Insurance premium Section 197 (13) provides that where any insurance is taken by a company on behalf of its managing director, whole time director 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 such director. If such person is proved to be guilty, the premium paid on such insurance shall be treated as part of remuneration. 12.4 DUTIES OF A DIRECTOR Section 166 of the Act prescribes the duties of a director under the provisions of this Act as detailed below: • A director of a company shall act in accordance with the articles of the company. • 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. • A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment. • A director 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. • 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. • A director of a company shall not assign his office and any assignment so made shall be void. If a director of the company contravenes the provisions of Section 166 such director shall be punishable with fine which shall not be less than one lakh rupees, but which may extend to five lakh rupees. 12.5 MEETING OF BOARD “Meeting of Board” means a duly convened, held and conducted meeting of the Board or any Committee thereof. 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. 151 CU IDOL SELF LEARNING MATERIAL (SLM)
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. For an effective board meetings, it required to: have a purpose. members of the board must be provided with adequate notice and appropriate materials in advance. be chaired effectively. follow proper meeting procedures and respect the time of board members. Have clear supporting documents such as an agenda, minutes and other reports. have action taken reports. be documented with minutes. 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 Companies Act, 2013 to ensure proper compliance to the statutory requirements regarding Board Meetings. 12.6 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. 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. 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. 152 CU IDOL SELF LEARNING MATERIAL (SLM)
However, this provision would not apply to a one-person company in which there is only one director on its Board. In case of Section 8 Company, after MCA exemptions Notification Dated 05.06.2015, the provision 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 4.01.2017). 12.7 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. 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. 2. 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. 3. A 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. 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. 153 CU IDOL SELF LEARNING MATERIAL (SLM)
4. 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. 5. 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. 6. 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. 7. The Notice shall specify the serial number, day, date, time and full address of the venue of the Meeting. 8. The Notice shall inform the Directors about the option available to them to participate through Electronic Mode and provide them all the necessary information. 9. The Notice of a Meeting shall be given even if Meetings are held on pre-determined dates or at predetermined 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. Parmeshwar 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) If the company is required to have independent director: a. Presence of at least one Independent director is required. b. 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. (B) 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. 154 CU IDOL SELF LEARNING MATERIAL (SLM)
12.8 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 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. (ii) dividends. (iii) change in capital structure. (iv) mergers, de-mergers, acquisitions, delisting, disposals and expansion of business and such other transactions. 155 CU IDOL SELF LEARNING MATERIAL (SLM)
(v) changes in key managerial personnel; and (vi) material events in accordance with the listing agreement 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. 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. 12.9 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 recording and storing the proceedings of such meetings along with date and time. (Details are given in lesson 20, i.e., Virtual Meetings). 12.10 QUORUM FOR BOARD MEETINGS 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). The Act mandates that certain restricted matters shall not be dealt with in any meeting 156 CU IDOL SELF LEARNING MATERIAL (SLM)
held through video conferencing or other audio-visual means, however, where there is quorum in a meeting through physical presence of directors, any other director may participate conferencing through video or other audio visual means. 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. For instance, if there are twelve directors and ten of them are interested, remaining two directors would not have normally constituted quorum since four directors is the requisite quorum, but, in such event, remaining two disinterested directors would constitute quorum. 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 shall be held to the same day at the same time and place in the next week 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. If the Board meeting is adjourned for want of quorum and at the adjourned Board meeting also no quorum is present, meeting stands dissolved. Adjourned Board meetings are the continuation of the original board 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 157 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 12.11 CHAIRMAN OF THE MEETING OF THE BOARD/COMMITTEE 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. 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 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. 12.12 PASSING OF RESOLUTION BY CIRCULATION 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 is 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 158 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 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) 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. 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. 12.13 MINUTES Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitions and all proceedings of meeting of any class of shareholders or creditors and every resolution passed by postal ballot and every meeting of Board of Directors or of every committee of the Board within thirty days of the conclusion of every such meeting concerned or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered. 159 CU IDOL SELF LEARNING MATERIAL (SLM)
