Company Law Unit 3 Management

By Parimol / Company Law

Company Law Unit 3 Management, College and University Answer Bank for BA, B.com, B.sc, and Post Graduate Notes and Guide Available here, Company Law Unit 3 Management to each Unit are provided in the list of UG-CBCS Central University & State University Syllabus so that you can easily browse through different College and University Guide and Notes here. Company Law Unit 3 Management can be of great value to excel in the examination.

Company Law Unit 3 Management

Join Telegram channel

Company Law Unit 3 Management Notes cover all the exercise questions in UGC Syllabus. Company Law Unit 3 Management provided here ensures a smooth and easy understanding of all the concepts. Understand the concepts behind every Unit and score well in the board exams.

Management

COMPANY LAW

VERY SHORT QUESTION & ANSWERS

1. ___________ notice is required to remove a director.

Ans: Special.

2. Small shareholder means a shareholder having shares of face value not more than ____________.

(a) Rs. 20,000

(b) Rs. 45,000

(d) Rs. 60,000

WhatsApp Group Join Now

Telegram Group Join Now

Instagram Join Now

Ans. (a) Rs. 20,000

SHORT QUESTIONS AND ANSWERS

1. Name the class of companies to which the provision of women directors applies.

Ans: According to Section 149(1), the following class or classes of companies shall have at least one woman director:

(i) Every listed company.

(ii) Every public company having paid-up share capital of one hundred crore rupees or more. or

(iii) Every public company having turnover of three hundred crore rupees or more.

Provided that the paid-up share capital or turnover taken into account, as the case may be, shall be as on the last date of latest audited financial statements.

2. Define small shareholders directors.

Ans: As per Section 151(1) of the Companies Act, 2013, a small shareholder is a person who is holding shares of nominal value amounting to a maximum of 2,00,000. The director elected by such a shareholder is called a small shareholders director.

3. Define the term key managerial personnel.

Ans: As per Section 2(51), key managerial personnel means-

(i) The Chief Executive Officer or the managing director or the manager.

(ii) The company secretary.

(iii) The whole-time director.

(iv) Such other officers, not more than one level below the directors who are in whole-time employment, designated as key managerial personnel by the Board. and.

(v) Such other officers may be prescribed.

Provided that such other officers are not prescribed by MCA.

4. Define the term ‘Managing Director’.

Ans: As per Section 2(54) of Companies Act 2013, 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,”

5. Define the term Manager.

Ans: As per Section 2(53) of Companies Act 2013, mahager 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.”

LONG QUESTIONS AND ANSWERS

1. Write a detailed note on independent directors.

Ans: According to Section 2(47) of Companies Act, 2013 “Independent director”means an independent director referred to in sub-section (5) of Section 149. Section 149 (b) of Companies Act, 2013 contains that–An independent director in relation to a company, means a director other than a managing director or a whole-time director or a nominee director-

(a) Who, in the opinion of the board, is a person of integrity and possesses relevant expertise and experience.

(b) (i) Who is or was not a promoter of the company or its holding, subsidiary or associate company.

(ii) Who is not related to promoters or directors in the company, its holding, subsidiary or associate company.

(c) Who has or had no pecuniary relationship with the company, during the two immediate preceding financial years or during the current financial year.

(d) None of whose relatives has or had pecuniary relationship or transaction with the company, amounting to two per cent 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.

(e) Who, neither himself nor any of his relatives-

(i) Holds 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.

(ii) 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) A firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company. or

(B) 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 firms.

(iii) Holds together with his relatives two per cent or more of the total voting power of the company. or

(iv) Is a Chief Executive or director, by-whatever name called, of any non profit organisation that receives twenty-five per cent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent or more of the total voting power of the company. or

(f) Who possesses such other qualifications as prescribed below:

An independent director shall possess appropriate balance of 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.

2. Write a short note on Director Identification Number [DIN].

Ans: As per Rule 2(d) of Companies (Appointment and Qualification of Directors) Rules, 2014, Director Identification Number (DIN) means an identification number allotted by the Central Government to any individual, intending to be appointed as director or to any existing director of a company, for the purpose of his identification as a director of a company. Section 152 (3) of the Companies Act, 2013 states that every applicant, who intends to be appointed as director of an existing company shall make an application electronically in Form Dirt, to the Central Government for allotment of a Director Identification Number (DIN) along with such fees as provided.

The applicant shall download e-Form Dirt from the MCA portal. The required particulars sought therein shall be filled in and after attaching copies of the following. documents, scan and file the entire set of documents electronically-

(i) Photograph.

(ii) Proof of identity.

(iii) Proof of residence.

(iv) Board resolution proposing his appointment as director in an existing company.

(v) Specimen signature duly verified.

e-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.

3. State the provisions related to DIN as per Companies Act, 2013.

Ans: The provisions related to DIN as per Companies Act, 2013 are:

(i) A person can only be appointed as a director if he has a DIN. [Section 152 (3)].

(ii) A person intending to become a director shall file such form, and fees, in the manner as prescribed. [Section 153].

(iii) The central government shall allot DIN within one month of the receipt of application. [Section 154].

(iv) A person can possess only one DIN. [Section 155].

(v) A director shall intimate the DIN to the company within 30 days of the receipt of the same. [Section 156].

(vi) Every company shall furnish the DIN of all its directors to the Registrar within 15 days in such form and manner prescribed.

4. Define ‘director’. Discuss the provisions relating to appointment of directors of a company.

Ans: According to Section 2(34) of the Companies Act, 2013, “Director means a director appointed to the Board of a company” Under the 2013 Act, the definition of the term is exhaustive. However, this definition does not throw light on the functions and duties performed by a director. So, a director may be defined as an individual who directs, controls, manages or superintends the affairs of a company for the benefit of managers and all other shareholders.

Section 2(10) of 2013 Act defines “Board of Directors” or “Board” in relation to a company as “the collective body of the directors of the company.”

The provisions of the Companies Act, relating to minimum number of directors are:

(I) Number of directors [Section 149]:

(A) The minimum number of directors prescribed as per law are:

(a) Every public company shall have at least three directors [Section 149(1)(a)].

(b) Every private company shall have at least two directors [Section 149(1)(a)].

(B)The maximum number of directors a company may appoint is fifteen [Section 149(1)(b)].

(D) Such class or classes of companies as may be prescribed shall have at least one woman director.

(II) Only individuals to be directors [Section 149]: No body corporate, association or firm shall be appointed director of a company, and only an individual shall be so appointed:

Provided that, no company shall appoint any individual as director of the company unless he has been allotted a Director Identification Number (DIN) under Section 154.

(III) Subscribers of memorandum deemed to be directors [Section 152]: In default of and subject to any regulations in the articles of a company, subscribers of the memorandum who are individuals and in case of a one person company an individual being member shall be deemed to be the directors of the company until the directors are duly appointed in according to this Section.

Appointment of a director:

A director is appointed for the smooth running of the administration of the company. The various provisions affecting the appointment of a director are:

(I) By the articles in case of first directors [Section 152]: Subject to any regulations in the articles of a company, subscribers of the memorandum who are individuals shall be deemed to be the directors of the company, until the directors are duly appointed in accordance with this Section.

(II) By the company in general meeting [Section 156(6)(a)]: Unless the articles provide for the retirement of all directors at every annual general meeting at least two third of the directors shall:

(i) Be persons whose tenure is determined by retirement of directors by rotation.

(ii) Be appointed by the company in a general meeting.

