that the auditor cannot be debarred for 5 years, under the Companies Act, 2013 in the absence of evidence supporting fraudulent intentions, in the matter of, Mukesh Maneklal Choksi v. Union of India and Zen Shaving Limited, Company Appeal (AT) No. 89 of 2019, dated, February 17, 2020., , AUDIT REPORT, , Section 143 (2) of the Act provides that auditor shall make a report to the members of the company on the accounts, examined by him and on every financial statement which is required to be laid in the general meeting of the company., The Audit report should take into consideration the provisions of this Act, the Accounting and Auditing standards and, matters which are required under this Act or rules made thereunder or under any order made u/s 143(11) of the Act., The Audit report should state that to the best of his information and knowledge, the said accounts and financial, statements give a true and fair view of the state of the company’s affair as at the end of the financial year and the, profit or loss and the cash flow for the year and such other matters as may be prescribed., Section 143 (3) of the Act, lay down that auditor’s report shall also state other details which are as under:, (a), , whether he has sought and obtained all the information and explanations which were necessary and if not,, the details thereof and the effect of such information on the financial statements;, , (c), , whether the branch audit report prepared by a person other than the company’s auditor has been sent, to him;, , (b), , (d), (e), (f), , (g), , (h), (i), , whether, in his opinion, proper books of account as required by law have been kept by the company so far as, appears from his examination of those books and proper returns adequate for the purposes of his audit have, been received from branches not visited by him;, whether the company’s balance sheet and profit and loss account dealt with in the report are in agreement, with the books of account and returns;, whether, in his opinion, the financial statements comply with the accounting standards;, , the observations or comments of the auditors on financial transactions or matters which have any adverse, effect on the functioning of the company;, whether any director is disqualified from being appointed as a director under section 164 (2);, , any qualification, reservation or adverse remark relating to the maintenance of accounts and other matters, connected therewith;, whether the company has adequate internal financial controls with reference to financial statements in place, and the operating effectiveness of such controls;
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Lesson 8 • Accounts, Audit and Auditors, , 335, , Clause (i) of Sub-Section (3) of Section 143 related to internal financial controls shall not apply to a private company:•, •, (j), , Which is an one person company or a small company; or, , Which has turnover of less than Rs. 50 crores as per the latest audited financial statement and which has, aggregate borrowings of less than Rs. 25 crores, from banks, financial institutions, or any body corporate,, at any point of time during the preceding financial year, , Rule 11 of the Companies (Audit and Auditors) Rules, 2014 prescribed that Auditor’s Report shall also include, the views and comments of the Auditors on the following matters, namely:(i), , whether the company has disclosed the impact, if any, of pending litigations on its financial position in, its financial statement;, , (iii), , whether there has been any delay in transferring amounts, required to be transferred, to the Investor, Education and Protection Fund by the company;, , (ii), , (iv), , whether the company has made provision, as required under any law or accounting standards, for, material foreseeable losses, if any, on long term contracts including derivative contracts;, (a), , (b), , (c), (v), , (vi), , Whether the management has represented that, to the best of it’s knowledge and belief, other, than as disclosed in the notes to the accounts, no funds have been advanced or loaned or, invested (either from borrowed funds or share premium or any other sources or kind of funds), by the company to or in any other person(s) or entity(ies), including foreign entities, (“Intermediaries”), with the understanding, whether recorded in writing or otherwise, that the, Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities, identified in any manner whatsoever by or on behalf of the company (“Ultimate Beneficiaries”), or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;, , Whether the management has represented, that, to the best of it’s knowledge and belief, other, than as disclosed in the notes to the accounts, no funds have been received by the company, from any person(s) or entity(ies), including foreign entities (“Funding Parties”), with the, understanding, whether recorded in writing or otherwise, that the company shall, whether,, directly or indirectly, lend or invest in other persons or entities identified in any manner, whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries”) or provide any, guarantee, security or the like on behalf of the Ultimate Beneficiaries; and, , Based on such audit procedures that the auditor has considered reasonable and appropriate in, the circumstances, nothing has come to their notice that has caused them to believe that the, representations under sub-clause (i) and (ii) contain any material mis-statement., , Whether the dividend declared or paid during the year by the company is in compliance with section 123 of, the Companies Act, 2013;, Whether the company, in respect of financial years commencing on or after the 1st April, 2022, has used such, accounting software for maintaining its books of account which has a feature of recording audit trail (edit, log) facility and the same has been operated throughout the year for all transactions recorded in the software, and the audit trail feature has not been tampered with and the audit trail has been preserved by the company, as per the statutory requirements for record retention., , The auditor is required to provide the reasons, where any of the matters required to be included in the Audit Report, under this Clause is answered in negative or with a qualification. [Section 143 (4)], The Companies (Auditor’s Report) Order, 2020 shall be applicable from the financial year commencing on or, after the 1st April, 2021.
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336, , , , Lesson 8 • EP-CL, , BRANCH AUDIT [SECTION 143(8) AND RULE 12 OF THE COMPANIES (AUDIT AND AUDITORS), RULES, 2014], Branch Auditor: Accounts of branch office can be audited by –, 1., , The company’s auditor; or, , 3., , In case of foreign branch, by the company’s auditor or by an accountant or a competent person appointed in, accordance with the prevailing laws of the foreign country., , 2., , Any other person, qualified to be and appointed as an auditor as per the provisions of the Act as branch, auditor; or, , The branch auditor shall prepare a report on the accounts of the branch examined by him and the company’s auditor, shall deal with such report in his audit report in a manner as he considers necessary., Duties and powers of the company’s auditor with reference to the audit of the branch and the branch auditor.(1), (2), (3), , The duties and powers of the company’s auditor with reference to the audit of the branch and the branch, auditor, if any, shall be as contained in sub-sections (1) to (4) of section 143 i.e. right of access to books of, accounts, ensure about the mandatory books of accounts maintained, prepare auditors’ report and state the, reasons of qualification in report, if any etc ., The branch auditor shall submit his report to the company’s auditor., , The provisions of sub-section (12) of section 143 read with rule 12 hereunder regarding reporting of fraud, by the auditor shall also extend to such branch auditor to the extent it relates to the concerned branch., , AUDITING STANDARDS [SECTION 143 (9) & (10)], , Every auditor must comply with the auditing standards. While the Central Government prescribes the Auditing, Standards or addendums thereto, it shall consult with and take recommendations of the Institute of Chartered, Accountants of India (ICAI) and the National Financial Reporting Authority (NFRA). Till such time the Auditing, Standards are notified by the Central Government, the auditing standards specified by the ICAI are deemed to be the, auditing standards., , REPORTING OF FRAUDS BY AUDITOR [SECTION 143(12) TO 143 (15) & RULE 13 OF THE, COMPANIES (AUDIT AND AUDITORS) RULES, 2014], , Section 143(12) of the Act, and Rule 13 provides that if an auditor of a company, in the course of the performance, of his duties as statutory auditor, has reason to believe that an offence of fraud, which involves or is expected to, involve individually an amount of rupees one crore or above, is being or has been committed against the company, by its officers or employees, the auditor shall report the matter to Central Government., (1), , The auditor shall report the matter to the Central Government as under:(a), , the auditor shall report the matter to the Board or the Audit Committee, immediately but not later than, two days of his knowledge of the fraud, seeking their reply or observations within forty-five days;, , (c), , in case the auditor fails to get any reply or observations from the Board or the Audit Committee within, forty-five days, he shall forward his report to the Central Government along with a note containing the, details of his report that was earlier forwarded to the Board or the Audit Committee for which he has, not received any reply or observations;, , (b), , (2), , on receipt of such reply or observations, the auditor shall forward his report and the reply or, observations of the Board or the Audit Committee along with his comments (on such reply or, observations of the Board or the Audit Committee) to the Central Government within fifteen days from, the date of receipt of such reply or observations;, , The report shall be sent to the Secretary, Ministry of Corporate Affairs in a sealed cover by Registered Post, with Acknowledgement Due or by Speed Post followed by an e-mail in confirmation of the same.
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Lesson 8 • Accounts, Audit and Auditors, , (3), (4), (5), , The report shall be on the letter-head of the auditor containing postal address, e-mail address and contact, telephone number or mobile number and be signed by the auditor with his seal and shall indicate his, Membership Number., The report shall be in the Form ADT-4., , In case of a fraud involving lesser than the amount specified above, the auditor shall report the matter to, Audit Committee or to the Board immediately but not later than two days of his knowledge of the fraud and, he shall report the matter specifying the following:(a), , Nature of Fraud with description;, , (c), , Parties involved., , (b), (6), , Approximate amount involved; and, , The fraud reported to the Audit Committee or the Board during the year shall be disclosed in the Board’s, Report specifying the following(a), , Nature of Fraud with description;, , (c), , Parties involved, if remedial action not taken; and, , (b), (7), , 337, , (d), , Approximate Amount involved;, Remedial actions taken., , The provision of this rule shall also apply, mutatis mutandis, to a Cost Auditor and a Secretarial Auditor during, the performance of his duties under section 148 and section 204 respectively., , No duty to which an auditor of a company may be subject to shall be regarded as having been contravened by reason, of his reporting the matter referred to in section 143(12) if it is done in good faith., If any auditor, cost accountant, or company secretary in practice does not comply with the provisions of section 143, (12), he shall,—, (a), , (b), , in case of a listed company, be liable to a penalty of five lakh rupees; and, in case of any other company, be liable to a penalty of one lakh rupees., , MAINTENANCE OF COSTING AND STOCK RECORDS (SECTION 148), , A company engaged in production, processing, manufacturing or mining activity, is also required to maintain, particulars relating to utilization of material, labour or other items of cost as the Central Government may prescribe, for such class of companies., , COST RECORDS & AUDIT (SECTION 148), , Section 148(1) of the Act, states that notwithstanding anything contained in Chapter X of Companies Act 2013, the, Central Government may, by order, in respect of such class of companies engaged in the production of such goods or, providing such services as may be prescribed, direct that particulars relating to the utilisation of material or labour or to, other items of cost as may be prescribed shall also be included in the books of account kept by that class of companies., However, the Central Government shall, before issuing such order in respect of any class of companies regulated, under a special Act, consult the regulatory body constituted or established under such Special Act., Rule 3 of the Companies (Cost Records and Audit) Rules, 2014 provides for the Application of Cost Record., For the purposes of sub-section (1) of section 148 of the Act. the class of companies, including foreign companies, defined in clause (42) of section 2 of the Act, engaged in the production of the goods or providing services, such, as telecommunication services, generation, transmission, distribution and supply of electricity, lron and Steel,, drugs and pharmaceuticals, fertilisers, having an overall turnover from all its products and services of rupees, thirty five crore or more during the immediately preceding financial year, shall include cost records for such, products or services in their books of account., , Section 148(2) of the Act, states that if the Central Government is of the opinion, that it is necessary to do so, it may,
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338, , , , Lesson 8 • EP-CL, , by order, direct that the audit of cost records of class of companies, which are covered under sub-section of Section, 148 of the Act and which have a net worth of such amount as prescribed or a turnover of such amount as prescribed,, shall be conducted in the manner specified in the order., Rule 4 of the Companies (Cost Records and Audit) Rules, 2014 provides for Applicability for Cost Audit:(1), , (2), , (3), , Every company specified in item (A) of rule 3 of the Companies (Cost Records and Audit) Rules, 2014 i.e., Regulated Sectors shall get its cost records audited in accordance with these rules if the overall annual, turnover of the company from all its products and services during the immediately preceding financial, year is rupees fifty crore or more and the aggregate turnover of the individual product or products or, services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or, more., , Every company specified in item (B) of rule 3 of the Companies (Cost Records and Audit) Rules, 2014 i.e., Non-Regulated Sectors shall get its cost records audited in accordance with these rules if the overall annual, turnover of the company from all its products and services during the immediately preceding financial, year is rupees one hundred crore or more and the aggregate turnover of the individual product or products, or service or services for which cost records are required to be maintained under rule 3 is rupees thirty, five crore or more., The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3,, and(i), , (ii), , (iii), , whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total revenue; or, , Which is operating from a special economic zone., , which is engaged in generation of electricity for captive consumption through Captive Generating, PIant., , For this purpose, the term “Captive Generating Plant” shall have the same meaning as assigned in rule 3 of the, Electricity Rules, 2005., Section 148(3) of the Act, states that the audit under sub-section (2) shall be conducted by a Cost Accountant who, shall be appointed by the Board on such remuneration as may be determined by the members in such manner as, may be prescribed., Remuneration of the Cost Auditor (Rule 14 of Companies (Audit & Auditors), Rules, 2014), (a), , (b), , in the case of companies which are required to constitute an audit committee(i), , (ii), , the Board shall appoint an individual, who is a cost accountant, or a firm of cost accountants in, practice, as cost auditor on the recommendations of the Audit committee, which shall also recommend, remuneration for such cost auditor;, the remuneration recommended by the Audit Committee under clause (i) shall be considered, and approved by the Board of Directors and ratified subsequently by the shareholders;, , in the case of other companies which are not required to constitute an audit committee, the Board shall, appoint an individual who is a cost accountant or a firm of cost accountants in practice as cost auditor and, the remuneration of such cost auditor shall be ratified by shareholders subsequently., , Further that no person appointed under section 139 as an auditor of the company shall be appointed for conducting, the audit of cost records and the auditor conducting the cost audit shall comply with the cost auditing standards., For the purposes of this sub-section, the expression “cost auditing standards” mean such standards as are issued by, the Institute of Cost Accountants of India, constituted under the Cost and Works Accountants Act, 1959, with the, approval of the Central Government.
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Lesson 8 • Accounts, Audit and Auditors, , 339, , Section 148(4) of the Act, states that an audit conducted under this section shall be in addition to the audit conducted, under section 143., , Section 148(5) of the Act, states the qualifications, disqualifications, rights, duties and obligations applicable to, auditors under this Chapter shall, so far as may be applicable, apply to a cost auditor appointed under this section, and it shall be the duty of the company to give all assistance and facilities to the cost auditor appointed under this, section for auditing the cost records of the company., Further the report on the audit of cost records shall be submitted by the cost accountant to the Board of Directors, of the company., Section 148(6) of the Act, states that a company shall within thirty days from the date of receipt of a copy of the cost, audit report prepared in pursuance of a direction under sub-section (2) of Section 148 of the Act furnish the Central, Government with such report along with full information and explanation on every reservation or qualification, contained therein., , Section 148(7) of the Act, states that if, after considering the cost audit report referred to under this section and the, information and explanation furnished by the company under sub-section (6) of Section 148 of the Act, the Central, Government is of the opinion that any further information or explanation is necessary, it may call for such further, information and explanation and the company shall furnish the same within such time as may be specified by that, Government., Section 148(8) of the Act, states that if any default is made in complying with the provisions of this section,–, (a), , (b), , the company and every officer of the company who is in default shall be punishable in the manner as provided, in sub-section (1) of section 147;, , the cost auditor of the company who is in default shall be punishable in the manner as provided in subsections (2) to (4) of section 147., , Maintenance of Records (Rule 5 of the Companies (Cost Records and Audit) Rules, 2014), (1), , Every company under these rules including all units and branches thereof, shall, in respect of each of its, financial year commencing on or after the 1st day of April, 2014, maintain cost records in form CRA-1., , (3), , The cost records shall be maintained in such manner so as to enable the company to exercise, as far as, possible, control over the various operations and costs to achieve optimum economies in utilisation of, resources and these records shall also provide necessary data which is required to be furnished under, these rules., , (2), , The cost records referred to in sub-rule (1) shall be maintained on regular basis in such manner as to, facilitate calculation of per unit cost of production or cost of operations, cost of sales and margin for each, of its products and activities for every financial year on monthly or quarterly or half-yearly or annual basis., , The Central Government is empowered to direct, by order, in respect of such class of companies engaged in the, production of such goods or providing such services as prescribed, direct that particulars relating to the utilisation, of material or labour or to other items of cost as prescribed shall also be included in the books of account kept by, that class of companies., , Exception to the Cost Records requirements:, , The requirement for cost records under these rules shall not be applicable to a company which is classified as a, micro enterprise or a small enterprise including as per the turnover criteria under Section 7(9) of the Micro, Small, and Medium Enterprises Development Act, 2006., , COST AUDIT (RULE 6 OF THE COMPANIES (COST RECORDS AND AUDIT) RULES, 2014), , In a case the Central Government is of the opinion, that it is necessary to do so, it may, by order, direct that the audit, of cost records of class of companies, which are covered under sub-section (1) of Section 148 of the Act and which, have a net worth of such amount as prescribed or a turnover of such amount as prescribed, shall be conducted in
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340, , , , the manner specified in the order., , Lesson 8 • EP-CL, , Appointment of Cost Auditor, , The category of companies specified in rule 3 and the thresholds limits laid down in rule 4, shall within one, hundred and eighty days of the commencement of every financial year, shall appoint a cost auditor., Further, before such appointment is made, the written consent of the cost auditor to such appointment, and a, certificate from him or it is required to be obtained., The cost auditor appointed shall submit a certificate that(a), (b), (c), , (d), , the individual or the firm, as the case may be, is eligible for appointment and is not disqualified for, appointment under the Act, the Cost and Works Accountants Act, 1959 (23 of 1959) and the rules or, regulations made thereunder;, the individual or the firm, as the case may be, satisfies the criteria provided in section 141 of the Act, so far, as may be applicable;, the proposed appointment is within the limits laid down by or under the authority of the Act; and, , the list of proceedings against the cost auditor or audit firm or any partner of the audit firm pending with, respect to professional matters of conduct, as disclosed in the certificate, is true and correct., , Every company referred to in sub-rule (1) shall inform the cost auditor concerned of his or its appointment as, such and file a notice of such appointment with the Central Government within a period of thirty days of the, Board meeting in which such appointment is made or within a period of one hundred and eighty days of the, commencement of the financial year, whichever is earlier, through electronic mode, in Form CRA-2, along with, the fee as specified in the Companies (Registration Offices and Fees) Rules, 2014., Every cost auditor appointed as such shall continue in such capacity till the expiry of one hundred and eighty, days from the closure of the financial year or till he submits the cost audit report, for the financial year for which, he has been appointed., , Every cost auditor, who conducts an audit of the cost records of a company, shall submit the cost audit report along, with his or its reservations or qualifications or observations or suggestions, if any, in Form CRA-3., (a), , (b), , (c), , The cost auditor shall forward his duly signed report to the Board of Directors of the company within a period, of 180 days from the closure of the financial year to which the report relates and the Board of Directors shall, consider and examine such report particularly any reservation or qualification contained therein., Every company covered under these rules shall, within a period of 30 days from the date of receipt of a copy, of the cost audit report, furnish the Central Government with such report along with full information and, explanation on every reservation or qualification contained therein, in Form CRA-4 in Extensible Business, Reporting Language format in the manner as specified in the Companies (Filing of Documents and Forms in, Extensible Business Reporting language) Rules, 2015 along with fees specified in the Companies (Registration, Offices and Fees) Rules, 2014., , The Companies which have got extension of time of holding Annual General Meeting under section 96 of the, Companies Act, 2013, may file Form CRA-4 within resultant extended period of filing financial statements, under section 137 of the Companies Act, 2013.
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Lesson 8 • Accounts, Audit and Auditors, , 341, , Removal of Cost Auditor/Casual Vacancy, The cost auditor appointed under the Companies (Cost Records & Audit) Rules 2014, may be removed from his, office before the expiry of his term, through a board resolution after giving a reasonable opportunity of being, heard to the Cost Auditor and recording the reasons for such removal in writing., Further Form CRA-2 is required to be filed with the Central Government for intimating appointment of another, cost auditor and the relevant Board Resolution to the effect shall be enclosed. However it shall not prejudice, the right of the cost auditor to resign from such office of the company., Any causal vacancy in the office of a cost auditor, whether due to resignation, death or removal, shall be filled, by the Board of Directors within thirty days of occurrence of such vacancy and the company shall inform the, Central Government in Form CRA-2 within thirty days of such appointments of cost auditor., Approval of Cost Audit Report, The cost statements, including other statements to be annexed to the cost audit report, shall be approved by the, Board of Directors before they are signed on behalf of the Board by any of the director authorised by the Board,, for submission to the cost auditor to report thereon., , SECRETARIAL AUDIT, , Secretarial Audit is a compliance audit and it is a part of total compliance management in an organisation. The, Secretarial Audit is an effective tool for corporate compliance management. It helps to detect non-compliance and, to take corrective measures., , Secretarial Audit is a process to check compliance with the provisions of various laws and rules/regulations/, procedures, maintenance of books, records etc., by an independent professional to ensure that the company has, complied with the legal and procedural requirements and also followed the due process. It is essentially a mechanism, to monitor compliance with the requirements of stated laws., Considering the increasing importance of Corporate Governance, Section 204 of the Companies Act, 2013 mandates, every listed company and such other class of prescribed companies to annex a Secretarial Audit Report, given by a, company secretary in practice with its Board’s report., , Secretarial Audit is an independent, objective assurance intended to add value and improve an organisation’s, operations. It helps to accomplish the organisation’s objectives by bringing a systematic, disciplined approach to, evaluate and improve effectiveness of risk management, control, and governance processes., Legal Framework governing Secretarial Audit under the Companies Act, 2013, , As per the provision of section 204(1) of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment, and Remuneration of Managerial Personnel) Rules, 2014:, 1., , Every listed company;, , 4., , Every company having outstanding loans or borrowings from banks or public financial institutions of 100, crore rupees or more., , 2., 3., , Every public company having a paid-up share capital of 50 crore rupees or more; or, Every public company having a turnover of 250 crore rupees or more; or, , require to annex with its Board’s Report made in terms of Section 134(3) of the Companies Act, 2013, a Secretarial, Audit Report, given by a Company Secretary in practice, in Form MR- 3., MCA has clarified that the paid up share capital, turnover, or outstanding loans or borrowings as the case may be,, existing on the last date of latest audited financial statement shall be taken into account., Applicability of Secretarial Audit to a Private company which is a subsidiary of a Public company
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342, , , , Lesson 8 • EP-CL, , According to the provisions of section 2(71) of the Companies Act, 2013 “public company” means a company which, is not a private company and has a minimum paid-up share capital as may be prescribed., However, the proviso to the aforesaid definition provides 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 the Companies Act, 2013 even, where such subsidiary company continues to be a private company in its articles”., Hence, it is clear from above proviso that Secretarial Audit is also applicable to a private company which is a, subsidiary of a public company and which falls under the aforesaid prescribed class of companies., , Recent Initiatives, Recently, Reserve Bank of India has come out with a discussion paper on Governance in Commercial Banks in India, in the month of June, 2020 with the proposal to introduce Secretarial Audit in all commercial banks both listed and, unlisted., , Secretarial Audit under SEBI Regulations, , The Committee on Corporate Governance, constituted under the Chairmanship of Shri Uday Kotak, in its report, dated October 05, 2017, recommended the following in view of the criticality of secretarial functions to efficient, board functioning:, a), , b), , Secretarial Audit to be made compulsory for all listed entities under the SEBI (Listing Obligations and, Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), in line with the provisions of the, Companies Act, 2013., Secretarial Audit to be extended to all material unlisted Indian subsidiaries. This is in line with the theme of, strengthening group oversight and improving compliance at a group level for listed entities., , The aforesaid recommendations were accepted by SEBI and in order to implement the same, the SEBI (LODR), Regulations, 2015 have been amended vide Notification dated May 09, 2018 to include Regulation 24A., , Accordingly, as per Regulation 24A of the SEBI(LODR) Regulations, 2015, every listed entity and its material unlisted, subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial audit report given, by a company secretary in practice, in such form as specified, with the annual report of the listed entity., , Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges, within, sixty days from end of each financial year.(Amended by the SEBI (Listing Obligations and Disclosure Requirements), (Second Amendment) Regulations, 2021 w.e.f. 5.5.2021)., , SEBI vide its Circular dated February 08, 2019 notified the formats for Annual Secretarial Audit Report and Annual, Secretarial Compliance Report for listed entities and their material subsidiaries, effective from the financial year, ended March 31, 2019., Thus, vide above mentioned circular the following key points regarding the same has been clarified:, , Annual Secretarial Audit Report: The listed entity and its unlisted material subsidiaries shall continue to use the, same Form No. MR-3 for (secretarial audit report) as required under the Companies Act, 2013 and the rules made, thereunder for the purpose of compliance with Regulation 24A of the SEBI (LODR) Regulations, 2015 as well., Annual Secretarial Compliance Report: While the annual secretarial audit cover a broad check on compliance, with all laws applicable to the entity, listed entities additionally, on an annual basis, require a check by the PCS on, compliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunder, consequent to which, the, PCS need to submit annual secretarial compliance report to the listed entity in the format prescribed under said, SEBI circular., , It shall be the duty of the company to give all assistance and facilities to the company secretary in practice, for, auditing the secretarial and related records of the company., The Board of Directors, in their report, shall explain in full any qualification or observation or other remarks made, in the Secretarial Audit Report.
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Lesson 8 • Accounts, Audit and Auditors, , 343, , The companies which are not covered under section 204 of the Act may obtain Secretarial Audit Report voluntarily, as it provides an independent assurance of the compliances of applicable laws of the company., , ROLE OF COMPANY SECRETARY, , Company secretary in practice has been exclusively recognised for conducting secretarial audit. The section 204, further provides that Secretarial Audit Report is to be submitted in a format prescribed under rules. As per sub-rule, (2) of Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the format, of the Secretarial Audit Report shall be in Form MR-3., Section 134 and Sub-section (3) of Section 204 provides that the Board of Directors, in its report, shall explain in full, any qualification or observation or other remarks made by the company secretary in practice in the secretarial, audit report., , The Objectives of Secretarial Audit, , The objectives of Secretarial Audit may be summarized as under:•, , To check & report on compliances of applicable laws and Secretarial Standards;, , •, , To avoid any unwarranted legal actions/penalties by law enforcing agencies and other persons as well., , •, •, , To point out non-compliances and inadequate compliances;, , To protect the interest of various stakeholders i.e. the customers, employees, society etc;, , Scope of Secretarial Audit, , The scope of Secretarial Audit comprises verification of the compliances under the following enactments, rules,, regulations, notifications and guidelines:, (i), , The Companies Act, 2013 (the Act) and the Rules made thereunder:, , On various matters under Companies Act, 2013, Central Government has been empowered to make rules. A, perusal of the scheme of the Act makes it clear that compliances under the Act may be divided into two, categories. Compliances of the first type are annual and non-event based such as filing of the annual return,, annual report including secretarial audit report, wherever applicable, etc. The compliances of second category, are event based i.e. on happening of certain event., These events require compliance of various provisions of the Act., , While secretarial audit envisages the verification of all secretarial records of a company. For ease of, presentation, the following key areas have been highlighted for verification:, Under the Companies Act, 2013, 1., , Maintenance of registers and records, , 4., , Meetings of directors/committees thereof, shareholders and other stakeholders, , 2., 3., 5., 6., 7., 8., 9., , 10., 11., 12., , Filing of forms, returns and documents, , Memorandum and/or Articles of Association, Secretarial Standards, , Directors and Key Managerial Personnel (“KMP”), Disclosures, , Issue of shares and other securities, , Transfer and transmission of shares and other securities and related matters, Dividend, Deposits, , Borrowings
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344, , 13., , Loans, investments, guaranties and securities, , 16., , Corporate Social responsibility, , 14., (ii), , , , 15., , Lesson 8 • EP-CL, , Loans to directors etc. and Related party transactions, Charges, , Other major Acts and Regulations :, (a), , (b), (c), , (d), , The Securities Contracts (Regulation) Act, 1956 and the Rules made under that Act; (where applicable):, With special reference to listing, delisting and continuous listing of any of the securities., The Depositories Act, 1996 and the Regulations and Bye-laws framed under that Act; (where applicable), , The Foreign Exchange Management Act, 1999 and the Rules and Regulations made thereunder to the, extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial Borrowings;, (where applicable), The regulations and guidelines made under the Securities and Exchange Board of India Act, 1992, (where applicable). The various laws/regulations/guidelines which could be considered under this, are:, (i), , (ii), , (iii), (iv), (v), , (vi), , The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers), Regulations, 2011;, The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015;, The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018;, , The SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines,, 1999/ SEBI (Share Based Employee Benefits) Regulations, 2014;, The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations,, 2008;, The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents), Regulations, 1993 regarding the Companies Act and dealing with client;, , (vii) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009;, (iii), , (viii) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 2018;, (ix), , SEBI (Listing Obligations and Disclosures Requirements) Regulations, 2015 (where applicable)., , Other Applicable Laws include:, , Reporting on compliance of ‘Other laws as may be applicable specifically to the company’ shall mean all the, laws which are applicable to specific industry for example for Banks- all laws applicable to Banking Industry;, for insurance company-all laws applicable to insurance industry; likewise for a company in petroleum, sectoral laws applicable to petroleum industry; similarly for companies in pharmaceutical sector, cement, industry etc., The Secretarial Audit or should prepare a list of specific laws as applicable to the company whose secretarial, audit is being conducted and verify compliance with the same. SS-1 requires every company to specify list of, laws applicable specifically to the company at its Board Meeting., , Examining and reporting whether the adequate systems and processes are in place to monitor and ensure, compliance with general laws like labour laws, competition law, and environmental laws., , (iv), , The provisions relating to audit of accounts and financial statement of a company is dealt in the Statutory, Audit, and that relating to taxation is dealt in Tax Audit, the Secretarial Auditor may rely on the reports given, by statutory auditors or other designated professionals. However, Secretarial Auditor is expected to report on, the Secretarial Compliance of these laws., to examine and report on the compliance with Secretarial Standards issued by ICSI.
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Lesson 8 • Accounts, Audit and Auditors, , (v), , 345, , Adherence to board process and compliance mechanism, , The scope of Secretarial Audit should include the assessment of the adequacy and quality of board process, and compliance mechanism. In preparing the Audit Report, the secretarial auditor shall consider the following, matters (illustrative):, 1., , Instances of non-compliance during the defined audit period, in relation to the statutes, rules,, regulations, etc. applicable to the company, continuing non-compliance, if any, and the reasons thereof;, , 3., , (a) Board structure –, , 2., , Significant litigation(s) initiated by the company or filed against the company with brief details of the, cases;, (i), , (ii), , (iii), , Composition of the Board, , Is there a stated process to ascertain the suitability of directors?, Is there a stated process in place for succession planning?, , (b) Deficiencies in the Board systems and processes –, (i), , (ii), , (iii), (iv), 4., 5., 6., , (v), , (vi), , In convening meetings., , In the circulation of agenda (whether the agenda is made available to the Board along with, supporting papers/presentations sufficiently in advance of the meetings)., In conducting the meetings (frequency and length)., In the decision making process of the Board., , Adequacy and integrity of minutes recorded., , In the functioning of Board constituted Committees., , The existence and adequacy of internal control systems, procedures and processes, commensurate, with the size of the company and the nature of its business, for ensuring compliance with laws, applicable to the company;, Any material event(s) that have happened, after the end of the financial year but before the date of the, report, having a significant impact on any of the above reported items., , Whether any event occurred or action was taken in the audit company which may have bearing on the, Compliances under various laws, regulations, guidelines and standards etc., , NEED FOR SECRETARIAL AUDIT, , Secretarial Audit is the process of independent verification, examination of level of compliance of applicable, Corporate Laws to a company. The audit process if properly devised ensures timely compliance and eliminates any, un-intended non compliance of various applicable rules and regulations. An action plan of the Corporate Secretarial, Department is to be designed so as to ensure that all event based and time based compliances are considered and, acted upon. Secretarial Audit is to be on the principle of “Prevention is better than cure” rather than post mortem, exercise and to find faults. Broadly, the need for Secretarial Audit is:, •, , Effective mechanism to ensure that the legal and procedural requirements are duly complied with., , •, , Strengthen the image and goodwill of a company in the minds of regulators and stakeholders., , •, •, •, •, , Provides a level of confidence to the directors & Key Managerial Personnel etc., , Directors can concentrate on important business matters as Secretarial Audit ensures legal and procedural, requirements., Secretarial Audit is an effective governance and compliance risk management tool., , It helps the investor in analyzing the compliance level of companies, thereby increases the reputation.
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346, , , , Appointment of Secretarial Auditor, , Lesson 8 • EP-CL, , As per Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, read with Section 179 of the, Companies Act, 2013, secretarial auditor is required to be appointed by means of resolution at a duly convened, board meeting., , INTERNAL AUDIT [SECTION 138], , Classes of companies requiring Internal Audit, The following class of companies shall be required to appoint an internal auditor which may be either an individual, or a partnership firm or a body corporate namely:-:(a), , (b), , (c), , Every listed company;, , Every unlisted public company having –, (i), , Paid up share capital of fifty crore rupees or more during the preceding financial year; or, , (iii), , Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred, crore rupees or more at any point of time during the preceding financial year; or, , (ii), , (iv), , Turnover of two hundred crore rupees or more during the preceding financial year; or, , Outstanding deposits of twenty five crore rupees or more at any point of time during the preceding, financial year; and, , Every private company having –, (i), , (ii), , Turnover of two hundred crore rupees or more during the preceding financial year; or, , Outstanding loans or borrowings from banks or public financial institutions exceeding one hundred, crore rupees or more at any point of time during the preceding financial year., , The Audit Committee of the company or the Board shall, in consultation with the Internal Auditor, formulate the, scope, functioning, periodicity and methodology for conducting the internal audit., Exceptions:, , In case of Specified IFSC Public Company / Specified IFSC Private Company - Section 138 shall apply if the articles of, the company provides for the same. - Notification Dated 4th January 2017., , Who can be an Internal Auditor?, (a), , (b), (c), , A Chartered Accountant or;, A Cost Accountant or;, , Such other professional as may be decided by the Board to conduct internal audit of the functions and, activities of the Company., , For this sub-section, Chartered Accountant means a Chartered Accountant, who is a member of the Institute of, Chartered Accountants of India and Cost Accountant means a member of The Institute of Cost Accountants of India, as the case may be, whether engaged in practice or not. Other professionals, as may be decided by the company’s, board, may also be appointed as an internal auditor., Following classes of companies are required to appoint internal auditor –, , APPLICATION UNDER SUB-SECTION (41) OF SECTION 2 FOR CHANGE IN FINANCIAL YEAR, [RULE 40 OF THE COMPANIES (INCORPORATION) RULES, 2014], , (1), , The application for approval of concerned Regional Director under sub-section (41) of section 2, shall be filed, in e-Form No.RD-1 along with the fee as provided in the companies (Registration offices and Fees) Rules,
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347, , Lesson 8 • Accounts, Audit and Auditors, , 2014 and shall be accompanied by the following documents, namely:(a), , grounds and reasons for the application;, , (c), , Power of Attorney or Memorandum of Appearance, as the case may be;, , (b), , (2), , (d), , a copy of the minutes of the board meeting at which the resolution authorising such change was, passed, giving details of the number of votes cast in favour and or against the resolution;, details of any previous application made within last five years for change in financial year and outcome, thereof along with copy of order, , Where the Regional Director on examining the application, referred to in sub-rule (1), finds it necessary to, call for further information or finds such application to be defective or incomplete in any respect, he shall give, intimation of such information called for or defects or incompleteness, on the last intimated e-mail address, of the person or the company, which has filed such application, directing the person or the company to furnish, such information, or to rectify defects or incompleteness and to re-submit such application within a period of, fifteen days, in e-Form No. RD-GNL-5., , Provided that a maximum of two re-submissions shall be allowed., (3), , (a), , (b), (c), (4), , In case where such further information called for has not been provided or the defects or incompleteness, has not been rectified to the satisfaction of the Regional Director within the period allowed under subrule (2), the Regional Director shall reject the application with reasons within thirty days from the, date of filing application or within thirty days from the date of last re-submission made as the case, may be., , In case where the application is found to be in order, Regional Director shall allow and convey the, order within thirty days from the date of application or within thirty days from the date of last resubmission, as the case may be., where no order for approval or re-submission or rejection has been explicitly made by the Regional, Director within the stipulated time of thirty days, it shall be deemed that the application stands, approved and an approval order shall be automatically issued to the applicant., , The order conveyed by the Regional Director shall be filed by the company with the Registrar in Form, No.lNC-28 within thirty days from the date of receipt of the order along with fee as provided in the Companies, (Registration Offices and Fees) Rules, 2014., , LESSON ROUND-UP, , •, •, •, •, •, , As per the Act, books of account and other books and papers should be available for inspection by any, director on working days during business hours., The expression ‘annual accounts’ embraces both balance sheet and statement of profit and loss., , The term ‘Balance Sheet’ means a statement prepared from the books of a concern showing the debit and, credit balances after the trading and profit and loss accounts have been prepared – a statement drawn up, at the end of each trading or financial period, setting forth the various assets, and liabilities of a concern, at a particular date., Profit and loss account is a Statement by which the directors disclose to the shareholders of the company, the result of the actual working of the company. It serves to give the shareholders an idea of the earning, capacity of the company in relation to its capital, and enables them to judge about the administration and, management of the affairs of the company., The Act provides that every profit and loss account and balance sheet of the company shall comply with, the accounting standards.
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348, , •, •, , The balance sheet and profit and loss account must be approved by the Board of directors and signed by, the directors before they are submitted to the auditors for their report. The Act gives other provisions also, for authentication of annual accounts. The Act also requires the company to file such annual accounts, with the Registrar of Companies., The main object of audit is to ensure that the statement of accounts of the relevant financial year truly and, fairly reflect the state of affairs of the company. Audit also provides a moral check on those who are, entrusted with the task of running business and of keeping and maintaining the books of account of the, company. An audit of accounts is conducted with two-fold purpose:, (i), , •, •, •, , Lesson 8 • EP-CL, , , , (ii), , detection and prevention of errors;, detection and prevention of fraud., , The Act provides that the auditor of a Government company shall be appointed or re-appointed by the, Comptroller and Auditor General of India within the limits specified., The Act provides that the auditors’ report shall be signed only by the person appointed as an auditor of, the company., , The Central Government has notified Cost Accounting Records Rules for a number of specified industries, with a view to ensuring that the records so maintained highlight the area of inefficiencies or high costs., , GLOSSARY, Accounts of Companies, , National Financial, Reporting Authority, (NFRA), , XBRL Format, , Comptroller and, Auditor General of, India, , First Auditor, , As per section 2(12) of the Act, “book and paper” and “book or paper” include, books of account, deeds, vouchers, writings, documents, minutes and registers, maintained on paper or in electronic form., Through Section 132 of the Companies Act, 2013, the Central Government has, introduced a new regulatory authority named as National Authority for Financial, Reporting known as National Financial Reporting Authority (NFRA) with wide, powers to recommend, enforce and monitor the compliance of accounting and, auditing standards., , XBRL is a data-rich dialect of XML (Extensible MarkupLanguage), the universally, preferred language for transmitting information via the Internet. It was, developed specifically to communicate information between businesses and, other users of financial information, such as analysts, investors and regulators., XBRL provides a common, electronic format for business reporting. It does not, change what is being reported. It only changes how it is reported., , The Comptroller and Auditor General (CAG) of India is an authority, established, by the Constitution under Constitution of India/Part V - Chapter V/Sub-part 7B/, Article 148. The Comptroller and Auditor-General performs such duties and, exercise such powers in relation to the accounts of the Union and of the States, and of any other authority or body as may be prescribed by or under any law, made by Parliament and, until provision in that behalf is so made, The first auditor of a company, other than a Government company, shall be, appointed by the Board of Directors within 30 days of the date of registration of, the company, and the auditor so appointed shall hold office until the conclusion, of the first AGM
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349, , Lesson 8 • Accounts, Audit and Auditors, , TEST YOURSELF, (These are meant for recapitulation only. Answer to these questions are not to be submitted for evaluation)., 1., 2., 3., 4., 5., 6., , Section 128(1) requires every company to prepare and keep the books of accounts and other relevant, books and papers and financial statements at its registered office. State the manner of maintenance of, books of accounts in electronic form., What is the procedure to report frauds?, , ABC Ltd. wants to appoint FMC & Associates as its internal auditor. What are the conditions of such, appointment?, What are the conditions of removal of auditor?, , State the situations under which a company is required to constitute the Audit Committee ?, , A is an auditor of OPR Ltd, a listed public company having paid-up share capital of Rs. 10 crore. Advise him, as to whether he can render the following services, keeping in mind, the relevant provisions of the, Companies Act, 2013 ?, (i), , A wishes to ‘‘design and implement one financial system’’ and offer management services to PQR, Ltd, the holding company of OPR Ltd., , (iii), , What will be your answer in the above two cases if services are provided to ABC Ltd, a subsidiary, company of OPR Ltd. ?, , (ii), 7., 8., , A wants to conduct internal audit of OPR. He also wishes to provide actuarial services to XYZ Ltd., , Who will appoint Secretarial Auditor of the company : Board of Directors or Shareholders ? What is the, duty of Board of Directors towards secretarial auditor and audit report ?, , ABC Ltd. had Rs.7 crore as securities premium in its reserves and surplus account in Balance Sheet as at, 31st March, 2020. The Company has incurred significant losses in preceding years and as on 31st March,, 2020 it has accumulated losses amounting to Rs. 8 crore in the Balance Sheet. In order to present a true, and fair view of the financial results, the company wrote off the losses by reducing the amount standing, to the credit of securities premium account. With reference to the provisions of the Companies Act, 2013,, decide if the action of the Company is valid. ?, , LIST OF FURTHER READINGS, •, •, •, , ICSI Premier on Company Law, , Bare Act- Companies Act, 2013 and rules made thereunder, ICSI Guidance note on Secretarial Audit, , OTHER REFERENCES (Including Websites/ Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Lesson 9, Key Concepts One, Should Know, •, , Annual Report, , •, , Board’s Report, , •, •, •, •, •, , Disclosures, , Annual Return, Material, subsidiary, , Management, Discussion and, Analysis, Corporate, Governance, Report, , Transparency and Disclosures, Learning Objectives, , Regulatory Framework, , To understand:, , •, , •, , •, , •, •, •, •, •, , Contents of Annual Report, , Contents of the Directors’, Report whether mandated, by law or adopted as a good, corporate practice, Various other disclosures, required to be made to the, shareholders., Annual Return, , Various policies required to, be framed, Websites disclosures, , •, •, , •, •, , •, •, •, •, , Lesson Outline, •, , Introduction, , •, , Annual Return, , •, •, •, •, •, •, •, •, •, , Annual Report, , Board’s Report, , Website Disclosures, Policies, , LESSON ROUND UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES, , The Companies Act, 2013, , The Companies (Share Capital, & Debenture Rules) 2014, The Companies (Accounts), Rules, 2014, , The Companies (Meetings of, Board & its Powers) Rules,, 2014, , The Companies (Management, & Administration) Rules, 2014, , The Companies (Appointment, & Remuneration of Managerial, Personnel) Rules, 2014, , The Companies (Incorporation), Rules, 2014, SEBI (LODR) Regulations, 2015, SEBI (Share Based Employee, Benefits) Regulations, 2014, , Secretarial Standard (SS-4)Secretarial Standard on Boards, Report
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352, , , , INTRODUCTION, , Lesson 9 • EP-CL, , Transparency is a pivotal feature in the market based monitoring of companies and is central to shareholders’ ability, to exercise their ownership rights on an informed basis, which can help attract capital and maintain confidence in, the capital markets., Adequate disclosure also helps improve public understanding of the structure and activities of enterprises, corporate, policies and performance with respect to environmental and ethical standards, and companies’ relationships with, the communities in which they operate. Disclosures are made both through the print media and the electronic, media. Today corporates have to disclose mandatorily under various legislations such as: —, , DISCLOSURES BY BOARD, , •, , Disclosures under the Companies Act, 2013 and Rules made thereunder;, , •, , Secretarial Standard on Board’s Report-SS4 (Recommendatory);, , •, , SEBI (LODR) Regulations, 2015 and other regulations applicable for Listed Companies;, , •, •, , Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal), Act, 2013 and rules made thereunder;, Disclosures under other applicable Acts., , 1. ANNUAL REPORT, , The annual report is a comprehensive report provided by most public companies to disclose their corporate, activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to, evaluate the firm’s performance including both operating and financial highlights., As per Regulation 34 of the SEBI (LODR), Regulations, 2015, the listed entity shall submit to the stock exchange and, publish on its website(a), , (b), , A copy of the annual report sent to the shareholders along with the notice of the annual general meeting not, later than the day of commencement of dispatch to its shareholders;, In the event of any changes to the annual report, the revised copy along with the details of and explanation, for the changes shall be sent not later than 48 hours after the annual general meeting., , Such annual report shall contain the following:, (a), , Audited financial statements i.e. balance sheet, profit and loss account etc, and Statement on Impact of Audit, Qualifications as stipulated in regulation 33(3)(d), if applicable;, , (c), , Cash flow statement presented only under the indirect method as prescribed in Accounting Standard-3 or, Indian Accounting Standard 7, as applicable, specified in Section 133 of the Companies Act, 2013 read with, relevant rules framed thereunder or as specified by the Institute of Chartered Accountants of India, whichever, is applicable;, , (b), , (d), (e), (f), , Consolidated financial statements audited by its statutory auditors;, , Directors Report;, , Management discussion and analysis report - either as a part of directors report or addition thereto;, , For the top one thousand listed entities based on market capitalization, a business responsibility report, describing the initiatives taken by the listed entity from an environmental, social and governance perspective,, in the format as specified by the Board from time to time.
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Lesson 9 • Transparency and Disclosures, , 353, , The requirement of submitting a business responsibility report shall be discontinued after the financial year, 2021–22 and thereafter, with effect from the financial year 2022–23, the top one thousand listed entities, based on market capitalization shall submit a business responsibility and sustainability report in the, format as specified by the Board from time to time., Further that even during the financial year 2021–22, the top one thousand listed entities may voluntarily, submit a business responsibility and sustainability report in place of the mandatory business responsibility, report., Also, the remaining listed entities including the entities which have listed their specified securities on the SME, Exchange, may voluntarily submit such reports., , Explanation: For the purpose of this clause, market capitalization shall be calculated as on the 31st day of, March of every financial year., , Stock exchanges put up data of listed entities on its website., As per list available on NSE website as on 31st March, 2021, a total of 1920 companies are listed that includes active, and non-active companies., As per BSE, there are 4722 companies that have their equity listed on BSE, out of which 809 companies are, suspended. As such, there are only 3913 companies, whose equity capital is available for trade., , Further it is provided that the annual report shall contain any other disclosures specified in Companies Act, 2013, along with other requirements as specified in Schedule V of SEBI (LODR) Regulations, 2015., As per SEBI (LODR), the annual report shall contain the following additional disclosures:, , A. Related Party Disclosure:, 1., , The listed entity shall make disclosures in compliance with the Accounting Standard on “Related Party, Disclosures”.
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354, , 2., , , , The disclosure requirements shall be as follows:, , Lesson 9 • EP-CL, , Sr. no., , In the accounts of, , 1, , Holding Company, , •, , 2, , Subsidiary, , Same disclosures as applicable to the parent company in the accounts of subsidiary, company., , 3, , Holding Company, , Disclosures of amounts at the year end and the maximum amount of, loans/ advances/ Investments outstanding during the year., , •, •, , Loans and advances in the nature of loans to subsidiaries by name and, amount., Loans and advances in the nature of loans to associates by name and amount., Loans and advances in the nature of loans to firms/companies in which, directors are interested by name and amount., , Investments by the loanee in the shares of parent company and subsidiary, company, when the company has made a loan or advance in the nature of loan., , For the purpose of above disclosures directors’ interest shall have the same meaning as given in Section 184 of, Companies Act, 2013., 2A Disclosures of transactions of the listed entity with any person or entity belonging to the promoter/promoter, group which hold(s) 10% or more shareholding in the listed entity, in the format prescribed in the relevant, accounting standards for annual results., 3. The above disclosures shall be applicable to all listed entities except for listed banks., , B. Management Discussion and Analysis:, , 1., , This section shall include discussion on the following matters within the limits set by the listed entity’s, competitive position:, , (a), , Industry structure and developments., , (c), , Segment–wise or product-wise performance., , (b), (d), (e), (f), , (g), , (h), (i), , Opportunities and Threats., Outlook., , Risks and concerns., , Internal control systems and their adequacy., , Discussion on financial performance with respect to operational performance., , Material developments in Human Resources / Industrial Relations front, including number of people, employed., , Details of significant changes (i.e. change of 25% or more as compared to the immediately previous, financial year) in key financial ratios, along with detailed explanations therefor, including:, (i), , Debtors Turnover, , (iii), , Interest Coverage Ratio, , (ii), , (iv), (v), , (vi), , Inventory Turnover, Current Ratio, , Debt Equity Ratio, , Operating Profit Margin (%), , (vii) Net Profit Margin (%)
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Lesson 9 • Transparency and Disclosures, , 2., , (j), , 355, , or sector-specific equivalent ratios, as applicable., , Details of any change in Return on Net Worth as compared to the immediately previous financial year, along with a detailed explanation thereof., , Disclosure of Accounting Treatment:, , Where in the preparation of financial statements, a treatment different from that prescribed in an Accounting, Standard has been followed, the fact shall be disclosed in the financial statements, together with the, management’s explanation as to why it believes such alternative treatment is more representative of the true, and fair view of the underlying business transaction., , C. Corporate Governance Report, , The following disclosures shall be made in the section on the corporate governance of the annual report., (1), (2), , A brief statement on listed entity’s philosophy on code of governance., Board of Directors:, , (a), , composition and category of directors (e.g. promoter, executive, non-executive, independent nonexecutive, nominee director - institution represented and whether as lender or as equity investor);, , (c), , number of other board of directors or committees in which a directors is a member or chairperson,, and with effect from the Annual Report for the year ended 31st March 2019, including separately the, names of the listed entities where the person is a director and the category of directorship;, , (b), , (d), , number of meetings of the board of directors held and dates on which held;, , (f), , number of shares and convertible instruments held by non- executive directors;, , (e), , (g), , (h), , (i), , (j), (3), , attendance of each director at the meeting of the board of directors and the last annual general meeting;, , disclosure of relationships between directors inter-se;, , web link where details of familiarisation programmes imparted to independent directors is disclosed., , A chart or a matrix setting out the skills/expertise/competence of the board of directors specifying the, following:, (i), , (ii), , With effect from the financial year ending March 31, 2019, the list of core skills/expertise/, competencies identified by the board of directors as required in the context of its business(es), and sector(s) for it to function effectively and those actually available with the board; and, With effect from the financial year ended March 31, 2020, the names of directors who have such, skills / expertise/ competence., , confirmation that in the opinion of the board, the independent directors fulfill the conditions specified, in these regulations and are independent of the management;, detailed reasons for the resignation of an independent director who resigns before the expiry of his/, her tenure along with a confirmation by such director that there are no other material reasons other, than those provided., , Audit Committee:, , (a), , brief description of terms of reference;, , (c), , meetings and attendance during the year., , (b), , composition, name of members and chairperson;
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356, , (4), , (5), , , , Nomination and Remuneration Committee:, , (a), , brief description of terms of reference;, , (d), , performance evaluation criteria for independent directors., , (b), (c), , Lesson 9 • EP-CL, , composition, name of members and chairperson;, meeting and attendance during the year;, , Stakeholders’ Relationship Committee:, , (a), , (b), (c), , (d), (e), , name of the non-executive director heading the committee;, name and designation of the compliance officer;, , number of shareholders’ complaints received during the financial year;, number of complaints not solved to the satisfaction of shareholders;, number of pending complaints., , (5A) Risk Management Committee:, (a), , (6), , (b), (c), , brief description of terms of reference;, , composition, name of members and chairperson;, meetings and attendance during the year;, , Remuneration of Directors:, , (a), , (b), (c), , all pecuniary relationship or transactions of the non-executive directors vis-a-vis the listed entity shall, be disclosed in the annual report;, , criteria of making payments to non-executive directors. Alternatively, this may be disseminated on the, listed entity’s website and reference drawn thereto in the annual report;, disclosures with respect to remuneration: in addition to disclosures required under the Companies, Act, 2013, the following disclosures shall be made:, (i), , (ii), , (iii), (7), , (iv), , details of fixed component and performance linked incentives, along with the performance criteria;, , service contracts, notice period, severance fees;, , stock option details, if any and whether issued at a discount as well as the period over which, accrued and over which exercisable., , General body meetings:, , (a), , location and time, where last three annual general meetings held;, , (d), , person who conducted the postal ballot exercise;, , (b), (c), , (8), , all elements of remuneration package of individual directors summarized under major groups,, such as salary, benefits, bonuses, stock options, pension etc;, , (e), (f), , whether any special resolutions passed in the previous three annual general meetings;, , whether any special resolution passed last year through postal ballot – details of voting pattern;, whether any special resolution is proposed to be conducted through postal ballot;, procedure for postal ballot., , Means of communication:, , (a), , (b), (c), , (d), (e), , quarterly results;, , newspapers wherein results normally published;, any website, where displayed;, , whether it also displays official news releases; and, , presentations made to institutional investors or to the analysts.
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Lesson 9 • Transparency and Disclosures, , (9), , 357, , General shareholder information:, , (a), , annual general meeting - date, time and venue;, , (c), , dividend payment date;, , (b), (d), (e), (f), , (g), , (h), (i), , (j), , (k), (l), , (m), (n), (o), , (p), (q), , financial year;, , the name and address of each stock exchange(s) at which the listed entity’s securities are listed and a, confirmation about payment of annual listing fee to each of such stock exchange(s);, stock code;, , market price data- high, low during each month in last financial year;, , performance in comparison to broad-based indices such as BSE Sensex, CRISIL Index etc;, , in case the securities are suspended from trading, the directors report shall explain the reason thereof;, registrar to an issue and share transfer agents;, share transfer system;, , distribution of shareholding;, , dematerialization of shares and liquidity;, , outstanding Global Depository Receipts or American Depository Receipts or warrants or any, convertible instruments, conversion date and likely impact on equity;, commodity price risk or foreign exchange risk and hedging activities;, plant locations;, , address for correspondence., , list of all credit ratings obtained by the entity along with any revisions thereto during the relevant, financial year, for all debt instruments of such entity or any fixed deposit programme or any scheme or, proposal of the listed entity involving mobilization of funds, whether in India or abroad., , (10) Other Disclosures:, (a), , disclosures on materially significant related party transactions that may have potential conflict with, the interests of listed entity at large;, , (c), , details of establishment of vigil mechanism/ whistle blower policy, and affirmation that no personnel, has been denied access to the audit committee;, , (b), , (d), (e), (f), , (g), , (h), (i), , details of non-compliance by the listed entity, penalties, strictures imposed on the listed entity by stock, exchange(s) or the board or any statutory authority, on any matter related to capital markets, during, the last three years;, details of compliance with mandatory requirements and adoption of the non-mandatory requirements;, web link where policy for determining ‘material’ subsidiaries is disclosed;, web link where policy on dealing with related party transactions;, , disclosure of commodity price risks and commodity hedging activities., , details of utilization of funds raised through preferential allotment or qualified institutions placement, as specified under Regulation 32 (7A)., , a certificate from a Company Secretary in practice that none of the directors on the board of the, company have been debarred or disqualified from being appointed or continuing as directors of companies, by the Board/Ministry of Corporate Affairs or any such statutory authority.
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358, , Lesson 9 • EP-CL, , , , (j), , (k), (l), , where the board had not accepted any recommendation of any committee of the board which is, mandatorily required, in the relevant financial year, the same to be disclosed along with reasons thereof:, Provided that the clause shall only apply where recommendation of / submission by the committee is, required for the approval of the Board of Directors and shall not apply where prior approval of the, relevant committee is required for undertaking any transaction under these Regulations., total fees for all services paid by the listed entity and its subsidiaries, on a consolidated basis, to the, statutory auditor and all entities in the network firm/network entity of which the statutory auditor is, a part., disclosures in relation to the Sexual Harassment of Women at Workplace (Prevention, Prohibition and, Redressal) Act, 2013:, (a), , (b), (c), , number of complaints filed during the financial year, , number of complaints disposed of during the financial year, , number of complaints pending as on end of the financial year, , (11) Non-compliance of any requirement of corporate governance report of sub-paras (2) to (10) above, with, reasons thereof shall be disclosed., , (12) The corporate governance report shall also disclose the extent to which the discretionary requirements as, specified in Part E of Schedule II have been adopted., (13) The disclosures of the compliance with corporate governance requirements specified in regulation 17 to, 27 and clauses (b) to (i) of sub-regulation (2) of regulation 46 shall be made in the section on corporate, governance of the annual report., , D. Declaration signed by the chief executive officer stating that the members of Board of, Directors and senior management personnel have affirmed compliance with the code of, conduct of board of directors and senior management., E. Compliance certificate from either the auditors or practicing Company Secretaries regarding, compliance of conditions of corporate governance shall be annexed with the directors’, report., F. Disclosures with respect to demat suspense account/ unclaimed suspense account, , 1., , The listed entity shall disclose the following details in its annual report, as long as there are shares in the, demat suspense account or unclaimed suspense account, as applicable :, , (a), , aggregate number of shareholders and the outstanding shares in the suspense account lying at the, beginning of the year;, , (c), , number of shareholders to whom shares were transferred from suspense account during the year;, , (b), (d), (e), , number of shareholders who approached listed entity for transfer of shares from suspense account, during the year;, aggregate number of shareholders and the outstanding shares in the suspense account lying at the end, of the year;, that the voting rights on these shares shall remain frozen till the rightful owner of such shares claims, the shares., , Statement of deviation(s) or variation(s), , As per Regulation 32 of SEBI(LODR) Regulations, 2015, The listed entity shall submit to the stock exchange the, following statement(s) on a quarterly basis for public issue, rights issue, preferential issue etc:
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Lesson 9 • Transparency and Disclosures, , (a), , (b), , 359, , indicating deviations, if any, in the use of proceeds from the objects stated in the offer document or explanatory, statement to the notice for the general meeting, as applicable;, indicating category wise variation (capital expenditure, sales and marketing, working capital etc.) between, projected utilisation of funds made by it in its offer document or explanatory statement to the notice for the, general meeting, as applicable and the actual utilisation of funds., , The statement(s) shall be continued to be given till such time the issue proceeds have been fully utilised or the, purpose for which these proceeds were raised has been achieved and shall be placed before the audit committee, for review and after such review, shall be submitted to the stock exchange(s)., The listed entity shall furnish an explanation for such variation in the directors’ report in the Annual Report., , The listed entity shall prepare an annual statement of funds utilized for purposes other than those stated in the, offer document/prospectus/notice, certified by the statutory auditors of the listed entity, and place it before the, audit committee till such time the full money raised through the issue has been fully utilized., , Where the listed entity has appointed a monitoring agency to monitor utilisation of proceeds of a public or rights, issue, the listed entity shall submit to the stock exchange(s) any comments or report received from the monitoring, agency within forty-five days from the end of each quarter., , Where the listed entity has appointed a monitoring agency to monitor the utilisation of proceeds of a public or, rights issue, the monitoring report of such agency shall be placed before the audit committee on an annual basis,, promptly upon its receipt., Explanation —For the purpose of sub-regulations (6) and (7), “monitoring agency” shall mean the monitoring, agency as specified in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements), Regulations, 2018., , Where an entity has raised funds through preferential allotment or qualified institutions placement, the listed, entity shall disclose every year, the utilization of such funds during that year in its Annual Report until such funds, are fully utilized., , Dissemination to the shareholders, , According to Regulation 36 of SEBI (LODR) the listed entity shall send the annual report in the following manner, to the shareholders:, (a), , Soft copies of full annual report to all those shareholder(s) who have registered their email address(es) either, with the listed entity or with any depository., , (c), , Hard copies of full annual reports to those shareholders, who request for the same., , (b), , Hard copy of statement containing the salient features of all the documents, as prescribed in Section 136 of, Companies Act, 2013 or rules made thereunder to those shareholder(s) who have not so registered;, , The listed entity shall send annual report to the holders of securities, not less than twenty-one days before the, annual general meeting., , 2. BOARD’S REPORT, , The Board’s Report is the most important means of communication by the Board of Directors of a company with its, shareholders. It is a comprehensive document which serves to inform the shareholders about the performance and, various other aspects of the company, its major policies, relevant changes in management, future programmes of, expansion, modernization and diversification, capitalization or reserves, etc. The Board’s Report enables not only, the shareholders but also the lenders, bankers, government and the public to make an appraisal of the company’s, performance and provides an insight into the future growth and profitability of the company.
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360, , , , Lesson 9 • EP-CL, , The Companies Act, 2013 is based on enhanced disclosures and transparency. The Board’s Report is a document,, preparation of which requires thorough understanding of the subject. The Act requires the Board of Directors to, disclose on various parameters including the risk management, board evaluation, implementation of Corporate, Social Responsibility, a statement of declaration given by independent directors. The Secretarial Audit Report is also, required to be annexed to the Board’s Report., , It is mandatory for the Board of Directors of every company to present financial statement to the shareholders, along with its report, known as the “Board’s Report” at every annual general meeting. Apart from giving a complete, review of the performance of the company for the year under report, material changes till the date of the report,, the report highlights the significance of various national and international developments which can have an, impact on the business and indicates the future strategy of the company. The Board’s Report enables shareholders,, lenders, bankers, government, prospective investors, all the stakeholders and the public to make an appraisal of the, company’s performance and reflects the level of corporate governance in the company., , Practical Issues, The Board’s Report is prepared by Secretarial Department under the supervision and guidance of Company, Secretary. It is of utmost importance for Company Secretary of a company that when new financial year begins, he, sends to all branches of business, finance, accounts etc., A detailed “To Do List” that these branches of busines must follow during the financial year. It should also consist, of instruction that as and when any significant event or happening takes place that potentially has bearing on, company’s business, operations, future viability, profits etc, it must be reported forthwith. This will enable to make, timely disclosure within 24 hours, if the event is covered u/r 30 of SEBI (LODR), 2015. Else, a noting will go to the, AGM folder for reference when the Annual Report is being finalized., , Getting regular inputs and collecting them in AGM folder is important for ensuring preparation of an exhaustive and, complete Board’s Report without missing any reportable event. Every CS should inculcate the habit and remember, that preparation of Annual Report / Board’s Report is an ongoing project throughout the year. When the year is, about to close or soon thereafter, a reminder should also go., The matters to be included in the Board’s Report have been specified in Section 134 of the Companies Act, 2013 and, Rule 8 of the Companies (Accounts) Rules, 2014. Apart from this, under Sections 67, 92, 129, 131, 135, 149, 160,, 168, 177, 178, 188, 197, 204 of the Companies Act, 2013, relevant information has to be disclosed in the Board’s, Report. The Board’s Report of companies whose shares are listed on a stock exchange must include additional, information as specified in the SEBI (LODR), 2015.
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361, , Lesson 9 • Transparency and Disclosures, , DISCLOSURE IN BOARD’S REPORT PURSUANT TO THE COMPANIES ACT, 2013, , Disclosures under Section, 134(3), Details of Employees Stock, Option Scheme – Section 62(1), (b) r\w Rule 12(9) of the, Companies (Share Capital &, Debentures) Rules, 2014, , Voluntary revision of Financial, Statements or Board’s Report –, Section 131(1), Resignation of Director –, Section 168(1), , Policy relating to the, remuneration for the directors,, key managerial personnel and, other employees – Section, 178(4), , Remuneration received by, MD and WTD from holding or, subsidiary companies – Section, 197(14), , Issue of Equity Shares with, differential rights under Section, 43 r\w Rule 4 of the Companies, (Share Capital & Debentures), Rules, 2014, , Restrictions on purchase by, company or giving of loans by it, for under Section 67 r\w Rule 16, of the Companies (Share Capital &, Debentures) Rules, 2014, , Issue of Sweat Equity Shares, under Section 54 r\w Rule 8 of, the Companies (Share Capital &, Debentures) Rules, 2014, Disclosures pertaining to, Consolidated Financial Statements, under Section 129, , Corporate Social Responsibility –, Section 135, , Appointment/, Re-Appointments of an Independent, Director – Section 149(10), , Related party transactions –, Section 188(2), , Disclosures pertaining to, remuneration of directors and, employees – Section 197(12), , Composition of Audit Committee –, Section 177(8), , Details of Vigil Mechanism – Section, 177(10), , Secretarial Audit Report – Section, 204(1), , Disclosures under Section 134(3), Section 134 of the Act enjoins upon the Board a responsibility to make out its report to the shareholders and attach, the said report to financial statements laid before the shareholders at the annual general meeting, in pursuance of, Section 129 of the Act., The Board’s Report shall be prepared based on the stand alone financial statements of the company and shall report, on the highlights of performance of subsidiaries, associates and joint venture companies and their contribution to, the overall performance of the company during the period under report., In terms of Sub-section (3) of Section 134, the Board’s Report shall include:, (a), , (b), , the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;, , Number of meetings of the Board: Board’s Report should contain total number of Board Meetings held, during the year;, According to SS-4, the number and dates of meetings of the Board held during the year shall be disclosed in, the Report.
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362, , (c), , Lesson 9 • EP-CL, , , , Directors’ Responsibility Statement: Section 134(5) of the Act specifically provides that the Directors’, Responsibility Statement shall set out the following affirmations:, , (i), , in the preparation of the annual accounts, the applicable accounting standards had been followed, along with proper explanation relating to material departures;, , (iii), , the directors had taken proper and sufficient care for the maintenance of adequate accounting records, in accordance with the provisions of this Act for safeguarding the assets of the company and for, preventing and detecting fraud and other irregularities;, , (ii), , (iv), (v), , (vi), , the directors had selected such accounting policies and applied them consistently and made judgments, and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of, the company at the end of the financial year and of the profit and loss of the company for that period;, , the directors had prepared the annual accounts on a going concern basis; and, , the directors, in the case of a listed company, had laid down internal financial controls to be followed, by the company and that such internal financial controls are adequate and were operating effectively;, and, The directors had devised proper systems to ensure compliance with the provisions of all applicable, laws and that such systems were adequate and operating effectively., , Explanation.– The term “internal financial controls” means the policies and procedures adopted by the, company for ensuring the orderly and efficient conduct of its business, including adherence to company’s, policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and, completeness of the accounting records, and the timely preparation of reliable financial information., , (ca) details in respect of frauds reported by auditors under sub-section (12) of section 143, other than those which are reportable to the Central Government:, •, , Nature of Fraud with description;, , •, , Parties involved, if remedial action not taken; and, , •, •, , (d), , Approximate Amount involved;, Remedial action taken., , The auditor shall report the matter related to details of frauds under sub-section (12) of section 143 to the, Central Government involving an amount of Rupees One Crore or above., , a statement on declaration given by independent directors under sub-section (6) of section 149: Every, Independent Director shall give a declaration that he meets the criteria of independence laid down in subsection (6) of section 149, which is to be given by him at the first meeting of the Board in which he participates, as a director and thereafter at the first meeting of the Board in every financial year or whenever there is, any change in the circumstances which may affect his status as an independent director. The Board’s Report, should contain a statement to the effect that the independent directors have given such a declaration., , SS-4 provides that Board’s Report should include a statement to the effect:, , (a) that necessary declaration with respect to independence has been received from all the Independent Directors, of the company;, (b) that the Independent Directors have complied with the Code for Independent Directors prescribed in Schedule, IV to the Act.
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Lesson 9 • Transparency and Disclosures, , (e), , 363, , Company’s policy on directors’ appointment and remuneration including criteria for determining, qualifications, positive attributes, independence of a director and other matters provided under subsection (3) of section 178: The Board’ Report of companies which are required to constitute Nomination, and Remuneration Committee shall include:, , •, •, •, , criteria for determining qualifications,, , positive attributes and independence of a director, and, , recommend to the Board a policy relating to the remuneration of directors, Key Managerial Personnel, and other employees., , Section 178(4) provides that the Nomination and Remuneration Committee shall formulate and recommend, to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other, employees. Such policy shall ensure that –, , (a), , the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate, directors of the quality required to run the company successfully;, , (c), , remuneration to directors, key managerial personnel and senior management involves a balance, between fixed and incentive pay reflecting short and long-term performance objectives appropriate to, the working of the company and its goals., , (b), , relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and, , Such policy shall be placed on the website of the company, if any, and the salient features of the policy and, changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s Report., , Exceptions:, , In case of Section 8 Company-Section 178 is not applicable (Notification dated 5th June, 2015)., In case of Government Company-Section 178(2)/(3)/(4) is not applicable to Government Companies except with, regard to appointment of senior management & other employees via Notification No. GSR 463(E), dated 05-06-2015., In case of Specified IFSC Public Company – Section 178 shall not apply (Notification Dated 4th January 2017)., , (f), , Explanations or comments by the Board on every qualification, reservation or adverse, remark or disclaimer made –, •, •, , •, , Auditor’s report under section 143: Clause (h) of Section 143(3) provides that the auditor’s report, shall state any qualification, reservation or adverse remark relating to the maintenance of accounts and, other matters connected therewith., , Cost Audit Report under section 148: Section 148(5) of the Act and Rule 6 of the Companies (Cost, Records and Audit) Rules, 2014 provides that the rights, duties and obligations applicable to the Auditor, under Chapter X of the Act shall mutatis mutandis apply to a cost auditor appointed under Section 148, of the Act. It also provides that the cost auditor shall submit his report to the Board of Directors of the, company. The cost auditor’s report shall also state any qualification, reservation or adverse remark, relating to the maintenance of cost accounts and other matters connected therewith., Secretarial Audit Report under Section 204(3): Section 204(3) of the Act provides that the, Board of Directors, in their report made in terms of sub-section (3) of section 134, shall explain in full, any qualification or observation or other remarks made by the Company Secretary in practice in his, secretarial audit report. Thus, the Board should state detailed explanation in its Board’s Report for, all the observations and qualifications given by the Secretarial auditor in his secretarial audit report, including the reasons for such material deviations and reasons that led to such deviations.
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364, , (g), , (h), , Lesson 9 • EP-CL, , , , Particulars of loans, guarantees or investments under section 186: The particulars of loans given,, guarantees provided or investments in securities and acquisition made during the year under section 186 of, the Act should be attached to the Board’s Report., , (i), , Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section, 188 in the prescribed form; The Report of the Board shall contain the details of contracts or arrangements, entered with Related Parties as referred to in Section 188 (1) in Form AOC-2 pursuant to Rule 8(2) of, Companies (Accounts) Rules, 2014., , (j), , The figures of the previous year relating to achievement of targets of production and sales should also be, given in the Board’s Report to facilitate comparison and the reasons for any substantial deviation there from, should be explained in brief., , (k), , The state of the company’s affairs: Information and data which are usually considered pertinent and, necessary for the purpose of a proper appreciation of the state of affairs of a company relating to the period, for which the financial statements have been prepared must be disclosed in the report. Relevant changes, which have occurred, as compared to the position as stated in the previous year’s Board’s Report which have, a material bearing on the performance of the company should be indicated in the Board’s Report., , The amounts, if any, which it proposes to carry to any reserves: A company may, before the declaration, of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may, consider appropriate to the reserves of the company. If no amount is proposed to be transferred to reserves,, a statement to that effect shall be included., The amount, if any, which it recommends should be paid by way of dividend: The Board’s Report shall, disclose the amount per share and the percentage which the Board recommends to be paid as dividend under, section 123 of the Act., , According to SS-4 following should be disclosed in the Board’s Report:, , a. The amount and the percentage of interim dividend declared, if any, during the year, b. The total amount of dividend for the year., c. A statement on compliance with the Dividend Distribution Policy, if applicable, and the reasons for deviation, and the rationale for additional parameters considered, if any., d. Payment of dividend from reserves., , (l), , In case no dividend has been recommended by the Board, a statement to that effect shall be made in Board’s, Report as good governance practice., , Material changes and commitments, if any, affecting the financial position of the company which have, occurred between the end of the financial year of the company to which the financial statements relate, and the date of the report: The Board’s Report should include material changes and commitments, if any,, affecting the financial position of the company and occurring between the date of balance sheet and the date, of the report. The Directors’ Report should, therefore, contain material changes pertaining to post-financial, statement events impacting the operations and performance of the Company., , (m) The conservation of energy, technology absorption, foreign exchange earnings and outgo, in such, manner as prescribed:, Rule 8(3) of the Companies (Accounts) Rules, 2014, prescribes the following details:, , A., , Conservation of energy, , (i), , the steps taken or impact on conservation of energy;
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Lesson 9 • Transparency and Disclosures, , (ii), , B., , (iii), , the steps taken by the company for utilising alternate sources of energy;, the capital investment on energy conservation equipment., , Technology absorption, , (i), , the efforts made towards technology absorption;, , (iii), , in case of imported technology (imported during the last three years reckoned from the beginning, of the financial year):, , (ii), , the benefits derived like product improvement, cost reduction, product development or import, substitution;, (a), , the details of technology imported;, , (c), , whether the technology been fully absorbed;, , (b), , C., , 365, , (iv), , (d), , the year of import;, , if not fully absorbed, areas where absorption has not taken place, and the reasons thereof;, and, , the expenditure incurred on Research and Development., , Foreign exchange earnings and Outgo: The Foreign Exchange earned in terms of actual inflows, during the year and the Foreign Exchange outgo during the year in terms of actual outflows., , Exemptions:, , The requirement of furnishing information and details under Rule 8(3) of the Companies (Accounts) Rules,, 2014 shall not apply to a Government company engaged in producing defence equipment., (n), , (o), , A statement indicating development and implementation of a risk management policy for the company, including identification therein of elements of risk, if any, which in the opinion of the Board may, threaten the existence of the company: The company should provide about the overall risk management, framework of the company, whether it has constituted risk management committee, the risk management, policy of the company, the possible risks and steps taken to mitigate those risks in this section., , Details about the policy developed and implemented by the company on Corporate Social Responsibility, initiatives taken during the year: Section 135(4) of the Act provides that the Board of every company having, net worth of Rs. 500 Crores or more or turnover of Rs. 1,000 Crores or more or net profit of Rs. 5 Crores or, more during the immediately preceding financial year shall disclose contents of Corporate Social Policy in its, report and also place it on the company’s website., , Further, Section 135(2) requires that the composition of the CSR Committee shall be disclosed in the Board’s, Report., The Board of every company referred to in Section 135 (1) of the Companies Act, 2013, shall ensure that, the company spends, in every financial year, at least two per cent. of the average net profits of the company, made during the three immediately preceding financial years or where the company has not completed the, period of three financial years since its incorporation, during such immediately preceding financial years, in, pursuance of its Corporate Social Responsibility Policy., However, if the company fails to spend such amount, the Board shall, in its report made under clause (o) of, sub-section (3) of section 134, specify the reasons for not spending the amount.
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366, , , , Lesson 9 • EP-CL, , Preparation of CSR Report, It is mandatory to include an Annual Report on CSR in the prescribed format, in the Board’s report of the, Company The report containing the details of CSR Activities undertaken by the company and contents of CSR, policy shall be made available on Company’s website., •, , Directors Report:, , •, , In case of a Foreign Company:, , The Company shall annex with its Board Report an annual report on CSR containing particulars specified, in Annexure I (for F.Y. Commenced Prior To 1st day of April, 2020) or Annexure II (w.e.f. F.Y. Commencing, on or after 1st day of April, 2020), as applicable., The Balance sheet filed u/s 381(1) (b) of the Companies Act, 2013 shall contain an annual report on CSR, containing particulars specified in Annexure I (for F.Y. Commenced prior to 1st day of April, 2020) or, Annexure II (w.e.f. F.Y. Commencing on or after 1st day of April, 2020), as applicable., , Impact Assessment for big CSR projects, •, •, •, , Companies with average CSR obligation of 10 Crore or more in the three immediately preceding financial, years shall undertake impact assessment through an independent agency for projects of Rs.1 crore or more, which have been completed not less than 1 year before undertaking the impact study., The impact assessment reports shall be placed before the Board and shall be annexed to the annual, report on CSR., , A Company undertaking impact assessment may book the expenditure towards Corporate Social, Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure for, that financial year or ₹ 50 Lakh, whichever is less., , For details, kindly visit “Lesson 7 -Corporate Social Responsibility” of Company Law Study Material., (p), , Board evaluation: Section 134 of the Act read with Rule 8(4) of the Companies (Accounts) Rules, 2014, provides that every listed company and every other public company having a paid up share capital of twenty, five crore rupees or more calculated at the end of the preceding financial year shall include, in the report by its, Board of directors, a statement indicating the manner in which formal annual evaluation of the performance, of the Board, its Committees and of individual directors has been made., , Exception:, , This clause shall not apply in case of Government company, in which the directors are evaluated by the Ministry or, Department of the Central Government which is administratively in charge of the company, or, as the case may, be, the State Government as per its own evaluation methodology- Notification No. GSR 463(E), dated 5-6-2015., , (q) such other matters as prescribed: Rule 8(5) of the Companies (Accounts) Rules, 2014, prescribes that the Board’s Report shall also include, following matters (i), , The financial summary or highlights;, , (iii), , The details of directors or key managerial personnel who were appointed or have resigned during the year;, , (ii), , The change in the nature of business, if any;
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Lesson 9 • Transparency and Disclosures, , 367, , As per SS-4, the disclosure shall include the following:, (a), , names of the persons who have been appointed / ceased to be Directors and/or Key Managerial Personnel, of the company:, (i) during the year;, (ii) after the end of the year and up to the date of the Report;, , (b), , mode of such appointment/cessation;, , (c), , names of the Directors retiring by rotation at the ensuing annual general meeting and whether or not they, offer themselves for re-appointment., , (iiia) A statement regarding opinion of the Board with regard to integrity, expertise and experience (including the, proficiency) of the independent directors appointed during the year;, , (iv), (v), , Explanation.-For the purposes of this clause, the expression “proficiency” means the proficiency of the, independent director as ascertained from the online proficiency self-assessment test conducted by the, institute notified under sub-section (1) of section 150., , The names of companies which have become or ceased to be its Subsidiaries, joint ventures or associate, companies during the year;, The details relating to deposits, covered under Chapter V of the Act,-, , (a), , accepted during the year;, , (c), , whether there has been any default in repayment of deposits or payment of interest thereon during the, year and if so, number of such cases and the total amount involved–, , (b), , remained unpaid or unclaimed as at the end of the year;, •, , at the beginning of the year;, , •, , at the end of the year;, , •, (vi), , maximum during the year;, , The details of deposits which are not in compliance with the requirements of Chapter V of the Act;, , (vii) The details of significant and material orders passed by the regulators or courts or tribunals impacting the, going concern status and company’s operations in future;, (viii) The details in respect of adequacy of internal financial controls with reference to the financial statements;, (ix), (x), (xi), , A disclosure, as to whether maintenance of cost records as specified by the Central Government under subsection (1) of section 148 of the Companies Act, 2013, is required by the Company and accordingly such, accounts and records are made and maintained;, , a statement that the company has complied with provisions relating to the constitution of Internal Complaints, Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal), Act, 2013;, , the details of application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016, (31 of 2016) during the year along with their status as at the end of the financial year;, , (xii) the details of difference between amount of the valuation done at the time of one time settlement and the, valuation done while taking loan from the Banks or Financial Institutions along with the reasons thereof.
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368, , , , Lesson 9 • EP-CL, , Where disclosures referred to in sub-section (3) of Section 134 of the Companies Act,2013 have been included in, the financial statements, such disclosures shall be referred to instead of being repeated in the Board’s Report., Further, where the policy referred to in clause (e) or clause (o) of sub-section (3) of Section 134 of the Companies, Act,2013 is made available on company’s website, if any, it shall be sufficient compliance of the requirements under, such clauses if the salient features of the policy and any change therein are specified in brief in the Board’s Report, and the web-address is indicated therein at which the complete policy is available., , Rule 8 of the Companies (Accounts) Rules, 2014 shall not apply to One Person Company or Small, Company., Abridged Board Report for OPC and Small Company, , The Central Government has been empowered to prescribe an abridged Board’s report, for the purpose of, compliance with section 134 of the Companies Act, 2013 by One Person Company or Small Company, Rule 8A of the Companies (Accounts) Rules, 2014, prescribes the Matters to be included in Board’s Report, for One Person Company and Small Company., 1., , The Board’s Report of One Person Company and Small Company shall be prepared based on the stand alone, financial statement of the company, which shall be in abridged form and contain the following:-, , (a), , the web address, if any, where annual return referred to in sub-section (3) of section 92 has been, placed;, , (c), , Directors’ Responsibility Statement as referred to in sub-section (5) of section 134;, , (b), (d), (e), (f), , (g), , (h), (i), 2., , (j), , number of meetings of the Board;, , details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those, which are reportable to the Central Government;, , explanations or comments by the Board on every qualification, reservation or adverse remark or, disclaimer made by the auditor in his report;, the state of the company’s affairs;, , the financial summary or highlights;, , material changes from the date of closure of the financial year in the nature of business and their effect, on the financial position of the company;, the details of directors who were appointed or have resigned during the year;, , the details or significant and material orders passed by the regulators or courts or tribunals impacting, the going concern status and company’s operations in future., , The Report of the Board shall contain the particulars of contracts or arrangements with related parties, referred to in sub-section (1) of section 188 in the Form AOC-2., , Disclosures pertaining to Issue of Equity Shares with differential rights, , Section 43 of the Act provides that a company limited by shares can issue equity shares with differential rights as, to dividend, voting or otherwise in accordance with rules prescribed under Rule 4 of the Companies (Share Capital, and Debentures) Rules, 2014.
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Lesson 9 • Transparency and Disclosures, , 369, , Rule 4(4) of the Companies (Share Capital and Debentures) Rules, 2014, provides that the Board of Directors shall,, inter alia, disclose in the Board’s Report for the financial year in which the issue of equity shares with differential, rights as to dividend, voting or otherwise was completed, the following details, namely:(a), , total number of shares allotted with differential rights;, , (c), , percentage of shares with differential rights to the total post-issue equity share capital with differential rights, issued at any point of time and percentage of voting rights which the equity share capital with differential, voting rights shall carry to the total voting rights of the aggregate equity share capital;, , (b), , (d), (e), (f), , (g), , (h), , details of the differential rights relating to voting rights and dividends;, , price at which such shares have been issued;, , particulars of promoters, directors or key managerial personnel to whom such shares are issued;, , change in control, if any, in the company consequent to the issue of equity shares with differential voting, rights;, , diluted Earnings Per Share pursuant to the issue of each class of shares, calculated in accordance with the, applicable accounting standards;, pre and post issue shareholding pattern along with voting rights shall be in the format specified as per clause, 35 of the listing agreement issued by Security Exchange Board of India from time to time., , Disclosures pertaining to Issue of Sweat Equity Shares, , Section 54(1)(d) of the Act provides that where the equity shares of the company are listed on a recognized stock, exchange, the sweat equity shares are issued in accordance with the regulations made by the SEBI and if they are, not so listed, the sweat equity shares are issued in accordance with Rule 8 of the Companies (Share Capital and, Debentures) Rules, 2014., In terms of Rule 8 of Companies (Share Capital and Debentures) Rules, 2014, the Board of Directors shall, inter alia,, disclose in the Directors’ Report for the year in which such shares are issued, the following details of issue of sweat, equity shares namely:(a), , the class of director or employee to whom sweat equity shares were issued;, , (c), , the number of sweat equity shares issued to the directors, key managerial personnel or other employees, showing separately the number of such shares issued to them , if any, for consideration other than cash and, the individual names of allottees holding one percent or more of the issued share capital;, , (b), , (d), (e), (f), , (g), , (h), (i), , the class of shares issued as Sweat Equity Shares;, , the reasons or justification for the issue;, , the principal terms and conditions for issue of sweat equity shares, including pricing formula;, the total number of shares arising as a result of issue of sweat equity shares;, , the percentage of the sweat equity shares of the total post issued and paid up share capital;, , the consideration (including consideration other than cash) received or benefit accrued to the company from, the issue of sweat equity shares;, the diluted Earnings Per Share (EPS) pursuant to issuance of sweat equity shares., , Disclosures of Details of Employees Stock Option Scheme - Section 62(1)(b), , Section 62(1)(b) of the Act read with Rule 12(9) of the Companies (Share Capital and Debentures) Rules, 2014, provides that the Board of directors, shall, inter alia, disclose in the Directors’ Report for the year, the following, details of the Employees Stock Option Scheme:
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370, , , , (a), , options granted;, , (c), , options exercised;, , (b), (d), (e), (f), , (g), , (h), (i), , (j), , Lesson 9 • EP-CL, , options vested;, , the total number of shares arising as a result of exercise of option;, options lapsed;, , the exercise price;, , variation of terms of options;, , money realized by exercise of options;, total number of options in force;, , employee wise details of options granted to:, , (i), , key managerial personnel;, , (iii), , identified employees who were granted option, during any one year, equal to or exceeding one percent of, the issued capital (excluding outstanding warrants and conversions) of the company at the time of grant., , (ii), , any other employee who receives a grant of options in any one year of option amounting to five percent, or more of options granted during that year;, , Disclosures pertaining to Restrictions on purchase by company or giving of loans by it for, purchase of its shares – Section 67, , Proviso to Section 67(3) read with Rule 16(4) of Companies (Share Capital and Debentures) Rules, 2014 provides, that where the voting rights are not exercised directly by the employees in respect of shares to which the scheme, for provision of money for purchase of or subscription for shares by employees or by trustees for the benefit of, employees relates, the Board of Directors shall, inter alia, disclose in the Board’s Report for the relevant financial, year the following details, namely:(a), , the names of the employees who have not exercised the voting rights directly;, , (c), , the name of the person who is exercising such voting rights;, , (b), (d), (e), (f), , (g), , (h), , the reasons for not voting directly;, , the number of shares held by or in favour of, such employees and the percentage of such shares to the total, paid up share capital of the company;, the date of the general meeting in which such voting power was exercised;, , the resolutions on which votes have been cast by persons holding such voting power;, the percentage of such voting power to the total voting power on each resolution;, whether the votes were cast in favour of or against the resolution., , Disclosures pertaining to Consolidated Financial Statements, , Rule 8(1) of the Companies (Accounts) Rules, 2014 specifies that the Board’s Report, •, •, , shall be prepared on the basis of standalone financial statements of the company., , shall report on the highlights of performance of subsidiaries, associates and joint venture companies and, their contribution to the overall performance of the company during the period under report., , Proviso to Section 129(3) read with Rule 5 of the Companies (Accounts) Rules, 2014 states that the company shall, also attach along with its financial statement a separate statement containing the salient features of the financial, statements of a company’s subsidiary or subsidiaries, associate company or companies and joint venture or, ventures in Form AOC-1.
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Lesson 9 • Transparency and Disclosures, , 371, , Voluntary revision of Financial Statements or Board’s Report – Section 131(1), Section 131(1) of the Act provides that revised financial statements or a revised report may be prepared in respect, of any of the three preceding financial years after obtaining approval from the Tribunal, where it appears to the, directors of a company that the financial statements or the report of the Board, do not comply with the provisions, of section 129 or section 134 of the Act, and the detailed reasons for revision of such financial statements or report, should be disclosed in the Board’s Report in the relevant financial year in which such revision is being made., , Appointment / Re-Appointment of an Independent Director - Section 149(10), , Subject to the provisions of Section 152 of the Act, an independent director shall hold office for a term up to, five consecutive years on the Board of a company, but shall be eligible for reappointment on passing of a special, resolution by the company and disclosure of such appointment in the Board’s Report., As per SS-4, the disclosure shall include the following:, (a), , in case of appointment of Independent Directors, the justification for choosing the proposed appointees for, appointment as Independent Directors; and, , (b), , in case of re-appointment after completion of the first term, the rationale for such re-appointment., , Resignation of Director - Section 168(1), A director may resign from his office by giving notice in writing to the company and the Board. Section 168(1) of, the Act, requires the Board to place the fact of resignation of a director in report of directors laid in the immediately, following general meeting by the Company., , Composition of Audit Committee - Section 177(8), , The Board’s Report shall disclose the following –, (a), (a), , Composition of an Audit Committee, , Where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed, in the report along with the reasons therefor., , Details of Vigil Mechanism - Section 177(10), , Section 177(9) read with Rule 7 of the Companies (Meeting of Board and its Powers) Rules, 2014 provides that, every listed company and the following class or classes of companies shall establish a vigil mechanism for their, directors and employees to report their genuine concerns or grievances(a), , (b), , Companies which accept deposits from the public;, , Companies which have borrowed money from banks and public financial institutions in excess of fifty crore, rupees., , The details of establishment of such mechanism shall be disclosed by the company on its website, if any, and, in the Board’s Report., , Disclosures pertaining to remuneration of directors and employees –Section 197(12), , Section 197(12) read with Rule 5 of the Companies (Appointment & Remuneration of Managerial Personnel) Rules,, 2014 provides that Board’s Report of:(1), , Every listed company shall include :, , (a), , the ratio of the remuneration of each director to the median remuneration of the employees of the, company for the financial year;
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372, , , , Lesson 9 • EP-CL, , (b), , the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive, Officer, Company Secretary or Manager, if any, in the financial year;, , (d), , the number of permanent employees on the rolls of company;, , (c), , (e), (f), , the percentage increase in the median remuneration of employees in the financial year;, , average percentile increase already made in the salaries of employees other than the managerial, personnel in the last financial year and its comparison with the percentile increase in the managerial, remuneration and justification thereof and point out if there are any exceptional circumstances for, increase in the managerial remuneration;, affirmation that the remuneration is as per the remuneration policy of the company., , Explanation : the expression “median” means the numerical value separating the higher half of a population, from the lower half and the median of a finite list of numbers may be found by arranging all the observations, from lowest value to highest value and picking the middle one;, (2), , If there is an even number of observations, the median shall be the average of the two middle values., , The Board’s Report shall include a statement showing the names of the top ten employees in terms of, remuneration drawn and the name of every employee, who, -, , (i), , if employed throughout the financial year, was in receipt of remuneration for that year which, in the, aggregate, was not less than one crore and two lakh rupees;, , (iii), , if employed throughout the financial year or part thereof, was in receipt of remuneration in that year, which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that, drawn by the managing director or whole-time director or manager and holds by himself or along with, his spouse and dependent children, not less than two percent of the equity shares of the company., , (ii), , (3), , if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a, rate which, in the aggregate, was not less than eight lakh and fifty thousand rupees per month;, , The statement referred to in sub-rule (2) shall include the following as under:, , (i), (ii), (iii), (iv), (v), (vi), , designation of the employee;, remuneration received;, nature of employment, whether contractual or otherwise;, qualifications and experience of the employee;, date of commencement of employment;, the age of such employee;, , (vii) the last employment held by such employee before joining the company;, , (viii) the percentage of equity shares held by the employee in the company within the meaning of clause (iii), of sub-rule (2) above; and, (ix), , whether any such employee is a relative of any director or manager of the company and if so, name of, such director or manager:, , Provided that the particulars of employees posted and working in a country outside India, not being directors or, their relatives, drawing more than sixty lakh rupees per financial year or five lakh rupees per month, as the case, may be, as may be decided by the Board, shall not be circulated to the members in the Board’s Report, but such, particulars shall be filed with the Registrar of Companies while filing the financial statements and Board’s Report., These particulars shall be made available to any shareholder on a specific request made by him in writing before, the date of such Annual General Meeting wherein financial statements for the relevant financial year are proposed, to be adopted by shareholders and such particulars shall be made available by the company within three days from, the date of receipt of such request from shareholders:, Provided also that in case of request received even after the date of completion of Annual General Meeting, such, particulars shall be made available to the shareholders within seven days from the date of receipt of such request.
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Lesson 9 • Transparency and Disclosures, , 373, , As per Section 197(14) any director who is in receipt of any commission from the company and who is a managing, or whole-time director of the company shall not be disqualified from receiving any remuneration or commission, from any holding company or subsidiary company of such company subject to its disclosure by the company in the, Board’s Report., , Auditors, , Names of the Statutory Auditor, Cost Auditor and Secretarial Auditor and details of any change in such Auditors,, during the year and up to the date of the Report due to resignation / casual vacancy / removal / completion of term, shall be disclosed in the Report., , Secretarial Auditor Report, , As per provisions of Section 204(1) of Companies Act, 2013, every listed company or every public company having a, paid- up share capital of 50 crore rupees or more or a turnover of 250 crore rupees or more or every company having, outstanding loans or borrowings from banks or public financial institutions of 100 crore rupees or more shall annex, with its Board’s Report, a Secretarial audit report, given by a company secretary in practice in Form MR-3., , Regulation 24A of the SEBI (LODR) Regulations, 2015 states that every listed entity and its material unlisted, subsidiaries incorporated in India shall undertake secretarial audit and shall annex a secretarial audit report, given by a company secretary in practice, in such form as specified, with the annual report of the listed entity., Every listed entity shall submit a secretarial compliance report in such form as specified, to stock exchanges,, within sixty days from end of each financial year., , Compliance with Secretarial Standards, , SS-4 provides that, the Board’s Report shall include a statement on compliance of applicable Secretarial Standards, and other Secretarial Standards voluntarily adopted by the company, , Disclosures under SEBI (Share Based Employee Benefits) Regulations, 2014, , Regulation 14 of the Regulations provides that in addition to the information that a company is required to disclose, in, relation to employee benefits under the Companies Act, 2013, the Board of directors of such a company shall also, disclose the details of the scheme(s) being implemented, as specified by SEBI in this regard., As per SS-4, the following disclosure are to be made in the Board’s Report., •, , The Board of directors in their report shall disclose any material change in the scheme(s) and whether the, scheme(s) is / are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014;, , •, , web-link of disclosures made on the website of the company, as required under SEBI (Share Based, Employee Benefits) Regulations, 2014., , Disclosure Requirements under the Sexual Harassment of Women at Workplace (Prevention,, Prohibition & Redressal) Act, 2013, The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is applicable, to every workplace, establishment, company or organisation employing 10 or more employees irrespective of its, location or nature of industry. The said Act provides for constitution of a Committee to be known as the "Internal, Complaints Committee”., , Section 21 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, mandates that Internal Committee shall prepare an Annual Report and Section 22 of the said Act provides that the, employer shall include in its report the number of cases filed, if any, and their disposal under this Act in the Annual, Report.
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374, , , , Lesson 9 • EP-CL, , Rule 14 of Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Rules,2013 provides that, the annual report which the Complaints Committee is required to prepare under Section 21 of the Sexual Harassment, of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013 shall contain the following details:, •, , Number of complaints of sexual harassment received in the year;, , •, , Number of cases pending for more than 90 days;, , •, , Number of complaints disposed off during the year;, , •, •, , Number of workshops or awareness programme against sexual harassment carried out;, Nature of action taken by the employer or District Officer., , Investor Education and Protection Fund, , The Board should, as a good corporate practice, inform the shareholders about the amounts, if any, which have been, transferred during the year to the Investor Education and Protection Fund established under sub-section of section, 125 of the Act and the IEPF (Accounting, Audit, Transfer and Refund) Rules, 2016., Further, the Board’s Report should clearly state the amounts, if any, which were to be transferred to the Investor, Education and Protection Fund but have not been so transferred, along with the reasons for such failure., According to SS-4, the disclosure shall include the following:, (a) details of the transfer/s to the IEPF made during the year as mentioned below:, i., amount of unclaimed/unpaid dividend and the corresponding shares;, ii., redemption amount of preference shares;, iii. amount of matured deposits, for companies other than banking companies, along with interest accrued, thereon;, iv. amount of matured debentures along with interest accrued thereon;, v., application money received for allotment of any securities and due for refund along with interest, accrued;, vi. sale proceeds of fractional shares arising out of issuance of bonus shares, merger and amalgamation;, (b) details of the resultant benefits arising out of shares already transferred to the IEPF;, (c) year wise amount of unpaid/unclaimed dividend lying in the unpaid account upto the year and the, corresponding shares, which are liable to be transferred to the IEPF, and the due dates for such transfer;, (d) The amount of donation, if any, given by the company to the IEPF;, (e) Such other amounts transferred to the IEPF, if any, during the year., , Credit Rating of Securities, According to SS-4, as a good governance practice the disclosure on credit rating should also be included in the, Board’s Report, (a), , credit rating obtained in respect of various securities;, , (c), , date on which the credit rating was obtained;, , (b), (d), (e), , name of the credit rating agency;, revision in the credit rating;, , reasons provided by the rating agency for a downward revision, if any.
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Lesson 9 • Transparency and Disclosures, , 375, , APPROVAL OF THE BOARD’S REPORT, The Board’s Report should be considered, approved and signed at a meeting of the Board duly convened or held, through video conferencing or other audio visual means., Note: The MCA vide Notification dated June 15, 2021 has omitted Rule 4 of the Companies (Meetings of Board, and its Powers) Rules, 2014 which was related to the matters not to be dealt with in a meeting through video, conferencing or other audio-visual means., Accordingly, with the said amendment, now the approval of the Board’s report can be considered in a Board, Meeting held through video conferencing or other audio-visual means., , Signing of Board’s Report - Section 134(6), The Board’s Report and any annexures thereto under section 134(3) shall be signed by the chairperson of the, company if he is authorised by the Board and where he is not so authorised, shall be signed by at least two directors,, one of whom shall be a managing director, or by the director where there is one director., Where Chairperson is Chairperson of the Company, authorised by the Board, , As per SS-4, the annexures to the Board’s Report, shall be signed in the similar manner as the Board’s, Report, except the Report on CSR activities of the, Where Chairperson is not At least by two directors, one, company, which is required to be signed by the Chief, authorised by the Board of whom shall be Managing, Executive Officer or the Managing Director or any, Director, or by the director, other Director of the company and by the Chairman, where there is one director, of the CSR Committee of the company., Situation where the Company is under CIRP and powers of the Board are suspended, , As per clause (b) of sub-section (1) of section 17 of Insolvency and Bankruptcy Code (IBC), a company of which, Interim Resolution Professional (IRP) is appointed, the powers of the Board of Directors stands suspended, and shall be exercised by IRP. It may be noted that though the powers of the Board of Directors are suspended,, they are bound to provide all assistance to IRP as only the powers of the Board are suspended and not their, duties., Further, sub-section (1) of section 19 of IBC provides that the personnel of the Corporate Debtor, its promoters, or any other person associated with the management of the Corporate Debtor shall extend all assistance and, cooperation to the IRP as may be required by him in managing the affairs of the corporate debtor., , An insolvency professional should ensure that the company undergoing insolvency process complies with the, applicable laws. It should be the responsibility of the Management/KMPs of the company to continue to comply, with the applicable laws and report periodically to the insolvency professional. The order passed by NCLAT, in the case of M/s. Subasri Realty Private Limited strengthens this view by stating that after appointment of, the Resolution Professional (RP) and declaration of moratorium, the Board of Director stands suspended, but, that does not amount to suspension of Managing Director or any of the Director or officer or employee of the, Corporate Debtor. To ensure that the Corporate Debtor remains a going concern, all the Director/ employees, are required to function and to assist the Resolution Professional who manages the affairs of the Corporate, Debtor during the period of moratorium., Since the ultimate responsibility and powers of the Board lies with IRP/ RP, in the aforesaid context, it appears, that IRP/RP should approve and sign the Report. The IRP/RP may also direct the Directors/Officials of the, Corporate Debtor to sign the Report and take all necessary actions for compliance of applicable laws., Source: https://www.icsi.edu/media/webmodules/ReferenceronBoardReports.pdf
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376, , , , Circulation of the Board’s Report, , Lesson 9 • EP-CL, , The copy of Board’s Report shall be issued, circulated or published along with a signed copy of every financial, statement, including consolidated financial statement if any, all the notes annexed to or forming part of such, financial statement and the Auditors’ Report . [Section 134(7)], , RIGHT OF MEMBERS TO RECEIVE COPIES OF FINANCIAL STATEMENTS, BOARD’S REPORT, ETC., , Section 136 of the Act provides that, a copy of the financial statements, including consolidated financial statements,, if any, auditor’s report and every other document required by law to be annexed or attached to the financial, statements, which are to be laid before a company in its general meeting, shall be sent to:, •, , every member of the company,, , •, , every trustee for the debenture holder of any debentures issued by the company, and, , •, , all persons other than such member or trustee, being the person so entitled, not less than 21 clear days, before the date of the meeting., , However, if the copies of the documents are sent less than twenty-one days before the date of the meeting, they, shall, notwithstanding that fact, be deemed to have been duly sent if it is so agreed by members—, (a), (a), , holding, if the company has a share capital, majority in number entitled to vote and who represent not less, than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at, the meeting; or, , having, if the company has no share capital, not less than ninety five per cent. of the total voting power, exercisable at the meeting., , Exceptions:, , In case of section 8 companies, the said documents shall be sent to the members not less than fourteen clear days, before the date of the annual general meeting., In the case of a listed company, it shall be deemed to be complied with, if the copies of the documents are made, available for inspection at its registered office during working hours for a period of twenty-one days before the date, of the meeting and a statement containing the salient features of such documents in the prescribed form or copies, of the documents, as the company may deem fit, is sent to every member of the company and to every trustee for, the holders of any debentures issued by the company not less than twenty-one days before the date of the meeting, unless the shareholders ask for full financial statements., , A listed company shall also place its financial statements including consolidated financial statements, if any, and all, other documents required to be attached thereto, on its website, which is maintained by or on behalf of the company., , FILING OF THE BOARD’S REPORT, , Section 137(1) of the Act provides that copies of financial statement along with all documents required to be, annexed should be filed with the Registrar of Companies within 30 days along with the prescribed fees, after the, financial statements, including consolidated financial statements have been adopted at the annual general meeting., The Board’s Report has to be attached to the financial statements., In case a company does not hold an annual general meeting in any year, a statement of facts and reasons along with, financial statement and attachment shall be filed with registrar., Pursuant to the provisions of section 117/ 179 of the Companies Act, and the Rules made thereunder the, resolution for approving the Board’s Report is also required to be filed to the Registrar within 30 days from the, approval by the Board in MGT-14.(The Central Government vide its notification dated 05th June 2015 exempted, Private Limited Companies from filing of the above stated approval resolutions with the Registrar of Companies).
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Lesson 9 • Transparency and Disclosures, , 377, , Third Proviso of Section 137(1) of the Act also provides that a One Person Company should file a copy of the, financial statements duly adopted by its member, along with all the documents which are required to be attached to, such financial statements, within one hundred eighty days from the closure of the financial year., , Fourth Proviso of Section 137(1) of the Act provides that, a company shall, along with its financial statements to be, filed with the Registrar, attach the accounts of its subsidiary or subsidiaries which have been incorporated outside, India and which have not established their place of business in India., In the case of a subsidiary which has been incorporated outside India (herein referred to as “foreign subsidiary”),, which is not required to get its financial statement audited under any law of the country of its incorporation and, which does not get such financial statement audited, the requirements of the fourth proviso of Section 137(1) of the, Act, shall be met if the holding Indian company files such unaudited financial statement along with a declaration to, this effect and where such financial statement is in a language other than English, along with a translated copy of, the financial statement in English., Test your Knowledge, , Whether a company covered under above provisions can place/file unaudited accounts oi a foreign subsidiary, if the audit of such foreign subsidiary is not a mandatory legal requirement in the country where such foreign, subsidiary has been incorporated and such audit has not been conducted ?, , PROCEDURE FOR PREPARATION OF BOARD’S REPORT, 1., 2., 3., 4., 5., 6., 7., , Section 136(1) of the Companies Act, 2013 provides that every company, public or private shall forward to its, member along with its annual financial statements, the Board’s Report. The Board’s Report is an important, document in which the Board gives a complete review of the performance of the company during the year, under review and other information as explained below., The Board’s Report shall be prepared based on the standalone financial statements of the company and the, report shall contain a separate section wherein report on the performance and financial position of each of, the subsidiaries, associates and joint venture companies included in the consolidated financial statement is, presented., Board’s Report and the financial statements shall be approved in Board Meeting either duly convened or held, through Video-Conferencing or audio-visual means., , Section 134(3) read with rule 8(3) of Companies (Accounts) Rules, 2014 lists down various items to be, included in the Board’s Report as already detailed in the chapter., , As per Rule 8A of the Companies (Accounts) Rules, 2014, the Board’s Report of One Person Company and, Small Company shall be prepared based on the standalone financial statements of the company, which shall, be in abridged form (as already detailed in the chapter)., Where it is proposed to pay dividend on equity or preference shares, the Board’s Report shall contain the, recommendation of the Board as to the rate of dividend for the year under review for the approval of members, at the annual general meeting. The Board’s proposal about dividend shall be in conformity with the relevant rules., , As there must be some interval of time between the end of the financial year and the day on which the Board, finalised the Board’s Report, the Board shall indicate in the report the up-to-date status and position affecting, the financial impact on the operations of the company as well as material changes that have occurred which, have a bearing on the working of the company. It would include events such as the following:-, , a., , Disposal of a substantial part of the undertaking;, , c., , Any serious breakdown which has happened and the steps taken to reduce its adverse impact;, , b., , Changes in the capital structure;
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378, , , , d., e., , 8., , 9., , 10., 11., , The company shall disclose composition of the committees of the company viz. Corporate Social Responsibility, Committee, Audit Committee, Nomination and Remuneration Committee and Stakeholders Relationship, Committee in the Board’s Report as per the requirement of Section 135, 177, 178 of the Act, if applicable., , Section 177(8) of the Act, provides that the Board’s Report shall disclose the composition of an Audit, Committee and where the Board had not accepted any recommendation of the Audit Committee, the same, shall be disclosed in such report along with the reasons therefore., The details of Loans, Guarantee and investment shall be mentioned in the Board’s Report as per provisions of, Section 186 of the Act., , The company shall disclose in its Board’s Report regarding all the particulars of contracts or arrangements, with related parties referred to in section 188(1) in the Form AOC-2. [Rule 8 of Companies (Accounts) Rules,, 2014], , It is provided that in Board’s Report, a statement must be enclosed which shows the development and, implementation of risk management policy of the company. The suggested items for this statement are as, follows:, , a., , Introduction, , c., , Types of Risks, , d., e., f., , g., , h., , 13., 14., , 15., , Material changes concerning purchase of raw materials and sale of the products etc., , Subject to following the necessary precaution of not to disclose any information which is not in the interest of, the business of the company or which may help the competitors, the Board’s Report shall give details of the, changes, if any, that have occurred during the year under review, in the nature of the business of the company, and in the class of business in which the company has interest and also in the nature of its subsidiary, if any., , b., , 12., , Alteration in wage structure arising out of trade union negotiation;, , Lesson 9 • EP-CL, , i., , Meaning and definitions Risk Management, Risk Management, Risk Assessment, , Risk Identification Activities, Risk Handling, , Monitoring and Reporting, Conclusion, , Section 177(10) of the Act, provides for disclosure of details of establishment of vigil mechanism by the, company on its website, if any, and in the Board’s Report., , Section 197(12) read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel), Rules, 2014 provides for disclosures which are discussed earlier in the chapter., , Section 204(1) read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel), Rules, 2014 requires to annex the Secretarial Audit Report in the Form – MR-3 with the Board’s Report of the, specified class of companies., Such secretarial audit report under section 134, is required to be given by a Company Secretary in practice., , Section 134(3)(f) of the Act, provides that the board of directors shall be bound to give full information and, contain a suitable explanation in the Board’s Report on any qualification, reservation or adverse remark, made by the Auditors in their report on the accounts audited by them and by the company secretary in, practice in his secretarial audit report.
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Lesson 9 • Transparency and Disclosures, , 16., , 379, , Rule 8(3) Companies (Accounts) Rules, 2014 provides that the Board’s Report to include the particulars in, respect of conservation of energy/technology absorption as already detailed in this Chapter. (Sample Board’s, Report is placed at Annexure IV)., , 3. ANNUAL RETURN, , Annual Return is a significant document for the stakeholders of a company as it provides in a nutshell, very, comprehensive information about various aspects of a company. It is perhaps the most important document, required to be filed by every company with the Registrar of Companies. Apart from the Financial Statements, this is, the only document to be compulsorily filed with the Registrar every year irrespective of any events / happenings in, the company. While the Financial Statements give information on the financial performance of a company, it is the, Annual Return which gives extensive disclosure and greater insight into the non-financial matters of the company, and the people behind management of the company., , Objective of filing Annual Return, , The basic purpose behind filing of Annual Returns with the Registrar is to provide Annual information in respect of, company, promoters, members, meetings, remuneration of directors and key managerial persons etc., to the Registrar, of Companies/shareholders/other stakeholders. Filing of Annual returns yearly to the Registrar of Companies is the, responsibility of the management of the Company. It helps stakeholders to ensure that the company is administered in a, proper way in the interest of its members and creditors., , Applicability, , As per section 92 of the Companies Act, 2013, every company is required to prepare the Annual Return in Form No., MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file, annual return from the financial year 2020-2021 onwards in Form No.MGT-7A containing the particulars as they, stood on the close of the financial year., Annual Return is to be filed with the Registrar within 60 days from the date on which Annual General Meeting, (AGM) is actually held or from the last day on which AGM should have been held., , Applicability to Foreign Companies, , •, , As provided in sub-section (2) of section 384 of the Act, the provisions of section 92 regarding filing of, annual return apply to a foreign company subject to such exceptions, modifications and adoptions as may be, provided for in the Rules., , •, , Rule 7 of the Companies (Registration of Foreign Companies) Rules, 2014 provides that every foreign, company shall prepare and file, within a period of sixty days from the last day of its financial year, to the, Registrar annual return in Form FC-4 along with fee, containing the particulars as they stood on the close of, the financial year., , Contents of Annual Return, , Annual Return shall contain the following particulars in consonance with the Section 92(1) of the Act:, (1), (2), (3), (4), (5), (6), , its registered office, principal business activities, particulars of its holding, subsidiary and associate, companies;, its shares, debentures and other securities and shareholding pattern;, , its members and debenture-holders along with changes therein since the close of the previous financial year;, , its promoters, directors, key managerial personnel along with changes therein since the close of the previous, financial year;, meetings of members or a class thereof, Board and its various committees along with attendance details;, remuneration of directors and key managerial personnel;
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380, , (7), (8), (9), , Lesson 9 • EP-CL, , , , penalty or punishment imposed on the company, its directors or officers and details of compounding of, offences and appeals made against such penalty or punishment;, matters relating to certification of compliances, disclosures as may be prescribed;, , details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors and, such other matters as may be prescribed., , Additional contents, , Secretarial Standard on General Meetings (SS-2) provides that the annual return shall disclose the date of Annual, General Meeting (AGM) held during the financial year., , Attachments to E-form MGT-7/MGT-7 A, , •, •, •, •, •, , List of Shareholders/ debenture holders, Approval letter for extension of AGM (if any), Copy of MGT-8 (if applicable), List of Directors, Optional Attachments, if any, , Signing of Annual Return, , Under section 92(1) of the Act, the Annual Return is required to be signed both by a director and the Company, Secretary, or where there is no Company Secretary, by a Company Secretary in Practice., The Annual Return of One Person Company and Small Company shall be signed by the Company Secretary or where, there is no company secretary, by the director of the company. The Act authorises the Central Government to prescribe, abridged form of annual return for “One Person Company, Small Company and such other class or classes of companies, as may be prescribed. Accordingly, Rule 11(1) has prescribed separate Annual Return for these companies., In case of Small Company,, OPC & Private Company (if, such company is a startup)–CS, or if there is no CS then by the, Director of the Company, , Certification of Annual Return, , Signing, of Annual, Return, , In case of other Companies Director and CS or if there is, no CS, by Company Secretary, in Practice, , Certification of Annual Return under sub-section (2) of section 92 of the Act read with rule 11(2) of the Companies, (Management and Administration) Rules, 2014, the Annual Return of a listed company or of a company having a, paid-up share capital of Rs. 10 Crores or more or turnover of Rs. 50 Crores or more shall be certified by a Company, Secretary in Practice in the Form No. MGT-8., The certificate shall state that the annual return discloses the facts correctly and adequately and that the company, has complied with all the provisions of this Act., , For the purpose of certification, PCS should carry out a scrutiny of the data available and check the correctness of the, same. The PCS should be prudent in understanding the events and its impact and consequences, while certifying the, same. For ensuring the correctness of information contained in the Annual Return, the primary source documents, should be looked into. While doing the detailed scrutiny, he may rely on certified copies of the resolutions, forms,, agreements and also certificates from the management., Indicative list of Required Documents / Records for Annual Return preparation/certification, •, Memorandum and Articles of Association;, •, Shareholding pattern and its breakup;, •, List of Promoters;, •, Statutory Registers
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Lesson 9 • Transparency and Disclosures, , », », », », », », », , •, , •, •, •, , •, •, , •, •, , •, •, •, •, , •, , 381, , Register of Members -MGT-1;, Register of Debenture-holders and other security holders- MGT-2;, Foreign Registers of Members / Debenture holder / other security holder;, Register of Directors and Key Managerial Personnel & their Shareholding;, Register of loans, guarantee, security and acquisition made by the company- MBP-2;, Register of Investment not held in its own name by the company-MBP-3;, Register of Contracts or Arrangements with related party and with bodies corporate etc. in which, directors are interested- MBP-4;, », Register of deposit;, », Register of Charge- CHG-7;, », Register of Employee Stock Option-SH-6;, », Register of Buyback -SH-10;, », Register of Sweat Equity shares-SH-3;, », Other Statutory Registers and Records, Minutes of the Meetings, », Board Meeting, », General Meeting, », Committee Meeting, », Class Meeting, », Creditors Meeting, », Debenture holders Meeting, », Court convened Meetings for the purpose of restructuring and amalgamation, Attendance Registers of all Meetings;, Forms & receipts filed with the Registrar of Companies;, Copy of Notices and agenda papers for convening meetings of the Board / Committees / Annual General, Meeting/Extraordinary General Meetings/Postal Ballots/Court convened Meetings / Creditors Meetings /, Class Meetings/ Debenture holders Meeting;, Copy of Latest Financial Statements along with the Board’s Report and Auditor’s Report;, Shareholder List, details of Share Transfers taken place between close of the previous financial year and close, of the financial year to which Annual Return relates, controls of the data as on the date of Annual General, Meeting of the company or the beneficial positions as on close of financial year downloaded from the records, of the Depository participants by Registrar Transfer Agent (RTA) of the company on record/book closure, date prior to AGM;, Certificate from RTA stating the number of shareholders as on the close of the financial year;, Change of name of the company, change in the face value of the shares of the company, new ISIN No. of the, company in respect of the allotment or as a result of any change in capital structure due to any corporate, action taken by the company during the Financial year;, Board Resolution for any type of corporate actions taken by the company;, Corporate Action Forms filed by the company with Depositories, Any orders received by the company, Director or officer from Tribunal/court or from any other regulatory, body under any act;, Listing and Trading Approval(s) from Stock Exchanges, Credit Confirmation from Depositories namely NSDL, and CDSL respectively/confirmation from both depositories in respect of allotment of equity shares of the, company;, Intimation to Stock Exchanges, Confirmation from National Securities Depository Limited (NSDL) and Central, Depository Services (India) Limited (CDSL) for change of the name of the company, change in the face value
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382, , •, , , , Lesson 9 • EP-CL, , of equity shares, change in ISIN of the company and the Scrip Code/Symbol of the company, etc.;, Other prescribed documents., , Practical Scenario, As per the ICSI Unique Document Identification Number (UDIN) Guidelines, 2019., UDIN generation is mandatory for the following services rendered by a PCS, including:, •, •, •, •, •, , •, , Certification of Annual Return in Form MGT-8 under Section 92(2) of the Companies Act, 2013 and Rule, 11(2) of the Companies (Management and Administration) Rules, 2014., Issuance of Secretarial Audit Report in terms of Section 204 of the Companies Act, 2013., , Issuance of Secretarial Audit Report to material unlisted subsidiaries of listed entities (whose equity shares, are listed) in terms of Regulation 24A of SEBI (LODR) Regulations, 2015., , Issuance of Annual Secretarial Compliance Report to Listed entities (whose equity shares are listed) under, SEBI Circular No. CIR/CFD/CMD1/27/2019 dated 8th February, 2019, Compliance Certificate regarding compliance of conditions of Corporate Governance as prescribed under, the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,, 2015., , Signing of Annual Return in Form MGT-7 under Section 92(1) of the Companies Act, 2013 and Rule 11(1) of, the Companies (Management and Administration) Rules, 2014., , Inclusion in Board’s Report & Website, According to Section 92(3), every company shall place a copy of the annual return on the website of the company, if, any, and the web-link of such annual return shall be disclosed in the Board’s Report (Notified on 28.08.2020)., , Filing of Annual Return with Registrar, , Every company is required to file with the Registrar a copy of the annual return, within sixty days from the date on, which the AGM is held or where no AGM is held in any year within sixty days from the date on which the AGM should, have been held together with the statement specifying the reasons for not holding the AGM in Form MGT-7, with, such fees or additional fees as may be prescribed. From the financial year 2020-21 onwards, One Person Company, and Small Company shall file return in MGT-7A., For foreign company the filing is to be done in E-Form FC-4., , Preservation of Annual Return, , According to Rule 15 of the Companies (Management and Administration) Rules, 2014, •, •, , •, , The Company is required to keep and maintain copies of the Annual Return filed under Section 92 of the, Companies Act, 2013 at the registered office of the company., However, such copies of Annual Return may also be kept at any other place in India in which more than onetenth of the total number of members entered in the register of members resides, if approved by a special, resolution passed at a general meeting of the company., Copies of all Annual Returns and copies of all certificates and documents required to be annexed thereto shall, be preserved for a period of eight years from the date of filing with the Registrar.
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Lesson 9 • Transparency and Disclosures, , 383, , Inspection of Annual Return - Section 94 r/w Rule 14 of the Companies (Management &, Administration) Rules, 2014, •, , Copies of Annual returns prepared pursuant to Section 92, shall be open for inspection during business hours, of, not less than two hours on every working day as the board may decide, by any member, debenture holder, other, security holder or beneficial owner without payment of fee and by any other person on payment of such fee as, may be specified in the articles of association of the company but not exceeding 50 rupees for each inspection., , •, , Any such member, debenture holder, security holder or beneficial owner or any other person may require a, copy of return on payment of such fee as may be specified in the articles of association of the company but not, exceeding 10 rupees for each page. Such copy of return shall be supplied within 7 days of deposit of such fee., , •, , The Central Government may also, by order, direct an immediate inspection of the document, or direct that, the extract required shall forthwith be allowed to be taken by the person requiring it., , Return to be Evidence - Section 95, , Copies of annual returns maintained under Section 94 of the Companies Act, 2013 shall be prima facie evidence of, any matter directed or authorised to be inserted therein by or under the Companies Act, 2013., , Contravention and Consequences, , If any company fails to file its annual return under section 92(4), before the expiry of the period specified therein,, such company and its every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of, continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject, to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default., In terms of section 92(6), if a Company Secretary in Practice certifies the annual return otherwise than in conformity, with the requirements of section 92 or the rules made thereunder, he shall liable to a penalty of two lakh rupees., , CASE LAWS PERTAINING TO ANNUAL RETURN, 1), , 2), , In the matter of Anil kumar Poddar vs. Nessville Trading (P.) Ltd., Appellant made an application for inspection, of register of members and annual return of respondent company for the years 2009 to 2012.When, company failed to provide copies of aforementioned documents, he filed petition for supply of documents., The Respondent relied upon doctrine of “ejusdem generis” saying the word "any other person" mentioned, in Section 163(2) of the erstwhile Companies Act, 1956 (corresponding to section 94 of the Companies, Act, 2013) is limited to the person holding commercial interest such as creditor, financier, customer etc.,, because the preceding would the member and debenture holder to this word "any other person" being, the persons having interest in the company, then the following word "any other person" cannot be said as, extendable to any person who has no interest in the company, normally, a person considered to aggrieved, when his interest is affected by the act of somebody else, but whereas this Petitioner has no interest in, these companies, therefore, he cannot be called aggrieved to file these company petitions against the, Respondent. The NCLT, Mumbai Bench held that, since petitioner was neither a shareholder, nor debenture, holder nor holding commercial interest in respondent company, he was not entitled to seek relief under, Section 163 of the erstwhile Companies Act, 1956 (corresponding to section 94 of the Companies Act,, 2013) regarding supply of copies of documents for inspection, In the matter of Suhas Chakma vs. South Asia Human Rights Documentation Centre Pvt. Ltd., the contention, of the petitioner is that he never executed any instrument of transfer of his shareholdings to the 2nd, respondent, and that he came to know that he was not a shareholder of the 1st respondent company by, virtue of inspection of the Annual Return and that in relation to the illegal and fraudulent transfer of his, shares, he came to know about the same only upon perusal of the Annual Returns. The NCLT, New Delhi, Bench observed that, in view of the wordings used in section 164 of the Companies Act, 1956 (now Section, 95 under the Companies Act,2013) to the effect that registers, returns and documents shall be only prima, facie evidence and hence subject to rebuttal, and therefore, cannot be treated as conclusive evidence and in, absence of share transfer forms and specified share certificates/letter of allotment in question, transfer of, equity shares of Petitioner by Respondents were fraudulent and sham and declare it to be illegal and void.
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384, , , , Lesson 9 • EP-CL, , Test your knowledge, 1), , XYZ Ltd., a listed company, seeks your advice, as the Secretarial Auditor of the company, on the inclusion, of Extract Annual Return in the Board’s Report for the financial year 2020-21?, , 3), , Vinod, Chairperson of the Monika Ltd. is going to USA for official work and instructed to the Company, Secretary for signing of Board’s Report in his absence from other directors of the Company. Whether, the other directors can sign the Board’s Report? If yes, explain the provisions for signing of Board’s, Report in the absence of Chairperson in the Company. What would be your answer if this company is, One Person Company., , 2), , Every Company shall place a copy of its annual return on the website of the Company. Comment, , 4), , The Board of Directors of ABC Ltd. approaches you for advice on the voluntary revision of financial, statements or board reports of the company as per the Companies Act, 2013. Advise the Board of, Directors., , 5), , RST Ltd.’s annual general meeting should have been held on 30th Sept., 2020. However, as the accounts, for the year 2019-2020 were not ready, the AGM could not be held. In order to avoid legal action against, himself and the company what are the compliances required to be met by the Company Secretary under, Section 92 of the Companies Act 2013 ?, , 4. WEBSITE DISCLOSURES, Companies Act, 2013 does not mandates companies to have an active website, but SEBI (LODR) Regulations, 2015, requires the listed entity shall maintain a functional website containing the basic information about the listed entity., As per Regulation 46 of the SEBI (LODR) Regulation,2015, the listed entity shall disseminate the following, information under a separate section on its website :, (a), , details of its business;, , (c), , composition of various committees of board of directors;, , (b), (d), (e), (f), , (g), , (h), (i), , terms and conditions of appointment of independent directors;, code of conduct of board of directors and senior management personnel;, details of establishment of vigil mechanism/ Whistle Blower policy;, , criteria of making payments to non-executive directors , if the same has not been disclosed in annual report;, policy on dealing with related party transactions;, policy for determining ‘material’ subsidiaries;, , details of familiarization programmes imparted to independent directors including the following details:-, , (i), , number of programmes attended by independent directors (during the year and on a cumulative basis, till date);, , (iii), , other relevant details., , (ii), (j), , (k), , number of hours spent by independent directors in such programmes (during the year and on, cumulative basis till date); and, , the email address for grievance redressal and other relevant details;, , contact information of the designated officials of the listed entity who are responsible for assisting and, handling investor grievances;
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Lesson 9 • Transparency and Disclosures, , (l), , financial information including:, , (i), , notice of meeting of the board of directors where financial results shall be discussed;, , (iii), , complete copy of the annual report including balance sheet, profit and loss account, directors report,, corporate governance report etc., , (ii), , (m), (n), (o), , 385, , financial results, on conclusion of the meeting of the board of directors where the financial results, were approved;, , shareholding pattern;, , details of agreements entered into with the media companies and/or their associates, etc;, , schedule of analyst or institutional investor meet and presentations made by the listed entity to analysts or, institutional investors;, Explanation: For the purpose of this clause ‘meet’ shall mean group meetings or group conference calls, conducted physically or through digital means;, , (oa) Audio or video recordings and transcripts of post earnings/quarterly calls, by whatever name called,, conducted physically or through digital means, simultaneously with submission to the recognized stock, exchange(s), in the following manner:, (i), , (ii), , the presentation and the audio/video recordings shall be promptly made available on the website and, in any case, before the next trading day or within twenty-four hours from the conclusion of such calls,, whichever is earlier;, , the transcripts of such calls shall be made available on the website within five working days of the, conclusion of such calls:, Provided that—, a., , b., , p., q., r., , s., , The information under sub-clause (i) shall be hosted on the website of the listed entity for a minimum, period of five years and thereafter as per the archival policy of the listed entity, as disclosed on its website., The information under sub-clause (ii) shall be hosted on the website of the listed entity and preserved, in accordance with clause (a) of regulation 9., , The requirement for disclosure(s) of audio/video recordings and transcript shall be voluntary with effect, from April 01, 2021 and mandatory with effect from April 01, 2022;, new name and the old name of the listed entity for a continuous period of one year, from the date of the last, name change;, items in sub-regulation (1) of regulation 47;, , With effect from October 1, 2018, all credit ratings obtained by the entity for all its outstanding instruments,, updated immediately as and when there is any revision in any of the ratings;, , separate audited financial statements of each subsidiary of the listed entity in respect of a relevant financial, year, uploaded at least 21 days prior to the date of the annual general meeting which has been called to, inter- alia consider accounts of that financial year;, Provided that, a listed entity, which has a subsidiary incorporated outside India—, , (a), , (b), , where such subsidiary is statutorily required to prepare consolidated financial statement under any, law of the country of its incorporation, the requirement of this proviso shall be met if consolidated, financial statement of such subsidiary is placed on the website of the listed entity;, where such subsidiary is not required to get its financial statement audited under any law of the country, of its incorporation and which does not get such financial statement audited, the holding Indian listed, entity may place such unaudited financial statement on its website and where such financial statement, is in a language other than English, a translated copy of the financial statement in English shall also be, placed on the website;
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386, , , , Lesson 9 • EP-CL, , (t), , secretarial compliance report as per sub-regulation (2) of regulation 24A of these regulations;, , (v), , disclosure of contact details of key managerial personnel who are authorized for the purpose of determining, materiality of an event or information and for the purpose of making disclosures to stock exchange(s) as, required under subregulation (5) of regulation 30 of these regulations;, , (u), , (w), (x), , (y), (z), , disclosure of the policy for determination of materiality of events or information required under clause (ii),, sub-regulation (4) of regulation 30 of these regulations;, , disclosures under sub-regulation (8) of regulation 30 of these regulations;, , statements of deviation(s) or variation(s) as specified in regulation 32 of these regulations;, , dividend distribution policy by listed entities based on market capitalization as specified in sub-regulation, (1) of regulation 43A;, annual return as provided under section 92 of the Companies Act, 2013 and the rules made thereunder., , The listed entity shall ensure that the contents of the website are correct and shall update any change in the content, of its website within two working days from the date of such change in content., Items required to be hosted on website as per Regulation 62 of SEBI (Listing Obligations and Disclosure, Requirements) Regulations, 2015., (a), , details of its business;, , (c), , contact information of the designated officials of the listed entity who are responsible for assisting and, handling investor grievances;, , (b), , (d), (e), (f), , (g), , (h), , financial information including complete copy of the annual report including balance sheet, profit and loss, account, directors report etc;, email address for grievance redressal and other relevant details;, name of the debenture trustees with full contact details;, , the information, report, notices, call letters, circulars, proceedings, etc. concerning non-convertible, redeemable preference shares or non-convertible debt securities;, all information and reports including compliance reports filed by the listed entity;, information with respect to the following events:, , (i), , default by issuer to pay interest on or redemption amount;, , (iii), , revision of rating assigned to the non- convertible debt securities:, , (ii), , failure to create a charge on the assets;, , It is important that the listed entity ensures the contents of the website are correct and updated at any given point, of time., , Disclosures under Companies Act, 2013 & Rules made thereunder, , 1., , Information Pertaining to Registered Office [Section 12(3)(c)], , 2., , Every Company must get its name, address of its registered office and the Corporate Identity Number along, with telephone number, fax number, if any, e-mail id and website address, if any, printed on its letterheads,, business letters, billheads, letter papers and in all its notices and other official publications., Change of Object for raising money through Prospectus [Section 13(8)(i)], , A company which has raised money by issuing prospectus and has still some unutilized amount of the money so, raised shall not change its objects for which it raised money through the prospectus unless a special resolution, is passed by the company through postal ballot. The details in respect of such a resolution as prescribed shall, be published on the Website of the company, if any, indicating therein the justification for such change.
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Lesson 9 • Transparency and Disclosures, , 3., , 387, , Unpaid Dividends [Section 124(2)], A company after transferring the amount of unpaid dividends to a separate bank account of “Unpaid Dividend, Account” will have to prepare a statement containing the shareholder’s names, their last known addresses,, and the unpaid dividend to be paid to them and place it on the company’s Website, if any., , 4., , Capital Reconciliation Audit Report to be submitted to stock exchanges on quarterly basis, in Any Other, Information Section, should contain the amount of Unpaid Dividend transferred to Investor Education and, Protection Fund during the quarter under report., , 5., , The Board of every company having net worth of rupees five hundred crore or more, or turnover of rupees, one thousand crore or more or a net profit of rupees five crore or more during the immediately preceding, financial year, shall after taking into account the recommendations made by the Corporate Social Responsibility, Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such, Policy in its report and also place it on the company’s website, if any, in such manner as may be prescribed, under Rule 9 of the Companies (Corporate Social Responsibility Policy) Rules, 20I4., , Corporate Social Responsibility [Section 135(4)(a)], , Placing of financial statements and other documents of a listed company on the website [Section 136(1)], , A listed company shall also place its financial statements including consolidated financial statements, if any,, auditor’s report and all other documents required by law to be attached thereto, on its website, which is, maintained by or on behalf of the company. Every listed company having a subsidiary or subsidiaries shall, place separate audited accounts in respect of each of its subsidiary on its website, if any., (a), (b), , Provided also that a listed company which has a subsidiary incorporated outside India (herein referred to as, “foreign subsidiary”) –, where such foreign subsidiary is statutorily required to prepare consolidated financial statement under any, law of the country of its incorporation, the requirement of this proviso shall be met if consolidated financial, statement of such foreign subsidiary is placed on the website of the listed company;, , 6., , where such foreign subsidiary is not required to get its financial statement audited under any law of the, country of its incorporation and which does not get such financial statement audited, the holding Indian listed, company may place such unaudited financial statement on its website and where such financial statement is, in a language other than English, a translated copy of the financial statement in English shall also be placed, on the website., , 7., , Section 177(9) of the Act, pertaining to setting up of vigil mechanism which shall provide for adequate safeguards, against victimization of persons who use such mechanism and make provision for direct access to the chairperson, of the Audit Committee in appropriate or exceptional cases. Provided that the details of establishment of such, mechanism shall be disclosed by the company on its website, if any, and in the Board’s Report., , Vigil Mechanism in Audit Committee for Listed Companies and other Prescribed Companies [Proviso, to Section 177(10)], , Nomination and Remuneration Policy, , The Nomination and Remuneration Committee shall formulate the criteria and policy for determining, qualifications, positive attributes and independence of a director, , Provided that such policy shall be placed on the website of the company, if any, and the salient features of the, policy and changes therein, if any, along with the web address of the policy, if any, shall be disclosed in the, Board’s Report. [Proviso to Section 178(4)]
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388, , , , Lesson 9 • EP-CL, , 8., , Compromises, Arrangements and Amalgamation [Proviso to Section 230(3)], , 9., , A notice of meeting ordered by the Tribunal for the purpose of Compromise and Arrangements must be, served upon the Creditors or class of Creditors, Shareholders or Debenture holders and other members. Such, notice should also be published on the Website of the Company, if any., , 10., , The terms and conditions of appointment of independent directors shall also be posted on company’s website, , 11., , The company shall, at least seven days before the general meeting, inform its members of the candidature of a, person for the office of a director or the intention of a member to propose such person as a candidate for that, office by placing notice of such candidature or intention on the website of the company, if any., , 12., , The Company shall within thirty days from the date of receipt of notice of resignation from a director, intimate, the Registrar in Form DIR-12 and post the information on its website, if any., , 13., , Every company inviting deposits from the public shall upload a copy of the circular on its website, if any., , 14., , The notice shall also be placed on the website of the company, if any., , 15., , The Company shall, within a week from the date of submitting the application to the Regional Director,, publish a notice at its own expense, and a copy of the notice in Form No. INC. 19, shall be sent forthwith to the, Regional Director and the said notice shall be published on the website of the company, if any, and as may be, notified or directed by the Central Government., , 16., , Where there is change of objects for which money is raised through prospectus, a notice shall also be placed, on the website of the company, if any pertaining to the same., , Code for Independent Directors [Schedule IV], , Notice of candidature of a person for directorship [Rule 13(2) of the companies (Appointment and, Qualification of Directors) Rules, 2014], , Notice of resignation of director [Rule 15 of the Companies (Appointment and Qualification of, Directors) Rules, 2014], , Form and particulars of advertisement or circulars [Rule 4(3) of the Companies (Acceptance of, Deposits) Rules, 2014], , Variation of terms of contracts referred to in the prospectus or objects for which prospectus was, issued [Rule 7(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014], , Other compliances for conversion of section 8 companies to any other kind [Rule 22(1)(b) of the, Companies (Incorporation) Rules, 2014], , Change of objects for which money is raised through prospectus [Rule 32(3) of the Companies, (Incorporation) Rules, 2014], , Closure of register of members or debenture holders or other security holders [Rule 10(1) of the, Companies (Management and Administration) Rules, 2014], A company closing the register of members or the register of debenture holders or the register of other, security holders shall give at least seven days previous notice and in such manner, as may be specified by, Securities and Exchange Board of India, if such company is a listed company or intends to get its securities, listed, by advertisement at least once in a vernacular newspaper in the principal vernacular language of the, district and having a wide circulation in the place where the registered office of the company is situated,, and at least once in English language in an English newspaper circulating in that district and having wide
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Lesson 9 • Transparency and Disclosures, , 389, , circulation in the place where the registered office of the company is situated and publish the notice on the, website as may be notified by the Central Government and on the website, if any, of the Company., , 17., , Notice of meeting [Rule 18(3)(ix) of the Companies (Management and Administration) Rules, 2014], , 18., , The notice of the general meeting of the company shall be placed on the website of the Company, if any and, on the website as may be notified by the Central Government., , 19., , The notice of voting through electronic means shall also be placed on the website of the company, if any and, of the agency forthwith after it is sent to the members, , Voting through electronic means [Rule 20(4)(ii) of the Companies (Management and Administration), Rules, 2014], , Voting through Electronic Means [Rule 20(4)(xvi) of the Companies (Management and Administration), Rules, 2014], The results declared along with the report of the scrutiniser shall be placed on the website of the company, if, any, and on the website of the agency immediately after the result is declared by the Chairman :, , 20., , Provided that in case of companies whose equity shares are listed on a recognised stock exchange, the, company shall, simultaneously, forward the results to the concerned stock exchange or exchanges where its, equity shares are listed and such stock exchange or exchanges shall place the results on its or their website., , 21., , The notice of the postal ballot shall also be placed on the website of the company forthwith after the notice, is sent to the members and such notice shall remain on such website till the last date for receipt of the postal, ballots from the members., , 22., , The results of the poll shall be declared by placing it, along with the scrutinizer’s report, on the website of the, company., , Procedure to be followed for conducting business through postal ballot [Rule 22(4) of the Companies, (Management and Administration) Rules, 2014], , Postal Ballot [Rule 22(13) of the Companies (Management and Administration) Rules, 2014], , Special notice [Rule 23(4) of the Companies (Management and Administration) Rules, 2014], , Where it is not practicable to give the notice in the same manner as the company gives it notice of any general, meetings, the notice shall be published in English language in English newspaper and in vernacular language, in a vernacular newspaper, both having wide circulation in the State where the registered office of the, Company is situated and such notice shall also be posted on the website, if any, of the Company., , 5. POLICIES, , The Companies incorporated under the Indian Company Law are required to frame different Policies/ maintain, systems/ plans and devise Codes of/ for the Company/ Board of Directors and Senior Management Personnel/, Directors and Employees etc. pursuant to the provisions of the Companies Act, 2013 and other corporate laws., However, companies whose shares are listed on Stock Exchanges in India are additionally required to frame some, other policies/ codes as well, in compliance of SEBI (LODR) and SEBI Rules and Regulations., , The Policies and Codes that are required to be framed by companies, needs also to be disclosed in the Board’s, Report forming part of the Annual Report and uploaded on Company’s website, wherever applicable., The table below lists various Policies/ Codes to be framed, applicability, manner of framing and disclosure, requirements etc.
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390, , S., No., , Lesson 9 • EP-CL, , , , Name of, Policy/ Code, , Applicability, , Role of:, Committee, , 1., , Corporate, Social, Responsibility, (CSR) Policy, , Every, (i) Board shall, company, constitute CSR, having net, Committee, worth of, of the Board, Rs.500 crore, which shall, or more or, formulate &, turnover, recommend, of Rs.1,000, to the Board,, crore or, CSR Policy, more or a net, which shall, profit of Rs.5, indicate the, crore or more, activities to be, during the, undertaken by, immediately, the company, preceding, in areas or, financial year, subject as per, Schedule VII of, the Companies, Act, 2013,, , Disclosure, Board of, Directors, , Board of, Directors, shall:, , (i) Approve the, Policy, , (ii) Ensure, that the, activities as, are included, in CSR, Policy are, undertaken, by the, company, , Board’s Report, • Shall disclose, composition, of the CSR, Committee., • Disclose the, contents, of the CSR, Policy as, per the, particulars, specified, in the, Annexure to, Companies, (CSR Policy), Rules, 2014., , (ii) Recommend, the amount of, expenditure to, be incurred on, the activities to, be undertaken, by the, company and, , 2., , Whistle Blower, Policy – A Vigil, mechanism for, directors and, employees to, report genuine, concerns or, grievances, about, unethical, behavior,, actual or, suspected, fraud or, violation of, the company’s, code of conduct, or ethics policy, , Every listed, company, and class of, companies, which:, , (iii) Monitor CSR, Policy of the, company from, time to time, , The companies, which are, required to, constitute an audit, committee- As the, Audit Committee, (i)accept, shall review the, deposits from, functioning of the, the public;, Whistle Blower, mechanism, the, (ii) have, Policy can be, borrowed, routed through the, money, Audit Committee., from banks, and public, financial, institutions, in excess of, Rs.50 Crores., , Website of, Company, The Board of, every eligible, company, referred to in, sub-section (1), of Section 135, shall, disclose, contents of, CSR Policy on, the company’s, website, if any., , Further, the, Board of, Directors, shall ensure, essential, disclosure of, the following, on the website, of the Company,, if any:, • The, composition, of the CSR, Committee, , In case of other, companies,, the Board of, Directors shall, nominate a, director to play, the role of audit, committee for, the purpose of, vigil mechanism, to whom other, directors and, employees may, report their, concerns., , Details of, establishment, of such, mechanism to, be disclosed, , • CSR Policy, and Projects, approved by, the Board, , Details of, establishment, of such, mechanism to, be disclosed, if, any.
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391, , Lesson 9 • Transparency and Disclosures, , 3., , Policy on, appointment, and, remuneration, of the, directors,, KMP and, other, employees, including, criteria for, determining, qualifications,, positive, attributes,, independence, of a director, and other, matters., , Every Listed, Public, Company, and all, Public, Companies, having:, , • paid up, capital, of Rs.10, crores or, more; OR, • turnover, of Rs.100, crores or, more OR, , • in aggregate,, outstanding, loans,, debentures, and, deposits, exceeding, Rs.50, crores., , The, Nomination, and, Remuneration, Committee, shall formulate, the criteria for, determining, qualifications,, positive, attributes and, independence, of a director, and recommend, to the Board, a policy,, relating to the, remuneration, for the directors,, key managerial, personnel and, other employees, , Board shall, approve the, Policy, , The, salient, features of, the policy, and, changes, therein, if, any, along, with the web, address of, the policy, if, any, shall be, disclosed in, the Board’s, Report, , Such policy, shall be, placed on the, website of the, company, if, any, , Various Policies to be framed as per the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015), As per the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all listed entities are required, to frame various policies which are detailed below:, (i), , Policy for preservation of documents, , (iii), , Policy on materiality of related party transactions, , (ii), , (iv), (v), , (vi), , Policy for determining material subsidiary, Policy for determination of materiality, Archival Policy, , Vigil Mechanism/ Whistle Blower policy, , (vii) Policy on diversity of board of directors, (viii) Dividend Distribution Policy, , I. Policy for preservation of documents [Regulation 9], , Objective: To classify the documents, records and registers of the Listed Company at least under two categories:, (i), , (ii), , to be preserved permanently., , to be preserved for period of not less than 8 (eight) years., , The listed entity may preserve the above said documents in electronic mode.
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392, , , , II. Policy for determining material subsidiary [Regulation 16(1)(c)], , Lesson 9 • EP-CL, , Objective: To determine the material subsidiaries of a Listed Company and to provide the governance framework, for such subsidiaries., , “Material subsidiary” shall mean a subsidiary, whose income or net worth exceeds 10% of the consolidated income, or net worth respectively, of the listed entity and its subsidiaries in the immediately preceding accounting year., Explanation.- The listed entity shall formulate a policy for determining ‘material’ subsidiary., , III. Policy on materiality of related party transactions and on dealing with related party, transactions [Regulation 23], , Objective: To ensure proper approval of related party transactions., , The listed entity shall formulate a policy on materiality of related party transactions and on dealing with related, party transactions including clear threshold limits duly approved by the board of directors and such policy shall be, reviewed by the board of directors at least once every three years and updated accordingly., Explanation. – A transaction with a related party shall be considered material if the transaction(s) to be entered into, individually or taken together with previous transactions during a financial year, exceeds ten percent of the annual, consolidated turnover of the listed entity as per the last audited financial statements of the listed entity., , With effect from July 01, 2019 a transaction involving payments made to a related party with respect to brand usage, or royalty shall be considered material if the transaction(s) to be entered into individually or taken together with, previous transactions during a financial year, exceed 5 percent of the annual consolidated turnover of the listed, entity as per the last audited financial statements of the listed entity., , All related party transactions have to be previously approved by the audit committee and require approval of the, shareholders., , IV. Policy for determination of materiality [Regulation 30(4)(ii)], , Objective: To protect the confidentiality of material/price sensitive information of a Listed Company., , Every listed entity has to make disclosures of any events or information which, in the opinion of the board of, directors of the listed company, is material., , Criteria for determination of materiality of events/ information:, (a), , the omission of an event or information, which is likely to result in discontinuity or alteration of event or, information already available publicly; or, , (c), , If, the above two clauses are not applicable, an event/information may be treated as being material if in the, opinion of the board of directors of listed entity, the event / information is considered material., , (b), , the omission of an event or information is likely to result in significant market reaction if the said omission, came to light at a later date;, , V. Archival Policy [Regulation 30(8)], , Objective: To ensure that all the information which, has been disclosed to stock exchange(s) under this regulation, and such information which in the opinion of the board of directors of a listed company, is material has to be made, available on the Company’s website for public/members., The material information of a listed company shall be hosted on its website for a minimum period of 5 (five) years, and thereafter will be archived for a further period as specified in its Archival Policy.
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Lesson 9 • Transparency and Disclosures, , 393, , VI. Vigil Mechanism/ Whistle Blower Policy [Regulation 22], Objective: The Vigil Mechanism/Whistle Blower Policy is implemented to safeguard the unethical practices and to, provide mechanism for reporting genuine concerns or grievances., , Every listed entity has to formulate a vigil mechanism/ Whistle blower policy for directors and employees to report, genuine concerns., , The vigil mechanism has to provide for adequate safeguards against victimization of director(s) or employee(s), or any other person who avail the mechanism and also provide for direct access to the chairperson of the audit, committee in appropriate or exceptional cases., , VII. Policy on diversity of board of directors (Schedule II Part D(A)(3) of SEBI (LODR) Regulations,, 2015, , Objective: To enhance the effectiveness of the Board by diversifying its composition and to obtain the benefit out of, such diversity in better and improved decision making., , In order to ensure that the Company’s boardroom has appropriate balance of skills, experience and diversity of, perspectives that are imperative for the execution of its business strategy, the Company shall consider a number of, factors, including but not limited to skills, industry experience, background, race and gender, , VIII. Dividend Distribution Policy (Regulation 43A), , Objective: The Policy broadly specifies the external and internal factors including parameters that may be, considered while declaring dividend and the circumstances under which the shareholders of the Company may or, may not expect dividend., The top1000 listed entities based on market capitalization (calculated as on March 31 of every financial year) shall, formulate a dividend distribution policy which shall be disclosed on the website of the listed entity and a web-link, shall also be provided in their annual reports ., The dividend distribution policy shall include the following parameters:, (a), , the circumstances under which the shareholders of the listed entities may or may not expect dividend;, , (c), , internal and external factors that shall be considered for declaration of dividend;, , (b), (d), (e), , the financial parameters that shall be considered while declaring dividend;, policy as to how the retained earnings shall be utilized; and, , parameters that shall be adopted with regard to various classes of shares:, , Where in cases the listed entity proposes to declare dividend on the basis of parameters in addition to above, mentioned clauses or proposes to change such additional parameters or the dividend distribution policy contained, in any of the parameters, it shall disclose such changes along with the rationale for the same in its annual report, and on its website., The listed entities other than top 1000 listed entities based on market capitalization may disclose their dividend, distribution policies on a voluntary basis on their websites and provide a web-link in their annual reports.
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394, , , , ANNEXURES, , Lesson 9 • EP-CL, , Annexure I, SPECIMEN BOARD RESOLUTION FOR PREPARATION OF ANNUAL REPORT IN ABRIDGED FORM FOR, MAILING TO THE MEMBERS, “RESOLVED THAT pursuant to the provisions of Second proviso of sub – section (1) of Section 136 of the Companies, Act, 2013 and Rule 10 of the Companies (Accounts) Rules 2014, the Annual Reports comprising of the Balance, Sheet, Profit and Loss Account etc. of the company for the financial year ended 31st March.............. be also prepared,, finalised and audited in the prescribed Form No AOC – 3 for sending to the members of the company.”, , “RESOLVED FURTHER THAT the draft audited statements containing salient features of financial statements for, the year ended 31st March, prepared in the prescribed Form No. AOC – 3 in accordance with Second proviso of, sub – section (1) of Section 136 of the Companies Act, 2013 and Rule 10 of the Companies (Accounts) Rules, 2014, as submitted to the meeting, be and are hereby approved and the same be authenticated by the directors of the, company as required under Section 136 of the Companies Act, 2013 and be sent to the statutory auditors of the, company for their report thereon and thereafter be sent to the members of the company for adoption at the ensuing, annual general meeting of the company.”, , Annexure II, , SPECIMEN BOARD RESOLUTION FOR APPROVAL OF THE BOARD’S REPORT, “RESOLVED THAT the Boards’ Report to be sent to the Shareholders of the company for the year ended 31st, March............... is prepared in accordance with the provisions of Section 134 of the Companies Act, 2013 together, with its Annexures and also contain suitable explanation and fullest information on every reservation, qualification, or adverse remarks, if any, contained in Auditor’s reports, as submitted to the meeting, be and is hereby approved, and the same be signed by Shri.................... Chairman of the company, by Shri.....................Managing Director and, Shri..................... Director for and on behalf of the Board of Directors of the company.”, , Annexure III, , SPECIMEN RESOLUTION TO BE PASSED BY THE BOARD OF DIRECTORS FOR APPROVAL OF THE BOARD’S, REPORT CONTAINING BOARD’S RESPONSE TO AUDITORS’ COMMENTS AND QUALIFICATIONS, “RESOLVED THAT, pursuant to Section 134 of the Companies Act, 2013, the draft of the Board’s Report for the year, ended 31st March.............. as circulated earlier and as modified by incorporating the information and explanation, given by the Board on every reservation, qualification or adverse remark contained in the Auditors’ Report under, Section 143 (2), and as laid on the table, be and is hereby approved and that the Board’s Report be signed by, the Chairman on behalf of the Board and that the Secretary of the company be directed to issue the same to the, members of the company together with the printed copies of the audited accounts, and the Auditors’ Report.”, , Annexure IV, , Sample Board’s Report, Your Directors are pleased to present 21st Annual Report and the audited financial statements for the financial year, ended on 31st March, 20...............
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395, , Lesson 9 • Transparency and Disclosures, , Financial Results:, , The financial performance of the Company, for the year ended on 31st March, 20......... is summarized below:, Particulars, , Sales and Other Income, , Profit before Interest, Depreciation, Exceptional, Expenses & Tax [PBIDET], , Standalone, , Consolidated, , For the, year, ended, 31st, March, 20......., (C.Y.), , For the, year, ended, 31st, March, 20........, (P.Y.), , For the, year, ended, 31st, March, 20......., (C.Y.), , For the, year, ended, 31st, March, 20......., (P.Y.), , 23,956, , 21,494, , 45,831, , 42,254, , 455, , 243, , 773, , 465, , 11,332, , 9,307, , 12,751, , 10,841, , Less: Depreciation, , 10,877, , 9,064, , 11,978, , 10,376, , (PBIET), , 10,872, , 9,060, , 11,965, , 10,363, , Profit Before Tax [PBT] Less: Provision for Tax Profit After, Tax [PAT] Less: Minority Interest, , 10,895, , 9,645, , 11,115, , 9,831, , Add: Profit brought forward from the previous year, , 10,895, , 9,645, , 10,895, , 9,645, , Profit available for appropriation, which is appropriated as, follows:, , 35,018, , 27,892, , 35,018, , Profit before Interest, Exceptional Expenses & Tax, Less: Interest, , Profit attributable to shareholders, , Less: Additional depreciation upon revision in useful lives, of tangible assets, Proposed Final Dividend, , Corporate Dividend Tax on Dividend, Transfer to General Reserve, , 5, , -23, -, , 4, , -585, -, , 24,149, , 18,247, , 2,344, , 2,344, , 477, 0, , 399, , 1,000, , 13, , 850, 220, , 13, , 532, 186, , 24,149, , 18,247, , 2,344, , 2,344, , 477, 0, , 27,892, 399, , 1,000, , Balance carried to Balance Sheet, , 32,197, , 24,149, , 32,197, , 24,149, , Basic and Diluted Earning Per Share (EPS of FV Rs. 10) [in, Rupees], , 27.88, , 24.69, , 27.88, , 24.69, , Total, , 35,018, , 27,892, , 35,018, , 27,892, , Annual Report 20........ - 20..............., , The Company proposes to retain an amount of Rs. 32,197 lacs in the Statement of Profit and Loss. The consolidated, financial highlights include the financials of ABC, XYZ, a partnership firm.
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396, , , , Results of operations:, , Lesson 9 • EP-CL, , During the year under review, the consolidated gross sales grew by 3.1%. On standalone basis, the Company has, earned total revenue of Rs.23,956 lacs. The PBDT increased by 21.8 % to Rs.11,332 lacs and the Profit Before Tax, increased by 20% to Rs.10,872 lacs. The Profit after Tax has increased to Rs.10,895 lacs as compared to Rs.9,645, lacs in the previous year and the EPS has increased from Rs.24.69 in the previous year to Rs.27.88. A detailed, analysis of performance for the year has been included in the Management Discussion and Analysis, which forms, part of the Annual Report., , Dividend, , Your Directors have recommended a dividend of Rs.6/- [i.e. 60%] per equity share [last year Rs.6/- per equity, share] on 3,90,72,089 equity shares of Rs.10/- each fully paid-up for the financial year ended on 31st March, 2020,, amounting to Rs.2,821 lakhs [inclusive of corporate dividend tax of Rs.477 lakhs]. The dividend, if declared by, the shareholders at the ensuing Annual General Meeting, will be paid to those shareholders, whose names stand, registered in the Register of Members as on .................... In respect of shares held in dematerialized form, it will be, paid to the members whose names are furnished by the National Securities Depository Limited and the Central, Depository Services [India] Limited, as beneficial owners. The Dividend Payout ratio for the current year (inclusive, of Corporate Dividend Tax) is 25.90 percent on profits., , During the year, the unclaimed dividend pertaining to the dividend for the year ended 31st March, 2015 was, transferred to Investor Education and Protection Fund., , Consolidated financial Statements, , ABC, XYZ is under the majority control of the Company and hence the accounts of ABC, XYZ are consolidated with, the accounts of the Company in accordance with the provisions of Accounting Standard [AS]- 21 on Consolidated, Financial Statements issued by the Institute of Chartered Accountants of India, Companies Act, 2013 [“Act”] read, with Schedule III of the Act and Rules made thereunder and the Listing Agreement with the Stock Exchanges. The, audited Consolidated Financial Statements are provided in this Annual Report., Though Company does not have any subsidiary Company, the Company has formed a policy relating to material, subsidiaries, which is approved by the Board of Directors and can be accessed on the Company’s website at the link:, , Related Party Transactions, , All transactions entered by the Company during the financial year with related parties were in the ordinary course, of business and on an arm’s length basis. During the year, the Company had not entered into any transactions with, related parties which could be considered as material in accordance with the policy of the Company on materiality, of related party transactions., The Policy on materiality of related party transactions and dealing with related party transactions as approved by, the Board may be accessed on the Company’s website at the link:...................Disclosures on related party transactions, are set out in Note No. 34 to the financial statements., , Directors, , i., , Cessation:, Mr. P [DIN-XXXXXXXX], Director and Mr. Q [DIN-XXXXXXXX], Managing Director of the Company have resigned, with effect from ...................... and ................... respectively., The Board places on record its appreciation for contributions and guidance provided by Mr. P and Mr. Q, during their respective tenure as a Director / Managing Director of the Company.
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Lesson 9 • Transparency and Disclosures, , 397, , ii., , Retirement by rotation:, , iii., , In accordance with the provisions of section 152[6] of the Act and in terms of Articles of Association of the, Company, Mr. X [DIN-XXXXXXXX] will retire by rotation at the ensuing Annual General Meeting and being, eligible, offer himself for reappointment. The Board recommends his reappointment., , iv., , Mr. R was appointed as an Additional Director and Whole time Director w.e.f. ........................., subject to the, approval of the Members at the ensuing Annual General Meeting. Mr. R is designated as the Key Managerial, Personnel pursuant to the provisions of section 203 of the Act., , v., , The Independent Directors have submitted their declarations of independence, as required pursuant to the, provisions of section 149(7) of the Act, stating that they meet the criteria of independence as provided in, section 149(6)., , vi., , Upon cessation of Mr. M [DIN-XXXXXXXX] as the Director of the Company, Dr. N was appointed as the Chairman, of the Board and Company w.e.f. ......................., , Appointment of Additional / Whole Time Director:, , Independent Directors:, , Chairman:, , Key Managerial Personnel:, , The following persons were designated as Key Managerial Personnel:, 1., , Mr. Q, Managing Director, [up to ..............................], , 3., , Mr. O, Chief Financial Officer, and, , 2., vii., , 4., , Mr. R, Whole Time Director, [w.e.f. ..............................], Mr. J, Company Secretary., , Board Evaluation:, , Pursuant to the provisions of the Companies Act, 2013 and Rules made thereunder and as provided under, Schedule IV of the Act and SEBI (LODR), Regulation, 2015 the Board has carried out the annual performance, evaluation of itself, the Directors individually as well as the evaluation of its committees. The manner in which, the evaluation was carried out is provided in the Corporate Governance Report, which is part of this Annual, Report., , viii. Remuneration Policy:, , The Board has on the recommendations of Nomination and Remuneration Committee, framed a Policy on, selection and appointment of Directors, Senior Management and their remuneration. The Remuneration, Policy is stated in the Corporate Governance Report, which is part of this Annual Report., , Directors’ Responsibility Statement, , In terms of section 134[3][c] of the Act, your Directors state that:, i., , ii., , in the preparation of the annual financial statements for the year ended on 31st March, 20........, applicable, accounting standards read with requirements set out under schedule III of the Act, have been followed along, with proper explanation relating to material departures, if any;, , such accounting policies have been selected and applied consistently and judgements and estimates made, that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company as at, 31st March, 20......... and of the profit of the company for the year ended on that date;
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398, , iii., iv., v., , , , Lesson 9 • EP-CL, , the directors had taken proper and sufficient care for the maintenance of adequate accounting records in, accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and, detecting fraud and other irregularities;, the annual financial statements are prepared on a going concern basis;, , proper internal financial control are in place and that the financial controls are adequate and are operating, vi. the systems to ensure compliance with the provisions of all applicable laws are in place and are adequate, and operating effectively., , Board Meetings, , A calendar of meetings to be held in a year is decided in advance by the Board and circulated to the Directors. During, the year, four Board and four Audit Committee Meetings were convened and held, the details of which are provided, in the Corporate Governance Report, forming part of the Directors’ Report. The gap between two consecutive, meetings was not more than one hundred and twenty days as provided in section 173 of the Act., , Corporate Governance, , The Company has complied with the Corporate Governance requirements under the Act and as stipulated in Listing, Regulations. A separate section on detailed report on the Corporate Governance practices followed by the Company, under the Listing Agreement along with a certificate from M/s. DEF & Associates, Practicing Company Secretary,, confirming the compliance, is part of the Annual Report., i., , Statutory Auditor and their Report:, , M/s. D, Chartered Accountants, [Firm Registration No...........] Statutory Auditor of the Company hold office, until the conclusion of the ensuing 21st Annual General Meeting and are eligible for reappointment. Pursuant, to provisions of section 139 of the Companies Act, 2013 and the Rules made thereunder, the Board proposes, to reappoint M/s............ &, Chartered Accountants as Statutory Auditor of the Company from the conclusion, of the ensuing 21st Annual General Meeting till the conclusion of 26th Annual General Meeting. They have, furnished a certificate confirming the eligibility under section 141 of the Companies Act, 2013 and Rules, made thereunder., The Board based on the recommendation of Audit Committee, recommends the reappointment of M/s,, Chartered Accountants, as the Statutory Auditor of the Company., , ii., , The Board has duly reviewed the Statutory Auditor’s Report on the Accounts. The observations and, comments, appearing in the Auditor’s Report are self-explanatory and do not call for any further explanation, / clarification by the Board of Directors as provided under section 134 of the Act., , iii., , Pursuant to the provisions of section 148 [3] of the Act read with The Companies [Cost Records and Audit], Amendment Rules, 2014, the cost audit records maintained by the Company in respect of its product is, required to be audited. The Board had, on the recommendation of Audit Committee, appointed M/s UV &, Associates, Cost Accountants [Firm Registration No..................] to audit the cost records of for the financial year, ended on 31st March, 20......... on a remuneration of Rs.1.80 lacs As required under the Act and Rules made, thereunder, the remuneration payable to the Cost Auditor is required to be placed before the Members General, Meeting for ratification. Accordingly, a resolution to ratify the remuneration payable to M/s. UV & Associates, for the financial year ending on 31st March, 20.......... is included at Item No. 8 of the Notice convening 21, Annual General Meeting., , Cost Auditor:, , Secretarial Auditor and Secretarial Audit Report:, , Pursuant to the provisions of section 204 of the Act and The Companies [Appointment and Remuneration of, Managerial Personnel] Rules, 2014, the Company has appointed M/s. DEF & Associates, Practicing Company
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399, , Lesson 9 • Transparency and Disclosures, , Secretary to undertake Secretarial Audit for the financial year ended on 31st March, 20.......... Secretarial Audit, Report. The Board has duly reviewed the Secretarial Auditor’s Report and the observations and comments,, appearing in the report are self-explanatory and do not call for any further explanation / clarification by the, Board of Directors as provided under section 134 of the Act., , Corporate Social Responsibility [CSR], , The Board of Directors of the Company has constituted a Corporate Social Responsibility [CSR] Committee under the, Chairmanship of Dr. N. Other members of the Committee are Mr. Y and Prof. Z. CSR Committee has recommended to, the Board, a CSR Policy, indicating the activities to be undertaken by the Company, which is approved by the Board., The CSR Policy is posted on the website of the Company., , As part of its initiatives under Corporate Social Responsibility [CSR], the Company has contributed for healthcare,, education and research in cancer and for eradicating poverty and malnutrition for the year under review. Other, details of the CSR activities as required under section 135 of the Act are given in the CSR Report as Annexure-B., , Business Risk Management:, , A well-defined risk management mechanism covering the risk mapping and trend analysis, risk exposure, potential, impact and risk mitigation process is in place. The objective of the mechanism is to minimize the impact of risks, identified and taking advance actions to mitigate it. The mechanism works on the principles of probability of, occurrence and impact, if triggered. A detailed exercise is being carried out to identify, evaluate, monitor and, manage both business and non-business risks., Discussion on risks and concerns are covered in the Management Discussion and Analysis Report, which forms part, of this Annual Report., , Internal control systems and its adequacy, , The Company has internal control systems commensurate with the size, scale and complexity of its business, operations. The scope and functions of internal auditor are defined and reviewed by the Audit committee. The, internal auditor reports to the Chairman of the Audit Committee. Internal Auditors presents their quarterly report, to the Audit Committee, highlighting various observations, system and procedure lapses and corrective actions, are taken. The internal auditor also assesses opportunities for improvement of business processes, systems and, controls, to provide recommendations, which can add value to the organization and it also follows up on the, implementation of corrective actions and processes. The Management Auditor also ensures the compliance of the, observations of internal and statutory auditors and presents his report to the Audit Committee., , Managing the Risks of fraud, corruption and unethical business practices, , i., , Vigil Mechanism/ Whistle Blower Policy:, , ii., , The Company has established vigil mechanism and framed whistle blower policy for Directors and employees, to report concerns about unethical behavior, actual or suspected fraud or violation of Company’s Code of, Conduct or Ethics Policy. Whistle Blower Policy is disclosed on the website of the Company., Business Conduct Policy:, , The Company has framed “ABC Business Conduct Policy”. Every employee is required to review and sign the, policy at the time of joining and an undertaking shall be given for adherence to the Policy. The objective of the, Policy is to conduct the business in an honest, transparent and in an ethical manner. The policy provides for, anti- bribery and avoidance of other corruption practices by the employees of the Company., , Weblink of Annual Return, , The weblink of the Annual Return is, , .
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400, , , , Constitution of Audit Committee, , Lesson 9 • EP-CL, , The Board has reconstituted the Audit Committee which comprises of Mr. H as the Chairman and Dr. B.M. Hegde,, Prof. Z and Mr. Y as the members. More details on the Committee are given in the Corporate Governance Report., , Particulars of Employees, , The information required under section 197 of the Act read with Rule 5(1) of the Companies (Appointment and, Remuneration of Managerial Personnel) Rules, 2014 is attached as Annexure-C., , Energy Conservation, Technology Absorption and Foreign Exchange Earnings and Outgo:, , Information on conservation of energy, technology absorption, foreign exchange earnings and outgo, as required to, be disclosed under section 134(3)(m) of the Act read with the Companies (Accounts) Rules, 2014, and forms part, of this Report., , General Disclosure, , Your Directors state that the Company has made disclosures in this report for the items prescribed in section 134(3), of the Act and Rule 8 of The Companies (Accounts) Rules, 2014 to the extent the transactions took place on those, items during the year., , Disclosure, regarding maintenance of cost records, , Disclosure, regarding maintenance of cost records as specified by the Central Government under sub-section (1) of, section 148 of the Companies Act, 2013, is required by the Company and accordingly such accounts and records are, made and maintained., , Disclosure relating to the constitution of Internal Complaints Committee under the Sexual, Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, , A statement that the company has complied with provisions relating to the constitution of Internal Complaints, Committee under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act,, 2013., , Acknowledgement:, , Your Directors wish to place on record their sincere appreciation for significant contributions made by the, employees at all levels through their dedication, hard work and commitment, enabling the Company to achieve, good performance during the year under review., , Your Directors also take this opportunity to place on record the valuable co-operation and support extended by, the banks, government, business associates and the shareholders for their continued confidence reposed in the, Company and look forward to having the same support in all future endeavors., For and on behalf of the Board Place:, , Ahmedabad , , Mr. N, , Date : ........................ Chairman
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Lesson 9 • Transparency and Disclosures, , 401, , Active Company Tagging Identities and Verification (ACTIVE), Rule 25A of the Companies (Incorporation) Rules, 2014, Every company incorporated on or before the 31st December, 2017 shall file the particulars of the company and its, registered office, in e-Form ACTIVE (Active Company Tagging Identities and Verification) on or before 15.06.2019., , Provided that any company which has not filed its due financial statements under section 137 or due annual returns, under section 92 or both with the Registrar shall be restricted from filing e-Form-ACTIVE, unless such company is, under management dispute and the Registrar has recorded the same on the register:, Provided further that companies which have been struck off or are under process of striking off or under liquidation, or amalgamated or dissolved, as recorded in the register, shall not be required to file e-Form ACTIVE:, Provided also that in case a company does not intimate the said particulars, the Company shall be marked as, “ACTIVE-non-compliant” on or after 16th June, 2019 and shall be liable for action under sub-section (9) of section, 12 of the Act:, Provided also that no request for recording the following event based information or changes shall be accepted by, the Registrar from such companies marked as “ACTIVE-non-compliant”, unless “e-Form ACTIVE” is filed –, (i), , SH-07 (Change in Authorized Capital);, , (iii), , DIR-12 (Changes in Director except in case of :, , (ii), , PAS-03 (Change in Paid-up Capital);, (a), , cessation of any director; or, , (c), , appointment of any director in such company where DINs of all or any its director(s) have been, deactivated;, , (b), , (d), (iv), (v), , appointment of directors in such company where the total number of directors are less than the, minimum number provided in clause (a) of sub-section (1) of section 149 on account of disqualification, of all or any of the director under section 164;, appointment of director(s) for implementation of the order passed by the Court or Tribunal or Appellate, Tribunal under the provisions of the Companies Act, 2013 or under the Insolvency and Bankruptcy, Code, 2016)., , INC-22 (Change in Registered Office);, INC-28(Amalgamation, de-merger)., , Where a company files “e-Form ACTIVE”, on or after 16th June, 2019, the company shall be marked as “ACTIVE, Compliant”, on payment of fee of ten thousand rupees.
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402, , Lesson 9 • EP-CL, , , , LESSON ROUND-UP, •, •, •, •, •, •, •, , The annual report is a comprehensive report provided by most public companies to disclose their, corporate activities over the past year., According to Regulation 34 of SEBI (LODR) Regulation, 2015, the listed entity shall submit to the stock, exchange and publish on its website a copy of the annual report sent to the shareholders along with, the notice of the annual general meeting not later than the day of commencement of dispatch to its, shareholders., The listed entity shall send annual report to the holders of securities, not less than twenty-one days before, the annual general meeting., Disclosures in the Board’s Report are derived from various places, apart from disclosures specified in, section 134 of the Act., Section 134 of the Act enjoins upon the Board a responsibility to make out its report to the shareholders, and attach the said report to financial statements laid before the shareholders at the annual general, meeting, As per section 92 of the Companies Act, 2013, every company shall file its annual return in Form No.MGT-7, except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file, annual return from the financial year 2020-2021 onwards in Form No.MGT-7A., Annual Return is to be filed with the Registrar within 60 days from the date on which Annual General Meeting, (AGM) is actually held or from the last day on which AGM should have been held., , GLOSSARY, Holding Company, , Subsidiary Company, , “holding company”, in relation to one or more other companies, means a company, of which such companies are subsidiary companies (Sec 2(46) of Companies Act,, 2013), Explanation—For the purposes of this clause, the expression “company” includes, any body corporate., , “subsidiary company” or “subsidiary”, 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; or, (ii) exercises or controls more than one-half of the 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;, [Sec 2(87) of Companies Act, 2013)]
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403, , Lesson 9 • Transparency and Disclosures, , TEST YOURSELF, (These are meant for recapitulation only. Answer to these questions are not to be submitted for evaluation)., 1., , What information is required to be disclosed in Annual Report?, , 3., , What forms the Directors’ Responsibility Statement?, , 2., 4., 5., 6., , Draft a Directors’ Report of your company., , What points should be kept in mind while preparing Annual Report?, , What are the contents of Abridged Board’s Report in case of small company?, , What are the policies required to be formulated by listed entity under the SEBI (LODR) Regulations, 2015?, , LIST OF FURTHER READINGS, •, , Bare Act- The Companies Act, 2013, , •, , ICSI Referencer on Board Report, , •, •, , ICSI Premiere on Company Law, , The SEBI (LODR) Regulations, 2015, , OTHER REFERENCES (Including Websites/Video Links), •, •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, Sebi.gov.in
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Lesson 10, Key Concepts One, Should Know, •, , Free Reserve, , •, , Securities, , •, , Inter-Corporate, Loan, , •, , Arms length, basis, , •, •, •, •, •, •, , Body Corporate, , An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, Learning Objectives, , Regulatory Framework, , To understand:, , The Companies Act, 2013, , •, , Related Party, , •, , Related Party, Transaction, , •, , Ordinary Course, of Business, , •, , Omnibus, Approval, , Place of Profit, , •, , Regulatory provisions on, Loans and Investment by, companies, Procedures involved in, Making Loan, Giving, Guarantee & Providing, Security, , Investments made or, held by a company in any, property, security or other, asset shall be made and, held by it in its own name., Overview of Related Party, Transactions, , Role of Audit Committee in, Related Party Transactions, , •, •, •, •, , Section 177(4)(iv) - Role of, Audit Committee in Related, Party Transactions, Section 186- Loan &, Investment by Company, , Section 187- Investments, of Company to be held in its, own name, Section 188-Related Party, Transactions, , The Companies (Meetings of, Board and its Powers) Rules,, 2014, •, , Rule 11-16, , •, , Regulation 2(1) (zb), 2(1), (zc), 2(1) (zd), 23, 27, , The SEBI (LODR) Regulations,, 2015, , •, , Schedule V, , Lesson Outline, •, •, •, •, •, •, •, •, •, •, •, •, , Regulatory Framework, Introduction, Definitions, Loans and Investments by companies, Investments of Company to be held in its own name, Registers of Loans Made, Guarantees Given, Securities Provided, & Investments Made, Related Party Transactions, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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406, , , , INTRODUCTION, , Lesson 10 • EP-CL, , The power to invest the funds of the company is the prerogative of the Board of Directors. This power is derived by, the Board under Section 179 of the Act. However, the Companies Act, 2013 contains provisions for restrictions on, investments that a company can make and loans it can provide. Moreover, giving corporate guarantee or security, is also as good as giving a loan, because the person to whom guarantee or security is given can decide to enforce, the guarantee or security in certain conditions and in such a situation, the company will have to pay the amount., Thus, apart from loan and investments, restrictions are also placed on the guarantees which the company can give, or security can provide for a loan., Provisions in respect of giving of loans, making investments, giving guarantee or providing security or acquiring, securities of any other body corporate have been considerably modified by the Companies Act, 2013. As of now, an, overall limit of 60% of paid-up share capital plus free reserves and securities premium account or 100% of free, reserves and securities premium account, whichever is more, has been fixed., The Calcutta High Court in the case of Saradindu Sekhar Banerjee Vs. Lalit Mohan has held that “Every loan is a, debt but every debt is not a loan”., , Let us understand some terminologies used in Section 186 of the Companies Act 2013, (1), , Free Reserves, As per section 2(43) of the Companies Act, 2013 (‘the Act’) “free reserves” means such reserves which, as, per the latest audited balance sheet of a company, are available for distribution as dividend:, Provided that –, , (i), , (ii), (2), , any amount representing unrealised gains, notional gains or revaluation of assets, whether shown, as a reserve or otherwise, or, any change in carrying amount of an asset or of a liability recognised in equity, including surplus in, profit and loss account on measurement of the asset or the liability at fair value, shall not be treated, as free reserves., , Paid-up share capital, , As per Section 2(64) of the Act, “paid-up share capital” or “share capital paid-up” means such aggregate, amount of money credited as paid-up as is equivalent to the amount received as paid up in respect of, shares issued and also includes any amount credited as paid-up in respect of shares of the company, but, does not include any other amount received in respect of such shares, by whatever name called;, The definition of paid-up share capital is exhaustive. Paid up share capital includes both equity and, preference share capital., (3), , “Body Corporate” or “Corporation, As per Section 2(11) of the Act, “body corporate” or “corporation” includes a company incorporated outside, India, but does not include—, , (i), (i), , a co-operative society registered under any law relating to co-operative societies; and, , any other body corporate (not being a company as defined in this Act), which the Central Government, may, by notification, specify in this behalf., , General characteristics of body corporate are: •, •, •, , Incorporated under some law - Perpetual succession, Ability to hold property in its own name, Legal entity apart from the members, , INTRODUCTION
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , (4), , 407, , Difference between ‘Advance’ and ‘Loans’, , Section 2 of the Companies Act, 2013, does not define “loan”. A loan is defined by the Oxford English, Dictionary as a thing lent; something the use of which is allowed for a time, on the understanding that, it shall be returned or an equivalent given, a sum of money lent on these conditions and usually with, interest., , (5), , There is a difference between advance and loan. Loan is lending of money with absolute promise to repay, whereas advances is to be adjusted against supply of goods and services. Genuine trade advances given, to suppliers against orders for supply of goods will not be considered as loans and hence will be out of, purview of Section 186. Similarly, advances given to employees against current month’s salary will also not, be in the nature of loans., Investment Company & Infrastructure facilities, , As per explanation to Section 186 (13) of the Companies Act, 2013, , (a), , (b), , the expression “investment company” means a company whose principal business is the acquisition, of shares, debentures or other securities and a company will be deemed to be principally engaged, in the business of acquisition of shares, debentures or other securities, if its assets in the form of, investment in shares, debentures or other securities constitute not less than fifty per cent. of its, total assets, or if its income derived from investment business constitutes not less than fifty per, cent. as a proportion of its gross income., the expression “infrastructure facilities” means the facilities specified in Schedule VI., , As per Schedule VI, the term “infrastructural projects” or “infrastructural facilities” includes the following, projects or activities: —, , (1), , Transportation (including inter modal transportation), includes the following: —, , (a), , (b), (c), (2), , (3), , (4), , (d), (e), , roads, national highways, state highways, major district roads, other district roads and village, roads; including toll roads, bridges, highways, road transport providers and other road-related, services;, rail system, rail transport providers, metro rail roads and other railway related services;, , ports (including minor ports and harbours), inland waterways, coastal shipping including, shipping lines and other port related services;, aviation, including airports, heliports, airlines and other airport related services;, logistics services., , Agriculture, including the following, namely: —, , (a), , (b), (c), , infrastructure related to storage facilities;, , construction relating to projects involving agro-processing and supply of inputs to agriculture;, , construction for preservation and storage of processed agro-products, perishable goods such, as fruits, vegetables and flowers including testing facilities for quality., , Water management, including the following, namely: —, , (a), , (b), (c), , water supply or distribution;, irrigation;, , water treatment., , Telecommunication, including the following, namely: —, , (a), , (b), (c), , basic or cellular, including radio paging;, , domestic satellite service (i.e., satellite owned and operated by an Indian company for, providing telecommunication service);, network of trunking, broadband network and internet services.
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408, , , , Lesson 10 • EP-CL, , (5), , Industrial, commercial and social development and maintenance, including the following, namely:, (a) real estate development, including an industrial park or special economic zone;, (b) tourism, including hotels, convention centres and entertainment centres;, (c) public markets and buildings, trade fair, convention, exhibition, cultural centres, sports and, recreation infrastructure, public gardens and parks;, (d) construction of educational institutions and hospitals, (e) other urban development, including solid waste management systems, sanitation and, sewerage systems., (6) Power, including the following: —, (a) generation of power through thermal, hydro, nuclear, fossil fuel, wind and other renewable, sources;, (b) transmission, distribution or trading of power by laying a network of new transmission or, distribution lines., (7) Petroleum and natural gas, including the following: —, (a) exploration and production;, (b) import terminals;, (c) liquefaction and re-gasification;, (d) storage terminals;, (e) transmission networks and distribution networks including city gas infrastructure., (8) Housing, including the following: —, (a) urban and rural housing including public / mass housing, slum rehabilitation, etc;, (b) other allied activities such a s drainage, lighting, laying of roads, sanitation and facilities., (9) Other miscellaneous facilities/services, including the following: —, (a) mining and related activities;, (b) technology related infrastructure;, (c) manufacturing of components and materials or any other utilities or facilities required by the, infrastructure sector like energy saving devices and metering devices;, (d) environment related infrastructure;, (e) disaster management services;, (f), preservation of monuments and icons;, (g) emergency services (including medical, police, fire and rescue)., (10) such other facility service as may be prescribed, , Securities, , As per Section 2(81) of the Companies Act, 2013 “Securities” means the securities as defined in clause (h) of, section 2 of the Securities Contracts (Regulation) Act, 1956;, As per Section 2(h) of the Securities Contracts (Regulation) Act, 1956, “Securities” include –, (i), Shares, scrips, stocks, bonds, debentures, debenture stock or other marketable securities of a like nature, in or of any incorporated company or a pooled investment vehicle 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;, Explanation.—For the removal of doubts, it is hereby declared that "securities" shall not include any unit, linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides, a combined benefit risk on the life of the persons and investment by such persons and issued by an insurer, referred to in clause (9) of section 2 of the Insurance Act, 1938.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 409, , (ida) units or any other instrument issued by any pooled investment vehicle;, , (ie) any certificate or instrument (by whatever name called), issued to an investor by any issuer being a special, purpose distinct entity which possesses any debt or receivable, including mortgage debt, assigned to, such entity and acknowledging beneficial interest of such investor in such debt or receivable, including, mortgage debt, as the case may be;, (i), Government securities;, (iia) such other instruments as may be declared by the Central Government to be securities; and, (ii) Rights or interest in securities., , LOAN AND INVESTMENT BY COMPANIES (SECTION186), , Not more than two layers of investment companies - Section 186(1), A company shall unless otherwise prescribed, make investment through not more than two layers of investment, companies. [Sub-section (1) of section 186 of the Act]., ‘Layer’ according to explanation (d) of Section 2(87) of the Companies Act, 2013 in relation to a holding Company, means its subsidiary or subsidiaries., A company shall not make investment through more than 2 layers of investment Companies, , Layer 1, (Allowed), Layer 2, (Allowed), , A Ltd. (IC), , B Ltd. (IC), , C Ltd. (IC), , Layer 3, (Not Allowed), , In such case A Ltd., Is not allowed to, make investment, through C Ltd., In any other, Company, , A Ltd. Holds 51%, shares in B Ltd., B Ltd. Holds 51%, shares in C Ltd., , A ltd. Is an, ultimate Holding, Company of C Ltd., , However, the aforesaid provisions shall not affect, —, (i), (i), , a company from acquiring any other company incorporated in a country outside India if such other company, has investment subsidiaries beyond two layers as per the laws of such country;, a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements, under any law or under any rule or regulation framed under any law for the time being in force. [Proviso to, sub-section (1) of section 186], , Therefore, Section 186 (1) of the Companies Act, 2013 restricts a company from making investment through more, than 2 layers of investment companies.
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410, , , , Lesson 10 • EP-CL, , LIMITS FOR LOANS, GUARANTEES, SECURITY AND INVESTMENT - SECTION 186(2), No Company shall, directly or indirectly:, (a), (b), (c), , give any loan to any person or other body corporate;, give any guarantee, or provide security, in connection with a loan to any other body corporate or person; and, acquire, by way of subscription, purchase or otherwise the securities of any other body corporate;, , exceeding 60% of its paid-up share capital, free reserves and securities premium account or 100% of its free, reserves and securities premium account, whichever is more., Explanation. – For the purposes of this sub-section, the word “person” does not include any individual who is in the, employment of the company., , MEANING OF THE TERM INVESTMENT, , The word ‘Investments’ in common parlance would include any property or right in which money or capital is, invested. However, for the purpose of this study, the term ‘Investments’ is used in a limited sense to mean the, investment of money in shares, stock, debentures, or other securities., , The power to invest the funds of the company is the prerogative of the Board of Directors. This power is derived by, the Board under Section 179 of the Act. However, the Companies Act, 2013 contains provisions for restrictions on, investments that a company can make and loans it can provide. Moreover, giving corporate guarantee or security is, also as good as giving a loan, because the person to whom guarantee or security is given can decide to enforce the, guarantee or security in certain conditions and in such a situation, the company will have to pay the amount., Thus, apart from loan and investments, restrictions are also placed on the guarantees which the company can give, or security it can provide for a loan. Provisions in respect of giving of loans, making investments, giving guarantee, or providing security or acquiring securities of any other body corporate have been considerably modified by the, Companies Act, 2013 by inserting Section 186., , PROCEDURES INVOLVED IN MAKING LOAN GIVING GUARANTEE AND PROVIDING SECURITY, , Loan/Investment to be made with the approval of all the Directors at the Board Meeting [Section, 186(5)], No loan or investment shall be made or guarantee or security given by the company unless the resolution sanctioning, it is passed at a meeting of the Board with the consent of all directors present at the meeting and the prior approval, of the public financial institution concerned where any term loan is subsisting, is obtained., , Note: Every proposal for making loan to any other body corporate, exceeding 60% of its paid-up share capital, free, reserves and securities premium account or 100% of its free reserves and securities premium account whichever, is more, shall be approved at the meeting of the Board with the consent of all the directors present at the meeting, and also to be approved by the shareholders at the general meeting by way of special resolution. [Section 186(3)]., , Approval from Members [Section 186 (3)], , Though Section 186(2) makes restriction as above, Section 186(3) of the Act read with Rule 13 of the Companies, (Meetings of Board and its Powers) Rules, 2014, empowers the company by stating that where the aggregate of, the loans and investment so far made, the amount for which guarantee or security so far provided to or in all other, bodies corporate along with the investment, loan, guarantee or security proposed to be made or given by the Board,, exceed the limits specified under sub-section (2) of Section 186 of the Act i.e. 60% of its paid-up share capital, free, reserves and securities premium account or 100% of its free reserves and securities premium account whichever is, more , investment or loan can be made or guarantee can be given or security can be provided only with the previous, authorisation by a special resolution passed in a general meeting. [Section 186(3)], Where a loan or guarantee is given or where a security has been provided by a company to its wholly owned, subsidiary company or a joint venture company, or acquisition is made by a holding company, by way of subscription,, purchase or otherwise of, the securities of its wholly owned subsidiary company, the requirement of section 186(3), of the Act shall not apply i.e. prior special resolution is not required.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 411, , A resolution passed at a general meeting in terms of sub-section (3) of section 186 to give any loan or guarantee or, investment or providing any security or the acquisition under sub-section (2) of section 186 shall specify the total, amount up to which the Board of Directors are authorized to give such loan or guarantee, to provide such security, or make such acquisition., , Limit of Approvals:, , With Member Approval, •, , No Limit has been provided in the Companies Act, 2013 to grant Loan, provide Guarantee or Security, if, approval of members has been obtained by Special Resolution., , •, , Upto 60% of its Paid-Up share capital +Free Reserves +Securities Premium Account or 100% of Free, Reserves +Securities Premium Account, whichever is more, , Without Member Approval (Board of Director), , As per Section 186(6), no company, which is registered under section 12 of the Securities and Exchange Board of, India Act, 1992 (SEBI Act) and covered under such class or classes of companies which is notified by the Central, Government in consultation with the Securities and Exchange Board, shall take inter-corporate loan or deposits in, excess of the limits specified under the regulations applicable to such company, pursuant to which it has obtained, certificate of registration from the Securities and Exchange Board of India and such company shall furnish in its, financial statement the details of such loan or deposits., Pursuant to the above provisions no stock broker, sub-broker, share transfer agent, banker to issue, Registrar to, an issue, Merchant Baker, underwriter, portfolio manager, investment advisor or any intermediary associated with, capital market and which is registered under section 12 of the SEBI Act, shall make loans or investments or give, guarantees or provide security in excess of the limits specified above [Rule 11 of the Companies (Meetings of Board, and its Powers) Rules, 2014]., , Disclosure in Financial Statements [Section 186(4)], , The company shall disclose to the members in the financial statement the full particulars of the loans given,, investment made or guarantee given or security provided and the purpose for which the loan or guarantee or, security is proposed to be utilised by the recipient of the loan or guarantee or security. Such disclosure has to be in, the Board’s Report also., , Prior Approval of Financial Institution [Section 186(5)], , The company has to obtain prior approval of the public financial institution concerned where any term loan is, subsisting. Section 186(5) of the Act provides that no investment shall be made or loan or guarantee or security, given by the company unless the resolution sanctioning it is passed at a meeting of the Board with the consent of all, the directors present at the meeting and the prior approval of the public financial institution concerned where any, term loan is subsisting, is obtained., , However, the prior approval of Public Financial Institution shall not be required where the aggregate of loans and, investments so far made, the amounts for which guarantee or security so far provided to or in all other bodies, corporate, along with the investments, loans, guarantee or security proposed to be made or given does not exceed, the limit as specified in sub-section (2) of Section 186 of the Act and there is no default in repayment of loan, installments or payment of interest thereon as per the terms and conditions of such loan to the public financial, institution [Proviso Section 186(5)]., , Rate of Interest [Section 186(7)], , Loan given under this section shall carry the rate of interest not lower than the prevailing yield of one year, three, year, five year or ten year Government Security closest to the tenor of the loan.
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412, , , , Lesson 10 • EP-CL, , In case of section 8 companies, section 186 (7) of the Act, following proviso shall be applicable:-, , Provided that nothing contained in this sub-section shall apply to a company in which twenty-six per cent. or, more of the paid-up share capital is held by the Central Government or one or more State Governments or both,, in respect of loans provided by such company for funding Industrial Research and Development projects in, furtherance of its objects as stated in its memorandum of association.” (Notification dated 13-06-2017), , Default subsists with respect to repayment of deposits [Section 186(8)], , No company, which is in default in repayment of any deposits accepted before or after the commencement of the, Companies Act, 2013 or in payment of interest thereon, shall give any loan or give any guarantee, or provide any, security or make an acquisition till such default is subsisting., , This prohibition will operate in respect of any default made under Section 73 to 76 of the Act and the Rules made, thereunder and not only on the default of repayment of deposit or payment of interest thereon., , Register of Loans Made, Guarantees Given, Securities Provided and Investments Made, , Sub-section (9) of section 186 of the Act, provides that every company giving loan or giving a guarantee or providing, security or making an acquisition under this section shall keep a register which shall contain such particulars and, shall be maintained in manner prescribed under Rule 12 of the Companies (Meetings of Boards and its Powers), Rules, 2014., Rule 12 states that every company giving loan or giving guarantee or providing security or making an acquisition of, securities shall, from the date of its incorporation, maintain a register in Form MBP 2 and enter therein separately,, the particulars of loans and guarantees given, securities provided and acquisitions made as aforesaid., , The entries in the register shall be made chronologically in respect of each such transaction within seven days of, making such loan or giving guarantee or providing security or making acquisition., The register shall be kept at the registered office of the company and the register shall be preserved permanently, and shall be kept in the custody of the Company Secretary of the company or any other person authorised by, the Board for the purpose. The entries in the register (either manual or electronic) shall be authenticated by the, Company Secretary of the company or by any other person authorised by the Board for the purpose. The register, can be maintained either manually or in electronic mode., The extracts from the register maintained may be furnished to any member of the company on payment of such fee, as may be prescribed in the Articles of the company which shall not exceed ten rupees for each page., , NON APPLICABILITY OF SECTION 186, , Exemptions, Sub-section (11) of section 186 of the Act, provides that nothing contained in section 186, except sub-section of, Section 186, shall apply –, (a), , to any loan made, any guarantee given or any security provided or any investment made by a banking, company, or an insurance company, or a housing finance company in the ordinary course of its business, or a, company established with the object of and engaged in the business of financing industrial enterprises, or of, providing infrastructural facilities;, the expression “business of financing industrial enterprises” shall include, with regard to a Non-Banking Financial, Company registered with Reserve Bank of India, “business of giving of any loan to a person or providing any, guaranty or security for due repayment of any loan availed by any person in the ordinary course of its business”., , (b), , to any investment –, , (i), , (ii), , made by an investment company;, , made in shares allotted in pursuance of clause (a) of sub-section (1) of section 62 or in shares allotted, in pursuance of rights issues made by a body corporate;
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , (iii), , 413, , made, in respect of investment or lending activities, by a non-banking financial company registered, under Chapter IIIB of the Reserve Bank of India Act, 1934 and whose principal business is acquisition, of securities., , Exemption from Applicability of Section 186 to Government Company, , In view of the Central Government’s notification dated 5th June 2015 under Section 462 of the Companies Act,, 2013, Section 186 shall not apply to:, (a), , (b), , a Government company engaged in defence production;, , a Government company, other than a listed company, in case such company obtains approval of the Ministry, or Department of the Central Government which is administratively in charge of the company, or, as the case, may be, the State Government before making any loan or giving any guarantee or providing any security or, making any investment under the section., , Note: Except the government companies falling under the above mentioned conditions, all other companies are, required to comply with the provisions of Section 186. In cases where there is no share capital, computation shall, be based upon the free reserves of the company, if any., , Exemption from Applicability of Section 186 to Specified IFSC Companies, , •, , In case of Specified IFSC Public Company - In Sub-section (5) of section 186 after the proviso, the following, proviso shall be inserted -, , •, , In case of Specified IFSC Public Company - In Sub-sections (2) and (3) of section 186 shall not apply if a, company passes a resolution either at meeting of the Board of Directors or by circulation. - Notification Date, 4th January, 2017., In case of Specified IFSC Public Company/Private Company - Sub-section (1) of section 186 shall not apply., -Notification Date 4th January, 2017., , •, •, •, , “Provided further that in case of a Specified IFSC public company, the Board can exercise powers under this, sub-section by means of resolutions passed at meetings of the Board of Directors or through resolutions, passed by circulation.” - Notification Date 4th January, 2017., , In case of Specified IFSC Private Company - In Sub-sections (2) and (3) of section 186 shall not apply if a, company passes a resolution either at meeting of the Board of Directors or by circulation. -Notification Date, 4th January, 2017., In case of Specified IFSC Private Company - In Sub-section (5) of section 186 after the proviso, the following, proviso has been inserted -, , “Provided further that in case of a Specified IFSC public company, the Board can exercise powers under this, sub-section by means of resolutions passed at meetings of the Board of Directors or through resolutions, passed by circulation.” -Notification Date 4th January, 2017., , Penalty for Contravention of Section 186, For Company:, , If a company contravenes the provisions of this section, the company shall be punishable with fine which shall not, be less than twenty-five thousand rupees but which may extend to five lakh rupees; and, For Officers:, , Every officer of the company who is in default shall be punishable with imprisonment for a term which may extend, to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one, lakh rupees [Section 186(13)].