In case of meeting of Board of Directors or of a committee of Board, the minutes shall contain: (a) Name of the directors present at the meeting; and (b) 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. 1) 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. 2) 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. 3) Minutes Books shall be kept at the Registered Office of the company or at such other place as may be approved by the Board. 4) Contents of Minutes General Contents a) 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. b) 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. c) Minutes shall contain a record of all appointments made at the Meeting. Specific Contents Minutes shall inter-alia contain: (a) The name(s) of Directors present and their mode of attendance, if through Electronic Mode. 160 CU IDOL SELF LEARNING MATERIAL (SLM)
(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 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. 5) 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. 6) Minutes shall contain a fair and correct summary of the proceedings of the Meeting. 161 CU IDOL SELF LEARNING MATERIAL (SLM)
7) Minutes shall be written in clear, concise and plain language 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. 8) 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. 9) 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. 10) 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. 11) 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. 12) 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, save as mentioned in this Standard. 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. 13) 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. 14) 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, 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. 162 CU IDOL SELF LEARNING MATERIAL (SLM)
15) Minutes of all Meetings shall be preserved permanently in physical or in electronic form with Timestamp. Minutes Books shall be in the custody of the Company Secretary. Rule 25 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. (ii) meetings of the creditors. (iii) meetings of the Board; and (iv) meetings of the committees of the Board. 12.14 SUMMARY Every individual, who intends be appointed as director of a company shall make an application electronically in Form No. DIR-3 to the Central Government for allotment of DIN along with the prescribed fees. Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitions and all proceedings of meeting of any class of shareholders or creditors and every resolution passed by postal ballot and every meeting of Board of Directors or of every committee of the Board within thirty days of the conclusion of every such meeting concerned or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered. 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. 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. One third of total strength or two directors, whichever is higher, shall be the quorum for a Board meeting. 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. 163 CU IDOL SELF LEARNING MATERIAL (SLM)
12.15 KEYWORDS Company Secretary 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 a company secretary under this Act. Chief Executive Officer An officer of a company, who has been designated as such by it. Manager 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. Whole-Time Director A director in the whole-time employment of the company. Managing Director, 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. Key Managerial Personnel Key Managerial Personnel in relation to a company, means— (i) the Chief Executive Officer or the managing director or the manager;(ii) the company secretary;(iii) the whole-time director;(iv) the Chief Financial Officer; and (v) such other officer as may be prescribed. 12.16 LEARNING ACTIVITY 1. You are the CFO and in-charge of legal compliances of large multi-national company in India. The Board of Directors of the Company are broad based and comprise of competent directors who are Indian as well as Foreign Nationals. Mr. “X”, who is a Director (Business Development) on the Board is very often on business tour abroad. He approached you and wants to know from you the regulatory provisions of the Companies Act, 2013 relating to appointment of Alternate Directors. Analyse the following situations and advise suitably. Mr. X referring to the provisions of the Companies Act, 2013. (a) To how many directors can a person be appointed as an alternate director and how many votes does he have in one Board Meeting. (b) In case of private company, where an alternate director is appointed in place of a nonexecutive director whose term is indefinite, then, what will be the tenure of such alternate director, provide the original director does not return to India for a longer period say 3- 4years? 164 CU IDOL SELF LEARNING MATERIAL (SLM)
(c) Can an Executive Director/Whole Time Director/Managing Director appoint alternate directors? ___________________________________________________________________________ ___________________________________________________________________________ 2. Mr. 'R' holds directorship in 10 Public Companies and 11 Private Companies as on 31.05.2019. One of the above Private Company is a dormant Company. Apart from the dormant Company, on 30.06.2019 a Private Company (in which Mr. R is holding directorship) has become a subsidiary of a Public Company. In the light of the provisions of the Companies Act, 2013 examine and decide: (i) The validity of holding directorship of Mr.'R' with reference to number of directorship as on 31.05.2019 and as on 30.06.2019. (ii) Whether a Company has power to specify any lesser number of Companies in which a director of the Company may act as a director? ___________________________________________________________________________ ___________________________________________________________________________ 12.17 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Write notes on Overall remuneration payable by a public company. 2. Comment about Remuneration payable to Managing Director or Whole Time Director. 3. Comment about Remuneration payable to Directors. 4. Which will not form part of the remuneration of a Director? 5. Can a director be removed? Long Questions 1. Discuss the board composition in a company. 2. Discuss the provision relating to appointment of directors. 3. What is the importance of DIN. Discuss its procedure. 4. Can directors be elected by small shareholders? 5. Discuss the provisions relating to nominee director. B. Multiple Choice Questions 165 CU IDOL SELF LEARNING MATERIAL (SLM)