(III) Ascertainment of directors retiring by rotation and filing of vacancies [Section 152(6)]: (Applicable to public companies):

(i) One-third of the directors are liable to retire by rotation at every annual general meeting [Section 152(6)(c)].

(ii) The directors who have been holding office for the longest period are liable to retire [Section 152(6)(d)].

(iii) The vacancy may be filled by appointing the retiring person or some other person [Section 152(6)(e)].

(IV) By the directors: The Act empowers the directors to appoint:

(i) Additional directors [Section 161(1)]: The Act empowers the Board of Directors to appoint additional directors who shall hold office upto the date of the next annual general meeting of the company or the last date on which the annual general meeting should have been held, whichever is earlier.

(ii) Alternate directors [Section 161(2)]: The Board may appoint an alternate director to hold office if:

(a) It is authorised by the articles.

(b) A resolution is passed by the company in the general meeting.

(iii) Directors filling casual vacancy [Section 161(4)]: Casual vacancy refers to the vacancy raised as a consequence of death, resignation, disqualification or failure of an elected director to hold office.

The Board of Directors shall appoint a director at a Board meeting to fill a casual vacancy.

(V) By third parties [Section 152]: One-third of the directors, in case of a public company and a private company which is a subsidiary of a public company, shall be appointed by parties other than shareholders.

(VI) By proportional directors [Section 163]: The articles may provide that the appointment of two-third of the directors, in case of a public company or a private company which is a subsidiary of a public company, shall be according to the principles of proportional representation.

(VII) By the central government [Section 408]: The central government has been empowered to appoint directors to prevent mismanagement or oppression:

(i) On an order by the Tribunal: The central government may appoint directors on an order passed by the Tribunal to safeguard the interest of the company or its shareholder or the public interest.

(ii) Conditions of order [Section 408(1)]: The Tribunal may order to the central government in any of the following cases:

(a) On a reference made to it by the central government.

(b) On an application of at least one hundred members of the company. or

(iii) Order after inquiry and satisfaction [Section 408(1): The Tribunal makes such an order if it is satisfied after making necessary inquiry, that it is necessary to appoint directors for any of the following purposes:

(a) To prevent oppressive affairs of the company. or

(b) To prevent the conduct of affairs of the company which is prejudicial to the interests of the company or public order.

(iv) Number of directors [Section 408(1)]: The central government may appoint such a number of directors as the Tribunal may specify in its order.

(v) Tenure [Section 408(1)]: The central government may appoint the directors for such a period as it may think fit, but not exceeding three years on any one occasion.

(vi) No qualification shares: Any director appointed by the central government shall under no circumstances, be required to hold any qualification shares.

(vii) Change in the Board [Section 408(5)]: If any change is made after a person is appointed on the Board, such change shall have effect unless confirmed by the Tribunal.

(viii) Report [Section 408(7)]: The central government may require such directors to report it from time to time.

5. State the qualification required to be appointed as a director.

Ans: No provision has been laid down in the Companies Act, 2013 regarding academic qualification of the director of a company. So far as the act is concerned, a director may neither hold shares of the company nor be a member.

However, the articles of association incorporates a provision that the qualification of director shall be the holding of a specified number of shares known as qualification shares.

The provisions regarding qualification shares are:

(i) Time limit within which share qualification is to be obtainer and maximum amount thereof: The Act lays the following provisions regarding the time limit of qualification shares:

(a) Time of obtaining qualification shares: Without prejudice to the restrictions imposed, it shall be the duty of every director who is required by the articles of the company to hold a specified share qualification and who is not already qualified in that respect, to obtain his qualification within two months after his appointment as director.

(b) Provisions to be void: Any provision in the articles of the company shall be void as far as it requires a person to hold the qualification shares before his appointment as a director or to obtain them within a shorter time than two months after appointment as such.

(c) Nominal value of shares: The nominal value of the qualification shares shall not exceed five thousand rupees.

(d) Bearer of share warrant not to be holder: For the purpose of any provision in the articles requiring a director to hold a specified share qualification, the bearer of a share warrant shall not be deemed to be the holder of the shares specified in the warrant.

(ii) Filing of declaration of share qualification by director: The director shall file a declaration regarding holding of share qualification of the company.

(iii) Penalty: If, after the expiry of the said period of two months, any person acts as a director of the company when he does not hold the qualification shares, he shall be punishable with fine which may extend to five hundred rupees for everyday between such expiry and the last day on which he acted as a director.

6. When is a person disqualified from being appointed as a director?

Ans: According to Section 164(1), a person shall not be capable of being appointed director of a company, if:

(a) He has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force.

(b) He is an undischarged insolvent.

(d) He has been convicted by a court of any offence involving moral turpitude 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.

(e) An order disqualifying him for appointment as director has been passed by a court or Tribunal and the order is in force.

(f) He has not paid any call in respect of 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.

(g) He has been convicted of the offence dealing with related party transaction u/s 188 at any time during the last preceding five years. or

(h) He has not complied with subsection (3) of Section 152.

(I) Such person is already a director of a company which [Section 164(2)]:

(i) Has not filed the annual accounts and annual returns for any continuous three financial years. or.

(ii) Has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

7. Describe the position of directors in a company.

Ans: The Companies Act, 1956 and 2013 is silent on the matters regarding the position of directors. However, the legal position of director may be discussed under the following heads:

(i) Directors as agents: In the eyes of law, directors enjoy the position of an agent in the company. Hence, the directors can enter into a contract on behalf of the company incurring no personal liability. However, directors are obliged to incur personal liability in the following cases:

(a) When a director enters into a contract in his own name. and

(b) When there is an error in using the company’s name by the director.

(ii) Directors as trustees: Directors enjoy the position of a trustee in the following cases:

(a) They are supposed to refund or restore the company’s money and property, if improperly used. and

(b) They are liable as trustees for misuse of the power conferred upon them by the Companies Act.

(iii) Directors as officers: The directors are liable to certain penalties failing to comply with the provisions of the Act. Moreover, a director shall be treated as an officer of the company even if he is not in the employment of the company.

(iv) Directors as employees: A director cannot claim for remuneration as a preferential creditor in the event of its winding-up. However, if a director serves the company as a secretary, manager, accountant or otherwise besides being a director, he shall be entitled to the remuneration admissible to him.

(v) Directors as managing partners: Since the directors manage the affairs of the company, they are also described as managing directors. However, they do not have the authority to bind the decisions and views of other directors and shareholders.

8. Discuss the powers of the board of directors.

Ans: Section 179 (3) states the powers of the Board of Directors. Following are the powers of the board of directors as prescribed:

(i) To make calls on shareholders in respect of money unpaid on their shares.

(ii) To authorise buy back of securities under Section 68.

(iii) To issue securities, including debentures, whether in or outside India.

(iv) To invest the funds of the company.

(v) To borrow monies.

(vi) To grant loans or give guarantee or provide security in respect of loans.

(vii) To approve financial statement and the Board’s report.

(viii) To diversify the business of the company.

(ix) To approve amalgamation, merger or reconstruction.

(x) To take over a company or acquire a controlling or substantial stake in another company.

(xi) Any other matter which may be prescribed.

9.Explain the provisions related to vacation of the office of directors.

Ans: The provisions related to vacation of office of directors are:

(I) Reasons for vacancy [Section 167(1)]: 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) 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.

(d) 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.

(e) He becomes disqualified by an order of a court or the Tribunal.

(f) He is 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.

Provided that, the office shall be vacated by the director even if he has filed an appeal against the order of such court.