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414, , , , Lesson 10 • EP-CL, , Practical Questions on Inter-Corporate Loans and Investments:, Illustration 01:, The Board of Directors of ABC Ltd. has agreed in principle to grant loan of Rs. 6 crores to XYZ Ltd.:, ABC Ltd. has provided the following information:, Authorised Share Capital: Rs.15 crores, Paid up Share Capital: Rs.10 crores, Free Reserves: Rs.4 crores, , Securities Premium Account: Rs.1 crore, , ABC Ltd. has already given loan of Rs.3 crores to another company namely PQR Ltd. and has made investment of, Rs.2 crores in the shares of other companies. What advice would you give to the Board of Directors of ABC Ltd., about the proposed loan to XYZ Ltd. in the light of provisions of the Companies Act, 2013 and the rules made, thereunder?, , Illustration 02:, , If A Ltd. makes an investment in B Ltd. and further B Ltd. makes an investment in X, which is a Limited Liability, Partnership. Whereas X, LLP holds shares of Y Ltd. Is there any violation of Section 186 of the Companies Act,, 2013 ?, , Illustration 03:, , P Ltd. wants to make investment in Q Ltd. P Ltd. has the paid-up capital of Rs. 2,00,000 and free reserves of Rs., 50,000. Explain the maximum investment it can make ?, , Illustration 04:, , Section 186 and Sec. 185 dealing with loans and investments by companies speak about loan given to directors, and employees and not about any investment made by one corporate body in another. Referring to the provisions, of the Companies Act, 2013 validate the above statement., , Illustration 05:, , Investa India Ltd has Rs. 20,000 crore as paid up share capital with Rs. 2,000 crores as free reserves. It has, Rs. 1,000 crores in its securities premium account. It has made a loan to Investa LLP of Rs. 13,000 crore without, taking any approval. Advise the company whether the approvals are required for giving loans to this LLP? If yes,, explain relevant provisions of the Companies Act, 2013. What would be your answer if Investa India Ltd. is a, Government Company?, , INVESTMENTS TO BE HELD IN COMPANY’S OWN NAME, According to Sub-section (1) of Section 187 of the Act, all investments made or held by a company in any property,, security or other asset shall be made and held by it in its own name., , The requirement that the investment made by the company must be held in its own name is confined to only those, investments which are made by it on its own behalf and not on behalf of someone else. In a case where the company, is a trustee, the investment is supposed to be made on behalf of the beneficiaries of the trust and not on its own, behalf. Therefore, the investments by the company as a trustee and held in the name of the beneficiaries is allowed., As per proviso to section 187(1) of the Act, the company may hold any shares in its subsidiary company in the name, of any nominee or nominees of the company, if it is necessary to do so, to ensure that the number of members of the, subsidiary company is not reduced below the statutory limit., Where the shares of a company were registered in the joint names of the company and one of its directors, it was
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 415, , held that the director was a nominee of the company for that purpose and could only act jointly as he had no rights, of his own. [Exchange Travel (Holdings) Ltd. Re, (1991) BCLC 728 (Ch D)]., , Exemptions from applicability of Section 187(1), , 1., , In terms of the provisions of Section 187(2), Section 187(1) of the Act, does not prevent a company:, , (a), , from depositing with the bank, being the bankers of the company, any shares or securities for the, collection of any dividend or interest payable thereon; or, , (c), , from depositing with, or transferring to, any person any shares or securities, by way of security for the, re-payment of any loan advanced to the company or the performance of any obligation undertaken by, it., , (b), , (d), , from depositing with or transferring to, or holding in the name of, the State Bank of India or a scheduled, bank, being the bankers of the company, shares or securities, in order to facilitate the transfer thereof., However, if within a period of 6 months from the date on which the shares or securities are transferred, by the company to, or are first held by the company in the name of, the State Bank of India or a scheduled, bank as aforesaid, no transfer of such shares or securities takes place, the company shall, as soon as, practicable, after the expiry of that period, have the shares or securities re-transferred to it from the, State Bank of India or the scheduled bank or, as the case may be, again hold the shares or securities in, its own name; or, from holding investments in the name of a depository when such investments are in the form of, securities held by the company as a beneficial owner., , Thus, it is not necessary for the company to hold the shares or stocks or debentures in its own name if they are, deposited with the bank as aforesaid. A resolution of the Board of directors in this behalf is sufficient. The bank is, entitled to have the shares or debentures registered in its own name with the specific purpose of collecting dividend, or interest from the company whose shares or debentures are deposited with the bank. The company holding the, investment in the name of the bank is only required to enter into a separate agreement with the bank that the latter, will collect dividend and interest and credit the company with the amounts so collected. It may be noted that the, deposit of shares, stocks and debentures with the bank need not be by way of a pledge but may be made for the, specific object of enabling the banker to act as agent of the company to collect dividend and interest., , REGISTER OF INVESTMENTS NOT HELD IN COMPANY’S OWN NAME, , According to sub-section (3) of section 187 of the Act, where in pursuance of clause (d) of sub-section (2) of section, 187 any shares or securities in which investments have been made by a company are not held by it in its own name,, the company shall maintain a register which shall contain such particulars as may be prescribed and such register, shall be open to inspection by any member or debenture-holder of the company without any charge during business, hours subject to such reasonable restrictions as the company may by its articles or in general meeting impose., Therefore, a company is only required to maintain a register for securities not held in the name of the company,, when the investments are held in the name of a depository., Accordingly, when any shares or securities in which investments have been made by a company are not held by, it in its own name as a beneficial owner when such investments are held in the name of a depository pursuant to, Section 187(2)(d) of the Act, the company shall forthwith enter in a register maintained by it for the purpose, the, prescribed particulars., , Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014, , Rule 14 of the Companies (Meetings of Board and its Powers) Rules, 2014 states the following:, (1), , Every company shall, from the date of its registration, maintain a register in Form MBP-3 and enter therein,, chronologically, the particulars of investments in shares or other securities beneficially held by the company, but which are not held in its own name and the company shall also record the reasons for not holding the, investments in its own name and the relationship or contract under which the investment is held in the name, of any other person.
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416, , , , Lesson 10 • EP-CL, , (2), , The company shall also record whether such investments are held in a third party’s name for the time being, or otherwise., , (4), , The entries in the register shall be authenticated by the company secretary of the company or by any other, person authorised by the Board for the purpose., , (3) The register shall be maintained at the registered office of the company. The register shall be preserved, permanently and shall be kept in the custody of the company secretary of the company or if there is no, company secretary, any director or any other officer authorised by the Board for the purpose., Let us Remember, , The company has to maintain register of loans, investments in Form MBP-2 and register of Investment beneficially, held by the company but not held in the name of the company in MBP-3., , Punishment, According to section 187(4) of the Act, if a company is in default in complying with the provisions of this section,, the company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall, be liable to a penalty of fifty thousand rupees., , RELATED PARTY TRANSACTIONS, , Under the Companies Act, 2013, the scope and coverage of related party transactions has been made more complex, and intricate. Besides strict procedural compliances have been foisted., According to Section 2(76) of Companies Act 2013, “related party”, with reference to a company, means—, (i), (ii), (iii), (iv), (v), (vi), , a director or his relative;, a key managerial personnel or his relative;, a firm, in which a director, manager or his relative is a partner;, a private company in which a director or manager or his relative is a member or director;, a public company in which a director or manager is a director and holds along with his relatives, more than, two per cent (2%) of its paid-up share capital;, 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 holding, subsidiary or an associate company of such company ;, •, a subsidiary of a holding company to which it is also a subsidiary; or, •, 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), , (According to Notification no. GSR 464(E), dated 05/06/2015 in case of Private Companies Section 2(76) Subclause viii shall not apply with respect to section 188.), such other person as may be prescribed., , Related Party:, , According to Rule 3 of the Companies (Specification of Definitions Details) Rules, 2014 for the purposes of subclause (ix) of clause (76) of section 2 of the Act, a director other than independent director or key managerial, personnel of the holding company or his relative with reference to a company, shall be deemed to be a related party.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 417, , List of relatives in terms of Section 2(77), , Relative means anyone who is related to another if(1), (2), (3), , they are members of Hindu Undivided Family;, they are husband and wife; or, one person is related to other in accordance with Rule 4 of the Companies (Specification of Definitions, Details) Rules, 2014., A person shall be deemed to be the relative of another, if he or she is related to another in the following manner,, namely(1), , Father: Provided that the term “Father” includes step-father., , (4), , Son’s wife, , (2), (3), (5), (6), (7), (8), , Mother: Provided that the term “Mother” includes the step-mother., Son: Provided that the term “Son” includes the step-son., Daughter, , Daughter’s husband, , Brother: Provided that the term “Brother” includes the step-brother;, Sister: Provided that the term “Sister” includes the step-sister., , Nature of Related Party Transactions, , The scope of dealing with Related Party Transactions has been widened in Companies Act, 2013. Section 188 of the, Act provides that except with the consent of the Board of Directors given by a resolution at a meeting of the Board, and subject to such conditions as prescribed under Rule 15 of the Companies (Meetings of Board and its Powers), Rules, 2014, no company shall enter into any contract or arrangement with a related party with respect to –, (i), , sale, purchase or supply of any goods or materials;, , (iv), , availing or rendering of any services;, , (ii), , (iii), (v), , (vi), , selling or otherwise disposing of, or buying, property of any kind;, leasing of property of any kind;, , appointment of any agent for purchase or sale of goods, materials, services or property;, , such related party’s appointment to any office or place of profit in the company, its subsidiary company or, associate company; and, (vii) underwriting the subscription of any securities or derivatives thereof, of the company., However, such approval by the Board of Directors will not be required for transactions entered in the ordinary, course of business and on an arm’s length basis. In other words, approval of the Board of Directors will only be, required for related party transactions which are either not in the ordinary course of business or not on an arm’s, length basis., The approval of the Board of Directors cannot be obtained by way of passing of resolution by circulation. The law, specifically requires that resolution can be passed in a duly convened meeting of the Board of Directors and only, thereafter contract or arrangement can be entered into., , Information to the Board for Related Party Transactions, Rule 15 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides that a company shall enter into, any contract or arrangement with a related party subject to the following conditions, namely:(1), , The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-, , (a), , (b), (c), , the name of the related party and nature of relationship;, , the nature, duration of the contract and particulars of the contract or arrangement;, the material terms of the contract or arrangement including the value, if any;
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418, , (d), , any advance paid or received for the contract or arrangement, if any;, , (f), , whether all factors relevant to the contract have been considered, if not, the details of factors not, considered with the rationale for not considering those factors; and, , (e), , (2), , Lesson 10 • EP-CL, , , , (g), , the manner of determining the pricing and other commercial terms, both included as part of contract, and not considered as part of the contract;, , any other information relevant or important for the Board to take a decision on the proposed, transaction., Where any director is interested in any contract or arrangement with a related party, such director shall not, be present at the meeting during discussions on the subject matter of the resolution relating to such contract, or arrangement., , Prior Approval of the Company by a Resolution, , First Proviso to the Section 188 (1) of the Act provides that no contract or arrangement, in the case of a company, having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as prescribed,, shall be entered into except with the prior approval of the company by a resolution., Rule 15 of the Companies (Meetings of board and its Powers) Rules, 2014 provides that except with the prior, approval of the company by a resolution, a company shall not enter into a transaction or transactions, where the, transaction or transactions to be entered into,(a) as contracts or arrangements with respect to clauses (a) to (e) of sub-section (1) of section 188, with criteria, as mentioned below-, , Particular, , Threshold, , Sale, purchase or supply of any goods or materials, directly Transaction value ≥ 10% of annual turnover, or through appointment of agent, Selling or otherwise disposing of, or buying, property of any Transaction value ≥ 10% of net worth, kind, directly or through appointment of agent, Leasing of property of any kind, , Transaction value ≥ 10% of annual turnover, , Availing or rendering of any services, directly or through Transaction value ≥ 10% of annual turnover, appointment of agent, Appointment to any office or place of profit in the company, Monthly remuneration > Rs. 2.50 lakh, its subsidiary company or associate company, Remuneration for underwriting the subscription of any Transaction value > 1% of net worth, securities or derivatives thereof, , The limits specified in sub-clause (i) to (iv) shall apply for transaction or transactions to be entered into either, individually or taken together with the previous transactions during a financial year., The turnover or net worth referred in the above sub-rules shall be computed on the basis of the audited financial, statements of the preceding financial year., Exceptions: The requirement of passing the resolution shall not be applicable for transactions entered into between, a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding company, and placed before the shareholders at the general meeting for approval., In case of wholly owned subsidiary, if the resolution is passed by the holding company, it shall be sufficient for the, purpose of entering into the transaction between the wholly owned subsidiary and the holding company., , Information to be provided: The explanatory statement to be annexed to the notice of a general meeting convened, pursuant to section 101 shall contain the following particulars, namely:(a), , (b), , name of the related party;, , name of the director or key managerial personnel who is related, if any;
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , (c), , (d), (e), , 419, , nature of relationship;, , nature, material terms, monetary value and particulars of the contract or arrangements;, , any other information relevant or important for the members to take a decision on the proposed resolution., Approval Process of Related Party Transactions, , Under the Companies Act, 2013, All Companies*, , All transaction – Audit, Committee approval, (if applicable), , Transactions, under section, 188, not in the, ordinary course, of business /, not at arm’s, length basis, Board’s, approval, required, , Transactions, under section, 188, in the, ordinary course, of business and, at arm’s length, basis, , No approval of, Board and members, required, , Under the SEBI (LODR) Regulations, 2015, , Exemption, unlisted, public, companies., i.e. which are, wholly owned, subsidiaries,, joint ventures,, dormant, companies, from, constitution, of Audit, committee, , Approval of members at general meeting by, ordinary resolution if the thresholds under, Rule 15(3) are exceeded (Related Parties, cannot vote, except where ninety percent or, more members are relatives or promoters, or relatives of related parties, exemption to, wholly owned subsidiary), , Listed Companies*, , All transaction, (with or without, Consideration)-audit, committee approval, , Material, transaction, (exceeding, 10 % of, annual, consolidated, turnover), , Not material, transaction s, No, further, approval, required, , Approval of members, at general meeting by, ordinary resolution, (related parties cannot, vote to approve, irrespective of whether, entity is a related party to, the transaction or not), , [* Except Transactions between the Holding Company and its wholly owned subsidiary (WOS)], Source: ICSI Guidance note on RPT, , Issue: Will the requirement of passing a shareholder’s resolution not be applicable for transactions entered, into between a Holding company and its wholly owned subsidiary whose accounts are consolidated with, such holding company and placed for approval before the shareholders at the general meeting of the Holding, company?, View: Yes, the fifth proviso to Section 188(1) provides that the requirement of passing the resolution under, the first proviso of section (1) of Section 188 shall not be applicable for transactions entered into between, a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding, company and placed before the shareholders at the general meeting for approval., , It is pertinent to observe that explanation (2) to Rule 15 of the Companies (Meetings of Board and its Powers), Rules, 2014 provides that in case of a wholly owned subsidiary, the resolution that is passed by the holding, company would be sufficient for the purpose of entering into the transaction between the wholly owned, subsidiary and the holding company., This will mean that in case the fifth proviso to Section 188(1) is not available to a company as the accounts are, not so consolidated, then as per explanation (2) to Rule 15 a resolution passed by the holding company will, be sufficient.
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420, , , , Related Party not to Vote on Resolution, , Lesson 10 • EP-CL, , Second Proviso to Section 188 (1) of the Act provides that no member of the company shall vote on such resolution,, to approve any contract or arrangement which may be entered into by the company, if such member is a related, party., This shall not apply to a company in which ninety per cent. or more members, in number, are relatives of promoters, or are related parties., The Ministry of Corporate Affairs, vide their Circular No. 30/2014 dated 17th July, 2014 has clarified that “ the, related party, if he is a member of the Company, shall not take part in the voting on Resolution – second proviso, of Section 188 (1). It is clarified that ‘related party ‘referred to in the second proviso has to be construed with, reference only to the contract or arrangement for which the said resolution is being passed., Thus, the term ‘related party’ in the above context refers only to such related party as may be a related party in, the context of the contract or arrangement for which the said resolution is being passed., •, •, , Exemption to Private Companies: In case of private companies second proviso to Section 188(1) of the Act,, shall not apply (Notification No. GSR 464(E) dated5-6-2015)., , Exemption to Government Companies: In case of Government companies above mentioned Second Proviso, to the section 188 (1) of the Act shall not apply to -, , (a), , (b), , A Government company in respect of contracts or arrangements entered into by it with any other, Government company or with Central Government or any State Government or any combination, thereof;, , A Government company other than a listed company, in respect of contracts or arrangements other than, those referred to in clause (a), in case such company obtains approval of the Ministry or Department of, the Central Government which is administratively in charge of the company, or, as the case may be the, State Government before entering into such contract or arrangement., (Notification No. GSR 463(E) dated 5-6-2015) further amended by (Notification No: G.S.R. 151(E) dated, 02nd March, 2020)., , •, , Exemptions to Specified IFSC Public Company : Second proviso to sub section (1) of section 188 shall not, apply, In case of Specified IFSC Public Company., , By virtue of MCA Notifications dated, 13th June, 2017, the exemption from applicability of the Second Proviso to, Section 188 (1) of the Companies Act is available only to those private and Government companies who have not, committed a default in filing of their financial statements under Section 137 or Section 92 of the Companies Act,, 2013., Meaning of Ordinary Course of Business, , Non Applicability of Section 188(1), Section 188(1) of the Act shall not apply to any transactions entered into by the company in its ordinary course of, business other than transactions which are not on an arm’s length basis., Meaning of Ordinary Course of Business: The phrase “in the ordinary course of business” has been used in, various places under the Act for example under Sections 67, 179, 180, 185, 186, 188 etc. and predominantly, it is, used in the context of related party/ related party transactions. Generally “in the ordinary course of business” is, understood as the ordinary course of business which will cover the usual transactions, customs and practices of a, business and of a company., Whether a particular act is done in the course of business or not is really a question of fact and must be determined, according to the evidence led and the circumstances of the case. It must be found as to whether the particular act, has any connection with the normal business that the company is carrying on and whether it is so related to the, business of the company that it can be considered to be performed in the ordinary course of the business of that, company. Seksaria Biswan Sugar Factory Ltd. vs. Commissioner of Income-tax, (Central) Bombay (1950) 18 ITR 139, (Bom): AIR 1950 Bom 200]
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 421, , In Unisys Corporation vs. Hercules Incorporated et al., 24 A.D.2d 365 (1996) : 638 N.Y.S 2d 461, the Appellate Division, of the Supreme Court of the State of New York has held the meaning of the phrase, “ in the ordinary course of, business”, as follows:, “Something which is done as a matter of corporate historical practice is, as a matter of law, done “in the ordinary, course of business”., In the case of M/s Bharti Televentures Ltd. vs. Addl./Jt. Commissioner of income Tax, it was held that the Memorandum, and Articles of Association is not conclusive for deciding whether an activity is in the ordinary course of business, of the company. Frequency of the activity is sought to be highlighted. It should be a continuous activity carried out, in a normal organised manner., Issue: Who determines that the transaction with related party is in the ordinary course of business? Is, it the Board or the Audit Committee?, View: The Companies Act, 2013 does not clearly lay down tests for determining whether a transaction is in the, ordinary course of business., , The Memorandum of Association of the company should be referred to for ascertaining whether the activity, is covered in the objects clause therein. This is not a conclusive test but will assist in determining whether a, transaction is in the ordinary course of business or not. The Audit Committee may decide whether a particular, transaction is in the ordinary course of business and such decision will be based on the policy on transactions, with related parties, if any. The company’s policy on transactions with related parties should specify the, parameters to guide the Audit Committee on whether a transaction is in the ordinary course of business or, not. Apart from such a policy, a company may formulate guidelines approved by the Audit Committee and the, Board of Directors on transactions with related parties. In such cases, the company can enter into transactions, based on the approved guidelines and every transaction need not be placed before the Audit Committee for, determining whether the same is in the ordinary course of business or not. In case the company does not have, an Audit Committee, the decision as to whether a transaction is in the ordinary course of business or not will, be taken by the Board., , Meaning of arm’s length transaction, , As per the explanation (2) to Section 188(1) of the Act, the expression “arm’s length transaction” means a transaction, between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest., , The phrase ‘on an arm’s length basis’ is in fact ‘at arm’s length’ or ‘an arm’s length relationship’ which means, avoiding intimacy or close contact. The phrase ‘at arm’s length’ in relation to dealings between two parties is used, to refer to dealings when neither party is controlled by the other., , Arm’s length is the condition or fact that the parties to a transaction are independent and on an equal footing. Arm’s, length transaction is a transaction between unrelated persons or organizations, in which there is no improper, influence exercisable by one party over another, and no conflict of interests of or relating to dealings between two, parties who are not related or not on close terms and who are presumed to have roughly equal bargaining power;, not involving a confidential relationship. Parties are said to deal at “arm’s length” when they conduct the business, without being subject to the other’s control or overmastering influence., , An arm’s length transaction is a transaction between companies or people that do not have close contact or any, financial connections and be or deal at arm’s length means without a close relationship with a person or a company., The burden to establish that a transaction was at arm’s length would be on the company and there must be sufficient, and pertinent material to prove that the terms of the transaction with a related party were purely commercial and, the same as in the case of a transaction between the company and a non-related party and there were no extracommercial considerations. The company should create and preserve appropriate and adequate documentation, indicating that the transaction is an arm’s length one, particularly with regard to price and terms of supply (such as, credit, discount, etc). In my opinion, comparable prices of the competitor’s goods are not necessary to be ascertained, but what is necessary is prices charged to other customers (if there is any)., The requirement of passing the resolution under first proviso shall not be applicable for transactions entered into, between a holding company and its wholly owned subsidiary whose accounts are consolidated with such holding, company and placed before the shareholders at the general meeting for approval.
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422, , , , Lesson 10 • EP-CL, , A Three Member Bench of Income Tax Appellate Tribunal, in the case of IndusInd Bank v. Addl. Commissioner, of Income Tax, has defined “arms length transaction” in the following words. ‘The amount for which an asset could, be exchanged between a knowledgeable, willing buyer and a knowledgeable, willing seller in an arm’s length, transaction.’, , In the case of IIgin Automotive Private Limited vs. Asst. Commissioner of Income Tax (2011), the Court opined that, “the determination of ‘arm’s length price’ seeks answer to the question – What would have been the price if the, transactions were between two unrelated parties, similarly placed as the related parties in so far as nature of, product, and terms and conditions of the transactions are concerned?”, The Bangalore Bench of the Income Tax Appellate Tribunal in the case of Filtrex Technologies Pvt. Ltd. vs. Asst., Commissioner of Income Tax held that acceptance of arm’s length price declared by one party cannot preclude the, Revenue from examining arm’s length price in the hands of the other party to the same transaction., Illustration: Suppose company A Ltd. sells a product in the market for Rs. 400 per unit and it also sells the, same to its associate company B Ltd. for Rs. 400 per unit and on the same terms of contract as with other, parties. Here, the price charged from the associate company and others is the same and the transaction, between A Ltd. and B Ltd. is governed by market forces and, therefore, is on arm’s length basis., , Office or Place of Profit, , As per Explanation to Sub-Section (i) of Section 188 the expression “office or place of profit” means any office or, place where such office or place is held by:, (i), , (ii), , a director, if the director holding it receives from the company anything by way of remuneration over and, above the remuneration to which he is entitled as director, by way of salary, fee, commission, perquisites, any, rent-free accommodation, or otherwise;, , 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 receives from the company anything by way of, remuneration, salary, fee, commission, perquisites, any rent-free accommodation, or otherwise., , For example, in case of a transaction with respect to remuneration of a director, it will be considered to be on an, arm’s length basis if the director gets remuneration in accordance with the provisions of Section 197 read with, Schedule V of the Act., In Firestone Tyre & Rubber Co. vs. Synthetics & Chemicals Ltd., the Hon’ble Bombay High Court held that ‘the object, underlying Section 314 of the 1956 Act (corresponding to Section 188 of the Companies Act, 2013) is to prevent a, director or his relative from holding any office or place of profit carrying a total monthly remuneration beyond the, prescribed limits under the company and thereby put in his pocket, directly or indirectly, additional profit over and, above the remuneration to which he is entitled as such director, without obtaining the requisite permission.’, Illustrations:, a), Mr. A is the managing director in AB Ltd., which is engaged in manufacturing medicines. Mr. A is a qualified, software expert. AB Ltd. after following a due process of tendering engages the services of Mr. A in his, capacity of a software expert and for which an amount of Rs 50 lakh is proposed to be paid. The next, lowest quotation for the proposal is Rs 2 crore., This is a transaction with a related party. This transaction will fall under the proviso to Section 197(4) of, the Act. If the terms and conditions are comparable with those offered by other parties, the transaction, will not be treated as an office or place of profit as covered under Section 188. (Price offered by Mr. A is, certainly far lower than the next lowest quote but the other terms also need to be examined). However,, approval of the Audit Committee will be necessary. Approval of the Nomination & Remuneration, Committee as provided under Section 197of the Act will also be required., b), Mr. X was appointed as the managing director in MNP Ltd. on 1st January 2020. MNP Ltd. is engaged in, manufacturing automobiles. Mr. X holds a few patents in his name since July 2010 and he is requested by MNP, Ltd. for a licence of 5 years of one of the patents for which an amount of Rs 50 lakh is proposed to be paid.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 423, , Although this transaction is with a related party, this transaction will be protected under the proviso to, Section 197(4) of the Act. Section 188(1) of the Act will be attracted if the transaction is not on an arm’s, length basis. This transaction is in the same line of business as that of the company and obtaining a license, of the patent will be in its ordinary course of business. However, approval of the Audit Committee will be, necessary. Approval of the Nomination & Remuneration Committee as provided under Section 197 of the, Act will also be required., , Disclosure in Board’s Report, , Section 188(2) of the Act, provides that every related party contracts or arrangements shall have to be disclosed, in the Board’s report and referred to shareholders along with the justification for entering into such type of, transactions in the prescribed form i.e., Form no. AOC-2 (pursuant to Section 134(3)(h) and Section 188(2))., Form AOC-2 shall be signed by the persons who have signed the Board’s Report., , Consequences of Entering Related Party Contracts or Arrangements by the Director or the Employee, Without the Consent of the Board or Approval by Resolution, •, , Section 188(3) of the Act, provides that where any contract or arrangement is entered into by a director or, any other employee, without obtaining the consent of the Board or approval by a resolution in the general, meeting under sub-section (1) of Section 188 and if it is not ratified by the Board or, as the case may be, by, the shareholders at a meeting within three months from the date on which such contract or arrangement was, entered into, such contract or arrangement shall be voidable at the option of the Board or, as the case may be,, of the shareholders and if the contract or arrangement is with a related party to any director, or is authorised, by any other director, the directors concerned shall indemnify the company against any loss incurred by it., , •, , Section 188(4) of the Act, states that it shall be open to the company to proceed against a director or any, other employee who had entered into such contract or arrangement in contravention of the provisions of this, section for recovery of any loss sustained by it as a result of such contract or arrangement., , •, , A person shall not be entitled to be appointed as a Director by virtue of Section 164(1)(g) of the Companies, Act, 2013 upon such director being convicted of an offence dealing with related party transactions under, Section 188 of the Act at any time during the last preceding five years., , Issue: Will a transaction of payment of salary to an employee who is a relative of a Director, (where such payment, is in the ordinary course of business and on arm’s length) require disclosure as a related party transaction in, the Board’s Report?, View: The same need not be disclosed as a related party transaction in Form AOC-2 in the Board’s Report unless, the same is material in the context of the company’s business., , Issue: Is it required that items falling in the ambit of the fourth proviso to Section 188(1) of the Act i.e., transactions entered into by the company in its ordinary course of business other than transactions which are, not on an arm’s length basis, be mentioned in Form AOC-2?, , View: Form AOC–2 uses the term ‘material’ and therefore if the transactions are material, the same will need, disclosure. A transaction which is in the ordinary course of business and on arm’s length basis but which, is considered to be material will require disclosure in Form AOC–2. It is to be noted that approvals of the, Board and the shareholders are not required if the transaction is in the ordinary course of business and on, arm’s length basis, but disclosure is required from the perspective of transparency., , Penalties for Non Compliance, , Section 188(5) of the Act, provides that any director or any other employee of a company, who had entered into or, authorised the contract or arrangement in violation of the provisions of this section shall, –, (i), , (ii), , in case of listed company, be liable to a penalty of twenty-five lakh rupees. and, In case of any other company, be liable to a penalty of five lakh rupees.
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424, , , , ROLE OF AUDIT COMMITTEE IN RELATED PARTY TRANSACTIONS, , Lesson 10 • EP-CL, , The RPT will first need to be approved by the Audit Committee, if any. In case the company does not have any Audit, Committee, this provision will not apply., , Companies required to constitute Audit Committee, , Every Listed, Company, , Public Companies, having Paid up share, capital of Rs.10, Crore or more, , Public Companies, having turnover of, Rs.100 Crore or more, , Public Companies, which have, in, aggregate, outstanding, loans, debentures and, deposits, exceeding, Rs. 50 Crore, , In terms of Section 177 of the Act, all companies which are required to constitute an Audit Committee, or which, have constituted an Audit Committee voluntarily, would require approval or subsequent ratification of the audit, committee for all transactions with related parties. Subsequent modifications to related party transactions would, also require approval of the Audit Committee., Section 177(4)(iv) of the Companies Act, 2013 provides that the terms of reference of Audit Committee shall include, approval or any subsequent modification of transactions of the company with related parties;, , Provided that the Audit Committee may make omnibus approval for related party transactions proposed to be, entered into by the company subject to such conditions as may be prescribed;, Thus, it is the responsibility of audit committee to approve the transactions of the company with related parties., , As per Rule 6A of the Companies (Meeting of Board and its Powers) Rules, 2014, the audit committee may make, omnibus approval for all related party transactions proposed to be entered into by the company subject to the, following conditions, namely (1), , The Audit Committee shall, after obtaining approval of the Board of Directors, specify the criteria for making, the omnibus approval which shall include the following, namely:-, , (a), , (b), (c), , (d), (2), (3), (4), , (e), , maximum value of the transactions, in aggregate, which can be allowed under the omnibus route in a, year;, the maximum value per transaction which can be allowed;, , extent and manner of disclosures to be made to the Audit Committee at the time of seeking omnibus, approval;, , review, at such intervals as the Audit Committee may deem fit, related party transaction entered into, by the company pursuant to each of the omnibus approval made;, transactions which cannot be subject to the omnibus approval by the Audit Committee., , The Audit Committee shall consider the following factors while specifying the criteria for making omnibus, approval, namely:(a), repetitiveness of the transactions (in past or in future);, (b), justification for the need of omnibus approval., , The Audit Committee shall satisfy itself on the need for omnibus approval for transactions of repetitive nature, and that such approval is in the interest of the company., The omnibus approval shall contain or indicate the following:-, , (a), , (b), , name of the related parties;, , nature and duration of the transaction;
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 425, , (c), , maximum amount of transaction that can be entered into;, , (e), , any other information relevant or important for the Audit Committee to take a decision on the proposed, transaction:, , (d), , the indicative base price or current contracted price and the formula for variation in the price, if any;, and, , Provided that where the need for related party transaction cannot be foreseen and aforesaid details, are not available, audit committee may make omnibus approval for such transactions subject to their, value not exceeding rupees one crore per transaction., , (5), , Omnibus approval shall be valid for a period not exceeding one financial year and shall require fresh approval, after the expiry of such financial year., , (7), , Any other conditions as the Audit Committee may deem fit., , (6), , Omnibus approval shall not be made for transactions in respect of selling or disposing of the undertaking of, the company., , In case any transaction involving any amount not exceeding one crore rupees is entered into by a director or officer, of the company without obtaining the approval of the Audit Committee and it is not ratified by the Audit Committee, within three months from the date of the transaction, such transaction shall be voidable at the option of the Audit, Committee and if the transaction is with a related party to any director or is authorised by any other director, the, director concerned shall indemnify the company against any loss incurred by the company., Issue: Where a Board meeting is held prior to the Audit Committee meeting and the Board approves a transaction, with a related party. Can the Audit Committee approval be taken subsequently?, View: Yes. The legal requirement is clear that the transactions referred to in Section 188 require approval of, the Audit Committee. Audit Committee approval after Board’s approval is irregular but not illegal. Further, the, approval of the Audit Committee should be obtained before the transaction., Issue: Whether approval of the Board will need to be taken by a wholly owned subsidiary which is not required, to constitute an Audit Committee, for entering into transactions with related parties in the ordinary course of, business and on an arm’s length basis?, View: In such case, it is a good practice to place the item pertaining to related party(ies) before the Board. This, is, however, not mandatory., Issue: Where transactions are between a holding company and its wholly owned subsidiary company, will, Section 177 of the Act be attracted?, View: A transaction between a holding company and its wholly owned subsidiary company is exempted from, the requirement of Audit Committee approval under Section 177 of the Act and as per Regulation 23 of the SEBI, (LODR) Regulations in case of a listed company. However, if the transaction is a related party transaction i.e. of, the nature falling under Section 188(1) of the Act, then approval of the Audit Committee will be required for such, transaction., In case of a transaction between a holding company and a subsidiary company which is not a wholly owned, subsidiary, Sections177 and 188 of the Act as well as Regulation 23 of the Listing Regulations will apply., The company is required to check whether it is a transaction in the ordinary course of business and on an arm’s, length basis as per Section 188 of the Act. In case it is a material related party transaction for the purpose of, Regulation 23 of Listing Regulations, then approval of shareholders will also be necessary., Issue: In case of a public company there are three Directors and all are related to each other and there is an item, of business in which all the three directors are interested. What is the way forward in such a situation?, View: The Board may approve such items only if a dis-interested quorum is present. Otherwise, the matter, would need to be placed for approval at a General Meeting. At a general meeting, if 90% or more of the number, of members are related to the promoters or are related parties, then the related parties can also vote on the, resolution to approve any contract or arrangement., In case of a listed public company, the directors need to decide first on the proposed resolution and then the, matter needs to be placed before the shareholders for approval.
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426, , Lesson 10 • EP-CL, , , , Provisions under SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, , Meaning of related party transaction: According to SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 Regulation 2(1) (zc) defines that “related party transaction” means a transfer of resources,, services or obligations between a listed entity and a related party, regardless of whether a price is charged and a, “transaction” with a related party shall be construed to include a single transaction or a group of transactions in a, contract., Provided that this definition shall not be applicable for the units issued by mutual funds which are listed on a, recognised stock exchange(s)., , Meaning of related party: Regulation 2(1)(zb) of SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 defines that “related party” means a related party as defined under sub-section (76) of section 2, of the Companies Act, 2013 or under the applicable accounting standards., Provided that any person or entity belonging to the promoter or promoter group of the listed entity and holding, 20% or more of shareholding in the listed entity shall be deemed to be a related party., , Provided further this definition shall not be applicable for the units issued by mutual fund which are listed on, recognised stock exchange(s)., , According to Regulation 2(1) (zd) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, “relative” means relative as defined under Section 2(77) of the Companies Act, 2013 and rules prescribed there, under., , Provided this definition shall not be applicable for the units issued by mutual fund which are listed on recognised, stock exchange(s)., Provisions to be complied with in case of related party transaction: Regulation 23 of the SEBI (Listing Obligation, and Disclosure Requirements) Regulations, 2015 provides that:, (1), , The listed entity shall formulate a policy on materiality of related party transactions and on dealing with, related party transactions including clear threshold limits duly approved by the board of directors and such, policy shall be reviewed by the board of directors at least once every three years and updated accordingly., , A transaction with a related party shall be considered material if the transaction(s) to be entered into, individually or taken together with previous transactions during a financial year, exceeds ten percent of the, annual consolidated turnover of the listed entity as per the last audited financial statements of the listed, entity., , (2), (3), , With effect from July, 01, 2019 a transaction involving payments made to a related party with respect to, brand usage or royalty shall be considered material if the transaction(s) to be entered into individually or, taken together with previous transactions during a financial year, exceed 5 percent of the annual consolidated, turnover of the listed entity as per the last audited financial statements of the listed entity., , All related party transactions shall require prior approval of the audit committee., , Audit committee may grant omnibus approval for related party transactions proposed to be entered into by, the listed entity subject to the following conditions, namely-, , (a), , (b), (c), , the audit committee shall lay down the criteria for granting the omnibus approval in line with the, policy on related party transactions of the listed entity and such approval shall be applicable in respect, of transactions which are repetitive in nature;, , the audit committee shall satisfy itself regarding the need for such omnibus approval and that such, approval is in the interest of the listed entity;, the omnibus approval shall specify:, (i), , the name(s) of the related party, nature of transaction, period of transaction, maximum amount, of transactions that shall be entered into,
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , (ii), , (iii), , (d), , (4), , (5), , (e), , (7), , the indicative base price / current contracted price and the formula for variation in the price if, any; and, such other conditions as the audit committee may deem fit:, , Provided that where the need for related party transaction cannot be foreseen and aforesaid, details are not available, audit committee may grant omnibus approval for such transactions, subject to their value not exceeding rupees one crore per transaction., , the audit committee shall review, at least on a quarterly basis, the details of related party transactions, entered into by the listed entity pursuant to each of the omnibus approvals given., , Such omnibus approvals shall be valid for a period not exceeding one year and shall require fresh, approvals after the expiry of one year:, , All material related party transactions shall require approval of the shareholders through resolution and “no, related party shall vote to approve” such resolutions whether the entity is a related party to the particular, transaction or not., , Provided that the requirements specified under regulation 23(4) shall not apply in respect of a resolution, plan approved under section 31 of the Insolvency Code, subject to the event being disclosed to the recognized, stock exchanges within one day of the resolution plan being approved;, The provisions of sub-regulations (2), (3) and (4) shall not be applicable in the following cases:, , (a), , (b), (6), , 427, , transactions entered into between two government companies;, , transactions entered into between a holding company and its wholly owned subsidiary whose accounts, are consolidated with such holding company and placed before the shareholders at the general meeting, for approval., , The provisions of regulation 23 of SEBI (LODR) Regulations, 2015 shall be applicable to all prospective, transactions., , For the purpose of regulation 23 of SEBI (LODR) Regulations, 2015, all entities falling under the definition of, related parties shall not vote to approve the relevant transaction irrespective of whether the entity is a party, to the particular transaction or not., , Disclosure as per the SEBI (LODR) Regulation, 2015, (1), , Disclosure in Annual Report- In terms of Schedule V of the Listing Regulations, companies shall make the, required disclosures in their Annual Reports, in compliance with the Accounting Standard on ‘Related Party, Disclosures’. This disclosure shall be applicable to all listed entities except listed banks., , The company shall make disclosure on materially significant related party transactions that may have, potential conflict with the interest of the listed entity in the corporate Governance section of Annual Report., (2), , Further, disclosures of transactions of the listed entity with any person or entity belonging to the promoter/, promoter group which hold(s) 10% or more shareholding in the listed entity. This disclosure shall be in the, format prescribed in the relevant accounting standards for annual results., Disclosure to Stock-Exchange –, (i), (ii), , In terms of Regulation 27(2) of the Listing Regulations, the listed entity shall submit a quarterly, compliance report on corporate governance in the format as specified by the SEBI from time to time to, the recognised stock exchange(s) within 21 days from the end of each quarter, , In terms of Regulation 23(9) of the SEBI (LODR) Regulations, 2015, the listed entity shall submit, within 30 days from the date of publication of its standalone and consolidated financial results for the, half year, disclosures of related party transactions on a consolidated basis, in the format specified in, the relevant accounting standards for annual results to the stock exchanges and publish the same on, its website.
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428, , , , Reporting Requirements, , Lesson 10 • EP-CL, , Authority of reporting, •, •, , By Statutory Auditor- Financial Reporting framework requires adequate disclosure of RPTs to enable users, of financial statements to understand their nature and actual or potential effects in the financial statements., By Secretarial Auditor- The Secretarial Auditor of the Company to provide observations in MR-3 regarding, non- compliances for entering into RPTs., Auditor to ensure compliances and seek for necessary clarification. The Auditor must also keep a check that, such relevant RPTs have been made on arm’s length price., , Case Study, 26.09.2019, , ITC Ltd. (Appellant) vs. Securities and Exchange Board of India & Securities Appellate, Ors.(Respondents), Tribunal, , Related-party transactions only contemplate transactions between a company and related party, Securities Appellate Tribunal (SAT): Coram of Justice Tarun Agarwala, (Presiding Officer), Justice M. T. Joshi (Judicial, Member), and Dr. C. K. G. Nair (Member), dismissed an appeal filed by ITC Ltd. against the proposed sale transaction, of the substantial assets of Hotel Leela ventures Ltd. (Leela) for which the impugned Postal Ballot Notice (PB Notice), was issued and allowed the appeal filed by JM Financial Asset Reconstruction Co. Ltd. (JMF ARC)., Fact of the Case, , “Leela” under financial distress, had decided to restructure its debts under the Corporate Debt Restructuring (CDR), mechanism. The majority lender institutes agreed for the same. On 20-09-2012 the CDR package of Leela was, approved. Thereafter, a Master Restructuring Agreement was executed on 25-09 2012 between Leela and State, Bank of India (SBI) and other lenders on the other hand. Under the said Master Restructuring Agreement, Leela was, to comply with certain terms and conditions, which it could not., Thereafter, on 25-06-2014, a Trusteeship Agreement under the SARFAESI Act was executed between JMF ARC and, the lenders under which a Trust was created named as JMF ARC-Hotels June 2014-Trust. This Trust had issued, security receipts to these Joint Lenders and also offer documents were issued for the private placement of the said, receipts. Eventually, the CDR package was declared as failed and on 30-06-2014, majority lenders had assigned, Rs.4150.14 crore of debt to the Trust. JMF ARC paid Rs.865 crores upfront and issued security receipt worth Rs.3200, crores. It filed disclosures under Regulation 29(2) of the Takeover Regulations on 25-10-2017. JMF ARC later filed, a corporate insolvency resolution process before the National Company Law Tribunal Mumbai Bench (NCLT), the, proceedings for which are pending., , Due to initiative of JMF ARC, a proposal was received from Brookfield for the “Asset Sale Transaction” of the, Company’s assets and the additional transactions between Brookfield and some of the promoters. On 18-03-2019,, the Board of Directors of Leela approved the framework agreement comprising the Asset Sale Transaction and, PB Notice was issued. On 22-04-2019, the appellant ITC filed a Company Petition before the NCLT complaining of, oppression and mismanagement, which too is pending before the NCLT. ITC argued that they were not allowed to, obtain a copy of the Framework Agreement but could only take notes., ITC objected that all the transactions were related party transactions which could not be generally put for the vote, including the Promoters, Directors being related parties as also JMF ARC. Further, JMF ARC acting as a Merchant, Banker Leela was also to gain a remuneration of Rs 70 cores besides its resolution of debt assigned to it by the, lenders. Further, JMF ARC had acquired 26% of the equity of Leela against the provisions of the Takeover Regulations,, 2011, it should have been prohibited by SEBI from participating in the voting under the provisions of Regulation 32, of the Takeover Regulations., , SEBI had held that the transactions in question were not related party transactions. They stated that in acquiring, 26% of the equity shares of the Leela by JMF ARC, only a technical breach has occurred which could be exempted.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 429, , Aggrieved by this order of not restraining Promoters/Directors of Leela and JMF ARC from voting, ITC filed an, appeal before SAT., , All the respondents submitted that the appellant was a rival company which was trying to scuttle the transaction, only to compel Leela to undergo the debt resolution under the Insolvency and Bankruptcy Code. The appellant, on, the other hand, submitted that the Directors and the Promoters of Respondent Leela were pushing ahead with their, personal agenda of pocketing an amount of Rs 300 crores through the additional transaction., The Tribunal answered the following issues:, •, •, , Whether the disputed transactions were related party transactions limiting the voting rights of the directors,, promoters of the Leela and of JMF ARC?, Whether JMF ARC could be completely prevented from voting in view of the Takeover Regulations?, , Judgment, , The Tribunal was of the view that it was not required of them to asses the proposed transaction to find as to whether, it is in the interest of the investors. In view of objection to the voting rights or limitations on the voting rights of the, directors/promoters of the respondents, the reliefs can be modified in terms of the relevant regulations. The appeal, filed by ITC Ltd. was dismissed by the Tribunal citing the following regulations:, Takeover Regulations:, , In view of the Takeover Regulations of 2011 an acquirer acquiring 25% or more shares, voting rights or control in, a listed Company has to adopt the route as provided by the Takeover Regulations subject to certain exemptions., JMF ARC acquired 26% of the shares of the Company by claiming exemption as provided by Regulation 10 of the, Takeover Regulations. SEBI in the impugned order held that the said acquisition was only a technical breach of the, Regulations fit for exemption and did not exercise its power to issue directions as provided by Regulation 32 of the, Takeover Regulations., Corporate debt restructuring scheme was announced by the Reserve Bank of India through various circulars from, time to time for the purpose of restructuring the debt of financially distressed companies in an attempt to revive, such Companies. The circulars provided a basic framework. Specific plans were to be worked out for a Company, inter alia regarding interest moratorium, plans of payment, etc. to be worked out in the agreement which would be, approved by the Empowered Group of CDR scheme. In the event of default, the agreement can provide for certain, contingencies. Clause 7.2 of the Master Restructuring Agreement provided for remedy upon default. Therefore, the, covenant regarding conversion right would come into picture only when the CDR scheme fails i.e. default is made, by the borrower in pursuance of the CDR scheme., LODR Regulations: Related Party Transactions:, , The appellant had objected the exercise of PB Notice asking all the shareholders including the respondents who are, the promoters/directors of the in view of the fact that the proposed Asset Sale Transaction of the Company with, Brookfield was a composite transaction to be consummated only when additional transactions with the promoters, personally are also agreed. It was submitted that as the nature of the transaction was, the same would be a related, party transaction attracting the provisions of Regulation 23 of the LODR Regulations., Therefore, the entire transaction was held to be a composite transaction. Further, the additional transaction between, Brookfield and ITC cannot also be termed as related party transactions and, therefore, the provisions of Regulation, 23 of the LODR Regulations would not be attracted.
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430, , , , Lesson 10 • EP-CL, , Illustration 1:, Under the Energy Department, Govt. of Tamil Nadu, three Companies as Government Company were incorporated, as below :, A Ltd. for Generation of Electricity, , B Ltd. for Transmission of Electricity, C Ltd. for Distribution of Electricity., , Further, three subsidiaries namely X Ltd., Y Ltd. and Z Ltd. were incorporated as wholly owned subsidiary, companies of C Ltd. C Ltd. purchases the Power (Electricity) from A Ltd. and sale all Power to subsidiary, Companies. Subsidiary Company through B Ltd. distributes the Power in the State., Apart from that, C Ltd. also purchases cables from manufacturer and sells it to Subsidiary Companies with, margin of 5% on sale price. In the power supply, C Ltd. also charge 0.05 paisa per unit as service charge from, Subsidiary Companies., , During the Audit, Auditors raised the question that there are lot of related party transactions and directors and, members are same in all the Companies. Further, Chairman is also common. Neither the Board nor the Members, of the Company approved any transaction which comes under the definition of Related Party Transaction. The, Company Secretary replied that the transactions are pre-approved by Energy Department, Govt. of Tamil Nadu, but Auditor is dissatisfied with this reply., In such situation, check the validity of the transactions between related parties?, Illustration 2:, , The Board of Directors of Zebra Ltd wants to enter into certain supply and service agreements with some of, their related parties and would like to understand the compliance requirement based on the threshold limits, fixed by the Act. Prepare a comprehensive note in this regard?, Illustration 3:, , Dynamic Ltd. (paid-up share capital Rs. 25 Crore) proposes to enter into a contract with Sunil for the procurement, of raw materials for an amount of Rs. 5 Crore during the financial year. Sunil is the step brother (father’s second, wife’s son) of Anil, who is a director of Dynamic Ltd. Discuss the compliance requirements in respect of the, above procurement contract., Illustration 4:, , Explaining the meaning of the term 'related party' in relation to a company under the provisions of the Companies, Act, 2013, decide whether the following shall be treated as 'related party':, (i), , (ii), , Kamal, a director of Deep Ltd. holds 170 shares in the company's paid-up share capital., , Fair Ltd. is an associate company of Mohan Ltd. Also explain whether a company can enter into a contract, with a related party' for leasing of the company's property and also for sale of any goods produced by the, company., , Illustration 5:, , Does the acceptance of deposits by a public limited company from its director attract compliance of any of the, provisions of section 188?, Illustration 6:, , “No company shall enter into any contract or arrangement with a related party.” Examine the validity of the statement.
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , 431, , LESSON ROUND-UP, •, , ‘Investments’ has been used in a limited sense in the lesson to mean the investing of money in shares,, stock, debentures or other securities., , •, , The provisions for restrictions on investments and loans by companies would also apply to Section 8, companies and guarantee companies not having a share capital., , •, , •, •, •, •, •, •, •, , The power to invest the funds of the company is the prerogative of the Board of Directors. However,, the Board must not misuse its powers. The Companies Act, 2013 contains provisions for restrictions on, investments that a company can make and loans it can provide. Restrictions are also placed on the guarantees, which the company can give or security it can provide for a loan., Approvals for making investments and loans would have to be taken in accordance with the specific, provisions of the Companies Act. A blanket approval of the shareholders for the purpose would not suffice., The Companies Act provides for the particulars to be provided in the register of loans made, guarantees, given, securities provided and investments made and the manner in which it is to be kept., Provisions have also been given in relation to inspection of such register and penalties imposable in case, of defaults in maintaining the required registers., , No member of the company shall vote on such resolution, to approve any contract or arrangement which, may be entered into by the company, if such member is a related party. This shall not apply to a company, in which ninety per cent. or more members, in number, are relatives of promoters or are related parties., The Audit Committee may make omnibus approval for related party transactions proposed to be entered, into by the company subject to such conditions as may be prescribed., , As per the Companies Act, 2013 all investments made or held by a company in any property, security, or other asset shall be made and held by it in its own name. This requirement is confined to only those, investments which are made by it on its own behalf and not on behalf of someone else. However, in, certain circumstances, the Act exempts the companies from complying with the above provisions., , When any shares or securities in which investments have been made by a company are not held by it in, its own name as a beneficial owner when such investments are held in the name of a depository pursuant, to permissible conditions given in the Act, the company shall forthwith enter in a register maintained by, it for the purpose, particulars as specified in the Act., , GLOSSARY, Derivatives, , Public Financial, Institution, , A derivative is a contract between two parties which derives its value/price from, an underlying asset. The most common types of derivatives are futures, options,, forwards and swaps., Public financial institution means –, , (i), , (ii), , (iii), (iv), (v), , the Life Insurance Corporation of India, established under section 3 of the, Life Insurance Corporation Act, 1956 (31 of 1956);, the Infrastructure Development Finance Company Limited;, , specified company referred to in the Unit Trust of India (Transfer of, Undertaking and Repeal) Act, 2002;, institutions notified by the Central Government, , such other institution as may be notified by the Central Government in, consultation with the Reserve Bank of India:
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432, , Lesson 10 • EP-CL, , , , Provided that no institution shall be so notified unless –, (A), (B), Office or place, of Profit, , it has been established or constituted by or under any Central or State Act, other than this Act or the previous company law; or, , not less than fifty-one per cent of the paid-up share capital is held or, controlled by the Central Government or by any State Government or, Governments or partly by the Central Government and partly by one or, more State Governments;, , [Section 2(72) of Companies Act, 2013], i., , ii., , where such office or place is held by a director, if the director holding it, receives from the company anything by way of remuneration over and, above the remuneration to which he is entitled as director, by way of salary,, fee, commission, perquisites, any rent-free accommodation, or otherwise;, where such 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 receives from the company, anything by way of remuneration, salary, fee, commission, perquisites, any, rent-free accommodation, or otherwise;, (Explanation to section 188(1) of Companies Act, 2013), , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation.), 1., , Discuss the law relating to loans and investments by companies., , 4., , Your company, is a public limited company which wishes to make investments in the shares of another, company. The total investment exceeds the statutory limit stipulated by the Act. What are the formalities, to be complied with in this regard?, , 2., 3., 5., 6., 7., 8., 9., , Which companies are exempt from the provisions with regard to loans and investments by companies?, What particulars are required to be entered in the Register of Loans and Investments?, , What are the ‘related party disclosures’ required to be made by listed entities as per SEBI (LODR), Regulations ?, , Whether issue of “shares and debentures” to a related party, covered under the ambit of Section 188 of, the Companies Act, 2013?, Will a transaction of payment of salary to an employee who is a relative of a Director, (where such, payment is in the ordinary course of business and on arm’s length) require disclosure as a related party, transaction in the Board’s Report?, , In case the disclosure is an annexure to the Board’s Report, whether the same needs to be signed by the, persons who have signed the Board’s Report?, , Mr. A is a Director of XYZ Ltd. which has entered into a transaction with ABC Pvt. Ltd. on 11.05.2018., Afterwards Mr. A becomes director in ABC Pvt. Ltd. w.e.f. 15.06.2018. Are related party transaction, provisions applicable to the transaction?
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Lesson 10 • An overview of Inter-Corporate Loans, Investments, Guarantees and Security, Related Party Transactions, , LIST OF FURTHER READINGS, •, , Bare Act: The Companies Act, 2013, , •, , ICSI Company Law Premier, , •, •, , The SEBI (LODR) Regulations, 2015, ICSI Guidance note on RPT, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, , 433
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Registers and Records, , Lesson 11, Key Concepts One, Should Know, •, •, •, •, •, •, •, •, , Statutory, Registers, Records, , Foreign Register, Annual Return, , Maintenance of, Register, Preservation of, Register, Authentication, , Learning Objectives, To understand:, •, , Importance of Registers and Records, , •, , Legal and Secretarial aspect of maintenance, authentication,, inspection and preservation of statutory registers under the, Companies Act, 2013, , •, , •, , Registers to be maintained under the Companies Act, 2013, , Role of Company Secretary in maintaining Registers, , Inspection, , Lesson Outline, •, , Introduction, , •, , Returns, , •, •, •, •, •, •, •, •, , Importance of Registers and Records, , Register to be maintained under the Companies Act, 2013, Preservations of Records, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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436, , Lesson 11 • EP-CL, , , , Regulatory Frame Work, The Companies Act, 2013, Sections/Rules, , Deals with, , Section 46 and Rule 6 of the Companies (Share Capital and, Register of Renewed and Duplicate Share Certificates., Debentures) Rules, 2014, Section 54 and Rule 8(14) of the Companies (Share Capital, Register of Sweat Equity Shares., and Debentures) Rules, 2014, Section 62(1)(b) Rule 12 (10) of the Companies (Share, Capital and Debentures) Rules, 2014, , Register of Employee Stock Options., , Section 73 and 76 r/w Rule 14 of the Companies, (Acceptance of Deposits) Rules, 2014, , Register of Deposits., , Section 68(9) and Rule 17(12) of the Companies (Share, Capital and Debenture) Rules, 2014, Section 85 and Rule 10 of the Companies (Registration of, Charges) Rules, 2014, Section 88(1)(a) and Rule 3 of the Companies, (Management and Administration) Rules, 2014, , Section 88(1)(b) & (c) and Rule 4 of the Companies, (Management and Administration) Rules, 2014, , Section 88 (4) and Rule 7 of the Companies (Management, and Administration) Rules, 2014., Section 90 and Rule 5 of the Companies (Significant, Beneficial Owners) Rules, 2018, , Section 92 and Rule 11 of the Companies (Management, and Administration) Rules, 2014., , Section 110 and Rule 22 of the Companies (Management, and Administration) Rules, 2014, Section 118 and Rule 25 of the Companies (Management, and Administration) Rules, 2014, , Section 119 r/w Rule 26 of the Companies (Management, & Administration) Rules, 2014, Section 128, , Section 170(1) and Rule 17 of the Companies (Appointment, & Qualifications of Directors) Rules, 2014, , Register of Securities Bought Back., Register of Charges., , Register of Members., , Register of Debenture holders & other security holders., , Foreign register of Members, Debenture holders & other, security holders or Beneficial Owners Residing Outside, India., Register of Significant Beneficial Owners in a company., Annual Return., , Register of Postal Ballot., , Minutes of Proceedings of General Meeting, Meeting of, Board of Directors and Other Meetings and Resolutions, Passed by Postal Ballot., Inspection of Minute Books of General Meeting., Books of account., , Register of Directors/ Key Managerial Personnel., , Section 186(9) and Rule 12 of the Companies (Meetings of Register of loans, guarantees given and security provided or, Boards and its Powers) Rules, 2014, making acquisition of securities., Section 187 and Rule 14 of the Companies (Meetings of, Board and its Powers) Rules, 2014, Section 189 and Rule 16 of the Companies (Meetings of, Boards and its Powers) Rules, 2014, , Register of investments in any shares or securities made by, company not held in its own name., Register of Contracts or Arrangements in Which Directors, are Interested., , Secretarial Standards, , SS-1 & SS-2, Regulation 9, , Regulation 30(4) &(8), , Provision related to maintenance and preservation of, Registers and Records under Secretarial Standards, , SEBI (LODR) Regulation, 2015, , Preservation of documents, , Disclosure of events or information.
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437, , Lesson 11 • Registers and Records, , INTRODUCTION- REGISTER TO BE MAINTAINED UNDER COMPANIES ACT, 2013, The Companies Act, 2013, lays down that every company must, maintain and keep books, registers and copies of returns, documents, etc. at its registered office. These books are known as Statutory Books., , Statutory Books are the official records kept by the company relating, to all legal and statutory matters. The registers that contain the, specific record of the company’s shareholders, directors, deposits,, loan & guarantee, etc., , Some of the statutory registers are required to be kept open by the, company for inspection by directors, members, creditors of the, company and by other persons. The company is also required to allow, extracts to be taken from certain documents, registers, returns, etc., and furnish copies of certain documents on demand by a member or, by any other person on payment of specified fees., , IMPORTANCE OF REGISTERS AND RECORDS, , For an organization to function efficiently and adhere to the statutory requirements, it is essential to maintain, certain records and registers. Maintaining such records and registers are important for fulfilling the statutory, disclosure, statistical, MIS purposes. Maintaining such records helps in ensuring that the operations of an, organization are systematic., , Requirement to maintain the Statutory Registers and records arises due to the various applicable provisions of the, Companies Act, 2013 & rules framed there under. Non-compliance of these sections and rules attracts huge penalties, on the companies and on officers in default., For good corporate governance and to avoid the penalties, it is always advised to maintain the Statutory Registers., , It also provide peace of mind to the top management that company’s statutory registers are being maintained and, kept up to date in accordance with Company law obligations and can be easily accessed for all types of information, about the Company. It provides instant access to crucial information that is necessary in this busy environment., , Register of Sweat Equity Shares [Section 54 r/w Rule 8(14) of the Companies (Share Capital and, Debentures) Rules, 2014], , The register should contain the:, •, •, •, •, •, •, •, , particulars of date of the special resolution authorizing the issue, of sweat equity shares;, date of Board resolution for allotment;, name of the allottee;, , status of the allottee, i.e. whether director or employee;, folio number/certificate number;, , reference to entry in register of members;, , date of issue of such shares, number of shares issued, face value of, the share, price at which the shares are issued, consideration paid,, if any, by the employee/director, particulars of consideration other, than cash, the lock-in period of these shares, date of joining, fair, value obtained by valuer, basis of valuation, name of valuer and, the date of expiry thereof., , Every company which issues, sweat equity shares should, maintain a register of sweat, equity shares and enter therein, particulars of sweat equity shares, issued. A Register of Sweat Equity, Shares shall be maintained by the, company in Form No. SH-3 and, shall forthwith enter therein the, particulars of Sweat Equity Shares, issued under section 54 of the, Companies Act, 2013., , The Register of Sweat Equity Shares shall be maintained at the registered office of the company or such other place, as the Board may decide. Entries in the register shall be authenticated by the Company Secretary of the company or, by any other person authorized by the Board for the purpose.
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438, , Lesson 11 • EP-CL, , , , Register of Employee Stock Options [Section 62(1)(b) r/w Rule 12(10) of the Companies (Share, Capital and Debentures) Rules, 2014], The Register of Employee Stock Options shall be, maintained at the registered office of the company or, such other place as the Board may decide., The entries in the register shall be authenticated by the, Company Secretary of the company or by any other, person authorized by the Board for the purpose., , The company which has issued Employee stock, options shall maintain a Register of Employee, Stock Options in Form No. SH.6 and shall forth, with enter there in the particulars of option, granted under clause(b) of sub-section (1) of, section 62 of the Companies Act, 2013., , Register of Securities bought back [Section 68(9) r/w Rule 17(12) of the Companies (Share Capital, and Debentures) Rules, 2014], , Where a company buys back its shares or other specified securities under, Section 68, it shall maintain a register of the:, •, shares or securities so bought;, •, •, •, , the consideration paid for the shares or securities bought back;, the date of cancellation of shares or securities;, , The company shall maintain a, register of shares or other, securities which have been, bought- back in Form No. SH-10., , the date of extinguishing and physically destroying the shares or securities and such other particulars as, mentioned in Rule 17of Companies (Share Capital and Debentures) Rules, 2014., , The register of shares or securities bought-back shall be maintained at the registered office of the company and, shall be kept in the custody of the secretary of the company or any other person authorized by the board in this, behalf., The entries in the register shall be authenticated by the secretary of the company or by any other person authorized, by the Board for the purpose., , Register of Deposits Rule [Section 73 & 76 r/w Rule 14 of the Companies (Acceptance of Deposits), Rules, 2014], , Every company accepting deposits shall maintain at its registered office one or more separate registers for deposits, accepted or renewed, in which there shall be entered separately in the case of each depositor the following, particulars, namely:•, , Name, address and PAN of the depositor/s;, , •, , Deposit receipt number;, , •, •, •, •, •, •, •, •, •, •, , Particulars of guardian, in case of a minor;, Particulars of the nominee;, , Date and amount of each deposit;, , Duration of the deposit and the date on which each deposit is repayable;, Rate of interest or such deposits to be payable to the depositor;, Due date(s) for payment of interest;, , Mandate and instructions for payment of interest and for non-deduction of tax at source, if any;, Date or dates on which payment of interest will be made;, , Particulars of security or charge created for repayment of deposits;, Any other relevant particulars., , Entries in the register shall be made within seven days from the date of issuance of the deposit receipt duly, authenticated by a director or secretary of the company or by any other officer authorized by the Board for this, purpose.
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Lesson 11 • Registers and Records, , 439, , The register of Deposits shall be preserved in good order for a period of not less than 8 years from the financial, year in which the latest entry is made in the register., , Register of Charges [Section 85 r/w Rule 10 of the Companies (Registration of Charges) Rules, 2014], , Section 85(1) read with Rule 10 of Companies (Registration of Charges) Rules, 2014, provides that every company shall keep at its registered office a register of charges and, enter therein particulars of all the charges registered with the Registrar on any of the, property, assets or undertaking of the company and the particulars of any property, acquired subject to a charge as well as particulars of any modification of a charge and, satisfaction of charge., , The Register of, Charges shall be, maintained in Form, No. CHG-7, , •, , The entries in the register of charges maintained by the company shall be made forthwith after the creation,, modification or satisfaction of charge, as the case may be., , •, , The register of charges shall be preserved permanently and the instrument creating a charge or modification, thereon shall be preserved for a period of 8 years from the date of satisfaction of charge by the company., , •, •, •, , Entries in the register shall be authenticated by a director or the secretary of the company or any other, person authorised by the Board for the purpose., A copy of the instrument creating the charge shall also be kept at the registered office of the company along, with the register of charges., The register of charges and instrument of charges, shall be open for inspection during business hours–, (a), by any member or creditor without any payment of fees; or, (b), , by any other person on payment of prescribed fees, subject to such reasonable restrictions as the, company may, by its articles, impose., , Register of Members [Section 88(1)(a) r/w Rule 3 of the Companies (Management and, , Administration) Rules, 2014], , In the case of a company not having share capital, the register of members shall contain the following, particulars, in respect of each member, namely: •, name of the member; address (registered office address in case, Every company limited by shares, the member is a body corporate); e-mail address; Permanent, shall, from the date of its registration,, Account Number or CIN; Unique Identification Number, if, maintain a register of its members, any; Father’s/ Mother’s/ Spouse’s name; Occupation; Status;, indicating separately for each class of, Nationality; in case member is a minor, name of the guardian and, equity and preference shares held by, the date of birth of the member; name and address of nominee;, each member residing in or outside, •, date of becoming member;, India in Form No.MGT-1., •, date of cessation;, •, amount of guarantee, if any;, •, any other interest, if any; and, •, instructions, if any, given by the member with regard to sending of notices, etc., , The register of members a long with the index shall be preserved permanently and shall be kept in the custody of, the Company Secretary of the company or any other person authorized by the Board for such purpose., For details please read the lesson 3, i.e., Members and Shareholders., , Register of Debenture Holders and any other Security Holders [Section 88(1)(b)&(c) r/w Rule, 4 of the Companies (Management and Administration) Rules, 2014], The register should contain information relating to :, •, name, father’s/husband’s name;, •, address and occupation, if any, of each debenture holder;
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440, , , , •, , date of allotment;, , •, , distinctive number and certificate number of debentures;, , •, , date of registration with the Registrar of the Companies;, , •, , the debentures held by each holder distinguishing each, debenture by its number except where such debentures are, held with a depository;, , •, , the amount paid or agreed to be considered as paid on those, debentures;, , •, , Lesson 11 • EP-CL, , Every company which issues or, allots debentures or any other, security shall maintain a separate, register of debenture holders or, security holders, as the case may be,, for each type of debentures or other, securities in Form No.MGT-2., , date of payment;, , •, , date on which the name of each person was entered in the register as a debenture holder;, , •, , date on which any person ceased to be a debenture holder; date of transfer of debentures;, , •, , serial number of instrument of transfer;, , •, , transferor’s name and folio number;, , •, , transferee’s name and folio number, transfer number, number of debentures transferred and their distinctive, numbers;, , •, , date of transfer; and instructions, if any, for payment of interest., , The register of debenture holders or any other security holders along with the index shall be preserved for a period, of 8 years from the date of redemption of debentures or securities, as the case may be, and shall be kept in the, custody of the Company Secretary of the company or any other person authorized by the Board for such purpose., , Maintenance of the Register of Members etc. [Section 88 r/w Rule 5 of the Companies, (Management and Administration) Rules, 2014], , Every company shall maintain the registers of Members, Debenture holders and other Security-holders under, section 88 in the following manner namely:(1), (2), (3), , (4), (5), (6), , The entries in the registers maintained under section 88 shall be made within 7 days after the Board of, Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or any, other securities, as the case may be., The registers shall be maintained at the registered office of the company unless a special resolution is passed, in a general meeting authorising the keeping of the register at any other place within the city, town or village, in which the registered office is situated or any other place in India in which more than one-tenth of the total, members entered in the register of members reside., , Consequent upon any forfeiture, buy-back, reduction, sub-division, consolidation or cancellation of shares,, issue of sweat equity shares, transmission of shares, shares issued under any scheme of arrangements,, mergers, reconstitution or employees stock option scheme or any of such scheme provided under the, Companies Act, 2013 or by issue of duplicate or new share certificates or new debenture or other security, certificates, entry shall be made within 7 days after approval by the Board or committee, in the register of, members or in the respective registers, as the case may be., If any change occurs in the status of a member or debenture holder or any other security holder whether due, to death or insolvency or change of name or due to transfer to Investor Education Protection Fund or due to, any other reason, entries thereof explaining the change shall be made in the respective register., If any rectification is made in the register maintained under section 88 by the company pursuant to any order, passed by the competent authority under the Act, the necessary reference of such orders shall be indicated in, the respective register., , If any order is passed by any judicial or revenue authority or by SEBI or Tribunal attaching the shares,, debentures or other securities and giving directions for remittance of dividend or interest, the necessary, reference of such order shall be indicated in the respective register.
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Lesson 11 • Registers and Records, , (7), (8), , 441, , In case of companies whose securities are listed on a stock exchange in or outside India, the particulars of any, pledge, charge, lien or hypothecation created by the promoters in respect of any securities of the company, held by the promoter including the names of pledge/pawnee and any revocation therein shall be entered in, the register within 15 days from such an event., , If promoters of any listed company, which has formed a joint venture company with another company have, pledged or hypothecated or created charge or lien in respect of any security of the listed company in, connection with such joint venture company, the particulars of such pledge, hypothecation, charge and lien, shall be entered in the register members of the listed company within 15 days from such an event., , If a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2) of Section 88, the company shall be, liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty, of fifty thousand rupees., , Index of Names to be Included in Register – [Rule 6 of the Companies (Management and, Administration) Rules, 2014], Every register maintained under Section 88(1) (Registers of Members,, Debenture holders and other Security- holders) shall include an index of, the names entered in the respective registers and the index shall, in, respect of each folio, contain sufficient indication to enable the entries, relating to that folio in the register to be readily found., , The maintenance of index is not, necessary in case the number of, members is less than fifty., , The company shall make the necessary entries in the index simultaneously, with the entry for allotment or transfer of any security in such Register., , Inspection of Register – [Section 94 r/w Rule 14 of the Companies (Management and, Administration) Rules, 2014], , The Registers and indices maintained pursuant to section 88 (Registers of Members, Debenture holders and other, security-holders) and copies of returns prepared pursuant to section 92 of the Companies Act, 2013 shall be open, for inspection during business hours, at such reasonable time on every working day as the board may decide, by any, member, debentureholder, other security holder or beneficial owner without payment of fee by any other person on, payment of such fee as may be specified in the articles of association of the company but not exceeding 50 rupees, for each inspection., Explanation: The reasonable time of not less than two hours on every working day shall be considered by the, company., , Any such member, debenture holder, security holder or beneficial owner or any other person may require a copy of, any such register or entries therein or return on payment of such fee as may be specified in the articles of association, of the company but not exceeding 10 rupees for each page. Such copy or entries or return shall be supplied within, 7 days of deposit of such fee., Foreign Register [Section 88(4) r/w Rule 7 of the Companies (Management and Administration), , Rules, 2014], , In terms of sub-section (4) of Section 88, a company, may, if authorized by its Articles of Association, can also keep, any part of the Register in any other country, outside India, to be called “foreign register”, this Register should, contain the names and particulars of the members, debenture holders, other security holders or beneficial owners, residing in that country., , Rule 7(2) of the Companies (Management & Administration) Rules, 2014 provides that, the company shall, within, 30 days from the date of the opening of any foreign register, file with the Registrar notice of the situation of the office
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442, , , , Lesson 11 • EP-CL, , in Form No.MGT-3 along with the fee where such register is kept; and in the event of any change in the situation of, such office or of its discontinuance, shall, within 30 days from the date of such change or discontinuance, as the case, may be, file notice in Form No.MGT-3 with the Registrar of such change or discontinuance., , A foreign register shall be deemed to be part of the company’s register of members or of debenture holders or of, any other security holders or beneficial owners, as the case may be. The foreign registers hall be maintained in the, same format as the Principal Register [Rule 7(3) and 7(4)]., , A foreign register shall be open to inspection and may be closed, and extracts may be taken there from and copies, thereof may be required, in the same manner, mutatis mutandis, as is applicable to the principal register except that, the advertisement before closing the register shall be inserted in at least two newspapers circulating in the place, where in the foreign register is kept [Rule7(5)]., Entries in the foreign register maintained under sub-section(4) of section 88 shall be made simultaneously after, the Board of Directors or its duly constituted committee approves the allotment or transfer of shases, debentures, or any other securities, as the case may be [Rule 7(7)]., The company shall –, (a), , (b), , transmit to its registered office in India a copy of every entry in any foreign register within 15 days after the, entry is made; and, keep at such office a duplicate register of every foreign register duly entered up from time to time [Rule7 (8)]., , If a foreign register is maintained, a duplicate thereof should be maintained at the registered office of the company, or at such other place where the register of members or debenture holders is kept. Every such duplicate register is, deemed to be part of the principal register., If a foreign register is kept by a company in any country outside India, the decision of the appropriate competent, authority in regard to the rectification of the register shall be binding [Rule7 (6)]., , The company may discontinue the keeping of any foreign register; and thereupon all entries in that register shall be, transferred to some other foreign register kept by the company outside India or to the principal register [Rule 7(11)., The foreign register shall be kept in the custody of the Company Secretary or person authorised by the Board., , The entries in the foreign register shall be authenticated by the Company Secretary of the company or person, authorised by the Board by appending his signature to each entry., , The foreign register of members shall be preserved permanently, unless it is discontinued and all the entries are, transferred to any other foreign register or to the principal register. Foreign register of debenture holders or any other, security holders shall be preserved for a period of 8 years from the date of redemption of such debentures or securities., The foreign register shall be kept in the custody of the Company Secretary or person authorised by the Board., Can the Statutory Registers be kept at any other place other than registered office of the Company?, , Ans: Statutory registers may also be kept at any other place in India in which more than one-tenth of the total, number of members entered in the register of members reside, if approved by a special resolution passed at a, general meeting of the company., , Register of Renewed and Duplicate Share Certificates [Section 46 r/w Rule 6(3) of the Companies, (Share Capital and Debentures) Rules, 2014], Every company with a share capital should, from the date of its registration, maintain a register of renewed and, duplicate certificates., The word ‘renewed’ includes consolidation and sub-division of shares and issue of certificate in lieu thereof.
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443, , Lesson 11 • Registers and Records, , Particulars of every duplicate share certificate issued, shall be recorded in a Register of Renewed and Duplicate, Share Certificates., , Such register shall be kept at the registered office of the, company or at such other place where the Register of, Members is kept. The register shall be preserved, permanently and shall be kept in the custody of the, Company Secretary of the company or any other person, authorized by the Board for the purpose., , Register of Renewed and Duplicate Share, Certificates shall be maintained in Form No. SH-2, indicating against the name(s) of the person(s) to, whom the certificate is issued, the number and, date of issue of the share certificate in lieu of which, the new certificate is issued, and the necessary, changes indicated in the Register of Members by, suitable cross-references in the “Remarks” column., , All entries made in the Register of Renewed and Duplicate, Share Certificates shall be authenticated by the Company Secretary or such other person as may be authorised by, the Board for the purposes of sealing and signing the share certificate under the provisions of sub-rule (3) of rule 5, of the Companies (Share Capital and Debentures) Rules, 2014., , The register and index of beneficial owners [Section 88(3)], , Section 88(3) provides that the register and index of beneficial owners maintained by a depository under section, 11 of the Depositories Act, 1996 (22 of 1996), shall be deemed to be the corresponding register and index for the, purposes of the Companies Act, 2013., , Register of Significant Beneficial Owners in a company [Section 90 r/w Rule 5 of the Companies, (Significant beneficial owners) Rules, 2018], Every company shall maintain a register of the, interest declared by individuals, under Section, 90(1) of the Companies Act, 2013 and changes, there in which shall include the name of, individual, his date of birth, address, details of, ownership in the company and such other, details in Form No. BEN 3., , The reporting company is required to maintain register of all, significant beneficial owners., , The register shall be open for inspection during business, hours, at such reasonable time of not less than two hours, on, every working day as the board may decide, by any member, of the company on payment of such fee as may be specified by, the company but not exceeding fifty rupees for each, inspection., , Register of Postal Ballot [Section 110 r/w Rule 22(10) of the Companies (Management and, , Administration) Rules, 2014], , The scrutinizer shall maintain a register either manually or electronically to record;, •, , assent or dissent received from shareholders,, , •, , nominal value of such shares, whether the shares have differential voting rights, if any,, , •, •, •, , mentioning the particulars of name, address, folio number or client ID of the shareholder,, number of shares held by them,, , details of postal ballots which are received in defaced or mutilated form and postal ballot forms which are invalid., , The postal ballot and all other papers relating to postal ballot including voting by electronic means, shall be under, the safe custody of the scrutinizer till the chairman considers, approves and signs the minutes and there after, the, scrutinizer shall return the ballot papers and other related papers or register to the company who shall preserve, such ballot papers and other related papers or register safely., The postal ballot forms, other related papers, register and scrutinizer’s report received from the scrutinizer be kept, in the custody of the Company Secretary or any other person authorised by the Board for this purpose.
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444, , , , Lesson 11 • EP-CL, , Record of Private Placement - Section 42 r/w Rule 14 of the Companies (Prospectus and Allotment, of Securities) Rules, 2014, Company shall maintain complete Record of Private Placement under PAS-5 at its Registered Office., , Books containing Minutes of proceedings of General Meeting, meeting of the Board of Directors, and other meeting and resolution passed by postal ballot [Section118 r/w Rule 25 of The, Companies (Management and Administration) Rules, 2014], Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general, meeting,including the meeting called by the requisitionists and all proceedings of meeting of any class of share, holders or creditors or Board of Directors or committee of the Board and also resolution passed by postal ballot, within thirty days of the conclusion of every such meeting concerned., In case of meeting of Board of Directors or of a committee of Board, the minutes shall contain name of the directors, present and also name of dissenting director or a director who has not concurred the resolution., The Chairman shall exercise his absolute discretion in respect of inclusion or non-inclusion of the matters which is, regarded as defamatory of any person, irrelevant or detrimental to company’s interest in the minutes. Minutes kept, shall be evidence of the proceedings recorded in a meeting., As per section 118(10), every company shall observe Secretarial Standards with respect to General and Board, Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company, Secretaries Act, 1980 and approved as such by the Central Government. Accordingly, SS-1 & SS-2 needs to be adhered to., , Rule 25 of The Companies (Management and Administration) Rules, 2014 contains provisions with regards to, minutes of meetings. A distinct minute book shall be maintained for each type of meeting namely:, (i), , General Meetings of the Members;, , (iv), , Meetings of the Committees of the Board., , (ii), , (iii), , Meetings of the Creditors;, , Meetings of the Board; and, , It may be noted that resolutions passed by postal ballots shall be recorded in the minute book of general meetings, as if it has been deemed to be passed in the general meeting. In no case the minutes of proceedings of a meeting or, a resolution passed by postal ballot shall be pasted to any such book., , In case of every resolution passed by postal ballot, a brief report on the postal ballot conducted including the resolution proposed,the result of the voting there on and the summary of the scrutinizer’s reports hall be entered in the, minutes book of general meetings along with the date of such entry within thirty days from the date of passing of, resolution., Minutes of proceedings of each meeting shall be entered in the books maintained for that purpose along with the, date of such entry within thirty days oft he conclusion of the meeting. Each page of every such book shall be initial, led or signed and the last page of the record of proceedings of each meeting or each report in such shall be dated, and signed by:, •, •, , in the case of minutes of proceedings of a meeting of the Board or of a committee thereof, by the chairman of, the said meeting or the Chairman of the next succeeding meeting;, , in the case of minutes of proceedings of a general meeting, by the Chairman of the same meeting within the, aforesaid period of thirty days or in the event of the death or inability of that Chairman within that period, by, a director duly authorized by the Board for the purpose;
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•, , 445, , Lesson 11 • Registers and Records, , in case of every resolution passed by postal ballot, by the Chairman of the Board within the aforesaid period, of thirty days or in the event of there being no chairman of the Board or the death or inability of that chairman, within that period, by a director duly authorized by the Board for the purpose., , In case of Specified IFSC Public Company/ Specified IFSC private company - In Sub-section (1) of section 118, the, following proviso shall be inserted, namely:-, , “Provided that in case of a Specified IFSC public company/ Specified IFSC private company, the minutes of every, meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in the manner as may, be prescribed under sub section (1) at or before the next Board or committee meeting, as the case may be and kept, in books kept for that purpose.”.- Notification Date 04th January, 2017., The Minute books of General Meetings shall be kept at the, registered office of the company and shall be preserved, permanently and kept in the custody of the Company, Secretary or any director duly authorised by the board., , The Minutes books of the Board and committee meetings shall, be preserved permanently and kept in the custody of the, Company Secretary of the company or any director duly, authorized by the Board fort he purpose and shall be kept in the, registered office or such place as Board may decide., , Exceptions:, Section 118 shall not apply to Section 8 company, as a whole except that minutes may be recorded, within 30 days of the conclusion of every meeting, in case of companies where the articles of, association provide for confirmation of minutes, by circulation, Notification dated 5th June, 2015., , Provisions under Secretarial Standards, , The Secretarial Standards also provide following guidelines for Preservation of Minutes and other, Records[para 8 of SS-1 and para 18 of SS-2]:(a), , Minutes of all Meetings shall be preserved permanently in physical or in electronic form with Timestamp., , (c), , Office copies of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in order, in physical or in electronic form for as long as they remain current or for eight financial years, whichever, is later and may be destroyed thereafter with the approval of the Board., , (b), , (d), , Where, under a scheme of arrangement, a company has been merged or amalgamated with another company,, Minutes of all Meetings of the transferor company, as handed over to the transferee company, shall be, preserved permanently by the transferee company, notwithstanding that the transferor company might, have been dissolved., , Office copies of Notices, Agenda, Notes on Agenda and other related papers of the transferor company,, as handed over to the transferee company, shall be preserved in good order in physical or electronic form for, as long as they remain current or for eight financial years, whichever is later and may be destroyed thereafter, with the approval of the Board and permission of the Central Government, where applicable., , Inspection of Minute-Books of Board Meeting, , Source: ICSI Crash Course
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446, , , , As per Para 7.7 of SS-1, the Minutes of Meetings of the Board and any, Committee thereof can be inspected by the Directors., , A Director is entitled to inspect the Minutes of a Meeting held before the, period of his Directorship. A Director is entitled to inspect the Minutes of the, Meetings held during the period of his Directorship, even after he ceases to be, a Director., , Lesson 11 • EP-CL, , A Member of the company is, not entitled to inspect the, Minutes of Meetings of the, Board., , The Company Secretary in Practice appointed by the company, the Secretarial Auditor, the Statutory Auditor, the, Cost Auditor or the Internal Auditor of the company can inspect the Minutes as he may consider necessary for the, performance of his duties., Inspection of Minutes Book may be provided in physical or in electronic form., , While providing inspection of Minutes Book, the Company Secretary or the official of the company authorised by, the Secretary to facilitate inspection shall take all precautions to ensure that the Minutes Book is not mutilated or, in any way tampered with by the person inspecting., Illustration:, , A Board Meeting was held on 1st July 2020 and the next Board Meeting is scheduled to be held on 25th July, 2020., If the minutes of the first Board Meeting are entered in the minutes books before the date of next Board Meeting, i.e. 25th July, 2020, the same should be placed for noting thereat. If the minutes are yet to be entered in the minutes, books, the same should be placed at the subsequent Board Meeting following the entry of minutes in the minutes, books., , Inspection of Minute-Books of General Meeting [(Section 119 r/w Rule 26 of the Companies, (Management & Administration) Rules, 2014)], 1., , The books containing the minutes of the proceedings of any general meeting of a company or of are passed, by postal ballot, shall–, (a), , be kept at the registered office of the company; and, , (c), , Inspection of Minutes Book may be provided in physical or in electronic form. While providing, inspection of Minutes Book, the Company Secretary or the official of the company authorised by the, Company Secretary to facilitate inspection shall take all precautions to ensure that the Minutes Book, is not mutilated or in any way tampered with by the person inspecting., , (b), , (2), , (3), , be open, during business hours, to the inspection by any member without charge, subject to such, reasonable restrictions as the company may be its articles or in general meeting, impose, so, however,, that not less than two hours in each business day are allowed for inspection., , Any member shall be entitled to be furnished, within seven working days after he has made a request in that, behalf to the company, with a copy of any minutes of any general meeting, on payment of such sum as maybe, specified in the articles of association of the company, but not exceeding a sum of ten rupees for each page or, part of any page., Provided that a member who has made a request for provision of soft copy in respect of minutes of any, previous general meetings held during a period immediately preceding three financial years shall be entitled, to be furnished, with the same free of cost., , If any inspection of minute books is refused, or if any copy is required under is not furnished within the time, specified therein, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the, company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default, as, the case may be.
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447, , Lesson 11 • Registers and Records, , (4), , In the case of any such refusal or default, the Tribunal may, direct an immediate inspection of the minutebooks or direct that the copy required shall forthwith be sent to the person requiring it., , Requirement of keeping Books of Account [Section128], , Maintenance of books of account would mean records maintained by the company to record the specified financial, transaction. It has been specifically provided that every company shall keep proper books of account. This section, specifies the main features of proper books of account as under –, •, , The company must keep the books of account with respect to items specified in clauses (i) to (iv) of Section, 2(13) of the Companies Act, 2013, which defines “books of account”., , •, , The books of account must be kept on accrual basis and according to the double entry system of accounting., , •, •, •, , The books of account must show all money received and expended, sales and purchases of goods and the, assets and liabilities of the company., The books of account must give a true and fair view of the state of the affairs of the Company or its branches., “Books of account” as defined in Section 2(13) 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;, , (iii), , The assets and liabilities of the company; and, , (ii), , (iv), , All sales and purchases of goods and services by the company;, , 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., , All or any of the books of account may be kept at such other place in, India as the Board of director may decide. When the Board so decides, to keep books and other papers at any other place in India, a notice, to this effect shall be given tot he Registrar in Form AOC-5 giving full, address of that other place within seven days of Board’s decision., , The maintenance of books of account, and other books and papers in, electronic mode is permitted and is, optional., , Manner of Books of Account to be Kept in Electronic Mode [Rule 3 of the Companies (Accounts), Rules, 2014], , (1), , The books of account and other relevant books and papers maintained in electronic modes shall remain, accessible in India so as to be usable for subsequent reference., , (2), , The books of account and other relevant books and papers shall be completely in the format in which they, were originally generate, sent or received, or in a format which shall present accurately the information, generated, sent or received and the information contained in the electronic records shall remain complete, and unaltered., , (3), (4), (5), , However, for the financial year commencing on or after the 1st day of April, 2022, every company which uses, accounting software for maintaining its books of account, shall use only such accounting software which has, a feature of recording audit trail of each and every transaction, creating an edit log of each change made in, books of account along with the date when such changes were made and ensuring that the audit trail cannot, be disabled., , The information received from branch offices shall not be altered and shall be kept in a manner where it shall, depict what was originally received from the branches., , The information in the electronic record of the document shall be capable of being displayed in a legible form., There shall be a proper system for storage, retrieval, display or printout of the electronic records as the Audit, Committee, if any, or the Board may deem appropriate and such records shall not be or rendered unusable,, unless permitted by law:, , Provided that the back-up of the books of account and other books and papers of the company in electronic mode,, including at a place outside India, if any, shall be kept in servers physically located in India on a periodic basis.
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448, , (6), , , , Lesson 11 • EP-CL, , The company shall intimate to the Registrar on an annual basis at the time of filing of financial statement, (a), , the name of the service provider;, , (c), , the location of the service provider (wherever applicable);, , (b), , (d), , the internet protocol address of service provider;, , where the books of account and other books and papers are maintained on cloud, such address as, provided by the service provider., , The books of account, together with vouchers relevant to any entry in such books, are required to be, preserved in good order by the company for a period of not less than eight years immediately preceding the, relevant financial year. In case of a company incorporated less than eight years before the financial year, the, books of account for the entire period preceding the financial year together with the vouchers shall be so, preserved., , The provisions of Income-tax Act shall also be complied with in this regard. As per proviso to sub-section 5 of, Section 128 of the Act, where an investigation has been ordered in respect of a company under Chapter XIV, of the Act related to inspection, inquiry or investigation, the Central Government may direct that the books, of account may be kept for such period longer than 8 years, as it may deem fit and give directions to that effect., , The person responsible to take all reasonable steps to secure compliance by the company with the requirement of, maintenance of books of account etc. shall be: [Section 128(6)], (a), , Managing Director,, , (d), , Any other person of a company charged by the Board with the duty of complying with provisions of, section 128., , (b), (c), , Whole-Time Director in charge of finance,, Chief Financial Officer, or, , Penalty:, If the managing director, the whole-time director in charge of finance, the Chief Financial Officer or any other, person of a company charged by the Board with the duty of complying with the provisions of section 128,, contravenes such provisions, such person shall be punishable with fine which shall not be less than fifty, thousand rupees but which may extend to five lakh rupees., , Register of Directors and Key Managerial Personnel [Section 170(1) r/w Rule17 of the Companies, (Appointment and Qualification of Directors) Rules, 2014], Every company shall keep at its registered office a register of its directors and key managerial personnel containing, the following particulars:, (a), , Director Identification Number (Optional for KMP);, , (c), , Any former name or surname in full;, , (b), , (d), (e), (f), , (g), , (h), (i), , Present name and surname in full;, , Father’s name, mother’s name and spouse’s name(if married) and surnames in full;, Date of birth;, , Residential address (present as well as permanent);, , Nationality (including the nationality of origin, if different);, Occupation;, , Date of the board resolution in which the appointment was made;
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449, , Lesson 11 • Registers and Records, , (j), , Date of appointment and reappointment in the company;, , (l), , Office of director or key managerial personnel held or relinquished in any other body corporate;, , (k), (m), (n), , Date of cessation of office and reasons therefor;, , Membership number of the Institute of Company Secretaries of India in case of Company Secretary;, Permanent Account Number (mandatory for KMP who is not having DIN)., , In addition to the details of the directors or key managerial personnel, the company shall also include in the, aforesaid Register the details of securities held by them in the company, its holding company, subsidiaries,, subsidiaries of the company’s holding company and associate companies relating to:, (a), , the number, description and nominal value of securities;, , (c), , date of disposal and price and other consideration received;, , (b), (d), (e), (f), , (g), , the date of acquisition and the price or other consideration paid;, cumulative balance and number of securities held after each transaction;, mode of acquisition of securities;, , mode of holding – physical or in dematerialized form; and, , whether securities have been pledged or any encumbrance has been created on the securities., , Entries should be made in the register chronologically with a separate folio maintained in respect of each such, person. The register should be maintained at the registered office of the company., As per Section 171(1) of the Companies Act, 2013, the register kept under sub-section (1) of section 170,–, (a), , (b), , shall be open for inspection during business hours and the members shall have a right to take therefrom and, copies thereof, on a request by the members, be provided to them free of cost within thirty days; and, , shall also be kept open for inspection at every annual general meeting of the company and shall be made, accessible to any person attending the meeting., , If any inspection by members as provided under Section 171(1)(a) is refused, or if any copy required under that, clause is not sent within thirty days from the date of receipt of such request, the Registrar shall on an application, made to him order immediate inspection and supply of copies required there under., Exceptions:, , In case of Government Company - Section 171 of the Companies Act, 2013 shall not apply to Government, Company in which the entire share capital is held by the Central Government, or by any State Government or, Governments or by the Central Government or by one or more State Governments., , Register of loans, guarantees given and security provided or making acquisition of securities, [Section 186 (9) r/w Rule 12 Companies (Meetings of Boards and its Powers) Rules, 2014)], 1., 2., , 3., , The entries in the register shall be made chronologically in, respect of each such transaction within seven days of making, such loan or giving guarantee or providing security or making, acquisition., The register shall be kept at the registered office of the, company and the register shall be preserved permanently, and shall be kept in the custody of the Company Secretary of, the company or any other person authorised by the Board for, the purpose., The entries in the register(either manual or electronic) shall, , Every company giving loan or giving, guarantee or providing security or, making an acquisition of securities, shall, from the date of its incorporation,, maintain a register in Form No. MBP2 and enter therein separately, the, particulars of loans and guarantees, given, saecurities provided and, acquisitions made asaforesaid.
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450, , 4., 5., , , , Lesson 11 • EP-CL, , be authenticated by the Company Secretary of the company or by any other person authorized by the Board, for the purpose., A register can be maintained either manually or in electronic mode., , The extract from the register may be furnished to any member of the company on payment of fee as may be, prescribed in the Articles of the company which shall not exceed ten rupees for each page., , Register of Investments in Securities not held in Company’s Name [Section 187 and Rule 14 of, Companies (Meetings of Board and its Powers) Rules 2014, , 1., , The particulars to be entered therein, chronologically are:, •, •, , 2., 3., 4., , •, , the particulars of investments in shares or other securities, beneficially held by the company but which are not held in, its own name;, , the reasons for not holding the investments in its own name and, , Every company shall, from the, date of its registration, maintain a, register in Form No. MBP-3, , the relationship or contract under which the investment is held in the name of any other person., , Further, the company shall also record whether such investments are held in a third party’s name for the time, being or otherwise., , The register shall be maintained at the registered office of the company. The register shall be preserved, permanently and shall be kept in the custody of the Company Secretary of the company or if there is no, Company Secretary, any director or any other officer authorised by the Board for the purpose., , Entries in the register shall be authenticated by the Company Secretary of the company or by any other, person authorized by the Board for the purpose., , The said register shall be open to inspection by any member or debenture-holder of the company without any, charge during business hours subject to such reasonable restrictions as the company may by its articles or in, general meeting impose., , Register of Contracts with companies/firms in which directors are interested [Section 189 r/w, Rule 16 of Companies (Meetings of Boards and its Powers) Rules, 2014], , 1., , Every company is required to keep one or more registers in Form MBP 4 giving separately the particulars of, all contracts or arrangements and shall enter therein the particulars of:, (a), , (b), 2., 3., 4., , (c), , company or companies or bodies corporate, firms or other association of individuals, in which any, director has any concern or interest as mentioned in sub-section (1) of section 184 but the particulars, of the company or companies or bodies corporate in which a director himself to get with any other, director holds two percent or less of the paid-up share capital would not be required to be entered in, the register;, contracts or arrangements with a body corporate or firm or other entity as mentioned under subsection(2) of section 184, in which any director is, directly or indirectly, concerned or interested; and, contracts or arrangements with a related party with respect to transactions to which section 188 applies., , The entries in the register shall be made at once, whenever there is a cause to make entry, in chronological, order and shall be authenticated by the Company Secretary of the company or by any other person authorized, by the Board for the purpose [(Rule 16(2)]., Such register shall be kept at the registered office of the company and the register shall be preserved, permanently and shall be kept in the custody of the Company Secretary of the company or any other person, authorized by the Board for the purpose [Rule 16(3)]., The company shall provide extracts from such register to a member of the company on his request, within, seven days from the date on which such request is made upon the payment of such fee as may be specified in, the articles of the company but not exceeding ten rupees per page.
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451, , Lesson 11 • Registers and Records, , Such register or registers are required to be placed before the next meeting of the Board and signed by all the, directors present at the meeting., , Every director within thirty days of his appointment or relinquishment is required to disclose his concern or interest, in other associations, which are required to be included in the register., , The register be kept at the registered office of the company and also open for inspection during business hours and, extracts may be taken therefrom, and copies thereof as may be required by any member of the company shall be furnished, by the company to such extent, in such manner, and on payment of such fees as may be prescribed., The register to be kept under Section 189 shall also be produced at the commencement of every annual general, meeting of the company and shall remain open and accessible during the continuance of the meeting to any person, having the right to attend the meeting., Exceptions:, , In case of Section 8 Company-Section 189 shall apply only if the transaction with reference to section 188 on the, basis of terms and conditions of the contract or arrangement exceeds one lakh rupees. Notification dated: 5th, June, 2015., , Annual Return [Section 92 r/w Rule 11 of the Companies (Management and Administration), Rules, 2014], As per section 92 of the Act, every company shall prepare an Annual Return containing the required particulars as, they stood on the close of the financial year and signed by a director and the Company Secretary, or where there is, no Company Secretary, by a Company Secretary in practice. Whereas annual return in relation to One Person, Company, small company and private company (if such private company is a start-up), the annual return shall be, signed by the Company Secretary, or where there is no Company Secretary, by the Director of the company., The Annual Return shall contain the following particulars:, (a), , its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;, , (c), , its members and debenture-holders along with changes there in since the close of the previous final year;, , (b), , (d), (e), (f), , (g), , (h), (i), , (j), , its shares, debentures and other securities and share holding pattern;, , its promoters, directors, key managerial personnel along with changes therein since the previous financial year;, meetings of members or a class thereof, Board and its various committees along with attendance details;, remuneration of directors and key managerial personnel;, , penalty or punishment imposed on the company, its directors or officers and details of compounding of, offences and appeals made against such penalty or punishment;, matters relating to certification of compliances, disclosures as may be prescribed;, , details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors; and, such other matters as may be prescribed,, , Provided further that the Central Government has been empowered to prescribe abridged form of annual return for, “One Person Company”, small company and such other class or classes of companies., The annual return, filed by a listed company or, by a, company having paid-up capital of ten crore rupees or, more or turnover of fifty crore rupees or more, shall be, certified by a Company Secretary in practice and the, certificate shall be in Form No. MGT. 8, stating that the, annual return discloses the facts correctly and adequately, and that the company has complied with all the provisions, of the Companies Act, 2013., , Every company shall file its annual return, in Form No.MGT-7 except One Person Company, (OPC) and Small Company., , One Person Company and Small Company shall, file annual return from the financial year 20202021 onwards in Form No.MGT-7A.
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452, , Lesson 11 • EP-CL, , , , Copies of all annual returns prepared under section 92 and copies of all certificates and documents required to be, annexed there to shall be preserved for a period of eight years from the date of filing with the Registrar., , PRESERVATION OF REGISTERS AND RECORDS, , Provisions under the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015, In case of listed entities the SEBI (LODR) Regulations, 2015 requires certain policies to be adopted by the companies for the purpose of preserving documents, A. Policy for preservation of documents, , Regulation 9 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 provides following for, the preservation of documents:, The listed entity shall have a policy for preservation of documents, approved by its board of directors, classifying, them in at least two categories as follows, (a), , (b), , documents whose preservation shall be permanent in nature;, , documents with preservation period of not less than eight years after completion of the relevant transactions:, , Provided that the listed entity may keep documents specified in clauses (a) and (b) in electronic mode., B. Preservation of documents as per the Archival Policy, , Further, Regulation 30 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 2015 provides for, disclosure of material events or information, which shall be disclosed based on application of the guidelines for, materiality as specified under sub-regulation (4) of Regulation 30., As per sub-regulation (8) of Regulation 30 every listed entity shall disclose on its website all such events or, information which has been disclosed to stock exchage as provided under the provisions of Regulation 30 and such, disclosures shall be hosted on the website of the listed entity for a minimum period of five years and thereafter as, per the archival policy of the listed entity, as disclosed on its website., , STATUTORY REGISTERS-A BIRD EYE VIEW, S., No., 1., , 2., , Section/Rules, , Particulars of Registers, , Form, No., , Section 46(3) r/w Rule, 6 (3) (a) of the, Companies (Share, Capital and, Debentures)Rules,, 2014, , Register of Renewed and Duplicate Share Certificates-, , SH-2, , Section 54 r/w Rule 8, of the Companies, (Share Capital &, Debentures) Rules,, 2014, , Entries should indicate the name(s) of the person(s) to whom the, certificate is issued, the number and date of issue of the share, certificate in lieu of which the new certificate is issued, and the, necessary changes indicated in the Register of Members by suitable, cross-references in the “Remarks” column., Entries made should be authenticated by Company Secretary of the, company or such other person authorized by the Board for sealing, and signing the share certificate under Rule 5(3) of the Companies, (Share Capital and Debentures) Rules, 2014., Register of Sweat Equity Shares, , Entry shall be made forthwith on issue of sweat equity shares, u/s.54. The entries in the register shall be authenticated by, Company Secretary of the company or by any other person, authorized by the Board for this purpose., , SH-3
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453, , Lesson 11 • Registers and Records, , 3., , 4., , 5., , 6., , Section 62(1) (b) r/w, Rule 12 of the, Companies (Share, Capital and, Debentures) Rules,, 2014, Section 68(9) r/w, Rule17(12) of the, Companies (Share, Capital and, Debentures) Rules,, 2014, , Section 73 and 76 r/w, Rule 14 of the, Companies, (Acceptance of, Deposit) Rules, 2014, , Register of Employees Stock Options, , SH-6, , Entry shall be made forthwith, the particulars of option granted, under clause (b) of sub-section (1) of section 62., , The entries in the register shall be authenticated by Company, Secretary of the company or by any other person authorized by the, Board for this purpose., Register of Shares or other Securities bought back, , SH-10, , Entries shall be made regarding shares or securities so bought, the, consideration paid for the shares or securities bought back, the, date of cancellation of shares or securities, the date of extinguishing, and physically destroying the shares or securities and such other, particulars as prescribed., , The entries in the register shall be authenticated by the secretary, of the company or by any other person authorized by the Board for, this purpose., Register of Deposits, , -, , Entries in the register shall be made within 7 days from the date of, issuance of the deposit receipt duly authenticated by director,, secretary of the company or by any other officer authorized by the, Board for this purpose., , Particulars to be entered as specified in Rule 14 of the Companies, (Acceptance of Deposit) Rules, 2014., , Section 85 r/w Rule 10 Register of Charges, of the Company, Entries shall be made regarding particulars of all the charges, (Registration of, Charges) Rules, 2014 registered with the Registrar on any of the property, assets or, undertaking of the company and the particulars of any property, acquired subject to a charge as well as particulars of any, modification of a charge and satisfaction of charge., , CHG-7, , The entries in the register of charges maintained by the, company shall be made forthwith after the creation, modification, or satisfaction of charge, as the case may be., , 7., , Section 88 r/w Rule, 3(1), 5, 6, 8, 15 of the, Companies, (Management and, Administration), Rules, 2014, , Entries in the register shall be authenticated by a director or the, secretary of the company or any other person authorised by the, Board for the purpose., Register of Members, , Every company shall keep and maintain the register of members, indicating separately for each class of equity and preference, shares held by each member residing in or outside India., , Authenticated by the Company Secretary of the company or by any, other person authorised by the Board for the purpose, and the date, of the board resolution authorising the same shall be mentioned., , MGT-1
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454, , 8., , 9., , Lesson 11 • EP-CL, , , , Section 88 r/w Rule 4,, 5, 6, 8 & 15(2) of the, Companies (Management and Administration) Rules, 2014, , Section 88 r/w, Rule 7, 8 & 15 of, the Companies, (Management and, Administration) Rules,, 2014, , Register of debenture holder and other security holders, , MGT-2, , Every company which issues or allots debentures or any other, security shall maintain a separate register of debenture holders or, security holders, as the case maybe, for each type of debentures or, other securities., Authenticated by the Company Secretary of the company or by any, other person authorised by the Board for the purpose, and the date, of the board resolution authorising the same shall be mentioned., Foreign Register of Members/debenture holders/other security, holders/or of beneficial owners residing outside India, , MGT-1/, MGT-2, , A company which has share capital or which has issued debentures, or any other security may, if so authorised by its articles, keep in, any country outside India, a part of the register of members or as, the case may be, of debenture holders or of any other security, holders or of beneficial owners, resident in that country., A foreign register shall be deemed to be part of the company’s, register of members or of debenture holders or of any other, security holders or beneficial owners, as the case may be., , 10., , 11., , 12., , 13., , The entries in the register shall be authenticated by the Company, Secretary of the Company or person authorized by the Board, appending his signature to each entry., , Section 90(2) r/w Rule Register of significant beneficial owners, 5 of the Companies, The reporting company is required to maintain register of all, (Significant Beneficial, significant beneficial owners., Owners) Rules,2018, Section 110 r/w Rule, 22(10) of the, Companies, (Management and, Administration) Rules,, 2014, , Register of Postal Ballot, , Section 118 r/w Rule, 25 of the Companies, (Management and, Administration) Rules,, 2014, , Minutes (General Meetings, Class Meetings of Shareholders,, Creditors, Board & Committee Meetings or Resolution passed, by Postal Ballot), , Section 170(1), r/w Rule 17 of, the Companies, (Appointment &, Qualification of, Directors) Rules, 2014, , The scrutinizer shall maintain a register either manually or, electronically to record assent or dissent received from, shareholders, mentioning the particulars of name, address, folio, number or client ID of the shareholder,number of shares held by, them, nominal value of such shares, whether the shares have, differential voting rights, if any, details of postal ballots which are, received in defaced or mutilated form and postal ballot forms, which are invalid., The minutes of proceedings of each meeting shall be entered in the, books maintained for that purpose along with the date of such, entry within 30 days of the conclusion of the meeting., Register of Directors & Key Managerial Personnel and their, share holding., , Particulars as specified in Rule 17 of the Companies (Appointment, & Qualification of Directors) Rules, 2014, , BEN-3, , -, , -, , -
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455, , Lesson 11 • Registers and Records, , 14., , Section 42 r/w Rule 14 Record of Private Placement, of the Companies, Company shall maintain complete Record of Private Placement at, (Prospectus and, its Registered Office., Allotment of, Securities) Rules, 2014, , PAS-5, , 15., , Section 186(9), r/w Rule 12 of the, Companies (Meeting of, Board and its Powers), Rules, 2014, , MBP-2, , 16., , 17., , Section 187(3) r/w, Rule 14(1) of the, Companies (Meeting of, Board and its Powers), Rules, 2014, , Section 189(1) r/w, Rule 16 of the, Companies (Meeting of, Board and its Powers), Rules, 2014, , Register of Loans, Guarantee, Security and in respect of, Acquisition made by the company, Every company giving loan or giving guarantee or providing, security or making an acquisition of securities shall, from the date, of its incorporation, maintain a register and enter there in, separately, the particulars of loans and guarantees given, securities, provided and acquisitions made., The entries in the register (either manual or electronic) shall be, authenticated by the Company Secretary of the Company or by any, other person authorised by the Board for the purpose., Register of Investment not held in its own name by the company, , MBP-3, , Any shares or securities in which investments have been made by a, company are not held by it in its own name, the company shall, maintain a register which shall contain such particulars as may be, prescribed., The entries in the register shall be authenticated by the Company, Secretary of the company or by any other person authorised by the, Board for the purpose., Register of Contracts or arrangements with related party and, with Bodies corporate etc. in which directors are interested, , Every company shall keep one or more registers giving separately, the particulars of all contracts or arrangements to which section, 184(2) or section 188 applies, in such manner and containing such, particulars as may be prescribed and after entering the particulars,, such register or registers shall be placed before the next meeting of, the Board and signed by all the directors present at the meeting., The entries in the register shall be made at once, whenever there is, a cause to make entry, in chronological order and shall be, authenticated by the Company Secretary of the company or by any, other person authorised by the Board for the purpose., , MBP-4
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456, , Lesson 11 • EP-CL, , , , LESSON ROUND-UP, •, •, , The Companies Act, 2013 lays down that every company incorporated under this Act must maintain and, keep at its registered office certain books, registers and copies of certain returns, documents etc. and to give, certain notices, file certain returns, forms, reports, documents etc. with the Registrar of Companies within, certain specified time limits and with the prescribed filing fees. These books are known as Statutory Books., Every company incorporated under the Act is required to keep at its registered office, inter alia, the, following statutory books and registers:, , », », », », », », », », », », », », », », », », , Register of securities bought back. [Section 68 r/w Rule 17(12) of the Companies (Share Capital, and Debenture) Rules, 2014]., , Register of deposits.[Section 73&76 r/w Rule 14 of the Companies (Acceptance of Deposits) Rules,, 2014]., , Register of charges. [Section 85 and Rule 10 of the Companies Registration of Charges Rules, 2014], , Register of members [Section 88 (1) and Rule 3(1) of the Companies (Management and Administration), Rules,2014]., Register of debenture holders [Section 88 (1) and Rule 4 of the Companies (Management and, Administration) Rules, 2014]., “Foreign register”containing the names and particulars of the members, debenture holders, other, security holders or beneficial owners residing outside India [Section88(4)]., , Register of Renewed and Duplicate Share Certificates [Section 46(3) r/w Rule 6 of the Companies, (Share Capital and Debentures) Rules, 2014]., Register of sweat equity shares [Section 54 r/w Rule 8(14) of the Companies (Share Capital and, Debentures) Rules, 2014]., Register of Significant Beneficial Owner [Section 90 r/w Rule 5 of the Companies (Significant, Beneficial Owners) Rules, 2018]., Register of Postal Ballot [Section 110 r/w Rule 22 of the Companies (Management and, Administration) Rules, 2014]., , Books containing minutes of general meeting and of Board and of committees of Directors [Section, 118 r/w Rule 25 of the Companies (Management and Administration) Rules, 2014]., Books of account.[Section 128]., , Register of Directors/ key managerial personnel [Section 170(1)]., , Register of loans, guarantees given and security provided or making acquisition of securities, [Section 186(9) r/w (Rule 12 of the Companies (Meetings of Boards and its Powers) Rules 2014]., Register of investments in securities not held in company’s name [Section 187 r/w Rule 14 of, Companies (Meetings of the Board and its Powers) Rules,2014]., Register of contracts with companies/firms in which directors are interested. [Section 189(5) r/w, Rule16 of the Companies (Meetings of Boards and its Powers) Rules, 2014]., , GLOSSARY, Preservation of books/, accounts/records/ registers, Authentication, , Maintenance of documents, files, and records in usable form for a longer, period., , Verification of the genuineness of a document or signature, to make it, effective or valid.
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457, , Lesson 11 • Registers and Records, , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., , Write the provisions of maintenance, preservation and signing of the following registers:, , 2., , Why is maintaining of Registers so important?, , 3., , 4., 5., 6., , (a), , (b), , Register of Directors, Minute Book, , What are the particulars to be entered in the, (i), Register of Securities bought back, (ii), , Register of Fixed Deposits, , (iv), , Register of Postal Ballot., , (iii), , Register of Charges, , Can a Company Secretary sign Board Minutes?, , Can Minutes of the meeting be altered after signing of Minutes?, , For what period Minutes of the General meeting should be preserved by the Company?, , LIST OF FURTHER READINGS, •, •, •, , ICSI Premier on Company Law, , Bare Act- the Companies Act, 2013, ICSI Guidance Note on SS-1 & SS-2, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, , •, , https://www.icsi.edu/media/webmodules/GN_on_Meetings_of_BOD_3122020.pdf, , •, •, •, , https://www.icsi.edu/media/webmodules/Final_SS-1.pdf, https://www.icsi.edu/media/webmodules/Final_SS-2.pdf, , https://www.icsi.edu/media/webmodules/GN_on_General_Meetings_31122020.pdf
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Lesson 12, Key Concepts One, Should Know, •, , Merger, , •, , Amalgamation, , •, , Oppression, , •, •, •, •, •, , Compromise, , Arrangement, , Mismanagement, Winding up, , Insolvency, , An overview of Corporate, Reorganisation, Learning Objectives, , Regulatory Framework, , To understand, , The Companies Act, 2013, » Section230-Section 247, » Section 270-275, » Section 403-405, • The Companies (Compromise,, Arrangements and, Amalgamations) Rules, 2016, , • The broad regulatory, framework with respect to, compromise/arrangement,, mergers/amalgamation, , • Preparation of scheme, filing of, various documents including, e-forms with ROC, filing of, scheme of amalgamation with, NCLT, etc., , », •, •, , Rule 2-29, Income Tax Act, 1961, , The SEBI (Listing Obligation &, Disclosure Requirements), Regulations, 2015, , • Purchase of minority, shareholding, , •, , The Indian Stamp Act, 1899, , •, , • Class Action Suit, , The SEBI (Substantial, Acquisition of Shares and, Takeover) Regulations, 2011, , •, , The Competition Act, 2002., , •, , The Foreign Exchange, Management Act, 1999, , •, , Insolvency and Bankruptcy, Code, 2016, , •, , Insolvency and Bankruptcy, Board of India (Voluntary, Liquidation Process), Regulations, 2017, , • Oppression and, Mismanagement in Companies, & Power of Tribunal, • Winding up of Companies, , • Valuation by Registered valuers, , Lesson Outline, • Provisions of Companies Act, 2013, • Power to Compromise or make, arrangements with members or, creditors, • Merger and amalgamation of, certain companies, • Merger and amalgamation of a, company with a foreign company, • Power to acquire shares of, shareholders dissenting from, scheme or contract approved by, majority, • Purchase of minority shareholding, , • Power of Central Government to, provide for amalgamation of, companies, • Oppression & Mismanagement, • Winding up, • Registered Valuer, • LESSON ROUND UP, • GLOSSARY, • TEST YOURSELF, • LIST OF FURTHER READINGS, • OTHER REFERENCES
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460, , , , 1. Income Tax Act 1961, , Lesson 12 • EP-CL, , The Income Tax Act, 1961 covers aspects such as tax reliefs to amalgamating/amalgamated companies, carry, forward of losses, exemptions from capital gains tax, etc. For example, when a scheme of merger or demerger, involves the merger of a loss-making company or a hiving off of a loss-making division, it is necessary to check the, relevant provisions of the Income Tax Act and the Rules for the purpose of ensuring, inter alia, the availability of the, benefit of carrying forward the accumulated losses and setting of such losses against the profits of the Transferee, Company. Taxation aspects of the Merger and Amalgamation have more elaborately given under the relevant, module., , 2. SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, , Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, provides that the, listed entity shall not file any scheme of arrangement under sections 391-394 and 101 of the erstwhile Companies, Act, 1956 or under Sections 230-234 and Section 66 of Companies Act, 2013, whichever applicable, with any Court, or Tribunal unless it has obtained the No-objection letter from the stock exchange(s)., , Generally, stock exchanges raise several queries and on being satisfied that the scheme does not violate any laws, concerning securities such as the Takeover Code or the SEBI (ICDR) Regulations, Stock Exchanges accord their, approval., The listed entity shall place the No-objection letter of the stock exchange(s) before the Court or Tribunal at the time, of seeking approval of the scheme of arrangement. The validity of the No-objection letter of stock exchanges shall, be six months from the date of issuance, within which the draft scheme of arrangement shall be submitted to the, Court or Tribunal., In addition to the above, Securities and Exchange Board of India has also provided some compliances with regard, to the merger and amalgamation., , Rule 19 of the Securities Contracts (Regulation) Rules, 1957 provides basic compliance requirement for listing of, securities on stock exchanges and SEBI has the power to relax listed companies from such compliances., , SEBI has issued Circular No. CFD/DIL3/CIR/2017/21 dated March 10, 2017 which inter-alia regulate the scheme of, arrangement/ amalgamation/ merger/ etc. as filed with Stock Exchange(STX) for their NOC/ observation letter and, also the provides for certain requirements to be complied with for being eligible to get relaxation under Rule 19 of, Securities Contracts (Regulation) Rules, 1957 and get the specified securities, issued by the transferee company,, pursuant to a Scheme, listed on the stock exchange. Circular provides for the format of Detailed Compliance Report, (DCR) to be filed with STX at the time obtaining their NOC/ Observation letter duly certified by the Company, Secretary, Chief Financial Officer and the Managing Director, confirming compliance with various regulatory, requirements specified for schemes of arrangement and all accounting standards., Upon sanction of the Scheme by the Court or Tribunal, the listed entity shall submit the documents, to the stock, exchange(s), as prescribed by the Board and/or stock exchange(s) from time to time., However, draft schemes which solely provide for merger of a wholly owned subsidiary with its holding company the, requirement of No Objection Certification will not be apply. Provided that such draft schemes shall be filed with the, stock exchanges for the purpose of disclosures., , Further, the requirements as specified in regulation 37 and under regulation 94 shall not apply to a restructuring, proposal approved as part of a resolution plan by the Tribunal under section 31 of the Insolvency Code, subject to, the details being disclosed to the recognized stock exchanges within one day of the resolution plan being approved., , 3. The Indian Stamp Act 1899, , It is necessary to refer to the Stamp Act to check the stamp duty payable on transfer of undertaking through a, merger or demerger., The Constitution of India confers the power on the state legislature to make the laws in regard to the matters of stamp, duty other than the documents specified in schedule I. The State in exercise of its legislative powers under Article 246, of the Constitution read with Entry 63 of List II (Seventh Schedule) of the Constitution levy the Stamp Duty.
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Lesson 12 • An overview of Corporate Reorganisation, , 461, , Stamp duty is levied on the instrument evidencing a transfer inter-vivos, i.e., a conveyance. As per Section 2(10) of, the Indian Stamp Act, 1899, “Conveyance” includes a conveyance on sale and every instrument by which property, whether movable or immovable, is transferred inter vivos and which is not otherwise specifically provided for by, Schedule I., As per Section 2(14) of the Indian Stamp Act, 1899, “Instrument” includes every document by which any right or, liability is, or purports to be, created, transferred, limited, extended, extinguished or record., , The term Section 3(18) of the General Clauses Act, 1897, “Document” shall include any matter written, expressed, or described upon any substance by means of letters, figures or marks, or by more than one of those means which, is intended to be used, or which may be used, for the purpose or recording that matter., , The definition(s) as reproduced above are inclusive in nature and are not self-explanatory. Hence, to avoid any, ambiguity and confusion in this regard, with time, certain States has amended their Stamp Act and included Order, of Court approving scheme of arrangement within the meaning of ‘conveyance’. Maharashtra, Gujarat, Karnataka,, Rajasthan, Chhattisgarh, Madhya Pradesh and Andhra Pradesh are the states which have specifically included an, amalgamation order of a High Court as “Conveyance”., In Re. Sahayanidhi (Virudhunagar) Ltd. vs. AR.S Subramanya Nadar, (1950) 20 Com Cases 214 (Mad) Hon’ble, Madras High Court held that, “the documents (scheme of amalgamation or reconstruction) purport to transfer, movable property in the shape of book debts and promissory notes and the consideration for such transfer is, partly in the shape of a cash payment and partly in the shape of covenants entered into by the transferee. We are, therefore of the opinion that these two documents fall within Article 23 of Schedule I and are to be stamped as, such.”, In Re. Hindustan Lever vs. State of Maharashtra (2004) 9 SCC 438 apex court held that, “This definition of, instrument is not amended by the Maharashtra Act of 17 of 1993. The word “Instrument” is defined to mean,, every document by which any right or liability is, or purports to be created, transferred, limited, extended,, extinguished or recorded, but does not include bill of exchange, cheque, promissory note, bill of lading, letter of, credit, policy of insurance, transfer of shares, debenture proxy and receipt. The recital in the scheme of, amalgamation as well as the order of the High Court under Section 394 of the Companies Act, 1956, declares,, that, upon such order of High Court the undertaking of the transferor company shall stand transferred to the, transferee company with all its movable, immovable and tangible assets to the transferee company without any, further act or deed. Thus, the amalgamation scheme sanctioned by the Court would be an “instrument” within, the meaning of Section 2(i). By the said “instrument” the properties are transferred from the transferor company, to the transferee company, the basis of which is the compromise or arrangement arrived at between the two, companies., , In Re. Gemini Silk Ltd. vs. Gemini Overseas Ltd. [2003] 114 Comp. Cas. 92 (cal.) Hon’ble Calcutta High Court held, that, “An order sanctioning a scheme of reconstruction has its genesis in an agreement between the shareholders, of the transferor and the transferee-company. The intended transfer is a voluntary act of contracting parties. The, transfer has all the trappings of a sale. The transfer is effected by an order of court and the order of court is an, instrument by which the transfer is effected. Once the order is held to be an instrument, the irresistible conclusion, is that it is a conveyance. Thus, an order sanctioning a scheme of reconstruction or amalgamation under section, 394 is covered by definition of words ‘conveyance’ and ‘instrument’ under the Indian Stamp Act, 1899 and,, therefore, liable to stamp duty.”, In the case of Madhu Intra Ltd vs. Registrar of Companies 2006 130 Comp Cas 510 Cal the Division Bench of, Hon’ble High Court of Calcutta made the following observations, even if the order under Section 394 is to be, taken to be a ‘conveyance’ or an ‘instrument’ the transfer of assets and liabilities effected thereby is purely by, operation of law which on account of Section 2(d) of the Transfer of Property Act also excludes the operation of, Section 6(e) thereto. Notwithstanding the definition of the expression ‘instrument’ in Section 2(14) of the Indian, Stamp Act, the un-amended provisions of the Indian Stamp Act in relation to such definition and the definition, of ‘conveyance’ and/ or ‘instrument’ does not apply to an order under Section 394 of the Companies Act for the, purpose of stamp-duty.
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462, , , , Lesson 12 • EP-CL, , In our view, the transfer of assets and liabilities of the transferor company to the transferee company takes place, on an order being made under Sub-section (1) of Section 394 by operation of Sub-section (2) thereof., In February 2012 the Hon’ble High Court of Calcutta made the following observations in the case of Emami, Biotech Limited and Others....., , By sanctioning of amalgamation scheme, the property including the liabilities are transferred as provided in, Section 394 of the Companies Act and on that transfer instrument, stamp duty is levied. It, therefore, cannot be, said that the State Legislature has no jurisdiction to levy such duty., It must be respectfully observed in the context that in the light of the judgment in Hindustan Lever, the view, expressed in Madhu Intra does not hold good. The judgement in Madhu Intra did not notice the Supreme Court, pronouncement in Hindustan Lever. If the Division Bench of this court had noticed Hindustan Lever and had still, rendered the opinion in Madhu Intra, it would have been binding on the company Judge of this court. But in, Madhu Intra not noticing Hindustan Lever and it being apparent that the question has been answered otherwise, by the Supreme Court, it is the Supreme Court view that has to be followed., , In Re. Delhi Towers Limited vs. GNCT of Delhi [2010] 159 Comp Case 129 (Del.) Hon’ble Delhi Court held that,, “there can therefore be no manner of doubt, that even if the legislature had not effected the amendment and, included the clause in sub-section (g) of Section 2 of the Bombay Stamp Act, it made no difference to the legal, issue at all. A scheme of amalgamation approved by a court in exercise of jurisdiction under the Companies Act,, 1956 and given effect to thereafter, where under property is conveyed from one company to another, is covered, within the un-amended definition of the term ‘conveyance’ in the Bombay Stamp Act as well. The same would, therefore be eligible to stamp duty under section 3 of the Indian Stamp Act.”, , In the case of Li Taka Pharmaceuticals Ltd. vs. State of Maharashtra And Other [AIR 1997 Bom 7] Hon’ble Bombay, High Court held that an order under section 394 is founded or based upon compromise or arrangement between, the two companies of transferring assets and liabilities of one company to another company known as, “transferor-company” and that order is an “instrument” as defined under section 2(1) of the Bombay Stamp Act, which includes every document by which any right or liability is transferred., Apart from the above cited case laws also in Ambica Quarry works vs. State of Gujrat, AIR 1987 SC 1073; Orient, Paper Industry Ltd. v. State of Orissa, AIR 1991 SC 672; State of Orissa vs. Sudhansu Sekhar Misra, AIR 1968 SC 647;, Krishna Kumar vs. Union Bank of India, AIR 1990 SC 1782, The Hon’ble Supreme Court of India in the series of, judgments in the above cited cases has held that an order of amalgamation is subject to Stamp Duty in the, context of the provisions of the Bombay Stamp Act where the chargeability and the basis of chargeability of an, order of amalgamation have been expressly spelt out, in the absence of such express provisions regarding, chargeability and basis of chargeability of an order of amalgamation in the Stamp Acts of other states, it is legally, doubtful whether orders of amalgamation in such States would be subject to Stamp Duty., , Payment of Stamp Duty in Various States, , Some of the States like Maharashtra, Gujarat, Karnataka, Rajasthan etc. which have enacted their own Stamp Acts, have made specific provisions with respect to payment of Stamp Duty on Order of the High Court under the, Companies Acts/Schedules, while some other states like Madhya Pradesh, Andhra Pradesh etc. which have adopted, the Indian Stamp Act, 1899 have made state amendments to levy Stamp duty on the High Court Order. The remaining, states which neither have their own Stamp Act nor have they made any State Amendment in the adopted Indian, Stamp Act, 1899, levy Stamp duty as per the decision of High Court, if any, covering their states, or follow the, decision of Supreme Court as laid down in the case of Hindustan Lever., , The law relating to payment of Stamp Duty on the Order of High Court in case of Merger lacks uniformity in India, and levy of Stamp Duty will depend upon the Stamp Duty Law of the Concerned State. Also, in cases where the, Transferor Company has its assets in different states things may get more complicated. The method of arriving at, the figure of Stamp Duty also varies from State to State. Non -payment of Stamp Duty can cause legal hurdles at the
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463, , Lesson 12 • An overview of Corporate Reorganisation, , time of registration of properties in the name of Transferee Company. Payment of Stamp Duty is an important, aspect to be considered before going in for a merger especially in those cases where the asset of the Transferor, Company poses a significant value., , 4. SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011, , If an acquisition is contemplated by way of issue of new shares, or the acquisition of existing shares or voting rights,, of a listed company, to or by an acquirer, the provisions of the Takeover Code are applicable. The Takeover Code, regulates both direct and indirect acquisitions of shares or voting rights in, and control over a target company. The, key objectives of the Takeover Code are to provide the shareholders of a listed company with adequate information, about an impending change in control of the company or substantial acquisition by an acquirer, and provide them, with an exit option in case they do not wish to retain their shareholding in the company., , 5. The Competition Act, 2002, , The provisions of Competition Act and the Competition Commission of India (Procedure in regard to the Transaction, of Business relating to Combinations) Regulations, 2011 are to be complied with., , 6. The Foreign Exchange Management (Cross Border Merger) Regulations, 2018, , The Foreign Exchange Management (Cross Border Merger) Regulations, 2018 have been notified vide notification, no. FEMA 389/ 2018-RB dated 20th March, 2018 and are effective from the date of notification. As per the, Regulations, merger transactions in compliance with these regulations shall be deemed to have been approved by, RBI, and hence, no separate approval should be required. In other cases, merger transactions require prior RBI, approval., , 7. Provisions of the Companies Act, 2013, , The Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 made under, Chapter XV of the Companies Act, 2013, Chapter XV of the Companies Act, 2013 comprising, Section 230 to 240 contains provisions on ‘Compromises,, Arrangements and Amalgamations’. The scope of the, Companies, (Compromises,, Arrangements, and, Amalgamations) Rules, 2016 made under Chapter XV of, the Companies Act, 2013 includes detailed procedural, aspects relating to substantive law., , “Corporate Action” means any action taken by the, company relating to transfer of shares and all the, benefits accruing on such shares namely, bonus, shares, split, consolidation, fraction shares and right, issue to the acquirer., , Power to Compromise or make Arrangements with Members or Creditors, , Tribunal to order meeting of members/creditors, etc., , Section 230(1) states that when a compromise or arrangement is proposed –, (a), , (b), , between a company and its creditors or any class of them; or, between a company and its members or any class of them,, , the Tribunal may, on the application of the (i) company, or (ii) any creditor or (iii) member of the company, or (iv), in the case of a company which is being wound up, of the liquidator, appointed under the Companies Act, 2013 or, under Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the creditors or class of, creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such, manner as the Tribunal directs., For the purposes of this sub-section, arrangement includes a reorganisation of the company’s share capital by the, consolidation of shares of different classes or by the division of shares into shares of different classes, or by both, these methods.
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464, , , , Lesson 12 • EP-CL, , Rule 3 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016Application for order of meeting. –, An application under section 230(1) of the Companies Act, 2013 shall be submitted in E-form no. NCLT-1 along with:i., a notice of admission in Form No. NCLT-2;, ii., an affidavit in Form No. NCLT -6;, iii., , a copy of scheme of compromise or arrangement, which should include disclosures as per sub-section (2), of section 230 of the Act; and, iv., fee as prescribed in the Schedule of Fees., Where more than one company is involved in a scheme in relation to which an application is being filed, such, application may, at the discretion of such companies, be filed as joint-application., , Where the company is not the applicant, a copy of the notice of admission and of the affidavit shall be served on, the company, or, where the company is being wound up, on its liquidator, not less than fourteen days before the, date fixed for the hearing of the notice of admission., , The applicant shall also disclose to the Tribunal in the application, the basis on which each class of members or, creditors has been identified for the purposes of approval of the scheme., A member of the company shall make an application for arrangement, for the purpose of takeover offer in terms, of sub-section (11) of section 230, when such member along with any other member holds not less than threefourths of the shares in the company, and such application has been filed for acquiring any part of the remaining, shares of the company., Explanation I. - “shares” means the equity shares of the company carrying voting rights, and includes any, securities, such as depository receipts, which entitles the holder thereof to exercise voting rights., Explanation II. -Nothing in this sub-rule shall apply to any transfer or transmission of shares through a contract,, arrangement or succession, as the case may be, or any transfer made in pursuance of any statutory or regulatory, requirement., , An application of arrangement for takeover offer shall contain:(a) the report of a registered valuer disclosing the details of the valuation of the shares proposed to be, acquired by the member after taking into account the following factors:, (i), , (ii), (b), , the highest price paid by any person or group of persons for acquisition of shares during last twelve, months;, , the fair price of shares of the company to be determined by the registered valuer after taking into, account valuation parameters including return on net worth, book value of shares, earning per, share, price earning multiple vis-d-vis the industry average, and such other parameters as are, customary for valuation of shares of such companies., , details of a bank account, to be opened separately, by the member wherein a sum of amount not Iess than, one-half of total consideration of the takeover offer is deposited., , Affidavit by the applicant to disclose certain material facts, , Section 230(2) states that the company or any other person, by whom an application is made under sub- section ,, shall disclose to the Tribunal by affidavit–, (a) all material facts relating to the company, such as the latest financial position of the company, the latest, auditor’s report on the accounts of the company and the pendency of any investigation or proceedings against, the company;, (b), (c), , reduction of share capital of the company, if any, included in the compromise or arrangement;, , any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured, creditors in value, including—, , (i), , a creditors’ responsibility statement in the prescribed form;
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Lesson 12 • An overview of Corporate Reorganisation, , (ii), (iii), (iv), (v), , 465, , The Creditors’ Responsibility Statement shall be in Form CAA-1 and be included in the scheme of, corporate debt restructuring. A scheme of corporate debt restructuring as referred to in clause (c) of, sub-section (2) of section 230 of the Act shall mean a scheme that restructures or varies the debt, obligations of a company towards its creditors., , safeguards for the protection of other secured and unsecured creditors;, report by the auditor that the fund requirements of the company after the corporate debt restructuring, as approved shall conform to the liquidity test based upon the estimates provided to them by the, Board;, where the company proposes to adopt the corporate debt restructuring guidelines specified by the, Reserve Bank of India, a statement to that effect; and, a valuation report in respect of the shares and the property and all assets, tangible and intangible,, movable and immovable, of the company by a registered valuer., , Rule 5 of the Companies (Compromises, Arrangements and Amalgamations)Rules, 2016- Directions at, hearing of the application.-, , Upon hearing the application under sub-section (1) of section 230 of the Act, the Tribunal shall, unless it thinks, fit for any reason to dismiss the application, give such directions as it may think necessary in respect of the, following matters:-, , (a) determining the class or classes of creditor or of members whose meeting or meetings have to be held for, considering the proposed compromise or arrangement; or dispensing with the meeting or meeting for any class, or classes or creditors in terms of sub-section (9) of section 230;, (b) fixing the time and place of the meeting or meetings;, , (c) appointing a Chairperson and scrutinizer for the meeting or meetings to be held, as the case may be and, fixing the terms of his appointment including remuneration;, , (d) fixing the quorum and the procedure to be followed at the meeting or meetings, including voting in person, or by proxy or by postal ballot or by voting through electronics means;, , Explanation- For the purpose of these rules, “voting through electronics means” shall take place, mutatis mutandis,, in accordance with the procedure as specified in rule 20 of Companies (Management and Administration) Rules,, 2014., , (e) determining the values of the creditors or the members, or the creditors or member of any class, as the case, may be, whose meetings have to be held;, (f) notice to be given of the meeting or meetings and the advertisement of such notice;, (g) notice to be given to sectoral regulators or authorities as required under sub-section (5) of section 230;, , (h) the time within which the chairperson of the meeting of the meeting is required to report the result of the, meeting to the tribunal; and, (i) such other matters as the Tribunal may deem necessary., , Notice of the meeting, , Section 230(3) states that when a meeting is proposed to be called in pursuance of an order of the Tribunal under, sub-section (1), a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members, or class of members and the debenture-holders of the company, individually at the address registered with the, company which shall be accompanied by:, •, a statement disclosing the details of the compromise or arrangement,, •, a copy of the valuation report, if any, and, •, explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and, the debenture-holders, and, •, the effect of the compromise or arrangement on any material interests of the directors of the company or the, debenture trustees, and, •, such other matters as may be prescribed.
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466, , , , Lesson 12 • EP-CL, , The notice of the meeting pursuant to the order of the Tribunal shall be in Form No. CAA.2 and shall be sent, individually to each of the creditors or members. The notice shall be sent by the chairperson appointed for the, meeting, or, if the Tribunal so directs, by the company (or its liquidator), or any other person as the Tribunal may, direct, by registered post or speed post or by courier or by e-mail or by hand delivery or any other mode as directed, by the Tribunal to their last known address at least one month before the date fixed for the meeting. The notice of, the meeting to the creditors and members shall be accompanied by a copy of the scheme of compromise or, arrangement., Such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed, company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the, securities of the companies are listed, for placing on their website and shall also be published in newspapers in such, manner as may be prescribed., , When the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which, copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the, registered office of the company., , The notice of the meeting shall be advertised in Form No. CAA - 2 in at least one English newspaper and in at least, one vernacular newspaper having wide circulation in the state in which the registered office of the company is, situated, or such newspaper as may be directed by the Tribunal and shall also be placed, not less than thirty days, before the date fixed for the meeting, on the website of the company, of the SEBI and the recognized stock exchange, where the securities of the company are listed. Where separate meetings of classes of creditors or members are to, be held, a joint advertisement for such meetings may be given., , Notice to provide for voting by themselves or through proxy or through postal ballot, , Sub-section (4) of section 230 states that a notice under sub-section (3) shall provide that the persons to whom the, notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the, compromise or arrangement within one month from the date of receipt of such notice., , Who can object to the scheme?, , Any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent, of the shareholding or having outstanding debt amounting to not less than five per cent of the total outstanding debt, as per the latest audited financial statement., , Notice to be sent to the regulators seeking their representations, , Section 230(5) states that a notice under sub-section (3) along with all the documents in Form CAA- 3 as may be, prescribed shall also be sent to, •, the Central Government, the Registrar of Companies, the Income-tax authorities, in all cases;, •, •, , the Reserve Bank of India, the Securities and Exchange Board, the respective stock exchanges, the Official, Liquidator, the Competition Commission of India established under sub-section (1) of section 7 of the, Competition Act, 2002, if necessary, and, such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement, and, , shall require that representations, if any, to be made by them shall be made within a period of thirty days from, the date of receipt of such notice, failing which, it shall be presumed that they have no representations to, make on the proposals., , Affidavit of Service, , The chairperson appointed for the meeting of the company or other person directed to issue the advertisement and, the notices of the meeting shall file an affidavit before the Tribunal not less than seven days before the date fixed for, meeting or date of the first of the meetings, as the case may be, stating that the directions regarding the issue of, notices and the advertisement have been duly complied with.
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Lesson 12 • An overview of Corporate Reorganisation, , 467, , In case of default, the application along with copy of the last order issued shall be posted the tribunal for such, orders as it may think fit to make., , Voting, , The person who receives the notice may within one month, from date of receipt of the notice vote in the meeting either, in person of through electronics means to the adoption of, the scheme of compromise and arrangement., Explanation. For the purpose of voting by persons who, receive the notice as shareholder of creditor under this, rule-, , (a) “shareholding” shall mean the shareholding of the, members of the class who are entitled to vote on the, proposal; and, , (b) “outstanding debt” shall mean all debt owed by the, company to the respective class or classes of creditors that, remains outstanding as per the latest audited financial, statement, or if such statement is more than six months, old, as per provisional financial statement not preceding, the date of application by more than six months., , Rule 13 of the Companies(Compromises,, Arrangements and Amalgamations)Rules, 2016, The voting at the meeting or meetings held in, pursuance of the directions of the tribunal under, Rule 5 on all resolutions shall take place by poll or, by voting through electronics means., The report of the result of the meeting under sub, rule (1) shall be in Form no CAA.4 and shall state, accurately the number of creditors or class of, creditors, as the case may be, who were present and, who voted at the meeting either in person or by, proxy, and where applicable, who voted through, electronics means, their individual values and the, way they voted., , Rule 10 of the Companies(Compromises, Arrangements and Amalgamations)Rules, 2016 provides for the, provision of Proxy:, Voting by proxy shall be permitted , provided a proxy in the prescribed form duly signed by the person entitled to, attend and vote at the meeting is filed with the company at its registered office not later than 48 hours before the, meeting., , Where a body corporate which is a member or creditor (including holder of debentures) of a company authorizes, any person to act as its representative at the meeting, of the members or creditors of the company , or of any class, of them, as the case may be, a copy of the resolution of the board of directors or other governing body of such, corporate authorizing such person to act as its representative at the meeting, and certified to be a true copy by a, director, the manager, the secretary , or other authorized officer of such body corporate shall be lodged with the, company at its registered office not later than 48 hours before the meeting., No person shall be appointed as a proxy who is a minor., , The proxy of a member or creditor blind or incapable of writing maybe accepted if such member or creditor has, attached his signature or mark thereto in presence of a witness who shall add to his signature his description and, address : provided that all insertions have been made by him at the request and in the presence of member or, creditor before he attached his signature or mark., The proxy of a member or creditor who does not know English maybe accepted if it is executed in the manner, prescribed in the preceding sub-rule and the witness certifies that it was explained to the member or creditor in the, language known to him , and gives the member’s or creditor’s name in the English below the signature., Report of the result of the meeting by chairperson :-, , The chairperson of the meeting (or where there are separate meetings , the chairperson of each meeting) shall,, within the time fixed by the tribunal, or where no time has been fixed ,within three days after the conclusion of the, meeting submit a report to the Tribunal on the result of the meeting in Form No. CAA.4.
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468, , , , Lesson 12 • EP-CL, , Copy of compromise or arrangement to be furnished by the company :Every creditor or member entitled to attend the meeting shall be furnished by the company , free of charge , within, one day on a requisition being made for the same, with a copy of the scheme of the proposed compromise or, arrangement together with a copy of the statement required to be furnished under section 230 of the Act., , Petition for confirming compromise or arrangement, , Rule 15 of the Companies(Compromises, Arrangements and Amalgamations)Rules, 2016 provides that, where the, proposed compromise or arrangement is agreed to by the members or creditors or both as the case may be with or, without modification, the company (or its liquidator),shall , within seven days of the filing of the report by the chairperson,, present a petition to the tribunal in Form No.CAA.5 for sanction of the scheme of compromise or arrangement., , Where a compromise or arrangement is proposed for the purposes of or in connection with scheme for the, reconstruction of any company proposed for the purposes of or in connection with scheme for the reconstruction, of any company or companies or for the amalgamation of any two or more companies, the petition shall pray for, appropriate orders and directions under section 230 read with section 232 of the Act., Where the company fails to present the petition for confirmation of the compromise or arrangement as aforesaid,, it shall be open to any creditor or member as the case may be , with the leave of the tribunal, to present the petition, and the company shall be liable for the cost thereof., , Approval and sanction of the scheme, , Section 230(6) states that when at a meeting held in pursuance of sub-section (1), majority of persons representing, three-fourths in value of the creditors, or class of creditors or members or class of members, as the case may be,, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise, or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors,, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up,, on the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, and the contributories of the company., Order of the Tribunal sanctioning the scheme to provide for the following matters [Section 230(7)], , An order made by the Tribunal under sub-section (6) shall provide for all or any of the following matters, namely:—, (a) where the compromise or arrangement provides for conversion of preference shares into equity shares, such, preference shareholders shall be given an option to either obtain arrears of dividend in cash or accept equity, shares equal to the value of the dividend payable;, (b), , the protection of any class of creditors;, , (d), , if the compromise or arrangement is agreed to by the creditors under sub-section (6), any proceedings, pending before the Board for Industrial and Financial Reconstruction established under section 4 of the Sick, Industrial Companies (Special Provisions) Act, 1985 shall abate;, , (c), , (e), , if the compromise or arrangement results in the variation of the shareholders’ rights, it shall be given effect, to under the provisions of section 48;, such other matters including exit offer to dissenting shareholders, if any, as are in the opinion of the Tribunal, necessary to effectively implement the terms of the compromise or arrangement., , Rule 17 of the Companies(Compromises, Arrangements and Amalgamations)Rules, 2016 stipulates Order, on petition :-, , Where the tribunal sanctions the compromise or arrangement, the order shall include such directions in regard to, any matter or such modifications in the compromise or arrangement as the tribunal may think to fit to make for the, proper working of the compromise or arrangement. The order shall direct that a certified copy of the same shall be, filed with the registrar of companies within thirty days from the date of the receipt of copy of the order , or such, other time as maybe fixed by the tribunal., The order shall be in Form No. CAA. 6, with such variations as may be necessary.
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469, , Lesson 12 • An overview of Corporate Reorganisation, , Accounting treatment proposed in the scheme to be in conformity with accounting standards, No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor, has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of, compromise or arrangement is in conformity with the accounting standards prescribed under section 133., , Order of Tribunal to be filed with the Registrar, , Section 230(8) states that the order of the Tribunal shall be filed with the Registrar by the company within a period, of thirty days of the receipt of the order., , Tribunal may dispense with calling of meeting of creditors, , Section 230(9) states that the Tribunal may dispense with calling of a meeting of creditors or class of creditors, where such creditors or class of creditors, having at least ninety per cent value, agree and confirm, by way of, affidavit, to the scheme of compromise or arrangement., , Compromise in respect of buy back is to be in compliance with section 68, , As per Section 230(10), no compromise or arrangement in respect of any buy-back of securities under this section, shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of section 68., , Compromise includes takeover (Notified w.e.f. 03.02.2020), , Section 230(11) states that any compromise or arrangement may include takeover offer made in such manner as, may be prescribed. In case of listed companies, takeover offer shall be as per the regulations framed by the Securities, and Exchange Board., , Application to the Tribunal by an aggrieved party (Notified w.e.f. 03.02.2020), , Section 230(12) states that an aggrieved party may make an, application to the Tribunal in the event of any grievances with, respect to the takeover offer of companies other than listed, companies in such manner as may be prescribed and the, Tribunal may, on application, pass such order as it may deem fit., An application under sub-section (12) of section 230 may be, made in Form NCLT-1 and shall be accompanied with prescribed, documents., , Do provisions of section 66 apply with respect, to reduction of capital effected in pursuance of, order of Tribunal under section 230?, Provisions of section 66 shall not apply to the, reduction of share capital effected in pursuance, of the order of the Tribunal under this section., , POWER OF THE TRIBUNAL TO ENFORCE COMPROMISE OR ARRANGEMENT, , As per section 231(1), when the Tribunal makes an order under section 230 sanctioning a compromise or an, arrangement in respect of a company, it—, (a), , (b), , shall have power to supervise the implementation of the compromise or arrangement; and, , may, at the time of making such order or at any time thereafter, give such directions in regard to any matter, or make such modifications in the compromise or arrangement as it may consider necessary for the proper, implementation of the compromise or arrangement., , Sub-section (2) states that if the Tribunal is satisfied that the compromise or arrangement sanctioned under section, 230 cannot be implemented satisfactorily with or without modifications, and the company is unable to pay its debts, as per the scheme, it may make an order for winding-up the company and such an order shall be deemed to be an, order made under section 273., In case of Government Company - In Section 231 for the word “Tribunal” the words “Central Government” shall, be substituted.- Notification Dated 13th June, 2017
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470, , , , Lesson 12 • EP-CL, , In the matter of Joint Commissioner of Income Tax (OSD), Circle (3)(3)-1 & Ors. (Appellants) vs., Reliance Jio Infocomm Ltd. & Ors. (Respondents), Mere fact that a Scheme of Arrangement may result in reduction of tax liability does not furnish, a basis for challenging the validity of the same., The National Company Law Appellate Tribunal (NCLAT), held that without going to the record and without, placing any evidence or substantiating the allegation of avoidance of tax by appearing before the Tribunal, it, was not open to the income tax department to hold that the composite scheme of arrangement amongst the, petitioner companies and their respective shareholders and creditors is giving undue favour to the shareholders, of the company and also the overall scheme of arrangement results into tax avoidance., The NCLAT observed that mere fact that a scheme may result in reduction of tax liability does not furnish a, basis for challenging the validity of the same. The Income Tax Department, which sought for liberty, while, accepted by the Petitioner Companies (Respondents herein) and the NCLT, Ahmedabad bench while approving, the Composite Scheme of Arrangement has granted liberty. Such liberty to the Income Tax Department to, enquire into the matter, if any part of the Composite Scheme of Arrangement amounts to tax avoidance or is, against the provisions of the Income Tax and is to let it take appropriate steps if so required. Thus, NCLAT, upheld the decision of NCLT, Ahmedabad bench and in view of the liberty given to the Income Tax Department, decided not to interfere with the Scheme of Arrangement as approved by the Tribunal and dismissed the, appeals filed., , MERGER AND AMALGAMATION OF COMPANIES, Merger, , The term merger and amalgamation has not been defined under the Companies Act, 2013. Merger & Amalgamation, is often known to be a single terminology. However, there is a thin difference between the two. ‘Merger’ is the fusion, of two or more companies, whereby the identity of one or more is lost resulting in a single company whereas, ‘Amalgamation’ signifies the blending of two or more undertaking into one undertaking, blending enterprises loses, their identity forming themselves into a separate legal identity., There may be amalgamation by the transfer of two or more undertakings to a new or existing company. ‘Transferor, company’ means the company which is merging also known as amalgamating company in case of amalgamation, and ‘transferee company’ is the company which is formed after merger or amalgamation also known as amalgamated, company in case of amalgamation., A merger is a legal consolidation of two entities into one entity which can be merged together either by way of, amalgamation or absorption or by formation of a new company. The Board of Directors of two companies approve, the combination and seek shareholders’ approval. After the merger, the acquired company ceases to exist and, becomes part of the acquiring company., , Amalgamation, , Amalgamation is a legal process by which two or more companies are joined together to form a new entity or one, or more companies are to be absorbed or blended with another as a consequence the amalgamating company loses, its existence and its shareholders become the shareholders of new company or amalgamated company. In other, words, property, assets, liabilities of one or more companies, is taken over by another or are absorbed by and, transferred to an existing company or a new company. Therefore, the essence of amalgamation is to make an, arrangement thereby uniting the undertakings of two or more companies so that they become vested in, or under, the control of one company which may or may not be the original of the two or more of such uniting companies. The, word “amalgamation” is not defined under the Companies Act 2013 whereas section 2(1B) of Income Tax Act, 1961, defines Amalgamation as:
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Lesson 12 • An overview of Corporate Reorganisation, , 471, , “Amalgamation”, in relation to companies, means the merger of one or more companies with another company or, the merger of two or more companies to form one company (the company or companies which so merge being, referred to as the amalgamating company or companies and the company with which they merge or which is formed, as a result of the merger, as the amalgamated company) in such a manner that –, (i), all the property of the amalgamating company or companies immediately before the amalgamation becomes, the property of the amalgamated company by virtue of the amalgamation;, (ii), , (iii), , all the liabilities of the amalgamating company or companies immediately before the amalgamation become, the liabilities of the amalgamated company by virtue of the amalgamation;, , shareholders holding not less than three-fourths in value of the shares in the amalgamating company or, companies (other than shares already held therein immediately before the amalgamation by, or by a nominee, for, the amalgamated company or its subsidiary) become shareholders of the amalgamated company by, virtue of the amalgamation,, , otherwise than as a result of the acquisition of the property of one company by another company pursuant to the, purchase of such property by the other company or as a result of the distribution of such property to the other, company after the winding up of the first-mentioned company., , Tribunal’s power to call meeting of creditors or members, with respect to merger or amalgamation, of companies, , Section 232(1) states that when an application is made to the Tribunal under section 230 for the sanctioning of a, compromise or an arrangement proposed between a company and any such persons as are mentioned in that, section, and it is shown to the Tribunal –, (a) that the compromise or arrangement has been proposed for the purposes of, or in connection with, a scheme, for the reconstruction of the company or companies involving merger or the amalgamation of any two or, more companies; and, (b), , that under the scheme, the whole or any part of the undertaking, property or liabilities of any company, (hereinafter referred to as the transferor company) is required to be transferred to another company, (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred to, two or more companies,, , the Tribunal may on such application, order a meeting of the creditors or class of creditors or the members or class, of members, as the case may be, to be called, held and conducted in such manner as the Tribunal may direct and the, provisions of sub-sections (3) to (6) of section 230 shall apply mutatis mutandis., , Where the compromise or arrangement has been proposed for the purposes of or in connection with a scheme for, the reconstruction of any company or companies or the amalgamation of any two or more companies , and the, matters involved cannot be dealt with or dealt with adequately on the petition for sanction of the compromise or, arrangement, an application shall be made to the tribunal under section 232 of the Act, by a notice of admission, supported by an affidavit for directions of the Tribunal as to the proceedings to be taken., Notice of admission in such cases shall be given in such manner and to such persons as the tribunal may direct., , Circulation of documents for members’/creditors’ meeting, , Section 232(2) states that when an order has been made by the Tribunal under sub-section (1), merging companies, or the companies in respect of which a division is proposed, shall also be required to circulate the following for the, meeting so ordered by the Tribunal, namely:—, (a), , the draft of the proposed terms of the scheme drawn up and adopted by the directors of the merging company;, , (c), , a report adopted by the directors of the merging companies explaining effect of compromise on each class of, shareholders, key managerial personnel, promoters and non-promoter shareholders laying out in particular, the share exchange ratio, specifying any special valuation difficulties;, , (b), , confirmation that a copy of the draft scheme has been filed with the Registrar;
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472, , (d), (e), , , , the report of the expert with regard to valuation, if any;, , Lesson 12 • EP-CL, , a supplementary accounting statement if the last annual accounts of any of the merging company relate to a, financial year ending more than six months before the first meeting of the company summoned for the, purposes of approving the scheme., , Sanctioning of scheme by Tribunal, , Section 232(3) states that the Tribunal, after satisfying itself that the procedure specified in sub-sections (1) and, has been complied with, may, by order, sanction the compromise or arrangement or by a subsequent order,, make provision for the following matters, namely:—, (a) the transfer to the transferee company of the whole or any part of the undertaking, property or liabilities of, the transferor company from a date to be determined by the parties unless the Tribunal, for reasons to be, recorded by it in writing, decides otherwise;, (b), , the allotment or appropriation by the transferee company of any shares, debentures, policies or other like, instruments in the company which, under the compromise or arrangement, are to be allotted or appropriated, by that company to or for any person:, A transferee company shall not, as a result of the compromise or arrangement, hold any shares in its own, name or in the name of any trust whether on its behalf or on behalf of any of its subsidiary or associate, companies and any such shares shall be cancelled or extinguished;, No transferee company can hold shares in its own name or under any trust, , (c), , the continuation by or against the transferee company of any legal proceedings pending by or against any, transferor company on the date of transfer;, , (e), , the provision to be made for any persons who, within such time and in such manner as the Tribunal directs,, dissent from the compromise or arrangement;, , (d), (f), , (g), , (h), , dissolution, without winding-up, of any transferor company;, , where share capital is held by any non-resident shareholder under the foreign direct investment norms or, guidelines specified by the Central Government or in accordance with any law for the time being in force, the, allotment of shares of the transferee company to such shareholder shall be in the manner specified in the, order;, the transfer of the employees of the transferor company to the transferee company;, , when the transferor company is a listed company and the transferee company is an unlisted company,—, , (i), , (ii), , (i), (j), , the transferee company shall remain an unlisted company until it becomes a listed company;, , if shareholders of the transferor company decide to opt out of the transferee company, provision shall, be made for payment of the value of shares held by them and other benefits in accordance with a predetermined price formula or after a valuation is made, and the arrangements under this provision may, be made by the Tribunal., The amount of payment or valuation under this clause for any share shall not be less than what has, been specified by the Securities and Exchange Board under any regulations framed by it;, , where the transferor company is dissolved, the fee, if any, paid by the transferor company on its authorised, capital shall be set-off against any fees payable by the transferee company on its authorised capital subsequent, to the amalgamation; and, such incidental, consequential and supplemental matters as are deemed necessary to secure that the merger, or amalgamation is fully and effectively carried out., , Auditor’s certificate as to conformity with accounting standards, , No compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company’s auditor
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Lesson 12 • An overview of Corporate Reorganisation, , 473, , has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of, compromise or arrangement is in conformity with the accounting standards prescribed under section 133., , Transfer of property or liabilities, , Sub-section (4) of Section 232 states that an order under this section provides for the transfer of any property or, liabilities, then, by virtue of the order, that property shall be transferred to the transferee company and the liabilities, shall be transferred to and become the liabilities of the transferee company and any property may, if the order so, directs, be freed from any charge which shall by virtue of the compromise or arrangement, cease to have effect., , Certified copy of the order to be filed with the Registrar, , An order made under section 232 read with section 230 of the act shall be in Form No CAA.7 with such variation as, the circumstances may require., , Section 232(5) states that every company in relation to which the order is made shall cause a certified copy of the, order to be filed with the Registrar for registration within thirty days of the receipt of certified copy of the order., , Effective date of the scheme, , Section 232(6) states that the scheme under this section shall clearly indicate an appointed date from which it shall, be effective and the scheme shall be deemed to be effective from such date and not at a date subsequent to the, appointed date., , Annual statement certified by CA/CS/CWA to be filed with Registrar every year until the, completion of the scheme, , Section 232(7) states that every company in relation to which the order is made shall, until the completion of the, scheme, file a statement in Form CAA.8 and within 210 days from the end of each financial year with the Registrar, every year duly certified by a chartered accountant or a cost accountant or a company secretary in practice indicating, whether the scheme is being complied with in accordance with the orders of the Tribunal or not., , Punishment, , Section 232(8) states that if a company fails to comply with provisions of section 232 (5) i.e.failure to file Certified, copy of the order with the Registrar, the company and every officer of the company who is in default shall be liable, to a penalty of twenty thousand rupees, and where the failure is a continuing one, with a further penalty of one, thousand rupees for each day after the first during which such failure continues, subject to a maximum of three lakh, rupees., , Explanation under Section 232, , For the purpose of the Section, —, (i), in a scheme involving a merger, where under the scheme the undertaking, property and liabilities of one or, more companies, including the company in respect of which the compromise or arrangement is proposed,, are to be transferred to another existing company, it is a merger by absorption, or, , (ii), , (iii), (iv), , where the undertaking, property and liabilities of two or more companies, including the company in respect, of which the compromise or arrangement is proposed, are to be transferred to a new company, whether or, not a public company, it is a merger by formation of a new company;, references to merging companies are in relation to a merger by absorption, to the transferor and transferee, companies, and, in relation to a merger by formation of a new company, to the transferor companies;, a scheme involves a division, where under the scheme the undertaking, property and liabilities of the company, in respect of which the compromise or arrangement is proposed are to be divided among and transferred to, two or more companies each of which is either an existing company or a new company; and, property includes assets, rights and interests of every description and liabilities include debts and obligations, of every description.
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474, , , , Lesson 12 • EP-CL, , In case of Government Company - In Section 232 for the word “Tribunal” the words “Central Government” shall be, substituted.- Notification Dated 13th June, 2017., In the matter of Mohit Agro Commodities & Ors. NCLAT, dated June 28, 2021, When the ‘Transferor and Transferee Company’ involve a Parent Company and a Wholly Owned, Subsidiary the meeting of Equity Shareholders, Secured and Unsecured Creditors can be dispensed with, as the rights of the Equity Shareholders of the ‘Transferee Company’ are not being affected, Fact of the Case, The Appellant Company (‘Transferor Company’ and ‘Transferee Company’) filed Applications under Sections, 230 to 232 and other relevant provisions of the Companies Act, 2013 seeking dispensation of the meeting of the, Equity Shareholders, Secured Creditors and Unsecured Creditors in respect of the scheme of Amalgamation of, the ‘Transferor Company’ with the ‘Transferee Company’ with effect from the appointed date on the aggrieved, terms and conditions has set out in the scheme in accordance with Sections 230 to 232 of the Companies Act,, 2013 and other applicable provisions of the Act. It is contented that there is no change in the capital structure, of the ‘Transferor Company’ till the date of approval of the schemes by the Board of Directors., It is further stated that the ‘Transferor Company’ is a Wholly Owned Subsidiary of the ‘Transferee Company’ and, that both the Companies are incorporated in similar type of nature of activities and that the ‘Transferee, Company’ had acquired the ‘Transferor Company’ as a business supportive mechanism for ease of operations., Judgment, , The NCLAT has observed that Section 232(1) of the Companies Act, 2013 uses the word ‘may’ which introduces, an element of discretion to the Tribunal to be exercised in the interest of justice in appropriate situations., Section 232 is a specific provision carved out by the Legislature when both conditions maintained in clauses (a), and (b) of sub-Section (1) of Section 232 are met., In the instant case the amalgamation sought for is between a Wholly Owned Subsidiary and the Holding, Company. The point which needs to be noted is:, •, whether such an arrangement alters the rights of the Stakeholders of the Company?, •, •, •, , whether such an amalgamation has any bearing internally on Creditors/Members of both the Companies?, , whether not holding the subject meeting would amount to violation of any of the provisions of the, Companies Act, 2013?, , whether the Tribunal can exercise their discretion when the ‘Transferor Company’ is a Wholly Owned, Subsidiary of the ‘Transferee Company’ and financial position of the ‘Transferee Company’ is positive and, the merger is not affecting the rights of the Shareholders or the Creditors?, , Therefore, it is held that the rights and liabilities of Secured and Unsecured Creditors were not getting affected, in any manner by way of the proposed scheme as no new shares are being issued by the ‘Transferor Company’, and no compromise is offered to any Secured and Unsecured Creditors of the ‘Transferee Company’. Hence,, when the ‘Transferor and Transferee Company’ involve a Parent Company and a Wholly Owned Subsidiary the, meeting of Equity Shareholders, Secured Creditors and Unsecured Creditors can be dispensed with as the rights, of the Equity Shareholders of the ‘Transferee Company’ are not being affected., , MERGER AND AMALGAMATION OF CERTAIN COMPANIES, , Section 233 prescribes simplified procedure for Merger or amalgamation of –, •, two or more small companies, or, •, •, , between a holding company and its wholly-owned subsidiary company or, such other class or classes of companies as may be prescribed.
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Lesson 12 • An overview of Corporate Reorganisation, , 475, , Merger of small companies/holding and subsidiary companies, Section 233(1) states that notwithstanding the provisions of section 230 and section 232, a scheme of merger or, amalgamation may be entered into between two or more small companies or between a holding company and its, wholly-owned subsidiary company or such other class or classes of companies as may be prescribed, subject to the, following, namely:–, (a) a notice of the proposed scheme inviting objections or suggestions, if any, from the Registrar and Official, Liquidators where registered office of the respective companies are situated or persons affected by the, scheme within thirty days is issued by the transferor company or companies and the transferee company;, Such objections or suggestions from the Registrar and official liquidator or persons affected by the scheme, shall be in Form CAA - 9., (b), (c), , (d), , the objections and suggestions received are considered by the companies in their respective general meetings, and the scheme is approved by the respective members or class of members at a general meeting holding at, least ninety per cent of the total number of shares;, , each of the companies involved in the merger files a declaration of solvency, in Form No.CAA-10, with the, Registrar of the place where the registered office of the company is situated; and, , the scheme is approved by majority representing nine-tenths in value of the creditors or class of creditors of, respective companies indicated in a meeting convened by the company by giving a notice of twenty- one days, along with the scheme to its creditors for the purpose or otherwise approved in writing., , According to Rule 25, of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 for the, purpose of clause (b) and (d) of sub-section (1) of section 233 of the Act, the notice of the meeting to the members, and creditors shall be accompanied by(a) a statement, as far as applicable, referred to in sub section (3) of section 230 of the act read with sub rule (3), of rule 6 hereof;, (b), (c), , The declaration of solvency made in pursuance of clause (c) of sub-section (1) of section 233 of the Act in, Form No. CAA.10; and, A copy of the scheme., , The act the declaration of solvency shall be filed by each of the companies involved in the scheme of merger or, amalgamation, before convening the meeting of members and creditors for approval of the scheme., The Central Government has prescribed class of Companies between which a scheme of merger or amalgamation, under section 233 of the Act may be entered into, namely:(i), two or more start-up companies; or, (ii) one or more start-up company with one or more small company., , Explanation.- For the purposes of this sub-rule, “start-up company” means a private company incorporated, under the Companies Act, 2013 or Companies Act, 1956 and recognised as such in accordance with notification, number G.S.R. 127 (E), dated the 19th February, 2019 issued by the Department for Promotion of Industry and, Internal Trade., , Transferee company to file a copy of scheme approved, , Section 233(2) states that the transferee company shall file a copy of the scheme so approved in the manner as may, be prescribed, with the Central Government, Registrar and the Official Liquidator where the registered office of the, company is situated., , According to Rule 25(4)(a) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, the, transferee company shall, within seven days after the conclusion of the meeting of members or class of members or, creditors, file a copy of the scheme as agreed to by the members and creditors, along with a report of the result of
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476, , , , Lesson 12 • EP-CL, , each of the meetings in Form no. CAA.11 with the central government, along with the fees as provided under the, companies (Registration Offices and Fees) Rules, 2014., , Further, as per Rule 25(4)(b) Copy of the scheme shall also be filed, along with Form No. CAA.11 with –, (i), the registrar of companies in form no. GNL-1 along with fees provided under the companies ( Registration, offices and fees) rules, 2014; and, (ii), , the official liquidator through hand delivery or by registered post or speed post., , Central Government to issue confirmation order, where there are no objections or suggestions, from Registrar or Official Liquidator, , Section 233(3) states that on the receipt of the scheme, if the Registrar or the official liquidator has no objections or, suggestions to the scheme, the Central Government shall register the same and issue a confirmation thereof to the, companies., Where no objection or suggestion is received to the scheme from the Registrar of companies and official Liquidator, or where the objection or suggestion of registrar and official liquidator is deemed to be not sustainable and the, central government shall issue a confirmation order of such scheme of merger or amalgamation in Form No., CAA.12., , Objections if any by the Registrar or Official Liquidator to be communicated to the central government, , Section 233(4) provides that if the Registrar or Official Liquidator has any objections or suggestions, he may, communicate the same in writing to the Central Government within a period of thirty days. If no such communication, is made, it shall be presumed that he has no objection to the scheme., , Application by Central Government to the Tribunal, , Section 233(5) states that if the Central Government after receiving the objections or suggestions or for any reason, is of the opinion that such a scheme is not in public interest or in the interest of the creditors, it may file an application, before the Tribunal within a period of sixty days of the receipt of the scheme under sub-section stating its objections, and requesting that the Tribunal may consider the scheme under section 232., , Rule 25(6) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 mandate where, objections or suggestions are received from the registrar of companies or official liquidator and the central, government is of the opinion, whether on the basis of such objections or otherwise, that the scheme is not in the, public interest of creditors , it may file an application before the tribunal in Form No. CAA.13 within sixty days of, the receipt of the scheme stating its objections or opinion and requesting that tribunal may consider the scheme, under section 232 of the act., , Tribunal’s Action to Central Government’s application, , Section 233(6) states that on receipt of an application from the Central Government or from any person, if the, Tribunal, for reasons to be recorded in writing, is of the opinion that the scheme should be considered as per the, procedure laid down in section 232, the Tribunal may direct accordingly or it may confirm the scheme by passing, such order as it deems fit:, If the Central Government does not have any objection to the scheme or it does not file any application under this, section before the Tribunal, it shall be deemed that it has no objection to the scheme., , Registrar having jurisdiction over transferee company has to be communicated, , Section 233(7) states that a copy of the order under sub-section (6) confirming the scheme shall be communicated, to the Registrar having jurisdiction over the transferee company and the persons concerned and the Registrar shall, register the scheme and issue a confirmation thereof to the companies and such confirmation shall be communicated, to the Registrars where transferor company or companies were situated., Rule 25(7) of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 states that the
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Lesson 12 • An overview of Corporate Reorganisation, , 477, , confirmation order of the scheme issued by the central government or tribunal under sub section (7) of section 233, of the Act, shall be filed, within thirty days of the receipt of the order of confirmation, in Form INC-28 along with, the fees as provided under companies (registration offices and fees)rules 2014 with the Registrar of companies, respectively., , Effect of registration of the scheme, , Section 233(8) states that registration of the scheme under sub-section (3) or sub-section (7) shall be deemed to, have the effect of dissolution of the transferor company without process of winding-up., , Section 233(9) states that the registration of the scheme shall have the following effects, namely:—, (a) transfer of property or liabilities of the transferor company to the transferee company so that the property, becomes the property of the transferee company and the liabilities become the liabilities of the transferee, company;, (b), , the charges, if any, on the property of the transferor company shall be applicable and enforceable as if the, charges were on the property of the transferee company;, , (d), , where the scheme provides for purchase of shares held by the dissenting shareholders or settlement of debt, due to dissenting creditors, such amount, to the extent it is unpaid, shall become the liability of the transferee, company., , (c), , legal proceedings by or against the transferor company pending before any court of law shall be continued by, or against the transferee company; and, , Transferee Company not to hold any share in its own name or trust and all such shares are to be, cancelled or extinguished, , Section 233(10) states that a transferee company shall not on merger or amalgamation, hold any shares in its own, name or in the name of any trust either on its behalf or on behalf of any of its subsidiary or associate company and, all such shares shall be cancelled or extinguished on the merger or amalgamation., , Transferee Company to file an application with Registrar along with the scheme registered, , Section 233(11) provides that the transferee company shall file an application with the Registrar along with the, scheme registered, indicating the revised authorised capital and pay the prescribed fees due on revised capital. The, fee, if any, paid by the transferor company on its authorised capital prior to its merger or amalgamation with the, transferee company shall be set-off against the fees payable by the transferee company on its authorised capital, enhanced by the merger or amalgamation., Section 233(12) provides that the provisions of Section 233 shall mutatis mutandis apply to a company or companies, specified in sub-section (1) in respect of a scheme of compromise or arrangement referred to in section 230 or, division or transfer of a company referred to clause (b) of subsection (1) of section 232., The Central Government may provide for the merger or amalgamation of companies in such manner as may be, prescribed., , It is clarified that with respect to schemes of arrangement or compromise falling within the purview of section 233, of the act, the concerned companies may , at their discretion, opt to undertake such schemes under sections 230 to, 232 of the Act, including where the condition prescribed in clause (d) of sub-section (1) of section 233 of the act has, not been met., , A company covered under this section may use the provisions of section 232 for the approval of any scheme for, merger or amalgamation., , MERGER OR AMALGAMATION OF A COMPANY WITH A FOREIGN COMPANY, , Section 234(2) states that subject to the provisions of any other law for the time being in force, a foreign company,, may with the prior approval of the Reserve Bank of India, merge into a company registered under this Act or vice, versa and the terms and conditions of the scheme of merger may provide, among other things, for the payment of
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478, , , , Lesson 12 • EP-CL, , consideration to the shareholders of the merging company in cash, or in Depository Receipts, or partly in cash and, partly in Depository Receipts, as the case may be, as per the scheme to be drawn up for the purpose., For the purposes of sub-section (2), the expression “foreign company” means any company or body corporate, incorporated outside India whether having a place of business in India or not., , Section 234(1) states that the provisions of this Chapter unless otherwise provided under any other law for the, time being in force, shall apply mutatis mutandis to schemes of mergers and amalgamations between companies, registered under this Act and companies incorporated in the jurisdictions of such countries as may be notified from, time to time by the Central Government. The Central Government may make rules, in consultation with the Reserve, Bank of India, in connection with mergers and amalgamations provided under this section., Rule 25A of the of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, , (1) A foreign company incorporated outside India may merge with an Indian company after obtaining prior, approval of Reserve Bank of India and after complying with the provisions of sections 230 to 232 of the Act and, these rules., (2), , (3), , (a) A company may merge with a foreign company incorporated in any of the jurisdictions specified in, Annexure B after obtaining prior approval of the Reserve Bank of India and after complying with, provisions of sections 230 to 232 of the Act and these rules., (b) The transferee company shall ensure that valuation is conducted by valuers who are members of a, recognised professional body in the jurisdiction of the transferee company and further that such, valuation is in accordance with internationally accepted principles on accounting and valuation. A, declaration to this effect shall be attached with the application made to Reserve Bank of India for, obtaining its approval under clause (a) of this sub-rule., The concerned company shall file an application before the Tribunal as per provisions of section 230 to, section 232 of the Act and these rules after obtaining approvals specified in sub-rule (1) and sub-rule (2),, as the case may be., , Explanation 1. For the purposes of this rule the term “company” means a company as defined in clause (20) of, section 2 of the Act and the term “foreign company” means a company or body corporate incorporated outside, India whether having a place of business in India or not., Explanation 2. For the purposes of this rule, it is clarified that no amendment shall be made in this rule without, consultation of the Reserve Bank of India., , POWER TO ACQUIRE SHARES OF SHAREHOLDERS DISSENTING FROM SCHEME OR CONTRACT, APPROVED BY MAJORITY [Section 235(1)], Offer to dissenting shareholders, Where a scheme or contract involving the transfer of shares or any class of shares in a company (the transferor, company) to another company (the transferee company) has, within four months after making of an offer in that, behalf by the transferee company, been approved by the holders of not less than nine-tenths in value of the shares, whose transfer is involved, other than shares already held at the date of the offer by, or by a nominee of the transferee, company or its subsidiary companies, the transferee company may, at any time within two months after the expiry, of the said four months, give notice in the prescribed manner to any dissenting shareholder that it desires to acquire, his shares., For the purposes of sub-section (1) of section 235 of the Act, the transferee company shall send a notice to the, dissenting shareholder(s) of the transferor company, in Form No. CAA.14 at the last intimated address of such, shareholder for acquiring the shares of such dissenting shareholders., , Meaning of dissenting shareholders [Explanation to Section 235], , As per the explanation to Section 235, dissenting shareholder includes a shareholder who has not assented to the, scheme or contract and any shareholder who has failed or refused to transfer his shares to the transferee company
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Lesson 12 • An overview of Corporate Reorganisation, , 479, , in accordance with the scheme or contract., , Acquisition of shares of dissenting shareholders [Section 235(2)], , After the notice under section 235(1) of the Act, the transferee company shall, unless on an application made by the, dissenting shareholder to the Tribunal, within one month from the date on which the notice was given and the, Tribunal thinks fit to order otherwise, be entitled to and bound to acquire those shares on the terms on which,, under the scheme or contract, the shares of the approving shareholders are to be transferred to the transferee, company., , Process of acquisition of shares from dissenting shareholders [Section 235(3)], , Where a notice has been given by the transferee company under Section 235(1) and the tribunal has not, on an, application made by the dissenting shareholder, made an order to the contrary, the transferee company shall, on the, expiry of one month from the date on which the notice has been given, or, if an application to the Tribunal by the, dissenting shareholder is then pending, after that application has been disposed of, send a copy of the notice to the, transferor company together with an instrument of transfer, to be executed on behalf of the shareholder by any, person appointed by the transferor company and on its own behalf by the transferee company, and pay or transfer, to the transferor company the amount or other consideration representing the price payable by the transferee, company for the shares which, by virtue of this section, that company is entitled to acquire, and the transferor, company shall—, (a) thereupon register the transferee company as the holder of those shares; and, (b), , within one month of the date of such registration, inform the dissenting shareholders of the fact of such, registration and of the receipt of the amount or other consideration representing the price payable to them, by the transferee company., , Utilization of funds [Section 235(4)], , Any sum received by the transferor company under this section shall be paid into a separate bank account, and any, such sum and any other consideration so received shall be held by that company in trust for the several persons, entitled to the shares in respect of which the said sum or other consideration were respectively received and shall, be disbursed to the entitled shareholders within sixty days., , PURCHASE OF MINORITY SHAREHOLDING, , Definition of Acquirer and Person acting in concert, The expressions “acquirer” and “person acting in concert” shall have the meanings respectively assigned to them in, clause (a) and clause (q) of sub regulation (1) of regulation 2 of the Securities and Exchange Board of India, (Substantial Acquisition of Shares and Takeovers) Regulations, 2011., According to Regulation 2(1)(a) of the Securities and Exchange Board of India (Substantial Acquisition of Shares, and Takeovers) Regulations, 2011 “acquirer” means any person who, directly or indirectly, acquires or agrees to, acquire whether by himself, or through, or with persons acting in concert with him, shares or voting rights in, or, control over a target company;, , According to Regulation 2(1)(q) of the Securities and Exchange Board of India (Substantial Acquisition of Shares, and Takeovers) Regulations, 2011 “persons acting in concert” means,–, (1) persons who, with a common objective or purpose of acquisition of shares or voting rights in, or exercising, control over a target company, pursuant to an agreement or understanding, formal or informal, directly or indirectly, co-operate for acquisition of shares or voting rights in, or exercise of control over the target company., (2) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be, deemed to be persons acting in concert with other persons within the same category, unless the contrary is, established,–, (i), a company, its holding company, subsidiary company and any company under the same management or, control;
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480, , , , Lesson 12 • EP-CL, , (ii), , a company, its directors, and any person entrusted with the management of the company;, , (iv), , promoters and members of the promoter group;, , (iii), (v), , (vi), , directors of companies referred to in item (i) and (ii) of this sub-clause and associates of such directors;, immediate relatives;, , a mutual fund, its sponsor, trustees, trustee company, and asset management company;, , (vii) a collective investment scheme and its collective investment management company, trustees and trustee, company;, (viii) a venture capital fund and its sponsor, trustees, trustee company and asset management company;, (viiia) an alternative investment fund and its sponsor, trustees, trustee company and manager;, (ix), , a merchant banker and its client, who is an acquirer;, , (xi), , banks, financial advisors and stock brokers of the acquirer, or of any company which is a holding company or, subsidiary of the acquirer, and where the acquirer is an individual, of the immediate relative of such individual:, , (x), , a portfolio manager and its client, who is an acquirer;, , Provided that this sub-clause shall not apply to a bank whose sole role is that of providing normal commercial, banking services or activities in relation to an open offer under these regulations;, , (xii) an investment company or fund and any person who has an interest in such investment company or fund as, a shareholder or unitholder having not less than 10 per cent of the paid-up capital of the investment company, or unit capital of the fund, and any other investment company or fund in which such person or his associate, holds not less than 10 per cent of the paid-up capital of that investment company or unit capital of that fund:, Provided that nothing contained in this sub-clause shall apply to holding of units of mutual funds registered, with the Board;, , Explanation. – For the purposes of this clause “associate” of a person means,–, (a), , any immediate relative of such person;, , (c), , partnership firm in which such person or his immediate relative is a partner; and, , (b), (d), , trusts of which such person or his immediate relative is a trustee;, , members of Hindu undivided families of which such person is a coparcener;, , As per Section 236(1) of the Act, in the event of an acquirer, or a person acting in concert with such acquirer,, becoming registered holder of ninety per cent or more of the issued equity share capital of a company, or in the, event of any person or group of persons becoming ninety per cent majority or holding ninety per cent. of the issued, equity share capital of a company, by virtue of an amalgamation, share exchange, conversion of securities or for any, other reason, such acquirer, person or group of persons, as the case may be, shall notify the company of their, intention to buy the remaining equity shares., , As per Section 236(2) of the Act, the acquirer, person or group of persons under sub-section (1) shall offer to the, minority shareholders of the company for buying the equity shares held by such shareholders at a price determined, on the basis of valuation by a registered valuer in accordance with such rules as may be prescribed., For the purposes of sub-section (2) of section 236 of the Act, the registered valuer shall determine the price, (hereinafter called as offer price) to be paid by acquirer, person or group of persons referred to in sub-section of, section 236 of the Act for purchase of equity shares of the minority shareholders of the company., , Without prejudice to the provisions of sub-sections (1) and (2), the minority shareholders of the company may offer, to the majority shareholders to purchase the minority equity shareholding of the company at the price determined, as in accordance with Rule 27 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016,, which is as under:
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Lesson 12 • An overview of Corporate Reorganisation, , 481, , Determination of price for purchase of minority shareholding:The registered valuer shall determine the price (hereinafter called as offer price) to be paid by acquirer, person, or group of persons referred to in sub-section (1) of section 236 of the Act for purchase of equity shares of the, minority shareholders of the company, in accordance with the following:, In case of a listed company;, (i), The offer price shall be determined in the manner as may be specified by the Securities and Exchange, Board of India under the relevant regulations framed by it, as may be applicable; and, (ii), , The registered valuer shall also provide a valuation report on the basis of valuation addressed to the, board of directors of the company giving justification for such valuation., , In the case of an unlisted company and a private company,, (i), the offer price shall be determined after taking into account the following factors:(a), , (b), (ii), , the highest price paid by the acquirer, person or group of persons for acquisition during last twelve, months;, the fair price of shares of the company to be determined by the registered valuer after taking into, account valuation parameters including return on net worth, book value of shares, earning per, share, price earning multiple vis-à-vis the industry average, and such other parameters as are, customary for valuation of shares of such companies; and, , the registered valuer shall also provide a valuation report on the basis of valuation addressed to the, board of directors of the company giving justification for such valuation., , The majority shareholders shall deposit an amount equal to the value of shares to be acquired by them under subsection (2) or sub-section (3), as the case may be, in a separate bank account to be operated by company whose, shares are being transferred for at least one year for payment to the minority shareholders and such amount shall, be disbursed to the entitled shareholders within sixty days., Such disbursement shall continue to be made to the entitled shareholders for a period of one year, who for any, reason had not been made disbursement within the said period of sixty days or if the disbursement has been made, within the aforesaid period of sixty days, fail to receive or claim payment arising out of such disbursement (Sec, 236(4))., , In the event of a purchase under this section, company whose shares are being transferred shall act as a transfer, agent for receiving and paying the price to the minority shareholders and for taking delivery of the shares and, delivering such shares to the majority, as the case may be (Sec 236(5))., In the absence of a physical delivery of shares by the shareholders within the time specified by the company, the, share certificates shall be deemed to be cancelled, and company whose shares are being transferred shall be, authorised to issue shares in lieu of the cancelled shares and complete the transfer in accordance with law and, make payment of the price out of deposit made under sub-section (4) by the majority in advance to the minority by, dispatch of such payment (Sec 236(6))., , In the event of a majority shareholder or shareholders requiring a full purchase and making payment of price by, deposit with the company for any shareholder or shareholders who have died or ceased to exist, or whose heirs,, successors, administrators or assignees have not been brought on record by transmission, the right of such, shareholders to make an offer for sale of minority equity shareholding shall continue and be available for a period, of three years from the date of majority acquisition or majority shareholding (Sec 236(7))., , Where the shares of minority shareholders have been acquired in pursuance of this section and as on or prior to the, date of transfer following such acquisition, the shareholders holding seventy-five per cent. or more minority equity, shareholding negotiates or reach an understanding on a higher price for any transfer, proposed or agreed upon, of
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482, , , , Lesson 12 • EP-CL, , the shares held by them without disclosing the fact or likelihood of transfer taking place on the basis of such, negotiation, understanding or agreement, the majority shareholders shall share the additional compensation so, received by them with such minority shareholders on a pro rata basis (Sec 236(8))., When a shareholder or the majority equity shareholder fails to acquire full purchase of the shares of the minority, equity shareholders, then, the provisions of this section shall continue to apply to the residual minority equity, shareholders, even though,—, (a) the shares of the company of the residual minority equity shareholder had been delisted; and, (b), , the period of one year or the period specified in the regulations made by the Securities and Exchange Board, under the Securities and Exchange Board of India Act, 1992 (15 of 1992), had elapsed (Section 236(9))., , Rule 26 A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 pertains to, Purchase of minority shareholding held in demat form., , (1) The company shall within two weeks from the date of receipt of the amount equal to the price of shares to, be acquired by the acquirer, under section 236 of the Act, verify the details of the minority shareholders holding, shares in dematerialised form., , (2) After verification under sub-rule (1), the company shall send notice to such minority shareholders by, registered post or by speed post or by courier or by email about a cut-off date, which shall not be earlier than, one month after the date of sending of the notice, on which the shares of minority shareholders shall be debited, from their account and credited to the designated DEMAT account of the company, unless the shares are credited, in the account of the acquirer, as specified in such notice, before the cut-off date., (3) A copy of the notice served to the minority shareholders under sub-rule (2), shall also be published, simultaneously in two widely circulated newspapers (one in English and one in vernacular language) in the, district in which the registered office of the company is situated and also be uploaded on the website of the, company, if any., (4) The company shall inform the depository immediately after publication of the notice under sub-rule (3), regarding the cut-off date and submit the following declarations stating that:, (a) the corporate action is being effected in pursuance of the provisions of section 236 of the Act;, , (b) the minority shareholders whose shares are held in dematerialised form have been informed about the, corporate action a copy of the notice served to such shareholders and published in the newspapers to be, attached;, (c) the minority shareholders shall be paid by the company immediately after completion of corporate action;, , (d) any dispute or complaints arising out of such corporate action shall be the sole responsibility of the company., , (5) For the purposes of effecting transfer of shares through corporate action, the Board shall authorise the, Company Secretary, or in his absence any other person, to inform the depository under sub-rule (4), and to, submit the documents as may be required under the said sub-rule., (6) Upon receipt of information under sub-rule (4), the depository shall make the transfer of shares of the, minority shareholders, who have not, on their own, transferred their shares in favour of the acquirer, into the, designated DEMAT account of the company on the cut-off date and intimate the company., , (7) After receiving the intimation of successful transfer of shares from the depository under sub-rule (6), the, company shall immediately disburse the price of the shares so transferred, to each of the minority shareholders, after deducting the applicable stamp duty, which shall be paid by the company, on behalf of the minority, shareholders, in accordance with the provisions of the Indian Stamp Act, 1899 (2 of 1899)., (8) Upon successful payment to the minority shareholders under sub-rule (7), the company shall inform the, depository to transfer the shares of such shareholders, kept in the designated DEMAT account of the company,, to the DEMAT account of the acquirer.
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Lesson 12 • An overview of Corporate Reorganisation, , 483, , Explanation. -The company shall continue to disburse payment to the entitled shareholders, where disbursement, could not be made within the specified time, and transfer the shares to the DEMAT account of acquirer after such, disbursement., , (9) In case, where there is a specific order of Court or Tribunal, or statutory authority restraining any transfer of, such shares and payment of dividend, or where such shares are pledged or hypothecated under the provisions, of the Depositories Act, 1996 (22 of 1996), the depository shall not transfer the shares of the minority, shareholders to the designated DEMAT account of the company under sub-rule (6)., Explanation.-For the purposes of this rule, if "cut-off date" falls on a holiday, the next working day shall be, deemed to be the "cut-off date”., , Power of Central Government to provide for Amalgamation of Companies in public interest, [Section 237], •, , •, •, , •, •, , If the Central Government is satisfied that it is essential in the public interest that two or more companies, should amalgamate, the Central Government may, by order notified in the Official Gazette, provide for the, amalgamation of those companies into a single company with such constitution, with such property, powers,, rights, interests, authorities and privileges, and with such liabilities, duties and obligations, as may be, specified in the order., The order under sub-section (1) may also provide for the continuation by or against the transferee company, of any legal proceedings pending by or against any transferor company and such consequential, incidental, and supplemental provisions as may, in the opinion of the Central Government, be necessary to give effect to, the amalgamation., , Every member or creditor, including a debenture holder, of each of the transferor companies before the, amalgamation shall have, as nearly as may be, the same interest in or rights against the transferee company, as he had in the company of which he was originally a member or creditor, and in case the interest or rights, of such member or creditor in or against the transferee company are less than his interest in or rights against, the original company, he shall be entitled to compensation to that extent, which shall be assessed by such, authority as may be prescribed and every such assessment shall be published in the Official Gazette, and the, compensation so assessed shall be paid to the member or creditor concerned by the transferee company., Any person aggrieved by any assessment of compensation made by the prescribed authority under subsection (3) may, within a period of thirty days from the date of publication of such assessment in the Official, Gazette, prefer an appeal to the Tribunal and thereupon the assessment of the compensation shall be made, by the Tribunal., No order shall be made under this section unless—, , (a), (b), (c), , a copy of the proposed order has been sent in draft to each of the companies concerned;, the time for preferring an appeal under sub-section (4) has expired, or where any such appeal has, been preferred, the appeal has been finally disposed off; and, , the Central Government has considered, and made such modifications, if any, in the draft order as it, may deem fit in the light of suggestions and objections which may be received by it from any such, company within such period as the Central Government may fix in that behalf, not being less than two, months from the date on which the copy aforesaid is received by that company, or from any class of, shareholders therein, or from any creditors or any class of creditors thereof., , The copies of every order made under this section shall, as soon as may be after it has been made, be laid before, each House of Parliament., , Registration of offer of schemes involving transfer of shares [Section 238], , In relation to every offer of a scheme or contract involving the transfer of shares or any class of shares in the, transferor company to the transferee company under section 235,—
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484, , (a), , (b), (c), , , , Lesson 12 • EP-CL, , every circular containing such offer and recommendation to the members of the transferor company by its, directors to accept such offer shall be accompanied by such information and in the manner as prescribed, under Rule 28 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 which states, that every circular containing the offer of scheme or contract involving transfer of shares or any class of, shares and recommendation to the members of the transferor company by its directors to accept such offer,, shall be accompanied by such information as set out in Form No. CAA.15. The circular shall be presented to, the Registrar for registration., every such offer shall contain a statement by or on behalf of the transferee company, disclosing the steps it, has taken to ensure that necessary cash will be available; and, every such circular shall be presented to the Registrar for registration and no such circular shall be issued, until it is so registered:, , Provided that the Registrar may refuse, for reasons to be recorded in writing, to register any such circular, which does not contain the information required to be given under clause (a) or which sets out such, information in a manner likely to give a false impression, and communicate such refusal to the parties within, thirty days of the application., An appeal shall lie to the Tribunal against an order of the Registrar refusing to register any circular under, sub-section (1)., , Any aggrieved party may file an appeal against the order of the Registrar of Companies refusing to register any, circular under sub-section (2) of section 238 of the Act and the said appeal shall be in the Form No. NCLT.9, (appended in the National Company Law Tribunal Rules, 2016) supported with an affidavit in the Form No. NCLT.6, (appended in the National Company Law Tribunal Rules, 2016)., , The director who issues a circular which has not been presented for registration and registered under clause (c) of, sub-section (1), shall be liable to a penalty of one lakh rupees., , Preservation of books and papers of Amalgamated Companies [Section 239], , The books and papers of a company which has been amalgamated with, or whose shares have been acquired by,, another company under this Chapter shall not be disposed of without the prior permission of the Central Government, and before granting such permission, that Government may appoint a person to examine the books and papers or, any of them for the purpose of ascertaining whether they contain any evidence of the commission of an offence in, connection with the promotion or formation, or the management of the affairs, of the transferor company or its, amalgamation or the acquisition of its shares., , Liability of Officers in Respect of Offences Committed Prior to Merger, Amalgamation, etc. [Section 240], , Notwithstanding anything in any other law for the time being in force, the liability in respect of offences committed, under this Act by the officers in default, of the transferor company prior to its merger, amalgamation or acquisition, shall continue after such merger, amalgamation or acquisition., , “MAJORITY RULE AND MINORITY RIGHTS”, , The Principle of Non-interference (Rule in Foss v. Harbottle), The general principle of company law is that every member holds equal rights with other members of the company, in the same class. The scale of rights of members of the same class must be held evenly for smooth functioning of, the company. In case of difference(s) amongst the members the issue is decided by a vote of the majority. Since the, majority of the members are in an advantageous position to run the company according to their command, the, minorities of shareholders are often oppressed. The company law provides for adequate protection for the minority, shareholders when their rights are trampled by the majority. But the protection of the minority is not generally, available when the majority does anything in the exercise of the powers for internal administration of a company., The court will not usually intervene at the instance of shareholders in matters of internal administration, and will, not interfere with the management of a company by its directors so long they are acting within the powers conferred, on them under the articles of the company. In other words, the articles are the protective shield for the majority of
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Lesson 12 • An overview of Corporate Reorganisation, , 485, , shareholders who compose the Board of directors for carrying out their object at the cost of minority of shareholders., The basic principle of non-interference with the internal management of company by the court is laid down in a, celebrated case of Foss v. Harbottle 67 E.R. 189; (1843) 2 Hare 461 that no action can be brought by a member against, the directors in respect of a wrong alleged to be committed to a company. The company itself is the proper party of, such an action., , Case Laws:, , In Foss v. Harbottle, two shareholders, Foss and Turton brought an action on behalf of themselves and all other, shareholders against the directors and solicitor of the company alleging that by their concerted and illegal, transactions they had caused the company’s property to be lost to the company. It was also alleged that there, was no qualified Board. Foss and Turton claimed damages to be paid by the defendants to the company. It was, held by the court that the action could not be brought by the minority shareholders although there was nothing, to prevent the company itself, acting through the majority of its shareholders, bringing action. The wrong done, to the company was not which could be ratified by the majority of members. The company (i.e., the majority) is, the proper plaintiff for wrong done to the company, so the majority of members are competent to decide, whether to commence proceedings against the directors. The reasons for rule were nicely stated by Melish L.J., in MacDougall v. Gardiner, (1875) 1 Ch. D. 13 (C.A.) at p. 25 in the following words:, , “If the thing complained of is a thing which in substance the majority of company are entitled to do, or if, something has been done irregularly which the majority of the company are entitled to do regularly, or if, something has been done illegally which the majority of the company are entitled to do legally, there can be no, use in having litigation about it, the ultimate end of which is only that a meeting has to be called, and then, ultimately the majority gets its wishes.”, In Rajahmundry Electric Supply Co. v. Nageshwara Rao AIR 1956 SC 213, the Supreme Court observed that:, , “The courts will not, in general, intervene at the instance of shareholders in matters of internal administration,, and will not interfere with the management of the company by its directors so long as they are acting within the, powers conferred on them under articles of the company. Moreover, if the directors are supported by the, majority shareholders in what they do, the minority shareholders can, in general do nothing about it.”, , From the above it follows then that a company being a separate legal person from the members who compose it, the, company is the proper person to bring an action., , Case Laws:, , In Pavlides v. Jensen (1956) Ch. 565, a minority shareholder brought an action for damages against three, directors and against the company itself on the ground that they have been negligent in selling a mine, owned by the company for £ 82,000, whereas its real value was about £ 10,00,000. It was held that the, action was not maintainable. The judge observed, “It was open to the company, on the resolution of a, majority of the shareholders to sell the mine at a price decided by the company in that manner, and it was, open to the company by a vote of majority to decide that if the directors by their negligence or error of, judgement has sold the company’s mine at an undervalue, proceedings should not be taken against the, directors”., In Edwards v. Halliwell (1950) 2 All. E.R. 1064, Jenkins, L.J. restated the rule in the following terms: “The rule in, Foss v. Harbottle comes to no more than this. First, the proper plaintiff in respect of wrong alleged to be done to, company is prima facie the company itself. Secondly, where the alleged wrong is a transaction which might be, made binding on the company by a simple majority of members, no individual member is allowed to maintain, an action in respect of that matter for the simple reason that, if a mere majority of the members of the company, is in favour of what has been done, then cadit quaestio... (cannot be questioned). If on the other hand, a simple, majority of members of the company or association is against what has been done, then there is no valid reason, why the company itself should not sue”.
