Company-Common meaning thereof
The word "company" is often used in common parlance without due regard to its technical meaning and as covering partnerships as well as other associations. Section 3 of the Companies Act, 1956 only gives a comprehensive, statutory definition of the term I company' without any detailed explanation. (A Lay-man's Guide on the Indian Company Law). Though the word company is generally defined in section 3, that definition cannot be used to cut down the scope of the word company as defined in other sections for their own different purpose (Telesound India Ltd. In re, (1983) 53 Com Cases 926 (Del)), or defined in other statutes for their own specific requirements.
Meaning under the Companies Act, 1956
Section 2(10) defines
company meaning a company as defined in section 3 and section 3(l) gives the
meaning of the expression 'company', existing company, private company and
public company subject to the provisions of sub-section 3(2) and unless
the context otherwise requires as company meaning a company formed and
registered under this Act or an existing company. Further it provides that
existing company means a company formed and registered under any of the
previous companies laws specified therein.
Section 3 of the Act giving
definition of company is amended by the Companies (Amendment) Act, 2000 so as
to provide for a minimum paid-up capital of one lakh rupees for a private
company and a minimum paid-up capital of five lakh rupees for a public
company or such higher paid-up capital as may be prescribed and it also
provides that no private company shall invite or accept deposits from persons
other than its members, directors or their relatives. A company registered
under section 25 before or after the commencement of the Companies (Amendment)
Act, 2000 will not be required to have minimum paid-up capital specified
above.
Company distinct and independent legal
person
A company duly incorporated
and registered is a distinct and independent legal person having perpetual
succession and a common seal. In law it is a legal independent person distinct
from its members. Its assets are separate and distinct from those of members.
It can sue and be sued in its own name. (Aron Salomon v. A Salomon & Co.
Ltd., (1897) AC 22 (HL)). An incorporated company devotes a legal entity the
validity of which and the effect of which depends on the law of the country in
which it is established. Colquhoun v. Heddon, (1890) 6 T.L.R. 153. A company is
an abstraction of law. It has no mind of its own any more than it has a body of
its own; its active and directing will must consequently be sought in the
person or somebody who for some purposes may be called an agent but who is
really the directing mind and will of the corporation, the very ego and centre
of the personality of the corporation. (Carrying Co. Ltd. v. Asiatic Petroleum
Co. Ltd., (1914-15) All ER Rep 280: (1915) AC 705).
Directing mind and will of company vests
in Directors
As stated above an incorporated
company being a distinct legal person cannot physical act on its own and
therefore needs somebody to act on its behalf and carry on the affairs of the
company. To act one needs at least a physical human body and a mind. A company
does not have any of them and it is just a creation of law. The persons in whom
the directing mind and will of the company vests are termed as 'Directors' and
collectively referred to as the "Board of Directors" or
"Board". The Board is the managerial body. It is constituted by the
general body of shareholders.
Definition of Director in the Act
Section 2(13) defines
director to include any person occupying the position of director, by whatever
name called. Whether a person in fact is a director or not will be determined
not just by the name by which a person is called but the position he occupies
and the functions and duties which he discharges. Function is everything name
matters nothing [Forest of Dean Coal Mining Co., In re, (1878) 10 Ch D 450]. A
director will be functioning as a director when he is duly appointed by the
company to control the company's business and is also authorised to contract in
the name and on behalf of the company. It is a condition precedent for a
director to represent the company in court proceedings that he must be
authorised. Bell South International v. Crompton Greaves Ltd., (2001) 106 Com
Cases 437 (Mad).
Powers of Board of Directors-Powers of Management vests in
Board
All the powers of management
of the affairs of the company are vested in the Board of directors. The Board
thus becomes the working organ of the company. In their domain of power, there
can be no interference, not even by shareholders. They are exclusively
empowered to manage and are exclusively responsible for the management of a
company. Under section 291 Board of Directors have been given all the powers of
the company except those which are required to be exercised in the general
meeting of the company either under the Act itself or under the memorandum and
articles of the company. Section 291 also provides that.
The Board of a company
provides leadership and strategic guidance, objective judgment independent of
management to the company and exercises control over the company, while
remaining at all times accountable to the shareholders. The measure of the
Board is not simply whether it fulfils its legal requirements but more
importantly the Board's attitude and the manner it translates its awareness and
understanding of its responsibilities. An effective corporate governance system
is one which allows the Board to perform these dual functions efficiently. The
Board of Directors of a company, thus directs and controls the management of a
company and is accountable to the shareholders. [Paragraph 6.1]
The Board directs the
company, by formulating and reviewing company's policies, strategies, major
plans of action, risk policy, annual budgets and business plans, setting
performance objectives, monitoring implementation and corporate performance,
and overseeing major capital expenditures, acquisitions and divestitures,
change in financial control and compliance with applicable laws, taking into
account the interests of stakeholders. It controls the company and its
management by laying down the code of conduct, overseeing the process of
disclosure and communications, ensuring that appropriate systems for financial
control and reporting and monitoring risk are in place, evaluating the
performance of management, chief executive, executive directors and providing
checks and balances to reduce potential conflict between the specific interests
of management and the wider interests of the company and shareholders including
misuse of corporate assets and abuse in related party transactions. It is
accountable to the shareholders for creating protecting and enhancing wealth
and resources for the company, and reporting to them on the performance in a
timely and transparent manner. However, it is not involved in day-to-day
management of the company, which is the responsibility of the management.