(g) He is removed in pursuance of the provisions of this Act. or

(h) He, having been appointed a director by virtue of his holding any office or other employment in the holding, subsidiary or associate company, cease to hold such office or other employment in that company.

(II) Filling of vacancy [Section 167(3)]: Where all the directors of a company vacate their offices under any of the disqualifications specified in sub-section (1), the promoter or in his absence, the central government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in the general meeting.

(III) Penalty [Section 167(2)]: If a person functions as a director when he knows that the office of director held by him has become vacant on account of any of the disqualifications, specified in the several clauses of Section 167(1), he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than 1,00,000 but which may extend to 5,00,000 or with both.

(IV) Vacation by a private company [Section 167(4)]: A private company which is not a subsidiary of a public company may, by its articles, provide that the office of director shall be vacated on any grounds in addition to those specified in [Section 167(1)].

10. Discuss the provisions related to retirement of the director.

Ans: The provisions related to retirement of the director are:

(i) Number of directors to be retired compulsorily by rotation [Section 152(6)(a)]: Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company, or of a private company which is a subsidiary of a public company shall be persons whose period of office is liable to determination by retirement of directors by rotation.

(ii) Retirement at every general meeting [Section 152(6)(c)]: At the first annual general meeting of a public company, or a private company which is a subsidiary of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with Section 152 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 not three or a multiple of three, then the number nearest to one-third shall retire from office.

(iii) Retirement of directors with longest office period [Section 152(6)(d)]: 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 a lot.

(iv) Filling of vacancy after retirement [Section 152(6)(e)]: At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.

(v) Adjournment of meeting [Section 152(7)(a)]: If the place of the retiring director is not so 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 public holiday, till the next succeeding day which is not a public holiday, at the same time and place.

(vi) Reappointment of retiring director [Section 152(7)(b)]: If at the adjourned meeting also, the place of the retiring director is not filled up and that meeting has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been reappointed at the adjourned meeting, unless:

(a) At that meeting or at the previous meeting a resolution for the reappointment of such director has been put to the meeting and lost.

(b) The retiring director has, by a notice in writing addressed to the company or its Board of Directors, expressed his unwillingness to be so reappointed.

(d) A resolution, whether special or ordinary, is required for his appointment or reappointment by virtue of any provisions of this Act. or.

(e) The provision to Section 162 is applicable to the case.

11. Discuss the provisions regarding resignation and removal of a director.

Ans: The provisions related to resignation and removal of a director are:

(A) Resignation of directors:

No provision has been laid under the Companies Act regarding the resignation of directors. However, following points should be considered in case of resignation by a director of a company:

(i) As per articles of the company: A director can resign from his office in the manner prescribed in the articles of the company. In such case, resignation will take effect without any acceptance by the board or company in general meeting.

(ii) Resignation before expiry of period: The resignation of director appointed for a fixed term, before the expiry of the period may make him liable for damages to the company. However, if there is no such provision in the articles, he can resign on reasonable notice.

(iii) Resignation on acceptance: To effect the resignation of a director, acceptance is necessary to end the tenure of office.

(iv) Form of resignation: To make resignation effective, the intention to resign must be clearly expressed whether oral or written. As per the articles, the resignation should be in writing, however it should be orally expressed in a general meeting.

(v) Withdrawal of resignation: A resignation once made cannot be withdrawn without the consent of the company or the board.

(vi) Liabilities and obligations: Resignation takes effect from the date when it is tendered. But this does not affect liabilities and obligations already incurred.

(vii) Resignation by managing or whole-time director: The resignation a managing or whole-time director is governed by the terms and conditions of their appointment. A formal acceptance is essential so as to make the resignation effective.

(B) Removal of directors [Section 169]:

(i) Before the expiry of his term [Section 169(1)]: A company may, by ordinary resolution, remove a director before the expiry of his period of office after giving him a reasonable opportunity of being heard.

(ii) Passing a special notice [Section 169(2)]: Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

(iii) Forwarding a copy of notice [Section 169(3)]: On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director whether or not he is a member of the company shall be entitled to be heard on the resolution at the meeting.

(iv) Representation in writing [Section 169(4)]: Where notice is given of a resolution to remove a director under this section and the director concerned makes with respect thereto representations in writing to the company and requests their notification to members of the company, the company shall, if the time permits it to do so-

(a) In any notice of the resolution given to members of the company state the fact of the representations having been made [Section 169(4)(a)]. and.

(b) Send a copy of the representations to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representations by the company), and if a copy of the representations is not sent as aforesaid due to insufficient time or for the company’s default, the director may without prejudice to his right to be heard orally require that the representations shall be read out at the meeting [Section 169(4)(b)].

(v) Filling of vacancy by removal of directors [Section 169(5)]: A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the board be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under Section 169(2). A director so appointed shall hold office until the date upto which his predecessor would have held office if he had not been removed as aforesaid.

(vi) Casual vacancy [Section 169(7)]: If the vacancy is not filled under Section 169(5), it may be filled as a casual vacancy in accordance with the provisions of this act.

Provided that, the director who was removed from office shall not be re-appointed as a director by the Board of Directors.

(vii) Compensation on damages [Section 169(8)]: Nothing in this section shall be taken:

(a) As depriving a person removed thereunder of any 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.

(b) As derogating from any power to remove a director under other provisions of this act.

12. Write briefly on the duty of directors.

Ans: The provisions related to duties of a director are:

(I) General duties:

(i) Fiduciary duties: The directors of a company stand in a fiduciary position and must exercise their duties bonafide and in good faith for the interests of the company as a whole. It is their duty not to engage in any fraudulent act and make any secret profits.

(ii) Care and skill: A director must perform his duties with utmost care and skill, which a man of ordinary prudence will do if he is the owner of the company.

(iii) Attend board meetings: A director is required to attend board meetings, whenever it is feasible on his part. He is, however, not required to attend all board meetings. According to Section 167(1), “the office of a director shall became vacant if he absents himself from all the meetings of the Board of Directors held during a period of twelve months with or without obtaining leave of absence from the Board.”

(iv) Cannot delegate his duties to others: As a rule, a director is required to perform his duties personally and he cannot delegate his duties to others except when provided by the provisions of the Companies Act and the articles of the company. The directors, may, however, distribute their work among themselves and other officials of the company.

(II) Statutory duties:

(i) Act in accordance with articles: Subject to the provisions of this Act, a director of a company shall act in accordance with the articles of the company. [Section 166(1)].

(ii) 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. [Section 166(2)].

(iii) Act with good care: A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. [Section 166(3)].

(iv) Act in interest of the company: 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. [Section 166(4)].

(v) Shall not 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. [Section 166(5)].

(vi) No assignment of office: A director of a company shall not assign his office and any assignment so made shall be void. [Section 166(6)].

(vii) Penalty: 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. [Section 166(7)].

The liabilities of director can be classified under the following heads:

(I) Civil liability:

(i) Liability towards the company: The directors may be personally liable to make good the loss:

(a) For ultra vires acts: Where they enter into contracts ultra vires the memorandum or ultra vires their powers.

(b) For breach of trust: Where they make secret profits or use company’s funds for their personal use.

(c) For acting dishonestly: Purchasing property on their own. First and then selling it to the company at a higher price with an intention to make profits is an example of such an act.

(d) For gross negligence: When directors fail to use reasonable skill and diligence in the management of the company’s affairs, they can be held liable for negligence.

(e) For wilful misconduct: Any wilful misconduct by the director will render him liable to the company for any loss suffered by the company.

(f) For habit of absenteeism: Where he habitually remains absent from the board meetings.