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486, , , , Justification and Advantages of the Rule in Foss v. Harbottle, , Lesson 12 • EP-CL, , The justification for the rule laid down in Foss v. Harbottle is that the will of the majority prevails. On, becoming a member of a company, a shareholder agrees to submit to the will of the majority. The rule, really preserves the right of the majority to decide how the company’s affairs shall be conducted. If any, wrong is done to the company, it is only the company itself, acting, as it must always act, through its, majority, that can seek to redress and not an individual shareholder., , Moreover, a company is a person at law, the action is vested in it and cannot be brought by a single shareholder., Where there is a corporate body capable of filing a suit for itself to recover property either from its directors or, officers or from any other person then that corporate body is the proper plaintiff and the only proper plaintiff [Gray, v. Lewis, (1873) 8 Ch. Appl. 1035]., The main advantages that flow from the Rule in Foss v. Harbottle are of a purely practical nature and are as follows:, 1., Recognition of the separate legal personality of company: If a company has suffered some injury, and not, the individual members, it is the company itself that should seek to redress., 2., 3., 4., , Need to preserve right of majority to decide: The principle in Foss v. Harbottle preserves the right of majority, to decide how the affairs of the company shall be conducted. It is fair that the wishes of the majority should, prevail., Multiplicity of futile suits avoided: Clearly, if every individual member were permitted to sue anyone who, had injured the company through a breach of duty, there could be as many suits as there are shareholders., Legal proceedings would never cease, and there would be enormous wastage of time and money., Litigation at suit of a minority futile if majority does not wish it: If the irregularity complained of is one, which can be subsequently ratified by the majority it is futile to have litigation about it except with the consent, of the majority in a general meeting. In Mac Dougall v. Gardiner, (1875) 1 Ch. 13 (C.A.), the articles empowered, the chairman, with the consent of the meeting, to adjourn a meeting and also provided for taking a poll if, demanded by the shareholders. The adjournment was moved, and declared by the chairman to be carried; a, poll was then demanded and refused by the chairman. A shareholder brought an action for a declaration that, the chairman’s conduct was illegal. Held, the action could not be brought by the shareholder; if the chairman, was wrong, the company alone could sue., , Application of Foss v. Harbottle Rule in Indian context — The Delhi High Court in ICICI v. Parasrampuria Synthetic, Ltd. SSL, July 5, 1998 has held that an automatic application of Foss v. Harbottle Rule to the Indian corporate realities, would be improper. Here the Indian corporate sector does not involve a large number of small individual investors, but predominantly financial institutions funding atleast 80% of the finance. It is these financial institutions which, provide entire funds for the continuous existence and corporate activities. Though they hold only a small percentage, of shares, it is these financial institutions which have really provided the finance for the company’s existence and,, therefore, to exclude them or to render them voiceless on an application of the principles of Foss v. Harbottle Rule, would be unjust and unfair., , Exception to the Rule in Foss v. Harbottle, , The rule in Foss v. Harbottle is not absolute but is subject to certain exceptions. In other words, the rule of supremacy, of the majority is subject to certain exceptions and thus, minority shareholders are not left helpless, but they are, protected by:, (a), , (b), , the common law; and, , the provisions of the Companies Act, 2013., , The cases in which the majority rule does not prevail are commonly known as exceptions to the rule in Foss v., Harbottle and are available to the minority. In all these cases an individual member may sue for declaration that the, resolution complained of is void, or for an injunction to restrain the company from passing it. The said rule will not, apply in the following case:
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Lesson 12 • An overview of Corporate Reorganisation, , 487, , The minority shareholders are empowered to bring action with a view to preventing the majority from oppression, and mismanagement. These are the statutory rights of the minority shareholders and find detailed discussion later, in the study., In Bennet Coleman & Co. and Ors. v. Union of India & Ors., (1977) 47 Com Cases 92 (Bom), the Division Bench of the, Bombay High Court held that Sections 397 and 398 of the Companies Act, 1956 are intended to avoid winding up of, the company if possible and keep it going while at the same time relieving the minority shareholders from acts of, oppression and mismanagement or preventing its affairs from being conducted in a manner prejudicial to public, interest. Thus, the Court has wide powers to supplant the entire corporate management by resorting to noncorporate management which may take the form of appointing an administrator or a special officer or a committee, of advisers etc., who will be in charge of the affairs of the company., The exceptions to the rule in Foss v. Harbottle are not limited to those covered above. Further exceptions may be, admitted where the rules of justice require that an exception to the rule should be made., , It should be noted that the ordinary civil courts are not deprived of the jurisdiction to decide the matters except, where the Companies Act expressly excludes it such as matters relating to winding up [Panipat Woollen & General, Mills Co.Ltd. v. R.L. Kaushik, (1969) 39 Com Cases 249 (Punj & Har)]., , “MAJORITY RULE AND MINORITY RIGHTS” UNDER THE COMPANIES ACT, 2013, , In India, the Companies Act attempts to maintain a balance between the rights of majority and minority shareholders, by admitting in the rule of the majority but limiting it at the same time by a number of well-defined minority rights,, and thus protecting the minority shareholders., The Companies Act, 1956 provided for protection of the minority shareholders from oppression and mismanagement, by the majority under Section 397 (Application to Company Law Board for relief in cases of oppression) and 398, (Application to Company Law Board for relief in cases of mismanagement)., , Oppression as per Section 397(1) of the Companies Act, 1956 was defined as ‘when affairs of the company are being, conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members’ while, the term mismanagement was defined under Section 398(1) as ‘conducting the affairs of the company in a manner, prejudicial to public interest or in a manner prejudicial to the interests of the company or there has been a material, change in the management and control of the company, and by reason of such change it is likely that affairs of the, company will be conducted in a manner prejudicial to public interest or interest of the company’., , Right to apply to the Company Law Board in case of oppression and/or mismanagement was provided under Section, 399 to the minority shareholders meeting the ten percent shareholding or hundred members or one-fifth members, limit, as the case may be. However, the Central Government was also provided with the discretionary power to allow, any number of shareholders and/or members to apply for relief under Section 397 and 398 in case the limit, provided under Section 399 was not met., Chapter XVI of the Companies Act, 2013 deals with the provisions relating to prevention of oppression and, mismanagement of a company. Oppression and mismanagement of a company mean that the affairs of the company, are being conducted in a manner that is oppressive and biased against the minority shareholders or any member or, members of the company. To prevent the same, there are provisions for the prevention and mismanagement of a, company., The Ministry of Corporate Affairs vide its Notification S.O.1934 (E) dated 1st June 2016 notified section 241 to 245, of the Companies Act, 2013. Section 246 was notified vide Notification S.O.2912 (E) dated 9th September, 2016., These provisions are discussed in detail hereunder., , PREVENTION OF OPPRESSION AND MISMANAGEMENT, Meaning of Oppression, , The words “oppression” and “mismanagement” are not defined in the Act. The meaning of these words for the, purpose of Company Law should be used in a broad generic sense and not in any strict literal sense.
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488, , , , Lesson 12 • EP-CL, , The meaning of the term “oppression” as explained by Lord Cooper in the Scottish case of Elder v. Elder & Western, Ltd., (1952) Scottish Cases 49, which has been cited with approval by Wanchoo, J (afterwards C.J.) of the Supreme, Court in Shanti Prasad v. Kalinga Tubes, (1965) 1 Comp. L.J. 193 at 204 is as under :, , “The essence of the matter seems to be that the conduct complained of should at the lowest, involve a visible, departure from the standards of fair dealing, on which every shareholder who entrusts his money to the companyis, entitled to rely.”, , Case Law:, , An attempt to force new and more risky objects upon an unwilling minority may in circumstances amount to, oppression. This was held in Re. Hindustan Co-operative Insurance Society Ltd., AIR. 1961 Cal. 443 wherein the life, insurance business of a company was acquired in 1956 by the Life Insurance Corporation of India on payment, of compensation. The directors, who had the majority voting power, refused to distribute this amount among, shareholders, rather they passed a special resolution changing the objects of the company to utilise the, compensation money for the new objects. This was held to be an “Oppression”. The court observed: “The majority, exercised their authority wrongfully, in a manner burdensome, harsh and wrongful. They attempted to force the, minority shareholders to invest their money in different kind of business against their will. The minority had, invested their money in a life insurance business with all its safeguards and statutory protections. But they were, being forced to invest where there would be no such protections or safeguards”., , A similar relief was allowed by the House of Lord in Scottish Co-operative Wholesale Society v. Mayer (1959) AC 324., In this case, the society created a subsidiary company to enable it to enter in the rayon industry. Subsequently when, the need for the subsidiary ceased to exist, the society adopted a policy of running down its business which, depressed the value of its shares. The two petitioners who were managing directors and minority shareholders in, the company successfully pleaded “oppression”. The court ordered the society to purchase the minority shares at, the value at which they stood before the oppressive policy started [This decision has also been followed in Re. H.R., Harmer Ltd., (1959) 1 WLR 62]., , Minor acts of mismanagement, however, are not to be regarded as oppression. As far as possible, shareholders, should try to resolve their differences by mutual readjustment. Moreover, the courts will not allow these special, remedies to become a vexatious source of litigation. For example, in Lalita Rajya Lakshmi v. Indian Motor Co. A.I.R., 1962 Cal 127, the petitioner alleged that the Board of directors were guilty of certain acts detrimental to the, minority of the shareholders. The allegations were that the income of the company was deliberately shown less by, excessive expenditure; that passengers travelling without ticket on the company’s buses were not checked; that, petrol consumption was not properly checked; that second hand buses of the company had been disposed of at low, price, that dividends were being declared at too low a figure. It was held that even if each of these allegations were, proved to the satisfaction of the court, there would have been no oppression., A member can complain of oppression only in his capacity as a member and not in his capacity as director or, creditor [In Re. Bellador Silk Ltd., (1965) 1 All ER 667]., , The legal representatives of a deceased member whose name is still on the register of members are entitled to file, a petition under Sections 397 and 398 of the Companies Act, 1956, for relief against oppression or mismanagement,, Worldwide Agencies Pvt. Ltd. and Another v. Mrs. Margaret T. Desor and Others, Com Cases Vol. 67 (1990), 807 (S.C.)., A shareholder dies and his heirs apply for transmission of shares while their application for succession certificate, was pending before the Civil Court. The legal heirs alleged illegal allotment of shares by respondent to themselves,, reducing the legal heirs to minority. It has held that the legal heirs are entitled to file a petition alleging oppression, and mismanagement. [Rajkumar Devraj & Aur. v. Jai Mahal Hotels Pvt. Ltd. & Others (CLB) CA. No. 133 of 2006 in C.P., No. 30 of 2006., , It should not, however, be supposed that these special remedies against oppression or mismanagement are available, only to minorities. “In an appropriate case, if the court is satisfied about the act of oppression or mismanagement,
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Lesson 12 • An overview of Corporate Reorganisation, , 489, , relief can be granted even if the application is made by a majority, who have been rendered completely ineffective, by the wrongful acts of a minority group. “Accordingly, a relief under the section was allowed to a majority group by, Mitra, J., of the Calcutta High Court in In Re. Sindhri Iron Foundry (P) Ltd. (1963) 68 CWN 118. His Lordship observed, that “if the court finds that the company’s interest is being seriously prejudiced by the activities of one or the other, group of shareholders, that two different registered offices at two different addresses have been set up, that two, rival Boards are holding meetings, that the company’s business, property and assets have passed to the hands of, unauthorised persons who have taken wrongful possession and who claim to be the shareholders and directors, there is no reason why the court should not make appropriate order to put an end to such matters., Referring to the argument that the majority could always call a meeting and put things in order by passing, resolutions, his Lordship said:, , “The facts in this case show very clearly, that there is no chance of redress in the domestic forum of the company. If, a Board meeting was to be called, one group would contend that there were five directors, whereas the other group, would urge that there were seven. If a meeting of the shareholders was to be convened, according to one group, there would be only sixteen shareholders, while according to the other the number would exceed twenty- five ..., There would be complete chaos and confusion ... “(Ibid., p. 335)., “This ingenious remedy has not only permitted redressal of many abuses, but its mere availability has had a, deterrent effect upon management.” [George H. Hornstein: The Future of Corporate Control, (1950) 63 HLR 476]., , It was held in the case of Ajit Singh Ahuja v. Saphire (India) (P) Ltd. [(2009) 1 Comp LJ 313 (CLB)] that in a case of, oppression, a member has to specifically plead on five facts – (a) what is the alleged act of oppression; (b) who, committed the act of oppression; (c) how it is oppressive; (d) whether it is in the affairs of the company; and, whether the company is party to the commission of the act of oppression., Oppression must be a continuous process. This is suggested by the words, ‘are being conducted in a manner...’ used, in Section 397. Hence isolated acts of oppression or mismanagement will not give rise to an action under Section, 397 of the Act. In Shanti Pd. Jain’s Case, the court said:... “events have to be considered not in isolation but as a part, of a consecutive story. There must be continuous acts on the part of the majority shareholders, continuing up-todate of petition”., , However in Tea Brokers P. Ltd. v. Hemendra Prosad Barooah (1998) 5 Comp LJ 963 (Cal.) the Division Bench of, Calcutta High Court observed that:, ‘This is undoubtedly, a right and privilege which a member enjoys in his capacity as a member of the company…, such an act may be even a single act done on one particular occasion if the effect of such an act will be of a continuing, nature and the member concerned is deprived of his rights and privilege for all time to come in future’., , In Ramshankar Prasad v. Sindu Iron Foundry (P) Ltd., AIR 1966 Cal 512, it was held that a petition under Section 397,, would be maintainable even if the oppression was of a short duration and of a singular conduct if its effects persisted, indefinitely [followed in Maharashtra Power Development Corporation. Ltd. v. Dabhol Power Co. Ltd. (2003) 56 CLA, 263 (Bom.)]., In Bhagirath Agarwala v. Tara Properties P. Ltd. (2003) 51 CLA 57 (Cal.), also the removal of a director and allotment, of shares were set aside as they were done at a meeting which was covered without complying with the requirements, of Section 286 and also reflected an oppressive policy. The allotment was made only to one member without, simultaneous offer to others on pro rata basis. A single act of issue of additional shares can have a continuous effect., It can constitute oppression. A relief can be had against it. There is no bar of limitation in such a case. [Ashok Kumar, Oswal v. Panchsher Textile Mfg. & Trading Co. Ltd. (2002) 110 Com Cases 800 (CLB-PB)]., , Past acts of oppression will not entitle a plaintiff to seek the remedy under Section 397. The purpose of this section, is not so much to take up the past as to redeem the future. A catalogue of charges of the past alleged misdeeds will, not attract the section [Thakur Prem Singh v. Thakur Hotel (Simla) Co. (P) Ltd., AIR 1963 Punj. 63; Raghunath Swarup, Mathur v. Har Swarup Mathur, (1970) 40 Com Cases 282 (All)].
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490, , , , PROVISIONS UNDER THE COMPANIES ACT, 2013, , Lesson 12 • EP-CL, , APPLICATION TO TRIBUNAL FOR RELIEF IN CASE OF OPPRESSION & MISMANAGEMENT (SECTION 241), BY ANY MEMBER OF A COMPANY, Section 241 of the Companies Act, 2013 states that any member of a company, who has right to apply under section, 244, may apply to the Tribunal in Form NCLT-1 for complains that—, (a) The affairs of the company have been or are being conducted •, , in a manner prejudicial to public interest, or, , •, , in a manner prejudicial to the interests of the company; or, , •, (b), , in a manner prejudicial or oppressive to him or any other member or members, or, , The material change, has taken place in the management or control of the company, whether by -, , •, , an alteration in the Board of Directors, or manager, or, , •, , if it has no share capital, in its membership, or, , •, •, , in the ownership of the company’s shares, or, in any other manner whatsoever,, , And that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial, to its interests or its members or any class of members,, , However, such material change shall not be a change brought about by, or in the interests of, any creditors, including, debenture holders or any class of shareholders of the company., B. BY CENTRAL GOVERNMENT, , The Central Government, if it is of the opinion that the affairs of the company are being conducted in a manner, prejudicial to public interest, it may itself apply to the Tribunal for an order (Sec 241(2)., As per Section 241(3), where in the opinion of the Central Government there exist circumstances suggesting that –, (a) any person concerned in the conduct and management of the affairs of a company is or has been in connection, therewith guilty of fraud, misfeasance, persistent negligence or default in carrying out his obligations and, functions under the law or of breach of trust;, (b), , the business of a company is not or has not been conducted and managed by such person in accordance with, sound business principles or prudent commercial practices;, , (d), , the business of a company is or has been conducted and managed by such person with intent to defraud its, creditors, members or any other person or otherwise for a fraudulent or unlawful purpose or in a manner, prejudicial to public interest,, , (c), , a company is or has been conducted and managed by such person in a manner which is likely to cause, or has, caused, serious injury or damage to the interest of the trade, industry or business to which such company, pertains; or, , The Central Government may initiate a case against such person and refer the same to the Tribunal with a request, that the Tribunal may inquire into the case and record a decision as to whether or not such person is a fit and proper, person to hold the office of director or any other office connected with the conduct and management of any company., The person against whom a case is referred to the Tribunal under Section 241(3), shall be joined as a respondent to, the application. (Section 241(4)), As per Section 241(5), every application under Section 241(3) –, (a) shall contain a concise statement of such circumstances and materials as the Central Government may, consider necessary for the purposes of the inquiry; and
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Lesson 12 • An overview of Corporate Reorganisation, , (b), , 491, , shall be signed and verified in the manner laid down in the Code of Civil Procedure, 1908, for the signature, and verification of a plaint in a suit by the Central Government., , RIGHT TO APPLY UNDER SECTION 241 (SECTION 244), , Sub-section (1) of Section 244 states that following members of a company shall have the right to apply under, section 241, namely:—, (a) In the case of a company having a share capital (i), , not less than one hundred members of the company, or, , (iii), , any member or members holding not less than one tenth of the issued share capital of the company,, subject to the condition that the applicant or applicants has or have paid all calls and other sums due, on his or their shares;, , (ii), , (b), , not less than one-tenth of the total number of its members, whichever is less; or, , In the case of a company not having a share capital -, , (i), , not less than one-fifth of the total number of its members shall have the right to apply under section, 241., , For the purposes of this sub-section, where any share or shares are held by two or more persons jointly, they shall, be counted only as one member., , Where any members of a company are entitled to make an application under sub-section (1), any one or more of, them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of, all of them., , POWER OF TRIBUNAL, , Power of Tribunal to waive requirements to apply specified under Section 244, Proviso to section 244(1) states that the Tribunal may, on an application made to it in this behalf in Form No: NCLT9, may waive all or any of the requirements specified in clause (a) or clause (b) of sub – section (1) of Section 244, so as to enable the members to apply under Section 241., , Power of Tribunal to issue orders [Section 242(1)], , On any application made under section 241, the Tribunal is of the opinion—, (a) that the company’s affairs have been or are being conducted in a manner prejudicial or oppressive to any, member or members or prejudicial to public interest or in a manner prejudicial to the interests of the, company; and, (b), , that to wind up the company would unfairly prejudice such member or members, but that otherwise the facts, would justify the making of a winding-up order on the ground that it was just and equitable that the company, should be wound up, the Tribunal may, with a view to bringing to an end the matters complained of, make, such order as it thinks fit., , Filing of copy of Order of Tribunal [Section 242(3)], , Section 242(3) provides that a certified copy of the order of the Tribunal under section 242(1) shall be filed by the, company with the Registrar within 30 days of the order of the Tribunal., , Details in Order passed by Tribunal [Section 242(2)], , An order made by the Tribunal under sub – section (1) shall provide for—, (a), , (b), , the regulation of conduct of affairs of the company in future;, , the purchase of shares or interests of any members of the company by other members thereof or by the, company;
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492, , , , Lesson 12 • EP-CL, , (c), , in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share, capital;, , (e), , the termination, setting aside or modification, of any agreement, howsoever arrived at, between the company, and the managing director, any other director or manager, upon such terms and conditions as may, in the, opinion of the Tribunal, be just and equitable in the circumstances of the case;, , (d), , (f), , (g), (h), (i), , (j), , (k), (l), , (m), , restrictions on the transfer or allotment of the shares of the company;, , the termination, setting aside or modification of any agreement between the company and any person other, than those referred to in clause (e):, , Provided that no such agreement shall be terminated, set aside or modified except after due notice and after, obtaining the consent of the party concerned;, , the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made, or done by or against the company within three months before the date of the application under this section,, which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent, preference;, removal of the managing director, manager or any of the directors of the company;, , recovery of undue gains made by any managing director, manager or director during the period of his, appointment as such and the manner of utilisation of the recovery including transfer to Investor Education, and Protection Fund or repayment to identifiable victims;, the manner in which the managing director or manager of the company may be appointed subsequent to an, order removing the existing managing director or manager of the company made under clause (h);, appointment of such number of persons as directors, who may be required by the Tribunal to report to the, Tribunal on such matters as the Tribunal may direct;, imposition of costs as may be deemed fit by the Tribunal;, , any other matter for which, in the opinion of the Tribunal, it is just and equitable that provision should be, made., , Interim Order [Section 242(4)], , The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for, regulating the conduct of the company’s affairs upon such terms and conditions as appear to it to be just and, equitable., At the conclusion of the hearing of the case in respect of sub-section (3) of section 241, the Tribunal shall record its, decision stating therein specifically as to whether or not the respondent is a fit and proper person to hold the office, of director or any other office connected with the conduct and management of any company., , Alteration in Memorandum or Articles, , Where an order of the Tribunal makes any alteration in the memorandum or articles of a company, then, the, company shall not have power, except to the extent, if any, permitted in the order, to make, without the leave of the, Tribunal, any alteration whatsoever which is inconsistent with the order, either in the memorandum or in the, articles [Section 242(5)]., , The alterations made by the order in the memorandum or articles of a company shall, in all respects, have the same, effect as if they had been duly made by the company in accordance with the provisions of this Act and the said, provisions shall apply accordingly to the memorandum or articles so altered [Section 242(6)]., , A certified copy of every order altering, or giving leave to alter, a company’s memorandum or articles, shall within, thirty days after the making thereof, be filed by the company with the Registrar who shall register the same [Section, 242(7)].
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Lesson 12 • An overview of Corporate Reorganisation, , 493, , However, if a company contravenes the provisions of sub-section (5) of Section 242, the company shall be punishable, with fine which shall not be less than one lakh rupees but which may extend to twenty-five lakh rupees and every, officer of the company who is in default shall be punishable with fine which shall not be less than twenty-five, thousand rupees but which may extend to one lakh rupees., , CONSEQUENCE OF TERMINATION OR MODIFICATION OF AGREEMENTS (SECTION 243), , 1., , Where an order made under Section 242 terminates, sets aside or modifies an agreement –, , (a), , (b), , such order shall not give rise to any claims whatever against the company by any person for damages, or for compensation for loss of office or in any other respect either in pursuance of the agreement or, otherwise;, no managing director or other director or manager whose agreement is so terminated or set aside, shall, for a period of five years from the date of the order terminating or setting aside the agreement,, without the leave of the Tribunal, be appointed, or act, as the managing director or other director or, manager of the company., , (1A) The person who is not a fit and proper person pursuant to sub-section (4A) of section 242 shall not hold the, office of a director or any other office connected with the conduct and management of the affairs of any company, for a period of five years from the date of the said decision:, Provided that the Central Government may, with the leave of the Tribunal, permit such person to hold any such, office before the expiry of the said period of five years., , (1B) Notwithstanding anything contained in any other provision of this Act, or any other law for the time being in, force, or any contract, memorandum or articles, on the removal of a person from the office of a director or any other, office connected with the conduct and management of the affairs of the company, that person shall not be entitled, to, or be paid, any compensation for the loss or termination of office., Provided that the Tribunal shall not grant leave under this clause unless notice of the intention to apply for leave, has been served on the Central Government and that Government has been given a reasonable opportunity of being, heard in the matter., , Any person who knowingly acts as a managing director or other director or manager of a company in contravention, of clause (b) of sub-section (1) or sub-section (1A) of Section 243, and every other director of the company who is, knowingly a party to such contravention, shall be punishable with fine which may extend to five lakh rupees., In the matter of Aruna Oswal (Appellant) vs. Pankaj Oswal & Ors. (Respondents), (Supreme Court) (July 06, 2020), Dispute of Inheritance of Shares is a civil dispute, it cannot be decided under section 241/242 of the, Companies Act, 2013, Fact of the case:, The brief facts of the case are that Late Mr. Abhey Kumar Oswal, during his lifetime, held as many as 5,35,3,960, shares in M/s. Oswal Agro Mills Ltd., a listed company. He died on 29.3.2016. Mr. Abhey Kumar Oswal filed a, nomination according to section 72 of the Companies Act, 2013 in favour of Mrs. Aruna Oswal, his wife. Two, witnesses duly attested the nomination in the prescribed manner. The name of Mrs. Aruna Oswal, the appellant,, was registered as a holder on 16.4.2016 as against the shares held by her deceased husband., , Pankaj Oswal (respondent no. 1), son of late Abhay Oswal filed a partition suit in High Court claiming entitlement, to 1/4th of the estate of his father including the deceased’s shareholdings. The High Court passed an interim, order to maintain status quo concerning shares and other immoveable property., , While the suit was pending, respondent no. 1 also moved the NCLT, Chandigarh, alleging ‘oppression and mismanagement’ under Section 241/242 of the Companies Act, 2013 in the affairs of respondent no. 2 company., The appellant challenged the maintainability of the petition. The NCLT directed filing of reply to the petition,, without deciding the question of maintainability.
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494, , , , Lesson 12 • EP-CL, , This was challenged before NCLAT, which in turn directed the NCLT to decide the question of maintainability of, the petition. The NCLT thereafter dismissed the challenge to maintainability and held that the respondent no. 1,, being a legal heir, was entitled to one-fourth of the property/shares. Therefore, the matter eventually reached, the Supreme Court of India., Judgment, , Supreme Court observed that the basis of the petition is the claim by way of inheritance of 1/4th shareholding, so as to constitute 10% of the holding. This is the right, which cannot be decided in proceedings under Section, 241/242 of the Companies Act, 2013. Thus, filing of the petition under sections 241 and 242 seeking waiver is a, misconceived exercise as the, respondent no. 1 has to firmly establish his right of inheritance before a civil court, to the extent of the shares he is claiming; more so, in view of the nomination made as per the provisions contained, in Section 71 of the Companies Act, 2013. In order to maintain the proceedings, the respondent should have, waited for the decision of the right title and interest, in the civil suit concerning shares in question.The orders, passed by the NCLT as well as NCLAT are set aside, and the appeals are allowed., In the matter of Mrs. Arti Meenakshi Muthiah (Appellant) vs. MCTM Global Investments Pvt. Ltd. & Ors., (Respondents) (NCLAT) ( June 11, 2020), , Merely adding an additional signatory to a bank account cannot be claimed to be an act of Oppression, Fact of the case, The brief facts of the case are that the 1st respondent company is a closely held family company. The company, was incorporated by Mr. M.Ct. Muthiah in 1988 and the shareholding was equally held by the Mr. M. Ct Muthiah, and his wife, 2nd respondent. Mr. M. Ct Muthiah died in September, 2006 and his shareholding in 1st respondent, was equally divided into his legal heirs., The appellant (original petitioner) had filed a Company Petition before the Company Law Board, Chennai against, the respondents under Section 397 and 398 read with Section 402 of the Companies Act 1956/2013 alleging, oppression and mismanagement by the respondents and after establishment of NCLT the petition was transferred, to NCLT, Chennai Bench., After hearing the parties, the NCLT Chennai dismissed the petition. Being aggrieved by the impugned order the, appellant has filed the present appeal., Judgment:, , NCLAT held that every shareholder have a right to transfer his right after completing all the formalities, if, otherwise the same are in order. NCLAT further observed that shares relating to the appellant are untouched, and she continues to be 17% shareholder of 1st respondent. Further the shares have not been transferred to an, outsider. Appellant failed to show any illegality in such transfer. Further, purchase of the property is a commercial, decision which cannot be question as the same may either result in profit or loss and the commercial decision, does not require any judicial interference., Furthermore, NCLAT opined that merely adding an additional signatory to a bank account cannot be claimed to, be an act of oppression especially when the Appellant continues to be one of the signatories. Thus, no prima, facie case is made out to interfere in the impugned order of NCLT, Chennai Bench and the appeal is dismissed., , CLASS ACTION SUITS (SECTION 245), , The initiation of class action suits is one of the major changes introduced by the Companies Act, 2013. The major, objective behind the provision of class action suits is to safeguard the interests of the minority shareholders. So,, class action suits are expected to play an important role to address numerous prejudicial and abusive acts committed, by the Board of Directors and other managerial personnel as it has been statutorily recognized under the Companies, Act, 2013.
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Lesson 12 • An overview of Corporate Reorganisation, , 495, , What is a class action suit?, , A class action suit is a lawsuit where a group of people representing a common interest may approach the Tribunal, to sue or be sued. It is a procedural instrument that enables one or more plaintiffs to file and prosecute litigation on, behalf of a larger group or class having common rights and grievances., , Application of Class Action and Reliefs [Section 245(1)], , Sub-section (1) of section 245 states that such number of members, depositor or any class of them, as the case may, be, may, file an application in Form NCLT-9 before the Tribunal for seeking all or any of the following orders,, namely:—, (a), , to restrain the company from committing an act which is ultra vires the articles or memorandum of the, company;, , (c), , to declare a resolution altering the memorandum or articles of the company as void if the resolution was, passed by suppression of material facts or obtained by mis-statement to the members or depositors;, , (b), (d), (e), (f), , (g), , to restrain the company from committing breach of any provision of the company’s memorandum or articles;, to restrain the company and its directors from acting on such resolution;, , to restrain the company from doing an act which is contrary to the provisions of this Act or any other law for, the time being in force;, to restrain the company from taking action contrary to any resolution passed by the members;, to claim damages or compensation or demand any other suitable action from or against—, , (i), , (ii), , (iii), (h), , the company or its directors for any fraudulent, unlawful or wrongful act or omission or conduct or, any likely act or omission or conduct on its or their part;, , the auditor including audit firm of the company for any improper or misleading statement of particulars, made in his audit report or for any fraudulent, unlawful or wrongful act or conduct; or, any expert or advisor or consultant or any other person for any incorrect or misleading statement, made to the company or for any fraudulent, unlawful or wrongful act or conduct or any likely act or, conduct on his part;, , to seek any other remedy as the Tribunal may deem fit., , Such application may be filed by the members, depositor or any class of them, as the case may be, if they are of the, opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial, to the interests of the company or its members or depositors., Sub-section (10) of Section 245 states that subject to the compliance of this section, an application may be filed or, any other action may be taken under this section by any person, group of persons or any association of persons, representing the persons affected by any act or omission, specified in sub-section (1)., , Liability of Audit Firm and its Partners [Section 245(2)], , Where the members or depositors seek any damages or compensation or demand any other suitable action from or, against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any, improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or, wrongful manner., , Required Number of Applicants [Section 245(3)], , The requisite number of members provided in sub-section (1) of Section 245, shall be as under:—, , A. In case, application by Members:, (a), , In the case of a company having a share capital -
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496, , , , (i), , not less than one hundred members of the company, or, , (iii), , any member or members holding not less than such percentage of the issued share capital of the, company as may be prescribed, subject to the condition that the applicant or applicants has or have, paid all calls and other sums due on his or their shares;, , (ii), , (b), , Lesson 12 • EP-CL, , not less than such percentage of the total number of its members as may be prescribed, whichever is, less; or, , In the case of a company not having a share capital -, , not less than one-fifth of the total number of its members., , B. In case, application by Depositors:, (i), , Not less than one hundred depositors of the company, or, , (iii), , Any depositor or depositors to whom the company owes such percentage of total deposits of the company as, may be prescribed shall also have right to apply., , (ii), , Not less than such percentage of the total number of depositors as may be prescribed, whichever is less shall, have right to apply., , An application may be filed or any other action may be taken under this section by any person, group of persons or, any association of persons representing the persons affected by any act or omission, specified in sub-section (1)., As per Rule 84 of the NCLT Rules, in case of a company having a share capital, the requisite prescribed number of, member or members to file an application under sub-section (1) of section 245 shall be (i), (a) at least five per cent. of the total number of members of the company; or, (ii), , (4), (i), , (ii), , (iii), , (b) one hundred members of the company, whichever is less; or, , (a) member or members holding not less than five per cent. of the issued share capital of the company, in case, of an unlisted company;, (b) member or members holding not less than two per cent. of the issued share capital of the company, in, case of a listed company., , The requisite prescribed number of depositor or depositors to file an application under sub-section (1) of, section 245 shall be at least five per cent. of the total number of depositors of the company; or, one hundred depositors of the company, whichever is less; or;, , depositor or depositors to whom the company owes five per cent. of total deposits of the company., , Requirement for Consideration of Application [Section 245(4)], , In considering an application for class action, the Tribunal shall take into account, in particular—, (a), , whether the member or depositor is acting in good faith in making the application for seeking an order;, , (c), , whether the cause of action is one which the member or depositor could pursue in his own right rather than, through an order under this section;, , (b), , (d), (e), , any evidence before it as to the involvement of any person other than directors or officers of the company on, any of the matters provided in clauses (a)to (f) of subsection (1);, , any evidence before it as to the views of the members or depositors of the company who have no personal, interest, direct or indirect, in the matter being proceeded under this section;, where the cause of action is an act or omission that is yet to occur, whether the act or omission could be, and, in the circumstances would be likely to be—
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Lesson 12 • An overview of Corporate Reorganisation, , (i), , (f), , (ii), , 497, , authorised by the company before it occurs; or, , ratified by the company after it occurs;, , where the cause of action is an act or omission that has already occurred, whether the act or omission could, be, and in the circumstances would be likely to be, ratified by the company., , In case of admission of application, , Section 245(5) provides that if an application filed for class action is admitted, then the Tribunal shall have regard, to the following, namely:—, (a) public notice shall be served on admission of the application to all the members or depositors of the class in, such manner as may be prescribed;, (b), (c), , (d), , all similar applications prevalent in any jurisdiction should be consolidated into a single application and the, class members or depositors should be allowed to choose the lead applicant and in the event the members or, depositors of the class are unable to come to a consensus, the Tribunal shall have the power to appoint a lead, applicant, who shall be in charge of the proceedings from the applicant’s side;, two class action applications for the same cause of action shall not be allowed;, , the cost or expenses connected with the application for class action shall be defrayed by the company or any, other person responsible for any oppressive act., , Effects of Order, , Order shall be binding: Any order passed by the Tribunal shall be binding on the company and all its members,, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with, the company. [Section 245(6)], , Punishment for non-compliance: Any company which fails to comply with an order passed by the Tribunal under, this section shall be punishable with fine which shall not be less than five lakh rupees but which may extend to, twenty-five lakh rupees and every officer of the company who is in default shall be punishable with imprisonment, for a term which may extend to three years and with fine which shall not be less than twenty-five thousand rupees, but which may extend to one lakh rupees. [Section 245(7)], , Frivolous or vexatious Application [Section 245(8)], , Where any application filed before the Tribunal is found to be frivolous or vexatious, it shall, for reasons to be, recorded in writing, reject the application and make an order that the applicant shall pay to the opposite party such, cost, not exceeding one lakh rupees, as may be specified in the order., , Exemption to Banking Company [Section 245(9)], , This Section is not applicable to Banking Company. Nothing contained in under section 245 of the companies Act,, 2013 shall apply to a banking company., , APPLICATION OF CERTAIN PROVISIONS TO PROCEEDINGS UNDER SECTION 241 OR SECTION 245, (SECTION 246), , According to Section 246, the provisions of sections 337 to 341 (both inclusive) shall apply mutatis mutandis, in, relation to an application made to the Tribunal under section 241 or section 245., •, Penalty for fraud by officers (Section 337):, •, Liability for proper account not kept (Section 338):, •, , Liability for fraudulent conduct of business (Section 339):, , •, , Liability under Sections 339 and 340 to extend to partners or directors in Firms or Companies (Section 341)., , •, , Power of Tribunal to assess damages against delinquent directors, etc. (Section 340):
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498, , , , WINDING UP OF COMPANIES, , Lesson 12 • EP-CL, , Winding up of a company is defined as a process by which the life of a company is brought to an end and its property, administered for the benefit of its members and creditors., In words of Professor Gower, “Winding up of a company is the process whereby its life is ended and its Property is, administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he, takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members, in accordance with their rights.”, According to Halsburry’s Laws of England, “Winding up is a proceeding by means of which the dissolution of a company, is brought about & in the course of which its assets are collected and realised; and applied in payment of its debts; and, when these are satisfied, the remaining amount is applied for returning to its members the sums which they have, contributed to the company in accordance with Articles of the Company.” Winding up is a legal process., Under the process, the life of the company is ended & its property is administered for the benefits of the members, & creditors. A liquidator is appointed to realise the assets & properties of the company. After payments of the debts,, is any surplus of assets is left out they will be distributed among the members according to their rights. Winding up, does not necessarily mean that the company is insolvent. A perfectly solvent company may be wound up by the, approval of members in a general meeting., , There are differences between winding up and dissolution. At the end of winding up, the company will have no, assets or liabilities. When the affairs of a company are completely wound up, the dissolution of the company takes, place. On dissolution, the company’s name is struck off the register of the companies and its legal personality as a, corporation comes to an end., , Legal Provisions for Winding up of Companies, , Section 2(94A) of the Companies Act 2013 provides the following definition of Winding up., , Winding up” means winding up under this Act or liquidation under the Insolvency and Bankruptcy Code, 2016, as, applicable.”, The procedures for Winding up of companies are provided under Chapter XX of the Companies Act, 2013 and, Insolvency and Bankruptcy Code of India 2016., , The Insolvency and Bankruptcy Code, 2016 is an act to consolidate and amend the laws relating to reorganisation, and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for, maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the, interests of all the stakeholders including alteration in the order of priority of payment of Government dues and to, establish an Insolvency and Bankruptcy Board of India, and for matters connected therewith or incidental thereto., The Insolvency and Bankruptcy Code, 2016 (IBC) was passed by the Parliament on 11 May 2016, received, Presidential assent on 28 May 2016 and was notified in the official gazette on the same day., , WINDING UP BY THE TRIBUNAL, , Section 270 of the Companies Act, 2013 provides that the provisions of Part I of Chapter XX of the Companies Act,, 2013 shall apply to the winding up of a company by the Tribunal under this Act., , Circumstances in Which Company May be Wound Up by Tribunal, , Section 271 of the Companies Act, 2013 provides that a company may, on a petition under section 272, be wound, up by the Tribunal under following circumstances(i), , if the company has, by special resolution, resolved that the company be wound up by the Tribunal;, , (ii) if the company has acted against the interests of the sovereignty and integrity of India, the security of the State,, friendly relations with foreign States, public order, decency or morality;, , (iii) if on an application made by the Registrar or any other person authorised by the Central Government by
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Lesson 12 • An overview of Corporate Reorganisation, , 499, , notification under this Act, the Tribunal is of the opinion that the affairs of the company have been conducted, in a fraudulent manner or the company was formed for fraudulent and unlawful purpose or the persons, concerned in the formation or management of its affairs have been guilty of fraud, misfeasance or misconduct, in connection therewith and that it is proper that the company be wound up;, , (iv) if the company has made a default in filing with the Registrar its financial statements or annual returns for, immediately preceding five consecutive financial years; or, (v), , if the Tribunal is of the opinion that it is just and equitable that the company should be wound up.”., , Petition for Winding Up, , Section 272(1) of the Companies Act, 2013 provides that subject to the provisions of this section, a petition to the, Tribunal for the winding up of a company shall be presented by—, (a) the company;, (b), , any contributory or contributories;, , (d), , the Registrar;, , (f), , in a case falling under clause (b) of section 271, by the Central Government or a State Government., , (c), , (e), , all or any of the persons specified in clauses (a) and (b);, , any person authorised by the Central Government in that behalf; or, , A contributory shall be entitled to present a petition for the winding up of a company, notwithstanding that he may, be the holder of fully paid-up shares, or that the company may have no assets at all or may have no surplus assets, left for distribution among the shareholders after the satisfaction of its liabilities, and shares in respect of which he, is a contributory or some of them were either originally allotted to him or have been held by him, and registered in, his name, for at least six months during the eighteen months immediately before the commencement of the winding, up or have devolved on him through the death of a former holder. [Section 272(2)], The Registrar shall be entitled to present a petition for winding up under section 271, except on the grounds, specified in clause (a) of that section. The Registrar shall obtain the previous sanction of the Central Government to, the presentation of a petition:, The Central Government shall not accord its sanction unless the company has been given a reasonable opportunity, of making representations. [Section 272(3)], A petition presented by the company for winding up before the Tribunal shall be admitted only if accompanied by, a statement of affairs in such form and in such manner as may be prescribed. [Section 272(4)], , A copy of the petition made under this section shall also be filed with the Registrar and the Registrar shall, without, prejudice to any other provisions, submit his views to the Tribunal within sixty days of receipt of such petition., [Section 272(4)], , Powers of Tribunal, , Section 273(1) of the Companies Act, 2013 provides the Tribunal may, on receipt of a petition for winding up under, section 272 pass any of the following orders, namely:—, (a) dismiss it, with or without costs;, (b), , make any interim order as it thinks fit;, , (e), , any other order as it thinks fit:, , (c), , (d), , appoint a provisional liquidator of the company till the making of a winding up order;, make an order for the winding up of the company with or without costs; or, , an order under this sub-section shall be made within ninety days from the date of presentation of the petition:, , Before appointing a provisional liquidator under clause (c), the Tribunal shall give notice to the company and afford, a reasonable opportunity to it to make its representations, if any, unless for special reasons to be recorded in writing,, the Tribunal thinks fit to dispense with such notice:
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500, , Lesson 12 • EP-CL, , , , The Tribunal shall not refuse to make a winding up order on the ground only that the assets of the company have, been mortgaged for an amount equal to or in excess of those assets, or that the company has no assets., , Section 273(2) of the Companies Act, 2013 provides where a petition is presented on the ground that it is just and, equitable that the company should be wound up, the Tribunal may refuse to make an order of winding up, if it is of, the opinion that some other remedy is available to the petitioners and that they are acting unreasonably in seeking, to have the company wound up instead of pursuing the other remedy., , Directions for Filing Statement of Affairs, , Section 274 stipulates that where a petition for winding up is filed before the Tribunal by any person other than the, company, the Tribunal shall, if satisfied that a prima facie case for winding up of the company is made out, by an, order direct the company to file its objections along with a statement of its affairs within thirty days of the order in, such form and in such manner as may be prescribed., , Provided that the Tribunal may allow a further period of thirty days in a situation of contingency or special, circumstances:, , Provided further that the Tribunal may direct the petitioner to deposit such security for costs as it may consider, reasonable as a precondition to issue directions to the company., A company, which fails to file the statement of affairs, shall forfeit the right to oppose the petition and such directors, and officers of the company as found responsible for such non-compliance, shall be liable for punishment., , The directors and other officers of the company, in respect of which an order for winding up is passed by the, Tribunal under clause (d) of sub-section (1) of section 273, shall, within a period of thirty days of such order, submit,, at the cost of the company, the books of account of the company completed and audited up to the date of the order,, to such liquidator and in the manner specified by the Tribunal., If any director or officer of the company contravenes the provisions of this section, the director or the officer of the, company who is in default shall be punishable with imprisonment for a term which may extend to six months or, with fine which shall not be less than twenty-five thousand rupees but which may extend to five lakh rupees, or with, both., The complaint may be filed in this behalf before the Special Court by Registrar, provisional liquidator, Company, Liquidator or any person authorised by the Tribunal., , Company Liquidators, , Section 275 (1) and (2) of the Companies Act, 2013 provides that for the purposes of winding up of a company by, the Tribunal, the Tribunal at the time of the passing of the order of winding up, shall appoint an Official Liquidator, or Company Liquidator. Provisional Liquidator or the Company Liquidator shall be from amongst the insolvency, professionals registered under the Insolvency and Bankruptcy Code, 2016., , VOLUNTARY WINDING UP, , Chapter V of the Insolvency and Bankruptcy Code of India 2016 deals with the Voluntary Liquidation of Corporate, Persons., Section 59 of IBC, 2016 provides that:, (1), , A corporate person who intends to liquidate itself voluntarily and has not committed any default may initiate, voluntary liquidation proceedings under the provisions of this Chapter., , (3), , Without prejudice to sub-section (2), voluntary liquidation proceedings of a corporate person registered as a, company shall meet the following conditions, namely:—, , (2), , The voluntary liquidation of a corporate person under sub-section (1) shall meet such conditions and, procedural requirements as may be specified by the Board., (a), , a declaration from majority of the directors of the company verified by an affidavit stating that—, , (i), , they have made a full inquiry into the affairs of the company and they have formed an opinion
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Lesson 12 • An overview of Corporate Reorganisation, , (b), , (c), , (5), (6), (7), (8), (9), , that either the company has no debt or that it will be able to pay its debts in full from the, proceeds of assets to be sold in the voluntary liquidation; and, , (ii), , the company is not being liquidated to defraud any person;, , (i), , audited financial statements and record of business operations of the company for the previous, two years or for the period since its incorporation, whichever is later;, , the declaration under sub-clause (a) shall be accompanied with the following documents, namely:—, , (ii), , a report of the valuation of the assets of the company, if any prepared by a registered valuer;, , within four weeks of a declaration under sub-clause (a), there shall be—, , (i), , (ii), , (4), , 501, , a special resolution of the members of the company in a general meeting requiring the company, to be liquidated voluntarily and appointing an insolvency professional to act as the liquidator;, or, , a resolution of the members of the company in a general meeting requiring the company to be, liquidated voluntarily as a result of expiry of the period of its duration, if any, fixed by its articles, or on the occurrence of any event in respect of which the articles provide that the company shall, be dissolved, as the case may be and appointing an insolvency professional to act as the, liquidator: Provided that the company owes any debt to any person, creditors representing two, thirds in value of the debt of the company shall approve the resolution passed under sub-clause, (c) within seven days of such resolution., , The company shall notify the Registrar of Companies and the Board about the resolution under sub- section, (3) to liquidate the company within seven days of such resolution or the subsequent approval by the creditors,, as the case may be., Subject to approval of the creditors under sub-section (3), the voluntary liquidation proceedings in respect, of a company shall be deemed to have commenced from the date of passing of the resolution under subclause (c) of sub-section (3)., The provisions of sections 35 to 53 of Chapter III and Chapter VII shall apply to voluntary liquidation, proceedings for corporate persons with such modifications as may be necessary., , Where the affairs of the corporate person have been completely wound up, and its assets completely, liquidated, the liquidator shall make an application to the Adjudicating Authority for the dissolution of such, corporate person., , The Adjudicating Authority shall on an application filed by the liquidator under sub-section (7), pass an order, that the corporate debtor shall be dissolved from the date of that order and the corporate debtor shall be, dissolved accordingly., A copy of an order under sub-section (8) shall within fourteen days from the date of such order, be forwarded, to the authority with which the corporate person is registered., , Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, , In exercise of the powers conferred by sections 59, 196 and 208 read with section 240 of the Insolvency and, Bankruptcy Code, 2016 (31 of 2016), the Insolvency and Bankruptcy Board of India issued Insolvency and, Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017, , Insolvency and Bankruptcy Board of India (Voluntary Liquidation Process) Regulations, 2017 shall apply to the, voluntary liquidation of corporate persons under Chapter V of Part II of the Insolvency and Bankruptcy Code, 2016., , Initiation of Liquidation - Under Regulation 3 of IBBI (Voluntary Liquidation Process) Regulations, 2017, , (1) Without prejudice to section 59(2), liquidation proceedings of a corporate person shall meet the, followingconditions, namely: –, (a), , a declaration from majority of
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502, , , , (i), , (ii), , the designated partners, if a corporate person is a limited liability partnership,, , Lesson 12 • EP-CL, , individuals constituting the governing body in case of other corporate persons,, , as the case may be, verified by an affidavit stating that(i), , (b), , (c), , (ii), , they have made a full inquiry into the affairs of the corporate person and they have formed an opinion, that either the corporate person has no debt or that it will be able to pay its debts in full from the, proceeds of assets to be sold in the liquidation; and, the corporate person is not being liquidated to defraud any person;, , the declaration under sub-clause (a) shall be accompanied with the following documents, namely:, , (i), , (ii), , audited financial statements and record of business operations of the corporate person for the previous, two years or for the period since its incorporation, whichever is later;, a report of the valuation of the assets of the corporate person, if any prepared by a registered valuer;, , within four weeks of a declaration under sub-clause (a), there shall be-, , (i), , (ii), , a resolution passed by a special majority of the partners or contributories, as the case may be, of the, corporate person requiring the corporate person to be liquidated and appointing an insolvency, professional to act as the liquidator; or, , a resolution of the partners or contributories, as the case may be, requiring the corporate person to be, liquidated as a result of expiry of the period of its duration, if any, fixed by its constitutional documents, or on the occurrence of any event in respect of which the constitutional documents provide that the, corporate person shall be dissolved, as the case may be, and appointing an insolvency professional to, act as the liquidator:, , Provided that the corporate person owes any debt to any person, creditors representing two-thirds in, value of the debt of the corporate person shall approve the resolution passed under sub-clause (c), within seven days of such resolution., , (2) The corporate person shall notify the Registrar and the Board about the resolution under sub-regulation (1) to, liquidate the corporate person within seven days of such resolution or the subsequent approval by the creditors, as, the case may be., (3) Subject to approval of the creditors under sub-regulation (1), the liquidation proceedings in respect of a, corporate person shall be deemed to have commenced from the date of passing of the resolution under sub- clause, (c) of sub-regulation (1):, , Explanation: For the purposes of sub-regulations (1) to (3), corporate person means a corporate person other than, a company., , (4) The declaration under sub-regulation (1)(a) or under section 59(3)(a) shall list each debt of the corporate, person as on that date and state that the corporate person will be able to pay all its debts in full from the proceeds, of assets to be sold in the liquidation., Effect of liquidation, (1), (2), , The corporate person shall from the liquidation commencement date cease to carry on its business except as, far as required for the beneficial winding up of its business., Notwithstanding the provisions of sub-section (1), the corporate person shall continue to exist until it is, dissolved under section 59(8)., , Provisions applicable to every mode of winding up, , Part III of Chapter XX of the Companies Act, 2013 provides for following Sections which are applicable to every, mode of winding up.
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•, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , Lesson 12 • An overview of Corporate Reorganisation, , 503, , 324 - Debts of all Descriptions to be Admitted to Proof, 326 - Overriding Preferential Payments, 327 - Preferential Payments, 328 - Fraudulent Preference, 329 - Transfers Not in Good Faith to be Void, 330 - Certain Transfers to be Void, 331 - Liabilities and Rights of Certain Persons Fraudulently Preferred, 332 - Effect of Floating Charge, 333 - Disclaimer of Onerous Property, 334 - Transfers, etc., After Commencement of Winding Up to be Void, 335 - Certain Attachments, Executions, etc., in Winding Up by Tribunal to be Void, 336 - Offences by Officers of Companies in Liquidation, 337 - Penalty for Frauds by Officers, 338 - Liability Where Proper Accounts Not Kept, 339 - Liability for Fraudulent Conduct of Business, 340 - Power of Tribunal to Assess Damages Against Delinquent Directors, etc., 341 - Liability Under Sections 339 and 340 to Extend to Partners or Directors in Firms or Companies, 342 - Prosecution of Delinquent Officers and Members of Company, 343 - Company Liquidator to Exercise Certain Powers Subject to Sanction, 344 - Statement that Company is in Liquidation, 345 - Books and Papers of Company to be Evidence, 346 - Inspection of Books and Papers by Creditors and Contributories, 347 - Disposal of Books and Papers of Company, 348 - Information as to Pending liquidations, 349 - Official Liquidator to Make Payments into Public Account of India, 350 - Company Liquidator to Deposit Monies into Scheduled Bank, 351 - Liquidator Not to Deposit Monies into Private Banking Account, 352 - Company Liquidation Dividend and Undistributed Assets Account, 353 - Liquidator to Make Returns, etc., 354 - Meetings to Ascertain Wishes of Creditors or Contributories, 355 - Court, Tribunal or Person, etc., Before Whom Affidavit May be Sworn, 356 - Powers of Tribunal to Declare Dissolution of Company Void, 357 - Commencement of Winding Up by Tribunal, 358 - Exclusion of Certain Time in Computing Period of Limitation, , The Companies (Winding Up) Rules, 2020, , Ministry of Corporate Affairs notified Companies (Winding-Up) Rules, 2020 through Notification No. G.S.R. 46(E), on 24th January, 2020. These rules shall apply to winding-up under the Companies Act 2013. These rules will come, into force from 1st April, 2020., The Rules are applicable to companies going into winding-up for the circumstances mentioned under section 271, as well as summary procedure for liquidation under section 361 of the Companies Act, 2013., , The Rules have been divided into 6 parts comprising of 191 rules and 95 forms. ‘Winding-up Rules’ among other, things provide for summary procedure for winding-up of companies having specified thresholds., The winding-up of companies falling within the specified thresholds will henceforth require the approval of the, Central Government instead of the National Company Law Tribunal (NCLT)., Notification of these rules is expected to reduce the burden at the level of NCLT as summary procedure for liquidation, can now be filed with the Central Government.
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504, , Lesson 12 • EP-CL, , , , Currently, the proceedings pertaining to voluntary winding up and winding up on the grounds of inability to pay, debts are governed by the Insolvency and Bankruptcy Code 2016, which provides for time-bound speedy dissolution, of a company., , However, winding-up proceedings on the ground other than inability to pay debts continued to be governed by the, Companies (Court) Rules, 1959 which were notified nearly 60 years ago by the Supreme Court and required suitable, amendments in view of the notification of the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016., An important feature of these rules is the summary procedure for liquidation introduced through Part V. An, important factor for such summary winding-up is that the Central Government will provide required approvals to, such companies for the normal winding-up process which is otherwise undertaken through the NCLT, thereby, reducing the burden on NCLT and greatly shortening the overall winding-up timelines., , Summary Procedure for Liquidation, , These rules, vide Rule 190 thereof, allow following classes of companies to close their business by making a, winding-up application to Central Government without going to NCLT., •, Companies accepting deposit and having total outstanding deposits Upto Rs.25 Lacs*, •, , Companies having total outstanding loan including secured loan Upto Rs.50 Lacs*, , •, , Companies with paid-up capital Upto Rs.1 Crore*, , •, , Companies having total turnover Upto Rs.50 Crores*, , *based on latest audited balance sheet, , In addition, Companies having book value of assets upto ₹1 Crore (currently specified under section 361(1)(i)), of the Companies Act, 2013, can also approach Central Government for liquidation., , The provisions of the Rules related to filing and audit of the Company Liquidator’s accounts and its procedure (Rule, 91 to 99 of the Rules) and disposing of assets (Rule 165 to 167 of the Rules) shall be applicable to above class of, companies with modification that the word ‘Tribunal’ shall be considered as ‘Central Government’., Other procedural aspects are as under:, •, , The Rules lay down the process for meeting of creditors and contributories of the company, and specify the, scenarios in which creditors can vote., , •, , The Rules lay down the procedure for maintenance of registers and books of accounts by the Company, Liquidator., , •, , The Rules make it necessary for all the money lying in the bank account of Company Liquidator which is not, immediately required for the purposes of winding up, to be invested in government securities or in interest, bearing deposits in any scheduled bank., , •, , The Rules also outline the procedure for creditors to prove their debts and claims against the company and if, the proof of such debt gets rejected by the Company Liquidator, there is also a provision and process for, creditor to make an appeal to Tribunal., , Contents of the Rules:, Part, , Description, , Rule, , I, , General, , Rule 1-2, , II, , Liquidator, , Rule 13-16, , II, , Winding up by tribunal, , Rule 3-12
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505, , Lesson 12 • An overview of Corporate Reorganisation, , II, , Winding up order, , Rule 17-23, , II, , Reports by company liquidator under section 281, , Rule 25-27, , II, II, II, II, II, II, II, II, II, , III, III, III, III, III, III, III, III, III, III, III, III, IV, V, , VI, , Application for stay of suits etc. On winding up order, Settlement of list of contributories, Advisory committee, , Meetings of creditors and contributories, , Proxies in relation to meetings of creditors and contributories, , Registers and books of account to be maintained by company liquidator, Banking account of company liquidator, Investment of surplus funds, , Filing and audit of company liquidator’s account, , Rule 24, , Rule 28-35, Rule 36-43, , Rule 44 - 65, Rule 66 - 78, Rule 79- 80, Rule 81-85, Rule 86-90, , Rule 91- 99, , Winding up by tribunal (other than summary winding up) debts and claims Rule 100-125, against company, Attendance and appearance of creditors and contributories, , Rule 126-127, , Calls in winding up by tribunal, , Rule 131-138, , Collection and distribution of assets in winding up by tribunal, Examination under sections 299 and 300, , Application against delinquent directors, promoters and officers of the company, Disclaimer, , Compromise or abandonment of claims, Sale by company liquidator, , Dividends and returns of capital in winding up by tribunal, Termination of winding up, , Rule 128-130, Rule 139-152, Rule 153-155, Rule 156-162, Rule 163-164, Rule 165-167, Rule 168-173, Rule 174-178, , Payment of unclaimed dividends or undistributed assets into the company Rule 179-182, liquidation dividend and undistributed assets account in a winding up, Costs, etc., , Rule 183-189, , Miscellaneous, , Rule 191, , Summary procedure for liquidation, , OVERVIEW OF REGISTERED VALUERS, , Rule 190, , Who shall conduct the valuation?, Section 247(1) of the Companies Act, 2013 states that where a valuation is required to be made in respect of any, property, stocks, shares, debentures, securities or goodwill or any other assets or net worth of a company or its, liabilities under the provision of the Companies Act, 2013, it shall be valued by a person having such qualifications, and experience and registered as a valuer in such manner, on such terms and conditions as may be prescribed and
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506, , , , appointed by the audit committee or in its absence by the Board of Directors of that company., The valuer appointed under sub-section (1) shall,—, , Lesson 12 • EP-CL, , (a), , make an impartial, true and fair valuation of any assets which may be required to be valued;, , (c), , not undertake valuation of any assets in which he has a direct or indirect interest or becomes so, interested at any time during a period of three years prior to his appointment as valuer or three years, after the valuation of assets was conducted by him., , (b), , exercise due diligence while performing the functions as valuer; make the valuation in accordance, with such rules asprescribed under Rule 8 of the Companies(Registered Valuers and Valuation) Rules,, 2017; and, , In case of contravention made by the Valuer, , Sub - section (3) of Section 247 states that if a valuer contravenes the provisions of the section 247 or the rules, made thereunder, the valuer shall be liable to a penalty of fifty thousand rupees:, , Provided that if the valuer has contravened such provisions with the intention to defraud the company or its, members, he shall be punishable with imprisonment for a term which may extend to one year and with fine which, shall not be less than one lakh rupees but which may extend to five lakh rupees., , Liability of Valuer, , Sub - section (4) of Section 247 states that where a valuer has been convicted under sub-section (3), he shall be, liable to –, (i), refund the remuneration received by him to the company; and, (ii), , pay for damages to the company or to any other person for loss arising out of incorrect or misleading, statements of particulars made in his report., , Regulatory authority for Registered Valuer, , The Central Government delegated its powers and functions under section 247 of the Companies Act, 2013 to the, Insolvency and Bankruptcy Board of India (IBBI) and specified the IBBI as the Authority under the Companies, (Registered Valuers and Valuation) Rules, 2017., , INSTITUTE OF COMPANY SECRETARIES OF INDIA–REGISTERED VALUER ORGANISATION (ICSI-RVO)), What is ICSI – RVO?, , As specified above, Section 247 of the Companies Act, 2013 provides that where a valuation is required to be made, in respect of any assets it shall be valued by a person who, having the necessary qualifications and experience, and, being a valuer member of a recognised valuer organisation, is registered as a valuer with the Authority. Accordingly,, to enable the members of the Institute/others to practice as Registered Valuers, the Institute incorporated ICSIRVO., , ICSI- RVO is a Section 8 company which has been formed with the intent to enroll, register, educate, train, promote,, develop and regulate Registered Valuers Rules while establishing and promoting high standards of practice and, professional conduct and furthermore, to promote good professionalism, ethical conduct and competency of, Registered Valuers for ensuring quality of valuation work., The IBBI vide Registered Valuers Organisation Recognition No. IBBI/RVO/2018/003 recognised ICSI RVO as a, Registered Valuers Organisation for the Asset Class(es):(i), Land and Building, (ii), , (iii), , Plant and Machinery, , Securities or Financial Assets
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Lesson 12 • An overview of Corporate Reorganisation, , 507, , Who can offer Valuation services?, , For conducting valuations required under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016,, a person is to be registered with the IBBI as a registered valuer. For registering with IBBI, a person must have, necessary qualification and experience, has to be enrolled as a valuer member with a Registered Valuer Organisation, (RVO), has to complete a recognised educational course conducted by the RVO, and pass valuation examination, conducted by IBBI., , IBBI, being the Authority, in pursuance of the first proviso to rule 5 (1) of the Companies (Registered Valuers and, Valuation) Rules, 2017 specified the details of educational course for the Asset Class of ‘Securities or Financial, Assets’. These courses shall be delivered by the RVOs in not less than 50 hours., , A person, who is rendering valuation services under the Companies Act, 2013, may continue to do so without a, certificate of registration up to 31st March, 2018, thereafter with effect from 1st April, 2018 for conducting, valuations required under the Companies Act, 2013 and the Insolvency and Bankruptcy Code, 2016, a person is to, be registered with the IBBI as a registered valuer., In pursuance of the Rule 5 (3) of the Companies (Registered Valuers and Valuation) Rules, 2017, IBBI, being the, Authority, has also published the syllabus, format and frequency of the valuation examination for the Asset Class of, ‘Securities or Financial Assets’. A person wishing to be a valuer needs to pass this valuation examination., , REGISTRATION OFFICES AND FEES, Registration of Documents, , Section 403 states that any document, required to be submitted, filed, registered or recorded, or any fact or, information required or authorised to be registered under the Companies Act, 2013, shall be submitted, filed,, registered or recorded within the time specified in the relevant provision on payment of such fee as may be, prescribed. The fees is prescribed under the Companies (Registration Offices and fees) Rules, 2014., However, in case of failure to submit, file or register or record the above stated documents, within the period, provided in the relevant section, it may, without prejudice to any other legal action or liability under the Companies, Act, 2013, be submitted, filed, registered or recorded as the case may be :(a) In case of documents provided under Section 92 or 137 [First proviso to Section 403], •, •, (b), , after expiry of the period so provided under Section 92 or 137,, on payment of such additional fee as may be prescribed –, , (i), , (ii), , which shall not be less than one hundred rupees per day, and, , different amounts may be prescribed for different classes of companies., , In case of any other documents [Second proviso to Section 403]:-, , •, •, , after expiry of the period so provided under relevant Section,, , on payment of such additional fee as may be prescribed and different fees may be prescribed for, different classes of companies., , Continuous Default, , Third proviso to Section 403(1) states that where there is default on two or more occasions in submitting, filing,, registering or recording of the document, fact or information, it may, without prejudice to any other legal action or, liability under the Companies Act, 2013, be submitted, filed, registered or recorded, as the case may be, on payment, of a higher additional fee, as may be prescribed. Amended by the Companies (Amendment Act, 2020) (Not yet notified, by Central Government)., , Punishment on Failure, , Further, sub- section (2) of Section 403 states that where a company fails or commits any default to submit, file,, register or record any document, fact or information under Section 403(1) before the expiry of the period specified
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508, , , , Lesson 12 • EP-CL, , in the relevant section, the company and the officers of the company who are in default, shall, without prejudice to, the liability for the payment of fee and additional fee, be liable for the penalty or punishment provided under this, Act for such failure or default., , COMPANIES TO FURNISH INFORMATION OR STATISTICS, , Power of Central Government to Direct Companies to Furnish Information or Statistics, Section 405(1) of the Companies, Act, 2013 states that the Central Government may, by order, require companies or, any class of companies, to furnish such information or statistics with regard to their or its constitution or working,, and within such time, as may be specified in the order., Every such order shall be published in the Official Gazette and may be addressed to companies or to any class of, companies, in such manner, as the Central Government may think fit and the date of such publication shall be, deemed to be the date on which requirement for information or statistics is made on such companies or class of, companies, as the case may be., , For the purpose of satisfying itself that any information or statistics furnished by a company or companies in, pursuance of any order stated above is correct and complete, the Central Government may by order require such, company or companies to produce such records or documents in its possession or allow inspection thereof by such, officer or furnish such further information as that Government may consider necessary (Sec 405(3))., , Failure to furnish information or statistics by the companies required by the Central Government, , As per Section 405(4), if any company fails to comply with an order specified above, or furnishes any information, or statistics which is incorrect or incomplete in any material respect, the company and every officer of the company, who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with, a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to, a maximum of three lakh rupees. Amended by the Companies (Amendment Act, 2020) Effective from 21/12/2021., , In case of Foreign Companies, , Where a foreign company carries on business in India, all references to a company in Section 405 this section shall, be deemed to include references to the foreign company in relation, and only in relation, to such business., , The Specified Companies (Furnishing of information about payment to micro and small enterprise, suppliers) Order, 2019, , The Central Government vide notification number S.O. 5622(E), dated the 2nd November, 2018 has directed that all, companies, who get supplies of goods or services from micro and small enterprises and whose payments to micro, and small enterprise suppliers exceed forty five days from the date of acceptance or the date of deemed acceptance, of the goods or services as per the provisions of section 9 of the Micro, Small and Medium Enterprises Development, Act, 2006 (27 of 2006) referred to as “Specified Companies”, shall submit a half yearly return to the Ministry of, Corporate Affairs stating the following:, (a) the amount of payment due; and, (b), , the reasons of the delay;, , In exercise of the powers conferred by section 405 of the Companies Act, 2013, the Central Government hereby vide, MCA Notification No. S.O. 368 (E), dated 22nd January, 2019 has notified the Specified Companies (Furnishing of, information about payment to micro and small enterprise suppliers) Order, 2019., Under this order:, (i), , (ii), , Every specified Company had to file initial return in MSME Form I regarding details of all outstanding dues, to Micro or small enterprises suppliers existing on the date of notification of this order (22nd January, 2019), within the prescribed period., Every specified company have to file a half-yearly return as per MSME Form I by 31st October for the period, from April to September and by 30th April for the period from October to March.
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Lesson 12 • An overview of Corporate Reorganisation, , 509, , LESSON ROUND-UP, •, •, , •, , •, •, •, •, , •, •, , •, , Section 230(1) states that when a compromise or arrangement is proposed–, •, between a company and its creditors or any class of them; or, •, between a company and its members or any class of them,, , the Tribunal may, on the application of the (i) company, or (ii) of any creditor or (iii) member of the, company, or (iv) in the case of a company which is being wound up, of the liquidator appointed under this, Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meeting of the, creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held, and conducted in such manner as the Tribunal directs., Section 230(6) states that where at a meeting held in pursuance of sub-section (1), majority of persons, representing three-fourths in value of the creditors, or class of creditors or members or class of members,, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or, arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same, shall be binding on the company, all the creditors, or class of creditors or members or class of members,, as the case may be, or, in case of a company being wound up, on the liquidator appointed under the, Companies Act, 2013 or under the Insolvency and Bankruptcy Code, 2016, as the case may be and the, contributories of the company., Section 230(8) states that the order of the Tribunal shall be filed with the Registrar by the company within, a period of thirty days of the receipt of the order., , Section 232(1) states that when an application is made to the Tribunal under section 230 for the, sanctioning of a compromise or an arrangement proposed between a company and any such persons as, are mentioned in that section, and it is shown to the Tribunal., that the compromise or arrangement has been proposed for the purposes of, or in connection with, a, scheme for the reconstruction of the company or companies involving merger or the amalgamation of any, two or more companies; and, , that under the scheme, the whole or any part of the undertaking, property or liabilities of any company, (hereinafter referred to as the transferor company) is required to be transferred to another company, (hereinafter referred to as the transferee company), or is proposed to be divided among and transferred, to two or more companies, the Tribunal may on such application, order a meeting of the creditors or class, of creditors or the members or class of members, as the case may be, to be called, held and conducted in, such manner as the Tribunal may direct and the provisions of sub-sections (3) to (6) of section 230 shall, apply mutatis mutandis., Section 233 prescribes simplified procedure for Merger or amalgamation of, •, two or more small companies or, •, between a holding company and its wholly-owned subsidiary company, or, •, such other class or classes of companies as may be prescribed, Section 234(2) states that subject to the provisions of any other law for the time being in force, a foreign, company, may with the prior approval of the Reserve Bank of India, merge into a company registered, under this Act or vice versa and the terms and conditions of the scheme of merger may provide, among, other things, for the payment of consideration to the shareholders of the merging company in cash, or in, Depository Receipts, or partly in cash and partly in Depository Receipts, as the case may be, as per the, scheme to be drawn up for the purpose., , Section 237(1) states that when the Central Government is satisfied that it is essential in the public interest, that two or more companies should amalgamate, the Central Government may, by order notified in the, Official Gazette, provide for the amalgamation of those companies into a single company with such, constitution, with such property, powers, rights, interests, authorities and privileges, and with such, liabilities, duties and obligations, as may be specified in the order.
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510, , Lesson 12 • EP-CL, , , , GLOSSARY, Merger, , Tribunal, Banking Company, , A ‘merger’ is a combination of two or more entities into one; the desired effect being, not just the accumulation of assets and liabilities of the distinct entities, but, organization of such entity into one business. The possible objectives of mergers are, manifold - economies of scale, acquisition of technologies, access to sectors /, markets etc. Generally, in a merger, the merging entities would cease to be in, existence and would merge into a single surviving entity., Tribunal refers to National Company Law Tribunal, , “banking company” means any company which transacts the business of banking in, India. Explanation.—Any company which is engaged in the manufacture of goods or, carries on any trade and which accepts deposits of money from the public merely for, the purpose of financing its business as such manufacturer or trader shall not be, deemed to transact the business of banking. (Sec 5(c) of banking Regulation Act, 1949), , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not required to be submitted for evaluation)., 1., , Describe the provisions relating to cross border mergers in Companies Act, 2013., , 3., , Describe the powers of Central Government to provide for amalgamation of companies in public interest., , 2., , What are the requirements relating to notice required under Section 230 of the Companies Act, 2013?, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , Insolvency and Bankruptcy Code, 2016, , •, , Bare Act- Companies Act, 2013 and Rules made thereunder, , OTHER REFERENCES (Including Websites and Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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An Introduction to MCA 21, and filing in XBRL, , Lesson 13, Key Concepts One, Should Know, •, , E-Governance, , •, , E-Forms, , •, •, •, •, •, •, •, , MCA-21, Filing, , Pre-Certification, XBRL, , Reservation of, Names, Incorporation, Web-Forms, , Learning Objectives, To understand, •, , MCA website and its features, , •, , E-filing of MCA-21 Forms, , •, •, •, •, •, , Incorporation of Companies, , Pre-Certification of E-Forms, XBRL filing & Taxonomies, , Penalty for filing of false documents/statements with the, Registrar, Mode of Payment of Fees, , Lesson Outline, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , Introduction-Jurisprudence of Company Law, E-Governance and MCA-21, Important Aspects of MCA-21, Substantial Benefits of MCA-21, MCA Services, All about filing and filing of E-forms, Pre-requisites for E-filing on MCA-21, Important Terms used in E-filing, Pre-certification of E-Forms, Guidelines for filing and filing of Forms, XBRL filing/ XBRL Tags/ XBRL Taxonomies, Benefits of XBRL, Steps for filing Statements in XBRL Mode, Description of E-forms, Penalty for filing of false documents/statements with the, Registrar, LESSON ROUND UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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512, , Lesson 13 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section 7, , Incorporation of Companies, , Section 448, , Punishment for False Statement, , Section 13, , Section 398, Rule 9, , Rule 38, , Rule 38 A, , Alteration of Memorandum, , Provisions Relating to Filing of Applications, Documents, Inspection, etc., in, Electronic Form, The Companies (Incorporation) Rules, 2014, , Reservation of name or change of name, , Simplified Proforma for Incorporating Company Electronically Plus (SPICe+), The Companies (Registration office & Fees) Rules, 2014, , Rule 7, , Manner and Conditions of Filing, , Rule 12, , Fees, , Rule 8, , Rule 10, Rule 13, Rule 14, , Authentication of Documents, , Procedure on Receipt of Any Application or Form or Document Electronically, Mode of Payment, , Inspection, Production and Evidence of Documents kept by Registrar, , The Companies (Filing of Documents and Forms in XBRL) Rules, 2015, MCA-21 E- Filings Provisions related to various E-Forms, , E-GOVERNANCE AND MCA-21
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513, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , With the advent of Information and Communication Technology in all sectors today, Governments across the globe, including the Government of India are taking major initiatives to integrate IT in all their processes. Electronic, Governance (e-Governance) is the application of Information Technology to the Government functioning in order to, bring about Simple, Moral, Accountable, Responsive and Transparent (SMART) Governance. e-Governance is a, highly complex process requiring provision of hardware, software, networking and re-engineering of the procedures, for better delivery of services., Earlier the businessmen and professionals had to visit MCA offices to file the statutory forms, to review public, documents or to fulfil any compliance in physical mode. It was very hectic and time consuming. People had to stand, in long queue which often led to inadvertent missing of filing of statutory e-forms leading to Non-Compliance and, levy of fine or imprisonment., So keeping in tune with the e-Governance, initiatives the world over, Ministry of Corporate, Affairs (MCA), Government of India, has initiated, the MCA-21 project, to enable an easy and secure, access to MCA services in a manner that best, suits the corporate entities and professionals, besides the public., MCA-21 is an ambitious e-Governance initiative of, Government of India that builds on the Government’s, vision of National e-Governance in the country. As, part of the Government’s focus on governance, norms to meet the expectations arising from, globalization, MCA project was launched as a, flagship initiative of Ministry of Corporate Affairs, (MCA). MCA-21 has resulted in improved, procedures for better delivery of services by the, MCA. This reform of administration has not only, improved efficiency and transparency in the, government operations, but has also enabled the, Ministry to concentrate more on policy matters., , MCA21 has been part of Mission Mode projects of the, Government of India. Bagging several accolades in past,, the project has now reached its 3rd version. MCA21 V3.0 is, part of year 2021 Budget announcement and will leverage, the use of latest technologies to further streamline the, Corporate Compliance and stakeholders experience., , The first phase of Ministry of Corporate Affairs’ -MCA-21, Version 3.0 (V3.0) comprising of revamped website, new, email services for MCA Officers and two new modules,, namely, e. Book and e. Consultation was launched during a, virtual event on May 24, 2021., The MCA V3.0 is going to be implemented in two phases., The second and final phase shall be launched from October, 2021 onwards. The entire project is proposed to be launched, within this Financial Year and will be data analytics and, machine learning driven. The MCA21 V3.0 in its entirety, will not only improve the existing services and modules,, but will also create new functionalities like e-adjudication,, compliance management system, advanced helpdesk,, feedback services, user dashboards, self-reporting tools and, revamped master data services., , This e- Governance initiative, in partnership with, Private Player, is a fine example of public private, partnership, and is built on a BOOT (Built, Operate,, Own and Transfer) model. Infosys is currently maintaining this project., , The portal is designed to fully automate all processes related to enforcement and compliance of legal requirements, under the Companies Act, 2013/1956, Limited Liability Partnership Act, 2008 & other allied Acts and rules &, regulations framed there-under mainly for regulating the functioning of the corporate sector in accordance with, law., , MCA-21 AND ITS LEGAL VALIDITY, , Section 398 of the Companies Act, 2013 has provision related to filing of applications, documents and inspections, in electronic form., , Section 398(1) provides that notwithstanding anything to the contrary contained in this Act, and without prejudice, to the provisions contained in Section 6 of the Information Technology Act, 2000, the Central Government may, make rules so as to require from such date as may be prescribed in the rules that(a), , Such applications, balance sheet, prospectus, return, declaration, memorandum, articles, particulars of, charges, or any other particulars or document as may be required to be filed or delivered under this Act or, the rules made there under, shall be filed in the electronic form and authenticated in such manner as may be, prescribed;
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514, , , , Lesson 13 • EP-CL, , Rule 7 of Companies (Registration offices and fees) Rules, 2014 relates to manner and, conditions of filing, •, , •, , •, , •, , •, , •, , •, , It provides that every application, financial statement, prospectus, return, declaration,, memorandum, articles, particulars of charges, or any other particulars or documents, or any notice, or any communication or intimation required to be filed or delivered or, served under the Act and rules made there under, shall be filed or delivered or served in, computer readable electronic form, in portable document format (pdf) or in such other, format as has been specified in any rule or form in respect of such application or form or, document or declaration to the concerned Registrar through the portal maintained by the, Central Government on its web-site or through any other website notified by the Central, Government., , Where the documents are required to be filed on Non-Judicial Stamp Paper, the company, shall submit such documents in the physical form, in addition to their submission in, electronic form, unless the Central Government, by an order, does not require submission, in physical form and proof of delivery of documents submitted in physical form shall be, scanned and form part of attachment to the e-form., , If stamp duty on such documents is paid electronically through the portal maintained by, the Central Government or through any other website notified by the Central Government,, then, the company shall not be required to make physical submission of such documents,, in addition to their submission in the electronic form., , In respect of certain documents filed under the Act which are not covered for payment, of stamp duty through the portal of the Central Government, and stamp duty payable, on such documents in the respective State is equal to or less than one hundred rupees,, the company shall scan such stamped documents complete in all respects and shall file, electronically for evidencing by the Registrar and shall not be required to submit such, documents, except those which are required to be filed for compounding of offences or, adjudication of penalties or applications to Central Government or Regional Director in, the physical form separately., Unless otherwise stated in any law for the time being in force, the company shall retain, such documents duly stamped in original permanently for the documents relating, to incorporation and matters incidental thereto, changes in any of the clauses of the, Memorandum and Articles of Association and in other cases for a minimum period of eight, years from the date of filing of the documents and shall be required to produce the same as, and when the same is required for inspection and verification by the competent authority, under any law for the time being in force., , Any correspondences (physically or electronically) and documents to be filed by any, person shall contain name, designation, address, membership number or Director, Identification Number, as the case may be, of the person signing such document and, make sure correctness thereof and in no case, correspondence, merely with signature and, writing authorised signatory shall be acceptable., The Registrar shall not accept request for recording any event based information or, changes except certain exceptions from defaulting companies, unless they file their, updated financial statement and Annual Return with the Registrar.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , (b), (c), , 515, , Such document, notice, any communication or intimation, as may be required to be served or delivered under, this Act, in the electronic form and authenticated in such manner as may be prescribed;, Such applications, balance sheet, prospectus, return, register, memorandum, articles, particulars of charges,, or any other particulars or document and return filed under this Act or rules made thereunder shall be, maintained by the Registrar in the electronic form and registered or authenticated, as the case may be, in, such manner as may be prescribed;, , Rule 9 of the Companies (Registration Offices and Fees) Rules, 2014 relates to Maintainance of Documents, Electronically:, •, •, •, , •, , (d), , The Central Government shall set up and maintain a secure centralised electronic registry in which all the, applications, financial statement, prospectus, return, register, memorandum, articles, particulars of, charges, or any particulars or returns or any other documents under the Act shall be filed and stored, electronically., Every document or certificate or notice or other document required to be registered or authenticated by, the Registrar or an officer of the Central Government under the Act or rules made there under, shall be, registered or authenticated through a valid digital signature of such person or a system generated digital, signature., , The Registrar shall issue document, certificate, notice, receipt, approval or communicate endorsement or, acknowledgement in the electronic mode., , However, where the Registrar is not able to issue any certificate, receipt, endorsement, acknowledgement, or approval in electronic mode for the reasons to be recorded in writing, he may issue such certificate or, receipt or endorsement, acknowledgement or approval in the physical form under manual signature, affixing seal of his office., , The Registrar may send any document, certificate, notice or any other communication to the company or, its authorised representative or directors or both in the electronic manner for which the company shall, create and maintain at all times a valid electronic address including e-mail, user identifications capable of, receiving and acknowledging the receipt of the document, certificate, notice or other communication,, automated or otherwise., , Such inspection of the memorandum, articles, register, index, balance sheet, return or any other particulars, or document maintained in the electronic form, as is otherwise available for inspection under this Act or the, rules made there under, may be made by any person through the electronic form in such manner as may be, prescribed;, , Rule 15 of the Companies (Registration Offices and Fees) Rules, 2014 relates to Inspection of Documents:, Any person may –, •, •, , (e), , inspect any document kept by the Registrar, being documents filed or registered by him in pursuance of, the Companies Act, 2013 or the Companies Act, 1956 (1 of 1956) or making a record of any fact required, or authorised to be recorded or registered in pursuance of this Act, on payment for each inspection of fee., require a certificate of incorporation of any company, or a copy or extract of any other document or any, part of any other document to be certified by the Registrar, on payment of fee., , However, no person shall be entitled under section 399 to inspect or obtain copies of resolutions referred, to in clause (g) of sub-section (3) of section 117 of the Act., , Such fees, charges or other sums payable under this Act or the rules made there under shall be paid through, the electronic form and in such manner as may be prescribed; and
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516, , (f), , , , Lesson 13 • EP-CL, , The Registrar shall register change of registered office, alteration of memorandum or articles, issue certificate, of incorporation, register such document, issue such certificate, record the notice, receive such communication, as may be required to be registered or issued or recorded or received, as the case may be, under this Act or, the rules made thereunder or perform duties or discharge functions or exercise powers under this Act or the, rules made thereunder or do any act which is by this Act directed to be performed or discharged or exercised, or done by the Registrar in the electronic form in such manner as may be prescribed., , IMPORTANT ASPECTS OF MCA-21, , Organization of ROC Office under MCA, The ROC office working from its present address has virtually became the Back Office of the Ministry. Since the, number of companies/entities found it difficult to switch over to e-Filing at the initial stage, Facilitation Centers, known as Physical Front Offices (PFOs) were set up throughout the Country to provide requisite comfort for e-Filing, to such companies., , Front Office and Back Office, , Front Office, The major components involved in this comprehensive e-governance project are front office and back office., , Front Office represents the interface of the corporate and public users with the MCA-21 system. This comprises of, Virtual Front Office and Registrar’s Front Office., Virtual front office, , Virtual front office is one of the various channels available to stakeholders (companies and the professionals) to, enable them to do the statutory filing with ROC Offices across the Country. It merely represents a computer facility, for filing of digitally signed e-forms by accessing the MCA portal through internet (www.mca.gov.in). It also presupposes availability of related facilities to convert documents into PDF format and scanning of documents wherever, required., Registrar’s Front Office (RFO), , To facilitate the change over from Physical Document Filing to Digital Document Filing, the Ministry started offices, known as the Registrar Front Office. It is one of the various channels available to stakeholders to enable them to do, the statutory filing with ROC Offices across the Country. Registrar’s Front Offices are managed and operated by the, operator RFO has all facilities which are required for online filing like trained manpower, broadband connectivity,, scanner, printer and related computer accessories. This office managed by MCA and TCS/Infosys officials provides, free of cost service in all aspects of MCA 21 e-governance projects., Back Office, , Back Office represents the offices of Registrar of Companies, Regional Directors and Headquarters and takes care of, internal processing of the forms filed by the corporate user as per MCA norms and guidelines. The e-forms are, routed dynamically to the concerned authority for processing depending upon the assigned role. All the e-forms, along with attachments are stored in the electronic depository, which the staff of MCA can view depending upon the, access rights., Certified Filing Centre (CFC), , In order to provide the Companies to do their e Filing, Professional Institutes (ICSI, ICAI, ICAI-cost), their Regional, Councils/Local chapters, individual practicing members and firms of professionals were authorised to create and, set-up the required facilities for facilitating the e Filing process. The Certified Filing Centers, thus set-up by the, Professionals are over and above the 53 Registrar’s Front Office set-up by the Ministry under the programme. While
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 517, , the services available from the Facilitation Centers set-up by the Ministry are without any charge, the services, provided by these Certified Filing Centers entail payment of service charges., , SUBSTANTIAL BENEFITS OF MCA21, , Elimination of interface with the offices of ROCs, RDs and the MCA, MCA-21 has been designed virtually to eliminate the physical interface between the companies and the offices of, ROCs, RDs and even MCA. It has not only saved time and energy of the company representatives but also enabled, them to focus on other creative tasks. Time consuming works of professionals i.e. the tasks of incorporation of new, companies, conducting searches of important documents, obtaining certificates of creation, modification and, satisfaction of charges, filing of statutory forms and returns etc. have now become very quick and easy., , The problem of becoming defaulter by the company for non-filing of Annual returns due to long queues at ROC, offices is now eliminated with e-filing. Conducting search was very painful in physical maintenance of statutory, records. E-filing is panacea to all these problems., , Effective use of database, , With the help of database collected, the vital information has been collected, segregated in such a way that it can be, used by various stakeholders for various purposes. It will help in transparency in operations and benefits to players, in stock markets as well as easy and prominent exposure of defaulters., The following websites are created:, , Website for Investor Education and Protection Fund: http://iepf.gov.in, Ministry of Corporate Affairs has set up the Investor Education and Protection Fund (IEPF) with the dedicated, purpose of empowering investors through education and awareness building. It has been established under Section, 205 C of the Companies Act,1956 and now under Section 125 of the Companies Act, 2013 for promotion of investors, awareness and protection of the interests of investors., There was no unified website providing information on all financial instruments. Moreover, almost all individual, websites that exist provide information from their own respective perspectives and not what and how the small, investors want it. This website would fulfill the need for an information resource for small investors on all aspects, of the financial markets and would attempt to do it in the small investors’ language., It would provide information about IEPF and the various activities that have been undertaken/funded by it. It, would also provide information relevant for investors, including about various instruments for investment,, regulatory system and grievance redressal mechanism., Awareness to Investors – www.watchoutinvestors.com:, , Over the years, thousands of unscrupulous entities have defrauded the investors. Investors have lost confidence in, the market consequent to a series of mishaps. In many cases, though penal regulatory action has been taken against, such entities, the information about such action is in a difficult-to-access, difficult-to-use format. Absence of any, organized database prevents regulators and investors from taking any pre-emptive action www.watchoutinvestors., com alerts various entities and about persons with information that one should be aware of before investing. It is, sponsored and aided by Investor education and protection fund and Securities and Exchange Board of India., , www.watchoutinvestors.com is a national web-based registry covering entities including companies and, intermediaries and, wherever available the persons associated with such entities, who have been indicted for an, economic default and/or for non-compliance of laws/guidelines and/or who are no longer in the specified activity., CSR portal-https://www.csr.gov.in/, , The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs, Government, of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by, the companies registered with it.
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518, , , , Lesson 13 • EP-CL, , The Corporate Social Responsibility concept in India is governed by Section 135 of the Companies Act, 2013 and, Rules made thereunder wherein the criteria has been provided for assessing the CSR eligibility of a company,, Implementation and Reporting of their CSR Policies. India having the most elaborated CSR mechanism and, implementation strategy has started its journey to set a benchmark in attaining sustainability goals and stakeholder, activism in nation building., The CSR ambit is getting bigger and for upcoming years it would turn as a unique knowledge base for analyzing and, achieving sustainability goals as among various large economies India is a country which has assured by mandating, CSR through its legislative action., , Better supervision and monitoring of compliance, , MCA-21 has ensured better supervision and control of the MCA over Companies with regard to compliance with the, provisions of the Companies Act. Thus, enforcement of law has become easier and will ultimately benefit the, investors, the stakeholders and the concerned Regulatory bodies. With specific details of companies and their, directors available in the electronic form, it ensures proactive & effective compliance of relevant law(s) and also in, turn fosters corporate governance., Mutually beneficial system, , The focus of the MCA-21 program is on bringing about a fine balance between trade facilitation on one hand and, enforcement requirements on the other., Speed, transparency and efficiency, , MCA-21 project aims to bring speed, transparency and efficiency in the delivery of the services rendered by the, MCA to all the stakeholders through a set of pre-defined service levels., , Effective due diligence, , Banks and Financial Institutions can conduct a thorough scrutiny of the documents filed by the company before, advancing loan(s) and other financial assistance to such a company., , Efficient services by professionals, , Professionals will be able to offer efficient services to their client companies., , Environment Friendly, , MCA-21 has also proved to be environment friendly since paper work involved in filing of forms and documents has, been eliminated., , MCA SERVICES, , The MCA-21 application is designed to fully automate all processes related to the proactive enforcement and, compliance of the legal requirements under the Companies Act, 1956, Companies Act, 2013 and Limited Liability, Partnership Act, 2008. This helps the business community to meet their statutory obligations., , Benefits, , The MCA-21 application offers the following:, 1., 2., 3., 4., 5., 6., , Enables the business community to register a company and file statutory documents quickly and easily., Provides easy access of public documents., Helps faster and effective resolution of public grievances., Helps registration and verification of charges easily., Ensures proactive and effective compliance with relevant laws and corporate governance., Enables the MCA employees to deliver best of breed services.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 519, , Services offered, (1), , (2), , (3), , (4), , (5), , (6), (7), , (8), , (9), , Register Digital Signature Certificate - The Information Technology Act, 2000 has provisions for use of, Digital Signatures on the documents submitted in electronic form in order to ensure the security and, authenticity of the documents filed electronically. This is secure and authentic way to submit a document, electronically. As such, all filings done by the companies/LLPs under MCA-21 e-Governance programme are, required to be filed using Digital Signatures by the person authorised to sign the documents. An user can, register DSC and update particulars of the DSC through the MCA Portal., , Apply for Director Identification Number (DIN) - The concept of a Director Identification Number (DIN), was introduced for the first time with the insertion of Sections 266A to 266G of Companies (Amendment), Act, 2006, since then the system has evolved and Companies Act, 2013 also makes a provision for obtaining, DIN., View Master details of any Company/LLP registered with Registrar of Companies - A facility has been, made available to the general public to view master details of any company/LLP registered with Registrar of, Companies. This facility may be availed by clicking “View Company Master Data”. A user can view Master Data, of a Company or an LLP, signatory details of a particular company, details of companies and directors under, prosecution, details of Companies and LLP’s registered in the last 30 days, master data of directors specifying, the name of Companies/LLP’s they are director/partner in, director/designated partner’s details, etc., Index of Charges - A similar facility has also been made available in respect of the ‘Register of Charges’ for, the Companies/LLPs by clicking on to the ‘View Index of Charges’ and for the viewing the details of the, signatories of any company/LLP by clicking on ‘View Signatory Details’., , LLP Services - A user can check LLP name, find LLPIN (Limited Liability Partnership Identification Number),, avail services related to incorporation of an LLP, services related to annual e-Filing for an LLP, services related, to change in LLP information and services related to closure of an LLP., LLP Services for Business User - A business user can enter or update partner details of an LLP, enter Form, 3 or Form 3 & 4 details for LLP filing and verify partner details for filing Annual Return., E-Filing - A user can download LLP Forms or Company Forms from the Portal, submit application for PAN, and TAN, upload e-forms, download Submitted Form for resubmission, check annual filing status of the, company, upload details of security holders or debenture holders or depositors., , Company Services - A user can check company name, find CIN (Corporate Identity Number), services related, to incorporation of a company, avail services related to compliance filing of a company, services related to, change in company information, services related to charge management, informational services and services, related to closure of a company., Complaints - A user can raise service related complaints, track the complaints created, create investor/, serious complaint, track the status of complaints created as ‘investor/serious complaint’, give feedback or, suggestions to MCA-21 and raise employee grievances., , (10) Document Related Services - A user can get certified copies of forms and documents of a company, view, forms and documents online etc., (11) Fee and Payment Services - A user can avail services through Enquire Fees, pay later, link NEFT payment,, pay miscellaneous fee, pay stamp duty and track the payment status., , (12) Public Search of Trademark - A user can search whether trademark has been registered or applied for a, particular name by a company., , (13) Investor Services - A user can search amount unclaimed/unpaid amount due to be transferred to the, Investor Education and Protection Fund (IEPF), upload investor details, confirm uploaded files., , (14) Track SRN/Transaction Status - A user can track the transaction status of the uploaded forms i.e., whether, they are approved or pending for approval or required for resubmission or are rejected.
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520, , , , Lesson 13 • EP-CL, , Besides above mentioned services, to align with global best practices and aided by emerging technologies, such as AI and ML, MCA-21 Version 3.0 is envisioned to transform the corporate regulatory environment in, India. The key components of MCA-21 to be launched during Fiscal Year 2021-22 are:, , •, , •, , •, , •, , •, , e-Scrutiny: MCA is in process of setting up a Central Scrutiny Cell which will scrutinise certain Straight, Through Process (STP) forms filed by the corporates on the MCA-21 registry and flag the companies for, more in depth scrutiny., e-adjudication: E-adjudication module, has been conceptualised to manage the increased volume of, adjudication proceedings by Registrar of Companies (RoC) and Regional Directors (RD) and will facilitate, end to end digitisation of the process of adjudication, for the ease of users. It will provide a platform for, conducting online hearings with stakeholders and end to end adjudication electronically., , e-Consultation: To automate and enhance the current process of public consultation on proposed, amendments and draft rules etc., e-consultation module of MCA-21 V 3.0 will provide an online platform, wherein, proposed amendments/draft legislations will be posted on MCA’s website for external users/, comments and suggestions pertaining to the same in a structured digital format. Further, the system will, also facilitate AI driven sentiment analysis, consolidation and categorization of stakeholders’ inputs and, creation of reports on the basis thereof, for reference of MCA., Compliance Management System (CMS): CMS will assist MCA in identifying non-compliant companies/, LLPs, issuing e-notices to the said defaulting companies/LLPs, generating alerts for internal users of, MCA. CMS will serve as a technology platform/solution for conducting rule based compliance checks and, undertaking enforcement drives of MCA wherein e-notices will be issued by MCA for effective, administration of corporates., MCA Lab: As part of MCA21 V 3.0, a MCA LAB is being set up, which will consist of corporate law experts., The primary function of MCA Lab will be to evaluate the effectiveness of Compliance Management System,, e-consultation module, enforcement module, etc. and suggest enhancements to the same on an on-going, basis. The Lab will help MCA in ensuring the correctness of results produced by these key modules in, view of the dynamic corporate ecosystem., , Additionally, MCA-21 V 3.0 will have a cognitive chat bot enabled helpdesk, mobile apps, interactive user, dashboards, enhanced user experience using UI/UX technologies, and seamless data dissemination through, APIs., , E-SERVICES, , Central Registration Centre (CRC), The Central Registration Centre (CRC) is an initiative of Ministry of Corporate Affairs (MCA) in Government Process, Re-engineering(GPR) with the specific objective of providing speedy incorporation related services in line with, global best practices., CRC is presently tasked to process applications for RUN service for reserving a name and forms related to new, companies’ incorporations., , Incorporation of Company, , After filing an application electronically through e-form, a company can be incorporated. Once company gets, incorporated, CIN is allotted by the Registrar to the company., , Corporate Identity Number(CIN)/Foreign Company Registration Number (FCRN), , Every company is allocated a Corporate Identity Number (CIN). CIN can be found from the MCA-21 portal through, search based on:, •, , ROC Registration No.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , •, , Existing Company Name, , •, , Inactive CIN [In case of change of CIN, the user is required to enter previous (inactive) CIN Number]., , •, , 521, , Old Name of Company (in case of change of name, user is required to enter old name and the system displays, corresponding current name)., , Each Indian company (Listed or Unlisted) has a unique 21 Digit CIN. This is required to be quoted on all e-forms., Once this number is filled, company details are automatically filled in E-forms issued by MCA by using pre-fill, function., , As stated above, CIN is a 21 digit number assigned to every company incorporated on or after November 1, 2000., The Corporate Identity Number allotted to a company indicates listing status, economic activity(industry), state,, year of incorporation, ownership and sequential number assigned by ROC (Registration Number)., 1st Digit, Listing Status, Next 5 digits, Next 2 digits, Next 4 digits, Next 3 digits, Last 6 digits, , Economic Activity (industry), State, Year of Incorporation, Ownership Status of the company (Private (PTC)/ Public ( PLC)/, Government companies (GOI) etc….., Sequential number assigned by ROC (Registration Number), , Foreign Company Registration Number (FCRN), , Every Foreign Company has been allotted a Foreign Company Registration Number (FCRN)., , Corporate Identity Number (CIN), work as a unique identifier of an Indian company. Foreign Company Registration, Number (FCRN) is a unique identifier in the case of a Foreign Company., , Director Identification Number (DIN), , DIN is an identification number which the Central Government may allot to any individual, intending to be appointed, as director or to any existing directors of a company, for the purpose of his identification., , All existing and any person intending to be appointed as a director are required to obtain the Director Identification, Number (DIN). DIN is also mandatory for directors of Indian Companies who are not citizens of India. However, DIN, is not mandatory for directors of foreign company having branch offices in India. Every individual, who is intending, to be appointed as Director of an existing company or designated partner of a limited liability partnership is, required to make an application electronically in Form DIR-3 to Central Government for obtaining Director, Identification Number (DIN) or through Form SPICe+ in case of incorporation of company, a maximum of three, directors can apply for DIN through SPICe+. DIN is a unique identification number and once obtained is valid for life, time of a Director. A single DIN is required to be obtained irrespective of the number of directorships., , RUN FACILITY, , The MCA Affairs has simplified the Company Name Approval Process from 26th January 2017 by introducing a new, simple web-based application called RUN (Reserve Unique Name). RUN is a simple and easy process for reserving, a name for a new company or for change of name of an existing Company., However, from 23rd February 2020 onwards, an application for reservation of name shall be made through the web, service available at www.mca.gov.in by using web service SPICe+ (Simplified Proforma for Incorporating Company, Electronically Plus: INC-32), and for change of name by using web service RUN (Reserve Unique Name) along with, fee as provided in the Companies (Registration Offices and Fees) Rules, 2014, which may either be approved or, rejected, as the case may be, by the Registrar, Central Registration Centre after allowing re-submission of such web, form within fifteen days for rectification of the defects, if any. (Rule 9 of the Companies (Incorporation) Rules, 2014)
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522, , , , Lesson 13 • EP-CL, , The Corporate Identification Number (CIN) of the existing company should be submitted at the time of application, through RUN Process to reserve a new name., Rule 9A of the Companies (Incorporation) Rules, 2014- Extension of reservation of name in certain cases, , Upon payment of fees provided below through the web service available at www.mca.gov.in, the Registrar shall, extend the period of a name reserved under rule 9 by using web service SPICe+ (Simplified Proforma for, Incorporating Company Electronically Plus: INC-32), upto:, (a), , forty days from the date of approval under rule 9, on payment of fees of rupees of one thousand rupees made, before the expiry of twenty days from the date of approval under rule 9;, , (c), , sixty days from the date of approval under rule 9 on payment of fees of rupees three thousand made before, the expiry of twenty days from the date of approval under rule 9., , (b), , sixty days from the date of approval under rule 9 on payment of fees of rupees two thousand made before the, expiry of forty days referred to in clause (a) above;, , However, the Registrar shall have the power to cancel the reserved name in accordance with sub-section (5) of, section 4 of the Companies Act, 2013., Simplified Proforma for Incorporating Company [Electronically Plus (SPICe+)]- Rule 38 of the Companies, (Incorporation) Rules, 2014, , The Companies (Incorporation) Amendment Rules, 2020 w.e.f 23rd February, 2020 introduced new web form, SPICe+ for incorporation of the Companies. SPICe+ would be an integrated Web form offering 11 services by 3, Central Government Ministries & Departments. (Ministry of Corporate Affairs, Ministry of Labour & Department of, Revenue in the Ministry of Finance) and three State Government (Maharashtra, Karnataka & West Bengal), thereby, saving as many procedures, time and cost for Starting a Business in India. SPICe+ is part of various initiatives and, commitment of Government of India towards Ease of Doing Business (EODB)., , Services offered through SPICe+ are: Name Reservation, Incorporation, DIN allotment, Mandatory issue of PAN,, Mandatory issue of TAN, Mandatory issue of EPFO registration, Mandatory issue of ESIC registration, Mandatory, issue of Profession Tax registration(Maharashtra, Karnataka & West Bengal), Mandatory Opening of Bank Account, for the Company and Allotment of GSTIN (if so applied for), Shops and Establishment Registration., After deployment of SPICe+ web form, RUN is applicable only for change of name of existing companies., , For the purposes of filing SPICe+ Form, the particulars of maximum of three directors is allowed to be filled in, SPICe+ (Simplified Proforma for Incorporating company Electronically Plus: INC-32), and allotment of Director, Identification Number of maximum of three proposed directors is permitted in case of proposed directors not, having approved Director Identification Number., , As per Rule 38 of the Companies (Incorporation)Rules, 2014, the Application for incorporation of a company, is made in SPICe+ (Simplified Proforma for Incorporating company Electronically Plus: INC-32) along with, e-Memorandum of Association (e-MOA) in Form No. INC-33 and e-Articles of association (e-AOA) in Form no., INC-34., Provided that in case of incorporation of a company falling under section 8 of the Act, SPICe+ (Simplified Proforma, for Incorporating company Electronically Plus: INC-32)] shall be filed along with FORM No. INC-13 (Memorandum, of Association) and FORM No. INC-31 (Articles of Association) as attachments., , In case of incorporation of a company having more than seven subscribers or where any of the subscriber to, the MOA/AOA is signing at a place outside India, MOA/AOA shall be filed with SPICe+ (Simplified Proforma for, Incorporating company Electronically Plus: INC-32) in the respective formats as specified in Table A to J in Schedule, I without filing form INC-33 and INC-34., , The application for incorporation of a company under rule 38A of the Companies (Incorporation) Rules, 2014, shall be accompanied by form [AGILE-PRO-S*] (INC-35) containing an application for registration of the following, numbers, namely:-
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , (a), , GSTIN with effect from 31st March, 2019, , (c), , ESIC with effect from 15th April, 2019, , (b), (d), (e), (f), , 523, , EPFO with effect from 8th April, 2019, , Profession Tax Registration with effect from the 23rd February, 2020, Opening of Bank Account with effect from 23rd February, 2020., Shops and Establishment Registration*., , * Amended by The Companies (Incorporation) Fourth Amendment Rules, 2021. dated 07.06.2021 , Where the Registrar on examining SPICe+ (Simplified Proforma for Incorporating company Electronically Plus:, INC-32)], finds that it is necessary to call for further information or finds such application or document to be, defective or incomplete in any respect, he shall give intimation to the applicant to remove the defects and re-submit, the e-form within fifteen days from the date of such intimation given by the Registrar., , After the resubmission of the document, if the Registrar still finds that the document is defective or incomplete in, any respect, he shall give one more opportunity of fifteen days to remove such defects or deficiencies., , However, the total period for re-submission of documents shall not exceed thirty days. Once the e-form is processed, and found complete, company would be registered and CIN would be allocated and the Certificate of Incorporation, of company shall be issued by the Registrar in Form No. INC-11., Digital Signature Certificate (DSC), , The e-forms are required to be authenticated by the authorized signatories using digital signatures as defined under, the Information Technology Act, 2000. A digital signature is the electronic signature duly issued by a certifying, authority that shows the authority of the person signing the same. It is an electronic equivalent of a written, signature. Every user who is required to sign an e-form for submission with MCA is required to obtain a Digital, Signature Certificate. For MCA-21, the following four types of users are identified as users of Digital Signatures and, are required to obtain digital signature certificate:, 1., , MCA (Government) Employees., , 3., , Authorized signatories of the Company including Managing Director, Directors, Manager or Secretary., , 2., 4., , Professionals (Company Secretaries, Chartered Accountants, Cost Accountants and Lawyers) who interact, with MCA and companies in the context of Companies Act., Representatives of Banks and Financial Institutions., , A person requiring a Digital Signature Certificate can approach any of the Certifying authorities identified by the, MCA, with original supporting documents and self-attested copies, for issuance of Digital Signature Certificate., DSCs can also be obtained, wherever offered by CA, using Aadhar eKYC based authentication, and herein supporting, documents are not required. Such Certifying Authorities are authorized to issue a Digital Signature Certificate with, a validity of one or two years., Registration of DSC is a one-time activity on the MCA portal. For registration of DSC, steps are given on the MCA, Portal., , All companies (Public Company, Private Company, Company not having share capital, Company limited by share or, guarantee, Unlimited Company) must comply with this requirement of registration of DSC by the Director, Manager, and Secretary., Foreign directors are required to obtain Digital Signature Certificate from an Indian Certifying Authority (List of, Certifying Authorities is available on the MCA portal). The process of registration of DSC is same as applicable to, others.
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524, , , , Payment of Stamp Duty, , Lesson 13 • EP-CL, , Stamp duty is a state subject. It is payable on Memorandum and Articles of Association of every Company., , In some states, duty is also payable on the authorized capital mentioned in the Memorandum of Association of the, Company. States have authorized MCA to collect the stamp duty on their behalf and to remit the same to them., Introduction of e-stamping facility by MCA and dispensation of physical submission thereof, , For the purpose of making all transactions faster, improving service delivery and making office of the Registrar, paperless, the process of physical submission of documents has been dispensed with. The Central Government shall, initially collect the stamp duty on behalf of State Governments and Union Territories for specific purpose of e-filing, of documents under the provisions of the Companies Act, 2013 and to remit the same directly to their accounts in, accordance with the approved payment and accounting procedures., At present, e-forms to which e-Stamping is applicable are –, (i), , Form SPICe+ (including MoA & AoA), , (iii), , Form FC-1, , (ii), , Form SH-7, , The procedure for collection of stamp duty came in to force w.e.f. 13th day of September, 2009. With effect from 1st, April 2010, companies are compulsorily required to make payment electronically for stamp duty in respect of all, the States which have authorized to the Central Government to collect the stamp duty on their behalf. In respect of, the State from whom the authorization is yet to be received, the Company shall continue to pay stamp duty outside, the MCA portal., However, the payment of stamp duties in specific cases for some forms will be governed by the respective state laws, for payment of same. ( For example, stamp rates on share certificates or increasing the authorized capital will vary, from state to state), , The companies are not required to make physical submission of documents on which stamp duty is paid electronically, through MCA portal. However, in respect of the documents on which stamp duty is not paid through MCA portal, the, companies are required, in addition to their electronic filing, to submit physical copies of such stamped documents, with Registrar of Companies also., Simultaneously, there are documents other than those specified above which are not covered for payment of stamp, duty through MCA portal and on which stamp duty payable in the respective State is equal to or less than one, hundred rupees. Such stamped documents are required to be scanned by the company and filed electronically for, evidencing by the Registrar and need not be submitted physically except those required to be filed for compounding, of offence or adjudication of penalties or applications to Central Government or Regional Director in the physical, form separately., , Rule 7 of Companies (Registration offices and fees) Rules, 2014 states that unless otherwise stated in any law, for the time being in force, the company shall retain such documents duly stamped in original permanently for, the documents relating to incorporation and matters incidental there to, changes in any of the clauses of the, Memorandum and Article of Association and in other cases for a minimum period of eight years from the date of, filing of the documents and shall be required to produce the same as and when the same is required for inspection, and verification by the competent authority under any law for the time being in force., The rates of stamp duty in the respective states may be revised through finance bill therefore, students are, advised to refer to the latest rates of stamp duty., Stamp duty can be paid through MCA-21 system with any of the option such as net banking, credit card, debit card,, NEFT or offline with banks.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 525, , STP Forms [Rule 10 of the Companies (Registration Offices and Fees) Rules 2014], STP stands for “Straight Through Process”. Some e-forms are identified as informatory in nature. These forms are, filed under Straight through process may be examined by the Registrar at any time on suo- moto or on receipt of any, information or complaint from any source at any time after its filing. It means the information given in the e-forms, is being taken on file maintained by the Registrar of Companies through electronic mode on the basis of statement, of correctness given by the filing Company and further verification by the practicing professionals., Re-submission [Rule 10 of the Companies (Registration Offices and Fees) Rules 2014], , Where the Registrar, on examining any such application or e-form or document, finds it necessary to call for further, information or finds such application or e-form or document to be defective or incomplete in any respect, he shall, give intimation of such information called for or defect or incompleteness noticed electronically, by placing it on the, website and by e-mail on the last intimated e-mail address of the person or the company, which has filed such, application or e-form or document, directing him or it to furnish such information or to rectify such defects or, incompleteness or to re-submit such application or e-form or document. In case the e-mail address of the person or, company in question is not available, such intimation shall be given by the Registrar by post at the last intimated, address or registered office of such person or company, as the case may be. The Registrar shall preserve the fact of, such intimation in the electronic record., Any further information or documents called for, in respect of application or e-form or document, filed electronically, with the Ministry of Corporate Affairs shall be furnished in form No. GNL-4 as an addendum., , The Registrar shall allow fifteen days’ time to the person or company, which has filed the application or e-form or, document for furnishing further information or for rectification of the defects or incompleteness or for, re-submission of such application or e-form or document., In case where such further information called for has not been provided or has been furnished partially or defects, or incompleteness has not been rectified or has been rectified partially or has not been rectified as required within, the period allowed, the Registrar shall either reject or treat the application or e-form or document, as the case may, be, as invalid in the electronic record, and shall inform the person or company, as the case may be. Where any, document has been recorded as invalid by the Registrar, the document may be rectified by the person or company, only by fresh filing a long with payment of fee and additional fee, as applicable at the time of fresh filing, without, prejudice to any other liability under the Act., , The Registrar shall allow fifteen days, time for re-submission in case of reservation of a name through web serviceRUN for rectifications of defects if any., Refund, , The user is required to make various payments to avail MCA-21 services. A number of instances have been observed, where the users make multiple payments or incorrect payment or excess payment while using these services. In, order to allow the stakeholders to claim refund of such payments, refund process has been introduced by MCA., The Person is to file the ‘Refund Form’ available on MCA-21 portal for claiming refund., The refund of MCA-21 fees is available in the following cases:, (a), , (b), (c), , Multiple Payments–This includes cases where service seeker does multiple filings of e-forms or e-form No., SH-7 and makes payments more than once (multiple times) for the same service. However, refund shall not, be allowed in respect of approved e-Forms., Incorrect Payments– This includes cases where the service seeker has made payment in respect of an, e-form or stamp duty through an incorrect option under pay miscellaneous fee facility., , Excess Payment–This includes cases where any excess fee has been paid by the service seeker due to some, incorrect data entered in the e-Form or incorrect data in MCA-21 system due to migration of data from legacy, system.
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526, , , , Lesson 13 • EP-CL, , No refund is permitted of the stamp duty, the person is required to approach the concerned state/ union territory., Refund process is not applicable for the following services/e-Forms:, •, , Public Inspection of documents, , •, , Payment for transfer deeds, , •, •, •, •, •, , Request for Certified Copies, , Stamp duty fee (D series SRN), IEPF Payment, , STP Forms like Form MGT-7(Old Form 20B), Form AOC-4 (Old Form 23AC/23ACA), Form 14–LLP etc. (even, for cases when the same were non STP earlier), Form No. DIR-3/ There is no fee for filing the refund form., , There fund form is to be filed within the stipulated time period. Also, there shall be deduction in the amount to be, refunded based on time period within which refund e-form is filed., , The mode of payment of refund shall be through cheque only. Later, provision for payment of refund through ECS, will also be made available., , Online Inspection of Documents, , The documents filed online, once taken on record by ROC Offices are available for public viewing on payment of, requisite fees. These documents, which are in domain of public documents, include documents relating to, incorporation, charges, annual returns and balance sheets and change in directors. A certified copy of the documents, can also be obtained by any one so interested. For this purpose there is also an option to mention the number of, pages in the document for which a certified copy is required as well as the number of copies required., , Inspection, Production and Evidence of documents kept by Registrar–Rule14 of the Companies, (Registration Offices and Fees) Rules, 2014, , The inspection of the documents maintained in the electronic registry so set up by MCA and which are otherwise, available for inspection under the Act or rules made there under, shall be made by any person in electronic form., , Inspection of documents, , Rule 15 of Companies (Registration offices and fees) Rules, 2014, Any person may –, •, •, , Inspect any document kept by the Registrar, being documents filed or registered by him in pursuance of this, Act or the Companies Act,1956 or making a record of any fact required or authorized to be recorded or, registered in pursuance of this Act, on payment for each inspection of fee., Require a certificate of incorporation of any company, or a copy or extract of any other document or any part, of any other document to be certified by the Registrar, on payment of fee., , It is further provided that no person shall be entitled under Section 399 to inspect or obtain copies of resolutions, referred to in clause (g) of sub-section (3) of Section 117 of the Act., , ALL ABOUT FILING AND FILING OF E-FORMS, E-Forms, , An e-form is only a re-engineered conventional form notified and represents a document in electronic format for, filing with MCA authorities through the Internet. This may be either a form filed for compliance or information
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 527, , purpose or an application seeking approval from the MCA. Due to technical updates, these forms updates regularly,, even though their user interface may not change. User always uses latest e-forms from the MCA Portal., Filling and filing of forms is an important part of the secretarial function of a Company Secretary. Normally, where, Company appoints a Company Secretary, he is designated as the officer responsible for compliance under the, Companies Act and other allied legislations. Therefore, for any lapse in complying with the various provisions of the, Companies Act or such other legislations, for the compliance of which the Company Secretary has been made, responsible, he becomes liable as “officer in default”., , Filling and filing of forms, returns and applications under various provisions demand intimate knowledge of, substantive as well as procedural law. The Registrar of Companies (RoC) registers the documents filed with them, within the prescribed time, if found in order. Often, a large number of documents filed with the RoC are not taken, on record due to technical lapses which result in avoidable correspondence and frequent visits to the office of RoC., In order to avoid such errors, every care should be taken to ensure that the forms are properly filled and adequate, documents are attached to them before filing., , Company Secretaries, under electronic filing system are required to be familiar with computer, internet, MCA-21, electronic filing system, pdf files and using digital signatures., , PREREQUISITES FOR E-FILING ON MCA-21, , Digital Signature certificate (DSC) of either Class 2 and Class 3 signing certificate category issued by a licensed, Certifying Authority (CA) needs to be obtained for e-Filing on the MCA Portal., Digital Signatures are legally admissible in a Court of Law, as provided under the provisions of IT Act, 2000. The, Certifying Authorities are authorized to issue a Digital Signature Certificate with a validity of one or two years., Hardware and Software Requirements under e-filing, , The minimum system requirements for e-filing on MCA-21 are as under:, •, , Any computer or laptop, , •, , Latest Browser, , •, •, •, •, , An efficient operating system, Adobe Reader from version 11 or later, , Scanner (above 200 DPI) for converting the attachments in the PDF format; and, Java Runtime Environment (JRE) updated version., , IMPORTANT TERMS USED IN E-FILING, Pre-fill, , Pre-fill is functionality in an e-form that is used for filling automatically, the requisite data from the system without, repeatedly entering the same. For example, by entering the CIN of the company, the name and registered office, address of the company shall automatically be pre-filled by the system without any fresh entry., , Attachment, , An attachment refers to a document that is sent as an enclosure with an e-form by means of an attached file., , The objective of the attachment is to provide details relevant to the e-form for processing. While some attachments, are optional, some are mandatory in nature., , The attachments to an e-form have to be in Adobe PDF format only and MCA portal has a facility to convert any, document format to PDF format. MCA portal does not accept big attachments and the users are advised to keep the, attachment size to minimum (Not exceeding 2.6 MB of the total size of the form including attachments).
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528, , , , Modify, , Lesson 13 • EP-CL, , Once the user has done “Check Form” the form gets locked and it cannot be edited. If the user wishes to make any, alteration, the form can be overwritten by clicking the “Modify” button., , If the user wants to modify the form after pre-scrutiny failure, the user can get the e-form and whichever fields have, to be changed only those may be modified by using the “Modify” button., , Radio Button, , Frequent use of radio buttons has been done in the e-form. While filling the e-form one is required to select, applicable option out of two or more radio buttons given against each point., , Check Box, , Applicable Check box is required to tick out of the two or more boxes wherever it appears in the e-form., , Drop Down Box, , Drop down box is a box wherein at the end, a downward arrow is provided. On clicking the arrow various applicable, choices appear. One is required to highlight the applicable choice and that will be filled in the box., , Text Box, , Text box is meant to provide details on the relevant point by the person filling the e-form. Space provided is generally, adequate for the text to be written. However, if the space is not sufficient for a particular matter, information can be, given in the annexure to the form indicating the same in the box., , Country Code, , Sometimes the applicant is required to fill up the country code in the e-form. This is available in the instruction kit., , Stock Exchange Code, , All the stock exchanges of the country have been divided into two categories A and B. Listed companies are required, to mention the stock exchange where the shares are listed with the help of the code., , Check Form, , By clicking “Check Form”, the user will be in a position to find out whether the mandatory fields in an e-form are, duly filled-in. For example, if the user enters alphabets in “Date of Appointment of Director” field, he/she will be, asked to correct the entered information., If the size of e-form including attachment is of bigger size then the attachment may be filed through an addendum., , Pre-Scrutiny, , Pre-scrutiny is a functionality that is used for checking whether certain core aspects are properly filled in the, e- Form. The user has to make the necessary attachments in PDF format before submitting the e-form for pre scrutiny., After this affix digital signature., , Submit, , An e-form can be submitted after it has been digitally signed. The process of submission of an e-form in case of offline filling is presented below:, (a), , User logs in to MCA21 portal and uses e-form upload service, , (c), , User will be shown errors, if any, , (b), , User browses the e-form and clicks on “Submit¨ button
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , (d), , 529, , If e-form is successfully submitted, user will get confirmation message and will be lead to the fee payment, screen., , The digital certificate is validated to ensure that the certificate has not expired and the current status of the same is, valid and that the certificate has not been revoked or suspended., , Addendum to e-form, , The user may have to submit some additional supporting documents that are not submitted during the e-form, (application) filing but are required for the processing of the e-form. MCA may also ask the applicant to provide, some additional documents in support of the e-form already filed so as to expedite the processing of the same., The user can initiate this on their own by checking the track transaction status on My MCA portal or on being, notified by MCA through email. Payment of fees is not required for filing an addendum., The supporting documents that the applicant uploads, as an addendum, gets duly associated with the e-form that, was submitted earlier with the given Service Request Number (SRN).*, The normal process of filing an addendum is presented below:, (a), , The applicant enters SRN for which document needs to be attached., , (c), , The system verifies that the status of entered SRN is “In Progress” and the submitted document gets accepted., , (b), , The applicant attaches relevant document and clicks “Submit”., , Service Request Number (SRN), , Each transaction under e-filing is uniquely identified by a Service Request Number (SRN). On filing of an e-form, the, system generates and provides an in e-character alpha numeric string starting with an alphabet (A-Z), called a, Service Request Number (SRN). A user can check the status of the document/transaction, by entering the SRN., , PRE-CERTIFICATION OF CERTAIN E-FORMS, , Apart from authentication of e-forms by authorized signatories using digital signatures, some e-forms are also, required to be pre-certified by practicing professionals. Pre-certification means certification of correctness of any, document by a professional before the same is filed with the Registrar., , Ministry of Corporate Affairs has entrusted practicing professionals registered as Members of professional bodies, namely ICAI, ICSI and ICWAI with the responsibility of ensuring integrity of documents filed by them with MCA in, electronic mode including filing of financial statements in XBRL mode., This pre-certification is to be carried out by inter-alia, Company Secretaries or Chartered Accountant or as the case, may be the Cost Accountant in whole-time practice., Some of the forms filed by the companies, other than OPC and small companies which requires pre-certification by, practicing professionals include the following:, 1., , FORM No. INC-22 (Notice of situation or change of situation of registered office), , 3., , FORM No. PAS-3 (Return of allotment), , 2., 4., 5., , FORM No. INC-28 (Notice of Order of the Court or any other competent authority), FORM No. SH-7 (Notice to Registrar of any alteration of share capital), , FORM No. CHG-1 (Application for registration of creation, modification of charge (other than those related to, debentures) including particulars of modification of charge by Asset Reconstruction Company in terms of, Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, (SARFAESI))
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530, , , , 6., , FORM No. CHG-4 (Particulars for satisfaction of charge thereof), , 8., , FORM No. MGT-14 (Filing of Resolutions and agreements to the Registrar), , 7., , Lesson 13 • EP-CL, , FORM No. CHG-9 (Application for registration of creation or modification of charge for debentures or, rectification of particulars filed in respect of creation or modification of charge for debentures), , 9., , 10., 11., 12., 13., 14., 15., 16., 17., 18., 19., 20., 21., 22., 23., 24., , FORM No. DIR-6 (Intimation of change in particulars of Director to be given to the Central Government), , FORM No. DIR-12 (Particulars of appointment of Directors and the key managerial personnel and the changes, among them), FORM No. MR-1 (Return of appointment of managerial personnel), , FORM No. MR-2 (Form of application to the Central Government for approval of appointment of MD or WTD, or Manager), FORM No. GNL-1 (Form for filing an application with Registrar of Companies), , FORM No. GNL-3 (Particulars of person(s) or Key managerial personnel charged or specified for the purpose, of sub- clause (iii) or (iv) of clause 60 of Section 2), FORM No. NDH-1 (Return of statutory compliances), , FORM No. NDH-2 (Application for extension of time), FORM No. NDH-3 (Half yearly Return), , FORM No. MSC-1 (Application to ROC for obtaining the status of dormant company), FORM No. MSC-3 (Return of dormant companies), , FORM No. MSC-4 (Application for seeking status of active company), , Form No. AOC-4/AOC-4 CFS/ AOC-4 XBRL/AOC-4 NBFC/AOC-4 CFS NBFC, , PAS-6 (Reconciliation of Share Capital Audit Report on half yearly basis for unlisted public company), , MGT-7 (Annual Return) shall be signed by a Director and the Company Secretary, or where there is no, Company Secretary, by a Company Secretary in practice., In relation to One Person Company and small company, the annual return in Form MGT-7A is required to be, signed by the Company Secretary, or where there is no Company Secretary, by the Director of the company., Such other forms as prescribed under the Companies Act, 2013., , Some of the forms such as INC-22A (Active Company Tagging Identities and Verification - ACTIVE), STK2 (Application for removal of name of company from Register of Companies), INC-20A (Declaration of, Commencement of Business) etc., filed by every company with the Registrar requires mandatory precertification from the Practicing Professionals., Further, every individual who holds a Director Identification Number (DIN) as on 31st March of a financial year, is required to submit e-form DIR-3-KYC for the said financial year to the Central Government on or before 30th,, September of immediate next financial year, which is mandatorily required to be pre-certified by Practicing, Professionals., However, where an individual who has already submitted e-form DIR-3 KYC in relation to any previous financial, year is required to submit web-form DIR-3 KYC-WEB through the web service in relation to any subsequent, financial year and it does not require Pre-Certification.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 531, , Necessity of Pre-certification, , Introduction of pre-certification by an independent professional in the e-form aimed at reducing the workload of, the Registrar of Companies. Once an e-form has been pre-certified by a professional towards its authenticity based, on the particulars contained in the books of accounts and records of the company, ROC is entitled to take on record, the e-form. Professionals are responsible for submitting/certifying documents (to be signed digitally by them) and, system would accept most of these documents online without approval by Registrar of Companies or other officers, of the Ministry. If a professional gives a false certificate or omits any material information knowingly, he is liable to, punishment under Section 447 and 448 of the Companies Act, 2013 besides disciplinary action by the Institute, which issued the Certificate of Practice., , Fees [Rule 12 of The Companies (Registration Offices and Fees) Rules, 2014], , The documents required to be submitted, filed, registered or recorded or any factor information required or, authorized to be registered under the Act shall be submitted, filed, registered or recorded on payment of the fee or, on payment of the fee or on payment of such additional fee as applicable, as mentioned in Table annexed to Rule 12, of The Companies (Registration Offices and Fees) Rules, 2014., For the purpose of filing the documents or applications for which no e-form is prescribed under the various rules, prescribed under the Act, the document or application shall be filled through Form No.GNL.1 or GNL.2 along with, fee as applicable and in case a single form is prescribed for multiple purposes, the fee shall be paid for each of the, purpose contained in the single form., For the purpose of filing information to sub- clause (60) of Section 2 of the Act, such information shall be filed in, Form No. GNL.3 along with fee as applicable., , Mode of Payment [Rule 13 of The Companies (Registration Offices and Fees) Rules, 2014], , The fees, charges or other sums payable for filing any application, form, return or any other document in pursuance, of the Act or any rule made there under shall be paid by means of credit card; or internet banking; or remittance at, the counter of the authorized banks or any other mode as approved by the Central Government., , GUIDELINES FOR FILING AND FILING OF E-FORMS, , While preparing the forms, documents, returns to be filed with the Registrar, the following points are to be kept in view:, (a), , (b), , (c), (d), (e), (f), , Each time we are required to file an e-form, we should download the Form from the MCA site to avoid the, wastage of time at a later stage because the forms are under revision and a slight change in the form will, result in it not getting uploaded at the stage of submitting on the portal., , An e-form contains certain standardized features. It starts with the Corporate Identity Number (CIN), which, works as a unique identifier of a company (in the case of an Indian Company). In the case of foreign company,, the Foreign Company Registration Number (FCRN) is required to be filled-up. By entering the number, the, company details to the extent these are available in static form in the database are automatically filled in by, using the pre-fill functionality., The e-form contains a number of mandatory fields, marked with the red color star(*) which are required to, be filled in. Certain other fields are non-mandatory in nature, which may be filled in as may be relevant in any, particular case., An e-form contains tool tips for context sensitive help., , An instruction kit is available for each e-form, which contains details of the instructions for properly filling, the e-form. It is important to go through it before filing the e-form., , An e-form may be filled in either online or offline mode. Online filling implies that the e-form is filled while, being still connected to MCA portal through the Internet. Offline filling denotes that the e-form is downloaded, into the user’s computer and filled later without being connected to the Internet.
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532, , , , Lesson 13 • EP-CL, , (g), , An e-form may require certain mandatory attachments to be filed along with it. Optional attachments may, also be filed with an e-form. The list of such attachments is displayed in the e-form., , (i), , Next to attachment, there is a declaration that is sought from the person filing the e-form to the effect that the, information given in the e-form and the attachments is correct and complete., , (h), , (j), , (k), (l), , (m), (n), (o), , (p), (q), (r), , (s), (t), , (u), , All documents/forms/returns, etc., are to be submitted in English or Hindi and where a document is in any, language other than English and Hindi, a translation of that document or portion into either English or Hindi, certified by a responsible officer of the company to be correct, shall be attached to each copy of the document, which is furnished to the Registrar. All such documents shall be converted into pdf format., Most of the e-forms require the digital signature of the Managing Director or Director, Manager or Secretary, of the company for successful filing/submission., Scanned documents take more space and as far as possible MS-word file converted into pdf file ispreferred., , All electronic forms require, the date of board meeting to be specified under the head verification. In the said, column, the date of the board meeting at which the person is authorised to sign and submit form shall be specified., Where it is mentioned in the form that it has to be signed by specific person, it should be so digitally signed., Further, the digital signature of a third party may also be required in certain cases. In the case of an e-form for, creation or modification of charges, such digital signature is also required from the Bank or Financial, Institution., , In certain cases, a certificate from the Chartered Accountant or Cost Accountant or Company Secretary in, whole-time practice is also required to authenticate the particulars contained in the e-form. For example, this, requirement is mandatory in the case of an e-form for appointment of director, change in the situation of the, registered office, etc., There are built-in facilities to check the filled in e-form for requisite validations, to do pre-scrutiny and to, modify the e-form when the same is required to be re-submitted., , Certain documents need physical filing in addition to e-filing. It needs to be noted that those should preferably, be free from corrections and errors . If there is any correction or errors, it should be duly authenticated by the, person signing the document or the return., After the filling part is complete, the e-form is ready for submitting into the MCA central documentary, repository and when the submitted button is pressed, the e-form gets uploaded into the MCA central, document repository., Thereafter, the requisite fees as applicable for the e-form should be paid either on-line or off-line., , Once the e-form has been accepted and payment of fees has been acknowledged, a work item is created and, assigned to the appropriate MCA employee based on pre-defined assignment rules as part of MCA back office, work flow automation., In the case of an e-form, the authorized officer affixes his/her digital signature for registering/approving/, rejecting the same., , After the processing of the e-form is completed, an acknowledgement email is sent to the user regarding its, approval/rejection., , Once the e-form is filled, there would be need to validate the e-form using Pre-scrutiny button. Then the relevant, digital signatures have to be affixed and the form be saved. Internet connection is required to carry out the pre- fill, and pre-scrutiny functions. The filled up e-form as per relevant instruction kit needs to be uploaded on the MCA-21, portal. On successful upload, the Service Request Number (SRN) would be generated and it would be directed to, make payment of the statutory fees. Once the payment has been made the status of payment made and filing status, can be tracked on the MCA-21 portal by using the “Track Your Payment Status” and “Track Your Transaction Status”, link respectively.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 533, , XBRL Filing, , XBRL stands for Extensible Business Reporting Language. XBRL is a language for the electronic communication of, business and financial data which has revolutionized business reporting around the world. It provides major, benefits in the preparation, analysis and communication of business information. It offers cost savings, greater, efficiency and improved accuracy and reliability to all those involved in supplying or using financial data., , XBRL is a data-rich dialect of XML (Extensible Markup Language), the universally preferred language for transmitting, information via the Internet. It was developed specifically to communicate information between businesses and, other users of financial information, such as analysts, investors and regulators. XBRL provides a common, electronic, format for business reporting. It does not change what is being reported. It only changes how it is reported., XBRL is a world-wide standard, developed by an international, non-profit-making consortium - XBRL International, Inc. (XII). XII is made up of many hundred members, including government agencies, accounting firms, software, companies, large and small corporations, academics and business reporting experts. XII has agreed the basic, specifications which define how XBRL works., , XBRL tags, , In XBRL, information is not treated as a static block of text or set of numbers., , Instead, information is broken down into unique items of data (e.g. total liabilities = 100). These data items are then, assigned mark-up tags that make them computer-readable. For example, the tag <Liabilities>100</ Liabilities>, enables a computer to understand that the item is liabilities, and it has a value of 100., Computers can treat information that has been tagged using XBRL ‘intelligently’; they can recognize, process, store,, exchange and analyse it automatically using software., Because XBRL tags are formed in a universally-accepted way, they can be read and processed by any computer that, has XBRL software. XBRL tags are defined and organized using categorization schemes called taxonomies., , XBRL taxonomies, , Different countries use different accounting standards. Reporting under each standard reflects differing definitions., The XBRL language uses different dictionaries, known as ‘taxonomies’, to define the specific tags used for each, standard. Different dictionaries may be defined for different purposes and types of reporting. Taxonomies are the, computer-readable ‘dictionaries’ of XBRL. Taxonomies provide definitions for XBRL tags, they provide information, about the tags, and they organize the tags so that they have a meaningful structure., As a result, taxonomies enable computers with XBRL software to:, •, , understand what the tag is (e.g. whether it is a monetary item, a percentage or text);, , •, , what characteristics the tag has (e.g. if it has a negative value);, , •, , In tagging Section, “N’ refers to navigation, “A” refers to attaching the disclosures “T” refers to text entry etc., its relationship to other items (e.g. if it is part of a calculation)., , This additional information is called meta-data. When information that has been tagged with XBRL is transmitted,, the meta-data contained within the tags is also transmitted., , Taxonomies differ according to reporting purposes, the type of information being reported and reporting, presentation requirements. Consequently, a company may use one taxonomy when reporting to a stock exchange,, but use a different taxonomy when reporting to a securities regulator. Taxonomies are available for most of the, major national accounting standards around the world., , BENEFITS OF XBRL, , XBRL offers major benefits at all stages of business reporting and analysis. The benefits are seen in automation,, cost saving, faster, more reliable and more accurate handling of data, improved analysis and in better quality of
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534, , , , Lesson 13 • EP-CL, , information and decision-making. All types of organizations can use XBRL to save costs and improve efficiency in, handling business and financial information. Because XBRL is extensible and flexible, it can be adapted to a wide, variety of different requirements. All participants in the financial information supply chain can benefit, whether, they are preparers, transmitters or users of business data., , XBRL enables producers and consumers of financial data to switch resources away from costly manual processes,, typically involving time-consuming comparison, assembly and re-entry of data. They are able to concentrate effort, on analysis, aided by software which can validate and manipulate XBRL information. However, big the size of, balance sheet is, .XML will be in a capsule form to project such details,thus consuming lesser file size in comparison, to normal .pdf attachments., , Data Collection and Reporting, , By using XBRL, companies and other producers of financial data and business reports can automate the processes, of data collection. For example, data from different company divisions with different accounting systems can be, assembled quickly, cheaply and efficiently if the sources of information have been upgraded to using XBRL. Once, data is gathered in XBRL, different types of reports using varying subsets of the data can be produced with minimum, effort. A company finance division, for example, could quickly and reliably generate internal management reports,, financial statements for publication, tax and other regulatory filings, as well as credit reports for lenders. Not only, can data handling be automated, removing time-consuming, error-prone processes, but the data can be checked by, software for accuracy., An .XML document is more accurate and reliable. As the name suggest, an extensible reading of the financial, statement and the board report is possible. The major changes in the financial structure or other changes in the, nature of business or such other implications are given thrust so as to make the regulators and stakeholders have, clarity on the company., , Data Consumption and Analysis, , Users of data which is received electronically in XBRL can automate its handling, cutting out time-consuming and, costly collation and re-entry of information. Software can also immediately validate the data, highlighting errors, and gaps which can immediately be addressed. It can also help in analysing, selecting, and processing the data for, re-use. Human effort can switch to higher, more value-added aspects of analysis, review, reporting and decisionmaking. In this way, investment analysts can save effort, greatly simplify the selection and comparison of data, and, deepen their company analysis. Lenders can save costs and speed up their dealings with borrowers. Regulators and, Government departments can assemble, validate and review data much more efficiently and usefully than they have, hitherto been able to do., XBRL (Extensible Business Reporting Language) is a language for the electronic communication of business and, financial data which is revolutionizing business reporting around the world. It helps in the preparation, analysis, and communication of business information. It offers cost savings, greater efficiency and improved accuracy and, reliability to all those involved in supplying or using financial data., As per Rule 3 of the Companies (Filing of Documents and Forms in XBRL) Rules, 2015, the Ministry of Corporate, Affairs has mandated the following selected class of companies mentioned below to file financial statements in, XBRL (Extensible Business Reporting Language) mode and by using the XBRL taxonomy:, (i), , all companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or, , (iii), , all companies having turnover of Rupees one hundred crore and above; or, , (ii), , (iv), , all companies having paid-up capital of Rupees five crore and above; or, , all companies which are required to prepare their financial statements in accordance with Companies (Indian, Accounting Standards) Rules, 2015, , Provided that the companies preparing their financial statements under the Companies (Accounting Standards), Rules, 2006 shall file the statements using the Taxonomy provided in Annexure-II and companies preparing their
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535, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , financial statements under Companies, (Indian Accounting Standards) Rules,, 2015, shall file the statements using the, Taxonomy provided in Annexure-II A., However, the companies in banking,, insurance,, non-banking, financial, companies and housing finance companies, are exempted from XBRL filing till further, orders., , Key benefits of XBRL filing are as under:, (i), (ii), , Relevant data has tags and selective information can be, fetched for specific purposes by various Government and, Regulatory agencies., , It is in conformity with Global Reporting Standards, which, helps in improved data mining and relevant information, search., , Irrespective of the fact, whether the company has a paid-up capital less than 5 crores or a turnover less than 100, crores, the company which has filed financial statement in XBRL under the erstwhile rules, namely the Companies, (Filing of Documents and Forms in Extensible Business Reporting Language) Rules, 2011, shall continue to file in, XBRL mode only. In short, “Once an XBRL, Always an XBRL”., , Steps for filing Financial Statements in XBRL mode, , Step-1- Map Company’s each, financial statement element, to a corresponding element, in published taxonomy, , Begin with company’s, financial statements, , Step-2- create the, instance document, , Step-3- review and verify, the instance document, , Creation of XBRL instance document, Companies have the option to create their own XBRL documents in house or to engage a third party to convert their, financial statements into XBRL form. The first step in creation of an instance document is to do tagging of the XBRL, taxonomy elements with the various accounting heads in the books of accounts of the company., This would create the mapping of the taxonomy elements with the accounting heads so that the accounting, information can be converted into XBRL form. Each schedule of the balance sheet/ P&L Statement is known as an, element and each schedule item or sub-schedule is known as child member., , Mapping is the process of comparing the concepts in the financial statements to the elements in the published, taxonomy, assigning a taxonomy element to each accounting concept published by the company., , Selecting the appropriate elements for some financial statement elements may require a significant amount of, judgment. For that reason those in the company who are most familiar with the financial statements should be, associated with mapping of accounting concepts to taxonomy elements. The mapping should be reviewed before, proceeding further as the complete reporting would be dependent on the mapping., In case any information is present in the financial statements for which corresponding tag/ element is not available, in the taxonomy, then the same needs to be captured in the next-best-fit element in the taxonomy or should be
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536, , , , Lesson 13 • EP-CL, , included under the corresponding “Others” element. This should be followed only in case the relevant tag is not, available in the taxonomy. It should not to be used generally., , Further, it is imperative to include foot note w. r. t. the same while preparing the instance document. For tagging or, capturing the information which is often included in brackets in the labels in the company’s financial statements,, can either be captured as footnote or if detailed tags are available, the same should be tagged with the detailed tags, in the taxonomy., , The complete information as contained in the annual accounts and related documents; and the information required, to be filed with the Registrar of Companies should be reported in the XBRL instance documents to be submitted, with MCA., Initially, all tagging and mapping shall be done on the basic template (.RXO) file or the offline (.XLS) template, provided and after all compilation is completed, such file shall be created as .XML document which shall be duly, validated and pre-scutinised shall be attached to the AOC-4 (XBRL) Form, For preparing instance document, the taxonomy as applicable for the relevant financial year is to be used., 1., , Download XBRL validation tool from MCA Portal, , 3., , Validate the instance document, , 2., 4., 5., 6., 7., 8., 9., , Load the instance document in the validation tool, This stage has to be carefully dealt, since the internal validation tool may only highlight the arithmetic errors,, and only the MCA tool will give the .XML error required to be handled for filing, Pre-scrutiny of the instance document, , Convert to pdf and verify the contents of the instance document. (This step is essential to ensure that the, disclosures contained in XBRL document are as per Audited Financial Statement adopted in the AGM and the, textual information entered in the instance document are clearly viewable), Attach instance document to the Form 23AC-XBRL and 23ACA-XBRL or From AOC-4 (XBRL), Submitting the XBRL Form on the MCA portal, , Viewing of balance sheet and profit and loss submitted in XBRL form on MCA portal.
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537, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , DESCRIPTION OF E-FORMS, Forms, , Sections/Rules, , Purpose, , Web Form, SPICE+, (FORM, NO. INC32), , Sections 4, 7, 8 (1),, 12, 152 and 153 of the, Companies Act, 2013, read with rules made, thereunder., , Incorporation, Companies of, , Time limit, -, , Attachments, 1), , Memorandum of Association, (Where e-MOA is not applicable);, , 3), , DIR-2- Consent to Act as Director, along with Copy of Proof of Identity, and residential address;, , 2), , 4), , 5), 6), 7), 8), , 9), , Articles of Association (Where, e-AOA is not applicable);, , Declaration by first subscriber(s), and director (s) – Mandatory in all, cases (Affidavit is not required to, be attached by first subscriber(s), and director(s));, NOC from the owner of the, property;, , Proof, of, Office, address, (Conveyance/ Lease deed/ Rent, Agreement etc. along with rent, receipts);, Copy of the utility bills which, should not be older than two, months;, , In case of Subscribers/ Director, does not have a DIN, it is mandatory, to attach: Proof of identity and, residential address proof of the, subscribers;, Interest of first directors in other, entities;, , 10) Copy of Approval in case proposed, company contains any words or, expressions, which, requires, approval, from, Central, Government;, 11) If the proposed name is based on a, registered trademark or is subject, matter of an application pending, for registration under the Trade, Marks Act - Approval of the owner, of the trademark or the applicant, of trademark for registration of, trademark;
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538, , Lesson 13 • EP-CL, , , , 12) If proposed name requires, approval from any sectoral, regulator - In principle approval, from the concerned regulator;, , 13) If any subscriber to the proposed, company is Foreign company and/, or company incorporated outside, India copy of certificate of, incorporation of the foreign body, corporate and resolution pass;, 14) If any subscriber to the proposed, company is a Company itselfresolution passed by promoter, company;, 15) In case the name is similar to any, existing company, a certified true, copy of No objection certificate by, way of Board ;, , 16) In case of an OPC, it is mandatory, to attach: Consent of nominee;, , 17) Resolution, of, unregistered, companies in case of Chapter, XXI(Part I) companies;, 18) Declaration in Form No. INC-14 in, case of Section 8 company;, 19) Declaration in Form No. INC-15 in, case of Section 8 company;, , Web Form, Agile, Pro-S-INC, 35, , Rule 38A of the, Companies, (Incorporation) Rules,, 2014, , Application for, registration of, Goods and, Service Tax, Identification, Number, (GSTIN),, Employee, State, Insurance, Corporation, (ESIC), registration,, Employees’, Provident, Fund, Organisation, (EPFO), Registration, and profession, , 20) Any other information can be, provided, as, an, optional, attachment., , This AGILE1), PRO-S form is, part of SPICe+, 2), form for, GSTIN / EPFO/, ESIC/, Profession Tax/, Bank Account/, Shops and, Establishment, Registration., 3), , *Proof of Principal place of, business, , 4), , *Proof of Address of Authorized, Signatory for opening Bank, Account, , 5), , *Proof of appointment of, Authorized Signatory for GSTN, (Either of the following document, can be attached. Letter of, Authorisation/, Copy, of, Resolution passed by BoD/, Managing, Committee, and, Acceptance letter), , *Proof of Identity of Authorized, Signatory for opening Bank, Account, *Specimen, Signature, of, Authorized Signatory for EPFO
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539, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, URC-1, , Section 366 r/w Rule, 3(2) of the Companies, (Authorised to, Register) Rules, 2014, , Tax, Registration,, Opening of, Bank Account, and Shops and, Establishment, Registration, , Any, partnership, firm, limited, liability, partnership,, society, trust, or any other, business entity, formed under, any other law, for the time, being in force, consisting of, two or more, members, may, at any time, register itself, under, Companies, Act, 2013 as a, Part I, Company., , For this, purpose,, e-Form URC-1, shall be filed, along with web, form SPICe+, , The following attachments are, mandatory:, 1. Particulars of members/partners, along with the details of shares, held by them, if any;, 2., 3., 4., 5., 6., 7., 8., 9., , Declaration of two or more, Directors verifying the particulars, of all members/ partners;, Affidavit from all the members/, partners for dissolution of the, entity;, Copy of the instrument constituting, or regulating the entity;, , Copy of Newspaper advertisement;, , Certificate from a CA/CS/CWA, certifying the compliance with all, the provisions of Stamp Act, to the, extent applicable;, , Undertaking by the proposed, Directors for compliance with, requirements of Indian Stamp Act,, 1899;, A copy of latest Income Tax Return, of the firm Conditional;, , Copy of certificate of registration of, the entity shall be mandatory to be, attached in case Type of company, is ‘Part I Section 8 company’ or, ‘Part I LLP to company’;, , 10. Consent of majority of members is, mandatory to be attached in case, company is limited by shares or, Unlimited company;, 11. Consent of at least three-fourth of, members agreeing for registration, under this part is mandatory to be, attached in case company is limited, by guarantee;, 12. No objection certificate from the, concerned Registrar of Firms or, Registrar of Companies (LLP) is, mandatory to be attached in case, type of company is ‘Part I Firm to, company’/‘Part I LLP to company’;
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540, , Lesson 13 • EP-CL, , , , 13. No objection certificate/, Consent given by secured, creditors is mandatory to be, attached in case of any, secured debt outstanding as, on the date of application., 14. Copy of the resolution, declaring the amount of, guarantee is mandatory in, case company is limited by, guarantee., , 15. Declaration from all the, members, regarding, compliance as per section, 8(1)(b) and section 8(1)(c), of the Act and detailed, objects of the company shall, be mandatory in case Type of, company is ‘Part I Section 8, company’., Optional Attachments:, , 16. Statement of accounts of the, existing entity, prepared not, later than 15 days preceding, the date of application duly, certified by auditor, if, applicable., Form, CRA-2, , Section 148(3) r/w, Rule 6(2) and 6(3A) of, The Companies (Cost, Records and Audit), Rules, 2014, , Form of intimation, of appointment of, cost auditor by the, company to the, Central Government., , In case of, Original filing, Within 30 days, of the date of, board meeting, in which such, appointment is, made or 180, days of the, commencement, of the financial, year, whichever, is earlier., In case of filing, due to casual, vacancy due to, resignation,, death or, removal Within, 30 days of, appointment of, cost auditor., , 17. Any other information can, be provided as an optional, attachment(s)., 1), , 2), , Copy of Board Resolution, , Optional attachments, if any.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, CG-1, , Form, INC-18, , 541, , Required to be filed, pursuant to the, Companies Act, 2013, , Form for filing, application or, documents with, Central Government, , Section 8 (4) (ii) of the, Companies Act, 2013, and Rule 21(4) of the, Companies, (Incorporation) Rules,, 2014, , An existing company –, registered, under section 8 seeks, to convert itself into a, company of any other, kind shall make an, application to the, Regional Director for, conversion of its, status., Once the approval is, given by the Regional, Director, the, company shall cease, to enjoy all the, privileges/, concessions obtained, by it on account of, being a Section 8, company., , A company can, seek approval, from Central, Government by, filing application, under the, Companies Act,, 2013, , Any information can be provided, as an optional attachment (s)., , The following attachments are, mandatory:, 1. Memorandum of association;, 2., , Articles of association;, , 4., , Certified true copy of the, special resolution passed for, approval for conversion into, any other kind and notice, convening, the, general, meeting along with the, relevant, explanatory, statement annexed thereto;, , 3., , 5., , 6., , 7., 8., , 9., , Certified true, copy, board, resolution, authorizing conversion;, , of, (s), , Certificate from CA/CS/CWA, (in practice) certifying that, the conditions laid down in, the Act and rules, have been, complied with;, , Statement of assets and, liabilities of the company as, on the date not earlier than, 30 days of that date duly, certified by the auditor;, , Copy of valuation report by a, registered valuer about the, market value of assets;, , Audited financial statements,, the Board’s reports, annual, returns and the audit reports, for each of the two financial, years immediately preceding, the date of the application or,, where the company has, functioned only for one, financial year, for such year;, , NOC from all the creditors is, mandatory in case yes is, selected in field 7., , The following attachments are, optional:
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542, , Lesson 13 • EP-CL, , , , -, , 10. Statement, of, financial, position if applicable;, , 11. Full details of fixed assets, alienated if any, during the, preceding three financial, years;, , 12. Written consent of the lenders, is mandatory if any loan is, outstanding;, 13. NOC from the concerned, authority in case special, status is mandatory when the, company has obtained any, special status/ privilege;, , 14. Proof, of, payment, of, differential, amount, is, mandatory if the company, has acquired any immovable, property through lease or, otherwise, from, any, Government or authority or, body corporate or person, since, incorporation, at, concessional rate or free of, cost;, 15. Details of donation/grant/, benefit, received, since, incorporation of company is, mandatory if company has, received any donation and/or, grant/benefits from any, person or authority since, incorporation;, , 16. Copy of NOC received from, sectoral regulatory authority, is mandatory if company is, being regulated by any, sectoral regulator;, 17. Any other information can be, provided as an optional, attachment(s).
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form Section 12(5) &, INC-23 13(4) of the, Companies Act, 2013, r/w Rule 28 & 30 of, the Companies, (Incorporation) Rules,, 2014, , In order to shift the, –, registered office of, the company from, one state to another, or from jurisdiction, of one Registrar of, Companies to, another, an, application in e-Form, INC-23 has to be, made to the Regional, Director (Central, Government) for his, confirmation/, approval., , 543, , The following attachments, are mandatory in all cases:, 1. Memorandum of Association, and Articles of Association;, 2., 3., 4., 5., , 6., 7., 8., 9., , Certified true copy of notice, of the general meeting along, with relevant explanatory, statement;, Certified true copy of special, resolution, sanctioning, shifting of registered office;, , Certified true copy of the, minutes of the general, meeting authorizing such, alteration;, , Proof of service of the, application to the Registrar,, Chief Secretary of the state,, SEBI or any other regulatory, authority, if applicable;, , In case registered office is, shifted from one state to, another state the following, attachments are mandatory:, , Power, of, vakalatnama/, resolution;, , attorney/, Board, , List, of, creditors, debenture holders;, , and, , Affidavit, verifying, application;, , the, , Affidavit from Directors in, terms of rules;, , 10. Affidavit by the Company, Secretary of the company, and the Directors in regards, to the correctness of list of, creditors and affairs of the, company;, , 11. Affidavit by Directors about, no, retrenchment, of, employees;, 12. Affidavit verifying, of creditors;, , the, , list
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544, , Lesson 13 • EP-CL, , , , -, , 13. It is mandatory to attach in, case if there is any prosecution, is pending against the, company or if any inquiry,, inspection or investigation is, initiated against the company;, , 14. Copy, of, newspaper, advertisement for notice of, shifting the registered office., It is mandatory to attach copy, of newspaper publication in, case if the registered office is, shifting within the state;, 15. Copy of objections (if received, any);, , Form, ADJ, , Section 454(5) r/w, Rule 4(1) of the, Companies, (Adjudication of, Penalties) Rules, 2014, , Appeal against the, order of the, adjudicating officer, shall be filed in, writing with the, Regional Director, having jurisdiction in, the matter,, , within a period, of 60 days from, the date of, receipt of the, order of, adjudicating, officer by the, aggrieved party, , 16. Any other information can, be provided as an optional, attachment(s)., 1), , 2), , 3), 4), Form, RD-1, , Section 16 r/w Rule, 40 and 41 of the, Companies, (Incorporation) Rules,, 2014, , A company can seek, approval from, Regional Director by, filing application in, e-Form RD-1 for, certain mentioned, purposes under, Companies Act, 2013, , –, , 1), 2), 3), , 4), , Certified copy of the order, against which appeal is sought, is mandatory in all cases;, A copy of authorization in, favor, of, authorized, representative, and, also, written consent of such, authorized person is also, required to be attached where, party is represented by such, authorized person;, Order of condonation of delay, is mandatory in case there is, any delay in filing the order;, Any other information can, be provided as an optional, attachment(s)., Statement of the grounds on, which the application is made, – Mandatory always;, , Copy of board resolution–, Mandatory in case form is filed, for ‘Change in financial year’;, Copy of special resolution Mandatory in case form is, filed for ‘Conversion of Public, company into a Private, company’;, , Copy of advertisement Mandatory in case form is, filed for ‘Conversion of Public, company into a Private, company’;
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 545, , 5), , 6), , 7), , Form, RD, GNL-5, , Rule 40 and 41 of the, Companies, (Incorporation) Rules,, 2014, , Form, CHG-8, , Section 77(1) &, Section 87 r/w Rule, 12(2) of the, Companies, (Registration of, charges) Rules, 2014, , Form for filing, within a period, Addendum for, of fifteen days, rectification of, defects or, incompleteness, In certain cases BO, user may require the, applicant to provide, some clarifications or, additional, document(s) in, support of the form, RD-1 and details filed, by the applicant, which shall be, submitted via form, RD GNL-5., Application to Central –, Government for, extension of time, For satisfaction of, charge, if such filing, is not made within a, period of three, hundred days from, the date of such, payment or, satisfaction., , Rectification of, omission or, misstatement of any, particular in respect, of creation/, modification/, satisfaction of charge., , 8), –, , List, of, creditors, and, debenture, holders, Mandatory in case form is, filed for ‘Conversion of Public, company into a Private, company’;, Declaration by KMP on, compliance of section 2(68) Mandatory in case form is, filed for ‘Conversion of Public, company into a Private, company’;, Other, declarations, Mandatory in case form is, filed for ‘Conversion of Public, company into a Private, company’;, Optional attachment(s)-if any, , Mandatory Attachments:, 1., A documentary evidence of, creating/modifying/, satisfying the charge;, 2., The letter of authorisation, from, the, authorised, representative of a foreign, company - In case of a, foreign company;, 3., Copy of resolution of the, Board authorising the filing, of the application and, appointing the authorized, representative – In case of, Company;, 4., In case of ommission, or, misstatement of a charge:
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546, , Form, CHG-1, , Form, CHG-9, , Lesson 13 • EP-CL, , , , Section 77, 78 and, 79 and Section 384, and Rule 3 of the, Companies, (Registration of, Charges) Rules, 2014, , Section 71(3), 77, 78, and 79 and Section, 384 and Rule 3 of the, Companies, (Registration of, Charges) Rules, 2014, , All the companies, are required to file, particulars for, registration of, charges created or, modified (for other, than Debentures), within specified, period to concerned, Registrar of, Companies., , All the companies, are required to file, particulars for, registration of charges, created or modified, for the purpose of, securing debentures, or rectification of, particulars filed in, respect of creation or, modification of charge, on debentures within, specified period to, concerned ROC, Every charge that is, created or modified, by the company is, required to be filed, in eForm CHG-9 to, concerned RoC in, case of Indian, Company and RoC,, Delhi in case of a, foreign company., , within a period, of thirty days of, the date of, creation or, modification of, charge, , • An Affidavit stating, ommission or, misstatement of a charge, • Confirmation from the, charge holder, Optional Attachments, 1) Balance Sheet and Annual, Return of financial year in, which form was filed for which, rectification is applied (if, completed);, 2) Any, other, optional, attachment., 1), 2), , 3), , within a period, of thirty days of, the date of, creation or, modification of, charge, , 4), 1), 2), 3), 4), , Instrument(s) of creation or, modification of charge is a, mandatory attachment in all, cases;, Instrument(s), evidencing, ………. which is already subject, to charge …………… such, acquisitions. This attachment is, mandatory in case if there is, any acquisition of property, which is already subjected to, charge;, Particulars of all joint charge, holders. It is mandatory if, number of charge holder is, more than one;, Optional Attachments, if any., , Certified true copy of resolution, authorizing the issue of the, debenture series is a mandatory, in case of creation of charge;, Instrument containing details, of the charge created or, modified is mandatory in all, cases;, Order, of, the, Central, Government is mandatory in, case e-Form is being filed for, rectification of charges;, Any other information can, be provided as an optional, attachment(s).
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547, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, CHG-4, , Section 82(1) of the, Companies Act, 2013, r/w Rule 8(1) of, Companies, (Registration of, Charges) Rules, 2014, , Form, CHG-6, , Section 84(1), 384 r/w, Rule 9(1) of Companies, (Registration of, Charges) Rules, 2014, , E-form CHG-9 can, also be filed by the, company or any, person interested in, charge for rectifying, any omission or, misstatement done in, any previous filing., Particulars for, satisfaction of charge, thereof, , Where any person, obtains an order, of the Court for, appointment of any, receiver or manager, of the property of any, company, subject to, a charge or appoints, such person or, receiver under the, power of any, instrument, shall, notify the RoC in, e-Form CHG-6., , The Company is 1), required to, intimate the, satisfaction in, full of any, 2), charge, registered to the, Registrar within, a period of 30, days from the, date of the, payment or, satisfaction with, normal fees., The Registrar, may, on an, application by, the company or, the charge, holder, allow, such intimation, of payment or, satisfaction to, be made within, a period of 300, days of such, payment or, satisfaction on, payment of such, additional fees, as may be, prescribed., within 30 days, of such order/, appointment, , The person, appointed as, receiver or, manager shall, also notify the, RoC in e-Form, CHG-6 about, the cessation of, such, appointment, within 30 days of, such cessation., , 1), 2), 3), , Letter of the charge holder, stating that the amount has, been satisfied is a mandatory, attachment in all cases;, Any other information can be, provided as an optional, attachment(s)., , In case the appointment of, receiver/manager is pursuant, to an instrument then attach a, copy of instrument;, In case the appointment of, receiver/manager, is, in, pursuant to a court order then, attach a copy of Court order;, List of specified property of the, company, in, case, the, appointment, relates, to, specified property of the, company.
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548, , Lesson 13 • EP-CL, , , , 4), , 5), Form, INC-24, , Form, NDH-2, , Form, NDH-1, , Section 13 (2) r/w, Rule 29(2) of the, Companies, (Incorporation) Rules,, 2014, , Rule 5(3) of the Nidhi, Rules, 2014, , Section 406 r/w Rule, 5(2) of the Nidhi, Rules, 2014, , An existing company within 60 days, seeking for change of of name, name shall apply to, reservation., Central Government, (RoC) by filing an, application in e-Form, INC-24., For changing the, name, company is, required to have a, name reserved, through RUN service, and shall have passed, the special resolution., If a Nidhi Company, is not complying with, clauses (a) or (d) of, rule 5 (1) of the Nidhi, Rules, 2014, it shall,, apply to the RD, for, extension of time and, the RD may consider, the application and, pass orders within, thirty days of receipt, of the application., Return of Statutory, Compliances, , 1), , 2), , 3), within thirty, days from the, close of the first, financial year, , 1), 2), 3), 4), 5), , Within 90, days from the, close of the, first financial, year after its, incorporation, and where, applicable, the, second, financial year., , 6), , List of specified property of, the company in case the, appointment, relates, to, income arising from specified, property of the company;, Any other information can be, provided as an optional, attachment(s)., Certified true copy of minutes, of the general meeting of the, members where the special, resolution was passed for, change of name of the, company is required to be, attached;, Copy of any approval order, obtained from the concerned, authorities (such as RBI,, IRDA, SEBI etc.) or the, concerned department;, Any other information can be, provided as an optional, attachment(s)., Board resolution;, Detailed application;, Audited financial statements, (last available);, List of all members with PAN, and complete residential, address;, Amount of deposit accepted, from each member;, Reasons and justification for, the application., , Mandatory Attachments:, 1), , List of all members with PAN, and complete residential, address;, 2) Amount of deposit accepted, from each member;, Below attachments shall be, mandatory in case value greater, than zero is entered in field 6(a)unencumbered term deposits.
Page 585 :
549, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, NDH-3, , Rule 21 of the Nidhi, Rules, 2014, , Every Nidhi company, shall file half yearly, return with the, Registrar, , within 30 days, from the, conclusion of, each half year., , Break-up of deposits in Sr. No. 6(a), i.e., (Deposit(s), in, scheduled, commercial Banks (in Rs.) with, bank name, branch and account, number Break-up of deposits in, Sr. No. 6(a) i.e., (Deposits in Post Office(in Rs)) with, name and location of P.O branch, 1), 2), 3), 4), 5), , Form, NDH-4, , Section 406 r/w Rule, Application Form for, 3A, 23A and 23B of the filing application for, Nidhi Rules, 2014, declaration as Nidhi, Company or updation, of status by Nidhis., , Rule 3A- a Nidhi, incorporated, under the Act, on or after the, commencement, of the Nidhi, (Amendment), Rules, 2019, shall file Form, NDH-4 within, sixty days from, the date of, expiry of :(a) one year, from the date of, its, incorporation or, (b) the period, up to which, extension of, time has been, granted by the, Regional, Director under, Rule 5 (3) of, Nidhi Rules,, 2014, , 6), , List of all members with PAN, and complete residential, address;, Amount of deposit accepted, from each member;, Copy of advertisement along, with copy of intimation given, to Registrar;, List of all members who, joined during the period with, PAN and complete residential, address;, List of all members who, ceased during the period with, PAN and complete residential, address;, Optional Attachments, if any., , Mandatory Attachments:, 1) Copy of resolution of the, Board of directors in support, of the proposal of the, company;, 2) Certificate signed by 2, Directors, regarding, the, number of members as on, date, of, application, (membership should not be, less than 200);, 3) Certificate from the auditors, of the company to the effect, that the company has, complied with the Nidhi, Rules, 2014., 4) Optional if any;, Below attachment shall be, mandatory in case purpose is, selected ‘Application for, updation of status by Nidhis’;, 5) Copy of notification through, which company was declared, Nidhi under the Companies, Act, 1956 or previous company, law (where applicable).
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550, , Lesson 13 • EP-CL, , , , Rule 23A- Every, company referred, to in clause (b) of, rule 2 and every, Nidhi in corporated, under the Act,, before the, commencement of, Nidhi (Amendment), Rules, 2019, shall, also get itself, declared as such in, accordance with, rule 3A within a, period of one year, from the date of its, incorporation or, within a period of, 9 months from the, date of, commencement of, Nidhi (Amendment), Rules, 2019,, whichever is later, , Form, INC-5, , Rule 6(4) of, the Companies, (Incorporation) Rules,, 2014, , One Person, Company is, required to give, an intimation to, the Registrar in, Form No. INC-5, informing that, it has ceased to, be a One Person, Company by, exceeding the, threshold limit by, virtue of either, increase in its, paid up share, capital beyond, fifty lakh rupees, or increase in, its average annual, turnover during, the relevant period, beyond two crore, rupees., , Rule 23B- Every, Nidhi company, shall file NDH-4 for, updating its status., within period of, 60 days from the, date on which the, given threshold, limit exceeded., , 1), 2), 3), , 4), , Certified true copy of board, resolution where person, giving notice has been, authorized;, Copy of the duly attested, latest financial statements;, Certificate from a Chartered, Accountant in practice for, calculation of average annual, turnover during the relevant, period – This certificate is, mandatory to attach if the, threshold limit is exceeded on, account of average annual, turnover;, Any other information can, be provided as an optional, attachment(s).
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551, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, INC-6, , Form, INC-3, , Section 18 r/w Rule, 7(4) of the Companies, (Incorporation) Rules,, 2014, , Section 3(1) r/w rule, 4(2), (3), (4), (5) &, (6) of the Companies, (Incorporation) Rules,, 2014, , This e-Form is, required to be filed in, case of conversion of, OPC into private or, public or conversion, of private into OPC., In case paid up share, capital of an One, Person Company, exceeds 50 lakh, rupees or its average, annual turnover, during the relevant, period exceeds two, crore rupees, it shall, make an application, in Form INC-6 within, 6 months from the, effective date on, which the above, threshold limit was, exceeded., However if any One, Person Company, wants to convert, itself into private/, public company then, also it can voluntarily, apply through Form, INC-6 after two years, of its incorporation., A private company, can also make an, application for, conversion into One, Person Company by, filing Form INC-6., , within 6 months, from the, effective date on, which the given, threshold limit, exceeded., , One Person Company, is required to, indicate the name, of the other person, as nominee in its, memorandum with, his prior written, consent, who shall, become the member, of the company in, case of subscriber’s/, member’s death or, incapacity to contract, and such consent of, the nominee., , –, , It is mandatory to attach following, with this e-Form in all the three, purposes:, 1), , Altered Memorandum, Association;, , 3), , Copy of the duly attested, latest financial statement;, , 2), 4), , Altered, Articles, Association, , of, , of, , Copy of board resolution, authorizing giving of notice., , It is mandatory to attach a certificate, from Chartered Accountant if the, conversion is, because of exceeding, average annual turnover., In case of conversion of private, company into OPC, following, attachments are mandatory:, 1) Affidavit;, 2) Certified true copy of minutes,, list of creditors and list of, members;, 3) Copy of NOC of secured, creditors;, 4) Consent of the nominee in, Form No. INC-3 along with all, enclosures;, 5) Copy of PAN card of the, nominee and member;, 6) Proof of identity of the, nominee and member;, 7) Residential proof of the, nominee and member;, 8) Any other information can be, provided as an optional, attachment(s)., Enclosures:, 1) Copy of PAN card;, 2), 3), , Proof of identity;, , Residential Proof (not older, than two months).
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552, , Form, INC-4, , Lesson 13 • EP-CL, , , , Section 3(1) r/w Rule, 4(4), (5), (6) of the, Companies, (Incorporation) Rules,, 2014, , Member of One, Person Company is, required to nominate, a person, after, obtaining his/her, prior written, consent, who will, become the member, of such OPC in the, event of member’s, death or incapacity to, contract., , Within 30 days 1), of notice of, withdrawal of, consent/change, in nominee/, 2), cessation of, member., , This form is filed in, case there is any, change in the, nominee of the OPC, by personal, withdrawal of, consent by the, nominee himself, or, change in the, nominee by the, member, or in case of, cessation of member, due to various, reasons., , Form, INC-12, , Section 8(5) r/w Rule, 20 of the Companies, (Incorporation) Rules,, 2014, , The application can be filed by an Existing, Company for the, purpose of, converting into, non-profit company., Consequent upon, approval, a license, under section 8 will, be issued by the, Registrar., , 3), 4), 5), 6), 7), 8), , Consent of the nominee in, signed Form INC-3 along with, all, the, enclosures., (Mandatory);, , Certified copy of PAN card of, the new nominee and/or new, member. (Mandatory);, Proof of identity of the new, nominee and/or new member., (Mandatory);, Residential proof of the new, nominee and/or new member., (Mandatory);, It is mandatory to attach, notice of withdrawal of, consent in case withdrawal is, by nominee;, , It is mandatory to attach copy, of intimation for change in, nominee in case intimation, about change in the name of, the nominee;, It is mandatory to attach, proof of cessation of member, in case of intimation of, cessation of member;, Any other information can, be provided as an optional, attachment(s)., , It is mandatory to attach following, in all cases:, 1) Memorandum of Association, as per form no. INC-13;, 2), , Articles of Association;, , 4), , Declaration as per Form No., INC-15;, , 3), 5), 6), 7), 8), , Declaration as per Form No., INC-14;, Estimated, income, and, expenditure for next three, years;, Certified true copy of, resolution passed in general, meeting and board meeting;, , Last one / two year’s financial, Statement(s),, Board’s, report(s) and Audit report(s);, Assets, and, liabilities, statements with their values, as per applicable rule;
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553, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 9), , Approval/ concurrence/ NOC, of the concerned authority/, sectoral regulator etc; is, mandatory to be attached in, case the company is regulated, by such authority;, , 10) Entrenched, articles, of, association is mandatory to, be attached in case articles, are entrenched;, , 11) List of Directors is to be, attached in case the number, of Directors are greater than, the minimum number of, directors based on the type of, company;, 12) List of key managerial, personnel need to be attached, in case the number of key, managerial personnel is, greater than 4;, Form, GNL-1, , Rule 12(2) of Registrar, of Companies, (Registration Offices, and Fees) Rules, 2014, , Application seeking, approval from, Registrar of, Companies for, following purposes, under Companies, Act, 2013., •, •, •, •, , Compounding of, offences, Extension of, AGM up to 3, months, , Scheme of, arrange- ment,, amalgamation, Others, , -, , 13) Any other information can be, provided as an optional, attachment., Board resolution passed for the, purpose of making an application, for any of the documents as, applicable:, • Scheme, , of, arrangement,, amalgamation, in, case, application is filed for ‘scheme, of arrangement, amalgamation’;, , • Detailed application is required, , to be attached in all the cases of, filing;, , • Copy of notice received from, , RoC or any other competent, authority in case application, for ‘compounding of offence’, is filed ‘in pursuance to notice, received from RoC or any other, competent authority’;, , • Any, , other information can, be provided as an optional, attachment., , In case of compounding of offence,, the detailed application should, contain the following details:
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554, , Lesson 13 • EP-CL, , , , • General, , profile and history, of the company containing, details such as name, date of, incorporation, main objects of, the company;, , • Facts of the case mentioning, , nature of offence and period of, default;, , • Whether the offence is made, , good, if yes then how and when, (i.e. the date where applicable)., , Prayer to compounding authority, for compounding of offense., , In case of extension of annual, general meeting, the detailed, application should contain the, following details:, • Reasons of extension;, , • Period for which extension is, , Form, MSC-1, , Section 455(1), r/w Rule 3 of, the Companies, (Miscellaneous) Rules,, 2014, , Application to, the Registrar for, obtaining the, status of a Dormant, Company in, accordance with, the provisions of, section 455 of the, Companies Act, 2013, , Within 30 days, of passing, of Special, Resolution, , 1., 2., 3., 4., 5., 6., 7., , 8., 9., , required (Note: It should not, exceed three months)., , Certified true copy of board, resolution, authorizing, making of this application;, , Certified true copy of special, resolution authorizing for, obtaining dormant status;, Auditor’s certificate;, Statement of affairs duly, certified, by, Chartered, Accountant or Auditor(s) of, the company;, Copy of approval or no, objection certificate (NOC), from the regulatory authority, in case company is regulated, by such authority;, Latest financial statement, and annual return of the, company is mandatory to, attach in case the same is filed, to Registrar;, Consent of the lender if any, loan is outstanding;, Certificate, regarding, no, dispute in the management or, ownership;, Any other information can be, provided as an optional, attachment(s).
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555, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, MSC-3, , Section 455 (5) r/w, Rule 7 of the, Companies, (Miscellaneous) Rules,, 2014, , A dormant company, shall file a “Return of, Dormant Company”, annually, inter-alia,, indicating its, financial position, , within 30 days, from the end of, each financial, year, , 1., 2., 3., , Form, MSC-4, , Form, STK-2, , Section 455(5) r/w, Rule 8 of the, Companies, (Miscellaneous) Rules,, 2014 which, , A dormant company can file an application, to Registrar for, seeking the status of, an active company, , 1., , Section 248(2), r/w Rule 4, 5, 6 & 8 of, the Companies, (Removal of Names of, Companies from the, Register of Companies), Rules,2016, , Application for, removal of name of, company:, A company may, after, extinguishing all its, liabilities, by a special, resolution or consent, of 75% members in, terms of paid-ups, hare capital, file an, application to the, Registrar for, removing the name of, the company from, the register of, companies., Provided that no, application in Form, No.STK-2 shall be, filed by a company, unless it has filed, overdue returns in, Form No. AOC-4, (Financial Statement), or AOC-4 XBRL, as, the case may be, and, FormNo. MGT-7, (Annual Return), up, to the end of the, financial year in, which the company, ceased to carry its, business operations., , 1), , 2., , 2), 3), , 4), 5), 6), 7), 8), , Certified true copy of Board, resolution, showing, authorization given for filing, this declaration. (Mandatory);, Duly audited statement of, financial position by a, chartered accountant in, practice. (Mandatory);, Any other information can be, provided as an optional, attachment(s)., , Certified true copy of Board, resolution authorizing for, filing, application, is, a, mandatory attachment;, Any other information can, be provided as an optional, attachment(s)., , A statement of accounts, showing the assets and, liabilities of the Company, made up to a day, not more, than 30 days before the date, of application and certified by, a Chartered Accountant in, Form STK-8;, Copy of Board resolution, authorizing the filing of this, application;, Copy of special resolution, passed or copies of consent, obtained, under, subsection(2) of section 248, as, applicable;, Indemnity bonds [to be given, individually or collectively by, the Director(s)] in Form No., STK-3;, Affidavit in Form No. STK-4;, Copy of order of the concerned, regulatory authority, if any,, approving the filing of, this application;, Copy of relevant order for, delisting, if any, from the, concerned Stock Exchange;, A, statement, regarding, pending litigations, if any,, involving the company
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556, , Lesson 13 • EP-CL, , , , 9), , In case of a-, , (a) Government company in, which the entire paid up, share capital is held by the, Central Government, or by, any State Government or, Governments or by the, Central Government and, one or more State, Governments; or, , (b) subsidiary, of, a, Government, company,, referred to in clause (a), in, which the entire paid up, share capital is held by, that Government, a duly, notarised indemnity bond, in Form No. STK-3A shall, be given by an authorised, representative, not below, the rank of Under, Secretary or its equivalent,, in the administrative, Ministry or Department of, the Government of India, or the State Government,, as the case maybe, on, behalf of the company;, (Inserted by the Companies, (Removal of Names of, Companies, from, the, Register of Companies), Amendment Rules, 2020,, dated 29th June 2020)., Form, INC-22, , Section 12 (2) & 12, (4) r/w Rule 25 & 27, of the Companies, (Incorporation) Rules,, 2014, , The Company is, required to furnish to, the Registrar, verification of its, registered office in, e-form INC-22, within a period of, thirty days from the, date of its, incorporation., The company can, also specify the, address of, registered office at, the time of filing, incorporation forms, in SPICe+., , Within 30 days, of, incorporation/, change of the, situation of the, registered office, , The following two attachments are, mandatory in all cases:, 1., 2., , 3., , Proof of Registered Office, address (Conveyance/Lease, deed/ Rent Agreement etc., along with the rent receipts);, , Copies of the utility bills, (proof of evidence of any, utility service like telephone,, gas, electricity etc. depicting, the address of the premises, not older than two months is, required to be attached);, Altered Memorandum of, association., This, is, mandatory to attach in case, of shifting of registered, office from one state to
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557, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , And any change in, situation of the, registered office, thereafter, the, company is required, to notify to Registrar, in e-Form INC-22, , 4., , 5., , 6., 7., Form, INC-27, , Section 14 and 18, r/w Rule 33, 37 and, 39 of the Companies, (Incorporation) Rules,, 2014, , For the purpose of, conversion from, private to public, company, a private, company is required, to pass special, resolution and file an, intimation in Form, INC-27., , Time limit, (days) for filing:, 1. Conversion, of private, company, into public, company-15, days from, the date of, passing the, A Public company can, special, also get converted, resolution., into a private, company by filing, 2. Conversion, Form INC-27 subject, of public, to passing of special, company, resolution and, into private, approval of Tribunal., company-15, days from, Further, an unlimited, the date of, liability company can, receiving, also convert itself, the order., into limited liability, company by filing, form INC-27 subject, , 1), , another, within, the, jurisdiction of same RoC or, from one state to another, outside the jurisdiction of, existing RoC;, , A proof that the Company is, permitted, to, use, the, address…... A u t h o r i z a t i o n, from the owner or occupant, of the premises along with, proof of ownership or, occupancy and it is mandatory, if registered office is owned, by any other entity/ person, (not taken on lease by, company);, Certified copy of order of, competent authority. It is, mandatory to attach in case of, shifting of registered office, from one RoC to another, within the same state or from, one state to another within, the jurisdiction of same RoC, or from one state to another, outside the jurisdiction of, existing RoC;, List of all the companies, (specifying their CIN) having, the same registered office, address, if any;, Any other information can be, provided as an optional, attachment(s)., , It is mandatory to attach, Minutes of the member’s, meeting where approval was, given for conversion and, alteration of the Articles of, Association;, 2) It is mandatory to attach Copy, of Special Resolution;, 3) It is mandatory to attach Copy, of, Altered, Articles, of, Association;, 4) It is mandatory to attach Copy, of Altered Memorandum of, Association:, In case of conversion of, Unlimited Liability Company to, Limited Liability Company., 5) It is mandatory to attach, Declaration of all Directors as, per Rule 37(3)(e) and Rule, 37(3)(g) incase of conversion, of, Unlimited, Liability, Company to Limited Liability, Company;
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558, , Lesson 13 • EP-CL, , , , to fulfillment of other, 3. Conversion of 6), requirements as notified., a company, limited by, guarantee into, a company, limited by, 7), shares- with, in 30 days, from date of, the passing of, 8), the special, resolution., , 4. Conversion of, Unlimited, Liability, 9), Company into, Limited, Liability, Company, – Within 45, days from the 10), date of passing, the special, resolution., , It is mandatory to attach complete, list of creditors and debenture, holder sin case of conversion of, Unlimited Liability Company to, Limited Liability Company;, , It is mandatory to attach Declaration, of Solvency incase of conversion of, Unlimited Liability Company to, Limited Liability Company;, , It is mandatory to attach Declaration, regarding no complaints as per Rule, 37(4) in case of conversion of, Unlimited Liability Company to, Limited Liability Company;, It is mandatory to attach Copy of, Statutory, Auditors, Certificate, incase of conversion of Unlimited, Liability Company to Limited, Liability Company;, , It is mandatory to attach Copy of, Newspaper publication incase of, conversion of Unlimited Liability, Company to Limited Liability, Company;, , 11) It is mandatory to attach copy of, order of Tribunal incase of, conversion from public company to, private company;, , 12) It is also mandatory to attach, certified copy of order for, condonation of delay in case form is, filed after the prescribed due date;, , 13) a list of members with the number, of shares held aggregating to a, minimum paid up capital which is, equivalent to the amount of, guarantee hither to provided by its, members mandatory in case of, conversion of a company limited by, guarantee into a company limited, by shares;, 14) Other information if any can be, provided, as, an, optional, attachment(s).
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559, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, SH- 7, , Section 64 (1) r/w, Rule 15 of the, Companies (Share, Capital & Debentures), Rules, 2014, , Whenever a company, alters its share, capital/ number of, members, independently or, increases the share, capital by conversion, of debentures/loans, due to order of, Central Government,, then a return shall be, filed with the, Registrar within 30, days of such, alteration or increase., The return shall also, be filed where the, company redeems, any redeemable, preference shares., , within a period 1), of thirty days of, such alteration, or increase or, redemption, as, the case may be 2), , Certified true copy of the, resolution for alteration of, capital is mandatory in case, of increase in share capital, independently by company;, , 3), , Copy of the order of the, tribunal is mandatory in case, of increase in share capital, with Central Government;, , 4), , 5), , 6), 7), 8), Form, DIR-12, , Sections 7(1) (c), 168, & 170 (2) r/w Rule 17, of Companies, (Incorporation) Rules, and Rule 8, 15 & 18 of, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Existing company is, required to file an, e-Form DIR-12 for, particulars of its, directors and key, managerial personnel, of the company with, the Registrar., , within 30 days, 1), from the date, of appointment/, resignation and, of any change, taking place, in their, 2), designations, , Copy of order of Central, Government is mandatory in, case of increase in share, capital, with, central, Government order;, , Certified true copy of board, resolution, authorizing, redemption of redeemable, preference shares is displayed, and mandatory in case of, redemption of redeemable, preference shares;, , Altered memorandum of, association is mandatory in, case of increase in share, capital independently or by, order of Central Government, or increase in number of, members;, Altered articles of association, is mandatory in case the same, are altered;, , Working for calculations of, ratios (in case of conversions), is mandatory in case of, increase in share capital with, Central Government order;, Any other information can be, provided as an optional, attachment(s)., , Declaration of the appointee, director, managing director,, in Form No. DIR-2 is, mandatory to attach in case of, appointment of a Director /, Manager / Company Secretary, / CEO / CFO;, , Notice of resignation is, mandatoryto attach in case, of cessation of a Director /, Manager, /, Company, Secretary / CEO / CFO;
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560, , Lesson 13 • EP-CL, , , , 3), , 4), , 5), Form, DIR-11, , Form, FC-1, , Section 168 (1) r/w, Rule 16 of the, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Section 380(1)(a) to, (h) and Rule 3(3) of, the Companies, (Registration of, Foreign Companies), Rules, 2014, , Director may resign, from his office by, giving a notice in, writing to the, company and he may, also required to, forward a copy of his, resignation along, with detailed reasons, for the resignation to, the Registrar., , within a, period of, thirty days, from the date, of resignation, , A foreign company, shall file the, particulars of the, principal place of, business along with, the required, documents to RoC,, Delhi. The Registrar, of the corresponding, state shall have, access to these, documents filed with, the RoC, Delhi., , within a, 1), period of thirty, days of the, establishment, of its place of, business in, 2), India, , Evidence of cessation is, mandatory to attach in case of, cessation of a Director /, Manager / Company Secretary, / CEO / CFO;, , Interest in other entities of, director it is mandatory to, attach in case number of, entities entered is more than, one;, Any other information can be, provided as an optional, attachment(s)., , The following attachments are, mandatory :, 1. Notice of resignation filed with, the company, 2., , Proof of dispatch, , 4., , Any other information can be, provided as an optional, attachment(s)., , 3., , 3), 4), 5), 6), , Acknowledgement, received, from company, if any and is, mandatory if yes selected in, option at serial no 6., Certified copy of the charter,, statutes, or memorandum and, articles of the company or, other instrument constituting, or defining the constitution of, the company (Mandatory);, List of directors and secretary, of the foreign company, (Mandatory);, Power of attorney or board, resolution in favor of the, authorized representative(s), (Mandatory);, , Reserve bank of India approval, letter (It is mandatory to attach, attested copy of such approval);, , Copy of permission letter of, other Authority (s)/Regulator(s),, if any is required to be attached;, , It is mandatory to attach, following in case number, entered is more than seven of, respective field;
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561, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 7), , Particulars of the, covered u/s 379;, , 9), , Details of the places of business, established at any earlier, occasion(s);, , 8), , persons, , Details of the places of bus, iness other than principal place, of business in India;, , 10) Particulars of the authorized, representatives;, 11) Interest, of, authorized, person(s) in other entities;, 12) Particulars, of, subsidiary,, holding or associate companies, of the foreign company in India;, 13) Particulars of related party of, the foreign company;, , Form, FC-2, , Section 380(3), r/w Rule 3(4), of the Companies, (Registration of, Foreign Companies), Rules, 2014, , Where any alteration, is made or occurs, in the document, delivered to the, Registrar for, registration under, sub-section(1), of section 380,the, foreign company, shall file with the, Registrar, are turn, in Form FC-2 along, with the specified, fees containing the, particulars of the, alteration, , within a, period of, thirty days, from the date, on which the, alteration, was made or, occurred., , 14) Any other information can be, provided as an optional, attachment and if the document, attached is not in English, then a, 14) Any other information can, be provided as an optional, attachment and if the document, attached is not in English, then a, certified translation in English, language has to be attached., 1) Certified true copy of the Board, resolution, if any;, , 2) Copy oft he general meeting, resolution;, , 3) Copy of approval letter (it is, mandatory if any approval is, required for such alteration);, 4) Translated version of the, documents in English (incase, documents attached are not in, English);, 5) Particulars of alterations in the, place of business in India of the, company;, , 6) Particulars of alteration in, details of the Directors or, Secretaries;
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562, , Lesson 13 • EP-CL, , , , 7) Particulars of alterations, in details of the company, authorized representative;, , Form, FC-3, , Section 381 r/w Rule 4,, 5 and 6 of the, Companies, (Registration of Foreign, Companies) Rules, 2014, , Every foreign, company is required, to prepare and file, financial statements, to Delhi ROC. It shall, also prepare and file, a list of places of, business in India, established by a, foreign company as, on date of the, balance sheet in the, same form., , within a period, of six months of, the close of the, financial year, of the foreign, company to, which the, financial, statements, relate., , 8) Any other information can, be provided as an optional, attachment(s)., , 1) Copy of latest consolidated, financial statement of parent, company (Mandatory);, , 2) Copy of balance sheet and, profit and loss account duly, authenticated under section, 381(1) (Mandatory);, 3) Statement of related party, transactions;, , 4) Statement of repatriation of, profits;, , 5) Statement of transfer of funds;, 6) Approval letter obtained for, every establishment in India, by a foreign company;, , 7) In case the document is in any, other language other than, English, certified translation in, English language is mandatory;, Form, FC-4, , Section 384(2) r/w, Rule 7 of the Companies, (Registration of Foreign, Companies) Rules, 2014, , Every foreign, companyshall, prepare and file to, the Registrar annual, return in Form FC-4, containing the, particulars as they, stood on the close of, the financial year., , 8) Any other information can, be provided as an optional, attachment(s)., , within a period 1) Details, of, Promoters,, Directors and Key Managerial, of 60 days from, Personnel, and, changes, the last day of its, therein since close of previous, financial year, financial year. (Mandatory);, 2) Details of Directors and, key Managerial Personnel, and, their, remuneration., (Mandatory);, 3) Details of the meeting, of the members or class, thereof, board and its, various committees along, with, attendance, details., (Mandatory);, 4), , Particulars of members and, debenture holders along with, changes therein since the, close of previous financial, year. (Mandatory);
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563, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 5), , 6), 7), Form Rule 25A of the, INC-22A Companies, (Incorporation) Rules,, 2014, , Form, DIR 3, , Section 153 Rule, 9(1) of the Companies, (Appointment and, Qualification Of, Directors) Rules, 2014, , All the companies, which got, incorporated on or, before 31st Dec 2017, shall file the, particulars of the, company and its, registered office on, or before 15.06.2019, without payment of, fees, , In case company does, not file e-form, INC-22A within the, time limit, Filing of, e-form INC- 22A is, allowed with a fee of, Rs. 10,000., , -, , Every applicant, who intends to be, appointed as director, of an existing, company shall make, an application, electronically in Form, DIR-3, to the central, Government, for, allotment of a, Director, Identification, Number (DIN), , 1), , 2), , Particulars, of, holding,, subsidiary and associate, companies, and, firms., (Mandatory in case number of, entities prescribed at serial, no 6 is more than seven);, Details, of, Penalties, /, Punishment/ Compounding, of offences, if any. (optional);, Any other information can, be provided as an optional, attachment(s)., , Photograph of Registered, Office, showing, external, building and inside office also, showing therein at least one, Director/KMP who has affixed, his/her Digital Signature to, this form;, Optional attachments, if any., , 1), 2), , photograph;, proof of identity;, , •, , In case of foreign nationals,, passport is a mandatory, requirement for proof of, identity;, , •, , 3), , In case of Indian nationals,, Income- tax PAN is a, mandatory requirement for, proof of identity;, , proof of residence;, , Address proofs like passport,, election (voter identity) card, and, ration card, driving license,, electricity bill, telephone bill or, aadhaar shall be attached and should, be in the name of applicant only.
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564, , Lesson 13 • EP-CL, , , , -, , •, •, 4), 5), 6), , 7), Form, DIR-3, KYC, , Rule 12A and Rule, 11(2) and (3) of, the Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Every individual who, holds a Director, Identification, Number (DIN) as on, 31st March of a, financial year as per, these rules shall,, submit e-form DIR3-KYC for the said, financial year to the, Central Government., Where an individual, who has already, submitted e-form, DIR-3 KYC in relation, to any previous, financial year,, submits web-form, DIR-3 KYC-WEB, through the web, service in relation to, any subsequent, financial year it shall, , In case of Indian applicant,, documents should not be, older than 2 months from the, date of filing of the e-form;, In case of foreign applicant,, address proof should not be, older than 1 year from the, date of filing of the eForm;, Board resolution proposing, his appointment as Director, in an existing company;, Specimen signature duly, verified;, In case of proofs which are in, languages other than Hindi /, English, the proofs should be, translated in Hindi / English, from professional translator, carrying his details (name,, signature, address) and seal., In the case of foreign, nationals, translation done by, the notary of home country is, also acceptable;, Any other information can, be provided as an optional, attachment(s)., , on or before, The following attachment is, 30th, September mandatory to be filed in all cases:, of immediate, 1) Proof of Permanent address, next financial, •, Address proofs like, year, passport, election (voter, identity) card, and ration, card, driving license,, electricity bill, telephone, bill or Aadhaar shall be, attached and should be, in the name of applicant, only;, Conditional attachments:, 2), Copy of Aadhaar Card – In, case ‘Yes’ is selected in the, field “Do you have Aadhaar”;, 3), Copy of Passport – In case, ‘Yes’ is selected in the field, “Do you have a valid, passport”;
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565, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , be deemed to be, compliance of the, provisions of rule, 12A of the Companies, (Appointment and, Qualification of, Directors) Rules,, 2014 for the said, financial year., , Form, DIR-6, , Rule 12(1) of the, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , However, an, individual desires, to update his, personal mobile, number or the e-mail, address, as the case, may be, he shall, update the same by, submitting e-form, DIR-3 KYC only., A director/, designated partner, having an approved, DIN/ DPIN is, required to intimate, to MCA in case of, change(s) in his, particular(s) as, stated in e-Form, DIR-3 /Old form, DIN-1, , 4), , 5), , within a period, of thirty days of, such change(s), , Proof of present Address– In, case ‘No’ is selected in the, field “Whether present, residential address is same, as permanent residential, address”;, Optional attachments, if any., , The following attachments are, mandatory to be filed in all cases:, • Proof of change in particulars;, • Proof of residence of Directo;, • Address, , proofs like bank, statements, electricity bill,, telephone bill, utility bills etc., shall be attached. In case of, Indian Director, documents, should not be older than 2, months from the date of filing of, the e-form;, • In case of Foreign Director,, address proof should not be, older than 1 year from the date, of filing of the e-form;, • In case of proofs which are in, , languages other than Hindi/, English, the proofs should be, translated in Hindi / English, from professional translator, carrying his details (name,, signature, address) and seal;, , • Any, , other information can, be provided as an optional, attachment(s).
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566, , Form, DIR-5, , Lesson 13 • EP-CL, , , , Section 153 r/w Rule, 11 (f) of the, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Application for, surrender of DIN in, e-form DIR-5 can be, filed with any reason, such as DIN is unused, and not intended for, future reference also, or multiple DINs are, allotted to same, person or DIN holder, is no more/has, become of unsound, mind or insolvent etc., This application will, further be processed, by RD- north region., On an application, made in Form DIR-5, by the DIN holder to, surrender his or her, DIN along with, declaration that he, has never been, appointed as director, in any company and, the said DIN has, never been used for, filing of any, document with any, authority, the Central, Government may, deactivate such DIN., , The following are the mandatory, attachments to be filed in all cases:, 1) Proof of Identity of applicant:, •, , 2), , Proof of residence of applicant:, , •, , •, , •, , 3), , Address proofs like, passport, election (voter, identity) card, and ration, card, driving license,, electricity bill, telephone, bill or aadhaar shall be, attached and should be, in the name of applicant, only., In case of Indian, applicant,, documents, should not be older than, 2 months from the date, of filing of the e-Form., , In case of foreign, applicant, address proof, should not be older than, 1 year from the date of, filing of the e-Form., , Affidavit including declaration, that retained DIN will be, updated with all associated, CIN/LLPIN:, , •, 4), , Identity, proofs, like, Voters Identity Card/, Passport/Driving, License/Aadhaar Card/, PAN Card., , This is mandatory in case, ‘Yes’ is selected in field 4, i.e. if user wants to retain, any DIN., , Copy of Court order declaring, DIN holder as insolvent/, unsound mind;
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567, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , •, , 5), , 6), , Form, BEN-2, , Section 90(4) r/w Rule Return of significant, 4 of the Companies, beneficial owners in, (Significant Beneficial shares, Owners) Rules 2018, upon receipt of, declaration under, rule 3 of the SBO, Rules 2018 in Form, BEN-1, the reporting, company shall file a, return in Form No., BEN-2 with the, Registrar in respect, of such declaration., , within a period, of 30 days from, the date of, receipt of such, declaration by, reporting, company., , This is mandatory in case, reason, (Concerned, individual is declared as, a person of unsound, mind by a competent, Court) or (Concerned, individual has been, adjudicated as insolvent), selected in field 3., , Copy of death certificate:, , •, , This is mandatory in case, reason 3 (Death of the, concerned, individual), selected in field 3 ., , In case of proofs which are in, languages other than Hindi /, English, the proofs should be, translated in Hindi / English, from professional translator, carrying his details (name,, signature, address) and seal., In the case of foreign, nationals, translation done by, the notary of home country is, also acceptable., , Any other information can be, provided, as, an, optional, attachment(s)., , Declaration under Section 90 –, Mandatory always;, Any other information can be provided as an optional attachment(s).