1. __________ shall be the quorum for a board meeting. a. One third of total strength or two directors, whichever is higher b. two third of total strength or two directors, whichever is higher c. One third of total strength or three directors, whichever is higher d. One fourth of total strength or two directors, whichever is higher 2. A general meeting of a company may be called by giving not less than ______ clear days’ notice either in writing or through electronic mode. a. 7 b. 15 c. 21 d. 30 3. 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 _______ of the members entitled to vote at such meeting. a. 75% b. 90% c. 95% d. 100 4. An annual general meeting can be called during business hours only, that is, between ______ a. 9 a.m. and 6 p.m. b. 10 a.m. and 5 p.m. c. 9 a.m. and 7 p.m. d. 9 a.m. and 9 p.m. 5. 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 an EGM for the consideration of that matter on a day not 166 CU IDOL SELF LEARNING MATERIAL (SLM)
later than _________ days from the date of receipt of such requisition, the meeting may be called and held by the requisitionists themselves. a. 21 b. 30 c. 45 d. 90 Answers 1-a, 2-c, 3-c, 4-a, 5-c 12.18REFERENCES Textbooks/ReferenceBooks T1 Kapoor, N.D.; Elements of Company Law; Himalayan Publishing House, Mumbai.T2Kuchhal, M.C. :Company Law Avtar Singh,Company Law, EasternBook Company,Lucknow R1 Pathak Akhileshwar Garg, Chawla, Sareen, Mercantile Law, Kalyani Publication,NewDelhi. SecuritiesContracts(Regulation)Act,1956 R2SinghAvtar:CompanyLaw; EasternBookCo.,Lucknow. 167 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 13 – MEETINGS 168 STRUCTURE 13.0 Learning objectives 13.1 Introduction and requisites of a valid meeting 13.2 Members’ meetings 13.3 Annual general meeting (section 96) 13.4 Business to be transacted at annual general meeting: [section 102] 13.5 Convening of a valid general meeting 13.6 Extra-ordinary general meeting (section 100 13.7 Class meetings 13.8 Types of resolutions 13.9 Resolutions requiring special notice (section 115) 13.10 Notice of meeting (section 101) 13.11 Quorum for meetings (section-103) 13.12 Presence of statutory auditor and secretarial auditor 13.13 Proxies (section 105) 13.14 Voting 13.15 Demand for poll (section 109) 13.16 Maintenance of minutes of meetings 13.17 Summary 13.18 Keywords 13.19 Learning activity 13.20 Unit end questions 13.21 References 13.0 LEARNING OBJECTIVES After studying this unit, the student will be able to Understand the various types of meetings Appreciate the necessity for a meeting Explain aboutAGM and EGM CU IDOL SELF LEARNING MATERIAL (SLM)
Appreciate the necessity for quorum Understand the meaning of proxy 13.1 INTRODUCTION AND REQUISITES OF A VALID MEETING 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. A meeting can become invalid in different ways. The responsibility is primarily of the secretary to see that a meeting becomes valid. Other members (even the directors of a company) depend upon him in this respect. Requisites of a Valid Meeting: How a meeting becomes valid? A meeting is valid pro-vided all the requisites of a valid meeting are present. Broadly, the requisites are divided into three groups: (1) A meeting must be properly convened or called, 169 CU IDOL SELF LEARNING MATERIAL (SLM)
(2) The meeting must be properly cons-tituted and (3) A meeting shall be properly conducted. It has to be noted that the decisions shall be binding provided the meeting is valid and in addition the decision has been properly taken. A decision improperly taken at a valid meeting cannot be implemented. Further, minutes containing the decisions shall be prepared and confirmed otherwise it is difficult to enforce the decisions, if challenged. (A) A Meeting must be Properly Convened or Called: A meeting is said to be properly convened or called when the following conditions are fulfilled: (1) A notice containing all the details required, has been sent to every person entitled to attend the meeting. a) The date, time and place of the meeting. (b) The agenda or the items to be discussed at the meeting in a serial order. (c) Date of the notice. (d) Signature of a competent person calling the meeting. (d) Additional informa-tion, if any (for example, explanatory notes to a special business required in a notice of annual general meeting of a company); (e) Any enclosure required to be sent (for example, a copy of final accounts together with the notice of annual general meeting). (2) The Notice is sent With in Proper Time: There are specific rules with regard to that proper time. For example, a notice for any members’ meeting of a company must be sent at least twenty-one days before the meeting. (3) The notice is sent to the recorded address of the person entitled to receive the notice. The notice may be sent by ordinary post. Under exceptional cases notice can be given over the telephone. The notice may be sent by a messenger. (B) A Meeting must be Properly Constituted: A meeting shall be properly constituted, or the gathering is valid and competent to take decisions if the following conditions are fulfilled: (1) The quorum or the required minimum number of persons must be present in person. The quorum shall preferably be continuously present. (2) There must be a Chairman who is duly elected at the meeting or already elected. He must be a person competent to be the Chairman. 170 CU IDOL SELF LEARNING MATERIAL (SLM)