(ii) Liability to third parties: The directors may also incur personal liability to third parties:

(a) For misstatement or concealment of facts in the prospectus.

(b) For acting in their own name.

(d) Where their liability has been made unlimited by a provision in the memorandum.

(e) For the debts and liabilities of the company at the time of winding-up if the court holds them so liable because of fraudulent trading by them. and

(f) For acting fraudulently, they may be asked to pay damages.

(II) Criminal liability: The directors also incur criminal liability for fraud and non-compliance of the various provisions of the Companies Act, 1956 and 2013 Act.

VERY SHORT QUESTIONS AND ANSWERS

1. For short notice in AGM, consent of ____________ is required.

(a) 90% of members entitled to vote

(b) 95% of members are entitled to vote.

(d) 80% of members entitled to vote.

Ans: (b) 95% of members entitled to vote.

2. For short notice in EGM, consent of ____________ is required.

(a) 90% of members entitled to vote representing the majority in number.

(b) 95% of members entitled to vote representing the majority in number.

(d)80% of members entitled to vote representing the majority in number.

Ans: (b) 95% of members entitled to vote representing majority in number.

3. A company requiring to transact a matter through postal ballot may do it by.

Ans: E-voting.

SHORT QUESTIONS AND ANSWERS

1. State the various types of meetings of members.

Ans: Members meeting may be of three types:

(i) Annual General Meeting (AGM).

(ii) Extraordinary General Meeting (EGM).

(iii) Class Meetings.

2. Who may call an EGM?

Ans: An EGM may be convened by:

(i) Board of Directors on its own.

(ii) Board of Directors on requisition of members.

(iii) Requisitionists.

(iv) NCLT.

LONG QUESTIONS AND ANSWERS

1. Define a meeting. Discuss the various kinds of meetings.

Ans: Meeting is said to be conducted when two or more persons come together to discuss matters of common interest. According to the dictionary meaning, “A meeting is a gathering or assembly of a number of persons for purposes of intercourse, entertainment, discussion or the like.” Generally, the purpose of a meeting is to consider issues of common interests to its attendants.

The different kinds of meetings are:

(A) Meetings of shareholders:

(i) Statutory meeting [Section 165(1)]: Section 165(1) of the Companies Act, 1956 lays down, “Every company limited by shares, and every company limited by guarantee and having a share capital, shall, within a period of not less than one month nor more than six months from the date at which the company is entitled to commence business, hold a general meeting of the members of the company, which shall be called the statutory meeting.’

(ii) Annual general meeting (AGM): Every company, public as well as private, limited by shares or guarantee, with or without share capital or unlimited company, shall in each year held in addition to any other meeting, a general meeting of its members called an ‘Annual General Meeting’.

(iii) Extraordinary general meeting (EGM): All the general meetings of a company, with the exception of statutory meetings and annual general meetings, are called extraordinary general meetings. Section 100 of the Companies Act, 2013 lays down the provision for calling of extraordinary general meeting on requisition.

(iv) Class meeting: Those meetings which are held by holders of a particular class of shares are called class meetings. Need for such meetings arises when it is proposed to vary the rights of a particular class of shares.

(B) Meetings of directors:

(i) Board meeting: As the affairs of a company are managed by the Board of Directors, therefore it is necessary that the directors should often meet to discuss various matters regarding management and administration of affairs of the company in the best interest of shareholders and public interest.

Section 173 of the Companies Act, 2013 prescribes:

(a) Declaration of notice: Notice of every meeting of the Board of Directors of a company not less than seven days before the meeting shall be given in writing to every director for the time being in India, and at his usual address in India to every other director [Section 173(3)].

(b) Violation to give notice: Every officer of the company whose duty is to give notice as aforesaid and who fails to do so shall be liable to a penalty of 25,000 [Section 173(4)].

(ii) Committee meeting: As per Section 179(3), the Board may, by a resolution passed at a meeting delegate following powers to a committee of directors, managing director, manager or any other principal officer of the company:

(a) To make calls on shareholders in respect of money unpaid on their shares.

(b) To authorise buy back of securities u/s 68.

(d) To borrow monies.

(e) To invest funds of the company.

(f) To grant loans or give guarantee or provide security in respect of loans.

(g) To approve financial statements and the board’s report.

(h) To diversify business of the company.

(i) To approve amalgamation, merger or reconstruction.

(j) to take over a company or acquire a controlling or substantial stake in another company. and

(k) Any other matter which may be prescribed.

In case of a branch office of the company, the principal officer may be delegated by the Board the powers specified in clauses (d) to (f).

[C] Other meetings:

(i) Debenture holders meeting: A company while issuing debentures, provides in the trust deed executed, for securing issue for holding of meetings of debenture holders and also gives power to them to vary terms of security or to alter their rights in certain circumstances.

(ii) Meeting of creditors and contributories for winding-up: A meeting of creditors and contributories is held when a company goes into liquidation. It is held to ascertain the total amount due by the company to its creditors and also to appoint a liquidator to wind up the affairs of the company.

(iii) Meeting of creditors otherwise than in winding-up: Section 230 of the 2013 Act authorises the company to enter into arrangements with creditors with sanction of the Tribunal. The Tribunal, on application, may order the holding of creditors’ meetings.

2. Discuss the provisions related to Board meetings.

Ans: The Companies Act, 2013 contains following provisions related to Board meetings:

(i) Frequency/Number of meetings [Section 173 (1)]: In case of every company, the first meeting of its Board of Directors shall be held within thirty days of date of its incorporation and thereafter at least four such meetings shall be held in every year.

Provided that not more than one hundred and twenty days shall intervene between two consecutive meetings of the Board. However, the central government is empowered to relax the rule with regard to any class of companies.

(ii) Notice [Section 173 (3)]: Notice of every meeting of the Board of Directors of a company shall be given in writing to every director for the time being in India, and at his usual address in India to every other director.

Every officer of the company whose duty is to give notice as aforesaid and who fails to do so shall be punishable with fine of 25,000. [Section 173 (4)]

(iii) Quorum [Section 174]: The quorum for a meeting of Board of Directors shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purpose of quorum under this subsection.

(iv) In case of one person company, small company and dormant company [Section 173 (5)]: All these companies shall be deemed to have compiled 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.

Provided that nothing shall apply to one person company in which there is only one director on its Board of Directors.

(v) Place and time of meeting: Unlike annual general meeting, board meetings may be held at any time and place which is convenient to members of Board. The meetings of the Board of Directors may, therefore, be held at any place convenient to directors outside business hours and even on a public holiday unless articles provide otherwise.

(vi) Adjournment of meeting [Section 174(4)]:

(a) If a meeting of Board could not be held for want of unless articles otherwise provide, meeting shall automatically stand quorum, then, adjourned till same day in next week, at same time and place, or if That day is a national holiday, till the next succeeding day which is not a national holiday, at the same time and place.

(b) The provisions of Section 173 shall not be deemed to have been contravened merely by reason of the fact that a meeting of the Board which had been called in compliance with the terms of that section could not be held for want of a quorum.

(vii) Proxy: A director cannot appoint a proxy to attend a meeting in his place. However, the Board has the power to appoint alternate director in place of a director who is absent or has gone out of India for more than three months.

(viii) Chairman of the meeting: The term ‘Chairman’ is not defined in the Act. Though Regulation 76(1) of Table A to Schedule 1 to the Companies Act, 1956 provides that the Board may elect a chairman of its meetings and determine the period for which he is to hold office.