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568, , MSME, Form I, , Lesson 13 • EP-CL, , , , E-Form MSME FORM-I, is required to be filed, pursuant to Order, dated 22 January, 2019, issued under Section, 405 of the Companies, Act, 2013, , All companies, who, get supplies of goods, or services from, micro and small, enterprises and, whose payments to, micro and small, enterprise suppliers, exceed forty-five days, from the date of, acceptance or the, date of deemed, acceptance of the, goods or services as, per the provisions of, section 9 of the, Micro, Small and, Medium Enterprises, Development Act,, 2006 (27 of 2006), (hereafter referred to, as “Specified, Companies”), shall, submit a return to, the Ministry of, Corporate Affairs in, the interval, mentioned below:, a. Initial return, , Every specified, company have to file, in MSME Form I, details of all, outstanding dues to, Micro or small, enterprises suppliers, existing on the date, of notification of this, order i.e., (22/01/2019) within, the prescribed period, b. Regular half yearly, return, Every specified, company shall file a, half-yearly return by, 31st October for the, period from April to, September and by, 30th April for the, , Half Yearly, Return, , 1. For the period, from April to, September: 31st, October, 2. For the period, October to, March: 30th, April., , Optional attachment (s), if any.
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569, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, CRA-4, , Form, DPT-3, , Section 148(6) r/w, Rule 6(6) of the, Companies (Cost, Records and Audit), Rules, 2014, , Rule 16 and 16A of the, of the Companies, (Acceptance of, Deposits) Rules, 2014, , period from October, to March stating the, following:, a. the amount of, payment due; and, b. the reasons of, the delay., Every cost audtor, appointed shall, submit the cost audit, report to company, within 180 days from, the closure of the, financial year in form, CRA-3., , within thirty, days from the, date of receipt, of cost audit, report, , 1., , Rule 16:, Every company to, which the Companies, (Acceptance of, Deposits) Rules, 2014, apply, shall on or, before the 30th day, of June, of every year,, file with the, Registrar, a return in, Form DPT-3 and, furnish the, information, contained therein as, on the 31st day of, March of that year, duly audited by the, auditor of the, company., , Annual Return:, on or before, the 30th day of, June, of every, year, , 1), , Further company, shall submit that, cost audit report, to the Central, Government along, with full information, and explanation on, every reservation or, qualification marked, by auditor, , It is hereby clarified, that Form DPT-3, shall be used for, filing return of, deposit or particulars, of transaction not, considered as deposit, or both by every, , One time, Return: within, 90 days from, 31st March,, 2019., , 2., , 2), 3), , 4), , XBRL document in respect of, the cost audit report and, company’s information and, explanations, on, every, qualification and reservation, contained therein, Optional attachment(s), if any., , Auditor’s, certificate, –, Mandatory if purpose ‘Return, of Deposit’ or ‘Return of, Deposit and Particulars of, transactions by a company, not considered as deposit’ is, selected;, Copy of trust deed –, Mandatory if company has, trust deed and details of same, are mentioned in the form;, Copy of instrument creating, charge – Mandatory if, company has trust deed and, details of same are mentioned, in the form;, List of depositors - List of, deposits matured, cheques, issued but not yetcleared to be, shown separately – Mandatory, if company has balance of, deposits outstanding at the end, ofthe year.
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570, , Lesson 13 • EP-CL, , , , company other than, Government company, , Form, DPT-4, , Form, CSR-1, , Section 74 (1) r/w Rule, 20 of the Companies, (Acceptance of, Deposits) Rules, 2014, , Section 135 of the, Companies Act, 2013, and Rule 4 (1) and, (2) of the Companies, (Corporate Social, Responsibility Policy), Rules, 2014, , In respect of any, deposit accepted by a, company before the, commencement of, the Companies Act,, 2013, the amount of, suchdeposit or any, interest thereon if, remainsunpaid as on, the date of, commencement this, Act then such, companyshall file a, statement of such, details in Form DPT-4, , Details of liquid assets;, , 1), , Auditor’s certificate;, , 3), , Any other optional, attachment(s), if any., , 6), , Rule 16A:, , Every company other, than Government, company have to file, a onetime return of, outstanding receipt, of money or loan, by a company but, not considered as, deposits, in terms, of clause (c) of subrule 1 of rule 2 from, the 01st April, 2014, to 31st March 2019,, as specified in Form, DPT-3 within ninety, days from 31st, March, 2019., , 5), , Within a period, of 3 months, from, commencement, of the, Companies Act,, 2013 or from, the date on, which such, payments, are, due., , Due date, extended by 2, more months, via circular, number, 27/2014 dated, 30th June, 2014., , In accordance with, the Companies, (Corporate Social, Responsibility Policy), Amendment Rules,, 2021, company can, undertake CSR, activities either itself, or through entities, defined under Rule 4, (1) of the CSR Rules,, 2014., , 2), , Optional attachment, if any., , List of Depositors;, , The following attachments are, mandatory:, 1), Copy of Certificate of, Registration;, 2), , Copy of PAN of entity.
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571, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, ADT-1, , Section 139 and 140, r/w Rule 4(2) of the, Companies (Audit and, Auditors) Rules, 2014, , Form, ADT-2, , Section 140(1) of the, Companies Act, 2013, and rule 7(1) of the, Companies (Audit and, Auditors) Rules, 2014, , Form, ADT-3, , Section 140(2) r/w, Rule 8 of the, Companies (Audit and, Auditors) Rules, 2014, , Form, PAS-3, , Section 39(4) and, 42(9)r/w Rule 12 and, 14 of the Companies, (Prospectus and, Allotment of, Securities) Rules, 2014, , These companies/, entities are required, to mandatorily, register themselves, with the Central, Government for, undertaking any CSR, activity by filing the, e-form CSR-1 with, the Registrar., , On appointment/, reappointment of an, auditor at the annual, general meeting,, the company shall, file a notice of such, appointment /, reappointment with, the Registrar, , within 15 days, of the meeting, in which the, auditor is, appointed/, re-appointed., , The following attachments are, mandatory:, 1) Copy of written consent given, by auditor;, , An application by the, company seeking, approval from the, Regional Director/, Registrar of Companies, for Removal of Auditor, from the office before, the expiry of the term, ofoffice., , within 30, days of the, resolution, passed by the, Board, , 1), , Details of the grounds for, seekingremoval of Auditor;, , 1), , Resignation letter;, , Whenever a company, having a share capital, makes any allotment, of its securities, the, company shall, file, with the Registrar a, return of allotment in, Form PAS-3., , within 30 days, from the date of, resignation, within thirty, days of, allotment of, Securities, , Notice of resignation, bythe auditor, , 2), , Copy of resolution passed by, the board/company in case, Nature of appointment is, other than ‘Auditor appointed, by the Tribunal’ or ‘Others’;, 3) Copy of the order of the, Tribunal in case Nature of, appointment, is, ‘Auditor, appointed by the Tribunal’, Following, attachments, are, optional:, 4) Copy of the intimation sent by, company;, 5) Copy of the letter of, appointment from C&AG;, 6) Optional attachments, if any., , 2), , 2), , Optional Attachments, if any, , Optional attachments, if any., , 1) List of allottees, separate list, for, each, allotment, is, mandatory;, 2) Copy of Board or Shareholders’, resolution, approving, allotment of shares is, mandatory in all cases;, 3) Valuation Report from the, registered valuer is mandatory, in case obtained from valuer;
Page 608 :
572, , Form, SH-8, , Lesson 13 • EP-CL, , , , Section 68 r/w Rule, 17(2) of the, Companies (Share, Capital & Debentures), Rules, 2014, , SH-8 is required to be, filled by the company, for presenting letter, of offer for buyback, of its own shares or, other securities., , Letter of offer, shall be filed by, a company, authorized by a, special, resolution for, buyback of its, own shares or, other securities, with the, Registrar of, Companies in, e-Form SH-8, before buy-back., , 4) Copy of Contract/Complete, particulars of contract duly, stamped is mandatory to, attach in case securities are, issued other than cash;, 5) Complete record of private, placement, offers, and, acceptances in Form PAS-5 is, mandatory in case of private, placement;, 6) Copy of the special resolution, authorizing the issue of bonus, sharesis mandatory in case of, bonus issue;, 7) Any other information can, be provided as an optional, attachment(s);, , The following attachments are, mandatory:, (1) Details of the promoters of the, company;, (2) Declaration by auditor(s);, (3) Certified true copy of the, board resolution authorizing, buy back;, (4) Copy of the notice of the general, meeting issued under section, 68(3), along, with, the, explanatory Statement there to;, (5) Audited financial statements, of last three years;, Rest are based on applicability as, mentioned in the e-form:, (6) Buy back details of last three, years is mandatory in case, company has done any buy, back in the last three years;, (7) Management discussion and, analysis is mandatory in case, of listed company;, (8) List of holding and subsidiary, companies of the company if, applicable;, (9) Unaudited financial statements, (if applicable);, (10) Statutory approvals received, (if any);, (11) Details of the auditor, legal, advisors,, bankers, and, trustees (if any)., Any other information can be, provided as an optional attachment, (s).
Page 609 :
573, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, SH-9, , Form, SH-11, , Section 68(6) r/w Rule, 17(3) of the, Companies (Share, Capital & Debentures), Rules, 2014, , Section 68(10) r/w, Rule 17(13) of the, Companies (Share, Capital and, Debentures) Rules,, 2014, , Form Section 94(1), 117(1), MGT-14 r/w Rule 24 of the, Companies, (Management &, Ad- ministration), Rules, 2014, , The company shall, file with the, Registrar, along with, the letter of offer,, and in case of a listed, company with the, Registrar and the, Securities and, Exchange Board, a, declaration of, solvency., , The company, after, the completion of the, buy- back, shall file, with the Registrar,, and in case of a listed, company with the, Registrar and the, Securities and, Exchange Board of, India a return in, respect of buy-back, of securities., , A company or, liquidator has, to file with the, concerned RoC, certain resolutions, and agreements., These are to be filed, after being passed, at the meeting of the, Board/Shareholders, /Creditors of the, company. The, particulars of such, esolutions or/and, agreement are to, , -, , 1), , Copy of Board resolution of, the company;, , 3), , Auditor’s report;, , 2), 4), 5), , within thirty, days of, completion of, buy back, containing the, particulars of, the buyback of, shares and, other securities., , 6), , Statement, liabilities;, , of, , assets, , and, , Affidavit as per rule 17(3);, , Copy of Special Resolution, if, it was passed;, Optional attachment(s), if any., , The following attachments are, mandatory:, 1), Description of shares or, other specified securities, bought back;, 2), Particulars, relating, to, holders of securities before, buy-back;, 3), Certified true copy of special, resolution passed at the, general, meeting, is, mandatory in case date of, special, resolution, of, members authorizing buyback of securities is entered, in field 8(b);, 4), Certified true copy of Board, resolution authorizing buyback;, 5), Balance Sheet of the company;, 6), Compliance certificate for the, buy-back rules as per the subrule (14);, Any other information can be, provided, as, an, optional, attachment(s)., , Within 30 days 1), of the passing of, resolution or of, the making of, the agreement., within 60 days, of the passing of 2), resolution or of, the making of, 3), the agreement, in case of IFSC, Public/Private, Company., , Certified, true, copy, of, resolution(s) along with copy, of explanatory statement, under section 102 (Mandatory, in case resolution or postal, ballot is selected at serial no 3);, Altered memorandum of, association (Mandatory in, case any change in MOA);, Altered articles of association, (Mandatory in case of any, change in AOA);
Page 610 :
574, , Form, GNL-2, , Form, MGT-6, , Form, PAS-6, , Lesson 13 • EP-CL, , , , Pursuant to 12(2) of, the Companies, (Registration Offices, and Fees) Rules, 2014, , Section 89(6) r/w Rule, 9 of the Companies, (Management and, Administration) Rules,, 2014, , Rule 9A of the, Companies, (Prospectus and, Allotment of, Securities) Rules,, 2014., , rbe filed through this, e-Form., The provisions, of Section 94, and 117 are, applicable regarding, registration of certain, resolutions and, agreements with RoC., , 4), 5), , Company can file, certain documents, with the Registrar of, Companies by filing, this e-Form GNL-2, and in case there is, no e-Form prescribed, for filing any, document with, Registrar, then, company can file, such documents, through this e-Form., A company makes a, declaration to the, Registrar regarding, persons whose name, is in the register of, members as a, shareholder but they, do not hold any, beneficial interest in, such shares., Reconciliation of, Share Capital Audit, Report on half yearly, basis, Every unlisted, public company, governed by rule 9A, of the Companies, (Prospectus and, Allotment of, Securities Rules,, 2014 shall submit, Form PAS-6 to the, Registrar along with, prescribed fees., , within a period, of 30 days from, the date of, receipt of, declaration, within a period, of 60 days from, the date of, receipt of, declaration in, case of IFSC, Public/, Private, Company., within sixty, days from the, conclusion of, each half year., , 1), 2), , 3), 4), 1), 2), 3), , Copy, of, agreement, (Mandatory in case agreement, is selected at serial no 3)., Any other information can be, provided as an optional, attachment(s)., Copy of prospectus or red, herring, prospectus, or, information memorandum;, Form 149 or form 152 or form, 153 or form 154 or form 156, or form 157 or form 158 or, form 159 of the Companies, (Court) Rules, 1959;, Filing under Insolvency and, Bankruptcy Code, 2016;, Any other information can, be provided as an optional, attachment(s)., Declaration, by, person, referred to in section 89(1);, Declaration, by, person, referred to in section 89(2) or, 89(3);, Any other information can, be provided as an optional, attachment(s)., , Optional attachments, if any.
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575, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, MGT-3, , Section 88(4) r/w, Rule 7(2) of the of the, Companies, (Management and, Administration) Rules,, 2014, , Notice of situation or, change of situation, or discontinuation of, situation, of place, where foreign, register shall be kept, , Form Section 121(1) r/w, MGT-15 Rule 31(2) of, Companies, (Management and, Administration) Rules,, 2014, , Every listed public, company shall, prepare a report on, each annual general, meeting including the, confirmation to the, effect that the, meeting was, convened, held and, conducted and file, the same with ROC., , Form, AOC-5, , Section 128 r/w Rule, 2A of the Companies, (Accounts) Rules,, 2014, , The company, shall, within 30, days from the, date of the, opening of any, foreign register,, file with the, A company may, if so Registrar notice of, authorized by its, the situation of, articles, keep in any, such place where, country outside India the register is, a part of the register kept., of members/of, debenture holders/of In the event of any, change in the, any other security, holders/of beneficial situation of such, place or of its, owners, resident in, discontinuance,, that Country., the same should, be communicated, within 30 days, from the date of, such change or, discontinuance, as, the case may be., , N.A., , Every company must, keep proper books of, account with respect, to:, • all sums of money, received and, expended by the, company and the, matters in respect, of which the, receipt and, expenditure take, place;, , 1), , • all sales and, purchases of goods, by the company;, , within 30 days of Optional Attachments, if any., the conclusion of, the annual general, meeting, , within seven days, of passing the, Board Resolution, , 2), , Copy of Board resolution, wherein, a, decision, regarding address at which, books of account are to be, maintained has been taken, is to be attached;, Any other information can, be provided as an optional, attachment.
Page 612 :
576, , Lesson 13 • EP-CL, , , , • the assets and, liabilities of the, company; and, , • in the case of a, company engaged, in production,, processing,, manufacturing, or mining, activities, such, particulars relating, to utilization of, material or labor, or other items of, cost as may be, prescribed by the, Central, Government,, provided the, Central, Government so, directs to any such, class of companies, or any particular, company., , Form, INC20A, , Section 10A(1)(a) r/w, Rule 23A of the, Companies, (Incorporation) Rules,, 2014., , If the Board of, Directors decides by, passing the, resolution to keep all, or any of the books of, account at any other, place in India besides, the registered office, then, the company, shall, , file this form, giving full address of, that other place in, form AOC-5., Declaration prior to, the commencement, of business or, exercising borrowing, powers., , within a period 1), of 180 days, 2), of the date of, incorporation of, the company, 3), , Subscribers proof of payment, for value of shares;, Certificate of Registration, issued by the RBI (Only in, case of Non-Banking Financial, Companies) / from other, regulators. It is mandatory to, attach this document if ‘Yes’ is, selected in field 3(a);, Any other information can be, provided as an optional, attachment(s).
Page 613 :
577, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, INC-20, , Form, INC-28, , Form, CFI, (CSR), , Section 8 (4) & 8 (6), r/w Rule 23 of the, Companies, (Incorporation) Rules,, 2014., , Section 12(6),13(7),, 58(5), 87 & 111(5),, 66(1) 230,232,, 233,234 237 of the, Companies Act, 2013, and section 81(4),, 102(1), 107(3), 167,, 186, 391, 394, 396,, 397, 398, 445, 481,, 466, 518, 559 & 621A, of the Companies Act,, 1956, Sections of, Insolvency and, Bankruptcy Code,, 2016., Section 206 of the, Companies Act, 2013, regarding compliance, of provisions of, Corporate Social, Responsibility (CSR), u/s 135 r/w section, 134(3)(o) of the Act., , License granted to a, company under, section 8 may be, revoked by the Central, Government and on, such revocation or the, company itself wants, to surrender the, license granted, an, intimation of such, revocation or, surrender of license, shall be filed with the, Registrar by the, company in e-Form, INC-20., Registrar shall enter, the word(s) “Limited”, or “Private Limited”, as the case may be at, the end of the name of, the company and the, company shall cease to, enjoy the exemptions/, privileges granted to it, under section 8 of the, Act., Registrar needs to, be informed about, the order of Court or, Tribunal or any other, competent authority, for which the, company or, liquidator has to file, e-Form INC-28 with, RoC informing about, the order, which may, take the form of, approval or extension, of time or, condonation of, non-compliance., , within the, period, mentioned in, respective, Section under, which the filing, is being made., , Notice for Call for, Information on CSR is, sent to the companies, who are noncompliant with, respect to filing of, CSR (Corporate Social, Responsibility). Such, companies have to, file their response, through ‘Reply to Call, for information on, CSR’ Form., , The following attachments are, mandatory:, 1) Copy of Order of Central, Government;, 2), 3), 4), , 1), 2), , -, , Certified true copy of altered, memorandum and articles of, association;, It is mandatory to attach, declaration of directors for, compliance of conditions in, case of surrender oflicense;, Any other information can be, provided as an optional, attachment(s)., , Copy of Court order or NCLT, or CLB or order by any other, competent authority is a, mandatory attachment;, Any other information can, be provided as an optional, attachment(s).
Page 614 :
578, , Form, ICP, , Lesson 13 • EP-CL, , , , -, , Any investor,, shareholder, creditor,, employee, deposit, holder can file, complaint related to, shares, debentures,, bonds, fixed deposits, etc. against a, company by filling, Investor Complaints, form. There is no fee, for filing the form., , -, , 1), , Identity, proof, complainant;, , of, , the, , To register, 1), Serious, Complaint, 2), against a, company by, filing E-Form, with MCA., Alternatively, complainant can, also lodge, Serious, Complaint by, , Identity, proof, complainant;, , of, , the, , 2), , Any other information can be, provided as an optional, attachment., , Alternatively the, investor, shareholder,, creditor, employee,, deposit holder can, also lodge an investor, complaint by handing, over a written, complaint directly to, an MCA official in the, office of Registrar of, Companies., , Form, SCP, , -, , One Investor, Compliant Form, should be filed, against only one, company/ LLP and, for one type of, complaint. If there, are multiple, complaints against, one company or LLP,, file a different, Investor Compliant, Form for each type of, Compliant. This will, help is effective, tracking and closure, of complaint., A complainant, can file a Serious, Complaint e-Form in, the following cases by, uploading a Serious, Complain e-Form, available at http://, www.mca.gov.in/:, • Cessation of, Director., • Removal of, Director., , In cases complaint is in, respect of non-filing of Form, No. 32/DIR-12 for cessation, of a Director, correspondence, with the company with, respect to the cessation,, attach the necessary proof of, such correspondence;
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579, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , •, •, •, •, •, Form, MR-2, , Section 196 &, Schedule V of the, Companies Act 2013, r/w Rule 7 of the, Companies, (Appointment and, Remuneration of, Managerial Personnel), Rules, 2014, , •, , Management, Dispute., Financial, Mismanagement., Corporate Fraud., Accounting Fraud., Oppression of, Minority, Shareholders., Others., , Form of application, to the Central, Government for, approval of, appointment of, Managing Director or, whole time Director, or Manager in case, such appointment is, at variance to the, conditions Specified, in Part I of Schedule, V of the Companies, Act, 2013., , handing over a, written, complaint, directly to MCA, official in the, office of, Registrar of, Companies., , 3), , Any other information can be, provided as an optional, attachment., , within a, period of 90, days fromthe, date of such, appointment., , 1), , Copy of the calculation sheet, of effective capital.................... is, mandatory in case Option 4, selected in field 4(a);, , 2), 3), , 4), , 5), , Certified, copy, of, the, resolution passed by the, Board of Directors in favour of, proposal (Mandatory);, Certified copy of resolution, passed by the Nomination, and Remuneration Committee, along with its minutes., (Mandatory);, , Certified, copy, of, the, Shareholders’ Resolution of, the Company in favour of, proposal along with notice, and explanatory statement, pursuant to Section 102 of the, Companies, Act,, 2013, (Mandatory);, Auditors Certificate pursuant, to Section 164 (2) of the, Companies, Act,, 2013, (Mandatory);, , 6. A certificate from the Company, Secretary of the Company/, Company, Secretary, in, whole time practice that the, Nomination & Remuneration, Committee has complied, with the provisions of subsections(1)(2)(3) and (4) of, Section 178 of the Companies, Act, 2013 (Mandatory);
Page 616 :
580, , , , 7., , 8., , 9., , Lesson 13 • EP-CL, , A, certificate from the, Company Secretary of the, Company/ Company Secretary, in whole time practice with, regard to the compliance, of, section196/203(3), of, the Companies Act, 2013;, (Mandatory);, A certificate duly signed by, the Company Secretary of the, company that it has complied, with all the regulations of, SEBI (LODR) Regulation, 2015, entered with Stock Exchanges, as per circular issued by SEBI, for time to time (in case of, listed company);, , Copy of each of the notice, spreferably paper cutting,, published in the, daily, English Newspaper in English, Language and daily Vernacular, Language, Newspaper, in, Principal Language of the, district in which the Registered, Office of the Company is, situated in pursuance of, Section 201(2) of the Act, 2013, (Mandatory);, , 10. Full and proper justification, in favour of the proposal, along with bio-data of the, appointee (Mandatory);, , 11. Copy of CG-1 Form along with, challan, made for condonation, of delay under Section 460, of the Act, if the application, for appointment has not, been made to the Central, Government with in 90 days, of date of appointment;, 12. Certified copy of Passport, and Employment Visa/OCI/, PIO Cardin respect of the, appointee for the period of his, tenure in India, if the appointee, is a foreign national;
Page 617 :
Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, MR-1, , Section 196, 197, and, Schedule V of the, Companies Act, 2013, and Rule 3 of the, Companies, (Appointment and, Remuneration of, Managerial Personnel), Rules 2014, , A company shall file a within sixty, return of, days of the, appointment of a, appointment, Managing Director,, Whole Time, Directoror Manager, with the Registrar., , 581, , 13. Copies of educational or, professional, qualification, certificate(s) (Mandatory);, 14. Copy, of, the, Central, Government earlier approval, or rejection letter(s) etc.,, if any, in respect of the, preceding three years;, 15. No objection certificate from, the financial institutions(s) or, bank(s) if no selected in field, 15;, 16. Copy of the order of BIFR or, NCLT together with the copy, of a scheme of revival or, rehabilitation., 17. Copy of draft agreement, between the company and the, proposed….. is mandatory in, case option 1 selected in 4(a);, 18. Projections of the Turnover, and net profits for next three, years;, 19. Calculation of estimated, profit under section 198 of, the Act is mandatory in all, cases except option 1 of 4(a);, 20. Details, if applicant company, is a subsidiary of listed, company;, 21. Optional Attachment, if any., The following attachments are, mandatory in all the cases:, , 1) Certified true copy of Board, Resolution;, , 2) Certified true copy of, shareholder’s, resolution, along, with, explanatory, statement is mandatory in, case, passed, for, such, appointment;, , 3), 4), , Copy of Central Government, approval is mandatory in case, appointee is convicted or, detained as per Schedule V;, Copy of letter of consent to act, as a Managing Director, whole, time Director, or Manager;
Page 618 :
582, , Lesson 13 • EP-CL, , , , 5), 6), Form, MGT-7, , Section 92(1) r/w Rule, 11(1) of the, Companies, (Management and, Administration) Rules,, 2014, , Form Section 92(1) r/w Rule, MGT-7A 11(1) of the, Companies, (Management and, Administration) Rules,, 2014, , Every company shall, prepare an annual, return in the form, MGT-7 containing the, particulars as they, stood on the close of, the financial year, , Every OPC & Small, Company shall, prepare an abridged, annual return, containing the, particulars as they, stood on the close of, the financial year, , within 60 days, from the date on, which the, annual general, meeting is held, or where no, annual general, meeting is held, in any year, within 60 days, from the date on, which the, annual general, meeting should, have been held, together with, the statement, specifying the, reasons for not, holding the, annual general, meeting., within 60 days, from the date on, which the, annual general, meeting is held, or where no, annual general, meeting is held, in any year, within 60 days, from the date on, which the, annual general, meeting should, have been held, together with, the statement, specifying the, reasons for not, holding the, annual general, meeting., , 1), , 2), 3), 4), , 1), , Copy of certificate by the, Nomination and Remuneration, Committee of the company, if, any;, , Any other information can, be provided as an optional, attachment(s)., , List, of, shareholders,, debenture holders shall be, mandatory, in case of, company having share capital, and it has selected ‘Yes’ in, field XIII ‘Whether complete, list, of, shareholders,, debenture holders has been, enclosed as an attachment’;, Approval letter for extension, of AGM; Shall be enabled and, mandatory in case ‘Yes’, selected in field I.(viii)(c);, Copy of MGT-8; shall be enabled, and mandatory in case, anything entered in field XIV;, , Optional Attachment(s), if, any shall be mandatory in, case ‘Yes’ selected in field, 4(iii) ‘Separate sheet attached, for details of transfers’., , List, of, shareholders,, debenture holders-Mandatory, in case of company having, share capital;, , 2) Approval letter for extation of, AGM-Mandatory in case ‘Yes’, selected in field I. (viii)(c);, 3) List of Directors-Mandatory in, case of small company;, , 4) Optional Attachment(s), if any, shall be mandatory in case, ‘Yes’ selected in field 4(iii), ‘Separate sheet attached for, details of transfers’.
Page 619 :
583, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, AOC4XBRL, , Section 129, 137 r/w, Rule 12(2) of the, Companies (Accounts), Rules, 2014 read with, the Companies (Filing, of documents and, forms in Extensible, Business Reporting, Language) Rules, 2015, , The specified class of, companies shall file, their financial statements and other, documents under, section 137 of the Act, with the Registrar in, e-form AOC-4 XBRL:, , Where the FS, are not adopted, at AGM or, adjourned AGM,, such unadopted, FS shall be filed, within 30 days, of the date of, AGM and the, Every company needs Registrar shall, to file its financial, take them in, statements, including his records as, consolidated financial provisional till, statement and, the financial, mandatory, statements are, attachments, with in filed with him, 30 days of the date of after their, AGM., adoption in the, adjourned AGM., FS adopted in, the adjourned, AGM shall be, filed within 30, days of the date, of such, adjourned AGM., Revised, financial, statement u/s, 130 or, 131=Within 30, days of Date of, order of, competent, authority., , 1), , 2), , 3), , 4), , 5), , 6), , 7), , XBRL financial statements, duly authenticated as per, section 134 (including Board’s, report, auditors’ report and, other documents) – This is a, mandatory attachment;, , XBRL document in respect of, Consolidated, financial, statement (Note- This is, mandatory if company is, having Subsidiary and ‘Yes’ is, selected for consolidated, Financial Statements);, Statement of subsidiaries as, per section 129-Form AOC-1, (Note-To be attached in, respect, of, Foreign, subsidiaries);, Statement of the fact and, reasons for not adopting;, , balance sheet in the annual, general meeting (AGM) (NoteThis attachment is mandatory, if, nature, of, financial, statements was selected as, ‘Provisional, Un-adopted, financial statements’);, , Statement of the fact and, reasons for not holding the, AGM. (Note- This attachment, is mandatory if AGM was not, held);, , Approval letter of extension, of financial year or AGM, (Note- This attachment is, mandatory if extension was, granted for AGM or financial, year);, , Supplementary or test audit, report under section 143, (Note- This attachment is, mandatory if CAG of India had, conducted supplementary or, test audit under section 143);
Page 620 :
584, , 8), , Form, AOC-4, , Lesson 13 • EP-CL, , , , Section 129 (3), 137, r/w Rule 12(1) of the, Companies (Accounts), Rules, 2014, , Every company needs, to file its financial, state- ments and, mandatory, attachments, via, e-form AOC-4 within, the prescribed time, limit as per Section, 137 (within 30 days, of the date of AGM), Financial statement, by a OPC = 180 days, from end of Financial, year., , In case financial, statement are, not adopted in, AGM, then, Provisional, Unadopted, financial, statement, (other than, OPC) is filed, within 30 days, of Actual date of, AGM. In case, date of AGM is, not entered, then due date of, AGM (shall be, extended due, date if entered)., Once adopted,, filing of financial, statement by a, company other, than OPC =, with- in 30 days, of ad- journed, AGM., Revised, financial, statement u/s, 130 or 131, =With in 30, days of Date, of order of, competent, authority., , 9), 1), , 2), , 3), , Details of comments of CAG, of India (NoteThis, attachment is mandatory if, CAG of India had conducted, supplementary or test audit, under section 143);, , Optional attachments (s)-if, any., Financial statements duly, authenticated as per Section, 134 (including Board’s report,, auditors’ report and other, documents) – This is a, mandatory attachment;, Statement of subsidiaries as, required under Section 129 in, the format of Form AOC-1, prescribed, under, the, Companies (Accounts) Rules,, 2014;, Statement of the fact and, reasons for not adopting, balance sheet in the Annual, General Meeting (AGM);, , •, 4), , 5), , 6), , 7), , This, attachment, is, mandatory if provisional, un-adopted, financial, statements are being filed;, , Statement of the fact and, reasons for not holding the, AGM - This attachment is, mandatory if AGM was not, held;, , Approval letter of extension, of financial year or AGM - This, attachment is mandatory if, any extension has been, granted for AGM or financial, year;, , Supplementary or test audit, report under Section 143 This attachment is mandatory, if CAG of India had conducted, supplementary or test audit, under Section 143;, Company CSR policy as per, sub-section (4) of Section, 135;
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 585, , 8), , 9), , Details of other entity (ies):, This attachment is mandatory, in case any amount of CSR is, spent not directly by company., Details, of, all, such, implementing agencies should, be attached in that case;, , Details of salient features and, justification for entering into, contracts/, arrangements/, transactions with related, parties as per sub-section (1), of Section 188 - Form AOC-2;, , 10) Details of comments of CAG of, India - It is mandatory if C &, AG of India had conducted, supplementary or test audit, under Section 143;, , 11) Secretarial Audit Report- This, attachment is mandatory if, Secretarial, Audit, was, applicable;, 12) Directors’ report as per subsection(3) of Section 134;, , 13) Details of remaining CSR, activities: Details of CSR, programmes/projects/, activities not mentioned in, e-Form is mandatory to attach, in excel sheet;, Form, AOC4_CFS, , Section 129(3), 137, r/w Rule 6, 12 of the, Companies (Accounts), Rules, 2014, , Form for filing, consolidated financial, statements and other, documents with the, Registrar within 30, days of AGM, , 14) Optional attachments(s)- if, any., , In case financial 1), statement are, not adopted in, AGM, then, Provisional, Unadopted, financial, statement =, 2), within 30 days., Actual date of, AGM. In case, date of AGM is, not entered then, due date of AGM, (shall be, extended due, date if entered), , Consolidated, financial, statements duly authenticated, as per section 134 (including, Board’s report, Auditors’, report and other documents), – This is a mandatory, attachment;, , Statement of subsidiaries/, associate, companies/joint, ventures as required under, section 129 in the format of, Form AOC-1 prescribed under, the Companies (Accounts), Rules, 2014 – This is a, mandatory attachment;
Page 622 :
586, , , , Once adopted,, filing of, financial, statement by a, company =, with- in 30 days, of ad-journed, AGM., Revised, financial, statement u/s, 130 or 131, =Within 30, days of Date of, order of, competent, authority, , Form, AOC-4, NBFC, , Section 137 r/w Rule, 12 (1A) of the, Companies (Accounts), Rules, 2014, , Every Non-Banking, Financial Company, (NBFC) that is, required to comply, with Indian, Accounting Standards, (Ind AS) shall file the, financial statements, with Registrar, together with Form, AOC-4 NBFC (Ind AS), within 30 days of, AGM, , 3), , 4), 5), , 6), 7), 8), , In case financial 1), statements are, not adopted in, AGM then, unadopted, provincial, financial, statements shall 2), be filed within, 30 days of date, of AGM (due, date of AGM, if, 3), AGM not held or, extended due, date if any)., Once financial, statements are, adopted then, 4), company shall, file the adopted, financial, state- ments, within 30 days, of the adjourned, AGM, 5), , Lesson 13 • EP-CL, , Supplementary or test audit, report under section 143- This, attachment is mandatory if, CAG of India had conducted, supplementary or test audit, under section 143;, Details of other entity(s)– This, is an optional attachment;, , Details of comments of CAG of, India - This is mandatory if, CAG of India had conducted, supplementary or test audit, under section 143;, Secretarial Audit Report- This, attachment is mandatory if, Secretarial, Audit, was, applicable;, , Directors’ report as per subsection (3) of section 134;, Optional attachments (s)- if, any., , Copy of financial statements, duly authenticated as per, section, 134, (including, Board’s report, auditors’, report and other documents, (Mandatory always);, , Statement of subsidiaries/, associate, companies/joint, ventures as per section 129Form AOC-1;, Supplementary or test audit, report under section 143, (Shall be a mandatory, attachment in case CAG has, conducted supplementary or, testaudit under section 143);, , Company CSR policy as per, sub- section (4) of section 135, (Company CSR policy as per, section 135(4) shall be a, mandatory attachment in case, CSR is applicable to company);, Details of other entity(s);
Page 623 :
Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 587, , Revised, financial, statement u/s, 130 or 131 =, Within 30 days, of date of order, of competent, authority, , 6), , 7), 8), 9), , Details of comments of CAG if, India (Shall be a mandatory, attachment in case CAG of, India has commented or, supplemented the audit, report under section 143 of, the Companies Act, 2013);, , Secretarial Audit Report (This, attachment is mandatory if, Secretarial, Audit, was, applicable );, Directors’ report as per subsection(3) of section 134;, , Details of salient features and, justification for entering into, contracts/Arrangements/, transactions with related, parties as sub-section (1) of, section 188 - Form AOC-2, (Shall be a mandatory, attachment in case of any, transactions with related, parties;, , 10) Details of remaining CSR, activities;, Form, AOC-4, CFS, NBFC, (Ind AS), , Section 129, 137 of the, Companies Act, 2013, r/w sub-rule (1A) of, rule 12 of the, Companies (Accounts), Rules, 2014, , Every NBFC (Ind AS), company having one, or more subsidiaries, is required to prepare, the consolidated, financial statements, of the company and, of all the subsidiaries., Such financial, statements duly, adopted in the annual, general meeting of, the company, shall be, filed with the, Registrar within 30, days of the date of, AGM., , In case the, financial, statements, could not be, adopted in the, AGM held then, unadopted, provincial, consolidated, financial, statements shall, be filed within, 30 days of date, of AGM (due, date of AGM if, AGM not held or, extended due, date if any)., Once financial, statements are, adopted then, company, , 11) Optional attachment(s) - if, any., 1), , 2), 3), , 4), 5), , Consolidated, financial, statements duly authenticated, as per section 134 (including, Board’s report, auditors’, report and other documents);, Statement of subsidiaries/, associate, companies/joint, ventures as per section 129 Form AOC-1;, , Supplementary or test audit, report under section 143, (Shall be a mandatory, attachment in case CAG has, conducted supplementary or, test audit under section 143);, Details of other entity(s);, , Details of comments of CAG if, India (Shall be a mandatory, attachment in case CAG of, India has commented or, supplemented the audit
Page 624 :
588, , Form, REFUND, , From, CRL-1, , Lesson 13 • EP-CL, , , , Rule 2 of the, Companies(Restriction, on Numberof Layers), Rules, 2017, , The user is required, to make various, payments to avail, MCA21 services. A, number of instances, have been observed, where the users, make multiple, payments or, incorrect payment, or excess payment, while using these, services. In order, to allow the, stakeholders to, claim refund of such, payments,, refund process has, been introduced, by MCA for both, Companies and LLPs., , Every company other, than certain, exempted class of, companies, which has, number of layers of, subsidiaries in excess, of the layers specified, in the Companies Act, 2013 had to file a, return with the, Registrar., , shall file the, adopted, financial, 6), statements, within 30 days, of the adjourned 7), AGM, , report under section 143 of, the Companies Act, 2013);, , 1), , Copy, of, challan, duly, acknowledged by bank in, respect of SRN for which, refund is sought (Mandatory, in case payment mode of SRN, for which refund is sought is, ‘Offline’);, , Revised, financial, statement u/s, 130 or, 131=Within 30, days of date of, order of, competent, authority, , 8), , 2), , 3), 4), , Secretarial Audit Report (If, Applicable);, Directors’ report as per subsection of section 134;, Optional Attachments, if any., , Copy, of, challan, duly, acknowledged by bank in, respect of other SRN, if, applicable (Mandatory in case, payment mode of SRN of, other transaction entered in, field 10(a) is ‘Offline’);, Scanned copy of cancelled, cheque;, , Any other information can be, provided as an optional, attachment., , within a period Optional Attachments., of 150 days, from the date of, publication of, these rules in, the official, Gazette, (notified, on, 20/09/2017).
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589, , Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , Form, DIR-9, , Section 164(2) r/w, Rule 14(2) of the, Companies, (Appointment and, Qualification of, Directors) Rules, 2014., , A Report by a, company to ROC for, intimating the, disqualification of the, Director., , Form, DIR-10, , Section 164(2) r/w, rule 14(5) of, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Form of application, for Removal of, Disqualification of, Directors., , Form, DIR-3C, , Section 157 of the, Companies Act, 2013, r/w 10A (2) of the, Companies, (Appointment and, Qualification of, Directors) Rules, 2014, , Every director,, functioning as a, director in one or, more companies on, or before the 30th, June, 2007 and who, has not yet intimated, his DIN to such, company or, companies shall,, within one month of, the receipt of, Director, Identification, Number from the, Central Government,, intimate his Director, Identification, Number to the, company or all, companies wherein, he is a Director as per, Form DIR-3B., The intimation by the, company of Director, Identification, Number of its, directors under, section 157 of the Act, shall be furnished in, Form DIR-3C., , The company, –, shall, immediately file, Form DIR-9, to, the Registrar, furnishing, therein the, names and, addresses of all, the directors of, the company, during the, relevant, financial years., -, , -, , within 15 days, of the receipt of, intimation, under Section, 156, , Optional Attachments.
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590, , , , Penalty for Filing False Documents/Statements with the Registrar, , Lesson 13 • EP-CL, , According to Section 448 of the Companies Act 2013, if in any return, report, certificate, financial statement,, prospectus, statement or other document required by, or for, the purposes of any of the provisions of this Act or the, rules made there under, any person makes a statement,–, (i), , (ii), , which is false in any material particulars, knowing it to be false; or, , which omits any material fact, knowing it to be material, he shall be liable under Section 447., , Further Section 447, prescribes that without prejudice to any liability including repayment of any debt under this, Act or any other law for the time being in force, any person who is found to be guilty of fraud (involving an amount, of atleast ten lakh rupees or one percent of the turnover of the Company, whichever is lower), shall be punishable, with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall, also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three, times the amount involved in the fraud:, Provided that where the fraud in question involves public interest, the term of imprisonment shall not be less than, three years., , Provided further that where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover, of the company, whichever is lower, and does not involve public interest, any person guilty of such fraud shall be, punishable with imprisonment for a term which may extend to five years or with fine which may extend to fifty lakh, rupees or with both., , MODE OF PAYMENT OF FEES, , MCA-21 system provides for the facility of payment of statutory fees through multiple modes i.e., (i), , Off-line payment through a challan generated by the system and payment of fees at the counter of the notified, bank branches through DDs/Cash;, , (iii), , Ministry has introduced ‘Pay Later’ facility through which user can upload the e-form/generate SRN for MCA21 services in one step and make the payment at a later point in time using the online payment mode (Credit, card or Internet banking). An e-Challan shall be generated by the system at the time of e-form upload/ SRN, generation. User shall be required to make the payment within the validity date as per the e-Challan., , (ii), , (iv), , On-line payments through Internet Banking, Credit Cards [Master Card/ VISA], Debit Card and NEFT., , User can make the payment through online payment mode i.e. Credit card or Internet banking through Pay, Later.
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Lesson 13 • An Introduction to MCA 21 and filing in XBRL, , 591, , LESSON ROUND-UP, •, , •, , •, •, •, •, , Filling and filing of forms is an important part of the secretarial function of a Company Secretary. Normally,, where company appoints a Company Secretary, he is designated as the officer responsible for compliance, under the Companies Act and other allied legislations. Therefore, for any lapse in complying with the, various provisions of the Companies Act or such other legislations, for the compliance of which the, Company Secretary has been made responsible, he becomes liable as “officer in default”., , Professionals are responsible for submitting/certifying documents (to be signed digitally by them) and, system would accept most of these documents online without approval by Registrar of Companies or, other officers of the Ministry. If a professional gives a false certificate or omits any material information, knowingly, he is liable to punishment under Section 447 and 448 of the Companies Act, 2013 besides, disciplinary action by the Institute which issued the Certificate of Practice., An existing company registered under Section 8 seeks to convert itself into a company of any other kind, shall make an application to the Regional Director for conversion of its status. Once the approval is given, by the Regional Director, the company shall cease to enjoy all the privileges/concessions obtained by it on, account of being a Section 8 company., , Whenever a company makes any allotment of shares or securities, it is required to file a return of allotment, in e Form PAS-3 to Registrar within thirty days of such allotment including the complete list of allotees to, whom the securities have been issued., , Any partnership firm, limited liability partnership, cooperative society, society or any other business, entity formed under any other law for the time being in force consisting of seven or more members, may, at any time register itself under Companies Act, 2013 as a Part I Company. For this purpose, e-Form URC1 shall be filed along with web-form Spice+., , A foreign company file the particulars of the principal place of business in e-Form FC-1 within 30 days, of establishment of place of business in India along with the required documents to RoC, Delhi. The, Registrar of the corresponding state shall have access to these documents filed with the RoC, Delhi., , GLOSSARY, E-Form, Incorporation, , Is a computer program of a paper form, The formation, , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation.), 1., , Discuss e-Governance and MCA-21., , 3., , What are the modes of payment under filing of forms under Companies Act, 2013?, , 2., 4., 5., , State the check points with reference to Form No. MGT-7., State the check points with reference to Form No. PAS-3., State the check points with reference to Form No. FC-4.
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Global Developments, , Lesson 14, Key Concepts One, Should Know, •, , Treasury Shares, , •, , Board, Effectiveness, , •, •, •, , Learning Objectives, , Regulatory Framework, , To understand:, , •, , U.K. Companies Act, 2006, , •, , Australian Corporations Act, , Value Creation, , Salient features of company law, emerged/ emerging in the following, countries:, , Asset Owners, , •, , Remuneration, Reporting, , •, , United Kingdom, , •, , Australia, , •, •, •, •, , The United States of America, Canada, , Hong Kong, Singapore, Finland, , •, •, •, •, •, •, •, , MBCA of US Corporations, The Canada Business, Corporations Act (CBCA), Hong Kong Companies, Ordinance, , Singapore Companies Act, UK Stewardship Code, , Sarbanes-Oxley Act of 2002, Finnish Corporate, Governance Code 2020, , Lesson Outline, •, , Distinguishing features of Company Law in various countries, , • LESSON ROUND-UP, • GLOSSARY, , • TEST YOURSELF, , • LIST OF FURTHER READINGS, • OTHER REFERENCES
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594, , , , Lesson 14 • EP-CL, , MODERNIZATION OF COMPANY LAW FOR GLOBAL COMPETITIVENESS, Most of the countries in the world today, including UK, Hong Kong, Singapore, Australia and Canada are at various, stages of the process of modernizing their company law. A fair, modern, efficient and effective framework of, company law is one of the most crucial prerequisite for the performance of any economy and the society. To achieve, competitiveness, it is essential, that, while the law must balance the interests of different stakeholders, for instance,, the shareholders, the Directors, the employees, the creditors (financial and operational) and the customers, it must, avoid giving too much importance to any single interest which may prove to be unwarranted in the circumstances,, and thus, prove to be counterproductive in the ultimate analysis., In the current national as well as international scenario of complex business operations, there is definitely a, need to simplify corporate laws so that they are amenable to clear interpretation and provide a framework that, would facilitate faster economic growth. It is also being recognised that the framework for regulation of corporate, entities has to be not only in tune with the emerging economic scenario, but it must also encourage good corporate, governance practices, and enable protection of the interests of investors and other stakeholders., , Growing emphasis on good Corporate Governance, the concept of Corporate Social Responsibility (CSR) and, good Corporate Citizenship is predominantly influencing company law reforms the world over. Modernization, of company law has in fact become a part of the drive to facilitate enterprise, enhance the attractiveness of the, country as a preferred destination for domestic as well as Foreign Direct Investment to do business, and foster, business competitiveness. The ultimate objective is to have a simple, consolidated and accessible company law., Simultaneously, the world over, Company Law reforms are focusing on aspects like ‘transparency’ through enhanced, disclosures and increased accountability on the part of corporates owners (Promoters), while at the same time, providing, a flexible regime for small and medium businesses. Additionally, the reforms aim at cutting back on overly regulatory, intervention, thus, providing companies operating flexibility to tune in conformity with changing environment., The litmus test lies in the harmonization of company law with that of global standards, the process which has been, started about a decade ago in most countries, so as to achieve global competitiveness., , DISTINGUISHING FEATURES OF COMPANY LAW IN VARIOUS COUNTRIES, , PARTICIPANTS OF COMPARATIVE MATRIX: UK, US, SINGAPORE, AUSTRALIA, SOUTH AFRICA AND INDIA, UK – The UK Corporate Governance Code 2018(hereinafter called UK Code), UK Stewardship Code, 2020, US – Sarbanes Oxley Act, 2002; New York Stock Exchange Corporate Governance Standards, Singapore – Code of Corporate Governance, 2018, Finland- Finnish Corporate Governance Code, 2020, Australia – Corporate Governance Principles and Recommendations – 4th Edition (Effective from January 01, 2020)1, South Africa – King IV Report (2016), , PRINCIPLES OF CORPORATE GOVERNANCE VIS-À-VIS MAJOR LEGAL SYSTEMS, , At a basic level, the Board of Director, Management and the Key Managerial personnel should have a sound general, understanding of the legal system and its approach in each the countries in which his or her company is operating., Therefore, before understanding the principles of Corporate Governance, one should know the approach and, theories followed in the particular country. This helps in effectively implementing the principles of Corporate, Governance in true letter and spirit., Some of the major systems include2:, , Common law (most English-based legal systems including UK, NZ, USA, Canada, India, Singapore, Malaysia and, most former British Empire nations) – a system originating in England with a combination of laws made by the, legislature and rules arising from cases decided by the courts., 1. https://www.herbertsmithfreehills.com/latest-thinking/4th-edition-asx-corporate-governance-principles-and-recommendations, 2. Corporate governance in overseas jurisdictions, Australian Institute of Company Directors.
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595, , Lesson 14 • Global Developments, , Civil law (most of continental Europe, much of Asia) – a system based on detailed written codes., , Shari’a law (most Islamic countries) – traditional shari’a law can range from providing the basis of all law in a, country (for example, Saudi Arabia) to providing a principled backdrop to a country’s laws (for example, Turkey)., , Communist – the communist or former communist legal system provides a background framework over which one, of the other systems may generally operate (for example, civil law in Vietnam or common law in Hong Kong). An, essential feature of most is state ownership of property, state owned enterprises, and strong discretionary powers, vested in central and regional government officials or committees, all of which can significantly affect the way, business is done., , Roman Dutch law – based on the ancient Roman law and still relevant in places such as South Africa and Indonesia., , United Kingdom (UK) : Legislative Backdrop, , The UK Companies Act, 2006 received Royal Assent on 8th November 2006. The Act has effectively replaced the, previous companies’ legislation with the exception of provisions relating to company investigations and community, interest companies., , Salient features of Company Law in United Kingdom (Companies Act, 2006), , Mode of forming incorporated company (Section 7), Any one or more persons associated for a lawful purpose, , Requirement of the act to the Registration are as, follows:, , requirement of the Act in respect of registration, form an, , •, , may, by subscribing their names to the memorandum of, , association (MOA) and otherwise complying with the, incorporated company, with or without limited liability. A, company may not be so formed for an unlawful purpose., , •, , Memorandum of Association, , •, , Registration Documents, , •, •, •, , Statement of proposed officers, Statement of initial significant control, Statement of compliance, , •, , Statement of Capital & Initial Shareholdings, Statement of guarantee, , Minimum Authorized capital (public companies) (Section 763), The amount of share capital with which the public company is proposed to be registered, must not be less than the, authorized minimum in relation to the nominal value of a public company’s allotted share capital is £50,000 or the, prescribed euro equivalent or such other sum as the Secretary of State may by order specify.
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596, , , , Minimum membership (for carrying on business), , Lesson 14 • EP-CL, , If a company, other than a private company limited by shares or by guarantee, carries on business without having at, least two members and does so for more than 6 months, a person who, for the whole or any part of the period that, it so carries on business after those 6 months (a) is a member of the company and (b) knows that it is carrying on, business with only one member, is liable (jointly and severally with the company) for the payment of the company’s, debts contracted during the period or, as the case may, that part of it. For the purpose of the said provision, references, to a member of a company do not include the company itself where it is such a member only by virtue of its holding, shares as treasury shares., Power of Directors to bind the company(Section 40), , In favour of a person dealing with a company in good faith, the power of the Board of Directors (BoD) to bind the, company, or authorize others to do so, shall be deemed to be free of any limitation under the company’s constitution., For this purpose, a person deals with a company if he is a party to any transaction or other act to which the company, is also a party; a person shall not be regarded as acting in bad faith by reason only of his knowing that an act is, beyond the powers of the Directors under the company’s constitution; and a person shall be presumed to have, acted in good faith unless contrary is proved., , The references above to limitations on the Directors’ powers under the company’s constitution include limitations, deriving from a resolution of the company passed in its General Meeting or a meeting of any class of shareholders,, or from any agreement between the members of the company or of any class of shareholders., Treasury Shares (Section 724), , Where qualifying shares are purchased by a company out of distributable profits, the company may:, (a), , (b), , hold shares (or any of them) or, , deal with any of them, at any time, in accordance with section 727 or 729 for disposal and cancellation of, treasury shares., , When shares are held under (a) above, then the name of the company must be entered in the register as the member, holding those shares. For the purpose of the Act, references to a company holding shares as treasury shares are, references to the company holding shares which: (a) were (or are treated as having been) purchased by it in, circumstances in which this section applies; and (b) have been held by the company continuously since they were, so purchased (or treated as purchase)., Directors (Section 154), , Every public company shall have at least two Directors and every private company is required to have at least one, Director., , Minimum age for appointment as Director (Section 157), A person may not be appointed as a Director of a company unless he has attained the age of 16 years., Appointment of Directors of public company to be voted on individually (Section 160), , A motion for the appointment of two or more persons as Directors of the company by a single resolution at a, General Meeting of a public company cannot be made. It can be done, if a resolution in this regard has first been, agreed to by the meeting without any vote being given against it.
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597, , Lesson 14 • Global Developments, , Validity of acts of Directors (Section 161), The acts of a person acting as a Director are valid even if it is afterwards discovered –, 1., , That there was a defect in his appointment:, (a), , that he was disqualified from holding office;, , (c), , that he was not entitled to vote on the matter in question., , (b), 2., , that he had ceased to hold office;, , This applies even if the resolution for this appointment is void under section 160., , Register of Directors (Section 162, 163, 164, 165), , Every company must keep a register of its Directors. The register must contain the following particulars of each, person who is a Director of the company:, •, , in the case of an individual–, , », », », », », », , name and any former name;, a service address;, , the country or state (or part of the United Kingdom) in which he is usually resident;, nationality;, , business occupation (if any);, date of birth., , •, , in the case of a body corporate, or a firm that is a legal person under the law by which it is governed– corporate, or firm name; and registered or principal office;, , •, , in any other case, particulars of –, , •, , in the case of a limited company that is a UK-registered company, the registered number;, », , the legal form of the company or firm and the law by which it is governed, and if applicable, the register, in which it is entered (including details of the state) and its registration number in that register., , The register must be kept available for inspection –, (a), , (b), , at the company’s registered office, or, at a place specified in regulations., , The company must give notice to the Registrar of the place at which the register is kept available for inspection, and, of any change in that place, unless it has at all times been kept at the company’s registered office., The register must be open to the inspection of any member of the company without charge, and of any other person, on payment of such fee as may be prescribed., Resolution to remove Director (Section 168), , A company may by ordinary resolution at a meeting remove a Director, before the expiration of his period of office, notwithstanding anything in, any agreement between it and him., , Special notice is required to remove, a director or to appoint somebody in, his place, , Special notice is required of a resolution to remove a Director or to appoint somebody instead of a Director so, removed at the meeting at which he is removed., A vacancy created by the removal of a Director under this section, if not filled at the meeting at which he is removed,, may be filled as a casual vacancy., , A person appointed director in place of a person removed under this section is treated, for the purpose of determining, the time at which he or any other director is to retire, as if he had become director on the day on which the person, in whose place he is appointed was last appointed a director.
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598, , , , This section is not to be taken—, (a), , (b), , Lesson 14 • EP-CL, , as depriving a person removed under it of compensation or damages payable to him in respect of the, termination of his appointment as director or of any appointment terminating with that as director, or, as derogating from any power to remove a director that may exist apart from this section., , Duty of Directors (Section 171), A Director of a company must–, (a), , (b), , act in accordance with the company’s constitution, and, , only exercise powers for the purposes for which they are conferred., , General Duties, •, , Duty to promote the success of the company. (Section172), , •, , Duty to exercise reasonable care, skill and diligence. (Section174), , •, •, •, •, •, •, , Duty to exercise independent judgment. (Section173), Duty to avoid conflicts of interest. (Section175), , Duty not to accept benefits from third parties. (Section176), , Duty to declare interest in proposed transaction or arrangement. (Section177), Duty to declare interest in existing transaction or arrangement. (Section 182), , A General notice in accordance with section 185 is a sufficient declaration of interest in relation to the matters, to which it relates., , Duty to prepare Directors’ remuneration report (Section 420 & 422), The Directors of a quoted company or of a traded company (as defined, by section 360C) that is not a quoted company, shall for each financial, Directors report must contain, year prepare a Directors’ remuneration report which shall contain, directors’ remuneration policy as, the information specified in the Schedule to Act and comply with any, its part, requirement of that Schedule as to how the information is to be set out, in the report. The Directors’ remuneration report shall be approved by the Board of Directors and signed on behalf, of the Board by a Director or the secretary of the company. Every copy of the said report which is laid before, the company in general meeting or which is otherwise circulated, published or issued, shall state the name of the, person who signed it on behalf of the Board. The copy of the Directors’ remuneration report which is delivered to, the registrar shall be signed on behalf of the Board by a Director or the Secretary of the company., Members’ approval of Directors’ remuneration report (Section 439), The company to which this section applies must, prior to the meeting, give to the members of the company notice, of the resolution to be moved at the meeting, as an ordinary resolution for approving the Directors’ remuneration, report for the financial year other than the part containing the directors’ remuneration policy (as to which see, section 439A)., , Notice shall be given to each such member in any manner permitted for the service on him of notice of the meeting., The business that may be dealt with at the meetings shall include the resolution. The existing Directors must ensure, that the resolution is put to vote at the meeting. No entitlement of a person to remuneration is made conditional on, the resolution being passed by reason only of the provision made. If the resolution is not put to vote at the meeting,, each existing Director is guilty of an offence and liable to a fine., Secretary (Section 270, 271, 273)
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Lesson 14 • Global Developments, , 599, , A Private Company is not required to have a Secretary. However, a public company must have a Secretary. It is the, duty of the Directors of a public company to take all reasonable steps to secure that the Secretary (or each Joint, Secretary) of the company –, (a), , (b), , is a person who appears to them to have the requisite knowledge and experience to discharge the functions, of Secretary of the company, and, has one or more of the following qualifications., , The qualifications are–, (a), , (b), , that he has held the office of Secretary of a public company for at least three of the five years immediately, preceding his appointment as Secretary;, that he is a member of any of the bodies specified as below–, a., , the Institute of Chartered Accountants in England and Wales;, , c., , the Association of Chartered Certified Accountants;, , b., d., e., f., (c), , (d), , g., , the Institute of Chartered Accountants of Scotland;, the Institute of Chartered Accountants in Ireland;, , the Institute of Chartered Secretaries and Administrators;, the Chartered Institute of Management Accountants;, , the Chartered Institute of Public Finance and Accountancy., , that he is a barrister, advocate or solicitor called or admitted in any part of the United Kingdom;, , that he is a person who, by virtue of his holding or having held any other position or his being a member, of any other body, appears to the Directors to be capable of discharging the functions of Secretary of the, company., , Duty to keep register of Secretaries (Section 275), (1) A company must keep a register of its Secretaries., (2), (3), (4), , The register must contain the required particulars of the person who is, or persons who are, the Secretary or, Joint Secretaries of the company., The register must be kept available for inspection–, (a), , (b), , at a place specified in regulations., , The company must give notice to the registrar–, (a), , (b), (5), , at the company’s registered office, or, , of the place at which the register is kept available for inspection, and, of any change in that place,, , unless it has at all times been kept at the company’s registered office., , The register must be open to the inspection–, (a), , (b), , of any member of the company without charge, and, , of any other person on payment of such fee as may be prescribed., , Duty to notify registrar of changes (Section 276), (1), , A company must, within the period of 14 days from–, (a), , (b), , a person becoming or ceasing to be its secretary or one of its Joint Secretaries, or, , the occurrence of any change in the particulars contained in its register of Secretaries,, , give notice to the registrar of the change and of the date on which it occurred.
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600, , (2), (3), (4), , Lesson 14 • EP-CL, , , , Notice of a person having become Secretary, or one of Joint Secretaries, of the company must be, accompanied by a statement by the company that the person has consented to act in the relevant capacity., , If default is made in complying with this section, an offence is committed by every officer of the company who is, in default., For this purpose a shadow Director is treated as an officer of the company., , A person guilty of an offence under this section is liable on summary conviction to a five not exceeding level 5, on the standard scale &, for continued contravention, a daily default five not exceeding one-tenth of level 5 on, the standard scale, one-tenth of the greater of £5,000 or level 4 on the standard scale., , Duty to keep accounting records (Section 386), (1), (2), , Every company must keep adequate accounting records., , Adequate accounting records means records that are sufficient–, (a), , to show and explain the company’s transactions,, , (c), , to enable the Directors to ensure that any accounts required to be prepared comply with the, requirements of this Act ., , (b), , (3), , (4), , to disclose with reasonable accuracy, at any time, the financial position of the company at that time,, and, , Accounting records must, in particular, contain–, (a), , (b), , entries from day to day of all sums of money received and expended by the company and the matters, in respect of which the receipt and expenditure takes place, and, a record of the assets and liabilities of the company., , If the company’s business involves dealing in goods, the accounting records must contain–, (a), , statements of stock held by the company at the end of each financial year of the company,, , (c), , except in the case of goods sold by way of ordinary retail trade, statements of all goods sold and, purchased, showing the goods and the buyers and sellers in sufficient detail to enable all these to be, identified., , (b), , all statements of stock takings from which any statement of stock as is mentioned in paragraph (a) has, been or is to be prepared, and, , Where and for how long records to be kept (Section 388), (1) A company’s accounting records–, (a), , (2), (3), , (b), , must be kept at its registered office or such other place as the Directors think fit, and, must at all times be open to inspection by the company’s officers., , If accounting records are kept at a place outside the United Kingdom, accounts and returns with respect to, the business dealt with in the accounting records so kept must be sent to, and kept at, a place in the United, Kingdom, and must at all times be open to such inspection., The accounts and returns to be sent to the United Kingdom must be such as to–, (a), , (b), , disclose with reasonable accuracy the financial position of the business in question at intervals of not, more than six months, and, , enable the Directors to ensure that the accounts required to be prepared under this Part comply with, the requirements of this Act .
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601, , Lesson 14 • Global Developments, , (4), , Accounting records that a company is required by section 386 to keep must be preserved by it–, (a), , (b), , in the case of a private company, for three years from the date on which they are made;, in the case of a public company, for six years from the date on which they are made., Type of the company, Private Company, Public Company, , A company’s financial year (Section 390), , Period of preservation of accounting, records, 3 years, 6 years, , A company’s financial year is determined as follows. Its first financial year–, (a), , (b), , begins with the first day of its first accounting reference period, and, , ends with the last day of that period or such other date, not more than seven days before or after the end of, that period, as the Directors may determine., , Subsequent financial years–, (a), , (b), , begin with the day immediately following the end of the company’s previous financial year, and, , end with the last day of its next accounting reference period or such other date, not more than seven days, before or after the end of that period, as the Directors may determine., , In relation to an undertaking that is not a company, references in this Act to its financial year are to any period in, respect of which a profit and loss account of the undertaking is required to be made up (by its constitution or by the, law under which it is established), whether that period is a year or not., The Directors of a parent company must secure that, except where in their opinion there are good reasons against, it, the financial year of each of its subsidiary undertakings coincides with the company’s own financial year., Accounts to give true and fair view (Section 393), , The Directors of a company must not approve accounts for the purposes of this Chapter unless they are satisfied, that they give a true and fair view of the assets, liabilities, financial position and profit or loss–, (a), , (b), , in the case of the company’s individual accounts, of the company;, , in the case of the company’s group accounts, of the undertakings included in the consolidation as a whole, so, far as concerns members of the company., , The auditor of a company in carrying out his functions under this Act in relation to the company’s annual accounts, must have regard to the Directors’ duty under sub-section (1)., , The following provisions apply to the directors of a company which qualifies as a micro-entity in relation to a, financial year (see sections 384A and 384B) in their consideration of whether the Companies Act individual, accounts of the company for that year give a true and fair view as required by subsection (1)(a)—, (a), , (b), (c), , where the accounts comprise only micro-entity minimum accounting items, the directors must disregard any, provision of an accounting standard which would require the accounts to contain information additional to, those items,, in relation to a micro-entity minimum accounting item contained in the accounts, the directors must disregard, any provision of an accounting standard which would require the accounts to contain further information in, relation to that item, and, , where the accounts contain an item of information additional to the micro-entity minimum accounting items,, the directors must have regard to any provision of an accounting standard which relates to that item.
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602, , , , Duty to prepare individual accounts (Section 394), , Lesson 14 • EP-CL, , The Directors of every company must prepare accounts for the company for each of its financial years (unless the, company is exempt from the requirement under section 394A). Those accounts are referred to as the company’s, “individual accounts”., Approval and signing of accounts (Section 414), (1), , A company’s annual accounts must be approved by the Board of Directors and signed on behalf of the board, by a Director of the company., , (3), , If the accounts are prepared in accordance with the small companies regime, the balance sheet must contain,, in a prominent position above the signature—, , (2), , The signature must be on the company’s balance sheet., (a), , (b), , in the case of individual accounts prepared in accordance with the micro-entity provisions, a statement, to that effect, or, in the case of accounts not prepared as mentioned in paragraph (a), a statement to the effect that the, accounts have been prepared in accordance with the provisions applicable to companies subject to the, small companies regime., , ‘’Every copy of the balance sheet which is laid before the company in general meeting or which otherwise circulated,, published or issued, shall state the name of the person who signed the balance sheet on behalf of the Board. The, copy of the company’s balance sheet which is delivered to the Registrar shall be signed on behalf of the Board by a, Director of the company., If annual accounts are approved that do not comply with the requirements of this Act, every Director of the company, who–, (a), , (b), , knew that they did not comply, or was reckless as to whether they complied, and, , failed to take reasonable steps to secure compliance with those requirements or, as the case may be, to prevent, the accounts from being approved, commits an offence., , A person guilty of an offence under this section is liable–, (a), , (b), , on conviction on indictment, to a fine;, , on summary conviction, to a fine not exceeding the statutory maximum., , Approval and signing of Directors’ report (Section 419), (1), , The Directors’ report must be approved by the board of Directors and signed on behalf of the board by a, Director or the secretary of the company., , (3), , If a Directors’ report is approved that does not comply with the requirements of this Act, every Director of the, company who–, , (2), , If in preparing the report, advantage is taken of the small companies exemption, it must contain a statement, to that effect in a prominent position above the signature., (a), , (b), , knew that it did not comply, or was reckless as to whether it complied, and, , failed to take reasonable steps to secure compliance with those requirements or, as the case may be, to, prevent the report from being approved, commits an offence., , A person guilty of an offence under this section is liable–, (a), , (b), , on conviction on indictment, to a fine;, , on summary conviction, to a fine not exceeding the statutory maximum.
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Lesson 14 • Global Developments, , 603, , Duty to file accounts and reports with the Registrar (Section 441), The Directors of a company must deliver to the Registrar for each financial year the accounts and reports required by–, •, , section 444 (filing obligations of companies subject to small companies regime),, , •, , section 445 (filing obligations of medium-sized companies),, , •, •, •, , section 444A (filing obligations of companies entitled to small companies exemption in relation to directors’, report), section 446 (filing obligations of unquoted companies),or, section 447 (filing obligations of quoted companies)., , This is subject to section 448 (unlimited companies exempt from filing obligations) and section 448A (dormant, subsidiaries exempt from filing obligations)., Period allowed for laying and delivering accounts and reports (Section 442), , This section specifies the period allowed for Directors of a company to comply with their obligation under Section, 441 to deliver accounts and reports for a financial year to the Registrar. This is referred to in the Companies Acts as, the “period for filing” those accounts and reports., , The period allowed for laying and delivering accounts and reports is for a private company, 9 months after the end, of the relevant accounting reference period, and for a public company, 6 months after the end of that period. If the, relevant accounting reference period is the company’s first and is a period of more than 12 months, the period, allowed is (a) 9 months or 6 months, as the case may be, from the first anniversary of the incorporation of the, company, or (b) 3 months after the end of the accounting reference period, whichever last expires., The ‘relevant accounting reference period’ means the accounting reference period by reference to which the, financial year for the accounts in question was determined., Requirement for audited accounts (Section 475), , A company’s annual accounts for a financial year must be audited in accordance with this Part (Part 16) unless the, company–, (a), , (b), , is exempt from audit under section 477 (small companies), section 479A (subsidiary companies), or section, 480 (dormant companies);or, is exempt from the requirements of this Part under section 482 (non profit-making companies subject to, public sector audit)., , A company is not entitled to any such exemption unless its balance sheet contains a statement by the Directors to, that effect., , A company is not entitled to exemption under any of the provisions mentioned in sub-section (1)(a) unless its, balance sheet contains a statement by the Directors to the effect that–, (a), , (b), , the members have not required the company to obtain an audit of its accounts for the year in question in, accordance with section 476,and, , the Directors acknowledge their responsibilities for complying with the requirements of this Act with, respect to accounting records and the preparation of accounts., , The statement required by sub-section (2) or (3) must appear on the balance sheet above the signature required, by section 414., Right of members to require audit (Section 476), , The members of accompany that would otherwise be entitled to exemption from audit under any of the provisions, mentioned in section 475(1)(a) may by notice under this section require it to obtain an audit of its accounts for a, financial year.
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604, , , , The notice must be given by–, •, •, , Lesson 14 • EP-CL, , Members representing not less in total than10% in nominal value of the company’s issued share capital, or, any class of it, or, if the company does not have a share capital, not less than 10% in number of the members of the company., , The notice may not be given before the financial year to which it relates and must be given not later than one month, before the end of that year., Duties of auditor (Section 498), (1), , A company’s auditor, in preparing his report, must carry out such investigations as will enable him to form an, opinion as to–, (a), , whether adequate accounting records have been kept by the company and returns adequate for their, audit have been received from branches not visited by him, and, , (c), , in the case of a quoted company or unquoted traded company, whether the auditable part of the, company’s Directors’ remuneration report is in agreement with the accounting records and returns., , (b), (2), , If the auditor is of the opinion–, (a), , That adequate accounting records have not been kept, or that returns adequate for their audit have, not been received from branches not visited by him, or, , (c), , In the case of a quoted company or unquoted traded company, that the auditable part of its Directors’, remuneration report is not in agreement with the accounting records and returns, the auditor shall, state that fact in his report., , (b), , (3), (4), , (6), (7), , That the company’s individual accounts are not in agreement with the accounting records and returns,, or, , If the auditor fails to obtain all the information and explanations which, to the best of his knowledge and, belief, are necessary for the purposes of his audit, he shall state that fact in his report., If–, , (a), , (b), , (5), , whether the company’s individual accounts are in agreement with the accounting records and returns, and, , the requirements of regulations under section 412 (disclosure of Directors’ benefits: remuneration,, pensions and compensation for loss of office) are not complied with in the annual accounts, or, , in the case of a quoted company, the requirements of regulations under section 421 as to information, forming the auditable part of the Directors’ remuneration report are not complied within that report,, , the auditor must include in his report, so far as he is reasonably able to do so, a statement giving the, required particulars., , If the Directors of the company (a) have prepared accounts and reports in accordance with the small, companies regime or (b) have taken advantage of small companies exemption from the requirement to, prepare a strategic report or in preparing the Director’s report, and in the auditor’s opinion they were not, entitled so to do, the auditor shall state that fact in his report., , Where more than one person is appointed as auditor, the report must include a statement as to whether all the, persons appointed agree on the statements given under subsections (2) to (5) and, if they cannot agree on those, statements, the report must include the opinions of each person appointed and give reasons for the disagreement., In this section “unquoted traded company” means a traded company (as defined by section 360C) that is not, a quoted company., , Resolution removing auditor from office (Section 510), (1), , The members of a company may remove an auditor from office at anytime.
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Lesson 14 • Global Developments, , (2), (3), , (4), , 605, , This power is exercisable only–, (a), (a), , by ordinary resolution at a meeting, and, , in accordance with section 511 (special notice of resolution to remove auditor)., , Nothing in this section is to be taken as depriving the person removed of compensation or damages payable, to him in respect of the termination–, (a), , (b), , of his appointment as auditor, or, , of any appointment terminating with that as auditor., , An auditor may not be removed from office before the expiration of his term of office except by resolution under, this section or in accordance with section 511A., , Annual Return, , Part 24 of the Companies Act 2006 of UK relates to a Company’s Annual Return., The UK Corporate Governance Code, , The first version of the UK Corporate Governance Code (the Code) was published in 1992 by the Cadbury Committee., It defined corporate governance as ‘the system by which companies are directed and controlled. Boards of Directors, are responsible for the governance of their companies. The shareholders’ role in governance is to appoint the, directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.’ This, remains true today, but the environment in which companies, their shareholders and wider stakeholders operate, continues to develop rapidly., , Companies do not exist in isolation. Successful and sustainable businesses underpin our economy and society by, providing employment and creating prosperity. To succeed in the long-term, Directors and the companies they lead, need to build and maintain successful relationships with a wide range of stakeholders. These relationships will be, successful and enduring if they are based on respect, trust and mutual benefit. Accordingly, a company’s culture, should promote integrity and openness, value diversity and be responsive to the views of shareholders and wider, stakeholders., Over the years the Code has been revised and expanded to take account of the increasing demands on the UK’s, corporate governance framework. The principle of collective responsibility within a unitary board has been a, success and – alongside the stewardship activities of investors – played a vital role in delivering high standards of, governance and encouraging long-term investment. Nevertheless, the debate about the nature and extent of the, framework has intensified as a result of financial crises and high-profile examples of inadequate governance and, misconduct, which have led to poor outcomes for a wide range of stakeholders., At the heart of this Code is an updated set of Principles that emphasise the value of good corporate governance to, long-term sustainable success. By applying the Principles, following the more detailed Provisions and using the, associated guidance, companies can demonstrate throughout their reporting how the governance of the company, contributes to its long term sustainable success and achieves wider objectives., Achieving this depends crucially on the way boards and companies apply the spirit of the Principles. The Code does, not set out a rigid set of rules; instead it offers flexibility through the application of Principles and through ‘comply, or explain’ Provisions and supporting guidance. It is the responsibility of boards to use this flexibility wisely and of, investors and their advisors to assess differing company approaches thoughtfully., The 2018 Code focuses on the application of the Principles. The Listing Rules require companies to make a statement, of how they have applied the Principles, in a manner that would enable shareholders to evaluate how the Principles, have been applied. The ability of investors to evaluate the approach to governance is important. Reporting should, cover the application of the Principles in the context of the particular circumstances of the company and how the, board has set the company’s purpose and strategy, met objectives and achieved outcomes through the decisions it, has taken.
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606, , , , Lesson 14 • EP-CL, , It is important to report meaningfully when discussing the application of the Principles and to avoid boilerplate, reporting. The focus should be on how these have been applied, articulating what action has been taken and the, resulting outcomes. High-quality reporting will include signposting and cross-referencing to those parts of the, annual report that describe how the Principles have been applied. This will help investors with their evaluation of, company practices., , The effective application of the Principles should be supported by high-quality reporting on the Provisions., These operate on a ‘comply or explain’ basis and companies should avoid a ‘tick-box approach’. An alternative to, complying with a Provision may be justified in particular circumstances based on a range of factors, including, the size, complexity, history and ownership structure of a company. Explanations should set out the background,, provide a clear rationale for the action the company is taking, and explain the impact that the action has had., Where a departure from a Provision is intended to be limited in time, the explanation should indicate when the, company expects to conform to the Provision. Explanations are a positive opportunity to communicate, not an, onerous obligation., In line with their responsibilities under the UK Stewardship Code, investors should engage constructively and, discuss with the company any departures from recommended practice. In their consideration of explanations,, investors and their advisors should pay due regard to a company’s individual circumstances. While they have every, right to challenge explanations if they are unconvincing, these must not be evaluated in a mechanistic way. Investors, and their advisors should also give companies sufficient time to respond to enquiries about corporate governance., Application, , The Code is applicable to all companies with a premium listing, whether incorporated in the UK or elsewhere. The, new Code applies to accounting periods beginning on or after 1st January 2019., For parent companies with a premium listing, the board should ensure that there is adequate co-operation within, the group to enable it to discharge its governance responsibilities under the Code effectively. This includes the, communication of the parent company’s purpose, values and strategy., Externally managed investment companies (which typically have a different board and company structure that may, affect the relevance of particular Principles) may wish to use the Association of Investment Companies’ Corporate, Governance Code to meet their obligations under the Code. In addition, the Association of Financial Mutuals, produces an annotated version of the Code for mutual insurers to use., Aim and Objectives of the Code, , The 2018 Code has been designed to set higher standards of corporate governance in the UK so as to promote, transparency and integrity in business and, at the same time, attract investment in the UK in the long-term,, benefitting the economy and wider society. As a result, the definition of governance has been broadened in the 2018, Code. It emphasizes the importance of positive relationships between companies, shareholders and stakeholders,, a clear purpose and strategy aligned with healthy corporate culture, high quality board composition and a focus on, diversity, and remuneration which is proportionate and supports long-term success., The new Code has five sections:, (1), , Board leadership and company purpose, , (3), , Composition, succession and evaluation, , (2), (4), (5), , Division of responsibilities, , Audit, risk and internal control, Remuneration
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Lesson 14 • Global Developments, , 607, , Board Leadership Principles:, and Company, A., A successful company is led by an effective and entrepreneurial board, whose role is, Purpose, to promote the long-term sustainable success of the company, generating value for, shareholders and contributing to wider society., B., C., D., E., Division of, Responsibilities, , A., , B., , C., D., Composition,, Succession and, Evaluation, , A., , B., C., , The board should establish the company’s purpose, values and strategy, and satisfy, itself that these and its culture are aligned. All directors must act with integrity, lead, by example and promote the desired culture., The board should ensure that the necessary resources are in place for the company, to meet its objectives and measure performance against them. The board should, also establish a framework of prudent and effective controls, which enable risk to be, assessed and managed., , In order for the company to meet its responsibilities to shareholders and stakeholders,, the board should ensure effective engagement with, and encourage participation, from, these parties., The board should ensure that workforce policies and practices are consistent with, the company’s values and support its long-term sustainable success. The workforce, should be able to raise any matter., , The chair leads the board and is responsible for its overall effectiveness in directing, the company. They should demonstrate objective judgment throughout their, tenure and promote a culture of openness and debate. In addition, the chair, facilitates constructive board relations and the effective contribution of all nonexecutive directors, and ensures that directors receive accurate, timely and clear, information., The board should include an appropriate combination of executive and non-executive, (and, in particular, independent non-executive) directors, such that no one individual, or small group of individuals dominates the board’s decision-making. There should, be a clear division of responsibilities between the leadership of the board and the, executive leadership of the company’s business., , Non-executive directors should have sufficient time to meet their board, responsibilities. They should provide constructive challenge, strategic guidance,, offer specialist advice and hold management to account., , The board, supported by the company secretary, should ensure that it has the, policies, processes, information, time and resources it needs in order to function, effectively and efficiently., , Appointments to the board should be subject to a formal, rigorous and transparent, procedure, and an effective succession plan should be maintained for board and, senior management. Both appointments and succession plans should be based on, merit and objective criteria and, within this context, should promote diversity of, gender, social and ethnic backgrounds, cognitive and personal strengths., , The board and its committees should have a combination of skills, experience and, knowledge. Consideration should be given to the length of service of the board as a, whole and membership regularly refreshed., Annual evaluation of the board should consider its composition, diversity and how, effectively members work together to achieve objectives. Individual evaluation, should demonstrate whether each director continues to contribute effectively.
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608, , Lesson 14 • EP-CL, , , , Audit, Risk and, Internal Control, , Principles:, A. The board should establish formal and transparent policies and procedures to ensure, the independence and effectiveness of internal and external audit functions and satisfy, itself on the integrity of financial and narrative statements., B. The board should present a fair, balanced and understandable assessment of the, company’s position and prospects., , Remuneration, , C. The board should establish procedures to manage risk, oversee the internal control, framework, and determine the nature and extent of the principal risks the company is, willing to take in order to achieve its long-term strategic objectives., Principles:, A., Remuneration policies and practices should be designed to support strategy and, promote long-term sustainable success. Executive remuneration should be aligned, to company purpose and values, and be clearly linked to the successful delivery of, the company’s long-term strategy., B., C., , A formal and transparent procedure for developing policy on executive remuneration, and determining director and senior management remuneration should be, established. No director should be involved in deciding their own remuneration, outcome., , Directors should exercise independent judgement and discretion when authorising, remuneration outcomes, taking account of company and individual performance,, and wider circumstances., , UK Stewardship Code 2020, , Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients, and beneficiaries leading to sustainable benefits for the economy, the environment and society., , The UK Stewardship Code 2020 is a substantial and ambitious revision to the 2012 edition of the Code which takes, , effect from 1st January 2020. It sets high stewardship standards for asset owners and asset managers, and for service, providers that support them. The Code comprises a set of ‘apply and explain’ Principles for asset managers and, , asset owners, and a separate set of Principles for service providers. The Code does not prescribe a single approach, to effective stewardship. Instead, it allows organisations to meet the expectations in a manner that is aligned with, their own business model and strategy., , The new Code sets high expectations of those investing money on behalf of UK savers and pensioners. In particular,, the new Code establishes a clear benchmark for stewardship as the responsible allocation, management and, oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the, economy, the environment and society., , There is a strong focus on the activities and outcomes of stewardship, not just policy statements. There are new, expectations about how investment and stewardship is integrated, including environmental, social and governance, (ESG) issues. The Code asks investors to explain how they have exercised stewardship across asset classes. For, example, for listed equity, fixed income, private equity, infrastructure investments, and in investments outside the, UK., , The Code consists of 12 Principles for asset managers and asset owners, and six Principles for service providers., These are supported by reporting expectations which indicate the information that should be publicly reported in, order to become a signatory., Organisations wanting to become signatories to the Code will be required to produce an annual Stewardship Report, explaining how they have applied the Code in the previous 12 months. The FRC will evaluate Reports against our
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609, , Lesson 14 • Global Developments, , assessment framework, and those that meet the reporting expectations will be listed as signatories to the Code. To, be included in the first list of signatories, organisations must submit a final report to the FRC by 31st March 2021., The Stewardship Code was revised following a consultation which closed on 29th March 2019., Revised Guidance on Board Effectiveness, , The revised Guidance on Board Effectiveness is considerably longer and includes new commentary on areas such as, culture, relations with the workforce and wider shareholders and diversity. It also incorporates new sections on the, workings of board committees, notably the remuneration committee. Helpfully, the Guidance includes questions for, boards to ask themselves or, in some cases, to ask management, about effectiveness in key areas., Overview of new requirements: 12 principles/reporting requirements for asset owners, Principle1 - Signatories' purpose, investment, beliefs, strategy, and culture enable stewardship, that creates longterm value for clients and, beneficiaries leading to sustainable benefits for, the economy, the environment and society:, , Signatories are required to explain both the purpose, of the organisation and to give an outline of its culture,, values, business model and strategy as well as their, investment beliefs, i.e. what factors they consider, important for desired investment outcomes and why., In addition, the Code requires signatories to explain, the actions they have taken to ensure their investment, beliefs, strategy and culture enable effective stewardship., , Ultimately, signatories' disclosure should make clear, how their purpose and investment beliefs have guided, their stewardship, investment strategy and decisionmaking and include an assessment of how effective they, have been in serving the best interests of clients and, beneficiaries., , Principle 2- Signatories' governance, resources Signatories should explain how:, and incentives support stewardship:, 1), their governance structures and processes have, enabled oversight and accountability for effective, stewardship within their organisation and the, rationale for their chosen approach; and, 2), , they have appropriately resourced stewardship, activities including:, , a), , their chosen organisational and workforce, structures;, , c), , their investment in systems, processes,, research and analysis;, , b), , 3), , d), , their seniority, experience, qualifications,, training and diversity;, , the extent to which service providers were, used and the services they provided; and, , performance management or reward programs, have incentivised the workforce to integrate, stewardship and investment decision making., , Signatories should disclose both how effective, their chosen governance structures and processes, have been in supporting stewardship and how, they may be improved.
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610, , Lesson 14 • EP-CL, , , , Principle 3- Signatories manage conflicts of interest Signatories should both:, to put the best interests of clients and beneficiaries, a), disclose their conflicts policy and how this has, first:, been applied to stewardship; and, b), , explain how they have identified and managed, any instances of actual or potential conflicts, related to stewardship., , Disclosure should include examples of how they have, addressed actual or potential conflicts., , Principle 4- Signatories identify and respond to Signatories should explain:, market-wide and systemic risks to promote a wella), how they have identified and responded to, functioning financial system:, market-wide and systemic risk(s), as appropriate;, b), , c), d), , how they have worked with other stakeholders, to promote continued improvement of the, functioning of financial markets;, the role they played in any relevant industry, initiatives in which they have participated, the, extent of their contribution and an assessment of, their effectiveness, with examples; and, how they have aligned their investments, accordingly., , Disclosure should include an assessment of their, effectiveness in identifying and responding to marketwide and systemic risks and promoting well-functioning, financial markets., , Principle 5- Signatories review their policies, Signatories should explain:, assure their processes and assess the effectiveness, a), how they have reviewed their policies to ensure, of their activities:, they enable effective stewardship;, b), , c), , what internal or external assurance they have, received in relation to stewardship (undertaken, directly or on their behalf) and the rationale for, their chosen approach; and, , how they have ensured their stewardship, reporting is fair, balanced and understandable., , In addition, the Code requires signatories to explain how, their review and assurance has led to the continuous, improvement of stewardship policies and processes., , The Code says that internal assurance may be by given, by senior staff, a designated body, board, committee, or, internal audit and external assurance by an independent, third party.
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611, , Lesson 14 • Global Developments, , Principle 6- Signatories take account of client and Signatories should explain either:, beneficiary needs and communicate the activities, a), how they have evaluated the effectiveness of, and outcomes of their stewardship and investment, their chosen methods to understand the needs of, to them:, clients and/or beneficiaries; and how they have, taken account of the views of beneficiaries where, sought, and what actions they have taken as a, result; OR, b), , c), Principle 7- Signatories systematically integrate, stewardship and investment, including material, environmental, social and governance issues, and, climate change, to fulfil their responsibilities:, , how they have taken account of the views of clients, and what actions they have taken as a result; and, where their managers have not followed their, stewardship and investment policies, and the, reason for this; OR, where they have not managed assets in alignment, with their clients' stewardship and investment, policies, and the reason for this., , The revised Code requires that signatories explain, how information gathered through stewardship has, informed acquisition, monitoring and exit decisions,, either directly or on their behalf, and with reference to, how they have best served clients and/or beneficiaries., , Principle 8 - Signatories monitor and hold to Signatories should explain:, account managers and/or service providers:, a), how the services have been delivered to meet, their needs; OR, b), , the action they have taken where signatories', expectations of their managers and/or service, providers have not been met., , The revised Code gives as an example (among others), that asset managers monitoring data and research, providers should ensure the quality and accuracy of, their products and services., , Principle 9 - Signatories engage with issuers to Signatories should describe the outcomes of engagement, maintain or enhance the value of assets:, that is ongoing or has concluded in the preceding 12, months, undertaken directly or by others on their behalf., , The Code includes a number of examples including, (among others): how outcomes of engagement have, informed investment decisions (buy, sell, hold); and, how outcomes of engagement have informed escalation., , Principle 10 - Signatories, where necessary, Signatories should describe the outcomes of collaborative, participate in collaborative engagement to influence engagement. For example: a) any action or change(s), issuers directly or by others on their behalf:, made by the issuer(s); b) how outcomes of engagement, have informed investment decisions (buy, sell, hold); and, c) whether their stated objectives have been met., Principle 11-Signatories, where necessary, escalate Signatories should describe the outcomes of escalation, either undertaken directly or by others on their behalf., stewardship activities to influence issuers:, Including (for example): any action or change(s) made, by the issuer(s); any action or change(s) made by the, issuer(s); any action or change(s) made by the issuer(s);, and any changes in engagement approach.
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612, , Lesson 14 • EP-CL, , , , Principle 12 - Signatories actively exercise their For listed equity assets, signatories should provide, rights and responsibilities:, examples of the outcomes of resolutions they have voted, on over the past 12 months., , Overview: Six principles/reporting requirements for service providers, , The six principles (and accompanying reporting requirements) for service providers are as follows:, Principle 1- Signatories' purpose, strategy and, culture enable them to promote effective stewardship:, Principle 2-Signatories' governance, workforce,, resources and incentives enable them to promote, effective stewardship:, , The Code requires signatories to disclose an assessment, of how effective they have been in serving the best, interests of clients., Signatories should disclose both:, a), , b), , how effective their chosen governance structures, and processes have been in supporting their, clients stewardship; and, how they may be improved., , Principle 3-Signatories identify and manage The Code requires that signatories disclose examples of, conflicts of interest and put the best interests of how they have addressed actual or potential conflicts., clients first:, The Code states that conflicts may arise from (but, are not limited to): ownership structure, business, relationships, cross directorships and client interests, diverging from each other., Principle 4-Signatories identify and respond to The Code requires signatories to disclose the extent, market-wide and systemic risks to promote a well- of their contribution and an assessment of their, functioning financial system:, effectiveness in identifying and responding to systemic, risks and promoting well-functioning financial markets., , Principle 5-Signatories support clients' integration The Code requires signatories to explain:, of stewardship and investment, taking into account,, a), how they have taken account of clients', material environmental, social and governance, views and feedback in the provision of their, issues, and communicating what activities they, services; and, have undertaken:, b), the effectiveness of their chosen methods, for communicating with clients and, understanding their needs, and how they, evaluated their effectiveness., Principle 6 -Signatories review their policies and The Code requires that signatories explain how the, assure their processes:, feedback from their review and assurance has led to, continuous improvement of stewardship practices., , THE UNITED STATES OF AMERICA (USA), The United States is undoubtedly one of the richest sources of legislation, case laws and debates on the subject of, Corporations. The United States is a federation of States with one Federal and other States Constitutions. Company, law is essentially a state subject and Securities Law is a Federal Subject., , There is no federal corporations’ statute as such. Each state has its own corporate law regime which resulted in, competition among states to attract incorporations. State incorporation has produced a wide diversity of legislation, and experimentation in the corporate form. The situation is, however not as chaotic as might be implied by the, existence of nearly fifty different corporate laws operating in the same country. There are several mitigating factors, promoting harmonization, cooperation and, in some cases, uniformity across the United States.
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Lesson 14 • Global Developments, , 613, , The first is the federal Constitution. Although there is no express federal jurisdiction to govern incorporations, the, various clauses of interstate commerce provides a myriad of federal legislative provisions which apply to state in, corporate entities. In this way, uniformity of standards and treatment in certain cases are as is assured i.e., antitrust, bankruptcy, securities, among others. In addition, the court structure is such that the so-called “diversity, jurisdiction” of the federal court system may catch commercial litigation, thus developing a body of federal case law, applicable to corporations., , The most significant of these federal laws applicable to corporations is the federal securities regime. The United, States has a long tradition of individual ownership of securities. The predominance of individual ownership is, reflected in the federal securities laws adopted in 1933 and 1934 (in reaction to the stock market crash of 1929), in the interests of public investor protection. The agency created to administer this legislation, the Securities and, Exchange Commission (SEC), has grown to be one of the most powerful administrative agencies in the world., Although there have been jurisdictional battles between the SEC and state legislatures over where the lines are, drawn between corporate law matters and securities law matters (in the realm of takeovers, for example, during, the 1980s), it remains the case that many areas of overlap respecting shareholders have been pre-empted by SEC, action. Thus many matters characterized as “company law” elsewhere have been characterized in the United States, as securities law and taken out of the orbit of the state legislatures., , A second harmonizing factor has been the existence of model statutes. These serve variously as uniform acts or, as drafting guides which may be customized by each individual state. A Uniform Business Corporation Act was, sponsored in 1928 and adopted by a few states. It was renamed the Model Business Corporation Act in 1943 and then, withdrawn in 1958. It was supplanted in 1946 by the American Bar Association Model Business Corporations Act, (MBCA) which was revised almost annually after that. During the 1960s, the “march of American state corporation, law became a march toward uniformity”. By 1977, 34 of the 50 states had adopted MBCA statutes. In 1984, the, Model Business Corporation Act was itself supplanted by the Revised Model Business Corporation Act (RMBCA), (the “revised” was recently dropped but is retained here to distinguish it from its predecessor).A large number of, states adhere to one or the other Model Acts, with the RMBCA gaining adherents., , Salient features of MBCA of US Corporations, , A Business Corporation Act is the collection of laws in each state that governs corporations., A model corporation statute compiled by the American Bar Association has been adopted in whole or in part by,, or has influenced the statutes of many states., Secretary (1.40), , “Secretary” means the corporate officer to whom the board of Directors has delegated responsibility under section, 8.40(c) to maintain of the minutes of the meetings of the board of Directors and of the share holders and for, authenticating records of the corporation., Required Officers (Section 8.40), (a), , A corporation has the officers described in its by laws or appointed by the board of Directors in accordance, with the by laws., , (c), , The by-laws or the board of directors shall assign to an officer responsibility for maintaining and authenticating, the records of the corporation required to be kept under section 16.01(a)., , (b), (d), , The board of Directors may elect individuals to fill one or more offices of the corporation. An officer may, appoint one or more officers or assistant officers if authorized by the by-laws or the board of Directors., , Unless the by-laws provided otherwise, the same individual may simultaneously hold more than one office in, a corporation., , Duties of Officers (Section 8.41), , Each officer has the authority and shall perform the duties set forth in the by laws or, to the extent consistent with, the by-laws, the duties prescribed by the board of Directors or by direction of an officer authorized by the board of, Directors to prescribe the functions of other officers.
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614, , , , Standards of Conduct for Officers (Section 8.42), (a), , An officer, when performing in such capacity, shall act:, (1), , in good faith;, , (3), , in a manner the officer reasonably believes to be in the best interests of the corporation., , (2), (b), , (1), , to inform the superior officer to whom, or the board of Directors or the committee thereof to which,, the officer reports of information about the affairs of the corporation known to the officer, within the, scope of the officer’s functions, and known to the officer to be material to such superior officer, board, or committee; and, to inform his or her superior officer, or another appropriate person within the corporation, or the, board of Directors, or a committee thereof, of any actual or probable material violation of law involving, the corporation or material breach of duty to the corporation by an officer, employee, or agent of the, corporation, that the officer believes has occurred or is about to occur., , In discharging those duties an officer, who does not have knowledge that makes reliance unwarranted, is, entitled to rely on:, (1), (2), , (d), , with the care that a person in a like position would reasonably exercise under similar circumstances;, and, , The duty of an officer includes the obligation:, , (2), (c), , Lesson 14 • EP-CL, , The performance of properly delegated responsibilities by one or more employees of the corporation, whom the officer reasonably believes to be reliable and competent in performing the responsibilities, delegated; or, information, opinions, reports or statements, including financial statements and other financial data,, prepared or presented by one or more employees of the corporation whom the officer reasonably, believes to be reliable and competent in the matters presented or by legal counsel, public accountants,, certified public accountants or other persons retained by the corporation as to matters involving skills, or expertise the officer reasonably believes are matters (i) within the particular person’s professional, or expert competence or (ii) as to which the particular person merits confidence., , An officer shall not be liable to the corporation or its shareholders for any decision to take or not to take, action, or any failure to take any action, as an officer, if the duties of the office are performed in compliance, with this section. Whether an officer who does not comply with this section shall have liability will depend in, such instance on applicable law, including those principles of Section 8.31 that have relevance., , Resignation and Removal of Officers (Section 8.43), , An officer may resign at any time by giving notice to the corporation. A resignation is effective when the notice is, given unless the notice specifies a later effective date. If a resignation is made effective at a later time and the board, or the appointing officer accepts the future effective time, the board or the appointing officer may fill the pending, vacancy before the effective time if the board or the appointing officer provides that the successor does not take, office until the effective date., , An officer may be removed at any time with or without cause by: (i) the board of Directors; (ii) the officer who, appointed such officer, unless the bylaws or the board of Directors provide otherwise; or (iii) any other officer if, authorized by the bylaws or the board of Directors., In this section, “appointing officer” means the officer (including any success or to that officer) who appointed the, officer resigning or being removed., Incorporators (Section 2.01), , One or more persons may act as the incorporator or incorporators of a corporation by delivering articles of, incorporation to the secretary of state for filing.
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Lesson 14 • Global Developments, , 615, , Incorporation (Section 2.03), (a), , Upon the effectiveness of filing of the articles, corporate existence begins., , (a), , Every corporation incorporated under this Act has the purpose of engaging in any lawful business unless a, more limited purpose is set forth in the articles of incorporation., , Purposes (Section 3.01), , (b), , A corporation engaging in a business that is subject to regulation under another statute of this state may, incorporate under this Act only if permitted by, and subject to all limitations of, the other statute., , Corporate Name (Section 4.01), (a), , (b), , A corporate name:, (1), (2), , (1), , the corporate name of a corporation incorporated in this state which is not administratively dissolved;, , (3), , the name of a foreign corporation registered to do business in this state or an alternate name adopted by, a foreign corporation registered to do business in this state because its corporate name is unavailable;, , (4), , (5), , (6), (7), (8), , a corporate name reserved or registered under section 4.02 or 4.03 or any similar provision of the law, of this state;, the corporate name of a non-profit corporation incorporated in this state which is not administratively, dissolved;, the name of a foreign non-profit corporation registered to do business in this state or an alternate, name adopted by a foreign non-profit corporation registered to conduct activities in this state because, its real name is unavailable;, the name of a domestic filing entity or limited liability partnership which is not administratively, dissolved;, the name of a foreign unincorporated entity registered to do business in this state or an alternate, name adopted by such an entity registered to conduct activities in this state because its real name is, unavailable; and, an assumed name registered under [state’s assumed name statute., , A corporation may apply to the secretary of state for authorization to use a name that is not distinguishable, upon his records from one or more of the names described in sub-section (b). The secretary of state shall, authorize use of the name applied for if:, (1), , (d), , may not contain language stating or implying that the corporation is organized for a purpose other, than that permitted by relevant section and its articles of incorporation., , Except as authorized by sub-sections (c) and (d), a corporate name must be distinguishable upon the records, of the secretary of state from:, (2), , (c), , must contain the word “corporation”, “incorporated”, “company”, or “limited”, or the abbreviation, “corp.”, “inc.”, “co.”, or “ltd.”, or words or abbreviations of like import in another language; and, , (2), , The other corporation consents to the use in writing and submits an undertaking in form satisfactory, to the secretary of state to change its name to a name that is distinguishable upon the records of the, secretary of state from the name of the applying corporation; or, the applicant delivers to the secretary of state a certified copy of the final judgment of a court of, competent jurisdiction establishing the applicant’s right to use the name applied for in this state., , A corporation may use the name (including the fictitious name) of another domestic or foreign corporation, that is used in this state if the other corporation is incorporated or authorized to transact business in this, state and the proposed user corporation:
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616, , , , Lesson 14 • EP-CL, , (1), , has merged with the other corporation;, , (3), , has acquired all or substantially all of the assets, including the corporate name, of the other corporation., , (2), , has been formed by reorganization of the other corporation; or, , (e), , This Act does not control the use of fictitious names., , (a), , A corporation shall hold a meeting of shareholders annually at a time stated in or fixed in accordance with the, by-laws., , (c), , The failure to hold an annual meeting at the time stated in or fixed in accordance with a corporation’s by-laws, doesn’t affect the validity of any corporate action., , Annual Meeting (Section 7.01), , (b), , Annual shareholders’ meetings may be held in or out of this state at the place stated in or fixed in accordance, with the by-laws. If no place is stated in or fixed in accordance with the bylaws, annual meetings shall be held, at the corporation’s principal office., , Special Meeting (Section 7.02), (a), , A corporation shall hold a special meeting of shareholders:, (1), (2), , on call of its board of Directors or the person or persons authorized to do so by the articles of, incorporation or by-laws; or, if the holders of at least 10 percent of all the votes entitled to be cast on an issue proposed to be, considered at the proposed special meeting sign, date, and deliver to the corporation one or more, written demands for the meeting describing the purpose or purposes for which it is to be held,, provided that the articles of incorporation may fix a lower percentage or a higher percentage not, exceeding 25 percent of all the votes entitled to be cast on any issue proposed to be considered. Unless, otherwise provided in the articles of incorporation, a written demand for a special meeting may be, revoked by a writing to that effect received by the corporation prior to the receipt by the corporation, of demands sufficient in number to require the holding of a special meeting., , Court-Ordered Meeting (Section 7.03), (a), , The [name or describe] court of the county where a corporation’s principal office (or, if none in this state, its, registered office) is located may summarily order a meeting to be held:, (1), (2), , (b), , On application of any share holder of the corporation entitled to participate in an annual meeting if, an annual meeting was not held within the earlier of 6 months after the end of the corporation’s fiscal, year or 15 months after its last annual meeting; or, on application of a shareholder who signed a demand for a special meeting valid, if:, a., , b., , notice of the special meeting was not given within 30 days after the date the demand was, delivered to the corporation’s secretary; or, the special meeting was not held in accordance with the notice., , The court may fix the time and place of the meeting, determine the shares entitled to participate in the, meeting, specify a record date for determining shareholders entitled to notice of and to vote at the meeting,, prescribe the form and content of the meeting notice, fix the quorum required for specific matters to be, considered at the meeting (or direct that the votes represented at the meeting constitute a quorum for action, on those matters), and enter other orders necessary to accomplish the purpose or purposes of the meeting., , Quorum and Voting Requirements for Voting Groups (Section 7.25), (a), , Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum, of those shares exists with respect to that matter. Unless the articles of incorporation or this Act provide
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Lesson 14 • Global Developments, , (b), (c), , 617, , otherwise, a majority of the votes entitled to be cast on the matter by the voting group constitutes a quorum, of that voting group for action on that matter., , Once a share is represented for any purpose at a meeting, it is, unless established the contrary, presumed, present for quorum purposes for the remainder of the meeting., , If a quorum exists, action on a matter (other than the election of Directors) by a voting group is approved if, the votes cast within the voting group favoring the action exceed the votes cast opposing the action, unless, the articles of incorporation or this Act require a greater number of affirmative votes., , Voting Trusts (Section 7.30), (a), , (b), (c), , One or more share holders may create a voting trust, conferring on a trustee the right to vote or otherwise, act for them, by signing an agreement setting out the provisions of the trust (which may include anything, consistent with its purpose) and transferring their shares to the trustee. When a voting trust agreement is, signed, the trustee shall prepare a list of the names and addresses of all owners of beneficial interests in the, trust, together with the number and class of shares each transferred to the trust, and deliver copies of the list, and agreement to the corporation’s principal office., A voting trust becomes effective on the date the first shares subject to the trust are registered in the trustee’s, name., , Limits, if any, on the duration of a voting trust shall be as set forth in the voting trust. A voting trust that, became effective when this Act provided a 10-year limit on its duration remains governed by the provisions, of this section concerning duration then in effect, unless the voting trust is amended to provide otherwise by, unanimous agreement of the parties to the voting trust., , Requirement for and Duties of Board of Directors (Section 8.01), (a), , (b), , Except as provided in section 7.32, each corporation must have a Board of Directors., , All corporate powers shall be exercised by or under the authority of, and the business and affairs of the, corporation managed by or under the direction of, its board of Directors, subject to any limitation set forth in, the articles of incorporation or in an agreement authorized under section7.32., , Qualifications of Directors (Section 8.02), , The articles of incorporation or bylaws may prescribe qualifications for Directors and need not be a resident of this, state or a shareholder of the corporation unless the articles of incorporation or by-laws so prescribe., Number and Election of Directors (Section 8.03), (a), , A board of Directors must consist of one or more individuals, with the number specified in or fixed in, accordance with the articles of incorporation or by laws., , (c), , Directors are elected at the first annual shareholders’ meeting and at each annual meeting thereafter unless, elected by written consent in lieu of an annual meeting as permitted by section 7.04 or unless their terms are, staggered under section 8.06., , (a), , The number of directors may be increased or decreased from time to time by amendment to, or in the manner, provided in, the articles of incorporation or by-laws., , Resignation of Directors (Section 8.07), (a), , (b), , A Director may resign at any time by delivering written notice to the board of Directors, its chairman, or to the, Secretary., A resignation is effective when the notice is delivered unless the notice specifies a later effective date.
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618, , , , Meetings (Section 8.20), , Lesson 14 • EP-CL, , The board of Directors may hold regular or special meetings in or out of this state., , Unless the articles of incorporation or bylaws provide otherwise, the board of Directors may permit any or all, Directors to participate in a regular or special meeting by, or conduct the meeting through the use of, any means, of communication by which all Directors participating may simultaneously hear each other during the meeting. A, direct or participating in a meeting by this means is deemed to be present in person at the meeting., Dissolution by Incorporators or Initial Directors (Section 14.01), , A majority of the incorporators or initial Directors of a corporation that has not issued shares or has not commenced, business may dissolve the corporation by delivering to the secretary of state for filing articles of dissolution that, set forth:, (1), , the name of the corporation;, , (3), , either (i) that none of the corporation’s shares has been issued or (ii) that the corporation has not commenced, business;, , (2), (4), (5), (6), , the date of its incorporation;, , that no debt of the corporation remains unpaid;, , that the net assets of the corporation remaining after winding up have been distributed to the shareholders,, if shares were issued; and, that a majority of the incorporators or initial Directors authorized the dissolution., , Dissolution by Board of Directors and Shareholders (Section 14.02), (a), , (b), , A corporation’s board of Directors may propose dissolution for submission to the shareholders., For a proposal to dissolve to be adopted:, (1), (2), , The board of Directors must recommend dissolution to the shareholders unless the Board of Directors, determines that because of conflict of interest or other special circumstances, it should make no, recommendation and communicates the basis for its determination to the shareholders; and, The shareholders entitled to vote must approve the proposal to dissolve as provided in sub- section(e)., , (c), , The board of Directors may condition its submission of the proposal for dissolution on any basis., , (e), , Unless the articles of incorporation, or the board of Directors, [acting pursuant to sub-section (c)], require a, greater vote or greater quorum or a vote by voting groups, adoption of the proposal to dissolve shall require, the approval of the shareholders at a meeting at which a quorum consisting of at least a majority of the votes, entitled to be cast exists., , (d), , The corporation shall notify each shareholder, whether or not entitled to vote, of the proposed shareholders’, meeting. The notice must also state that the purpose, or one of the purposes, of the meeting is to consider, dissolving the corporation., , Corporate Records (Section 16.01), (a), , A corporation shall maintain the following records:, (1), , its articles of incorporation as currently in effect;, , (3), , its by-laws as currently in effect;, , (2), , (4), , any notices to shareholders referred to in section 1.20(k)(5) specifying facts on which a filed document, is dependent if those facts are not included in the articles of incorporation or otherwise available as, specified in section 1.20(k)(5);, all written communications within the past three years to shareholders generally;
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Lesson 14 • Global Developments, , (5), , minutes of all meetings of, and records of all actions taken without a meeting by, its shareholders, its, board of directors, and board committees established under section 8.25;, , (7), , its most recent annual report delivered to the secretary of state under section 16.21., , (6), (b), (c), , (d), , (e), , 619, , a list of the names and business addresses of its current directors and officers; and, , A corporation shall maintain all annual financial statements prepared for the corporation for its last three, fiscal years (or such shorter period of existence) and any audit or other reports with respect to such financial, statements., A corporation shall maintain accounting records in a form that permits preparation of its financial statements., , A corporation shall maintain a record of its current shareholders in alphabetical order by class Model, Business Corporation Act (updated through December 2020) or series of shares showing the address of, and, the number and class or series of shares held by, each shareholder. Nothing contained in this sub-section, shall require the corporation to include in such record the electronic mail address or other electronic contact, information of a shareholder., A corporation shall maintain the records specified in this section in a manner so that they may be made, available for inspection within a reasonable time., , Corporate Governance in USA: A Brief of Legislative Developments:, , United States:, Sarbanes-Oxley Act, 2002, The rules and enforcement policies outlined in the Sarbanes-Oxley Act of 2002 amended or supplemented existing, laws dealing with security regulation, including the Securities Exchange Act of 1934 and other laws enforced by, the Securities and Exchange Commission (SEC). The new law set out reforms and additions in four principal areas:, •, , Corporate responsibility, , •, , Accounting regulation, , •, •, , Increased criminal punishment, New protections, , Major Provisions of the Sarbanes-Oxley (SOX) Act of 2002, The Sarbanes-Oxley Act of 2002 is a complex and lengthy piece of legislation. Three of its key provisions are, commonly referred to by their section numbers: Section 302, Section 404, and Section 802., Because of the Sarbanes-Oxley Act of 2002, corporate officers who knowingly certify false financial statements can, go to prison., , Section 302 of the SOX Act of 2002 mandates that senior corporate officers personally certify in writing that the, company’s financial statements “comply with SEC disclosure requirements and fairly present in all material aspects, the operations and financial condition of the issuer.” Officers who sign off on financial statements that they know to, be inaccurate are subject to criminal penalties, including prison terms., , Section 404 of the SOX Act of 2002 requires that management and auditors establish internal controls and reporting, methods to ensure the adequacy of those controls. Some critics of the law have complained that the requirements in, Section 404 can have a negative impact on publicly traded companies because it’s often expensive to establish and, maintain the necessary internal controls., Section 802 of the SOX Act of 2002 contains the three rules that affect recordkeeping. The first deals with destruction, and falsification of records. The second strictly defines the retention period for storing records., The third rule outlines the specific business records that companies need to store, which includes electronic, communications.
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620, , , , Lesson 14 • EP-CL, , Besides the financial side of a business, such as audits, accuracy, and controls, the SOX Act of 2002 also outlines, requirements for information technology (IT) departments regarding electronic records. The act does not specify, a set of business practices in this regard but instead defines which company records need to be kept on file and for, how long. The standards outlined in the SOX Act of 2002 do not specify how a business should store its records, just, that it’s the company IT department’s responsibility to store them., The Sarbanes-Oxley Act (SOX) is the primary federal law governing corporate governance and accountability across, multiple aspects of corporate business practice., , SOX specifically regulates markets, brokers, dealers, accounting and auditing, on-going government and shareholder, disclosure by reporting companies, insider trading, anti-fraud, proxy regulation and so forth. SOX established a new, regulatory body, increased the authority of existing regulators, as well as imposed regulations beyond those of the, self-regulating, industry organizations., The primary objectives of SOX are to promote:, •, •, •, , •, •, , •, •, , •, , Fairness to Shareholders – SOX requires or promotes governance provisions that protect shareholder, rights and allow shareholders to exercise those rights through governance procedures, such as shareholder, meetings., Fairness to Stakeholders – SOX requires or promotes governance provisions that take into consideration, the interests of employees, suppliers, buyers, and the local community., , Heightened Director and Board Responsibilities – SOX places specific requirements on the composition of, boards of Directors, including skill and independence requirements. Notably, in an effort to promote Director, independence in decision making, SOX requires corporations to employee committees for special purposes., Example: SOX requires boards appoint an audit committee where all members are independent of corporate, operations (not officers of the corporation) with at least one financial expert as a member of the committee., Director and Officer Ethics – SOX imposes additional obligations on corporations to establish and maintain, ethical standards for officer and Director conduct and decision-making., , Example: SOX prohibits the corporation from making personal loans to corporate executives or their families., , Disclosure and Accountability – SOX places requirements on boards to increase transparency in corporate, governance practices. This includes implementing procedures for ensuring accurate accounting practices, and public disclosure mechanisms., Note: SOX requires internal review procedures and independence of external auditors that report directly, to the corporation’s independent audit committee. Further, SOX requires that key officers of the corporation, (the CEO and CFO) certify the accuracy of the financial statements and those internal financial controls are in, place and subject to the independent audit committee’s review., Accounting and Disclosure Procedures – SOX imposed a number of reforms on the accounting and financial, reporting requirements of public companies. The primary requirements are as follows:, The Public Company Accounting Oversight Board (PCAOB) – SOX established the PCAOB to regulate, auditors charged with reviewing the accounting procedures and disclosure statements of public companies., , Note: Prior to the establishment of the PCAOB, public company auditors were self-regulated or subject to, the standards imposed by private institutions, such as the Financial Accounting Standards Board (FASB) or, American Institute of Certified Public Accountants (AICP)., , External Auditing Firms – SOX now requires that a firm in charge of auditing the corporation refrain from, serving as independent consultants to that same firm. This includes refraining from bookkeeping, system, designs and implementation, appraisals and valuations, actuarial services, human resources functions, and, investment banking services for the audited company. Further, the corporation must change auditing firms, at least every 5 years. There are also restrictions on the ability of company executives to have worked for the, auditing firm within the prior year.
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Lesson 14 • Global Developments, , •, , •, •, , 621, , Note: Prior to SOX, external auditing firms could simultaneously serve as consultants to the corporation that, it is auditing. The created an inherent conflict of interest. Further, allowing corporations to employ the same, auditors for extended periods increased the likelihood that on- going, improper accounting practices would, not be discovered. Without periodically rotating in new auditors, there was no real check on the accounting, firm., , Securities Regulations – Much of the regulatory process prescribed by SOX is carried out by the Securities, and Exchange Commission. SOX include provisions that strengthen the ability of the SEC to oversee corporate, governance matters and enforce violations., , Example: SOX established a criminal charge for conspiring to commit securities fraud. It also increased the, criminal and civil penalties for committing securities fraud. SOX provides additional protections against, discrimination for those reporting conduct that violates the securities laws (“whistleblower protection”)., Discussion: What do you think was the driving force behind the passage of SOX? Why do you think focused, on accounting standards and securities regulations to promote its objectives of fairness and ethics., Practice Question: What are the primary corporate governance requirements and objectives of these, requirements under the Sarbanes-Oxley Act., , NYSE Corporate Governance Rules, , Under NYSE rules, foreign private issuers are subject to more limited corporate governance requirements than U.S., domestic issuers. As a foreign private issuer, we must comply with four principal NYSE corporate governance rules:, (1), , We must have an audit committee meeting the independence requirements of Rule 10A-3, subject to specified, exceptions;, , (3), , We must provide the NYSE with annual and interim written affirmations as required under the NYSE corporate, governance rules; and, , (2), (4), , Our CEO must promptly notify the NYSE in writing after any executive officer becomes aware of any noncompliance with the applicable NYSE corporate governance rules;, , We must provide a brief description of any significant differences between our corporate governance practices, and those followed by U.S. companies under NYSE listing standards. The table below briefly describes the, significant differences between our corporate governance practice and the NYSE corporate governance rules,, applicable to U.S. domestic companies., , NYSE Corporate Governance Standards: Brief, Independent Directors, , In accordance with NYSE standards, the majority of the members on the Boards of Directors of U.S. companies must, be independent. A Director qualifies as independent when the Board affirmatively determines that such Director, does not have a material relationship with the listed company (and its subsidiaries), either directly, or indirectly., In particular, a Director may not be deemed independent if he or she or an immediate family member has a certain, specific relationship with the issuer, its auditors or companies that have material business relationships with the, issuer (e.g. he or she is an employee of the issuer or a partner of the Auditor). In addition, a Director cannot be, considered independent in the three-year “cooling-off” period following the termination of any relationship that, compromised a Director’s independence., Meetings of non-executive Directors, , Non-executive Directors, including those who are not independent, must meet on a regular basis without the, executive Directors. In addition, if the group of Non-Executive Directors includes Directors who are not independent,, independent Directors should meet separately at least once a year., Audit Committee, , Listed U.S. companies must have an Audit Committee that satisfies the requirements of Rule 10A-3 under the, Securities Exchange Act of 1934 and that complies with the provisions of the Sarbanes-Oxley Act and of Section, 303A.07 of the NYSE Listed Company Manual.
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622, , , , Compensation Committee, , Lesson 14 • EP-CL, , Listed companies have a compensation committee composed entirely of independent directors. The compensation, committee produces—on an annual basis—a compensation committee report on executive compensation, to be, included in the company’s annual proxy statement or annual report on Form 10-K filed with the SEC., Nominating/Corporate Governance Committee, , U.S. listed companies must have a Nominating/Corporate Governance Committee (or equivalent body) composed, entirely of independent Directors whose functions include, but are not limited to, selecting qualified candidates, for the office of Director for submission to the Shareholders’ Meeting, as well as developing and recommending, corporate governance guidelines to the Board of Directors. This provision is not binding for non-U.S. private issuers., Remuneration Committee, , U.S. listed companies must have a Remuneration Committee composed entirely of independent Directors who, must satisfy the independence requirements provided for its members. The Remuneration Committee must have a, written charter that addresses the Committee’s purpose and responsibilities within the limit set forth by the listing, rules., The Remuneration Committee may, in its sole discretion, retain or obtain the advice of a compensation consultant,, independent legal counsel or other adviser and shall be directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant, independent legal counsel or other adviser retained by, it., These provisions are not binding for non-U.S. private issuers., Code of Business Conduct and Ethics, , The NYSE listing standards require each U.S. listed company to adopt a Code of Business Conduct and Ethics for its, Directors, Officers and employees., , AUSTRALIA, , Legislative history, In Australia, prior to the adoption of the U.K. Joint Stock Companies Act, 1844, by the various colonies, private, companies generally operated as unincorporated deed-of-settlement joint-stock companies., Corporations Law, , In Australia, Corporations are registered and regulated by the Commonwealth Government. Corporations law has, been largely codified in the Corporations Act, 2001. The Act is the result of a successful High Court of Australia, challenge in New South Wales v. Commonwealth (1990) 169 CLR 482 (‘The Corporations Act Case’). The Corporations, Act, 2001 is presently the largest corporations’ statute in the world. It is an act of the Commonwealth of Australia., This Act sets out the laws dealing with business entities in Australia at federal and interstate level. Although the, focus of the Act is primarily on companies, it also covers some laws relating to other entities such as partnerships, and managed investment schemes. All states have adopted the Act., The Corporation Regulations, 2001 contains all the regulations made under the Corporations Act, 2001., Salient features of Australian Corporations Act, , Setting up a company, To set up a new company themselves, the operator must apply to ASIC for registration of the company., A proprietary company limited by shares must have at least 1 shareholder.
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623, , Lesson 14 • Global Developments, , Structure and functions of the Board, Under the Corporations Act, a proprietary company must have at least one Director. That Director must ordinarily, reside in Australia. For this purpose, a proprietary company is a company that is registered as, or converts to, a, proprietary company under this Act., A proprietary company must:, •, , be limited by shares or be an unlimited company with a share capital;, , •, , not do anything that would require disclosure to investors under the Chapter of the Act (except in limited, circumstances)., , •, , have no more than 50 non-employee shareholders;, , Further, a public company must have at least 3 Directors (not counting alternate Directors). At least 2 Directors must, ordinarily reside in Australia. Only an individual who is at least 18 may be appointed as a Director of a company., A person who is disqualified from managing corporations may only be appointed as Director of a company if the, appointment is made with permission granted by Australian Securities and Investments Commission under the, leave granted by the Court., The business of a company is to be managed by or under the direction of the, Directors. The Directors may exercise all the powers of the company except, any powers that this Act or the company’s constitution (if any) requires the, company to exercise in general meeting. For example, the Directors may issue, shares, borrow money and issue debentures. The Directors of a company, may confer on a managing Director any of the powers that the Directors, can exercise. The Directors may revoke or vary a conferral of powers on the, Managing Director., , Directors in public company:, , • Atleast 3 Directors, • 2 Directors must be, ordinarily reside in Australia, • Age should be 18 years, , The Director of a proprietary company who is its only Director and only shareholder may exercise all the powers, of the company except any powers that this Act or the company’s constitution (if any) requires the company to, exercise in general meeting. The business of the company is to be managed by or under the direction of the Director., For example, the Director may issue shares, borrow money and issue debentures., Negotiable instruments:, , Any 2 directors of a company that has 2 or more directors, or the director of a proprietary company that has only, 1 director proprietary company who is its only Director and only shareholder may sign, draw, accept, endorse, or otherwise execute a negotiable instrument. The Director may determine that a negotiable instrument may be, signed, drawn, accepted, endorsed or otherwise executed in a different way., Appointment of Directors, , Special Rules for the appointment of public company Directors, There are special rules for appointment of Directors of public company and the appointment of Directors for single, Director/single shareholder proprietary companies. A resolution passed at a general meeting of a public company, appointing or confirming the appointment of 2 or more Directors is void unless:, (a), , (b), , the meeting has resolved that the appointments or confirmations may be voted on together; and, no votes were cast against there solution., , Therefore, said requirement does not affect (a) a resolution to appoint Directors by an amendment to the company’s, constitution (if any); or (b) a ballot or poll to elect two or more Directors if the ballot or poll does not require, members voting for one candidate to vote for another candidate., For aforesaid purposes, a ballot or poll does not require a member to vote for a candidate merely because the, member is required to express a preference among individual candidates in order to cast a valid vote.
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624, , , , Lesson 14 • EP-CL, , Special Rules for the appointment of Directors for single Director/single shareholder proprietary companies., , The Director of a proprietary company who is its only Director and only shareholder may appoint another Director, by recording the appointment and signing the record. If a person who is the only Director and the only shareholder, of a proprietary company dies; or cannot manage the company because of the person’s mental incapacity; and, a personal representative or trustee is appointed to administer the person’s estate or property, the personal, representative or trustee may appoint a person as the Director of the company., If the office of the Director of a proprietary company is vacated because of the bankruptcy of the Director; and the, person is the only Director and the only shareholder of the company; and a trustee in bankruptcy is appointed to, the person’s property; the trustee may appoint a person as the Director of the company. A person who has a power, of appointment as aforesaid may appoint themselves as Director. A person appointed as a Director of a company as, aforesaid holds office as if they had been appointed in the usual way., Remuneration of Directors, , The Directors of a company are to be paid the remuneration that the company determines by resolution. The, company may also pay the Directors’ travelling and other expenses that they properly incur: (a) in attending, Directors’ meetings or any meetings of committees of Directors; and (b) in attending any general meetings of the, company; and (c) in connection with the company’s business., Members may obtain information about Director’s remuneration., , A company must disclose the remuneration paid to each Director of the company or a subsidiary (if any) by the, company or by an entity controlled by the company if the company is directed to disclose the information by:, (a), , members with at least 5% of the votes that may be cast at a general meeting of the company; or, , (b) at least 100 members who are entitled to vote at a general meeting of the company. The company must, disclose all remuneration paid to the Director, regardless of whether it is paid to the Director in relation to, their capacity as Director or another capacity., The company must comply with the direction as soon as practicable by:, (a), , preparing a statement of the remuneration of each Director of the company or subsidiary for the last financial, year before the direction was given; and, , (b) having the statement audited; and, , (c) sending a copy of the audited statement to each person entitled to receive notice of general meetings of the, company., , Special Rules for single Director/single shareholder proprietary companies., , A person who is the only Director and the only shareholder of a proprietary company is to be paid any remuneration, for being a Director that the company determines by resolution. The company may also pay the Director’s travelling, and other expenses properly incurred by the Director in connection with the company’s business., Company Secretaries, Appointment:, A company other than a proprietary company must have a Company Secretary. However, a proprietary company, may choose to have a Company Secretary. The Directors appoint the Company Secretary. A Company Secretary must, be at least eighteen (18) years old. If a company has only one Company Secretary, they must ordinarily reside in, Australia. If a company has more than one Company Secretary, at least 1 of them must ordinarily reside in Australia., Consent:, , A Company Secretary must consent in writing to holding the position of Company Secretary. The company must, keep the consent and must notify ASIC of the appointment within 28 days.
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Lesson 14 • Global Developments, , 625, , The same person may be both a Director of a company and the Company Secretary., , Generally, a Company Secretary may resign by giving written notice of resignation to the company. A Company, Secretary who resigns may notify ASIC of the resignation. If the Company Secretary does not do so, the company, must notify ASIC of the Company Secretary’s resignation., The Company Secretary is an officer of the company and, in that capacity, may be subject to the requirements, imposed by the Corporations Act on company officers., Responsibilties to notify ASIC, , The Company Secretary has specific responsibilities under the Corporations Act, including responsibility for, ensuring that the company:, •, , notifies ASIC about changes to the identities, names and addresses of the company’s Directors and company, secretaries; and, , •, , notifies ASIC about changes to any ultimate holding company; and, , •, •, , notifies ASIC about changes to the register of members; and, , responds, if necessary, to an extract of particulars that it receives and that it responds to any return of, particulars that it receives., , A Company Secretary’s obligations may continue even after the company has been deregistered., Auditors, , The following may be appointed as auditor of a company for the purposes of the Act:, (a), , An individual;, , (c), , A company., , (b), , A firm;, , In case of Proprietary Company, the Directors may appoint an auditor for the company if an auditor has not been, appointed by the company in general meeting., , The company may have more than one auditor. The appointment of a firm as auditor of a company is taken to be, an appointment of all persons who, at the date of the appointment, are (a) members of the firm; and (b) registered, company auditors. This is so whether or not those persons are resident in Australia., , The appointment of the members of a firm as auditors of a company or registered scheme, that is taken to have been, made because of the appointment of the firm as auditor of the company or scheme, is not affected by the dissolution, of the firm., A report or notice that purports to be made or given by a firm appointed as auditor of a company is not taken to be, duly made or given unless it is signed by a member of the firm who is a registered company auditor, both:, (a), , (b), , in the firm name; and, , in his or her own name., , A notice required or permitted to be given to an audit firm under the Corporations legislation may be given to the, firm by giving the notice to a member of the firm., For the purposes of criminal proceedings under this Act against a member of an audit firm, an act or omission by:, (a), , (b), , a member of the firm; or, , an employee or agent of the audit firm;, , acting within the actual or apparent scope of his or her employment, or within his or her actual or apparent, authority, is also to be attributed to the audit firm.
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626, , Lesson 14 • EP-CL, , , , The Directors of a public company must appoint an auditor of the company within one month after the day on which, a company is registered as a company unless the company at a general meeting has appointed an auditor., A public company must appoint an auditor of the company at its first AGM and appoint an auditor of the company, to fill any vacancy in the office of auditor at each subsequent AGM., , An auditor holds office until the auditor dies; or is removed, or resigns, from office; or ceases to be capable of acting, as auditor; or ceases to be auditor., , Corporate Governance in Australia: Recent Development, Australia, , Corporate Governance Principles and Recommendations – 4th Edition, (Effective from January 01, 2020), On 27 February 2019, the ASX Corporate Governance Council (Council) issued its Fourth Edition of its Corporate, Governance Principles and Recommendations. The Government in Australia encouraged the Companies to, familiarize themselves with the revised content as it may require some adjustment or additions to its corporate, governance processes, as well as to Corporate Governance Statement required under Listing Rule 4.10.3., Fourth Edition: Key Takeaways, •, , There are still 8 principles but there has been some tinkering around the edges with subtle wording changes., , •, , Additional commentary has been added to various principles and recommendations., , •, , •, •, , Nine recommendations have been added on how to apply the principles, resulting in 35 in total (up from 29, in the Third Edition). However, three of these recommendations only apply in certain limited cases, and, The 8 Principles, , Lay solid foundations for management and oversight: A listed entity should clearly delineate the respective, roles and responsibilities of its board and management and regularly review their performance., , Structure the board to be effective and add value: The board of a listed entity should be of an appropriate, size and collectively have the skills, commitment and knowledge of the entity and the industry in which it, operates, to enable it to discharge its duties effectively and to add value.
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•, •, •, •, •, •, , Lesson 14 • Global Developments, , 627, , Instill a culture of acting lawfully, ethically and responsibly: A listed entity should instil and continually, reinforce a culture across the organization of acting lawfully, ethically and responsibly., , Safeguard the integrity of corporate reports: A listed entity should have appropriate processes to verify, the integrity of its corporate reports., , Make timely and balanced disclosure: A listed entity should make timely and balanced disclosure of all, matters concerning it that a reasonable person would expect to have a material effect on the price or value of, its securities., Respect the rights of security holders: A listed entity should provide its security holders with appropriate, information and facilities to allow them to exercise their rights as security holders effectively., Recognize and manage risk: A listed entity should establish a sound risk management framework and, periodically review the effectiveness of that framework., , Remunerate fairly and responsibly: A listed entity should pay Director remuneration sufficient to attract, and retain high quality Directors and design its executive remuneration to attract, retain and motivate high, quality senior executives and to align their interests with the creation of value for security holders and with, the entity’s values and risk appetite., , CANADA, , Like the United States and Australia, Canada is a federal state with a multiplicity of corporate statutes. However,, unlike the United States, there is a federal corporation’s statute called as – the Canada Business Corporations Act, (CBCA), as well as corporate legislation in each of the 10 provinces. Upon implementation of the CBCA in 1975, a, deliberate and fairly successful effort was made to harmonize the provincial statutes to the new federal regime in, Canada., There is no federal securities regulator in Canada. Although Canada has adopted securities regimes which are very, much American in concept and approach, each province has its own securities law regime., About the Act, , When the CBCA came into force in 1975, it was considered a leading-edge corporate law statute., Structure and functions of the Board, , Under the CBCA, the articles of incorporation are to set out the number of Directors or the minimum and maximum, number of Directors of the incorporation. A corporation may have one or more Directors but if any of its issued, securities are or were part of a distribution to the public and remain outstanding and are held by more than one, person, the corporation is to have at least three Directors, at least two of whom are not to be officers or employees, of the corporation or its affiliates., , Salient features of Canadian Business Corporations Act, 1985, , INCORPORATION, Incorporators (Section 5), An individual may incorporate a corporation only if that individual, (a) is not less than 18 years of age;, (b) is not incapable; or, , (c) does not have the status of bankrupt., Bodies Corporate, , One or more bodies corporate may incorporate a corporation by signing articles of incorporation and complying, with section 7.
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628, , , , Articles of Incorporation (Section 6), (1), , Lesson 14 • EP-CL, , Articles of incorporation shall follow the form that the Director fixes and shall set out, in respect of the, proposed corporation,, (a), , the name of the corporation;, , (c), , the classes and any maximum number of shares that the corporation is authorized to issue, and, , (b), , the province in Canada where the registered office is to be situated;, (i), , if there will be two or more classes of shares, the rights, privileges, restrictions and conditions, attaching to each class of shares, and, , (ii), , if a class of shares may be issued in series, the authority given to the Directors to fix the number, of shares in, and to determine the designation of, and the rights, privileges, restrictions and, conditions attaching to, the shares of each series;, , (d), , if the issue, transfer or ownership of shares of the corporation is to be restricted, a statement to that, effect and a statement as to the nature of such restrictions;, , (f), , any restrictions on the businesses that the corporation may carry on., , (e), , the number of Directors or, subject to paragraph 107(a), the minimum and maximum number of, Directors of the corporation; and, , Additional provision on articles, (2), , The articles may set out any provisions permitted by this Act or by law to be set out in the by-laws of the, corporation., (i), , (ii), , Subject to sub-section (4), if the articles or a unanimous shareholder agreement require a greater, number of votes of Directors or shareholders than that required by this Act to effect any action, the, provisions of the articles or of the unanimous shareholder agreement prevail., The articles may not require a greater number of votes of shareholders to remove a Director than the, number required by section 109., , An incorporator shall send to the Director articles of incorporation and the documents required by sections 19 and 106., Certificate of incorporation (Section 8), , On receipt of articles of incorporation, the Director shall issue a certificate of incorporation in accordance with, section 262., , The Director may refuse to issue the certificate if a notice that is required to be sent under sub-section 19(2) or, 106(1) indicates that the corporation, if it came into existence, would not be in compliance with this Act., , Directors and Officers, , Section 102., , (1), , Subject to any unanimous shareholder agreement, the Directors shall manage, or supervise, the management of, the business and affairs of a corporation., , (1), , The following persons are disqualified from being a Director of a corporation:, , (2), Setion 105., , A corporation shall have one or more Directors but a distributing corporation, any of the, issued securities of which remain outstanding and are held by more than one person, shall, have not fewer than three Directors, at least two of whom are not officers or employees of, the corporation or its affiliates., , , (a) anyone who is less than eighteen years of age;, , , (b) anyone who is of unsound mind and has been so found by a court in Canada or elsewhere;, , , , (c) a person who is not an individual; or, , (d) a person who has the status of bankrupt.
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Lesson 14 • Global Developments, , 629, , (2) Unless the articles otherwise provide, a Director of a corporation is not required to hold shares, issued by the corporation., , , , Subject to subsection (3.1), at least twenty-five per cent of the Directors of a corporation must be, resident Canadians. However, if a corporation has less than four Directors, at least one Director, must be a resident Canadian., , (3.1) If a corporation engages in an activity in Canada in a prescribed business sector or if a corporation,, by an Act of Parliament or by a regulation made under an Act of Parliament, is required, either, individually or in order to engage in an activity in Canada in a particular business sector, to attain, or maintain a specified level of Canadian ownership or control, or to restrict, or to comply with a, restriction in relation to, the number of voting shares that any one shareholder may hold, own or, control, then a majority of the Directors of the corporation must be resident Canadians., , (3.2) Nothing in subsection (3.1) shall be construed as reducing any requirement for a specified number, or percentage of resident Canadian Directors that otherwise applies to a corporation referred to in, that sub-section., (3.3) If a corporation referred to in sub-section (3.1) has only one or two Directors, that Director or one, of the two Directors, as the case may be, must be a resident Canadian., (4) Despite sub-section (3.1), not more than one-third of the Directors of a holding corporation, referred to in that sub-section need be resident Canadians if the holding corporation earns in, Canada directly or through its subsidiaries less than five per cent of the gross revenues of the, holding corporation and all of its subsidiary bodies corporate together as shown in:, , , , , Section 109., , (a) the most recent consolidated financial statements of the holding corporation referred to in, section157;, , (b) or the most recent financial statements of the holding corporation and its subsidiary bodies, corporate as at the end of the last completed financial year of the holding corporation., , (1), , Subject to paragraph 107(g), the shareholders of a corporation may by ordinary resolution, at a special meeting remove any Director or Directors from office., , (3), , Subject to paragraphs 107(b) to (e), a vacancy created by the removal of a Director may be, filled at the meeting of the shareholders at which the Director is removed or, if not so filled,, may be filled under section 111., , (2), , (4), (5), , Where the holders of any class or series of shares of a corporation have an exclusive right, to elect one or more Directors, a Director so elected may only be removed by an ordinary, resolution at a meeting of the shareholders of that class or series., , If all of the Directors have resigned or have been removed without replacement, a person, who manages or supervises the management of the business and affairs of the corporation, is deemed to be a Director for the purposes of this Act., Sub-section (4) does not apply to:, (a), , an officer who manages the business or affairs of the corporation under the direction, or control of a shareholder or other person;, , (c), , a trustee in bankruptcy, receiver, receiver-manager, sequestrate or secured creditor, who participates in the management of the corporation or exercises control over its, property solely for the purpose of the realization of security or the administration of a, bankrupt’s estate, in the case of a trustee in bankruptcy., , (b), , Section 112., , (1), , a lawyer, notary, accountant or other professional who participates in the management, of the corporation solely for the purpose of providing professional services; or, , The shareholders of a corporation may amend the articles to increase or, subject to, paragraph 107(h), to decrease the number of Directors, or the minimum or maximum, number of Directors, but no decrease shall shorten the term of an incumbent Director.
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630, , Lesson 14 • EP-CL, , , , (2), , Section 114., , Where the shareholders at a meeting adopt an amendment to the articles of a corporation, to increase or, subject to paragraph 107(h) and to subsection (1), decrease the number or, minimum or maximum number of Directors, the shareholders may, at the meeting, elect the, number of Directors authorized by the amendment, and for that purpose, notwithstanding, sub-sections 179(1) and 262(3), on the issue of a certificate of amendment the articles are, deemed to be amended as of the date the shareholders adopt the amendment., , (1), , Unless the articles or by-laws otherwise provide, the Directors may meet at any place and on, such notice as the by-laws require., , (3), , Directors, other than Directors of a corporation referred to in sub-section105(4), shall not, transact business at a meeting of Directors unless,, , (2), , Subject to the articles or by-laws, a majority of the number of Directors or minimum number, of Directors required by the articles constitutes a quorum at any meeting of Directors, and,, notwithstanding any vacancy among the Directors, a quorum of Directors may exercise all, the powers of the Directors., (a), , (b), (4), , (5), (6), (7), (8), (9), , Section 118., , (1), , if the corporation is subject to sub-section 105(3), at least twenty-five per cent of, the Directors present are resident Canadians or, if the corporation has less than four, Directors, at least one of the Directors present is a resident Canadian; or, if the corporation is subject to sub-section 105(3.1), a majority of Directors present, are resident Canadians or if the corporation has only two Directors, at least one of the, Directors present is a resident Canadian., , Despite subsection (3), Directors may transact business at a meeting of Directors where the, number of resident Canadian Directors, required under that subsection, is not present if:, (a), , (b), , a resident Canadian Director who is unable to be present approves in writing, or by, telephonic, electronic or other communication facility, the business transacted at the, meeting; and, the required number of resident Canadian Directors would have been present had that, Director been present at the meeting., , A notice of a meeting of Directors shall specify any matter referred to in sub-section 115(3), that is to be dealt with at the meeting but, unless the by-laws otherwise provide, need not, specify the purpose of or the business to be transacted at the meeting., , A Director may in any manner waive a notice of a meeting of Directors; and attendance, of a Director at a meeting of Directors is a waiver of notice of the meeting, except where a, Director attends a meeting for the express purpose of objecting to the transaction of any, business on the grounds that the meeting is not lawfully called., , Notice of an adjourned meeting of Directors is not required to be given if the time and place, of the adjourned meeting is announced at the original meeting., Where a corporation has only one Director, that Director may constitute a meeting., , Subject to the by-laws, a Director may, in accordance with the regulations, if any, and if all the, Directors of the corporation consent, participate in a meeting of Directors or of a committee, of Directors by means of a telephonic, electronic or other communication facility that, permits all participants to communicate adequately with each other during the meeting. A, Director participating in such a meeting by such means is deemed for the purposes of this, Act to be present at that meeting., , Directors of a corporation who vote for or consent to a resolution authorizing the issue of, a share under section 25 for a consideration other than money are jointly and severally, or, solidarily, liable to the corporation to make good any amount by which the consideration, received is less than the fair equivalent of the money that the corporation would have, received if the share had been issued for money on the date of the resolution.
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Lesson 14 • Global Developments, , (2), , , , , , , , , (3), (4), (5), , , , , , , (6), (7), , Shareholders, Section 132, , (1), (2), (3), (4), , 631, , Directors of a corporation who vote for or consent to a resolution authorizing any of the, following are jointly and severally, or solidarily, liable to restore to the corporation any, amounts so distributed or paid and not otherwise recovered by the corporation:, (a), , a purchase, redemption or other acquisition of shares contrary to section 34, 35 or36;, , (c), , a payment of a dividend contrary to section42;, , (b), (d), (e), , a commission contrary to section41;, , a payment of an indemnity contrary to section 124;or, , a payment to a shareholder contrary to section 190 or241., , A Director who has satisfied a judgment rendered under this section is entitled to, contribution from the other Directors who voted for or consented to the unlawful act on, which the judgment was founded., , A Director liable under subsection (2) is entitled to apply to a court for an order compelling, a shareholder or other recipient to pay or deliver to the Director any money or property that, was paid or distributed to the shareholder or other recipient contrary to section 34, 35, 36,, 41, 42, 124, 190 or 241., In connection with an application under sub section (4) a court may, if it is satisfied that it is, equitable to do so,, (a), , (b), (c), , Order a share holder or other recipient to pay or deliver to a Director any money or, property that was paid or distributed to the shareholder or other recipient contrary, to section 34, 35, 36, 41, 42, 124,190 or 241;, order a corporation to return or issue shares to a person from whom the corporation, has purchased, redeemed or otherwise acquired shares; or, make any further order it thinks fit., , A Director who proves that the Director did not know and could not reasonably have known, that the share was issued for a consideration less than the fair equivalent of the money that, the corporation would have received if the share had been issued for money is not liable, under sub-section(1)., An action to enforce a liability imposed by this section may not be commenced after two, years from the date of the resolution authorizing the action complained of., , Meetings of shareholders of a corporation shall be held at the place within Canada provided, in the by-laws or, in the absence of such provision, at the place within Canada that the, Directors determine., Despite sub-section (1), a meeting of shareholders of a corporation may be held at a place, outside Canada if the place is specified in the articles or all the shareholders entitled to vote, at the meeting agree that the meeting is to be held at that place., , A shareholder who attends a meeting of shareholders held outside Canada is deemed to have, agreed to it being held outside Canada except when the shareholder attends the meeting for, the express purpose of objecting to the transaction of any business on the grounds that the, meeting is not lawfully held., , Unless the by-laws otherwise provide, any person entitled to attend a meeting of shareholders, may participate in the meeting, in accordance with the regulations, if any, by means of a, telephonic, electronic or other communication facility that permits all participants to, communicate adequately with each other during the meeting, if the corporation makes, available such a communication facility. A person participating in a meeting by such means, is deemed for the purposes of this Act to be present at the meeting.
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632, , Lesson 14 • EP-CL, , , , (5), , Section 133., , (1), , If the Directors or the shareholders of a corporation call a meeting of shareholders pursuant, to this Act, those Directors or shareholders, as the case may be, may determine that the, meeting shall be held, in accordance with the regulations ,if any, entirely by means of a, telephonic, electronic or other communication facility that permits all participants to, communicate adequately with each other during the meeting, if the by-laws so provide., , The Directors of a corporation shall call an annual meeting of shareholders, (a), , (b), , Section 135., , not later than eighteen months after the corporation comes into existence; and, , subsequently, not later than fifteen months after holding the last preceding annual, meeting but no later than six months after the end of the corporation’s preceding, financial year., , (2), , The Directors of a corporation may at any time call a special meeting of share holders., , (1), , Notice of the time and place of a meeting of shareholders shall be sent within the prescribed, period to –, , (3), , Despite subsection (1), the corporation may apply to the court for an order extending the, time for calling an annual meeting., (a), , each shareholder entitled to vote at the meeting;, , (c), , the auditor of the corporation., , (b), , each Director; and, , (1.1) In the case of a corporation that is not a distributing corporation, the notice may be sent, within a shorter period if so specified in the articles or by-laws., (2), (3), (4), (5), , (6), Section 137., , (1), , A notice of a meeting is not required to be sent to shareholders who were not registered on, the records of the corporation or its transfer agent on the record date determined under, paragraph 134(1)(c) or subsection 134(2), but failure to receive a notice does not deprive a, shareholder of the right to vote at the meeting., If a meeting of shareholders is adjourned for less than thirty days it is not necessary, unless, the by-laws otherwise provide, to give notice of the adjourned meeting, other than by, announcement at the earliest meeting that is adjourned., , If a meeting of shareholders is adjourned by one or more adjournments for an aggregate, of thirty days or more, notice of the adjourned meeting shall be given as for an original, meeting but, unless the meeting is adjourned by one or more adjournments for an aggregate, of more than ninety days, subsection149(1) does not apply., All business transacted at a special meeting, of shareholders and all business transacted, at an annual meeting of shareholders, except, consideration of the financial statements,, auditor’s report, election of Directors and, re-appointment of the incumbent auditor, is, deemed to be special business., , Ordinary Business at AGM:, , Consideration of Financial Statements,, auditor’s report, election of Directors, and re-appointment of the incumbent, auditor., , Notice of a meeting of shareholders at which special business is to be transacted shall state, the nature of that business in sufficient detail to permit the shareholder to form a reasoned, judgment thereon; and the text of any special resolution to be submitted to the meeting., Subject to sub-sections (1.1) and (1.2), a registered holder or beneficial owner of shares that, are entitled to be voted at an annual meeting of shareholders may, (a), , submit to the corporation notice of any matter that the person proposes to raise at the, meeting (a “proposal”); and
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Lesson 14 • Global Developments, , 1.1, , (b), , discuss at the meeting any matter in respect of which the person would have been, entitled to submit a proposal., , (a), , must be, for at least the prescribed period, the registered holder or the beneficial, owner of at least the prescribed number of outstanding shares of the corporation; or, , To be eligible to submit a proposal, a person:, (b), , 1.2, , 1.3, 1.4, (2), (3), (4), , (5), , 633, , must have the support of persons who, in the aggregate, and including or not including, the person that submits the proposal, have been, for at least the prescribed period,, the registered holders, or the beneficial owners of, at least the prescribed number of, outstanding shares of the corporation., , A proposal submitted under paragraph (1)(a) must be accompanied by the following, information:, (a), , (b), , the name and address of the person and of the person’s supporters, if applicable; and, , the number of shares held or owned by the person and the person’s supporters, if, applicable, and the date the shares were acquired., , The information provided under subsection (1.2) does not form part of the proposal or of, the supporting statement referred to in subsection (3) and is not included for the purposes, of the prescribed maximum word limit set out in subsection (3)., If requested by the corporation within the prescribed period, a person who submits a, proposal must provide proof, within the prescribed period, that the person meets the, requirements of subsection (1.1)., A corporation that solicits proxies shall set out the proposal in the management proxy, circular required by section 150 or attach the proposal thereto., , If so requested by the person who submits a proposal, the corporation shall include in the, management proxy circular or attach to it a statement in support of the proposal by the, person and then name and address of the person. The statement and the proposal must, together not exceed the prescribed maximum number of words., , A proposal may include nominations for the election of Directors if the proposal is signed by, one or more holders of shares representing in the aggregate not less than five per cent of the, shares or five per cent of the shares of a class of shares of the corporation entitled to vote at, the meeting to which the proposal is to be presented, but this subsection does not preclude, nominations made at a meeting of shareholders., A corporation is not required to comply with subsections (2) and (3) if, (a), , (b), , the proposal is not submitted to the corporation at least the prescribed number of days, before the anniversary date of the notice of meeting that was sent to shareholders in, connection with the previous annual meeting of shareholders;, it clearly appears that the primary purpose of the proposal is to enforce a personal, claim or redress a personal grievance against the corporation or its Directors, officers, or security holders;, , (b.1) it clearly appears that the proposal does not relate in a significant way to the business, or affairs of the corporation;, (c), , (d), , not more than the prescribed period before the receipt of a proposal, a person failed, to present, in person or by proxy, at a meeting of shareholders, a proposal that at the, person’s request, had been included in a management proxy circular relating to the, meeting;, , substantially the same proposal was submitted to shareholders in a management, proxy circular or a dissident’s proxy circular relating to a meeting of shareholders
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634, , Lesson 14 • EP-CL, , , , held not more than the prescribed period before the receipt of the proposal and did, not receive the prescribed minimum amount of support at the meeting; or, (e) the rights conferred by this section are being abused to secure publicity., , (5.1) If a person who submits a proposal fails to continue to hold or own the number of shares, referred to in subsection (1.1) up to and including the day of the meeting, the corporation, is not required to set out in the management proxy circular, or attach to it, any proposal, submitted by that person for any meeting held within the prescribed period following the, date of the meeting., (6), , No corporation or person acting on its behalf incurs any liability by reason only of circulating, a proposal or statement in compliance with this section., , (8), , On the application of a person submitting a proposal who claims to be aggrieved by a, corporation’s refusal under subsection (7), a court may restrain the holding of the meeting, to which the proposal is sought to be presented and make any further order it thinks fit., , (7), , (9), , Section 138., , (10), , (1), , (2), (3), , If a corporation refuses to include a proposal in a management proxy circular, the corporation, shall, within the prescribed period after the day on which it receives the proposal or the day, on which it receives the proof of ownership under subsection (1.4), as the case may be,, notify in writing the person submitting the proposal of its intention to omit the proposal, from the management proxy circular and of the reasons for the refusal., , The corporation or any person claiming to be aggrieved by a proposal may apply to a court, for an order permitting the corporation to omit the proposal from the management proxy, circular, and the court, if it is satisfied that subsection (5) applies, may make such order as it, thinks fit., , An applicant under sub-section (8) or (9) shall give the Director notice of the application, and the Director is entitled to appear and be heard in person or by counsel., , A corporation shall prepare an alphabetical list of its shareholders entitled to receive notice, of a meeting, showing the number of shares held by each share holder,, (a), , (b), , if a record date is fixed under paragraph 134(1)(c), not later than ten days after that, date; or, if no record date is fixed, on the record date established under paragraph134(2)(a)., , If a record date for voting is fixed under paragraph 134(1)(d), the corporation shall prepare,, no later than ten days after the record date, an alphabetical list of shareholders entitled to, vote as of the record date at a meeting of shareholders that shows the number of shares held, by each shareholder., , If a record date for voting is not fixed under paragraph 134(1)(d), the corporation shall, prepare, no later than ten days after a record date is fixed under paragraph 134(1)(c) or no, later than the record date established under paragraph 134(2)(a), as the case may be, an, alphabetical list of share holders who are entitled to vote as of the record date that shows, the number of shares held by each shareholder., , (3.1) A shareholder whose name appears on a list prepared under subsection (2) or (3) is entitled, to vote the shares shown opposite their name at the meeting to which the list relates., (4), Section 139., , (1), , A shareholder may examine the list of share holders during usual business hours at the, registered office of the corporation or at the place where its central securities register is, maintained; and at the meeting of shareholders for which the list was prepared., , Unless the by-laws otherwise provide, a quorum of share holders is present at a meeting of, shareholders, irrespective of the number of persons actually present at the meeting, if the, holders of a majority of the shares entitled to vote at the meeting are present in person or, represented by proxy.
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Lesson 14 • Global Developments, , (2), (3), (4), , Insider Trading, Section 126., , (1), , 635, , If a quorum is present at the opening of a meeting of shareholders, the shareholders present, may, unless the by-laws otherwise provide, proceed with the business of the meeting,, notwithstanding that a quorum is not present throughout the meeting., , If a quorum is not present at the opening of a meeting of shareholders, the shareholders, present may adjourn the meeting to a fixed time and place but may not transact any other, business., If a corporation has only one shareholder, or only one holder of any class or series of shares,, the shareholder present in person or by proxy constitutes a meeting., , In this Part, “business combination” means an acquisition of all or substantially all the, property of one body corporate by another, or an amalgamation of two or more bodies, corporate, or any similar reorganization between or among two or more bodies corporate;, , “insider” means, except in section 131,, (a), , a Director or officer of a distributing corporation;, , (c), , a Director or officer of a body corporate that enters into a business combination with, a distributing corporation; and, , (b), (d), , a Director or officer of a subsidiary of a distributing corporation;, a person employed or retained by a distributing corporation;, , “officer” means the chairperson of the board of Directors, the president, a vice-president, the, secretary, the treasurer, the comptroller, the general counsel, the general manager, a managing, Director, of an entity, or any other individual who performs functions for an entity similar to those, normally performed by an individual occupying any of those offices;, “share” means a share carrying voting rights under all circumstances or by reason of the occurrence, of an event that has occurred and that is continuing, and includes, (a), , (2), , (b), , a security currently convertible into such a share, and, , currently exercisable options and rights to acquire such a share or such a convertible, security., , For the purposes of this Part,, (a), , (b), (c), , (d), (e), , A Director or an officer of a body corporate that beneficially owns, directly or indirectly,, shares of a distributing corporation, or that exercises control or direction over shares of, the distributing corporation, or that has a combination of any such ownership, control, and direction, carrying more than the prescribed percentage of voting rights attached, to all of the outstanding shares of the distributing corporation not including shares, held by the body corporate as underwriter while those shares are in the course of a, distribution to the public is deemed to be an insider of the distributing corporation;, A Director or an officer of a body corporate that is a subsidiary is deemed to be an, insider of its holding distributing corporation;, A person is deemed to beneficially own shares that are beneficially owned by a body, corporate controlled directly or indirectly by the person;, , A body corporate is deemed to own beneficially shares beneficially owned by its, affiliates; and, , The acquisition or disposition by an insider of an option or right to acquire a share is, deemed to be a change in the beneficial ownership of the share to which the option or, right to acquire relates.
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636, , Lesson 14 • EP-CL, , , , Section 130., , (1), (2), (3), , An insider shall not knowingly sell, directly or indirectly, a security of a distributing, corporation or any of its affiliates if the insider selling the security does not own or has not, fully paid for the security to be sold., , An insider shall not knowingly, directly or indirectly, sell a call or buy a put in respect of a, security of the corporation or any of its affiliates., , Despite sub section (1), an insider may sell a security they do not own if they own another, security convertible into the security sold or an option or right to acquire the security sold, and, within ten days after the sale, they, (a), , (4), , HONG KONG, , exercise the conversion privilege, option or right and deliver the security so acquired, to the purchaser; or, (b) transfer the convertible security, option or right to the purchaser., , An insider who contravenes sub section (1) or (2) is guilty of an offence and liable on, summary conviction to a fine not exceeding the greater of one million dollars and three, times the profit made, or to imprisonment for a term not exceeding six months or to both., , Hong Kong has a significant trading economy and is a center for both multinational and local companies operating, in Asia. Hong Kong companies can easily carrying out business in the Peoples Republic of China and throughout, Asia. Hong Kong incorporated companies are increasingly becoming the chosen entities for conducting trading, activities in Asia as they benefit from a tax friendly environment and business friendly legal system. Hong Kong, Companies are guided by the Hong Kong Companies Ordinance., , Hong Kong Companies Ordinance is enforced by the Company Registry of Hong Kong. The primary functions of the, Hong Kong Company Registry include the incorporation of local companies; the registration of oversea companies;, the registration of documents required to be submitted by registered companies; the deregistration of defunct,, solvent private companies; the prosecution of companies and their officers for breaches of the various regulatory, provisions of the Hong Kong Companies Ordinance; the provision of facilities to inspect and obtain company, information; and advising the Government on policy and legislative issues regarding company law and related, legislation, including the Overall Review of the Hong Kong Companies Ordinance., , Salient features of Hong Kong Companies Ordinance, , Short Title and Commencement (Section 1), (1), (2), , This Ordinance may be cited as the Companies Ordinance., , This Ordinance comes into operation on a day to be appointed by the Secretary for Financial Services and the, Treasury by notice published in the Gazette., , Company Formation and Related Matters, Types of companies (Section 66), , Only the following companies may be formed under this Ordinance –, (a), , a public company limited by shares;, , (c), , a public unlimited company with a share capital;, , (b), (d), (e), , a private company limited by shares;, , a private unlimited company with a share capital;, , a company limited by guarantee without a share capital., , Formation of company (Section 67), (1), , Any one or more persons may form a company by–
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Lesson 14 • Global Developments, , (a), , (b), (2), , 637, , signing the articles of the company intended to be formed; and, delivering to the Registrar for registration–, (i), , (ii), , an incorporation form in the specified form; and, a copy of the articles., , A company may only be formed for a lawful purpose., , Content of incorporation form (Section 68), (1) An incorporation form must–, (a), , in relation to the company intended to be formed, contain the particulars and statements specified in, section 1 of Schedule 2;, , (c), , in relation to each person who is to be a Director of the company on the company’s formation, contain–, , (b), , (d), (e), (f), , in relation to each founder member of the company, contain the particulars specified in section 2 of, Schedule 2;, (i), , (ii), , the particulars specified in section 3 of Schedule 2; and, the statement specified in section 4 of Schedule 2;, , in relation to each person who is to be the Company Secretary, or one of the joint company secretaries,, of the company on that formation, contain the particulars specified in section 5 of Schedule2;, contain the statements specified in section 7 of Schedule 2; and, contain the statement of compliance specified in section 70(1)., , If the company intended to be formed is a company limited by shares or an unlimited company, the incorporation, form must also contain the statement specified in section 8 of Schedule 2., Signing of incorporation form (Section 69), , An incorporation form must be signed by the founder member named in the form or, if 2 or more founder members, are named, by any one of those members., Issue of certificate of incorporation on registration (Section 71), (1), , (2), , On registering an incorporation form and a copy of the articles delivered under section 67(1)(b), the Registrar, must issue a certificate of incorporation certifying that the company—, (a), , (b), , is incorporated under this Ordinance; and, , is a limited company or an unlimited company., , A certificate of incorporation must be signed by the Registrar., , Conclusiveness of certificate of incorporation (Section 72), A certificate of incorporation is conclusive evidence that(a), , (b), , all the requirements of this Ordinance in respect of the registration of the company have been complied, with; and, the company is registered under this Ordinance., , Effect of incorporation (Section 73), (1), , On and after the date of incorporation stated in the certificate of incorporation, the founder members, and, any other persons who may from time to time become the company’s members, are a body corporate with, the name stated in the certificate or, if a change of name has effect under section 107, 110, 770 or 772, with, the new name.
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638, , (2), (3), , Lesson 14 • EP-CL, , , , On and after the date of incorporation, the body corporate is capable of exercising all the functions of an, incorporated company, and has perpetual succession., , On and after the date of incorporation, the founder members, and any other persons who may from time to, time become the company’s members, are liable to contribute to the assets of the company in the event of, the company being wound up as is mentioned in the Companies (Winding Up and Miscellaneous Provisions), Ordinance., , Share Capital – Nature of Shares, , Nature and transferability of shares (Section 134), A share or other interest of a member in a company is personal property., , A share or other interest of a member in a company is transferable in accordance with the company’s articles., No nominal value (Section 135), 1., 2., , Shares in a company have no nominal value., , This section applies to shares issued before the commencement date of this section as well as shares, issued on or after that date., , Allotment and Issue of shares, , Exercise by Directors of power to allot shares or grant rights (Section 140), (1), (2), , Except in accordance with section 141, the Directors of a company must not exercise any power—, (a), , (b), , to allot shares in the company; or, , to grant rights to subscribe for, or to convert any security into, shares in the company., , Subsection (1) does not apply to –, (a), , an allotment of shares, or grant of rights, under an offer made to the members of the company in, proportion to their share holdings;, , (c), , an allotment to a founder member of a company of shares that the member, by signing the company’s, articles, has agreed to take; or, , (b), , (d), , an allotment of shares, or grant of rights, on a bonus issue of shares to the members of the company in, proportion to their shareholdings;, an allotment of shares made in accordance with a grant of a right to subscribe for, or to convert any, security into, shares if the right was granted in accordance with an approval under section 141., , (3), , For the purposes of subsection (2)(a), the offer is not required to be made to any member whose address is, in a place where the offer is not permitted under the law of that place., , (5), , A Director who commits an offence under sub-section (4) is liable to a fine at level 5 and to imprisonment for, 6 months., , (4), , (6 ), , A Director commits an offence if the Director knowingly contravenes, or authorizes or permits a contravention, of, this section., Nothing in this section or section 141 affects the validity of an allotment or other transaction., , Registration of allotment (Section 143), (1), (2), , A company must register an allotment of shares as soon as practicable and in any event within 2 months after, the date of the allotment, by entering in the register of its members the information referred to in section, 627(2) and (3)., If a company fails to register an allotment of shares within 2 months after the date of the allotment, the company,
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Lesson 14 • Global Developments, , 639, , and every responsible person of the company, commit an offence, and each is liable to a fine at level 4 and, in the, case of a continuing offence, to a further fine of $700 for each day during which the offence continues., , Transfer and Transmission of Shares – Transfer of Shares, Requirement for instrument of transfer (Section 150), (1), (2), , A company must not register a transfer of shares in the company unless a proper instrument of transfer has, been delivered to the company., , Sub-section (1) does not affect any power of a company to register as a member a person to whom the right, to shares has been transmitted by operation of law., , Registration of transfer or refusal of registration (Section 151), (1), (2), (3), (4), (5), , The transferee or transferor of shares in a company may lodge the transfer with the company., Within 2 months after the transfer is lodged, the company must either—, (a), , (b), , register the transfer; or, , send the transferee and the transferor notice of refusal to register the transfer., , If a company refuses registration, the transferee or transferor may request a statement of the reasons for the, refusal., If are quest is made under sub-section (3), the company must, within 28 days after receiving the request –, (a), , (b), , send the person who made the request a statement of the reasons; or, register the transfer., , If a company contravenes sub-section (2) or (4), the company and every responsible person of the company,, commit an offence, and each is liable to a fine at level 4 and, in the case of a continuing offence, to a further, fine of $700 for each day during which the offence continues., , Permitted alteration of share capital (Section 170), (1), (2), , A limited company may alter its share capital in any one or more of the ways set out in sub-section (2)., The company may–, (a), , increase its share capital by allotting and issuing new shares in accordance with this Part;, , (c), , capitalize its profits, with or without allotting and issuing new shares;, , (b), (d), (e), (f), , (3), (4), , increase its share capital without allotting and issuing new shares, if the funds or other assets for the, increase are provided by the members of the company;, allot and issue bonus shares with or without increasing its share capital;, convert all or any of its shares into a larger or smaller number of shares;, cancel shares—, (i), , (ii), , that, at the date the resolution for cancellation is passed, have not been taken or agreed to be, taken by any person; or, that have been forfeited., , A limited company may alter its share capital as referred to in sub-section (2)(e) or (f) only by resolution of, the company., A resolution referred to in subsection (3) may authorize the company to exercise the power—, (a), , (b), , on more than one occasion;, , at a specified time or in specified circumstances.
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640, , (5), , , , Lesson 14 • EP-CL, , Any amount remaining unpaid on shares being converted under subsection (2)(e) is to be divided equally, among the replacement shares., (6) If shares are cancelled under sub-section (2)(f), the company must reduce its share capital by the amount of, the shares cancelled., (7) For the purposes of Part 5, a cancellation of shares under this section is not a reduction of share capital., (8) A limited company’s articles may exclude or restrict the exercise of a power conferred by this section., Directors and Company Secretaries – Requirement to have Directors, Public company and company limited by guarantee required to have at least 2 Directors (Section 453), (1) This section applies to –, (a), a public company; and, (b), a company limited by guarantee., (2) The company must have at least 2 Directors., (3) With effect from the date of incorporation of the company, the first Directors of the company are the persons, named as the Directors in the incorporation form delivered to the Registrar under section 67(1)., (4) A person who is deemed to be a Director of the company under section 153(2) of the pre-amended predecessor, Ordinance immediately before the commencement date of this section continues to be deemed to be a, Director of the company as if section19 (1) of Schedule 2 to the Companies (Amendment) Ordinance 2004, had not been enacted, until a notice of appointment of a Director is delivered to the Registrar in accordance, with section 645(1)., (5) If a power specified in subsection (6) is exercisable by a Director under the company’s articles where the, number of Directors is reduced below the number fixed as the necessary quorum of Directors, the power is, exercisable also where the number of Directors is reduced below the number required by subsection(2)., (6) The power specified for the purposes of sub-section (5) is a power to act for the purpose of—, (a), increasing the number of Directors; or, (b), calling a general meeting of the company, but not for any other purpose., Private company required to have at least one Director (Section 454), (1) A private company must have at least one Director., (2) With effect from the date of incorporation of a private company, the first Directors of the company are the, persons named as the Directors in the incorporation form delivered to the Registrar under section 67(1)., (3) A person who is deemed to be a Director of a private company under section 153A(2) of the pre-amended, predecessor Ordinance immediately before the commencement date of this section continues to be deemed, to be a Director of the company as if section 20 (1) of Schedule 2 to the Companies (Amendment) Ordinance, 2004 (30 of 2004) had not been enacted, until a notice of appointment of a Director is delivered to the, Registrar in accordance with section 645(1)., , Appointment of Directors, Minimum age for appointment as Director (Section 459), (3) A person must not be appointed a Director of a company unless at the time of appointment the person has, attained the age of 18 years., (2) An appointment made in contravention of sub-section (1) is void., (3), , Nothing in this section affects any liability of a person under any provision of this Ordinance or the Companies, (Winding-Up and Miscellaneous Provisions) Ordinance if the person–
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Lesson 14 • Global Developments, , (a), , (b), , 641, , purports to act as a Director; or, acts as a shadow Director,, , although the person could not, by virtue of this section, be appointed as a Director., , Appointment of Directors to be voted on individually (Section 460), (1), (2), (3), (4), (5), , This section applies to –, (a), , (b), , a public company; and, , a company limited by guarantee., , At a general meeting of the company,a motion for the appointment of 2 or more persons as Directors of the, company by a single resolution must not be made, unless a resolution that it may be so made has first been, passed at the meeting without any vote against it., Are solution moved in contravention of subsection (2) is void, whether or not its being so moved was objected, to at the time., , Despite the fact that the resolution is void, no provision (whether contained in a company’s articles or in any, contract with the company or otherwise) for the automatic reappointment of retiring Directors in default of, another appointment applies., , For the purposes of this section, a motion for approving a person’s appointment, or for nominating a person, for appointment, is to be regarded as a motion for the appointment of the person., , Removal and Resignation of Directors, , Resolution to remove Director (Section 462), (1), , A company may by an ordinary resolution passed at a general meeting remove a Director before the end of, the Director’s term of office, despite anything in its articles or in any agreement between it and the Director., , (3), , Subsections (4),(5),(6),(7) and (8) apply in relation to a removal of a Director by resolution, irrespective of, whether the removal by resolution is under subsection (1) or otherwise., , (2), , (4), , Subsection (1) does not, if the company is a private company, authorize the removal of a Director who has, held office for life since 31 August, 1984., Special notice is required of a resolution–, (a), , (b), , to remove a Director; or, , to appoint some body in place of a Director so removed at the meeting at which the Director is removed., , (5), , A vacancy created by the removal of a Director, if not filled at the meeting at which the Director is removed,, may be filled as a casual vacancy., , (7), , In relation to a resolution to remove a Director before the end of the Director’s term of office, no share may, on, a poll, carry a greater number of votes than it would carry in relation to the generality of matters to be voted, on at a general meeting of the company., , (6), , (8), (9), , A person appointed Director in place of are moved Director is to be regarded, for the purpose of determining, the time at which that person or any other Director is to retire, as if that person had become Director on the, day on which the person removed was last appointed a Director., , If a share carries special voting rights (that is to say, rights different from those carried by other shares) in, relation to some matters but not others, the reference in subsection (7) to the generality of matters to be, voted on at a general meeting of the company is to be construed as a reference to the matters in relation to, which the share carries no special voting right., This section is not to be regarded as depriving a person of compensation or damages payable to the person in, respect of the termination of –
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642, , , , (a), , (b), , the person’s appointment as Director; or, , Lesson 14 • EP-CL, , any appointment terminating with that as Director., , Resignation of Director (Section 464), (1), , A Director of a company may, unless it is otherwise provided in the articles of the company or by any, agreement with the company, resign as Director at anytime., , (3), , Despite sub-section (2), if the Director resigning has reasonable grounds for believing that the company will, not deliver the notice, the Director resigning must deliver to the Registrar for registration a notice of the, resignation in the specified form., , (2), , (4), , (5), , If a Director of a company resigns, the company must deliver a notice of the resignation to the Registrar in the, manner required by section 645(4)., , The notice required to be delivered under subsection (3) must state –, (a), , (b), , whether the Director resigning is required by the articles of the company or by any agreement with, the company to give notice of resignation to the company; and, if notice is so required, whether the notice has been given in accordance with the requirement., , If notice of the resignation of a Director of a company is required to be given by the articles of the company or, by any agreement with the company, the resignation does not have effect unless the Director gives notice in, writing of the resignation–, (a), , in accordance with the requirement;, , (c), , by sending it to the company in hard copy form or in electronic form., , (b), , by leaving it at the registered office of the company; or, , Appointment of Auditor, , Eligibility for appointment (Section 393), (1), (2), , Only a practice unit is eligible for appointment as auditor of a company under this Sub-division., , The following are disqualified for appointment as auditor of a company under this Sub-division–, (a), , a person who is an officer or employee of the company;, , (c), , a person who –, , (b), , a person who is a partner or employee of a person mentioned in paragraph(a);, (i), , (ii), , is, by virtue of paragraph (a) or (b), disqualified for appointment as auditor of any other, undertaking that is a subsidiary undertaking, or a parent undertaking, of the company or is a, subsidiary undertaking of that parent undertaking; or, would be so disqualified if the undertaking were a company., , (3), , In this section, a reference to an officer or employee of a company excludes an auditor of the company, , (1), , An auditor must be appointed for each financial year of a company., , Auditor must be appointed for each financial year (Section 394), (2), , An auditor may be appointed only under this Sub-division., , Termination of Auditor’s Appointment, , When appointment is terminated (Section 416), (1), , A person’s appointment as auditor of a company is terminated if–
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Lesson 14 • Global Developments, , (a), , the term of office expires;, , (c), , the person ceases to be auditor under section 418;, , (b), (d), (2), , (3), (4), , (e), , 643, , the person resigns from office under section 417(1);, the person is removed from office under section 419(1);or, a winding up order is made in respect of the company., , Where a firm is appointed, by the firm name, as auditor of a company, the appointment is also terminated if, every person who is regarded as being appointed as auditor by virtue of section 399—, (a), , (b), , ceases to be a partner in the firm before the term of office expires; or, , ceases to be eligible, or becomes disqualified, for appointment as auditor of the company under, Subdivision 2 before the term of office expires., , Where a body corporate is appointed as auditor of a company, the appointment is also terminated if the body, corporate is dissolved., , If 2 or more persons are appointed as auditor of a company, and the appointment of any of the persons is, terminated, the termination does not affect the appointment of the other person., , Resignation of auditor (Section 417), (1) A person may resign from the office of auditor by giving the company a notice in writing that is accompanied, by a statement required to be given under section 424., (2), (3), (4), , Such a person’s term of office expires–, (a), , (b), , at the end of the day on which notice is given to the company under sub-section (1);or, if the notice specifies a time on a later day for the purpose, at that time., , Within 15 days beginning on the date on which a company receives a notice of resignation, the company must, deliver a notification in the specified form of that fact to the Registrar for registration., If a company contravenes subsection (3), the company and every responsible person of the company, commit, an offence, and each is liable to a fine at level 5 and to imprisonment for 6 months and, in the case of a, continuing offence, to a further fine of $1,000 for each day during which the offence continues., , SINGAPORE, , The Companies Act of Singapore was first enacted in 1967. It has been subjected to numerous piece meal amending, legislations effected from time to time. In view of technological advancements, globalization and the regional, economies undergoing massive changes, the Government saw that a major revamp of the Companies Act was due., , Hence, the Company Legislation and Regulatory Framework Committee (CLRFC) was formed in December 1999. It, was asked to modernize Singapore’s company and business regulatory framework and to recommend one which, will promote a competitive economy., , The Committee delivered its final report in early October 2002 and all its 77 recommendations were accepted, by the Government. Since then the Singapore Companies Act has been amended three times to give effect to the, recommendations of the CLRFC, the major being Amendment Acts of 2004 and 2005., Salient features of Singapore Companies Act, Formation of companies (Section 17), (1), (2), , Any person may, whether alone or together with another person, by subscribing his name or their names to, a constitution and complying with the requirements as to registration, form an incorporated company., A company may be –, (a), , a company limited by shares;
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644, , , , (b), (3), , (c), , a company limited by guarantee; or, , Lesson 14 • EP-CL, , an unlimited company., , No company, association or partnership consisting of more than 20 persons can be formed for the purpose, of carrying on any business that has for its object the acquisition of gain by the company, association or, partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is, formed in pursuance of some other written law in Singapore or letters patent., , Minimum of one member (Section 20 A), , A company must have at least one member., No par value shares (Section 62A), , All shares, whether issued before, on or after 30th January 2006 have no par value., Treasury Shares (Section 76H), , Where ordinary shares or stocks are purchased or otherwise acquired by a company in accordance with the, provisions of the Act, the company may –, (a), , (b), , hold the shares or stocks (or any of them);or, , deal with any of them, at any time, as provided hereunder., , Where ordinary shares or stocks are held under subsection (1)(a) then, for the purposes of section 190 (Register, and index of members) and section 196A (Electronic register of members), the company shall be entered in the, register as the member holding those shares or stocks., Treasury Shares: Disposal and cancellation (Section 76K), , Where shares are held as treasury shares, the company may at any time–, (a), , sell the shares (or any of them) for cash;, , (c), , transfer the shares (or any of them) as consideration for the acquisition of shares in or assets of, another company or assets of a person;, , (b), , (d), (e), , transfer the shares (or any of them) for the purposes of or pursuant to any share scheme, whether for, employees, directors or other persons;, cancel the shares (or any of them);or, , sell, transfer or otherwise use the treasury shares for such other purposes as the Minister may by, order prescribe., , Treasury Shares: Maximum Holdings (Section 76I), , Where a company has shares of only one class, the aggregate number of shares held as treasury shares shall not at, any time exceed 10% of the total number of shares of the company at that time., , Where the share capital of a company is divided into shares of different classes, the aggregate number of the shares, of any class held as treasury shares shall not at any time exceed 10% of the total number of the shares in that class, at that time., Treasury Shares: Voting and Other Rights (Section 76J), (1), (2), , This section shall apply to shares which are held by a company as treasury shares., , The company shall not exercise any right in respect of the treasury shares and any purported exercise of such, a right is void.
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Lesson 14 • Global Developments, , (3), (4), (5), , The above said right include any right to attend or vote at meetings and for the purposes of this Act, the, company shall be treated as having no right to vote and the treasury shares shall be treated as having no, voting rights., , No dividend may be paid, and no other distribution (whether in cash or otherwise) of the company’s assets, (including any distribution of assets to members on a winding up) may be made, to the company in respect of, the treasury shares., Nothing in this section is to be taken as preventing –, (a), , (b), (6), , 645, , an allotment of shares as fully paid bonus shares in respect of the treasury shares; or, , the subdivision or consolidation of any treasury share into treasury shares of a greater or smaller, amount, if the total value of the treasury shares after the sub-division or consolidation is the same as, the total value of the treasury share before the subdivision or consolidation, as the case may be., , Any shares allotted as fully paid bonus shares in respect of the treasury shares shall be treated for the purpose, of this Act as if they were purchased by the company at the time they were allotted, in circumstances in which, section 76H applied., , Company may have duplicate common seal (Section 124), , A company may, if authorized by its constitution, have a duplicate common seal which shall be a facsimile of the, common seal of the company with the addition on its face of the words “Share Seal” and a certificate under such, duplicate seal shall be deemed to be sealed with the common seal of the company for the purposes of this Act., Power to entrench provisions of memorandum and articles of company (Section 26 A), (1) An entrenching provision may–, (a), , (b), , be included in the constitution with which a company is formed; and, , at any time be inserted in the constitution of a company only if all the members of the company agree., , (2), , An entrenching provision may be removed or altered only if all the members of the company agree., , (4), , In this section, “entrenching provision” means a provision of the constitution of a company to the effect that, other specified provisions of the constitution –, , (3), , The provisions of this Act relating to the alteration of the constitution of a company are subject to any, entrenching provision in the constitution of a company., (a), , (b), , may not be altered in the manner provided by this Act; or, may not be so altered except–, (i), , (ii), , by a resolution passed by a specified majority greater than 75% (the minimum majority, required by this Act for a special resolution); or, where other specified conditions are met., , Company auditors (Section 10), (1), (2), (3), , No person other than an accounting entity shall —, (a), , (b), , knowingly consent to be appointed as auditor for a company; or, knowingly act as an auditor for a company., , Without prejudice to the generality of sub-section (1)(b), a person acts as an auditor for a company if the, person prepares any report required by this Act to be prepared by an auditor of the company., , No company or person shall appoint an accounting entity as an auditor of a company without obtaining the, accounting entity’s prior consent.
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646, , (4), , For the purposes of subsection (3), the consent —, (a), , of a public accountant shall be in writing signed by the public accountant;, , (c), , of an accounting corporation shall be in writing signed by at least one Director of the corporation., , (b), (5), (6), , Lesson 14 • EP-CL, , , , of an accounting firm, or an accounting limited liability partnership, shall be in writing signed by at, least one partner of the firm or limited liability partnership; and, , Where an accounting firm is appointed as auditor of the company in the name of the accounting firm, the, appointment shall take effect and operate as if the partners of the firm at the time of the appointment, who, are public accountants at that time, are appointed as auditors of the company., Where an accounting corporation is appointed as auditor of the company in the name of the corporation, the, appointment shall take effect and operate as if —, (a), , (b), , the Directors of the corporation who are practicing as public accountants in the corporation (whether, Directors at the time the accounting corporation was appointed as auditor or later); and, , the employees of the corporation who are practicing as public accountants in the corporation (whether, employed at the time the accounting corporation was appointed as auditor or later), are appointed as, auditors of the company., , Directors (Section 145), (1), (2), , Every company must have atleast one Director who is ordinarily resident in Singapore and, where the, company has only one member, that sole Director may also be the sole member of the company., , No person other than a natural person who has attained the age of 18 years & who is otherwise of full legal, capacity shall be a Director of a company., , As to the duty and liability of officers (Section 157), (1), (2), , A Director shall at all times act honestly and use reasonable, diligence in the discharge of the duties of his office., , An officer or agent of a company shall not make improper use of, any information acquired by virtue of his position as an officer or, agent of the company to gain, directly or indirectly, an advantage, for himself or for any other person or to cause detriment to the, company., , Powers of Directors (Section157A), (1), (2), , Penalty for breach of the duties :, Liability to the company for the, profit or damage made Conviction, to fine not exceeding $5,000 or, to imprisonment for a term not, exceeding 12 months., , The business of a company shall be managed by or under the direction or supervision of the Directors., , The Directors may exercise all the powers of a company except any power that this Act or the constitution of, the company requires the company to exercise in general meeting., , Secretary (Section 171), (1), , Every company shall have one or more secretaries each of whom shall be a natural person who has his, principal or only place of residence in Singapore., , (1A) It shall be the duty of the Directors of a company to take all reasonable steps to secure that each secretary of, the company is a person who appears to them to have the requisite knowledge and experience to discharge, the functions of secretary of the company., (1AA) In addition, it shall be the duty of the Directors of a public company to take all reasonable steps to secure that, each secretary of the company is a person who –, (a), , On15 May, 1987 held the office of secretary in that company and continued to hold that office on 15, May, 2003; or
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Lesson 14 • Global Developments, , (b), , 647, , Satisfies such requirements relating to experience, professional and academic requirements and, membership of professional associations, as may be prescribed., , (1AB) The Registrar may require a private company to appoint a person who satisfies either of above as its secretary, if he is satisfied that the company has failed to comply with any provision of this Act with respect to the, keeping of any register or other record., (1B) Any person who is appointed by the Directors of a company as a secretary shall, at the time of his appointment,, by himself or through a prescribed person authorized by him, file with the Registrar a declaration in the, prescribed form that he consents to act as secretary and providing the prescribed particulars., (1E) Where a Director is the sole Director of a company, he shall not act or be appointed as the secretary of the, company., Annual general meeting (Section 175), (1), , (2), , A general meeting of every company to be called the “annual general meeting” must, in addition to any other, meeting, be held after the end of each financial year within —, (a), , (b), , 4 months in the case of a public company that is listed; or, 6 months in the case of any other company., , The Registrar may extend the period mentioned in sub-section (1)(a) or (b) —, (a), , (b), , upon an application by the company, if the Registrar thinks there are special reasons to do so; or, in respect of any prescribed class of companies., , Subject to notice being given to all persons entitled to receive notice of the meeting, a general meeting may be held, at any time and the company may resolve that any meeting held or summoned to be held shall be the annual general, meeting of the company., When private company need not hold annual general meeting (Section 175A), A company need not hold an annual general meeting for a financial year —, (a), , if it is a private company in respect of which there is in force a resolution passed in accordance with subsection, (2) to dispense with the holding of annual general meetings;, , (c), , if, at the end of that financial year, it is both a private company and a dormant relevant company the directors, of which are, under section 201A, exempt from the requirements of section 201 for the financial year., , (b), , if, at the end of that financial year, it is a private company and has sent to all persons entitled to receive notice, of general meetings of the company the documents mentioned in section 203(1) within the period specified, in section 203(1)(b); or, , Audit Committees (Section 201B), (1) Every listed company shall have an audit committee., (2), , An audit committee shall be appointed by the Directors from among their number (pursuant to a resolution, of the Board of Directors) and shall be composed of 3 or more members of whom a majority shall not be –, (a), , executive Directors of the company or any related corporation;, , (c), , any person having a relationship which, in the opinion of the board of Directors, would interfere with, the exercise of independent judgment in carrying out the functions of an audit committee., , (b), , (3), , a spouse, parent, brother, sister, son or adopted son or daughter or adopted daughter of an executive, Director of the company or of any related corporation; or, , The members of an audit committee shall elect a chairman from among their number who is not an executive, Director or employee of the company or any related corporation.
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648, , (4), , (5), (6), , , , The functions of an audit committee shall be:, (a), , (b), , Lesson 14 • EP-CL, , to review –, (i), with the auditor, the audit plan;, (ii) with the auditor, his evaluation of the system of internal accounting controls;, (iii) with the auditor, his audit report;, (iv) the assistance given by the company’s officers to the auditor;, (v), the scope and results of the internal audit procedures; and, (vi) the financial statements of the company and, if it is a parent company, the consolidated financial, statements, submitted to it by the company or the parent company, and thereafter to submit, them to the Directors of the company or parent company; and, to nominate a person or persons as auditor, together with such other functions as may be agreed to by, the audit committee and the board of Directors., , Upon the request of the auditor, the chairman of the audit committee shall convene a meeting of the, committee to consider any matters the auditor believes should be brought to the attention of the Directors or, shareholders., Where the Directors of the company or of a parent company are required to make a statement and the, company is a listed company, the Directors shall describe in the statement the nature and extent of the, functions performed by the audit committee- Singapore Code of Corporate Governance 2018: A Brief of, Corporate Governance in Singapore., , The Code was first issued by the Corporate Governance Committee (“CGC”) on 21 March 2001. Listed companies, are required under the Singapore Exchange Listing Rules to disclose their corporate governance practices and give, explanations for deviations from the Code in their annual reports. The Code was subsequently revised on 14 July, 2005, and again on 2 May 2012., On 28 February 2017, the Corporate Governance Council (“Council”) was established to conduct a comprehensive, review of the Code. On 6 Aug 2018, the Council submitted its recommendations to MAS. MAS accepted all the, recommendations and issued a revised Code (“2018 Code”), and accompanying Practice Guidance. The 2018 Code, supersedes and replaces the Code that was issued in May 2012. The 2018 Code applies to Annual Reports covering, financial years commencing from 1 January 2019., On 12 February 2019, MAS established the Corporate Governance Advisory Committee (CGAC) as a permanent,, industry-led body to advocate good corporate governance practices among listed companies in Singapore. The, CGAC will identify current and potential risks to the quality of corporate governance in Singapore, and monitor, international trends. The CGAC will also revise the Practice Guidance to clarify the Code from time to time, and, recommend updates to the Code. The CGAC will not carry regulatory or enforcement powers or provide opinion on, ongoing cases and investigations., , Scheme of Implementation
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Lesson 14 • Global Developments, , 649, , Objectives or focused areas of code, , Effective and Future Ready Board, Well- rounded and competent Boards with diverse Perspectives, Engaged Stakeholders, Inclusive approach beyond shareholders, , Transparent Remuneration Practices, Align Remuneration to long term objectives and performance, Supportive Ecosystem, Advocacy Initiatives to support companies, , Facilitative Framework, Support Constructive and purposeful corporate governance practices, , Director Independence & Board Composition, Definition of independence, Two-tiered shareholder vote to approve Independent Directors (IDs) who have served beyond 9-years. Requires, majority:, I., , II., , All shareholders, , All shareholders (excluding shareholders who served as directors or the CEO (and their associates), , Substantial shareholder from 10% to 5%., Mandating core tests of independence:, •, •, , Director employed by company (or related corporations) during past 3 years, , Director’s family member employed by company (or related corporations) during past 3 years (with family, member remuneration determined by Remuneration Committee (RC))-, , Board composition:, •, , At least one-third IDs, , •, , Majority of Non-Executive Directors (NEDs) Chairman & CEO, , •, •, •, •, , Majority IDs (where Chairman is not independent) – up from at least half, Disclose if Chair and CEO related, , Chair and CEO are separate persons, , Definition of Chairman independence to include ‘close family ties’, , Diversity:, •, , Disclose board diversity policy, including measureable objectives and progress made.
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650, , , , Board Structure & Protocols, , Lesson 14 • EP-CL, , Board Committees:, •, •, , Establish Audit Committee (AC), Nominating Committee and RC with terms of reference (ToR)., Disclose names, ToR, authority and activities., , Culture and Ethics:, •, , Board puts in place a code of conduct and ethics, sets the tone from-the-top and desired organisational culture., , •, , Disclose key information on directors (appointment or reappointment of directors)., , •, , Directors with no prior experience of a listed issuer on the Exchange must undergo training., , Director Information:, Training:, , Audit Committee, , Internal Audit (IA):, •, •, , Establish independent and adequately resourced IA function., Review adequacy, effectiveness, independence of IA., , External Audit (EA):, •, , Review adequacy, effectiveness and independence, scope and results of EA., , •, , In respect of appointments and re-appointments of external auditors, the AC should evaluate the performance, of the external auditor, taking into consideration the Audit Quality Indicators Disclosure Framework published, by the Accounting and Corporate Regulatory Authority (ACRA)., , •, , 2-year cooling-off period for partners/directors of audit firms to serve on AC., , Whistleblowing:, •, , Publicly disclose whistleblowing policy, ensure matters are ‘safely raised’ and communicate to employees., , Risk Management and Internal Controls, , Board’s comment:, •, Board to comment on adequacy and effectiveness of internal controls and risk management systems., •, , Disclose material weaknesses., , •, , Assurances from CEO and other ‘key management personnel’ who may be responsible on the adequacy and, effectiveness of internal controls and risk management systems., , Assurances:, , Shareholders & Stakeholders, , Shareholders:, •, •, , Disclose director AGM attendance., , Publish minutes of AGM on website., , Dividends:, •, •, , Establish and communicate dividend policy., Disclose reason not to declare a dividend.
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Lesson 14 • Global Developments, , 651, , Stakeholders:, •, , Identify, engage with and manage material stakeholder groups., , •, , Maintain a current corporate website., , •, , Disclose strategy and key areas of focus in managing stakeholder relationships., , Remuneration, , Value creation:, •, , Companies to disclose link between remuneration and value creation., , •, , Remuneration disclosures for at least the top five KMP (who are not directors or the CEO) should specify the, names, amounts and breakdown of remuneration in bands no wider than S$250,000., , •, , Disclose employee remuneration in bands of $100k (substantial shareholder links)., , Employee remuneration:, •, , Disclose employee remuneration in bands of $100k (immediate family members of director or CEO) – up, from $50k., , FINLAND, , THE FINNISH CG CODE, 2020, The new Corporate Governance Code for Finnish listed companies (“2020 CG Code”) entered into force from 01, January 2020 replacing the previous CG Code applied since 2016 (“2015 CG Code”). The purpose of the Corporate, Governance Code is to harmonize the procedures of listed companies and to promote openness with regard to, corporate governance and remuneration. From the perspective of a shareholder and an investor, the Corporate, Governance Code increases the transparency of corporate governance and the ability of shareholders and investors, to evaluate the practices applied by individual companies. The Corporate Governance Code also provides investors, with an overview of the kinds of corporate governance practices that are acceptable for Finnish listed companies., , While the number of recommendations in the 2020 CG Code has decreased, the 2020 CG Code introduces additional, requirements on listed companies, in particular in relation to remuneration and related party transactions as, required by the Shareholders’ Rights Directive and the national rules implementing the Directive. The 2020 CG, Code also introduces changes to the recommendation concerning the audit committee and clarifications to the, recommendation concerning the assessment and disclosure of independence of board members. For example,, the company’s remuneration statement has been replaced by the remuneration policy for governing bodies, (“remuneration policy”) and remuneration report for governing bodies (“remuneration report”), which are, supplemented by information provided on the company’s website. The remuneration policy and report concern the, company’s board of directors, supervisory board, if any, and the managing director and deputy managing director., Information on the remuneration of the rest of the management team will in future be provided on the company’s, website. The remuneration reporting section also includes a checklist to clarify the reporting obligations. Similarly,, the board must in future report which of the board members are independent of the company and which are, independent of the company’s significant shareholders. In addition, the reasoning for determining that a board, member is not independent must also be reported. The criteria to be taken into account in the overall assessment, of independence have also been supplemented so that under the interpretation of the criteria, the benefits paid, and offered to a member of the board by a shareholder otherwise than on the basis of an employment or service, relationship may require assessment., The Finnish Securities Market Association’s board adopted the amended and updated CG Code in September 2019., As a result of which the new 2020 CG Code came into force in January 2020 replacing the previous Finnish CG Code., The ‘comply or explain’ principle applies to the CG Code. Thus, the starting point is that the company must comply, with all recommendations set out in the CG Code.
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652, , , , Which companies must comply with the CG Code?, , Lesson 14 • EP-CL, , The Finnish CG Code is applicable to all companies that are listed on Nasdaq Helsinki Ltd (Helsinki Stock Exchange)., According to the Rules of the Helsinki Stock Exchange, all issuers of shares that are traded on the official list must, comply with the CG Code., , However, issuers of securities other than shares, as well as companies whose shares are listed, for example, on the, Nasdaq First North Growth Market Finland (First North) marketplace, are not obliged to comply with the CG Code., Pursuant to the Securities Market Act, issuers of other securities traded on a regulated market, such as issuers of, bonds, must include a CG statement in the management report or in a separate report. These and the companies, traded on the First North marketplace may, of course, voluntarily apply the CG Code, either in full or partly., The ‘Comply or Explain’ Principle, , The ‘comply or explain’ principle applies to the CG Code. Thus, the starting point is that the company must comply, with all recommendations set out in the CG Code., , The company may, however, depart from the specific recommendations, provided that it has good reasons for, doing so. In these cases, the company must, in accordance with the ‘comply or explain’ principle, report which, recommendations it is departing from and why, as well as how the decision to depart from the recommendations, was made., In other words, the company is deemed to comply with the CG Code even if it departs from individual, recommendations, provided that the departures are reported and explained., The company must provide information about its compliance with the CG Code and any departures from it, including, reasons for them, on its website and in its annual CG Statement., , It should be noted, however, that as opposed to the recommendations of the CG Code, the requirements presented, in the reporting section cannot be derogated from based on the ‘comply or explain’ principle., Key Changes, , Remuneration reporting – remuneration policy and report for governing bodies, The structure of the remuneration section has been revised to correspond to the requirements of the Second, Shareholder Rights Directive, and for example, the company’s remuneration statement has been replaced by, the remuneration policy for governing bodies (“remuneration policy”) and remuneration report for governing, bodies (“remuneration report”), which are supplemented by information provided on the company’s website., The remuneration policy and report concern the company’s board of directors, supervisory board, if any, and the, managing director and deputy managing director. Information on the remuneration of the rest of the management, team will in future be provided on the company’s website. The remuneration reporting section also includes a, checklist to clarify the reporting obligations., , The point of departure in reporting remains that all requirements arising from legislation are included in the, mandatory reporting section of the Corporate Governance Code. This means that, as opposed to the recommendations, of the Corporate Governance Code, the requirements presented in the Reporting section cannot be derogated from, based on the ‘comply or explain’ principle. The section on remuneration remains its own section at the end of the, Corporate Governance Code following the Recommendations section., Audit Committee, Recommendation 16 (and Recommendation 8), , The recommendation concerning the audit committee and the rationale for it have been clarified to comply with, existing legislation with respect to the requirement concerning the competence and expertise of members of the, audit committee (see also the addition to the rationale of Recommendation 8). In addition, the mandatory duties, of the audit committee, such as duties relating to auditing and other duties, have been clarified in the text of the, rationale of this recommendation.