(C) A Meeting shall be Properly Conducted: (1) The rules and regulations for conducting the meeting are followed. Those rules may be statutory, of the organisation, customary or conventional or a combination of them. (2) Notes shall be continuously and correctly taken (by the secretary) so that proceedings or minutes can be prepared for evidence. It shall be remembered that the secretary shall take notes on the proceedings, prepare the minutes on the basis of those notes and get the minutes confirmed by the Chairman subsequently. After that vir-tually a valid meeting is completed. 13.2 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. 13.3 ANNUAL GENERAL MEETING (SECTION 96) 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 171 CU IDOL SELF LEARNING MATERIAL (SLM)
1. Annual general meeting should be held once in each calendar 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. 3. Subsequent annual general meeting of the company should be held within 6 months from the date of closing of the relevant financial year. 4. The gap between two annual general meetings shall not exceed 15 months. Additionally, for listed entities as per SEBI (LODR) Regulations, 2015 provided 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 – (Notified on 9th May 2018 effective from April 1, 2019). One person company is exempt 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. 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. 3. AGM is to be held in each calendar year. 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. 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 3 172 CU IDOL SELF LEARNING MATERIAL (SLM)
months. No such extension of time can be granted by the Registrar for the holding of the first annual general meeting. 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. 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 Government Company, such other place within the city, town or village in which the registered office of the company is situate or such other place as the Central Government may approve for holding AGM, if the place is other than registered office. 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 “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. 13.4 BUSINESS TO BE TRANSACTED AT ANNUAL GENERAL MEETING: [SECTION 102] Section 102(2)(a) provides that all other businesses transacted at an Annual General Meeting except the following are special business: 173 CU IDOL SELF LEARNING MATERIAL (SLM)
(i) the consideration of financial statements and the reports of the Board of Directors and auditors. (ii) the declaration of any dividend. (iii) the appointment of directors in place of those retiring. (iv) the appointment of, and the fixing of the remuneration of, the auditors. 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. 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 entities, 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. 13.5 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 there at. They cannot be so bound unless the meeting is validly held. The essentials of a valid meeting are that the meeting should be: 174 CU IDOL SELF LEARNING MATERIAL (SLM)
(a) 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. (b) 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) (c) 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. (ii) Proper minutes of the meeting must be prepared. (Section 118 of the Act) 13.6 EXTRA-ORDINARY GENERAL MEETING (SECTION 100) There are so many matters relating to the business of a company, which requires approval or consent of members in general meeting. It is always not possible for consideration of such matters to wait until the next annual general meeting. The articles of association of the company 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 items of business other than ordinary business 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. 175 CU IDOL SELF LEARNING MATERIAL (SLM)
Following are the key provisions, regarding calling and holding of an extraordinary general meeting: (1) By the Board Suo motu [Section 100 (1)] 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. (2) By 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) 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; (b) 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. Matter 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. 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. (3) 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 176 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 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)] (2) 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. (3) If the resolution is to be proposed as a special resolution, the notice shall be given as required by subsection (2) of section 114. (4) Notice to be signed: The notice shall be signed by all the requistionists or by a requistionists duly authorized in writing by all other requistionists on their behalf or by sending an electronic request attaching therewith a scanned copy of such duly signed requisition. (5) 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 requistionists and the requistionists may disclose the reasons for the resolution(s) which they propose to move at the meeting. (6) 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 requistionists deposit with the Company a valid requisition for calling an extraordinary general meeting. (7) No meeting convened: Where the meeting is not convened, the requistionists 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. (8) 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. (4) By Tribunal [Section 98] 177 CU IDOL SELF LEARNING MATERIAL (SLM)
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 somite or on the application of any director or member of the company who would be entitled to vote at the meeting: (a) order a meeting of the company to be called, held and conducted in such manner as the Tribunal thinks fit; and (b) 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. 13.7 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 share which is held to pass 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. Details of meetings of members or class meetings are required to be mentioned in Annual Return as per Section 92(1)(f). 13.8 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 178 CU IDOL SELF LEARNING MATERIAL (SLM)