(ix) Passing of resolution by circulation [Section 175]: The directors exercise their powers by resolution at board meetings or by circulation. A resolution must be circulated in draft together with necessary papers to all directors entitled to receive notice of meeting and must be approved by a majority of them.

Provided that, where not less than one-third of the total number of directors the company for the time being requires 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.

(x) Validity of the acts of directors [Section 176]: Acts done by a person as a director shall be valid, notwithstanding that it may afterwards be discovered that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision contained in this Act or in the articles.

3. What are the various kinds of resolutions?

Ans: The different kinds of resolutions are:

(I) Ordinary resolution [Section 114(1)]: A resolution shall be an ordinary resolution when at a general meeting of which the notice required under this Act has been duly given, the votes cast (whether on a show of hands, or electronically or on a poll, as the case may be), in favour of resolution including casting vote, if any, of the chairman, by members who, being entitled to do, vote in person, or where proxies are allowed, by proxy or by postal ballot exceed votes, if any, cast against resolution by members so entitled to voting.

An ordinary resolution is required for following matter:

(a) Issue of shares at a discount [Section 53].

(b)Alteration of share capital [Section 61].

(d) Adoption of statutory report.

(e) Passing of annual accounts and balance sheet, along with reports of Board of Directors and auditors [Section 129].

(f) Appointment of auditors and fixation of their remuneration [Section139 and 142].

(g) Appointment of first directors who are liable to retire by rotation [Section 152].

(h) Increase or decrease in number of directors within the limit fixed by articles.

(II) Special resolution [Section 114(2)]: A resolution shall be a special resolution when:

(a) The intention to propose resolution as a special resolution has been duly specified in the notice calling general meeting or other intimation given to members of the resolution.

(b) Notice required under this Act has been duly given of general meeting. and

(c) 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 where proxies are allowed, by proxy, are not less than three times the number of votes, if any, cast against the resolutions by members so entitled and voting.

An explanatory statement concerning subject matter shall be annexed to notice of the meeting. The resolution should be filed with the Registrar for registration.

A special resolution is required for following matters:

(a) To alter provisions of the memorandum for changing place of registered office from one state to another or objects of the company. [Section 13]

(b) To change the name of the company. [Section 13]

(d) To offer further issue of subscribed capital when shares are offered to outsiders. [Section 62]

(e) To create reserve capital.

(f) To reduce share capital of the company. [Section 66]

(g) To authorise payment of interest out of capital.

(III) Resolutions requiring special notice: Where, by any provision contained in this Act, or in the articles, special notice is required of any resolution, notice of intention to move the resolution shall be given to the company by such number of members holding not less than one per cent of total voting power or holding shares on which such aggregate sum not exceeding 5,00,000 as may be prescribed, has been paid up and the company shall give its members notice of the resolution in such manner as may be prescribed.

Special notice is required in following cases:

(a) For appointment of an auditor other than retiring auditor. [Section140]

(b) For express resolution that retiring auditor shall not be re-appointed. [Section 140]

(d) For removing a director before expiry of his term. [Section 169]

(IV) Resolutions passed by postal ballot (IV): According to Section 2(65) of Companies Act, 2013 “postal ballot” means voting by post or through any electronic mode.

(A) Notwithstanding anything contained in this Act, a company:

(a) Shall, in respect of such items of business as the Central Government may, by notification, declare to be transacted only by means of postal ballot. and

(b) May, in respect of any item of business, other than ordinary business and any business in respect of which director or auditors have a right to be heard at any meeting, transact by means of postal ballot,bin such manner as may be prescribed, instead of transacting such business at a general meeting.

(B) A resolution shall be deemed to have been passed at a general meeting, if it is assented to by a requisite majority of shareholders by means of postal ballot [Section 110 (2)].

(V) Circular resolution: The right to pass a circular resolution has been given only to directors and their committees. No such resolution will be deemed to have duly passed unless:

(i) It has been circulated in draft form together with necessary papers, if any, to all directors or to all members of the committee of directors, then in India, and to all other directors, or members, at their usual address in India. and

(ii) It has been approved by such directors as are then in India or by a majority of them, as are entitled to vote on the resolution.

The number of directors or members in India to whom resolution is circulated should not be less than quorum fixed for a meeting of Board or committee, as the case may be. Where a resolution is passed by circulation, it should be formally noted at the next board meeting and recorded in a minutes book.

4. What are the requisites of a valid meeting?

Ans: Before a meeting can validly transact any business, following requirements must be satisfied:

(i) Proper authority: A meeting to be valid must be called by a proper authority. The Board of Directors. must pass a resolution at a duly convened Board meeting to call a general meeting.

(ii) Notice: For Board meetings, there is no prescribed period, but for general meetings, a minimum of twenty-one days notice is necessary.

(iii) Quorum [Section 103]: Quorum refers to a minimum number of members who should be present to hold a meeting. The proceeding of a meeting, wherein quorum is not present shall be invalid. Unless articles of the company provide for a larger number:

(A) In case of a public company:

(a) 5 members personally present, if the number of members as on date of meeting is not more than 1000.

(b) 15 members personally present, if the number of members as on date of meeting is more than 1000 but not more than 5000.

(B) In case of a private company: Two members personally present, will be the quorum for a meeting of the company.

Provided that if the quorum is not present within half an hour of the appointed time of the meeting, the meeting shall stand adjourned to the.

(a) Same day in the next week at the same time and place. or

(b) Such other date or time or place as the Board may decide.

(iv) Chairman of meeting [Section 104]: The articles of association regulates appointment of the chairman. If a poll is demanded on election of the chairman, it shall be taken out immediately.

(v) Minutes of meeting [Section 118]: Every company is required to keep minutes of the proceeding of every:

(a) General meeting of any class of shareholders or creditors.

(b) Meeting of the Board of Directors.

(d) Resolution passed by postal ballot.

The minutes shall be prepared and signed, as prescribed, v.within thirty days of the conclusion of such meeting or resolution passed.

(vi) Agenda of meeting: The ‘agenda’ is the subject matter of the meeting. It is prepared by the secretary in consultation with the chairman.

(vii) Proper time and place of meeting: Section 96 of the Act provides that every annual general meeting should be called during business hours.

(viii) Business to be validly transacted [Section 102]: A notice shall contain a statement of business to be transacted at the meeting. A meeting held in accordance to such a notice is not said to be duly convened and resolution passed thereto are void and ultra vires.

5. Why is a company required to hold a statutory meeting? State the provisions of Companies Act, 1956 regarding statutory meeting.

Ans: A statutory meeting is the first meeting of shareholders of a public company.

The provisions of the Companies Act, 1956 in relation to a statutory meeting are:

(I) When to be held [Section 165(1)]: Every company limited by shares and every company limited by guarantee and having a share capital, shall within a period of not less than one month nor more than six months from the date at which the company is entitled to commence business, hold a general meeting of members of the company, which shall be called statutory meeting.

(II) Objectives:

(a) To let shareholders know about the success of formation of company including its financial position and prospectus.

(b) To approve any kind of modifications needed in the contracts specified in the prospectus. and

(c) To provide shareholders various informations regarding:

(i) Allotment of shares.

(ii) Preliminary expenses incurred or to be incurred.

(iii) Status of implementation of understanding agreements.

(iv) contracts entered into by the company, etc.

(III) Statutory report [Section 165(2)]: The Board of Directors shall, at least twenty-one days before the day on which the meeting is held, forward a report to every member of the company.