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Lesson 14 • Global Developments, , 653, , Related Party Transactions, Recommendation 27, The recommendation and its rationale have been revised in their entirety. In the future, the recommendation, requires that companies define and report their principles for monitoring and assessing related party transactions., The purpose of the principles is to ensure proper decision making in related party transactions in accordance with, the new requirements of the Limited Liability Companies Act., Independence of Directors, Recommendation 10, , Recommendation 10 concerning the independence of members of the Board of Directors has been clarified with, respect to carrying out and reporting the assessment of independence. According to the recommendation, the board, must in future report which of the board members are independent of the company and which are independent, of the company’s significant shareholders. In addition, the reasoning for determining that a board member is not, independent must also be reported. The criteria to be taken into account in the overall assessment of independence, have also been supplemented so that under the interpretation of the criteria, the benefits paid and offered to a, member of the board by a shareholder otherwise than on the basis of an employment or service relationship may, require assessment., Descriptions of the Duties of the Remuneration Committee, Nomination Committee and Shareholders’ Nomination, Board, Recommendations 17, 18, and 19., , An addition has been made to the recommendation and rationale relating to the remuneration committee that states, that the remuneration committee prepares the remuneration policy and remuneration report for the company’s, governing bodies., , Furthermore, the lists of example duties of the remuneration and nomination committees and the shareholders’, nomination board contained in the rationales for the respective recommendations have been somewhat revised., For example, the preparation of the Board of Directors’ diversity principles has been added to the description of the, optional duties of the nomination committee and shareholders’ nomination board., Management Team, , Recommendation 21, which concerned other executives, has been removed and replaced with instructions, concerning the rest of the management team as part of the reporting section. The term ‘other executives’ is no, longer used in the Corporate Governance Code in general, and has been replaced by the more accurate ‘rest of the, management team’, which refers to the company’s management team with the exclusion of the managing director., Information on the remuneration of the rest of the management team is no longer part of the remuneration report,, but is provided on the company’s website., Repealed Recommendations and Certain Other Changes, , Recommendations 21 (Organisation of the Other Executives) and 24 (Structure of the Remuneration) of the 2015, Corporate Governance Code have been removed. The contents of these recommendations have, in practice, been, transferred to the section dealing with remuneration reporting. In addition, the numbering of two recommendations, has been changed: the recommendation concerning the nomination committee is numbered 18 (18a), and the, recommendation concerning the shareholders’ nomination board is numbered 19 (18b). The Corporate Governance, Code has a total of 27 recommendations.
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654, , Lesson 14 • EP-CL, , , , LESSON ROUND-UP, •, , •, , •, , It is increasingly being recognized that the framework for regulation of corporate entities must facilitate, companies to operate in a national and global context, encourage good corporate governance and enable, protection of interests of investors, employees, creditors as well as boost economy as a whole. In the, competitive and technology driven business environment, while the Corporates require greater autonomy, of operation and opportunity for self-regulation with optimum compliance costs, there is a need to also, bring about transparency through better disclosures and greater responsibility on the part of Corporates, and managements for improved compliance., In recognition of the fact that the primary purpose of any law is to facilitate the public and bearing in, mind the current international style of legal drafting, an ideal law for the corporate sector should be, clear, concise and comprehensible. It is desirable that the law is a “core company law” i.e. it regulates the, “entity” (irrespective of its corporate structure and size) rather than its “activity” and provides the basic, principles governing all aspects of the operation of corporate entities within a single, comprehensive, framework., It is in this context that countries across the world are modernizing and harmonizing their company law, with global standards., , GLOSSARY, Governance, , Process of intraction through the laws, norms, power or language or an organised society, over a societal system., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation.), 1., , The extension of corporate activity beyond the frontiers of the country has given rise to complex problems., Discuss., , 3., , The ultimate control of the company lies with the majority of shareholders. Discuss., , 2., 4., 5., 6., , Discuss the essential ingredients of a good system of company law., , Discuss, in brief, distinguishing features of company law in United Kingdom., , Discuss the requirements relating to audit of financial statements in United States of America., , Enumerate brief provisions regarding formation of companies under the Singapore Companies Act.
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Lesson 15, , Board Constitution and its Powers, , Key Concepts One, Should Know, •, , Board of Director, , •, , Board Composition, , •, •, •, •, •, •, , Vigil Mechanism, Committees, , Stakeholder, Relationship, , Audit Committee, Nomination and, Remuneration, Committee, , Learning Objectives, To understand:, •, , Board Composition, its Power and Restrictions., , •, , Aims and objectives of Different committees constituted by the, Board of the Company along with essential for its effective, functioning., , •, , •, , Role of Board, which is responsible for the company’s overall, commercial performance as well., , To analyse upon the formation of different Committees and their, respective roles., , CSR Committee, , Lesson Outline, •, , Introduction, , •, , Board Committees- Audit Committee, Nomination and, Remuneration Committee, Stakeholders Relationship Committee, and other Committees, , •, •, •, •, •, •, •, , Board Composition, , Restriction and Powers of Board, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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658, , Lesson 15 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section 135, , Corporate Social Responsibility, , Section177, , Audit Committee, , Section 149, , Company to have Board of Directors, , Section 165, , Number of Directorships, , Section 178, , Nomination & Remuneration Committee, , Section 179, , Powers of Board, , Section 180, , Restrictions on Powers of Board, , Section 181, , Company to Contribute to Bona Fide and Charitable Funds etc., , Section 182, , Prohibitions and Restrictions Regarding Political Contributions, , Section 183, , Power of Board and Other Persons to Make Contributions to National, Defense Fund, etc., , The Companies (Meetings of Board and its Powers) Rules, 2014, , Rule 6, Rule 7, Rule 8, , Committees of the Board, , Establishment of Vigil Mechanism, Powers of Board, , The Companies (Corporate Social Responsibility Policy) Rules, 2014, , Rule 5, , CSR Committees, , Regulation 17-22 of the SEBI (LODR) Regulations, 2015, Secretarial Standard-I (SS-I), , INTRODUCTION, The Board of Directors (BoD) of a company is the nucleus, selected according to the procedure prescribed in the, Companies Act, 2013 and the Articles of Association of the Company. Members of the Board of Directors are known, as Directors of the Company, who, unless specifically authorized by the Board of Directors of the Company, do not, possess any power of management in respect of the day-to-day affairs of the Company. The Board of Directors, oversees how the management serves and protects the long term interests of all the stakeholders of the Company., The institution of Board of Directors is based on the premise that a group of trustworthy individuals shall look after, the interests of a large number of shareholders/stakeholders who are not directly involved in the management of, the Company. The position of Board of Directors is that of a Trustee since the Board is entrusted with the, responsibility to act in the best interests of the Company safeguarding the interest of all stakeholders. Acting, collectively as a Board of Directors, they can exercise all the powers of the Company except those, which are, prescribed by the Act to be specifically exercised by the Company in its General Meeting., The Board formulates the policies of the Company, and establishes an organizational set up for implementing those, policies in order to achieve the objectives contained in the Memorandum, muster resources for achieving the, company objectives and control, guide, direct and manage the affairs of the Company., Section 2(10) of the Companies Act, 2013 defines that “Board of Directors” or “Board”, in relation to a company,, means the collective body of the Directors of the company., Thus, the term ‘Board of Directors’ means a body duly constituted to direct, control and supervise the affairs of the, company., As per Section 149 of the Companies Act, 2013, the Board of Directors of every company shall consist of individuals, only. Thus, no body corporate, association or firm shall be appointed as a Director in a company.
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659, , Lesson 15 • Board Constitution and its Powers, , Executive Director: As per Rule 2(1)(k) of the Companies (Specification of definitions details) Rules, 2014, “Executive Director” means a Whole Time Director as defined in clause (94) of section 2 of the Companies Act, 2013., Whole Time Director: As per Clause 2(94) of the Companies Act, 2013 ““whole-time director” includes a, director in the whole-time employment of the company., , Non-Executive Director: Nowhere described under Companies Act, 2013. However, meaning of non- executive, director can be taken from the definition of executive director. A person who is not falling in conditions of, definition of ‘Executive Director’ shall be considered as ‘Non-Executive Director’., , Independent Directors: As per 2(47) of the Companies Act, 2013 “independent director” means an independent, director referred to in section 149(6) of the Companies Act, 2013., Thus, independent directors are board members who have no material relations with the company’s, management, owners, or other stakeholders that may influence the independence of his or her judgment., , BOARD COMPOSITION, , Minimum/Maximum Number of Directors in a Company [Section 149(1)], Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum number of 3, Directors in case of a public company, 2 Directors in the case of a private company, and 1 Director in the case of a, One Person Company. A Company can appoint maximum 15 (fifteen) Directors without any specific compliance. A, Company may also appoint more than fifteen Directors after passing a special resolution in its General Meeting., , Thus, the maximum number of Director is 15, which can be increased by passing a special resolution in the, General Meeting of the Company., Section 8 companies can have more than 15 Directors even without passing a special resolution., , Section 149(3) provides that every company shall have at least one Director who has stayed in India for a total, period of not less than one hundred and eighty-two days (182 days) during the financial year., , Provided that in case of a newly incorporated company the requirement under this sub-section shall apply, proportionately at the end of the financial year in which it is incorporated., Further, under Second proviso to Section 149(1) read Rule 3 of the Companies (Appointment and Qualification of, Directors) Rules, 2014, following class of companies must have at least one Women Director., Women Director, , Listed Companies, Public Companies, , •, , All listed Companies, , •, , with turnover of Rs. 300 crore or more, , •, , with paid up share capital of Rs.100 crore or more; or, , A company, which has been incorporated under the Companies Act, 2013 and is covered under provisions of second, proviso to section 149(1) shall comply with such provisions within a period of six months from the date of its, incorporation.
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660, , , , Lesson 15 • EP-CL, , Provided further that any intermittent vacancy of a woman director shall be filled-up by the Board at the earliest, but not later than immediate next Board meeting or three months from the date of such vacancy whichever is later., Explanation.- For the purposes of this rule, it is hereby clarified that the paid-up share capital or turnover, as the, case may be, as on the last date of latest audited financial statements shall be taken into account., According to Regulation 17 of SEBI (LODR) Regulations, 2015, the composition of Board of Directors of the, listed entity shall be as follows:, 1., , Board of Directors shall have an optimum combination of executive and non-executive Directors with at least, one woman Director and not less than fifty per cent. of the Board of Directors shall comprise of non-executive, Directors., , Board of Directors of the top 500 listed entities shall have at least one independent woman Director by April, 1, 2019 and the Board of Directors of the top 1000 listed entities shall have at least one independent woman, Director by April 1, 2020;, 2., , [Explanation: The top 500 and 1000 entities shall be determined on the basis of market capitalisation, as at, the end of the immediate previous financial year.], , Where the Chairperson of the Board of Directors is a non-executive Director, at least one-third of the Board, of Directors shall comprise of Independent Directors and where the listed entity does not have a regular nonexecutive Chairperson, at least half of the Board of Directors shall comprise of Independent Directors., , Provided that where the regular non-executive Chairperson is a promoter of the listed entity or is related to, any promoter or person occupying management positions at the level of Board of Director or at one level, below the Board of Directors, at least half of the Board of Directors of the listed entity shall consist of, Independent Directors., Explanation. - For the purpose of this clause, the expression “related to any promoter” shall have the following, meaning:, (i), , 3., 4., 5., 6., , (ii), , if the promoter is a listed entity, its Directors other than the Independent Directors, its employees or, its nominees shall be deemed to be related to it;, if the promoter is an unlisted entity, its Directors, its employees or its nominees shall be deemed to be, related to it., , The Board of Directors of the top 1000 listed entities (with effect from April 1, 2019) and the top 2000 listed, entities (with effect from April 1, 2020) shall comprise of not less than six Directors., , Explanation: The top 1000 and 2000 entities shall be determined on the basis of market capitalisation as at, the end of the immediate previous financial year., Where the listed company has outstanding SR equity shares, at least half of the Board of Directors shall, comprise of Independent Directors., , No listed entity shall appoint a person or continue the Directorship of any person as a non-executive Director, who has attained the age of seventy five years (75 years) unless a special resolution is passed to that effect,, in which case the explanatory statement annexed to the notice for such motion shall indicate the justification, for appointing such a person., , With effect from April 1, 2022, the top 500 listed entities shall ensure that the Chairperson of the Board of, such listed entity shall (i), , (ii), , be a non-executive Director;, , not be related to the Managing Director or the Chief Executive Officer as per the definition of the term, “relative” defined under the Companies Act, 2013:, , Provided that this sub-regulation shall not be applicable to the listed entities which do not have any, identifiable promoters as per the shareholding pattern filed with stock exchanges., , Explanation - The top 500 entities shall be determined on the basis of market capitalisation, as at the end of, the immediate previous financial year.
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Lesson 15 • Board Constitution and its Powers, , 661, , Number of Directorships [Section 165], Limit on Number of Directorships:, As per the provisions of section 165(1) of the Act, the maximum number of directorships shall be as under:, (i), , (ii), , Maximum directorships in aggregate (including alternate directorships) is twenty companies at the same, time;, , Maximum directorship in public companies is 10 companies. This includes directorship in private companies, that are either holding or subsidiary company of a public company., , For reckoning the limit of Directorships of twenty companies, the Directorship in a dormant company shall not, be included., , The members of a company may, however by passing a special resolution specify any lesser number of companies, in which a director of the company may act as a director., Exceptions:, , Section 165(1) that provides for maximum number of Directorship that a person can hold including alternate, Directorship to be twenty companies - shall not be applicable to a section 8 company., , If a person accepts an appointment as a director in violation of section 165 of the Companies Act, 2013, he shall be, liable to a penalty of two thousand rupees for each day after the first during which such violation continues, subject, to a maximum of two lakh rupees., , Additional Requirements for Listed Companies, , As per Regulation 17A of the SEBI (LODR) Regulations, 2015, the Directors of listed entities shall comply with the, following conditions with respect to the maximum number of Directorships, including any alternate Directorships, that can be held by them at any point of time 1., 2., , A person shall not be a Director in more than eight listed entities with effect from April 1, 2019 and in not, more than seven listed entities with effect from April 1, 2020., Provided that a person shall not serve as an Independent Director in more than seven listed entities., , Notwithstanding the above, any person who is serving as a Whole Time Director / Managing Director in any, listed entity shall serve as an Independent Director in not more than three listed entities., , Explanation: For the purpose of this regulation, the count for the number of listed entities on which a person, is a Director/ Independent Director shall be only those whose equity shares are listed on a stock exchange., , Let’s Remember:, , Maximum limit on total number of Directorship has been fixed at 20 companies and the maximum number of, public companies in which a person can be appointed as a Director shall not exceed ten (10)., , The members of a company may, by special resolution, specify any lesser number of companies in which a, Director of the company may act as Director., , Power of Board [Section 179], , Shareholders derive their powers from the MoA – therefore, the company has all the powers except those that are, ultra vires, •, •, , The Board has the general power to do everything that the company is empowered to do;, , Except for matters where the Companies Act, 2013 requires concurrence of general meeting;
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662, , •, •, , , , Or matters where shareholders have regulated the conduct of the directors;, , Lesson 15 • EP-CL, , Or the articles confine the powers., , Source: ICSI Crash Course, , Powers to be exercised in Board Meeting, Section 179 of the Companies Act, 2013 deals with the powers of the Board; all powers to do such acts and things, for which the company is authorised is vested with the Board of Directors (BoD). The Board cannot act or do things, for which powers are specifically vested with the members of and are to be exercised during the general meeting., , However, no regulation made by the company in general meeting shall invalidate any prior act of the Board which, would have been valid if that regulation had not been made., The following [Section 179(3) read with Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014], powers of the Board of Directors shall be exercised only by means of resolutions passed at meetings of the, Board, namely :(a), (b), (c), (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), , to make calls on shareholders in respect of money unpaid on their shares;, to authorise buy-back of securities under section 68;, to issue securities, including debentures, whether in or outside India;, to borrow monies;, to invest the funds of the company;, to grant loans or give guarantee or provide security in respect of loans;, to approve financial statement and the Board’s report;, to diversify the business of the company;, to approve amalgamation, merger or reconstruction;, to take over a company or acquire a controlling or substantial stake in another company;, to make political contributions;, to appoint or remove key managerial personnel (KMP);, to appoint internal auditors and secretarial auditor., , Delegation of Powers of Board, , Source: ICSI Crash Course
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663, , Lesson 15 • Board Constitution and its Powers, , The Board may, by a resolution passed at a meeting, delegate to any Committee of Directors, the Managing Director,, the manager or any other principal officer of the company or in the case of a branch office of the company, the, principal officer of the branch office, the powers specified in (d) to (f) above on such conditions as it may specify., , The acceptance by a banking company in the ordinary course of its business of deposits of money from the public, repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, or the placing of monies, on deposit by a banking company with another banking company on such conditions as the Board may prescribe,, shall not be deemed to be a borrowing of monies or, as the case may be, a making of loans by a banking company, within the meaning of section 179 of the Companies Act, 2013., , Section 179(3)(d) of the Companies Act, 2013 shall not apply to borrowings by a banking company from other, banking companies or from the Reserve Bank of India, the State Bank of India or any other banks established by or, under any Act., In respect of dealings between a company and its bankers, the exercise by the company of the power specified in, Section 179(3)(d) of the Companies Act, 2013 shall mean the arrangement made by the company with its bankers, for the borrowing of money by way of overdraft or cash credit or otherwise and not the actual day-to-day operation, on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of., , However, nothing in section 179 shall be deemed to affect the right of the company in general meeting to impose, restrictions and conditions on the exercise by the Board of any of the powers specified in this section., Exceptions:, •, •, , In case of Section 8 companies resolutions related to clauses (d), (e) and (f) of sub-section (3) of Section, 179 of the Act i.e. borrow monies, to invest funds of the company and to grant loans or give guarantee or, provide security in respect of loans by section 8 companies may be decided by the Board by circulation, instead of at a meeting (Exemption Notification dated- 5.6.2015)., In case of Specified IFSC Public Company/Specified IFSC Private Company - In sub-section (3) of Section, 179, after the second proviso, the following proviso shall be inserted, namely:-, , “Provided also that in case of a Specified IFSC public company, the Board can exercise powers by means of, resolutions passed at the meetings of the Board or through resolutions passed by circulation”- Notification, Dated 4th January 2017., , Restriction on Powers of Board [Section 180], Board to exercise the following powers only, after passing special resolution, Sell, lease or dispose undertaking, Undertaking means in which the investment of, the company exceeds 20% of its net worth as, per the audited balance sheet of the preceding, financial year or on undertaking which, generates 20% of the total income of the, company during the previous financial year., Invest otherwise in trust securities the amount, of compensation received by it as a result of, any merger or amalgamation., Source: ICSI Crash Course, , To borrow money, where, Money to be borrowed + money already, borrowed> aggregate of its paid-up share capital, + free reserves + securities premium (apart from, Temporary loans obtained from the company’s, bankers in the ordinary course of business)., To remit, or give time for the repayment of,, any debt due from a director.
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664, , , , Lesson 15 • EP-CL, , The Board can exercise following powers only with the consent of the company by passing a special resolution,, namely –, (a), , to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company, or where the company owns more than one undertaking, of the whole or substantially the whole of any of, such undertakings., Explanation to section 180(i)(a) defines the meaning of the expression “undertaking”., , (i) “Undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per, cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which, generates twenty per cent. of the total income of the company during the previous financial year;, (ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty per, cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year., (b), (c), , to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or, amalgamation;, to borrow money, where the money to be borrowed, together with the money already borrowed by the, company will exceed aggregate of its paid-up share capital, free reserves and securities premium apart from, temporary loans obtained from the company’s bankers in the ordinary course of business;, The acceptance by a banking company, in the ordinary course of its business, of deposits of money from, the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise,, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this, clause., Explanation.—For the purposes of this clause, the expression “temporary loans” means loans repayable on, demand or within six months from the date of the loan such as short-term, cash credit arrangements, the, discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans, raised for the purpose of financial expenditure of a capital nature., , (d), , to remit, or give time for the repayment of, any debt due from a director., , The special resolution relating to borrowing money exceeding paid up capital, free reserves and securities premium, shall specify the total amount up to which the money may be borrowed by the Board., Nothing contained in clause (a) of sub-section (1) of Section 180 shall affect—, (a), , (b), , the title of a buyer or other person who buys or takes on lease any property, investment or undertaking as is, referred to in that clause, in good faith; or, , the sale or lease of any property of the company where the ordinary business of the company consists of, or, comprises, such selling or leasing., , Any special resolution passed by the company consenting to the transaction as is referred to in clause (a) of subsection (1) of Section 180 may stipulate such conditions as may be specified in such resolution, including conditions, regarding the use, disposal or investment of the sale proceeds which may result from the transactions., Provided that this sub-section shall not be deemed to authorise the company to effect any reduction in its capital, except in accordance with the provisions contained in this Act., , The debt incurred by the company exceeding the limit imposed by clause (c) of sub-section (1) of Section 180 of the, Act, is not valid or effectual, unless the lender proves that the loan was advanced in good faith and also having no, knowledge of limit imposed had been exceeded.
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Lesson 15 • Board Constitution and its Powers, , 665, , After exemption notification dated 05.06.2015, in case of Private Companies provisions of Section 180 shall, not apply., In case of Specified IFSC Public Company - Section 180 Shall apply, unless the articles of the company provides, otherwise - Notification Dated 4th January 2017., , Contributions to Charitable Funds [Section 181], , The Board of Directors of a company may contribute to bona fide charitable and other funds., , However, prior permission of company in its General Meeting is required if such contribution in case any amount, the aggregate of which, in any financial year, exceeds five percent of its average net profits for the three immediately, preceding financial years., , Prohibitions and Restrictions Regarding Political Contributions [Section 182], , According to Section 182 of the Act, a company, other than a Government Company and a company which has been, in existence for less than three financial years, may contribute any amount directly or indirectly to any political party., Further, the contribution under this section shall not be made except by an account payee cheque drawn on a bank, or an account payee bank draft or use of electronic clearing system through a bank account., , A company can contribute any percentage without any limit. The contribution must be authorised by the Board in, its meeting by way of passing a resolution and such resolution subject to the other provisions of this section is, deemed to be the justification in law for making such contribution., , The donation may be made directly or indirectly. The contribution so made if or likely to affect the public support, for a political party shall be deemed to be the contribution for political purpose. The expenditure directly or, indirectly, incurred on advertisement in any publication souvenir, brochure, tract, pamphlet or the like is deemed as, political contribution if such publication is by or on behalf of political party, or if not, then for the advantage to such, political party for a political purpose., Every company is required to disclose in its profit and loss account the total amount contributed by it under this, section during the financial year to which the account relates., A company may make contribution through any instrument, issued pursuant to any scheme notified under any law, for the time being in force, for contribution to the political parties., , Penalty for Contravention, , In case of a contribution made by a company in contravention of the provisions of Section 182, the company shall, be punishable with a fine which may extend to five times of the amount so contributed and every officer who is in, default shall be punishable with imprisonment for a term which may extend to six months and with fine which may, extend to five times of the amount so contributed., , Power of Board and other Persons to make Contributions to National Defence Fund, etc. [Section 183], , The Board of Directors of any company or any person or authority exercising the powers of the Board of Directors, of a company, or of the company in general meeting, may contribute such amount as it thinks fit to the National, Defence Fund or any other Fund approved by the Central Government for the purpose of national defence., The company is required to disclose in its profit and loss account the total amount or amounts contributed by it, during the financial year.
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666, , Lesson 15 • EP-CL, , , , BOARD COMMITTEES, , What & Why?, What is a Board?, , What is a Board Committee?, , "Board of Directors" or, "Board", in relation to a, company, means the collective, body of the directors of the, company, , A Board Committee is a small, working group identified by, the Board, consisting of Board, members, for the purpose of, supporting the Board’s work., , Why a Board Committee ?, •, •, •, , Divide and expedite on the work of the, organization by removing routine tasks, from monthly Board’s consideration;, Utilize the specific talents and knowledge, of Board members, , Permit broader participation by all Board, members, , Committees are generally formed to perform some work requiring expertise, and thus, the members of the, Committees are expected to have expertise in the specified field., , Committees are usually formed as a means of improving Board’s effectiveness and efficiency, in areas where more, focused, specialized and technical discussions are required. These Committees prepare the groundwork for, decision-making and report at the subsequent Board meeting. Committees enable better management of Board’s, time and allow an in-depth scrutiny and focused attention., , Committees are so appointed by the Board to focus on specific areas and take informed decisions within the, framework of delegated authority, and make specific recommendations to the Board on matters and in their areas, or purview. All decisions and recommendations of the Committees are placed before the Board for information or, for approval., , Through Committees, work can be divided so that far more can be accomplished than if the entire Board acted on, all matters. Committees provide organizational structure, and at the same time allow enough flexibility so the Board, can adapt quickly to the changing demands of the environment., For a Committee to operate effectively, it needs:, •, •, •, , A specific terms of reference so that it is aware of its responsibility, timeline, and the limits of its authority., A capable staff for assistance when needed., An effective Committee Chairperson who:, , », », », , •, , Understands the decision-making process;, , Knows how to lead a group through that process;, , Enables the Committee to arrive at appropriate decisions., , Responsible Committee members who:, , », », », , Spend the time and effort as may be necessary;, , Understand how to contribute and evaluate the adequacy of available data and its limits;, Brain storm for alternative course of actions.
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Lesson 15 • Board Constitution and its Powers, , 667, , However, the Board of Directors is ultimately responsible for the acts of the Committees. Board is responsible for, defining the Committees’ roles as well as structure., , The structure of a board and the planning of the board’s work are key elements to effective governance. Establishing, committees is one way of managing the work of the board, thereby strengthening the board’s governance role., Boards should regularly review its own structure and performance and whether it has the right committee structure, and an appropriate scheme of delegation from the board., , Need for Board Committees, , A Board can set up committees with particular terms of reference when it needs assistance (for example a New, project sub-committee) or when an issue requires more resources and attention (review of effect of legislative, changes on organisational programs)., They can be set up for a specific purpose or to deal with general issues such as ‘development’, which can be, established on a short-term or temporary basis, or they can be formed as a permanent body for ongoing work., , A Board can either delegate some of its powers to the committee, enabling it to act directly, or can require the, recommendations of the committee to be approved by the Board. The Board will normally depend heavily on the, findings and recommendations of its committees, although final decisions to accept or reject these recommendations, will be made by the Board. Committees thus have an important role to play in company governance., , Functions of Board Committee, , Committees often serve several different functions:, Governance: In large organizations participation of each and every director is not possible in decisions making of, the organization as a whole, a committee is given the power to make decisions, spend money, or take actions. Some, or all such powers may be limited or effectively unlimited. Members of the committee take decisions, keeping in, view the interest of all stakeholders., , Coordination: Where there is a large board, it is common to have committees with more specialized functions for, better coordination - for example, audit committee, finance committee, compensation committee, etc. wherein, members meet regularly to discuss developments in their areas, review projects that cut across organizational, boundaries, talk about future options, etc., Research and recommendations: Committees are often formed to do research and make recommendations on a, potential or planned project or change. For example, an organization considering a major capital investment might, create a temporary working committee of several people to review options and make recommendations to the, Board of Directors. Such committees are typically dissolved after giving recommendations., With the increasing business complexities and time commitment of Board members, constituting committees has, become inevitable for organization of any significant size. Committees keep the number of participants manageable;, in larger groups, either many people do not get to speak or discussion gets quite lengthy., , Powers of the Board to form a Committee, , •, , •, , The Board of Directors of the Company derive powers from Article of Association of the Company [Table F, (Limited by shares) & H (Limited by Guarantee and not having share capital)] under the Companies Act, 2013:, (i), , (ii), , The Board may, subject to the provisions of the Companies Act, 2013 delegate any of its powers to, committees consisting of such member or members of its body as it thinks fit., Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations, that may be imposed on it by the Board., , Under Regulation 4 of the SEBI (LODR) Regulations, 2015, , When committees of the board of directors are established, their mandate, composition and working, procedures shall be well defined and disclosed by the board of directors.
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668, , , , Lesson 15 • EP-CL, , Mandatory Board Committees, Mandatory Committees of the Board are prescribed under Companies Act, 2013 (for certain class of companies), and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 for listed companies., , AUDIT COMMITTEE, , Audit Committee is one of the main pillars of the Corporate Governance mechanism in any company. The Committee, is charged with the principal oversight of financial reporting and disclosures and aims to enhance the confidence in, the integrity of the company’s financial reporting, the internal control processes and procedures and the risk, management systems., , The constitution of Audit Committee is mandated under the Companies Act, 2013 and the SEBI (Listing Obligations, and Disclosure Requirements) Regulations, 2015., , Constitution of Audit Committee, , Section 177(1) of the Companies Act, 2013 read with Rule 6 of the Companies (Meetings of the Board and its, Powers) Rules, 2014, provides that the Board of Directors of following companies are required to constitute an, Audit Committee of the Board(i), , Every listed public company;, , (iv), , All public companies, having in aggregate, outstanding loans, debentures and deposits exceeding 50 crore, rupees ., , (ii), , (iii), , All public companies with a paid up capital of 10 crore rupees or more; or, All public companies having turnover of 100 crore rupees or more; or, , The paid up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing, on the last date of latest audited financial statements shall be taken into account for the purposes of this rule., The following classes of unlisted public companies shall not be covered for the above purpose:(a), , (b), (c), , a joint venture;, , a wholly owned subsidiary; and, , a dormant company as defined under section 455 of the Act., , Composition of the Audit Committee, , Composition of the Audit Committee under the Companies Act, 2013, •, •, , The Audit Committee shall consist of a minimum of 3 directors with independent directors forming a majority., The majority of members of Audit Committee including its Chairperson shall be persons with ability to read, and understand, the financial statements., , The requirement of Independent Directors forming a majority is not applicable to Section 8 companies, (vide exemption notification dated 5-6-2015)., , Composition of the Audit Committee under Regulation 18 of the SEBI (LODR) Regulations, 2015, , According to Regulation 18: Every listed entity shall constitute a qualified and independent audit Committee in, accordance with the terms of reference, subject to the following:, (a), , The audit Committee shall have minimum three Directors as members., , (c), , All members of audit Committee shall be financially literate and at least one member shall have accounting, or related financial management expertise., , (b), , Two-thirds of the members of audit Committee shall be Independent Directors and in case of a listed entity, having outstanding SR equity shares, the audit Committee shall only comprise of Independent Directors
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Lesson 15 • Board Constitution and its Powers, , 669, , Explanation 1: “financially literate” shall mean the ability to read and understand basic financial statements i.e.,, balance sheet, profit and loss account, and statement of cash flows., Explanation 2: a member shall be considered to have accounting or related financial management expertise if he, or she possesses experience in finance or accounting, or requisite professional certification in accounting, or any, other comparable experience or background which results in the individual’s financial sophistication, including, being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight, responsibilities., (d), (e), , The Chairperson of the audit committee shall be an Independent Director and he/she shall be present at the, Annual General Meeting to answer shareholders’ queries., The Company Secretary shall act as the Secretary to the Audit Committee., , Meetings/Quorum, , •, , The Companies Act 2013 does not provide for Frequency of meeting of the Audit Committee. However, as per, SS-1, Committees shall meet as often as necessary subject to the minimum number and frequency prescribed, by any law or any authority or as stipulated by the Board., , •, , A member of the Committee appointed by the Board or elected by the Committee as Chairman of the, Committee, in accordance with the Act or any other law or the Articles, shall conduct the Meetings of the, Committee. If no Chairman has been so elected or if the elected Chairman is unable to attend the Meeting, the, Committee shall elect one of its members present to chair and conduct the Meeting of the Committee, unless, otherwise provided in the Articles., , •, , The auditors of a company and the key managerial personnel shall have a right to be heard in the meetings of, the Audit Committee when it considers the auditor’s report but shall not have the right to vote., , •, , Quorum for Audit Committee meeting – As per SS-1, the quorum for meetings of the committee constituted, by the Board shall be as specified by the Board. If no such quorum is specified, the presence of all the members, of any such committee is necessary to form the quorum. Regulations framed under any other law may contain, provisions for the quorum of a committee and such stipulations shall be followed., , For listed companies, Regulation 18 of the SEBI (Listing Obligations and Disclosure Requirements), Regulations, 2015 provide for the minimum number of meetings and quorum of the audit committee., (i), , The Audit Committee of a listed entity shall meet at least four (4) times in a year and not more than, 120 days shall elapse between two meetings., , (iii), , The audit committee at its discretion shall invite the finance director or head of the finance function,, head of internal audit and a representative of the statutory auditor and any other such executives to be, present at the meetings of the committee. However, occasionally the audit committee may meet, without the presence of any executives of the listed entity, , (ii), , The quorum for audit Committee meeting shall either be 2 members, or 1/3rd of the members of the, Audit Committee, whichever is greater; with at least 2 Independent Directors., , Functions/Role of the Audit Committee, , Section 177(4) stipulates that, every Audit Committee shall act in accordance with the terms of reference specified, in writing by the Board., Terms of reference as prescribed by the Board shall inter alia, include, –, (a), , The recommendation for appointment, remuneration and terms of appointment of auditors of the company;, , In case of Government Companies, in Clause (1) of sub-section (4) of section 177, for the words “recommendation, for appointment, remuneration and terms of appointment” the words “recommendation for remuneration”, shall be substituted – Exemption Notification dated 05-06-2015.
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670, , (b), (c), , (d), , , , Lesson 15 • EP-CL, , Review and monitor the auditor’s independence and performance, and effectiveness of audit process;, Examination of the financial statements and the auditors’ report thereon;, , Approval or any subsequent modification of transactions of the company with related parties;, , The Audit Committee may make omnibus approval for related party transactions proposed to be entered into, by the company subject to such conditions as prescribed under rule 6A of the Companies (Meetings of Board, and its Powers) Rules, 2014., , Further in case of transaction, other than transactions referred to in section 188 (Related Party Transactions),, and where Audit Committee does not approve the transaction, it shall make its recommendations to the, Board., For detailed Role of Audit Committee in Related Party Transaction Refer Lesson 10 “An overview of InterCorporate Loans, Investments, Guarantees and Security, Related Party Transactions” of this study material., , In case any transaction involving any amount not exceeding one crore rupees is entered into by a Director or, officer of the company without obtaining the approval of the Audit Committee and it is not ratified by the, Audit Committee within three months from the date of the transaction, such transaction shall be voidable at, the option of the Audit Committee and if the transaction is with the related party to any Director or is, authorised by any other Director, the Director concerned shall indemnify the company against any loss, incurred by it., (e), (f), , (g), , (h), , The provisions of this clause shall not apply to a transaction, other than a transaction referred to in section, 188, between a holding company and its wholly owned subsidiary company., Scrutiny of inter-corporate loans and investments;, , Valuation of undertakings or assets of the company, wherever it is necessary;, Evaluation of internal financial controls and risk management systems;, , Monitoring the end use of funds raised through public offers and related matters., , Section 177 is not applicable for Specified IFSC Public Company., , The Role of Audit Committee and the review of information by Audit Committee is prescribed under Part C, of Schedule II of SEBI (LODR) Regulation, 2015. The role of Audit Committee under the Regulation 18 is, wider than the Companies Act, 2013, which includes:, •, •, •, •, , Oversight of the listed entity’s financial reporting process and the disclosure of its financial information to, ensure that the financial statement is correct, sufficient and credible;, Recommendation for appointment, remuneration and terms of appointment of auditors of the listed entity;, Approval of payment to statutory auditors for any other services rendered by the statutory auditors;, , Reviewing, with the management, the annual financial statements and auditor’s report thereon before, submission to the Board for approval, with particular reference to:, (a), , Matters required to be included in the Director’s responsibility statement to be included in the Board’s, report in terms of clause (c) of sub-section (3) of Section 134 of the Companies Act, 2013;, , (c), , Major accounting entries involving estimates based on the exercise of judgment by management;, , (b), (d), (e), (f), •, , (g), , Changes, if any, in accounting policies and practices and reasons for the same;, , Significant adjustments made in the financial statements arising out of audit findings;, , Compliance with listing and other legal requirements relating to financial statements;, Disclosure of any related party transactions;, , Modified opinion(s) in the draft audit report;, , Reviewing, with the management, the quarterly financial statements before submission to the Board for approval;
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•, , •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , Lesson 15 • Board Constitution and its Powers, , 671, , Reviewing, with the management, the statement of uses / application of funds raised through an issue (public, issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those, stated in the offer document / prospectus / notice and the report submitted by the monitoring agency, monitoring the utilization of proceeds of a public or rights issue, and making appropriate recommendations, to the Board to take up steps in this matter;, Reviewing and monitoring the auditor’s independence and performance, and effectiveness of audit process;, Approval or any subsequent modification of transactions of the listed entity with related parties;, Scrutiny of inter-corporate loans and investments;, , Valuation of undertakings or assets of the listed entity, wherever it is necessary;, Evaluation of internal financial controls and risk management systems;, , Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal, control systems;, Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit, department, staffing and seniority of the official heading the department, reporting structure coverage and, frequency of internal audit;, Discussion with internal auditors of any significant findings and follow up there on;, , Reviewing the findings of any internal investigations by the internal auditors into matters where there is, suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the, matter to the Board;, Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well, as post-audit discussion to ascertain any area of concern;, , To look into the reasons for substantial defaults in the payment to the depositors, debenture holders,, shareholders (in case of non-payment of declared dividends) and creditors;, To review the functioning of the whistle blower mechanism;, , Approval of appointment of chief financial officer after assessing the qualifications, experience and, background, etc. of the candidate;, Carrying out any other function as is mentioned in the terms of reference of the audit Committee., , Reviewing the utilization of loans and/ or advances from/investment by the holding company in the, subsidiary exceeding Rs.100 crore or 10% of the asset size of the subsidiary, whichever is lower including, existing loans / advances / investments existing as on the date of coming into force of this provision., Consider and comment on rationale, cost-benefits and impact of schemes involving merger, demerger,, amalgamation etc., on the listed entity and its shareholders., , The Audit Committee shall mandatorily review the following information:, •, , Management discussion and analysis of financial condition and results of operations;, , •, , Management letters / letters of internal control weaknesses issued by the statutory auditors;, , •, •, •, •, , Statement of significant related party transactions (as defined by the audit Committee), submitted by, management;, Internal audit reports relating to internal control weaknesses; and, , The appointment, removal and terms of remuneration of the chief internal auditor shall be subject to review, by the audit committee., Statement of deviations:, », », , Quarterly statement of deviation(s) including report of monitoring agency, if applicable, submitted to, stock exchange(s) in terms of Regulation 32(1) of the SEBI (LODR) Regulations, 2015., , Annual statement of funds utilized for purposes other than those stated in the offer document/, prospectus/notice in terms of Regulation 32(7) of the SEBI (LODR) Regulations, 2015.
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672, , , , Lesson 15 • EP-CL, , Powers of the Audit Committee, The Audit committee has the following powers under the section 177(5) of the Companies Act, 2013:, •, •, •, , The Audit Committee has the power to call for the comments of the auditors about internal control systems,, the scope of audit, including the observations of the auditors and review of financial statements before their, submission to the Board and may also discuss any related issues with the internal and statutory auditors and, the management of the company., , The Audit Committee has authority to investigate into any matter in relation to the items specified in terms, of reference as per Section 177(4) or referred to it by the Board and for this purpose the Committee has, power to obtain professional advice from external sources., The Committee for this purpose shall have full access to information contained in the records of the company., , As per the SEBI (LODR) Regulations, 2015, the Audit Committee shall have the powers to:, •, , investigate any activity within its terms of reference;, , •, , secure attendance of outsiders with relevant expertise, if it considers necessary., , •, •, , seek information from any employee;, , obtain outside legal or other professional advice;, , Disclosure in Board’s Report, , Section 177(8) of the Act provides that the Board’s report shall disclose the following –, •, •, , Composition of an Audit Committee, , Where the Board had not accepted any recommendation of the Audit Committee, the same shall be disclosed, in the report along with the reasons therefore., , VIGIL MECHANISM [SECTION 177(9) TO 177(10)], , Section 177 read with Rule 7 of the Companies (Meetings of Board and its powers) Rules, 2014, every listed company, and the companies belonging to the following class or classes shall establish a vigil mechanism for their Directors, and employees to report their genuine concerns or grievances(a), , (b), , The Companies which accept deposits from the public;, , The Companies which have borrowed money from banks and public financial institutions in excess of fifty, crore rupees., , The vigil mechanism set up as above, shall provide for adequate safeguards against victimisation of employees and, Directors who use such mechanism and make provision for direct access to the Chairperson of the Audit Committee, or the Director nominated to play the role of Audit Committee in appropriate or exceptional cases., , In case of repeated frivolous complaints being filed by a director or an employee, the audit committee or the director, nominated to play the role of audit committee may take suitable action against the concerned director or employee, including reprimand., , The companies which are required to constitute an Audit Committee shall oversee the vigil mechanism through the, Committee and if any of the members of the Committee have a conflicted of interest in a given case, they should, recuse themselves and the others on the Committee would deal with the matter on hand., , In case of other companies (not required to constitute Audit Committee), the Board of Directors shall nominate a, Director to play the role of Audit Committee for the purpose of vigil mechanism to whom other Directors and, employees may report their concerns., The details of establishment of the Vigil Mechanism is required to be disclosed by the company on its website, if any,, and in the Board’s report.
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673, , Lesson 15 • Board Constitution and its Powers, , Illustration:, As per the last audited financial statements the borrowings of MNL Ltd. from Banks is Rs.90 crores. Advise, the company on the provisions of the Companies Act, 2013 and the rules made thereunder regarding the vigil, mechanism., , Comparison table of Audit Committee under Companies Act 2013 and SEBI (LODR) Regulations,, 2015, S. No., , Category, , 1, , Sections, , 2, , Applicability, , The Companies Act,2013, , Section 177 of the Companies Act, 2013 Regulation 18 of the SEBI (LODR), read with Rule 6 of the Companies (Meetings Regulations, 2015., of Board and its Powers) Rules, 2014., (i), , (ii), (iii), (iv), , 3., , Members of, Audit, Committee, , 4, , Chairman as, Independent, Director, , 5, , Financial, Literacy, , The SEBI (LODR) Regulations, 2015, , Every Listed Public Company;, , Every Listed Entity, , All Public companies with a paid up “Listed entity” means an entity which, capital of 10 crore rupees or more; has listed, on a recognised stock, or, exchange(s), the designated securities, issued by it or designated securities, All Public companies having, issued under schemes managed by it, in, turnover of 100 crore rupees or, accordance with the listing agreement, more; or, entered into between the entity and the, All Public companies, having in recognised stock exchange(s)., aggregate,, outstanding, loans,, debentures and deposits exceeding, 50 crore rupees ., , The Audit Committee shall consist of a (a), minimum of three Directors with, Independent Directors forming a majority., , The Audit, Committee shall, have minimum three Directors, as members., , (c), , In case of a Listed Entity having, outstanding SR equity shares,, the Audit Committee shall only, comprise, of, Independent, Directors., , (b), , Two-thirds of the members of, audit Committee shall be, Independent Directors, , The Companies Act, 2013 does not The Chairperson of the Audit, prescribe that the Chairman of the Audit Committee shall be an Independent, Committee shall be an independent Director., Director., Majority of members of Audit Committee, including its Chairperson shall be persons, with ability to read and understand the, financial statement., , All members of audit Committee shall, be financially literate and at least one, member shall have accounting or, related, financial, management, expertise.
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674, , 6, , Lesson 15 • EP-CL, , , , Role of Audit, Committee, , Companies Act, 2013 prescribe the terms, of Reference of the Committee., , Every Audit Committee shall act in, accordance with the terms of reference, specified in writing by the Board which, shall, inter alia, include:, (i), , (ii), (iii), (iv), (v), , (vi), , The, recommendation, for, appointment, remuneration and, terms of appointment of auditors of, the company., , The Role of Audit Committee and, the review of information by Audit, Committee is prescribed under Part, C of Schedule II of the SEBI (LODR), Regulation, 2015., , The role of Audit Committee under, the Regulation 18 is wider than the, Companies Act, 2013., , Review and monitor the auditor’s, independence and performance, and, effectiveness of audit process., Examination of the financial, statement and the auditors’ report, thereon., , Approval or any subsequent, modification of transactions of the, company with related parties., Scrutiny of inter-corporate loans, and investments., , Valuation of undertakings or assets, of the company, wherever it is, necessary., , (vii) Evaluation of internal financial, controls and risk management, systems., 7, , Power, of Audit, Committee, , (viii) Monitoring the end use of funds, raised through public offers and, related matters., i), , ii), iii), , The Audit Committee may call for the, comments of the auditors about, internal control systems, the scope, of audit, including the observations, of the auditors and review of, financial statement before their, submission to the Board., discuss any related issues with the, internal and statutory auditors and, the management of the company., , to investigate into any matter in, relation to the items specified in, sub-section (4) of Section 177 of, the Act or referred to it by the Board, and for this purpose shall have, power to obtain professional advice, from external sources and have full, access to information contained in, the records of the company., , The Audit Committee shall have powers, to investigate any activity within its, terms of reference, seek information, from any employee, obtain outside, legal or other professional advice and, secure attendance of outsiders with, relevant expertise, if it considers, necessary.
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Lesson 15 • Board Constitution and its Powers, , 8, , Frequency of, Meeting of the, Audit, Committee, , 9, , Quorum, , 675, , The Companies Act 2013 does not provide The Audit Committee shall meet at, for Frequency of meeting of the Audit least four times in a year and not more, Committee, than one hundred and twenty days, shall elapse between two meetings., As per SS-1, Committees shall meet as, often as necessary subject to the minimum, number and frequency prescribed by any, law or any authority or as stipulated by the, Board., , The Companies Act 2013 does not provide The Quorum for Audit Committee, for Quorum for Audit Committee meeting. meeting shall either be two members, or one third of the members of the, As per SS-1, the quorum for Meetings of, Audit Committee, whichever is greater,, any Committee constituted by the Board, with at least two Independent, shall be as specified by the Board. If no, Directors., such Quorum is specified, the presence of, all the members of any such Committee is, necessary to form the Quorum., , Illustration:, •, RPK Ltd. is an unlisted company having Rs. 9 crore as paid up capital and Rs.52 crore as long term loan., The directors of the company would like to know from you the answers for the following questions :, (1), , Would the company be liable to constitute an audit committee ?, , (3), , What is the quorum for meetings and number of meetings to be held in a year by the audit committee?, , (2), , •, •, , If the company is listed after a fresh issue of shares to the tune of Rs.50 crore, in such a situation,, would the company be liable to constitute Audit Committee?, , Aarav Ltd. (a listed company) is having an audit committee consisting of six directors and the Board of, Directors of the Company consists of eight directors of which three are independent directors. As a, Practising company secretary, clarify whether Aarav Ltd. has complied with the requirement of, appointment of independent directors with regard to Audit Committee?, , XY Ltd. is a (Unlisted) wholly owned subsidiary of ABC Ltd. (Listed). XY Ltd. annual turnover was Rs.120, crore as per the last audited balance sheet. The auditor of XY Ltd. is of the opinion that, XY Ltd. is covered, under Rule 4 of Companies (Appointment and Qualification of Directors) Rules, 2014 and so it should, compulsorily appoint Audit Committee. Whether the observation of the auditor is tenable?, , SECTION 178: NOMINATION AND REMUNERATION COMMITTEE, Constitution of Nomination and Remuneration Committee, , The Nomination and Remuneration Committee helps the Board of Directors in the preparations relating to the, election of members of the Board of Directors, and in handling matters within its scope of responsibility that relate, to the conditions of employment and remuneration of senior management, and to management’s and personnel’s, remuneration and incentive schemes. The responsibilities of the Nomination and Remuneration Committee are, defined in Nomination and remuneration policy or terms of reference of the Nomination and Remuneration, document., The Board of Directors of following companies shall constitute Nomination and Remuneration Committee of the, Board:, (a), , (b), , Every listed Public Company; or, , The following class of companies –, (i), , all public companies with a paid up capital of ten crore rupees or more;
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676, , (ii), , (iii), , , , all public companies having turnover of one hundred crore rupees or more;, , Lesson 15 • EP-CL, , all public companies, having in aggregate, outstanding loans , debentures and deposits, exceeding fifty, crore rupees., , The paid-up share capital or turnover or outstanding loans, debentures and deposits, as the case may be, as existing, on the last date of latest audited financial statements shall be taken into account for the above purpose., The following classes of unlisted public company shall not be covered for above purpose:(a), , (b), (c), , a joint venture;, , a wholly owned subsidiary; and, , a dormant company as defined under section 455 of the Act., , Exceptions:, •, •, , After exemption notification dated 05.06.2015 the provisions of Section 178 of the Act are not applicable, to the Section 8 Companies., After exemption notification dated 04.01.2017 the provisions of Section 178 of the Act are not applicable, to the Specified IFSC Public Companies., , Composition of Nomination and Remuneration Committee, , Composition of the Nomination and Remuneration Committee under the Companies Act, 2013, The Committee so constituted by the Board shall consist of:, •, •, , Three or more non-executive directors out of which not less than one-half shall be independent directors., , The chairperson of the company (whether executive or non-executive) may be appointed as a member of the, Nomination and Remuneration Committee but shall not chair such Committee., , Composition of the Nomination and Remuneration Committee under Regulation 19 of the SEBI(LODR), Regulations, 2015, , Additionally, for listed Companies, SEBI (LODR) Regulations, 2015 provides that the nomination and remuneration, Committee shall comprise of:, (a), , At least three Directors;, , (d), , In case of a listed entity having outstanding SR equity shares, two thirds of the nomination and remuneration, Committee shall comprise of Independent Directors., , (b), (c), , All Directors of the Committee shall be non-executive directors;, , At least fifty percent of the Directors shall be Independent Directors; and, , The Chairman of the committee shall be an independent director. The Chairperson of the listed entity, whether, executive or non-executive, may be appointed as a member of the Nomination and Remuneration Committee but, shall not chair such Committee., , Meetings/Quorum, , •, •, , As per SS-1, Nomination and Remuneration Committees shall meet as often as necessary subject to the, minimum number and frequency prescribed by any law or any authority or as stipulated by the Board., , A member of the Committee appointed by the Board or elected by the Committee as Chairman of the, Committee, in accordance with the Act or any other law or the Articles, shall conduct the Meetings of the, Committee. If no Chairman has been so elected or if the elected Chairman is unable to attend the Meeting, the, Committee shall elect one of its members present to chair and conduct the Meeting of the Committee, unless, otherwise provided in the Articles.
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•, , Lesson 15 • Board Constitution and its Powers, , 677, , Section 178(7) stipulates that the chairperson of the committee or, in his absence, any other member of the, committee authorised by him in this behalf shall attend the general meetings of the company., , •, , Quorum of Nomination and Remuneration Committee meeting – As per SS-1, the quorum for meetings of the, committee constituted by the Board shall be as specified by the Board. If no such quorum is specified, the, presence of all the members of any such Committee is necessary to form the quorum. Regulations framed, under any other law may contain provisions for the quorum of a committee and such stipulations shall be, followed., , Under Regulation 19 of SEBI (LODR) Regulations, 2015, •, , The nomination and remuneration committee shall meet at least once in a year., , •, , The Chairman of the committee may be present at the Annual General Meeting, to answer the shareholders’, queries. However, it would be up to the Chairman to decide who shall answer the queries., , •, , The quorum for a meeting of the nomination and remuneration committee shall be either two members or, one third of the members of the committee, whichever is greater, including at least 1 independent director in, attendance., , The Committee shall recommend to the Board, all remuneration, in whatever form, payable to senior management., The role of the nomination and remuneration Committee shall be as specified as in Part D of the Schedule II of SEBI, (LODR) Regulations, 2015., , Functions of Nomination and Remuneration Committee, , As per section 178(2) of the Act, the Committee shall identify the person qualified to become Directors and may be, appointed in senior management, in accordance with the criteria laid down and recommend to the Board their, appointment and removal and shall specify the manner for effective evaluation of performance of Board, its, Committees and individual Directors to be carried out either by the Board, by the Nomination and Remuneration, Committee or by an independent external agency and review its implementation and compliance., As per section 178(3) of the Act, the Committee shall formulate the criteria, for determining qualifications, positive, attributes and independence of a Director and recommend to the Board the policy relating to remuneration for, Directors, KMPs and other employees., , As per section 178(4) of the Act, while formulating its policy, the Nomination and Remuneration Committee, shall ensure that, (a), , (b), (c), , the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate the, directors of the quality required to run the company successfully;, relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and, , remuneration to Directors, key managerial personnel and senior management involves a balance between, fixed and incentive pay reflecting short and long-term performance objectives appropriate to the working of, the company and its goals:, , Such policy shall be placed on the website of the company, if any, and the salient features of the policy and changes, therein, if any, along with the web address of the policy, if any, shall be disclosed in the Board’s report., Exceptions:, , In case of Government company - Sub-sections (2), (3) and (4) of Section 178, shall not apply except with, regard to appointment of ‘senior management’ and other employees’. - Notification dated 5th June, 2015., , Functions of the Nomination and Remuneration committee as specified in Part D of the Schedule II of SEBI, (LODR) Regulation, 2015:, 1., , Formulation of the criteria for determining qualifications, positive attributes and independence of a Director, and recommend to the Board of Directors a policy relating to, the remuneration of the Directors, key, managerial personnel and other employees;
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678, , Lesson 15 • EP-CL, , , , 2., , Formulation of criteria for evaluation of performance of Independent Directors and the Board of Directors;, , 5., , Whether to extend or continue the term of appointment of the Independent Director, on the basis of the, report of performance evaluation of Independent Directors;, , 3., , Devising a policy on diversity of Board of Directors;, , 4., , Identifying persons who are qualified to become Directors and who may be appointed in senior management in, accordance with the criteria laid down, and recommend to the Board of Directors their appointment and removal;, , 6., , Recommend to the Board, all remuneration, in whatever form, payable to senior management., , Comparison table of Nomination and Remuneration Committee under Companies act 2013 and, the SEBI (LODR) Regulations, 2015, S. NO., , Category, , The Companies Act,2013, , The SEBI (LODR) Regulations, 2015, , 1, , Section, , Regulation 19 of the SEBI (LODR) Regulations,, 2015., , 2, , Applicability, , Section 178 of the Companies Act,, 2013 read with rule 6 of the, Companies (Meetings of Board and, Its Power) Rules, 2014., , 3, , Members, , Nomination and Remuneration, Committee consisting of three or, more non-executive Directors out of, which not less than one-half shall be, Independent Directors., , 4, , Chairman, , The Board of Directors shall constitute the, nomination and remuneration Committee as, follows:, (a) the Committee shall comprise of at least, three Directors;, (b) all Directors of the Committee shall be, non-executive Directors;, (c) at least fifty percent of the Directors shall, be Independent Directors; and, (d) In case of a listed entity having outstanding, SR equity shares, two thirds of the, nomination and remuneration Committee, shall comprise of Independent Directors., , (i) Every listed Public Company;, (ii) All Public companies with a, paid up capital of 10 crore, rupees or more; or, (iii) All Public companies having, turnover of 100 crore rupees or, more; or, (iv) All Public companies, having in, aggregate, outstanding loans,, debentures, and, deposits, exceeding 50 crore rupees., , Every Listed entity, “Listed Entity” means an entity which has, listed, on a recognised stock exchange(s), the, designated securities issued by it or designated, securities issued under schemes managed by, it, in accordance with the listing agreement, entered into between the entity and the, recognised stock exchange(s)., , The Companies Act, 2013 does not The Chairperson of the nomination and, prescribe that the Chairman of the remuneration Committee of a listed entity shall, nomination and remuneration be an Independent Director., Committee shall be an Independent, Director.
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Lesson 15 • Board Constitution and its Powers, , 5, , 6, , 7, , Role of the, The Nomination and Remuneration, Nomination and Committee shallRemuneration, (1) Identify persons who are, Committee, qualified to become Directors, and who may be appointed in, senior, management, in, accordance with the criteria, laid down., (2) Recommend to the Board their, appointment and removal., (3) Specify the manner for effective, evaluation of performance of, Board, its Committees and, individual Directors., (4) Formulate the criteria for, determining, qualifications,, positive, attributes, and, independence of a Director and, (5) Recommend to the Board a, policy,, relating, to, the, remuneration for the Directors,, key managerial personnel and, other employees., , 679, , The role of the nomination and remuneration, Committee shall be as specified as in Part D of, the Schedule II of the SEBI(LODR) Regulation,, 2015., , Frequency, of The Companies Act 2013 does not The nomination and remuneration Committee, the Meeting, provide for frequency of meeting of shall meet at least once in a year., the nomination and remuneration, Committee., As per SS-1, Committees shall meet, as often as necessary subject to the, minimum number and frequency, prescribed by any law or any, authority or as stipulated by the, Board., Quorum, , The Companies Act 2013 does not, provide for Quorum for nomination, and, remuneration, Committee, meeting., As per SS-1, the quorum for Meetings, of any Committee constituted by the, Board shall be as specified by the, Board. If no such Quorum is, specified, the presence of all the, members of any such Committee is, necessary to form the Quorum., , The quorum for a meeting of the nomination, and remuneration Committee shall be either, two members or one third of the members of, the Committee, whichever is greater, including, at least one Independent Director in attendance.
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680, , , , Lesson 15 • EP-CL, , Illustration:, •, RST Ltd. recently issued the Equity Shares on basis of right issue. Due to this, the paid-up capital of the, Company has been increased from Rs.7.5 crore to Rs.15 crore. The Company Secretary in the Board, Meeting put up the proposal for constitution of various committees including Audit Committee and, Nomination & Remuneration Committee. All members of the Committee were proposed to be Independent, Directors. In the scope of Nomination & Remuneration Committee, it was inter-alia added that the, Committee shall also evaluate the performance of Chairman & Managing Director (CMD) of the company., The Directors present in the Board meeting strictly objected on the said proposal. CMD has also expressed, dissent on the proposal., •, , In view of this, check the validity of the proposal of the Company Secretary., , Logical Solutions Ltd., a listed company, is having a Corporate Social Responsibility (CSR) committee, constituted with the following members :, Rohan — Whole-time director & Chairman of CSR committee and Board, Sohan — Non-executive director, Mohan — Independent director, , Can company constitute a Nomination and Remuneration committee consisting of same three members of CSR, committee with same composition ? Discuss, , Section 178- STAKEHOLDERS RELATIONSHIP COMMITTEE, Constitution of Stakeholders Relationship Committee, , Section 178(5) of the Companies Act, 2013 provides for constitution of the stakeholders relationship committee., , The Board of Directors of a company which consists of more than 1000 shareholders, debenture-holders, depositholders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship, Committee., , Constitution of Stakeholders Relationship Committee, , Stakeholders Relationship Committee shall consist of a chairperson who shall be a non-executive director and such, other members as may be decided by the Board., Under Regulation 20 of SEBI (LODR) Regulations, 2015, , The listed entity shall constitute a Stakeholders Relationship Committee to specifically look into various aspects of, interest of shareholders, debenture holders and other security holders., It shall consist of:, •, , At least 3 directors, with at least 1 being an independent director, who shall be the members of the Committee, , •, , The chairperson of this committee shall be a non-executive director., , •, , In case of a listed entity having outstanding SR equity shares, at least two thirds of the Stakeholders, Relationship Committee shall comprise of independent directors., , Meetings/Quorum, , •, •, , As per SS-1, Stakeholders Relationship Committees shall meet as often as necessary subject to the minimum, number and frequency prescribed by any law or any authority or as stipulated by the Board., , A member of the Committee appointed by the Board or elected by the Committee as Chairman of the, Committee, in accordance with the Act or any other law or the Articles, shall conduct the Meetings of the, Committee. If no Chairman has been so elected or if the elected Chairman is unable to attend the Meeting, the, Committee shall elect one of its members present to chair and conduct the Meeting of the Committee, unless, otherwise provided in the Articles.
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•, , 681, , Lesson 15 • Board Constitution and its Powers, , Section 178(7) stipulates that the chairperson of the committee or, in his absence, any other member of the, committee authorised by him in this behalf shall attend the general meetings of the company., , •, , Quorum for Stakeholders Relationship Committee meeting – As per SS-1, the quorum for meetings of the, committee constituted by the Board shall be as specified by the Board. If no such quorum is specified, the, presence of all the members of any such committee is necessary to form the Quorum. Regulations framed under, any other law may contain provisions for the quorum of a committee and such stipulations shall be followed., , Under the SEBI (LODR) Regulations, 2015, •, •, , The Stakeholders Relationship Committee shall meet at least once in a year., The Chairperson of the Stakeholders Relationship Committee is mandatorily required to be present at the, Annual General Meetings to answer queries of the security holders., , Functions of Stakeholders Relationship Committee, , The main function of the committee is to consider and resolve the grievances of security holders of the company. On, similar terms Part D of the Schedule II of the SEBI (LODR) Regulations, 2015 provides the role of the committee, which inter-alia include the following:, •, , Resolving the grievances of the security holders of the listed entity including complaints related to transfer/, transmission of shares, non-receipt of annual report, non-receipt of declared dividends, issue of new/, duplicate certificates, general meetings etc., , •, , Review of measures taken for effective exercise of voting rights by shareholders., , •, , Review of adherence to the service standards adopted by the listed entity in respect of various services being, rendered by the Registrar & Share Transfer Agent., , •, , Review of the various measures and initiatives taken by the listed entity for reducing the quantum of, unclaimed dividends and ensuring timely receipt of dividend warrants/annual reports/statutory notices by, the shareholders of the company., , Comparison table of Stakeholders Relationship Committee under Companies act 2013 and the, SEBI (LODR) Regulations, 2015, S., NO., , Category, , The Companies Act, 2013, , 1, , Section, , 2, , Applicability, , Section 178(5) of the Companies Act,2013 Regulation 20 of the SEBI (LODR), deals with Stakeholders Relationship Regulations,2015 deals with Stakeholders, Committee., Relationship Committee., , 3, , Members, , Company which consists of more than one, thousand, shareholders,, debentureholders, deposit-holders and any other, security holders at any time during a, financial year shall constitute a, Stakeholders Relationship Committee., As may be decided by the Board., , The SEBI (LODR) Regulations, 2015, , Listed entity even if having less than 1000, debenture holders/security holders is, required to constitute a Stakeholders, Relationship Committee., The Board of Directors shall constitute the, Stakeholders Relationship Committee as, follows:, (a), , (b), , At least three Directors, with at, least one being an Independent, Director, shall be members of the, Committee;, , In case of a listed entity having, outstanding SR equity shares, at, least two thirds of the Stakeholders, Relationship, Committee, shall, comprise of Independent Directors.
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682, , Lesson 15 • EP-CL, , , , 4, , Chairperson, , Chairperson shall be a non-executive Chairperson shall be a non-executive, Director., Director., , 6, , Frequency of, the Meeting, , The Companies Act 2013 does not provide The Stakeholders Relationship Committee, for Frequency of meeting of the shall meet at least once in a year., Stakeholders Relationship Committee., , 5, , Role of the, Stakeholders, Relationship, Committee, , The Stakeholders Relationship Committee The role of the Stakeholders Relationship, shall consider and resolve the grievances Committee shall be as specified as in Part, of security holders of the company., D of the Schedule II of the SEBI (LODR), Regulations, 2015., As per SS-1, Committees shall meet as, often as necessary subject to the minimum, number and frequency prescribed by any, law or any authority or as stipulated by, the Board., , Penalty for Contravention of Section 177 and 178, , Section 178(8) provides that in case of any contravention of the provisions of section 177 and section 178, the, company shall be liable to a penalty of five lakh rupees and every officer of the company who is in default shall be, liable to a penalty of one lakh rupees., However, inability to resolve or consider any grievance by the Stakeholders Relationship Committee in good faith, shall not constitute a contravention of this section., , Schedule IV under Section 149(7) of the Act contains the Code for Independent Directors. Under Sl. No. II (5) of the, Code, Independent Directors are mandated to safeguard the interest of all stakeholders, especially the Minority, Shareholders and balance the conflicting interests of the stakeholders., Illustration:, •, Tempest Ltd., an unlisted company, has 500 shareholders, 400 debenture holders and 200 deposit holders., As a Company Secretary of the Company Advise the Board, if the Company is required to form a, Stakeholders’ Relationship Committee? Discuss the provisions relating to the functioning of such a, committee., •, , Examining the provisions of the Companies Act, 2013, relating to the constitution of a ‘Nomination and, Remuneration Committee’ and ‘Stakeholders Relationship Committee’, answer the following :, (i), , (ii), , Is it mandatory for a listed company to constitute such committees ? Also state whether it is, mandatory for a non-listed public company having paid-up share capital of Rs.5 crore to constitute, such committees ?, , What shall be the composition of the committees in case the company is required to constitute such, committees ?, , RISK MANAGEMENT COMMITTEE, , Constitution of Risk Management Committee, A Risk Management Committee fosters an integrated, enterprise-wide approach to identify and manage risk and, provides an impetus toward improving the quality of risk reporting and monitoring, both for management and the, Board., In addition to the requirement of the Companies Act 2013 as well as the SEBI (LODR) Regulations, 2015, the audit, committee evaluates internal financial controls and risk management systems of the company.
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Lesson 15 • Board Constitution and its Powers, , 683, , Composition of Risk Management Committee, Regulation 21 of the SEBI (LODR) Regulations, 2015 requires that the company through its Board of, Directors shall constitute a Risk Management Committee., Applicability, The provisions of this regulation shall be applicable to top 1000 listed entities, determined on the basis of market, capitalisation, as at the end of the immediate previous financial year., Composition of Risk Management Committee, •, , The Risk Management Committee shall have minimum 3 members with majority of them being members of, the board of directors, including at least one independent director., , •, , The Chairperson of the Risk management committee shall be a member of the board of directors and senior, executives of the listed entity may be members of the committee., , •, , In case of a listed entity having outstanding SR equity shares, at least two-thirds of the Risk Management, Committee shall comprise of independent directors., , Meetings/Quorum, , •, , The risk management committee shall meet at least twice in a year., , •, , The meetings of the risk management committee shall be conducted in such a manner that on a continuous, basis not more than 180 days shall elapse between any two consecutive meetings., , •, , The quorum for a meeting of the Risk Management Committee shall be either two members or one-third of, the members of the committee, whichever is higher, including at least one member of the board of directors, in attendance., , Functions/Role of Risk Management Committee, , The board of directors shall define the role and responsibility of the Risk Management Committee and may delegate, monitoring and reviewing of the risk management plan to the committee and such other functions as it may deem, fit, such function shall specifically cover cyber security., The role and responsibilities of the Risk Management Committee shall mandatorily include the performance of, functions specified in Part D of Schedule II of SEBI (LODR) Regulations, 2015., The role of the committee shall, inter alia, include the following:, •, , To formulate a detailed risk management policy which shall include:, (a), , (b), •, •, •, •, , (c), , A framework for identification of internal and external risks specifically faced by the listed entity, in, particular including financial, operational, sectoral, sustainability (particularly, ESG related risks),, information, cyber security risks or any other risk as may be determined by the Committee., Measures for risk mitigation including systems and processes for internal control of identified risks., Business continuity plan., , To ensure that appropriate methodology, processes and systems are in place to monitor and evaluate risks, associated with the business of the Company;, , To monitor and oversee implementation of the risk management policy, including evaluating the adequacy of, risk management systems;, To periodically review the risk management policy, at least once in two years, including by considering the, changing industry dynamics and evolving complexity;, , To keep the board of directors informed about the nature and content of its discussions, recommendations, and actions to be taken;
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684, , •, •, , Lesson 15 • EP-CL, , , , The appointment, removal and terms of remuneration of the Chief Risk Officer (if any) shall be subject to, review by the Risk Management Committee., , The Risk Management Committee shall coordinate its activities with other committees, in instances where, there is any overlap with activities of such committees, as per the framework laid down by the board of, directors., , Powers of Risk Management Committee, , The Risk Management Committee shall have powers to seek information from any employee, obtain outside legal or, other professional advice and secure attendance of outsiders with relevant expertise, if it considers necessary., , Provisions for Risk Management under Companies Act, 2013 and SEBI (LODR) Regulations,, 2015, The SEBI (LODR), Regulations, 2015, , The Companies, Act, 2013, , Comments, , Regulation 21, It requires that the company through its Board of Directors shall constitute a Risk, Management Committee., Section 134(3)(n), , The Companies Act, 2013 provides that a disclosure to be made in the board report, with a statement indicating development and implementation of a risk management, policy for the company including identification therein of elements of risk, if any,, which in the opinion of the Board may threaten the existence of the company., There is no mandatory requirement for constitution of risk management Committee, under the Companies Act 2013., , CORPORATE SOCIAL RESPONSIBILITY COMMITTEE [SECTION 135], Applicability of CSR Committee, •, •, , •, , Every company having net worth of Rs.500 crore or more, or turnover of Rs.1000 crore or more or a net profit, of Rs.5 Crore or more during the immediately preceding financial year shall constitute a Corporate Social, Responsibility Committee of the Board., , A Company which ceases to be a company covered under the above three threshold requirement for three, consecutive financial years shall not be required to constitute CSR Committee and comply with the provisions, contained in sub-section (2) to (6) of Section 135 of the Companies Act, 2013 till such time it meets the, threshold as specified above. [Rule 3(2) of the Companies (Corporate Social Responsibility Policy) Rules,, 2014]., Where the CSR obligation of the company does not exceed Rs.50 Lakhs, the requirement for constitution of, the Corporate Social Responsibility Committee shall not be applicable and the functions of such Committee, provided under section 135 shall, in such cases, be discharged by the Board of Directors of such company., , Composition of CSR Committee, •, •, , The CSR Committee shall consist of 3 or more Directors, out of which at least 1 Director shall be an Independent, Director., Where a company is not required to appoint an Independent Director under sub-section (4) of section 149, it, shall have in its Corporate Social Responsibility Committee two or more Directors., , Hence, a company which is not required to appoint an Independent Director, it shall have its CSR committee, without such Director.
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•, •, , Lesson 15 • Board Constitution and its Powers, , 685, , A private company having only 2 directors on its Board shall constitute its CSR Committee with two such, directors., , With respect to a foreign company, the CSR Committee shall comprise of at least 2 persons of which one, person shall be as specified under clause (d) of sub-section (1) of section 380 of the Companies Act, 2013 and, another person shall be nominated by the foreign company., , Meetings/Quorum, •, , As per SS-1 , the committee shall meet as often as necessary subject to the minimum number and frequency, prescribed by any law or any authority or as stipulated by the Board., , •, , Quorum of CSR Committee- the Quorum for Meetings of the Committee constituted by the Board shall be as, specified by the Board. If no such Quorum is specified, the presence of all the members of any such Committee, is necessary to form the Quorum., , •, , A member of the Committee appointed by the Board or elected by the Committee as Chairman of the, Committee, in accordance with the Act or any other law or the Articles, shall conduct the Meetings of the, Committee. If no Chairman has been so elected or if the elected Chairman is unable to attend the Meeting, the, Committee shall elect one of its members present to chair and conduct the Meeting of the Committee, unless, otherwise provided in the Articles., , Functions of CSR Committee, •, •, •, •, , To formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken, by the company in areas or subjects as specified in Schedule VII of the Companies Act, 2013., To recommend the amount of expenditure to be incurred on the CSR activities., , To monitor the Corporate Social Responsibility Policy of the company from time to time., , Further the CSR rules provide that the CSR Committee shall formulate and recommend to the Board, an, annual action plan in pursuance of its CSR policy, which shall include the following, namely:(a), , the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified, in Schedule VII of the Companies Act, 2013;, , (c), , the modalities of utilisation of funds and implementation schedules for the projects or programmes;, , (b), (d), (e), , the manner of execution of such projects or programmes as specified in sub-rule (1) of rule 4 of CSR, Rules;, monitoring and reporting mechanism for the projects or programmes; and, , details of need and impact assessment, if any, for the projects undertaken by the company., , However, Board may alter such plan at any time during the financial year, as per the recommendation of its CSR, Committee, based on the reasonable justification to that effect., , Disclosures related to CSR Committee, , •, •, , The Board of Directors of every company required to form a CSR Committee shall after taking into account, the recommendations made by such Committee, approve the Corporate Social Responsibility Policy for the, company and disclose contents of such Policy in its report and also place it on the company’s website, if any,, in such manner as prescribed;, The Board of Directors of the Company are mandatorily required to disclose the composition of the CSR, Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access., For detailed discussion on CSR Provision, please refer Lesson 7-Corporate Social Responsibility
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686, , , , OTHER BOARD COMMITTEES, , Lesson 15 • EP-CL, , In addition to the Committees of the Board mandated by the Companies Act, 2013, viz., Audit Committee, Nomination, and Remuneration Committee, Stakeholders Relationship Committee and the CSR Committee, Board of Directors, may also constitute other Committees to oversee a specific objective or project. The nomenclature, composition and, role of such Committees will vary, depending upon the specific objectives of the company., A few examples of such Committees prevalent in the corporate sector in India and abroad are given below:, 1., , Corporate Governance Committee, , 4., , Investment Committee, , 2., 3., 5., , Science, Technology & Sustainability Committee, , Regulatory, Compliance & Government Affairs Committee, Ethics Committee., , PURPOSE EVALUATION, , Measurement and evaluation of performance of the committee is necessary for the purpose of knowing whether the, organisation’s goals and mission being achieved, or not, or only in part?, Evaluating the performance of individual members of the Board may also be necessary. It is, therefore, necessary to, provide Board and Committee members with clear guidelines and expectations from the beginning. Company can, not turn around and blame someone for not achieving an objective they did not know existed., A regular process of evaluating the committee’s performance can help to identify strengths and weaknesses of its, processes and procedures and to provide insights for strengthening orientation and educational programs., Under Section 134 read with rule 8(4) of the Companies (Accounts) Rules, 2014 every listed company and every, other public company having a paid up share capital of twenty five crore rupees or more calculated at the end of the, preceding financial year shall include, in its Board’s report, a statement indicating the manner in which formal, annual evaluation has been made by the Board of its own performance and that of its committees and individual, directors., , Enhancing Committee Effectiveness, , Committee effectiveness may be enhanced through the following practices:, •, , Providing an orientation for new committee members on the committee functioning and terms of reference., , •, , The chairman should take a lead in involving each of the committee members, thereby enhancing the, committee’s performance., , •, •, •, , Maintainance and circulation of Annual Calendar of Committee meetings., , Ensuring that committee members are sent the agenda and other relevant information sufficiently well in, advance of meetings., The chairman should involve committee members in developing an annual committee plan of work. It should, be ensured that the committee plans are in alignment with the overall strategic plan of the company., , Illustration:, , Is it compulsory for Company Secretary to attend all Board, Committee and General Meetings?
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687, , Lesson 15 • Board Constitution and its Powers, , CONCLUSION, , Board Committees are the pillars of Corporate Governance. As the responsibilities of directors have become more, demanding, Boards have increasingly formed committees to deal with some of their more detailed work. As the, needs of the Board change, the need for committees may also change. Hence, it is essential that committees and, their role be subject to periodic review. Board members should be aware that Board responsibilities remain, when, serving on a Board committee, and may be enhanced. To be more effective, Board committees should have the, appropriate balance of skills, experience, independence and knowledge of the company to enable them to discharge, their respective duties and responsibilities effectively., In general, Board committees focus on specific areas allowing the Board to concentrate on broader issues and, directions. The work of the committees should be directed by the Board. Board committees should have their own, charter setting out their roles and responsibilities, for example, in the area of membership (including succession, planning), meeting frequency and core agenda, committee authority, reporting obligations etc. committees should, be appropriately constituted, taking into account any relevant legislation and the objectives of the company. Day by, day, the role of independent director is gaining importance in the effect functioning of the Board committees. Board, committees with formally established terms of reference, criteria for appointment, life span, role and function, constitute an important element of the governance process and should be established with clearly agreed reporting, procedures and a written scope of authority. Board committees should be free to take independent outside, professional advice when necessary, at the cost of the company, subject to a proper process being followed., , LESSON ROUND-UP, •, •, •, , Every Listed Company and such other company as may be prescribed shall form an Audit Committee, comprising of minimum 3 directors with majority of them being Independent Directors and majority of, the members of the Committee shall be persons with ability to read and understand financial statement., , Vigil mechanism to be established in the prescribed manner by every listed company or such class or, classes of companies, as may be prescribed., Every listed public company and prescribed class or classes of companies, shall constitute the Nomination, and Remuneration Committee consisting of three or more non-executive Directors out of which not less, than one half shall be Independent Directors., , GLOSSARY, Dormant company, , Vigil mechanism, , Where a company is formed and registered under this Act for a future project, or to hold an asset or intellectual property and has no significant accounting, transaction, such a company or an inactive company may make an application, to the Registrar in such manner as may be prescribed, for obtaining the status, of a dormant company (Section 455 of Companies Act, 2013)., , A Vigil Mechanism or a Whistle Blower Policy provides a channel to the employees and Directors to report to the management concerns about unethical, behavior, actual or suspected fraud.
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688, , Lesson 15 • EP-CL, , , , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., 2., 3., 4., 5., 6., 7., , Which Companies are required to Constitute Audit Committee, Nomination Remuneration Committee, and Stakeholder Relationship Committee?, Explain the provisions relating to constitution of Corporate Social Responsibility Committee?, Explain the provisions relating to constitution of Nomination & Remuneration Committee?, , Explain the provisions relating to constitution of Stakeholders and Relationship Committee?, Analyze the powers of the Board and the restrictions on Board Powers under the Act?, , The AOA of XYZ Ltd. Provide that the maximum number of Directors in the Company shall be 10. Presently, the maximum number of directors is 8. The Board of Directors of the said Company desires to increase the, number to 16. Advise whether it can do so., , ABC Ltd. Is an unlisted public company having a paid-up capital of Rs. 25 Crore as on 31st March, 2020, and a turnover of Rs. 150 Crore. The total number of directors is 13., (a), , (b), , State the minimum number of independent directors that the company should appoint., How many independent directors are to be appointed if ABC is a listed company?, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , The SEBI(LODR) Regulations, 2015, , •, •, , Bare Act- The Companies Act, 2013, , Secretarial Standard-1/Guidance Note on SS-1, , OTHER REFERENCES (Including Websites/ Video Links), •, , http://ebook.mca.gov.in/Default.aspx?page=main
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Directors, , Lesson 16, Key Concepts One, Should Know, •, , Director, , •, , Independent, Director, , •, •, •, •, •, •, , DIN, , First Director, Alternate Director, , Additional Director, Nominee Director, Directors KYC, , Learning Objectives, To understand:, •, •, •, •, •, •, •, •, •, •, •, •, •, , The meaning and concept of Directors, Regulatory provisions relating to Directors under The, Companies Act, 2013, Procedure for obtaining DIN, What are the types of Director?, Procedure of Appointment of Director, Disqualifications of Director, Circumstances under which office of Director to be vacated, Retirement and resignation of Directors, Removal of Director, Duties of Director, Rights of Director, Loans to Director, Disclosure of Interest by Director, , Lesson Outline, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, •, , Introduction, Procedure for Obtaining DIN, Types of Directors, Procedure of Appointment of Director, Disqualifications for appointment of Director, Vacation of office of Director, Retirement and resignation of Directors, Removal of Director, Duties of Director, Rights of Directors, Loans to Directors, Disclosure of Interest by Director, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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690, , Lesson 16 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Sections, , Deals with, , Section 149, , Company to have Board of Directors, , Section 151, , Appointment of Directors elected by Small Shareholders, , Section 150, Section 152, Section 153, Section 154, Section 155, Section 156, Section 157, Section 158, Section 159, Section 160, Section 161, Section 162, Section 163, Section 164, Section 165, Section 166, Section 167, Section 168, Section 169, Section 170, Section 171, , Manner of selection of Independent Directors and Maintenance of Databank of, Independent Directors, Appointment of Directors, , Application for allotment of Director Identification Number, Allotment of Director Identification Number, , Prohibition to obtain more than one Director Identification Number, Director to intimate Director Identification Number, , Company to inform Director Identification Number to Registrar, Obligation to indicate Director Identification Number, Penalty for default of certain provisions, , Right of Persons other than Retiring Directors to stand for Directorship, , Appointment of Additional Director, Alternate Director and Nominee Director, Appointment of Directors to be Voted Individually, , Option to Adopt Principle of Proportional Representation for Appointment of, Directors, Disqualifications for Appointment of Director, Number of Directorships, Duties of Directors, , Vacation of Office of Director, Resignation of Director, Removal of Directors, , Register of Directors and Key Managerial Personnel and their shareholding, Members’ Right to inspect, , Section 184 r/w Rule 9 of The Disclosure of Interest by Director, Companies (Meetings of Board, and its Powers) Rules, 2014, Section 185 r/w Rule 10 of The Loans to Directors, etc., Companies (Meetings of Board, and its Powers) Rules, 2014, , The Companies (Appointment and Qualification of Directors) Rules, 2014, , Rules, , Deals with, , Rule 3, , Women Director on the Board, , Rule 6, , Creation and Maintenance of Databank of Persons offering to become, Independent Directors, , Rule 4, Rule 5, , Number of Independent Directors, , Qualifications of Independent Director
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691, , Lesson 16 • Directors, , Rule 7, , Small Shareholders’ Director, , Rule 10, , Allotment of DIN, , Rule 8, Rule 9, , Rule 10A, Rule 11, , Rule 12, , Rule 12A, Rule 12B, Rule 13, Rule 14, Rule 15, Rule 16, Rule 17, Rule 18, , Consent to Act as Director., , Application for allotment of Director Identification Number before, Appointment in an existing company, Intimation of DIN to Company, , Cancellation or Surrender or Deactivation of DIN., , Intimation of Changes in Particulars Specified in DIN Application, Directors KYC, , Directors of company required to file e-form ACTIVE, Notice of Candidature of a Person for Directorship, , Disqualification of Directors under Section 164 (2), Notice of Resignation of Director, , Copy of Resignation of Director to be forwarded by him, Register of Directors and Key Managerial Personnel, , Return containing the Particulars of Directors and the Key Managerial, Personnel, , Schedule IV of the Companies Code of Conduct of Independent Directors, Act, 2013, , The Companies(Creation and Maintenance of databank of Independent Directors) Rules, 2019, , Rule 3, , Creation and Maintenance of databank of Independent Directors, , Rule 23A, , Declaration at the time of Commencement of Business, , Regulation 17, , Board of Directors, , Regulations, Regulation 25, , Regulation 30(6), , The Companies (Incorporation) Rules, 2014, The SEBI LODR (Regulations), 2015, , Deals with, , Obligations with respect to Independent Directors., Disclosure of events or information
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692, , , , Lesson 16 • EP-CL, , INTRODUCTION, A company, though a legal entity in the eyes of law, is an artificial person, existing only in contemplation of law. It, has no physical existence. It has neither soul nor body of its own. As such, it cannot act in its own person. It can do, so only through some human agency., , The persons who are in charge of the management of the affairs of a company are termed as Directors. They are, collectively known as Board of Directors or the Board. The directors are the brain of a company. They occupy a, pivotal position in the structure of the company. Directors take the decision regarding the management of a company, collectively in their meetings known as Board Meetings or at the meetings of their committees constituted for, certain specific purposes., The Companies Act 2013 does not contain an exhaustive definition of the term “director”. Section 2(34) of the Act, prescribed that “director” means a director appointed to the Board of a company, Section 2(10) of the Companies Act, 2013 defined that “Board of Directors” or “Board”, in relation to a company,, means the collective body of the directors of the company., The term ‘Board of Directors’ means a body duly constituted to direct, control and supervise the affairs of a, company., , As per Section 149 of the Companies Act, 2013, the Board of Directors of every company shall consist of individual, only. Thus, no body corporate, association or firm shall be appointed as director., , Again Section 166 (6) of the Companies Act, 2013, prohibits assignment of office of director to any other person. Any, assignment of office made by a director shall be void. Directors are considered the trustees of company’s property, and money, and they also act as the agents in transactions which are entered into by them on behalf of the company., A minor will not be entitled to become a Director. One of the pre-requisites for holding the office of a Director is to, obtain a Director Identification Number (DIN) allocated by the Central Government. As per the prescribed rules,, DIN is allocated only to a person who has attained the age of 18 years. Thus, Minor is not eligible to apply for DIN, and does not, therefore, qualify to hold the position of Director. The position of a Director with the company is also, on the basis of a contract. A contract can be entered into by a major as such only those persons who have attained, the age of 18 years can be appointed as Directors., , DIRECTOR IDENTIFICATION NUMBER (DIN), , The concept of a Director Identification Number (DIN) has been introduced for the first time in the year 2006. It is, an 8-digit unique identification number that has lifetime validity. Through DIN, details of the directors are maintained, in a database., , DIN is specific to a person, which means even if he is a director in two or more companies, he has to obtain only one, DIN and if he leaves a company and joins some other, the same DIN would work in the other company as well., “Director Identification Number” (DIN) includes the Designated Partnership Identification Number (DPIN) issued, under section 7 of the Limited Liability Partnership Act, 2008 and rules made thereunder., , Section 152 (4) mandates that every person proposed to be appointed as a director by the company in general, meeting or otherwise, shall furnish his Director Identification Number or such other number as may be prescribed, under section 153 and a declaration that he is not disqualified to become a director under this Act., No person shall continue or be appointed as director without obtaining DIN.
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693, , Lesson 16 • Directors, , Procedure to obtain DIN, , Proposed Director of New, Company (Not having, Approved DIN), , (1), , (2), , Digital Signature Certificate - Obtain Digital Signature Certificate before applying for DIN and ensure that, the applicant does not have any DIN allotted earlier as the Companies Act, 2013 prohibits to obtain and retain, more than 1 DIN (Section 155)., (a) SPICe+ Web Form: Application for allotment of DINs to the proposed first Directors in respect of, new companies [Section 153 read with Rule 9 of the Companies(Appointment and Qualification of, Directors) Rules, 2014]., , Any person (not having DIN) proposed to become a first director in a new company shall have to make an, application through Web Form SPICe+., Upto Maximum 3 DIN can be obtained through SPICe+., , (b) DIR-3 Form: Application for allotment of Director Identification Number before Appointment in, an existing company (Section 153)., Any person intending to become a director in an existing company shall have to make an application in, e-Form DIR-3 and should follow the following procedure:, , Applicant’s Name, , Declaration, DIR-3A, , in, , Ensure that the prefixes/suffixes like Mr./Mrs./Kumari/Shri etc. shall not be used, with applicant’s name or applicant’s father’s name in E-Form DIR-3., Further, the particulars of the applicant shall be filed as per Permanent Account, Number (PAN) card, in case of Indian National and as per Passport in case of Foreign, National. The Spelling of applicant’s name and applicant’s father’s name shall be exact, in all cases., , Form Prepare a declaration in Form DIR-3A, in case the applicant has no surname after his/, her name and file it along with DIR-3A by mentioning his/her father’s or grandfather’s, surname in DIR-3., However, in case of father’s name of the applicant, if only single word name of father, is written on the PAN of an Indian National, the single name can be accepted by MCA, in DIR-3 in respect of Father’s Name., , Board Meeting, , Note: Even married woman shall give her father’s name in DIR-3. Further, in case of, foreign nationals, proof regarding father’s name is not required., , Arrange a Board Meeting of the existing company in which the DIN applicant is, proposed/intended to be appointed as Director.
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694, , Lesson 16 • EP-CL, , , , Supporting Documents, , The following are the mandatory attachments to be filed in all cases:, 1., , Proof of Identity of applicant, •, , In case of Indian nationals, Income-tax PAN is a mandatory requirement, for proof of identity., , •, , In case of foreign nationals, passport is a mandatory requirement for proof, of identity., , •, , 2., , Proof of identify enclosed should also contain the date of birth of the, applicant and the same should match the date of birth filled in the, application form. In case the proof of identify does not indicate the Date of, Birth then additional proof of Date of Birth, duly certified/ attested, should, be attached., , Proof of residence of applicant, , •, •, •, , Address proofs like passport, election (voter identity) card, and ration, card, driving license, electricity bill, telephone bill or aadhaar shall be, attached and should be in the name of applicant only., In case of Indian applicant, documents should not be older than 2 months, from the date of filing of the Form., , In case of foreign applicant, address proof should not be older than 1 year, from the date of filing of the Form., , 3. In case of proofs which are in languages other than Hindi / English, the proofs, should be translated in Hindi / English from professional translator carrying his, details (name, signature, address) and seal. In the case of foreign nationals, translation, done by the notary of home country is also acceptable., 4. Latest Photograph in case of DIR-3, , 5. Board resolution proposing his appointment as director in an existing company, 6. Specimen signature duly verified, , 7. Any other information can be provided as an optional attachment(s)., , All Supporting documents shall be self-attested by the applicant while in case the DIN, applicant residing outside India, all supporting documents to be attached with the Form, DIR-3, should be attested by the Consulate of India Embassy and/or foreign public, notary., Certification, , Fee Payment, , Form DIR-3 shall be signed and submitted electronically by the applicant using his or, her own Digital signature certificate and shall be verified digitally by a Company, Secretary in full time employment of the company or by the Managing Director or, director or CEO or CFO of the company in which the applicant is intended to be, appointed as director in an existing company., Upon upload of DIN application, payment of fees can be made only through electronic, mode (i.e. Net banking / Credit Card/Debit Card/Pay later/ NEFT).
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695, , Lesson 16 • Directors, , Generation of DIN, , •, •, , •, , On the submission of the Form DIR-3 on the portal and payment of the requisite, amount of fees through online mode an application number shall be generated by, the system automatically., , After generation of application number, the Central Government shall process the, applications received for allotment of DIN, decide on the approval or rejection, thereof and communicate the same to the applicant along with the DIN allotted in, case of approval by way of a letter by post or electronically or in any other mode,, within a period of 1 month from the receipt of such application., If the Central Government, on examination, finds such application to be defective, or incomplete in any respect, it shall give intimation of such defect or, incompleteness, by placing it on the website and by email to the applicant who, has filed such application, directing the applicant to rectify such defects or, incompleteness by resubmitting the application within a period of 15 days of, such placing on the website and email:, , The Central Government shall -, , (a) reject the application and direct the applicant to file fresh application with, complete and correct information, where the defect has been rectified partially or, the information given is still found to be defective;, , (b) treat and label such application as invalid in the electronic record in case the, defects are not removed within the given time; and, (c) inform the applicant either by way of letter by post or electronically or in any, other mode., •, , In case of rejection or invalidation of application, the fee so paid with the, application shall neither be refunded nor adjusted with any other application., , The Central Government may prescribe any identification number which shall be treated as Director Identification, Number for the purposes of this Act and in case any individual holds or acquires such identification number, the, requirement of this section shall not apply or apply in such manner as may be prescribed., Reasons for rejection of DIN Application, , S.No., , Description, , 1, , Proof of identity has not been attested by an authorized person., , 4, , The enclosed evidence has handwritten entries., , 2, 3, 5, 6, 7, 8, 9, , 10, 11, 12, 13, , Proof of residential address has not been attested by an authorized person., , The supporting document for identity proof is not valid as it has not been issued by any Government, Authority, Date of Birth is not matching with the date of birth mentioned in the proof attached., Applicant’s Name is not matching with the name mentioned in the proof attached., Address is not matching with the address details mentioned in the proof attached, , Applicant’s Father’s Name is not matching with the father’s name mentioned in the proof attached., , The submitted application is duplicate DIN application i.e. an approved DIN already exists in this name., Identification number entered in application does not match with the identity proof enclosed., The gender is not entered correctly in DIN form., ID proof not attached with the application, , Address proof not attached with the application
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696, , Lesson 16 • EP-CL, , , , 14, , Non-submission of copy of passport (for foreign nationals), , 17, , Verification by applicant not in prescribed format, , 15, 16, 18, 19, 20, , Passport duly appostillised not enclosed (For foreign nationals), Verification by applicant is not attached, Verification by applicant is not signed, , The prefixes/ suffixes like Mr. / Ms. / Kumari / Shri / Late or Ji etc. are used in your name or your father’s, name field in DIN form., The supporting documents attached not valid or current or has expired., , Others In case of others, description is written by the back office user., , Intimation of changes in particulars of Director specified in DIN Application [Rule 12 of the, Companies (Appointment and Qualifications of Directors) Rules, 2014], (1) Every individual who has been allotted a DIN in the, event of any change in his particulars as stated in Form, DIR-3, intimate such change(s) to the Central, Government within a period of 30 days of such change(s), in Form DIR-6 (Intimation of change in particulars of, Director to be given to the Central Government). The, applicant shall fill in the relevant changes in DIR-6,, verify the form and attach duly scanned copy of the, proof of the changed particulars and submit, electronically. Form requires pre-certification by the, professional CA/CS/CMA in practice., , Key point to remember, •, , Changes to be submitted in form DIR-6 within 30, days., , •, , Attach scanned copy of the proof of changed, particulars., , •, , The form to be Pre-Certified by CA or CS or CMA in, practice., , •, , Intimation to the company in which he is director, within 15 days of such change., , (2) The Central Government, upon being satisfied, after, verification of such changed particulars from the enclosed proofs, shall incorporate the said changes and inform the, applicant by way of a letter by post or electronically or in any other mode confirming the effect of such change in the, electronic database maintained by the Ministry., , The DIN cell of the MCA shall also intimate the change(s) in the particulars of the director submitted to it in Form, DIR-6 to the concerned Registrar(s) under whose jurisdiction the registered office of the company(s) in which such, individual is a director is situated., , (3) The concerned individual shall also intimate the change(s) in his particulars to the company or companies in, which he is a director within fifteen days of such change., , Cancellation/Surrender/Deactivation of DIN [Rule 11 of the Companies (Appointment and, Qualifications of Directors) Rules, 2014], , The Competent Authority (Central Government/RD (North), Noida/ Authorised Officer by the RD) may, upon being, satisfied on verification of particulars or documentary proof attached with the application along with specified fee, received from any person, cancel or deactivate the DIN in case –, (a), , (b), (c), , (d), (e), , the DIN is found to be duplicated in respect of the same person provided the data related to both the DIN shall, be merged with the validly retained number;, the DIN was obtained in a wrongful manner or by fraudulent means;, , of the death of the concerned individual;, , the concerned individual has been declared as a person of unsound mind by a competent Court;, if the concerned individual has been adjudicated an insolvent., , Provided that before cancellation or deactivation of DIN pursuant to clause (b), an opportunity of being heard, shall be given to the concerned individual;
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Lesson 16 • Directors, , (f), , 697, , on an application made in Form DIR-5 by the DIN holder to surrender his or her DIN along with declaration, that he has never been appointed as director in any company and the said DIN has never been used for filing, of any document with any authority, the Central Government may deactivate such DIN but after verification, of e-records., , Once a person is appointed as a Director in any company as per the Companies Act 2013, he cannot relinquish his, DIN in the future. Even if he/she doesn’t remain a director anymore in that company or in any other company, his/, her DIN will exist as it is., , GENERAL PROVISIONS REGARDING DIN, , Prohibition to obtain more than one DIN:, According to Section 155, no individual shall apply for/obtain/ possess another Director Identification Number, who has already been allotted a Director Identification Number under section 154., Director to intimate DIN:, , Section 156 stipulated that every existing director shall intimate his DIN to the company or all companies wherein, he is a director within one month of the receipt of DIN from the Central Government., , Rule 10A of the Companies (Appointment & Qualifications of Directors) Rules, 2014 stipulates that every director,, functioning as a director in one or more companies on or before the 30th June, 2007 and who has not yet intimated, his DIN to such company or companies shall, within one month of the receipt of Director Identification Number, from the Central Government, intimate his Director Identification Number to the company or all companies wherein, he is a director as per Form DIR-3B., Company to inform DIN to Registrar:, , Section 157 (1) provides that every company shall, within fifteen days of the receipt of intimation under section, 156, furnish the Director Identification Number of all its directors to the Registrar or any other officer or authority, as may be specified by the Central Government with requisite fee in Form DIR-3C., , If any company fails to furnish the Director Identification Number under Section 157(1), such company shall be, liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with further penalty of one, hundred rupees for each day after the first during which such failure continues, subject to a maximum of one lakh, rupees, and every officer of the company who is in default shall be liable to a penalty of not less than twenty-five, thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day after the, first during which such failure continues, subject to a maximum of one lakh rupees., Obligation to indicate DIN:, , Section 158 specified that every person or company shall mention the DIN in return, information or particulars as, required to be furnished under the Companies Act, 2013, in case such return etc. relate to the director or contain, any reference of any director., , Rule 12A of the Companies (Appointment and Qualifications of Directors) Rules, 2014 – Directors KYC, , Every individual who holds a Director Identification Number (DIN) as on 31st March of a financial year as per the, Companies (Appointment and Qualifications of Directors) Rules, 2014 shall, submit e-form DIR-3-KYC for the said, financial year to the Central Government on or before 30th September of immediate next financial year., Where an individual who has already submitted e-Form DIR-3 KYC in relation to any previous financial year,, submits web-Form DIR-3 KYC-WEB through the web service in relation to any subsequent financial year it shall be, deemed to be compliance of the provisions of this rule for the said financial year., , Provided also that in case an individual desires to update his personal mobile number or the e-mail address, as the, case may be, he shall update the same by submitting e-Form DIR-3 KYC only.
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698, , Lesson 16 • EP-CL, , , , Provided also that fee for filing e-Form DIR-3 KYC or web-Form DIR-3 KYC-WEB through the web service, as the, case may be, shall be payable as provided in the Companies (Registration Offices and Fees) Rules, 2014., , Impact of Non Compliance of DIR-3 KYC/DIR-3 KYC Web, , The Central Government or Regional Director (Northern Region), or any officer authorized by the Central, Government or Regional Director (Northern Region) shall, deactivate the Director Identification Number (DIN), of, an individual who does not intimate his particulars in e-form DIR-3-KYC or the web service DIR-3-KYC- WEB as the, case may be within stipulated time in accordance with rule 12A of the Companies (Appointment and Qualifications, of Directors) Rules, 2014., The de-activated DIN shall be re-activated only after e-form DIR-3-KYC or the web service DIR-3-KYC-WEB as the, case may be is filed along with fee as prescribed under Companies (Registration Offices and Fees) Rules, 2014., , Summary of DIN Forms, Forms, , Purpose, , DIR-3, , Application for allotment of Director Identification Number before appointment in an, existing company, , DIR-5, , Application for surrender of Director Identification Number, , DIR-6, DIR-3 B, DIR-3 C, , DIR-3 KYC/DIR-3, KYC Web, , DIRECTORS, , Intimation of change in particulars of Director to be given to the Central Government, , Intimation of DIN to Company (By every director, functioning as a director in one or more, companies on or before the 30th June, 2007 & not yet intimated his DIN), , Intimation of Director Identification Number by the company to the Registrar DIN Services, Application for KYC of Directors, , A director to the Board may be appointed as, •, , First Director, , •, , Independent Director, , •, •, •, •, •, •, •, •, , Resident Director, Women Director, , Alternate Director, , Additional Director, , Small Shareholder Director, Nominee Director, Casual Vacancy, , Professional Director, , First Director, , Section 152 of the Act provides that where there is no provision made in Articles of Association of the company for, appointment of first directors then the subscribers to the memorandum who are individuals shall be deemed to be, the first directors of the company until the directors are duly appointed. Section 152(1) of the Act is applicable to, all companies, whether public or private.
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Lesson 16 • Directors, , 699, , In case of a One Person Company an individual being member shall be deemed to be its first director until, the director or directors are duly appointed by the member in accordance with the provisions of this section., , Resident Director, , Section 149(3) provides that every company shall have at least one director who has stayed in India for a total, period of not less than one hundred and eighty-two days during the financial year:, , However, in case of a newly incorporated company the requirement under this sub-section shall apply proportionately, at the end of the financial year in which it is incorporated., Section 149(3) shall apply to a Specified IFSC public company/Specified IFSC private company in respect of financial, years other than the first financial year from the date of its incorporation. - Notification Dated 4th January 201, , Women Director, , Second proviso to Section 149(1) read with Rule 3 of the Companies (Appointment and Qualification of Directors), Rules, 2014, following class of companies must have at least one Women Director:, (a), (a), , All Listed Companies, Public companies:, •, •, , with paid up capital of Rs. 100 crore or more or, with turnover of Rs. 300 crore or more., , Additionally for listed entities, the Board of directors of the top 500 listed entities shall have at least one, independent woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities shall, have at least one independent woman director by April 1, 2020., The top 500 and 1000 entities shall be determined on the basis of market capitalisation, as at the end of the, immediate previous financial year., , Director elected by Small Shareholders [Section 151], , According to section 151 of the Act every listed company may have one director elected by such small shareholders, in such manner and on such terms and conditions as may be prescribed., “Small shareholder” means a shareholder holding shares of nominal value of not more than twenty thousand rupees or, such other sum as may be prescribed., Here, the ‘nominal value’ of shares is relevant. It does not matter how much is the ‘paid up value’ or ‘market value’, of shares. However, a small shareholder may be a holder of equity shares or preference shares or both., For example: Mr. A holds 5000 equity shares of Rs. 10 each (Rs. 4 paid up) in XYZ Ltd. However, Mr. A cannot be, considered as small shareholder since the nominal value of shares held by him (i.e. Rs. 50,000) exceeds Rs. 20,000., , Terms & Conditions for Small Shareholders’ Director, , Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014 laid down the following terms, and conditions for appointment of small shareholders’ director, which are as under:, (i) Election of small shareholders’ director:, , A listed company, may upon notice of not less than, (a), , (b), , One thousand small shareholders; or, , One-tenth of the total number of such shareholders,, , whichever is lower; have a small shareholders’ director elected by the small shareholder.
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700, , , , Lesson 16 • EP-CL, , A ‘Small Shareholder’s Director’ may be elected voluntarily by any listed company. Thus, a listed company, may, on, its own, act to appoint a Small Shareholder’s Director. In such a case, no notice from small shareholder(s) is required., (ii) Notice of intention to propose a candidate:, , The small shareholders intending to propose a person as a candidate for the post of small shareholder’s director, shall leave a signed notice of their intention with the company at least 14 days before the meeting under their, signatures specifying their details and proposed director’s details and of the small shareholders who are proposing, such person for the office of director. The details include name, address, shares held and folio number etc. If the, proposer does not hold any shares in the company, the details of shares held and folio number need not be specified, in the notice., (iii) Statement by the proposed small shareholders’ director:, , The notice shall be accompanied by a statement signed by the proposed director for the post of small shareholders’, director stating, (a), , (b), (c), , his Director Identification Number;, , that he is not disqualified to become a director under the Act; and, his consent to act as a director of the company., , (iv) Small shareholders’ director to be an independent director:, , Small shareholders’ director shall be considered as an independent director, if(a), , (b), , he is eligible for appointment as an independent director as per sub-section (6) of section 149; and, he gives a declaration of his independence as per sub-section (7) of section 149., , (v) Tenure of office and no retirement by rotation:, , The tenure of small shareholders’ director shall not exceed a period of 3 consecutive years and he shall not be liable, to retire by rotation. Further he shall not be eligible for re-appointment after the expiry of his tenure., (vi) Grounds of disqualification:, , Disqualifications of a small shareholders’ director are the same as that of any other director specified under section, 164 of the Act., (vii) Grounds of vacation of office: A Small shareholders’ director shall vacate the office if (a), , he ceases to be a small shareholder, on and from the date of cessation;, , (d), , he ceases to meet the criteria of independence as provided in section 149 (6)., , (b), (c), , he incurs any of the disqualifications specified in section 164;, , the office of the director becomes vacant in pursuance of section 167;, , (viii) Number of small shareholders’ directorship:, , A person shall not hold the office of small shareholders’ director in more than two companies at the same time., , Provided that the second company in which he has been appointed shall not be in a business which is competing or, is in conflict with the business of the first company., (ix) No association with the company for next 3 years:, , A small shareholders’ director shall not, for a period of three years from the date on which he ceases to hold office, as a small shareholders’ director in a company, be appointed in or be associated with such company in any other, capacity, either directly or indirectly.
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701, , Lesson 16 • Directors, , Important points to note:, a), b), , A small shareholders’ director may be removed by passing an ordinary resolution in the general meeting, in accordance with the provisions of section 169 of the Act. At the time of voting on such resolution, every, equity shareholder shall have a right to vote irrespective of the fact as to whether he is a small shareholder, or not., A small shareholders’ director shall be included in the ‘total number of directors’ as prescribed under, section 152 (6) of the Act., , Independent Directors, , Section 149(4) read with Rule 4 of the Companies (Appointment and Qualification of Directors) Rules, 2014, provides following companies to have specified number of independent directors., Class of Companies, , Minimum Number of Independent Directors, , All listed public companies., , At least 1/3rd of total number of Directors., , Other public companies:, •, •, , with paid up share capital of Rs.10 crore or more, or with, turnover of Rs.100 crore or more; or, , At least 2 independent Directors., , with outstanding loans, debentures and deposits exceeding, Rs. 50 Crore., , Explanation.- For the purposes of this rule, it is here by clarified that, the paid up share capital or turnover or, outstanding loans, debentures and deposits, as the case may be, as existing on the last date of latest audited financial, statements shall be taken into account., Provided that a company belonging to any class of companies for which a higher number of independent directors, has been specified in the law for the time being in force shall comply with the requirements specified in such law., However, the following classes of unlisted public company is not required to appoint Independent Director:, (a), , (b), (c), , a joint venture;, , a wholly owned subsidiary; and, , a dormant company as defined under section 455 of the Act., , In case a company covered under this rule is required to appoint higher number of independents directors due to, composition of its audit committee and then they shall appoint such higher number of independent directors., , Further if there is any intermittent vacancy of an independent director then it shall be filled up by the board of, directors at the earliest but not later than immediate next Board meeting or three months from the date of such, vacancy, whichever is later., Once the company covered under above sub-rule (i) to (iii) of Rule 4 of the Companies (Appointment and, Qualification of Directors) Rules, 2014, ceases to fulfil any of three conditions for three consecutive years then it, shall not be required to comply these provisions until such time as it meets any of such conditions., , The sub-section (4) of section 149 shall not apply to a company licensed under section 8 of the Act, and an unlisted, public company which is licensed to operate by the RBI or the SEBI or the IRDAI from the International Financial, Services Centre located in an approved multi services Special Economic Zone set-up under the Special Economic Zones, (SEZ) Act, 2005 read with SEZ Rules 2006.
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702, , Lesson 16 • EP-CL, , , , Number of Independent, Directors, As per the SEBI (LODR),, Regulations, 2015, , As per the Companies Act, 2013, , Listed Public, Companies, At least 1/3rd of, total Director, , Unlisted Public, Companies:, 1) Paid-up Share≥10Cr., or, 2) Turnover≥100Cr., or, 3) Aggregate o/s Loans,, Debentures & Deposits, > 50Cr., , Where, Chairperson is, NED, , Where, Chairperson is not, regular NED, , At least 1/3 of, BOD, , 1/2 of the BOD, , At least 2 Directors, , Definition of an Independent Director – Section 149(6), , Where, Chairperson is, NED and, Promoter or is, related to any, promoter or, person occupying, management, position at level of, Board or one level, below the Board, 1/2 of the BOD, , Section 2(47) of the Companies Act, 2013 provides that the “independent director” means an independent director, referred to in sub-section (6) of section 149 of the Companies Act, 2013., , An independent director means a director other than a managing director or a whole-time director or a nominee, director who does not have any material or pecuniary relationship with the company/ directors. Basically, an, independent director is a non-executive director. Section 149(6) of the Act prescribes the criteria for independent, directors which are as follows:, (a), , (b), (c), , (d), , Who in the opinion of the Board (Ministry or Department of the Central Government which is administratively, in charge of the company, in case of Government company), or as the case may be, the State Government, is a, person of integrity and possesses relevant industrial expertise and experience;, Such individual shall not be a promoter or related to promoter or directors of the company or its holding,, subsidiary or associate company;, , Such individual who has or had no pecuniary relationship, other than remuneration as such director or, having transaction not exceeding ten per cent. of his total income or such amount as may be prescribed, with, the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two, immediately preceding financial years or during the current financial year;, none of whose relatives—, (i), , is holding any security of or interest in the company, its holding, subsidiary or associate company, during the two immediately preceding financial years or during the current financial year:, , (ii), , is indebted to the company, its holding, subsidiary or associate company or their promoters, or, directors, in excess of such amount as may be prescribed during the two immediately preceding, financial years or during the current financial year;, , (iii), , Provided that the relative may hold security or interest in the company of face value not exceeding fifty, lakh rupees or two per cent. of the paid-up capital of the company, its holding, subsidiary or associate, company or such higher sum as may be prescribed;, has given a guarantee or provided any security in connection with the indebtedness of any third person
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Lesson 16 • Directors, , (iv), (e), , to the company, its holding, subsidiary or associate company or their promoters, or directors of such, holding company, for such amount as may be prescribed during the two immediately preceding, financial years or during the current financial year; or, , has any other pecuniary transaction or relationship with the company, or its subsidiary, or its holding, or associate company amounting to two per cent. or more of its gross turnover or total income singly, or in combination with the transactions referred to in sub-clause (i), (ii) or (iii)., , He must not either directly or any of his relatives, (i), , (ii), , hold or has held the position of a key managerial personnel or is or has been employee of the company, or its holding, subsidiary or associate company in any of the three financial years immediately, preceding the financial year in which he is proposed to be appointed;, Provided that in case of a relative who is an employee, the restriction under this clause shall not apply, for his employment during preceding three financial years., is or has been an employee or proprietor or a partner, in any of the three financial years immediately, preceding the financial year in which he is proposed to be appointed, of–, (A), (B), , (iii), (iv), (f), , 703, , firm of auditors or company secretaries in practice or cost auditors of the company or its, holding, subsidiary or associate company; or, , any legal or a consulting firm that has or had any transaction with the company, its holding,, subsidiary or associate company amounting to ten per cent. or more of the gross turnover of, such firm;, , holds together with his relatives two per cent or more of the total voting power of the company; or, , is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives, 25% or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary, or associate company or that holds 2% or more of the total voting power of the company; or, , who possesses such other qualifications as prescribed in Rule 5 of the Companies (Appointment and, Qualification of Directors) Rules,2014 as an independent director shall possess appropriate skills, experience, and knowledge in one or more fields of finance, law, management, sales, marketing, administration, research,, corporate governance, technical operations or other disciplines related to the company’s business., None of the relatives of an independent director, for the purposes of sub-clauses (ii) and (iii) of clause of subsection (6) of section 149:, (i), , (ii), , is indebted to the company, its holding, subsidiary or associate company or their promoters, or, directors ; or, , has given a guarantee or provided any security in connection with the indebtedness of any third person, to the company, its holding, subsidiary or associate company or their promoters, or directors of such, holding company, for an amount of fifty lakhs rupees, at any time during the two immediately preceding, financial years or during the current financial year., , Who can be an independent director, , Who cannot be considered as an independent director, , Possesses relevant expertise and experience., , Who is Managing Director, Nominee Director, Whole time, Director of the company., , None of whose relatives have pecuniary relationship, with the Company, its holding, subsidiary or associate, company or their promoters or directors, amounting, to two percent or more of its gross turnover or total, income or 50 lakh rupees whichever is lower during, the two immediately preceding financial years., , Who has pecuniary relationship with the company, its, holding, subsidiary or associate company during the two, immediately preceding financial years or during the, current financial year., , Who is or was not a promoter of the company., , Who is related to promoters or directors in the company, its holding, subsidiary or associate company.
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704, , Lesson 16 • EP-CL, , , , Who, neither himself nor any of his relatives holds Who, either himself or any of his relatives who is or has, position of KMP., been an employee or proprietor or a partner of Audit, firm of the company or its holding, subsidiary or associate, company or any legal firm/consulting firm that has or, had any transaction with the company, its holding,, subsidiary or associate company amounting to ten, percent or more of the gross turnover of the company, in, any of the three financial years immediately preceding, the financial year., , Who possess such other qualification as may be Who, either himself or any of his relatives who holds, prescribed., together with his relatives two per cent or more of the, total voting power of the company., Who, either himself or any of his relatives who is or has, been an employee of the Company or its holding,, subsidiary or associate company*, in any of the three, financial years immediately preceding the financial year, of his appointment., , In case of Government company – clause (c) of Section 149(6) shall not apply i.e. no such restriction levied on, Government Company related to Pecuniary relationship of Independent Director - Notification dated 5th June, 2015., Issue: Whether the spouse of Secretarial Auditor or Statutory Auditors of the company, be appointed as, an independent director in the company?, , View: According to Section 149(6)(e)(ii) of the Act, an independent director in relation to a company, means, who neither himself nor any of his relatives is or has been an employee or proprietor or a partner, in any of the, three financial years immediately preceding the financial year in which he is proposed to be appointed, of a firm, of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or, associate company. Hence such a person whose spouse is the secretarial auditor/statutory auditor of the, company cannot be appointed as an independent director in that company., Issue: Can a friend of a director be considered as independent?, , View: Law does not prohibit the appointment of a friend of a director of the company as an independent director,, if he fulfils all the legal requirements., Issue: Can a Spouse of an independent director be appointed as an independent director?, , View: No, a Spouse of an independent director cannot be appointed as an independent director. Refer to Section, 149(6)(b)(ii) which provides that an independent director in relation to a company means one who is not related, to promoters or directors in the company, its holding, subsidiary or associate company., , Extracts from the SEBI Adjudication Order dated 20th December 2019 in the matter of Kausambi Vanijya Ltd., , The condition stipulated for an independent director is that he should be a non-executive director who inter alia, should not be related to promoters and should not have pecuniary relationship with the company or its, promoters., , In this case, the status of an individual who was an independent director since some time had been changed to, that of a promoter (when he got associated with one promoter), while he also continued to be an independent, director of Company, which is contrary to the essence and objective of the Corporate Governance provisions of, the listing agreement. Hence, it was violation of the provisions of the section 21 of the Securities Contracts, (Regulation) Act, 1956 read with clause 49 of the listing agreement.
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Lesson 16 • Directors, , 705, , Declaration by an Independent Director- Section 149 (7), Section 149 (7) of the Act, prescribed that every independent director shall give a declaration that he meets the, criteria of independence when:, (a), , (b), (c), , he attends the first meeting of the Board as a director;, , thereafter at the first meeting of the Board in every financial year or, , whenever there is any change in the circumstances which may affect his status as an independent director., , Additionally, for listed entities SEBI vide notification dated 9th May, 2018 (effective from April 1, 2019) provides, that every independent director shall, at the first meeting of the board in which he participates as a director and, thereafter at the first meeting of the board in every financial year or whenever there is any change in the, circumstances which may affect his status as an independent director, submit a declaration that he meets the criteria, of independence and that he is not aware of any circumstance or situation, which exist or may be reasonably, anticipated, that could impair or impact his ability to discharge his duties with an objective independent judgment, and without any external influence., The board of directors of the listed entity shall take on record the declaration and confirmation submitted by the, independent director after undertaking due assessment of the veracity of the same., , With effect from October 1, 2018, the top 500 listed entities by market capitalization calculated as on March 31 of, the preceding financial year, shall undertake Directors and Officers insurance (‘D and O insurance’) for all their, independent directors of such quantum and for such risks as may be determined by its board of directors., , Further “nominee director” means a director nominated by any financial institution in pursuance of the provisions, of any law for the time being in force, or of any agreement, or appointed by any Government or any other person to, represent its interests., , Remuneration of an Independent Director- Section 149(9), , As per section 149(9) of the Act an independent director shall not be entitled to any stock option. He may receive, remuneration by way of fee as provided under section 197(5) of the Companies Act, 2013, reimbursement of, expenses incurred for participation in the Board and other meetings and profit related commission as may be, approved by the members., , Provided that if a company has no profits or its profits are inadequate, an independent director may receive, remuneration, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions, of Schedule V., Exemptions:, , MCA has exempted section 8 companies vide notification dated June 05, 2015 and Specified IFSC public company, vide notification dated 4th January 2017 from the provisions of section 149(4) to (11), Section 149 (i) and, Section 149(13). This means all the provisions relating to requirement of independent directors, definition of, independent directors and other provisions shall not be applicable to section 8 companies and Specified IFSC, public companies., , Term of an Independent Director- Section 149(10), , Subject to the provisions of Section 152, an independent director can be appointed for a term of up to five consecutive, years on the Board. However, in case of his reappointment for further five year then special resolution passed in, general meeting and disclosure of such appointment is made in the Board’s report shall be required [Section, 149(10)]., Further independent director can be considered for re-appointment (after two consecutive terms) only after, expiration of three years of ceasing to become an independent director but he must not be appointed/associated, with the company directly or indirectly in any other capacity during the said period of three years. Any tenure of an
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706, , , , independent director on the date of, commencement of this Act is not considered for, the above term [Section 149(11)]., , It has been clarified that as such while appointment, of an ID for a term of less than 5 years would be, permissible, appointment for any term (whether, for 5 years or less) is to be treated as a one term, under section 149(10) of the Act., , Key points to remember, , Lesson 16 • EP-CL, , •, , Appointment of ID for five years, , •, , After reappointment of two consecutive terms, further, appointment after cooling-off period of 3 years., , •, •, , Further reappointment by passing special resolution, Disclosure in Board’s Report, , Further, under section 149(11) of the Act, no person can hold office of ID for more than two consecutive term’s such, a person shall have to demit office after two consecutive terms, even if the total number of years of his appointment, in such two consecutive terms is less than 10 years. In such a case the person completing ‘consecutive terms of less, than 10 years’ shall be eligible for appointment only after the expiry of the requisite cooling-off period of 3 years., The provisions of retirement of directors by rotation are not applicable on Independent director [Section 149 (13)]., Further, in case of independent directors, the explanatory statement relating to their appointment in general, meeting should contain a declaration from the Board that in their opinion, the independent directors satisfy the, conditions provided in the Act for such appointment [Proviso to Section 152 (5)]., Appointment of independent director on unlisted material subsidiary company, , As per Regulation 24(1) of the SEBI (LODR) Regulations, 2015 at least one independent director on the Board of, Directors of the listed company shall be a director on the Board of Directors of an unlisted material subsidiary,, whether incorporated in India or not., Explanation- For the purposes of this provision, notwithstanding anything to the contrary contained in Regulation, 16, the term “material subsidiary” shall mean a subsidiary, whose income or net worth exceeds twenty percent of, the consolidated income or net worth respectively, of the listed company and its subsidiaries in the immediately, preceding accounting year., , Payment of Sitting Fee/Commission, , According to Section 149(9), the independent director is entitled to receive:, (a), , sitting fee for Board/Committee meetings as may be prescribed under second proviso of Section 197(5), , (c), , If a company has no profits or its profits are inadequate, an independent director may receive remuneration,, exclusive of any fees payable under sub-section (5) of section 197, in accordance with the provisions, of Schedule V of the Companies Act, 2013., , (b), , sitting fee to a director for attending meetings of the Board or committees thereof, such sum as may be, decided by the Board of directors thereof shall not exceed one lakh rupees per meeting of the Board or, committee thereof., , Remuneration payable as per Schedule V of the Companies Act, 2013, , Remuneration payable by companies having profits: Subject to the provisions of section 197, a company, having profits in a financial year may pay remuneration to an independent directors not exceeding the limits, specified in such section., Remuneration payable by companies having no profit or inadequate profit, , Where in any financial year during the currency of tenure of an independent directors, a company has no profits, or its profits are inadequate, it may, pay remuneration not exceeding, the limits given below:-
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707, , Lesson 16 • Directors, , (1), , Sl.No., (i), , (ii), , Where the effective capital (in, rupees) is, Negative or less than 5 crores., 5 crores and above but less than 100, crores., , 100 crores and above but less than 250, crores., , (iii), , 250 crores and above., , (iv), , (2), , Limit of yearly remuneration payable shall not exceed (in, rupees) in case of independent director, 12 lakhs, 17 lakhs, 24 lakhs, , 24 Lakhs plus 0.01% of the effective capital in excess of, Rs.250 crores, , The remuneration in excess of above Iimits may be paid if the resolution passed by the shareholders is a special, resolution., , MCA has exempted section 8 companies vide notification dated June 05, 2015 and Specified IFSC public company vide, notification dated 4th January 2017 from the provisions of section 149(4) to (11), 12(i) and this means all the provisions, relating to requirement of independent directors, definition of independent directors and other provisions shall not be, applicable to section 8 companies., , Obligations with respect to independent directors as per the SEBI (LODR) Regulations, 2015, (1), , No person shall be appointed or continue as an alternate director for an independent director of a listed, entity with effect from October 1, 2018., , (3), , The independent directors of the listed entity shall hold at least one meeting in a financial year, without the, presence of non-independent directors and members of the management and all the independent directors, shall strive to be present at such meeting., , (2), , (4), , (6), (7), , (8), , The maximum tenure of independent directors shall be in accordance with the Companies Act, 2013 and, rules made thereunder, in this regard, from time to time., The independent directors in the meeting referred in sub-regulation (3) shall, inter alia:, (a), , review the performance of non-independent directors and the board of directors as a whole;, , (c), , assess the quality, quantity and timeliness of flow of information between the management of the, listed entity and the board of directors that is necessary for the board of directors to effectively and, reasonably perform their duties., , (b), , review the performance of the chairperson of the listed entity, taking into account the views of, executive directors and non- executive directors;, , An independent director shall be held liable, only in respect of such acts of omission or commission by the, listed entity which had occurred with his/her knowledge, attributable through processes of board of directors,, and with his/her consent or connivance or where he/she had not acted diligently with respect to the, provisions contained in these regulations., , An independent director who resigns or is removed from the board of directors of the listed entity shall be, replaced by a new independent director by listed entity at the earliest but not later than the immediate next, meeting of the board of directors or three months from the date of such vacancy, whichever is later., Where the listed entity fulfils the requirement of independent directors in its board of directors without, filling the vacancy created by such resignation or removal, the requirement of replacement by a new, independent director shall not apply., , The listed entity shall familiarise the independent directors through various programmes about the listed, entity, including the following:, (a), , nature of the industry in which the listed entity operates;
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708, , , , (b), , business model of the listed entity;, , (d), , any other relevant information, , (c), , Lesson 16 • EP-CL, , roles, rights, responsibilities of independent directors; and, , Role of Independent Director, , Independent directors are required because they perform the following important role:, (i), , Balance the often conflicting interests of the stakeholders., , (iv), , Act as a coach, mentor and sounding Board for their full time colleagues., , (ii), , (iii), (v), , Facilitate withstanding and countering pressures from owners., Fulfill a useful role in succession planning., , Provide independent judgment and wider perspectives., , As per Schedule IV of the Companies Act, 2013, the Independent Director shall –, 1., , uphold ethical standards of integrity and probity;, , 4., , devote sufficient time and attention to his professional obligations for informed and balanced decision, making;, , 2., 3., 5., 6., 7., 8., 9., , act objectively and constructively while exercising his duties;, , exercise his responsibilities in a bonafide manner in the interest of the company;, , Not allow any extraneous considerations that will vitiate his exercise of objective independent judgment in, the paramount interest of the company as a whole, while concurring in or dissenting from the collective, judgment of the Board in its decision making;, , Avoid abusing his position to the detriment of the company or its shareholders or for the purpose of gaining, direct or indirect personal advantage or advantage for any associated person;, Refrain from any action that would lead to the loss of his independence;, , Inform the Board immediately whose circumstances arise which makes an Independent Director lose his, independence;, Assist the company in ensuring best corporate governance practices., , Separate Meeting of Independent Director:, , The independent directors of the company shall hold at least one meeting in a financial year, without the, attendance of non-independent directors and members of management., , Additional Director, , Section 161(1) of the Companies Act, 2013, provides that the articles of a company may confer on its Board of, Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general, meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting, or the last date on which the annual general meeting should have been held, whichever is earlier., In case of default in holding annual general meeting, the additional director shall vacate his office on the last day on, which the annual general meeting ought to held. A person who fails to get appointed as a director in a general, meeting cannot be appointed as Additional Director. Section 161(1) of the Act applies to all companies, whether, public or private., , Alternate Director, , Section 161(2) of the Act empowers the Board, if so authorized by its articles or by a resolution passed by the, company in general meeting, to appoint a person, not being a person holding any alternate directorship for any
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Lesson 16 • Directors, , 709, , other director in the company or holding directorship in the same company, to act as an alternate director for a, director during his absence for a period of not less than three months from India., The provisions applicable to an alternate director are as follows:, (i) Applicability:, , Section 161(2) of the Act applies to all companies, whether public or private., (ii) Conditions for appointment of an alternate director:, (a), , The Board of Directors of a company must be authorised by its articles or by a resolution passed by the, company in general meeting for appointment of the alternate director., , (c), , The person to be appointed as the Alternate Director shall be the person other than the person holding any, alternate directorship for any other Director in the company or holding directorship in the same company., , (b), (d), , The person in whose place the Alternate Director is being appointed should be absent for a period of not less, than 3 months from India., , If it is proposed to appoint an Alternate Director to an Independent Director, it must be ensured that the, proposed appointee also satisfies the criteria of Independence as per section 149(6) of the Act., , (iii) Power to appoint:, , The Board may appoint an alternate director only if it is authorized by the articles or by an ordinary resolution, passed at a general meeting. The right to appoint an alternate director vests in the Board. The original director, has no right to appoint an alternate director. The members have no right to appoint an alternate director, the, members can only empower to appoint alternate director as and when board thinks fit., , (iv) Method of appointment:, , There is no condition that an alternate director shall be appointed only by passing a resolution at a Board, meeting. Therefore, an alternate director can be appointed by passing a resolution by circulation., , (v) Terms of office of an alternate director:, (a), (b), , Not exceeding the term permissible to original director: An alternate director shall not hold office for, a period longer than that permissible to the director in whose place he has been appointed. If the, original director ceases to be a director by reason of death or vacation of office under section 167, the, alternate director shall immediately cease to hold his office., The alternate director shall vacate his office when the original director in whose place he has been, appointed returns to India., , (vi) Automatic reappointment applies to the original director:, , If the term of office of an original director expires before he returns back to India, the provision for automatic, reappointment of a director as envisaged under section 152(7)(b) shall be applicable to the original director, and not, to the alternate director., SEBI vide notification with effect from October 1, 2018 provides that no person shall be appointed or continue as, an alternate director for an independent director of a listed entity., As per section 165, an alternate directorship in a company shall also be included while counting the number of, directorships held by a director., , Nominee Director, , Section 161(3) of the Companies Act, 2013, provides that subject to the articles of a company, the Board may appoint, any person as a director nominated by any institution in pursuance of the provisions of any law for the time being, in force or of any agreement or by the Central Government or the State Government by virtue of its shareholding in, a Government company.
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710, , , , Lesson 16 • EP-CL, , Professional Director, The term “professional director” has not been defined in the Companies Act, 2013. However, Proviso to sub-section, (4) of Section 197 of the Companies Act, 2013 has reference to professional services by a director. Section 200 has, reference to the professional qualification in relation to managerial remuneration., The dictionary defines word “professional” as a person is related to or belonging to a profession and competent or, skilled in a particular activity. Accordingly, director having specialised knowledge and skill in a particular field and, contribute in decision making of the board may be appointed as professional director. For example, a doctor may be, a professional director in a hospital company., , Appointment of Directors in Casual Vacancy, , Section 161(4), if the office of any director appointed by the company in general meeting is vacated before his term, of office expires in the normal course, the resulting casual vacancy may, in default of and subject to any regulations, in the articles of the company, be filled by the Board of Directors at a meeting of the Board which shall subsequently, approved by the members in the immediate next general meeting. The person so appointed shall hold office only, upto the day upto which the director in whose place he has been appointed, would have held office if he had not, vacated as aforesaid. Where a person appointed by the Board vacates his office, it is not a case of casual vacancy and, cannot be filled by the Board in the place., , APPOINTMENT/ REAPPOINTMENT, DISQUALIFICATIONS, VACATION OF OFFICE, RETIREMENT,, RESIGNATION AND REMOVAL, AND DUTIES OF DIRECTORS, Appointment of Directors to be voted individually- Section 162(1), , At the general meeting of the company, a single resolution shall not be moved for the appointment of two or more, persons as directors of the company unless a proposal to move such a motion has first been agreed to at the meeting, without any vote being cast against it. A resolution moved in contravention of aforesaid provision shall be void,, whether or not any objection was taken when it was moved. A motion for approving a person for appointment, or, for nominating a person for appointment as a director, shall be treated as a motion for his appointment., , This provision shall not apply to (a) a Government Company in which the entire paid up share capital is held by the, Central Government, or by any State Government or Governments or by the Central Government and one or more, State Governments: (b) a subsidiary of a Government company, referred to in (a) above, in which the entire paid up, share capital is held by that Government company., , Number of Directorships [Section 165], , According to Section 165 of the Companies Act, 2013, no person shall hold office as a director, including any alternate, directorship, in more than twenty companies at the same time. The maximum number of public companies in which, a person can be appointed as a director shall not exceed ten. For reckoning the limit of public companies in which a, person can be appointed as director, directorship in private companies that are either holding or subsidiary, company of a public company shall be included. For reckoning the limit of directorships of twenty companies, the, directorship in a dormant company shall not be included., Penalty:, , If a person accepts an appointment as a director in violation of section 165, he shall be liable to a penalty of two, thousand rupees for each day after the first during which such violation continues, subject to a maximum of two, lakh rupees., SEBI provides that the directors of listed entities shall comply with the following conditions with respect to the, maximum number of directorships, including any alternate directorships that can be held by them at any point of, time (1), , A person shall not be a director in more than eight listed entities with effect from April 1, 2019 and in not, more than seven listed entities with effect from April 1, 2020:
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Lesson 16 • Directors, , (2), , 711, , Further it has been provided that a person shall not serve as an independent director in more than seven, listed entities., Notwithstanding the above, any person who is serving as a whole time director / managing director in any, listed entity shall serve as an independent director in not more than three listed entities., , For the purpose of this regulation, the count for he number of listed entities on which a person is a director/, independent director shall be only those whose equity shares are listed on a stock exchange., In case of section 8 company – Section 165 (1) related to maximum number of directorship shall not apply Notification dated 5th June, 2015., , MINIMUM AND MAXIMUM NUMBER OF DIRECTORS IN A COMPANY, , Section 149(1) of the Companies Act, 2013 requires that every company shall have a minimum number of 3 directors, in the case of a public company, two directors in the case of a private company, and one director in the case of a One, Person Company. A company can appoint maximum (15) fifteen directors. A company may appoint more than, fifteen directors after passing a special resolution in general meeting., The prescription under Clause (b) and First proviso to sub-section (1) of Section 149 (1) of Companies Act 2013 which, is relating to minimum and maximum number of Directors in a Company shall not be applicable to Section 8 Company., In case of Government company - Section 149(1)(b) and the first Proviso to Section 149(1) shall not apply. Hence,, maximum limit of appointment of number of Directors is not applicable., , Case Law:, The Registrar of Companies, West Bengal (Appellant) Vs. Karan Kishore Samtani (Respondent) Company, Appeal (AT) No.13 of 2019,dated 24/06/2020,( The National Company Law Appellate Tribunal) (NCLAT), Number of Directorships by a Director-Minimum Fine, The Respondent was the Director, for more than 20 Companies till 31.03.2015. The Respondent tendered his, resignation as the Director of the Company M/s Fabius Properties Pvt. Ltd. The same was accepted by the Board, of Directors of the Companies on 29.12.2015.However, the intimation of his resignation was sent to the Registrar, of Companies vide Form DIR-12 on 10.02.2016., The Respondent has violated the provisions under Section 165(1) read with Section 165(3) of the Companies, Act, 2013 which is punishable under Section 165(6) of the Act, The NCLT, Kolkata bench has imposed, compounding fees of Rs. 50,000/- which is less than minimum fees prescribed under Section 165(6) of the, Companies Act, 2013., The issue for consideration is, whether Tribunal can impose the compounding fees under Section 441 (1) of the, Companies Act, 2013, less than minimum prescribed fine for the offence under Section 165 (1) read with Section, 165(6) of the Companies Act, 2013?, The NCLAT held that the NCLT, Kolkata Bench has failed to notice the minimum fine prescribed under SubSection 6 of Section 165 of the Companies Act, 2013 which was applicable at relevant time., , The Respondent has contravened the provisions of 165(1) of the Companies Act, 2013 which is punishable, under Sub-Section 6 of Section 165 of the Companies Act, 2013. Taking into consideration, the facts and, circumstances of the case, NCLAT imposed minimum fine at the rate of five thousand rupees for every day for, the period 01.04.2015 to 21.02.2016 i.e. 272 days. The NCLAT quantified the penalty amount to Rs. 13,60,000/The Respondent has already paid Rs. 50,000/- after adjustment, now he is liable to pay Rs. 13,10,000/- Therefore,, The Respondent is directed to pay such amount within a period of 60 days in National Company Law Tribunal,, Kolkata.
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712, , Lesson 16 • EP-CL, , , , Appointment of, Director, , Subscriber to the, Memorandum, , Deemed as First, Directors u/s 152, , By General, Meeting, , Appointment, of Director/, Regularisation of, Director/, Reappointment of, Retiring Director, , By Small, Share holders, , By BOD, , By, Tribunal, , Additional Director, u/s 161, Director appointed to fill, casual vacancy u/s 161, Alternate Director, u/s 161, , Appointment of First Director, The first directors of most of the companies are named in their articles. Regulation 60 of Table F provides that the, number of the directors and the names of the first directors shall be determined in writing by the subscribers of the, memorandum or a majority of them. If they are not so named in the articles of a company, then subscribers to the, memorandum who are individuals shall be deemed to be the first directors of the company until the directors are, duly appointed., In the case of a One Person Company, an individual being a member shall be deemed to be its first director until the, director(s) are duly appointed by the member in accordance with the provisions of Section 152., First Director [Section152(1)], Named in Articles of the Co., Where no provision is made in the, articles of a company for the appointment, of the first director, , Other Companies, Subscribers to the, memorandum who are, individuals shall be deemed, to be the first directors of the, company until the directors, are duly appointed., , OPC, , an individual being a member, shall be deemed to be its first, director until the director(s), are duly appointed by the, member
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Lesson 16 • Directors, , 713, , Appointment of Directors by Members at General Meeting, A person appointed as director shall not act as director unless he gives his consent to hold office of director and, such consent in Form DIR - 2 has been filed with the registrar within thirty days of his appointment. The company, shall within thirty days of appointment of a director, file such consent with the Registrar in form DIR-12., , However, a specified IFSC public company shall file such consent within sixty days. According to Section 152, every, director shall be appointed by the company in general meeting., , Separate motion should move for the appointment of each director as per section 162. A motion for approving a, person for appointment or for nomination a person for appointment shall also be treated as motion for his, appointment., , Under section 152(6), articles of a company may provide that all directors of the company shall be retiring by, rotation. Where article does not provide for retirement by rotation for all directors, not less than two – thirds of, total number of directors of a public company shall be liable to be retired by rotation and be appointed by company, in general meeting. At the first annual general meeting of a public company held next after the date of the general, meeting at which the first directors are appointed and at every subsequent annual general meeting, one-third of, such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a, multiple of three, then, the number nearest to one-third, shall retire from office. The directors to retire by rotation, at every annual general meeting shall be those who have been longest in office since their last appointment, but as, between persons who became directors on the same day, those who are to retire shall, in default of and subject to, any agreement among themselves, be determined by lot., As per Section 152(7) (a) if the vacancy of the retiring director is not filled-up and the meeting has not expressly, resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same, time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time, and place., As per Section 152(7)(b), if at the adjourned meeting also, the vacancy of the retiring director is not filled up and, that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have, been re-appointed at the adjourned meeting, unless –, (i), , at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put, to the meeting and lost;, , (iii), , he is not qualified or is disqualified for appointment;, , (ii), , (iv), (v), , the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed, his unwillingness to be so re-appointed;, a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any, provisions of this Act; or, section 162 is applicable to the case., , For the purposes of this section and section 160, the expression “retiring director” means a director retiring by, rotation., Sub-section (6) and (7) of Section 152 shall not apply to, (a), , (b), , a Government company, which is not a listed company, in which not less than fifty-one per cent. of paid up, share capital is held by the Central Government, or by any State Government or Governments or by the, Central Government and one or more State Governments;, a subsidiary of a Government company, referred to in (a) above.”. - Notification Dated 13th June, 2017., , Procedure for re-appointment of the retiring director at the Annual General Meeting, , 1., , Ascertain which directors are due to retire by rotation. As a general principle, the directors to retire shall be, those who have been longest in office since their last appointment.
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714, , 2., 3., 4., 5., 6., 7., 8., , , , Lesson 16 • EP-CL, , Ensure that the retiring director is not subject to any disqualification for re-appointment as director of the, company under sections 164 and 165 of the Companies Act, 2013., Ensure that the consent of the director as well as the declaration from the director has been obtained., , Convene a Board meeting after giving notice to all directors of the company in accordance with Section 173, of the Act, to consider the re-appointment of retiring director., Fix the time, place and agenda of the annual general meeting to pass an ordinary resolution for the, reappointment of retiring director., , Send the notice in writing at least 21 clear days before the date of annual general meeting to the members, such notice is required to be sent to the Stock Exchanges where the shares of company are listed., Hold the annual general meeting and pass an ordinary resolution for re-appointment of the retiring director., , In case of listed companies, forward a copy of the proceedings of the annual general meeting to the stock, exchanges where the company’s shares are listed. [Schedule III of SEBI (Listing Obligation and Disclosure), Regulations, 2015]., , Right of persons other than retiring directors to stand for directorship [Section 160], 1., , 2., , A person who is not a retiring director shall be eligible for appointment to the office of a director at any, general meeting, if he, or some member intending to propose him as a director, has, not less than fourteen, days before the meeting, left at the registered office of the company, a notice in writing under his hand, signifying his candidature as a director or, as the case may be, the intention of such member to propose him, as a candidate for that office. Such a person may be a member or a non-member, an additional director or a, director to fill a casual vacancy or an alternate director or a nominee director., Such notice must come along with the deposit of one lakh rupees or such higher amount as may be prescribed, which shall be refunded to such person or, as the case may be, to the member, if the person proposed gets, elected as a director or gets more than twenty five per cent of total valid votes cast either on show of hands, or on poll on such resolution., In case of Nidhi company, instead of Rupees One Lakh, the deposit of Rupees ten thousand is required with, the notice., , 3., , The requirements of deposit of amount shall not apply in case of appointment of an independent director or, a director recommended by the Nomination and Remuneration Committee, if any, constituted under subsection (1) of section 178 or a director recommended by the Board of Directors of the Company, in the case, of a company not required to constitute Nomination and Remuneration Committee, Section 160 is not applicable to Government Company where the entire paid up share capital is held by, Central Government jointly or severally or in case of subsidiary of Government Company in which the entire, paid up capital is held by that Government Company., , Further, Section 160 is not applicable to Private Companies, Section 8 Companies whose article provide for, election of directors by Ballot., , Procedure for appointment of a Director other than a retiring director at the Annual General Meeting, In case of a public company, the following procedure is to be adopted:, •, , The candidate for directorship or any member proposing other person for appointment to office of director,, is required to give a notice in writing not less than fourteen days before the meeting at the office of the, company, signifying candidature for the office of director or intention to propose other person as a candidate, for that office, as the case may be, along with a deposit of one lakh rupees which shall be refunded to such, person, or as the case may be, to such member, if the person succeeds in getting elected as a director., , The requirements of deposit of amount shall not apply in case of appointment of an independent director or, a director recommended by the Nomination and Remuneration Committee, if any, constituted under subsection (1) of section 178 or a director recommended by the Board of Directors of the Company, in the case
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Lesson 16 • Directors, , •, •, •, •, •, •, •, •, •, , 715, , of a company not required to constitute Nomination and Remuneration Committee, , On receipt of notice, the company will inform its members of the candidature of a person for the office of, director or intention of the member to propose such person as candidate for that office by serving individual, notice on the members, not less than seven days before the meeting., Where individual notice is not practicable, publish notice not less than seven days before the meeting, in at, least two newspapers (one in English and the other in regional language) circulating in the place where the, registered office of the company is situated., , In case of listed company, forward copies of this notice also to the stock exchange, where the shares of the, company are listed., Check whether the director to be appointed in the general meeting has obtained Director Identification, Number (DIN). If not then ask such person to make application to Central Government for obtaining DIN and, ensure that the Director has intimated his DIN to the Company., Ensure that the consent of the director as well as the declaration from the director has been obtained in Form, DIR-2., At the general meeting, the motion to appoint a person other than the retiring director will be taken up., , Where more than one such proposals are to be decided, they are to be discussed one by one and the decision, of the meeting to be arrived at in respect of each proposal separately., , In case of listed company, send the notice and a copy of the proceedings of the general meeting to the stock, exchange with which the company is listed., , In case the person is appointed as a director, the company shall refund the deposit of one lakh rupees to such, person or to such other member, who had proposed his name for directorship., The company has to file particulars of director in Form DIR – 12 with the Registrar of Companies within thirty, days of the appointment after paying the requisite fee electronically., , Ensure that said Form is digitally signed by managing director or manager or secretary of the company and, also certified by a Company Secretary or Chartered accountant or Cost accountant in Whole time practice by, digitally signing it., For the purpose of filing Form DIR – 12, the following attachments are required:, (a), , Letter of appointment, , (c), , Declaration of the appointee Director in Form DIR-2;, , (b), •, •, •, , (d), , Declaration by the first director, Interest in other entities;, , In case of listed company, particulars of appointment of director should also be given to the stock exchange if, the shares of the company are listed., , The particulars of the director and other aspects of the director have to be entered by the company in the, registers maintained under Sections 170 and 189, After appointment the director concerned has to inform other companies in which he is director about his, appointment., , Appointment of Independent directors, , 1., 2., , Appointment process of independent directors shall be independent of the company management; while, selecting independent directors the Board shall ensure that there is appropriate balance of skills, experience, and knowledge in the Board so as to enable the Board to discharge its functions and duties effectively., Independent director may be selected from Databank., The appointment of independent director(s) of the company shall be approved by the company at the meeting, of the shareholders.
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716, , 3., , 4., , 5., , , , The explanatory statement attached to the notice of the meeting for approving the appointment of independent, director shall include a statement that in the opinion of the Board, the independent director proposed to be, appointed fulfils the conditions specified in the Act and the rules made thereunder and that the proposed, director is independent of the management. It shall also indicate the justification for choosing the appointee, for appointment as Independent Director., Section 178(3) of the Act provides that the Nomination and Remuneration Committee (NRC) shall formulate, the criteria for determining qualifications, positive attributes and independence of a director., , In addition, the Listing Regulations provide that the NRC should recommend to the Board of Directors a, policy relating to the remuneration of the directors, key managerial personnel and other employees. The, Listing Regulations (Part D of Schedule II read with regulation 19(4)) cast a responsibility on the NRC to, identify persons who are qualified to become directors and who may be appointed in senior management in, accordance with the criteria laid down, and recommend to the Board of Directors their appointment and, removal. Part D of Schedule II to the Listing Regulations specifies that the role of the NRC shall include, formulation of the criteria for determining qualifications, positive attributes and independence of a director, and recommend to the Board of Directors a policy relating to the remuneration of the directors, key managerial, personnel and other employees., , In addition, the NRC to decide whether to extend or continue the term by way of re-appointment of the, independent director, on the basis of performance evaluation report of independent directors., The appointment of independent directors shall be formalized through a letter of appointment, which shall set, out:, (a), , The term of appointment;, , (c), , The fiduciary duties that come with such an appointment along with accompanying liabilities;, , (b), , (d), (e), (f), 6., 7., 8., , Lesson 16 • EP-CL, , (g), , The expectation of the Board from the appointed director; the Board-level committee(s) in which the, director is expected to serve and its tasks;, Provision for Directors and Officers (D and O) insurance, if any;, , The Code of Business Ethics that the company expects its directors and employees to follow;, , The list of actions that a director should not do while functioning as such in the company; and, , The remuneration, mentioning periodic fees, reimbursement of expenses for participation in the, Boards and other meetings and profit related commission, if any., , The terms and conditions of appointment of independent directors shall be open for inspection at the, registered office of the company by any member during normal business hours., , The terms and conditions of appointment of independent directors shall also be posted on the company’s, website., He shall be hold office for a term of upto 5 consecutive years of a company. [Section 149(10)], , Re-appointment of Independent Directors, , The re-appointment of independent director shall be on the basis of report of performance evaluation. (Schedule IV, – Code for Independent Directors), , Section 149(11) provides that the Independent Director shall be eligible for re-appointment on passing of special, resolution. He shall not hold office for more than 2 consecutive terms, but such independent director shall be eligible, for appointment after the expiration of 3 years (cooling period) of ceasing to become an independent director., However, he shall not, during the said period of 3 years, be appointed in or be associated with the company in any, other capacity, either directly or indirectly.
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Lesson 16 • Directors, , 717, , Selection of Independent Directors [Section 150], (1) An independent director may be selected from a data bank containing names, addresses and qualifications of, persons who are eligible and willing to act as independent directors, maintained by any body, institute or association,, as may by notified by the Central Government, having expertise in creation and maintenance of such data bank and, put on their website for the use by the company making the appointment of such directors:, (2) Responsibility of exercising due diligence before selecting a person from the data bank referred to above, as an, independent director shall lie with the company making such appointment., , (3) The data bank shall create and maintain data of persons willing to act as independent director in accordance to, Rule 6 of the Companies (Appointment and Qualifications of Directors) Rules, 2014., In case of section 8 company - Section 150 shall not apply- Notification dated 5th June, 2015., , Enrollment in Data Bank of Independent Director [Rule 6 of the Companies (Appointment and, Qualifications of Directors) Rules, 2014], , Compliances required by a person eligible and willing to be appointed as an independent director., (1) Every individual –, (a), , (b), , who has been appointed as an independent director in a company, on the date of commencement of the, Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 (i.e. 1/12/2019),, shall within a period of thirteen months from such commencement; or, who intends to get appointed as an independent director in a company after such commencement, shall, before such appointment,, , is required to apply online to the institute i.e. IICA for inclusion of his name in the data bank for a period of one year, or five years or for his life-time and from time to time take steps as specified in Rule 6 (2) of the Companies, (Appointment and Qualification of Directors) Rules, 2014, till he continues to hold the office of an independent, director in any company., The expression “institute” means the ‘Indian Institute of Corporate Affairs at Manesar’ notified under Section 150(1) of, the Companies Act, 2013 as the institute for the creation and maintenance of data bank of Independent Directors., , (2), , Any individual, including an individual not having DIN, may voluntarily apply to the institute for inclusion of, his name in the data bank., , (4), , No application for renewal shall be filed by an individual who has paid life-time fees for inclusion of his name, in the data bank., , (3), , (5), (6), (7), (8), , Every individual whose name has been so included in the data bank shall file an application for renewal for a, further period of one year or five years or for his life-time, within a period of thirty days from the date of, expiry of the period upto which the name of the individual was applied for inclusion in the data bank, failing, which, the name of such individual shall stand removed from the data bank of the institute., Every independent director shall submit a declaration of compliance relating to eligibility and registration, with IICA databank to the Board, each time he submits the declaration required under sub-section (7) of, section 149 of the Act., , Every individual whose name is so included in the data bank shall pass an online proficiency self-assessment, test conducted by the institute within a period of two years from the date of inclusion of his name in the data, bank, failing which, his name shall stand removed from the databank of the institute., An individual who has obtained a score of not less than fifty percent. in aggregate in the online proficiency, self-assessment test shall be deemed to have passed such test., There shall be no limit on the number of attempts an individual may take for passing the online proficiency, self-assessment test.
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718, , , , Lesson 16 • EP-CL, , Exemptions from Online Proficiency Test for inclusion of Individual name in Independent Director’s, Databank:, An individual shall not be required to pass the online proficiency self-assessment test when he has served for a, total period of not less than three years as on the date of inclusion of his name in the data bank,(A) as a director or key managerial personnel, as on the date of inclusion of his name in the databank, in one or, more of the following, namely:(a), , listed public company; or, , (d), , bodies corporate incorporated outside India having a paid-up share capital of US$ 2 million or more; or, , (b), (c), , (e), , unlisted public company having a paid-up share capital of rupees ten crore or more; or, , body corporate listed on any recognized stock exchange or in a country which is a member State of the, Financial Action Task Force on Money Laundering and the regulator of the securities market in such, member State is a member of the International Organization of Securities Commissions; or, , statutory corporations set up under an Act of Parliament or any State Legislature carrying on commercial, activities; or, (B) in the pay scale of Director or equivalent or above in any Ministry or Department, of the Central Government, or any State Government, and having experience in handling,—, (i), , (ii), , the matters relating to commerce, corporate affairs, finance, industry or public enterprises; or, , the affairs related to Government companies or statutory corporations set up under an Act of Parliament, or any State Act and carrying on commercial activities., , (C) in the pay scale of Chief General Manager or above in the Securities and Exchange Board or the Reserve Bank, of India or the Insurance Regulatory and Exchange Board or the Reserve Bank of India or the Insurance, Regulatory and Development Authority of India or the Pension Fund Regulatory and Development Authority, and having experience in handling the matters relating to corporate laws or securities laws or economic laws, Further, for the purpose of calculation of the period of three years referred to in the first proviso,any period, during which an individual was acting as a director or as a key managerial personnel in two or more companies, or bodies corporate or statutory corporations at the same time shall be counted only once., Provided also that the following individuals, who are or have been, for at least ten years :—, (A), , an advocate of a court, or, , (D), , in practice as a company secretary,, , (B), (C), , in practice as a chartered accountant, or, in practice as a cost accountant, or, , shall not be required to pass the online proficiency self-assessment test., , Creation and Maintenance of Databank of Independent Directors [Rule 3 of the Companies, (Creation and Maintenance of Databank of Independent Directors) Rules, 2019], 1), 2), , The institute (IICA) shall create and maintain a databank of persons willing and eligible to be appointed as, independent directors, and such databank shall be an online databank which shall be placed on the website, of the institute., , The data bank referred to above shall contain the following details in respect of each person included in the, data bank to be eligible and willing to be appointed as independent director, (a), , DIN (Director Identification Number), if applicable;, , (c), , the name and surname in full;, , (b), , Income Tax PAN;
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Lesson 16 • Directors, , (d), , the father’s name;, , (f), , gender;, , (h), , the occupation;, , (e), , (g), (i), , (j), , (k), (l), , (m), (n), (o), , (p), , 719, , the date of Birth;, the nationality;, , full Address with PIN Code (present and permanent);, phone number;, e-mail id;, , the educational and professional qualifications;, experience or expertise, if any;, , any pending criminal proceedings as specified in clause (d) of sub-section (1) of section 164;, , the list of limited liability partnerships in which he is or was a designated partner along with(i), , (ii), , (iii), , the name of the limited liability partnership;, the nature of industry; and, the duration- with dates;, , the list of companies in which he is or was director along with(i), , (ii), , (iii), (iv), , the name of the company;, the nature of industry;, , the nature of directorship-Executive or Non-executive or Managing Director or Independent, Director or Nominee Director; and, duration – with dates., , 3), , The information available in the data bank shall be provided only to companies required to appoint, independent director after paying a reasonable fees to the institute., , 5), , Any individual whose name appears in the data bank, shall make changes in his particulars within thirty days, of such change through web based framework made available by the institute for this purpose., , 4), 6), 7), , 8), , A person whose name is included in the data bank, may restrict his personal information to the institute, to, be disclosed in the data bank., A disclaimer shall be conspicuously displayed on the website hosting the data bank that a company must, carry out its own due diligence before appointment of any person as an independent director., The institute, shall with the prior approval of the Central Government, fix a reasonable fee to be charged, from:(a), , (b), , individuals for inclusion or renewal of their names in the data bank of independent directors; and, companies for providing the information on independent directors available on the data bank., , In case of delay on the part of an individual in applying to the Indian Institute of Corporate Affairs (institute), for inclusion of his name in the data bank or in case of delay in filing an application for renewal thereof, the, institute shall allow such inclusion or renewal, as the case may be, under rule 6 of the Companies (Appointment, and Qualification of Directors) Rules, 2014 after charging a further fee of Rs.1000 on account of such delay.
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720, , , , Lesson 16 • EP-CL, , Issue: Can an independent director be appointed for the first term as an additional director by the board, of directors of a company?, View: Section 150(2) of the Act provides that “the appointment of independent director shall be approved by, the company in general meeting as provided in sub-section (2) of section 152”. Section 152(2) of the Act, mandates that save as otherwise expressly provided in the Act, every director shall be appointed by the company, in general meeting. Section 161(1) of the Act confers on the Board of Directors of a company the power to, appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an, additional director at any time who shall hold office up to the date of the next annual general meeting or the last, date on which the annual general meeting should have been held, whichever is earlier., On a holistic reading of sections 150(2), 152(2) and 161 of the Act, it is clear that the Act confers the power on, the Board to appoint additional directors designated as independent directors subject to approval of the, shareholders at the general meeting of the company., Further schedule IV of the Act provides that “the appointment of independent director(s) of the company shall, be approved at the meeting of the shareholders.”, , The requirement of the above sections read with Schedule IV and Section 149 (4) do not imply that there is a, requirement of prior approval of shareholders for appointment of an independent director. Therefore, it can be, said that an independent director can be appointed by the Board as an additional director and his appointment, can be approved by the shareholders at the next annual general meeting, as required under section 161(1) and, schedule IV to the Act, with effect from the date of the Board meeting. The period of five years shall be counted, from the effective date of appointment as approved by the Board in its meeting. Hence, the period between the, effective date of appointment of independent director by the Board and the date of approval by the shareholders, shall be considered as part of the first term of the independent director., , Further as per second proviso to rule 4(1) of the Companies (Appointment and Qualification of Directors) Rules,, 2014, any intermittent vacancy of an independent director shall be filled-up by the Board at the earliest but not, later than immediate next Board meeting or three months from the date of such vacancy, whichever is later. This, further substantiates the above conclusion that appointment of independent directors can be done by the Board, as additional director subject to approval of shareholders at the general meeting., Issue: Can an independent director be appointed as an additional director by the Board of Directors of a, company for a second term once his first term is over?, , View: In order to reply to the aforesaid, it is imperative to look into the provisions of section 149(10) of the Act, which provides as under: “an independent director shall hold office for a term up to five consecutive years on the, Board of a company, but shall be eligible for reappointment on passing of a special resolution by the company.”, Further section 149(11) of the Act provides as under: “Notwithstanding anything contained in sub-section (10),, no independent director shall hold office for more than two consecutive terms, but such independent director, shall be eligible for appointment after the expiration of three years of ceasing to become an independent, director”., The term “Consecutive” has not been defined in the Act. However reference of the word “consecutive” can be, drawn from Merriem Webster dictionary, which provides the meaning as following one after the other or, successive. This effectively means both the terms have to follow each other. Similarly, in the Webster dictionary,, the term “eligible” is referred to in the context a person or thing that is qualified or permitted to do or be, something. The term “re-appointment” is also defined in the Webster dictionary as “to name officially to a, position for a second or subsequent time”., , While going through the aforesaid definitions as used in sections 149(10) and 149(11), it becomes clear that an, independent director is eligible to be reappointed for a second term only on passing of special resolution by the, shareholders and not before. Therefore, obtaining shareholders’ consent prior to his reappointment for a second, term, in considered view, is a pre-requisite for the independent director to be eligible to serve on the Board of, the company for a second term.
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Lesson 16 • Directors, , 721, , If the shareholders’ approval by special resolution for his reappointment for second term is not taken as on the, last date of the first term, then such independent director cannot be re-appointed by Board as an additional, director for second term, as he does not possess the eligibility to get re-appointed for second term and hence, he, ceases to be a director at the end of his first term., Issue: Whether Circular resolution is allowed for appointment of an independent director while, appointing him for the first term?, , View: There is no restriction on appointment of an independent director by way of a circular resolution, if he is, to be appointed by the Board as an additional director. However, it must be ensured that Nomination and, Remuneration Committee of the company has duly discussed and recommended the candidate, before circulation, of Board resolution., Issue: Can appointment of independent director be done to fill the casual vacancy created by resignation, of any other independent director?, , View: Whenever any existing independent director ceases to be a director of company either due to resignation,, death or otherwise, then in order to ensure the requisite Board composition, a new independent director should, be appointed. The Board can appoint an individual either as an additional director under section 161(1) of the, Act to hold office till the next annual general meeting of the company or he can be appointed as a director in the, casual vacancy to fill the vacancy created in the office of independent director., , It may be noted that if a director is appointed by the Board to fill the casual vacancy (as mentioned above), then, as per Section 161(4) read with Annexure A to the Secretarial Standard on Meetings of the Board of Directors, (SS-1), his appointment should be approved at a Board meeting and not through resolution by circulation. Such, appointment should also be approved by the members in the immediate next general meeting., , Further, as per proviso to section 161(4) of the Act, such director shall hold office only up to the date up to which, the director in whose place he is appointed would have held the office of independent director, if had not been, vacated. Hence, the first term of such newly appointed independent director shall be for a term lesser than 5, years, which he would have otherwise got if he had been appointed as an Additional Director., Issue: Whether end of first term of director without re-appointment for second term or end of the second, term of an Independent Director terminates directorships of a director?, , View: Under section 149(10) of the Act, an independent director shall hold office for a term up to five consecutive, years on the Board of a company, but shall be eligible for re-appointment on passing of a special resolution by, the company based on the recommendation of the Nomination and Remuneration Committee and Board of, Directors of the company and disclosure of such appointment shall be made in the Board’s Report. Since the, term used is holding office for a term up to five consecutive years the independent director will cease to be a, Director on the expiry of his term of five years. Hence, the director will lose/ vacate his directorship also on the, expiry of the first term or the second term as the case may be., Issue: If a known person is to be appointed as Independent Director, should his name be mentioned in, Databank?, View: Any individual who intends to get appointed as an independent director in a company shall before such, appointment shall register his name with the databank of independent directors., , APPOINTMENT OF DIRECTORS BY BOARD, Procedure for appointment of Additional Director, •, •, , Ensure that the Articles of the company authorise the Board to appoint an additional director and such, appointment is within the maximum limit of directors mentioned in the Articles., , Ensure that individual proposed to be appointed as an additional director, does not suffer from any, disqualification mentioned.
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•, , 722, , •, •, , , , Lesson 16 • EP-CL, , Before appointing a person as an additional director, his consent to act as director should be obtained., , Check whether the additional director to be appointed in the board meeting has obtained Director, Identification Number (DIN). If not then ask such director to make application to Central Government for, obtaining DIN as per Section 153 and ensure that the Director has intimated his Directors Identification, Number to the Company., Rest the procedure for appointment remains the same., , Procedure for appointing Directors in casual vacancy, , •, , Where it is proposed by the Board to appoint a person to fill a casual vacancy, his written consent to act as a, director has to be obtained before appointment., , •, , Rest of the procedure remains the same., , •, , Check whether the director to be appointed in the casual vacancy in the board meeting has obtained Director, Identification Number (DIN). If not then ask such director to make application to Central Government for, obtaining DIN as per Section 153 and ensure that the Director has intimated his Directors Identification, Number to the Company., , In case of a private company, the procedure for appointment will be governed by its Articles., , Procedure for appointment of an Alternate Director, , •, •, •, •, , Consult the Articles of Association of the company to see whether they authorize the Board to appoint an, alternate director. Otherwise, either alter them accordingly or pass a resolution in company’s general meeting, authorizing the Board to make such appointment., Where it is proposed to appoint a person as an alternate director his written consent to act as director shall, be obtained., , Check whether alternate director to be appointed in board meeting has obtained Director Identification, Number (DIN). If not then ask such director to make application to Central Government for obtaining DIN as, per Section 153 and ensure that the Director has intimated his Directors Identification Number to the, Company., Rest of the procedure remains the same., , APPOINTMENT OF DIRECTORS BY TRIBUNAL, , While giving order on an application made under section 241, i.e., for relief in cases of oppression the Tribunal may, provide order for appointment of such numbers of persons as directors of the company and ask them to report to, the Tribunal on matters as the Tribunal may direct. [Section 242(2)(k)]., The directors, so appointed, may or may not be the members of the company. For the purpose of reckoning two, thirds or any other proportion of the total number of directors of the company, any director or directors appointed, by the Tribunal shall not be taken into account. Such director or directors shall not liable to determination by, retirement of directors by rotation. But they can be removed by the Tribunal at any time and other persons can be, appointed by it in their place. Where the directors have been appointed by the Tribunal, it may also issue such, directions to the company, as it may consider necessary or appropriate in regard to their affairs., , APPOINTMENT OF DIRECTOR BY SYSTEM OF PROPORTIONAL REPRESENTATION, , According to section 163 the articles of a company may provide for the appointment of not less than two-thirds of, the total number of the directors of a company in accordance with the principle of proportional representation,, whether by the single transferable vote or by a system of cumulative voting or otherwise and such appointments, may be made once in every three years and casual vacancies of such directors shall be filled as provided in subsection, (4) of section 161., In case of Government Companies, section 163 shall not apply to –, (a), , a Government Companies in which the entire paid up share capital is held by the Central Government, or by, any State Government or Governments or by the Central Government and one or more state Governments;
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Lesson 16 • Directors, , (b), , 723, , a subsidiary of a Government Company, referred to in (a) above, in which the entire paid up share capital is, held by that Government company., , APPOINTMENT OF NOMINEE DIRECTORS, , Explanation to Section 149(7) defines, “nominee director” as a director nominated by any financial institution in, pursuance of the provisions of any law for the time being in force, or of any agreement, or appointed by any, Government, or any other person to represent its interests. Nominee Director shall not be deemed to be independent, director as per Section 149(6). [Section 149(7) is not applicable to a Specified IFSC public company as per notification, dated 4th January 2017], Companies, which secure financial assistance from financial institutions, banks, major shareholders, debenture, holders, etc. usually confer on their lenders, power to appoint and terminate the appointments of their nominees on their, Boards. Such power is conferred by incorporating appropriate provisions in the financial assistance agreements., , These institutions/banks etc. also insist on borrowing companies to alter their articles of association so as to, empower them to appoint and terminate the services of their nominee directors on the Board of the company as, and when they like. These directors are known as nominee directors. They are not liable to retire by rotation and, hold office at the pleasure of their nominating agencies. They cannot be removed by the company., Procedure to appoint a nominee director is same as appointment as additional director by the Board or appointment, of director other than retiring director by the company in general meeting. Depending upon the term and condition, of agreement with the appointing bank/institution/Government, the company may choose any of these two, methods., , PROCEDURE FOR APPOINTMENT OF DIRECTORS TO BE ELECTED BY SMALL SHAREHOLDERS, , A listed company may have one director elected by small shareholders. Small shareholder means a shareholder, holding shares of nominal value of not more than twenty thousand rupees or such other sum prescribed [Section 151, r/w Rule 7 of the Companies (Appointment and Qualification of Directors) Rules, 2014., 1., 2., , 3., 4., 5., 6., 7., 8., 9., , 10., , A listed company, may upon notice of not less than one thousand small shareholders or one-tenth of the total, number of such shareholders, whichever is lower, have a small shareholders’ director elected by the small, shareholders., , Small shareholders intending to propose a person as a candidate for the post of small shareholders’ director, shall leave a notice of their intention with the company at least fourteen days before the meeting under their, signature specifying the name, address, shares held and folio number of the person whose name is being proposed, for the post of director and of the small shareholders who are proposing such person for the office of director., If the person being proposed does not hold any shares in the company, the details of shares held and folio, number need not be specified in the notice., , The notice shall be accompanied by statement of proposed director stating his DIN, that he is not disqualified, and his consent to act as director of the company., Such director shall be considered as an independent director subject to being eligible and giving a declaration, of his independence in accordance with sub-section (6) and (7) of section 149 of the Act., The small shareholder director shall be elected through postal ballot., , Ensure that the proposed director shall not hold the position of small shareholder director in more than 2, companies at the same time. Provided that the second company in which he has been appointed shall not be, in a business which is competing or is in conflict with the business of the first company., Such director shall not be retire by rotation and shall have tenure of continuous three years., , After completion of tenure small shareholders director shall not be eligible for reappointment., , When small shareholders directors cease to be a small shareholder, he cease to be a small shareholders director., , The company has to file particulars of director in Form DIR – 12 with the Registrar of Companies within thirty, days of the appointment after paying the requisite fee electronically.
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724, , 11., 12., , 13., 14., 15., , , , Lesson 16 • EP-CL, , Ensure that said Form is digitally signed by managing director or manager or secretary of the company and, also certified by a Company Secretary or Chartered accountant or Cost accountant in Whole time practice by, digitally signing it., For the purpose of filing Form DIR-12, the following attachments are required:, (a), , Letter of appointment, , (c), , Declaration of the appointee Director, in Form DIR-2;, , (b), , (d), , Declaration by the first director, Interest in other entities;, , In case of listed company, the particulars of appointment of director should also be given to the stock exchange, where the shares of the company are listed., , The particulars of the director and other aspects of the director have to be entered by the company in the, registers maintained under Sections 170 and 189., After appointment the director concerned has to inform other companies in which he is director about his, appointment., , DISQUALIFICATIONS FOR APPOINTMENT OF DIRECTOR, , Section 164(1) provides that a person shall not be eligible for appointment as a director of a company, if –, (a), , He is of unsound mind and stands so declared by a competent court;, , (d), , He has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and, sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not, elapsed from the date of expiry of the sentence. Provided that if a person has been convicted of any offence, and sentenced in respect thereof to imprisonment for a period of seven years or more, he shall not be eligible, to be appointed as a director in any company., , (b), (c), , (e), (f), , (g), , (h), (i), , He is an undischarged insolvent;, , He has applied to be adjudicated as an insolvent and his application is pending;, , An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the, order is in force;, He has not paid any calls in respect of any shares of the company held by him, whether alone or jointly with, others, and six months have elapsed from the last day fixed for the payment of the call;, , He has been convicted of the offence dealing with related party transactions under section 188 at any time, during the last preceding five years; or, He has not complied with sub-section (3) of section 152., , if he accepts directorships exceeding the maximum number of directorships provided in section 165., , Section 164(2) also provides that no person who is or has been a director of a company which –, (a), , (b), , Has not filed financial statements or annual returns for any continuous period of three financial years; or, , Has failed to repay the deposits accepted by it or pay interest thereon or to redeem any debentures on the due, date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for, one year or more,, , shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five, years from the date on which the said company fails to do so., Provided that where a person is appointed as a director of a company which is in default of clause (a) or clause (b),, he shall not incur the disqualification for a period of six months from the date of his appointment., , In case of Government Companies, section 164(2) shall not apply vide Notification No. F.No. 1/2/2014- CL.V, dated, 5-06-2015., Every director shall inform to the company concerned about his disqualification under sub-section (2) of section
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Lesson 16 • Directors, , 725, , 164, if any, in Form DIR-8 before he is appointed or re-appointed., Whenever a company fails to file the financial statements or annual returns, or fails to repay any deposit, interest,, dividend, or fails to redeem its debentures, as specified in sub-section (2) of section 164, the company shall, immediately file Form DIR-9, to the Registrar furnishing therein the names and addresses of all the directors of the, company during the relevant financial years., When a company fails to file the Form DIR-9 within a period of thirty days of the failure that would attract the, disqualification under sub-section (2) of section 164, officers of the company specified in clause (60) of section 2 of, the Act shall be the officers in default., Upon receipt of the Form DIR-9 under sub-rule (2), the Registrar shall immediately register the document and place, it in the document file for public inspection. Any application for removal of disqualification of directors shall be, made in Form DIR-10., However, a private company may by its articles provide for any disqualifications for appointment as a director in, addition to those specified in sub-sections (1) and (2).The disqualifications referred to in clauses (d), (e) and (g) of, sub-section (1) shall continue to apply even if the appeal or petition has been filed against the order of conviction, or disqualification., Independent directors being the directors of a company attract general disqualifications as applicable to any, other director of the company. Apart from the fulfillment of criteria of independence, a person intended to be an, independent director should also not be disqualified under Section 164 of the Act, which deals with disqualifications, for appointment as a director., , REMOVAL OF DIRECTORS, , Under section 169 of the Act, a company may, by ordinary resolution remove a director before the expiry of the, period of his office. The provisions of section 169 shall apply regardless of the way in which the director concerned, was appointed and notwithstanding anything contained in the articles of the company or any agreement with the, director concerned., , Removal of Director by Shareholders, , According to Section 169, a company may, by ordinary resolution, remove a director, not being a director appointed, by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable, opportunity of being heard., , An independent director re-appointed for second term under sub-section (10) of section 149 shall be removed by, the company only by passing a special resolution and after giving him a reasonable opportunity of being heard., , The provision relating to removal shall not apply where the company has availed itself of the option to appoint not, less than two – thirds of the total number of directors according to the principle of proportional representation., , Procedure for Removal of Director, , The following procedure is required to be adopted for removal of a director:, 1., 2., 3., 4., 5., 6., , A special notice from a member of the company proposing an ordinary resolution for removing the director, is necessary., Send forthwith a copy of the special notice to the director proposed to be removed., Decision to call a general meeting through the Board resolution., , Issue notice of the general meeting in writing at least twenty-one clear days before the date of the meeting, informing about the special notice and proposing the ordinary resolution for removal., , In the notice of the meeting, state the facts of the representation made by the director concerned and also, send a copy of the representation to every member of the company to whom notice of the meeting is sent, (whether before or after the receipt of the representations by the company)., If the representation is received too late and it could not be sent to the members, the director concerned may, require that the representation shall be read out at the meeting. The director concerned has also the right of, being heard at the meeting.
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726, , 7., , , , Lesson 16 • EP-CL, , However, the National Company Law Tribunal on an application of the company or any other person who, claims to be aggrieved, on having satisfied, may dispense with the procedure of sending a copy of representation, and reading thereof at the meeting if it is being used to secure needless publicity for defamatory matter., , 8., 9., , 10., 11., , In case of listed company, send notice of the general meeting to the stock exchange(s) within 24 hours of the, occurrence of the event where the company is listed [Refer regulation 30(6) of the SEBI (Listing Obligations, and Disclosure Requirements) Regulations, 2015]., Hold the general meeting and pass the proposed resolution by ordinary resolution., , In case of listed company, forward a copy of the proceedings of the meeting within 24 hours of the occurrence, of the event to the stock exchange(s) where the company is listed., , The company has to file particulars of director in Form DIR – 12 with the Registrar of Companies within thirty, days of the removal after paying the requisite fee electronically., For the purpose of filing Form DIR – 12, the following attachments are required:, (a) Notice of resignation;, (b) Evidence of Cessation;, Ensure that said Form is digitally signed by managing director or manager or secretary of the company and also certified, by a Company Secretary or Chartered accountant or Cost accountant in Whole time practice by digitally signing it., 12., 13., , The particulars of the director and other aspects of the director have accordingly to be modified in the, registers maintained under Sections 170 and 189., Give a general public notice in newspaper regarding removal of the director if it is so warranted for the, protection of the company and benefit of the general public., , Removal of Director by the National Company Law Tribunal, , Where an application has been made to the National Company Law Tribunal under Section 241 of the Companies, Act 2013 for prevention of oppression or mismanagement and the Tribunal has conducted its proceedings on the, application, it has the power under Section 242(2)(h) of the Act, to remove any director., In S. Varadarajan and Anr. v. Udhayem Leasing and Investments Pvt. Ltd ((2005) Vol. 125 CC 853) it was held that, “Any omission to serve a special notice on the directors sought to be removed, would constitute denial of their, statutory right of reply and in the absence of such notice to the directors, any resolution for their removal would, be vitiated by such omission”., In Giridhar Gopal Gupta and Ors. v. AAR Gee Board Mills P. Ltd. and Ors ((2004) Vol. 60 CLA 182, It was held that,, “any removal of directors belonging to one of the two equal groups of the company and appointment of an, additional director not in conformity with the procedure laid down in the Act, would result in setting aside such, removal of directors, being bad in law”., , VACATION OF OFFICE BY DIRECTOR, , According to Section 167 of the Companies Act, 2013, the office of a director shall become vacant in case –, (a), , he incurs any of the disqualifications specified in section 164;, , (b), , he absents himself from all the meetings of the Board of Directors held during a period of twelve months with, or without seeking leave of absence of the Board;, , (c), , (d), (e), (f), , where he incurs disqualification under sub-section (2) of section 164, the office of the director shall become, vacant in all the companies, other than the company which is in default under that sub-section., he acts in contravention of the provisions of section 184 relating to entering into contracts or arrangements, in which he is directly or indirectly interested;, he fails to disclose his interest in any contract or arrangement in which he is directly or indirectly interested,, in contravention of the provisions of section 184;, he becomes disqualified by an order of a court or the Tribunal;, , he is convicted by a court of any offence, whether involving moral turpitude or otherwise and sentenced in
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727, , Lesson 16 • Directors, , respect thereof to imprisonment for not less than six months., , Provided that the office shall not be vacated by the director in case of orders referred to in clauses (e) and (f)(i), , for thirty days from the date of conviction or order of disqualification;, , (iii), , where any further appeal or petition is preferred against order or sentence within seven days, until such, further appeal or petition is disposed of., , (ii), (g), , (h), , where an appeal or petition is preferred within thirty days as aforesaid against the conviction resulting in, sentence or order, until expiry of seven days from the date on which such appeal or petition is disposed of; or, he is removed in pursuance of the provisions of this Act;, , he, having been appointed a director by virtue of his holding any office or other employment in the holding,, subsidiary or associate company, ceases to hold such office or other employment in that company., , A private company, which is not a subsidiary of a public company, may, by its articles, provide additional grounds for, vacation of office of director., , On vacation of office of director, the company is required to file Form DIR – 12 to the Registrar of Companies. If the, office held by any director has become vacant on the ground of disqualification provided above and the concerned, director continues to function, he shall be punishable with fine which shall not be less than one lakh rupees but, which may extend to five lakh rupees. [as Substituted by the Companies (Amendment) Act, 2020. Notification dated, 28th September, 2020 Amendment Effective from 21st December 2020.], , Case Law:, , G. Vasudevan Vs Union of India (Madras High Court), Date of Judgement : 02nd December, 2019, Section 167(1)(a) Companies Act not violative of Articles 14, and 19(1)(g) of the Constitution of India., , The issue raised was that the Section 167(1)(a) of the Companies Act 2013, as inserted vide the Companies, (Amendment) Act 2017 as ultra vires the Articles 14, 19(1)(g) of the Constitution of India., , Section 167 of the Companies Act gives instances where the office of a Director shall become vacant. The proviso, which is under challenge in the instant writ petition states that, when a company commits a default as stipulated, in sub-section 2 of Section 164, then a Director of such defaulting company does not vacate the post in the, company in which the default is committed but a Director of such a company has to vacate his seat as a Director, in all other companies in which he is Director. The petitioner contends that proviso to Section 167(1)(a) of the, Companies Act, leads to unequal treatment being met out to Directors of a defaulting company based on whether, they are Directors in other companies or not. The petitioner claims that this leads to unfair treatment to those, Directors who hold such posts in multiple companies., The Court observed that the “purpose of the amendment was that if the post of Directorship is vacated under the, provision (as it was) then, this post would remain vacant as these provisions would automatically apply to any, individual subsequently appointed”., The Court has held that the proviso to Section 167(1)(a) must be interpreted in ordinary terms and would apply, to the entirety of Section 164 including sub-section 2. The Court has further held that this proviso can be justified, on two grounds. Firstly, it has been reiterated that the exclusion of Directors from vacating their posts in the, defaulting company while doing so in all other companies where they hold Directorship has been done in order, to prevent the anomalous situation wherein the post of Director in a company remains vacant in perpetuity, owing to automatic application of Section 167(1)(a) to all newly appointed Directors. Secondly, the underlying, object behind the proviso to Section 167(1)(a) is seen to be the same as that of Section 164(2) both of which, exist in the interest of transparency and probity in governance, Owing to these justifications, the Court thus, holds that the proviso to Section 167(1)(a) is neither manifestly arbitrary nor does it offend any of the, fundamental rights guaranteed under Part III of the Constitution of India.
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728, , , , RESIGNATION OF DIRECTORS, According to section 168 –, 1., , A director may resign from its office by giving a notice with the, reasons of resignation in writing to the company., , 3., , The company shall within 30 days from the date of receipt of, notice of resignation from a director, intimate the registrar in, Form DIR-12 and post the information on its website, if any, as provided in Rule 15 of the companies (Appointment and, Qualification of Directors) Rules, 2014., , 2., , 4., 5., 6., 7., , The Board shall on receipt of such a notice from a director, shall take note of the same., , Lesson 16 • EP-CL, , Resignation of Foreign Director, If the company has already filed DIR12., He may authorize in writing PCA or PCS, or PCMA or any other resident director, to sign Form DIR-11 and file the same on, his behalf intimating the reasons for the, resignation, , The board shall place the facts of such resignation by the director in the Report of Directors laid in immediately, following general meeting by the company., , The Director may within 30 days from his resignation, forward to the registrar a copy of his resignation along, with reasons for resignation with reasons provided therein in Form DIR-11 along with the fee provided. In, case of Specified IFSC public and private company, a director may file Form DIR-11 to the Registrar., The resignation shall be effective from the date on which the notice is received by the company or the date, specified by the Director in the notice whichever is later., , When all the Directors resign at the same time under section 167, in such case the required number of, directors are to be appointed by the promoter or in his absence, the Central Government. The Directors so, appointed shall hold office till the Directors are appointed by the company in general meeting., , The proviso to sub section (2) of section 168 of Companies Act, 2013 clarifies that the Director who shall be liable, even after his resignation for the offences which occurred during his tenure., In the matter of Harish Jain Vs. Haveli Restaurant & Resorts limited & Ors. ,dated 26th February, 2020, , The NCLAT dismissed the claims of appellant on the ground that he failed to prove his resignation letter is a, forged document., , RIGHTS AND DUTIES OF DIRECTORS [SECTION 166], , The duties of directors as contained in section 166 of the Companies Act, 2013 are described as follows:, 1. Duty to act as per the articles of the company, The director of a company shall act in accordance with the articles of the company., 2. Duty to act in good faith, A director of a company shall act in good faith in order to promote the objects of the company for the benefit of its, members as a whole, and in the best interests of the company, its employees, the shareholders, the community and, for the protection of environment., 3. Duty to exercise due care, A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise, independent judgment., 4. Duty to avoid conflict of interest, A director of a company shall not involve in a situation in which he may have a direct or indirect interest that, conflicts, or possibly may conflict, with the interest of the company., 5. Duty not to make any undue gain, A director of a company shall not achieve or attempt to achieve any undue gain or advantage either to himself or to, his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable, to pay an amount equal to that gain to the company.
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Lesson 16 • Directors, , 6. Duty not to assign his office, , 729, , A director of a company shall not assign his office and any assignment so made shall be void., , Punishment for contravention, , If a director of the company contravenes the provisions of this section such director shall be punishable with fine, which shall not be less than one lakh rupees but which may extend to five lakh rupees., , LOANS TO DIRECTORS (SECTION 185), , A company may give loan to director in the form of book debt or guarantee or security subject to certain conditions., According to section 185(1), no company shall, directly or indirectly, advance any loan, including any loan, represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by,—, (a), , (b), , any director of company, or of a company which is its holding company or any partner or relative of any such, director; or, any firm in which any such director or relative is a partner., , (1) A company may advance any loan including any loan represented by a book debt, or give any guarantee or, provide any security in connection with any loan taken by any person in whom any of the director of the company, is interested, subject to the condition that—, (a), , A special resolution is passed by the company in general meeting:, , (b), , the loans are utilised by the borrowing company for its principal business activities., , Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full, particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or, guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any, other relevant fact; and, , Explanation.—For the purposes of this sub-section, the expression “any person in whom any of the director of the, company is interested” means—, (a), , any private company of which any such director is a director or member;, , (c), , any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in, accordance with the directions or instructions of the Board, or of any director or directors, of the lending, company., , (b), , any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power, may be exercised or controlled by any such director, or by two or more such directors, together; or, , (2) Nothing contained in sub-sections (1) and (2) shall apply to—, (a), , (b), (c), , (d), , the giving of any loan to a managing or whole-time director—, (i), , (ii), , as a part of the conditions of service extended by the company to all its employees; or, pursuant to any scheme approved by the members by a special resolution; or, , a company which in the ordinary course of its business provides loans or gives guarantees or securities for, the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the, rate of prevailing yield of one year, three years, five years or ten years Government security closest to the, tenor of the loan; or, , any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or, security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or, any guarantee given or security provided by a holding company in respect of loan made by any bank or, financial institution to its subsidiary company:, Provided that the loans made under clauses (c) and (d) are utilised by the subsidiary company for its principal, business activities.
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730, , , , Lesson 16 • EP-CL, , (3) If any loan is advanced or a guarantee or security is given or provided or utilised in contravention of the, provisions of this section,—, (i), , the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend, to twenty-five lakh rupees;, , (iii), , the director or the other person to whom any loan is advanced or guarantee or security is given or provided, in connection with any loan taken by him or the other person, shall be punishable with imprisonment which, may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to, twenty-five lakh rupees, or with both., , (ii), , every officer of the company who is in default shall be punishable with imprisonment for a term which may, extend to six months or with fine which shall not be less than five lakh rupees but which may extend to, twenty-five lakh rupees; and, , Exemption for applicability of section 185 to Private Company, , Not defaulted in repayment, of such subsisting, borrowings at time of, givings loans, , Thus, w.e.f. 05th June, 2015, if Private Limited Company fulfilling above mentioned all three conditions simultaneously, then provisions of Section 185 shall not applicable on such Private Limited Company. They can freely give Loan/, Guarantee/ Security by complying with provisions of Section 186 and any other provisions of Companies Act, 2013., Section 185 shall not apply to Nidhi Company if the loan is given to a director or his relative in their capacity as, member and such transaction is disclosed in the annual accounts by a note., , Section 185 shall not apply to Government Company in case such company obtains approval of the Ministry or, Department of the Central Government which is administratively in charge of the company or, as the case may be,, the State Government before making any loan or giving any guarantee or providing any security under the section., , DISCLOSURES BY A DIRECTOR OF HIS INTEREST, , Section 184 (1) states that every director shall at the first meeting of the Board in which he participates as a director, and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the
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Lesson 16 • Directors, , 731, , disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in, any company or companies or bodies corporate, firms, or other association of individuals which shall include the, shareholding, in such manner as may be prescribed in Rule 9., Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract, or arrangement or proposed contract or arrangement entered into or to be entered into—, , (a) with a body corporate in which such director or such director in association with any other director, holds more, than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of, that body corporate; or, , (b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall, disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is, discussed and shall not participate in such meeting., Penalty, , If a director of the company contravenes the provisions of sub-section (1) or sub-section (2) of Section 184,, such director shall be liable to a penalty of one lakh rupees., , Rule 9 of the Companies (Meetings of Board and its Powers) Rules, 2014, , 1., 2., 3., , Every director shall disclose his concern or interest in any company or companies or bodies corporate, (including shareholding interest), firms or other association of individuals, by giving a notice in writing in, Form MBP 1., It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held, immediately after the date of the notice., , All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years, from the end of the financial year to which it relates and shall be kept in the custody of the company secretary, of the company or any other person authorised by the Board for the purpose., , REGISTER OF DIRECTORS AND KEY MANAGERIAL PERSONNEL AND THEIR SHAREHOLDING, , Section 170 makes it obligatory for every company to maintain a register containing the prescribed particulars of, all its directors and Key Managerial Personnel and their shareholding., , The provisions of section 170 read with Rule 17 and Rule 18 of the Companies (Appointment and Qualification of, Directors) Rules, 2014 are as follows:, (i), , (ii), , Every company shall keep at its registered office a register containing such particulars of its directors and key, managerial personnel as may be prescribed and which shall include details of securities held by each of them, in the company or its holding, subsidiary, subsidiary of its holding companies or associate companies. [Section, 170(1)], , A return containing such particulars and documents as may be prescribed, of the directors and the key, managerial personnel shall be filed with the Registrar in e-form DIR-12 within 30 days from the appointment, of every director and key managerial personnel, as the case may be, and within 30 days of any change taking, place. [Section 170(2)], , In case of Government Company - Section 170 shall not apply to Government Company in which the entire share capital, is held by the Central Government, or by any State Government or Governments or by the Central Government or by one, or more State Governments (Notification dated 5th June, 2015)., , In case of Specified IFSC Public Company and Specified IFSC Private Company - In section 170(2) as stated above, for, the words “thirty days” at both places is read as “sixty days” (Notification Dated 4th January 2017)., , MEMBERS RIGHT TO INSPECT (SECTION 171), (i), , The register of directors and Key Managerial Personnel kept under section 170(1) shall be open for inspection
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732, , (ii), , (iii), , , , Lesson 16 • EP-CL, , during business hours and the members shall have the right to take extracts there from and copies thereof,, on request and will be provided within 30 days free of cost. [Section 171(1)(a)], Such register shall also be kept open for inspection at every annual general meeting of the company and shall, be made accessible to any person attending the meeting. [Section 171(1)(b)], , If any inspection during business hours is refused, or if any copy required as above is not sent within thirty, days from the date of receipt of such request, the Registrar shall on an application made to him order, immediate inspection and supply of copies required there under. [Section 171(2)], , In case of Government Company - Section 171 shall not apply to Government Company in which the entire share capital, is held by the Central Government, or by any State Government or Governments or by the Central Government or by one, or more State Governments. Notification dated 5th june, 2015., , DECLARATION AT THE TIME OF COMMENCEMENT OF BUSINESS [SECTION 10 A READ WITH RULE, 23A OF THE COMPANIES (INCORPORATION) RULES, 2014, As per Section 10A of the Companies Act, 2013, a company incorporated after the commencement of the Companies, (Amendment) Act, 2019 (w.e.f. 02/11/2018) and having a share capital shall not commence any business or exercise, any borrowing powers unless—, (a), , (b), , a declaration is filed by a director within a period of one hundred and eighty days of the date of incorporation, of the company in such form and verified in such manner as may be prescribed, with the Registrar that every, subscriber to the memorandum has paid the value of the shares agreed to be taken by him on the date of, making of such declaration; and, The company has filed with the Registrar a verification of its registered office as provided in sub-section (2), of section 12., , The declaration under section 10A of the Companies Act, 2013 by a director shall be in Form No, lNC-20A and shall, be filed as provided in the Companies (Registration Offices and Fees) Rules, 2014 and the contents of the said form, shall be verified by a Company Secretary or a Chartered Accountant or a Cost Accountant in practice., Provided that in the case of a company pursuing objects requiring registration or approval from any sectoral, regulators such as the Reserve Bank of India, Securities and Exchange Board of India, etc., the registration or, approval, as the case may be from such regulator shall also be obtained and attached with the declaration., , MCA CLARIFICATIONS, , MCA via General circular No: 1/2020 dated 2nd March, 2020 has issued clarification on prosecutions filed or, internal adjudication proceedings initiated against Independent Directors, Non-Promoters and Non-KMP NonExecutive Directors, , This circular clearly shows the ministry’s resolve and intent to give protection to independent directors and other, non-executive directors from prosecution for both civil and criminal offenses, unless there is strong evidence, against them being party to any fraud committed by the company., , Section 149(12) of the Companies Act, 2013 is a non-obstante clause which provides that an independent director, and a non-executive director not being promoter or key managerial personnel shall be held liable, only 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., In view of this expressed provision of Section 149(12) of the Companies Act, 2013, Independent Directors and NonExecutive Directors (not being promoter or KMP) should not be arrayed in any criminal or civil proceedings under, the Act, unless the above mentioned criterion is met., , MCA has clarified that at the time of serving notices to the company during inquiry, inspection, investigation or, adjudication proceedings etc, necessary documents may be sought so as to ascertain the involvement of concerned, officers of the Companies and due care must be taken to ensure that unnecessarily any civil or criminal proceedings is
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733, , Lesson 16 • Directors, , not initiated against the Independent directors or Non-Executive Directors unless sufficient evidence exists against them., The records available in the office of the Registrar, including e-forms DIR-11 or DIR-12, along with the copies of, Annual Returns or financial statements should also be examined, so as to ascertain whether a particular director or, the KMP was serving in the company as on the date of default., , In case of any doubt, with regard to the liability of any person, for any proceedings required to be initiated by the, Registrar, guidance may be sought from the Ministry of Corporate Affairs through the office of Director General of, Corporate Affairs. Consequently any such proceedings must be initiated after due sanction from the Ministry., Further, with respect to cases where prosecution may have been already filed but does not meet the above mentioned, criteria, then such cases may be submitted to the ministry for necessary examination and further direction., The Ministry of Corporate Affairs has directed all Registrars of Companies to immediately and scrupulously follow, the above Standard Operating Procedure with respect to all ongoing cases., , LESSON ROUND-UP, •, , To attain the objectives prescribed in Memorandum of Association of the company, company depends on, Board of Directors. Directors of a company are its eyes, ears, brain, hands and other essential limbs., , •, , Every public company shall have at least 3 directors and every private company shall have at least 2, directors and every one person company shall have at least 1 director as per section 149., , •, •, •, •, •, •, •, •, •, •, , Directors are trustees for the company i.e. the directors are persons selected to manage the affairs of the, company for the benefit of the shareholders., As per Section 152, only an individual can be a director. Section 164 lays down disqualifications of directors., Maximum Number of Director is 15, which can be increased by passing a Special Resolution., , Certain prescribed class or classes of companies is required to have at least one woman director. This is a, mandatory provision., , Every company including one person company shall have at least on director who stays in India for a period, of not less than 182 days during the financial year., Maximum limit on total number of directorship has been fixed at 20 companies including sub limit of 10 for, public companies., The members of a company may, by special resolution, specify any lesser number of companies in which a, director of the company may act as director., A director may be removed from the office by giving a special notice., , A director may resign his office in the manner provided by the articles., , Any officer or employee of a company shall be punishable with the fine on the complaint of the company or, any creditor or contributory thereof, if he wrongfully obtains, possess or withholds any property of the, company., , GLOSSARY, Board of Director, , Elected group of individual that represent shareholders.