[Paragraph 6.2]
The over-all controls
upon powers of directors are only-those which are envisaged by the
Companies Act, 1956 and the company's memorandum and articles of association.
The shareholders may also exercise some control upon executive powers by
passing resolutions at general meetings. But such resolutions must be
consistent with the Act, memorandum and articles. Shareholders cannot resolve
to do anything against the provisions of the Act or the constitution of the
company.
The manner in which
directors are to exercise their powers depends upon the company's articles. The
Act provides that in respect of the matters listed in S. 292, the directors
must sit together at a Board meeting. The company is entitled to their
collective wisdom. In the exercise of their collective wisdom they may,
however, resolve to leave some of the matters listed in the section with one
director or committee of directors, managing director, manager or other
principal officer. There is no restriction as regards the delegation of other
powers of the Board, though in all cases there is the right of the company in
general meeting to impose restrictions and conditions subject to the Companies
Act, 1956 and the memorandum and articles of association of the company.
Delegation must be by a specific resolution of the Board and some book entries
are not sufficient by themselves to faster liability on the company. Ambala Bus
Syndicate P. Ltd. v. Roop Nagar Credit & Investment Co. P. Ltd., (1997) 88
Com Cases 82 (P&H). It is a condition precedent for a director to represent
the company in court proceedings that he must be authorized. Bell South
International v. Crompton Greaves Ltd., (2001) 106 Com Cases 437 (Mad).
Appeals can be filed by
officers in litigation in which company is involved under authority delegated
to him by marketing director the company who had power of attorney from Board
of Directors. Hindustan Petroleum Corporation Ltd. v. Sardar Chand, (1992) 7 CLA
24 (Punj & Hari).
Section 292A is introduced
by the Companies (Amendment) Act, 2000 with effect from 13th December 2000.
This section provides that public listed companies with paid up share capital
of Rs. 5 crores or more should set up an Audit Committee of the Board of
Directors as a measure for better corporate management.
Power exercisable by Directors with
consent of shareholder
The Act goes further and
specifies in section 293 a number of powers which the directors must exercise
only with the consent of shareholders in general meeting. However, the Board is
not bound to exercise the powers, even though the company passes resolutions in
respect of the exercise of such powers. (Pothen v. Hindustan Trading
Corporation (P.) Ltd., (1967) 37 Com Cases 266 (Ker). The power under section
293 is required to be exercised by the Board of Directors of a public company
or of a private company which is a subsidiary of a public company only with the
consent of general body of shareholders and it cannot exceed the said powers in
the hope that the general body of shareholders will ratify to its actions.
Duomatic Ltd. Re, (1969) 2 Comp LJ 81 (Ch. D).
Where the Articles give power to the Board
to manage business
If, as is usual, the
management of the Company's affairs is entrusted to the directors by the
Articles of Association, a numerical majority of the shareholders insufficient
to alter the articles cannot, in the absence of any provision in, the articles
reserving appropriate power, impose its will on the directors as regards
matters so entrusted to them. If the articles provide that regulations may be
made extraordinary resolution in India, special resolution, an ordinary
resolution is not sufficient to make a regulation which will control the directors.
If no power is reserved to the company to control the directors when acting
within the powers conferred on them by the articles, the articles must be
altered by special resolution, if it is desired to give the company such power.
Where, under the articles, the business of the company is to be managed by the
directors and the articles confer on them the full powers of the company
subject to such regulations not inconsistent with the articles, as may be
prescribed by the company in general meeting, the shareholders are not enabled
by resolution passed at a general meeting without altering the articles, to
give effective directions to the directors as to how the company's affairs are
to be managed, nor are they able to overrule any decision reached by the
directors in the conduct of company's business. (HALSBURY'S LAW OF ENGLAND
FOURTH Edn., Vol. 7).
Board of directors carrying
on business activities not included in the memorandum or articles of
association of a company has committed an offence which is punishable only with
fine under section 629A and therefore the period of limitation for carrying on
such activities is 6 months. NEPC India Ltd. v. ROC, (1999) 97 Com Cases 500
(Mad).