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. (b) the notice required under this Act has been duly given; and (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. 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. 13.9 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 `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. Provisions contained in the Act requiring special notice: The matters in respect of which special notice is required are: (a) A resolution for appointment of a person as auditor at the annual general meeting other than the retiring auditor for providing expressly that the retiring auditor shall not be re- appointed [Section 140(4)]; (b) 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)]. 179 CU IDOL SELF LEARNING MATERIAL (SLM)
13.10 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. ‘Clear days’ means days exclusive of the day of the notice of service and of the day on which the meeting is held. 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 180 CU IDOL SELF LEARNING MATERIAL (SLM)
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) 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 than that specified in this sub- section if consent, in writing or by electronic mode, is accorded thereto– (i) in the case of an annual general meeting, by not less than ninty-five per cent of the members entitled to vote thereat; and (ii) in the case of any other general meeting, by members of the company– (a) 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 (b) having, if the company has no share capital, not less than ninty-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 for the purposes of this sub-section in respect of the former resolution or resolutions and not in respect of the latter. Persons entitled to receive notice In terms of Section 101(3), notice of every meeting of the company must be given to: (a) every member of the company, legal representative of any deceased member or the assignee of an insolvent member. (b) the auditor or auditors of the company; and (c) 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)]. 181 CU IDOL SELF LEARNING MATERIAL (SLM)
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 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.]. 13.11 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. ─ 15 members personally present if the number of members as on the date of meeting is more than 1000 but up to 5000. ─ 30 members personally present if the number of members as on the date of the meeting exceeds 5000. (b) Private company: ─ 2 members personally present, shall be the quorum for a meeting of the company 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– 182 CU IDOL SELF LEARNING MATERIAL (SLM)
(a) 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 (b) the meeting, if called by requisitionists (under section 100), shall stand cancelled. 13.12 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 authorized representative who attends the General Meeting of the company shall also be qualified to be a secretarial auditor. 13.13 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. However, 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. 183 CU IDOL SELF LEARNING MATERIAL (SLM)
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. (2) 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. (3) 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. (4) 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. 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. (5) 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. A Proxy need not be informed of the revocation of the Proxy issued by the Member. 184 CU IDOL SELF LEARNING MATERIAL (SLM)
13.14 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) A poll is demanded under section 109 of the Act. (b) 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 favour 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. 185 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 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. 13.15 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 (b) 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. 186 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 13.16 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 thousand rupees but which may extend to one lakh rupees. 187 CU IDOL SELF LEARNING MATERIAL (SLM)
13.17 SUMMARY 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 1000 but less than 5000- quorum shall be 15 – If members more than 5000- quorum shall be 30 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. Chairman plays a very important role in a meeting as he is responsible for successful conduct of a meeting A motion becomes a resolution only after the requisite majority of members have adopted it 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. Every company is required to keep minutes of the proceedings of general meetings and of the meetings of Board of Directors and its Committees. 13.18 KEYWORDS Book Closure - 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. Suo motu - It is a Latin legal term meaning “on its own motion” 188 CU IDOL SELF LEARNING MATERIAL (SLM)
mutatis mutandis - It is a Latin term meaning “the necessary changes having been made” or “once the necessary changes have been made. 13.19 LEARNING ACTIVITY 1. 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? ___________________________________________________________________________ ___________________________________________________________________________ 2. 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? ___________________________________________________________________________ ___________________________________________________________________________ 13.20 UNIT END QUESTIONS A. Descriptive Questions Short Questions 1. Define quorum. 2. What is meant by EGM? 3. When is AGM conducted? 4. What is minutes of meetings? 5. Define voting. Long Questions 1. Discuss about the maintenance of minutes of meetings. 2. Discuss about postal ballot. 3. Discuss about the various types of voting. 4. What is meant by proxies and why is it used? 5. Discuss about the notice to the meetings. B. Multiple Choice Questions 1. __________deals with the time limits within which the registers of the company is allowed to be closed and also mentions the penalty for contravention of the same. 189 CU IDOL SELF LEARNING MATERIAL (SLM)