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734, , Lesson 16 • EP-CL, , , , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., , Explain the concept appointment of small shareholder directors?, , 4., , What are the roles and responsibilities of Women Directors ?, , 2., 3., 5., 6., 7., 8., 9., , 10., , Does a person intends to be an independent director need to get itself registered in databank?, How to apply for DIN ?, , What are the qualifications of a director? When is a person disqualified for appointment as a director of the, company?, , Does every willing and eligible independent director needs to pass online proficiency test? What are the, exceptions?, Mr. ‘A’ is to be appointed as independent director. Explain the law relating to number of directors., , Mr. ‘A’ an independent director of ABC ltd. Has Mr. B as alternate director. Mr. B is also the Vice President and, Director of the company. Explain the nature of working and legal interpretation?, How can the directors be removed from the office before the expiry of their term?, , Under what circumstances is a director deemed to have vacated the office of directorship?, , LIST OF FURTHER READINGS, •, •, •, , ICSI Premier on Company Law, , Bare Act- The Companies Act, 2013, , The SEBI (LODR) Regulations, 2015, OTHER REFERENCES (Including Websites/Video Links), , •, •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, , https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=3&smid=0
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Lesson 17, Key Concepts One, Should Know, •, , Management, , •, , Managing, Director, , •, •, •, •, •, •, •, •, , Key Managerial, Personnel, Whole-time, Director, Company, Secretary, CFO, , CEO, , Appointment and Remuneration, of Key Managerial Personnel, Learning Objectives, To understand:, •, , Appointment, conditions for appointment of KMP;, , •, , Role and duties of a Company Secretary as Key Managerial, Personnel;, , •, •, •, •, , Filling of vacancies in office of Key Managerial Personnel;, Role of KMP;, , Appointment of Managing Director, Whole Time Director or, Manager;, Provisions related to Managerial Remuneration., , Manager, , Remuneration, , Officer in default, , Lesson Outline, •, , Introduction, , •, , Officer who is in Default, , •, •, •, •, •, •, •, •, •, •, , Appointment of Key Managerial Personnel, , Appointment of Managing Director, Whole- Time Director or, Manager, Company Secretary Appointment, Role, Functions and, Responsibilities, , Statutory Duties and Liabilities of a Company Secretary, Remuneration of Managerial Personnel, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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736, , Lesson 17 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Sections, , Deals With, , Section 196, , Appointment of Managing Director, Whole-time Director or Manager, , Section 198, , Calculation of Profits, , Section 197, Section 199, Section 200, Section 201, Section 202, Section 203, Section 204, Section 205, , Overall Maximum Managerial Remuneration and Managerial Remuneration in Case of, Absence or Inadequacy of Profits, Recovery of Remuneration in Certain Cases, , Central Government or Company to Fix Limit with Regard to Remuneration, Forms of, and Procedure in Relation to, Certain Applications, , Compensation for Loss of Office of Managing or Whole-time Director or Manager., Appointment of Key Managerial Personnel, Secretarial Audit for Bigger Companies, Functions of Company Secretary, , The Companies (Appointment and Qualifiaction of Managerial Personnel) Rules, 2014, , Rules, , Deals with, , Rule 3, , Filing of Return of Appointment, , Rule 6, , Parameters for consideration of remuneration, , Rule 4, , Sitting Fees, , Rule 5, , Disclosure in Board’s Report, , Rule 7, Rule 8, , Rule 8A, Rule 9, , Rule 10, , Fees, , Appointment of Key Managerial Personnel, , Appointment of Company Secretaries in Companies Not Covered Under Rule 8, Secretarial Audit Report, , Duties of Company Secretary, , Schedule V- Provisions related to Appointment & Remuneration of MD/WTD/Manager, The SEBI (LODR) Regulations, 2015, , Regulations, , Deals with, , Regulation17, (6) (ca) & (e), , Remuneration of Board of Directors, , Regulation 30, , INTRODUCTION, , Disclosure of events or information., , The executive management of a company is responsible for the day to day management of a company. The Companies, Act, 2013, has used the term key management personnel to define the executive management. The key management, personnel are the point of first contact between the company and its stakeholders. While the Board is responsible, for providing the oversight, it is the key management personnel who are responsible for not just laying down the, strategies as well as its implementation., Chapter XIII of the Companies Act, 2013 read with Companies (Appointment and Remuneration of Managerial, Personnel) Rules, 2014 deal with the legal and procedural aspects of appointment of key managerial personnel, including managing director, whole-time director or manager, managerial remuneration, secretarial audit etc.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 737, , Let us understand certain definitions., , According to section 2(51) “key managerial personnel”, in relation to a company, means—, (i), , the chief executive officer or the managing director or the manager;, , (iii), , the whole-time director;, , (ii), , (iv), (v), , (vi), , the company secretary;, , the chief financial officer;, , 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, such other officer as may be prescribed., , Various KMP’s Positions & Definition thereof under the Companies Act, 2013, , CEO, , •, , CFO, , •, , CS, , •, , Manager, , •, , MD, , •, , WTD, , •, , Section 2(18)- "Chief Executive Officer" means an officer of a company, who has been, designated as such by it., Section 2(19)-”Chief Financial Officer” means a person appointed as the Chief Financial, Officer of a company., , Section 2(24)- “Company Secretary” or “Secretary” means a company secretary as, defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act,, 1980 (56 of 1980) who is appointed by a company to perform the functions of a, company secretary under this Act., , Section 2(53)- “Manager” means an individual who, subject to the superintendence,, control and direction of the Board of Directors, has the management of the whole, or, substantially the whole, of the affairs of a company, and includes a director or any, other person occupying the position of a manager, by whatever name called, whether, under a contract of service or not., Section 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., Section 2(94)-”whole-time director” includes a director in the whole-time employment, of the company.
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738, , Lesson 17 • EP-CL, , , , PROVISIONS OF THE COMPANIES ACT, 2013 GOVERNING APPOINTMENT/REMUNERATION OF KMP, Sections 203 of the Companies Act, 2013 read with rule 8 of the Companies (Appointment and Remuneration of, Managerial Personnel) Rules, 2014 provides that 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., Further, Sections 203 of the Companies Act, 2013 read with rule 8A of the Companies (Appointment and, Remuneration of Managerial Personnel) Rules, 2014 provides that every private company which has a paid-up, share capital of ten crore rupees or more shall have a whole-time Company Secretary., Section 196 and 197 read with schedule V of the Companies Act, 2013 provides for conditions for appointment and, remuneration of Managing Director, Whole-time Director or Manager., , APPOINTMENT OF KEY MANAGERIAL PERSONNEL, , Section 203 of the Companies Act, 2013 read with Rule 8 of the Companies (Appointment and Remuneration of, Managerial Personnel) Rules, 2014, mandates the appointment of Key Managerial Personnel and makes it obligatory, for every listed company and every other public company having a paid-up share capital of rupees ten crore or, more, to appoint following whole-time key managerial personnel:, (i), , Managing Director, or Chief Executive Officer or Manager and in their absence, a whole-time director;, , (iii), , Chief Financial Officer, , (ii), , Company Secretary; and, , Rule 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 mandates the, private company having paid up share capital of Rs. 10 crore or more to have a whole time Company Secretary, Public Company having, Rs. 10 crores, or more, of paid-up, share capital, , Listed Company, Private Company having, Rs. 10 crores, or more of, paid-up share, capital., , 1) Managing, Director,, or Chief, Executive, Officer or, Manager, and in their, absence, a, whole-time, director;, , 2) Company, Secretary; and, , 3) Chief Financial, Officer, , Rule 8 of the Companies (Appointment and, Remuneration of Managerial Personnel), Rules, 2014, Appointment of Key Managerial PersonnelEvery 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., , Rule 8A of the Companies (Appointment and, Remuneration of Managerial Personnel), Rules, 2014, Appointment of Company Secretaries in, Companies Not Covered Under Rule 8, Every private company which has a paid-up, share capital of ten crore rupees or more shall, have a whole -time Company Secretary.
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•, •, •, , •, •, , •, , 739, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , Every whole-time key managerial personnel of a company shall be appointed by means of a resolution of the, Board containing the terms and conditions of the appointment including the remuneration., , Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014, requires such appointment by the, Board of Directors only by means of Resolution passed at meeting of the Board., An individual shall not be appointed or reappointed as, the chairperson of the company, as well as the managing, director or chief executive officer of the company at the, same time unless the articles of such a company provide, otherwise; or the company does not carry multiple, businesses. However, such class of companies engaged, in multiple businesses and which has appointed one or, more chief executive officers for each such business as, may be notified by the Central Government are, exempted from the above., , MCA vide its notification S.O. 1913(E) dated, 25-7-2014 notified that public companies having paid-up share capital of Rs. 100 Cr. or more, and annual turnover of Rs.1000 Cr. or more, which are engaged in multiple businesses and, have appointed Chief Executive Officer for, each such business can appoint an individual, as Chairperson and Managing Director., , Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary, company at the same time. However, he can hold directorship in other companies with the permission of the, Board., A company may appoint or employ a person as its managing director, if he is the managing director or, manager of one, and of not more than one, other company and such appointment or employment is made or, approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the, meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all, the directors then in India., If the office of any whole-time key managerial personnel is vacated, the resulting vacancy shall be filled-up by, the Board at a meeting of the Board within a period of six months from the date of such vacancy., , Vide Exemption notification, Government Company, , dated, , 05.06.2015, , for, , Sub-section 4A has been inserted thereby providing that sub-sections, (l), (2), (3) and (4) of section 203 shall not apply to a managing, director or chief executive officer or manager and in their absence, a, whole-time director of the government company., , The Provisions of section 203 relating, to appointment of KMP shall not, apply to MD/CEO/Manager or in their, absence a whole time director of the, Government Company., , Provisions as Specified Under the SEBI (LODR) Regulations, 2015, As per Regulation 30 of the SEBI (LODR) Regulations, 2015, the listed entity shall disclose to the stock exchange, •, •, , Appointment or change in key managerial personnel (Managing Director, Chief Executive Officer, Chief, Financial Officer, Company Secretary etc.), Fraud/defaults by key managerial personnel or by listed entity or arrest of key managerial personnel, , The listed entity shall first disclose to stock exchange as soon as reasonably possible and not later than twenty four, hours from the occurrence of event., However, in case the disclosure is made after twenty-four hours of occurrence of the event, the listed entity shall,, along with such disclosures provide explanation for delay.
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740, , , , Procedure to appoint Key Managerial Personnel, , Lesson 17 • EP-CL, , 1., , Hold the Board meeting and pass the Board resolution containing the terms and conditions of the, appointment of key managerial personnel., , 3., , A whole time key managerial personnel shall not hold office in more than one company except in its, subsidiary at the same time. However, key managerial personnel may become a director of any company, with the permission of the Board., , 2., , 4., , 5., 6., , 7., 8., , The Nomination and Remuneration Committee, wherever applicable shall recommend to the Board, regarding appointment and remuneration of KMP., , A company may appoint or employ a person as its managing director, if he is the managing director or, manager of one, and of not more than one, other company and such appointment or employment is made, or approved by a resolution passed at a meeting of the Board with the consent of all the directors present, at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been, given to all the directors then in India., On vacation of the office of a whole time Key Managerial Personnel, the resulting vacancy shall be filledup by the Board at a meeting of the Board within a period of 6 months from the date of such vacancy., , File with the Registrar the e-Form MGT-14 (Private Companies are exempted from filing eform MGT-14, regarding appointment of KMP under section 117(3)(g) vide exemption notification dated June 5, 2015) ., , In case of listed entity, intimation to Stock Exchange about appointment of KMP as soon as reasonably, possible and not later than twenty-four hours from the occurrence of event., , All companies need to file a return containing the particulars of appointment of key managerial personnel, with the Registrar in e-form DIR-12 along with specified fees within thirty days of such appointment., , If any company makes any default in complying with the provisions of Section 203, such company shall be liable to, a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall, be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of, one thousand rupees for each day after the first during which such default continues but not exceeding five lakh, rupees., , CASE STUDY, , (Hon’ble SAT in the matter of Advance Lifestyles Ltd. Vs. BSE Ltd., dated 24th December, 2019), The Securities Appellate Tribunal (SAT), Mumbai upheld the penalty imposed by the Bombay Stock, Exchange (BSE) for non-appointment of Company Secretary and two Independent Directors in the, absence of cogent reasons., , Facts of the case: The present appeal had been filed against the order of Bombay Stock Exchange Ltd., , (hereinafter referred to as, ‘BSE’) dated August 19, 2019 and October 7, 2019 whereby a total penalty of Rs., 20,40,000/- has been imposed for non-compliance of various provisions of Securities and Exchange Board, of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as,, ‘Listing Regulations’)., The facts leading to the filing of the present appeal is, that the appellant is a public listed company and have, more than 6800 shareholders. Under the Listing Regulations, the appellant was required to comply with, various provisions and upon failure penalties could be imposed for non-compliance. In this regard, SEBI, issued a circular dated May 3, 2018 known as “Standard Operating Procedure” which streamlined the process, and adopted an uniform approach in the matter of levy of fines for non-compliance of certain provisions of, the Listing Regulations. The said circular also provided a discretion to the stock exchange to deviate from the, circular dated May 3, 2018 under exceptional circumstances only after recording reasons in writing. Thus,
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741, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , flexibility and discretion was provided to the stock exchange for levying penalties for non- compliance of the, Listing Regulations., , The exceptional circumstances indicated a list of events which could be considered by the stock exchange for, waiving or reducing the quantum of penalty. The exceptional events were natural calamity, seizure of books/, computers by regulatory/statutory authorities, the compliances not approved by the Board, directions issued, by the Court/regulator which prevented from making the requisite disclosure and accidental damage., Order: The appellants has not appointed the qualified Company Secretary as Compliance Officer. In this, regard, the appellant made a representation to the authorities requesting for waiver/reduction of the penalty, contending that for not appointing the Company Secretary and two independent directors on the Board/, Audit Committee, the penalty may be waived under the exceptional circumstances as carved out in the SEBI, circular dated May 3, 2018., , The court held that as the exceptional events which in the instant case did not exist. Further, no justification, or any reason has been given as to why a Company Secretary and the two independent directors could not, be appointed. In the absence of any cogent reasons, there is no justification to reduce the quantum of penalty., , APPOINTMENT OF MANAGING DIRECTOR, WHOLE-TIME DIRECTOR OR MANAGER, Section 196 of the Companies Act, 2013 provides that no company shall appoint, or employ at the same time a Managing Director and a Manager., , Further, a company shall not appoint or reappoint any person as its Managing, Director, Whole Time Director or Manager for a term exceeding five years at a, time and no reappointment shall be made earlier than one year before the, expiry of his term., , No company shall appoint, or employ at the same, time a Managing Director, and a Manager., , No company shall appoint or continue the employment of any person as managing director, whole-time director or, manager who —, (a), , is below the age of twenty-one years or has attained the age of seventy years;, , Appointment of a person who has attained the age of seventy years may be made by passing a special resolution in, which case the explanatory statement annexed to the notice for such motion shall indicate the justification for, appointing such person;, Where no such special resolution is passed but votes cast in favour of the motion exceed the votes, if any, cast, against the motion and the Central Government is satisfied, on an application made by the Board, that such, appointment is most beneficial to the company, the appointment of the person who has attained the age of seventy, years may be made., However, where his appointment is approved by a special resolution passed by the company in general meeting, no, further approval of the Central Government shall be necessary for such appointment., , (a), , is an undischarged insolvent or has at any time been adjudged as an insolvent;, , (c), , has at any time been convicted by a court of an offence and sentenced for a period of more than six months., , (b), , has at any time suspended payment to his creditors or makes, or has at any time made, a composition with, them; or, , Conditions to be fulfilled for the Appointment of Managing or Whole-Time Director or a Manager without, the approval of the Central Government as Per Schedule V of the Companies Act, 2013 (Part I-Schedule V of, the Companies Act, 2013), No person shall be eligible for appointment as a managing or whole-time director or a manager of a company unless, he satisfies the following conditions, namely:—
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742, , •, •, , •, , Lesson 17 • EP-CL, , , , The person had not been sentenced to imprisonment for any period, or to a fine exceeding one thousand, rupees, for the conviction of an offence under any of the Acts as specified under Schedule V of the Companies, Act, 2013, The person had not been detained for any period under the Conservation of Foreign Exchange and Prevention, of Smuggling Activities Act, 1974 (52 of 1974), , Provided that where the Central Government has given its approval to the appointment of a person convicted, or detained mentioned above, as the case may be, no further approval of the Central Government shall be, necessary for the subsequent appointment of that person if he had not been so convicted or detained, subsequent to such approval., The person is resident of India., , Section 196(4) of the Companies Act, 2013 provides that subject to the, provisions of section 197 and Schedule V of the Companies Act, 2013 , a, managing director, whole-time director or manager shall be appointed and, the terms and conditions of such appointment and remuneration payable, be approved by the Board of Directors at a meeting which shall be subject, to approval by a resolution at the next general meeting of the company and, by the Central Government in case such appointment is at variance to the, conditions specified in Part I of Schedule V., Non approval of appointment will not invalidate the act, done by managing director/ whole-time director or, manager during his provisional appointment before, general meeting., , Approval of the Central, Government is not necessary, if the appointment is made in, accordance with the conditions, specified in Part I of Schedule V, of the Companies Act, 2013., , Section 196(5) provides that subject to the, provisions of this Act, where an appointment of a, managing director, whole-time director or manager, is not approved by the company at a general meeting,, any act done by him before such approval shall not, be deemed to be invalid., , Procedure for appointment of Managing Director/Whole-time Director/Manager, Board Meeting, • The appointment of MD,, WTD or Manager and the, terms and conditions of, such appointment and, remuneration, payable, has to be approved by, the Board of Directors at, a Board Meeting, on the, basis of recommendations, of, the, Nomination, and, Remuneration, Committee,, wherever, applicable, subject to, approval of shareholders, at ensuing GM., , General Meeting, • Post Board Meeting,, such, appointment, along with the terms, and conditions and, remuneration payable, has to be approved by, the shareholders at, the ensuing General, Meeting by passing, ordinary resolution., , CG Approval, • In case, the appointment, is in variance to the, conditions specified in, Part I of Schedule V of, the Comapanies Act,, 2013, then the approval, of Central Government, is also required., , Filing of Return of, Appointment, • A return of appointment, of a MD, WTD or, Manager, is required, to be filed with the, Registrar within 60 days, of the appointment, in, Form No. MR.1 along, with the prescribed, fees., , The notice convening Board Meeting or General Meeting for considering such appointment shall include the, terms and conditions of such appointment, remuneration payable and such other matters including interest, of a, director or directors in such appointments, if any.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 743, , Exemption to private company for section 196(4) & (5) vide notification dated 05.06.2015, Section 196(4) and Section 196(5) is not applicable to Private Company, Note: Exemption is given to the private companies for Section 196(4) which deals with approval of members/, CG, as the case may be for appointment of Managing Director/Whole time director /Manager and Section, 196(5) deals with validating actions of Managing/Whole time Director/manager, if the appointment is not, approved by a company in general meeting., Filing of Form MR-1 is also not applicable., , Therefore, a private company may appoint Managing Director, Whole time Director or Manager in the manner, prescribed in its Articles of Association., Exemption to Government Company for section 196 (2), (4) & (5) vide notification dated 05.06.2015, Section 196 (2), (4) & (5) shall not apply to Government Company, Note: Section 196(2) relates to term of managing director not to exceed five years. Section 196(4) relates toapproval of the members/central government as the case may be for appointment of Managing Director/WTD/, Manager and section 196(5) relates to validity of actions of Managing Director/WTD/Manager, if his appointment is not approved at the General Meeting. These provisions are not applicable to a Government Company., , Therefore, a Government Company may appoint Managing Director, Whole time Director or Manager in the, manner prescribed in its Articles of Association. The term of appointment of Managing Director, Whole time, Director or Manager may exceed five years., Exemption to Specified International Financial Services Centres (IFSC) public company for section 196, (4) vide notification dated 04.01.2017, Section 196 (4) shall not apply to Specified IFSC public company, , Note: Section 196(4) relates to approval of the members/central government as the case may be for, appointment of Managing Director/WTD/Manager., Therefore, a Specified IFSC public company may appoint Managing Director, Whole time Director or Manager in, the manner prescribed in its Articles of Association., , Appointment with the Approval of Central Government, , In case the provisions of Part I of Schedule V of the Companies Act, 2013 are not fulfilled by company, an application, seeking approval to the appointment of a managing director, whole-time director or manager shall be made to the, Central Government, in E-Form No. MR.2 and shall be accompanied by fee as may be specified for the purpose., , Every such application seeking approval shall be made to the Central Government within a period of ninety days, from the date of such appointment., , Issue of General Notice before making Application to Central Government, , As per Section 201, before any application is made by a company to the Central Government under Section 196, of the Companies Act, 2013, there shall be issued by or on behalf of the company a general notice to the members, thereof, indicating nature of application proposed to be made., Such general notice shall be published in at least once in a newspaper in the principal language of the district in, which registered office of the company is situated and circulating in that district, and at least once in English in, an English newspaper circulating in that district indicating the nature of application proposed to be made to the, Central Government.
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744, , , , Lesson 17 • EP-CL, , The copies of the notices, together with a certificate by the company as to the due publication thereof, shall be attached to the application., , Procedure for Appointment of a Person as Managing Director, who is Managing Director of, another Company, , According to Section 203(3) of the Companies Act, 2013, Whole-time key managerial personnel shall not hold office, in more than one company except in its subsidiary company at the same time., A company may appoint or employ a person as its managing director, if he is the managing director or manager, of one, and of not more than one, other company and such appointment or employment is made or approved by a, resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which, meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India., 1., , Convene and hold a Board meeting after giving to all the directors due notice as required under Section, 173 of the Companies Act, for transacting, inter alia, the following business:-, , (a), , (b), (c), , (d), (e), , 2., 3., 4., , (f), , take a decision on the person to be appointed, on the basis of recommendations of the Nomination, and Remuneration Committee, wherever applicable as managing director after fully ensuring that, he does not suffer from any disqualification in Sections 164, 196, 203, Schedule V and any other, provision of the Companies Act, 2013;, The Nomination and Remuneration Committee shall identify persons who are qualified to become, directors and who may be appointed in senior management in accordance with the criteria laid, down, recommend to the Board regarding their appointment, approve the draft agreement to be signed and executed by and between the company and the, proposed managing director (it is not mandatory);, fix time, date and venue for holding a general meeting of the company;, , approve notice of the general meeting along with the explanatory statement as required by Sections, 101 and 102 of the Act after keeping in mind the requirements of Section 190 of the Act, , notice convening Board or general meeting for considering such appointment shall include the, terms and conditions of such appointment, remuneration payable and such other matters including, interest, of a director or directors in such appointments, if any., authorise company secretary to issue notice of the general meeting on behalf of the Board., , Hold the general meeting and get the resolution passed approving appointment of the managing director/, Whole time Director/Manager., In case the appointment of the Managing Director/Whole time Director/Manager is not in accordance, with the provisions of Schedule V of the Act, the company is required to obtain approval of the Central, Government as per Section 201 of the Act., For getting the approval of the Central Government under Section 201 certain formalities are to be, complied with:, , (a), , (b), , As required by Section 201 of the Act, the Company shall give a general notice to the members of, the company indicating the nature of the application proposed to be made, and, This notice has to be published at least once in the principal language of the district in which the, registered office of the company is situated and circulating in that district and also once in English, in an English newspaper also circulating in that district,
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , (c), , The company shall attach a copy of this notice with the application together with certificate as to, the due publication thereof., , (e), , The application should be made within 90 days from the date of such appointment with regard to, compliance of Section 196 of Companies Act, 2013, , (d), , 5., 6., 7., , 745, , The application should be filed electronically in E-Form MR-2 as per rule 7 of the Companies, (Appointment and Remuneration of Managerial Personnel) Rules, 2014 accompanied by the, prescribed fees., , Execute the agreement, as approved by the Board, with the Managing Director., , Make necessary entries in the register of directors etc. and other records and registers of the company., File the following documents with the ROC:, , (a), , The company should file with the ROC return of appointment of the managing director, whole time, director or manager in Form MR-1, within sixty days as per Section 196(4) of the appointment and, the return must be certified by the auditors of the company or the company secretary or a secretary, in whole-time practice., , The Mandatory attachments for Form MR-1:, i., Copy of Board Resolution,, ii., , iii., (b), 8., , (c), , iv., v., , Copy of Shareholders Resolution along with explanatory statement is mandatory in case, passed for such appointment,, Copy of letter of consent to act as managing director, whole time director, or manager, Copy of Central Government Approval, , Copy of certificate by nomination and remuneration committee, , Form DIR – 12 is to be filed with registrar for particular of appointment of a key managerial, personnel, within thirty days of the appointment., Form MGT-14 to be filed with the registrar., , Inform all concerned about the appointment of the managing director. It is advisable to issue a general, notice in newspapers about the appointment of the managing director., , Note.: The procedure shall remain same as discussed earlier but notice for the board meeting shall be a special, notice to all the directors then in India., , OFFICER WHO IS IN DEFAULT, Officer [Section 2(59)], , “officer includes any director, manager or key managerial personnel 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.”, , Who is an “Officer who is in Default” [Section 2(60)], , As per Section 2(60), “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 penalty or punishment by way of imprisonment, fine, or otherwise, means any of the following officers of a company, namely:—, (i), , whole-time director;, , (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;, , (ii), , key managerial personnel;
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746, , , , Lesson 17 • EP-CL, , (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., Case Law:, , (In the matter of Shiv Kumar Jatia (Appellant) Vs. State of NCT of Delhi (Respondent), The Supreme Court, of India, dated 23/08/2019), Shiv Kumar Jatia is the Managing Director of M/s. Asian Hotels which looks after Hyatt Regency Hotel. He had, authorized Mr. PR. Subramanian to apply for lodging license of the hotel., There was a contravention the condition of the lodging license which led to a hotel guest enter into a semi lit, under-construction terrace for smoking. The guest fell from the terrace of 6th floor to the 4th floor and got, injured. Case was brought before the High Court which ordered for prosecution of the Managing director along, with the other three accused by relying on the case of Sushil Ansal vs. State through CBI., The Apex Court held that vicarious liability on the part of Managing Director and the Directors would arise, provided any provision exists in that behalf in the statute. Further, the allegations made on the Managing Director, could not establish any active role coupled with criminal intent having direct nexus with the accused., Court observed that an individual who has perpetrated the commission of an offence on behalf of the company, can be made an accused, along with the company, if there is sufficient evidence of his active role coupled with, criminal intent. Further it is also held that an individual can be implicated in those cases where statutory regime, itself attracts the doctrine of vicarious liability, by specifically incorporating such a provision., Though there are allegations of negligence on the part of hotel and its officers who are incharge of day to day affairs, of the hotel, so far as appellant Mr. Shiv Kumar Jatia is concerned, no allegation is made directly attributing negligence, with the criminal intent attracting provisions under Sections 336, 338 read with Section 32 of IPC. There is no, reason and justification to proceed against him only on ground that he was the Managing Director of M/s Asian, Hotels (North) Limited, which runs Hotel Hyatt Regency. The mere fact that he was chairing the meetings of the, company and taking decisions, by itself cannot directly link the allegation of negligence with the criminal intent, The Court has held that the Penal Code does not contain any provision for attaching vicarious liability on the, part of the Managing Director or the Directors of the Company, when the accused is a Company. The allegations, made on the Managing Director was vague in nature and the criminal proceedings against Shiv Kumar Jatia as, passed by the High Court, New Delhi were quashed., , Do You Know ?, •, , •, , •, •, , PQR Ltd. was incorporated as a Government Company. The Authorised Share Capital of the Company, is Rs. 15 Crore. The Paid-up Share Capital of the Company is Rs.3 Crore. What provisions of section 203, of the Companies Act, 2013 are applicable to a Government Company with respect to appointment of, Key Managerial Personnel?, Only a Company Secretary, being officer responsible for ensuring compliances under the Companies, Act, 2013, shall be treated as officer in default in case of violations committed by the company., Comment, Can KMP Can be Appointed in Subsidiary Company?, Can a person be Managing Director in two companies?
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747, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , COMPANY SECRETARY APPOINTMENT, ROLE AND RESPONSIBILITIES, Who can be a Company Secretary?, According to clause (c) of Sub-section (1) of Section 2 of the Company Secretaries Act, 1980, a Company Secretary, means a person who is a member of the Institute of Company Secretaries of India., , Therefore, ‘Company Secretary’ means a person who is a member of the Institute of Company Secretaries of India, (ICSI) and who is appointed by a company to perform the functions of a company secretary. The functions of, company secretary have been detailed in section 205 of the Act., Companies mandatorily required to appoint, whole-time Company Secretary, , Listed Companies, , Unlisted Public Companies, having paid up share capital, of Rs. 10 crore or more, , Role & Responsibilities of Company Secretary, , Private Companies having, paid-up share capital of, Rs. 10 crore or more, , A company secretary is an officer of the company responsible for compliance by the company with the, provisions of the Companies Act, 2013 and various other corporate, taxation, industrial and economic laws, applicable to companies in general., Under the Companies Act, the role of a secretary is three-fold, viz., as a statutory officer, as a co-ordinator and as, an administrative officer if so authorized. Similarly, the responsibility of company secretaries extends not only to a, company, but also to its shareholders, depositors, creditors, employees, consumers, society and government., The role of a company secretary may conveniently be studied from three different angles:, (a) as a statutory officer,, (b), , as a co-ordinator,, , (a), , Statutory Officer: The company secretary is an officer responsible for compliance with numerous legal, requirements under different Acts including the Companies Act, 2013 as applicable to companies. The, responsibilities of company secretary has also increased as he has been included in the definition of Key, Managerial Personnel as defined in section 2(51) of the Act, who are also liable to punishment by way of, imprisonment, fine or otherwise for violation of the provisions of the Companies Act as being “officers in, default” under Section 2(60)., , (c), , as an administrative officer., , Company Secretary is one of the key managerial personnel, of a company. Every Listed Companies and all other public, companies (including Private Companies) whose paid up, Share Capital is ten crore rupees or more are required to, appoint Company Secretary in whole time employment., , However, Company Secretary is not ‘managerial personnel’, for purpose of restriction on remuneration under section, 197 of Companies Act, 2013. His salary is not considered, for purpose of computation of ‘managerial remuneration’, under section 197 of the Companies Act, 2013, unless he is, also a director of the company., , The various provisions and rules framed, under the Companies Act makes it obligatory, for the secretary to sign the annual return, filed with the Registrar [Section 92], to sign, financial statements [Section 134(1)] duty to, report fraud [Section 143(12)] and to make, declaration under Section 7(1) of the Act, before incorporation of a company confirming, that all the requirements of Act and the Rules, there under have been complied with in, respect of registration of a company and the, Registrar may accept such a declaration as, sufficient evidence of such compliance.
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748, , , , Lesson 17 • EP-CL, , Under Regulation 18(1)(e) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 the, Company Secretary shall act as the secretary to the Audit Committee in case of a listed company., , Under the Indian Stamp Act it is the duty of a secretary to see that the documents such as letter of allotment, share, certificate, debentures, and mortgages are issued duly stamped. He is the principal officer under Section 2(35) of, the Income Tax Act, 1961., The most important task of the company pertaining to statutory and legal obligations comes upon the secretary., Under the Companies Act, he has either to comply with the various provisions of the Act or is liable to be fined or, imprisoned for non-compliance of his obligations., , Further, the responsibility of a secretary as a statutory officer has been greatly expanded by enactment of various, economic statutes, like Competition Act, Foreign Exchange Management Act, SEBI Act, Security Contracts, (Regulation) Act, 1956 and Depositories Act. Accordingly, the numerous provisions which a company is obliged to, comply with, makes the secretary’s job onerous and difficult. The duties imposed upon a secretary by various, statutes clearly indicate the important place he occupies in the corporate administrative hierarchy., (b) Co-ordinator: On dealing with the Board functions,, , Peter Ferdinand Drucker say- “But there are real functions which only a Board of directors can discharge”., , The Board cannot function without proper coordination amongst various department of the company and, communication of their proposals and project which deserve consideration of the board., , In India, most companies have an increasing dependence on the financial institutions for assistance. Every big, sized project involves assistance from the financial institutions. These institutions expect the Board of directors to, oversee the overall management and performance of the assisted companies and for this purpose, would insist on, all basic policy issues to be discussed at the Board meetings and decisions reached. For this purpose, it would be, necessary for the company’s management to place all the salient features and information before the Board in order, that they can arrive at a proper decision., This is evidenced by the various conditions imposed in the loan agreements entered into between the financial, institutions and the assisted companies. Company managements look to the company secretary for implementation, of the conditions in the loan agreements., , The financial institutions stipulate that in the case of companies assisted by them financially, compliance certificate, as per their format duly certified by the company secretary should be furnished periodically at the Board meetings., , Furnishing of the certificate requires skill of coordination between the company secretary and the functional heads, and the factory manager., The Company Secretary as a co-coordinator has an important role to play in administration of the company’s, business and affairs. It is for the secretary to ensure effective execution and implementation of the management, policies laid out by the Board. The position that the company secretary occupies in the administrative set- up of the, company makes his function as one of co-coordinator and link between the top management and other levels. He, is not only the communicating channel between the Board and the executives but he also co-ordinates the actions, of other executives vis-a-vis the Board. The ambit of his role as a co-coordinator also extends beyond the Company, and he is the link between the Company and its shareholders, the society and the Government. Thus, the role of, a company secretary as a co-coordinator has two aspects, namely internal and external. The internal role of a cocoordinator extends to the Board including the Chairman and Managing Director, various line and staff personnel,, the trade unions and the auditors of the company. His role as an external coordinator extends to the relationship of, the company with shareholders, Regulators, Government and Society., (C) Administrative Officer, , As per Section 205(1) of the Companies Act, 2013, the functions of the company secretary shall include:
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 749, , (a) to report to the Board about compliance with the provisions of the Companies Act,2013 the rules made, thereunder and other laws applicable to the company;, (b) to ensure that the company complies with the applicable secretarial standards;, (c) to discharge such other duties, , Rule 10 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, provide that a, company secretary shall also discharge, the following duties, namely:•, , to provide to the directors of the company, collectively and individually, such guidance as they may require, with regard to their duties, responsibilities and powers;, , •, , to obtain approvals from the Board, general meeting, the government and such other authorities as required, under the provisions of the Act;, , •, , •, •, •, •, •, , to facilitate the convening of meetings and attend Board, committee and general meetings and maintain the, minutes of these meetings;, , to represent before various regulators, and other authorities under the Act in connection with discharge of, various duties under the Act;, to assist the Board in the conduct of the affairs of the company;, , to assist and advise the Board in ensuring good corporate governance and in complying with the corporate, governance requirements and best practices; and, , to discharge such other duties as have been specified under the Companies Act, 2013 or rules made, thereunder; and, such other duties as may be assigned by the Board from time to time., , Whilst the Directors discuss and decide policy matters as a body, the Secretary is responsible for transmitting the, policies and decisions of the Board, to all levels in the company and outsiders. His duties in relation to the Board, include amongst others, (i), , Facilitating the convening of Meetings, Board, General and Committee Meetings, drafting out the minutes and, reports., , (iii), , He must ensure that all decisions taken by the Board are in consonance with legal requirements, and the, powers they exercise do not require approval of the shareholders, Central Government or any other authority., , (ii), , (iv), (v), , (vi), , Keeping the Board informed as an advisor on matters regarding legal, financial and other laws and problems, as far as they relate to the company. This will include advising the Board of the various obligations imposed, on the directors by various statutes, including changes in laws which will have a bearing on the activities of, the company and to assist and advise the Board in ensuring good corporate governance and in complying, with the corporate governance requirements and best practices., Since meetings of the Board are confidential in nature, he should ensure secrecy regarding matters discussed, at such meetings., To obtain approvals from the Board, general meeting, the government and such other authorities as required, under the provisions of the Act and to represent before various regulators, and other authorities under the, Act in connection with discharge of various duties under the Act., To discharge such other duties as have been specified under the Act or rules; and such other duties as may be, assigned by the Board from time to time.
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750, , , , Lesson 17 • EP-CL, , According to Section 205(1)(b) the Company Secretary shall ensure the compliance with secretarial standards, issued by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act,, 1980 and approved by the Central Government., , Whilst the Board decides on policy matters, the day-to-day administration of companies is vested in the managing, director, if there is one. In other cases, where the company is a board managed company, i.e. where none of the, directors is a managing director or a whole-time director, the Secretary has to seek guidance and instructions from, the Chairman on all important matters. He must, however, ensure that a Chairman who is not a managing director, does not exercise substantial powers of management as he will be deemed to be a managing director within the, meaning of the Act and, therefore, his appointment and remuneration will require the approval of the shareholders, and the Central Government, if necessary. Where, however, the company has a managing director, he must seek his, guidance and instructions regarding implementation of the policies laid down by the Board and also on matters, arising out of the implementation of the decisions. He is also required to keep the chairman and managing director, apprised of changes in policies of the Government, obligations under various statutes and to give balanced advice, on matters which have legal ramifications., , Relationship with Other Functionaries, , We have seen that the Secretary is responsible for conveying the Board’s decisions on various aspects of the, company’s policies to the person in-charge of such functions. He is, in addition, responsible to ensure that the, returns and reports received from various operational executives are submitted in time, complete in all respects,, and do not conflict with the corporate objectives., , Even where different persons are in-charge of other functions, e.g., sales, personnel, etc., it is usually the Secretary, who communicates with outside agencies, particularly with government and semi-government bodies to ensure, that the information given to various agencies do not conflict with each other and are in accordance with the, corporate objectives of the organisation., , Trade Union(S), , Where the Secretary is responsible either directly or through his assistants with industrial relations, he must, exercise extreme caution while dealing with Trade Union officials whether they belong to recognised unions or not., He must ensure that proper notes are kept of the discussions and negotiations and all decisions arrived at during, such negotiations. Whenever long-term settlement with recognised unions are finalised he should see that the, agreement embodying these settlements are in accordance with the relevant statutes applicable., It is the responsibility of the Secretary through the Human Relations/Industrial Relations to ensure compliance, with the provisions of various labor legislations such as Industrial Disputes Act, 1947, Employees’ Provident Funds, and Miscellaneous Provisions Act, 1952, Payment of Bonus Act, 1965, Payment of Gratuity Act, 1972, Payment of, Wages Act, 1936, etc., In many companies, there is a system whereby a compliance report is submitted to the Board at every meeting, confirming that there has been no delay in the compliance with the statutory formalities like deposit of Provident, Fund Money, E.S.I. Contribution etc., , Whilst he must ensure that the employees guilty of misconduct are charge-sheeted and punished, he must, simultaneously ensure that all formalities, e.g., holding of enquiries etc., must also be scrupulously followed. He should, ensure that industrial labor relations are always cordial and he should take steps to further ensure that various, creative activities of the employees are encouraged wherever possible by grants and subsidies from the company., , Auditors, , Apart from the statutory audit, services of the company’s auditors are required for certifications required under, various statutes and, therefore, the Secretary must liaise very closely with the auditors. It may be pointed out that, copies of minutes of Board meetings and general meetings should be made available for the inspection of the, auditors during the statutory annual audit. He is to ensure that before their appointment, proper certificate is, obtained under Section 141(3)(g) of the Companies Act, 2013. The company secretary, on behalf of the company is, required to file a notice with the Registrar about appointment within 15 days of the annual general meeting.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 751, , Further, with regard to Secretarial audit, section 204(2) provides that it shall be the duty of company to give all, assistance and facilities to Company Secretaries in practice for auditing the secretarial and related records., , Shareholders, , The relationship with the shareholders is an important sphere of his co-ordinating role and, therefore, the Secretary, will have to maintain proper relationships with the shareholders of the company., , He should ensure that there is no delay in the inspection of books and registers required by a shareholder provided, all formalities are complied with. He must ensure that extracts of registers demanded by shareholders are furnished, to them within the prescribed time., However, the most important thing for a secretary is to ensure that all correspondence from shareholders is dealt, with promptly and their queries are answered as far as possible keeping the statutory provisions in mind. As part, of public relations, he should be able to give time without prior notice to shareholders who personally come for, information, to furnish documents or any other matter. He must also ensure that requests for issues of duplicate, certificates/dividend warrants and intimation of address are dealt with properly and promptly. This is important as, the image of the company will, to a great extent, depend on the relationship of the Secretary with the shareholders., , Bridge between IEPF and members, , The company secretary acts as nodal officer of the company for the purpose of reclaiming shares by members from, the Investor Education and Protection Fund. The company secretary shall verify with the record claim of an applicant, to reclaim his shares from IEPF., , Government, , All the information and correspondence with the government are normally co-ordinated or routed through the, Secretary to ensure uniform reporting. The Secretary has a very important role vis-a-vis the government. He should, endeavor to have information on government policies and programmes in advance wherever possible to ensure, effective implementation. Good relationship with the Government can be developed where the company sincerely, tries to implement various statutes in letter as well as in spirit., , Community, , Section 135 of the Act provides for spending of specified amount towards Corporate Special Responsibility., Corporate Social Responsibility of a company has become very important since the company is expected to fulfill, certain obligations to the society in which it functions. With this in view, a number of companies have undertaken, rural development initiatives including adoption of villages and have built schools, colleges and hospitals to cater to, the needs of society. In respect of companies in consumer goods industry, it is necessary to project that the products, and their prices are in consonance with the standards expected by the consumers., Arising out of such social responsibility, many companies have also allowed small sectors to manufacture ancillaries, and raw materials required by the organisation for promotion of employment opportunities. The provisions of the, Consumer Protection Act, 1986, the Pollution Control Laws, Public Liability Insurance Act 1991, etc., are important, in the operations of companies and the role of Company Secretaries in these areas is quite important., , Administrator, , The principal duty of a secretary as an administrator is to ensure that the activities of a company are in conformity, with the company’s policy. In his role as an administrator, the secretary provides the very foundation on which the, entire structure of company administration is constructed. The role of a company secretary as an administrator can, be sub-divided into organisational, financial, office and personnel administration., , Organizational Administration, , Since the secretary has an opportunity of looking at the entire organisation, he has the scope to advise the top, management including the Board of directors on the need to develop a good structure. Since the secretary collects,, interprets and assimilates information relating to all aspects of business to aid and assist the Board in carrying out
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752, , , , Lesson 17 • EP-CL, , its function, he, therefore, gets an opportunity to know the strengths and the weaknesses of the functional executives., , In his role as administrator, wherever applicable he has to make a detailed analysis of various activities, decision, making machinery, inter-departmental relationship and their functioning. He has, therefore, to ensure that the, organisational structure is always under constant study. The making of such examination and study and the, consequent advice and recommendation for making changes is a task which the company secretary has to perform., , Financial Administration, , Since various monthly and periodical operating reports and financial statements are routed for consideration of the, board through the secretary, he should analytically study these statements. Thus, as a secretary to the board, the, Company Secretary in consultation with the Finance Manager has to devise suitable and proper systems of, accounting procedure, internal control and internal audit with a view to safeguarding the company’s funds. The, Company Secretary should have a good knowledge of budgetary control and procedures, accounts and other related, matters. He is also expected to be proficient in dealing with matters connected with taxation., The Company Secretary is generally assisted by the Chief Accountant in the discharge of his functions relating to, financial administration. In many companies, the Secretary is also the Chief Accountant. He has to negotiate with, banks and financial institutions the terms of finance both for working capital requirements and capital expenditure., , Tax Administration, , Company Secretary deals with tax administration of the company. Tax administration does not restrict to accounting, transactions only. Tax administration involves in tax planning, utilization of input credits, assessment and appeals., The company secretary with the help of accounts and legal teams ensure proper tax administration for the, organization., , Office Administration, , In all big companies, the office administration is carried on by a departmental head or an officer who generally, reports to the Company Secretary. It is the duty of the Secretary to ensure that different departments of the office, are properly staffed, organised, co-ordinated and supervised., He has to review from time to time the various procedures and systems with a view to making the administration, effective. He is also responsible in most organisations for office services including transport. The image of a company, depends on the design and office layout from the reception to the records., , The Secretary has not only to ensure that these services are maintained and improved but to also ensure that the, cost of such services is reviewed from time to time., , Personnel Administration, , Personnel administration includes recruitment, training, remuneration, promotion, retirement, discharge and, dismissal of staff. This is a very important yet difficult task to administer. Whilst in large organisations, there may, be a separate personnel or Human Resources Manager or Officer, in smaller companies the Secretary may be called, upon to advise and assist the directors on principles and legal points involved in this area of administration., , The Company Secretary should ensure that implication of new rules, orders, in this field of management are advised, to all concerned for effective implementation., , Administration of Company’s Properties, , The secretary has an important role to play in safeguarding the company’s interest in property matters. He has to, ensure that all properties are properly maintained and insured and maintain a suitable register for each property, containing relevant information. He should have a good knowledge of relevant rules and bye-laws applicable to, property. He should also ensure that registration of trademarks, patents, licenses or other intellectual property, rights are done from time to time and take legal action in respect of infringement of such rights.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 753, , Maintenance of Records of Company, , The Secretary is required to maintain certain other records in addition to those specified under the Companies Act., The volume, method and procedure will vary with the size and nature of the company., The secretary also has to ensure that the statutory time limits relating to directors’ and shareholders’ meetings,, payment of dividend and interest, filing of returns under the Companies Act, 2013, Income-tax Act and Sales Tax, Act, etc., renewals of contracts and leases and the formalities under stock exchange and SEBI regulations and the, listing agreements are complied with., , Ensuring Adequacy of Systems of Safety and Security, , The secretary has to ensure that adequate systems of safety and security of personnel based on technical advice, are available in the factory and office. He is also responsible for devising and maintaining systems to safeguard, the valuable company records, or information against loss, theft, fire, etc. He is to review these from time to time, to ensure that the properties of the company are adequately insured. The company secretary should have good, knowledge of insurance law and practice., , Whilst the above discussion only gives a brief outline, the duties and responsibilities of the company secretary, are subject to continuous change and therefore, has to be reviewed from time to time to ensure that he effectively, contributes in respect of the above matters. He should, therefore, keep himself abreast with legal changes and practices., , Statutory Duties and Liabilities of a Company Secretary, , Apart from general secretarial duties with regards to organizing Board and general meetings, keeping minutes of, meeting, recording approved share transfers, corresponding with directors and shareholders, maintaining statutory, records, filing necessary returns with Registrar of Companies etc., the Companies Act, 2013 has also prescribed, some duties and authorities of Company Secretary, which are as follows–, 1., , Declaration regarding compliance with requirement of registration, , 2., , Authentication of documents, proceedings and contracts, , In terms of section 7(1)(b) of the Companies Act, 2013, a company gets incorporated by submitting, memorandum and articles duly signed along with a declaration in a prescribed form that all requirements of, Act and rules have been complied with in respect of registration of company. Such declaration in prescribed, form can be signed by an Advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company and by a person named in the articles as a director, manager, or secretary of the company., Authentication is more than simply attestation. Authentication is attestation made by proper officer by which, he certifies that a record is in due form of law and that the person who certifies is the officer appointed to do, so. A document or proceeding requiring authentication by a company or contract made by or on behalf of a, company may be signed by any key managerial personnel or an officer or employee of the company duly, authorized by the Board in this behalf [Section 21]., However, in case of Specified IFSC public and Specified IFSC private company, the document or proceeding, requiring authentication by a company or contract made by or on behalf of a company may be signed by any key, managerial personnel or an officer or any other person of the company duly authorized by the Board in this, behalf., , In case, a company does not have a common seal, the requirement of law would be complied with if the, authorization is done by two directors or by a director and the Company Secretary, wherever the company has, appointed a Company Secretary.
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754, , , , 3., , Signing share certificate, , 4., , Signing annual return, , 5., , 6., 7., , Lesson 17 • EP-CL, , Share certificates of the company should be signed by two directors or by a director and the Company Secretary,, wherever the company has appointed a Company Secretary., Annual return to be filed with Registrar of Companies has to be signed by a Director and Company Secretary., If company does not have Company Secretary, the return can be signed by Company Secretary in practice, [Section 92(1)]., Signing of financial statements, , The financial statement, including consolidated financial statement is to be signed on behalf of the Board by, the chairperson of the company where he is authorised by the Board or by two directors out of which one shall, be managing director, if any, and the Chief Executive Officer, the Chief Financial Officer and the company, secretary of the company, wherever they are appointed [Section 134(1)]., Appear before NCLT, , A Company Secretary can appear before National Company Law Tribunal (NCLT) on behalf of the company, [Section 432]., Secretary as Compliance Officer of listed company, , As per clause (1) of Regulation 6 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015,, a listed company is required to appoint the company secretary to act as ‘Compliance Officer’, who will be, responsible for the following –, (a), , ensuring conformity with the regulatory provisions applicable to the listed entity in letter and spirit., , (c), , ensuring that the correct procedures have been followed that would result in the correctness,, authenticity and comprehensiveness of the information, statements and reports filed by the listed, entity., , (b), , (d), , co-ordination with and reporting to the Board, recognised stock exchange(s) and depositories with, respect to compliance with rules, regulations and other directives of these authorities., , monitoring email address of grievance redressal division as designated by the listed entity for the, purpose of registering complaints by investors., , 8., , Demat shares, , 9., , Additional duties, , Secretary has to coordinate between depository and stock exchange in case of demat shares., , In addition to statutory duties of company secretary, he is often entrusted with additional duties like looking, after legal matters, personnel matters, finance and sometime even general administration., , 10. Nodal Officer, , Company secretary has to perform duty of nodal officer under IEPF Rules. He shall verify all applications filed, to reclaim shares from IEPF., , 11. Secretarial Auditor, , Company Secretary in practice has to do Secretarial Audit for the Companies specified under Section 204 of, Companies Act, 2013 read with Rule 9 Companies (Appointment and Remuneration of Managerial Personnel), Rules,2014 and give Secretarial Audit Report in Form MR-3. It is the duty of the Company Secretary in Practice, to do auditing of the secretarial and related records of the company.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 755, , Liabilities of Company Secretary, , Company Secretary has been defined as ‘Officer in default’ along with Managing Director, Manager and Whole-time, Director etc. Thus, he can be punished in respect of offences under Companies Act. He may be held liable as Key, Managerial Personnel also under various provisions of the Act., , Summons to Company in Civil Matters can be Served on a Secretary, , As per rule 2 of order 9 of Code of Civil Procedure, in case of suit against a corporation, summons can be served on –, (a) Company Secretary, Director or other principal officer of the corporation; or, (b) By leaving it or by sending by post to registered office of the corporation., , Procedure for Appointment of a Whole-Time Company Secretary, , The following procedural steps should be taken for appointing a whole-time company secretary:, 1., Advertise the post, collect applications, hold interview, short list the individuals for the position and, finalise the terms of appointment., 2., 3., , 4., 5., 6., 7., , Convene a Board meeting after giving notice to all the directors of the company as per section 173 of the, Act. At the board meeting, place the proposal of appointing Company Secretary with the details of the, person finalized and pass a resolution appointing the company secretary and approving the terms and, conditions of his appointment., , File return of appointment of company secretary with the Registrar in Form DIR.12 within thirty days, from thedate of appointment (date of joining office) and in case of public company copy of Board Resolution, also needs to be filed in Form MGT.14 along with such fee as specified in Companies (Registration of, Offices and Fees) Rules, 2014. The particulars of Company Secretary, Income-tax PAN, Membership, details (will be validated from ICSI records), residential details, date of appointment, e-mail ID of the, person for communication purposeare required to be filled in the Form., A Company Secretary shall not hold office in more than one company except in its subsidiary company at, the same time., Make entries in the Register of directors and key managerial personnel under Section 170 of the Act., Inform the Stock Exchange(s) where the company is listed., , Since key managerial personnel are included in ‘related party’ as defined in section 2(76) of the Act,, verify whether the company secretary so appointed involved in any related party transactions within the, provisions ofSection 188 of the Act. If yes, then comply with the requirements in this regard., , REMOVAL OF COMPANY SECRETARY, , A company secretary can be removed or dismissed like any other employees of the organization. Since he is appointed by Board, the Board of directors of a company has absolute discretion to remove a company secretary or to, terminate his services at any time for any reason or without any reason. However, principles of natural justice like, show cause notice, hearing, reasoned order etc. must be followed., , Procedure for Removal/Resignation of Company Secretary, 1., , A Company Secretary can be removed in accordance with the terms of appointment and the, Board can ecord the same., , 3., , Obtain Resignation Letter duly dated and signed., , 2., , Convene a Board meeting after giving notice to all the directors of the company as per section 173, place, the matter of removal/resignation of the Company Secretary and pass a resolution to the effect.
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756, , 4., 5., 6., , 7., 8., , Lesson 17 • EP-CL, , , , File Form DIR-12 in electronic mode within thirty days with the Registrar of Companies together, with requisite filing fees. Evidence of Cessation (for example Resignation Letter) is an optional, attachment., Inform the stock exchange where the company is listed within 24 hours of Board Meeting., , Make entries in the Register maintained for recording the particulars of Company Secretaries under section, 170., Issue a general public notice, if it is so warranted, according to size and nature of the company., , The resulting vacancy shall be filled up by the Board at a meeting of the Board within a period of six, months from the date of such vacancy., , CASE STUDY, ROLE OF COMPANY SECRETARY WITH RESPECT TO DISCLOSURES AND COMPLIANCES – CASE STUDY, INTRODUCTION, Securities and Exchange Board of India (hereinafter referred to as “SEBI”) conducted an investigation to ascertain, if the promoters of the Deccan Chronicle Holdings Ltd. (hereinafter referred to as “DCHL” or the “Company”) have, made any fraudulent pledging of shares of DCHL and have made wrong, misleading or inadequate disclosures to, the stock exchange. The investigation was also conducted to ascertain as to whether there was understatement, of loans by DCHL in its financial statements for the financial years from 2008- 09 to 2011-12., , DCHL is a publisher of newspapers such as ‘Deccan Chronicle’, ‘Asian Age’, ‘Financial Chronicle’ and ‘Andhra, Bhoomi’. The Company had come out with a public issue of 80,13,100 shares of Rs.10 each at Rs. 162 per share in, December 2004 and had got its shares listed on BSE and NSE., DCHL announced the first buy-back in July 2009 for up to 3.50 cr. equity shares of Rs. 2 each (minimum of 1 cr., equity shares) from the open market through stock exchanges at a price not exceeding Rs.100/- per equity share, for an aggregate amount not exceeding Rs.180 crore. The buyback commenced on August 12, 2009 and closed on, January 25, 2010 wherein 26.54 lakh equity shares were bought back at an average price of Rs. 97.78 aggregating, Rs. 25.95 crore., DCHL announced another buy-back of its equity shares in May 2011 up to 3.45 cr. equity shares and minimum of, 1 cr. equity shares from the open market through stock exchanges., , SEBI’s Investigation, , DCHL along with its promoters, chairman and vice-chairman who are responsible for the overall management of, DCHL have, inter alia, failed to comply with the following conditions of the listing agreement, namely –, (a), , Failed to disclose to the stock exchange material price sensitive information on the date of entering into, agreement with DCM (partnership firm with its promoters and directors)., , (c), , Delay in filing shareholding pattern for quarters ended Sep-12 and Dec-12 to the stock exchange., , (b), , (d), (e), (f), , Misleading financial information (i.e. understatement of interest and outstanding loans and thereby, overstatement of profits) in its Annual Report for FY 2008-09, FY 2009-10 and FY 2010-11 which were not, true and fair., Failure to provide updated information on the shareholding pattern from quarter ended Mar-13 onwards, on its website., Failure to appoint Company Secretary of the Company., , Failure to disclose related party transactions pertaining to funds advanced to Flyington Freightors Ltd., a, related entity.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 757, , Show cause notice to the Company Secretary, Pursuant to the investigation, a common show cause notice (“SCN”) dated May 10, 2016 was issued to its,, Company Secretary of the company for the above mentioned allegations, based on the findings in the investigation, conducted by SEBI, which further includes that Company Secretary being the signatories to the public, announcement made by the Company on May 6, 2011 for buy back of its equity shares without having adequate, free reserves which misled the uninformed investors and shareholders about the perceived valuation, strong, financials or adequate free reserves of the company and these actions have wrongfully influenced and induced, the decision of investors and shareholders particularly when the price of the share was declining since May 2010., , Reply of the Company Secretary, •, •, , •, •, •, , •, •, , He was appointed as a company secretary of DCHL on April 21, 2009 and resigned from the services of the, Company vide resignation letter dated May 1, 2012. He had stopped attending the office and discharging, his official duties at DCHL from June 1, 2012. The Company has filed Form No. 32 showing relieving of, Company Secretary on August 31, 2012., , During his employment in DCHL, he was not invited to the meetings of the board of directors of the, Company. The promoters/directors used to meet prior to the scheduled time on the board meeting date, (for approval of results, etc.) and would direct him to send the financial results to the stock exchanges. He, is not aware as to what transpired in those meetings. Based on the requirement for loan/borrowings any, resolutions to be passed were discussed in the meeting., With regard to non-disclosure of encumbrance/pledge of shares it has been stated that neither he was, involved in the transactions nor he had knowledge of the same. Further, the responsibility to make, disclosure under regulation 31(1) r/w regulation 31(3) of the Takeover Regulations, 2011 is solely on the, promoters., With regard to alleged mis-statement in books of accounts, it has been stated that at no point of time he, was entrusted with any duties or responsibilities relating to the accounting or finance function of the, Company by the management and as such he had no knowledge of the loan, bank correspondences, pledge, etc., , The presumption as to correctness of the Audited Financial statement is established immediately upon, signing of the same by the Statutory Auditors and if any understatement of outstanding loans is noticed, upon investigation then a person who is merely a company secretary may not be held liable as he was not, involved in preparation and finalisation of annual accounts. He had signed the financial statements of the, Company under the provision of Section 215 of the Companies Act, 1956 with a view only to authenticate, that the documents were approved by the board of the company., He had ascribed his signature on the public announcement for buyback in his capacity as a Company, Secretary. It was only in relation to the compliances of procedural formalities for the buy-back of shares, and not in respect of financial statements and information contained therein., , The alleged non-compliances with certain clauses of the Listing Agreement by DCHL have taken place after, he had resigned from the Company as Company Secretary. Therefore, he may not be held responsible for, the same., , Hon’ble SAT has examined the role of company secretary, insofar as the requirement of making timely and, absolutely true disclosures under the Securities Laws is concerned in various appeals filed in the matter of GHC, Ltd., In this regard, SEBI also drawn attention to the findings of the Hon’ble Tribunal in the matter of Mr. Bhuwneshwar, Mishra vs SEBI (Appeal no. 7 of 2014 – Date of decision – July 31, 2014) which are as under:, , “Therefore, the company, the Company Secretary and the Chairman of the company have a greater responsibility, on their shoulders to ensure, in a free and fearless manner, that the promoters make timely and absolutely true, disclosures as regards their respective shareholding in the company in consonance with various regulations, prescribed by SEBI and the Listing Agreement. In fact, the companies are required to maintain a register in this
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758, , , , Lesson 17 • EP-CL, , respect and if a vast variation is noted by the company, the Company Secretary and the Chairman, in the, shareholding pattern of the promoters they are duty bound to inform to the stock exchange or even to SEBI, accordingly. Such acts of wrong disclosures are condemned as fraudulent and unfair trade practices., , In this connection, it is pertinent to note that the Company, the Company Secretary and the Chairman are not, mere conduit to pass-on whatever details they receive from the promoters to the Stock Exchanges irrespective of, the records maintained by the Company in respect of the shares which may be held by a promoter at given point, of time. The Appellants should have acted more diligently and responsibly and should not have been guided by, mere legal opinions. It is settled law that legal opinions are only advisory in nature and not binding on anyone., Therefore, no legal infirmity can be attributed to the impugned order which holds all the appellants guilty of, violating the PFUTP Regulations, 2003 and imposes monetary penalties on them.”, , Findings - In the light of the above, SEBI held that the company secretary of DCHL responsible as for signing the, public announcement made by the Company on May 6, 2011 for buyback of its equity shares, without having, adequate free reserves, which misled the uninformed investors/ shareholders about the perceived and artificially, overstated valuation, strong financials and adequate free reserves of the Company which might have certainly, influenced/ induced the decision of investors/shareholders particularly when the price of the share was declining, since May 2010.Considering the foregoing, SEBI held Company Secretary equally liable for violation of the, provisions of sections 68 and 77A of the Companies Act, 1956 and regulation 3(a), (b), (c), (d), 4(1), 4(2)(f), (k), and (r) of the PFUTP Regulations, 2003 read with section 12A(a), (b) and (c) of the SEBI Act, 1992., Order of SEBI, , However, keeping in view the foregoing factual findings and observations SEBI in order to protect the interest of, the investors in the securities market hereby issue the directions to the Company Secretary as follows:, •, , •, , Company Secretary shall not directly or indirectly provide company secretarial services for a period of one, year to any listed company or offer services pertaining to compliance of obligations of listed companies, and intermediaries registered with SEBI in terms of the requirements under the SEBI Act, 1992, the SCRA, 1956, the Depositories Act, 1996, those provisions of the Companies Act, 2013 which are administered by, SEBI under section 24 thereof and the Rules, Regulations and Guidelines made under those Acts which are, administered by SEBI., For a period of one year, listed companies and intermediaries registered with SEBI shall not engage the, Company Secretary for company secretarial services for issuing any certificate with respect to compliance, of statutory obligations which SEBI is competent to administer and enforce, under various laws., , REMUNERATION OF MANAGERIAL PERSONNEL, Managerial Remuneration, Just as profits drive business, incentives drive the managers of business. Not surprisingly then, in a fiercely, competitive corporate environment, managerial remuneration is an important piece in the management puzzle., While it is important to incentivize the workforce performing the challenging role of managing companies, it is, equally important not to go overboard with the perks and the pay. In India, to keep a check on unnecessary profit, squandering by companies and, at the same time, to ensure adequate and reasonable compensation to managerial, personnel, the law intervenes to do the balancing act., Clause 78 of Section 2 of the Companies Act, 2013 defines “Remuneration” which means any money or its equivalent, given or passed to any person for services rendered by him and includes perquisites as defined under the Income-tax, Act, 1961., , Though the term Managerial Remuneration is not defined anywhere in the Companies Act, 2013, the term is used, interchangeably with remuneration to a managerial person.
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759, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , The Nomination and Remuneration Committee shall, while formulating the policy regarding remuneration shall, ensure that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate, directors of the quality required to run the company successfully., , Relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and, remuneration to directors, key managerial personnel and senior management involves a balance between fixed and, incentive pay reflecting short and long-term performance objectives appropriate to the working of the company, and its goals., , Provisions Governing Managerial Remuneration, , Managerial Remuneration, Section 197, , Schedule V, , Part II-Remuneration, , Section-I (In case of Profit), , Section II-(In case of no, profit/ inadequate profit), , Overall Maximum Managerial Remuneration, Section 197 of the Companies Act, 2013, lays down the, provisions for overall maximum managerial remuneration., , The total managerial remuneration payable by a public, company, to its directors, including managing director and, whole-time director, and its manager in respect of any, financial year shall not exceed 11% of the net profits of that, company for that financial year computed in the manner, laid down in section 198 of the Companies Act, 2013, except, that the remuneration of the directors shall not be deducted, from the gross profits., , However, as per the third proviso of Section 197(1), of the Companies Act, 2013, that if company, defaulted in the payment of dues to any bank or, public financial institution or non-convertible, debenture or any other secured creditor, the prior, approval of the bank or public financial institution, concerned or the non-convertible debenture, holders or other secured creditor, as the case, may be, shall be obtained by the company before, obtaining the approval in the general meeting., , The Company may pay the remuneration to the managerial, personnel exceeding total limit of 11% of net with the approval of members at the general meeting. However, limit, of remuneration shall be as per Schedule V., , Thus, section 197 deals with the Remuneration payable to Directors including Managerial Personnel. The Section, applies only to Public Companies and hence Private Companies are free to pay remuneration at any rate to such, directors in case of adequacy or inadequacy of profits.
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760, , Lesson 17 • EP-CL, , , , Remuneration should be strictly subject to the provisions of Section 197 of the Companies Act,, 2013 (Section 197(4)), Determination of Remuneration can be done either by the articles or by a resolution or if the articles so require by, the Special Resolution. Whatever is the mode of determination of remuneration, it needs to confirm to the provisions, of Section 197 of the Companies Act, 2013. Sub-section 4 expressly requires that the remuneration payable to the, directors of a company, including any managing or whole-time director or manager, shall be determined, in, accordance with and subject to the provisions of this section. The remuneration so determined to be payable is, required to be inclusive of the remuneration payable to him for the services rendered by any such director in other, capacity., However, any remuneration for services rendered by any such director in other capacity shall not be so included, if:(a), , (b), , the services rendered are of a professional nature; and, , the director possesses the requisite qualification for the practice of the profession in the opinion of the, Nomination and Remuneration Committee, if the company is covered under sub-section (1) of section 178,, else in the opinion of the Board of Directors., , The expression “remuneration payable to the directors, including any managing or whole-time director or manager”, covers all the directors on the board of the company apart from the managing or whole-time director or manager., , Prescribed Individual Limit for each Directors u/s 197(1) of the Company Act, 2013, The overall managerial remuneration to the Directors including managing director, whole time director and, manager is summarized as under:, S., No., , Persons entitled for, remuneration, (a), , (i), (ii), , Maximum remuneration in any If remuneration exceeds maximum, remuneration in any financial year, financial year, as provided under column (b), (b), , Directors including Managing 11% of the net profits of the, Director, Whole time Director company for that financial year, and Manager of public, companies, , (c), Company in general meeting subject, to provisions of Schedule V may pay, remuneration in excess of 11% of the, net profits of the company., , One Managing director/ Whole 5% of the net profits of the With the approval by a special, time director/ manager, resolution of the company in general, company for that year, meeting this limit may be exceeded., , (iii) More than one Managing 10% of the net profits to all such With the approval by a special, Director/ Whole time Director/ Directors and Manager taken resolution of the company in general, Manager, together, meeting this limit may be exceeded., , (iv) Directors who are neither 1% of the net profits of the Approval by a special resolution of, Managing Director nor Whole company if there is a Managing the company in general meeting is, time Directors, Director or aWhole time Director required., or Manager, (v), , Directors who are neither 3% of the net profits of the Approval by a special resolution of, Managing Director nor Whole company if there is no Managing the company in general meeting is, time Directors, Director or Whole time Director required., or Manager
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761, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , Limit of Managerial, Remuneration, Total remuneration shall, not exceed 11% of the net, profits of the company for, that financial year, If total remuneration exceeds 11%., Shareholders approval required+, payment should, be in accordance, to schedule V, , Remuneration payable to, Managerial personnel, (individual limit), Remuneration, payable to, any one MD/, WTD/Manag, er shall not, exceed 5% of, the net profit, , If there is more, than one such, director remuneration shall not, exceed 10% of, the net profit to, all such directors, and managers, taken together, , Remuneration to other, directors who are not MD/, WTD (individual limit), , 1% of net, profit if there, is MD/WTD/, Manager, , 3% of net, profit in any, other case, , If total remuneration exceeds the above prescribed, limit then approval of the company in general meeting, by a special resolution is required, , Exemptions:, In case of Nidhi Company, After the exemption notification dated 05.06.2015, in case of Nidhi company, Second Proviso to Section 197 (1), shall apply with modification which is as under-, , Remuneration of a director who is neither managing director nor whole time director or manager for performing, special services to the Nidhis specified in the articles of association may be paid by way of monthly payment, subject to the approval of the company in general meeting and also to the provisions of section 197:, Provided that no approval of the company in general meeting shall be required where,(a), , (b), (c), , a Nidhi does not have a managing director or a whole-time director or a manager;, , the remuneration payable during a financial year to all the directors of the Nidhi does not exceed ten per, cent of the net profits of such Nidhi or fifteen lakh rupees, whichever is less; and, a remuneration payable under clause (b) is approved by a special resolution passed in this behalf by the, Nidhi., , Second proviso to Section 197(1) limits the remuneration payable to directors who are neither managing directors, nor whole-time directors to one percent of the net profits of the company, if there is a managing or whole-time, director or manager; three percent of the net profits in any other case. However, Nidhi companies are allowed to, pay remuneration to directors who are neither managing directors nor whole-time directors, for performing, special services subject to conditions as laid down., In case of Government Company, After the exemption notification dated 05.06.2015 provisions of Section 197 shall not apply to Government Company., In case of Specified IFSC Public Company, , After the exemption notification dated 04.01.2017 provisions of Section 197 shall not apply to Specified IFSC, Public Company.
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762, , , , Lesson 17 • EP-CL, , Managerial Remuneration when there are no Profits or Profits are Inadequate [Section 197(3) & (11)], Prior to the Companies (Amendment) Act, 2020, in a situation where a company has not made any profits or made, inadequate profits, Managing Directors, Whole-time Directors or Managers could be paid sitting fees for attending, board meetings in accordance with Section 197(5), and minimum remuneration in accordance with Section 197(3),, read with Schedule V of the Companies Act, 2013. But, in the same situation, Non-Executive Directors and, Independent Directors could only be paid sitting fees for attending board meetings in accordance with Section, 197(5) and were not entitled to anything else., With the advent of the Companies(Amendment) Act, 2020, amendments to Section 149 and 197 of the Companies, Act, 2013 has been introduced to provide remuneration for non-executive directors, including independent, directors, in case of no profit or inadequacy of profits in a manner similar to executive directors in accordance with, the provisions of Schedule V of the Companies Act, 2013., Further, On March 18 2021, the MCA also issued a notification which amended Schedule V of the Companies Act,, 2013 to prescribe the remuneration limits for non-executive directors including independent directors, in situations, of no profits or inadequate profits., Limit of remuneration in case of No Profit or Inadequate Profit, , Section 197(3) of the Companies Act, 2013 has been amended to provide that if in any financial year, a company has, no profits or its profits are inadequate, the company shall not pay to its directors, including any managing or wholetime director or manager or any other non-executive director, including an independent director, by way of, remuneration any sum exclusive of any fees payable to directors hereunder except in accordance with the provisions, of Schedule V of the Companies Act, 2013., Overriding effect of Schedule V of the Companies Act, 2013, , Section 197 (11) of the Companies Act, 2013 prescribes that in cases where Schedule V is applicable on grounds of, no profits or inadequate profits, any provision relating to the remuneration of any director which purports to, increase or has the effect of increasing the amount thereof, whether the provision be contained in the company’s, a., , Memorandum of Association (MoA) or, , c., , Agreement entered in with by Company or, , b., d., , Articles of Association (AoA) or, , Resolution passed in General meeting or its Board Meeting,, , shall not have any effect unless such increase is in accordance with the conditions specified in Schedule V of the, Companies Act, 2013., Schedule V shall have overriding effect over MoA, AoA, agreement and general meeting resolution. Hence, if Company, is unable to comply with provisions of Schedule V, then no remuneration can be paid to Managerial Personnel except, sitting fees.
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763, , Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , Remuneration Payable by Companies Having no Profit or Inadequate Profit (Schedule V- Part II ), Part II of Schedule V of the Companies Act, 2013 confers with Managerial Remuneration, , Section-I, , Managerial, Remuneration, payable by, Companies having, adequate profits, , Section-II, , Managerial, Remuneration, payable by, Companies having nil, or in-adequate profits, , Section-III, , Section-IV, , Section-V, , Managerial, Remuneration, payable in special, circumstances in case, of nil or in-adequate, profits, , Perquisites not, included in, Managerial, Remuneration, , Remuneration, payable to Managerial, Personnel in two, Companies, , Section I.— Remuneration payable by companies having profits:, Subject to the provisions of section 197, a company having profits in a financial year may pay remuneration to a, managerial person or persons or other director or directors not exceeding the limits specified in such section., Section II- Managerial Remuneration payable by the Companies having Nil or Inadequate profits, , Where in any financial year during the currency of tenure of a managerial person or other direcctor, a company has, no profits or its profits are inadequate, it may, pay remuneration to the managerial person not exceeding, the limits, under (A) and (B) given below:-
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764, , Lesson 17 • EP-CL, , , , (A), (1), , (2), , (3), , Sl., No., , Where the effective capital Limit of yearly remuneration Limit of yearly remuneration, (in rupees) is:, payable shall not exceed (in payable shall not exceed (in, rupees) in case of a managerial rupees) in case of other Directors, person, , (i), , Negative or less than 5, crores., , 60 lakhs, , 12 lakhs, , (iii), , 100 crores and above but, less than 250 crores., , 120 lakhs, , 24 lakhs, , (ii), , (iv), , 5 crores and above but less, than 100 crores., 250 crores and above., , 84 lakhs, , 120 lakhs plus 0.01% of the effective capital in excess of Rs.250, crores, , 17 lakhs, 24 Lakhs plus 0.01% of the effective, capital in excess of Rs.250 crores, , If Company wants to make payment of remuneration more than above mentioned limit than company can do the, same by passing of “Special Resolution” in General Meeting of the Company., Explanation.- It is hereby clarified that for a period less than one year, the limits shall be pro-rated., Note: Other Director means a Non-Executive Director or an Independent Director., , (B) In case of a managerial person or other director who is functioning in a professional capacity:, If a managerial personnel or other director is functioning in professional capacity, remuneration as per item (A), may be paid, if the following conditions is satisfied:, •, , They are not having any interest in the capital of the company or its holding company or any of its subsidiaries, directly or indirectly or through any other statutory structures, , •, , possesses graduate level qualification with expertise and specialised knowledge in the field in which the, company operates., , •, , not having any, direct or indirect interest or related to the directors or promoters of the company or its, holding company or any of its subsidiaries at any time during the last two years before or on or after the date, of appointment; and, , Any employee of the company will not be deemed to be a person having interest in the capital of the company in the, following circumstances:, (i), , (ii), , if he holds shares of the company not exceeding 0.5% of its paid up share capital under any scheme formulated, for allotment of shares to such employees including Employees Stock Option Plan; or, by way of qualification shares., , The benefits of the limits specified under items (A) and (B) can be availed if the following further conditions are, satisfied(i), , (ii), , Payment of remuneration is approved by a resolution passed by the Board and, in the case of a company, covered under sub-section (1) of section 178 also by the Nomination and Remuneration Committee;, , The company has not committed any default in payment of dues to any bank or public financial institution or, non-convertible debenture holders or any other secured creditor, and in case of default, the prior approval of, the bank or public financial institution concerned or the non-convertible debenture holders or other secured
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , (iii), (iv), , 765, , creditor, as the case may be, shall be obtained by the company before obtaining the approval in the general, meeting., , an ordinary resolution or a special resolution, as the case may be, has been passed for payment of remuneration, as per item (A) or a special resolution has been passed for payment of remuneration as per item (B), at the, general meeting of the company for a period not exceeding three years., , a statement along with a notice calling the general meeting referred to in clause (iii) is given to the shareholders, containing the following information, namely:-, , I. General information:, (i), , Nature of industry;, , (iii), , In case of new companies, expected date of commencement of activities as per project approved by, financial institutions appearing in the prospectus;, , (ii), , (iv), (v), , Date or expected date of commencement of commercial production;, Financial performance based on given indicators;, Foreign investments or collaborations, if any., , II. Information about the appointee:, (1), , Background details;, , (3), , Recognition or awards;, , (2), (4), (5), (6), (7), , Past remuneration;, , Job profile and his suitability;, Remuneration proposed;, , Comparative remuneration profile with respect to industry, size of the company, profile of the positionand, person (in case of expatriates the relevant details would be with respect to the country of his origin);, Pecuniary relationship directly or indirectly with the company, or relationship with the managerial personnel,, if any., , III. Other information:, (1), , Reasons of loss or inadequate profits;, , (3), , Expected increase in productivity and profits in measurable terms., , (2), , Steps taken or proposed to be taken for improvement;, , IV. Disclosures, , The following disclosures shall be mentioned in the Board of Director’s report under the heading “Corporate, Governance”, if any, attached to the Financial statements:, (i), , all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the, directors;, , (iii), , service contracts, notice period, severance fees; and, , (ii), , (iv), , details of fixed component and performance linked incentives along with the performance criteria;, , stock option details, if any, and whether the same has been issued at a discount as well as the period over, which accrued and over which exercisable.
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766, , , , Lesson 17 • EP-CL, , Explanation: For the purposes of Section II of this part, “Statutory Structure” means any entity which is entitled to, hold shares in any company formed wider any statute., Section III— Remuneration payable by companies having no profit or inadequate profit in certain special, circumstances, Section III of Part II of Schedule V envisages further special circumstances where remuneration can be payable to a, managerial person or other director in excess of the amounts provided in Section II above. These circumstances are, enumerated as below:, (a), , where the remuneration in excess of the limits specified in Section I or II is paid by any other company and, that other company is either, , •, •, , (b), , has got the approval of its shareholders in general meeting to make such payment, and treats this, amount as managerial remuneration for the purpose of section 197 and the total managerial, remuneration payable by such other company to its managerial persons including such amount or, amounts is within permissible limits under section 197., , Managerial remuneration up to any amount permissible under Section II can be paid to the managerial, persons or other directors of the following class of Company:, , (i), , newly incorporated company, for a period of seven years from the date of its incorporation, or, , (iii), , company in relation to which a resolution plan has been approved by the National Company Law, Tribunal under the Insolvency and Bankruptcy Code, 2016 for a period of five years from the date of, such approval., , (ii), , (c), , a foreign company or, , sick company, for whom a scheme of revival or rehabilitation has been ordered by the Board for, Industrial and Financial Reconstruction for a period of five years from the date of sanction of scheme, of revival, or, , Where remuneration of a managerial person or other director exceeds the limits in Section II but the, remuneration has been fixed by the BIFR or the NCLT, provided that the limits under this section shall be, applicable subject to meeting of all the conditions specified under Section II and the following additional, conditions:—, , (i), , except as provided in para (a) of this Section, the managerial person is not receiving remuneration, from any other company;, , (iii), , the auditor or Company Secretary or where the company has not appointed a secretary, a secretary in, whole-time practice certifies that there is no default on payments to any creditors, and all dues to, deposit holders are being settled on time., , (ii), , the auditor or Company Secretary of the company or where the company has not appointed a Secretary,, a Secretary in whole-time practice, certifies that all secured creditors and term lenders have stated in, writing that they have no objection for the appointment of the managerial person as well as the, quantum of remuneration and such certificate is filed along with the return as prescribed under subsection (4) of section 196., , For the purposes of Section I, Section II and Section III, the term or other director shall mean a non-executive director, or an independent director., Section IV.— Perquisites not included in managerial remuneration, Section V. —Remuneration payable to a managerial person in two companies:, , Subject to the provisions of sections I to IV, a managerial person shall draw remuneration from one or both, companies, provided that the total remuneration drawn from the companies does not exceed the higher maximum, limit admissible from any one of the companies of which he is a managerial person.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 767, , Sitting Fees to Directors for Attending the Meetings [Section 197(5)], A director may receive remuneration by way of fee for attending the Board/Committee meetings or for any other, purpose as may be decided by the Board. However, the amount of such fees shall not exceed the amount as may be, prescribed., , The Central Government through Rule 4 of the Companies (Appointment & Remuneration of Managerial Personnel), Rules, 2014 has prescribed that a company may pay a sitting fee to a director for attending meetings of the Board or, committees and such sum as may be decided by the Board of directors shall not exceed one lakh rupees per meeting, of the Board or committee thereof., Sitting fees of Independent and Women Directors shall not be less than the sitting fees payable to other Directors., , Monthly Remuneration to Director or Manager, , Permissible forms of Remuneration, A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage, of the net profits of the company or partly by one way and partly by the other [Section 197 (6)]., Commission or remuneration from holding or subsidiary company, , Any director who is in receipt of any commission from the company and who is a managing or whole-time director, of the company shall not be disqualified from receiving any remuneration or commission from any holding company, or subsidiary company of such company subject to its disclosure by the company in the Board’s report [Section 197, (14)]., , Refund of Remuneration in certain cases, , Section 197(9) stipulates that if any director draws or receives, directly or indirectly, by way of remuneration any, such sums in excess of the limit prescribed or without approval required under this section, he shall refund such, sums to the company, within two years or such lesser period as may be allowed by the company, and until such sum, is refunded, hold it in trust for the company., , Further Section 197(10), restricts the company from waiving off the recovery of any sum refundable to it under, sub-section (9). However, waiver can be done by the company within 2 years from the date the sum becomes, refundable, after obtaining approval of shareholders by special resolution., Where the company has defaulted in payment of dues to any bank or public financial institution or non-convertible, debenture holders or any other secured creditor, the prior approval of the bank or public financial institution, concerned or the non-convertible debenture holders or other secured creditor, as the case may be, shall be obtained, by the company before obtaining approval of such waiver., , Disclosure of Remuneration in Board’s Report, , Section 197(12) provides that every listed company shall disclose in the Board’s report, the ratio of the remuneration, of each director to the median employee’s remuneration and such other details as may be prescribed., , Disclosure in Board’s Report [Rule 5 of the Companies (Appointment and Remuneration of, Managerial Personnel) Rules, 2014], (1), , Every listed company shall disclose in the Board’s report(i), , (ii), , the ratio of the remuneration of each director to the median remuneration of the employees of the, company for the financial year;, , the percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer,, Company Secretary or Manager, if any, in the financial year;, , (iii) the percentage increase in the median remuneration of employees in the financial year;
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768, , , , Lesson 17 • EP-CL, , (iv), , the number of permanent employees on the rolls of company;, , (vi), , affirmation that the remuneration is as per the remuneration policy of the company., , (v), , average percentile increase already made in the salaries of employees other than the managerial, personnel in the last financial year and its comparison with the percentile increase in the managerial, remuneration and justification thereof and point out if there are any exceptional circumstances for, increase in the managerial remuneration;, , Explanation.- For the purposes of this rule.- (i) the expression “median” means the numerical value separating the, higher half of a population from the lower half and the median of a finite list of numbers may be found by arranging, all the observations from lowest value to highest value and picking the middle one; if there is an even number of, observations, the median shall be the average of the two middle values., (2), , The board’s report shall include a statement showing the names of the top ten employees in terms of, emuneration drawn and the name of every employee, who(i), , (ii), , (3), , if employed throughout the financial year, was in receipt of remuneration for that year which, in the, aggregate, was not less than one crore and two lakh rupees;, if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a, rate which, in the aggregate, was not less than eight lakh and fifty thousand rupees per month;, , (iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year, which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn, by the managing director or whole-time director or manager and holds by himself or along with his, spouse and dependent children, not less than two percent of the equity shares of the company., , The statement referred to in sub-rule (2) shall also indicate (i), , (ii), , designation of the employee;, remuneration received;, , (iii) nature of employment, whether contractual or otherwise;, (iv), , qualifications and experience of the employee;, , (vi), , the age of such employee;, , (v), , date of commencement of employment;, , (vii) the last employment held by such employee before joining the company;, , (viii) the percentage of equity shares held by the employee in the company within the meaning of clause (iii), of sub-rule (2) of Rule 5 above; and, (ix), , whether any such employee is a relative of any director or manager of the company and if so, name of, such director or manager:, , Provided that the particulars of employees posted and working in a country outside India, not being directors or, their relatives, drawing more than sixty lakh rupees per financial year or five lakh rupees per month, as the case, may be, as may be decided by the Board, shall not be circulated to the members in the Board’s report, but such, particulars shall be filed with the Registrar of Companies while filing the financial statement and Board Reports:, , Provided further that such particulars shall be made available to any shareholder on a specific request made by him, in writing before the date of such Annual General Meeting wherein financial statements for the relevant financial, year are proposed to be adopted by shareholders and such particulars shall be made available by the company, within three days from the date of receipt of such request from shareholders:, Provided also that in case of request received even after the date of completion of Annual General Meeting, such, particulars shall be made available to the shareholders within seven days from the date of receipt of such request.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 769, , Calculation of Net Profit for the Purpose of Managerial Remuneration (Section 198), Section 198 of the Companies Act, 2013 lays down the manner of calculations of net profits of a company any, financial year for purposes of Section 197. Sub- Section (2) specifies the sums for which credit shall be given and, sub-section (3) specifies the sums for which credit shall not be given while calculating the net profit., , Similarly, sub-section (4)/(5) of Section 198 specifies the sums which shall be deducted/not deducted while, calculating the net profit., , Insurance Premium not part of Remuneration, , Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, Chief, Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in, respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in, relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration, payable to any such personnel., However, if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the, remuneration. [Section 197(13)], , Statement by the Auditor, , The auditor of the company shall, in his report under section 143, make a statement as to whether:, (i), , (ii), , the remuneration paid by the company to its directors is in accordance with the provisions of Section 197., , whether remuneration paid to any director is in excess of the limit laid down under this section and give such, other details as may be prescribed., , Penalty For Contravention of Section 197, , If any person makes any default in complying with the provisions of Section 197, he shall be liable to a penalty of, one lakh rupees and where any default has been made by a company, the company shall be liable to a penalty of five, lakh rupees., , Disclosure of Remuneration in Board’s Report Under the SEBI (LODR) Regulations, 2015, , Regulation 17(6)(ca)- Remuneration payable to a single Non Executive Director, Approval of shareholders by special resolution shall be obtained every year, in which the annual remuneration, payable to a single non-executive director exceeds fifty per cent of the total annual remuneration payable to all nonexecutive directors, giving details of the remuneration thereof., Regulation 17(6)(e)- Remuneration payable to executive directors who are promoters or members of the, promoter group, Requires the listed entity to obtain the approval of the shareholders by Special Resolution in General Meeting, in, case of fees or compensation payable to executive directors who are promoters or members of the promoter group,, if(i), , (ii), , the annual remuneration payable to such Executive Director exceeds rupees 5 crore or 2.5 per cent of the net, profits of the listed entity, whichever is higher; or, , where there is more than one such director, the aggregate annual remuneration to such directors exceeds 5, per cent of the net profits of the listed entity. Also, the approval of the shareholders under this provision shall, be valid only till the expiry of the term of such director., , Explanation: For the purposes of this clause, net profits shall be calculated as per section 198 of the Companies Act,, 2013., , The following disclosures is required to be mentioned in the Board of Director’s report under the heading, “Corporate Governance”, if any, attached to the Financial statement as per Schedule V of the Companies Act,, 2013:
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770, , , , Lesson 17 • EP-CL, , (i), , all elements of remuneration package such as salary, benefits, bonuses, stock options, pension, etc., of all the, directors;, , (iii), , service contracts, notice period, severance fees; and, , (ii), , (iv), , details of fixed component. and performance linked incentives along with the performance criteria;, , stock option details, if any, and whether the same has been issued at a discount as well as the period over, which accrued and over which exercisable., , Recovery of Managerial Remuneration in Certain Cases (Section 199), , Section 199 of the Companies Act, 2013 provides for recovery of remuneration including stock options received by, the specified Managerial Personnel, where the benefits given to them are found to be in excess of what is reflected, in the restated financial statements., , It states that without prejudice to any liability incurred under the provisions of the Companies Act, 2013 or any, other law for the time being in force, where a company is required to re-state its financial statements due to fraud, or non- compliance with any requirement under the Companies Act, 2013 and the rules made there under, the, company shall recover from any past or present managing director or whole-time director or manager or Chief, Executive Officer (by whatever name called) who, during the period for which the financial statements are required, to be re-stated, received the remuneration (including stock option) in excess of what would have been payable to, him as per restatement of financial statements., , Additional compliances for payment of Managerial Remuneration in Case of No Profits/ Profits, are Inadequate (Section 200), , In respect of cases where the company has inadequate or no profits, a company may fix the remuneration within the, limits specified in the Companies Act, 2013, at such amount or percentage of profits of the company, as it may deem, fit. While doing so, the company shall have regard to —, (a), , the financial position of the company;, , (c), , the remuneration or commission drawn by him from any other company;, , (b), (d), (e), , the remuneration or commission drawn by the individual concerned in any other capacity;, Professional qualifications and experience of the individual concerned;, such other matters as may be prescribed., , As per Rule 6 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 for the, purpose of item (e) of section 200, the company shall have regard to the following matters while granting approval., , Parameters for consideration of remuneration, , The company shall have regard to the following matters, namely:(1), , Financial and operating performance of the company during the three preceding financial years., , (3), , The principle of proportionality of remuneration within the company, ideally by a rating methodology which, compares the remuneration of directors to that of other directors on the board who receives remuneration, and employees or executives of the company., , (2), , (4), (5), , Relationship between remuneration and performance., , Whether remuneration policy for directors differs from remuneration policy for other employees and if so, an, explanation for the difference., , The securities held by the director, including options and details of the shares pledged as at the end of the, preceding financial year.
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , 771, , Compensation for Loss of Office of Managing or Whole-Time Director or Manager (Section 202), Section 202 provides that a company may make payment to a managing or whole-time director or manager, but not, to any other director, by way of compensation for loss of office, or as consideration for retirement from office or in, connection with such loss or retirement., However, No payment shall be made in the following cases:—, (a), , (b), (c), , (d), (e), (f), , where the director resigns from his office as a result of the reconstruction of the company or of its, amalgamation with any other body corporate or bodies corporate, and is appointed as the managing or, whole-time director, manager or other officer of the reconstructed company or of the body corporate resulting, from the amalgamation;, where the director resigns from his office otherwise than on the reconstruction/ amalgamation of the, company;, where the office of the director is vacated under Section 167(1);, , where the company is being wound up, whether by an order of the Tribunal or voluntarily, provided the, winding up was due to the negligence or default of the director;, where the director has been guilty of fraud or breach of trust or gross negligence or mismanagement of the, conduct of the affairs of the company or any subsidiary company or holding company; and, , where the director has instigated, or has taken part directly or indirectly in bringing about, the termination, of his office., , Any payment made to a managing or whole-time director or manager shall not exceed the remuneration which he, would have earned if he had been in office for the remainder of his term or for three years, whichever is shorter,, calculated on the basis of the average remuneration actually earned by him during a period of three years, immediately preceding the date on which he ceased to hold office, or where he held the office for a lesser period, than three years, during such period. (Sub-section 3 of Section 202), Provided that no such payment shall be made to the director in the event of the commencement of the winding up, of the company, whether before or at any time within twelve months after, the date on which he ceased to hold, office, if the assets of the company on the winding up, after deducting the expenses thereof, are not sufficient to, repay to the shareholders the share capital, including the premiums, if any, contributed by them., However, Section 202 not prohibit the payment to a managing or whole-time director, or manager, of any, remuneration for services rendered by him to the company in any other capacity. (Sub-section 4 of Section 202), , LESSON ROUND-UP, •, •, •, , Under Section 2(51) a Key Managerial Personnel is defined as the Chief executive officer or Managing, Director or the Manager or, a Company Secretary or the Whole Time Director and the Chief Financial, Officer in relation to a company, , As per Section 203, every listed Company having a paid up share capital of Rs.10 crore or more is, compulsorily required to have a key managerial personnel., , The whole time key managerial personnel is to be appointed by the Board and shall not hold office in, more than one company except in its subsidiary company at the same time. However, with the permission, of Board he can be a director in any other company.
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772, , •, •, •, •, •, , Lesson 17 • EP-CL, , , , Company secretary being a KMP has been covered under section 203 i.e., appointment of key managerial, personnel. A company other than a company covered under rule 8 i.e. private company which has a paid, up share capital of ten crore rupees or more shall have a whole-time company secretary., Every company secretary is expected to adhere not only to the letter of the law but also ensure that the, spirit of the law is followed., A Company Secretary exercises supervisory and checking role so as to prevent any chance of negligence, in implementing various laws applicable to a particular company., Companies Act, through its various sections cast upon company secretary various duties and liabilities, called statutory duties and statutory liabilities., , Role of company secretary is three-fold, namely, as a statutory officer, as a coordinator, and as an, administrative officer., , GLOSSARY, Turnover, , Whole-time director, Vis-a-vis, , “turnover” means the gross amount of revenue recognised in the profit and, loss account from the sale, supply, or distribution of goods or on account of, services rendered, or both, by a company during a financial year.(Sec 2(91) of, Companies Act, 2013, , “whole-time director” includes a director in the whole-time employment of the, company; (Sec 2(94) of companies Act, 2013), in relation to; with regard to., , TEST YOURSELF, 1., , Explain the term Key Managerial Personnel under the Companies Act, 2013. Is it necessary for every, company to appoint a Key Managerial Personnel?, , 3., , What are the provisions on punishment for the contravention of section 203 of the companies Act 2013?, , 2., 4., 5., 6., , 7., 8., 9., , 10., 11., , State the provisions of appointing a Key Managerial Personnel according to Companies Act, 2013., Discuss the role of Company Secretary., , Enumerate the duties and liabilities of a Secretary., , Discuss the role of Company Secretary as a statutory officer, as coordinator and as an administrative officer., Can a director who is MD/ WTD of a co., receive remuneration from its holding co. or subsidiary?, , Can the KMP of Holding Co. be appointed in only one subsidiary or in all subsidiaries of holdingcompany, at the same time?, , Can a company by passing SR and as per the requirements of Schedule V read with the Rules provide, remuneration without any ceiling limit and without CG approval?, Whether the default in payment should be subsisting or a continuing default? What if the company has, made good such default?, , If a company proposes to pay remuneration exceeding 5% to one MD or WTD but within the overall limit, of 11%, is there a need to obtain shareholder’s approval?
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Lesson 17 • Appointment and Remuneration of Key Managerial Personnel, , LIST OF FURTHER READINGS, •, •, , ICSI Premier on Company Law, , Bare Act- Companies Act, 2013, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, , 773
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Meetings of Board and its, Committees, , Lesson 18, Key Concepts One, Should Know, •, , Meeting, , Learning Objectives, To understand:, , • Notice, , •, , The legal provisions relating to meetings of the Board and, committees, , • Chairman, , •, , Role and responsibilities of the officers and directors thereunder, , • Quorum, • Agenda, , • Circulation, , • Attendance, , • Leave of absence, • Minutes, , •, •, , The procedure involved, Practical Scenarios, , Lesson Outline, • Introduction, , • Meetings of the Board, , • Frequency of the meetings of the Board, , • The SEBI (LODR) Regulations, 2015 provisions w.r.t. Board Meetings, , • Preparation of notices for meetings of Board/Committees of Board, • Agenda of Board/Committees Meetings, • Convening a Meeting, , • Quorum for Board Meetings, • Attendance Registers, , • Passing of Resolution by Circulation, • Minutes of Board Meeting, , • Duties of Company Secretary, • Practical Scenarios, , • LESSON ROUND-UP, • GLOSSARY, , • TEST YOURSELF, , • LIST OF FURTHER READINGS, • OTHER REFERENCES
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776, , Lesson 18 • EP-CL, , , , Regulatory Framework, The Companies Act, 2013, Section, , Deals with, , Section-173, , Meetings of Board, , Section 118, , Minutes of Proceedings of Meeting of Board of Directors, , Section 174, , S- Quorum for Meetings of Board, , Section 175, , Passing of Resolution by Circulation, , Regulation 71 to 75 Meetings of Committees, of Table F, , The Companies (Meetings of Board & powers) Rules, 2014, , The Companies (Management and Administration) Rules, 2014, , Rule 25, , Minutes of Proceedings of Meeting of Board of Directors and Meeting of, Committees., , SS-1- Secretarial Standard on Meetings of the Board of Directors, The SEBI (LODR) Regulations, 2015, , Regulation 17(2) &, Regulation 17(2A), Regulation 29, , The quorum for every Meeting of the Board of Directors, Prior Intimations
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Lesson 18 • Meetings of Board and its Committees, , 777, , INTRODUCTION, , The meetings play an important role in a corporate democracy. Directors of the Company have to exercise most of, their powers or duties at periodical meetings of the Board or Committee of the Board. Therefore, Companies Act,, 2013 and the rules framed thereunder contained detailed provisions relating to frequency, convening and conduct, of the meeting., , Meetings of the Board are significant in the light of running of the company more efficiently and effectively. Companies, Act, 2013, mandates a company to hold minimal number of meetings of the Board for its proper functioning., Board meetings are crucial for a company’s development as these formal meetings are held to devise policies, drive, the management, strategize and evaluate the expectations of the stakeholders., , What is a Board Meeting?, , “Meeting of Board” means a duly convened, held and conducted meeting of the Board or any Committee, thereof., , Essentials for an effective board meeting are:, •, , meeting has a purpose;, , •, , is chaired effectively;, , •, •, •, •, •, , members of the board have been provided with adequate notice and appropriate materials in advance;, follow proper meeting procedures and respect the time of board members;, , have clear supporting documents such as an agenda with detailed notes, minutes and other reports;, , agenda has separate section wherein progress of ongoing matters is covered from meeting to meeting till that, matter gets closed. Agenda also has section of action taken reports on items of previous meeting;, be documented with minutes., , Does a casual gathering or conversation between members of the Board constitute a Board Meeting?, “A mere coincidental physical presence of all Directors at one place cannot constitute a meeting” –, Guidance Note on SS-1, , Meetings of the Board [Section 173], Section 173 of the Act deals with Meetings of the Board. Further, as per Section 118(10) of the Act, every company, shall observe secretarial standards with respect to General and Board meetings specified by the Institute of Company, Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved, as such by the Central Government. As such, it is important to refer to Secretarial Standard on Board Meetings, (SS-1) along with provisions of the Companies Act, 2013 to ensure proper compliance to the statutory requirements, regarding Board Meetings., Frequency of the Meetings of the Board, , Section 173 of the Act provides that the first board meeting should be held within thirty days of the date of incorporation., Thereafter, there shall be minimum number of four board meetings every year and not more than one hundred and twenty days, shall intervene between two consecutive Board meetings.
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778, , , , Lesson 18 • EP-CL, , The Board of directors of Equity Listed Company shall meet at least four times in a year, with a maximum time, gap of one hundred and twenty days between any two meetings. (Regulation 17(2) of SEBI (LODR) Regulations,, 2015), Further, in this context Secretarial Standard on Board Meetings (SS-1) issued by ICSI clarifies that the company , shall hold at least four Meetings of its Board in each Calendar Year with a maximum interval of one hundred and, twenty days between any two consecutive Meetings., Furthermore, SS-1 states that the company shall hold first meeting of its Board within thirty days of the date of, incorporation. It shall be sufficient if subsequent Meetings are held with a maximum interval of one hundred and, twenty days between any two consecutive Meetings., Illustration:, , If a company is incorporated on 15th June, the first Meeting should be held within thirty days i.e. latest by 14th, July. if the meeting is held say on 10th July, then the next Meeting should be held within 120 days from 10th July., , In case of one person company (OPC), small company, dormant company and private company which is start- up, at, least one Board meeting should be conducted in each half of the calendar year and the gap between two meetings, should not be less than ninety days. However, this provision would not apply to a one person company in which, there is only one director on its Board., Illustration:, , In case a small company holds the first Meeting of the Calendar Year 2020 on 1st June, 2020, it would be sufficient, if it holds one more Meeting on any day before 31st December, 2020, but on or after 30th August 2020. If it holds, the next Meeting on 30th July, 2020, it should hold at least one more Meeting on or after 30th August, 2020, but, before 31st December, 2020., Exemptions:, , In case of Section 8 Company, after MCA exemptions Notification Dated 05.06.2015, the provisions of Section, 173(1) shall apply only to the extent that the Board of Directors, of such companies shall hold at least one meeting, within every six calendar months., Specified IFSC Public Company shall hold the first meeting of the Board of Directors within sixty days of its, incorporation and thereafter hold at least one meeting of the Board of Directors in each half of a calendar year., Provided further that a Specified IFSC private company shall hold the first meeting of the Board of Directors within, sixty days of its incorporation and thereafter hold at least one meeting of the Board of Directors in each half of a, calendar year" (Notification Dated 04.01.2017)., Meetings of the Board – The SEBI (LODR) Regulations, 2015, Regulation 29: The listed entity shall give prior intimation to stock exchange about the meeting of the board of, directors in which any of the following proposals is due to be considered:, (a), , financial results, viz., quarterly, half yearly, or annual, as the case may be;, , (c), , proposal for voluntary delisting by the listed entity from the stock exchange(s);, , (b), (d), , proposal for buyback of securities;, , fund raising by way of further public offer, rights issue, American Depository Receipts/Global Depository, Receipts/Foreign Currency Convertible Bonds, qualified institutions placement, debt issue, preferential issue, or any other method and for determination of issue price.
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Lesson 18 • Meetings of Board and its Committees, , (e), (f), , 779, , declaration/ recommendation of dividend, issue of convertible securities including convertible debentures or, of debentures carrying a right to subscribe to equity shares or the passing over of dividend., the proposal for declaration of bonus securities., , The intimation required above, shall be given at least two working days in advance, excluding the date of the, intimation and date of the meeting:, , Provided that intimation regarding financial results, viz., quarterly, half yearly, or annual, as the case may be, to be, discussed at the meeting of board of directors shall be given at least five days in advance (excluding the date of the, intimation and date of the meeting), and such intimation shall include the date of such meeting of board of directors., The listed entity shall give intimation to the stock exchange(s) at least eleven working days before any of the, following proposal is placed before the board of directors –, (a), , (b), , any alteration in the form or nature of any of its securities that are listed on the stock exchange or in the rights, or privileges of the holders thereof., , any alteration in the date on which, the interest on debentures or bonds, or the redemption amount of, redeemable shares or of debenture., , Meetings of Committees, , If authorised by articles, the directors have power to delegate their authority to a committee unless prohibited, or limits prescribed in the Act. A company may adopt Regulation 71 of Table F to Schedule I which reads as under:, Regulation 71 states:, (1), (2), , The Board may, subject to the provisions of the Act, delegate any of its powers to committees consisting of such, member or a member of its body as it thinks fit;, Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulationsthat may, be imposed on it by the Board., , For transacting business of the company, the committee meetings can be conducted in accordance with Regulations, 72 to 75 of Table F to Schedule I of the Act or other corresponding provisions of the company’s articles. These, regulations read as under:, Regulation 72 provides:, (1), (2), , A committee may elect a chairman of its meetings;, , if no such chairman is elected, or if at any meeting the chairman is not present within five minutes after the time, appointed for holding the meeting, the members present may choose one of their members to be chairman of, the meeting., , Regulation 73 provides:, (1), (2), , A committee may meet and adjourn as it thinks fit;, , Questions arising at any meeting of a committee shall be determined by a majority of votes of the members, present and in case of an equality of votes, the chairman shall have a second or casting vote., , Regulation 74 provides: All acts done by any meeting of the Board or of a committee thereof or by any person, acting as a director, shall, notwithstanding that it may be afterwards discovered that there was some defect in the, appointment of any one or more of such directors or of any person acting as aforesaid, or that they or any of them, were disqualified, be as valid as if every such director or such person had been duly appointed and was qualified to, be a director., Regulation 75 provides: Save as otherwise expressly provided in the Act, a resolution in writing, signed by all the, members of the Board or of a committee thereof, for the time being entitled to receive notice of a meeting of the, Board or Committee, shall be as valid and effective as if it had been passed at a meeting of the Board or Committee,, duly convened and held.
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780, , , , Lesson 18 • EP-CL, , According to SS-1 (Secretarial Standard on Board Meetings) Committees shall meet as often as necessary subject to, the minimum number and frequency prescribed by any law or any authority or as stipulated by the Board., Frequency of Meetings of a Committee, , Committees should meet as often as required and at least as often as stipulated by the Board while constituting the, Committee. Guidelines, Rules and Regulations framed under the Act or by any statutory/regulatory authority may, contain provisions for frequency of Meetings of a Committee and such stipulations should be followed., Preparation of Notices for meetings of Board/Committees of Board, , (1), , The Act (Section 173 (3) requires that not less than seven days’ notice in writing, shall be given to every director at the registered address (whether in India or, outside India) as available with the company and such notice shall be sent by, hand delivery or by post or by electronic means., Provided that a meeting of the Board may be called at shorter notice to transact, urgent business subject to the condition that at least one independent director, if, any, shall be present at the meeting., , (2), , (3), , Provided further that in case of absence of independent directors from such a, meeting of the Board, decisions taken at such a meeting shall be circulated to, all the directors and shall be final only on ratification thereof by at least one, independent director, if any., , SS-1 provides exhaustive guide for the meetings of Board/committees., Accordingly, it provides that Notice convening a Meeting shall be given at least, seven days before the date of the Meeting, unless the Articles prescribe a longer, period. Notice of an adjourned Meeting shall be given to all Directors including those who did not attend the, Meeting on the originally convened date and unless the date of adjourned Meeting is decided at the Meeting,, Notice thereof shall also be given not less than seven days before the Meeting., Notice in writing of every Meeting shall be given to every Director by hand or by speed post or by registered, post or by facsimile or by e-mail or by any other electronic means. It will not be given by ordinary post., , Notice cannot be given by ordinary post since proof of delivery or acknowledgement is not available. Notice should, also be given to Directors who have gone abroad or who usually reside abroad and who do not have an address in, India., (4), (5), (6), (7), (8), (9), , The notice shall contain contact number or e-mail address(es) of the chairman or the company secretary, or any other person authorised by the Board, to whom the Director shall confirm in this regard. In case the, company sends the Notice by speed post or by registered post, an additional two days shall be added for the, service of Notice., , The Notice shall be sent to the postal address or e-mail address, registered by the Director with the company, or in the absence of such details or any change thereto, any of such addresses appearing in the Director, Identification Number (DIN) registration of the Director. Where a Director specifies a particular means of, delivery of Notice, the Notice shall be given to him by such means., Proof of sending Notice and its delivery shall be maintained by the company for such period as decided by the, Board, which shall not be less than three years from the date of the Meeting., , Notice shall be issued by the Company Secretary or where there is no Company Secretary, any Directoror any, other person authorised by the Board for the purpose., The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting., , The Notice shall inform the Directors about the option available to them to participate through Electronic, Mode and provide them all the necessary information.
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Lesson 18 • Meetings of Board and its Committees, , 781, , (10) The Notice of a Meeting shall be given even if Meetings are held on pre-determined dates or at pre- determined, intervals., If notice of meeting is not given to one of its directors, meeting of board of directors is invalid and resolution passed, at such meeting are inoperative. Parmeshwari Prasad Gupta v Union of India [1974] 44 Comp Cas 1 (SC), , Board meeting to transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period, of time than stated above, subject to following conditions:, (a), , (b), , If the company is required to have independent director:, •, , Presence of at least one Independent director is required., , •, , In case of absence of independent director, decision taken at such meeting shall be circulated to all the, directors, and shall be final only on ratification thereof by at least one Independent director., , If the company does not require appointing independent director, meeting can be called up at a shorter notice, without any conditions to be complied with., , As per SS-1, in case the company does not have an Independent Director, the decisions shall be final only on, ratification thereof by a majority of the Directors of the company, unless such decisions were approved at the, Meeting itself by a majority of Directors of the company. The fact that the meeting is being held at a shorter notice, shall be stated in the notice., Illustration:, 1), , If the Meeting is proposed to be held on 14th November, the last date for giving the Notice would be 7th, November., , 3), , In case any of the Director does not have an e-mail id and therefore the Notice is being sent to him solely, by post, Notice should be sent to all Directors latest by 5th November., , 2), , In case Notice is being sent by facsimile or by e-mail or by any other electronic means to the Directors,, Notice should be sent latest by 7th November., , Case Law:, , Sanjiv Kothari v Vasant Kumar Chordia (2005) 66 CLA 45 (CLB), Notice of meeting sent to a Director contrary to the mode specified by him cannot be a conclusive proof of, service of notice., Sample Notice of the Board/Committee Meeting, Notice of the _____ (insert sequence number of the meeting) Board Meeting, To,, , Mr./ Ms. (Director Name), , ……………………………..(Address), Dear Sir/Madam,, , Notice is hereby given that ............. (insert sequence number of the meeting) meeting of the members of the Board of, Directors / (Name of the Committee) of the Board of Directors of the Company will be held on ….. (day of the week),, the …..(Date) day of ……..(Month), …….. (year) at ......... (time) at ………. (address of the venue of the meeting).
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782, , , , Lesson 18 • EP-CL, , The Agenda of the Business to be transacted at the meeting, along with detailed notes thereon and requisite, annexures is enclosed herewith. You are requested to make it convenient to attend the meeting., Directors may attend the meeting in person or through Video Conferencing / Other Audio Video Means (VC/OAVM)., A Director desirous of attending the meeting through VC/ OAVM should inform well in time so as to make suitable, arrangements accordingly., For …………………...(Name of the Company) , , Place:, , Sd/- , , Date:, , (Name), , (Designation), , Agenda of Board/Committees Meetings, , As per SS-1, the Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda shallbe given, to the Directors at least seven days before the date of the Meeting, unless the Articles prescribe a longer period., What is an Agenda?, , The list of items of business to be transacted at a Meeting is known as the “Agenda”. The Agenda draws attention, to the relevant matters where deliberation is required. The Notes on Agenda explain each item of the Agenda in an, endeavour to provide an understanding of points for discussion by the Board., The Agenda should be accompanied or followed by Notes thereon explaining the proposal in brief, in easily, understandable language and setting out the points for decision of the Board., Agenda and Notes on Agenda shall be sent to all Directors by hand or by speed post or by registered post or by e-mail, or by any other electronic means. These shall be sent to the postal address or e-mail address or any other electronic, address registered by the Director with the company or in the absence of such details or any change thereto, to any, of such addresses appearing in the Director Identification Number (DIN) registration of the Directors., In case the company sends the Agenda and Notes on Agenda by speed post or by registered post, an additional two, days shall be added for the service of Agenda and Notes on Agenda., , Where a Director specifies a particular means of delivery of Agenda and Notes on Agenda, these papers shall be, sent to him by such means. However, in case of a Meeting conducted at a shorter Notice, the company may choose, an expedient mode of sending Agenda and Notes on Agenda., Proof of sending Agenda and Notes on Agenda and their delivery shall be maintained by the company for such, period as decided by the Board, which shall not be less than three years from the date of the Meeting., The Notice, Agenda and Notes on Agenda shall be sent to the Original Director also at the address registered with, the company, even if these have been sent to the Alternate Director. However, the mode of sending Notice, Agenda, and Notes on Agenda to the original director shall be decided by the company., , Notes on items of business which are in the nature of Unpublished Price Sensitive Information may be given at a, shorter period of time than stated above, with the consent of a majority of the Directors, which shall include at least, one Independent Director, if any., , Where the company has Independent Director(s) and, if none of the Independent Directors consents to the giving, of Notes on items of Agenda which are in the nature of Unpublished Price Sensitive Information (UPSI) at a shorter, Notice, the said Notes should not be given at shorter Notice-Guidance Note on SS-1., , For this purpose, “Unpublished Price Sensitive Information” means any information, relating to a company or its, securities, directly or indirectly, that is not generally available, which upon becoming generally available, is likely to, materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating
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Lesson 18 • Meetings of Board and its Committees, , 783, , to the following: –, (i), , (ii), , financial results;, dividends;, , (iii) change in capital structure;, , (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other, transactions;, (v), , changes in key managerial personnel, , General consent for giving Notes on items of Agenda which are in the nature of Unpublished Price Sensitive, Information at a shorter Notice may be taken in the first Meeting of the Board held in each financial year and, also whenever there is any change in Directors. Where general consent as above has not been taken, the requisite, consent shall be taken before the concerned items are taken up for consideration at the Meeting. The fact of consent, having been taken shall be recorded in the Minutes., Consent to circulate Agenda items which are in the nature of UPSI at a shorter Notice from the new Directors, appointed during a financial year may be obtained on an individual basis-Guidance Note on SS-1., Illustration, , 1) Assume there are 9 Directors and 5 have given their general consent at the beginning of the financial year to, give Notes on items of Agenda which are in the nature of UPSI at shorter Notice. If 1 new Director is appointed,, consent from the new Director to circulate Agenda items which are in the nature of UPSI at a shorter Notice may, be obtained individually. If this Director gives his consent, no fresh consent from the Board would be needed. In, case, this Director dissents or does not give his consent, fresh consent should be taken from the Board., , 2) Assume there are 9 Directors and 5 have given their general consent at the beginning of the financial year to, give Notes on items of Agenda which are in the nature of UPSI at shorter Notice. If, out of these 5 who consented,, 2 resign, it means that out of the remaining 7 Directors only 3 have given their consent. In such case, fresh, consent is required., , Supplementary Notes on any of the Agenda items may be circulated at or prior to the Meeting but shall be taken, up with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting,, which shall include at least one Independent Director, if any., , Each item of business requiring approval at the Meeting shall be supported by a note setting out the details of the, proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of, the proposal and the nature of concern or interest, if any, of any Director in the proposal, which the Director had, earlier disclosed., Each item of business to be taken up at the Meeting shall be serially numbered., , Any item not included in the Agenda may be taken up for consideration with the permission of the Chairman and, with the consent of a majority of the Directors present in the Meeting., Office copies of Notices, Agenda, Notes on Agenda and other related papers shall be preserved in good order in, physical or in electronic form for as long as they remain current or for eight financial years, whichever is later and, may be destroyed thereafter with the approval of the Board., , Office copies of Notices, Agenda, Notes on Agenda and other related papers of the transferor company, as handed, over to the transferee company, shall be preserved in good order in physical or electronic form for as long as they, remain current or for eight financial years, whichever is later and may be destroyed thereafter with the approval of, the Board and permission of the Central Government, where applicable.
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784, , Lesson 18 • EP-CL, , , , Sample Important Agenda Items for Board Meeting, Agenda Items of Board Meeting, Item No., , Particulars, , Frequency, , 1., , To grant leave of absence, if any., , Every meeting, , 3., , To take note of minutes of last Board/ Every meeting, Committee Meeting held in a financial year., , 2., 4., , Appointment of Chairperson of the Meeting., , Every meeting, , To take note of Disclosure of Interest by Disclosure to be given at first meeting :, Directors pursuant to section 184(1)., (i) after appointment in which an individual, participates as a director;, (i) in every Financial Year;, , (iii) whenever there is any change in the disclosures, already made, then at the first Board meeting, held after such change., , 5., , To take note of entries made in register of Every meeting. In case of no entry, mention that., contracts pursuant to section 189., , 7., , Matters arising out of previous minutes, , 6., , To take note of Declaration given by Independent, Director to meets the criteria of Independence, under section149(7) of the Companies Act,, 2013., , 8., , Report on investments, borrowings, corporate, guarantees, sale of assets, sources & application, of funds etc., , 9., , •, , 10., 11., 12., , •, •, , Disclosure to be given at first meeting :, a. After appointment as Independent Director;, b. In every financial year; or, c. After change in circumstances., , All matters that are continuing or require update in, next meeting should be clubbed in this agenda and, updates given in every notes on agenda till further, reporting is not required., -, , To consider and approve policy (Name of the On adoption of new policy, Policy)., Alternative agenda when any policy needs, some change due to many factors., Whenever any amendment becomes necessary, To consider amendment in the policy, (Name of the Policy)., , To take note of statement containing investor on quarterly basis, placed before the board of, complaints under regulation 13(3) of the SEBI directors of the listed entity., (LODR) Regulations, 2015., To take note of Compliance Report on corporate Review periodically, governance under regulation 27(2) of SEBI, (LODR) Regulations, 2015., Appointment of Secretarial Auditor of the Concerned meeting, Company for the financial year ...................... (if, applicable)
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785, , Lesson 18 • Meetings of Board and its Committees, , 13., , Appointment of Internal Auditor of the Company Concerned meeting, for the financial year (if applicable), , 15., , To Take note of Statutory Auditors Report on Concerned meeting, the Financial Statements of the Company for the, year ended 31st March ............, , 14., , 16., 17., 18., , To Approve & consider Audited Financial Concerned meeting, Statements for the year ended ......................, Related Party Transactions, Progress Report, , Omnibus approvals, related party transactions, report, on related party transactions during the quarter, , In case of any ongoing projects, a detailed progress, report., , Any other item(s) with the permission of Chair. -, , Convening a Meeting, , Any Director of a company may, at any time, summon a Meeting of the Board, and the Company Secretary or where, there is no Company Secretary, any person authorised by the Board in this behalf, on the requisition of a Director,, shall convene a Meeting of the Board, in consultation with the Chairman or in his absence, the Managing Director or, in his absence, the Whole-time Director, where there is any, unless otherwise provided in the Articles., Directors may participate in the meeting either in person or through video conferencing or other audio, visual means as prescribed, which are capable of recording and recognising the participation of the, directors and of the recording and storing the proceedings of such meetings along with date and time., (Details are given in lesson 20 of this study material, i.e., Virtual Meetings)., Penalty, , Every officer of the company who is duty bound to give notice under Section 173 of the Companies Act, 2013 and who, fails to do so shall be liable to a penalty of twenty five thousand rupees., Case Law:, , Belfin Spa (A Company incorporated Under the laws of Italy) & Ors. (Appellants) v. Cima Shyam Springs Private, Limited & Ors. (Respondents) (dated: 10th June, 2019), NCLAT held that decisions taken in the Board Meetings, EOGMs and AGM discussed in this Judgment regarding, which there was no Notice or short notice to the Appellants, are not binding on the Appellants., , Quorum for Board Meetings : Section 174, , “Quorum” means the minimum number of Directors whose, presence is necessary for holding of a Meeting., One third of total strength or two directors, whichever is higher,, shall be the quorum for a Board meeting. For the purpose of, determining the quorum, the participation by a director through, Video Conferencing or other audio visual means shall also be, counted, unless he is to be excluded for any item of business under, any provisions of the Act or the rules - Section 174(1).
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786, , , , Lesson 18 • EP-CL, , Section 174 is not applicable to One Person Company in which there is only one director., If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board, of directors, the number of directors who are not interested and present at the meeting, being not less than two, shall be the quorum during such time., , Illustration:, , For instance, if there are 12 directors and 10 of them are interested, remaining 2 directors would not, have normally constituted quorum since four directors is the requisite quorum, but, in such event,, remaining 2 disinterested directors would constitute quorum., , Companies Act lays down only minimum number of directors to form a quorum, company by its articles can provide, for a higher number of quorum - Amrit Kaur Puri v Kapurthala Flour, Oil & General Mills Co (P) Ltd. [1984] 56 Comp, Cas 194 (P & H), Where due to removal or resignation or for some other reason, the number of directors is reduced below the, quorum, then the continuing directors may act for the purpose of increasing the number of directors to that fixed for, the quorum, or of summoning a general meeting of the company and for no other purpose., The meeting shall be adjourned due to want of quorum, unless the articles of the company otherwise provide, the, meeting shall be held on the same day at the same time and place in the next week or if that day is a National Holiday, on, the next succeeding day, which is not a national holiday, at the same time and place., , If the Board meeting is adjourned for want of quorum and at the adjourned Board meeting also no quorum, is present, meeting stands cancelled. Adjourned Board meetings are continuation of the original board meeting., Hence, maximum permissible interval period of 120 days shall be counted from the date of original meeting., According to SS-1, the Chairman may, unless dissented to or objected by the majority of Directors present at a Meeting, at which a Quorum is present, adjourn the Meeting for any reason, at any stage of the Meeting., , Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business., A Director shall neither be reckoned for Quorum nor shall be entitled to participate in respect of an item of business, in which he is interested. However, in case of a private company, a Director shall be entitled to participate in respect, of such item after disclosure of his interest., Additionally, for listed entities the quorum for every meeting of the board of directors of the top 1000 listed entities, with effect from April 1, 2019 and of the top 2000 listed entities with effect from April 1, 2020 shall be one-third of, its total strength or three directors, whichever is higher, including at least one independent director. The participation, of the directors by video conferencing or by other audio-visual means shall also be counted for the purposes of such, quorum., The top 1000 and 2000 entities shall be determined on the basis of market capitalisation, as at the end of the, immediate previous financial year., Exemptions:, , In case of section 8 company, either eight members or twenty-five per cent, of its total strength whichever is less”, shall form a quorum. However, the quorum shall not be less than two members., , In case of Specified IFSC Public Company and Specified IFSC Private Company - Sub-section (3) of section 174 shall, apply with the exception that interested director may participate in such meeting provided the disclosure of his, interest is made by the concerned director either prior or at the meeting. - Notification Dated 4th January, 2017., , In case of Private Company - Sub-Section (3) of Section 174 shall apply with the exception that the interested, director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section, 184.” - Notification Dated 13th June, 2017.
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Lesson 18 • Meetings of Board and its Committees, , 787, , Quorum for Board meeting, Requirement:, •, , Quorum for Board Meeting = 1/3rd of its Total strength or two directors, whichever is higher;, , •, , Any fraction of a member will be rounded off as one;, , •, •, , A Director participating through video conferencing/audio visual modes will also be counted for quorum;, Total strength shall not include directors whose places are vacant., , Illustrations:, , A Meeting is convened on 8th August at 4:00 p.m. at the Registered Office of the company. On that day, the, required Quorum is not present. In the absence of any provisions to the contrary in the Articles, the Meeting is, automatically adjourned to the same day in the next week, i.e. 15th August, at the same time and place. However,, since 15th August is a National Holiday, the adjourned Meeting should be held on 16th August., , Meetings of Committees, , SS-1 lists hierarchy of stipulations for the quorum of a Committee constituted by the Board that are as following: —, a., , First in hierarchy is the quorum that has been stipulated in the Act, or mentioned in the Articles or is stipulated, under any other law;, , c., , If the board has also not specified the quorum for the committee, presence of all the members of the committee, shall be necessary to form the quorum., , b., , If no such stipulation exists, the quorum shall be as specified by the board;, , Attendance Registers, , Attendance register is a formal evidence of the presence of the persons signing such, register. Maintenance of attendance register is a good secretarial practice which helps in, keeping proper record of the attendance in the Meeting, enables cross-verification and, also protects the interest of individual Directors and the invitees. It contains the signatures, of the Directors who are present and other invitees also. The attendance register is also, contemplated under the Model Articles which state that “Every Director present at any, Meeting of the Board or of a Committee shall sign his name in a book to be kept for that, purpose [Regulation 65 of Table F of Schedule I to the Act]., , SS-1 provides that every company shall maintain separate attendance registers for the meetings of the Board, and meetings of the committee. The pages of the respective attendance registers shall be serially numbered. If, an attendance register is maintained in loose leaf form, it shall be bound periodically, at least once in every three, years. The attendance register shall be maintained at the Registered Office of the company or such other place as, may be approved by the Board. The attendance register may be taken to any place where a Meeting of the Board, or Committee is held. The attendance register is open for inspection by the Directors. Even after a person ceases, to be a Director, he shall be entitled to inspect the attendance register of the Meetings held during the period of his, Directorship., The attendance register shall contain the following particulars: serial number and date of the Meeting; in case of, a Committee Meeting name of the Committee; place of the Meeting; time of the Meeting; names and signatures of, the Directors, the Company Secretary and also of persons attending the Meeting by invitation and their mode of, presence, if participating through Electronic Mode., , The attendance register shall be deemed to have been signed by the Directors participating through Electronic, Mode, if their attendance is recorded in the attendance register and authenticated by the Company Secretary, or where there is no Company Secretary, by the Chairman or by any other Director present at the Meeting, if so, authorised by the Chairman and the fact of such participation is also recorded in the Minutes.
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788, , , , Lesson 18 • EP-CL, , The attendance register shall be preserved for a period of at least eight financial years from the date of last entry, made therein and may be destroyed thereafter with the approval of the Board. It shall be in the custody of the, Company Secretary., The period of eight financial years should be counted from the end of the financial year to which the last entry in, the register pertains to., In case of equity listed companies, such records should be preserved as per the policy approved by the Board, for preservation of documents., , The attendance register shall be kept in the custody of the Company Secretary., , Illustration:, In case the attendance register contains the attendance record of a Meeting held on 5th May, 2010 as the first, entry and 18th March, 2015 as the last entry, the attendance register should be preserved at least up to 31st, March, 2023 i.e. for eight financial years from 31st March, 2015 since the last entry therein is 18th March, 2015., , Leave of Absence, , Leave of absence shall be granted to a Director only when a request for such leave has been communicated to, the Company Secretary or to the Chairman or to any other person authorised by the Board to issue Notice of the, Meeting., The office of a director shall become vacant in case the director absents himself from all the meetings of the Board, held during a period of twelve months with or without seeking leave of absence of the Board., , Illustration:, , Suppose, the Board Meetings of a company were held on 28th March, 2020, 25th June, 2020, 20th September,, 2020, 30th December, 2020 and 27th March, 2021. Director X attended the Meeting on 28th March, 2020 and, did not attend any Meetings thereafter., , In such a case, the count for Meetings of the Board held during a period of twelve months for the purpose of, reckoning his vacation of office should commence from 25th June, 2020. Thus, if he does not attend any of the, Meetings held upto end June 2021, he should vacate the office., , Chairman of the meeting of the Board/Committee, , “Chairman” means the Chairman of the Board or its Committee, as the case may be, or the Chairman appointed or, elected for a Meeting., The Chairman of the Company shall be the chairman of the Board. If the company does not have a Chairman, the, Directors may elect one of themselves to be the chairman of the Board., Appointment of Chairman, , For a Meeting to be properly constituted, the Chairman of the Board or a validly elected person should be in the, chair. The Act does not provide for appointment of a Chairman of the Meeting but the Model Articles provide that, the Board may elect a Chairman of its Meetings and determine the period for which he is to hold office [Regulation, 70 (i) of Table F of Schedule I to the Act]., , While appointing such person, the Board may stipulate a time period for the person to continue as Chairman of, the Board. At the end of such period, the Board may either re-appoint the person or appoint any other Director as, Chairman of the Board., , In case of committee meeting, a member of the committee appointed by the Board or elected by the Committee as, chairman of the Committee, in accordance with the Act or any other law or the Articles, shall conduct the meetings
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Lesson 18 • Meetings of Board and its Committees, , 789, , of the committee. If no Chairman has been so elected or if the elected chairman is unable to attend the meeting,, the Committee shall elect one of its members present to chair and conduct the meeting of the committee, unless, otherwise provided in the articles., , The Chairman of the Board shall conduct the Meetings of the Board. If no such Chairman is elected or if the, Chairman is unable to attend the Meeting, the Directors present at the Meeting shall elect one of themselves to chair, and conduct the Meeting, unless otherwise provided in the Articles., , Passing of Resolution by Circulation: Section 175, , A company may pass the resolutions through circulation. No resolution shall be deemed to have been duly passed, by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft form, together with the necessary papers to all the directors or members of committee at their address registered with, the company in India by hand delivery or by speed post or by courier or through electronic means which may, include e-mail or fax., The said resolution must be passed by majority of directors or members entitled to vote. Where not less than, one-third of the total number of directors of the company for the time being require that any resolution under, circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the, Board., The resolution passed through circulation be noted at a subsequent meeting and made part of the minutes of such, meeting., Matters covered by section 179(3) and rule 8 of the Companies (Meetings of Board and its powers) Rules, 2014 are, required to be passed at a meeting of Board and cannot be passed by circulation., , Further SS-1, requires that each item of business proposed to be passed by way of resolution by circulation shall, be explained by a note setting out details of the proposal, relevant material facts that enable the directors to, understand the meaning, scope and implications of the proposal, the nature of concern of interest, if any, of any, director in the proposal, which the director had earlier disclosed and the draft of the resolution proposed. The note, shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which, the Director shall respond., Each resolution shall be separately explained. The decision of the directors shall be sought for each resolution, separately., A single note containing more than one Resolution may be circulated but the note should enable the signifying of the, decision by a Director on each Resolution separately., , Not more than seven days from the date of circulation of the draft of the resolution shall be given to the directors to, respond and the last date shall be computed accordingly. An additional two days shall be added for the service of the, draft Resolution, in case the same has been sent by the company by speed post or by registered post or by courier., Passing of resolution by circulation shall be considered valid as if it had been passed at a duly convened meeting of, the Board. This shall not dispense with the requirement for the Board to meet at the specified frequency., , The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless, not less than one-third of the total number of Directors for the time being require the Resolution under circulation, to be decided at a Meeting., The Resolution, if passed, shall be deemed to have been passed on the earlier of:, (a), , (b), , the last date specified for signifying assent or dissent by the Directors, or, , the date on which assent has been received from the required majority, provided that on that date the number, of Directors, who have not yet responded on the resolution under circulation, along with the Directors who, have expressed their desire that the resolution under circulation be decided at a Meeting of the Board, shall, not be one third or more of the total number of Directors; and shall be effective from that date, if no other, effective date is specified in such Resolution.
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790, , , , Lesson 18 • EP-CL, , In case the Director does not respond on or before the last date specified for signifying assent or dissent, it shall, be presumed that the Director has abstained from voting. Resolutions passed by circulation shall be noted at a, subsequent Meeting of the Board and the text thereof with dissent or abstention, if any, shall be recorded in the, Minutes of such Meeting., Below the resolution near the place of signatures, the directors may be advised to tick one of four options, i.e. (1), approved (2) Not approved (3) Abstain (4) Should be decided at the meeting., , Minutes, , “Minutes” means a formal written record, in physical or electronic form, of the proceedings of a Meeting., They are the official recording of the proceedings of the Meeting and the business transacted – evidence before, Court., Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every meeting of, Board of Directors or of every committee of the Board within thirty days of the conclusion of every such meeting, concerned in books kept for that purpose with their pages consecutively numbered., In case of meeting of Board of Directors or of a committee of Board, the minutes shall contain:, (a), (a), , Name of the directors present at the meeting; and, , In the case of each resolution passed at the meeting, the names of dissenting director or a director who has not, concurred the resolution., , The Chairman shall exercise his absolute discretion in respect of inclusion or non-inclusion of the matters which, is regarded as defamatory of any person, irrelevant or immaterial to the proceedings; or detrimental to company’s, interest in the minutes. Minutes kept shall be evidence of the proceedings recorded in a meeting., SS-1 contain detailed procedure regarding recording, contents, finalization, entry and signing of minutes which, should be ensured., Every company shall keep Minutes of all Board and Committee Meetings in a Minutes Book. Minutes kept in, accordance with the provisions of the Act evidence the proceedings recorded therein. Minutes help in understanding, the deliberations and decisions taken at the Meeting., , Maintenance of Minutes, •, Minutes shall be recorded in books maintained for that purpose. A distinct Minutes Book shall be maintained, for Meetings of the Board and each of its Committees. Company may maintain its Minutes in physical or in, electronic form. The pages of the Minutes Books shall be consecutively numbered., •, , Minutes may be maintained in electronic form in such manner as prescribed under the Act and as may be, decided by the Board. Minutes in electronic form shall be maintained with Timestamp., , •, , Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner. Minutes Books,, if maintained in loose-leaf form, shall be bound periodically depending on the size and volume and coinciding, with one or more financial years of the company., , •, , “Timestamp” means the current time of an event that is recorded by a Secured Computer System and is used to, describe the time that is printed to a file or other location to help keep track of when data is added, removed, sent, or received., , Minutes Books shall be kept at the Registered Office of the company or at such other place as may be approved, by the Board., , Contents of Minutes, General Contents, a), Minutes shall state, at the beginning the serial number and type of the Meeting, name of the company,
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Lesson 18 • Meetings of Board and its Committees, , b), c), a), , 791, , day, date, venue and time of commencement of the Meeting;, , Minutes shall record the names of the Directors present physically or through Electronic Mode, the, Company Secretary who is in attendance at the Meeting and Invitees, if any, including Invitees for, specific items;, Minutes shall contain a record of all appointments made at the Meeting., , Specific Contents, Minutes shall inter-alia contain:, , b), c), , d), e), f), , g), , h), i), j), , k), l), , m), n), o), , p), , The name(s) of Directors present and their mode of attendance, if through Electronic Mode;, , In case of a Director participating through Electronic Mode, his particulars, the location from where he, participated and wherever required, his consent to sign the statutory registers placed at the Meeting;, , The name of Company Secretary who is in attendance and Invitees, if any, for specific items and mode, of their attendance if through Electronic Mode;, Record of election, if any, of the Chairman of the Meeting;, Record of presence of Quorum;, , The names of Directors who sought and were granted leave of absence;, Noting of the Minutes of the preceding Meeting;, , Noting the Minutes of the Meetings of the Committees formed by the Board;, , The text of the Resolution(s) passed by circulation since the last Meeting, including dissent or, abstention, if any;, The fact that an Interested Director did not participate in the discussions and did not vote on item of, business in which he was interested and in case of a related party transaction such director was not, present in the meeting during discussions and voting on such item;, , The views of the Directors particularly the Independent Director, if specifically insisted upon by such, Directors, provided these, in the opinion of the Chairman, are not defamatory of any person, not, irrelevant or immaterial to the proceedings or not detrimental to the interests of the company;, If any Director has participated only for a part of the Meeting, the Agenda items in which he did not, participate;, , The fact of the dissent and the name of the Director who dissented from the Resolution or abstained, from voting thereon;, , Ratification by Independent Director or majority of Directors, as the case may be, in case of, Meetings held at a shorter Notice;, Consideration of any item other than those included in the Agenda with the consent of majority of, the Directors present at the Meeting and ratification of the decision taken in respect of such item by a, majority of Directors of the company;, The time of commencement and conclusion of the Meeting., , In respect of meeting adjourned for want of quorum, a statement to that effect by the chairperson or in his absence,, by any other director present at the meeting shall be recorded in the minutes., Apart from the Resolution or the decision, Minutes shall mention the brief background of all proposals and, summarise the deliberations thereof. In case of major decisions, the rationale thereof shall also bementioned., Recording of Minutes, •, Minutes shall contain a fair and correct summary of the proceedings of the Meeting., •, , Minutes shall be written in clear, concise and plain language.
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792, , •, •, , , , Lesson 18 • EP-CL, , Wherever the decision of the Board is based on any unsigned documents including reports or notes or, presentations tabled or presented at the Meeting, which were not part of the Notes on Agenda and are, referred to in the Minutes, shall be identified by initialling of such documents by the Company Secretary or, the Chairman., Where any earlier Resolution(s) or decision is superseded or modified, Minutes shall contain a specific, reference to such earlier Resolution(s) or decision or state that the Resolution is in supersession of allearlier, Resolutions passed in that regard., , •, , Minutes of the preceding Meeting shall be noted at a Meeting of the Board held immediately following the date, of entry of such Minutes in the Minutes Book., , •, , The Directors, whether present at the Meeting or not, shall communicate their comments, if any, in writing on, the draft Minutes within seven days from the date of circulation thereof, so that the Minutes are finalised and, entered in the Minutes Book within the specified time limit of thirty days., , Finalization of Minutes, •, Within fifteen days from the date of the conclusion of the Meeting of the Board or the Committee, the draft, Minutes thereof shall be circulated by hand or by speed post or by registered post or by courier or by e-mail, or by any other recognised electronic means to all the members of the Board or the Committee, as on the date, of the Meeting, for their comments., , •, •, •, •, •, , If any Director communicates his comments after the expiry of the said period of seven days, the Chairman, if, so authorised by the Board, shall have the discretion to consider such comments., , In the event a Director does not comment on the draft Minutes, the draft Minutes shall be deemed to have, been approved by such Director. A Director, who ceases to be a Director after a Meeting of the Board is entitled, to receive the draft Minutes of that particular Meeting and to offer comments thereon, irrespective of whether, he attended such Meeting or not., Minutes shall be entered in the Minutes Book within thirty days from the date of conclusion of the Meeting., The date of entry of the Minutes in the Minutes Book shall be recorded by the Company Secretary., , Minutes, once entered in the Minutes Book, shall not be altered. Any alteration in the Minutes as entered shall be, made only by way of express approval of the Board at its subsequent Meeting, at which the Minutes are noted, by the Board and the fact of such alteration shall be recorded in the Minutes of such subsequent Meeting., , Signing and Dating of Minutes, •, Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the Meeting or by the, Chairman of the next Meeting. Minutes, once signed by the Chairman, shall not be altered., •, , Minutes of the previous Meeting may be signed either by the Chairman of such Meeting at any time before the, next Meeting is held or by the Chairman of the next Meeting at the next Meeting., , •, , If the Minutes are maintained in electronic form, the Chairman shall sign the Minutes digitally., , •, •, •, , The Chairman shall initial each page of the Minutes, sign the last page and append to such signature the date, on which and the place where he has signed the Minutes., , Within fifteen days of signing of the Minutes, a copy of the said signed Minutes, certified by the Company, Secretary or where there is no Company Secretary, by any Director authorised by the Board, shall be circulated, to all the Directors, as on the date of the Meeting and appointed thereafter, except to those Directors who have, waived their right to receive the same either in writing or such waiver is recorded in the Minutes., , Proof of sending signed Minutes and its delivery shall be maintained by the company for such period as, decided by the Board, which shall not be less than three years from the date of the Meeting., , Inspection and Extracts of Minutes, •, The Minutes of Meetings of the Board and any Committee thereof can be inspected by the Directors. Extracts, of the Minutes shall be given only after the Minutes have been duly entered in the Minutes Book. However,
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Lesson 18 • Meetings of Board and its Committees, , •, •, •, •, , 793, , certified copies of any Resolution passed at a Meeting may be issued even earlier, if the text of that Resolution, had been placed at the Meeting., , A Director is entitled to inspect and receive, a copy of the Minutes of a Meeting held before the period of, his Directorship. A Director is entitled to inspect and receive a copy of the signed Minutes of a Meeting held, during the period of his Directorship, even if he ceases to be a Director., , The Company Secretary in Practice appointed by the company, the Secretarial Auditor, the Statutory Auditor,, the Cost Auditor or the Internal Auditor of the company can inspect the Minutes as he may consider necessary, for the performance of his duties., While providing inspection of Minutes Book, the Company Secretary or the official of the company authorised, by the Company Secretary to facilitate inspection shall take all precautions to ensure that the Minutes Book is, not mutilated or in any way tampered with by the person inspecting., A Member of the company is not entitled to inspect the Minutes of Meetings of the Board., , Preservation of Minutes, •, The minutes books of the Board and committee meetings shall be preserved permanently and kept in the, custody of the company secretary of the company or any director duly authorized by the Board., •, , Where, under a scheme of arrangement, a company has been merged or amalgamated with another company,, Minutes of all Meetings of the transferor company, as handed over to the transferee company, shall be, preserved permanently by the transferee company, notwithstanding that the transferor company might have, been dissolved., , Penalty, •, •, , If any default is made in complying with the provisions of Section 118 of the Companies Act, 2013 in respect, of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of, the company who is in default shall be liable to a penalty of five thousand rupees., If a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable, with imprisonment for a term which may extend to two years and with fine which shall not be less than, twenty-five thousand rupees but which may extend to one lakh rupees., , Further details regarding minutes of Board meeting is given in Lesson 11 Register & Records & Lesson 22 Secretarial, Standards Board., , Sample Minutes of the Board Meeting, Minutes of the ................ Meeting of the Board of Directors of ........................ (Company Name) held on ................, (Day), ................ (Date, Month and Year), at ................ (Venue) from ................ (Time of Commencement), PRESENT, A.B., C.D., E.F. , I.J. , K.L., IN ATTENDANCE, X, INVITEES, , Chairman, Directors, Directors, Directors, Managing Director, Secretary, , Y Chief Financial Officer
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794, , Lesson 18 • EP-CL, , , , 1. Chairman for the Meeting, Mr/Ms…………….was elected as the Chairman for the Meeting., 2. Leave of absence, , Leave of absence from attending the Meeting was granted to Mr. M.N. and Mr. O.P. who expressed their inability to, attend the Meeting owing to their preoccupation., 3. Quorum, , The business before the Meeting was taken up after having established that the requisite quorum was present., 4. Minutes of the previous Board Meeting, , The Minutes of the …………. Meeting of the Board of Directors of the company held on ……………….., as circulated,, were noted by the Board and signed by the Chairman., 5. Minutes of the Committee Meetings, , The Minutes of the …………. Meeting of the …………… Committee held on ……………….., as circulated, were noted by, the Board., 6. Resolution passed by circulation since the last Meeting., , The following Resolution was passed by circulation on ………….. (date of passing of the Resolution) in terms of the, provisions of Section 175 of the Companies Act, 2013., “RESOLVED THAT………………………………………………………………………………………………………………………………. ...................., ............................................................................................................................................” Mr. ……………………, Director dissented on the, Resolution., 7. Action Taken Report, The following action taken was noted by the Board:, Item No., , Item, , ———, , ———, , Action Taken, ———, , 8. Register of Contracts, , The Register of Contracts in which Directors are interested under Section 189 of the Companies Act, 2013 and the, Rules thereunder was signed by all the Directors present., 9., , Notices of Disclosure of Interest of Directors, , (a), , The following Notices received from the Directors of the company, notifying their interest in other bodies, corporate pursuant to the provisions of Section 184 of the Companies Act, 2013, were read and recorded:, , Name of the Director, , Nature of Interest, , Date of Notice, , (b) A Notice dated ....................... received from Mr. I.J. pursuant to the provisions of Section 170 of the Companies Act,, 2013, disclosing his shareholding and the shareholding of Mrs. I.J. in the company was read and recorded., 10. Share Transfers, , Reference was made to Mr. …………….’s note dated ……….. on the subject, as circulated., The Share Transfer Register of the company was also placed before the Meeting., The Board, after discussion, passed the following Resolution:, , “RESOLVED THAT Share Transfers Nos ....... to ....... (both inclusive) consisting of ................ Equity shares of the company,, be approved and the names of the transferees be entered in the Register of Members., RESOLVED FURTHER THAT Mr. X, Secretary, be and is hereby authorised to take necessary action with regard to the, aforesaid transfer of shares approved by the Board.”
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795, , Lesson 18 • Meetings of Board and its Committees, , 11. Interim Dividend, , Reference was made to Mr. …………….’s note dated ……….. on the subject, as circulated., , The payment of Interim Dividend for the year ending ........................... was considered on the basis of the unaudited, Financial Statements of the company for the period from ……….. to …………….., as annexed to the note under reference., The Directors opined that there were adequate profits to permit payment of Interim Dividend., The Board, after discussion, passed the following Resolution:, , “RESOLVED THAT an Interim Dividend of Rupee one per equity share absorbing Rs. 10,00,000, be paid on the, ..................... (date), out of the profits of the company for the year ending ........, on 10,00,000 equity shares, to those equity, shareholders whose names appear in the Register of Members of the company on the ........ of ........, and that the transfer, books and the Register of Members be closed from the ....................... of ...................... to the ........ of ......, both days inclusive,, for the purpose of payment of such dividend.”, 12. Opening of a Bank Account for payment of Interim Dividend, Reference was made to Mr. ……………. note dated ……….. on the subject, as circulated., , The Board passed the following resolution for opening a bank account for the purpose of payment of Interim, Dividend :“RESOLVED THAT a Bank Account be opened in the name and style of ‘…………………Limited - Interim Dividend ……….’, (Bank Account) with the ……………………. for payment of Interim Dividend for the financial year …………….., , RESOLVED FURTHER THAT the said Bank be and is hereby authorised to honour cheques / bank advices etc. drawn,, accepted or made on behalf of the company and to act on any instruction(s) so given concerning the said Account by, any two of the following signatories:......................................................................................................................, RESOLVED FURTHER THAT the said Bank be and is hereby authorised to change the name and style of the Bank, Account to ‘…………………. Limited - Unpaid Interim Dividend …………’ on and from ……………., RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to, give instructions to the said Bank to close the Bank Account on disbursement of the Interim Dividend., RESOLVED FURTHER THAT the authorised signatories be and are hereby authorised, in the manner stated above, to, sign and execute such documents, letters etc., as may be required by the said Bank.”, 15. Conclusion of the Meeting, There being no other business, the Meeting concluded at ...(Time) with a vote of thanks to the Chair., Date ............................, Place .........................., Entered on:, , , , .............Chairman, , Illustration:, 1) A Board Meeting was held on 1st July 2020 and the next Board Meeting is scheduled to be held on 25th July,, 2020., If the minutes of the first Board Meeting are entered in the minutes books before the date of next Board Meeting, i.e. 25th July, 2020, the same should be placed for noting thereat. If the minutes are yet to be entered in the, minutes books, the same should be placed at the subsequent Board Meeting following the entry of minutes in, the minutes books., 2) In case, the Meeting of a Committee is held on 1st July and the Meeting of the Board is held on 20th July,, Minutes of the Meeting of the Committee should be entered in the Minutes Book on or before 30th July.
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796, , , , Lesson 18 • EP-CL, , Say, the Minutes of this Meeting of the Committee are entered in the Minutes Book on 28th July. In such a case,, the Minutes of such Meeting should be noted at the Meeting of the Board held immediately following 28th July., If the Minutes of this Meeting of the Committee are entered in the Minutes Book on 15th July, the Minutes of, such Meeting should be noted at the Meeting of the Board held immediately following 15th July, i.e. on 20th July., , 3) If the Meeting is held and concluded on 1st September, 2020, the Minutes should be circulated latest by 15th, September, 2020 and the receipt of the same by the Directors thereafter would be in compliance., , Duties of Company Secretary, A., , Before the meeting, , 1., , The Secretary or any other person so authorised shall give not less than seven days’ notice of the meeting, in writing to every director at his address registered with the company and such notice shall be sent by hand, delivery or by post or by electronic means [Section 173(3)]., , 2., 3., 4., 5., 6., 7., 8., , B., 1., , 2., 3., 4., , Meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that, at least one independent director, if any, shall be present at the meeting., , According to Regulation 67 of Table – F of Schedule – I of the Act, a director may, or the manager orsecretary, on the requisition of a director shall, any time summon a meeting of the Board., In case of first board meeting, the notice must also mention that it is the first Board Meeting., , It is not obligatory to give agenda in the notice, but it is a good secretarial practice to enclose the agenda to, the notice of the meeting. However as per SS-1, the Agenda, setting out the business to be transacted at the, Meeting, and Notes on Agenda shall be given to the Directors at least seven daysbefore the date of the Meeting,, unless the Articles prescribe a longer period., Contact and request all the directors to attend the meeting and arrange the facilities required by them in this, regard, like conveyance, stay arrangements, location of venue etc., , At least half an hour before the meeting, the persons responsible for the conducting the meeting shouldplace, the folders containing Agenda, notes to Agenda, statement of expenses incurred/to be incurred,Business Plan, etc. for ready reference of all directors to enable them to deliberate and discuss on each item of the agenda in, detail., Before holding the meeting, welcome the directors and obtain their signatures on the Attendance Register., At the meeting, , If quorum, as required under Section 174, is present, declare the meeting in order and inform the names of, the directors who sought leave of absence from attending the meeting. The Quorum of a company shall be, one third of the total strength of the Board or two directors whichever is higher. Effective April 1, 2020,, quorum of top 2000 listed entities based on market capitalization as at the end of the immediate previous, financial year, is now one-third of its total strength or three directors, whichever is higher, including at least, one independent director. The participation of directors by video conferencing or by other means shall also, be complied for the purpose of quorum., In case of section 8 companies, the quorum of co. shall be either eight members or 25% of its total strength, whichever is less. Provided that the quorum shall not be less than two members., , As per SS-1, the Chairman of the company shall be the Chairman of the Board. If the company does not have, a Chairman, the Directors may elect one of themselves to be the Chairman of the Board. Thedirectors who are, present at the meeting may elect one of them as the Chairman of the meeting and request him to take the, Chair., Help the Chairman to conduct the meeting as per the agenda.
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Lesson 18 • Meetings of Board and its Committees, , 797, , 5., , If any director wants to place any other item for the discussion at the meeting, then such item may be taken, up with the permission of the Chairman., , 7., , Decide the date, time and place of the next Board meeting,, , 6., , Every director shall disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of individuals, by giving notice in writing in From MBP-1., , C., , After the meeting, , 1., , After the meeting is over, prepare draft minutes of the meeting complying with the requirements of SS- 1; get, it reviewed by the chairman of the meeting and/or the Managing Director of the company., , 3., , Contact and collect draft minutes from each of the directors with their comments. After that, in consultation, with the Chairman/Managing Director finalise the minutes and enter them into the Minutes Book. All pages, should be consecutively numbered., , 2., , Send copy of draft minutes of the meeting to each of the directors of the company for information and, comments as per requirements of SS-1., , Such final minutes may be signed and dated by the Chairman of the meeting or by the Chairman of the, succeeding meeting. All pages of the minutes are to be initialed and the last page of the minutes., , 4., , Minutes is to be signed and dated by the Chairman., , 5., , Ensure that the minutes are entered within 30 days of the conclusion of meeting., , 6., , A copy of the signed Minutes certified by the Company Secretary or where there is no Company Secretary,, by any Director authorised by the Board shall be circulated to all Directors within fifteen days after these are, signed., , It is a good practice to collate all documents for each meeting in chronological order such as Copy of Notice,, Agenda, Notes on agenda, Minutes copies of minutes and all documents placed before the meeting, copies of, draft minutes sent, copies of minutes received with comments and copy of minutes as signed by Chairperson,, all having initials of Company Secretary / Chairperson as the case may be for securing their finality. Attach, documentary proof of dispatch of Notice, Agenda, draft minutes and final minutes with respective items for, record, easy access as well as for any future inspection by the regulator. These may also be kept in physical, form or electronically., Illustration:, 1), , If the Meeting is proposed to be held on 20th June, the last date for giving the Notice would be?, , 3), , Notice for the Board Meeting is served to the directors. But one of them could not attend the Meeting due, to preoccupation of work and he knowing about this inability to attend the Meeting in advance did not, give any intimation to the Board. In this regard how granting leave of absence be given to him and how to, record the same in minutes?, , 2), , 4), 5), , Can director requests for notice to be sent by post, irrespective of sending notice by e-mail or facsimile? In, such case when the notice to be sent?, , In case Notice is being sent by facsimile or by e-mail or by any other electronic means to the Directors, if, the board meeting to be proposed on 14th November. Notice should be sent latest by?, , In case Notice is being sent by speed post or by registered post to the Directors, if the board meeting to be, proposed on 15th June. Notice should be sent latest by?
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798, , 6), 7), 8), 9), 10), 11), 12), , Notice for the Meeting is served on 21st February, 2020 for the Board Meeting scheduled on 1st March,, 2020.The facility for Video Conferencing was not provided and hence the same was mentioned in the, notice. After serving the Notice the Board wants to give the facility of Video Conferencing to directors., How can it be done?, Can a Company restrict a director from participating in a Meeting through video conferencing if he has not, given an intimation of participating in the video conference Meetings at the beginning of the year?, , A private Company where there are 2 Directors. A Meeting of the Board is scheduled for 3rd March, 2020, and Notice was served on 23rd February, 2020. A Director is appointed with effect from 1st March by way, of Circular Resolution dated 1st March, 2020. Can he attend the Board Meeting?, A private Company where there are 2 Directors. A Meeting of the Board is scheduled for 3rd March, 2020, and Notice was served on 23rd February, 2020. A Director is appointed with effect from 1st March by way, of Circular Resolution dated 1st March, 2020. Can he attend the Board Meeting?, A private company where there are 2 directors and 1 stays abroad. How can an accounts approval Meeting, can happen?, A meeting was held on 1st January, 2019. The next meeting was convened on 27th April, 2019 being a, date within the prescribed period of 120 days. If the requisite Quorum is not present on 27th April, 2019, then, as per law, the Meeting stands automatically adjourned to 4th May, 2019. Will there be any noncompliance on part of the Company?, , Company XYZ Ltd. has 9 Directors out of which 3 are Independent Directors. A Meeting is convened at a, shorter Notice. Following are the scenarios:, a), , One Independent Director is present at the Meeting, , c), , In the above case, subsequently all Independent Directors abstain from ratifying the Minutes or, disapprove the decision taken by the majority at the Meeting., , b), d), 13), 14), , Lesson 18 • EP-CL, , , , No Independent Director is present at such Meeting, , In the above case, subsequently one Independent Director approves the decision but the others, disapprove the decision taken by the majority at the Meeting., , Give their effect?, , In case, the Meeting of a Committee is held on 1st July and the Meeting of the Board is held on 20th July,, Minutes of the Meeting of the Committee should be entered in the Minutes Book on or before 31st July, If the Meeting is held on 1st September, 2019, the Minutes should be circulated latest by, ………………….?
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799, , Lesson 18 • Meetings of Board and its Committees, , LESSON ROUND-UP, •, , There shall be minimum of four Board meetings every year and not more one hundred and twenty days, shall intervene between two consecutive Board meetings., , •, , Notice of not less than seven days in writing is required to call a board meeting and notice of meeting to all, directors shall be given, whether he is in India or outside India by hand delivery or by post or by electronic, means., , •, , •, •, •, •, •, , Director can participate in the Board meeting physically or through video conferencing or other audio, visual mode as may be prescribed., , One third of total strength or two directors, whichever is higher, shall be the quorum for a Board meeting., The participation of director at Board meeting through video conferencing or by other electronic means, shall be counted for the purpose of Quorum, , Section 173 provides the participation through video conferencing or other audio visual means, subject to, the system being capable of recording and recognizing the participation of the directors and of recording, and storing the proceedings of such meetings along with date and time., The Chairman may adjourn a Meeting with the consent of the Members and shall adjourn a Meeting if so, decided by the Members. The Meeting may, however, be adjourned at any time. It may be adjourned after, some items of business have been transacted and the remaining items can be transacted at the adjourned, Meeting., A company may pass the resolutions through circulation. The Resolution is passed when it is approved, by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total, number of Directors for the time being require the Resolution under circulation to be decided at a Meeting, SS-1 provides exhaustive guide for conduct of meetings of Board/committees. Company Secretary should, perform his duties before, during and after the meetings of Board/Committees in accordance with the, requirements of SS-1., , GLOSSARY, One person, Company, Small Company, , “One Person Company” means a company which has only one person as a member, [Section 2(65)], “small company” means a company, other than a public company,–, (I), , (II), , paid-up share capital of which does not exceed two crore rupees or such higher, amount as may be prescribed which shall not be more than ten crore rupees; and, , turnover of which as per profit and loss account for the immediately preceding, financialyear does not exceed twenty crore rupees or such higher amount as may, be prescribed which shall not be more than one hundred crore rupees:, Provided that nothing in this clause shall apply to—, (A), (B), , Adjournment, , (C), , a holding company or a subsidiary company;, a company registered under section 8; or, , a company or body corporate governed by any special Act;(Sec 2(85), , Adjournment means to defer or suspend the meeting to a future time, either at an, appointed date or indefinitely or as decided by the members present at the scheduled, meeting.
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800, , Lesson 18 • EP-CL, , , , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation), 1., , State the procedure for holding meeting of the Board of directors., , 3., , Draft a notice of the Board Meeting., , 2., 4., 5., , What is the agenda for the meeting of the Board of directors?, , Explain the duties of a Company Secretary before the Board Meeting?, Short Notes on:, —, , Quorum, , —, , Minutes, , —, —, , Resolution by circulation, Attendance Register, , LIST OF FURTHER READINGS, 1., , ICSI Premier on Company Law, , 3., , ICSI Guidance Note on SS-1, , 2., , Bare Act- Companies Act, 2013, , OTHER REFERENCES (INCLUDING WEBSITES / VIDEO LINKS), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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General Meetings, , Lesson 19, Key Concepts One, Should Know, •, , General Meeting, , •, , Adjourned, Meeting, , •, , Quorum, , •, •, •, •, •, •, •, •, , Notice, , Agenda, , Chairman, , Class Meeting, Poll, , Postal Ballot, E-voting, , Learning Objectives, , Regulatory Framework, , To understand:, , The Companies Act, 2013, , •, , •, , Section-96 to 118, , •, , Rule 17 to 26, , •, •, •, •, , Procedure to conduct, Annual General Meeting/, Extra-ordinary General, Meeting, Resolutions, , Procedure of voting, through show of hands/, postal ballot/, e-voting, Maintenance of Minutes, Report on AGM, , Minutes, , •, , Section 121, , The Companies (Management, and Administration) Rules, 2014, •, , Rule 31, , SS-2- Secretarial Standard on, General Meetings, The SEBI (LODR) Regulations, 2015, •, •, •, •, •, •, , Regulation 17 (11)- The, statement to be annexed to the, notice for each item of special, business to be transacted at a, general meeting., Regulation 29- Prior, Intimations., , Regulation 30- Disclosure of, events or information., , Regulation 34- Annual Report, , Regulation 42- Record Date or, Date of closure of transfer books., Regulation 44- Meetings of, shareholders and voting, , Lesson Outline, •, •, •, •, •, •, •, •, •, , Introduction, , •, , Annual General Meeting, , •, , Extraordinary General, Meeting, , Minutes, , Class Meeting, , •, , Adjourned Meetings, , •, , LESSON ROUND-UP, , •, , Types of Resolutions, Voting, , Demand for Poll, Postal Ballot, , •, •, , Report on Annual General, Meeting, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER, READINGS, , OTHER REFERENCES
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802, , Lesson 19 • EP-CL, , , , INTRODUCTION, , A meeting may be generally defined as a gathering or assembly or getting together of a number of persons for, transacting any lawful business. There must be at least two persons to constitute a meeting. Therefore, one, shareholder usually cannot constitute a company meeting even if he holds proxies for other shareholders. However,, in certain exceptional circumstances, even one person may constitute a meeting., It is to be noted that every gathering or assembly does not constitute a meeting. Company meetings must be, convened and held in perfect compliance with the various provisions of the Companies Act, 2013 and the rules, framed thereunder., , A company is composed of members, though it has its own entity distinct from members. The members of a company, are the persons who, for the time being, constitute the company, as a corporate entity. However, a company, being, an artificial person, cannot act on its own. It, therefore, expresses its will or takes its decisions through resolutions, passed at validly held meetings. The primary purpose of a meeting is to ensure that a company gives reasonable and, fair opportunity to those entitled to participate in the meeting to take decisions as per the prescribed procedures., , The decision making powers of a company are vested in the members and the directors. They exercise their, respective powers through resolutions passed by them. General meetings of the members provide a platform to, express their will in regard to the management of the affairs of the company., , Convening of one such meeting every year is compulsory. Holding of more general meetings is left to the choice, of the management or to a given percentage of shareholders to exercise their power to compel the company to, convene a meeting. Shareholder democracy, class action suits and protection of interest of investors are the essence, and attributes of the Companies Act, 2013., Secretarial Standard on General Meetings of companies:, Secretarial Standard on General Meeting (SS-2) issued by the Institute of Company Secretaries of India (ICSI), and approved by central government is to be mandatorily adhered by all companies as per the provision of, Section 118(10) of Companies Act, 2013. The objective of secretarial standard is to promote good corporate, governance. This Standard is applicable to all types of General Meetings of all companies incorporated under the Act, except One Person Company (OPC) and class or classes of companies which are exempted by the Central Government, through notification. The revised version of Secretarial Standard is effective from 1st October 2017., , Corporate Meetings and Collective Decision making, , Corporate collective decision–making, , Board, By, meeting, , Debentur, e-holders, , Members, , By, circulation, , Class, meetings, , Postal, Ballot, , Source: ICSI Certificate Course, , Creditors, , General, meetings, Remote, e-voting, , Resolution, in Meetings, , Demand by, poll, , Voting at, Meetings, , Show of, hands
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803, , Lesson 19 • General Meetings, , Members’ Meetings, , A company is required to hold meetings of the members to take approval of certain business items, as prescribed, in the Act., The meeting to be held annually for seeking approval to certain ‘ordinary business’ is called Annual General Meeting., A meeting to be held to transact any business other than ordinary business is called extraordinary general meeting., In certain cases, a company may have to hold a meeting of the members of a particular class of members., MEMBERS' MEETINGS, , ANNUAL GENERAL, MEETING, , EXTRA ORDINARY, GENERAL MEETING, , 1. ANNUAL GENERAL MEETING (SECTION 96), , CLASS MEETING, , Annual general meeting (AGM) is an important annual event where members get an opportunity to discuss the, activities of the company. Section 96 provides that every company, other than a one person company is required to, hold an annual general meeting every year., SS-2 provides that the Board shall, every year, convene or authorize convening of a meeting of its members called, the Annual General Meeting to transact items of ordinary business specifically required to be transacted at an, annual general meeting as well as special business, if any. If the Board fails to convene its Annual General Meeting, in any year, any Member of the company may approach the prescribed authority, which may then direct the calling, of the Annual General Meeting of the company. Following are the key provisions regarding the holding of an Annual, General Meeting:, , Holding of Annual General Meeting, 1., , Annual general meeting should be held once in each calendar year., , 3., , Subsequent annual general meeting of the company should be held within 6 months from the date of closing, of the relevant financial year., , 2., , First annual general meeting of the company should be held within 9 months from the closing of the first, financial year. Hence it shall not be necessary for the company to hold any annual general meeting in the year, of its incorporation., , 4., , The gap between two annual general meetings shall not exceed 15 months., , Additionally, for listed entities, Regulation 44 of SEBI (LODR) Regulations, 2015 provides that for the top 100, listed entities by market capitalization, determined as on March 31st of every financial year, shall hold their annual, general meetings within a period of five months from the date of closing of the financial year. The top 100 listed, entities shall provide one-way live webcast of the proceedings of the annual general meetings., Explanation: The top 100 entities shall be determined on the basis of market capitalisation, as at the end of the, immediate previous financial year., , One person company is exempted from holding an AGM., , Last date for holding AGM other than the first AGM i.e. subsequent AGM:, 1., , AGM is to be held within 6 months of the close of relevant financial year., , 3., , AGM is to be held in each calendar year., , 2., , Not more than 15 months shall elapse between the date of one AGM and that of the next. In other words,, AGM is to be held within 15 months of last AGM.
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804, , Lesson 19 • EP-CL, , , , The three time, limits given above are separate and cumulative. Non-compliance of any of them would constitute an, offence. Therefore, the last date for holding AGM shall be the earliest of the above three limits., Say, a company was incorporated on 10th December 2018, “financial year” of that company would end on 31st, March 2019, in view of sub-section (41) of Section 2 of the Act and therefore the last date for holding the first, Annual General Meeting would be 31st December 2019 (9 months from 31st March 2019)., On the other hand, if a company was incorporated on 10th April 2018, its first financial year would end on, 31st March 2019, only and therefore, the last date for holding the first Annual General Meeting will be 31st, December 2019. In this manner, almost 21 months elapse between the date of incorporation and date of first, Annual General Meeting. In this case, the company need not hold any Annual General Meeting in the year of its, incorporation i.e. 2018., , Extension of validity period of AGM, , In case, it is not possible for a company to hold an annual general meeting within the prescribed time, the Registrar, may, for any special reason, extend the time within which any annual general meeting shall be held. Such extension, can be for a period not exceeding 3 months. No such extension of time can be granted by the Registrar for the, holding of the first annual general meeting., Test your knowledge:, , Question: The gap between two annual general meetings can never exceed 15 months. Comment, , Answer: According to section 96(1) of the Companies Act, 2013, gap of not more than 15 months shall elapse, between the date of one annual general meeting of the company and that of the next year. According to third, proviso to section 96(1), the Registrar may, for any special reason, extend the time within which any annual general, meeting, other than the first annual general meeting, shall be held, by a period of not exceeding three months., The company may apply to the Registrar for extension for holding AGM, justifying it as a special reason. The, registrar may, after considering it as a special reason, extend the time within which an AGM shall be held which, shall be a period not exceeding three months., , Date, Time and Place for holding an Annual General Meeting, , An annual general meeting can be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that, is not a National Holiday. It should be held either at the registered office of the company or at some other place, within the city, town or village in which the registered office of the company is situated. The Central Government is, empowered to exempt any company from these provisions, subject to such conditions as it may impose., “National Holiday” for this purpose means and includes a day declared as National Holiday by the Central, Government. According to SS–2, National Holiday means Republic Day i.e. 26th January, Independence Day i.e. 15th, August, Gandhi Jayanti i.e. 2nd October and such other day as may be declared as National Holiday by the Central, Government., , Annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by, electronic mode by all the members in advance., •, , •, , In case of a Government company, the Annual General Meeting (AGM) shall be held at its registered office or, some other place within the city, town or village in which the registered office of the company is situated or, at any other place with the approval of the Central Government., Accordingly, now there is no need of Central Government approval, if a Government Company is holding its, AGM within the city, town or village in which registered office of the company is situated., , In case of Section 8 Company, the time, date and place of each AGM are decided upon before-hand by the, Board having regard to the directions, if any, given in this regard by such company in the general meeting.
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805, , Lesson 19 • General Meetings, , Illustration:, Mr. X, Ms. Y (wife of Mr. X) and Mr. C (son of X & Y) are the Directors of XYZ Ltd. They are also the Members of, XYZ Ltd. alongwith 4 other persons who are brothers and sisters of Mr. X. XYZ Ltd. proposes to hold the General, Meeting at the residence of Mr. X., In this case, since only the directors and their relatives are members of the company and the residence of, Mr. X is generally known to all Members of XYZ Ltd. and can be easily located, the route-map and prominent, landmark is not required to be provided in the Notice., , Business to be transacted at Annual General Meeting: [Section 102], Types of, business, Ordinary, Business, The, consideration, of financial, statements and, the reports of, the Board of, Directors and, auditors, , The, declaration of, any dividend, , Special, business, The, appointment, of directors in, place of those, retiring, , The, appointment, of, and the, fixing of the, remuneration, of, the, auditors., , Rest of all the, business, , Section 102(2)(a) provides that all other businesses transacted at an Annual General Meeting except the, following are special business:, (i), , the consideration of financial statements and the reports of the Board of Directors and auditors;, , (iv), , the appointment of, and the fixing of the remuneration of, the auditors., , (ii), , (iii), , the declaration of any dividend;, , the appointment of directors in place of those retiring;, , Accordingly, above mentioned four businesses are ordinary business rest shall be deemed to be special business., Explanatory statement is not required for transacting any item of ordinary business. All business except specified, above shall be deemed as special business at an AGM., , In case of meeting other than AGM, all business shall be deemed to be special. Explanatory statement must be annexed, to the Notice for transacting every items of special business. In case of non-disclosure or insufficient disclosure in, Explanatory Statement being made by a promoter, director, manager or other key managerial personnel, any benefit, accrues to such promoter, director, manager or other key managerial personnel or their relatives, such person shall, hold such benefit in trust for the company, and shall compensate the company to the extent of benefit derived by him., , Penalty for default in holding the Annual General Meeting [Section 99], , Section 99 provides that if any default is made in complying or holding a meeting of the company, the company and, every officer of the company who is in default shall be punishable with fine which may extend to one lakh rupees, and in case of continuing default, with a further fine which may extend to five thousand rupees for each day during, which such default continues.
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806, , Lesson 19 • EP-CL, , , , Section 97 provides that if any default is made in holding the annual general meeting of a company, any member of, the company may make an application to the Tribunal to call or direct the calling of, an annual general meeting of the, company and give such ancillary or consequential directions as the Tribunal thinks expedient. Such directions may include, a direction that one member of the company present in person or by proxy shall be deemed to constitute a meeting., , Every listed entity, under Regulation 30 of SEBI (LODR) Regulation, 2015, is required to disclose the proceedings, of annual & extraordinary general meeting to the Stock Exchange where its securities are listed within 24 hours of, the event., , CONVENING OF A VALID GENERAL MEETING, , The business at a meeting is said to have been “validly transacted” if the members of the organisation or body, concerned, whether or not they were present, are bound by the decision made thereat. They cannot be so bound, unless the meeting is validly held. The essentials of a valid meeting are that the meeting should be:, (a), , (b), (c), , Properly convened:, (i), The meeting must be called by proper authority; and, (ii), Proper notice must be served in the manner specified under Section 101 and 102 of the Act., Properly constituted:, (i), Proper quorum must be present in the general meeting (Section 103 of the Act);, (ii), Proper chairman must preside the meeting (Section 104 of the Act);, Properly conducted:, (i), The business must be validly transacted at the meeting i.e. resolutions must be properly moved and, passed, and voting by show of hands and on poll and/or by electronic means before and/or during the, meeting;, (ii), Proper minutes of the meeting must be prepared (Section 118 of the Act)., , 2. EXTRA-ORDINARY GENERAL MEETING (SECTION 100), , There are so many matters relating to the business of a company, which require approval or consent of members, in general meeting. It is not always possible for consideration of such matters to wait until the next annual general, meeting. The articles of association of the company make provisions for convening general meeting other than the, annual general meeting. All general meetings other than annual general meeting are called extra-ordinary general, meetings (EGM). According to SS-2, all items of business other than ordinary business only, may be considered at, an EGM or by means of a postal ballot, if thought fit by the Board. This means that all the transactions dealt upon in, an EGM shall be special business., , Calling of, EGM, , By board of, Directors, , By BoDs on, requisition of, Shareholders, , By, Requisitionists, themselves, By Tribunal
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Lesson 19 • General Meetings, , 807, , Following are the key provisions, regarding calling and holding of an extraordinary general meeting:, (1), , By the Board Suo motu [Section 100 (1)], , (2), , The Board may, whenever it deems fit, call an EGM of the company. An extraordinary general meeting of the, company shall be held at any place in India. An extraordinary general meeting of a company which is wholly, owned subsidiary of a company incorporate outside India, may be held outside India., By the Board on requisition of members [Section 100 (2)], , The Board shall call an extraordinary general meeting on receipt of the requisition from the following number, of members:, , (a), , (b), , in the case of a company having a share capital: members who hold, on the date of the receipt of the, requisition, not less than one-tenth of such of the paid-up share capital of the company as on that date, carries the right of voting;, , in the case of a company not having a share capital: members who have, on the date of receipt of the, requisition, not less than one-tenth of the total voting power of all the members having on the said date, a right to vote., Matters set out for consideration in requisition: The requisition made as above, shall set out, the matters for the consideration of which the meeting is to be called and shall be signed by the, requisitionists and sent to the registered office of the company., , (3), , Time period for calling the meeting: The Board is required to proceed to call a meeting within 21, days from the date of receipt of a valid requisition, to convene a meeting which should be held within, 45 days of such deposit of the requisition with the company., , By requisitionists [Section 100(4)], (1), , If the Board does not within 21 days from the date of receipt of a valid requisition in regard to any, matter, proceed to call a meeting for the consideration of that matter on a day not later than 45 days, from the date of receipt of such requisition, the meeting may be called and held by the requisitonists, themselves. However, in such case, the meeting should be held within a period of 3 months from the, date of the requisition., Such requisition shall not pertain to any item of business that is required to be transacted mandatorily, through postal ballot., Requisition for convening of EGM by members: The members may requisition convening of an, extraordinary general meeting, by providing such requisition in writing or through electronic mode at, least clear twenty-one days prior to the proposed date of such extraordinary general meeting., , Reimbursement of expenses in calling a meeting: Reasonable expenses incurred by the, requisitionists in calling such a meeting shall be reimbursed by the company to the requisitionists., The company in turn recovers such expenses from any fee or other remuneration under section 197, payable to such of the directors who were in default in calling the meeting., (2), , (3), , In case, the quorum is not present within half-an-hour from the time appointed for holding a meeting, called by requisitionists, the meeting shall stand cancelled. [Section 103(2)(b)], , The notice shall specify the place, date, day and hour of the meeting and shall contain the business to, be transacted at the meeting.-, , A Meeting called by the requisitionists shall be held either at the registered office of the company or, at some other place within the city, town or village in which the registered office of the company is, situated. Such meeting shall be held on any day except national holiday., If the resolution is to be proposed as a special resolution, the notice shall be given as required by subsection (2) of section 114.
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808, , , , (4), (5), (6), (7), , (8), (4), , Lesson 19 • EP-CL, , Notice to be signed: The notice shall be signed by all the requisitionists or by a requisitionist duly, authorized in writing by all other requisitionists on their behalf or by sending an electronic request, attaching therewith a scanned copy of such duly signed requisition., , No explanatory statement annexed to the notice: No explanatory statement as required under, section 102 need be annexed to the notice of an extraordinary general meeting convened by the, requisitionists and the requisitionists may disclose the reasons for the resolution(s) which they, propose to move at the meeting., Serving of notice of the meeting: The notice of the meeting shall be given to those members whose, names appear in the Register of members of the company within three days on which the requisitionists, deposit with the Company a valid requisition for calling an extraordinary general meeting., , No meeting convened: Where the meeting is not convened, the requisitionists shall have a right to, receive list of members together with their registered address and number of shares held and the, company concerned is bound to give a list of members together with their registered address made, as on twenty first day from the date of receipt of valid requisition together with such changes, if any,, before the expiry of the forty-five days from the date of receipt of a valid requisition., Mode of giving notice: The notice of the meeting shall be given by speed post or registered post or, through electronic mode. Any accidental omission to give notice to, or the non-receipt of such notice, by any member shall not invalidate the proceedings of the meeting., , By Tribunal [Section 98], , Section 98 provides that if for any reason it is impracticable to call a meeting of a company or to hold or, conduct the meeting of the company, other than an annual general meeting, the Tribunal may, either suo-moto, or on the application of any director or member of the company who would be entitled to vote at the meeting:, , (a), , (b), , order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks, fit; and, , give such ancillary or consequential directions as the Tribunal thinks expedient, including directions, modifying or supplementing in relation to the calling, holding and conducting of the meeting, the, operation of the provisions of this Act or articles of the company., , Such directions may include a direction that one member of the company present in person or by, proxy shall be deemed to constitute a meeting. Meeting held pursuant to such order shall be deemed, to be a meeting of the company duly called, held and conducted., , In Lt. CDR. D.K. Chatterji v. Rapti Supertronics Pvt. Ltd. (2003) & Rohit Churamani v. Disha Research &, Markeating Services Pvt. Ltd., it was held that “any director can call meeting. However, any resolution passed, without required quorum is ipso facto void and all such board meetings and general meetings held without, quorum are illegal and set aside., , 3. CLASS MEETINGS, , Meetings of members of a company fall into two broad divisions, namely, general meetings and class meetings., Class meetings are meeting of shareholders holding a particular class of shares, which are held to pass a resolution, which will bind only the members of the class concerned. Only members of the class concerned may attend and, vote at meeting. Usually, the rules to voting apply to class meetings as they govern voting at general meetings., These class meetings must be convened whenever it is necessary to alter or change the rights or privileges of that, class as provided by the articles. For effecting such changes, it is necessary that these are approved at a separate, meeting of the holders of those shares and supported by a special resolution. Under section 48 of the Companies, Act, 2013 (variation of shareholders’ rights) class meeting of the holders of different classes of shares shall be held, if the rights attaching to these shares are to be varied. Similarly, under Section 232 (Merger and Amalgamation of, Companies), where a scheme of arrangement is proposed, meeting of several classes of shareholders and creditors, are required to be held.
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Lesson 19 • General Meetings, , 809, , Details of meetings of members or class meetings are required to be mentioned in the Annual Return as per Section, 92(1)(f)., , TYPES OF RESOLUTIONS, , Ordinary and Special Resolutions, Section 114 relates to Ordinary and Special Resolution., , Ordinary Resolution, , A resolution shall be an ordinary resolution if the notice required under this Act has been duly given and it is, required to be passed by the votes cast, whether on a show of hands, or electronically or on a poll, as the case may, be, in favour of the resolution, including the casting vote, if any, of the Chairman, by members who, being entitled so, to do, vote in person, or where proxies are allowed, by proxy or by postal ballot, exceed the votes, if any, cast against, the resolution by members, so entitled and voting., , Special Resolution, , A resolution shall be a special resolution when:, (a), , the intention to propose the resolution as a special resolution has been duly specified in the notice calling the, general meeting or other intimation given to the members of the resolution;, , (c), , the votes cast in favour of the resolution, whether on a show of hands, or electronically or on a poll, as the case, may be, by members who, being entitled so to do, vote in person or by proxy or by postal ballot, are required, to be not less than three times the number of the votes, if any, cast against the resolution by members so, entitled and voting., , (b), , the notice required under this Act has been duly given; and, , If the notice convening the meeting (where at special business will be transacted) does not state the nature, of the special business, the meeting would be deemed to have been convened irregularly. Consequently, that, special business cannot be dealt with at the meeting., , RESOLUTIONS REQUIRING SPECIAL NOTICE (SECTION 115), , Section 115 provides that where, by any provision contained in this Act or in the articles of a company, special, notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by, such number of members holding not less than 1% of total voting power or holding shares on which such aggregate, sum not exceeding Rs.5,00,000/-, as may be prescribed, has been paid-up and the company shall give its members, notice of the resolution in the following manner as prescribed in Rules., The matters in respect of which special notice is required are:, (a), , (b), , A resolution for appointment of a person as auditor at the annual general meeting other than the retiring, auditor or providing expressly that the retiring auditor shall not be re-appointed [Section 140(4)];, , A resolution for removing a director before the expiry of the period of his office and appointing someone in, the place of the director so removed [Section 169(2)]., , Procedure for special notice: (Rule 23 of the Companies (Management and Administration) Rules, 2014), (a), , (b), , Signing of special notice:─A special notice required to be given to the company shall be signed, either, individually or collectively by such number of members holding not less than one percent of total voting, power or holding shares on which an aggregate sum of not less than five lakh rupees has been paid up on the, date of the notice., Sending of notice to the company:─ Such notice shall be sent by members to the company not earlier than, three months but at least 14 days before the date of the meeting at which the resolution is to be moved,, exclusive of the day on which the notice is given and the day of the meeting.
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810, , (c), , (d), , Lesson 19 • EP-CL, , , , On receipt of notice by the company:─ The company shall immediately after receipt of the notice, give its, members notice of the resolution at least seven days before the meeting, exclusive of the day of dispatch of, notice and day of the meeting, in the same manner as it gives notice of any general meetings., Publication of notice:─ Where it is not practicable to give the notice in the same manner as it gives notice of, any general meetings, the notice shall be published in English language in English newspaper and in vernacular, language in a vernacular newspaper, both having wide circulation in the State where the registered office of, the Company is situated. Such notice shall also be posted on the website, if any, of the Company. Such notice, shall be published at least seven days before the meeting, exclusive of the day of publication of the notice and, day of the meeting., , Case Law:, , 7/11/2017, , Jai Kumar Arya v. Chhaya Devi, , Delhi High Court, , Fact of the case:, The Company received a requisition, from its shareholders, for convening of an Extra Ordinary General Meeting, (hereinafter referred to as “EGM”) on 26th May 2017, with the following proposals: “(i) removal of the plaintiff, (Chhaya Devi) as Director/Managing Director of the Company, (ii) setting aside a notice, earlier issued, for, approval of an agenda item, dated 31st of May 2014, to terminate the directorship of the defendants, and (iii), appointment of Defendant No. 1 (Rukmini Devi) as Managing Director of the Company.”, On receiving the said requisition, the plaintiff (Chhaya Devi) responded, on 25th April 2017, alleging that, the requisition was not in accordance with Section 169, read with Section 115 of the Companies Act, 2013, (hereinafter referred to as “the Act”), in as much as no Special Notice had been served, by the shareholders, on, the Company and, instead, the Company had simply been requested to serve notice under Section 169., , This Appeal is against order of restraining other directors from acting upon notice and for convening Board, meeting for removal of managing director., , Notice only called for a meeting of Board to decide whether an EGM should be convened or not-Where managing, director filed an interlocutory application for restraining other directors of the company from acting upon notice, dated 8-8-2017 for convening board meeting on 26-8-2017 for her removal, and the same was allowed by Single, Judge on the ground that there was no proper requisition of shareholders for holding EGM for removal of the, MD, but the said notice did not itself convene an EGM, it only called for a meeting of the Board to decide whether, an EGM should be convened or not, therefore, the impugned order was to be set aside and the notice dated, 8-8-2017 would stand revived., The court observed that no specific form or format of a “requisition” is prescribed in the Act, or in any cognate, legislation, so that any document issued by the requisite number of members of the Company as specified in, Section 100(2) of the Act (which calls for convening of an EGM) would be eligible to be styled as a “requisition”., Held: The court held that there was no obligation to disclose the reasons for removing a person from the, directorship of the company prior to the EGM where such proposal was to be considered., , Further that, the notice dated 8-8-2017 was itself only a notice for fixing a meeting of the Board of the company., It did not itself convene an EGM, but only calls for a meeting of the Board to decide whether an EGM should be, convened or not. Therefore, question of requisition of the shareholders for holding the EGM would not arise., Further that, in the proposed Board meeting, no decision of removal of the MD from the company was to be, taken. Hence, the impugned order was to be set aside and the notice dated 8-8-2017 would stand revive.
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811, , Lesson 19 • General Meetings, , Case law:, In re. Godrej Industries Limited (2014), honorable judge G.S. Patel of Bombay High Court observed the, importance of discussions and deliberations at general meeting of members:, The court observed that the heart of corporate governance lies transparency and a well-established principle, of indoor democracy that gives shareholders qualified, yet definite and vital rights in matters relating to, the functioning of the company in which they hold equity. Principal among these, to my mind, is not merely, a right to vote on any particular item of business, so much as the right to use the vote as an expression of, an informed decision. That necessarily means that the shareholder has an inalienable right to ask questions,, seek clarifications and receive responses before he decides which way he will vote. It may often happen that a, shareholder is undecided on any particular item of business. At a meeting of shareholders, he may, on hearing a, fellow shareholder who raises a question, or on hearing an explanation from a director, finally make up his mind., In other cases, he may hold strong views and may desire to convince others of his convictions. This may be in, relation to matters that are not immediately obvious to the shareholder merely on receipt of written information, or a notice. The right to persuade and the right to be persuaded are, of vital importance. In an effort for greater, inclusiveness, these rights cannot be altogether defenestrated. To say, therefore, that no meeting is required and, that the shareholder must cast his vote only on the basis of the information that has been sent to him by post or, email seems to be completely contrary to the legislative intent and spirit to the express., , RESOLUTIONS, , ORDINARY, RESOLUTION, , SPECIAL, RESOLUTION, , RESOLUTION REQUIRING, SPECIAL NOTICE, , Votes in favour of resolution, including the casting vote, shall exceed the votes cast, against the resolution., , • When there is an intention, to propose the resolution, as special resolution, the, notice of the meeting, should contain the same, , • Passed only if required, by the provisions of, Companies Act 2013 or the, Articles of the Company, , • The votes cast in favour of, the special resolution shall, not be less than 3 times, the number of votes cast, against the resolution, • Form MGT.14 to be filed, along with explanatory, statement., , • Notice to move the resolution, shall be given to company, • Special notice to be sent by, members to the company, not earlier than 3 months, but 14 days before the, meeting, , • The company on receiving, the notice shall give notice, to the members atleast 7, days before the meeting, , RESOLUTIONS AND AGREEMENTS TO BE FILED WITH THE REGISTRAR, , Section 117 provides that a copy of every resolution or the agreement in respect of matters specified therein, together with the explanatory statement shall be filed in Form No. MGT.14 with the Registrar, within thirty days of, its passing or making thereof. The Registrar shall register the same., Exceptions:, Specified IFSC Public company/Specified IFSC Private Company can file a copy of every resolution or the agreement, in respect of matters specified therein together with the explanatory statement in Form No. MGT.14 with the, Registrar, within sixty days of its passing or making thereof.
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812, , Lesson 19 • EP-CL, , , , In case the company fails to file the resolution or the agreement before the expiry of the specified period of thirty, days, such company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a, further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a, maximum of two lakh rupees and every officer of the company who is in default including liquidator of the company,, if any, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of, one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty, thousand rupees., Resolutions and agreements to be filed with the Registrar are as under:, (a) special resolutions;, (b), , resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would, not have been effective for their purpose unless they had been passed as special resolutions;, , (d), , resolutions or agreements which have been agreed to by any class of members but which, if not so agreed, to, would not have been effective for their purpose unless they had been passed by a specified majority or, otherwise in some particular manner; and all resolutions or agreements which effectively bind such class of, members though not agreed to by all those members;, , (c), , (e), (f), , (i), , any resolution of the Board of Directors of a company or agreement executed by a company, relating to the, appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a, managing director;, , resolutions requiring a company to be wound up voluntarily passed in pursuance of section 59 of the, Insolvency and Bankruptcy Code 2016;, , resolutions passed in pursuance of sub-section (3) of section 179.However, no person shall be entitled under, Section 399 to inspect or obtain copies of such resolutions., Nothing contained in this clause shall apply in respect of a resolution passed to grant loans, or give, guarantee or provide security in respect of loans under clause (f) of sub-section (3) of section 179 in the, ordinary course of its business by,—, , (a), , a banking company;, , (c), , any class of housing finance company registered under the National Housing Bank Act, 1987, as, may be prescribed in consultation with the National Housing Bank; and, , (b), , (ii), (g), , any class of non-banking financial company registered under Chapter IIIB of the Reserve Bank of, India Act, 1934, as may be prescribed in consultation with the Reserve Bank of India;, , Filing of resolutions passed in pursuance of sub-section (3) of section 179 with the Registrar is not, applicable to private companies vide exemption notification no GSR 464(E) dated 5th June, 2015 and, Specified IFSC Public Company vide Notification Dated 4th January, 2017., , any other resolution or agreement as may be prescribed and placed in the public domain., , Test your knowledge:, , Question: At a General meeting of a company, a matter was to be passed by a special resolution.Out of 40, members present, 20 voted in favour of the resolution, 5 voted against it and 5 votes were found in valid.There, maining 10 member sastained from voting. The Chairman of the meeting declared the resolution as passed., With reference to the provisions of the Companies Act, 2013, examine the validity of the Chairman’s declaration?
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813, , Lesson 19 • General Meetings, , NOTICE OF MEETING (SECTION 101), Length of notice of meeting, A general meeting of a company may be called by giving not less than 21 clear days’ notice either in writing or, through electronic mode. Notice through electronic mode shall be given in such manner as may be prescribed., In case of section 8 company, 14 days’ clear notice is required instead of 21 days., , The expression “twenty-one clear days”, means that the date of service of Notice and the date of the Meeting are to be, excluded when calculating the period of twenty-one days [N.V.R. Naggappa Chettair v. Madras Race Club (1949) 19, Comp. Cas. 175 (Mad)]., Further, fractions of days are not to be taken into account i.e. part of the day after the hour at which the Notice is posted, cannot be combined with the part of the day before the Meeting commences, to form one day. Each of these days should, be a full or a calendar day [Bharat Kumar Dilwali v. Bharat Carbon & Ribbon Mfg. Co. Ltd. (1973) 43 Comp. Cas. 197, (Del)]. Intervening holidays are counted within the period of Notice., Where a notice of general meeting is sent by post, it shall be deemed to be served at the expiration of 48 hours after, the letter containing the same is posted (Rule 35(6) of the Companies (Incorporation) Rules, 2014). Each of the 21, days must be full or complete days. The day on which the notice is deemed to be served on the member, and the day, of the general meeting have to be in addition to the 21 days., , In case a valid special notice under the Act has been received from Member(s), the company shall give Notice of the, Resolution to all its Members at least seven days before the Meeting, exclusive of the day of dispatch of Notice and day of, the Meeting, in the same manner as a Notice of any General Meeting is to be given., Where this is not practicable, the Notice shall be published in a vernacular newspaper in the principal vernacular, language of the district in which the registered office of the company is situated, and in an English newspaper in, English language, both having a wide circulation in that district, at least seven days before the Meeting, exclusive of, the day of publication of the Notice and day of the Meeting. In case of companies having a website, such Notice shall, also be hosted on the website. (Para 1.2.6 of SS-2), Comply with, Section 101 of the, CA, 2013, & rules, t, made thereunder, and SS-2, AGM to be held, during the, business hoursbetween 9 a.m., to 6 p.m., , NOTICE OF A, MEETING, , Notice shall, specify the, place, date,, day & hour of, the meeting, , 21 days, clear notice
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814, , , , Lesson 19 • EP-CL, , Illustration, Question: ABC Ltd. issued a notice on 1st August, 2020 to hold its AGM on 24th August, 2020. Check the validity, of the notice referring to the provisions of the relevant act, in case it is sent by post., Answer: Date of holding AGM: 24th August, 2020 Date of dispatch of notice: 1st August, 2020, Days to be excluded:, (a), , Day of holding AGM i.e 24th August, 2020, , (c), , 2 additional days for service of notice i.e 2nd& 3rd August, 2020 (SS-2 Para 1.2.6), , (b), , Day of dispatch of notice i.e. 1st August, 2020, , Number of days notice given: 20 days, , Number of days notice required under section 101 of the Act is 21 days. Therefore it is not a case of valid notice., However, shortfall of 1 day can be condoned if consent is given for such shorter notice by at least 95% of the, members entitled to vote at such AGM., , Shorter notice, , A general meeting may be called after giving a shorter notice also if consent is given in writing or by electronic, mode by not less than 95% of the members entitled to vote at such meeting., , A general meeting may be called after giving shorter notice if consent, in writing or by electronic mode, is accorded, thereto–, (i), , (ii), , in the case of an annual general meeting, by not less than ninety-five per cent of the members entitled to vote, thereat; and, in the case of any other general meeting, by members of the company–, , (a), , (b), , holding, if the company has a share capital, majority in number of members entitled to vote and who, represent not less than ninety-five per cent of such part of the paid-up share capital of the company as, gives a right to vote at the meeting; or, , having, if the company has no share capital, not less than ninety-five per cent. of the total voting power, exercisable at that meeting:, , Where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting, and not on the others, those members shall be taken into account in respect of the former resolution or resolutions, and not in respect of the latter., , Secretarial Standard on calling of General Meeting on shorter notice:, , Para 1.2.7 of SS-2 provides that notice and accompanying documents may be given at a shorter period of time if, consent in writing is given thereto, by physical or electronic means, by not less than ninety-five per cent of the, Members entitled to vote at such Meeting., , The request for consenting to shorter notice and accompanying documents shall be sent together with the Notice, and the Meeting shall be held only if the consent is received prior to the time fixed for the Meeting from not less than, ninety five per cent of the Members entitled to vote at such Meeting.
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Lesson 19 • General Meetings, , 815, , Illustration 1:, Say, a company XYZ Ltd. wish to hold its General Meeting at a shorter notice, immediately after the Board, Meeting on same day and the required consent from 95% of the Members entitled to vote at the Meeting is, received before the time fixed for commencement of Meeting. Although in such a case the consent of 95%, Members entitled to vote at the meeting is received, still the proxy requirements need to be complied with by, the Company., In other words, in the above case the Board Meeting and General Meeting can’t be held on the same day., Illustration 2:, , Considering the above illustration, if the consent of all the Members (i.e. 100%) entitled to vote at such Meeting, is received before the time fixed for commencement of the Meeting, the proxy requirements need not be, complied with. In other words, in such a case the Board Meeting and General Meeting can be held on the same, day., , CONTENTS OF NOTICE, Section 101(2) provides that every notice of a meeting shall specify the place, date, day and the hour of the meeting, and shall contain a statement of the business to be transacted at such meeting., , Place of meeting (Section 96), , The notice should state the place where the general meeting is scheduled to be held. In case of an annual general, meeting, the place of the meeting has to be either the registered office of the company or some other place within, the city, town or village in which the registered office of the company is situated. Explanation to Rule 17(2) of, Companies (Management and Administration) Rules 2014 states that requisitionists should convene meeting at, Registered Office or in the same city or town where the Registered Office is situated and such meeting should be, convened on any day except national holiday., , Annual general meeting of an unlisted company may be held at any place in India if consent is given in writing or by, electronic mode by all the members in advance., The Central Government may exempt any company from the provisions of this sub-section subject to such conditions, as it may impose., , In case of government company, AGM may be held at registered office of the company or such other place within, the city, town or village in which the registered office of the company is situated or such other place as the central, government may approve in this behalf., , Para 1.2.4 of SS-2 provides Annual General Meetings shall be held either at the registered office of the company or at, some other place within the city, town or village in which the registered office of the company is situated, whereas, other General Meetings may be held at any place within India., Notice shall contain complete particulars of the venue of the Meeting including route map and prominent land mark, for easy location except in case of –, (i), , (ii), , a company in which only its directors and their relatives are members;, a wholly owned subsidiary. (SS 1.2.4), , Day of meeting (Section 96), , The day and date of the meeting should be clearly stated in the notice. An annual general meeting and a meeting, called by the requisitionists shall be called on a day that is not a National Holiday. ., , Explanation – For the purposes of this sub-section, “National Holiday” means and includes a day declared as National, Holiday by the Central Government.