(IV) Procedure at the meeting: Following procedure is followed at statutory meeting:

(a) Board shall cause a list showing names, addresses and occupation of members of the company, and number of shares held by them respectively, to be produced at the commencement of statutory meeting, and to remain open and accessible to any member of the company during continuance of the meeting [Section 165(6)].

(b) The members of the company present at the meeting shall be at liberty to discuss any matter related to formation of the company or arising out of statutory report, whether previous notice has been given or not [Section 165(7)].

(c) The meeting may adjourn from time to time, and at any adjourned meeting any resolution of which notice has been given in the meantime, may be passed. An adjourned meeting shall have the same powers as the original meeting [Section 165(8)].

(V) Penalty for default [Section 165(9)]: If default is made in complying with provisions of Section 165, every defaulter shall be punishable with fine which may extend to ₹ 5000.

(VI) Applications of other provisions: The provisions of the Companies Act, 1956 and articles related to conduct of general meetings like quorum, proxy, chairman, ascertainment of decisions, etc. shall apply to statutory meetings.

(VII) Minutes: The minutes of statutory meeting should be prepared and written in a minute book. The minutes should be signed by the chairman within thirty days of the meeting.

6. State the provisions of the Companies Act, 2013 with respect to Annual General Meeting.

Ans: Following are the provisions of the Companies Act, 2013 related to annual general meeting:

(i) Time when annual general meeting is held [Section 96(1)]: Every company other than a one person company shall, in each year, hold in addition to any other meetings a general meeting is its annual general meeting and shall specify the meeting as such in the notices calling it; and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next.

(ii) Object: Shareholders can exercise control over affairs of the company at annual general meetings only. Auditors are appointed at the annual general meeting. Annual accounts are presented for consideration of shareholders. Dividends are also declared at this meeting.

(iii) Power to convene: The proper authority to convene an annual general the meeting is vested with the Board of Directors.

(iv) Notice [Section 101]: A company must give at least twenty one clear days notice for convening any general meeting including annual general meeting.

(v) Date, time and place [Section 96(2)]: Every annual general meeting shall be called during business hours, i.e. between 9 a.m. and 6 p.m. on a day that is not a public holiday, and shall be held either at 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.

Provided that the central government may exempt restrictions imposed on this sub-section, as it may deem fit.

(vi) Quorum of the meeting [Section 103]:

(A) In case of public companies:

(a) 5 members personally present, if the number of members as on date of meeting is not more than 1000.

(b) 15 members personally present, if the number of members as on date of meeting is more than 1000 but not more than 5000.

(B) In case of private companies: Two members personally present.

(vii) Power of Tribunal to call AGM [Section 97]: If default is made in holding an annual general meeting in accordance with Section 96, Tribunal may call, or direct calling of a general meeting of the company and give such ancillary or consequential directions as the Tribunal thinks expedient in relation to calling, holding and conducting of meetings.

(viii) Penalty [Section 99]: The failure to call the meeting as required by Section 96 of the Act, either generally or in pursuance of the order under Section 97 is an offence and the company, and every officer of the company who is in default, shall be punishable with fine which may extend to 1,00,000 and for continuing default a further fine of 5,000 for everyday after the first day during which such default continues.

The business of an annual general meeting consists of:

(i) Ordinary business: The ordinary business consists of:

(a) Consideration of accounts, balance sheet and report of Board of Directors and auditors.

(b) Declaration of dividend.

(d) Appointment of, and fixing of remuneration of auditors.

Ordinary business is transacted by passing ordinary resolutions.

(ii) Special business: All matters other than ordinary business are treated as special business at an annual general meeting. For transacting special business at a meeting, there shall be annexed to the notice of meeting an explanatory statement setting out:

(a) All material facts concerning each item of such business.

(b) And in particular, the nature of the concern or interest, if any, of every director or manager in each item. and

(c) Statement must also state time and place where document, if any, proposed for approval at the meeting can be inspected by members.

The items constituting special business are transacted either by an ordinary resolution or by a special resolution depending on the requirements of the Companies Act, 2013, or articles of the company in respect of each particular item.

7. What is an extraordinary general meeting? When and by whom can an extraordinary general meeting be called and convened?

Ans: All general meetings other than statutory meeting and annual general meetings of a company are called extraordinary general meetings. According to Regulation 47 of Table A, “all general meetings other than annual general meetings shall be called extraordinary general meetings.”

Generally, this meeting is held for the purpose of dealing with any extraordinary matter which cannot be postponed till next annual general meeting, such as:

(a) Change in memorandum of association.

(b) Change in articles of association.

(d) Issue of debenture.

(e) Removal of director. and

(f) Removal of auditor.

The business transacted at an extraordinary general meeting, being special business, every notice of such meeting must be accompanied by an Explanatory Statement.

An extraordinary general meeting may be convened either by:

(A) Board of Directors:

(a) On its own. or

(b) On requisition of shareholders. or

(B) Requisitionists themselves. or

(A) By the Board of Directors:

(a) On its own:

(i) The Board of Directors may, whenever it thinks fit, call an extraordinary general meeting [Section 100 (1)]. and

(ii) If at any time, there are not, within India, sufficient number if directors capable of acting to form quorum, any director or any two members of the company may call an extraordinary general meeting in the same manner, as nearly as possible, as that in which such a meeting may be called by the Board.

(b) On the requisition of shareholders:

(i) The Board of Directors of a company, shall, on the requisition of such number of members of the company as specified below forthwith proceed duly to call an extraordinary general meeting of the company.

(ii) The number of members entitled to requisition for holding a meeting in regard to any matter shall be [Section 100 (2)]:

(a) If the company has a share capital, by members holding 10% of the paid-up share capital of the company and having a right to vote at the date of the receipt of the requisition. or

(b) If the company has no share capital, members having 10% of the voting powers of all the members having a right to vote at the date of the requisition.

(iii) The requisition shall set out the matters for the consideration of which the meeting is to be called, shall be signed by the requisitionists, and shall be deposited at the registered office of the company [Section 100(3)].

(B) By the requisitionists themselves:

(i) If the Board does not, within twenty-one days from the date of receipt of a valid requisition, in regard to any matters, proceed duly to call a meeting for the consideration of those matters on a day not later than forty-five days from the date of the receipt of the requisition, the meeting may be called:

(a) By the requisitionists themselves within a period of three months from the date of the requisition [Section 100(4)].

(b) In the case of a company having a share capital, by such of the requisitionists as represent either a majority in value of the paid-up share capital held by all of them or more than one- tenth of such of the paid-up capital of the company as is referred to in Section 100(4), whichever is less. or

(c) In the case of a company not having a share capital, by such of the requisitionists as represent not less than one-tenth of the total voting power of all the members of the company referred to in Section 100(4).

(ii) A meeting called under Section 100(4) by the receptionist or any of them, shall be called in the same manner, as nearly as possible, as that in which meetings are to be called by the Board [Section 100(5)].

(c) By the Tribunal [Section 98(1)]: If for any reason it is impracticable to call a meeting of a company, other than an annual general meeting, in any manner in which meetings of the company may be called, or to hold or conduct the meeting of the company in the manner prescribed by this Act or the articles, the Tribunal may, either of its own motion or on the application of any director of the company, or of any member of the company who would be entitled to vote at the meeting:

(i) Order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks fit. and

(ii) Give such ancillary or consequential directions as the Tribunal thinks expedient including.

(a) Directions modifying or supplementing in relation to the calling.

(b) Holding and conducting of the meeting.