Powers of Management-Shareholders
cannot usurp this power
As is evident from the above
company is an entity distinct and different from its shareholders and its
directors. If powers of management are vested in the directors, certain powers
may be reserved for the shareholders in general meeting. If the powers of
management are vested in the directors, they alone can exercise the powers of
management and the only way the shareholders can control the powers of the
directors is by altering the articles or by refusing to re-elect the
directors of whose action they disapprove. The shareholders cannot themselves
usurp the powers vested by the Articles in the directors any more than the
directors can usurp the powers vested by the articles in the general body-John
Shaw & Sons (Salford) Ltd. v. Shaw, (1935) 2 KB 113 (CA). But shareholders
can interfere with the actions of directors when they are mala fide or their
actions clash with the interests of the company the thereby illegalities are
being committed in the conduct of the company's business. Prudential Assurance
Co. Ltd. v. Newman Industries Ltd., (1982) All ER (CA).
Authority
through memorandum and articles of association
The authority of the
directors is defined by the Memorandum and the Articles of Association; the
directors have no power to go beyond the authority given to them and if they do
anything beyond the scope of the business of the company, their act is ultra
vires and void and the company would not be bound by any act done by the
directors. A company is bound by its dealings with strangers, who act bona fide
with the company even though unauthorised by it, provided such acts are within
the apparent authority of the directors and not ultra vires: Ashbury Railway
Carriage & Iron Co. v. Nector Riche, (1875) 7 HL Cases 653. The Articles of
Association of the company define the powers of the Company between themselves
and the Company and unless the Articles restrict the powers of the Board of
Directors in carrying on the business of the Corporation, a third party who
deals with the directors acting under those powers however, irregularly, is
protected if he acts in good faith in his dealings with them-Ram Buran
Singh v. Mufussil Bank Ltd., (1926), AIR 1925 All 206 (2).
General Meeting cannot override Board's
power to carry on business
The provision in the second
proviso of sub-section (1) of section 291 to the effect that the Board
shall be subject to the provisions contained in that behalf in the Companies
Act, 1956 or any other Act or in the memorandum or articles of the company or
in any regulations not inconsistent therewith and duly made there under
including 'regulations made by the company in general meeting' does not mean
that the company in general meeting can override the Board's powers of carrying
on business, by prescribing a regulation or passing a resolution taking away
the powers given to the Board by the articles. A general meeting can interfere
only consistently with the articles. (Automatic Self Cleaning Filter Syndicate
Co. Ltd. v. Cunningham, (1906) 2 Ch 34; Salmon v. Quin & Axtens Ltd.,
(1909) 1 Ch 311, and on appeal 1909 AC 442). Moreover it is desirable that the
Board of Directors of a company which is not engaged in strictly commercial
activities should get necessary resolutions passed at a general meeting before
implementing any decisions other than those of a purely administrative nature.
Shree Madhu Industrial Estates Ltd. v. Arjun S. Kalro, (1997) 1 Comp LJ 318
(CLB).
Directors of Companies have
no authority other than what is given to them by the Articles. The Articles of
Association being a public document, persons dealing with the company ought to
know the authority of the directors. McCollin v. Gilpin, (1880) 5 QBD 390.
The director of a Company
can do whatever the company can do subject to the restrictions in the Articles
of Association-Tata Iron & Steel Co. Ltd., In re (1928) (AIR 1928 Bom
80: 108 IC 465: 30 Bom LR 197).
The affairs of a company are
required to be conducted in a manner commensurate with the provisions of its
articles of association and the Companies Act, 1956. No person whether he is a
Chairman of the Board of Directors or a person having any other interest in the
company can manipulate the affairs of the company or interpolate a document
particularly when the company is a public limited company. The directors of a
public limited company have a greater responsibility than the directors of a
private limited company. Mahabir Prasad Jalan v. Bajrang Prasad Jalan, (2000)
102 Com Cases 81 (Cal).
Directors and general
meeting of the company can have no power by implication other than what can be
implied, inferred or incidental to the express powers contained in the
memorandum and Articles of Association of the company. Oakbank Oil Co. v. Crum,
(1882) 8 AC 65 (HL). If the directors do something which is clearly in the
larger interest of the company and in obedience to their duty to comply with
the law of the land such action cannot be invalidated just because while
discharging that duty they incidentally trenched upon the interests of the
majority (Milan Sen v. Gurdian Plasticote Ltd., (1998) 28 CLA 239 (Cal)).
Powers of the Board in winding up
The Board of Directors does
not become totally defunct with the appointment of a provisional liquidator and
the company 'Can still defend the proceedings or prefer an appeal against any
order of winding up but there are still some residuary powers left in the Board
of Directors. This can be tested by considering whether the power which the
Board is said to have lost is one which can be said to have been assumed by the
liquidator. If the answer is that it cannot, that may be a good reason for
saying that the Board still retains it. Tata Finance Ltd. v. Chemose Chemical
Industries Ltd., (2000) 100 Corn Cases 338 (Bom).