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816, , , , Lesson 19 • EP-CL, , As explained earlier National Holiday means Republic Day i.e. 26th January, Independence Day i.e. 15th August,, Gandhi Jayanti i.e. 2nd October and such other day as may be declared as National Holiday by the Central Government., , Time of meeting [Section 96(2)], , Exact time of holding the meeting should be given in the notice. An annual general meeting and a meeting called, by the requisitionists can be called during business hours only, i.e. between 9:00 a.m. and 6:00 p.m. There is no, restriction of timings in case of an extraordinary general meeting., In case of Section 8 Company, the time, date and place of each AGM are decided upon before-hand by the directors, having regard to directions, if any, given in this regard by the company in its general meeting., , Agenda (Section 102), , A statement of the business to be transacted at the general meeting should be given in the notice. In case, the meeting, is to transact a special business, an explanatory statement should be attached about such item., , Proxy clause with reasonable prominence [Section 105(2)], , Every notice calling a meeting of a company which has a share capital, or the articles of which provide for voting by, proxy at the meeting, should carry with reasonable prominence, a statement that a member entitled to attend and, vote is entitled to appoint a proxy, or, where that is allowed, one or more proxies, to attend and vote instead of himself,, and that a proxy need not be a member., Regulation 44(4) of SEBI (LODR) Regulations, 2015 : The listed entity shall send proxy forms to holders of, securities in all cases mentioning that a holder may vote either for or against each resolution., , NOTICE THROUGH ELECTRONIC MODE (RULE 18 OF COMPANIES (MANAGEMENT AND, ADMINISTRATION) RULES 2014), , According to the Companies (Management and Administration) Rules, 2014, the company may serve the notice in, electronic mode in following manner., (1), (2), , (3), , A company may give notice through electronic mode. The expression ‘‘electronic mode’’ shall mean any, communication sent by a company through its authorized and secured computer programme which is capable, of producing confirmation and keeping record of such communication addressed to the person entitled to, receive such communication at the last electronic mail address provided by the member., A notice may be sent through e-mail as a text or as an attachment to e-mail or as a notification providing, electronic link or Uniform Resource Locator for accessing such notice., , (i) The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company, or as provided by the depository:, , The company shall provide an advance opportunity at least once in a financial year, to the member to register, his e-mail address and changes therein and such request may be made by only those members who have not got, their email ID recorded or to update a fresh email ID and not from the members whose e- mail IDs are already, registered., , (ii), , The subject line in e-mail shall state the name of the company, notice of the type of meeting, place and, the date on which the meeting is scheduled., , (iv), , When notice or notifications of availability of notice are sent by e-mail, the company should ensure that, it uses a system which produces confirmation of the total number of recipients e-mailed and a record of, each recipient to whom the notice has been sent and copy of such record and any notices of any failed, transmissions and subsequent re-sending shall be retained by or on behalf of the company as ‘‘proof, of sending’’., , (iii), , If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in the, Portable Document Format or in a non-editable format together with a ‘link or instructions’ for, recipientfor downloading relevant version of the software.
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Lesson 19 • General Meetings, , 817, , (v), , The company’s obligation shall be satisfied when it transmits the e-mail and the company shall not be, held responsible for a failure in transmission beyond its control., , (vii), , The company may send e-mail through in-house facility or its registrar and transfer agent or authorise, any third party agency providing bulk e-mail facility., , (vi), , If a member entitled to receive notice fails to provide or update relevant e-mail address to the company,, or to the depository participant as the case may be, the company shall not be in default for not delivering, notice via e-mail., , (viii) The notice made available on the electronic link or uniform resource locator has to be readable, and, the recipient should be able to obtain and retain copies and the company shall give the complete, Uniform Resource Locator or address of the website and full details of how to access the document or, information., (ix), , The notice of the general meeting of the company shall be simultaneously placed on the website of the, company if any and on the website as may be notified by the Central Government., , Secretarial Standard on issuance of notice:, , Para 1.2.2 of SS-2 provides that Notice shall be sent by hand or by ordinary post or by speed post or by registered, post or by courier or by facsimile or by e-mail or by any other electronic means. ‘Electronic means’ means any, communication sent by a company through its authorized and secured computer programme which is capable, of producing confirmation and keeping record of such communication addressed to the person entitled to, receive such communication at the last electronic mail address provided by the Member., , Notice shall be sent to Members by registered post or speed post or courier or e-mail and not by ordinary post in, the following cases:, (a), , (b), , if the company provides the facility of e-voting;, , if the item of business is being transacted through postal ballot;, , If a Member requests for delivery of notice through a particular mode, other than one of those listed above, he shall, pay such fees as may be determined by the company in its Annual General Meeting and the Notice shall be sent to, him in such mode., Notice shall be sent to Members by registered post or speed post or email if the Meeting is called by the requisitionists, themselves and where the Board had not proceeded to call the Meeting., , PERSONS ENTITLED TO RECEIVE NOTICE, , In terms of Section 101(3), notice of every meeting of the company must be given to:, (a), (a), (a), , every member of the company, legal representative of any deceased member or the assignee of an insolvent, member;, the auditor or auditors of the company; and, every director of the company., , A private company, which is not, a subsidiary of a public company may prescribe, by its Articles, persons to whom, the notice should be given., , It does not always follow that all the members of a company are entitled to receive notice of meetings of the, company; the Articles frequently provide that preference shareholders shall not be entitled to receive notice of, and vote at general meeting of the company, except in certain circumstances. There is a statutory obligation to send, notice to preference shareholders when their dividend is in arrears for more than a certain period [Section 47(2)]., This obligation arises from the fact that preference shareholders whose dividends are in arrears are entitled to, attend and vote at the meeting., , The non-receipt of notice or accidental omission to given notice to any member shall not invalidate the proceedings, in the meeting [Section 101(4)]. However, omission to serve notice of meeting on a member on the mistaken ground
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818, , , , Lesson 19 • EP-CL, , that he is not a shareholder cannot be said to be an accidental omission [Musselwhite Vs. C.H. Musselwhite& Sons Ltd., (1962) 32 Comp. Cas 804]. ‘Accidental omission’ means that the omission must be not only not designed but also not, deliberate [Maharaja Export Vs. Apparels Exports Promotion Council (1986) 60 Comp. Cas 353.]., , Notice to Directors, Auditors & other specified persons under Secretarial Standard-2, , Para 1.2.1 of SS-2 provides that notice in writing of every meeting shall be given to every member of the company., Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor, to Debenture, Trustees, if any, and, wherever applicable or so required, to other specified persons. Court may direct issuance, of Notice to some other persons such as Court-appointed Chairman or observers or persons whose entitlement, is under challenge. Considering that Preference Shareholders are Members of the company, Notice of general, meetings should also be given to them., , In case of a Nidhi company, Notice may be served individually only on Members who hold shares of more than one, thousand rupees in face value or more than one percent of the total paid-up share capital of the company, whichever, is less. For other Members, Notice may be served by a public notice in newspaper circulated in the district where, the Registered Office of the company is situated and by displaying the same on the Notice Board of the company., , In the case of Members, Notice shall be given at the address registered with the Company or depository. In the case, of shares or other securities held jointly by two or more persons, the Notice shall be given to the person whose, name appears first as per records of the Company or the depository, as the case may be. In the case of any other, person who is entitled to receive Notice, the same shall be given to such person at the address provided by him., Para 1.2.1 of SS-2 provides that where the company has received intimation of death of a Member, the Notice of, Meeting shall be sent as under:, (a), , where securities are held singly, to the Nominee of the single holder;, , (c), , where securities are held by more than one person jointly and all the joint holders die, to the Nominee, appointed by all the joint holders;, , (b), , where securities are held by more than one person jointly and any joint holder dies, to the surviving first joint, holder;, , (i), , In the absence of a Nominee of member or joint members, the notice shall be sent to the legal, representative of the deceased Member or joint members., , (iii), , In case the Member is a company or body corporate which is being wound up, Notice shall be sent to, the liquidator., , (ii), , In case of insolvency of a Member, the Notice shall be sent to the assignee of the insolvent Member., , Thus, notice shall be given to:, (a), , Every member of the Company, , (d), , The auditor or auditors of the company, , (b), (c), , (e), (f), , (g), , (h), , Nominee/Legal representative of any deceased member, Assignee of an insolvent member, Every director of the company, Debenture trustee, , Liquidator in case the company is being bound up, To other specified persons
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Lesson 19 • General Meetings, , 819, , STATEMENT TO BE ANNEXED TO NOTICE – EXPLANATORY STATEMENT (SECTION 102), Section 102 requires that a statement detailing the material facts of the businesses to be transacted as special, business be annexed to the notice of the general meeting., Secretarial Standard on annexure to notice of General Meeting:, , Para 1.2.5 of SS-2 requires that notice shall clearly specify the nature of the Meeting and the business to be, transacted thereat. In respect of items of Special Business, each such item shall be in the form of a resolution and, shall be accompanied by an explanatory statement which shall set out all such facts as would enable a Member to, understand the meaning, scope and implications of the item of business and to take a decision thereon. In respect, of items of ordinary business, resolutions are not required to be stated in the Notice except where the auditors or, directors to be appointed are other than the retiring auditors or directors, as the case may be., Contents of Explanatory Statement:, , In case of special business items to be transacted at a general meeting, a statement setting out the following, material facts, shall be annexed to the notice calling the meeting:, (I) (a) the nature of concern or interest, financial or otherwise, if any, in respect of each item of:, (i), , every director and the manager, if any;, , (ii), , relatives of every director, manager and key managerial person., , (ii), (b), , (ii), , every other key managerial personnel; and, , any other information and facts that may enable members to understand the meaning, scope and implications, of the items of business and to take decision thereon., , Where any item of special business to be transacted at a meeting of the company relates to or affects any, other company, the extent of shareholding interest in that other company of every promoter, director, manager,, if any, and of every other key managerial personnel of the first mentioned company shall, if the extent of, such shareholding is not less than 2% of the paid- up share capital of that company, also be set out in the, statement., Where any item of business refers to any document, which is to be considered at the meeting, the time and, place where such document can be inspected shall be specified in the explanatory Statement., , Effect of non-disclosure: Where as a result of the non-disclosure or insufficient disclosure in any statement, referred as above, being made by a promoter, director, manager, if any, or other key managerial personnel, any, benefit which accrues to such promoter, director, manager or other key managerial personnel or their relatives,, either directly or indirectly, the promoter, director, manager or other key managerial personnel, as the case may be,, shall hold such benefit in trust for the company, and shall, without prejudice to any other action being taken against, him under this Act or under any other law for the time being in force, be liable to compensate the company to the, extent of the benefit received by him., Penalty: If any default is made in complying with the provisions of section 102 of the Companies Act, 2013, every, promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to a, penalty of fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or, other key managerial personnel or any of his relatives, whichever is higher., As per regulation 17(11) of SEBI LODR Regulations, the statement to be annexed to the notice as referred to in, sub-section (1) of section 102 of the Companies Act, 2013 for each item of special business to be transacted at, a general meeting shall also set forth clearly the recommendation of the board to the shareholders on each of, the specific items., , If the explanatory statement is vague and tricky, or insufficient and misleading, the resolution passed, is bad in law., [Central Industrial Alliance Ltd. Vs. Pravin Kantilal Vakil (1985) 57 Com. Cases 12 (Bom)].
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820, , , , Lesson 19 • EP-CL, , Illustration:, Mr. X, Ms. Y (wife of Mr. X) and Mr. C (son of X & Y) are the Directors of XYZ Ltd. They are also the Members of, XYZ Ltd. along with 4 other persons who are brothers and sisters of Mr. X. XYZ Ltd. proposes to hold the General, Meeting at the residence of Mr. X., , In this case, since only the directors and their relatives are members of the company and the residence of Mr. X, is generally known to all Members of XYZ Ltd. and can be easily located, the route-map and prominent landmark, is not required to be provided in the Notice., Illustration:, , XYZ Ltd. proposes to enter into a contract with PQR Ltd. Mr. X and Mr. Y, who are promoters of XYZ Ltd. hold 1.5%, and 0.5% of the total paid-up share capital of PQR Ltd. respectively. In this case, the shareholding of both, Mr. X, and Mr. Y should be disclosed in the explanatory statement of the Notice of General Meeting of XYZ Ltd., since, the extent of their shareholding collectively is not less than two percent of the paid-up share capital of PQR Ltd., , QUORUM FOR MEETINGS (SECTION-103), , Quorum refers to the minimum number of members required to constitute a valid meeting. Following are the, minimum numbers provided in section 103, for various categories of companies. However, the Articles of Association, of the company may provide for a higher number., (a), , Public company:, •, , 5 members personally present if the number of members as on the date of meeting is not more than, 1000;, , •, , 30 members personally present if the number of members as on the date of the meeting exceeds 5000., , •, (b), , 15 members personally present if the number of members as on the date of meeting is more than 1000, but up to 5000;, , Private company:, •, , 2 members personally present, shall be the quorum for a meeting of the company., , Secretarial Standard on Quorum:, , Para 3.1 of SS-2 provides Quorum shall be present not only at the time of commencement of the Meeting but also, while transacting business., Where the Quorum provided in the Articles is higher than that provided under the Act, the Quorum shall conform to, such higher requirement. Members need to be personally present at a Meeting to constitute the Quorum. Proxies, shall be excluded for determining the Quorum., Illustration:, , Consider a company where the number of Members was originally large, say 500, and the Quorum fixed by, the Articles was 100 Members present. Subsequently, 450 Members sold their shares which were acquired, by some of the remaining 50 Members. Here, proceedings will be valid if all Members are present in person., In the given case, if less than 50 Members are present, there shall be no Quorum., , Para 3.2 of SS-2 provides that a duly authorized representative of a body corporate or the representative of the, President of India or the Governor of a State is deemed to be a Member personally present and enjoys all the rights, of a Member present in person., One person can be an authorized representative of more than one body corporate. In such a case, he is treated as, more than one member present in person for the purpose of quorum. However, to constitute a meeting, at least, two individuals shall be present in person. Thus, in case of a public company having not more than 1000 members
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821, , Lesson 19 • General Meetings, , with a quorum requirement of five members, an authorized representative of five bodies corporate cannot form a, quorum by himself but can do so if at least one more member is personally present., , This is so because a single Member present cannot by himself constitute a Meeting. There are a number of decisions, by which it is now firmly settled that as a general rule a single person cannot constitute a Meeting. Few such cases, include Sharp v. Dawes (1876) 2 QBD 26 (CA), Awadhoot v. State of Maharashtra AIR 1978 Bom 28, etc., , The words, personally present exclude proxies. However, the representative of a body corporate appointed under, Section 113 or the representative of the President or a Governor of a State under Section 112 is a member ‘personally, present’ for purpose of counting a quorum [Re. Kelantan Coconut Estate Ltd. ,1920 W.N. 274]., A person who represents two different bodies is supposed to act in accordance with the instructions of his principals., Therefore, such representative theoretically carries with him two sets of opinions on the Resolutions., If two or more bodies corporate, who are Members of a company, are represented by a single individual, each of the, bodies corporate should be treated as personally present through that individual representing such bodies corporate., For instance, if a representative represents three bodies corporate, his presence should be counted as three Members, being present in person for purpose of Quorum [Maclead (Neil) & Sons Ltd., Petitioners, 1967 Scottish Law Times 46], Members who have voted by remote e-voting have the right to attend the General Meeting and accordingly their, presence shall be, counted for the purpose of quorum., , A member who is not entitled to vote on any particular item of business being a related party, if present, shall be, counted for the purpose of quorum., The stipulation regarding the presence of a quorum does not apply with respect to items of business transacted, through postal ballot., Let us remember the concept through a table:, (a) in case of a public company,–, Quorum for the meeting, , Number of members, , 5 members personally present, , Not more than one thousand, , 30 members personally present, , Exceeds five thousand, , 15 members personally present, , More than one thousand but upto five thousand, , (b) In the case of a private company, two members personally present, shall be the quorum for a meeting of the, company., , One-Man Meeting, , It has been clarified by the Department of Company Affairs [now Ministry of Corporate Affairs] that a single Member, present cannot, by himself, constitute a Quorum [Circulars and Clarifications Co. Law & SEBI, P1 198 vide File, No.8/16/ (1)/61-PR ]. Such general rule against a one–man Meeting has also been settled through judicial decisions., There are, however, some exceptions to this general rule which permit a Meeting to be constituted of only one, Member. These are:, •, , Where a person holds all the shares of a class, that person may constitute a class Meeting., , •, , Where default is made in holding an Annual General Meeting in accordance with Section 96 of the Act, the, Tribunal while ordering the convening of the Meeting, may direct that one Member present in person or by, proxy will constitute the Quorum [Proviso to sub-section (1) of Section 97 of the Act]., , •, , Where it is impracticable to call a Meeting in the manner prescribed by the Act or the Articles, the Tribunal, may order a Meeting to be held and direct that one Member present in person or by Proxy shall be deemed to, constitute a Meeting [Proviso to sub–section (1) of Section 98 of the Act]
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822, , , , Lesson 19 • EP-CL, , Consequences of no quorum- If the quorum is not present within half-an-hour from the time appointed for, holding a meeting of the company–, (a), , (b), , the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such, other date and such other time and place as the Board may determine; or, the meeting, if called by requisitionists (under section 100), shall stand cancelled., , ADJOURNED MEETINGS, , Notice of an adjourned meeting- Where the meeting stands adjourned to the same day in the next week at the, same time and place, or to such other day, not being a National Holiday, or at such other time and place as the Board, may determine, the company shall give at least 3 days notice to the members either individually or by publishing an, advertisement in 2 newspapers (one in English and one in vernacular language) which is in circulation at the place, where the registered office of the company is situated., No quorum in an adjourned meeting- If at the adjourned meeting also, a quorum is not present within half- anhour from the time appointed for holding meeting, the members present, being not less than two in numbers, will, constitute the quorum., , PARA 15 of SS-2, , Para 15.1 provides that a duly convened Meeting shall not be adjourned unless circumstances so warrant. The, Chairman may adjourn a Meeting with the consent of the Members, at which a Quorum is present, and shall adjourn, a Meeting if so directed by the Members., , Meetings shall stand adjourned for want of requisite Quorum. The Chairman may also adjourn a Meeting in the event, of disorder or other like causes, when it becomes impossible to conduct the Meeting and complete its business., , Para 15.2 provides that if a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the, adjourned Meeting shall be given in accordance with the provisions contained hereinabove relating to Notice., , Para 15.3 provides that if a Meeting is adjourned for a period of less than thirty days, the company shall give not less, than three days’ Notice specifying the day, date, time and venue of the Meeting, to the Members either individually, or by publishing an advertisement in a vernacular newspaper in the principal vernacular language of the district in, which the registered office of the company is situated, and in an English newspaper in English language, both having, a wide circulation in that district., Para 15.4 provides that if a Meeting, other than an Annual General Meeting and a requisitioned Meeting, stands, adjourned for want of Quorum, the adjourned Meeting shall be held on the same day, in the next week at the same, time and place or on such other day, or at such other time and place as may be determined by the Board., Illustration:, , Question: The articles of association of XYZ Ltd. having 700 members as on cut off date, prescribe for physical, presence of 7 members to constitute quorum of general meetings. Following are the status of persons present in, a general meeting of XYZ Ltd to consider the appointment of MD. Check the quorum of the meeting., (a), , Mr. A, the representative of Governor of Maharashtra., , (d), , Mr. E, Mr. F, Mr. G and Mr. H are proxies of shareholders, , (b), (c), , Hint:, (a), , (b), , Mr. B & Mr. C are preference shareholders, Mr. D representing ABC Ltd. and SKY Ltd., , Since Mr. A is the representative of the Governor of Maharashtra, shall be treated as a member personally, present (Section 112)., Preference shareholders can vote only in relation to such matters which directly affect their rights. In, this case, meeting was called to take decision on appointment of MD, which does not affect their rights., Therefore, Mr. B & Mr. C are not members personally present.
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Lesson 19 • General Meetings, , (c), , (d), , 823, , Since Mr. D represents two body corporates, he would be treated as two members personally present., (Section 113), Since Mr. E, Mr. F, Mr. G and Mr. H are proxies of shareholders and members are not personally present., They are not considered while counting quorum., , From the above analysis, it can be concluded that only 3 members are personally present and they do not, constitute proper quorum as fixed by the company., Note: The quorum required in respect of general meeting of a public company is 5 members personally present (in, case total number of members is less than 1000) and the quorum can be increased by the articles of the company., , Resolution passed at adjourned meetings, , As per Section 116 where a resolution is passed at an adjourned meeting of a company; or the holders of any class, of shares in a company; or the Board of Directors, the resolution shall be treated as passed on the day it was actually, passed and not on any earlier date., Para 15.6 provides that at an adjourned Meeting, only the unfinished business of the original Meeting shall be, considered. Any Resolution passed at an adjourned Meeting would be deemed to have been passed on the date of the, adjourned Meeting and not on any earlier date., , Chairman of Meetings (Section 104), , Unless the articles of the company otherwise provide, the members personally present at the meeting shall elect, one of themselves to be the Chairman thereof on a show of hands., , If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance with the provisions of, this Act and the Chairman elected on a show of hands shall continue to be the Chairman of the meeting until some, other person is elected as Chairman as a result of the poll, and such other person shall be the Chairman for the rest, of the meeting., , Secretarial Standard on appointment and role of Chairman:, , Para 5 of SS-2 provides that the Chairman of the Board shall take the chair and conduct the Meeting., , If the Chairman is not present within fifteen minutes after the time appointed for holding the Meeting, or if he is, unwilling to act as Chairman of the Meeting, or if no Director has been so designated, the Directors present at the, Meeting shall elect one of themselves to be the Chairman of the Meeting. If no Director is present within fifteen, Minutes after the time appointed for holding the Meeting, or if no Director is willing to take the chair, the Members, present shall elect, on a show of hands, one of themselves to be the Chairman of the Meeting, unless otherwise, provided in the Articles., , If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance with the provisions, of the Act and the Chairman elected on a show of hands shall continue to be the Chairman of the Meeting until some, other person is elected as Chairman as a result of the poll, and such other person shall be the Chairman for the rest, of the Meeting., The Chairman shall ensure that the Meeting is duly constituted in accordance with the Act and the Articles or any, other applicable laws, before it proceeds to transact business. The Chairman shall then conduct the Meeting in a, fair and impartial manner and ensure that only such business as has been set out in the Notice is transacted. The, Chairman shall regulate the manner in which voting is conducted at the Meeting keeping in view the provisions of, the Act., Para 5.2 of SS-2 requires that the Chairman shall explain the objective and implications of the Resolutions before, they are put to vote at the Meeting., , The Chairman shall provide a fair opportunity to Members who are entitled to vote to seek clarifications and/or, offer comments related to any item of business and address the same, as warranted.
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824, , , , Lesson 19 • EP-CL, , Para 5.3 of SS-2 provides that in case of public companies, the Chairman shall not propose any Resolution in which, he is deemed to be concerned or interested nor shall he conduct the proceedings for that item of business., If the Chairman is interested in any item of business, without prejudice to his Voting Rights on Resolutions, he shall, entrust the conduct of the proceedings in respect of such item to any dis-interested Director or to a Member, with, the consent of the Members present, and resume the Chair after that item of business has been transacted., Para 4.1.1 of SS-2 provides that if any Director is unable to attend the Meeting, the Chairman shall explain such, absence at the Meeting., Para 4.1.2 of SS-2 requires that Directors who attend General Meetings of the company and the Company Secretary, shall be seated with the Chairman. The Company Secretary shall assist the Chairman in conducting the Meeting., , PRESENCE OF STATUTORY AUDITOR AND SECRETARIAL AUDITOR, , Section 146 of the Act requires the presence to Auditors in general meetings unless otherwise exempted, either himself, or through his authorized representative, who shall also be qualified to be an auditor and shall have right to be heard, at such meeting on any part of the business which concerns him as the auditor. Para 4.2 of SS-2 also requires the same., , Similarly, para 4.3 of SS-2 requires the secretarial auditor, unless exempted by the company shall, either by himself or, through his authorized representative, attend the Annual General Meeting and shall have the right to be heard at such, Meeting on that part of the business which concerns him as Secretarial Auditor., The Chairman may invite the Secretarial Auditor or his authorised representative to attend any other General Meeting,, if he considers it necessary., , The authorized representative who attends the General Meeting of the company shall also be qualified to be a, secretarial auditor., The authorised representative of the Secretarial Auditor attending the General Meeting on behalf of the Secretarial Auditor, should be a person who is a member of the Institute of Company Secretaries of India (ICSI) and eligible for appointment, as Secretarial Auditor of the company., , PROXIES (SECTION 105), A person who is appointed by a member to attend and vote at a meeting in the absence of the member at the, meeting is termed as proxy. Thus, proxy is an agent of the member appointing him. The term ‘proxy’ is also used to, refer to the instrument by which a person is appointed as proxy. Section 105 of the Companies Act, 2013 provides, that a member, who is entitled to attend and to vote, can appoint another person as a proxy to attend and vote at, the meeting on his behalf. This section also provides the manner of appointing proxy. The provisions are as follows., 1., , Who can appoint a proxy: Any member of a company who is entitled to attend and vote at a meeting of, the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his, behalf., , The SS-2 added that where allowed, a member can appoint one or more proxies, to attend and vote instead of, himself and a Proxy need not be a Member., A Proxy shall be a Member in case of companies with charitable objects etc. and not for profit registered under, the specified provisions of the Act (a company registered under section 8)., , A Proxy can act on behalf of Members not exceeding fifty and holding in the aggregate not more than ten, percent of the total share capital of the company carrying Voting Rights., However, a Member holding more than ten percent of the total share capital of the company carrying Voting, Rights may appoint a single person as Proxy for his entire shareholding and such person shall not act as a, Proxy for another person or shareholder., , If a Proxy is appointed for more than fifty Members, he shall choose any fifty Members and confirm the same, to the company before the commencement of specified period for inspection. In case, the Proxy fails to do so,, the company shall consider only the first fifty proxies received as valid.
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Lesson 19 • General Meetings, , 825, , In every notice calling a meeting of a company which has a share capital, or the articles of which provide for, voting by proxy at the meeting, there shall appear with reasonable prominence a statement that a member, entitled to attend and vote is entitled to appoint a proxy, or, where that is allowed, one or more proxies, to, attend and vote instead of himself, and that a proxy need not be a member., (2), (3), (4), , If default is made in complying with above provision, every officer of the company who is in default shall, be liable to penalty of five thousand rupees., Disabilities of proxy: A proxy shall not have the right to speak at the meeting. A proxy cannot vote on a show, of hands. A proxy is not counted for the purpose of quorum., , Rights of proxy: A proxy has the right to attend the meeting. A proxy has the right to vote only on a poll. A, proxy, if eligible under section 109, has the right to demand a poll., , Restriction on proxy: A member of a company registered under section 8 (Not for Profit company) shall, not be entitled to appoint any other person as his proxy unless such other person is also a member of such, company., A person appointed as proxy shall not act as proxy on behalf of more than fifty members and members, holding in the aggregate more than ten percent of the total share capital of the company carrying voting, rights., , (5), , A member holding more than 10% of the total share capital of the company carrying voting rights may, appoint a single person as proxy, provided that such person shall not act as proxy for any other person or, shareholder., Time limit for deposit of proxy forms: The instrument appointing the proxy must be deposited with the, company, 48 hours before the meeting. Any provision contained in the articles, requiring a longer period than, 48 hours shall have effect as if a period of 48 hours had been specified., In case of a private company, the proxy shall be deposited with the company in accordance with Section 105,, unless otherwise provided in the Articles., , In case of listed companies providing e-voting facilities, there is no need to appoint proxy to vote at the meeting., Further, till the permission is in place and the Companies conduct their shareholders meeting through video, conferencing or other audio visual means, a person who will log-in the meeting through provided credentials,, he will be deem to be personally present. Therefore, the system of Proxy is not relevant in the event of virtual, meetings of shareholders., (6), , The prescribed form for appointing a proxy is Form No. MGT-11. It needs to be in writing and signed by, the appointer or his attorney duly authorised in writing. If the appointer is a body corporate, the instrument, should be under its seal or be signed by an officer or an attorney duly authorised by the body corporate. An, instrument appointing a proxy, if in MGT-11, shall not be questioned on the ground that it fails to comply with, any special requirement specified for such instrument by the article of a company., , Other provisions in Secretarial Standard w.r.t. proxies:, 1., 2., , Deposit of proxies: Para 6.6.1 of SS-2 provides that proxies shall be deposited with the company either in, person or through post not later than forty-eight hours before the commencement of the Meeting in relation, to which they are deposited and a Proxy shall be accepted even on a holiday if the last date by which it could, be accepted is a holiday., , Records of proxies: Para 6.9.1 of SS-2 requires that all Proxies received by the company shall be recorded, chronologically in a register kept for that purpose., Para 6.9.2 of SS-2 provides that in case any Proxy entered in the register is rejected, the reasons therefor shall, be entered in the ‘remarks’ column., , The instrument of Proxy shall be signed by the appointer or his attorney duly authorized in writing, or if, the appointer is a body corporate, be under its seal or be signed by an officer or an attorney duly authorized, by it.
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826, , , , Lesson 19 • EP-CL, , Para 6.2.2 requires that an instrument of Proxy duly filled, stamped and signed, is valid only for the Meeting, to which it relates including any adjournment thereof., , Para 6.3 provides that an instrument of Proxy is valid only if it is properly stamped as per the applicable law., Unstamped or inadequately stamped Proxies or Proxies upon which the stamps have not been cancelled are, invalid., Para 6.4.1 requires that the Proxy-holder shall prove his identity at the time of attending the Meeting., , Para 6.4.2 provides that an authorized representative of a body corporate or of the President of India or of the, Governor of a State, holding shares in a company, may appoint a Proxy under his signature., Para 6.5.1 states that a Proxy form which does not state the name of the Proxy shall not be considered valid., Para 6.5.2 states that undated proxy shall not be considered valid., , Para 6.5.3 provides that if a company receives multiple proxies for the same holdings of a Member, the Proxy, which is dated last shall be considered valid; if they are not dated or bear the same date without specific, mention of time, all such multiple Proxies shall be treated as invalid., , Let us Remember: The prescribed proxy form is Form No. MGT 11, Illustration:, , Assume that the General Meeting of a company is scheduled on 22nd September 2020 and company has, received 4 proxies for the same holdings of a Member dated with 5th , 12th , 10th and 20th September 2020., The proxy dated last should be considered valid i.e. 20th . However, if the proxies received are not dated or bear, the same date without mention of time, all proxies should be treated as invalid., , (3), , (4), , Inspection of proxy: Every member entitled to vote at a meeting of the company, or on any resolution to be, moved thereat, is entitled to inspect the proxies lodged with the company, if at least 3 days notice in writing, is given to the company. Such notice shall be received at least three days before the commencement of the, Meeting. Such inspection can be taken during the period beginning 24 hours before the time fixed for the, commencement of the meeting, during the business hours of the company, and ending with the conclusion of, the meeting. Such inspection should be allowed between 9:00 am and 6:00 pm during such period., A fresh requisition confirming to the above requirements, shall be given for inspection of Proxies in case the, Original Meeting is adjourned., Revocation of proxy: If after appointment of proxy, the member himself attends the meeting, it amounts to, automatic revocation of proxy. But once the proxy has voted, it cannot be revoked., Para 6.7.1 provides that if a Proxy had been appointed for the original meeting and such meeting is adjourned,, any Proxy given for the adjourned Meeting revokes the Proxy given for the original Meeting., Para 6.7.2 provides that a proxy later in date revokes any Proxy/Proxies dated prior to such Proxy., , Para 6.7.3 provides that a Proxy is valid until written notice of revocation has been received by the company, before the commencement of the Meeting or adjourned Meeting, as the case may be., An undated notice of revocation of Proxy shall not be accepted. A notice of revocation shall be signed by the, same Member (s) who had signed the Proxy, in the case of joint Membership., A Proxy need not be informed of the revocation of the Proxy issued by the Member.
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827, , Lesson 19 • General Meetings, , Section 105 of, the CA, 2013, alongwith rules, made thereunder, , t, , The instrument, appointing the, proxy must be, deposited with the, company, 48 hours, before the meeting, , Proxy should not, be counted for, quorum, , Only member can, appoint a proxy., Proxy need not be, a member, , PROXIES, , Same person, cannot be a proxy, for more than 50, , Illustrations:, Question: Annual General Meeting of a Public Company was scheduled to be held on 15.12.2020. Mr. A, a, shareholder, issued two Proxies in respect of the shares held by him in favor of Mr. ‘X’ and Mr. ‘Y’. The proxy, in favor of ‘Y’ was lodged on 12.12.2020 and the one in favor of Mr. X was lodged on15.12.2020. The company, rejected the proxy in favor of Mr. Y as the proxy in favor of Mr. Y was of dated 12.12.2020 and in favor of Mr. X, was of dated15.12.2020. Is the rejection by the company in order?, , Hint: As per Section 105 of the Companies Act, 2013 a proxy should be deposited 48 hours before the time, of the meeting. In the given case, the proxies should have, therefore, been deposited on or before 13.12.2020, (the date of the meeting being 15.12.2020). X deposited the proxy on 15.12.2020., Therefore, proxy in favour of Mr. X has become invalid. Thus, rejecting the proxy in favour of Mr. Y is unsustainable., Proxy in favor of Y is valid since it is deposited in time., , Question: The Chairman of the meeting of a public company received a Proxy 54 hours before the time fixed, for the start of the meeting. He refused to accept the Proxy on the ground that the Articles of the company, provided that a Proxy must be filed 60 hours before the start of the meeting. Decide, under the provisions of the, Companies Act, 2013 whether the Proxy holder can compel the Chairman to admit the Proxy?, , Hint: As per Section 105 of the Companies Act, 2013 proxy shall be deposited with the company within 48 hours, before the meeting., Any provisions contained in the Articles of a company that requires a longer period than 48 hours before a, meeting of the company for depositing a proxy shall be void. Thus, contention of Mr X is valid.
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828, , , , Lesson 19 • EP-CL, , Question: Mr. A, a member of XYZ Limited, appoints Mr. B as his proxy to attend the general meeting of the, company. Later he (Mr. A) also attends the meeting. Both Mr. A (the member) and Mr. B (the proxy) voted on a, particular resolution in the meeting. Mr. A’s vote was declared invalid by the chairman stating that since he has, appointed the proxy and Mr. B’s vote has been considered as valid. Mr. A objects to the decision of the Chairman., Decide, under the provisions of the Companies Act, 2013 whether Mr. A’s objection shall be taxable., Hint: Decision by Chairman is invalid. Since Mr. A i.e. a member himself attended a meeting and voted on, resolution, it will amount to revocation of proxy. Thus, any vote put by Mr. B i.e. proxy shall be invalid., Illustrations:, Question: (1) Mr. A holds 10% of the total share capital of the Company and appoints Mr. B as the proxy holder., Can Mr. B accept appointment as proxy by any other shareholder?, Hint : Mr. B cannot accept appointment as proxy by any other shareholder, , (2) Mr. C has been appointed as the proxy holder by 48 members. Mr. D, Mr. E and Mr. F are also interested in, appointing Mr. C as their proxy. Can they do so?, , Hint : Mr. C cannot be appointed as proxy by more than 50 members and hence he can accept appointment, only by 2 members out of the three (i.e. Mr. D, Mr. E and Mr. F). However, the aggregate shareholding of the 50, members should not exceed 10% of the total share capital of the Company., , VOTING, , Restriction on Voting Rights (Section 106), The articles of a company may provide that a member shall not exercise any voting right in respect of any shares registered, in his name on which any calls or other sums presently payable by him have not been paid or on which company has, exercised any right or lien. No member can be prohibited from exercising his voting right on any other ground., , Voting by Show of Hands (Section 107), , At any general meeting, a resolution put to the vote of the meeting shall in the first instance be decided on a show, of hands, unless(a), , (b), , A poll is demanded under section 109 of the Act., , Voting is carried out electronically under section 108 of the Act., , A declaration by the Chairman of the meeting of the passing of a resolution (that the resolution has been passed, or failed, as the case may be) on show of hands and an entry to that effect in the minutes book shall be conclusive, evidence of the fact of passing of such resolution. No proof of numbers of votes casts in favor of and against the, resolution is required., In case of private company – Section 107 shall apply, unless otherwise specified in respective sections or the articles, of the company provide otherwise – Notification dated 5th June, 2015, , Voting through Electronic Means (Section 108), , General meetings of companies are held at their registered offices and it is not possible for every member specially, members holding minor shares to travel up to the registered office of the company and participate in the general, meetings of the company., To eliminate this type of difficulty and to enhance the participation of minority members, concept of e-voting has, been introduced by the Companies Act 2013. Now, a member can cast his vote easily through electronic mode, without physically attending the general meeting.
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Lesson 19 • General Meetings, , 829, , E-voting do not eliminate members right to physically attend and vote at the general meeting. However, member, can cast his vote through one mode only. A member after casting his vote through e-voting can go and attend the, general meeting but cannot cast vote in that general meeting., The facility of Remote e-voting does not dispose with the requirements of holding a General Meeting by the company., , Applicability: Section 108 of the Act r/w Rule 20 of the Companies (Management and Administration) Rules, 2014, shall apply to such companies as may be prescribed by the Central Government. The prescribed class of companies,, for this purpose, are(i), , (ii), , All companies whose equity shares are listed on a recognized stock exchange; and, All companies having 1000 or more members., , However, the provisions of section 108 shall not apply to a Nidhi, or an enterprise or institutional investor referred, to in chapter XB (Companies listed on SME exchange) or chapter XC (Companies listed on institutional trading, platform without IPO) of the SEBI (Issue of Capital and Depository Receipt) Regulations, 2009., Following companies are out of ambit of mandatory e-voting:(i), , (ii), , (iii), , Companies whose debenture/preference shares only are listed., Companies listed on SME trading platform., , Companies listed on institutional trading platform., , Legal Requirement:, (a), , (b), , A company to which section 108 is applicable, shall provide to its members facility to exercise their right to, vote on resolution proposed at general meetings by electronic means., a resolution proposed to be considered through voting by electronic means shall not be withdrawn., , Voluntary Applicability of Rule 20 (i.e. Voting by Electronic Means), , A member may exercise his right to vote through voting by, electronic means in resolutions referred to in Rule 20 (2) of the Companies voluntarily adopting Rule 20 of the, Companies (Management and Administration) Rules, 2014 Companies (Management and Administration), and the company shall pass such resolutions in accordance Rules, 2014 dealing with Voting by Electronic, with the provisions of this rule. If a company voluntarily opts Means should follow the procedure wholly and not, or decides to give its shareholders the e-voting facility, in such in piecemeal., a case, the whole of procedure specified in rule 20 shall be, applicable to such a company. This is necessary so that any piece-meal application does not prejudice the interest, of shareholders., , Key Words w.r.t. E-Voting:, (i), , (ii), , 'agency' means the National Securities Depository Limited, the Central Depository Services (India), Limited or any other entity approved by the Ministry of Corporate Affairs subject to condition that the, National Securities Depository Limited, the Central Depository Services (India) Limited or such other, entity has obtained a certificate from the Standardisation Testing and Quality Certification Directorate,, Department of Information Technology, Ministry of Communications and Information Technology,, Government of India regard to compliance with parameters relating to secured system., 'cut-off date' means a date not earlier than seven days before the date of general meeting for determining, the eligibility to vote by electronic means or in the general meeting;, , (iii) 'cyber security' means protecting information, equipment, devices, computer, computer resource,, communication device and information stored therein from unauthorised access, use, disclosures,, disruption, modification or destruction;
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830, , (iv), (v), , (vi), , Lesson 19 • EP-CL, , , , 'electronic voting system' means a secured system based process of display of electronic ballots,, recording of votes of the members and the number of votes polled in favour or against, in such a manner, that the entire voting exercised by way of electronic means gets registered and counted in an electronic, registry in a centralised server with adequate cyber security;, 'remote e-voting' means the facility of casting votes by a member using an electronic voting system from, a place other than venue of general meeting, 'secured system' means computer hardware, software, and procedure that-, , (a), , are reasonably secure from unauthorised access and misuse;, , (d), , adhere to generally accepted security procedures;, , (b), (c), , provide a reasonable level of reliability and correct operation;, , are reasonably suited to performing the intended functions; and, , (vii) 'voting by electronic mean' includes "remote e-voting and voting" at the general meeting through an, electronic voting system which may be the same as used for remote e-voting., , Procedure of E-Voting, The Board shall:, (a), , Appoint one or more scrutinisers for e-voting or the ballot process,, The scrutiniser (s) may be a Company Secretary in Practice, a Chartered Accountant in Practice, a Cost, Accountant in Practice, or an Advocate or any other person of repute who is not in the employment of the, company and who can, in the opinion of the Board, scrutinise the e-voting process or the ballot process, as, the case may be, in a fair and transparent manner., The scrutiniser (s) so appointed may take assistance of a person who is not in employment of the company, and who is well-versed with the e-voting system. The scrutiniser shall be willing to be appointed and be, available for the purpose of ascertaining the requisite majority., , (b), (c), , Prior consent to act as a scrutiniser(s) shall be obtained from the scrutiniser(s) and placed before the Board, for noting., Appoint an Agency – NSDL, CDSL or other such agency;, The agency shall be appointed for providing and supervising the electronic platform for voting., , Decide the cut-off date for the purpose of reckoning the names of Members who are entitled to Voting, Rights;, The cut-off date for determining the Members who are entitled to vote through Remote e-voting or voting at, the meeting shall be a date not earlier than seven days prior to the date fixed for the Meeting., , Only Members as on the cut-off date, who have not exercised their Voting Rights through Remote e-voting,, shall be entitled to vote at the Meeting., (d), , SS-2 provides that every company providing e-voting facility shall offer such facility to all Members,, irrespective of whether they hold shares in physical form or in dematerialised form., Authorise the Chairman or in his absence, any other Director to receive the scrutiniser’s register,, report on e-voting and other related papers with requisite details., (i), , (ii), , The scrutiniser(s) is required to submit his report within a period of three days from the date of the, meeting., , The Chairman or any other director so authorized shall countersign the scrutiniser’s report so received.
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Lesson 19 • General Meetings, , (e), , (i), , 831, , Notice, , A company which provides the facility to its members to exercise voting by electronic means shall comply, with the following procedure, namely:the notice of the meeting shall be sent to all the members, directors and auditors of the company either, , (a), , by registered post or speed post ; or, , (c), , by courier service;, , (b), , through electronic means, namely, registered e-mail ID of the recipient; or, , The notice shall also be placed on the website, if any, of the company and of the agency forthwith after it is sent to, the members;, As per SS-2, such notice shall remain on the website till the date of General Meeting., The notice of the meeting shall clearly state that:(i), , The company is providing facility for voting by electronic means and the business may be transacted, through such voting., , (iii), , That the members who have cast their vote by remote e-voting prior to the meeting may also attend, the meeting but shall not be entitled to cast their vote again., , (ii), , (A), , The facility for voting, either through voting by electronic means or ballot/polling paper shall also be, made available at the meeting and members attending the meeting who have not already cast their, vote by remote e-voting shall be able to exercise their right at the meeting., , Additional Disclosures in notice:, , The notice shall –, (i), , Indicate the process and manner for voting by electronic means;, , (iii), , Provide the details about the login lD;, , (ii), , (B), , (iv), , Indicate the time schedule including the time period during which the votes may be cast by remote, e-voting;, Specify the process and manner for generating or receiving the password and for casting of vote in a, secure manner., , Public notice by way of advertisement:, , (i), , The company shall cause a public notice by way of an advertisement to be published, immediately on, completion of dispatch of notice of general meeting., , (iii), , The public notice shall specify the following matter in the said advertisement;, , (ii), , The public notice shall be published at least twenty-one days before the date of general meeting, at, least once in a vernacular newspaper in the principal vernacular language of the district in which the, registered office of the company is situated, and having a wide circulation in that district, and at least, once in English language in an English newspaper having country-wide circulation., (a), , A statement that the business may be transacted through voting by electronic means;, , (c), , The date and time of end of remote e-voting;, , (b), (d), (e), , The date and time of commencement of remote e-voting;, Cut-off date;, , The manner in which persons who have acquired shares and become members of the company, after the dispatch of notice may obtain the login ID and password;
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832, , , , (f), , A statement that –, , (i), , Remote e-voting shall not be allowed beyond the said date and time;, , (iii), , A member may participate in the general meeting even after exercising his right to vote, through remote e-voting but shall not be allowed to vote again in the meeting; and, , (ii), , (iv), (g), , (h), , Lesson 19 • EP-CL, , The manner in which the company shall provide for voting by members present at the, meeting; and, , A person whose name is recorded in the register of members or in the register of, beneficial owners maintained by the depositories as on the cut-off date only shall be, entitled to avail the facility of remote e-voting as well as voting in the general meeting;, , Website address of the company, if any, and of the agency where notice of the meeting is, displayed; and, , Name, designation, address, email id and phone number of the person responsible to address, the grievances connected with facility for voting by electronic means., , The public notice shall be placed on the website of the company, if any, and of the agency;, Such notice shall remain on the website till the date of general meeting., (C), , Remote e-voting:, , (i), , The facility for remote e-voting shall remain open for not less than three days and shall close at 5.00, p.m. on the date preceding the date of the general meeting., , (iii), , Once a member has cast his vote on a resolution, he shall not be allowed to change it subsequently or, cast the vote again., , (ii), , (d), , (a), , (b), , A member may participate in the general meeting even after exercising his right to vote through, remote e-voting but shall not be allowed to vote again., At the end of the remote e-voting period, the facility shall forthwith be blocked., , Register of scrutinizer:, (i), (ii), , (e), , During the period when facility for remote e-voting is provided, the members of the company, holding, shares either in physical form or in dematerialised form, as on the cut-off date, may opt for remote, e-voting., , The scrutinizer(s) shall maintain a register either manually or electronically to record the assent or, dissent received, mentioning the particulars of name, address, folio number or client ID of the members,, number of shares held by them, nominal value of such shares and whether the shares have differential, voting rights of members, , The register and all other papers relating to voting by electronic means shall remain in the safe custody, of the scrutinizer(s) until the Chairman considers, approves and signs the minutes and thereafter, the, scrutinizer(s) shall hand over the register and other related papers to the company., , Voting at General Meeting:, (i), , (ii), , During general meeting, a company may opt to provide the same electronic voting system as used, during remote e-voting, the said facility shall be in operation till all the resolutions are considered and, voted upon in the meeting. In such a case, the members attending the general meeting and who have, not exercised their right to vote through remote e-voting, shall be entitled to vote using the electronic, voting system., , At the general meeting, after conclusion of the discussion, the chairman shall, with the assistance of, scrutinisers, allow voting on the resolutions, by use of ballot or polling paper or by using an electronic, voting system for all those members who are present at the general meeting but have not cast their, votes by availing the remote e-voting facility.
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Lesson 19 • General Meetings, , (f), , 833, , Declaration of result of voting:, , (i), (ii), (iii), (iv), , (v), , (vi), (vii), , The scrutinizer shall, immediately after the conclusion of voting at the general meeting, first count the, votes cast at the meeting, thereafter unblock the votes cast through remote e-voting in the presence of, at least two witnesses not in the employment of the company., , The scrutinizer shall make, not later than three days of conclusion of the meeting, a consolidated, scrutinizer’s report of the total votes cast in favor or against, if any, to the Chairman or a person, authorized by him in writing who shall countersign the same., The Chairman or a person authorized by him in writing shall declare the result of the voting forthwith., The result of the voting, with details of the number of votes cast for and against the Resolution, invalid, votes and whether the Resolution has been carried or not shall be displayed on the Notice Board of the, company at its Registered Office and its Head Office as well as Corporate Office, if any, if such office is, situated elsewhere. Further, the results of voting along with the scrutinizer’s report shall also be placed, on the website of the company, in case of companies having a website and of the Agency, immediately, after the results are declared., The scrutinizers’ register, report and other related papers received from the scrutinizer(s) shall be kept, in the custody of the Company Secretary or any other person authorised by the Board for this purpose., , The manner in which members have cast their votes, that is, affirming or negating the resolution, shall, remain secret and not available to the Chairman, scrutinizer or any other person till the votes are cast, in the general meeting., If the requisite number of votes are cast in favor of the resolution, the resolution shall be deemed to be, passed on the date of relevant general meeting., , (viii) The results declared along with the report of the scrutinizer shall be placed on the notice board of the, company at its registered office and its head office as well as corporate office, if any, if such office, is situated elsewhere and on the website of the company, if any, and on the website of the agency, immediately after the result is declared by the Chairman., (ix), , In case of companies whose equity shares are listed on a recognized stock exchange, the company, shall, simultaneously, forward the results to the concerned stock exchange or exchanges where its equity, shares are listed and such stock exchange or exchanges shall place the results on its or their website., , As prescribed under Regulation 44 of SEBI (LODR) Regulations, 2015 –, (1), , The listed entity shall provide the facility of remote e-voting facility to its shareholders, in respect of all, shareholders’ resolutions., , (3), , The listed entity shall submit to the stock exchange, within two working days of conclusion of its General, Meeting, details regarding the voting results in the format specified by the Board., , (2), , The e-voting facility to be provided to shareholders in terms of sub-regulation (1), shall be provided in, compliance with the conditions specified under the Companies (Management and Administration) Rules,, 2014, or amendments made thereto., , DEMAND FOR POLL (SECTION 109), , Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to, be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand, made in that behalf by the following person(s):, (a), , in the case a company having a share capital: by the members present in person or by proxy, where, allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate, sum of not less than Rs.5,00,000/- or such higher amount as may be prescribed, has been paid-up; and
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834, , (b), , , , Lesson 19 • EP-CL, , in the case of any other company: by any member or members present in person or by proxy, where, allowed, and having not less than one-tenth of the total voting power., , The Chairman shall get the validity of the demand verified., , The demand for a poll may be withdrawn at any time by the persons who made the demand., , Time for taking poll and declaring the result, , A poll shall be taken forthwith, if it is demanded for adjournment of the meeting or appointment of Chairman of the, meeting., , A poll shall be taken at such time, not being later than 48 hours from the time when the demand was made on any, other question. The Chairman shall announce the date, venue and time of taking the poll to enable members to have, adequate and convenient opportunity to exercise their votes., , Further, the Chairman may permit any member who so desires to be present at the time of counting the votes. The, Chairman shall inform the members, the modes and the time of such communication, which shall in any case be, within 24 hours of closer of meeting in case the date, venue and time of taking poll not announced., Where a poll is to be taken, the Chairman of the meeting shall appoint such number of persons, as he deems, necessary, to scrutinise the poll process and votes given on the poll and to report thereon to him in the manner as, may be prescribed., The result of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was, taken., , MANNER TO GET POLL PROCESS SCRUTINIZED, , Rule 21 of Companies (Management and Administration) Rules, 2014 provides that the chairman of a meeting shall, ensure that –, •, , The Scrutinizers are provided with the Register of Members, specimen signatures of the members, Attendance, Register and Register of Proxies., , •, , The Scrutinizers arrange the Polling papers and distribute them to the members and proxies present at the, meeting. In case of joint shareholders, the polling paper shall be given to the first named holder or in his, absence to the joint holder attending the meeting as appearing in the chronological order in the folio. The, Polling paper shall be in Form No. MGT-12., , •, , •, •, •, •, •, •, •, , The Scrutinizers are provided with all the documents received by the Company pursuant to sections 105, 112, and section 113., , The Scrutinizers shall keep a record of the polling papers received in response to poll, by initialing it., The Scrutinizers lock and seal an empty polling box in the presence of the members and proxies., , The Scrutinizers open the Polling box in the presence of two persons as witnesses after the voting process is, over., In case of ambiguity about the validity of a proxy, the Scrutinizers decide the validity in consultation with the, Chairman., The Scrutinizers shall ensure that if a member who has appointed a proxy has voted in person, the proxy’s, vote shall be disregarded., The Scrutinizers shall count the votes cast on poll and prepare a report thereon addressed to the Chairman., , Where voting is conducted by electronic means, the company shall provide all the necessary support,, technical and otherwise, to the Scrutinizers in orderly conduct of the voting and counting the result thereof.
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•, , Lesson 19 • General Meetings, , •, •, , 835, , The Scrutinizers’ report state total votes cast, valid votes, votes in favour and against the resolution, including the details of invalid polling papers and votes comprised therein., The Scrutinizers submit the Report to the Chairman who shall counter-sign the same., , The Chairman declare the result of Voting on poll. The result may either be announced by him or aperson, authorized by him in writing., , The scrutinizer/s appointed for the poll, shall submit a report to the Chairman of the meeting in Form No. MGT.- 13, within 7 days from the date the poll is taken. The report shall be signed by the scrutinizer or by all the scrutinizers,, in case there is more than one scrutinizer., , Note: Sections 102, 103, 104, 105, 106, 107 and 109 shall apply in case of private company unless otherwise, specified in respective sections of articles of the company provided otherwise., , POSTAL BALLOT (SECTION 110), , Meaning of postal ballot: As per section 2(65) “postal ballot” means voting by post or through any electronic, mode. It includes voting by shareholders by postal or electronic mode instead of voting personally for transacting, businesses in a general meeting of the company., Company shall transact such items of business as the Central Government may, by notification, declare to be, transacted only by means of postal ballot. Provided that any item of business required to be transacted by means, of postal ballot under Section 110(a), may be transacted at a general meeting by a company which is required to, provide the facility to members to vote by electronic means under section 108, in the manner provided in that, section., A company may use postal ballot for transacting any item of business, other than, (i), , (ii), , Ordinary business and, , Any business in respect of which directors or auditors have a right to be heard at any meeting., , Each item proposed to be passed through postal ballot shall be in the form of a Resolution and shall be accompanied, by an explanatory statement which shall set out all such facts as would enable a Member to understand the meaning,, scope and implications of the item of business and to take a decision thereon., , A company shall send a notice and draft resolution by registered post or speed post, or by courier or by e-mail or, by any other electronic means to all shareholders explaining the reasons and requesting them to send their assent, or dissent in writing on a postal ballot. If a resolution is assented to by the requisite majority of the shareholders, by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf., Meaning of requisite majority: Requisite majority with regard to special resolution means votes cast in favor of, the business is three times more than the votes cast against, with regard to ordinary resolution, votes cast in favor, is more than the votes cast against., , Business to be transacted through postal ballot: [Rule 22 of the Companies (Management and, Administration) Rules, 2014], , The following items of business shall be transacted only by means of voting through postal ballot:, (a), , Alteration of the objects clause of the memorandum and in the case of the company in existence immediately, before the commencement of the Act, alteration of the main objects of the memorandum;, , (c), , Change in place of registered office outside the local limits of any city, town or village., , (b), , Alteration of articles of association in relation to insertion or removal of provisions defining a private, company.
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836, , , , Lesson 19 • EP-CL, , (d), , Change in objects for which a company has raised money from public through prospectus and still has any, unutilized amount out of the money so raised., , (f), , Variation in the rights attached to a class of shares or debentures or other securities., , (e), , (g), , (h), (i), , (j), , (k), , Issue of shares with differential rights as to voting or dividend or otherwise., Buy-back of shares by a company., , Election of a ‘small shareholders’ director., , Sale of the whole or substantially the whole of an undertaking of a company., , Giving loans or extending guarantee or providing security exceeding 60% of its paid up share capital, free, reserves and securities premium account or 100% of its free reserves and securities premium account., any other resolution prescribed under any applicable law, rules or regulations., , Any item of business required to be transacted by means of postal ballot (as stated above), may be transacted at a, general meeting by a company which is required to provide the facility to members to vote by electronic means under, section 108, in the manner provided in that section., Following companies are not required to transact any business through postal ballot., (i), One person company, (ii), All other companies having members up to 200., , Rule 22 of the Companies (Management and Administration) Rules, 2014 lay down the procedure to be, followed for conducting business through postal ballot., (1), , (2), , Notice to all shareholders: The company shall send a notice to all the shareholders, along with a draft, resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing, on a postal ballot because postal ballot means voting by post or through electronic means within a period of, thirty days from the date of dispatch of the notice., Mode of sending documents: The notice shall be sent, , (a), , By Registered Post or speed post, or, , (c), , Through courier service, , (b), , Through electronic means like registered e-mail id or, , Secretarial Standard on postal ballot (Para 16):, 1), 2), 3), , Every company, except a company having less than or equal to two hundred Members, shall transact items, of business as prescribed, only by means of postal ballot instead of transacting such business at a General, Meeting. Ordinary Business shall not be transacted by means of a postal ballot., , Every company having its equity shares listed on a recognised stock exchange other than companies whose, equity shares are listed on SME Exchange or on the Institutional Trading Platform and other companies, which are required to provide e-voting facility shall provide such facility to its Members in respect of those, items, which are required to be transacted through postal ballot, The Board shall: (a) identify the businesses to be transacted through postal ballot; (b) approve the Notice, of postal ballot incorporating proposed Resolution(s) and explanatory statement thereto; (c) authorise the, Company Secretary or where there is no Company Secretary, any Director of the company to conduct postal, ballot process and sign and send the Notice along with other documents; (d) appoint one scrutiniser for the, postal ballot; (e) appoint an Agency in respect of e-voting for the postal ballot; (f) decide the cut-off date for, reckoning Voting Rights and ascertaining those Members to whom the Notice and postal ballot forms shall be, sent.
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Lesson 19 • General Meetings, , 4), , Secretarial Standard on Notice of postal ballot :, , (i), , (ii), (iii), (iv), (v), , (vi), , (vii), (vii), , (3), , 837, , (ix), , Notice of the postal ballot shall be given in writing to every Member of the company. Such Notice shall, be sent either by registered post or speed post, or by courier or by e-mail or by any other electronic, means at the address registered with the company., The Notice shall be accompanied by the postal ballot form with the necessary instructions for filling, signing and returning the same. In case the Notice and accompanying documents are sent to Members, by e-mail, these shall be sent to the Members’ e-mail addresses, registered with the company or, provided by the depository, in the manner prescribed under the Act., , Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial Auditor,, to Debenture Trustees, if any, and, wherever applicable or so required, to other specified recipients., In case of companies having a website, Notice of the postal ballot shall simultaneously be placed on the, website., , Notice shall specify the day, date, time and venue where the results of the voting by postal ballot will, be announced and the link of the website where such results will be displayed. Notice shall also specify, the mode of declaration of the results of the voting by postal ballot., , Notice of the postal ballot shall inform the Members about availability of e-voting facility, if any and, provide necessary information thereof to enable them to access such facility., In case the facility of e-voting has been made available, the provisions relating to conduct of e-voting, shall apply, mutatis mutandis, as far as applicable., Notice shall describe clearly the e-voting procedure., , Notice shall also clearly specify the date and time of commencement and end of e-voting, if any and, contain a statement that voting shall not be allowed beyond the said date and time. Notice shall also, contain contact details of the official responsible to address the grievances connected with the e-voting, for postal ballot., Notice shall clearly specify that any Member cannot vote both by post and e-voting and if he votes both, by post and e-voting, his vote by post shall be treated as invalid., , Publishing of an advertisement: The company shall issue an advertisement to be published at least once in, a vernacular newspaper in the principal vernacular language of the district in which the registered office of, the company is situated, and having a wide circulation in that district, and at least once in English language, in an English newspaper having a wide circulation in that district, stating that the ballot papers have been, dispatched., , The advertisement shall specify the following matters, namely:(a), , (b), (c), , (d), (e), (f), , (g), , (h), , A statement to the effect that the business is to be transacted by postal ballot which includes voting by, electronic means;, The date of completion of dispatch of notices;, , The date of commencement of voting (postal and e-voting);, The date of end of voting (postal and e-voting);, , The statement that any postal ballot form received from the Member after thirty days from the date of, dispatch of Notice will not be valid;, A statement to the effect that members, who have not received postal ballot forms may apply to the company, and obtain a duplicate thereof;, , The Contact details of the person responsible to address the grievances/queries connected with the voting by, postal ballot including voting by electronic means; and, Day, date, time and venue of declaration of results and the link of the website where such results will be, displayed.
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838, , , , Lesson 19 • EP-CL, , Notice and the advertisement shall clearly mention the cut-off date as on which the right of voting of the Members, shall be reckoned and state that a person who is not a Member as on cut-off date should treat this Notice for, information purposes only., (4), , (5), , Notice to be placed on the website:, , The notice of the postal ballot shall also be placed on the website of the company forthwith after the notice is, sent to the members., Such notice shall remain on such website till the last date for receipt of the postal ballots from the members., Appointment of scrutinizer: The Board of directors shall appoint one scrutinizer, who is not in employment, of the company and who, in the opinion of the Board can conduct the postal ballot voting process in a fair and, transparent manner., , The scrutinizer may be a Company Secretary in Practice, a Chartered Accountant in Practice, a Cost Accountant, in Practice, an Advocate or any other person of repute who is not in the employment of the company and, who, can in the opinion of the Board, scrutinise the postal ballot process in a fair and transparent manner., The scrutinizer shall however not be an officer or employee of the company., , The scrutinizer so appointed may take assistance of a person who is not in employment of the company and, who is well-versed with the e-voting system., (6), , (7), (8), , (9), , Prior consent to act as a scrutinizer shall be obtained from the scrutinizer and placed before the Board for, noting., , Safe custody of registers and papers: Postal ballot received back from the shareholders shall be kept in, the safe custody of the scrutinizer and after the receipt of assent or dissent of the shareholder in writing on a, postal ballot, no person shall deface or destroy the ballot paper or declare the identity of the shareholder., Submission of report of the scrutinizer: The scrutinizer shall submit his report as soon as possible after, the last date of receipt of postal ballots but not later than seven days thereof., Maintenance of register by the Scrutinizer: The scrutinizer shall maintain a register either manually or, electronically to record their assent or dissent received, mentioning the particulars of the shareholder and, details of postal ballots which are received in defaced or mutilated form and postal ballot forms which are, invalid., , Preservation of postal ballots: The postal ballot and all other papers relating to postal ballot including, voting by electronic means, shall be under the safe custody of the scrutinizer till the chairman considers,, approves and signs the minutes and thereafter, the scrutinizer shall return the ballot papers and other related, papers or register to the company who shall preserve such ballot papers and other related papers or register, safely., , (10) Reply from members: The assent or dissent received after thirty days from the date of issue of notice shall, be treated as if reply from the member has not been received., (11) Declaration of result: The results shall be declared by placing it, along with the scrutinizer’s report, on the, website of the company., , (12) Resolution deemed to be passed in general meeting: The resolution shall be deemed to be passed on the, date of at a meeting convened in that behalf., , (13) Applicability of Rule 20: The provisions of Rule 20 of Companies (Management and Administration) Rules,, 2014 regarding voting by electronic means shall apply, as far as applicable, with the necessary changes to this, rule in respect of the voting by electronic means., , A postal ballot form shall be considered invalid if:, (a), , (b), (c), , A form other than one issued by the company has been used;, It has not been signed by or on behalf of the Member;, , Signature on the postal ballot form doesn’t match the specimen signatures with the company
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839, , Lesson 19 • General Meetings, , (d), , It is not possible to determine without any doubt the assent or dissent of the Member;, , (g), , The envelope containing the postal ballot form is received after the last date prescribed;, , (e), (f), , (h), (i), , (j), , (k), , Neither assent nor dissent is mentioned;, , Any competent authority has given directions in writing to the company to freeze the Voting Rights of the, Member;, , The postal ballot form, signed in a representative capacity, is not accompanied by a certified copy of the, relevant specific authority;, It is received from a Member who is in arrears of payment of calls;, , It is defaced or mutilated in such a way that its identity as a genuine form cannot be established;, , Member has made any amendment to the Resolution or imposed any condition while exercising his vote, (Para 16.5.3 of SS-2)., , Rescinding the Resolution, , A Resolution passed by postal ballot shall not be rescinded otherwise than by a Resolution passed subsequently, through postal ballot (Para 16.8 of SS-2)., , Modification to the Resolution, , No amendment or modification shall be made to any Resolution circulated to the Members for, passing by means of postal ballot (Para 16.9 of SS-2)., Sample Postal Ballot Form, , (On the letterhead of the Company), 1., , Name and Registered Address of the: sole / first named Member, , 3., , Registered Folio No./DP ID No.* :/Client ID No.* (*Applicable to Members holding shares in dematerialized, form), , 2., 4., 5., , Name(s) of Joint-Holder(s), if any :, Number of equity shares held :, , I/We hereby exercise my / our vote in respect of the under mentioned resolutions to be passed through Postal, Ballot as stated in the Notice dated February 20, 20. of the Company by sending my / our assent or dissent to the, said Resolution by placing the tick (√) mark in the appropriate box below:, , Item No., , Brief Particulars of, the Resolution, , No. of, Shares, , I / We assent to the, Resolution (FOR), , I / We dissent to the, Resolution (AGAINST), , Place:................................, , Date:................................. .................................................., , Signature of Shareholder
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840, , , , CIRCULATION OF MEMBERS’ RESOLUTION (SECTION 111), , Lesson 19 • EP-CL, , As per Section 111, a company shall, on requisition in writing of certain number of members, give notice to members, of any proposed resolution intended to be moved in the meeting or circulate any statement with respect to matters, referred in proposed resolution., A company shall not be bound under this section to give notice of any resolution or to circulate any statement, unless–, (a), , (b), , a copy of the requisition signed by the requisitionists (or two or more copies which, between them,, contain the signatures of all the requisitionists) is deposited at the registered office of the company,–, , (i), , (ii), , in the case of a requisition requiring notice of a resolution, not less than six weeks before the, meeting;, in the case of any other requisition, not less than two weeks before the meeting; and, , there is deposited or tendered with the requisition, a sum reasonably sufficient to meet the company’s, expenses in giving effect thereto., , Provided that if, after a copy of a requisition requiring notice of a resolution has been deposited at the, registered office of the company, an annual general meeting is called on a date within six weeks after the copy, has been deposited, the copy, although not deposited within the time required by this sub-section, shall be, deemed to have been properly deposited for the purposes thereof., , The statement need not be circulated if the Central Government declares that the right conferred is being abused to, secure needless publicity for defamatory matters. If default is made the company and every officer of the company, shall be punishable with fine., , MAINTENANCE OF MINUTES OF MEETINGS, , The minutes refer to a written record of business transacted at a meeting. Section 118 provides that every company, shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the, requisitionists and all proceedings of meeting of any class of shareholders or creditors or Board of Directors or, committee of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every, such meeting concerned. In case of meeting of Board of Directors or of a committee of Board, the minutes shall, contain name of the directors present and also name of dissenting director or a director who has not concurred, the resolution. The chairman shall exercise his absolute discretion in respect of inclusion or non-inclusion of the, matters which is regarded as defamatory of any person, irrelevant or detrimental to company’s interest in the, minutes. Minutes kept shall be evidence of the proceedings recorded in a meeting and containing fair and correct, summary of the proceeding thereat., As per section 118(10) every company shall observe Secretarial Standards with respect to General and Board, Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company, Secretaries Act, 1980, and approved as such by the Central Government., , In case of Section 8 company – section 118 shall not apply as a whole except that minutes may be recorded within, thirty days of the conclusion of every meeting in case of companies where the articles of association provide for, confirmation of minutes by circulation-Notification dated 5th June, 2015., In case of Specified IFSC Public Company/Specified IFSC Private Company - sub-section (10) of section 118 Shall, not apply., , If any default is made in complying with the provisions of Section 118 in respect of any meeting, the company shall, be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be, liable to a penalty of five thousand rupees., , If a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable with, imprisonment for a term which may extend to two years and with fine which shall not be less than twenty- five
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Lesson 19 • General Meetings, , 841, , thousand rupees but which may extend to one lakh rupees, , Rule 25 of the Companies (Management and Administration) Rules, 2014 contains provisions with regards, to minutes of meetings., (A), , Distinct minute book for each type of meeting: A distinct minute book shall be maintained for each type of, meeting namely:, , (i), , general meetings of the members;, , (iii), , meetings of the Board; and, , (ii), , (iv), (B), , (C), , meetings of the committees of the Board., , It may be noted that resolutions passed by postal ballot shall be recorded in the minute book of general meetings, as if it has been deemed to be passed in the general meeting., Manner of maintenance of minutes: Minutes of proceedings of each meeting shall be entered in the books, maintained for that purpose along with the date of such entry within thirty days of the conclusion of the, meeting., In case of every resolution passed by postal ballot, a brief report on the postal ballot conducted including, the resolution proposed, the result of the voting thereon and the summary of the scrutinizer’s report shall be, entered in the minutes book of general meetings along with the date of such entry within thirty days from the, date of passing of resolution., Manner of signing of minutes: Each page of every minute book shall be initialed or signed and the last page of, the record of proceedings of each meeting or each report in such books shall be dated and signed by:, •, , in the case of minutes of proceedings of a meeting of the Board or of a committee thereof, by the, chairman of the said meeting or the chairman of the next succeeding meeting;, , •, , in case of every resolution passed by postal ballot, by the chairman of the Board within the aforesaid, period of thirty days or in the event of there being no chairman of the Board or the death or inability of, that chairman within that period, by a director duly authorized by the Board for the purpose., , •, , (D), , meetings of the creditors;, , in the case of minutes of proceedings of a general meeting, by the chairman of the same meeting within, the aforesaid period of thirty days or in the event of the death or inability of that chairman within that, period, by a director duly authorized by the Board for the purpose;, , Preservation of minutes book: Minute books of general meetings shall be kept at the registered, office of the company and shall be preserved permanently and kept in the custody of the company, secretary or any director duly authorised by the board. Minutes of the Board and committee meetings, shall be preserved permanently and shall be kept at the registered office or at such other place as may be, approved by the Board., , SECRETARIAL STANDARD ON MINUTES, , Procedure of maintenance of minutes: Minutes shall be recorded in books maintained for that purpose (Para, 17.1.1 of SS-2)., , A distinct Minutes Book shall be maintained for Meetings of the Members of the company, creditors and others as, may be required under the Act (Para 17.1.2 of SS-2)., Resolutions passed by postal ballot shall be recorded in the Minutes book of General Meetings., , Precautions to be taken while preparing the minutes:, (1), , Uniformity in the manner of maintaining minutes: Minutes may be maintained in electronic form in such, manner as prescribed under the Act and as may be decided by the Board. Minutes in electronic form shall be, maintained with Time stamp (Para 17.1.3 of SS-2).
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842, , , , Lesson 19 • EP-CL, , Time stamp under SS-2 has been defined to mean the current time of an event that is recorded by a secured, computer system and is used to describe the time that is printed to a file or other location to help keep track, of when data is added, removed, sent or received., (2), , Every company shall, however, follow a uniform and consistent form of maintaining the Minutes. Any, deviationin such form of maintenance shall be authorized by the Board., (i) Page Numbering: The pages of the Minutes Books shall be consecutively numbered (Para 17.1.4 of SS-2)., , This shall be followed irrespective of a break in the Book arising out of periodical binding in case the Minutes, are maintained in physical form. This shall be equally applicable for maintenance of Minutes Book in electronic, form with Time stamp., In the event any page or part thereof in the Minutes Book is left blank, it shall be scored out and initialled by, the Chairman who signs the Minutes., , Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any manner (Para 17.1.5 of, SS-2)., (ii) Binding of minutes: Minutes of Meetings, if maintained in loose-leaf form, shall be bound periodically at, least once in every three years (Para 17.1.6 of SS-2)., (3), (4), , There shall be a proper locking device to ensure security and proper control to prevent removal or manipulation, of the loose leaves., , Place of keeping minutes: Minutes Books shall be kept at the Registered Office of the company (Para 17.1.7 of, SS-2)., Contents of Minutes (Para 17.2 of SS-2)., , (i), , General Contents, , Minutes shall state, at the beginning the Meeting, name of the company, day, date, venue and time, of commencement of the Meeting. Minutes of Annual General Meeting shall also state the serial, number of the Meeting. In case a Meeting is adjourned, the Minutes shall be entered in respect of, the original Meeting as well as the adjourned Meeting. In respect of a Meeting convened but adjourned, for want of Quorum a statement to that effect shall be recorded by the Chairman or any Director present, at the Meeting in the Minutes;, Minutes shall record the names of the Directors and the Company Secretary present at the Meeting., (ii), , The names of the Directors shall be listed in alphabetical order or in any other logical manner, but in, either case starting with the name of the person in the Chair., Specific Contents, , Minutes shall, inter alia, contain:, (a), , The Record of election, if any, of the Chairman of the Meeting;, , (c), , The Record of presence of Quorum, , (b), (d), (e), (f), , (g), , (h), , The fact that certain registers, documents, the Auditor’s Report and Secretarial Audit Report, as, prescribed under the Act were available for inspection, The number of Members present in person including representatives;, , The number of proxies and the number of shares represented by them;, , The presence of the Chairmen of the Audit Committee, Nomination and Remuneration Committee and, Stakeholders Relationship Committee or their authorised representatives;, The presence if any, of the Secretarial Auditor, the Auditors, or their authorised representatives, the, Court/Tribunal appointed observers or scrutinisers;, Summary of the opening remarks of the Chairman;
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Lesson 19 • General Meetings, , (i), , (j), , (k), (l), , (m), (n), (o), , 843, , Reading of qualifications, observations or comments or other remarks on the financial transactions, which have any adverse effect on the functioning of the company, as mentioned in the report of the, Auditors;, Reading of qualifications, observations or comments or other remarks which have any material adverse, effect on the functioning of the company, as mentioned in the report of the Secretarial Auditor;, Summary of the clarifications provided on various Agenda Items;, , In respect of each Resolution, the type of the Resolution, the names of the persons who proposed and, seconded and the majority with which such Resolution was passed. Where a motion is moved to modify, a proposed Resolution, the result of voting on such motion shall be mentioned. If a Resolution proposed, undergoes modification pursuant to a motion by shareholders, the Minutes shall contain the details of, voting for the modified Resolution;, In the case of poll, the names of scrutinisers appointed and the number of votes cast in favour and, against the Resolution and invalid votes;, , If the Chairman vacates the Chair in respect of any specific item, the fact that he did so and in his place, some other Director or Member took the Chair;, The time of commencement and conclusion of the Meeting., , Minutes of E-Voting and postal ballot:, , Para 17.2.2.2 of SS-2 provides that in respect of Resolutions passed by e-voting or postal ballot, a brief report on, the e-voting or postal ballot conducted including the Resolution proposed, the result of the voting thereon and the, summary of the scrutiniser’s report shall be recorded in the Minutes Book and signed by the Chairman or in the, event of death or inability of the Chairman, by any Director duly authorised by the Board for the purpose, within, thirty days from the date of passing of Resolution by e-voting or postal ballot., , 17.3. Recording of Minutes, , Minutes shall contain a fair and correct summary of the proceedings of the Meeting. The Company Secretary shall, record the proceedings of the Meetings. Where there is no Company Secretary, any other person authorised by the, Board or by the Chairman in this behalf shall record the proceedings., The Chairman shall ensure that the proceedings of the Meeting are correctly recorded., , The Chairman has absolute discretion to exclude from the Minutes, matters which in his opinion are or could, reasonably be regarded as defamatory of any person, irrelevant or immaterial to the proceedings or which are, detrimental to the interests of the company., Para 17.3.2 of SS-2 provides that minutes shall be written in clear, concise and plain language., , Minutes shall be written in third person and past tense. Resolutions shall however be written in present tense., Minutes need not be an exact transcript of the proceedings at the Meeting., Para 17.3.3 of SS-2 provides that each item of business taken up at the Meeting shall be numbered. Numbering shall, be in a manner which would enable ease of reference or cross-reference., , Para 17.4 of SS-2 prescribes for entry in the Minutes Book, , Minutes shall be entered in the Minutes Book within thirty days from the date of conclusion of the Meeting., , In case a Meeting is adjourned, the Minutes in respect of the original Meeting as well as the adjourned Meeting shall, be entered in the Minutes Book within thirty days from the date of the respective Meetings., The date of entry of the Minutes in the Minutes Book shall be recorded by the Company Secretary. Where there is, no Company Secretary, it shall be entered by any other person authorised by the Board or the Chairman. Minutes,, once entered in the Minutes Book, shall not be altered.
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844, , , , Para 17.5 of SS-2 prescribes for Signing and Dating of Minutes, , Lesson 19 • EP-CL, , Minutes of a General Meeting shall be signed and dated by the Chairman of the Meeting or in the event of, death or inability of that Chairman, by any Director who was present in the Meeting and duly authorised by, the Board for the purpose, within thirty days of the General Meeting., , The Chairman shall initial each page of the Minutes, sign the last page and append to such signature the date on, which and the place where he has signed the Minutes. Any blank space in a page between the conclusion of the, Minutes and signature of the Chairman shall be scored out., If the Minutes are maintained in electronic form, the Chairman shall sign the Minutes digitally., , Preservation of Minutes in case of scheme of Merger and Amalgamation, , Where, under a scheme of arrangement, a company has been merged or amalgamated with another company,, Minutes of all Meetings of the transferor company, as handed over to the transferee company, shall be preserved, permanently by the transferee company, notwithstanding that the transferor company might have been dissolved., For Inspection of Minute Books of General Meeting – Refer Chapter 11 – Register and Records., , Report on Annual General Meeting, , Every listed public company shall prepare in the prescribed manner a report on each annual general meeting, including the confirmation to the effect that the meeting was convened, held and conducted as per the provisions of, the Companies Act, 2013 and the rules made thereunder., As per Rule 31 of the Companies (Management & Administration) Rules, 2014, the copy of the report prepared in, pursuance of sub-section (1) of section 121 and sub-rule (1), shall be filed with the Registrar in Form No. MGT.15, within thirty days of the conclusion of the annual general meeting along with the fee., The report in pursuance of the provisions of sub-section (1) of section 121 shall be prepared in the following, manner, namely:(a), , the report under this section shall be prepared in addition to the minutes of the general meeting;, , (c), , the report shall contain the details in respect of the following, namely:-, , (b), , the report shall be signed and dated by the Chairman of the meeting or in case of his inability to sign, by, any two directors of the company, one of whom shall be the Managing director, if there is one and company, secretary of the company;, , (i), , the day, date, hour and venue of the annual general meeting;, , (iii), , number of members attending the meeting;, , (ii), , (iv), (v), , (vi), , (vii), (d), , confirmation with respect to appointment of Chairman of the meeting;, confirmation of quorum;, , confirmation with respect to compliance of the Act and the Rules, secretarial standards made there, under with respect to calling, convening and conducting the meeting;, business transacted at the meeting and result thereof;, , particulars with respect to any adjournment, postponement of meeting, change in venue; and, , (viii) any other points relevant for inclusion in the report., , the Report shall contain fair and correct summary of the proceedings of the meeting., , If the company fails to file the report under sub-section (2) before the expiry of the period specified therein, such, company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with further penalty of five, hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh, rupees and every officer of the company who is in default shall be liable to a penalty which shall not be less than, twenty-five thousand rupees and in case of continuing failure, with further penalty of five hundred rupees for each, day after the first during which such failure continues, subject to a maximum of one lakh rupees
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Lesson 19 • General Meetings, , 845, , DUTIES OF COMPANY SECRETARIES BEFORE, DURING AND AFTER GENERAL MEETING, Before the General Meeting:, 1., , To convene a Board meeting, after giving notice as per Section 173(3), as soon as the final accounts are, ready, invite the Auditors for their report and transact the following business (in case of listed company, give, advance notice to stock exchange):, , (a), , To consider and discuss the report of Audit Committee on the Annual accounts., , (c), , To secure Auditor’s report on the accounts., , (b), (d), (e), , (2), , (4), (5), (6), (7), (8), (9), , To consider the payment of dividend, if any, in case it is to be declared in the Annual General Meeting, , Listed entity to disclose the audit qualifications of any other audit reservations along with financial results, in addition to explanatory statement as to how audit qualifications of previous accounting year have been, addressed in financial results., , (b), , (3), , To approve the draft of the Board’s Report in compliance with the provisions of Section 134 of the Act, and to authorise the Chairman to sign the Report on behalf of the Board., , (Notes: 1. In case of listed company prior intimation have to be sent to stock exchange of the Board meeting, where recommendation of dividend is proposed to be considered vide Regulation 29 of SEBI (Listing, Obligations and Disclosure Requirements) Regulation, 2015.), , (a), , (2), , To approve the accounts and authorise signing of accounts., , To fix time, date and place for the annual general meeting, approve the draft notice and also authorise, the Secretary to issue Notice for the meeting. The Notice must contain Ordinary Business in accordance, with the provisions of Section 102 of the Act, While fixing the time, date and place for the annual, general meeting, care should be taken that the time should be during 9 am to 6 pm, the date should not, be a National holiday, and the place should be either the registered office of the company or some other, place within the same city, town or village in which the registered office of the company is situated., , To consider the closure of the Register of Members and the Share Transfer Books of the Company in, compliance with the provisions of Section 91 of the Act and to authorise the Secretary to arrange for, its publication in a newspaper. In case of listed company, a notice in advance of at least 7 working days, should be sent to the stock exchange(s) about the proposed dates for such closure and also to comply, with the requirement of stock exchange for book closure., , Listed entity shall give prior intimation to stock exchange at least 5 days in advance (excluding date of, intimation and date of meeting) about Board meeting in which financial results are due to be considered, [Regulation 29 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015]., In case of listed company, close the registers for the period as advertised and inform the all the stock exchanges, by giving a notice in advance of at least 7 working days., , To arrange for the printing of the balance sheet, profit and loss account, reports of the directors and of the, auditors and the notice for the meeting., , To issue notice to the shareholders, for at least 21 clear days before the date of annual general meeting and, where it is to be sent by post, it should be posted 48 hours still earlier in terms of section 101. Notice of the, meeting must also be sent to the directors (whether member or not), auditors and stock exchanges. In case, of section 8 companies, 14 clear day’s notice is sufficient for general meeting., If the directors decide for the publication of the Chairman’s statement, make arrangements for the same., , Check proxies with the Register of Members as and when they are received, from day to day, so that an up-todate position is available till the date of the meeting., To arrange for the printing of attendance slips or attendance register and ballot papers., , In consultation with the chairman or the Managing Director, prepare a detailed agenda for the meeting.
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846, , , , Lesson 19 • EP-CL, , (10) To prepare Dividend List from the Register of Members/beneficial owners, as on the last date of the closure, of the Register of Members and the Share Transfer Books., , (11) To make arrangement for the printing of a combined document containing “Notice of Dividend” and “Dividend, Warrant”, (B), , At the Meeting:, , 1., 2, , 3., 4., 5., 6., 7., 8., 9., , 10., 11., (C), , To arrange for the collection of admission slips or in the alternative to get the Attendance Register, signed by the shareholders, and to make them comfortable in their seats, and to look to the comfort, and convenience of the directors and the chairman., To help the Chairman in ascertaining quorum., , To read out the notice of the meeting if advised by the Chairman., , To read out the Auditor’s Report, if advised by the Chairman, when the item relating to adoption of 1., accounts is taken up for consideration., To produce copies of Memorandum and Articles of Association of the company., , To help the Chairman in the conduct of the meeting, particularly in the conduct of poll, counting of, votes etc., To supply to the Chairman any information which he may require in connection with the queries raised, by the shareholders relating to accounts and other connected matters., , Give advance information to the members who are to propose and second the resolutions to be passed, at the meeting., To take notes of the proceedings for the purpose of preparing minutes thereof., , To keep at the meeting Register of Members, Minutes Book of the general meeting containing minutes, of the previous annual general meeting(s), copies of the accounts, notice of the meeting and reports of, the directors and of the auditors., To ensure that the Chairman of the Audit Committee is present at annual general meeting to provide, any clarification on matters relating to audit and to answer shareholder queries; For listed entities, the, Chairperson of the Stakeholders Relationship Committee shall also be present at the annual general, meetings to answer queries of the security holders., , After the Meeting:, 1., , To prepare minutes of the proceedings., , 3., , To send intimation of appointment/re-appointment of directors. File Form DIR-12 with the Registrar, of Companies within 30 days of appointment along with filing fee., , 2., , 4., 5., 6., , To record the minutes of the meeting and get them signed by the Chairman within thirty days of the, meeting., , To send intimation of appointment/re-appointment of auditors. File form ADT-I with the Registrar, within 15 days of appointment/re-appointment, , To file copies of the special and other resolutions, if any, passed at the meeting, along with Form MGT14, with the Registrar of Companies, within thirty days of the meeting., , To file balance sheet, profit and loss account, reports of the directors and the auditors and the notice of, the meeting in Form AOC-4/AOC-4 CFS within thirty days of the meeting. In case of companies covered, under XBRL filing, it should be ensured that the annual accounts are filed in XBRL format. Ensure that, a copy of Secretarial Audit Report obtained from a Secretary in whole time practice as required under, Section 204(1) of the Act, if any, is filed with Registrar of Companies within 30 days from the date of, annual general meeting.
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847, , Lesson 19 • General Meetings, , The listed entity shall submit to the stock exchange and publish on its website a copy of the annual, report sent to the shareholders along with the notice of the annual general meeting not later than the, day of commencement of dispatch to its shareholders. [Regulation 34 of SEBI (Listing Obligations and, Disclosure Requirements) Regulations, 2015], , 7., , Where the company has invited public deposits, a copy of the Balance sheet shall be forwarded to the, RBI., , 8., , To open a separate bank account known as “Dividend Account for the year” and to deposit the total, amount of dividend within five days from the date of declaration of dividend., , 9., , 10., 11., 12., 13., , To get the Dividend Warrants and Notice of Dividend signed by authorised persons., , To dispatch Dividend Warrants together with the Notice of Dividend to the shareholders within thirty, days of the declaration of dividend after making arrangement with the banker for payment of dividend, warrants at prescribed number of branches at par., , To file along with the prescribed filing fee, Annual Return, as an attachment to Form MGT-7/MGT-7A, with the Registrar of Companies within sixty days of the meeting prepared as at the date of the annual, general meeting, as required by Section 92 of the Companies Act, 2013. The Certificate of Company, Secretary shall be in Form MGT-8., To take action on other decisions of the shareholders., , If the company is listed then to submit to the stock exchange, within 2 working days of conclusion, of annual general meeting, details regarding the voting results in the format specified by Board, (Regulation 44 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015]., , LESSON ROUND-UP, •, •, •, •, •, , An annual general meeting is required to be held every year by every company other than a One Person, Company (whether public or private, limited by shares or by guarantee, with or without share capital or, unlimited company)., In case of default is made in holding the annual general meeting of a company under section 96, the, Tribunal may call or direct the calling of an annual general meeting., , Class meetings are those meetings which are held by holders of a particular class of shares e.g. preference, shares., For a General Meeting to be valid, it must be duly convened, properly constituted and the business must, be validly transacted., , In case of public company the quorum shall depend on number of members as on the date of meeting, personally present in the meeting:•, , If members not more than 1000–quorum shall be 5, , •, , If members more than 5000- quorum shall be 30, , •, •, •, , If members more than 1000 but less than 5000- quorum shall be 15, , In case of private company 2 members personally present shall be the quorum of the meeting., , The central government is vested with the power to prescribe a class or classes of companies whose, members shall not be entitled to appoint another person as a proxy.
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848, , Lesson 19 • EP-CL, , , , •, , Chairman plays a very important role in a meeting as he is responsible for successful conduct of a meeting, , •, , Various methods which may be adopted for taking votes on a motion properly placed before a meeting are, by show of hands, by poll, by postal ballot and by electronic voting., , •, •, •, , A motion becomes a resolution only after the requisite majority of members have adopted it., , In accordance with Section 117 of the Act, certain resolutions are required to be filed with the Registrar, for recording within 30 days of its passing at the meeting., , Every company is required to keep minutes of the proceedings of general meetings and of the meetings, of Board of Directors and its Committees., , GLOSSARY, Book Closure, , Suo motu, , Book closure refers to the time period when a company will not handle adjustments to the, register, or requests to transfer shares. The book closure date is often used to identify the, cut-off date determining which investors of record will be sent a given dividend payment, or the issue of right or bonus shares or issue of shares for conversion of debentures. This, is more relevant in case of physical shares. Also refer Section 91 of Companies Act, 2013., It is a Latin legal term meaning “on its own motion” mutatis mutandis It is a Latin term, meaning “the necessary changes having been made” or “once the necessary changes have, been made, , TEST YOURSELF, , 1., 2., 3., 4., , 5., 6., , (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation), ABC Pvt Limited is incorporated on 31st December, 2019. Up to what time such company can hold its first, Annual General Meeting. What would be your answer if company incorporated on 1st January, 2020?, Some members have joined the meeting but at the time of transacting business items they left before, meeting ends without transacting any business items of the Notice. Does this constitute a valid General, Meeting? List out the points in the light of the provisions of Companies Act, 2013 having regard to Quorum, of General Meeting?, List out the persons whom Notice of the General Meeting is to be given. Explain the provisions with, respect to the Notice of the Annual General Meeting., Ram Commodities Private Limited could not hold its 10th annual general meeting for the year 2019-20 by, 30th September, 2020. The company sought extension of time for holding the AGM from the Registrar of, Companies but failed to hold the meeting within the extended time too. Instead, it held the meeting on 31st, March, 2021 and passed resolutions thereat. Certain shareholders have challenged the validity of these, resolutions. Referring to the provisions of the Companies Act, 2013, examine whether the contention of, the shareholders shall be tenable., What are the items that constitute Ordinary Business in an Annual General Meeting of a company?, Who shall be chairman of a general meeting of a company? What are the provisions of the Companies Act,, 2013 regarding his election?
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849, , Lesson 19 • General Meetings, , 7., 8., 9., , 10., 11., , Every Annual General Meeting of a company shall be called on a day which is not a National holiday. Can, an adjourned Annual General Meeting of a company be called on a National holiday?, A shareholder having given proxy, personally attends and votes at the meeting. Comment, illustrating a, case law., At a general meeting, two joint holders voted on a resolution. Will the votes of both the joint holders be, accepted?, What are the provision of the Companies Act, in regard to the holding of an Extra Ordinary General, Meeting?, At a General meeting of a company, a matter was to be passed by a special resolution. Out of 40 members, present, 20 voted in favour of the resolution, 5 voted against it and 5 votes were found invalid. The, remaining 10 members abstained from voting. The Chairman of the meeting declared the resolution as, passed.With reference to the provisions of the Companies Act, 2013, examine the validity of the Chairman’s, declaration?, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , ICSI Guidance Note on SS-2, , •, , Bare Act- Companies Act, 2013, , OTHER REFERENCES (Including Websites/Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Virtual Meetings, , Lesson 20, Key Concepts One, Should Know, •, •, •, •, , Virtual Meetings, , Electronic Mode, , Video-Conferencing, Audio Visual Mode, , Learning Objectives, , Regulatory Framework, , To understand:, , The Companies Act, 2013, , •, , Meaning of Virtual Meetings, , •, , •, , Procedure of Board meeting, through video or audio, conferencing, , •, , •, , Basic Requirements of, Virtual Meeting, , Advantages and Challenges, of Virtual Meetings, , •, , Section 108- Voting through, Electronic Means, Section 173- Meeting of, Board and its Power, , The Companies (Meetings of, Board and its Powers) Rules,, 2014, , •, , Rule 3- Meetings of Board, Through Video, Conferencing or Other, Audio Visual Means, , The Companies (Management, and Administration) Rules, 2014, •, , Rule 20- Voting through, Electronic means, , Secretarial Standards, , •, •, , SS-1- Secretarial Standard, on meeting of Board of, Directors, , SS-2- Secretarial Standard, on General Meetings, , The SEBI (LODR) Regulations,, 2015, Regulation 44- Meetings of, shareholders and voting, , Lesson Outline, •, •, •, •, •, , Introduction, Virtual Meeting – Meaning, Virtual Board Meeting, Procedure of Board meeting, through video or audio, conferencing, Voting through Electronic, Means in General Meetings, , •, •, •, •, •, •, , Virtual AGM/EGMs, LESSON ROUND-UP, GLOSSARY, TEST YOURSELF, LIST OF FURTHER READINGS, OTHER REFERENCES
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852, , , , Lesson 20 • EP-CL, , INTRODUCTION, In the present corporate scenario, companies are increasingly globalized with members spreading out not only in, various parts of country but throughout world disregarding the nature, size and listing status of companies. Rapid, pace of technological advancement facilitates virtual presence of human being to execute complex and important, tasks including legal compliances. Taking advantage of such advancement in information technology, necessary, provisions have been introduced under the Companies Act, 2013 for enabling the directors to participate in the, meetings of board, including committees thereof, through video conferencing or other audio- visual means., Chapter XII of the Companies Act 2013 deals with, Board Meeting. Section 173(1) stipulates that, every company shall hold the first meeting of the, Board of Directors within thirty days of the date of, its incorporation and thereafter hold a minimum, number of four meetings of its Board of Directors, every year in such a manner that not more than, one hundred and twenty days shall intervene, between two consecutive meetings of the Board., , However, an One Person Company, small company,, dormant company and a private company (if such private, company is a start-up) shall be deemed to have complied, with the provisions of this section if at least one meeting of, the Board of Directors has been conducted in each half of a, calendar year and the gap between the two meetings is not, less than ninety days., In case of Section 8 company - Section 173 (1) shall apply, only to the extent that the Board of Directors, of such, Companies shall hold at least one meeting within every six, calendar months., , Section 173(2) of the section specifies that, the, participation of directors in a meeting of the Board, may be either in person or through video, conferencing or other audio visual means, as may, be prescribed, which are capable of recording and recognizing the participation of the directors and of recording, and storing the proceedings of such meetings along with date and time., , Similarly, Section 108 of the Companies Act, 2013 provides for Voting through electronic means by the members of, the companies., , Virtual Meeting - Definition, , A meeting held totally by means of either Video conferencing or other audio-visual means is known as Virtual, Meeting. A Virtual meeting is when people around the world, regardless of their location, use video, audio, and text, to link up online. Virtual meetings allow people to share information and data in real-time without being physically, located together., , In virtual meeting there is no physical presence of participants and there is no designated venue for the purpose, of meetings. Participants located at different places participate in the meeting either by teleconference or video, conference or combination of them at predetermined time., Virtual meetings are becoming an increasingly common aspect at corporate world. When it comes to professional, communication and the way business are done, for most companies, virtual meetings is the fact of life. Companies, today operate across multiple time zones from different countries and continents. Employees, Board Members,, stakeholders and investors are not from any particular region, city or country; in fact they are spread wide and far., By using Virtual technology, it is possible to replace physical meetings which require the presence of people at the, designated place and time., , With rapid change in technology and wide spread of internet and audio and video combination, which is readily, available, affordable and reliable, many companies and organizations are adopting and favoring virtual meetings., The use of audio and video conferences, webinars and web meetings via computers, telephones or other devices is, more frequent. The potential gains are in terms of reduced travel costs, time saving, efficiency improvements, and, less environmental impact in terms of savings on fuel and transport., Virtual Meetings are held at a distance in real time basis with the help of digital technology. The meetings are mainly–, 1., , Audio- and/or video based, such as audio conferencing, video conferencing, and on-line meetings or webinars,, often they are supported by other forms like chat, white boards, document sharing, etc.
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853, , Lesson 20 • Virtual Meetings, , 2., 3., , Audio conferencing means conference calls with three or more participants, either by connecting the different, participants by using a conference phone, or both., Video conferencing, a technology now a day commonly used in board meetings., , Types of Meeting, , Same Time, Same Place, , Different Time, Same Place, , Conventional Meetings, , Same Time, Difference Place, , Project Meetings Organizational Meetings, , Conference Calls, , Email, , Online Meetings, , Discussion Forum, , Video Conferences, Web Conferences, , Different Time, Difference Place, Recordings, , Social Media, , The main economic benefits of virtual meetings are efficiency, improvements, direct savings through reduced travel, costs., , Success of virtual meetings depends on technical equipment, the software used and trained manpower which should, work well and be operated with ease. Virtual Equipment should be simple and easy to use and understand by the, users with little instruction or training. The Commonly used software for Virtual meeting are Microsoft’s Skype for, Business, Adobe’s Connect, Google’s Hangouts, Blue Jeans and WebEx to name a few. The development of new, technologies such as VOIP telephony (voice over internet protocol, an example of which is Skype) and shared, computer screens. All the major providers provide for a website address where participants can click to join the, meeting. Hence a virtual meeting is a “room” set up online through a website host that allows people from anywhere, to “meet” with each other to share information and network in real-time. As understood, a meeting can take the form, of audio, video, instant-message chat, and apps that can be shared among attendees, such as for taking notes or polls., Virtual meetings can also be recorded so that attendees or those who missed the meeting can review the meeting and, its chat transcripts at a later date. A virtual meeting space works through a Web browser plug-in and by a host’s local, or remote server. Participants usually have to log in, and they can see a list of other participants. Webcams are used, for those participating in video, and “Voice over Internet protocol,” or VoIP, allows the audio to work., , Brief Requirements for Virtual Meeting, , •, , Meeting rooms, , •, , High quality mike system., , •, •, •, •, •, •, •, •, •, , Software, which can be either purchased or can be provided by vendor for a fee on yearly rental basis., Hardware equipment like Monitor or LED screen, Webcams., Projectors., , Document scanners., Leased Lines., , High speed wireless internet., , Recording & Storage Equipment for recording the proceeding and Proper storage for future reference as, many be required under law., Have trial run before the meeting to ensure all the systems are working properly., Ensure that the proper arrangements are made in the Meeting room., , A virtual meeting room is a unique identifier that allows a meeting organizer to invite attendees from disparate, geographical locations to collaborate in real time over the Internet. A virtual meeting room is also known as a, virtual meeting space.
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854, , , , Lesson 20 • EP-CL, , Virtual Board Meetings, Present day Directors who are professional have busy schedules which makes it difficult for them to attend board, meetings of the companies in which they are directors especially for those who are living and working in different, cities and countries. Teleconferencing, videoconferencing, and meeting online benefit boards and directors to, enable them to attend the meetings from any location. Virtual meetings help the directors to participate in meetings, whereever they are despite their busy schedule and make valuable contributions by their participation. Virtual, attendance can also make board participation more attractive and appealing especially for independent directors, as they are not expected to attend every meeting of each company in person and it is not practically possible as they, sit on many boards of company which are located in different cities and countries. Further, due to statutory, requirements, most of the board meetings of the companies especially listed entities are held around the same time,, making it more difficult for the Independent professional directors to be physically present and participate in the, meetings. By holding virtual meetings, Boards, with members around the country and globe, will benefit from wider, participation and reduced travel and reimbursement costs; and it would be very convenient for the directors to, attend through virtual media from their respective location., The use of technology can present its own challenges, viz., directors’ reluctance, lack of technical proficiency, lack of, access to data and material, confidentiality etc. However, modern tools like board portals and board management, software helps them in solving some of the concerns., Section 173 of Companies Act, 2013 read with Rule 3 of the Companies (Meetings of Board and its Powers), Rules, 2014 and Secretarial Standards on Board meetings (SS-1) provides a much wanted platform for holding, Virtual Board Meetings., , SS-1 defines “Electronic Mode” in relation to Meetings means Meetings through video conferencing or other, audio-visual means. “Video conferencing or other audio visual means” means audio-visual electronic communication, facility employed which enables all the persons participating in a Meeting to communicate concurrently with each, other without an intermediary and to participate effectively in the Meeting., “Secured Computer System” means computer hardware, software, and procedure that –, (a), , are reasonably secure from unauthorized access and misuse;, , (d), , adhere to generally accepted security procedures., , (b), (c), , provide a reasonable level of reliability and correct operation;, , are reasonably suited to performing the intended functions; and, , “Timestamp” means the current time of an event that is recorded by a Secured Computer System and is used to, describe the time that is printed to a file or other location to help keep track of when data is added, removed, sent, or received. In simple language, Time Stamp means a digital record of the time of occurrence of a particular event., SS-1 provisions related to Virtual Board Meeting in detail are as under:, , Para 1.2.3 provides that any Director may participate through Electronic Mode in a Meeting unless the Act, or any other law specifically prohibits such participation through Electronic Mode in respect of any item of, business., Earlier restriction was levied on Directors to participate through Electronic Mode in the discussion on certain, restricted items prescribed under Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014., However, the MCA vide Notification dated June 15, 2021 has omitted Rule 4 of the Companies (Meetings of Board, and its Powers) Rules, 2014 which was related to the matters not to be dealt with in a meeting through video, conferencing or other audio-visual means., Accordingly, with the said amendment, now the following previously restricted matters can be considered in a, Board Meeting held through video conferencing or other audio-visual means, namely: i., , the approval of the annual financial statements;
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Lesson 20 • Virtual Meetings, , ii., , the approval of the Board’s report;, , v., , the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover., , iii., iv., , 855, , the approval of the prospectus;, , the Audit Committee Meetings for consideration of financial statement including consolidated financial, statement if any, to be approved by the board under section 134 (1) of the Companies Act, 2013; and, , Para 1.3.1 provides that notice in writing of every Meeting shall be given to every Director by hand or by, speed post or by registered post or by facsimile or by e-mail or by any other electronic means., The Notice shall be sent to the postal address or e-mail address, registered by the Director with the company or in, the absence of such details or any change thereto, any of such addresses appearing in the Director Identification, Number (DIN) registration of the Director., Even if the notice is sent by e-mail or by any electronic means to the email id provided by the Director, then such, notice sent through electronic platform shall be constituted as valid notice served on the director., Para 1.3.4 provides that the Notice shall inform the Directors about the option available to them to, participate through Electronic Mode and provide them all the necessary information., , If a Director intends to participate through Electronic Mode, he shall give sufficient prior intimation to the Chairman, or the Company Secretary to enable them to make suitable arrangements in this behalf., , The Director may intimate his intention of participation through Electronic Mode at the beginning of the Calendar, Year also, which shall be valid for such Calendar Year. Though such declaration shall not debar him from participation, in the meeting in person, in such case a sufficient intimation of attending in person is required to be sent to the, company., The Notice shall also contain the contact number or e-mail address(es) of the Chairman or the Company Secretary, or any other person authorized by the Board, to whom the Director shall confirm in this regard. In the absence of an, advance communication or confirmation from the Director as above, it shall be assumed that he will attend the, Meeting physically., , Every notice served on the director shall clearly specify that proper arrangements have been made for video, conferencing and the director has option of participating in the meeting through such means. The Director should, be sent the link through which he can log in and attend the meeting. The Director should inform the Chairman or, the Secretary of the Company his option regarding participating the meeting through Electronic mode., Para 3.3 provides that the directors participating through Electronic Mode in a Meeting shall be counted for, the purpose of Quorum, unless they are to be excluded for any items of business under the provisions of the, Act or any other law., The chairperson shall ensure that the required quorum is present throughout the meeting., , The attendance registers, , Para 4.1.3 provides that the attendance register shall be deemed to have been signed by the Directors, participating through Electronic Mode, if their attendance is recorded in the attendance register and, authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman or by, any other Director present at the Meeting, if so authorized by the Chairman and the fact of such participation, is also recorded in the Minutes., In case of Directors participating through Electronic Mode, the Chairman shall confirm the attendance of such, Directors. For this purpose, at the commencement of the Meeting, the Chairman shall take a roll call. The Chairman, or Company Secretary shall request the Director participating through Electronic Mode to state his full name,, location from where he is participating, confirm that he has received the agenda and other relevant material and, that no one other than the concerned director is attending or having access to the proceedings of the meeting at the, location. This shall also be recorded in the Minutes. The proceedings of such Meetings shall be recorded through, any electronic recording mechanism and the details of the venue, date and time shall be mentioned.
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856, , , , Lesson 20 • EP-CL, , Venue of the meeting, With respect to every meeting conducted through video conferencing or other audio-visual means authorised, under these rules, the scheduled venue of the meeting as set forth in the notice convening the meeting shall be, deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to, be made at such place., , Role of Chairperson and Company Secretary, , The Chairperson of the meeting and the company secretary shall take due and reasonable care with respect to the, following:, (a), , to safeguard the integrity of the meeting by ensuring sufficient security and identification procedures to, record proceedings;, , (c), , to record proceedings and prepare the minutes of the meeting;, , (b), (d), (e), (f), , to ensure availability of proper video conferencing or other audio-visual equipment or facilities for providing, transmission of the communications for effective participation of the directors and other authorised, participants at the Board meeting;, to store for safekeeping and marking the tape recording(s) or other electronic recording mechanism as part, of the records of the company at least before the time of completion of audit of that particular year., to ensure that no person other than the concerned director are attending or have access to the proceedings, of the meeting through video conferencing mode or other audio visual means; and, , to ensure that participants attending the meeting through audio visual means are able to hear and see the, other participants clearly during the course of the meeting. The directors, who are differently abled, may be, facilitated by the Board to allow a person to accompany him provided such Director requests the Board to, allow a person to accompany him and ensures that such person maintains confidentiality of the matters, discussed at the Meeting., , Procedures for Convening and Conducting Board’s Meetings through Video or Audio Visual Means, (Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014), , Directors may participate in the meeting either in person or through video conferencing or other audio-visual means., Rule 3 of the Companies (Meetings of Board and its Powers) Rules, 2014 provides for the requirements and, procedure for convening and conducting Board meetings through video conferencing or other audio-visual means:, 1., , Every Company shall make necessary arrangements to avoid failure of video or audio-visual connection., , 3., , (a), , 2., , The Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care as, discussed above., (b), (c), , (d), (e), , The notices of the meeting shall be sent to all the directors in accordance with the provisions of sub, section (3) of section 173 of the Companies Act, 2013., , The notice of the meeting shall inform the directors regarding the option available to them to participate, through video conferencing mode or other audio-visual means, and shall provide all the necessary, information to enable the directors to participate through video conferencing mode or other audiovisual means., A director intending to participate through video conferencing mode or audio-visual means shall, communicate his intention to the Chairman or the Company Secretary of the company., If the director intends to participate through video conferencing or other audio-visual means, he shall, give prior intimation to that effect sufficiently in advance so that company is able to make suitable, arrangement in this behalf., , Any director who intends to participate in the meeting through electronic mode may intimate about, such participation at the beginning of the calendar year and such declaration shall be valid or one year:
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Lesson 20 • Virtual Meetings, , 4., , (f), , However, such declaration shall not debar him from participation in the meeting in person in which, case he shall intimate the company sufficiently in advance of his intention to participate in person., In the absence of any such intimation from the director, it shall be assumed that the director will attend, the meeting in person., , At the commencement of the meeting, a roll call shall be taken by the Chairperson when every director, participating through video conferencing or other audio-visual means shall state, for the record, the following, namely:, (a), , name;, , (c), , that he has received the agenda and all the relevant material for the meeting; and, , (b), , 5., , 857, , (d), (a), , the location from where he is participating;, , that no one other than the concerned director is attending or having access to the proceedings of the, meeting at the location mentioned in (b) above., , After the roll call, the Chairperson or the Secretary shall inform the Board about the names of persons, other than the directors who are present for the said meeting at the request or with the permission of, the Chairman and confirm that the required quorum is complete., , Explanation: It is clarified that a director participating in a meeting through video conferencing or, other audio-visual means shall be counted for the purpose of quorum, unless he is to be excluded for, any items of business under any provisions of the Act or the Rules., 6., 7., 8., , (b), , The Chairperson shall ensure that the required quorum is present throughout the meeting., , With respect to every meeting conducted through video conferencing or other audio-visual means authorised, under these rules, the scheduled venue of the meeting as set forth in the notice convening the meeting, shall, be deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be, deemed to be made at such place., , The statutory registers which are required to be placed in the Board meeting as per the provisions of the Act, shall be placed at the scheduled venue of the meeting and where such registers are required to be signed by, the directors, the same shall be deemed to have been signed by the directors participating through electronic, mode if they have given their consent to this effect and it is so recorded in the minutes of the meeting., (a), , (b), , Every participant shall identify himself for the record before speaking on any item of business on the, agenda., , If a statement of a director in the meeting through video conferencing or other audio-visual means is, interrupted or garbled, the Chairperson or Company Secretary shall request for a repeat or reiteration, by the director., , 9., , If a motion is objected to and there is a need to put it to vote, the Chairperson shall call the roll and note the, vote of each director who shall identify himself while casting his vote., , 11., , (a), , 10., , 12., , From the commencement of the meeting until the conclusion of such meeting, no person other than the, Chairperson, Directors, Company Secretary and any other person whose presence is required by the Board, shall be allowed access to the place where any director is attending the meeting either physically or through, video conferencing without the permission of the Board., , (b), , (a), , At the end of discussion on each agenda item, the Chairperson of the meeting shall announce the, summary of the decision taken on such item along with names of the directors, if any, dissented from, the decision taken by majority and the draft minutes so recorded shall be preserved by the company, till the confirmation of the draft minutes in accordance with sub-rule (12)., , The minutes shall disclose the particulars of the directors who attended the meeting through video, conferencing or other audio-visual means., , The draft minutes of the meeting shall be circulated among all the directors within fifteen days of the, meeting either in writing or in electronic mode as may be decided by the Board.
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858, , (b), , (c), , , , Lesson 20 • EP-CL, , Every director who attended the meeting, whether personally or through video conferencing or other, audio-visual means, shall confirm or give his comments in writing, about the accuracy of recording of, the proceedings of that particular meeting in the draft minutes, within seven days or some reasonable, time as decided by the Board, after receipt of the draft minutes failing which his approval shall be, presumed., After completion of the meeting, the minutes shall be entered in the minute book as specified under, section 118 of the Act and signed by the Chairperson., Explanation - For the purposes of this rule, ‘video conferencing or other audio-visual means’ means, audio-visual electronic communication facility employed which enables all the persons participating, in a meeting to communicate concurrently with each other without an intermediary and to participate, effectively in the meeting., , Summarized procedure of Video conferencing:, •, , Roll call by chairperson;, , •, , No unauthorized access;, , •, •, •, •, •, •, , Directors to introduce themselves at each and every time they speak on matters;, Presence will be counted for quorum;, , Differently abled Director may have person accompanying them;, Directors to repeat if there is any disturbances;, , Chairperson to announce summary at the end of the Meeting;, , Minutes of the meeting to contain the names of Directors who participated through Video conference., , Voting through Electronic Means in General Meeting under the Companies Act, 2013, , Section-108 of the Companies Act, 2013 provides for voting through electronic means. —The Central Government, is empowered to prescribe the class or classes of companies and manner in which a member may exercise his right, to vote by the electronic means., , As per Rule 20 of the Companies (Management and Administration) Rules, 2014, every company which has listed, its equity shares on a recognised stock exchange and every company having not less than one thousand members, shall provide to its members facility to exercise their right to vote on resolutions proposed to be considered at a, general meeting by electronic means., However, a Nidhi, or an enterprise or institutional investor referred to in chapter XB (Companies listed on SME, exchange) or chapter XC (Companies listed on institutional trading platform without IPO) of the SEBI (Issue of, Capital and Disclosure Requirements) Regulations, 2009 is not required to provide the facility to vote by electronic, means., “Voting by electronic means” includes “remote e-voting” and voting at the general meeting through an electronic, voting system which may be the same as used for remote e-voting., “Remote e-voting” means the facility of casting votes by a member using an electronic voting system from a place, other than venue of a general meeting., Para 7.2.2 of SS-2 provides that every company, which has provided e-voting facility to its Members, shall, also put every Resolution to vote through a ballot process at the Meeting., , Ballot process may be carried out by distributing ballot/poll slips or by making arrangement for voting through, computer or secure electronic systems., , Any Member, who has already exercised his votes through Remote e-voting, may attend the Meeting but is prohibited, to vote at the Meeting and his vote, if any, cast at the Meeting shall be treated as invalid.
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Lesson 20 • Virtual Meetings, , 859, , Virtual AGM/EGM, General meetings, particularly when large numbers of shareholders are involved, can be very expensive and are not, considered to be a cost-effective. Virtual meetings of members have advantages for companies and their shareholders., Present-day shareholders are spread across the country and also in different countries, and as the AGMs can only, conducted in the city or place in which the registered office of the company is located, it makes it more difficult for, the shareholders located in faraway locations and cites to attend the meetings as it involves lot of travel time and, cost. With less participation, the agenda items are often passed without any discussion with fewer members. Virtual, meetings will help in increasing shareholder participation as compared to physical meetings because of improved, access, shareholders who cannot attend in person due to location or other reasons can attend virtually and do not, have to incur the time and costs of travel to a physical meeting., , Similarly, companies may find virtual meetings help to achieve wider shareholders participation. Virtual annual, meetings offer benefits to both companies and shareholders. With companies and investors becoming increasingly, global, virtual meetings can save travel time and costs for shareholders, avoid traffic and other logistical delays and, be easier to schedule. It will also eliminate the costs of an in-person meeting, including travel for shareholders and, a company’s directors and management, thereby allowing shareholders more time to attend more meetings in, which they hold shares, as well as minimizing the amount of time that directors and management must spend at, meetings. This in turn will increase the participation of shareholders who would otherwise not attend the meetings., , Advantages of Virtual AGM/EGMs, , •, , Increase shareholder participation in meetings,, , •, , Provides greater accessibility to shareholders who cannot be physically present due to distance., , •, •, •, •, •, , Save time on travel and cost because of remote voting., , Encourages more participation by investors across the world., , Enables institutional investors to attend more than one meeting in a day and protect shareholders interest., , Reduce the cost of holding and conducting shareholder meeting, including the costs of the venue, stationary,, transport and refreshments., Saves time of the Company’s personnel., , Difficulties in holding Virtual Meetings of Members:, , •, , Security of the systems used., , •, , Combined registration, voting and reporting software., , •, •, •, •, •, •, •, •, , Streaming with quality without interruption., , Providing with secure login and shareholder authentication for attendance, with ease of access for, shareholders, and remote voting., Customized instant results screen and detailed audit reporting., Data Security of Logins and Passwords., , Allowing the shareholders, the choice of device., , the technology used must give all shareholders a reasonable opportunity to participate, , the technology must be secure and must provide reasonable measures for verifying/validating those allowed, to attend and vote at the meeting, The company must provide a digital record of the meeting., , It is pertinent to mention that as per Regulation 44 of the SEBI (LODR) Regulations, 2015 the top 100 listed entities, shall provide one-way live webcast of the proceedings of the annual general meetings., The top 100 entities shall be determined on the basis of market capitalisation, as at the end of the immediate, previous financial year.
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860, , , , Lesson 20 • EP-CL, , Voting by electronic means is a facility given to the members of a company to cast their votes on the resolutions, through electronic mode. It provides an opportunity to shareholders residing in far-flung area to take part in the, decision making process of the company. They may or may not attend the meeting physically. Boards in their, fiduciary capacity are now looked upon for greater accountability and transparency for the effectiveness of their, overall governance process. E-Voting is a further step to encourage corporate democracy and to promote good, corporate governance., , E-voting allows a voter to record his or her secure and secret ballot electronically. E-voting are generally used in, government elections like general elections, state legislative assembly elections etc. and considered as a tool of, effective governance in voting infrastructure. E-voting is a common Internet infrastructure that enables the investors, to vote electronically on resolution of companies. Shareholders normally exercised their votes on resolutions, proposed by companies through postal ballot. If a company decides to pass any resolution by resorting to postal, ballot, it will send a notice to all the shareholders, requesting them to send their assent or dissent in writing on a, postal ballot. The Companies Act, 2013 had ushered in the concept of e-voting to ensure wider shareholder, participation in the decision-making process in companies. The concept has been discussed in earlier chapter., The COVID -19 pandemic has shifted India towards the digital businesses, wherever possible are working from, home that is now considered a new normal. The MCA and the SEBI has allowed the companies to conduct their, Board meetings as well as hold general meetings virtually., Practical Situations arising in Meetings through Video-Conferencing, 1), , How to accommodate the shareholders who wants to ask questions in view of the large attendance, of shareholders throughout the length and breadth of the country?, A., , 2), , Why the proxy provisions are dispensed with in case of General meetings held through video, conferencing?, A., , 3), , 4), , 5), , In the notice to the AGM it may be mentioned that shareholders whoever wants to speak to get, their names registered and it’s also to be mentioned that at the discretion of the Chairman the, speakers will be allowed to speak depending upon the availability of time., In case of VC meetings there is no question of proxy attendance. A shareholder can himself attend, the meeting from wherever he is located. Same applies to the case with e-voting. In case of e-voting, also there is no proxy to vote on behalf of the shareholder., , Is it required to give venue of the meeting in the Notice? If so what would be the venue of the, meeting, for meetings held through video conferencing?, A., , Yes, place of the meeting shall be provided in the Notice. In case of virtual meetings deemed venue, is to be given., , A., , Yes, companies can restrict the speakers depending upon the availability of time. The notice calling, for meeting should require the speaker shareholders to register themselves in advance and depending, upon the time availability, it shall be at the discretion of the Chairman to allow the speakers., , For conduct of AGMs through VC/OAVM, can the Companies mention in their AGM notices that the, Company holds the right to restrict the number of speaker shareholders depending on the, availability of time. Are the companies allowed to restrict speakers?, , In addition, companies may allow recordings to be sent in advance with the permission of the, Chairman and shareholders, in order to avoid scenarios where a speaker shareholder may get, disconnected or have an audio/visual connection issue, thus saving time and effectively maintaining, the decorum of the meeting., , The number of speakers registering to speak at the meeting has gone up considerably. Companies, are forced to choose those speakers who are favourably disposed to the company. Is this a correct, practice? How can this be managed?
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Lesson 20 • Virtual Meetings, , A., , 6), , In case the registers are not maintained in an electronic form, the physical registers/documents, should be scanned for uploading in a virtual data room established for the purpose. Login ID and, password can be provided for inspection and it is to be ensured that only view rights are given for, inspection and the registers/documents cannot be deleted, copied or downloaded or the register/, documents may be made available for inspection on a virtual platform (e.g., Zoom, Microsoft teams,, etc.), and displayed in a presentation form. The registers/documents which shall be made available, for inspection in connection with the AGM, shall be made available from the time notice is given till, the conclusion of the meeting., In case, the Chairman of the meeting gets disconnected due to poor connectivity, etc. for 5-10, minutes, it does not necessarily lead to adjournment of the meeting. However, if the Chairman is, unable to join again and depending on the size, structure, dynamics of the company, there are two, options available: either adjourn the meeting or if the meeting so decides elect another Chairman, to proceed with the AGM, the company is required to follow the Articles/Section 104 of the, Companies Act, 2013 and proceed accordingly., , Do Shareholders and Directors have any rights to ask recording of AGM conducted through VC or, OAVM?, A., , 10), , Shareholder may share his query well in advance with the Company so that even if he could not get, connected, his query may be read out and answered. However, the shareholder may prefer to raise, his query at the meeting only and in such case, he need not share his query in advance with the, Company., , What are the consequences if during the AGM held through VC or OAVM, the Chairman gets, disconnected due to poor net connectivity etc. and unable to join again? How can the Company, proceed with the AGM for remaining items?, A., , 9), , For e.g., giving 3 mins each to 50 registered speakers in a meeting held through VC or OAVM will, prolong the meeting with 150 minutes. Therefore, it is at the discretion of Chairman to decide the, order (first come first serve, etc.) and the cut-off depending on the situation and time availability., , How can the companies keep registers open for inspection at the AGM held via VC or OAVM, if the, Company does not maintain the registers in electronic form and nor the company has scanned the, same?, A., , 8), , If the number of speaker’s shareholders registering is considerably more, the Chairman should put, a cut-off as it may not be feasible to allow all the registered speakers due to time constraints., , Is it mandatory to share the question / query well in advance with the Company by the Shareholder, at the time of registering himself as speaker. Can a shareholder refuse to share the question, even, if asked to share, by the Company?, A., , 7), , 861, , Recording of the General Meetings held through VC or OAVM is not mandatory as per law and only, the recorded transcript has to be maintained. Therefore, a shareholder/director cannot ask for the, recording of meeting conducted through VC or OAVM. Even if the company records the meeting its, only for their internal purpose., , Do Shareholders and Directors have any rights to ask for the copy of recorded transcript of AGM, conducted through VC or OAVM?, A., , Public companies have to mandatorily upload the recorded transcript on the web site of the, company, if any. In case where a company has no website and has not uploaded the transcript, may, provide a copy of the same to the shareholder who ever has asked for the same. In case of a, private company there is no such requirement of uploading the recorded transcript on the, website of the company. However, even in such cases as a good Governance measure copy of, the recorded transcript may be made available, since there is no confidentiality as such is, involved.
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862, , 11), , , , How to ascertain the quorum during the proceedings of AGM? In case a person leaves the AGM, through VC in between, whether he would be counted for the purpose of quorum or should he be, present throughout the meeting?, A., , 12), , It is not mandatory to engage the services of CDSL or NSDL for the purpose of holding a meeting, through VC or OAVM, even though they might be the service providers for the purpose of e-voting., The company may use other service providers which depends upon the size of the company,, number of shareholders and commercials., The service providers for e-voting shall be registered / certified and no such requirement is there, for service providers who provide the platforms for holding virtual shareholders meetings., , Are the directors physically present at the Board Meeting venue also need to answer the roll call, as per Rule 3(4) of the Companies (Meetings of the Board and its powers) Rules, 2014 in case of a, meeting held through VC or OAVM?, A., , 14), , As per para 3.1 of Secretarial Standard – 2 on General Meetings, the quorum shall be present, throughout the meeting. It shall be the responsibility of the Chairman and the Company Secretary, to keep a check on the attendance throughout the meeting for the purpose of quorum and if the, attendance depletes below the required quorum, the meeting should be adjourned., , Is it mandatory to engage the services of CDSL or NSDL for the purpose of VC or we can have, arrangements with the private service provider viz., Zoom, Google Meet, Webex, etc., especially, when e-voting facility is provided by CDSL/NSDL only?, A., , 13), , Lesson 20 • EP-CL, , All the directors attending the meeting whether from the venue or elsewhere, need to answer the, roll call as per the requirement of Rule 3(4) of The Companies (Meetings of the Board and its, powers) Rules, 2014 in order to identify themselves. In addition, the directors attending through, VC are also required to confirm that nobody else has access to the proceedings, confirm their, location, receipt of documents in time, confirm no technical issues with audio/video connection,, etc. After the roll call, the Chairman to also inform the presence of the invitees and their names., , Do Shareholders and Directors have any rights to ask recording of Board meetings conducted, through VC or OAVM?, A., , In case of a Board meeting, if a Director is attending the meeting through VC or OAVM, it has to be, mandatorily recorded and the recording is to be preserved up to the next audit of the Company. In, case a Director requests for a copy of the recording, the company is not under an obligation of, providing the copy of such recording to the Director in order to maintain the sanctity of the meeting., However, depending upon the situation for e.g., to verify the discussions / decisions taken in the, Minutes of the meeting, etc. to give his comments on the draft minutes of the Board meeting, the, Director may be allowed to view the recording of the meeting., , A director has no right to audio record the proceedings of the Board meeting, even though there is, a request from any director to audio record the board meeting proceedings, the Chairman should, not allow such request to maintain the confidentiality., 15), , A shareholder has no right to ask for the recording of the Board Meeting. As a matter of fact he has, no right to even inspect the minutes of the Board Meeting., , If one of the Directors is an Indian Director and rest all are Foreigner Directors, in case of 100%, Indian Subsidiary of a Foreign Entity, all Directors are located in 4 different countries, How can, they manage Board Meeting and what place will be considered as the place of Board meeting?, (Means, which country will be considered as country where Board meeting is held), A., , In case where all the directors are in different countries attending a Board Meeting through VC or, OAVM, the place of Board meeting shall be as per Rule 3 (6) of the Companies (Meeting of Board, and its Powers) Rules, 2014 which provides that:
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863, , Lesson 20 • Virtual Meetings, , With respect to every meeting conducted through video conferencing or other audio-visual means, authorised under these rules, the scheduled venue of the meeting as set forth in the notice, convening the meeting, shall be deemed to be the place of the said meeting and all recordings of the, proceedings at the meeting shall be deemed to be made at such place. Therefore, the place of the, Board meeting shall be what is mentioned in the notice calling the Board Meeting., 16), , In case of a board meeting held through VC the venue of the meeting will be a deemed venue., , Whether the Interested Director/Related Party Director is required to log out from the meeting, conducted through VC or OAVM during discussions on subject matter of resolution relating to such, contract/arrangement?, A., , In case of physical meeting, the Director needs to vacate the room during discussions on the subject, matter of a resolution in which he is a related party. Taking a strict interpretation of the same, one, can say that in case of a meeting being held through VC or OAVM, the Interested Director should, virtually log out during the said discussion and re-log in afterwards., Source: ICSI FAQs on Virtual Meeting, , CASE LAW:, 1) Achintya Kumar Barua alias Manju Baruah and Ors.Vs. Ranjit Barthkur Company Appeal (AT) No. 17 of, 2018 February 08, 2018, NCLAT: Participation in board meeting through video conferencing – Whether right of a director is, subject to availability of facility by company?, The NCLAT observed that Section 173(2) gives right to a Director to participate in the meeting through videoconferencing or other audio-visual means and the Central Government has notified Rules to enforce this right, and it would be in the interest of the companies to comply with the provisions in public interest., •, , It is clear that the Rules require that the company shall comply with the procedure prescribed for, convening and conducting the Board meetings through video-conferencing or other audio-visual means., , •, , The appellant contented that sub-Rule (2)(e) puts the burden on the Chairperson to ensure that no person, other than the concerned Director is attending and this would not be possible for Chairperson to ensure, in video-conferencing., , •, , •, , •, •, , The Chairperson and Company Secretary, if any, have to take due and reasonable care as specified in Rule, 3(2) of the Companies(Meetings of the Board and its Power) Rules, 2014., , The NCLAT observed that they do not find force in the submission as Rules, read as a whole are a complete, scheme., Sub-Clause (4)(d) of Rule 3 puts responsibility on the Director participating also. The Chairperson will, ensure compliance of sub-Clause (e) or Clause (2) and the Director will need to satisfy the Chairperson, that Sub-Clause (d) of Clause 4 is being complied., , Appellants tried to rely on the Secretarial Standard on Meetings of the Board of Directors to submit that, the guidelines are that such participation can be done “if the Company provides such facility”. NCLAT, observed that such guidelines cannot override the provisions under the Rules. The mandate of Section, 173(2) read with Rules mentioned above cannot be avoided by the companies., Hence, NCLAT came to the conclusion that the provisions of section 173(2) of the 2013 Act are mandatory, and the companies not be permitted to make any deviations therefrom and directed non- applicants, before it to provide the facilities as per Section 173(2) of the New Act subject to fulfilling the requirements, of Rule 3(3)(e) of the Rules.
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864, , Lesson 20 • EP-CL, , , , LESSON ROUND-UP, •, , A virtual meeting is when people around the world, regardless of their location, use video, audio, and text, to link up online., , •, , The Section 173 of Companies Act, 2013 read with Rule 3 of the Companies (Meetings of Board and its, Powers) Rules, 2014 and Secretarial Standards on Board meetings (SS-1) provides a platform for holding, virtual Board Meetings., , •, , virtual meeting is a “room” set up online through a website host that allows people from anywhere to, “meet” with each other to share information and network in real-time., , •, , The Director may intimate his intention of participation through Electronic Mode at the beginning of the, Calendar Year also, which shall be valid for such Calendar Year., , •, , Directors participating through Electronic mode are counted for quorum unless prohibited as per law., , •, , The chairperson shall ensure that the required quorum is present throughout the meeting., , GLOSSARY, Roll Call, VoIP, , A roll call is nothing but identifying and confirming the attendance of the director, participating through Electronic Mode., VoIP (voice over IP) is the transmission of voice and multimedia content over Internet, Protocol (IP) networks. VoIP compresses and encapsulate audio into data packets,, transmit the packets across an IP network and unencapsulate the packets back into, audio at the other end of the connection., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., , What do you understand by the concept of Virtual meeting? Discuss its benefits of such meeting., , 3., , What is Video-conferencing ? Can AGM be conducted through Video Conferencing under the Companies, Act, 2013 ?, , 2., 4., 5., 6., , ABC ltd. Wants to hold meeting through electronic mode. As a Company Secretary, detail the procedure to, the Board., Who can participate in Virtual Meetings ?, , What are the pros and cons of Virtual Meetings ?, , ONS Ltd., an unlisted public company, has six directors on the Board with a quorum of 3 directors, physically present for any board meeting. The Company convened a board meeting to approve the annual, financial statements in which two out of the six directors participated through video conferencing. The, financial statements were approved with the consent of the four directors physically present. Can the, financial statements be taken to be validly approved ?
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865, , Lesson 20 • Virtual Meetings, , LIST OF FURTHER READINGS, •, , ICSI Premier on Company Law, , •, , SS-2 and ICSI Guidance Note, , •, •, •, , Bare Act- Companies Act, 2013, SS-1 and ICSI Guidance Note, , ICSI FAQs on Virtual Meetings, , OTHER REFERENCES (Including Websites/ Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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Lesson 21, Key Concepts One, Should Know, •, , Ethics, , •, , Professionalism, , •, , Disciplinary, Mechanism, , •, •, •, •, •, •, , Transparency, , Accountability, Associate, Member, , Fellow Member, , UDIN, , ECSIN, , Legal Framework Governing, Company Secretaries, Learning Objectives, , Regulatory Framework, , To understand:, , The Company Secretaries Act,, 1980, , •, , •, , •, , Expectation from a member, with respect to various, aspects of the ethical, conduct., , Concept of assistance in, defining, appropriate, personal and professional, conduct, to provide guidance, in the identification and, resolution of ethical issues,, and, , •, •, , The Company Secretaries, Regulations, 1982, ICSI, (Guidelines, for, Advertisement by Company, Secretaries), 2020, , The prospect of company, secretaries to maintain the, culture of honesty, integrity,, transparency, and, accountability., , Lesson Outline, •, , Introduction, , •, , Provisions relating to misconduct under the Company Secretaries, Act, 1980, , •, •, •, •, •, , Associate and Fellow Company Secretaries, Disciplinary mechanism, Recent Updates, , Guidelines for Advertisement by Company Secretary in Practice, LESSON ROUND-UP, , •, , GLOSSARY, , •, , OTHER REFERENCES, , •, •, , TEST YOURSELF, , LIST OF FURTHER READINGS
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868, , , , INTRODUCTION, , Lesson 21 • EP-CL, , The need to have a profession of Company Secretaries was first felt in early 50’s, when the business environment, had started changing, that had necessitated the services of a professional to bring Corporate Discipline., The Government set up an Advisory Board on a non-statutory basis, to help it in standardising the basic qualifications, needed for manning the position of Company Secretaries and to hold the qualifying examination., , Subsequently, the Department of Company Affairs conducting examination leading to Government Diploma in, Company Secretaryship (GDCS), marked the beginning of the profession of Company Secretaries in an organised, manner. Later in the wake of substantial increase in the number of candidates for GDCS, the Institute of Company, Secretaries of India was set up and registered as a company on 4th October, 1968 under Section 25 of the Companies, Act, 1956 (i.e. not for profit company) with its registered office at New Delhi. The work relating to Company, Secretaries’ Examination and all allied matters were taken over by the Institute with effect from 1st January 1969., In 1980, the Government moved the Company Secretaries Bill, 1980 to convert the Institute into a statutory body., While moving the Company Secretaries Bill, 1980 for consideration by the Lok Sabha on 16th June, 1980, the, then Minister of Law, Justice and Company Affairs, Shri P. Shiv Shankar had said, “An essential ingredient in the, healthy growth of the corporate sector is the induction of professional management. The Government attaches, special importance to the development of professional management, so that the corporate sector can evolve and, function in tune with the changing needs of the times, and the social responsibilities that this important segment, of the economy has to shoulder. The profession of Company Secretaries has an important part to play in the, introduction of professionalism in the area of corporate management.”, , Some legal terminologies and interpretation, , According to section 2(1)(c)of the Company Secretaries Act, 1980“Company Secretary” means a person who is a, member of the Institute of Company Secretaries of India., The role of the Company secretary is defined in various other legal enactments., , Under the Companies Act, 2013 Company Secretary has been defined under section 2(24) as: ‘Company Secretary’, or ‘Secretary’ means a Company Secretary as defined in clause (c) of sub section (1) of Section 2 of the Company, Secretaries Act, 1980 who is appointed by a company to perform the functions of the Company Secretary under the, Companies Act, 2013., Functions have been well discussed in earlier lessons., , Associates and Fellows, , The members of the Institute shall be divided into two classes designated respectively as Associates and Fellows., (1) Associate Members, , According to Regulation 4(1) of The Company Secretaries Regulations, 1982 as amended by The Company, Secretaries (Amendment) Regulations, 2020., , No person shall be entitled to have his name entered in the Register as an Associate, unless he,–, (a) has passed examinations conducted by the dissolved company and has completed practical training, either as prescribed in the earlier regulations or as prescribed in the Company Secretaries (Amendment), Regulations, 2020 or has passed the qualifying examinations and completed the practical training as, prescribed in these regulations; or, (b) has passed such other examination and completed such other training outside India as is recognised by, the Central Government or the Council as being equivalent to the examination and training prescribed in, these regulations; or, (c), , had registered himself as a student with the Institute of Chartered Secretaries and Administrators,, London on or before 31st December, 1972 and had passed the Final Examination or Professional
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Lesson 21 • Legal Framework Governing Company Secretaries, , 869, , Programme Examination of that Institute and had either possessed the required practical experience or, undergone the prescribed practical training as stipulated for candidates passing the Final Examination, or Professional Programme Examination conducted by the Institute; or, , (d) is an Indian citizen who is a “person resident outside India” as defined in clause (w) of section 2 of the, Foreign Exchange Management Act, 1999 (42 of 1999)and has become a member of the Institute of, Chartered Secretaries and Administrators, London, after passing the qualifying examination conducted, by that Institute and had either possessed and required practical experience in India or abroad, or, undergone the prescribed practical training as stipulated for the candidates passing the Final Examination, or Professional Programme Examination conducted by the Institute., , (2) Fellow Members, , According to Regulation 4(2) of The Company Secretaries Regulations, 1982 as amended by The Company, Secretaries (Amendment) Regulations, 2020., (i), , No person shall be entitled to have his name entered in the Register as a Fellow unless he,-, , (a), , was a Fellow including Honorary Fellow of the dissolved company immediately before the, commencement of the Act; or, , (c), , is an Associate and has been in continuous practice in India as a Company Secretary for at least five, years; or, , (b) was admitted as a Fellow under the earlier regulations; or, , (d) is an Associate for a continuous period of not less than five years and possesses such qualifications, or practical experience as may be determined by the Council., (ii) No Associate member shall be admitted as a fellow member of the Institute, if; (a), , he has been found guilty of any professional or other misconduct and his name has been removed, from the Register or he has been imposed fine referred in sub-section (3) of sections 21A or subsection (3) of section 21B at any time during the preceding five years on the date of application; or, , (b) he has not completed such minimum numbers of Professional Development Credit Hours as may be, determined by the Council:, , Provided that in the case of any person belonging to any of the classes mentioned in sub- regulations, (1) and (2), who is not permanently residing in India, the Council may, by resolution, determine,, such further qualifications and conditions, as it may deem necessary or expedient.”, , Certificate of practice, , A member is entitled to continue the practice of Company Secretary, whether in India or elsewhere, only after, obtaining a Certificate of Practice., , Deemed “to be in practice”, , A member of the Institute shall be deemed “to be in practice” when, individually or in partnership with one or more, members of the Institute in practice or in partnership with members of such other recognised professions as may, be prescribed, he, in consideration of remuneration received or to be received, –, (a) engages himself in the practice of the profession of Company Secretaries to, or in relation to, any company; or, (b) offers to perform or performs services in relation to the promotion, forming, incorporation, amalgamation,, reconstruction, reorganisation or winding up of companies; or, (c), , offers to perform or performs such services as may be performed by –, , (i), , anauthorised representative of a company with respect to filing, registering, presenting, attesting or, verifying any documents (including forms, applications and returns) by or on behalf of the company,, , (ii) a share transfer agent,
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870, , , , (iii) an issue house,, , Lesson 21 • EP-CL, , (iv) a share and stock broker,, , (v) a secretarial auditor or consultant,, , (vi) an adviser to a company on management, including any legal or procedural matters, (d), (e), (f), , (vii) issuing certificates on behalf of, or for the purposes of, a company; or, holds himself out to the public as a Company Secretary in practice; or, , renders professional services or assistance with respect to matters of principle or detail relating to the, practice of the profession of Company Secretaries; or, , renders such other services as, in the opinion of the Council, are or may be rendered by a Company Secretary, in practice., , REGISTER OF MEMBERS, , The Council shall maintain in the prescribed manner a Register of the members of the Institute. The Register shall, include the following particulars about every member of the Institute, namely:—, (a) his full name, date of birth, domicile, residential and professional addresses;, (b), , the date on which his name is entered in the Register;, , (d), , whether he holds a certificate of practice; and, , (c), , (e), , his qualifications;, , any other particulars which may be prescribed., , The Council shall cause to be published in the list of members of the Institute as on the 1st day of April of each year., Every member of the Institute shall, on his name being entered in the Register, pay annual membership fee as may, be decided by the council from time to time., , Removal from the Register of Members, , In the following cases the Council may remove from the Register the name of any member of the Institute—, (a), , who is dead; or, , (c), , who has not paid any prescribed fee required to be paid by him; or, , (b), (d), , from whom a request has been received to that effect; or, , who is found to have been subject at the time when his name was entered in the Register, or who at any time, thereafter has become subject, to any of the disabilities mentioned in section 8, or who for any other reason, has ceased to be entitled to have his name borne on the Register., , The Council shall remove from the Register the name of any member in respect of whom an order has been passed, under this Act removing him from membership of the Institute., , Disciplinary Mechanism, , The member of the Institute is subject to the Disciplinary mechanism provided for under Chapter V of the Company, Secretaries Act, 1980 (the Act)., , Disciplinary Directorate, , Section 21 of the Act provides for the establishment of a Disciplinary Directorate headed by an officer of the Institute, designated as Director (Discipline) and such other employees for making investigations in respect of any information, or complaint received by it. On receipt of any information or complaint along with the prescribed fee, the Director, (Discipline) shall arrive at a prima facie opinion on the occurrence of the alleged misconduct. The Disciplinary, Directorate shall follow such procedure as may be specified to make investigations under the Act.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 871, , Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct, mentioned in the First Schedule, the matter shall be placed before the Board of Discipline., Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other misconduct, mentioned in the Second Schedule or in both the Schedules, the matter shall be placed the Disciplinary Committee., , Board of Discipline, , The Board of Discipline shall be constituted by the Council of the Institute under section 21A of the Companies Act,, 1980. The Board of Discipline shall follow summary disposal procedure in dealing with all the cases before it., , Where the Board of Discipline is of the opinion that a member is guilty of a professional or other misconduct, mentioned in the First Schedule, it shall afford to the member an opportunity of being heard before making any, order against him and may thereafter take any one or more of the following actions, namely:—, (a) reprimand the member;, (b), (c), , remove the name of the member from the Register up to a period of three months;, impose such fine as it may think fit which may extend to rupees one lakh., , The Director (Discipline) shall submit before the Board of Discipline all information and complaints where he is of, the opinion that there is no prima facie case and the Board of Discipline may, if it agrees with the opinion of the, Director (Discipline), close the matter or in case of disagreement, may advise the Director (Discipline) to further, investigate the matter., , Disciplinary Committee, , According to Section 21B a Disciplinary Committee shall be constituted by the Council. The Disciplinary Committee, shall consist of the President or the Vice-President of the Council as the Presiding Officer and two members to be, elected from amongst the members of the Council and two members to be nominated by the Central Government, from amongst the persons of eminence having experience in the field of law, economics, business, finance or, accountancy., , The Council may constitute more Disciplinary Committees as and when it considers necessary. The Disciplinary, Committee, while considering the cases placed before it, shall follow such procedure as may be specified., Where the Disciplinary Committee is of the opinion that a member is guilty of a professional or other misconduct, mentioned in the Second Schedule or both the First Schedule and the Second Schedule, it shall afford to the member, an opportunity of being heard before making any order against him and may thereafter take any one or more of the, following actions, namely:—, (a) Reprimand the member;, (b), (c), , Remove the name of the member from the Register permanently or for such period, as it thinks fit;, impose such fine as it may think fit, which may extend to rupees five lakhs., , Authority, Disciplinary Committee, Board of Discipline and Director (Discipline) to have Powers, of Civil Court, , Section 21C provides that for the purposes of an inquiry under the provisions of this Act, the Authority, the, Disciplinary Committee, Board of Discipline and the Director (Discipline) shall have the same powers as are vested, in a civil court under the Code of Civil Procedure, 1908, in respect of the following matters, namely:—, (a) summoning and enforcing the attendance of any person and examining him on oath;, (b) the discovery and production of any document; and, (c) receiving evidence on affidavit., Explanation – For the purposes of sections 21, 21A, 21B, 21C and 22, “member of the Institute” includes a, person who was a member of the Institute on the date of the alleged misconduct although he has ceased to bea, member of the Institute at the time of the inquiry.
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872, , , , Appeal to Authority, , Lesson 21 • EP-CL, , Under section 22A of the Act the Appellate Authority constituted under sub-section (1) of section 22A of the, Chartered Accountants Act, 1949, shall be deemed to be the Appellate Authority for the purposes of this Act, subject, to certain modifications., , Accordingly, any member of the Institute aggrieved by any order of the Board of Discipline or the Disciplinary, Committee imposing on him any of the penalties referred to in section 21A and section 21B, may within ninety days, from the date on which the order is communicated to him, prefer an appeal to the Authority., , The Director (Discipline) may also appeal against the decision of the Board of Discipline or the Disciplinary, Committee to the Authority if so authorised by the Council, within ninety days., The Authority may entertain any such appeal after the expiry of the said period of ninety days, if it is satisfied that, there was sufficient cause for not filing the appeal in time., , The Authority may, after calling for the records of any case, revise any order made by the Board of Discipline or the, Disciplinary Committee under sub-section (3) of section 21A and sub-section (3) of section 21B and may –, (a) confirm, modify or set aside the order;, (b), , impose any penalty or set aside, reduce, or enhance the penalty imposed by the order;, , (d), , pass such other order as the Authority thinks fit., , (c), , remit the case to the Board of Discipline or Disciplinary Committee for such further enquiry as the Authority, considers proper in the circumstances of the case; or, , Provided that the Authority shall give an opportunity of being heard to the parties concerned before passing any, order., , CERTAIN PROVISIONS RELATING TO MISCONDUCT UNDER THE COMPANY SECRETARIES ACT, 1980, , Professional misconduct in relation to members of the Institute is broadly structured under Schedule I and Schedule, II of the Act:, (a) Professional misconduct in relation to Company Secretaries in Practice (Part I of the First Schedule);, (b), , Professional misconduct in relation to members of the Institute in service (Part II of the First Schedule);, , (e), , Professional misconduct in relation to Company Secretaries in practice requiring action by disciplinary, committee (Part I of the Second Schedule);, , (c), , (d), (f), , (g), , Professional misconduct in relation to members of the Institute generally (Part III of the First Schedule);, Other misconduct in relation to members of the Institute generally (Part IV of the First Schedule);, , Professional misconduct in relation to members of the Institute generally, requiring action by disciplinary, committee (Part II of the Second Schedule);, Other misconduct in relation to members of the Institute generally (Part III of the Second Schedule)., , The detailed provisions relating to misconduct and disciplinary mechanism are contained in Sections 21, 21A, 21B,, 21C, 21D & 22 and the First and the Second Schedules to the Act and the Rules made thereunder., , a. Professional misconduct in relation to Company Secretaries in Practice (Part I of the First, Schedule to the Act), , Part I of the First Schedule to the Act deals with professional misconduct in relation to Company Secretaries in, practice. It contains eleven clauses in all. The implications of various clauses in Part I are briefly explained herein, below:, Clause (1), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he -, , “allows any person to practice in his name as a Company Secretary unless such person is also a Company Secretary, in Practice and is in partnership with or employed by him.”
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Lesson 21 • Legal Framework Governing Company Secretaries, , 873, , This rule is intended to ensure that the professional work is done by a qualified professional so as to protect the, client’s/public interest. The rule permits another person to practice in the name of a Company Secretary in Practice, provided such other person is also a Company Secretary in Practice and is in partnership with or is employed by the, Company Secretary in Practice in whose name the work is to be carried out., , This clause read with clause 11 of Part I of the First scheduled does not permit PCS to allow any person to practice, in his name as a Company Secretary or to allow any person to sign as PCS , unless such person is also a Company, Secretary in Practice or is in partnership with or employed by him., On a question as to how CA / CWA can become partner(s) of PCS, council has opined that though for the time being, CA/CWA etc. cannot become partners of a PCS but after the amendments to the relevant provisions, person(s) who, are non members, may become partners of PCS and may be allowed to provide non-attestation services., , Two persons are said to be in Partnership when they work together on mutual faith and agency. Sharing of, remuneration does not make them partners. Thus an associate who is not a part of decision making process does, not become a partner. Following tests if fulfilled cumulatively may make two persons partners of each other., i., , Sharing of profits and or losses., , iv., , Acting on behalf of each other and binding other person with one own acts of commission or omission., , ii., , iii., , Taking decisions together., , Sharing the responsibilities of such decision making., , Sharing of common infrastructure at same or different geographical location are not relevant at all to decide the, relationship., Clause (2), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “pays or allows or agrees to pay or allow, directly or indirectly, any share, commission or brokerage in the fees or, profits of his professional business to any person other than a member of the Institute or a partner or a retired, partner or the legal representative of a deceased partner or a member of any other professional body or with such, other persons having such qualifications as may be prescribed, for the purpose of rendering such professional, services from time to time in or outside India., , Explanation — in this item, ‘partner’ includes a person residing outside India with whom a Company Secretary in, Practice has entered into partnership which is not in contravention of item (4) of this part.”, This clause does not prohibit a Company Secretary in Practice from sharing fees, commission or brokerage in the, fees or profits of his professional business, with any other member of the Institute or a partner or a retired partner, or the legal representative of a deceased partner. Such sharing of fees, commission or brokerage in the fees or, profits of professional business is also permissible with members of such professional bodies or with such other, persons having such qualifications as may be prescribed from time to time. This provision is made primarily to, encourage multi-disciplinary partnership., In terms of clause (2) of Part II of the First Schedule to the Act, a member of the Institute in service shall be deemed, to be guilty of professional misconduct, if he being an employee of any company, firm or person, accepts or agrees, to accept any part of fees, profits, or gains from a lawyer, a Company Secretary or broker engaged by such company, firm or person or agent or customer of such company, firm or person by way of commission or gratification., Accordingly a Practicing Company Secretary cannot share fees with an employee Company Secretary. Therefore,, words ‘who is in practice’ are to be read in Clause 2 of the Part I of the First Schedule, after the word “institute”., The term ‘partner’ used in this rule would include ‘ipso facto’ another Company Secretary in Practice or a, member of any other recognised profession under Section 2(2) of the Act. In regard to sharing of fees with the, legal representative of a deceased partner it is desirable that the partnership deed contains a suitable covenantin, this behalf. In the case of a sole proprietorship firm, on the death of the proprietor of the firm, there cannot be, any sharing of fees between the purchaser of the goodwill of the firm and the legal representative of the proprietor., Payment of goodwill is permissible, which can be in installments as provided in the agreement of sale of goodwill., The payment of goodwill shall, in no circumstances be linked with participation in the earnings of the firm of the, buyer of the goodwill.
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874, , , , Lesson 21 • EP-CL, , It may appear that this Clause permits sharing of fees by PCS with members of the Institute who are not employed, but are practicing as CA / CWA or an Advocate. However this does not appear to be the intention. The term, “Professional Business” used may be understood as professional activities., CA/CWA may become partners of PCS only for non attestation services i.e. only for the purposes as contemplated by, clause nos. 2, 3, 4 & 5 of the First Schedule and CA / CWA cannot become full fledged partners as contemplated by, Clause 1 of Part I of the First Schedule. That is to say a PCS even if he is allowed to be a partner of a Chartered, Accountant, will not be able to sign the Auditors report on behalf of the multidisciplinary firm., In other words, a CA or CWA who does not hold CP of ICSI, can not issue Secretarial Audit Report by a multidisciplinary, firm even if such CA/ CWA is a partner of PCS for the purposes of Clause 2, 3, 4, & 5 of the First Schedule., Council in its 177th meeting held on 27th November 2007 has passed following resolution:, , “168A. Other Professional bodies.—, (1) For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, a person has to be member, of any of the following, namely:, (a), , The Institute of Chartered Accountants of India established under the Chartered Accountants Act, 1949, (No.38 of 1949);, , (c), , The Bar Council of India established under the Advocates Act, 1961 (No.25 of 1961);., , (e), , The Institute of Actuaries of India established under the Actuaries Act, 2006 (No.35 of 2006);, , (b) The Institute of Cost Accountants of India established under the Cost and Works Accountants Act, 1959, (No. 23 of 1959);, (d) The Indian Institute of Architects established under the Architects Act, 1972 (No.20 of 1972);, , (2), , (f), , the membership of the professional bodies or institutions whose qualifications relating to Company, Secretaryship are recognized by the Council under sub-section (2) of Section 38 of the Act., , (a), , Chartered Accountant within the meaning of the Chartered Accountants Act, 1949;, , (c), , Actuary within the meaning of the Actuaries Act, 2006;, , (e), , Bachelor in Technology from a University established by law or an institution recognized by law;, , For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, the following shall be the, persons qualified in India, namely:, , (b) Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959;, , (d) Bachelor in Engineering from a University established by law or an institution recognized by law;, (f), , Bachelor in Architecture from a University established by law or an institution recognized by law;, , (g) Bachelor of Law from a University established by law or an institution recognized by law;, , (g) Master in Business Administration from Universities established by Law or Technical Institutions, recognized by All India Council for Technical Education.”, , The resolution amends the Company Secretaries Regulations, 1982. The amendment was notified in the Gazette of, India Extraordinary dated 26th of July 2010., Clause (3), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, “accepts or agrees to accept any part of the profits of the professional work of a person who is not a member of the, Institute:, Provided that nothing herein contained shall be construed as prohibiting a member from entering into profit, sharing or other similar arrangements, including receiving any share commission or brokerage in the fees, with a, member of such professional body or other person having qualifications, as is referred to in item (2) of this part.”
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Lesson 21 • Legal Framework Governing Company Secretaries, , 875, , This is the converse of clause (2) discussed (supra at para 4.3) wherein a Company Secretary in Practice can, partake of his profits with other members of the Institute and with members of any other professional bodies, specified in this regard or with such other persons having such qualifications as may be prescribed, under, clause a Company Secretary in Practice as recipient can enter into profit sharing arrangement with a member, of the Institute and/or with a member of such other professional body or other person having qualifications, as, is referred to in clause (2)., Clause (4), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he enters into partnership, in or outside India, with any person other than a Company Secretary in Practice or such, other person who is a member of any other professional body having such qualifications as may be prescribed,, including a resident who but for his residence abroad would be entitled to be registered as a member under clause, (e) of sub-section (1) of section 4 - or whose qualifications are recognised by the Central Government or the Council, for the purpose of permitting such partnerships .”, This clause prohibits a Company Secretary in Practice entering into partnership with any person other than a, Company Secretary in Practice or a member of any other recognised profession. Even entering into partnership, with persons, who are not members of the Institute, for the purposes of carrying on a business and not the profession, of Company Secretaries, would attract the mischief of the clause., Also, partnership with any other person residing outside India but possessing qualifications recognised by the, Central Government or the Council under section 4(1)(e) of the Act, is permitted. The purpose behind clause (4) is, that a Company Secretary in Practice should not enter into partnership with any non-recognised professionals. In, recognising any other profession for partnership, the compatibility of the other profession with the Company, Secretaries’ profession would be a relevant factor. The other professions referred to in this clause cannot be any, different from those as may be recognised under section 2(2) of the Act. Practicing Company Secretary may share, the fees or profits of the partnership both within and outside India., The council has passed the resolution by inserting the following regulation in The Company Secretaries Regulations,, 1982., , “168B. Membership of Professional body for Partnership — (1) For the purposes of entering into partnership, under clauses (4) and (5) of Part I of the First Schedule to the Act, a person shall be a member of any of the following, professional bodies, namely:, (a) The Institute of Chartered Accountants of India established under the Chartered Accountants Act, 1949 (No., 38 of 1949);, (b), , The Institute of Cost Accountants of India established under the Cost and Works Accountants Act, 1959 (No., 23 of 1959);, , (d), , The Institute of Engineers or Engineering from a University established by law or an institution recognized by law;, , (c), , (e), (f), , (g), , Bar Council of India established under the Advocates Act, 1961 (No.25 of 1961);, , The Indian Institute of Architects established under the Architects Act, 1972 (No.20 of 1972);, , The Institute of Actuaries of India established, under the Actuaries Act, 2006 (No. 35 of 2006);, , Professional bodies or institutions outside India whose qualifications relating to Company Secretary, recognized by the Council under sub-section (2) of Section 38 of the Act.”;, , The resolution amends the Company Secretaries Regulations, 1982. The amendment was notified in the Gazette of, India Extraordinary dated 26th July 2010., Clause (5), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he secures, either through the services of a person who is not an employee of such Company Secretary or who is, not his partner or by means which are not open to a Company Secretary, any professional business.
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876, , , , Lesson 21 • EP-CL, , Provided that nothing herein contained shall be construed as prohibiting any arrangement permitted in terms of, items (2), (3) and (4) of this part.”, This clause frowns upon discreditable practices in securing professional work. The clause covers instances of, obtaining professional work by unethical means and by means which are not open to a Company Secretary., , Council has issued guidelines for advertisement by PCS. These guidelines were approved by the council in its 178th, Meeting held on 29th of December, 2007. A PCS can therefore, within the parameters of the above guidelines issue, advertisement / launch his own website and such action on the part of PCS would not be treated as violation of, Clause 5 as well as Clause 6 of the Part I of the First Schedule., Clause 5 of part I of first schedule is very clear that no member in practice should secure any professional business, through propagation, etc., the member in practice have to be cautious that any kind of wording or message in the, website created by them shall not indicate or imply securing/solicitation of business/client., However any act of omission or commission beyond the permitted methods as per the guidelines would amount to, misconduct. Text of the Advertisement Guidelines is placed as Annexure to this lesson., Clause (6), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he solicits clients or professional work, either directly or indirectly, by circular, advertisement, personal, communication or interview or by any other means: Provided that nothing herein contained shall be construed as, preventing or prohibiting, (i), any Company Secretary from applying or requesting for or inviting or securing professional work from, another Company Secretary in practice; or, (i), , a member from responding to tenders or enquires issued by various users of professional services a, organisations from time to time and securing professional work as a consequence.”, , This clause further fortifies the proposition under clause (5) supra about securing clients or professional work., Solicitation of clients or solicitation of professional work or both, are prohibited. Such a solicitation may be direct, or indirect and such a solicitation may further be by means of a circular, advertisement, personal communication or, interview or any other means. The bedrock of this rule is that a professional should gain recognition by rendering, expert services, to a few though in the beginning, who would themselves lead others to him. A true professional, should command honour and not demand it. The conduct of the member is noted all the times by the society at large, and their ethics and integrity towards the profession itself is sufficient for growth. So, the purpose of this clause is,, to ensure that a professional secures work by his credibility, reliability and integrity in the public eyes and not by, advertisement adversely affecting the image of the professional and also the profession., The word ‘solicit’ has various shades of meaning. According to Legal Thesaurus, it means bait, (lure) desire,, importune, inquire, lobby, petition, plead (implore), apply (request), pray, pressure, pursue, (strive to gain), urge., ‘Solicit’ means ‘ask for’ or ‘seek’. Means of solicitation may be a circular, advertisement, personal communication or, by any other means. The phrase ‘by any other means’ used in this clause would perhaps exhaust other means like, telephonic conversation, mail, electronic means and messages/social media or even third party solicitation., The word ‘indirectly’ used in this clause suggests that even innuendos would not be tolerated under this clause. If, the overall message of the alleged act is solicitation of clients or professional work, though this lurks or lies beneath, what has apparently been done, clause 6 would stand attracted., 1., Circular or advertisement in newspapers indicating the range of services offered by him., 2., , A circular letter offering secretarial services and professional work., , 4., , Circular, advertisement or personal communication highlighting any provision of any law, to person other, than existing clients, which provides for certification/ authentication by a Company Secretary in Practice of, any form/return/application/document., , 3., , Any circular, advertisement or communication which creates an impression that certain professional work, would be done much more expeditiously than is normally the case. Like for instance, registration of a company, in, say, two days’ time or registration of a charge in one day’s time, etc.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 877, , 5., , Issuing hand bills covering matters in (1) to (4) above., , 7., , Communicating or holding out, as being prepared to provide professional services at fees that are less than, reasonable and appropriate in the circumstances, in order to obtain professional work., , 6., , 8., 9., 10., 11., 12., 13., 14., 15., 16., , Publication in the telephone directory, name and address in extra bold typeface or opting for more than one, listing. However, where separate sections are devoted in the telephone directory (yellow pages, for instance), for a classified list, publishing the name and address by a member in such sub-section in the directory would, not be treated as misconduct. But any kind of message or writing which indicates tall claims, supremacy and, superiority in professional attainments will tantamount to solicitation of clients, indirectly., Communicating or describing himself as a ‘specialist’ in any branch of law/work or knowingly permitting, himself to be so described., , A member allowing a company to carry in its prospectus or other circular letters that ‘Mr. X a specialist in, corporate laws is the adviser to the company’ would offend clause (6). However printing the name of Practicing, Company Secretary as Secretarial Auditor in Annual Report will not violate the provisions of the Act., Requesting his client(s) to recommend his/their acquaintances to him for professional work., , Frequent press announcements or circulars about his not being available for professional work for a certain, period at the place whereat he normally has his office., , Highlighting or causing to be highlighted in public interviews over the television, AIR, etc. their professional, attainments, more than just necessary or warranted by the circumstances of such an interview, making tall, claims, indicating supremacy over other professional colleagues, etc. However sending bio data to organizers, of the programmes/seminars, etc., where they have been invited as a faculty, is not violative of this clause., Writing to any institution/agency that though, he is in the panel; no work has been allotted to him. Even, approaching through a third person is violative of this clause., , Approaching any trade association/chamber of commerce/ business forum, communicating his ready, availability for rendering any professional service to the constituents of any association or chamber., Sending his profile to persons/companies/firms without any requisition for the same., Including names of other professionals in his profile circulated to various persons., , The Professional Development Committee of the Council of the Institute has opined that listing of services by a, Company Secretary with a group for creation of network of affiliates which is non-professional and not a group of, company secretaries would amount to commercialization of the profession and therefore such listing would amount, to violation of the Code of Conduct., However, the following would not fall into the mischief of clause (6):, 1., publishing in the journal of the Institute or newspaper any change in the professional address;, 2., 3., 4., 5., 6., , publishing in professional journals, newspapers and magazines in any classified column, any advertisement, for recruitment of staff without in any way giving an impression about the services that he can render, or in, other manner smacking of solicitation of work;, publishing information regarding changes in the constitution of firm, provided the information contained, therein is limited to bare facts and consideration given to appropriateness of the area in which the newspaper, or magazine is circulating and the number of insertions;, , sending New Year or any other seasonal greetings without narrating the list of services, professional, attainments, supremacy or any kind of indication seeking clients;, appearance in AIR, TV or any stage in private capacity as a speaker, actor or otherwise on programmes having, no nexus with his profession. Any reference to him only as a Company Secretary and nothing beyond that in, such programmes would not offend clause (6);, appearance or participation in professional capacity in the AIR/TV or other forums where a reasonable, amount of biographical material may be given without in any way referring to the member as specialist in any, branch of work;
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878, , , , Lesson 21 • EP-CL, , 7., , editing/publishing any professional journal, newspaper and magazines;, , 9., , associating with charitable, other welfare associations and trade associations without in any way using such, position to solicit clients/ professional work;, , 8., 10., , writing articles/comments in professional journals, magazines and newspapers;, , writing to his existing clients about implications/interpretations of any law or amendments thereof by way, of any circular, newsletter or any personal communication or by way of print/electronic means of, communication;, , The Council of the Institute in a case held that the Conduct of the member in practice by mentioning against, his name ‘Company Secretary’ in the issue of ‘Secretarial Aid’ a journal edited by him was violative of Clause, (6) of Part I of First Schedule to the Act. It was observed that the words ‘for further clarification please contact, the Editor’ was an indirect attempt to solicit professional work;, 11., 12., 13., 14., 15., , Responding to a specific letter or a follow up of personal discussions and sending a profile of a firm/ individual, to specific addresses is not prohibited;, , Stating the assignments handled by him in his profile. However, the name of the clients should be supplied, only against specific request of the client for the same;, , Issuing advertisement in Chartered Secretary for opening branch or seeking partnership with other members;, Issuing advertisement or launching website within the frame work of guidelines issued by the council about, advertisement by PCS;, Securing professional work from another PCS is now expressly permitted;, , Responding to tenders or enquires issued by various users of professional services and securing professional, work as a consequence is now expressly permitted., , Clause (7), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “He advertises his professional attainments or services, or uses any designation or expressions other than Company, Secretary on professional documents, visiting cards, letterheads or signboards, unless it be a degree of a University, established by law in India or recognised by the Central Government or a title indicating membership of the Institute, of Company Secretaries of India or of any other institution that has been recognised by the Central Government or, may be recognised by the Council., Provided that a member in practice may advertise through a write up setting out the services provided by him or, his firm and particulars of his firm subject to such guidelines as may be issued by the Council.”, This clause covers two aspects –, (i), advertisement of professional attainments or services by a Company Secretary in Practice; and, (i), , using the designation ‘Company Secretary’;, , As regards the ban on advertisement of professional attainments or services, almost all the professions all over the, world had this type of restriction at least to start with. The idea behind this restriction was that advertisement by, professionals is incompatible with the qualities of integrity and independence which a professional is expected to, possess, especially when these acts are motivated by a desire for personal gain. The advertisement of professional, attainment or services under this clause is completely prohibited except where the Company Secretary in Practice, advertises as per the guidelines issued by the council, through a write up setting forth services provided by him or, his firm., A PCS cannot include in his advertisement following particulars like the infrastructure available in his own office,, details of Associate PCS, details of his networking in other places within & outside India, infrastructure at such
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Lesson 21 • Legal Framework Governing Company Secretaries, , 879, , networked offices, number of trainees who have completed training from his office, certain landmark achievements, like number of companies incorporated since he started his practice, number of appearances made before CLB/, NCLT, CBDT, Tribunals , Regulatory Authorities, Commissions , number of Foreign Collaborations handled, number, of Merger & Acquisitions handled, Number of due diligence carried out etc., , Council is of the view that a PCS can be permitted to allow his clients to use his name in their brochure/ hoardings, etc. e.g. Builders invariably write the names of Architects, RCC Consultants, legal advisors on the Board at the, construction site. Similarly the name of PCS may also be written. Certain software companies desire to use the name, of PCS in their marketing brochure for their products while giving a list of satisfied customers. A PCS is permitted, to allow his name to be used as one of the satisfied customers of particular software., What amounts to advertisement of professional attainments or services is to be decided on a case to case basis,, having regard to the attendant facts. For instance, where in the visiting card or name board or letterhead, a member, in practice mentions that he is a specialist or expert in company law, tax law, etc. it would amount to advertisement, of professional attainments or services., Where a member in practice furnishes upon a specific request by a prospective client, a list of companies for whom, he is a consultant/ retainer or writes his specific subjects of specialisation, it may not be objectionable., Where in the letterhead or visiting card, a member in practice mentions that he was or is holding directorships in, any company; it would be offending this clause., , Advertisement by a Practicing member for staff for his office in the press should in no way savour of any advertisement, of professional attainments or services. The use of certain adjectives like “a reputed firm”, “a well-known firm”, etc., may be treated as inconsistent with the spirit of this clause. Similarly, announcement in the press by a Practicing, member in regard to certain attainments like having been named for certain public awards, acquisition of merit in, other professional examinations and other recognitions in any important committee, commission, governing body,, etc. should be suitably modified so as not to be construed as amounting to advertisement of professional attainments, or services. Advertisement for part-time assignments fall under the mischief of this clause., , Circulars or announcement regarding change of address, or change in the constitution of the firm should be very, cautiously worded to tell just the minimum necessary facts., Where a Company Secretary in Practice has been appointed as retainer/consultant by certain companies, it would, not be proper to either list the names of such companies in letterheads, visiting cards or signboards or to circulate, the list among prospective clients by way of circular. However, including such names, while sending individual, profile in response to a specific enquiry is permitted., , Where a Company Secretary in Practice takes up the position of a director in a company, it is incumbent on his part, to exercise great care in regard to references in any explanatory statement in notice of the general meeting, reappointing the Practicing Company Secretary brochure or circular brought out in connection with an issue of, securities of the company etc. The member concerned is to ensure personally that laudatory statements in such, literature about his professional competence, while highlighting the Board’s competence as a whole, are avoided;, otherwise liability under clause (7) would attract., The Council held a member guilty of professional misconduct for misusing the Institute’s letter head, brochures,, circulars, etc. mentioning his name with designation, description and the Practicing field other than as prescribed, and thus misleading the readers by not mentioning his whole time employment., This clause also speaks of using the designation ‘Company Secretary’ on professional documents, visiting cards,, letterheads, sign-boards, etc. This requirement fortifies the provisions of section 7 of the Act and in fact is an, extension of the requirement in regard to the use of proper designation. Designations like Company Law Consultant,, Income Tax Consultant, Corporate Adviser, Investment Adviser, Management Consultant etc. are prohibited. The use, of descriptions indicating membership of the Institute of Chartered Accountants of India, The Institute of Cost and, Works Accountants of India and the Bar Councils is permitted provided members are not holding certificate of, practice issued by the Institute or using the description ‘Company Secretary’. The use of the designation “Practicing, Company Secretary”. “Company Secretary in whole-time practice”, etc. is not violative of this clause., Where a member in practice had described himself in visiting cards and letter heads as “Company Secretary &
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880, , , , Lesson 21 • EP-CL, , Advocate, High Court”, the Council held the member guilty of professional misconduct under this clause., Clause (8), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he accepts the position of a Company Secretary in Practice previously held by another Company Secretary in, Practice without first communicating with him in writing.”, , The primary requirement under this clause is of prior communication with the previous incumbent. This is intended, for reasons of professional courtesy. The clause is not intended to prevent a client from changing over to another, Company Secretary for his own reasons. The client as of right, has full freedom to change over to another Company, Secretary., It would be desirable for the new incumbent to obtain a letter from the company letting him know the name of the, earlier incumbent or that no other Company Secretary has been appointed for the same assignment., It is expressly clarified that the communication mentioned in this clause does not mean that no-objection or consent, of the previous incumbent is a prerequisite of accepting the said assignment., , In regard to certification of Annual Return under Section 92 and for all exclusive attestation assignments, it is, incumbent on the Company Secretary; to ascertain if any other Company Secretary had been appointed previously, by the company concerned for certification of Annual Return or for issuance of compliance certificate, as the case, may be. The appointee shall take positive steps to ascertain if anyone has been engaged earlier, for the same year,, for the certification work. In such cases it is not only necessary for the Company Secretary to communicate with the, earlier incumbent, but it is desirable to seek his consent in order to uphold the dignity and independence of the, profession. lt is further clarified that though communication is a must, obtaining consent will not apply in cases of, certification of Annual Returns for different years., , It would be necessary that the communication, in order to be effective, shall be by a registered letter or by hand with, an acknowledgement so that there is positive evidence of the communication having been complete. In a case under, a similar rule of conduct under the Chartered Accountants Act, 1949, the Rajasthan High Court in J S Bhati v. Council, of ICAI (S.B. Civil Misc. Appeal No. 136 of 1973) observed that mere obtaining a certificate of posting does not fulfill, the requirements of clause (8) of Schedule I as the presumption under section 114 of the Evidence Act that the letter, in due course reached the addressee cannot replace that positive degree of proof of delivery of letter to the addressee, which letters of the law in this case require., The expression ‘in communication with’ when read in the light of the instructions contained in the booklet ‘Code of, Conduct’ cannot be interpreted in any other manner but to mean that there should be positive evidence of the fact, that the communication addressed to the outgoing auditor by the incoming auditor reached his hands. Certificate of, posting of a letter cannot, in the circumstances, be taken as positive evidence of its delivery to the addressee. The, Court, therefore, has expressed the view that the communication by a certificate of posting cannot be taken as a, positive evidence of its delivery to the addressee. A communication sent by hand which has been properly, acknowledged by the addressee would be effective communication., , With the advent of use of the technology, it would proper communication in this regard made by any other electronic, medium viz., SMS, Whats App and such other Messenger apps is also permitted, provided the sender (the PCS taking, up the assignment) is able to establish that the message is delivered to the recipient before he or she takes up the, assignment. Needless to mention, that a reasonable time should be given to the previous incumbent to offer his, response, if any, and it is not just a kind of formality. For sake of better clarity, the new incumbent should express, clearly in the communication the details of assignment being taken up by him., , Members have been held guilty of professional misconduct under this clause for having accepted and commenced, the certification of Annual Return of a company without first communicating with the earlier incumbent in writing., It has been concluded that mere posting of the letter is not sufficient to comply with the requirements of clause (8), of Part I of First Schedule to the Act, but the delivery of the message to the addressee of the same is essential. Oral, communication is no communication as far as this clause is concerned.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 881, , To a question about whether communication ‘with’ contemplates a dialogue, the council is of the view that use of, the preposition ‘with ‘ instead of ‘to ‘ does not make it mandatory for the PCS to obtain ‘no objection’ from the earlier, incumbent. What is critical for PCS (new incumbent) is to prove that he has sent a written communication to the, earlier incumbent before accepting a position of PCS., , It has been observed that majority of the Disciplinary cases were in respect of this clause about not sending written, intimation by the new incumbent (PCS)., , While clarifying the scope of the words “ accepting a position of Company Secretary in Practice” Council has, expressed a view that need for sending a previous communication to the earlier incumbent arises only in relation, to exclusive area of practice under the Act. Therefore, in respect of following it shall not be mandatory (though, desirable) to send a prior written communication to the earlier incumbent:, (a) certifying e-forms for various companies., (b), , giving Due Diligence Certificate for consortium borrowers., , (d), , issuing search reports., , (c), , (e), (f), , holding assignment as retainer for a company or group of companies ., Issuing certificates as contemplated under SEBI (LODR) Regulation, 2015., Giving legal opinion., , In respect of the following, it shall be mandatory to send a prior written communication (including means mentioned, above in 4.9.8) to the earlier incumbent:, (i), Signing / Certification of Annual Return, (ii), , Issuance of Secretarial Audit Report in terms of Section 204 of the Companies Act, 2013, , (iv), , Certificate of reconciliation of capital, updation of Register of Members, etc. as per the Securities & Exchange, Board of India’s Circular D & CC/Cir-16/2002 dated December 31, 2002., , (iii), (v), , (vi), , Issuance of Certificate of Securities Transfers., , Conduct of Internal Audit of Operations of the Depository Participants., , Certification of corporate governance under SEBI (LODR) Regulation, 2015., , Clause (9), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he charges or offers to charge, accepts or offers to accept, in respect of any professional employment, fees which, are based on percentage of profits or which are contingent upon the findings or results of such employment, except, in cases which are permitted under any regulations made under this Act.”, Which determine remuneration based on results. For instance, if the Company Secretary in Practice were to, quote remuneration in an Excise Refund case, as a percentage of the final amount of refund that may be ordered, by an appellate authority, it would be hit by this clause. The fundamental is that the fee should be more related, to the expertise required and the time spent on a particular case without in any way linking the fee with the final, results., Clause (10), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if:, , “he engages in any business or occupation other than the profession of Company Secretary unless permitted by the, Council so to engage:, Provided that nothing contained herein shall disentitle a Company Secretary from being a director of a company, except as provided in the Companies Act.”
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882, , , , Lesson 21 • EP-CL, , This clause is intended to ensure that a PCS does not engage in vocations which are not compatible with the, profession of Company Secretary. This has been provided with a view to ensure the profession develops in its true, sense. Pursuant to the Company Secretaries Regulations, 1982, the Council has decided not to issue certificate of, practice to members engaged in other professions such as Chartered Accountants, Cost Accountants and Advocates, and also to members in employment. The said decision was taken by the Council to give an independent identity, and status to the profession and a thrust to the concept of Company Secretary in whole-time practice., The Council held a member guilty of professional misconduct under this clause for engaging himself in employment, while holding a certificate of practice from the Institute., , The Council in an another case held a member guilty of professional misconduct under this clause for holding the, certificate of practice of both the Institutes, i.e., ICAI & ICSI without the permission of the Council of the latter and, also Practicing both the professions on whole-time bases simultaneously., , Regulation 168(2) of the Regulations provides that a Company Secretary may act as a secretary, trustee, executor,, administrator, arbitrator, receiver, appraiser, valuer, internal auditor, management consultant or as a representative, of financial matters including taxation and may take up appointment that may be made by the Central or any State, Government, Courts of Law, labour tribunals, or any authority. From the reading of Regulation 168, it is clear that, the various occupations provided in sub-regulation (2) thereof do not require a specific resolution to be passed by, the Council., , It is pertinent to refer to Regulation 168(1) which provides that the prior permission of the Council by a resolution, is required for a Company Secretary to engage in any business or occupation other than the profession of Company, Secretary. The Council has expressly permitted a PCS to take up following vocations:, (i), Authoring Books and Articles., (ii), , Holding of Life Insurance Agency License for the limited purpose of getting renewal commission., , (iv), , Honorary office-bearership of charitable, educational or other non-commercial organisations., , (iii), (v), , (vi), , Holding of public elective offices such as M.P., M.L.A., M.L.C. and others., Acting as Justice of Peace, Special Executive Magistrate and the like., , Teaching assignment under the Coaching Organisation of the Institute and other Institutes such as the, Institute of Cost & Works Accountants of India, the Institute of Chartered Accountants of India, Management, Institutes, Universities and any college affiliated to a University, and such other organisation as may be, recognised by the Council of the Institute from time to time, so long as the hours during which a member in, practice is so engaged in teaching do not exceed average three hours in a day irrespective of the manner in, which such assignment is described or the remuneration receivable (whether by way of fixed amount or on, the basis of any time scale of pay or in any other manner) by the member in practice for such assignment., , (vii) carrying out valuation of papers, acting as a paper-setter, head examiner or a moderator, for any examination., (viii) Acting as editor of professional journals., Permission to be granted specifically, , Members of the Institute in practice may engage in the following categories of business or occupation, after obtaining, the specific and prior approval of the Executive Committee of the Council in each case:, 1., Interest or association in family business enterprises even when he does not hold substantial interest in such, enterprises., 2., , Office of Managing Director or whole-time Director of a body corporate within the meaning of the Companies, Act, 2013. The Council may refuse permission in individual cases though covered under any of the above, categories., , For the purpose of the above, a member shall be deemed to have a “substantial interest” in a concern:, (i), , in a case where the concern is a company, if its shares (not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) carrying not less than 25% of voting power
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Lesson 21 • Legal Framework Governing Company Secretaries, , (ii), , 883, , at any time during the previous year, are owned beneficially by such member., , in the case of any other concern, if such member is entitled at any time during the previous year, to not less, than 25% of the profits of such concern., , A PCS can function as a non-executive director of a company. This does not require any prior approval, Clause (11), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, “allows a person not being a member of the Institute in practice or a member not being his partner to sign on his, behalf or on behalf of his firm anything which he is required to certify as a Company Secretary, or any other, statements related thereto.”, , This clause further fortifies clause (1) discussed already. It is not permissible for a Company Secretary in Practice, to allow any person to sign on his behalf or on behalf of his firm anything which he is required to certify as a, Company Secretary or any other statement related thereto. The purpose is not to allow a member to have his, judgment and expertise substituted by the judgment of any other person who is not a member in practice or his, partner in the firm. To take an instance, the annual return under Section 92 of the Companies Act, 2013 has to be, certified by a Company Secretary in Practice himself. It is not possible to have the certification done by a Company, Secretary, say, through a power of attorney holder, even though the holder of the power of attorney is an employee (of the, Company Secretary) who has been associated with the checking up of various details furnished in the Annual Return., PCS who is not a partner of another PCS can not sign on behalf of such other PCS on Annual Returns or Secretarial, Audit Report or any other certificates., , In e-governance era, a PCS on many occasions attaches his Digital Signature to various forms / statements. Due care, has to be taken that such digital signature is attached only by the PCS himself. It would be the exclusive duty and, obligation of PCS to prevent any unauthorized use of his Digital signature. PCS is not expected to part with the, password of his Digital signature., , b. Professional misconduct in relation to members of the Institute in service (Part II of the First, Schedule), , Part II of First Schedule to the Act deals with professional misconduct of a member of the Institute (other than a, member in practice) if he is an employee of any company, firm or person., , Part II of the First Schedule recognises the need for a member in employment also to observe a certain code of, conduct. To be in ‘employment’ connotes to be in a ‘contract of service’ and not ‘contract for service’. There are four, indicia of a contract of service, namely :, (a) master’s power of selection of his servant;, (b) payment of wages or other remuneration;, (c), , (d), , master’s right to control the method of doing the work; and, the master’s right of suspension or dismissal., , Lord Denning pointedly observed, “under a contract of service, a man is employed as part of a business, and his, work is done as an integral part of the business; whereas under a contract for services, his work although done for, the business is not integrated into it but is only accessory to it.”, , One important issue which very frequently comes up is, the conflict that may arise between the employer’s interest, and the interest of the member to uphold professional values and broader public interest. The code of conduct, formulated by the Institute originally in 1977 emphasised the importance of a member in employment exercising, professional independence in relation to his work as well as his endeavor to provide the highest quality of service, attainable by him, without reference to the monetary compensation. The idea being, a member must have courage, of conviction to express candidly his considered professional opinion to his employer., The Royal Commission in its Final Report on legal services submitted to the British Parliament in October, 1979, categorically observed that the standards of professional conduct and integrity which a member of the legal, profession in employment has to abide by are the same as those who practice on their own account. Even though
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884, , , , Lesson 21 • EP-CL, , the difference is that a salaried lawyer acts for only one client, unlike a lawyer in practice who acts for several, clients, the former must uphold the same standards of honour and etiquette, observed the Royal Commission. The, Report recognised the continuing conflict between loyalty to the employer and loyalty to the external body enforcing, the code of conduct. Nevertheless, whether a member is in employment or in practice, his duty to uphold professional, values shall gain precedence over all other exigencies., , Part II and Part III of the First Schedule to the Act specify certain instances of misconduct to which a Company, Secretary in employment may stand attracted. It has been mentioned earlier that under section 21 of the Act, the, Council’s power to direct enquiry is not limited only to those contained in the Schedule to the Act, in view of the fact, that the phrase ‘other misconduct’ used in section 21 is sufficiently broad enough to cover instances not enumerated, in the Schedule., , Clause (1) of Part II of the First Schedule provides that a member of the Institute (other than member in practice), shall be deemed to be guilty of professional misconduct, if he, being an employee of any company, firm or person—, “pays or allows or agrees to pay, directly or indirectly, to any person any share in the emoluments of the employment, undertaken by him.”, , This clause is analogous to clause (2) of Part I of the First Schedule in some respects. A member in employment shall, not share emoluments of the employment with any other person, not even a member. Both direct and indirect, sharing of the emoluments is prohibited. However, it may be noted that under Part I of the First Schedule, a member in, practice can share the fee, commission or brokerage or profits with any other member of the Institute who is his partner., Clause (2) of Part II of the First Schedule provides that a member of the Institute (who is in service) shall be deemed, to be guilty of professional misconduct, if he, being an employee of any company, firm or person—, , “accepts or agrees to accept any part of fees, profits or gains from a lawyer, a Company Secretary or broker engaged, by such company, firm or person or agent or customer of such company, firm or person by way of commission or, gratification.”, , This clause vindicates the confidence and trust that an employer reposes in an employee while the latter deals with, any outsider on matters relating to business. It is an implied term of any employment that the employee concerned, shall not secretly benefit from the employment., This clause is also analogous in some respects to clause (3) of Part I of First Schedule., , c. Professional misconduct in relation to members of the Institute generally (Part III of the First, Schedule to the Act), , Part III of the First Schedule to the Act covers cases of professional misconduct in relation to members of the, Institute generally. Under this Part, three specific instances have been categorised as professional misconduct., Clause (1) of Part lll of the First Schedule provides that a member of the Institute whether in practice or not shall be, deemed to be guilty of professional misconduct, if he—, “not being a Fellow of the Institute, acts as a Fellow of the Institute.”, , This clause prohibits the practice of styling oneself as a Fellow, while in fact he is not a Fellow member. A person is, entitled to have his name entered in the Register as a Fellow as per regulation 4(2) of the Regulations. The Fellowship, of the Institute suggests a certain degree of status and seniority and obviously any wrongful representation of such, seniority amounts to breach of code of conduct., Clause (2) of Part III of the First Schedule provides that a member of the Institute whether in practice or not, shall, be deemed to be guilty of professional misconduct, if he—, , “does not supply the information called for or does not comply with the requirements asked for by the Institute,, Council or any of its Committees, Director ( Discipline ) Board of Discipline, Disciplinary Committee, Quality Review, Board or the Appellate Authority.”, , It is the duty of a member to supply information called for or to supply the requirements asked for by the Council or, any of its Committees and other authorities. Non-compliance with this clause would tantamount to breach of code, of conduct.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 885, , The Council of the Institute in a case of professional misconduct, held a member guilty of professional misconduct, under this clause for failure to disclose the fact of holding of the certificate practice of the Institute of Chartered, Accountants of India to the Council of ICSI which was required to be made at the time of renewal of Certificate of, Practice., A member of ICSI bound to give any and every kind of information called from him since not providing information, is a misconduct under clause (2) of Part III of the First Schedule. It is presumed that the concerned authorities, would call only relevant information., Clause (3) of Part III of the First Schedule provides that a member of the Institute, whether in practice or not,, shall be deemed to be guilty of professional misconduct, if he—, , “while inviting professional work from another Company Secretary or while responding to tenders or enquiries, or while advertising through a write up, or anything as provided for in items (6) and (7) of Part I of this Schedule,, gives information knowing it to be false.”, , d. Other Misconduct in relation to members of the Institute generally(Part IV of the First Schedule), Clause 1 of Part IV, A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if he is held, guilty by any civil or criminal court for an offence which is punishable with imprisonment for a term not exceeding, six months., Clause 2 of Part IV, , A member of the Institute, whether in practice or not, shall be deemed to be guilty of other misconduct, if in the, opinion of the Council, he brings disrepute to the profession or the institute as a result of his action whether or not, related to his professional work., Clause 2 of Part IV of the First Schedule provides that it shall be misconduct if in the opinion of the Council, a, member of ICSI brings disrepute to the profession or the institute as a result of his action whether or not related to, his professional work. Making an exhaustive list of such misconduct may not be possible., Following may amount to misconduct under Clause 2 of Part IV of the First Schedule;, •, , Sending an e-mail to number of members (e-groups ) criticizing the decisions of the Council in derogatory, and filthy language., , •, , Writing letter(s) in an aggressive, loud and filthy language to the Ministry of Corporate Affairs, about working, of ROC offices/ MCA site, inability to upload forms etc., , •, , •, •, •, •, •, , Discussing through e forums failures of the Council/ president/ secretary by using derogatory and filthy, language., Arranging DHARANA/ agitations at the gates of the Govt. Offices/Institute’s offices in a manner not befitting, a professional., , Instigating Students or other members by creating a pandemonium in or around Institute’s offices by raising, issues pertaining to syllabus, training, examination or any other reason what so ever., Misusing the confidential data available with the offices of the Institute for personal purposes., , Inviting Govt. Officers for Chapter’s / Regional Council’s Programs by spending heavily on their travel & stay, arrangements, with an intention to get personal mileage., , Tampering with the Books of Accounts/ Minutes of the meetings of the Managing Committees of Chapter/, Regional Councils.
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886, , , , Lesson 21 • EP-CL, , e. Part I of the Second Schedule to the Act Section 21(3), 21(B)(3) and 22) where the matters are, to be dealt with by the disciplinary committee constituted by the Council, Part I of the Second Schedule to the Act deals with ten instances of professional misconduct in relation to members, in practice, which require action by a Disciplinary Committee. The implications of various clauses in Part I of the, Second Schedule are briefly explained herein below:, Clause (1), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, “Discloses information acquired in the course of his professional engagement to any person other than the client so, engaging him, without the consent of such client, or otherwise than as required by any law for the time being in, force.”, , This clause indicates the position of trust and confidence reposed by the client in a Company Secretary in practice., A Company Secretary in Practice in the course of his professional engagement may come into possession of vital, information. Such information has to be kept confidential unless consent of the client has been obtained to disclose, the same or the disclosure is required by any law. In the case of a sole proprietor client, consent must be from the, sole proprietor. In case the client is a partnership firm, consent has to be given by all partners if the partnership, deed so provides; if the deed is silent, any partner can give the consent on behalf of the firm in view of his implied, authority. In the case of Board-managed companies, the Board has to give the consent unless it has specifically, resolved to delegate the power to any executive. Where the company is managed by a managing director, he may, give consent., , It is necessary to bear in mind that any communication acquired by a Company Secretary in Practice in the course, of his professional engagement on behalf of his client, any communication or any advice given by him to his client, in the course and for the purpose of his engagement is a privileged communication and should not be disclosed by, him without the express consent of his client. Similarly, the Company Secretary in Practice should not disclose,, without written consent of his client, the contents or conditions of any document with which he has become, acquainted in the course and for the purpose of his professional engagement., It is observed these days that PCS retains the digital signature of his client along with the password for the, administrative convenience of uploading the forms from the office of PCS. It is suggested that in such a situation PCS, should retain a formal letter signed by his client authorising PCS to make use of his Digital signature. The reason, being once the forms are uploaded they appear on MCA portal and come to public domain. In order to avoid any, future possible controversy, such authority letter would come handy for PCS., Clause (2), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he–, , “certifies or submits in his name or in the name of his firm a report of an examination of the matters relating to, Company Secretarial practice and related statements unless the examination of such statements has been made by, him or by a partner or any employee in his firm or by another Company Secretary in practice.”, , This clause is intended to imbibe in a member in practice, a higher degree of responsibility and care while certifying, any fact or a statement. Either he himself or his partner or any employee of his firm should have examined what is, being certified. The words “or by another Company Secretary in Practice” used in this clause envisage a situation, where the responsibility for the certification is undertaken by a Company Secretary in Practice, who is neither a partner, nor an employee of the Company Secretary concerned, for an examination done by another member in Practice., This clause prohibits PCS from certifying or submitting in his name a report of an examination of the matters, relating to company secretarial practice unless the examination of such statements has been made by him or by a, partner or an employee in his firm or by another Company Secretary in Practice. Trainees working in the office of, PCS are not to be considered as his employees for the purpose of this item . Reference to “another Company Secretary, in Practice” at the end of paragraph refers to any PCS who may or may not be his partner. Thus a PCS would be, justified in relying on the search report / examination done by another PCS and such reliance would not violate, Clause 1 of the First Schedule.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 887, , Clause (3), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “permits his name or the name of his firm to be used in connection with any report or statement contingent upon, future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast.”, , This clause underlines the duty of a Company Secretary in Practice to exercise utmost care in associating his name, with any report or statement about future happenings or contingencies. A Company Secretary in Practice has to, clearly disclose in the report or statement, as the case may be, the sources of his information and the premises on, which the forecast is based. He shall further take care that he does not vouch for the accuracy of the forecast., Restraint is therefore required in subscribing to reports/statements, the contents of which may or may not turn out, to be true., , The future is always uncertain and there is always an element of contingency. PCS can not become a fortune teller., PCS should not certify any possible happening or non happening or give a report about the future e.g. it would be, improper for a PCS to certify the future earning capacity, future shareholding pattern , future profitability or similar, future figures and numbers. If at all there is any occasion for a PCS to sign such document he should clearly insert, appropriate disclaimer clause., Clause (4), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “expresses his opinion on any report or statement given to any business enterprise in which he, his firm or a partner, in his firm has a substantial interest;”, This clause ensures that a professional has to be independent while expressing any opinion. He should not have any, substantial interest in the business enterprise to which the report or statement pertains. That would create a, conflict with his duty. Expressing opinion or giving any report with appropriate disclosers about his interest in the, report was permitted earlier. However under the new clause there is a total ban on expressing opinion or giving any, report about any business enterprise in which he, his firm or a partner in his firm has a substantial interest., ‘Substantial interest’ used in this clause is not limited to financial interest only., In this connection it may be stated that the Council has, pursuant to Regulation 168 of the Regulations passed a, resolution in which ‘substantial interest’ has been defined to mean an interest to the extent of 25%. The same, guideline is relevant under the above clause also. If the business enterprise does not have a share capital, say a, sports club, which may be a company limited by guarantee without Capital, the question whether PCS has substantial, interest in such Club would be a question of fact., Clause (5), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “fails to disclose a material fact known to him in his report or statement but the disclosure of which is necessary in, making such report or statement, where he is concerned with such report or statement in a professional capacity.”, , This clause deals with the paramount duty of a member in practice towards the user of any statement or report. The, clause underlines the need for full and complete disclosure as to make any statement or report with which he is, associated, true in every possible respect. The aiding or abetting must be with reference to a material fact known to, him. If the member in practice does not know a material fact, or he has no reason to come to know a material fact, by any means, there cannot arise any liability under this clause; also where a material fact is known to him but in, his considered opinion, there is no reason to disclose them, the onus of defense would be on him to prove that the, non-disclosure of the material fact has not made the statement misleading., , The expectation provided in this clause is something similar to the golden rule in respect of prospectus. The report/, statement signed by PCS should contain truth, whole truth and nothing but the truth. Half truth at times is more, disastrous. For example: making a statement that company has continuous track record of dividend declaration, since incorporation, when the facts are that for last three years dividend was being declared from accumulated, profits and not from current year’s profit. Making a statement that company has continuous track record of dividend, declaration since incorporation would be half truth. The reader would be made to believe that the company has
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888, , , , Lesson 21 • EP-CL, , sound financial health. Thus the full facts should be disclosed by PCS by mentioning the fact that company has, continuous track record of dividend declaration since incorporation, however since last three years dividend is, being declared out of reserves., Clause (6), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “fails to report a material misstatement known to him and with which he is concerned in a professional capacity.”, , This clause deals with non-disclosure by a member in practice of a material misstatement known to him in any, report with which he is concerned., Clause (7), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he “does not exercise due diligence, or is grossly negligent in the conduct of his professional duties.”, , This clause deals with due care that a member in practice has to exercise in the discharge of his professional duties., The words used in this clause “grossly negligent” imply that purely clerical errors or an omission to give more, details in any recommended course of action will not fall within the sweep of this clause. What constitutes gross, negligence would depend upon the facts and circumstances of each case., The lCAl in their booklet ‘Code of Conduct’ have quoted the following extract from the judgment of the Karnataka, High Court, in reference to an identical clause under the Chartered Accountants Act, 1949:, , ”It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and caution which a, reasonably competent and cautious auditor would use. What is reasonable skill, care and caution must depend on, the particular circumstances of each case. An auditor is not bound to be a detective, or, as was said, to approach his, work with suspicion or with a foregone conclusion that there is something wrong. He is a watch dog but not a bloodhound. If there is anything calculated to excite suspicion he should probe it to the bottom; but in the absence of, anything of that kind he is only bound to be reasonably cautious and careful. Professional misconduct is a term of, fairly wide import but generally speaking, it implies fairly serious cases of misconduct of gross negligence. Negligence, per se would not amount to gross negligence. In the case of minor errors and lapses, which do not constitute, professional misconduct and which, therefore, do not require a reference to the disciplinary committee, the Council, would nevertheless, bring the matter to the attention of its members so that greater care may be taken in the future, in avoiding errors and lapses of a similar type“., In NemiChand v. Commissioner, Nagpur Division ILR (1947 Nag 256 at 265 ,AIR 1948 24 at 27) it was held that, gross negligence imports high degree of careless conduct., , Where, for instance, a Company Secretary who is not in wholetime practice under Companies Act, 2013, certifies, Annual Return pursuant to section 92 of Companies Act, he would be guilty of being grossly negligent under this, clause. Similarly, where a member in practice gives a certificate to a financial institution regarding necessary powers, of a company and its directors to enter into an agreement without thoroughly verifying the Memorandum and, Articles of Association of the Company, he would be guilty of misconduct under this clause. So also failure to check, the resolutions as contained in the minutes book while certifying copies of resolutions would attract liability under, this clause., The difference in between the two expressions “Not exercising due diligence” and “being grossly negligent”- is of, degree. In both the situations it would amount to professional misconduct., Clause (8), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “fails to obtain sufficient information which is necessary for expression of an opinion or its exceptions are sufficiently, material to negate the expression of an opinion.”, , The first limb of this clause deals with the duty of a member in practice to obtain sufficient information to warrant, expression of an opinion. Issuing of a wrong consumption certificate under the Import Export Regulations for, instance, without obtaining all necessary information required for the purpose, would get attracted to this clause.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 889, , The second limb of this clause requires that any opinion expressed by a Company Secretary in Practice may be, subject to certain exceptions. But, where the exceptions are sufficiently material, he should refrain from expressing, an opinion, in other words, the second limb of this clause gives scope for making minor exceptions which are not, important /material as to negate the very expression of opinion itself., Clause (9), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “fails to invite attention to any material departure from the generally accepted procedure relating to the secretarial, practice.”, , This clause deals with the duty of a member in practice to invite attention to material departure from generally, accepted secretarial practice. As of now, there have evolved certain widely accepted sound practices in regard to,, say, share issue and transfers, share transmission, servicing of corporate securities, meetings procedure and other, approvals, which are generally accepted as good secretarial practices. Until the time the standard secretarial, practices in respect to any matter are recommended by the Institute for adoption are made mandatory, a member, in practice has to, by and large, conform to existing well- recognised secretarial practices and invite attention to, departures which are material., Clause (10), , Provides that a Company Secretary in Practice shall be deemed to be guilty of professional misconduct, if he—, , “fails to keep moneys of his client other than fees or remuneration or money meant to be expended in a separate, banking account or to use such moneys for purposes for which they are intended within a reasonable time.”, , The purpose of this clause is firstly to ensure that the client’s money is separately accounted for and secondly such, money is specifically used only for the purpose for which it is paid by the client., , Advance received from clients for expenses like traveling, conveyance to be incurred by PCS need not be kept in a, separate account, however advance received from a client for payment of Statutory / filing fees, Stamp duty to be, paid by PCS on Client’s behalf , must be kept in a separate account, in case client has paid advance for certain, specific purpose, say for payment of fees and stamp duty for incorporation of the company or for increase in, authorized capital such amount should be used in reasonable time. If the decision to incorporate a company or, increase in capital is postponed/ cancelled, PCS should promptly return such advance and should not adjust his, fees from the amount so received for services rendered , if any, by him, unless such adjustment is authorised by the, client., , f. Professional misconduct in relation to members of the Institute generally (Part lI of the, Second Schedule to the Act), , Part II of Second Schedule to the Act covers professional misconduct in relation to members of the Institute generally., The implications of the four clauses included in this Part are explained herein, below:, Clause (1) of Part II of Second Schedule, , Provides that a member of the Institute whether in practice or not, shall be deemed to be guilty of professional, misconduct, if he—, , “contravenes any of the provisions of this Act or the regulations made there under or any guidelines issued by the, Council.”, , This clause requires every member to pay due obedience to the Act, the Regulations and Guidelines issued by the, council from time to time. For instance, a member of the Institute not having a certificate of practice representing, that he is in practice (under section 24) or any violation of the rules relating to the conduct of elections (under Rule, 42 of the Rules)would become guilty under this Clause; besides becoming liable for prosecution under section 24, of the Act., The Council of the Institute, found a member guilty of professional misconduct under this clause for contravention, of Section 6 of the Act as he certified an Annual Return of a company without holding a certificate of practice.