a. Section 8 b. Section 91 c. Section 100 d. Section 90 2. The annual return has to be signed by a director of the company and the________. a. Company secretary b. Govt official c. Registrar d. Chairman 3. Section 94 describes that the registers and returns and other documents of the company shall be kept at the ________ of company. a. Registrar office b. Corporate office c. Accounts department d. Registered office 4. _______ prescribes the provisions for holding the EGM. a. Section 100 b. Section 92 c. Section 3 d. Section 25 5. Section 121 of the Act requires a listed public company to issue a report on the AGM to be filed with the RoC within ______ of the conclusion of the AGM. a. 7 days b. 15 days c. 30 days d. 45 days 190 CU IDOL SELF LEARNING MATERIAL (SLM)
Answers 1-b, 2-a, 3-d, 4-a, 5-c 13.21 REFERENCES Textbooks/ReferenceBooks T1 Kapoor, N.D.; Elements of Company Law; Himalayan Publishing House, Mumbai.T2Kuchhal, M.C. :Company Law Avtar Singh,Company Law, EasternBook Company,Lucknow R1 Pathak Akhileshwar Garg, Chawla, Sareen, Mercantile Law, Kalyani Publication,NewDelhi. SecuritiesContracts(Regulation)Act,1956 R2SinghAvtar:CompanyLaw; EasternBookCo.,Lucknow. 191 CU IDOL SELF LEARNING MATERIAL (SLM)
UNIT 14 – WINDING UP STRUCTURE 14.0 Learning Objectives 14.1 Introduction 14.1 Winding up of companies 14.2 Legal Provisions for winding up of companies 14.3 Winding up by the tribunal 14.4 Voluntary Winding up 14.5 Summary 14.6 Keywords 14.7 Learning Activity 14.8 Unit End Questions 14.9 References 14.0 LEARNING OBJECTIVES After studying this unit, the student will be able to Appreciate the importance of concept of winding up Understand the legal provisions for winding up Differentiate between normal winding up and voluntary winding up Analyse the legal provisions related to winding up 14.1 INTRODUCTION 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.” 192 CU IDOL SELF LEARNING MATERIAL (SLM)
14.2WINDING UP OF COMPANIES 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 Halsbury’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. 14.3LEGAL 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 193 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 14.4WINDING 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- (a) if the company has, by special resolution, resolved that the company be wound up by the Tribunal; (b) 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; (c) if on an application made by the Registrar or any other person authorised by the Central Government by 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; (d) 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 (e) 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. (c) all or any of the persons specified in clauses (a) and (b); (d) the Registrar. (e) any person authorised by the Central Government in that behalf; or 194 CU IDOL SELF LEARNING MATERIAL (SLM)
(f) in a case falling under clause (b) of section 271, by the Central Government or a State Government. 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. (c) appoint a provisional liquidator of the company till the making of a winding up order. (d) make an order for the winding up of the company with or without costs; or (e) any other order as it thinks fit: 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: 195 CU IDOL SELF LEARNING MATERIAL (SLM)
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. 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 a 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. 14.5VOLUNTARY 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. (2) The voluntary liquidation of a corporate person under sub-section (1) shall meet such conditions (3) and procedural requirements as may be specified by the Board. (3) Without prejudice to sub-section (2), voluntary liquidation proceedings of a corporate person registered as a company shall meet the following conditions, namely:— (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 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. (b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely:— 196 CU IDOL SELF LEARNING MATERIAL (SLM)
(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. (ii) a report of the valuation of the assets of the company, if any prepared by a registered valuer. (c) within four weeks of a declaration under sub-clause (a), there shall be— (i) 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 (ii) 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. (4) The company shall notify the Registrar of Companies and the Board about the resolution under subsection (3) to liquidate the company within seven days of such resolution or the subsequent approval by the creditors, as the case may be. (5) 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 sub-clause (c) of sub-section (3). (6) 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. (7) 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. (8) 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. (9) 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 197 CU IDOL SELF LEARNING MATERIAL (SLM)
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 (1) Without prejudice to section 59(2), liquidation proceedings of a corporate person shall meet the following conditions, namely: – (a) a declaration from majority of (i) the designated partners, if a corporate person is a limited liability partnership, (ii) individuals constituting the governing body in case of other corporate persons, as the case may be, verified by an affidavit stating that- (i) 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 (ii) the corporate person is not being liquidated to defraud any person. (b) the declaration under sub-clause (a) shall be accompanied with the following documents, namely: (i) 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. (ii) a report of the valuation of the assets of the corporate person, if any prepared by a registered valuer. (c) within four weeks of a declaration under sub-clause (a), there shall be- (i) 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 (ii) 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: 198 CU IDOL SELF LEARNING MATERIAL (SLM)
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 subclause (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) 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. (2) 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. • 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 199 CU IDOL SELF LEARNING MATERIAL (SLM)
• 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. 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. 200 CU IDOL SELF LEARNING MATERIAL (SLM)
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