8. Discuss the powers and role/duties of chairman of a meeting.

Ans: A chairman is appointed to conduct a general meeting. In order to perform his duties properly, he is empowered with certain rights:

(i) Preside over the meeting: Regulation 50 states that the meetings of the company are presided over by the chairman.

(ii) Power to decide priority of speakers: Chairman is solely responsible for determining priority of speaker, i.e, he is to decide sequence of speakers in a meeting.

(iii) Power to stop discussion: The chairman has been empowered to terminate discussion on a matter after a reasonable debate. But, he is not supposed to misuse this power by suppressing a fair discussion.

(iv) Power to put motions to vote: The chairman is entitled to conduct vote and at the same time, he can make amendments in voting mode, i.e. by show of hands or by poll:

(a) The chairman of the meeting shall have power to regulate the manner in which a poll shall be taken [Section 109(6)].

(b) The result of the poll shall be deemed to be the decision of the meeting on the resolution on which poll was taken. [Section 109(7)].

(v) Right to use casting vote: The chairman is entitled to cast vote (i.e. a second vote) if articles of association permit in case of equality of votes. At the same time, he has also been empowered by discretionary vote or not to use casting vote.

(vi) Power to expel disorderly persons: The chairman has the power to maintain discipline and order at the meeting. He may expel a person on the grounds of misbehaviour.

(vii) Give ruling on point of order: When members raise queries regarding rules and regulation, chairman has the power to express his views on such points of order and his views will be binding on members.

(viii) Power to adjourn a meeting: The chairman has been empowered to adjourn a meeting on the following grounds:

(a) If members present in the meeting opt for adjournment.

(b) When there is a delay in presentation of quorum for more than half an hour fixed for meeting.

(c) If the chairman opines that it is necessary to adjourn the meeting to enable any question to be properly considered. or

(d) If a meeting becomes violent and is impossible to be conducted and completed, the chairman has been empowered to adjourn a statutory meeting.

Duties of chairman:

(i) See that meeting has been duly convened and is properly constituted: The chairman must assure that the meeting is convened in compliance with the rules and regulations framed for conducting a meeting. He is to discharge his duties regarding:

(a) Proper notice was given to members.

(b) A Quorum of members is present in the meeting.

(ii) See that items of business are taken as per agenda: The chairman must ensure that items of business are considered in the same order as stated in agenda.

(iii) Duty to give reasonable opportunities to speak: He must take keen care that members are given due opportunity to speak in the meeting. When a number of people wishes to speak, he may allow each member to speak one by one. In such circumstances, he should fix the time limit for speakers.

(iv) Maintain decorum at the meeting: It is the duty of the chairman to assure that there exists proper decorum at the meeting. Here, proper decorum means to prevent abusive languages and misbehaviour in the meeting.

(v) Duty to exercise casting vote: It is the duty of the chairman to cast his vote, if articles of association permit in case of equality of votes.

(vi) Duty to observe strict impartiality: The chairman must observe strict impartiality among members.

(vii) Duty regarding minutes: The chairman should properly enter, confirm and duly sign minutes of the previous meeting.

9. Write short notes on:

(i) Proxy.

Ans: Proxy: Proxy may be defined as an instrument implemented by law whereby a member entitles another person to attend a meeting, and to cast vote on his behalf.

Section 105 empowers every member to appoint another person, as proxy.

A person appointed as proxy enjoys certain rights which are:

(i) A proxy is entitled to vote only by poll even if articles do not provide so.

(ii) A proxy may demand for voting by poll unless articles lays restriction.

(iii) He may use his votes differently.

However, a proxy is deprived of certain activities which are:

(i) Under no circumstances, he is authorised to speak at a meeting [Section 105 (1)].

(ii) He is not counted for the purpose of quorum.

Restriction: A person appointed as proxy shall act on behalf of such number of members not exceeding 50 and such number of shares as may be prescribed.

Power of Central Government: The 2013 Act provides that the Central Government may prescribe a class or classes of companies whose mem-bers shall not be entitled to appoint proxies.

(ii) Notice.

Ans: Notice [Section 101 and Section 20]: It is the way of communicating date, time and business of meeting to all those who are concerned with the business. It must be in writing and given by the Board of Directors and can be sent by registered post or speed post or courier service or by means of such electronic or other mode as may be prescribed.

However, Section 101 (i) does not state that the length of notice period must be at least twenty-one days before the meeting is held.

It is essential that notice of the meeting reaches following persons:

(i) Every member of the company, legal representative of any deceased member or the assignee of an insolvent member [Section 101 (3)(a)].

(ii) Auditor/auditors of the company [Section 101(3)(b)]. and

(iii) Every director of the company [Section 101 (3) (c)].

10. Who are the persons entitled to vote at a meeting? Are there any restrictions on the voting rights of members?

Ans: Following persons are entitled to vote at a meeting:

(i) Equity shareholders: Every member of a company limited by shares and holding equity share capital therein, shall enjoy the right to vote, in respect of such capital, on every resolution placed before the company.

(ii) Preference shareholders: Preference shareholders can vote only on resolutions directly affecting them.

(iii) Holder of share warrants: The bearer of a share warrant can vote only if articles of association of the company provide for it.

(iv) Joint shareholders: In case of joint shareholders, votes of senior joint-holder, whether in person or by proxy, shall be accepted. Seniority shall be determined by order in which name appears in the register of members.

(v) Insolvent: An insolvent shareholder is entitled to exercise the right to vote provided his name appears on the register of members.

(vi) Representation of corporations in meetings: A body corporate can be a member or creditor of another company. It may authorise a person not necessarily an employee to attend and vote at any meeting of the company.

(vii) Representation of the President and Governor: Where the President of India or Governor of State is a member of a company, he appoint such persons as he thinks fit to act as representative to may attend and vote at any meeting of the company.

(viii) Public trustee: The central government is empowered to appoint public trustees to enable trusts to vote at a general meeting directly.

(ix) Proxy: A proxy is entitled to vote only on a poll, and not by show of hands.

(x) Person of unsound mind: A member of unsound mind, or in respect of whom an order has been made by any court having jurisdiction in lunacy, may vote whether by a show of hands or on a poll, by his committee or other legal guardian, and any such committee or guardian may, on a poll, vote by proxy.

A company (both public and private) is authorised to make provisions in its articles restricting voting rights of a member only on the following grounds:

(i) Calls on his shares or any other sum personally payable have not been paid.

(ii) Company has exercised right of lien in respect of these shares.

Where articles of a company do not contain such provisions, a member cannot be prevented from voting even though calls payable by him have not been paid.

11. Write a short note on voting rights.

Ans: Section 107 reads that a resolution is generally passed via votes by show of hand unless a vote is demanded through electronic means as per Section 108 and a poll is demanded as per Section 109.

(I) Voting by show of hands: Following persons are entitled to vote; by show of hands:

(i) Members of a company [Section 47].

(ii) In case of joint-holder, first named member is entitled to vote.

(iii) Authorised representative in case of a body corporate [Section 113].

(iv) Proxy of President/Governor of the State [Section 47(2)].

(v) Preference shareholder, if resolution directly affects him [Section 47(2)].

(vi) Cumulative preference shareholder, if his dividend remains unpaid for the past two years [Section 47(2)]. and

(vii) Non-cumulative preference shareholder, if his dividend remains unpaid for the past three years [Section 47(2)].

(II) Voting by electronic means [Section 108]: The Central Government may prescribe the class or classes of companies and manner in which a member may exercise his right to vote through electronic means.

(III) Voting by poll [Section 109]: Following persons may demand votes by poll:

(i) Chairman.