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890, , , , Following guidelines have been issued by the council so far:, 1., , Display of particulars on website, , 4., , Dress Code, , 2., 3., 5., 6., 7., 8., 9., , Lesson 21 • EP-CL, , Approving firm’s name, , Compulsory attendance at PDP, Issuing Compliance Certificate, , Maintenance of Register of attestation services, Issue of advertisement by PCS, , Change of Name of a Concern/Firm, , Guideline for use of own Logo by PCS., , It is necessary for all the members to understand the guidelines and follow the same in spirit and letter. It is also, necessary to mention here that contravention of any of the provisions of the Company Secretaries Act, 1980 or the, Company Secretaries Regulations, 1982 made there under or any guidelines issued by the council falls within the, ambit of clause (1), part II of the Second Schedule to the Company Secretaries Act, 1980 and invites sterner actions., Clause (2) of Part II of Second Schedule, , Provides that a member of the Institute whether in practice or not, shall be deemed to be guilty of professional, misconduct, if he—, , “being an employee of any company, firm or person, discloses confidential information acquired in the course of his, employment, except as and when required by any law for the time being in force or except as permitted by the employer.”, The employer and employee relationship is of trust and confidence. This principle is embodied in this clause. The, confidential information may pertain to technical secrets, important policy decisions, business strategies or any, matter having a bearing on the interest of the employer., , Confidential information is a valuable asset for any employer. Confidentiality has be maintained about members,, customers, employees, suppliers, product mix , future plans, proposals, list of associates, affiliates, stake holders,, dealers and financial information. All confidential information must be used for the benefit and best interest of the, employer. Employee member must maintain the confidentiality of the information which comes to his knowledge /, custody except when disclosure is authorized or legally required. Confidential information includes all non-public, information that might be harmful or may have potential to cause harm to the employer, if disclosed., The confidential information, discussions, documents and data should be dealt with utmost care and should not be, shared or passed on to undesirable persons / outsiders under any circumstances , directly or indirectly., Clause (3) of Part II of Second Schedule, , Provides that a member of the Institute whether in practice or not, shall be deemed to be guilty of professional, misconduct, if he—, , “includes in any information, statement, return or form to be submitted to the Institute, Council or any of its, Committees, Director (Discipline), Board of Discipline, Disciplinary Committee, Quality Review Board or the, Appellate Authority any particulars knowing them to be false.”, This clause covers situation where a member includes in any statement, return or form to be submitted to the, Council any particulars knowing them to be false. The purpose of this clause is to ensure that a member submits, accurate particulars, as are required to be furnished by him to the Council. It is pertinent to know that the clause is, attracted only when the particulars furnished are known to the member to be false., Metropolitan Life Insurance Co. vs. S. Adam that the word ‘false’ has two distinct and well recognized meanings—, (i), intentionally or knowingly or negligently untrue;, (ii) untrue by mistake or accident after the exercise of reasonable care.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 891, , It is in the former sense that the term ‘false’ is to be understood in this clause. This is abundantly made clear by, the qualifying words, ‘knowing them to be false’. The word false itself implies something more than mere untruth;, it would even connote an intention to deceive., , Where for instance, while submitting the application for the issue/ restoration of certificate of practice under, Regulation 10(1) of the Regulations, a member does not disclose that he is engaged in any business/occupation, other than the profession of company secretaries when in fact he was so engaged, this clause would be attracted., Clause (4) of Part II of Second Schedule, Provides that:, , “a member of the Institute whether in practice or not, shall be deemed to be guilty of professional misconduct, if he, defalcates or embezzles moneys received in his professional capacity.”, , This clause covers defalcation and embezzlement of moneys received in professional capacity by a member and not, in any other capacity. The professional capacity referred to here would cover situations contemplated under Section, 2(2) of the Act and those specifically covered under Regulation 168 of the Regulations. In as much as the Act deals, with professional misconduct, logically the misconduct must be something having a nexus, direct in that, with the, discharge of professional duties. However, this does not mean that other cases of embezzlement are not misconduct., Section 21 of the Act is wide enough to cover other acts not befitting to the member of the Institute., , g. Part III of the Second Schedule, , This part is about other misconduct in relation to members of the Institute generally if a member of the Institute,, whether in practice or not, shall be deemed to be guilty of other misconduct, if he is held guilty by any civil or, criminal court for an offence which is punishable with imprisonment for a term exceeding six months., Part III does not get attracted at the very first instance of being held guilty but it is attracted only after the final, appeal, as it may be, is disposed off and the member is held guilty., , It may be observed that this clause does not provide that the offence for which a member is held guilty by any civil, or criminal court for an offence which is punishable with imprisonment for a term exceeding six months involves, moral turpitude. Therefore even for an imprisonment for a term exceeding six months in an offense which does not, involve moral turpitude would attract the consequences., Complaints and Enquiries Relating To Professional or Other Misconduct of Members, , (1) Subject to the provisions of this regulation, any complaint received against a member of the Institute under, Section 21 shall be investigated, and any enquiry relating to misconduct of such member shall be held, by the, Disciplinary Committee., Provided that if the subject matter of a complaint is, in the opinion of the President, substantially the same as, or has been covered in any previous information of complaint received, the Secretary may file the complaint, without any further action or inform the complainant, accordingly, as the case may be., , (2) A complaint under Section 21 shall be made to the Council in the appropriate from, duly verified as required therein., (3) Every complaint shall contain the following particulars, namely(a) the acts or omissions which, if proved, would render the member complained against guilty of any, professional or other misconduct;, (b) the oral and/or documentary evidence relied upon in support of the allegations made in the complaint., , (4) Every complaint other than a complaint made by or on behalf of the Central or any State Government, shall be, accompanied by a deposit of rupees fifty which shall be forfeited, if the Council, after considering the complaint,, comes to the conclusion that no prima facie case is made out and, moreover, that the complaint is either frivolous or, has been made with mala fide intention., (5) The Secretary shall return a complaint which is not in the proper form or which does not contain the aforesaid, particulars or which is not accompanied by the deposit of rupees fifty to the complainant for resubmission after, compliance with such requirements and within such time as the Secretary may specify.
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892, , , , Lesson 21 • EP-CL, , (6) Ordinarily within sixty days of the receipt of a complaint under Section 21 the Secretary shall,(a) if it is against an individual member send particulars of the acts of omissions alleged or a copy of the, complaint, as the case may be, to such member at his address as entered in the Register;, (b), , if it is against a firm, send particulars of the acts or omissions or a copy of the complaint, as the case may, be, to the firm concerned at the address of the head office of the firm as entered in the Register of offices, and firms which a notice calling upon the firm of disclose the name(s) of the member(s) concerned and, to send particulars of acts or omissions or a copy of the complaint, as the case may be to member(s)., Explanation-A notice shall be deemed to be a notice to all the members who are partner or employees of, that firm., , (7) A member who has been intimated of the complaint made against him under sub-regulation (6) (hereinafter, referred to as the respondent) shall, within fourteen days of issue of such intimation or within such further, time as the Secretary may allow, forward to the Secretary a written statement in his defence verified in the, same manner as the complaint., , (8) On a perusal of the complaint and written statement in any, the Secretary may call for such additional, particulars or documents connected there with either from the complainant or the respondent, as he may, consider necessary or as may be directed by the President, for perusal of the Council., (9) Where on a perusal of the complaint, the written statement, if any, of the respondent and other relevant, documents and papers, the Council is prima facie of opinion that any member has been guilty of professional, or other misconduct, the Council shall cause an enquiry to be made in the matter by the Disciplinary Committee, and where the Council is prima facie of opinion that there is no case against the respondent, the case shall be, dismissed and the complainant, if any, and the respondent shall be informed accordingly., , Provided that the Council may, if deemed necessary, call for any additional particulars or documents connected, therewith from the complainant, if any, or the respondent., , (10) (i) Every notice issued by the Secretary or by the Disciplinary Committee under this Regulation shall be sent, to the member or the firm concerned by registered post with acknowledgement due., (ii) If the notice is returned unserved with an endorsement to the effect that the addressee had refused to, accept the notice, it shall be deemed to have been served., , (iii) If the notice is returned with an endorsement indicating that the addressee cannot be found at the address, given, the Secretary shall ask the complainant to supply to him the correct address to the member or firm, concerned and send a fresh notice to the member or firm at the address so supplied., , (11) The provision relating to a notice shall apply mutatis mutandis to a letter., Procedure in enquiry before the Disciplinary committee, , Applicable to the complaint or information pending before the Council or any inquiry initiated by the Disciplinary, Committee or any reference or appeal made to a High Court prior to 17.11.2006., (1) It shall be the duty of the Secretary to place before the Disciplinary Committee all facts brought to his, knowledge which are relevant for the purpose of any enquiry by the Disciplinary Committee., (2), (3), (4), , The Disciplinary Committee shall have the power to regulate its procedure in such manner as it considers, necessary and during the course of enquiry, may examine witnesses on oath and receive evidences on, affidavits and any other oral or documentary evidence, exercising its powers as provided in Sub-section (8), of Section 21., The Disciplinary Committee shall give the complainant and respondent a notice of the meeting at which the, case shall be considered by the Committee., , Such complainant and respondent may be allowed to defend themselves before the Disciplinary Committee, either in person or through a legal practitioner or any other member of the Institute.
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Lesson 21 • Legal Framework Governing Company Secretaries, , (5), , (6), , 893, , Where, in the course of a disciplinary enquiry, a change occurs in the composition of the Disciplinary, Committee, unless any of the parties to such enquiry makes a demand within fifteen days of receipt of a notice, of a meeting of such Disciplinary Committee, that the enquiry be made de novo report of the Disciplinary, Committee shall be called in question on the ground that any member of the Disciplinary Committee did not, possess sufficient knowledge of the facts relating to such inquiry., The Disciplinary Committee shall after investigation report the result of its enquiry to the Council for its, consideration., , Procedure in a hearing before the Council, (1), (2), (3), (4), , (5), , The Council shall consider the report of the Disciplinary Committee and if in its opinion, a further enquiry is, necessary, may cause such further enquiry to be made and a further report submitted by the Disciplinary, Committee., After considering such report or further report of the Disciplinary Committee, as the case may be, where the, Council finds that the respondent is not guilty of any professional or other misconduct, it shall record its, findings accordingly and direct that the proceedings shall be filed or the complaint shall be dismissed as the, case may be., After considering such report or further report of the Disciplinary Committee, as the case may be, where the, Council finds that the respondent has been guilty of a professional or other misconduct, it shall record its, findings accordingly and shall proceed in the manner as laid down in the succeeding sub- regulations., , Where the finding is that the member of the Institute has been guilty of a professional or other misconduct,, the Council shall afford to the member an opportunity of being heard before orders are passed against him in, the case. The Council after hearing the respondent, if he appears in person or after considering the, representations, if any, made by him, pass such orders as it may think fit, as provided under Subsection (4) of, Section 21., The orders passed by the Council shall be communicated to the complainant and the respondent., , Recent Updates, , Multidisciplinary Firm – According to Regulation 165A of The Company Secretaries Regulations, 1982 inserted by, the Company Secretaries (Amendment) Regulations, 2020- A member in practice may form multi- disciplinary firm, with the member of other professional bodies as prescribed under regulations 168A and 168B of The Company, Secretaries Regulations, 1982, in accordance with the regulating guidelines of the Council for functioning and, regulation of such multidisciplinary firm., Regulation 168 A. Other Professional bodies, , (1) For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, a person has to be member, of any of the following, namely :(a) The Institute of Chartered Accountants of India established under the Chartered Accountants Act, 1949, (No.38 of 1949);, (b), , The Institute of Cost and Works Accountants of India established under the Cost and Works Accountants Act,, 1959 (No. 23 of 1959);, , (d), , The Indian Institute of Architects established under the Architects Act, 1972 (No. 20 of 1972);, , (c), , (e), (f), , Bar Council of India established under the Advocates Act, 1961 (No. 25 of 1961);, , The Institute of Actuaries of India established under the Actuaries Act, 2006 (No. 35 of 2006);, , The membership of the professional bodies or institutions whose qualifications relating to Company, Secretaryship are recognized by the Council under Sub-section (2) of Section 38 of the Act., , (2) For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, the following shall be the, persons qualified in India, namely :-
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894, , , , (a), , Chartered Accountant within the meaning of the Chartered Accountants Act, 1949;, , (c), , Actuary within the meaning of the Actuaries Act, 2006;, , (b), (d), (e), (f), , (g), , (h), , Lesson 21 • EP-CL, , Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959;, , Bachelor in Engineering from a University established by law or an institution recognized by law;, Bachelor in Technology from a University established by law or an institution recognized by law;, , Bachelor in Architecture from a University established by law or an institution recognized by law;, Bachelor of Law from a University established by law or an institution recognized by law;, , Master in Business Administration from Universities established by Law or Technical Institutions recognized, by All India Council for Technical Education., , Regulation 168 B. Membership of Professional body for Partnership, , For the purposes of entering into partnership under clauses (4) and (5) of Part I of the First Schedule to the Act, a, person shall be a member of any of the following professional bodies, namely:(a) The Institute of Chartered Accountants of India established under the Chartered Accountants Act, 1949 (No., 38 of 1949);, (b), , The Institute of Cost and Works Accountants of India established under the Cost and Works Accountants Act,, 1959 (No.23 of 1959);, , (d), , The Institute of Engineers or Engineering from a University established by law or an institution recognized, by law;, , (c), , (e), (f), , (g), , Bar Council of India established under the Advocates Act, 1961 (No. 25 of 1961);, , The Indian Institute of Architects established under the Architects Act, 1972 (No. 20 of 1972);, , The Institute of Actuaries of India established, under the Actuaries Act, 2006 (No. 35 of 2006);, , Professional bodies or institutions outside India whose qualifications relating to Company Secretary, recognized by the Council under Sub-section (2) of Section 38 of the Act., , UDIN: The Unique Document Identification Number as governed by the UDIN Guidelines shall verify the authenticity, of various documents signed or certified by Company Secretaries in Practice. As per the UDIN Guidelines, a unique, number for the identification of documents attested by Company Secretaries in Practice shall be generated at the, time of signing the Certificate/ Report which shall mandatorily be mentioned in the Certificate / Report along with, the CoP number., , eCSin: The Employee Company Secretary Identification Number as governed by the eCSin Guidelines shall enable, the Institute to identify the appointments and cessations of Company Secretaries. eCSin is a system- generated, unique number for identification of the Company Secretaries employed in a particular company which shall be, generated by the Company Secretary at the time of employment as a Company Secretary (KMP or otherwise), as, well as at the time of demitting office in any manner., Both the Guidelines have been made mandatory by the Council of ICSI w.e.f. 1st October, 2019.
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Lesson 21 • Legal Framework Governing Company Secretaries, , 895, , ANNEXURE I, , THE INSTITUTE OF COMPANY SECRETARIES OF INDIA, (Constituted under the Company Secretaries Act, 1980), ICSI Guideline No. of 2020, , [Pursuant to Clause (1) of Part II of the Second Schedule to the Company Secretaries Act, 1980 as amended], , ICSI (GUIDELINES FOR ADVERTISEMENT BY COMPANY SECRETARIES), 20201, , In terms of Clause (1) of Part II of the Second Schedule to the Company Secretaries Act, 1980 (56 of 1980), as, amended by the Company Secretaries (Amendment) Act, 2006, the Council of the Institute of Company Secretaries, of India hereby issues the following guidelines :, 1. Introduction, , The Institute of Company Secretaries of India, (“the Institute”) constituted under the Company Secretaries Act,, 1980 (“the Act”) is a statutory body, constituted under an Act of Parliament, to regulate and develop the profession, of Company Secretaries in India. Members of the Institute who hold the valid Certificate of Practice issued by it are, authorised to practise the profession of Company Secretaries., The areas in which the Company Secretaries in Practice can and do render their services are defined under Section, 2(2) of The Company Secretaries Act, 1980., Members of the Institute are required, under the Act, to maintain high standards of professional conduct., , Part I of the First Schedule of the Company Secretaries Act, 1980, enumerates professional misconduct in relation, to a member in practice and inter-alia includes if such a member:, , (1) Solicits clients or professional work, either directly or indirectly, by circular, advertisement, personal, communication or interview or by any other means:, Provided that nothing herein contained shall be construed as preventing or prohibiting –, , (i), , Any Company Secretary from applying or requesting for or inviting or securing professional work from, another Company Secretary in Practice; or, , (ii) A member from responding to tenders or enquiries issued by various users of professional services or, organisations from time to time and securing professional work as a consequence., , (2) Advertises his/her professional attainments or services, or uses any designation or expressions other than, Company Secretary on professional documents, visiting cards, letterheads or sign boards, unless it is a degree, of a University established by law in India or recognised by the Central Government / State Government or a, title indicating membership of the Institute of Company Secretaries of India or of any other institution that has, been recognised by the Central Government / State Government or recognised by the Council:, Provided that a member in practice of the profession of company secretaries or otherwise may advertise, through a write up setting out:, a., , b., , the services provided by him/her or his/her firm or LLP; and, , particulars of his/her firm / LLP subject to such guidelines as may be issued by the Council., , The write-up should not be used for solicitation of clients, portrayal of supremacy or tall claims to undermine, other members., 2. Short Title, , These Guidelines shall be called ICSI (Guidelines for Advertisement by Company Secretaries), 2020., 3. Applicability, , These guidelines shall be applicable to all advertisements by members of the Institute rendering any advisory,, , 1. As approved by the Council of the Institute of Company Secretaries of India at its 266th meeting held on 9th January, 2020.
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896, , , , Lesson 21 • EP-CL, , consultancy or representation services whether holding Certificate of Practice issued by the Council of the Institute, or otherwise., 4. Definitions, , For the purposes of these Guidelines, –, , The “Act” means the Company Secretaries Act, 1980, as amended from time to time., “Institute” means the Institute of Company Secretaries of India., , “Advertisement or advertising” means advertisement or advertising in any mode including written, recorded, displayed, communication through print or electronic mode or otherwise including in newspapers, journals, internet, online,, websites, banners, letters, circulars issued, circulated or published in accordance with these guidelines., “Company Secretary in Practice” means a member of the Institute who holds a valid Certificate of Practice issued, to him by the Council of the Institute., “Firm of Company Secretaries” means sole proprietorship concern, the sole proprietor of which is a Company, Secretary or a firm, wherein all partners are Company Secretaries and includes LLP having all Designated Partners,, practicing as Company Secretaries or otherwise., 2.6 “Aggregators” shall mean person(s) who own and manage web-based applications, which enable potential, customers to connect with service provider(s) providing service(s) under the aggregators’ brands or trade names., , The terms not defined herein shall have the same meaning as assigned to them in the Company Secretaries Act,, 1980 and the Rules and the Regulations made thereunder., 5. Permitted means of advertising, , The following activities are permitted for a Company Secretary in Practice as means to advertise:, (i), Display the scope of work on his/her own website., (ii), , Creating a visual identity in compliance with the Guidelines for use of Individual Logo issued by the Council, of ICSI., , (iv), , Display of Firm name, Logo or any other identity on Uniform, Office/s, office stationary& equipments/, material and providing Training to Staff., , (iii), (v), , (vi), , Display of Location and décor of the workplace, meeting rooms, etc., Professional Updates and Write ups in any mode., Appearing on local radio or television., , (vii) Giving speeches/lectures at any platform including Seminars, Conferences, training programmes, Workshops,, Conventions, etc so organised by any forum., (viii) Holding professional seminars, conferences and workshops., (ix), (x), , Sponsoring any event (cultural, professional or otherwise) or helping with community programmes or doing, voluntary work as a professional for charitable organizations., Use of social media like Facebook, Instagram, Linkedin, Twitter, Youtube, WeChat, Telegram and Whatsapp or, and other media of similar nature., , 6. Restrictions, , The Advertisement shall:, (i), not be in violation of provisions of Company Secretaries Act, 1980;, (ii), , not be false or misleading;, , (iv), , not be indecent, sensational or otherwise of such nature which may bring disrepute to the profession or the, Institute (ICSI);, , (iii), , not claim superiority over any or all other Company Secretaries;
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Lesson 21 • Legal Framework Governing Company Secretaries, , (v), , (vi), , 897, , not contain fabricated or false testimonials or endorsements concerning the Company Secretary;, not refer the Company Secretaries in the terms such as “specialists” or “experts”;, , Explanation: The advertisements shall not be self-laudatory and not include the words such as “best,” “better”, or “cheapest;”, , (vii) not represent that the quality of the professional services to be performed is greater than the quality of, professional services performed by other professionals. Statements comparing one professional’s services to, that of another are not allowed;, (viii) not constitute a guarantee, warranty, or prediction regarding the outcome of any professional assignment;, (ix), , in no way indicate that the charging of a fee is contingent on outcome, or that no fee will be charged in the, absence of the desired outcome;, , (xi), , not be designed for “pleasing customers,” which might mislead or eventually harm customers or third parties;, , (x), , not contain any reference to past successes or results which indicates a guarantee, warranty or prediction of, result of future professional assignments. eg. We made M/s. Xxx win the case, Meet the masters;, , (xii) not contain any humorous slogans. E.g. Save Rs. Xxxx Come to us, we will tell you how., 7., 8., , The Company Secretary or a firm of Company Secretaries shall not list his/her service(s) on any aggregator, website such as Sulekha, Olx, Urbanclap, JustDial, Quikr or any other aggregator of similar category., , The Company Secretary or a firm of Company Secretaries shall not join or project himself/herself/itself as a, member of any networking association(s) or any Multi-Level Marketing Association(s)(“MLM”) or any other, organisation which require his/her Company Secretary member to add other person as member of the, organisation or which require him / her to render such services which are not specifically approved as, mentioned in clause 1.2 of this guideline., , 9. Website Disclaimer, , The Advertiser shall also include the following Statement of Responsibility and Disclaimer on the Website:, Disclaimer: The contents or claims in the website issued by the advertiser are the sole and exclusive responsibility, of the Advertiser. The Institute of Company Secretaries of India does not own any responsibility whatsoever for, such contents or claims by the Advertiser., 10. Responsibility for the observance of these Guidelines, , The responsibility for the observance of these guidelines lies with member(s) who commission, create, place or, publish any advertisement or assist in the creation or publishing of any advertisement covered under these guidelines. Members are expected not to commission, create, place or publish any advertisement which is in contravention of these Guidelines. This is a self-imposed discipline required to be observed by all those involved in the, commissioning, creation, placement or publishing of advertisements., 11. Effective Date, , These guidelines became effective on and from 1st April, 2020 and shall supersede the Guidelines for Advertisement, by Company Secretaries in Practice issued by the Council in December 2007. Consequently the extant Guidelines for, Display of Particulars on Website by Company Secretaries in Practice stand repealed., 12. Consequences of Non-Compliance, , Any non compliance or violation of these Guidelines, as may be in force from time to time, in any manner whatsoever, shall be deemed to be a professional misconduct and the concerned member shall be liable to disciplinary action, under the Company Secretaries Act, 1980.
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898, , Lesson 21 • EP-CL, , , , LESSON ROUND-UP, •, , The members of the Institute shall be divided into two classes designated respectively as Associates and, Fellows., , •, , Professional misconduct in relation to members of the Institute is broadly structured under Schedule I, and Schedule II of the Act., , •, , •, •, •, , The member of the Institute is subject to the Disciplinary mechanism provided for under Chapter V of the, Company Secretaries Act, 1980 (the Act)., , On receipt of any information or complaint along with the prescribed fee, the Director (Discipline) shall, arrive at a prima facie opinion on the occurrence of the alleged misconduct., , Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other, misconduct mentioned in the First Schedule, the matter shall be placed before the Board of Discipline., , Where the Director (Discipline) is of the opinion that a member is guilty of any professional or other, misconduct mentioned in the Second Schedule or in both the Schedules, the matter shall be placed the, Disciplinary Committee., , GLOSSARY, Associate Member, Fellow Member, , The person whose name is entered in the register of members of the Institute of, Company Secretaries of India shall be deemed to be the Associate Members, , A person, being an Associate who has been in continuous practice in India as a, Company Secretary for at least five years and a person who has been an Associate for, a continuous period of not less than five years and who possesses such qualifications, or practical experience as the Council may prescribe with a view to ensuring that he, has experience equivalent to the experience normally acquired as a result of, continuous practice for a period of five years as a Company Secretary shall, on, payment of fees, be entered in the Register as a Fellow. Such person shall be a Fellow, member., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., What is the Disciplinary Mechanism in case of misconduct of clause 5 of Part I of First Schedule of, Company Secretaries Act, 1980?, 2., , Write short notes on:, , (b), , Fellow member, , (a), (c), 3., , Board of Discipline, , Appellate authority, , What are the Consequences of Non-Compliance of ICSI (Guidelines For Advertisement By Company, Secretaries), 2020
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Lesson 21 • Legal Framework Governing Company Secretaries, , LIST OF FURTHER READINGS, •, , Bare Act- The Companies Act, 2013, , •, , The Company Secretary Regulations, 1982, , •, , The Company Secretary Act, 1980, , OTHER REFERENCES (Including Websites and Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==, , 899
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Lesson 22, Key Concepts One, Should Know, •, •, •, •, •, , Secretarial, Standard, , Secretarial, Standard Board, Meeting, , Board Meeting, , General Meeting, , Secretarial Standards Board, Learning Objectives, , Regulatory Framework, , To understand:, , The Companies Act, 2013, , •, , •, , •, •, , Need and scope of, Secretarial standards, , Broader perspective of how, the standards are, formulated and developed., , Detailed explanation on, Secretarial Standards SS-1 &, SS-2, , Section 118(10)- Adherence, by companies to Secretarial, Standards in respect of, Board & General Meeting, , Secretarial Standards, •, •, , SS-1-Secretarial Standards, on Meetings of The Board of, Directors, SS-2- Secretarial Standard, on General Meetings, , Lesson Outline, •, , Introduction, , •, , Need and Scope of Secretarial Standards, , •, •, •, •, •, •, •, •, •, , Function of SSB of ICSI, , Process of making of Secretarial Standards, Secretarial Standard 1, , Secretarial Standard 2, LESSON ROUND-UP, GLOSSARY, , TEST YOURSELF, , LIST OF FURTHER READINGS, OTHER REFERENCES
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902, , , , INTRODUCTION, , Lesson 22 • EP-CL, , The Institute of Company Secretaries of India (ICSI), recognising the need for integration, harmonisation and, standardisation of diverse secretarial practices prevalent in the corporate sector, has constituted the Secretarial, Standards Board (SSB) with the objective of formulating Secretarial Standards., SSB was constituted in the year 2000. The formulation of SSB is a unique and pioneering step by the Institute of, Company Secretaries of India (ICSI) since there was no such Board or body throughout the world. The purpose, of constituting this Board was for long-term benefits for the growth and enhanced visibility of the profession and, setting up international benchmarks., , The SSB comprises of representatives from major industry associations viz, The Federation of Indian Chambers of, Commerce and Industry (FICCI), Confederation of Indian Industry (CII), The Associated Chambers of Commerce &, Industry of India (ASSOCHAM), PHD Chamber of Commerce and Industry, representatives of regulatory authorities,, such as the Ministry of Corporate Affairs, Securities & Exchange Board of India, Reserve Bank of India, Bombay, Stock Exchange, National Stock Exchange of India Ltd. and the sister professional bodies viz. the Institute of, Chartered Accountants of India and the Institute of Cost Accountants of India and eminent members of the Institute, of Company Secretaries of India in employment and in practice., The scope of SSB is to identify the areas in which Secretarial Standards need to be issued by the Council of ICSI and, to formulate such Standards. SSB also clarify issues, if any, arising out of such Standards and issue guidance notes, for the benefit of members of ICSI, corporates and other stakeholders., , Functions of the Secretarial Standards Board, , The main functions of SSB are:, (i), , (ii), , Formulating Secretarial Standards;, , Clarifying issues arising out of the Secretarial Standards;, , (iii) Issuing Guidance Notes; and, , (iv) Reviewing and updating the Secretarial Standards / Guidance Notes at periodic intervals., , Need of Secretarial Standards, , Companies follow diverse secretarial practices and, therefore, there is a need to integrate, harmonise and standardise, such practices so as to promote uniformity and consistency., SSB formulates Secretarial Standards taking into consideration the applicable laws, business environment, practical, applicability and the best secretarial practices prevalent., , Secretarial Standards are developed in a transparent manner after extensive deliberations, analysis, research and, after considering the views of corporates, regulators and the public at large., , Scope of Secretarial Standards, , Secretarial Standards do not seek to substitute or supplant any existing laws or rules and regulations framed, thereunder but, in fact, seek to supplement such laws, rules and regulations., , Secretarial Standards are issued in conformity with the provisions of the applicable laws. However, if, due to, subsequent changes in the law, a particular Standard or any part thereof becomes inconsistent with such law, the, provisions of the said law shall prevail., , Process of making Secretarial Standards, , The following procedure is adopted for formulating and issuing Secretarial Standards:, (i), , (ii), , SSB, in consultation with the Council, determine the areas in which Secretarial Standards need to be formulated, and the priority thereof., In the preparation of Secretarial Standards, SSB may constitute Working Groups to formulate preliminary, drafts of the proposed Standards.
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Lesson 22 • Secretarial Standards Board, , 903, , (iii) The preliminary draft of the Secretarial Standard prepared by the Working Group is circulated amongst the, members of SSB for discussion and shall be modified appropriately, if so required., , (iv) The preliminary draft is then be circulated to the members of the Central Council, as well as to Regional, Councils/ Chapters of ICSI, various professional bodies, Industry Association/Chambers of Commerce,, regulatory authorities such as the Ministry of Corporate Affairs, the Securities and Exchange Board of India,, Reserve Bank of India, Department of Public Enterprises and to such other bodies/organisations as may be, decided by SSB, for ascertaining their views, specifying a time-frame within which such views, comments and, suggestions are to be received., (v), , On the basis of suggestions received on the preliminary draft, an Exposure Draft of proposed Secretarial, Standard will be prepared and published in the “Chartered Secretary”, the journal of ICSI, and placed on the, Website of ICSI for inviting suggestions/comments from public at large., The exposure draft is also circulated to:, (a), , All Council Members, , (c), , Professional Bodies (ICAI/ICoAI), , (b), (d), (e), (f), , Regional Council/Chapters, , Chambers of Commerce/Industry Associations, , MCA/SEBI/RBI and such other bodies/organisations as may be decided by SSB, All members of the Institute through bulk e-mail/website link etc., , (vi) After taking into consideration the comments received, the draft of the proposed Secretarial Standard is, finalised by SSB and submitted to the Council of ICSI., , (vii) The Council considers the final draft of the proposed Secretarial Standard and finalise the same in consultation, with SSB. The Secretarial Standard on the relevant subject is then be issued under the authority of the Council., , Section 118 (10) of Companies Act, 2013 provide that every company shall observe secretarial standards with, respect to general and board meetings specified by the Institute of Company Secretaries of India constituted under, section 3 of the Company Secretaries Act, 1980 and approved as such by the Central Government., Hence ICSI has so far issued the following Standards:, •, , Secretarial Standards on Meetings of Board of Directors (SS-1) (mandatory), , •, , Secretarial Standard on Dividend (SS-3) (recommendatory), , •, •, , Secretarial Standards on General Meetings (SS-2) (mandatory), , Secretarial Standard on Report of Board of Directors (SS-4) (recommendatory), , MCA Vide Notification No. 710/1 (M)/1, dated 03rd February, 2020 notified the Company Secretaries (Amendment), Regulations, 2020 in order to further amend the Company Secretaries Regulations,1982., Newly inserted Regulation 105A provides Constitution of the Secretarial Standards Committee and the, Auditing Standards Committee, (1), , The Council may constitute (a) the Secretarial Standards Committee and (b) the Auditing Standards Committee, as it may deem necessary for the purposes of carrying out the functions of the Institute., , (3), , A member who has any pecuniary interest or perceived to have pecuniary interest, direct or indirect, in any, such matter which is brought up for consideration of the Committee, shall disclose the nature of his interest, in such matter and such disclosure shall be recorded in the proceedings of the Committee., , (2), , A Committee constituted under sub-regulation (1) shall function under the supervision, control and direction, of the Council.
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904, , (4), , (5), , , , Lesson 22 • EP-CL, , The member referred to in sub-regulation (3) shall not take part in any deliberation or decision of the, Committee on such matter., , Explanation - For the purposes of this regulation, “pecuniary interest” means a reasonable likelihood or, expectation of appreciable financial gain., , Subject to the provisions of the Act and Regulations, the Committee shall have power to delegate by resolution, passed at meeting, any of its duties and functions to the President or Vice-President or Council Member or, Secretary or Chief Executive; or any other Officer of the Institute not below the rank of the Director, as may be, deemed necessary., , (6 ) Except provided specifically, the provisions in respect of meetings of the Council and its Committees, notice,, adjournment, rescheduling, quorum, consideration of resolution and minutes shall be mutatis mutandis, applicable to the meetings of the Committee., , Source: ICSI Crash Course, , SECRETARIAL STANDARD ON MEETINGS OF THE BOARD OF DIRECTORS, The following is the text of the Secretarial Standard-1 (SS-1) on “Meetings of the Board of Directors”, issued by the, Council of the Institute of Company Secretaries of India and approved by the Central Government., Adherence by a company to this Secretarial Standard is mandatory, as per the provisions of the Companies Act,, 2013., , (In this Secretarial Standard, the Standard portions have been set in bold type. These shall be read in the, context of the background material which has been set in normal. Both the Standard portions and the, background material have equal authority)., , Introduction, This Standard prescribes a set of principles for convening and conducting Meetings of the Board of Directors and, matters related thereto., , Scope, , In terms of sub-section (10) of Section 118 of the Act, every company is required to observe SS-1. SS-1 is thus, applicable to the Meetings of the Board of all companies incorporated under the Act, including private and small, companies, except One Person Companies (OPC) having only one Director on its Board and such other class or, classes of companies which are exempted by the Central Government through Notification., MCA Notification No. G.S.R. 466(E) dated 5th June, 2015 exempts companies licensed under Section 8 of the, Companies Act, 2013 from the applicability of Section 118 of the Act, as a whole except that Minutes of Meetings, of such a company may be recorded within thirty days of the conclusion of every Meeting where the Articles of, Association provide for confirmation of Minutes by circulation. As such, SS-1 is not applicable to companies licensed
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Lesson 22 • Secretarial Standards Board, , 905, , under Section 8 of the Companies Act, 2013 or corresponding provisions of any previous enactment thereof. Such, companies may voluntarily comply with SS-1., However, Section 8 companies need to comply with the applicable provisions of the Act relating to Board Meetings., , Further, MCA vide its Notifications No. G.S.R. 584(E) dated 13th June, 2017 modified the above cited Notification, dated 5th June, 2015 to place a restriction that such exemptions shall be applicable to a Section 8 company which, has not committed a default in filing its Financial Statements or Annual Return with the Registrar of Companies., In addition, by virtue of MCA Exemption Notifications No. G.S.R. 08(E) & G.S.R. 9(E), dated 4th January, 2017,, following class of companies are exempted from the applicability of Section 118(10) of the Companies Act, 2013 i.e., the compliance of Secretarial Standards:, Specified IFSC public company: An unlisted public company which is licensed to operate by the Reserve Bank, of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of, India from the International Financial Services Centre located in an approved multi services Special Economic Zone, set-up under the Special Economic Zones Act, 2005 read with the Special Economic Zones Rules, 2006., , Specified IFSC private company: A private company which is licensed to operate by the Reserve Bank of India or, the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of India from, the International Financial Services Centre located in an approved multi services Special Economic Zone set-up, under the Special Economic Zones Act, 2005 read with the Special Economic Zones Rules, 2006., Applicability to companies governed under Special Acts, , SS-1 is also applicable to Banking Companies, Insurance Companies, Companies engaged in generation or supply of, electricity, and Companies governed by any Special Acts, if incorporated under the Act. However, if the provisions, of these Special Acts such as the Banking Regulation Act, 1949, the Insurance Act, 1938, etc. applicable to these, companies are inconsistent with SS-1, then the provisions of such Special Acts shall prevail., , The principles enunciated in this Standard for Meetings of the Board of Directors are also applicable to Meetings of, Committee(s) of the Board, unless otherwise stated herein or stipulated by any other applicable Guidelines, Rules, or Regulations., Applicability to Meetings of the Committees, , SS-1 is also applicable to the Meetings of Committee(s) of the Board constituted in compliance with the requirements, of the Act. At present, the Act provides for the constitution of following committees of the Board:, (a), , Audit Committee, , (b), , Nomination and Remuneration Committee, , (d), , Stakeholders Relationship Committee, , (c), , Corporate Social Responsibility (CSR) Committee, , In case any other committee of the Board is constituted voluntarily or pursuant to any other statute or regulations, etc., the company may comply with SS-1 with respect to meetings of such committee(s) as a good governance, practice., This Standard is in conformity with the provisions of the Act. However, if, due to subsequent changes in the Act, a, particular Standard or any part thereof becomes inconsistent with the Act, the provisions of the Act shall prevail., , Definitions, , The following terms are used in this Standard with the meaning specified:, , “Act” means the Companies Act, 2013 (Act No. 18 of 2013) or any previous enactment thereof, or any statutory, modification thereto or re-enactment thereof and includes any Rules and Regulations framed thereunder., “Articles” means the Articles of Association of a company, as originally framed or as altered from time to time or, applied in pursuance of any previous company law or the Companies Act, 2013., , “Calendar Year” means calendar year as per Gregorian calendar i.e. a period of one year which begins on 1st January, and ends on 31st December.
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906, , Lesson 22 • EP-CL, , , , “Chairman” means the Chairman of the Board or its Committee, as the case may be, or the Chairman appointed or, elected for a Meeting., “Committee” means a Committee of Directors mandatorily required to be constituted by the Board under the Act., , “Electronic Mode” in relation to Meetings means Meetings through video conferencing or other audio-visual means., “Video conferencing or other audio- visual means” means audio-visual electronic communication facility employed, which enables all the persons participating in a Meeting to communicate concurrently with each other without an, intermediary and to participate effectively in the Meeting., “Invitee” means a person, other than a Director and Company Secretary, who attends a particular Meeting by, invitation., , “Maintenance” means keeping of registers and records either in physical or electronic form, as may be permitted, under any law for the time being in force, and includes the making of appropriate entries therein, the authentication, of such entries and the preservation of such physical or electronic records., “Meeting” means a duly convened, held and conducted Meeting of the Board or any Committee thereof., , “Minutes” means a formal written record, in physical or electronic form, of the proceedings of a Meeting., , “Minutes Book” means a Book maintained in physical or in electronic form for the purpose of recording of Minutes., , “National Holiday” means Republic Day i.e. 26th January, Independence Day i.e. 15th August, Gandhi Jayanti i.e. 2nd, October and such other day as may be declared as National Holiday by the Central Government., , “Original Director” means a Director in whose place the Board has appointed any other individual as an Alternate, Director., “Quorum” means the minimum number of Directors whose presence is necessary for holding of a Meeting., , “Secretarial Auditor” means a Company Secretary in Practice or a firm of Company Secretary(ies) in Practice, appointed in pursuance of the Act to conduct the secretarial audit of the company., “Secured Computer System” means computer hardware, software, and procedure that –, (a), , are reasonably secure from unauthorized access and misuse;, , (a), , are reasonably suited to performing the intended functions; and, , (a), (a), , provide a reasonable level of reliability and correct operation;, adhere to generally accepted security procedures., , “Timestamp” means the current time of an event that is recorded by a Secured Computer System and is used to, describe the time that is printed to a file or other location to help keep track of when data is added, removed, sent, or received., , Words and expressions used and not defined herein shall have the meaning respectively assigned to them under, the Act., , SECRETARIAL STANDARD, , 1., , Convening a Meeting, 1.1, , Authority, 1.1.1 Any Director of a company may, at any time, summon a Meeting of the Board, and the, Company Secretary or where there is no Company Secretary, any person authorised by, the Board in this behalf, on the requisition of a Director, shall convene a Meeting of the, Board, in consultation with the Chairman or in his absence, the Managing Director or in, his absence, the Whole-time Director, where there is any, unless otherwise provided in, the Articles.
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Lesson 22 • Secretarial Standards Board, , 907, , 1.1.2 The Chairman may, unless dissented to or objected by the majority of Directors present, at a Meeting at which a Quorum is present, adjourn the Meeting for any reason, at any, stage of the Meeting., , 1.2, , Day, Time, Place, Mode and Serial Number of Meeting, 1.2.1 Every Meeting shall have a serial number., Illustrations, (i), , Serially numbering on Calendar Year basis as follows: “1/2015”, “2/2015”, “3/2015” and so, on…. In the next year, numbering would be “1/2016”, “2/2016”, “3/2016” and so on., , (ii) Serially numbering on financial year basis as follows: “1/2015-16”, “2/2015-16”, “3/2015-16”, and so on….or 1/15-16, 2/15-16, 3/15-16 and so on......, , (iii) Continuous serially numbering across years: 120th Meeting, 121st Meeting, 122nd Meeting, and so on ……, Here, a company may choose to either count and give continuous numbering from its incorporation, or give continuous numbering from Meetings held on or after 1st July, 2015, this being the date, from which SS-1 became effective., , 1.2.2 A Meeting may be convened at any time and place, on any day., , Notice of the Meeting shall clearly mention a venue, whether registered office or otherwise,, to be the venue of the Meeting and all the recordings of the proceedings of the Meeting, if, conducted through Electronic Mode, shall be deemed to be made at such place., , 1.2.3 Any Director may participate through Electronic Mode in a Meeting unless the Act or any, other law specifically prohibits such participation through Electronic Mode in respect of, any item of business., , Directors shall not participate through Electronic Mode in the discussion on certain restricted, items. Such restricted items of business include approval of the annual financial statement,, Board’s report, prospectus and matters relating to amalgamation, merger, demerger, acquisition, and takeover. Similarly, participation in the discussion through Electronic Mode shall not be, allowed in Meetings of the Audit Committee for consideration of annual financial statement, including consolidated financial statement, if any, to be approved by the Board., , The MCA vide Notification dated June 15, 2021 has omitted Rule 4 of the Companies (Meetings of, Board and its Powers) Rules, 2014 which was related to the matters not to be dealt with in a meeting, through video conferencing or other audio-visual means., Accordingly, with the said amendment, now the following items can be considered in a Board Meeting, held through video conferencing or other audio-visual means, namely: i., , the approval of the annual financial statements;, , ii., , the approval of the Board’s report;, , iii., , the approval of the prospectus;, , iv., , the Audit Committee Meetings for consideration of financial statement including consolidated, financial statement if any, to be approved by the board under section 134 (1) of the Companies, Act, 2013; and, , v., , the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
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908, , , , 1.3, , Notice, , Lesson 22 • EP-CL, , 1.3.1 Notice in writing of every Meeting shall be given to every Director by hand or by speed, post or by registered post or by facsimile or by e-mail or by any other electronic means., The Notice shall be sent to the postal address or e-mail address, registered by the Director with, the company or in the absence of such details or any change thereto, any of such addresses, appearing in the Director Identification Number (DIN) registration of the Director., Where a Director specifies a particular means of delivery of Notice, the Notice shall be given to, him by such means. However, in case of a Meeting conducted at a shorter Notice, the company, may choose an expedient mode of sending Notice., Proof of sending Notice and its delivery shall be maintained by the company for such period as, decided by the Board, which shall not be less than three years from the date of the Meeting., , 1.3.2 Notice shall be issued by the Company Secretary or where there is no Company Secretary,, any Director or any other person authorised by the Board for the purpose., 1.3.3 The Notice shall specify the serial number, day, date, time and full address of the venue of, the Meeting., 1.3.4 The Notice shall inform the Directors about the option available to them to participate, through Electronic Mode and provide them all the necessary information., If a Director intends to participate through Electronic Mode, he shall give sufficient prior, intimation to the Chairman or the Company Secretary to enable them to make suitable, arrangements in this behalf., The Director may intimate his intention of participation through Electronic Mode at the, beginning of the Calendar Year also, which shall be valid for such Calendar Year., , The Notice shall also contain the contact number or e-mail address(es) of the Chairman or the, Company Secretary or any other person authorised by the Board, to whom the Director shall, confirm in this regard. In the absence of an advance communication or confirmation from the, Director as above, it shall be assumed that he will attend the Meeting physically., , Illustration:, , The Articles of Association of XYZ Ltd. provides that all Notices of the Meetings of the Board and, Committees thereof shall be sent to all the members of the Board/Committees by e-mail or through, speed post or registered post with acknowledgment. Accordingly, the company is sending Notices, through speed post to all Directors., However Mr. A, Independent Director on the Board of XYZ Ltd. requested the company to send all, such Notices to him through courier at his office., Since Mr. A has specified a particular means of delivery of Notice, the company should send Notice, of the Meetings through such means to him., , 1.3.5 The Notice of a Meeting shall be given even if Meetings are held on pre-determined dates, or at pre-determined intervals., 1.3.6 Notice convening a Meeting shall be given at least seven days before the date of the, Meeting, unless the Articles prescribe a longer period., In case the company sends the Notice by speed post or by registered post, an additional two, days shall be added for the service of Notice., , Notice of an adjourned Meeting shall be given to all Directors including those who did not, attend the Meeting on the originally convened date and unless the date of adjourned Meeting, is decided at the Meeting, Notice thereof shall also be given not less than seven days before the, Meeting.
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Lesson 22 • Secretarial Standards Board, , 909, , 1.3.7 The Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda, shall be given to the Directors at least seven days before the date of the Meeting, unless, the Articles prescribe a longer period., Agenda and Notes on Agenda shall be sent to all Directors by hand or by speed post or by, registered post or by e-mail or by any other electronic means. These shall be sent to the postal, address or e-mail address or any other electronic address registered by the Director with the, company or in the absence of such details or any change thereto, to any of such addresses, appearing in the Director Identification Number (DIN) registration of the Directors., In case the company sends the Agenda and Notes on Agenda by speed post or by registered, post, an additional two days shall be added for the service of Agenda and Notes on Agenda., , Where a Director specifies a particular means of delivery of Agenda and Notes on Agenda, these, papers shall be sent to him by such means. However, in case of a Meeting conducted at a shorter, Notice, the company may choose an expedient mode of sending Agenda and Notes on Agenda., Proof of sending Agenda and Notes on Agenda and their delivery shall be maintained by the, company for such period as decided by the Board, which shall not be less than three years from, the date of the Meeting., The Notice, Agenda and Notes on Agenda shall be sent to the Original Director also at the, address registered with the company, even if these have been sent to the Alternate Director., However, the mode of sending Notice, Agenda and Notes on Agenda to the original director shall, be decided by the company., , Notes on items of business which are in the nature of Unpublished Price Sensitive Information, may be given at a shorter period of time than stated above, with the consent of a majority of the, Directors, which shall include at least one Independent Director, if any., For this purpose,* “Unpublished Price Sensitive Information” means any information, relating, to a company or its securities, directly or indirectly, that is not generally available, which upon, becoming generally available, is likely to materially affect the price of the securities and shall,, ordinarily including but not restricted to, information relating to the following: –, , (i), , financial results;, , (iii), , change in capital structure;, , (ii), , (iv), (v), , dividends;, , mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and, such other transactions; and, changes in key managerial personnel., , *Definition under SEBI (Prohibition of Insider Trading) Regulations, 2015, , SEBI vide notification dated 31st December, 2018 amended the definition of Unpublished Price, Sensitive Information (UPSI), effective from 01st April, 2019. The definition of UPSI referred in, SS-1 stands revised accordingly., , General consent for giving Notes on items of Agenda which are in the nature of Unpublished, Price Sensitive Information at a shorter Notice may be taken in the first Meeting of the Board, held in each financial year and also whenever there is any change in Directors., Where general consent as above has not been taken, the requisite consent shall be taken before, the concerned items are taken up for consideration at the Meeting. The fact of consent having, been taken shall be recorded in the Minutes., , Supplementary Notes on any of the Agenda Items may be circulated at or prior to the Meeting but, shall be taken up with the permission of the Chairman and with the consent of a majority of the, Directors present in the Meeting, which shall include at least one Independent Director, if any.
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910, , Lesson 22 • EP-CL, , , , 1.3.8, , Each item of business requiring approval at the Meeting shall be supported by a note, setting out the details of the proposal, relevant material facts that enable the Directors, to understand the meaning, scope and implications of the proposal and the nature, of concern or interest, if any, of any Director in the proposal, which the Director had, earlier disclosed., Where approval by means of a Resolution is required, the draft of such Resolution shall be, either set out in the note or placed at the Meeting. However, any other decision taken at the, meeting may also be recorded in the Minutes in the form of Resolution., The items of business that are required by the Act or any other applicable law to be considered, at a Meeting of the Board shall be placed before the Board at its Meeting. An illustrative list of, such items is given at Annexure ‘A’., , 1.3.9, , There are certain items which shall be placed before the Board at its first Meeting. An, illustrative list thereof is given at Annexure ‘B’., Each item of business to be taken up at the Meeting shall be serially numbered., , Numbering shall be in a manner which would enable ease of reference or cross-reference., , 1.3.10 Any item not included in the Agenda may be taken up for consideration with the, permission of the Chairman and with the consent of a majority of the Directors present, in the Meeting., The decision taken in respect of any other item shall be final only on its ratification by a, majority of the Directors of the company, unless such item was approved at the Meeting itself, by a majority of Directors of the company., , 1.3.11 To transact urgent business, the Notice, Agenda and Notes on Agenda may be given at, shorter period of time than stated above, if at least one Independent Director, if any,, shall be present at such Meeting., If no Independent Director is present, decisions taken at such a Meeting shall be circulated, to all the Directors and shall be final only on ratification thereof by at least one Independent, Director, if any., , 2., , In case the company does not have an Independent Director, the decisions shall be final only, on ratification thereof by a majority of the Directors of the company, unless such decisions, were approved at the Meeting itself by a majority of Directors of the company., The fact that the Meeting is being held at a shorter Notice shall be stated in the Notice., , Frequency of Meetings, 2.1, , Meetings of the Board, , The company shall hold at least four Meetings of its Board in each Calendar Year with a, maximum interval of one hundred and twenty days between any two consecutive Meetings., The company shall hold first Meeting of its Board within thirty days of the date of incorporation., It shall be sufficient if subsequent Meetings are held with a maximum interval of one hundred and, twenty days between any two consecutive Meetings., , Further, it shall be sufficient if a One Person Company, Small Company or Dormant Company holds, one Meeting of the Board in each half of a Calendar Year and the gap between the two Meetings of the, Board is not less than ninety days., 2.2, , An adjourned Meeting being a continuation of the original Meeting, the interval period in such a case,, shall be counted from the date of the original Meeting., Meetings of Committees, , Committees shall meet as often as necessary subject to the minimum number and frequency, prescribed by any law or any authority or as stipulated by the Board.
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Lesson 22 • Secretarial Standards Board, , 2.3, , 911, , Meeting of Independent Directors, Where a company is required to appoint Independent Directors under the Act, such Independent, Directors shall meet at least once in a Calendar Year., The Meeting shall be held to review the performance of Non-Independent Directors and the Board as, a whole; to review the performance of the Chairman and to assess the quality, quantity and timeliness, of flow of information between the company management and the Board and its members that is, necessary for the Board to effectively and reasonably perform their duties., , 3., , The Company Secretary, wherever appointed, shall facilitate convening and holding of such Meeting, if, so desired by the Independent Directors., , Quorum, , Source: ICSI Crash Course, , 3.1, , Quorum shall be present throughout the Meeting., Quorum shall be present not only at the time of commencement of the Meeting but also while, transacting business., , 3.2, , A Director shall neither be reckoned for Quorum nor shall be entitled to participate in respect, of an item of business in which he is interested. However, in case of a private company, a Director, shall be entitled to participate in respect of such item after disclosure of his interest., For this purpose, a Director shall be treated as interested in a contract or arrangement entered into or, proposed to be entered into by the company:, (a), , (b), , 3.3, , 3.4, , with any body corporate, if such Director, along with other Directors holds more than two, percent of the paid-up share capital of that body corporate, or he is a promoter, or manager or, chief executive officer of that body corporate; or, with a firm or other entity, if such Director is a partner, owner or Member, as the case may be, of, that firm or other entity., , If the item of business is a related party transaction, then he shall not be present at the Meeting,, whether physically or through Electronic Mode, during discussions and voting on such item., , Directors participating through Electronic Mode in a Meeting shall be counted for the purpose, of Quorum, unless they are to be excluded for any items of business under the provisions of the, Act or any other law., Meetings of the Board, 3.4.1 The Quorum for a Meeting of the Board shall be one-third of the total strength of the, Board, or two Directors, whichever is higher.
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912, , Lesson 22 • EP-CL, , , , Any fraction contained in the above one-third shall be rounded off to the next one., , Where the Quorum requirement provided in the Articles is higher than one-third of the total, strength, the company shall conform to such higher requirement., Total strength for this purpose, shall not include Directors whose places are vacant., , If the number of Interested Directors exceeds or is equal to two-thirds of the total strength, the, remaining Directors present at the Meeting, being not less than two, shall be the Quorum during, such item., , Source: ICSI Crash Course, , If a Meeting of the Board could not be held for want of Quorum, then, unless otherwise provided, in the Articles, the Meeting shall automatically stand adjourned to the same day in the next, week, at the same time and place or, if that day is a National Holiday, to the next succeeding day, which is not a National Holiday, at the same time and place., If there is no Quorum at the adjourned Meeting also, the Meeting shall stand cancelled., , 3.4.2 Where the number of Directors is reduced below the minimum fixed by the Articles,, no business shall be transacted unless the number is first made up by the remaining, Director(s) or through a General Meeting., , 3.5, , If the number of Directors is reduced below the Quorum fixed by the Act for a Meeting of the, Board, the continuing Directors may act for the purpose of increasing the number of Directors, to that fixed for the Quorum or of summoning a general meeting of the company, and for no, other purpose., , Meetings of Committees, , Unless otherwise stipulated in the Act or the Articles or under any other law, the Quorum for, Meetings of any Committee constituted by the Board shall be as specified by the Board. If no, such Quorum is specified, the presence of all the members of any such Committee is necessary, to form the Quorum., Regulations framed under any other law may contain provisions for the Quorum of a Committee and, such stipulations shall be followed.
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Lesson 22 • Secretarial Standards Board, , 4., , 913, , Attendance at Meetings, 4.1, , Attendance register, 4.1.1 Every company shall maintain attendance register for the Meetings of the Board and, Meetings of the Committee., The pages of the attendance register shall be serially numbered., , If an attendance register is maintained in loose-leaf form, it shall be bound periodically, atleast, once in every three years., , 4.1.2 The attendance register shall contain the following particulars: serial number and, date of the Meeting; in case of a Committee Meeting name of the Committee; place of, the Meeting; time of the Meeting; names and signatures of the Directors, the Company, Secretary and also of persons attending the Meeting by invitation and their mode of, presence, if participating through Electronic Mode., 4.1.3 The attendance register shall be deemed to have been signed by the Directors participating, through Electronic Mode, if their attendance is recorded in the attendance register and, authenticated by the Company Secretary or where there is no Company Secretary, by, the Chairman or by any other Director present at the Meeting, if so authorised by the, Chairman and the fact of such participation is also recorded in the Minutes., In case of Directors participating through Electronic Mode, the Chairman shall confirm the, attendance of such Directors. For this purpose, at the commencement of the Meeting, the, Chairman shall take a roll call. The Chairman or Company Secretary shall request the Director, participating through Electronic Mode to state his full name and location from where he is, participating and shall record the same in the Minutes. The proceedings of such Meetings shall, be recorded through any electronic recording mechanism and the details of the venue, date and, time shall be mentioned., , 4.1.4 The attendance register shall be maintained at the Registered Office of the company or, such other place as may be approved by the Board., , The attendance register may be taken to any place where a Meeting of the Board or Committee, is held., , 4.1.5 The attendance register is open for inspection by the Directors. Even after a person ceases, to be a Director, he shall be entitled to inspect the attendance register of the Meetings, held during the period of his Directorship., , The Company Secretary in Practice appointed by the company or the Secretarial Auditor or the, Statutory Auditor of the company can also inspect the attendance register as he may consider, necessary for the performance of his duties., A Member of the company is not entitled to inspect the attendance register., , 4.1.6 The attendance register shall be preserved for a period of at least eight financial years, from the date of last entry made therein and may be destroyed thereafter with the, approval of the Board., 4.1.7 The attendance register shall be in the custody of the Company Secretary., , 4.2, , Where there is no Company Secretary, the attendance register shall be in the custody of any, other person authorised by the Board for this purpose., , Leave of absence shall be granted to a Director only when a request for such leave has been, communicated to the Company Secretary or to the Chairman or to any other person authorised, by the Board to issue Notice of the Meeting., The office of a Director shall become vacant in case the Director absents himself from all the Meetings, of the Board held during a period of twelve months with or without seeking leave of absence of the, Board.
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914, , , , Lesson 22 • EP-CL, , , , Source: ICSI Crash Course, , 5., , Chairman, 5.1, , Meetings of the Board, , 5.1.1 The Chairman of the company shall be the Chairman of the Board. If the company does, not have a Chairman, the Directors may elect one of themselves to be the Chairman of the, Board., 5.1.2 The Chairman of the Board shall conduct the Meetings of the Board. If no such Chairman, is elected or if the Chairman is unable to attend the Meeting, the Directors present at the, Meeting shall elect one of themselves to chair and conduct the Meeting, unless otherwise, provided in the Articles., It would be the duty of the Chairman to check, with the assistance of Company Secretary, that, the Meeting is duly convened and constituted in accordance with the Act or any other applicable, guidelines, Rules and Regulations before proceeding to transact business. The Chairman shall, then conduct the Meeting. The Chairman shall encourage deliberations and debate and assess, the sense of the Meeting., , If the Chairman is interested in an item of business, he shall entrust the conduct of the, proceedings in respect of such item to any Non-Interested Director with the consent of the, majority of Directors present and resume the chair after that item of business has been, transacted. However, in case of a private company, the Chairman may continue to chair and, participate in the Meeting after disclosure of his interest., If the item of business is a related party transaction, the Chairman shall not be present at the, Meeting, whether physically or through Electronic Mode, during discussions and voting on such, item., In case some of the Directors participate through Electronic Mode, the Chairman and the, Company Secretary shall take due and reasonable care to safeguard the integrity of the Meeting, by ensuring sufficient security and identification procedures to record proceedings and safe, keeping of the recordings. No person other than the Director concerned shall be allowed access, to the proceedings of the Meeting where Director(s) participate through Electronic Mode,
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Lesson 22 • Secretarial Standards Board, , 915, , except a Director who is differently abled, provided such Director requests the Board to allow a, person to accompany him and ensures that such person maintains confidentiality of the matters, discussed at the Meeting., , The Chairman shall ensure that the required Quorum is present throughout the Meeting and, at the end of discussion on each agenda item the Chairman shall announce the summary of the, decision taken thereon., 5.2, , Unless otherwise provided in the Articles, in case of an equality of votes, the Chairman shall, have a second or casting vote., , Meetings of Committees, , A member of the Committee appointed by the Board or elected by the Committee as Chairman, of the Committee, in accordance with the Act or any other law or the Articles, shall conduct the, Meetings of the Committee. If no Chairman has been so elected or if the elected Chairman is, unable to attend the Meeting, the Committee shall elect one of its members present to chair and, conduct the Meeting of the Committee, unless otherwise provided in the Articles., 6., , Passing of Resolution by Circulation, The Act requires certain business to be approved only at Meetings of the Board. However, other business that, requires urgent decisions can be approved by means of Resolutions passed by circulation. Resolutions passed, by circulation are deemed to be passed at a duly convened Meeting of the Board and have equal authority., 6.1, , Authority, , 6.1.1 The Chairman of the Board or in his absence, the Managing Director or in their absence,, any Director other than an Interested Director, shall decide, before the draft Resolution, is circulated to all the Directors, whether the approval of the Board for a particular, business shall be obtained by means of a Resolution by circulation., , An illustrative list of items which shall be placed before the Board at its Meeting and shall not, be passed by circulation is given at Annexure ‘A’., , 6.1.2 Where not less than one-third of the total number of Directors for the time being require, the Resolution under circulation to be decided at a Meeting, the Chairman shall put the, Resolution for consideration at a Meeting of the Board., , 6.2, , Interested Directors shall not be excluded for the purpose of determining the above one-third, of the total number of Directors., , Procedure, , 6.2.1 A Resolution proposed to be passed by circulation shall be sent in draft, together with, the necessary papers, to all the Directors including Interested Directors on the same day., , 6.2.2 The draft of the Resolution to be passed and the necessary papers shall be circulated, amongst the Directors by hand, or by speed post or by registered post or by courier, or by, e-mail or by any other recognised electronic means., The draft of the Resolution and the necessary papers shall be sent to the postal address or, e-mail address registered by the Director with the company or in the absence of such details or, any change thereto, any of the addresses appearing in the Director Identification Number (DIN), registration of the Director., Proof of sending and delivery of the draft of the Resolution and the necessary papers shall be, maintained by the company for such period as decided by the Board, which shall not be less, than three years from the date of the Meeting.
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916, , Lesson 22 • EP-CL, , , , 6.2.3 Each business proposed to be passed by way of Resolution by circulation shall be, explained by a note setting out the details of the proposal, relevant material facts that, enable the Directors to understand the meaning, scope and implications of the proposal,, the nature of concern or interest, if any, of any Director in the proposal, which the, Director had earlier disclosed and the draft of the Resolution proposed. The note shall, also indicate how a Director shall signify assent or dissent to the Resolution proposed, and the date by which the Director shall respond., Each Resolution shall be separately explained., , The decision of the Directors shall be sought for each Resolution separately., , Not more than seven days from the date of circulation of the draft of the Resolution shall be, given to the Directors to respond and the last date shall be computed accordingly., 6.3, , An additional two days shall be added for the service of the draft Resolution, in case the same, has been sent by the company by speed post or by registered post or by courier., , Approval, , 6.3.1 The Resolution is passed when it is approved by a majority of the Directors entitled to, vote on the Resolution, unless not less than one-third of the total number of Directors, for the time being require the Resolution under circulation to be decided at a Meeting., Every such Resolution shall carry a serial number., , If any special majority or the affirmative vote of any particular Director or Directors is specified, in the Articles, the Resolution shall be passed only with the assent of such special majority or, such affirmative vote., An Interested Director shall not be entitled to vote. For this purpose, a Director shall be treated, as interested in a contract or arrangement entered or proposed to be entered into by the, company:, , (a), (a), , with any body corporate, if such Director, along with other Directors holds more than, two percent of the paid-up share capital of that body corporate, or he is a promoter, or, manager or chief executive officer of that body corporate; or, , with a firm or other entity, if such Director is a partner, owner or Member, as the case may, be, of that firm or other entity., , 6.3.2 The Resolution, if passed, shall be deemed to have been passed on the earlier of:, (a), , the last date specified for signifying assent or dissent by the Directors, or, , (b), , the date on which assent has been received from the required majority, provided, that on that date the number of Directors, who have not yet responded on the, resolution under circulation, along with the Directors who have expressed their, desire that the resolution under circulation be decided at a Meeting of the Board,, shall not be one third or more of the total number of Directors; and, shall be effective from that date, if no other effective date is specified in such, Resolution., , Directors shall signify their assent or dissent by signing the Resolution to be passed by, circulation or by e-mail or any other electronic means., , Directors shall append the date on which they have signed the Resolution. In case a Director, does not append a date, the date of receipt by the company of the signed Resolution shall be, taken as the date of signing., , In cases where the interest of a Director is yet to be communicated to the company, the, concerned Director shall disclose his interest before the last date specified for the response and, abstain from voting.
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917, , Lesson 22 • Secretarial Standards Board, , In case not less than one-third of the Directors wish the matter to be discussed and decided at, a Meeting, each of the concerned Directors shall communicate the same before the last date, specified for the response., , In case the Director does not respond on or before the last date specified for signifying assent, or dissent, it shall be presumed that the Director has abstained from voting., 6.4, , If the approval of the majority of Directors entitled to vote is not received by the last date, specified for receipt of such approval, the Resolution shall be considered as not passed., , Recording, , Resolutions passed by circulation shall be noted at a subsequent Meeting of the Board and the, text thereof with dissent or abstention, if any, shall be recorded in the Minutes of such Meeting., 6.5, , Validity, Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly, convened Meeting of the Board., , 7., , This shall not dispense with the requirement for the Board to meet at the specified frequency., , Minutes, , , , 7.1, , Source:ICSI Crash Course, , Every company shall keep Minutes of all Board and Committee Meetings in a Minutes Book. Minutes, kept in accordance with the provisions of the Act evidence the proceedings recorded therein. Minutes, help in understanding the deliberations and decisions taken at the Meeting., Maintenance of Minutes, , 7.1.1 Minutes shall be recorded in books maintained for that purpose., , 7.1.2 A distinct Minutes Book shall be maintained for Meetings of the Board and each of its, Committees., 7.1.3 A company may maintain its Minutes in physical or in electronic form., Minutes may be maintained in electronic form in such manner as prescribed under the Act and, as may be decided by the Board. Minutes in electronic form shall be maintained with Timestamp., A company shall however follow a uniform and consistent form of maintaining the Minutes. Any, deviation in such form of maintenance shall be authorised by the Board., , 7.1.4 The pages of the Minutes Books shall be consecutively numbered., , This shall be followed irrespective of a break in the Book arising out of periodical binding in case, the Minutes are maintained in physical form. This shall be equally applicable for maintenance of, Minutes Book in electronic form with Timestamp., In the event any page or part thereof in the Minutes Book is left blank, it shall be scored out and, initialled by the Chairman who signs the Minutes.
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918, , Lesson 22 • EP-CL, , , , 7.1.5 Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any, manner., 7.1.6 Minutes Books, if maintained in loose-leaf form, shall be bound periodically depending, on the size and volume and coinciding with one or more financial years of the company., There shall be a proper locking device to ensure security and proper control to prevent removal, or manipulation of the loose leaves., , 7.1.7 Minutes Books shall be kept at the Registered Office of the company or at such other, place as may be approved by the Board., 7.2, , Contents of Minutes, 7.2.1 General Contents, 7.2.1.1 Minutes shall state, at the beginning the serial number and type of the Meeting,, name of the company, day, date, venue and time of commencement of the Meeting., In respect of a Meeting adjourned for want of Quorum, a statement to that effect by, the Chairman or in his absence, by any other Director present at the Meeting shall be, recorded in the Minutes., , 7.2.1.2 Minutes shall record the names of the Directors present physically or through, Electronic Mode, the Company Secretary who is in attendance at the Meeting and, Invitees, if any, including Invitees for specific items., The names of the Directors shall be listed in alphabetical order or in any other logical, manner, but in either case starting with the name of the person in the Chair., , The capacity in which an Invitee attends the Meeting and where applicable, the name of, the entity such Invitee represents and the relation, if any, of that entity to the company, shall also be recorded., , 7.2.1.3 Minutes shall contain a record of all appointments made at the Meeting., , Where the Minutes have been kept in accordance with the Act and all appointments have, been recorded, then until the contrary is proved, all appointments of Directors, First, Auditors, Key Managerial Personnel, Secretarial Auditors, Internal Auditors and Cost, Auditors, shall be deemed to have been duly approved by the Board., , 7.2.2 Specific Contents, , 7.2.2.1 Minutes shall inter-alia contain:, (a), , The name(s) of Directors present and their mode of attendance, if through, Electronic Mode., , (b), , In case of a Director participating through Electronic Mode, his particulars,, the location from where he participated and wherever required, his consent, to sign the statutory registers placed at the Meeting., , (c), , The name of Company Secretary who is in attendance and Invitees, if any, for, specific items and mode of their attendance if through Electronic Mode., , (d), , Record of election, if any, of the Chairman of the Meeting., , (e), , Record of presence of Quorum., , (f), , The names of Directors who sought and were granted leave of absence., , (g), , Noting of the Minutes of the preceding Meeting., , (h), , Noting the Minutes of the Meetings of the Committees., , (i), , The text of the Resolution(s) passed by circulation since the last Meeting,, including dissent or abstention, if any., , (j), , The fact that an Interested Director did not participate in the discussions, and did not vote on item of business in which he was interested and in case
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Lesson 22 • Secretarial Standards Board, , 919, , of a related party transaction such director was not present in the meeting, during discussions and voting on such item., , (k), , The views of the Directors particularly the Independent Director, if, specifically insisted upon by such Directors, provided these, in the opinion of, the Chairman, are not defamatory of any person, not irrelevant or immaterial, to the proceedings or not detrimental to the interests of the company., , (l), , If any Director has participated only for a part of the Meeting, the Agenda, items in which he did not participate., , (m), , The fact of the dissent and the name of the Director who dissented from the, Resolution or abstained from voting thereon., , (n), , Ratification by Independent Director or majority of Directors, as the case, may be, in case of Meetings held at a shorter Notice., , (o), , Consideration of any item other than those included in the Agenda with the, consent of majority of the Directors present at the Meeting and ratification, of the decision taken in respect of such item by a majority of Directors of the, company., , (p), , The time of commencement and conclusion of the Meeting., , 7.2.2.2 Apart from the Resolution or the decision, Minutes shall mention the brief background, of all proposals and summarise the deliberations thereof. In case of major decisions, the, rationale thereof shall also be mentioned., The decisions shall be recorded in the form of Resolutions, where it is statutorily or otherwise, required. In other cases, the decisions can be recorded in a narrative form., 7.3, , Where a Resolution was passed pursuant to the Chairman of the Meeting exercising his second, or casting vote, the Minutes shall record such fact., , Recording of Minutes, , 7.3.1 Minutes shall contain a fair and correct summary of the proceedings of the Meeting., , The Company Secretary shall record the proceedings of the Meetings. Where there is no, Company Secretary, any other person duly authorised by the Board or by the Chairman in this, behalf shall record the proceedings., , The Chairman shall ensure that the proceedings of the Meeting are correctly recorded., , The Chairman has absolute discretion to exclude from the Minutes, matters which in his opinion, are or could reasonably be regarded as defamatory of any person, irrelevant or immaterial to, the proceedings or which are detrimental to the interests of the company., , 7.3.2 Minutes shall be written in clear, concise and plain language., , Minutes shall be written in third person and past tense. Resolutions shall however be written in, present tense., , Minutes need not be an exact transcript of the proceedings at the Meeting., , In case any Director requires his views or opinion on a particular item to be recorded verbatim, in the Minutes, the decision of the Chairman whether or not to do so shall be final., , 7.3.3 Wherever the decision of the Board is based on any unsigned documents including, reports or notes or presentations tabled or presented at the Meeting, which were not, part of the Notes on Agenda and are referred to in the Minutes, shall be identified by, initialling of such documents by the Company Secretary or the Chairman., 7.3.4 Where any earlier Resolution(s) or decision is superseded or modified, Minutes shall, contain a specific reference to such earlier Resolution(s) or decision or state that the, Resolution is in supersession of all earlier Resolutions passed in that regard.
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920, , Lesson 22 • EP-CL, , , , 7.3.5 Minutes of the preceding Meeting shall be noted at a Meeting of the Board held, immediately following the date of entry of such Minutes in the Minutes Book. Minutes of, the Meetings of any Committee shall be noted at a Meeting of the Board held immediately, following the date of entry of such Minutes in the Minutes Book., , 7.4, , Minutes of the Meetings of any Committee shall be noted at a Meeting of the Board held, immediately following the date of entry of such Minutes in the Minutes Book., Finalisation of Minutes, Within fifteen days from the date of the conclusion of the Meeting of the Board or the Committee,, the draft Minutes thereof shall be circulated by hand or by speed post or by registered post or, by courier or by e-mail or by any other recognised electronic means to all the members of the, Board or the Committee, as on the date of the Meeting, for their comments., Where a Director specifies a particular means of delivery of draft Minutes, these shall be sent to him by, such means., , Proof of sending draft Minutes and its delivery shall be maintained by the company for such period as, decided by the Board, which shall not be less than three years from the date of the Meeting., , The Directors, whether present at the Meeting or not, shall communicate their comments, if any, in, writing on the draft Minutes within seven days from the date of circulation thereof, so that the Minutes, are finalised and entered in the Minutes Book within the specified time limit of thirty days., , If any Director communicates his comments after the expiry of the said period of seven days, the, Chairman, if so authorised by the Board, shall have the discretion to consider such comments., In the event a Director does not comment on the draft Minutes, the draft Minutes shall be deemed to, have been approved by such Director., 7.5, , A Director, who ceases to be a Director after a Meeting of the Board is entitled to receive the draft, Minutes of that particular Meeting and to offer comments thereon, irrespective of whether he attended, such Meeting or not., Entry in the Minutes Book, , 7.5.1 Minutes shall be entered in the Minutes Book within thirty days from the date of, conclusion of the Meeting., , In case a Meeting is adjourned, the Minutes in respect of the original Meeting as well as the, adjourned Meeting shall be entered in the Minutes Book within thirty days from the date of the, respective Meetings., , 7.5.2 The date of entry of the Minutes in the Minutes Book shall be recorded by the Company, Secretary., Where there is no Company Secretary, it shall be entered by any other person duly authorised, by the Board or by the Chairman., , 7.5.3 Minutes, once entered in the Minutes Book, shall not be altered. Any alteration in the, Minutes as entered shall be made only by way of express approval of the Board at its, subsequent Meeting at which the Minutes are noted by the Board and the fact of such, alteration shall be recorded in the Minutes of such subsequent Meeting., 7.6, , Signing and Dating of Minutes, 7.6.1 Minutes of the Meeting of the Board shall be signed and dated by the Chairman of the, Meeting or by the Chairman of the next Meeting., Minutes of the previous Meeting may be signed either by the Chairman of such Meeting at any, time before the next Meeting is held or by the Chairman of the next Meeting at the next Meeting., , 7.6.2 The Chairman shall initial each page of the Minutes, sign the last page and append to such, signature the date on which and the place where he has signed the Minutes.
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921, , Lesson 22 • Secretarial Standards Board, , Any blank space in a page between the conclusion of the Minutes and signature of the Chairman, shall be scored out., If the Minutes are maintained in electronic form, the Chairman shall sign the Minutes digitally., , 7.6.3 Minutes, once signed by the Chairman, shall not be altered, save as mentioned in this, Standard., , 7.6.4 Within fifteen days of signing of the Minutes, a copy of the said signed Minutes, certified, by the Company Secretary or where there is no Company Secretary by any Director, authorised by the Board, shall be circulated to all the Directors, as on the date of the, Meeting and appointed thereafter, except to those Directors who have waived their right, to receive the same either in writing or such waiver is recorded in the Minutes., , 7.7, , Proof of sending signed Minutes and its delivery shall be maintained by the company for such, period as decided by the Board, which shall not be less than three years from the date of the, Meeting., , Inspection and Extracts of Minutes, , Source: ICSI Training Module, 7.7.1 The Minutes of Meetings of the Board and any Committee thereof can be inspected by the, Directors., A Director is entitled to inspect the Minutes of a Meeting held before the period of his, Directorship., A Director is entitled to inspect the Minutes of the Meetings held during the period of his, Directorship, even after he ceases to be a Director., , The Company Secretary in Practice appointed by the company, the Secretarial Auditor, the, Statutory Auditor, the Cost Auditor or the Internal Auditor of the company can inspect the, Minutes as he may consider necessary for the performance of his duties., Inspection of Minutes Book may be provided in physical or in electronic form., , While providing inspection of Minutes Book, the Company Secretary or the official of the, company authorised by the Company Secretary to facilitate inspection shall take all precautions, to ensure that the Minutes Book is not mutilated or in any way tampered with by the person, inspecting., A Member of the company is not entitled to inspect the Minutes of Meetings of the Board.
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922, , Lesson 22 • EP-CL, , , , 7.7.2 Extracts of the Minutes shall be given only after the Minutes have been duly entered in, the Minutes Book. However, certified copies of any Resolution passed at a Meeting may, be issued even earlier, if the text of that Resolution had been placed at the Meeting., A Director is entitled to receive, a copy of the Minutes of a Meeting held before the period of his, Directorship., , 8., , A Director is entitled to receive a copy of the signed Minutes of a Meeting held during the period, of his Directorship, even if he ceases to be a Director., Extracts of the duly signed Minutes may be provided in physical or electronic form., , Preservation of Minutes and other Records, , 8.1 Minutes of all Meetings shall be preserved permanently in physical or in electronic, form with Timestamp., Where, under a scheme of arrangement, a company has been merged or amalgamated with, another company, Minutes of all Meetings of the transferor company, as handed over to the, transferee company, shall be preserved permanently by the transferee company, notwithstanding, that the transferor company might have been dissolved., , 8.2 Office copies of Notices, Agenda, Notes on Agenda and other related papers shall, be preserved in good order in physical or in electronic form for as long as they remain, current or for eight financial years, whichever is later and may be destroyed thereafter, with the approval of the Board., , 8.3, , 9., , Disclosure, , Office copies of Notices, Agenda, Notes on Agenda and other related papers of the transferor, company, as handed over to the transferee company, shall be preserved in good order in physical, or electronic form for as long as they remain current or for eight financial years, whichever is, later and may be destroyed thereafter with the approval of the Board and permission of the, Central Government, where applicable., Minutes Books shall be in the custody of the Company Secretary., , Where there is no Company Secretary, Minutes Books shall be in the custody of any Director, duly authorised for the purpose by the Board., The Report of the Board of Directors shall include a statement on compliances of applicable, Secretarial Standards., , EFFECTIVE DATE, SS-1 is effective from 1st July, 2015., , Further it is Revised in June 2017 (effective from 1st October, 2017).
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Lesson 22 • Secretarial Standards Board, , 923, , Annexure ‘A’ (Para 1.3.8), , Illustrative list of items of business which shall not be passed by circulation and shall be placed, before the Board at its Meeting, General Business Items, •, , Noting Minutes of Meetings of Audit Committee and other Committees., , •, , Specifying list of laws applicable specifically to the company., , •, •, •, , Approving financial statements and the Board’s Report., , Considering the Compliance Certificate to ensure compliance with the provisions of all the laws applicable to, the company., Appointment of Secretarial Auditors and Internal Auditors., , Specific Items, •, , Borrowing money otherwise than by issue of debentures., , •, , Making political contributions., , •, •, •, •, •, •, •, •, •, •, •, •, , Investing the funds of the company., , Granting loans or giving guarantee or providing security in respect of loans., Making calls on shareholders in respect of money unpaid on their shares., , Approving Remuneration of Managing Director, Whole-time Director and Manager., Appointment or Removal of Key Managerial Personnel., , Appointment of a person as a Managing Director / Manager in more than one company., , In case of a public company, the appointment of Director(s) in casual vacancy subject to the provisions in the, Articles of the company., , According sanction for related party transactions which are not in the ordinary course of business or which, are not on arm’s length basis., Sale of subsidiaries., , Purchase and Sale of material tangible/intangible assets not in the ordinary course of business., Approve Payment to Director for loss of office., , Items arising out of separate Meeting of the Independent Directors if so decided by the Independent Directors., , Corporate Actions, •, , Authorise Buy-Back of securities., , •, , Diversify the business., , •, •, •, , Issue of securities, including debentures, whether in or outside India., Approving amalgamation, merger or reconstruction., , Takeover another company or acquiring controlling or substantial stake in another company., , Additional list of items in case of listed companies, •, , Approving Annual operating plans and budgets., , •, , Show cause, demand, prosecution notices and penalty notices which are materially important., , •, •, •, , Capital budgets and any updates., , Information on remuneration of Key Managerial Personnel., , Fatal or serious accidents, dangerous occurrences, any material effluent or pollution problems.
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924, , Lesson 22 • EP-CL, , , , •, , Any material default in financial obligations to and by the company, or substantial non-payment for goods, sold by the company., , •, , Details of any joint venture or collaboration agreement., , •, •, •, •, •, , Any issue, which involves possible public or product liability claims of substantial nature, including any, judgement or order which, may have passed strictures on the conduct of the company or taken an adverse, view regarding another enterprise that can have negative implications on the company., Transactions that involve substantial payment towards goodwill, brand equity, or intellectual property., , Significant labour problems and their proposed solutions. Any significant development in Human Resources/, Industrial Relations front like signing of wage agreement, implementation of Voluntary Retirement Scheme, etc., , Quarterly details of foreign exchange exposures and the steps taken by management to limit the risks of, adverse exchange rate movement, if material., , Non-compliance of any regulatory, statutory or listing requirements and shareholder services such as nonpayment of dividend, delay in share transfer etc., , Annexure ‘B’ (Para 1.3.8), , Illustrative list of items of business for the Agenda for the First Meeting of the Board of the company, 1., , To appoint the Chairman of the Meeting., , 4., , To note the situation of the Registered Office of the company and ratify the registered document of the title of, the premises of the registered office in the name of the company or a Notarised copy of lease / rent agreement, in the name of the company., , 2., 3., 5., 6., 7., 8., 9., , 10., 11., 12., 13., 14., 15., , To note the Certificate of Incorporation of the company, issued by the Registrar of Companies., To take note of the Memorandum and Articles of Association of the company, as registered., To note the first Directors of the company., , To read and record the Notices of disclosure of interest given by the Directors., To consider appointment of Additional Directors., , To consider appointment of the Chairman of the Board., To consider appointment of the first Auditors., , To adopt the Common Seal of the company, if any., , To appoint Bankers and to open bank accounts of the company., , To authorise printing of share certificates and correspondence with the depositories, if any., , To authorise the issue of share certificates to the subscribers to the Memorandum and Articles of Association, of the company., To approve and ratify preliminary expenses and preliminary agreements., , To approve the appointment of the Key Managerial Personnel, if applicable and other senior officers.
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Lesson 22 • Secretarial Standards Board, , 925, , SECRETARIAL STANDARD ON GENERAL MEETINGS, Following is the text of the Secretarial Standard-2 (SS-2) on “General Meetings”, issued by the Council of the Institute, of Company Secretaries of India and approved by the Central Government., Adherence by a company to this Secretarial Standard is mandatory, as per the provisions of the Companies Act,, 2013., , (In this Secretarial Standard, the Standard portions have been set in bold type. These shall be read in the, context of the background material which has been set in normal type. Both the Standard portions and the, background material have equal authority)., , INTRODUCTION, This Standard seeks to prescribe a set of principles for the convening and conducting of General Meetings and, matters related thereto., This Standard also deals with conduct of e-voting and postal ballot., , SCOPE, , In terms of sub-section (10) of Section 118 of the Act, every company is required to observe SS-2., , SS-2 is thus applicable to General Meetings of all companies incorporated under the Act including private and small, companies, except One Person Companies (OPC) and companies licensed under Section 8 of the Companies Act,, 2013 or corresponding provisions of any previous enactment thereof., , MCA Notification No. G.S.R. 466(E) dated 5th June, 2015 exempts companies licensed under Section 8 of the, Companies Act, 2013 from the applicability of Section 118 of the Act as a whole except that Minutes of Meetings of, such a company may be recorded within thirty days of the conclusion of every Meeting in case of companies where, the Articles of Association provide for confirmation of Minutes by circulation. Consequently, SS-2 is not applicable, to companies licensed under Section 8 of the Companies Act, 2013 or corresponding provisions of any previous, enactment thereof. Such companies may voluntarily comply with SS-2. However, Section 8 companies need to, comply with the applicable provisions of the Act relating to General Meetings., Further, MCA vide its Notifications No. G.S.R. 584(E) dated 13th June, 2017 modified the above cited Notification, dated 5th June, 2015 to place a restriction that such exemptions shall be applicable to a Section 8 company which, have not committed a default in filing its Financial Statements or Annual Return with the Registrar of Companies., In addition, by virtue of MCA Exemption Notifications No. G.S.R. 08(E) & G.S.R. 9(E), dated 4th January, 2017,, following class of companies are exempted from the applicability of Section 118(10) of Companies Act, 2013 i.e. the, compliance of Secretarial Standards:, •, , •, , Specified IFSC public company: An unlisted public company which is licensed to operate by the Reserve, Bank of India or the Securities and Exchange Board of India or the Insurance Regulatory and Development, Authority of India from the International Financial Services Centre located in an approved multi services, Special Economic Zone set-up under the Special Economic Zones Act, 2005 read with the Special Economic, Zones Rules, 2006., , Specified IFSC private company: A private company which is licensed to operate by the Reserve Bank of, India or the Securities and Exchange Board of India or the Insurance Regulatory and Development Authority of, India from the International Financial Services Centre located in an approved multi services Special Economic, Zone set-up under the Special Economic Zones Act, 2005 read with the Special Economic Zones Rules, 2006., , Applicability to companies governed under Special Acts, , SS-2 is also applicable to Banking companies, Insurance companies, companies engaged in generation or supply, of electricity, companies governed by any special Acts, if incorporated under the Act. However, if the provisions, of these special Acts such as the Banking Regulation Act, 1949, the Insurance Act, 1938, etc. applicable to these, companies are inconsistent with SS-2, then the provisions of such special Acts shall prevail.
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926, , , , Lesson 22 • EP-CL, , Applicability to the Meetings of class of Members, debenture holders and creditors, , The principles enunciated in SS-2 for General Meetings of Members are applicable mutatis mutandis to Meetings of, class of Members, debenture holders and creditors., , A Meeting of Members or class of Members or debenture holders or creditors of a company under the directions, of the Court, Tribunal or any other prescribed authority shall be governed by SS-2 without prejudice to any rules,, regulations and directions prescribed for and orders of, such Courts, Tribunals and other authorities with respect, to the conduct of such Meetings., This Standard is in conformity with the provisions of the Act. However, if, due to subsequent changes in the Act, a, particular Standard or any part thereof becomes inconsistent with the Act, the provisions of the Act shall prevail., , DEFINITIONS, , The following terms are used in this Standard with the meaning specified:, , “Act” means the Companies Act, 2013 (Act No. 18 of 2013) or any previous enactment thereof, or any, statutorymodification thereto, or re-enactment thereof and includes any Rules and Regulations framed thereunder., , “Agency” means agency approved or recognised by the Ministry of Corporate Affairs and appointed by the Board for, providing and supervising electronic platform for voting., “Articles” means the Articles of Association of a company, as originally framed or as altered from time to time or, applied in pursuance of any previous company law or the Companies Act, 2013., , “Calendar Year” means calendar year as per Gregorian calendar, i.e., a period of one year which begins on 1st January, and ends on 31st December., “Chairman” means the Chairman of the Board or the Chairman appointed or elected for a Meeting., , “Maintenance” means keeping registers and records either in physical or electronic form, as may be permitted, under any law for the time being in force, and includes the making of necessary entries therein, the authentication, of such entries and the preservation of such physical or electronic records., , “Meeting” or “General Meeting” or “Annual General Meeting” or “Extra-Ordinary General Meeting” means a duly, convened, held and conducted Meeting of Members., “Minutes” means a formal written record, in physical or electronic form, of the proceedings of a Meeting., , “Minutes Book” means a Book maintained in physical or in electronic form for the purpose of recording of Minutes., , “National Holiday” means Republic Day i.e. 26th January, Independence Day i.e. 15th August, Gandhi Jayanti i.e. 2nd, October and such other day as may be declared as National Holiday by the Central Government., “Ordinary Business” means business to be transacted at an Annual General Meeting relating to (i) the consideration, of financial statements, consolidated financial statements, if any, and the reports of the Board of Directors and, Auditors; (ii) the declaration of any dividend; (iii) the appointment of Directors in the place of those retiring; and, (iv) the appointment or ratification thereof and fixing of remuneration of the Auditors., , “Proxy” means an instrument in writing signed by a Member, authorising another person, whether a Member or, not, to attend and vote on his behalf at a Meeting and also where the context so requires, the person so appointed, by a Member., “Quorum” means the minimum number of Members whose presence is necessary for holding of a Meeting., , “Remote e-voting” means the facility of casting votes by a member using an electronic voting system from a place, other than venue of a general meeting., “Secretarial Auditor” means a Company Secretary in Practice or a firm of Company Secretary(ies) in Practice, appointed in pursuance of the Act to conduct the secretarial audit of the company., “Secured Computer System” means computer hardware, software, and procedure that –, (a), , are reasonably secure from unauthorized access and misuse;
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927, , Lesson 22 • Secretarial Standards Board, , (b), (c), , (d), , provide a reasonable level of reliability and correct operation;, , are reasonably suited to performing the intended functions; and, adhere to generally accepted security procedures., , “Special Business” means business other than the Ordinary Business to be transacted at an Annual General Meeting, and all business to be transacted at any other General Meeting., , “Timestamp” means the current time of an event that is recorded by a Secured Computer System and is used to, describe the time that is printed to a file or other location to help keep track of when data is added, removed, sent, or received., , “Voting by electronic means” includes “remote e-voting” and voting at the general meeting through an electronic, voting system which may be the same as used for remote e-voting., “Voting by postal ballot” means voting by ballot, by post or by electronic means., , “Voting Right” means the right of a Member to vote on any matter at a Meeting of Members or by means of e-voting, or postal or physical ballot., , Words and expressions used and not defined herein shall have the meanings respectively assigned to them under, the Act., , Secretarial Standard -II, , 1., , Convening a Meeting, , Source: ICSI Training Module, 1.1, , Authority, A General Meeting shall be convened by or on the authority of the Board., The Board shall, every year, convene or authorise convening of a Meeting of its Members called the, Annual General Meeting to transact items of Ordinary Business specifically required to be transacted, at an Annual General Meeting as well as Special Business, if any. If the Board fails to convene its Annual, General Meeting in any year, any Member of the company may approach the prescribed authority,, which may then direct the calling of the Annual General Meeting of the company., The Board may also, whenever it deems fit, call an Extra-Ordinary General Meeting of the company., , The Board shall, on the requisition of Members who hold, as on the date of the receipt of a valid, requisition,, (a), , (b), , in the case of company having a share capital, not less than one-tenth of the paid-up share, capital carrying Voting Rights or, , in the case of a company not having share capital, not less than one-tenth of total voting power, of the company,, call an Extra-Ordinary General Meeting of the company.
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928, , Lesson 22 • EP-CL, , , , If, on receipt of a valid requisition having been made in this behalf, the Board, within twentyone days from the date of such receipt, fails to call a Meeting on any day within forty-five days, from the date of receipt of such requisition, the requisitionists may themselves call and hold, the Meeting within three months from the date of requisition, in the same manner in which the, Board should have called and held the Meeting., Explanatory statement need not be annexed to the Notice of an Extra-Ordinary General, Meeting convened by the requisitionists and the requisitionists may disclose the reasons for, the Resolution(s) which they propose to move at the Meeting., 1.2, , Such requisition shall not pertain to any item of business that is required to be transacted, mandatorily through postal ballot., , Notice, , 1.2.1 Notice in writing of every Meeting shall be given to every Member of the company. Such, Notice shall also be given to the Directors and Auditors of the company, to the Secretarial, Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other, specified persons., In case of a Nidhi, Notice may be served individually only on Members who hold shares of more, than one thousand rupees in face value or more than one percent of the total paid-up share, capital of the company, whichever is less. For other Members, Notice may be served by a public, notice in newspaper circulated in the district where the Registered Office of the company is, situated and by displaying the same on the Notice Board of the company., In the case of Members, Notice shall be given at the address registered with the company or, depository. In the case of shares or other securities held jointly by two or more persons, the, Notice shall be given to the person whose name appears first as per records of the company, or the depository, as the case may be. In the case of any other person who is entitled to receive, Notice, the same shall be given to such person at the address provided by him., Where the company has received intimation of death of a Member, the Notice of Meeting shall, be sent as under:, , (a), (b), (c), , where securities are held singly, to the Nominee of the single holder;, where securities are held by more than one person jointly and any joint holder dies,, to the surviving first joint holder;, , where securities are held by more than one person jointly and all the joint holders die, to the, Nominee appointed by all the joint holders;, , In the absence of a Nominee, the Notice shall be sent to the legal representative of the deceased, Member., In case of insolvency of a Member, the Notice shall be sent to the assignee of the insolvent, Member., In case the Member is a company or body corporate which is being wound up, Notice shall be, sent to the liquidator., , 1.2.2 Notice shall be sent by hand or by ordinary post or by speed post or by registered post, or by courier or by facsimile or by e-mail or by any other electronic means. ‘Electronic, means’ means any communication sent by a company through its authorised and secured, computer programme which is capable of producing confirmation and keeping record of, such communication addressed to the person entitled to receive such communication at, the last electronic mail address provided by the Member., , In case the Notice and accompanying documents are given by e-mail, these shall be sent at the, Members’ e-mail addresses, registered with the company or provided by the depository, in the, manner prescribed under the Act., , The company shall ensure that it uses a system which produces confirmation of the total
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Lesson 22 • Secretarial Standards Board, , 929, , number of recipients e-mailed and a record of each recipient to whom the Notice has been sent, and copy of such record and any Notices of any failed transmissions and subsequent re-sending, shall be retained by or on behalf of the company as “proof of sending” for such period as decided, by the Board, which shall not be less than three years from the date of the Meeting., , In case of the Directors, Auditors, Secretarial Auditors and others, if any, the Notice and, accompanying documents shall be sent at the e-mail addresses provided by them to the, company, if being sent by electronic means., Notice shall be sent to Members by registered post or speed post or courier or e-mail and not, by ordinary post in the following cases:, , (a), , (b), , if the company provides the facility of e-voting ;, , if the item of business is being transacted through postal ballot., , If a Member requests for delivery of Notice through a particular mode, other than the one, followed by the company, he shall pay such fees as may be determined by the company in its, Annual General Meeting and the Notice shall be sent to him in such mode., Notice shall be sent to Members by registered post or speed post or e-mail if the Meeting is, called by the requisitionists themselves where the Board had not proceeded to call the Meeting., , 1.2.3 In case of companies having a website, the Notice shall simultaneously be hosted on the, website till the conclusion of the Meeting., In case of a private company, the Notice shall be hosted on the website of the company, if any,, unless otherwise provided in the Articles., , 1.2.4 Notice shall specify the day, date, time and full address of the venue of the Meeting., Notice of Annual General Meeting shall also specify the serial number of the Meeting., , Notice shall contain complete particulars of the venue of the Meeting including route map and, prominent land mark, if any, for easy location, except in case of –, , i), , ii), , a company in which only its directors and their relatives are members;, a wholly owned subsidiary., , An Annual General Meeting and a Meeting called by the requisitionists shall be called during, business hours, i.e., between 9 a.m. and 6 p.m., on a day that is not a National Holiday., , Annual General Meetings shall be held either at the registered office of the company or at some, other place within the city, town or village in which the registered office of the company is, situated, whereas other General Meetings may be held at any place within India. A Meeting called, by the requisitionists shall be held either at the registered office of the company or at some other, place within the city, town or village in which the registered office of the company is situated., In case of a Government company, the Annual General Meeting shall be held at its registered, office or any other place with the approval of the Central Government, as may be required in, this behalf. [In line with MCA Notification No. G.S.R. 463(E) dated June 5, 2015.], However, MCA vide its Notifications No. G.S.R. 582(E) dated 13th June, 2017 modified the above, cited Notification dated 5th June, 2015 to provide that in case of a Government company, the, Annual General Meeting (AGM) shall be held at its registered office or some other place within, the city, town or village in which the registered office of the company is situated or at any, other place with the approval of the Central Government., Accordingly, now there is no need of Central Government approval, if a Government Company, is holding its AGM within the city, town or village in which registered office of the company is, situated.
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930, , Lesson 22 • EP-CL, , , , Notice of a company which has a share capital or the Articles of which provide for voting at a, Meeting by Proxy, shall prominently contain a statement that a Member entitled to attend and, vote is entitled to appoint a Proxy, or where that is allowed, one or more Proxies, to attend and, vote instead of himself and that a Proxy need not be a Member., In case of a private company, the Notice shall specify the entitlement of a member to appoint, proxy in accordance with this para, unless otherwise provided in the Articles., , In case of a private company, the Articles may contain a provision as to the entitlement of, members to appoint proxy. In such a case, the Notice of General Meetings should contain, matters in accordance with the Articles [In line with MCA Notification No. G.S.R. 464(E) dated, June 5, 2015]., 1.2.5 Notice shall clearly specify the nature of the Meeting and the business to be transacted, thereat. In respect of items of Special Business, each such item shall be in the form of a, Resolution and shall be accompanied by an explanatory statement which shall set out all, such facts as would enable a Member to understand the meaning, scope and implications, of the item of business and to take a decision thereon. In respect of items of Ordinary, Business, Resolutions are not required to be stated in the Notice., The nature of the concern or interest (financial or otherwise), if any, of the following persons, in, any special item of business or in a proposed Resolution, shall be disclosed in the explanatory, statement:, , (a), , (b), (c), , Directors and Manager;, , Other Key Managerial Personnel; and, , Relatives of the persons mentioned above., , In case any item of Special Business to be transacted at a Meeting of the company relates to, or affects any other company, the extent of shareholding interest in that other company of, every Promoter, Director, Manager and of every other Key Managerial Personnel of the first, mentioned company shall, if the extent of such shareholding is not less than two percent of the, paid-up share capital of that company, also be stated in the explanatory statement., , Where reference is made to any document, contract, agreement, the Memorandum of Association, or Articles of Association, the relevant explanatory statement shall state that such documents, are available for inspection and such documents shall be so made available for inspection in, physical or in electronic form during specified business hours at the Registered Office of the, company and copies thereof shall also be made available for inspection in physical or electronic, form at the Head Office as well as Corporate Office of the company, if any, if such office is situated, elsewhere, and also at the Meeting., Illustration:, XYZ Ltd. proposes to enter into a contract with PQR Ltd. Mr. X and Mr. Y, who are promoters, of XYZ Ltd. hold 1.5% and 0.5% of the total paid-up share capital of PQR Ltd. respectively., In this case, the shareholding of both, Mr. X and Mr. Y should be disclosed in the explanatory, statement of the Notice of General Meeting of XYZ Ltd., since the extent of their shareholding, collectively is not less than two percent of the paid-up share capital of PQR Ltd., In case of a private company, explanatory statement shall comply with the above requirements,, unless otherwise provided in the Articles., , In case of a private company, the Articles may contain a provision as to the contents of, explanatory statement to the Notice of General Meetings. In such a case, the Notice of General, Meetings should contain such matters as provided in the Articles [In line with MCA Notification, No. G.S.R. 464(E) dated June 5, 2015]
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Lesson 22 • Secretarial Standards Board, , 931, , In all cases relating to the appointment or re-appointment and/or fixation of remuneration, of Directors including Managing Director or Executive Director or Whole - time Director, or of Manager or variation of the terms of remuneration, details of each such Director or, Manager, including age, qualifications, experience, terms and conditions of appointment or reappointment along with details of remuneration sought to be paid and the remuneration last, drawn by such person, if applicable, date of first appointment on the Board, shareholding in, the company, relationship with other Directors, Manager and other Key Managerial Personnel, of the company, the number of Meetings of the Board attended during the year and other, Directorships, Membership/ Chairmanship of Committees of other Boards shall be given in the, explanatory statement., , In case of appointment of Independent Directors, the justification for choosing the appointees, for appointment as Independent Directors shall be disclosed and in case of re-appointment of, Independent Directors, performance evaluation report of such Director or summary thereof, shall be included in the explanatory statement., , 1.2.6 Notice and accompanying documents shall be given at least twenty-one clear days in, advance of the Meeting., , For the purpose of reckoning twenty-one days clear Notice, the day of sending the Notice and, the day of Meeting shall not be counted. Further in case the company sends the Notice by post, or courier, an additional two days shall be provided for the service of Notice., In case of a private company, the period of sending Notice including accompanying documents, shall be as stated above, unless otherwise provided in the Articles., , In case of a private company, the Articles may contain a provision as to the Notice period of General, Meetings. In such a case, the Notice of General Meetings should be issued in accordance with the, Articles [In line with MCA Notification No. G.S.R. 464(E) dated June 5, 2015]., In case of Nidhis, in respect of Members who do not individually or jointly hold shares of more, than one thousand rupees in face value or more than one percent of the total paid-up share, capital whichever is less, it shall be sufficient compliance with the provisions of Section 136,, if an intimation is sent by public notice in newspaper circulated in the district in which the, Registered Office of the Nidhi is situated stating –, (i), , the date, time and venue of Annual General Meeting;, , (ii), , that the financial statement with its enclosures can be inspected at the Registered Office, of the company;, , (iii) that the financial statement with enclosures are affixed at the Notice Board of the, company; and, (iv) a Member is entitled to vote either in person or through Proxy. [In line with MCA, Notification No. G.S.R. 465(E) dated June 5, 2015]., In case a valid special Notice under the Act has been received from Member(s), the company, shall give Notice of the Resolution to all its Members at least seven days before the Meeting,, exclusive of the day of dispatch of Notice and day of the Meeting, in the same manner as a Notice, of any General Meeting is to be given., , Where this is not practicable, the Notice shall be published in a vernacular newspaper in the, principal vernacular language of the district in which the registered office of the company is, situated, and in an English newspaper in English language, both having a wide circulation in that, district, at least seven days before the Meeting, exclusive of the day of publication of the Notice, and day of the Meeting. In case of companies having a website, such Notice shall simultaneously, be hosted on the website.
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932, , Lesson 22 • EP-CL, , , , An illustrative list of documents to be sent along with the Notice of General meeting is, given below:, , Source: ICSI Training Module, , 1.2.7 Notice and accompanying documents may be given at a shorter period of time if consent, in writing is given thereto, by physical or electronic means, by not less than ninety-five, percent of the Members entitled to vote at such Meeting., The request for consenting to shorter Notice and accompanying documents shall be sent, together with the Notice and the Meeting shall be held only if the consent is received prior to, the time fixed for the Meeting from not less than ninety-five percent of the Members entitled to, vote at such Meeting., , The company shall ensure compliance of provisions relating to appointment of Proxy unless, all the Members entitled to vote at such Meeting, consent to holding of the General Meeting at, shorter Notice., In case of a private company, consent for shorter Notice shall be obtained from such number of, members as specified in this para, unless otherwise provided in the Articles., , 1.2.8 No business shall be transacted at a Meeting if Notice in accordance with this Standard, has not been given., However, any accidental omission to give Notice to, or the non-receipt of such Notice by any, Member or other person who is entitled to such Notice for any Meeting shall not invalidate the, proceedings of the Meeting., , 1.2.9 No items of business other than those specified in the Notice and those specifically, permitted under the Act shall be taken up at the Meeting., A Resolution shall be valid only if it is passed in respect of an item of business contained in the, Notice convening the Meeting or it is specifically permitted under the Act., , Items specifically permitted under the Act which may be taken up for consideration at the, Meeting are :, , (a), , (b), (c), , Proposed Resolutions, the Notice of which has been given by Members;, , Resolutions requiring special Notice, if received with the intention to move;, Candidature for Directorship, if any such Notice has been received.
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Lesson 22 • Secretarial Standards Board, , 933, , Where Special Notice is required of any Resolution and Notice of the intention to move such, Resolution is received by the company from the prescribed number of Members, such item of, business shall be placed for consideration at the Meeting after giving Notice of the Resolution, to Members in the manner prescribed under the Act., , Any amendment to the Notice, including the addition of any item of business, can be made, provided the Notice of amendment is given to all persons entitled to receive the Notice of the, Meeting at least twenty-one clear days before the Meeting., , 1.2.10 Notice shall be accompanied, by an attendance slip and a Proxy form with clear, instructions for filling, stamping, signing and/or depositing the Proxy form., 1.2.11 A Meeting convened upon due Notice shall not be postponed or cancelled., , 2., , If, for reasons beyond the control of the Board, a Meeting cannot be held on the date originally, fixed, the Board may reconvene the Meeting, to transact the same business as specified in, the original Notice, after giving not less than three days intimation to the Members. The, intimation shall be either sent individually in the manner stated in this Standard or published, in a vernacular newspaper in the principal vernacular language of the district in which the, registered office of the company is situated, and in an English newspaper in English language,, both having a wide circulation in that district., , Frequency of Meetings, 2.1, , Annual General Meeting, , Every company shall, in each Calendar Year, hold a General Meeting called the Annual General Meeting., , 2.2, , Every company shall hold its first Annual General Meeting within nine months from the date of closing, of the first financial year of the company and thereafter in each Calendar Year within six months, of the close of the financial year, with an interval of not more than fifteen months between two, successive Annual General Meetings. The aforesaid period of six months or interval of fifteen months, may be extended by a period not exceeding three months with the prior approval of the Registrar of, Companies, in case of any Annual General Meeting other than the first Annual General Meeting. If a, company holds its first Annual General Meeting, as aforesaid, it shall not be necessary for the company, to hold any Annual General Meeting in the Calendar Year of its incorporation., Extra-Ordinary General Meeting, , Items of business other than Ordinary Business may be considered at an Extra-Ordinary, General Meeting or by means of a postal ballot, if thought fit by the Board., 3., , Quorum, 3.1, , Quorum shall be present throughout the Meeting., Quorum shall be present not only at the time of commencement of the Meeting but also while, transacting business., Unless the Articles provide for a larger number, the Quorum for a General Meeting shall be:, (a), , in case of a public company, –, (i), , five Members personally present if the number of Members as on the date of Meeting is, not more than one thousand;, , (ii) fifteen Members personally present if the number of Members as on the date of Meeting is, more than one thousand but up to five thousand;, , (iii) thirty Members personally present if the number of Members as on the date of the Meeting, exceeds five thousand;, , (b) in the case of a private company, two Members personally present., , Where the Quorum provided in the Articles is higher than that provided under the Act, the, Quorum shall conform to such higher requirement.
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934, , Lesson 22 • EP-CL, , , , 3.2, , Members need to be personally present at a Meeting to constitute the Quorum., Proxies shall be excluded for determining the Quorum., , A duly authorised representative of a body corporate or the representative of the President of, India or the Governor of a State is deemed to be a Member personally present and enjoys all the, rights of a Member present in person., One person can be an authorised representative of more than one body corporate. In such a case, he is, treated as more than one Member present in person for the purpose of Quorum. However, to constitute, a Meeting, at least two individuals shall be present in person. Thus, in case of a public company, having not more than 1000 members with a Quorum requirement of five Members, an authorised, representative of five bodies corporate cannot form a Quorum by himself but can do so if at least one, more Member is personally present., Members who have voted by Remote e-voting have the right to attend the General Meeting and, accordingly their presence shall be counted for the purpose of Quorum., A Member who is not entitled to vote on any particular item of business being a related party, if present,, shall be counted for the purpose of Quorum., , 4., , The stipulation regarding the presence of a Quorum does not apply with respect to items of business, transacted through postal ballot., , Presence of Directors and Auditors, 4.1, , Directors, , 4.1.1 If any Director is unable to attend the Meeting, the Chairman shall explain such absence, at the Meeting., The Chairman of the Audit Committee, Nomination and Remuneration Committee and the, Stakeholders Relationship Committee, or any other Member of any such Committee authorised, by the Chairman of the respective Committee to attend on his behalf, shall attend the General, Meeting., , 4.1.1 Directors who attend General Meetings of the company and the Company Secretary shall, be seated with the Chairman., 4.2, , The Company Secretary shall assist the Chairman in conducting the Meeting., , Auditors, , The Auditors, unless exempted by the company, shall, either by themselves or through their, authorised representative, attend the General Meetings of the company and shall have the right, to be heard at such Meetings on that part of the business which concerns them as Auditors., , 4.3, , The authorised representative who attends the General Meeting of the company shall also be qualified, to be an Auditor., Secretarial Auditor, , The Secretarial Auditor, unless exempted by the company shall, either by himself or through, his authorised representative, attend the Annual General Meeting and shall have the right to be, heard at such Meeting on that part of the business which concerns him as Secretarial Auditor., The Chairman may invite the Secretarial Auditor or his authorised representative to attend any other, General Meeting, if he considers it necessary., 5., , The authorised representative who attends the General Meeting of the company shall also be qualified, to be a Secretarial Auditor., , Chairman, 5.1, , Appointment, , The Chairman of the Board shall take the Chair and conduct the Meeting. If the Chairman, is not present within fifteen minutes after the time appointed for holding the Meeting, or if
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Lesson 22 • Secretarial Standards Board, , 935, , he is unwilling to act as Chairman of the Meeting, or if no Director has been so designated,, the Directors present at the Meeting shall elect one of themselves to be the Chairman of the, Meeting. If no Director is present within fifteen Minutes after the time appointed for holding, the Meeting, or if no Director is willing to take the Chair, the Members present shall elect, on a, show of hands, one of themselves to be the Chairman of the Meeting, unless otherwise provided, in the Articles., If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance with the, provisions of the Act and the Chairman elected on a show of hands shall continue to be the Chairman, of the Meeting until some other person is elected as Chairman as a result of the poll, and such other, person shall be the Chairman for the rest of the Meeting., In case of a private company, appointment of the Chairman shall be in accordance with this para,, unless otherwise provided in the Articles. In case of a private company, the Articles may contain a, provision as to the election of the Chairman of General Meetings., In such a case, the election of the Chairman should be done as provided in the Articles [In line with, MCA Notification No. G.S.R. 464(E) dated June 5, 2015], , 5.2, , 5.3, , 6., , The Chairman shall ensure that the Meeting is duly constituted in accordance with the Act and the, Articles or any other applicable laws, before it proceeds to transact business. The Chairman shall then, conduct the Meeting in a fair and impartial manner and ensure that only such business as has been set, out in the Notice is transacted. The Chairman shall regulate the manner in which voting is conducted, at the Meeting keeping in view the provisions of the Act., , The Chairman shall explain the objective and implications of the Resolutions before they are, put to vote at the Meeting., The Chairman shall provide a fair opportunity to Members who are entitled to vote to seek clarifications, and/or offer comments related to any item of business and address the same, as warranted., In case of public companies, the Chairman shall not propose any Resolution in which he is, deemed to be concerned or interested nor shall he conduct the proceedings for that item of, business., , If the Chairman is interested in any item of business, without prejudice to his Voting Rights on, Resolutions, he shall entrust the conduct of the proceedings in respect of such item to any NonInterested Director or to a Member, with the consent of the Members present, and resume the Chair, after that item of business has been transacted., , Proxies, 6.1, , Right to Appoint, , A Member entitled to attend and vote is entitled to appoint a Proxy, or where that is allowed,, one or more Proxies, to attend and vote instead of himself and a Proxy need not be a Member., A Proxy can act on behalf of Members not exceeding fifty and holding in the aggregate not more than, ten percent of the total share capital of the company carrying Voting Rights., However, a Member holding more than ten percent of the total share capital of the company carrying, Voting Rights may appoint a single person as Proxy for his entire shareholding and such person shall, not act as a Proxy for another person or shareholder., , If a Proxy is appointed for more than fifty Members, he shall choose any fifty Members and confirm the, same to the company before the commencement of specified period for inspection. In case, the Proxy, fails to do so, the company shall consider only the first fifty Proxies received as valid.
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936, , Lesson 22 • EP-CL, , , , Members of certain class or classes of companies as may be specified by the Central Government shall not be, entitled to appoint any other person as a proxy [Third Proviso to sub–section (1) of Section 105 of the Act]., Accordingly, in case of companies incorporated under Section 8 of the Companies Act, 2013 , the Member, is not entitled to appoint any other person as his Proxy unless such other person is also a Member of such, company [Rule 19(1) of the Companies (Management and Administration) Rules, 2014]., Thus, a Proxy need not be a Member of the company, except in the case of companies incorporated under, Section 8 of the Companies Act, 2013., In case of a private company, the Proxy shall be appointed in accordance with this para, unless otherwise, provided in the Articles., 6.2, , Form of Proxy, 6.2.1 An instrument appointing a Proxy shall be in the Form prescribed under the Act., Such instrument shall not be questioned on the ground that it fails to comply with any special, requirements specified by the Articles of a company., The instrument of Proxy shall be signed by the appointer or his attorney duly authorised in, writing, or if the appointer is a body corporate, be under its seal or be signed by an officer or an, attorney duly authorised by it., , 6.2.2 An instrument of Proxy duly filled, stamped and signed, is valid only for the Meeting to, which it relates including any adjournment thereof., 6.3, , Stamping of Proxies, An instrument of Proxy is valid only if it is properly stamped as per the applicable law., Unstamped or inadequately stamped Proxies or Proxies upon which the stamps have not been, cancelled are invalid., , 6.4, , Execution of Proxies, 6.4.1 The Proxy-holder shall prove his identity at the time of attending the Meeting., 6.4.2 An authorised representative of a body corporate or of the President of India or of the, Governor of a State, holding shares in a company, may appoint a Proxy under his signature., , 6.5, , Proxies in Blank and Incomplete Proxies, 6.5.1 A Proxy form which does not state the name of the Proxy shall not be considered valid., 6.5.2 Undated Proxy shall not be considered valid., 6.5.3 If a company receives multiple Proxies for the same holdings of a Member, the Proxy, which is dated last shall be considered valid; if they are not dated or bear the same date, without specific mention of time, all such multiple Proxies shall be treated as invalid., , 6.6, , Deposit of Proxies and Authorisations, 6.6.1 Proxies shall be deposited with the company either in person or through post not later, than forty-eight hours before the commencement of the Meeting in relation to which they, are deposited and a Proxy shall be accepted even on a holiday if the last date by which it, could be accepted is a holiday., Any provision in the Articles of a company which specifies or requires a longer period for, deposit of Proxy than forty-eight hours before a Meeting of the company shall have effect as if a, period of forty-eight hours had been specified in or required for such deposit., In case of a private company, the Proxy shall be deposited with the company in accordance with, this para, unless otherwise provided in the Articles.
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Lesson 22 • Secretarial Standards Board, , 937, , 6.6.2 If the Articles so provide, a Member who has not appointed a Proxy to attend and vote, on his behalf at a Meeting may appoint a Proxy for any adjourned Meeting, not later than, forty-eight hours before the time of such adjourned Meeting., 6.6.3 In case of remote e-voting:, (i), , the letter of appointment of representative(s) of the President of India or the, Governor of a State; or, , (ii), , the authorisation in respect of representative(s) of the Corporations;, , shall be received by the scrutiniser/company on or before close of e-voting., In case of postal ballot such letter of appointment/ authorisation shall be submitted to the scrutiniser, alongwith physical ballot form., 6.7, , If the representative attends the Meeting in person to vote thereat, the letter of appointment /, authorisation, as the case may be, shall be submitted before the commencement of Meeting., Revocation of Proxies, , 6.7.1 If a Proxy had been appointed for the original Meeting and such Meeting is adjourned, any, Proxy given for the adjourned Meeting revokes the Proxy given for the original Meeting., 6.7.2 A Proxy later in date revokes any Proxy/Proxies dated prior to such Proxy., 6.7.3 A Proxy is valid until written notice of revocation has been received by the company, before the commencement of the Meeting or adjourned Meeting, as the case may be., An undated notice of revocation of Proxy shall not be accepted. A notice of revocation shall be, signed by the same Member (s) who had signed the Proxy, in the case of joint Membership., , 6.7.4 When a Member appoints a Proxy and both the Member and Proxy attend the Meeting,, the Proxy stands automatically revoked., 6.8, , Inspection of Proxies, 6.8.1 Requisitions, if any, for inspection of Proxies shall be received in writing from a Member, entitled to vote on any Resolution at least three days before the commencement of the, Meeting., 6.8.2 Proxies shall be made available for inspection during the period beginning twenty- four, hours before the time fixed for the commencement of the Meeting and ending with the, conclusion of the Meeting., Inspection shall be allowed between 9 a.m. and 6 p.m. during such period., , In case of a private company, inspection of Proxies shall be as stated above, unless otherwise, provided in the Articles., , 6.8.3 A fresh requisition, conforming to the above requirements, shall be given for inspection, of Proxies in case the original Meeting is adjourned., 6.9, , Record of Proxies, 6.9.1 All Proxies received by the company shall be recorded chronologically in a register kept, for that purpose., 6.9.2 In case any Proxy entered in the register is rejected, the reasons therefor shall be entered, in the remarks column.
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938, , 7., , Lesson 22 • EP-CL, , , , Voting, 7.1, , Proposing a Resolution at a Meeting, Every Resolution, except a Resolution which has been put to vote through Remote e-Voting or, on which a poll has been demanded, shall be proposed by a Member and seconded by another, Member., , 7.2, , E-voting, 7.2.1 Every company having its equity shares listed on a recognized stock exchange other, than companies whose equity shares are listed on SME Exchange or on the Institutional, Trading Platform and other companies as prescribed shall provide evoting facility to, their Members to exercise their Voting Rights., Other companies presently prescribed are companies having not less than one thousand, Members., Nidhis are not required to provide e-voting facility to their Members., , The facility of Remote e-voting does not dispense with the requirement of holding a General, Meeting by the company., , 7.2.2 Voting at the Meeting, , Every company, which has provided e-voting facility to its Members, shall also put every, Resolution to vote through a ballot process at the Meeting., Ballot process may be carried out by distributing ballot/poll slips or by making arrangement, for voting through computer or secure electronic systems., Any Member, who has already exercised his votes through Remote e-voting, may attend the, Meeting but is prohibited to vote at the Meeting and his vote, if any, cast at the Meeting shall be, treated as invalid., 7.3, , A Proxy can vote in the ballot process., , Show of Hands, , Every company shall, at the Meeting, put every Resolution, except a Resolution which has been, put to Remote e-voting, to vote on a show of hands at the first instance, unless a poll is validly, demanded., A Proxy cannot vote on a show of hands., 7.4, , In case of a private company, the voting by show of hands shall be in accordance with this para, unless, otherwise provided in the Articles., Poll, , The Chairman shall order a poll upon receipt of a valid demand for poll either before or on the, declaration of the result of the voting on any Resolution on show of hands., Poll in such cases shall be through a Ballot process., , While a Proxy cannot speak at the Meeting, he has the right to demand or join in the demand for a poll., The poll may be taken by the Chairman, on his own motion also., , In case of a private company, the poll shall be conducted in accordance with this para, unless, otherwise provided in the Articles., , 7.5, , Voting Rights, 7.5.1 Every Member holding equity shares and, in certain cases as prescribed in the Act, every, Member holding preference shares, shall be entitled to vote on a Resolution.
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Lesson 22 • Secretarial Standards Board, , 939, , Every Member entitled to vote on a Resolution and present in person shall, on a show of hands,, have only one vote irrespective of the number of shares held by him., , A Member present in person or by Proxy shall, on a poll or ballot, have votes in proportion to, his share in the paid up equity share capital of the company, subject to differential rights as to, voting, if any, attached to certain shares as stipulated in the Articles or by the terms of issue of, such shares., Preference shareholders have a right to vote only in certain cases as prescribed under the Act., , In case of a private company, the Voting Rights shall be reckoned in accordance with this para,, unless otherwise provided in the Memorandum or Articles of the company., , In case of a Nidhi, no Member shall exercise Voting Rights on poll in excess of five percent of total, Voting Rights of equity shareholders., 7.5.2 A Member who is a related party is not entitled to vote on a Resolution relating to, approval of any contract or arrangement in which such Member is a related party., In case of a private company, a member who is a related party is entitled to vote on such, Resolution., A member who is a related party is entitled to vote on a Resolution pertaining to approval, of any contract or arrangement to be entered into by:, , 7.6, , (a), , A Government company with any other Government company; or, , (b), , An unlisted Government company with the prior approval of competent authority,, other than those contract or arrangements referred in clause (a)., , Second or Casting Vote, Unless otherwise provided in the Articles, in the event of equality of votes, whether on show of, hands or electronically or on a poll, the Chairman of the Meeting shall have a second or casting, vote., , 8., , Where the Chairman has entrusted the conduct of proceedings in respect of an item in which he is, interested to any Non-Interested Director or to a Member, a person who so takes the Chair shall have, a second or casting vote., , Conduct of e-voting, 8.1, , Every company that is required or opts to provide e-voting facility to its Members shall comply, with the provisions in this regard., , 8.2, , Every company providing e-voting facility shall offer such facility to all Members, irrespective, of whether they hold shares in physical form or in dematerialised form., , 8.3, , The facility for Remote e-voting shall remain open for not less than three days., , 8.4, , The voting period shall close at 5 p.m. on the day preceding the date of the General Meeting., Board Approval, , The Board shall:, (a), , appoint one or more scrutinisers for e-voting or the ballot process;, The scrutiniser(s) may be a Company Secretary in Practice, a Chartered Accountant in Practice,, a Cost Accountant in Practice, or an Advocate or any other person of repute who is not in the, employment of the company and who can, in the opinion of the Board, scrutinise the e-voting, process or the ballot process, as the case may be, in a fair and transparent manner., The scrutiniser(s) so appointed may take assistance of a person who is not in employment of, the company and who is well-versed with the e-voting system.
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940, , Lesson 22 • EP-CL, , , , (b), (c), , Prior consent to act as a scrutiniser(s) shall be obtained from the scrutiniser(s) and placed, before the Board for noting., appoint an Agency;, , decide the cut-off date for the purpose of reckoning the names of Members who are, entitled to Voting Rights;, The cut-off date for determining the Members who are entitled to vote through Remote e-voting, or voting at the meeting shall be a date not earlier than seven days prior to the date fixed for the, Meeting., , 8.5, , Only Members as on the cut-off date, who have not exercised their Voting Rights through Remote, e-voting, shall be entitled to vote at the Meeting., , Notice, , 8.5.1 Notice of the Meeting, wherein the facility of e-voting is provided, shall be sent either by, registered post or speed post or by courier or by e-mail or by any other electronic means., An advertisement containing prescribed details shall be published, immediately on completion of, despatch of Notices for Meeting but at least twenty one days before the date of the General Meeting, at, least once in a vernacular newspaper in the principal vernacular language of the district in which the, registered office of the company is situated and having a wide circulation in that district and at least, once in English language in an English newspaper, having country-wide circulation, and specifying, therein, inter-alia the following matters, namely :, (a), , A statement to the effect that the business may be transacted by e-voting;, , (d), , The cut-off date as on which the right of voting of the Members shall be reckoned;, , (b), (c), , (e), (f), , (g), , (h), (i), , The date and time of commencement of Remote e-voting;, The date and time of end of Remote e-voting;, , The manner in which persons who have acquired shares and become Members after the, despatch of Notice may obtain the login ID and password;, The manner in which company shall provide for voting by Members present at the Meeting;, The statement that :, , (i), , Remote e-voting shall not be allowed beyond the said date and time;, , (iii), , A Member as on the cut-off date shall only be entitled for availing the Remote e-voting, facility or vote, as the case may be, in the General Meeting;, , (ii), , A Member may participate in the General Meeting even after exercising his right to vote, through Remote e-voting but shall not be entitled to vote again; and, , Website address of the company, in case of companies having a website and Agency where, Notice is displayed; and, , Name, designation, address, e-mail ID and phone number of the person responsible to address, the grievances connected with the e-voting., , Advertisement shall simultaneously be placed on the website of the company till the conclusion of, Meeting, in case of companies having a website and of the Agency., , 8.5.2 Notice shall simultaneously be placed on the website of the company, in case of companies, having a website, and of the Agency., Such Notice shall remain on the website till the date of General Meeting., , 8.5.3 Notice shall inform the Members about procedure of Remote e-voting, availability of such, facility and provide necessary information thereof to enable them to access such facility.
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Lesson 22 • Secretarial Standards Board, , 941, , Notice shall clearly state that the company is providing e-voting facility and that the business may be, transacted through such voting., Notice shall describe clearly the Remote e-voting procedure and the procedure of voting at the General, Meeting by Members who do not vote by Remote e-voting., , Notice shall also clearly specify the date and time of commencement and end of Remote e-voting and, contain a statement that at the end of Remote e-voting period, the facility shall forthwith be blocked., , Notice shall also contain contact details of the official responsible to address the grievances connected, with voting by electronic means., , Notice shall clearly specify that any Member, who has voted by Remote e-voting, cannot vote at the, Meeting., Notice shall also specify the mode of declaration of the results of e-voting. Notice shall also clearly, mention the cut-off date as on which the right of voting of the Members shall be reckoned and state, that a person who is not a Member as on the cut off date should treat this Notice for information, purposes only., 8.6, , Notice shall provide the details about the login ID and the process and manner for generating or, receiving the password and for casting of vote in a secure manner., , Declaration of results, , 8.6.1 The scrutiniser(s) shall submit his report within three days from the date of the Meeting to the, Chairman or a person authorised by him, who shall countersign the same and declare the result, of the voting forthwith with details of the number of votes cast for and against the Resolution,, invalid votes and whether the Resolution has been carried or not., 8.6.2 The result of the voting, with details of the number of votes cast for and against the Resolution,, invalid votes and whether the Resolution has been carried or not shall be displayed for at least, three days on the Notice Board of the company at its Registered Office and its Head Office as, well as Corporate Office, if any, if such office is situated elsewhere. Further, the results of voting, along with the scrutiniser’s report shall also be placed on the website of the company, in case of, companies having a website and of the Agency, immediately after the results are declared., 8.6.3 The Resolution, if passed by a requisite majority, shall be deemed to have been passed on the, date of the relevant General Meeting., 8.7, , Custody of scrutinisers’ register, report and other related papers, The scrutinisers’ register, report and other related papers received from the scrutiniser(s) shall be, kept in the custody of the Company Secretary or any other person authorised by the Board for this, purpose., , 9., , Conduct of Poll, 9.1, , When a poll is demanded on any Resolution, the Chairman shall get the validity of the demand, verified and, if the demand is valid, shall order the poll forthwith if it is demanded on the, question of appointment of the Chairman or adjournment of the Meeting and, in any other case,, within forty-eight hours of the demand for poll., , 9.2, , In the case of a poll, which is not taken forthwith, the Chairman shall announce the date, venue, and time of taking the poll to enable Members to have adequate and convenient opportunity to, exercise their vote. The Chairman may permit any Member who so desires to be present at the, time of counting of votes., If the date, venue and time of taking the poll cannot be announced at the Meeting, the Chairman shall, inform the Members, the modes and the time of such communication, which shall in any case be within, twenty four hours of closure of the Meeting., A Member who did not attend the Meeting can participate and vote in the poll in such cases., , In case of a private company, the demand and conduct of poll shall be as stated above, unless otherwise, provided in the Articles.
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942, , , , 9.3, , Each Resolution put to vote by poll shall be put to vote separately., , 9.4, , One ballot paper may be used for more than one item., , Lesson 22 • EP-CL, , Appointment of scrutinisers, , The Chairman shall appoint such number of scrutinisers, as he deems necessary, who may, include a Company Secretary in Practice, a Chartered Accountant in Practice, a Cost Accountant in, Practice, an Advocate or any other person of repute who is not in the employment of the company,, to ensure that the scrutiny of the votes cast on a poll is done in a fair and transparent manner., , 9.5, , In case of a private company, the appointment of scrutiniser(s) shall be in accordance with this para,, unless otherwise provided in the Articles., Declaration of results, , 9.5.1 The scrutiniser(s) shall submit his report within seven days from the last date of the poll, to the Chairman who shall countersign the same and declare the result of the poll within, two days of the submission of report by the scrutiniser, with details of the number of, votes cast for and against the Resolution, invalid votes and whether the Resolution has, been carried or not., , In case Chairman is not available, for such purpose, the report by the scrutiniser shall be, submitted to a person authorised by the Chairman to receive such report, who shall countersign, the scrutiniser’s report on behalf of the Chairman., The result shall be announced by the Chairman or any other person authorised by the Chairman, in writing for this purpose., , The Chairman of the Meeting shall have the power to regulate the manner in which the poll shall, be taken and shall ensure that the poll is scrutinised in the manner prescribed under the Act., In case of a private company, the declaration of result of poll shall be in accordance with this, para, unless otherwise provided in the Articles., , 9.5.2 The result of the poll with details of the number of votes cast for and against the Resolution,, invalid votes and whether the Resolution has been carried or not shall be displayed for at, least three days on the Notice Board of the company at its Registered Office and its Head, Office as well as Corporate Office, if any, if such office is situated elsewhere, and in case of, companies having a website, shall also be placed on the website., 9.5.3 The result of the poll shall be deemed to be the decision of the Meeting on the Resolution, on which the poll was taken., 10., , Prohibition on Withdrawal of Resolutions, Resolutions for items of business which are likely to affect the market price of the securities of the, company shall not be withdrawn. Further, any resolution proposed for consideration through e-voting, shall not be withdrawn., , 11., , Rescinding of Resolutions, A Resolution passed at a Meeting shall not be rescinded otherwise than by a Resolution passed at a, subsequent Meeting., , 12., , Modifications to Resolutions, Modifications to any Resolution which do not change the purpose of the Resolution materially may be, proposed, seconded and adopted by the requisite majority at the Meeting and, thereafter, the modified, Resolution shall be duly proposed, seconded and put to vote., No modification to any proposed text of the Resolution shall be made if it in any way alters the substance of, the Resolution as set out in the Notice. Grammatical, clerical, factual and typographical errors, if any, may be, corrected as deemed fit by the Chairman.
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Lesson 22 • Secretarial Standards Board, , 13., , 943, , No modification shall be made to any Resolution which has already been put to vote by Remote e-votingbefore, the Meeting., Reading of Reports, , 13.1 The qualifications, observations or comments or other remarks, if any, mentioned in the, Auditor’s Report on the financial transactions, which have any adverse effect on the functioning, of the company shall be read at the Annual General Meeting and attention of the Members, present shall be drawn to the explanations / comments given by the Board of Directors in their, report., , 13.2 The qualifications, observations or comments or other remarks if any, mentioned in the, Secretarial Audit Report issued by the Company Secretary in Practice, which have any material, adverse effect on the functioning of the company, shall be read at the Annual General Meeting, and attention of Members present shall be drawn to the explanations / comments given by the, Board of Directors in their report., 14., , Distribution of Gifts, No gifts, gift coupons, or cash in lieu of gifts shall be distributed to Members at or in connection with, the Meeting., , 15., , Adjournment of Meetings, 15.1 A duly convened Meeting shall not be adjourned unless circumstances so warrant. The Chairman, may adjourn a Meeting with the consent of the Members, at which a Quorum is present, and, shall adjourn a Meeting if so directed by the Members., Meetings shall stand adjourned for want of requisite Quorum., , The Chairman may also adjourn a Meeting in the event of disorder or other like causes, when it becomes, impossible to conduct the Meeting and complete its business., , 15.2 If a Meeting is adjourned sine-die or for a period of thirty days or more, a Notice of the adjourned, Meeting shall be given in accordance with the provisions contained hereinabove relating to, Notice., , 15.3 If a Meeting is adjourned for a period of less than thirty days, the company shall give not less, than three days’ Notice specifying the day, date, time and venue of the Meeting, to the Members, either individually or by publishing an advertisement in a vernacular newspaper in the, principal vernacular language of the district in which the registered office of the company is, situated, and in an English newspaper in English language, both having a wide circulation in, that district., However, if a Meeting is adjourned for a period not exceeding three days and where an announcement, of adjournment has been made at the Meeting itself, giving in the details of day, date, time, venue and, business to be transacted at the adjourned Meeting, the company may also opt to give Notice of such, adjourned Meeting either individually or by publishing an advertisement, as stated above., , 15.4 If a Meeting, other than an Annual General Meeting and a requisitioned Meeting, stands, adjourned for want of Quorum, the adjourned Meeting shall be held on the same day, in the, next week at the same time and place or on such other day or at such other time and place as, may be determined by the Board., , If a Meeting is adjourned for want of a Quorum to the same day on the next week, at the same time, and place or with a change of day, time or place, the company shall give not less than three days’, notice specifying the day, date, time and venue of the Meeting, to the Members either individually or, by publishing an advertisement in a vernacular newspaper in the principal vernacular language of, the district in which the registered office of the company is situated, and in an English newspaper in, English language, both having a wide circulation in that district., If, at an adjourned Meeting, Quorum is not present within half an hour from the time appointed, the, Members present, being not less than two in number, will constitute the Quorum.
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944, , Lesson 22 • EP-CL, , , , Ȉ Meeting held, Ȉ No quorum, MEETING, ADJOURNED, , ADJOURNED, MEETING, , Ȉ No quorum, Ȉ Member present form, quorum but atleast two, members to be present., Ȉ MEETING IS VALID., , Ȉ If One, member, present at, adjourned, meeting., , MEETING STAND, CANCELLED, , An adjourned Annual General Meeting, adjourned for want of quorum or otherwise, shall not be held, on a National Holiday, only if any item relating to filling up of vacancy of a director retiring by rotation, is included in the agenda of such adjourned Meeting., , The company shall ensure compliance of the provisions of holding the Annual General Meeting every, year, including adjournment thereof within a gap of not exceeding 15 months from the date of the, previous Annual General Meeting or within such extended period permitted by the Registrar of, Companies., In case of a private company, the adjournment of Meeting for want of quorum shall be in accordance, with this para, unless otherwise provided in the Articles., , 15.5 If, within half an hour from the time appointed for holding a Meeting called by requisitionists,, a Quorum is not present, the Meeting shall stand cancelled., In case of a private company, the requisitioned meeting shall stand cancelled in accordance with this, para, unless otherwise provided in the Articles., , 15.6 At an adjourned Meeting, only the unfinished business of the original Meeting shall be considered., , 16., , Any Resolution passed at an adjourned Meeting would be deemed to have been passed on the date of, the adjourned Meeting and not on any earlier date., , Passing of Resolutions by postal ballot, , 16.1 Every company, except a company having less than or equal to two hundred Members, shall, transact items of business as prescribed, only by means of postal ballot instead of transacting, such business at a General Meeting., The list of items of businesses requiring to be transacted only by means of a postal ballot is given at, Annexure., , The Board may however opt to transact any other item of special business, not being any business, in respect of which Directors or Auditors have a right to be heard at the Meeting, by means of postal, ballot., Ordinary Business shall not be transacted by means of a postal ballot., , Postal ballot cannot be conducted in respect of ordinary business and/or matters where the Directors,, Auditors, etc. have a right of being heard at the Meeting., , 16.2 Every company having its equity shares listed on a recognised stock exchange other than, companies whose equity shares are listed on SME Exchange or on the Institutional Trading, Platform and other companies which are required to provide e-voting facility shall provide such
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Lesson 22 • Secretarial Standards Board, , 945, , facility to its Members in respect of those items, which are required to be transacted through, postal ballot., Other companies presently prescribed are companies having not less than one thousand Members., Nidhis are not required to provide e-voting facility to their Members., , 16.3 Board Approval, , The Board shall:, (a), , identify the businesses to be transacted through postal ballot;, , (b), , approve the Notice of postal ballot incorporating proposed Resolution(s) and explanatory, statement thereto;, , (c), , authorise the Company Secretary or where there is no Company Secretary, any Director, of the company to conduct postal ballot process and sign and send the Notice along with, other documents;, , (d), , appoint one scrutiniser for the postal ballot;, The scrutiniser may be a Company Secretary in Practice, a Chartered Accountant in Practice,, a Cost Accountant in Practice, an Advocate or any other person of repute who is not in the, employment of the company and, who can in the opinion of the Board, scrutinise the postal, ballot process in a fair and transparent manner., The scrutiniser shall however not be an officer or employee of the company., , The scrutiniser so appointed may take assistance of a person who is not in employment of the, company and who is well-versed with the e-voting system., Prior consent to act as a scrutiniser shall be obtained from the scrutiniser and placed before the, Board for noting., (e), , (f), , The scrutiniser should be willing to be appointed and be available for the purpose of ascertaining, the requisite majority., appoint an Agency in respect of e-voting for the postal ballot;, , An Agency should be appointed by the Board which can handle the whole process of postal, ballot through e-voting., , decide the cut-off date for reckoning Voting Rights and ascertaining those Members to, whom the Notice and postal ballot forms shall be sent., Only Members as on the cut-off date shall be entitled to vote on the proposed Resolution by, postal ballot., , 16.4 Notice, , 16.4.1 Notice of the postal ballot shall be given in writing to every Member of the company., Such Notice shall be sent either by registered post or speed post, or by courier or by, e-mail or by any other electronic means at the address registered with the company., The Notice shall be accompanied by the postal ballot form with the necessary instructions for, filling, signing and returning the same., In case the Notice and accompanying documents are sent to Members by e-mail, these shall, be sent to the Members’ e-mail addresses, registered with the company or provided by the, depository, in the manner prescribed under the Act., , Such Notice shall also be given to the Directors and Auditors of the company, to the Secretarial, Auditor, to Debenture Trustees, if any, and, wherever applicable or so required, to other, specified recipients., An advertisement containing prescribed details shall be published at least once in a vernacular, newspaper in the principal vernacular language of the district in which the registered office
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946, , Lesson 22 • EP-CL, , , , of the company is situated, and having a wide circulation in that district, and at least once, in English language in an English newspaper having a wide circulation in that district, about, having dispatched the Notice and the ballot papers., , 16.4.2 In case of companies having a website, Notice of the postal ballot shall simultaneously be, placed on the website., Such Notice shall remain on the website till the last date for receipt of the postal ballot forms, from the Members., , 16.4.3 Notice shall specify the day, date, time and venue where the results of the voting by postal, ballot will be announced and the link of the website where such results will be displayed., Notice shall also specify the mode of declaration of the results of the voting by postal ballot., , 16.4.4 Notice of the postal ballot shall inform the Members about availability of e-voting facility,, if any, and provide necessary information thereof to enable them to access such facility., In case the facility of e-voting has been made available, the provisions relating to conduct of, e-voting shall apply, mutatis mutandis, as far as applicable., Notice shall describe clearly the e-voting procedure., , Notice should also mention the Internet link of e-voting platform., , Notice shall also clearly specify the date and time of commencement and end of e-voting, if any, and contain a statement that voting shall not be allowed beyond the said date and time. Notice, shall also contain contact details of the official responsible to address the grievances connected, with the e-voting for postal ballot., , Notice shall clearly specify that any Member cannot vote both by post and evoting and if he, votes both by post and e-voting, his vote by post shall be treated as invalid., The advertisement shall, inter alia, state the following matters:, , (a), , (b), (c), , (d), (e), (f), , (g), , (h), , a statement to the effect that the business is to be transacted by postal ballot which may, include voting by electronic means;, the date of completion of dispatch of Notices;, , the date of commencement of voting (postal and e-voting);, the date of end of voting (postal and e-voting);, , the statement that any postal ballot form received from the Member after thirty days, from the date of dispatch of Notice will not be valid;, a statement to the effect that Member who has not received postal ballot form may apply, to the company and obtain a duplicate thereof;, , contact details of the person responsible to address the queries/ grievances connected, with the voting by postal ballot including voting by electronic means, if any; and, , day, date, time and venue of declaration of results and the link of the website where such, results will be displayed., , Notice and the advertisement shall clearly mention the cut-off date as on which the right of, voting of the Members shall be reckoned and state that a person who is not a Member as on the, cut-off date should treat this Notice for information purposes only., , 16.4.5 Each item proposed to be passed through postal ballot shall be in the form of a Resolution, and shall be accompanied by an explanatory statement which shall set out all such facts, as would enable a Member to understand the meaning, scope and implications of the, item of business and to take a decision thereon.
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Lesson 22 • Secretarial Standards Board, , 947, , 16.5 Postal ballot forms, , 16.5.1 The postal ballot form shall be accompanied by a postage prepaid reply envelope, addressed to the scrutiniser., A single postal ballot form may provide for multiple items of business to be transacted., , 16.5.2 The postal ballot form shall contain instructions as to the manner in which the form is, to be completed, assent or dissent is to be recorded and its return to the scrutiniser., The postal ballot form may specify instances in which such form shall be treated as invalid or, rejected and procedure for issue of duplicate postal ballot forms., , 16.5.3 A postal ballot form shall be considered invalid if:, (a), , A form other than one issued by the company has been used;, , (b), , It has not been signed by or on behalf of the Member;, , (c), , Signature on the postal ballot form doesn’t match the specimen signatures with, the company;, , (d), , It is not possible to determine without any doubt the assent or dissent of the, Member;, , (e), , Neither assent nor dissent is mentioned;, , (f), , Any competent authority has given directions in writing to the company to freeze, the Voting Rights of the Member;, , (g), , The envelope containing the postal ballot form is received after the last date, prescribed;, , (h), , The postal ballot form, signed in a representative capacity, is not accompanied by, a certified copy of the relevant specific authority;, , (i), , It is received from a Member who is in arrears of payment of calls;, , (j), , It is defaced or mutilated in such a way that its identity as a genuine form cannot, be established;, , (k), , Member has made any amendment to the Resolution or imposed any condition, while exercising his vote., , A postal ballot form which is otherwise complete in all respects and is lodged within the, prescribed time limit but is undated shall be considered valid., , 16.6 Declaration of results, , 16.6.1 The scrutiniser shall submit his report within seven days from the last date of receipt of, postal ballot forms to the Chairman or a person authorised by him, who shall countersign, the same and declare the result of the postal ballot on the date, time and venue specified, in the Notice, with details of the number of votes cast for and against the Resolution,, invalid votes and the final result as to whether the Resolution has been carried or not., , 16.6.2 The result of the voting with details of the number of votes cast for and against the, Resolution, invalid votes and whether the Resolution has been carried or not, along, with the scrutiniser’s report shall be displayed for at least three days on the Notice, Board of the company at its Registered Office and its Head Office as well as Corporate, Office, if any, if such office is situated elsewhere, and also be placed on the website of the, company, in case of companies having a website., 16.6.3 The Resolution, if passed by requisite majority, shall be deemed to have been passed on, the last date specified by the company for receipt of duly completed postal ballot forms, or e-voting.
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948, , , , 16.7 Custody of scrutiniser’s registers, report and other related papers, , Lesson 22 • EP-CL, , The postal ballot forms, other related papers, register and scrutiniser’s report received from, the scrutiniser shall be kept in the custody of the Company Secretary or any other person, authorised by the Board for this purpose., , 16.8 Rescinding the Resolution, A Resolution passed by postal ballot shall not be rescinded otherwise than by a Resolution, passed subsequently through postal ballot., 16.9 Modification to the Resolution, No amendment or modification shall be made to any Resolution circulated to the Members for, passing by means of postal ballot., 17., , Minutes, , Source:ICSI Crash Course, , Minutes’ are the official recording of the proceedings of the Meeting and the business transacted at the Meeting., , Every company shall keep Minutes of all Meetings. Minutes kept in accordance with the provisions of the Act, evidence the proceedings recorded therein. Minutes help in understanding the deliberations and decisions taken, at the Meeting., 17.1 Maintenance of Minutes, , 17.1.1 Minutes shall be recorded in books maintained for that purpose., 17.1.2 A distinct Minutes Book shall be maintained for Meetings of the Members of the company,, creditors and others as may be required under the Act., Resolutions passed by postal ballot shall be recorded in the Minutes book of General Meetings., , 17.1.3 A company may maintain its Minutes in physical or in electronic form., , Minutes may be maintained in electronic form in such manner as prescribed under the Act, and as may be decided by the Board. Minutes in electronic form shall be maintained with, Timestamp., A company shall, however, follow a uniform and consistent form of maintaining the Minutes., Any deviation in such form of maintenance shall be authorised by the Board., , 17.1.4 The pages of the Minutes Books shall be consecutively numbered., , This shall be followed irrespective of a break in the Book arising out of periodical binding, in case the Minutes are maintained in physical form. This shall be equally applicable for, maintenance of Minutes Book in electronic form with Timestamp., In the event any page or part thereof in the Minutes Book is left blank, it shall be scored out and, initialled by the Chairman who signs the Minutes.
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Lesson 22 • Secretarial Standards Board, , 949, , 17.1.5, , Minutes shall not be pasted or attached to the Minutes Book, or tampered with in any, manner., , 17.1.6, , Minutes of Meetings, if maintained in loose-leaf form, shall be bound periodically at, least once in every three years., , 17.1.7, , There shall be a proper locking device to ensure security and proper control to prevent, removal or manipulation of the loose leaves., Minutes Books shall be kept at the Registered Office of the company., , 17.2 Contents of Minutes, 17.2.1, , General Contents, , 17.2.1.1 Minutes shall state, at the beginning the Meeting, name of the company, day, date,, venue and time of commencement of the Meeting., Minutes of Annual General Meeting shall also state the serial number of the Meeting., , In case a Meeting is adjourned, the Minutes shall be entered in respect of the original Meeting, as well as the adjourned Meeting. In respect of a Meeting convened but adjourned for want, of Quorum a statement to that effect shall be recorded by the Chairman or any Director, present at the Meeting in the Minutes., , 17.2.1.2 Minutes shall record the names of the Directors and the Company Secretary present at, the Meeting., , 17.2.2, , The names of the Directors shall be listed in alphabetical order or in any other logical manner,, but in either case starting with the name of the person in the Chair., , Specific Contents, , 17.2.2.1 Minutes shall, inter alia, contain:, (a), , The Record of election, if any, of the Chairman of the Meeting., , (b), , The fact that certain registers, documents, the Auditor’s Report and Secretarial, Audit Report, as prescribed under the Act were available for inspection., , (c), , The Record of presence of Quorum., , (d), , The number of Members present in person including representatives., , (e), , The number of Proxies and the number of shares represented by them., , (f), , The presence of the Chairmen of the Audit Committee, Nomination and, Remuneration Committee and Stakeholders Relationship Committee or their, authorised representatives., , (g), , The presence if any, of the Secretarial Auditor, the Auditors, or their authorised, representatives, the Court/ Tribunal appointed observers or scrutinisers., , (h), , Summary of the opening remarks of the Chairman., , (i), , Reading of qualifications, observations or comments or other remarks on the, financial transactions, which have any adverse effect on the functioning of the, company, as mentioned in the report of the Auditors., , (j), , Reading of qualifications, observations or comments or other remarks,, which have any material adverse effect on the functioning of the company, as, mentioned in the report of the Secretarial Auditor., , (k), , Summary of the clarifications provided on various Agenda Items., , (l), , In respect of each Resolution, the type of the Resolution, the names of the, persons who proposed and seconded and the majority with which such, Resolution was passed.
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950, , Lesson 22 • EP-CL, , , , Where a motion is moved to modify a proposed Resolution, the result of voting on such, motion shall be mentioned. If a Resolution proposed undergoes modification pursuant to, a motion by shareholders, the Minutes shall contain the details of voting for the modified, Resolution., , (m), , In the case of poll, the names of scrutinisers appointed and the number of votes, cast in favour and against the Resolution and invalid votes., , (n), , If the Chairman vacates the Chair in respect of any specific item, the fact that he, did so and in his place some other Director or Member took the Chair., , (o), , The time of commencement and conclusion of the Meeting., , 17.2.2.2 In respect of Resolutions passed by e-voting or postal ballot, a brief report on the e-voting or, postal ballot conducted including the Resolution proposed, the result of the voting thereon, and the summary of the scrutiniser’s report shall be recorded in the Minutes Book and, signed by the Chairman or in the event of death or inability of the Chairman, by any Director, duly authorised by the Board for the purpose, within thirty days from the date of passing of, Resolution by e-voting or postal ballot., 17.3 Recording of Minutes, 17.3.1 Minutes shall contain a fair and correct summary of the proceedings of the Meeting., The Company Secretary shall record the proceedings of the Meetings. Where there is no, Company Secretary, any other person authorised by the Board or by the Chairman in this, behalf shall record the proceedings., The Chairman shall ensure that the proceedings of the Meeting are correctly recorded., , The Chairman has absolute discretion to exclude from the Minutes, matters which in his opinion, are or could reasonably be regarded as defamatory of any person, irrelevant or immaterial to, the proceedings or which are detrimental to the interests of the company., , 17.3.2 Minutes shall be written in clear, concise and plain language., , Minutes shall be written in third person and past tense. Resolutions shall however be written, in present tense., Minutes need not be an exact transcript of the proceedings at the Meeting., , 17.3.3 Each item of business taken up at the Meeting shall be numbered., , Numbering shall be in a manner which would enable ease of reference or cross-reference., , 17.4 Entry in the Minutes Book, , 17.4.1 Minutes shall be entered in the Minutes Book within thirty days from the date of, conclusion of the Meeting., In case a Meeting is adjourned, the Minutes in respect of the original Meeting as well as the, adjourned Meeting shall be entered in the Minutes Book within thirty days from the date of the, respective Meetings., , 17.4.2 The date of entry of the Minutes in the Minutes Book shall be recorded by the Company, Secretary., Where there is no Company Secretary, it shall be entered by any other person authorised by, the Board or the Chairman., , 17.4.3 Minutes, once entered in the Minutes Book, shall not be altered., 17.5 Signing and Dating of Minutes, , 17.5.1 Minutes of a General Meeting shall be signed and dated by the Chairman of the Meeting, or in the event of death or inability of that Chairman, by any Director who was present in, the Meeting and duly authorised by the Board for the purpose, within thirty days of the, General Meeting.
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Lesson 22 • Secretarial Standards Board, , 951, , 17.5.2 The Chairman shall initial each page of the Minutes, sign the last page and append to, such signature the date on which and the place where he has signed the Minutes., Any blank space in a page between the conclusion of the Minutes and signature of the Chairman, shall be scored out., If the Minutes are maintained in electronic form, the Chairman shall sign the Minutes digitally., , 17.6 Inspection and Extracts of Minutes, , 17.6.1 Directors and Members are entitled to inspect the Minutes of all General Meetings, including Resolutions passed by postal ballot., , Minutes of all General Meetings shall be open for inspection by any Member during business, hours of the company, without charge, subject to such reasonable restrictions as the company, may, by its Articles or in General Meeting, impose so, however, that not less than two hours in, each business day are allowed for inspection., , The Company Secretary in Practice appointed by the company, the Secretarial Auditor, the, Statutory Auditor, the Cost Auditor or the Internal Auditor of the company can inspect the, Minutes as he may consider necessary for the performance of his duties., Inspection of Minutes Book may be provided in physical or in electronic form., , While providing inspection of Minutes Book, the Company Secretary or the official of the, company authorised by the Company Secretary to facilitate inspection shall take all precautions, to ensure that the Minutes Book is not mutilated or in any way tampered with by the person, inspecting., , 17.6.2 Extract of the Minutes shall be given only after the Minutes have been duly signed., However, any Resolution passed at a Meeting may be issued even pending signing of the, Minutes, provided the same is certified by the Chairman or any Director or the Company, Secretary., When a Member requests in writing for a copy of any Minutes, which he is entitled to inspect, the, company shall furnish the same within seven working days of receipt of his request, subject to payment, of such fee as may be specified in the Articles of the company. In case a Member requests for the copy, of the Minutes in electronic form, in respect of any previous General Meetings held during a period, immediately preceding three financial years, the company shall furnish the same on payment of such, fee as prescribed under the Act., 18., , Copies of the Minutes or the extracts thereof as requisitioned by the Member, duly certified by the, Company Secretary or where there is no Company Secretary, an officer duly authorised by the Board, in this behalf, may be provided in physical or electronic form., , Preservation of Minutes and other Records, , 18.1 Minutes of all Meetings shall be preserved permanently in physical or in electronic form with, Timestamp., , Where, under a scheme of arrangement, a company has been merged or amalgamated with another, company, Minutes of all Meetings of the transferor company, as handed over to the transferee company,, shall be preserved permanently by the transferee company, notwithstanding that the transferor, company might have been dissolved., , 18.2 Office copies of Notices, scrutiniser’s report and related papers shall be preserved in good, order in physical or in electronic form for as long as they remain current or for eight financial, years, whichever is later and may be destroyed thereafter with the approval of the Board., , Office copies of Notices, scrutiniser’s report and related papers of the transferor company, as handed, over to the transferee company, shall be preserved in good order in physical or electronic form for, as long as they remain current or for eight financial years, whichever is later and may be destroyed, thereafter with the approval of the Board and permission of the Central Government, where applicable.
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952, , , , 18.3 Minutes Books shall be kept in the custody of the Company Secretary., , 19., , Lesson 22 • EP-CL, , Where there is no Company Secretary, Minutes shall be kept in the custody of any Director duly, authorised for the purpose by the Board., , Report on Annual General Meeting, , Every listed public company shall prepare a report on Annual General Meeting in the prescribed form,, including a confirmation that the Meeting was convened, held and conducted as per the provisions of the Act., Such report which shall be a fair and correct summary of the proceedings of the Meeting shall contain:, (a), , the day, date, time and venue of the Annual General Meeting;, , (d), , confirmation of Quorum;, , (b), (c), , (e), (f), , (g), , (h), , 20., , confirmation with respect to appointment of Chairman of the Meeting;, number of Members attending the Meeting;, , confirmation with respect to compliance of the Act and Standards with respect to calling, convening, and conducting the Meeting;, business transacted at the Meeting and result thereof with a brief summary of the discussions;, particulars with respect to any adjournment, postponement of Meeting, change in venue; and, any other points relevant for inclusion in the report., , Such report shall be filed with the Registrar of Companies within thirty days of the conclusion of the Annual, General Meeting., Disclosure, , The Annual Return of a company shall disclose the date of Annual General Meeting held during the financial, year., , EFFECTIVE DATE, , SS-2 is effective from 1st July, 2015., Further it is Revised in June 2017 (effective from 1st October, 2017)., , ANNEXURE (Para 16.1), , Items of business which shall be passed only by postal ballot, 1., , Alteration of the objects clause of the Memorandum and in the case of the company in existence immediately, before the commencement of the Act, alteration of the Main Objects of the Memorandum., , 3., , Change in place of Registered Office outside the local limits of any city, town or village., , 2., 4., 5., 6., 7., 8., 9., , 10., 11., , Alteration of Articles of Association in relation to insertion or removal of provisions which are required to be, included in the Articles of a company in order to constitute it a private company., Change in objects for which a company has raised money from public through prospectus and still has any, unutilised amount out of the money so raised., Issue of shares with differential rights as to voting or dividend or otherwise., , Variation in the rights attached to a class of shares or debentures or other securities ., Buy-back of shares by a company., , Appointment of a Director elected by Small Shareholders., , Sale of the whole or substantially the whole of an undertaking of a company or where the company owns, more than one undertaking, of whole or substantially the whole of any of such undertakings., Giving loans or extending guarantee or providing security in excess of the limit specified., Any other Resolution prescribed under any applicable law, rules or regulations.
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953, , Lesson 22 • Secretarial Standards Board, , LESSON ROUND-UP, •, , The scope of SSB is to identify the areas in which Secretarial Standards need to be issued by the Council of, ICSI and to formulate such Standards., , •, , Secretarial Standards are developed in a transparent manner after extensive deliberations, analysis,, research and after considering the views of corporates, regulators and the public at large., , •, , •, •, •, , SSB formulates Secretarial Standards taking into consideration the applicable laws, business environment,, practical applicability and the best secretarial practices prevalent., , The exposure draft is circulated to all Council Members, Regional Council/Chapters, Professional Bodies, (ICAI/ICoAI), Chambers of Commerce/Industry Associations, MCA/SEBI/RBI and such other bodies/, organisations as may be decided by SSB, all members of the Institute through bulk e- mail/ website link etc., , The Council will consider the final draft of the proposed Secretarial Standard and finalise the same in, consultation with SSB. The Secretarial Standard on the relevant subject will then be issued under the, authority of the Council., Section 105A provides Constitution of the Secretarial Standards Committee and the Auditing Standards, Committee., , GLOSSARY, Secretarial, Meetings, , Involving or connected with the work that a secretary does., , Gathering of two or more people that has been convened for the purpose of achieving, a common goal through verbal interaction, such as sharing information or reaching, agreement., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation)., 1., 2., 3., , What is the process of formulating Secretarial Standards?, What are the functions of Secretarial Standards Board?, What is the need and scope of Secretarial Standard?
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Mega Firms, , Lesson 23, Key Concepts One, Should Know, •, •, •, •, •, •, •, , Firm, Mega Firm, PCS, Risk Assessment, Audit Valuation, Quid Pro Quo, Proprietor, , Learning Objectives, , Regulatory Framework, , To understand:, , • The Companies Act, 2013 &, Rules made thereunder, , • Concept of Multidisciplinary, / Mega Firm, • Its scope, benefits and, expertize required, , • The Company Secretaries, Act, 1980, • The Company Secretaries, Regulations, 1982, , Lesson Outline, • Introduction, , • Adoption of Mode of Practice, , • Applicable Rules, Regulations and Guidelines for PCS or Firm of, PCS, • What is Multidisciplinary/Mega firm?, • Pre-requisites of Mega Firm, • Benefits of Mega Firm, • Risks of Mega Firm, , • Process of Constitution, • Management of Firms, , • Revenue Sharing Models, • LESSON ROUND UP, • GLOSSARY, • TEST YOURSELF, , • LIST OF FURTHER READINGS, • OTHER REFERENCES
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956, , , , INTRODUCTION, , Lesson 23 • EP-CL, , In a rapidly changing economy, industrial environment and emergence of the need for corporate governance and, ethical business practices of voluntary disclosures, role of a practicing company secretary has also changed, substantially over last three decades. Company Secretary in Practice has become a crucial player. The stakeholders, are becoming vigilant towards the compliances. It is the prime duty of a professional to meet the expectations of the, stakeholders at any given point of time., , The Company Secretaries profession has also obtained new dimensions from being conscience keeper to compliance, officer, governance professionals, advisor, strategist for the growth of corporate. Presently the Company Secretaries, profession has achieved a significant position in corporate world to step in a leadership role in guiding the corporates, for the success and sustainable growth. The Company Secretaries to assume the leadership position with new role,, values and approach. It is now imperative for Company Secretaries to act as catalyst for change and, help decision, makers in setting the direction of corporate to achieve excellence., The Companies Act, 2013, so also Insolvency and Bankruptcy Code 2016, has considerably enhanced the role and, responsibilities of Company Secretaries both in employment and in practice. Company Secretary is a key, managerial person in a company, responsible to ensure the effective and efficient administration of the company, and certifying the company’s compliance with the provision of the Act., , ADOPTION OF MODE OF PRACTICE, , To meet the expectation and to survive competition, moulding, changing and upgrading oneself is a must. For, stability as well as growth one needs to join hands with professional fraternity and have synergy. Synergy is, possible by way of establishing big firms, putting minds, hands and intelligence together. Such flow of synergies, would enable the practicing community as a whole to grow big, achieve higher goals and maintain highest, degree of quality which otherwise one would not be able to achieve as a sole proprietor., Before we talk about big firms let us understand the features of being in practice., , Decision whether to join a company as whole time secretary or to start one’s own practice itself is a tough, decision to make. Features (Limitations) of a single practicing professional are enumerated as under:, 1., , Irregular Cash flows;, , 4., , No work no pay — is a rule;, , 2., 3., 5., 6., 7., 8., 9., , 10., 11., 12., 13., , Capital investment. (Fixed as well as Working);, , No limit on working hours, clients expect PCS to be available 24*7;, Need to continuously update oneself;, , No body to protect your mistakes, PCS is directly exposed to all kinds of acts of omission & commission;, , Has to create his own infrastructure – right from acquiring office premises, PCs, computer networking, office, furniture, hardware, software, its maintenance;, Has to have staff, their appointments, promotions, incentives, salaries, HR management;, Cannot directly or indirectly solicit clients;, , No pension, no provident fund, no gratuity, no perquisites, no fringe benefits;, May not afford air travel or even train travel in first class, on the first day;, No paid leave, no leave travel concession, no casual leave, no sick leave;, Encroachment on family time., , Of course there are lots of positive aspects of being in practice the most important being, Quid Pro Quo i.e. more you, work more you get. PCS is his own master, he generates employment, has flexibility of working hours, has reasonable, assurance of sustained earnings in long run, no fear of loosing employment at advanced age.
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957, , Lesson 23 • Mega Firms, , Lets now discuss certain features of the two forms of enterprise a practicing professional may choose i.e., Partnership Firm (including LLP) & Sole Proprietor:, No., , Firm with several partners, , Proprietor, , 1, , Various avenues of practice, un-trodden areas Likely to get restricted to the “Routine” procedural, can be explored., matters., , 3, , Inherent risks associated with the practice are Risk bearing has to be shouldered by one person. No, shared with others., one available to share the risks., , 2, , 4, 5, , 6., 7., 8., 9., , 10., 11, , Knowledge management becomes easier as Knowledge management becomes difficult being the, partners can help each other in their respective only person. No other person is available to support/, areas of expertize., guide. Keeping track of latest developments, case law,, notifications, circulars becomes a daunting task., Several partners can render multi- dimensional Difficult for a single individual to provide multiple, services., services say under GST, Income Taxes, FEMA along, with Company Law., Partners inter-se should have full faith & trust., , Not relevant since it is ‘one man show’., , Freedom of decision making gets restricted., , Not required. Proprietor is his own master. No need to, consult others., , Frequencies of the partners should match. It is Not relevant since it is ‘one man show’., desirable that their family background, culture,, political thinking should be more or less similar., , All partners should be mentally prepared to Not required. Proprietor is his own master. No need to, share revenues., share revenues., One is responsible to the wrongs & liabilities of Not relevant since it is ‘one man show’., his partners., There should not be communication gap inter- Not relevant since it is ‘one man show’., se, , One of the partners can afford to become It is very difficult for a proprietor to act as RP / Valuer, Resolution Professional (RP )/valuer ., while simultaneously handing routine practice as PCS., , Applicable Rules, Regulations and Guidelines for PCS or Firm of PCS, , Whether a Company Secretary in Practice or a Firm of Company Secretaries they are subject to Rules, Regulations, and Guidelines enumerated as under:, (i), , Company Secretaries Regulations, 1982, , (iv), , Guidelines for issuing compliance certificate and signing of annual return, , (ii), , (iii), (v), , (vi), , Schedule I and III of Company Secretaries Act, 1980 in relation to Professional misconduct, , Guidelines for requirement of maintenance of a register of attestation certification services rendered by, practising Company Secretary/firm of practising Company Secretaries, Guidelines framed by the council relating to approval of proprietorship concern/firm’s name under regulation, 169 of the Company Secretaries Regulations, 1982, Guidelines for advertisement by Company Secretary in Practice, , (vii) Guidelines for compulsory attendance of Professional development programmes by the members, , (viii) Mechanism for maintenance of attendance records of members at professional development programmes, and issuance of Certificates for programme credit hours (PCH)
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958, , (ix), (x), , (xi), , , , Guidelines for peer review of attestation services by Practising Company Secretaries, , Lesson 23 • EP-CL, , Guidelines for professional dress of Company Secretaries, , Guidelines for setting up and Conversion of Firms of PCS into LLP., , (xii) ICSI Unique Document Identification Number (UDIN) Guidelines, 2019., , WHAT IS MULTIDISCIPLINARY/MEGA FIRM?, , Mega Firm can be described as a Partnership firm with more than twenty five partners. A firm which provides core, professional service of a particular profession along with the allied and ancillary service with equal competence, under one roof is a multidisciplinary firm. For example, company and corporate law is core knowledge for Company, Secretaries, however, they can acquire expertize in any other area like direct- indirect taxation, labour laws,, economic laws, finance, accounting, insurance, international business and IPRs and they may be in position to, provide single window business solutions., , Multidisciplinary Firm – According to Regulation 165A of The Company Secretaries Regulations, 1982 inserted by, the Company Secretaries (Amendment) Regulations, 2020- A member in practice may form multi-disciplinary firm, with the member of other professional bodies as prescribed under regulations 168A and 168B of The Company, Secretaries Regulations, 1982, in accordance with the regulating guidelines of the Council for functioning and, regulation of such multidisciplinary firm., Regulation 168 A. Other Professional bodies, 1., , For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, a person has to be member, of any of the following, namely :(a), , The Institute of Chartered Accountants of India established under the Chartered Accountants Act,, 1949 (No.38 of 1949);, , (c), , Bar Council of India established under the Advocates Act, 1961 (No. 25 of 1961);, , (b), (d), (e), 2., , (f), , The Institute of Cost and Works Accountants of India established under the Cost and Works, Accountants Act, 1959 (No. 23 of 1959);, The Indian Institute of Architects established under the Architects Act, 1972 (No. 20 of 1972);, The Institute of Actuaries of India established under the Actuaries Act, 2006 (No. 35 of 2006);, , The membership of the professional bodies or institutions whose qualifications relating to Company, Secretaryship are recognized by the Council under Sub-section (2) of Section 38 of the Act., , For the purposes of clauses (2), (3) and (5) of Part I of the First Schedule to the Act, the following shall be the, persons qualified in India, namely :(a), , Chartered Accountant within the meaning of the Chartered Accountants Act, 1949;, , (d), , Bachelor in Engineering from a University established by law or an institution recognized by law;, , (b), (c), , (e), (f), , (g), , (h), , Cost Accountant within the meaning of the Cost and Works Accountants Act, 1959;, Actuary within the meaning of the Actuaries Act, 2006;, , Bachelor in Technology from a University established by law or an institution recognized by law;, , Bachelor in Architecture from a University established by law or an institution recognized by law;, Bachelor of Law from a University established by law or an institution recognized by law;, , Master in Business Administration from Universities established by Law or Technical Institutions, recognized by All India Council for Technical Education., , Regulation 168B of Company Secretaries Regulations, 1982 determines the membership of professional body for, partnership. Accordingly, for the purposes of entering into partnership under clauses (4) and (5) of Part I of the, First Schedule to the Act, a person shall be a member of any of the following professional bodies, namely :•, , The Institute of Chartered Accountants of India established under the Chartered Accountants Act, 1949 (No. 38, of 1949);
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•, , Lesson 23 • Mega Firms, , •, •, •, •, •, , 959, , The Institute of Cost and Works Accountants of India established under the Cost and Works Accountants Act,, 1959 (No.23 of 1959);, Bar Council of India established under the Advocates Act, 1961 (No. 25 of 1961);, , The Institute of Engineers or Engineering from a University established by law or an institution recognized, by law;, The Indian Institute of Architects established under the Architects Act, 1972 (No. 20 of 1972);, , The Institute of Actuaries of India established, under the Actuaries Act, 2006 (No. 35 of 2006);, , Professional bodies or institutions outside India whose qualifications relating to Company Secretary, recognized by the Council under Sub-section (2) of Section 38 of the Act., , This actually introduces the concept of multi disciplinary firms or mega firms., Why such firms?, , Keeping in view of the present needs of the corporate and multi dimensional growth of CS profession especially in, the areas of practicing in the areas of Corporate Laws, Labour laws, RBI/ FEMA, acting as Secretarial Auditor,, Resolution Professional or GST Practitioner, there is a need to structure and build the Multidisciplinary (MDF)/, mega firms. There is a huge demand and scope for a multifunctional firm, where several services are provided, under one roof. Clients always have a comfort level in dealing with such firms. They are assured of timely and, quality service since even if one of the Partners is not available for consultancy they can bank on the others., Unless there are MDF/Mega firms, it may not be possible to cater to the bigger assignments., , PRE REQUISITES, , MDF is a joint or collaborative venture amongst independent individuals. Therefore, every one wishing to join, hands should understand that:, 1., , All minds should work together and in unison;, , 4., , Unanimity shall be the rule on important policy decisions;, , 2., 3., 5., 6., 7., 8., , Say go to ego;, , Mutual faith and respect lays strong foundation;, Financial discipline is a must;, , Founder partners shall be given equal status;, , Income of the firm shall be distributed at short regular intervals;, , One shall not put undue influence on the others or show that he is king pin of the association. Even the small, crack in the above stated pre requisites ruin the things., , BENEFITS, , The nature of a multidisciplinary firm fosters collaboration. The common office space, with professionals working, in close proximity to one another, provides each professional with a strong set of resources in the firm. In addition,, this spirit of working together creates greater opportunity for collaboration so the total needs of the client are best, met., •, •, , Working in a team environment: The concept of MDF will have an opportunity to work with team members, who share interests, expertize, ideas, and work ethically., , Exposure to various and different works: Every client has different expectations, needs, audience,, products and services, so consultants get to oversee projects of all kinds. In MDF being more than two, partners having different experience in different fields the apprentice and employee will have an, exposure to various and different works. With each partners specialized knowledge the MDF may venture, into new areas of practice.
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960, , •, •, •, , •, , •, •, •, •, , , , Lesson 23 • EP-CL, , Cost effective: With large investment budgets, the MDF not only creates state-of-the-art training facilities,, they also may have much more developed infrastructure, processes and tools which can make your life less, stressful when trying to sell or deliver a project. The overheads and the risks get distributed amongst the, partners., , Exceptional training and on-boarding: MDF provides an opportunity to have a good training facilities, whether on job training or off job training to get things started off on the right foot. The goal of on job training, or off job training is to set you up for success, so during this training you can expect to receive the resources,, knowledge, and tools to do so., , Continuous learning: The partners of MDF having multi dimensional experience they can impart continuous, training by adapting to new trends in the Profession. The great thing about staying on your toes is that clients, appreciate it because you’ll be able to develop relevant and successful ideas. Though it might sound, overwhelming to always be on top of news and trends, it will eventually become habit – and the results are, worth it!, Big growth opportunities: With the right work ethic and dedication, MDF can experience professional, growth early compared to the other small firms. MDF may attract big multinationals. They get comfort about, availability of at least one of the partners, if they are dealing with a firm rather than an individual. Senior, partners can concentrate on critical assignments which obviously are more lucrative., , The MDF have an international or global scope and reach, offer diversified services and can draw from a large, pool of consultants, skills and expertize, and hence become a Mega Firm., , Revenue sharing: By appropriate revenue sharing model a PCS who himself may not have subject expertize, can get a share from the assignments of that subject being executed by others., , Structure & Processes: The structure for execution of works or assignments will be more systematic and the, process will be cost effective due to the standard processes and procedure. The hiring and training of people, will be more systematic there by productivity of the company will be improved., Corporate or Industry perception: When considering different professional firms, the corporate client may, be preferring to one of the familiar, renowned MDF having brand image. The MDF may appear like a known, quantity and can draw from a large pool of partners and associates., , Reputation & risk-adjusted value: Many of the bigger client’s organizations may prefer that “you never go, wrong when hiring one of the MDF”, since the renowned brands of the MDF are perceived as proxy for high, levels of professionalism, quality and reputation. Credibility of the firm and brand gets established in long, term., , RISKS, , Lack of understanding and multiplicity of directions to the staff could be disastrous., 1., , More cost on infrastructure and technology., , 4., , Lack of transparency may lead to disputes., , 2., 3., 5., 6., , Dominance of senior partners over the younger partners., Defining exit route is difficult., , If crack develops in mutual faith & trust, very difficult to cure., Communication gap between partners., , PROCESS OF CONSTITUTION, , The process of formation of MDF shall be an outcome of conscious and sincere decision and it is essential that the, like minded professional should deliberate and take this decision. It shall be ensured that the proposed constituents, have expertize in different disciplines. There could be series of meetings before MOU is reached. It is advisable to, work under MOU for one year. This works as a cooling period and for better understanding each other such trial, period help in getting acclimatised. Mutual faith and understanding is sine qua non. Time has to be given to, understand the compatibility of the individuals to each other. Once the initial bridge is successfully crossed then
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Lesson 23 • Mega Firms, , 961, , formal partnership may be constituted on the agreed terms. It will be in the long term interest of the MDF to have, all the founder partners on equal footing. Their intellectual level shall be at par. During the reasonable period, individual practice existing if any, shall be introduced in the firm. When it is proposed to add new partner, apart, from settling commercial terms, it is suggested that the MDF shall enter into MOU effective at least for one year, with the proposed partner and after understanding each others compatibility he or she may be admitted to the, MDF., , Agreement between partners, , Partners must enter into a partnership agreement defining inter alia the process of decision making, allocation of, duties, responsibilities, delegation of authorities, revenue sharing and exit route., , Management of Firms, , The mega firm requires effective management skills including skills for handling finance, dealing with human, resources and day to day administration of the office. The management of a MDF is in itself a major challenge., (a), , (b), , (c), , (d), , (e), , Operational functions, , Operational functions are for providing services by the firms, the operational functions requires expertize in, the domain areas by each of the partners., Administrative functions, , Partners should allocate different administrative functions required for day to day functionality of the firm., For example infrastructure availability- right from acquiring office premises, handling reception, attending to, calls, inward-outward, record keeping, PCs, library, computer networking, office furniture, hardware,, software, its maintenance, brand building, etc., Human resources, , The Mega firms over a period of time creates a large pool of talented people. They need to be offered extremely, competitive salaries and benefits, career and learning opportunities. Right from appointment of staff,, promotions, incentives, salaries, HR management, require proper knowledge of human resources skills., Client relationship, , Michael R. Caplan, chief operating officer of Goodwin Procter, argues the benefits of a multi-disciplinary,, full-service model in the New York Law Journal: “When law firms treat client relationships as strategic, partnerships, flexibility, transparency, and communication are paramount, investment in risk and reward is, shared, and all firm resources are leveraged for the client’s benefit. Only then does the relationship grow and, prosper.”, Public Relationship and Brand building, , Admittedly, a PCS firm cannot advertise or solicit clients. The only way to grow is rendering excellent timely, and quality service to the client who certainly recommend the name of a good consultants to their peers., There cannot be a marketing department in MDF but there has to be PR department which ensures cordial, relations with the existing and probable clients., , Revenue Sharing Models, , In the long term success of the MDF the revenue sharing model has to be designed to suit the given situation., Partners may adopt simple revenue sharing model to share profits and losses equally. In this model it is assumed, that each one is bringing equal business and generating equal revenue. However, in reality if it doesn’t happen it, may give rise to sense of discomfort against the person who is continuously showing less contribution but at the, same time getting equal share of profits., Therefore, it is essential to device “performance, contribution and efficiency based” revenue sharing model. Assume, a situation where A,B,C,D and E are the partners expert in different disciplines. The revenue sharing model could be, the following:, 1., , Partner bringing new client shall be given referral or induction share, say, @ 15% of the fees settled and, received; it can be for the first year or for given number of years;
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962, , Lesson 23 • EP-CL, , , , 2., , Certain percentage of fees, say 15% shall be retained in business in common pool for meeting expenses;, , 4., , At the year end after meeting expenses resultant profit shall be shared in proportion of contribution of, individual in the gross earnings/net profit of the firm., , 3., , 5., , 70% of the fees shall be given to the partner or partners who actually work on the assignment (assignment, share). When more than one partners are involved in an assignment their share can be determined based on, respective role;, Internally, different verticals can be created and surplus generated by each one can be assessed as an, independent cost centre., , This model motivates each partner to bring more and more business into the firm and also to work for maximization, of his share and wealth of the firm., There could be more tailor made revenue sharing models, however, the model based on performance, contribution, and efficiency is likely to work better., , Conclusion, , One stop or single window solutions or services always attract clients or customers. We can witness that conventional, shops are being replaced by big shopping malls. In the same manner there is need for corporate and business sector, to have “service malls”. It always works better for a business enterprise to have handy team of consultants, both, from cost and management point of view. It is most likely that MDF giving professional advice considers all angles, and dimensions rather than an advice only from one point of view. Well considered advice by MDF can add value to, their clients. Off late, business enterprises have become professionally shroud and they always like to have a, professional firm who is willing to invest in improving their knowledge of the industries they serve. MDF is the right, platform that caters to the requirement of the business enterprises. With specialized partner, “knowledge, management” becomes easier and less costlier., MDF is a step towards mega firm. It is paradigm shift from traditional approach of 10X10 offices to a global office., MDF will put the professionals in general and Company Secretaries in particular on fast track. Large firms will still, become larger and one day the global business enterprise will call them a “Mega Firm”., , ANNEXURE I, , Frequently Asked Questions, 1., , 2., , Can there be a Partnership firm in between CA, CS, CWA, Advocate?, CA/CWA may become partners of PCS only for non attestation services i.e. only for the purposes as, contemplated by clause nos. 2, 3, 4 & 5 of the First Schedule and CA / CWA cannot become full fledged partners, as contemplated by Clause 1 of Part I of the First Schedule. That is to say a PCS even if he is allowed to be a, partner of a Chartered Accountant, will not be able to sign the Auditors report on behalf of the multidisciplinary, firm. (See Regulation 168 A & B of Company Secretaries Regulations, 1982, discussed in earlier chapter), How many Partners a PCS Partnership Firm can have ?, , According to section 464(1) of the Companies Act, 2013, r/w Rule 10 of the Companies (Miscellaneous), Rules, 2014, provides that no association or partnership shall be formed, consisting of more than 50, persons for the purpose of carrying on any business that has for its objects the acquisition of gain by the, association or partnership or by individual members thereof, unless it is registered as a company under, the Act or is formed under any other law for the time being in force., The number of persons which may be prescribed under this sub-section shall not exceed 100., However, nothing in Section 464(1) shall apply to:, , (a), , (b), , a Hindu undivided family carrying on any business; or, , an association or partnership, if it is formed by professionals who are governed by special Acts.
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Lesson 23 • Mega Firms, , 3., , 4., , 5., , 6., 7., , 963, , Every member of an association or partnership carrying on business in contravention of Section 464 (1) shall, be punishable with fine which may extend to one lakh rupees and shall also be personally liable for all, liabilities incurred in such business., Can there be a PCS LLP in between CA, CS, CWA, Advocate?, , Yes, there can be a PCS LLP in between CA, CS, CWA, Advocate. (See Regulation 168 A & B of Company, Secretaries Regulations, 1982, discussed in earlier chapter), How many Partners LLP of Practicing professional can have ?, , The minimum number of members of LLP under LLP Act, 2008 is two, there is no restriction on a maximum, number of members., Are there any restrictions on sharing fees with members/ non-members of ICSI ?, , A Company Secretary in Practice can partake of his profits with other members of the Institute and with, members of any other professional bodies specified in this regard or with such other persons having such, qualifications as may be prescribed. A Company Secretary in Practice as recipient can enter into profit sharing, arrangement with a member of the Institute and/or with a member of such other professional body or other, person having qualifications. (See clause 3 of Part I of the First Schedule to the Companies Secretaries Act,, 1982)., Can MEGA firm charge fees to the clients based on the result of the matter/ success of the litigation?, Fees shall be charged for the professional work done., , Can a Mega Firm have branches within / outside India? What regulations guide operations of such, Branch office?, As per Section 37(1) of the Company Secretaries Act, 1980 where a Company Secretary in Practice or a firm, of such Company Secretaries has more than one office in India, each one of such offices must be in the separate, charge of a member of the Institute., Applications for opening of Branch Office without a member in the separate charge at places where there are, few or no Company Secretaries in Practice are decided by the Council on the merits of each case subject to the, following general conditions:, The branch office shall be an independent office and not in the office of some other professional., , One of the partners of the firm shall attend the branch office atleast 100 days in a financial year. However, if a, candidate who has passed Intermediate examination of the Institute and also completed Management/, Apprenticeship Training or has passed the Final Examination of the Institute is posted at the said branch, office, one of the partners of the firm shall attend the branch office atleast 60 days in the financial year., , The approval shall be valid for a period of two years within which a member must be appointed in the, separate charge of the branch office., Section 37(2) requires every Company Secretary in Practice or firm of such Company Secretaries maintaining, more than one office to send to the Council a list of offices and the persons in charge thereof and also to, intimate any change therein. Regulation 163 of the Company Secretaries Regulations, 1982, requires the, changes to be intimated to the Council within one month of such change(s).
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964, , Lesson 23 • EP-CL, , , , LESSON ROUND-UP, •, , PCS is his own master, he generates employment, has flexibility of working hours, has reasonable assurance, of sustained earnings in long run, no fear of loosing employment at advanced age., , •, , Partners must enter into a partnership agreement defining inter alia the process of decision making,, allocation of duties, responsibilities, delegation of authorities, revenue sharing and exit route., , •, , The process of formation of MDF shall be an outcome of conscious and sincere decision and it is essential, that the like minded professional should deliberate and take this decision., , •, , The mega firm requires effective management skills including skills for handling finance, dealing with, human resources and day to day administration of the office., , •, , In a MDF Partners may adopt simple revenue sharing model to share profits and losses equally., , GLOSSARY, Quid Pro Quo, , A favour or advantage granted in return for something., , TEST YOURSELF, (These are meant for recapitulation only. Answers to these questions are not to be submitted for evaluation.), 1., 2., , Briefly discuss the benefits of constituting Multidisciplinary firms, Write short notes on, (a), , (b), (c), , Revenue sharing in MDF, Managing MDF, , Difference between Sole Proprietor form of practice and mega firm, , LIST OF FURTHER READINGS, •, •, •, , Bare Act - The Companies Act, 2013, The Company Secretary Act, 1980, , The Company Secretary Regulations, 1982, , OTHER REFERENCES (Including Websites and Video Links), •, , https://www.mca.gov.in/content/mca/global/en/acts-rules/ebooks/acts.html?act=NTk2MQ==
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965, , Test Paper, , EXECUTIVE PROGRAMME, COMPANY LAW, MODULE 1 PAPER 2, , EP-CL, , WARNING, It is brought to the notice of all students that use of any malpractice in Examination is misconduct as provided, in the explanation to Regulation 27 and accordingly the registration of such students is liable to be cancelled or, terminated. The text of regulation 27 is reproduced below for information:, “27. Suspension and cancellation of examination results or registration., , In the event of any misconduct by a registered student or a candidate enrolled for any examination conducted, by the Institute, the Council or any Committee formed by the Council in this regard, may suo motu or on receipt, of a complaint, if it is satisfied that, the misconduct is proved after such investigation as it may deem necessary, and after giving such student or candidate an opportunity of being heard, suspend or debar him from appearing, in any one or more examinations, cancel his examination result, or registration as student, or debar him from, re-registration as a student, or take such action as may be deemed fit.
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966, , , , EP-CL, , EXECUTIVE PROGRAMME, COMPANY LAW, , [This Test Paper is for recapitulate and practice for the students. Students need not to submit responses/ answers to, this test paper to the Institute.], , TEST PAPER, Time Allowed: 3 Hours , , Maximum Marks: 100, , Total number of questions: 6, (All references to the sections relate to Companies Act 2013, unless stated otherwise), PART I (50 marks), (Company Law, Principles & Concepts), , 1., , (i) Zesus Ltd. is a company incorporated under the Companies Act, 2013. The paid-up share capital of the, company is held as under :, , •, •, •, •, , Government of India= 30%, , Government of West Bengal= 10%, Government of Bihar= 5%, , Government of Jharkhand= 5%, , Explaining the provisions of the Companies Act, 2013, state whether the said company be called a, ‘Government company’ and also state whether the employees of a Government company can claim their, salaries from the Government of India.?, , , (ii), , (iii), , (4 marks), , A group of persons, called promoters have submitted an application to the Registrar of Companies, New, Delhi for getting a company incorporated as a Private Company. Pending the Registrar’s decision of, granting certificate of incorporation, the promoters took loan from the bank for the purchase of some, assets for the proposed company. Explain the legal position of promoters’ liability for re-payment of loan, and the liability of the proposed company after its incorporation, in this regard ?, , (4 marks), , Explain the term ‘preferential offer’. Whether a company issuing securities on preferential basis is also, required to comply with the conditions concerning private placement ?, , , (4 marks), , (iv) What are the different modes of implementation of CSR activities? Which entities are eligible to act as an, implementing agency for undertaking CSR activities?, , , (v), , Explain the provisions of Transmission of Securities in case of :, , (a) Joint Holdings, , (b) Shares to Widows, , (4 marks)
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967, , Test Paper, , 2., , , , (i), , Lion Industries Private Limited Company has its paid-up share capital of Rs. 1 crore and turnover of Rs., 10 crore as per the last audited Balance Sheet. Examining the provisions of the Companies Act, 2013,, decide whether the company will be treated as small company. What would be your answer in case the, company is governed by any Special Act ?, , (5 marks), , (ii), , Mr. ‘A’ a press reporter by profession, holding merely 1% shares of the company, wishes to inspect the, Register of members of the company. Company has declined such demand taking the base that he may, use the information for creating some news. Is the contention of the company valid?, , , (5 marks), , (iii) Phoneix Pvt. Ltd. wishes to appoint Manager Finance, as an internal auditor also. Referring to the relevant, provisions of the Companies Act, 2013 advise the company, whether it can do so or not?, 3., , (i), (ii), , (5 marks), , , , , , Is Company have the power to remove a Statutory Auditor after his appointment as per the Companies, Act, 2013. If so what is the procedure of his Removal?, , (5 marks), , Issuance of duplicate share certificate can be delegated to the committee. Comment., , , , (5 marks), , (iii) Fanthom Pvt. Ltd. is in the process of finalisation of its annual return. It is a small company having paidup capital of Rs.5 Lakh. The company seeks your advice on the following :, (1), , Who will sign the return on behalf of the company ?, , (3), , In which Form Annual Return is to be prepared for filing to the Registrar of Companies?, , (2), , What are the requirements of certification of annual return by a Practicing Company Secretary?, , , (5 marks), , Part – II (40 Marks), (Company Administration and Meetings- Law and Practices), 4., , , (i), , "Listed companies are required to comply with the SEBI (Listing Obligations and Disclosure, Requirements) Regulations, 2015 and should provide a separate section on 'corporate governance' in, the annual report of the company. " Discuss this statement and suggest list of items related to disclosure, pertaining to the Board of Directors to be included in such report ? , , (5 marks), , (ii), , (5 marks), , Briefly explain the Salient features of Australian Corporations Act? , , (iii) Discuss the role of Audit Committee in Related Party Transactions?, , (iv) Who can present petition to the Tribunal for the winding up of a company?, , (5 marks), , , (5 marks)