(ii) In a public company and private company both having share capital, it may be demanded by a member:

(a) Who holds one-tenth of the voting power. or

(b) Whose shares paid-up value is ₹5,00,000 or such higher amount as prescribed. and

(iii) In case of any other company, a person having one-tenth of the total voting power.

12. Write a note on the postal ballot.

Ans: As per Section 2(65) of Companies Act, 2013, postal ballot means voting by post or through electronic means within a period of thirty days from the date of dispatch of the notice.

Where a company is required or decides to pass any resolution by way of postal ballot, it shall send a notice to all the shareholders, along with a draft resolution explaining the reasons thereof and requesting them to send their assent or dissent in writing on a postal ballot. Following compliance have to be made in this regard:

(i) The notice shall be sent either.

(a) By Registered Post or speed post. or

(b) Through electronic means like registered email id. or

(c) Through courier service for facilitating the communication of the assent or dissent of the shareholder to the resolution within the said period of thirty days. [Rule 22(2)]

(ii) An advertisement shall 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, about having dispatched the ballot papers. [Rule 22(3)]

(iii) 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. [Rule 22(4)]

(iv) 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 manners. [Rule 22(6)]

(v) Postal ballot received back from the shareholders shall be kept in the safe custody of the scrutinizer. The scrutinizer shall maintain a register either manually or electronically to record their assent or dissent received. 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 thereafter. [Rule 22(10)]

(vi) The results shall be declared by placing it, along with the scrutinizer report, on the website of the company. [Rule 22(13)]

13. State the requirements to be complied with in order to conduct a board meeting through video conferencing.

Ans: The following requirements are to be complied with in order to conduct a Board Meeting through video conferencing [Rule 3]:

(i) Every Company shall make necessary arrangements to avoid failure of video or audio visual connection.

(ii) The Chairperson of the meeting and the company secretary, if any, shall take due and reasonable care-

(a) To safeguard the integrity of the meeting by ensuring sufficient security and identification procedures.

(b) 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.

(d) 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.

(e) To ensure that no person other than the concerned director is attending or have access to the proceedings of the meeting through video conferencing mode or other audio visual means. and

(f) 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.

(iii) The notice of the meeting shall be sent to all the directors which 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 audio visual means.

(iv) A director intending to participate through video conferencing or audio visual means shall communicate his intention to the Chairperson or the company secretary of the company.

(v) 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 the company is able to make suitable arrangements on this behalf.

(vi) Every participant shall identify himself for the record before speaking on any item of business on the agenda.

(vii) 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.

(viii) 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.

14. Write a note on e-voting.

Ans: Section 108 of Companies Act read with Rule 20 of Companies (Management & Administration) Rules 2014, make it mandatory for following companies to have facility of e-voting:

(i) Every company which has listed its equity shares on a recognised stock exchange.

(ii) Every company having not less than one thousand members.

As per Rule 20(4), a company which provides the facility to its members to exercise voting by electronic means shall comply with the following procedure, namely:

(i) The notice of the meeting shall be sent to all the members, directors and auditors of the company either.

(ii) The company shall cause a public notice by way of an advertisement to be published, immediately on completion of despatch of notices.

(iii) The depository participant sends mails containing all instructions on the registered email ID of the shareholders. It will contain the user ID and password for logging into the online portal. In case the email ID of the shareholder is not available with DP, the details are dispatched to the registered address. Investors can cast their vote by registering themselves on the portal and vote for the relevant resolutions.

(iv) 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.

(v) The Board of Directors shall appoint one or more scrutiniser, who, in the opinion of the Board can scrutinise the voting and conduct e-voting process in a fair and transparent manner.

(vi) The scrutiniser 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 and make, not later than three days of conclusion of the meeting, a consolidated scrutiniser’s report of the total votes cast in favour or against, if any, to the Chairman or a person authorised by him in writing who shall countersign the same.

(vii) all papers relating to voting by electronic means shall remain in the safe custody of the scrutinizer.

(viii) subject to receipt of requisite number of votes, the resolution shall be deemed to be passed on the date of the relevant general meeting.

VERY SHORT QUESTIONS AND ANSWERS

1. A company whose profit exceeds Rs ____________ is required to form a CSR Committee.

(a) 10 Crore.

(b) 100 Crore.

(d) 5 Crore.

Ans: (d) 5 crore.

2. In the listed company, ____________ plays an important role in selection of Auditors.

Ans: Audit Committee

3. ____________ shall identify persons who are qualified to become directors.

(a) Nomination and Remuneration Committee.

(b) Audit Committee.

(d) CSR Committee.

Ans: (a) Nomination and Remuneration Committee.

SHORT QUESTIONS AND ANSWERS

1. Write a note on the Stakeholders Relationship Committee.

Ans: According to Section 178 of the 2013 Act, the Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company.

LONG QUESTIONS AND ANSWERS

1. Write a note on the Audit Committee.

Ans: Section 177 deals with the provisions relating to Audit Committee as follows:

(i) Applicability: The following class of companies need to form an Audit Committee.

(a) Listed Companies.

(b) Public Companies having paid-up share capital of ten crore rupees or more. or

(d) Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

(ii) Constitution of Audit Committee: The Audit Committee shall consist of a minimum of three 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.

(iii) Functions of Audit Committee:

(a) The recommendation for appointment, remuneration and terms of appointment of auditors of the company.

(b) Review and monitor the auditor’s independence and performance, and effectiveness of audit process.

(d) Approval or any subsequent modification of transactions of the company with related parties.

(e) Scrutiny of inter-corporate loans and investments.

(f) Valuation of undertakings or assets of the company, wherever it is necessary.

(g) Valuation of internal financial controls and risk management systems.

(h) Monitoring the end use of funds raised through public offers and related matters.

(iv) Powers of Audit Committee: 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 and may also discuss any related issues with the internal and statutory auditors and the management of the company.

2. Write a note on the Nomination and Remuneration Committee.

Ans: Section 178 of the Companies Act, 2013 provides that the following class of companies need to form a Nomination and Remuneration Committee:

(i) Listed Companies.

(ii) Public Companies having paid-up share capital of hundred crore rupees or more. or

(iii) Public Companies which have, in aggregate, outstanding loans, debentures and deposits, exceeding fifty crore rupees.

The Nomination and Remuneration Committee 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.

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 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. 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.

3. Write a note on the Corporate Social Responsibility (CSR) Committee.

Ans: The provisions relating to Corporate Social Responsibility (CSR) Committee are as follows [Section 135]:

(i) Applicability: The following class of companies need to form CSR Committee:

(a) A company whose net profit is 5 crore or more.

(b) A company whose net worth is 500 crore or more.

(ii) Legal Provisions:

(a) The Board of every company referred above, 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.

(b) The areas for which such expenditure shall be made is specified in Schedule VII.

(c) These activities include activities for social welfare work, promotion of education, environmental protection, promotion of gender equalities, etc.

(d) The CSR activities should not include the daily chores of business.

(iii) Composition of CSR Committee:

(a) For listed companies: The CSR committee shall consist of 3 or more directors with at least one independent director.

(b) For unlisted public or private company: In case of private companies or unlisted public companies not required to appoint independent director, it shall have CSR Committee without independent director with two or more directors.

(iv) Functions of CSR Committee:

The Corporate Social Responsibility Committee shall,-

(a) Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company in areas or subject specified in Schedule VII.

(b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a). and

Company Law Unit 3 Management

Management

Related Posts

Leave a Comment Cancel Reply