Decisions
of Board determined through Board's resolution
It was held in Babulal
Choukhani v. Western Indian Theatres Ltd., (1958) 28 Com Cases 565 (Cal) that
the decisions of the Board have to be primarily determined through Board's
resolutions. The Court would look more and depend more on the actual terms of
the resolution than on the terms and language in which their decision was
conveyed by letter or correspondence.
Director's and shareholders' control
In the general management of
a company, the shareholders have no right to interfere except to the extent
provided by sub-section (5) of section 292 or by the Articles of
Association or by any special resolution. Where the directors are given certain
powers by the articles, the company in general meeting cannot interfere with
the exercise of these powers. The shareholders cannot by an ordinary resolution
give any directions to the directors without empowering themselves by an
alteration of the articles to that effect. If they are not pleased with the
management by the directors, they may, by an ordinary resolution, remove such
of the directors whom they disapprove and appoint others in their place.
Section 293 provides certain
restrictions on the powers of the Board of a public company or of a private
company which is a subsidiary of a public company. The restrictions are that
the Board should not exercise certain powers except with the consent of the
shareholders in a general meeting. Section 293(l) provides five restrictions
which are selling leasing or otherwise disposing of the whole or substantially
the whole of the company undertaking, remitting or giving time for the
repayment of any debt due by a director, investing otherwise than in trust
securities, the amount of compensation received by the company for compulsory
acquisition for whole or substantially the whole of the undertaking, borrowing
in excess of paid-up capital and free reserves and contributing to
charitable and other funds.
Doctrine
of internal management
Section 290 only gives
validity to acts of directors, when the appointment of one or more of the
directors is discovered to be invalid or to have terminated by reason of any
provision in the Act such as is contained in the various clauses of section
283(l). It does not give validity to acts which are found or shown to be
invalid on other grounds. It does not cover cases where there is a total
absence of appointment or mere usurpation of authority. Morris v. Kanssem,
(1946) 1 All ER 586. The intention of the provision of this section is to
protect and bind members and people dealing with the company.
The section may be compared
with Regulation 80 of Schedule I Table A. It validates the bona fide acts of
the de facto directors. Charles Joseph v. Kyauktaga Grant Co., (1935) 5 Com
Cases 265.
The validation of the acts
of unqualified directors may apply to circumstances from two different angles:
(i) as between outsiders, strangers and the company and (ii) in relation to the
internal affairs of the company.
Although parties dealing
with Companies are bound to take notice of any limitation of authority in the
Articles of Association, yet where the directors of the company have the power
to borrow, the lenders have a right to presume that the Company has taken
necessary steps to empower them to do so: Royal British Bank v. Turquand,
(1856) 25 LJ QB 317: 119 1 All ER 886.
However this section does
not apply where the act itself is not within the competence of the Board of
directors, e.g., compromising unpaid calls under the guise of forfeiture, the
transaction being ultra vires and invalid. Bhagirath Spinning & Wvg. Co. v.
Balaji Bhavani Power, AIR 1930 Born 267.
Provisions of section 290
will also not apply to dealing with a person who knows of the invalidity of
appointment of the directors, or to a person who is on notice of some defect in
the said appointment or knows that the said irregularity has been challenged
but takes no steps to regularise it. Section 290 cannot also give protection to
invalid proceeding of a meeting. Col. Kuldip Singh Dhillon v. Paragaon Utility
Financers Private Ltd., (1988) 64 Com Cases 19 (Punj & Haryana).
Resolutions, whether they
embody the decisions of the directors or are those passed at general meeting,
should be expressed clearly and in precise terms, and not vaguely. In a
resolution all essential facts, should be included and there should not be any
meaningless words or phrases or statements in it. If it is being passed
pursuant to the provisions of same Act, or Rules or Regulations, the relevant section
or rule or regulations should be mentioned therein. Try to keep each resolution
combined to one subject matter. As far as possible, the minutes should be fully
detailed.
Meaning of motion and resolution
Most matters come before a
meeting by way of a motion recommending that the meeting may express approval
or disapproval or take certain action or order something to ' be done. A motion
is a proposal, and a resolution is the adoption of a motion duly made and
seconded. But every motion need not be followed by a resolution, as where a
motion is made for adjournment of the meeting.
A motion whether it is
passed for the closure of discussion or adjournment, etc. can be passed by an
ordinary resolution unless there is a specific provision in the articles. A
proxy appointed to vote on a substantive resolution can also vote on a motion
relating to that resolution. Waxed Papers Ltd., Re (1937) 2 All ER 481.
Dictionary meaning of the
word 'RESOLUTION' is- 'a formal proposal put before a public assembly or
the formal determination of such proposal on any matter'. Resolution is the
formal expression of opinion by legislative body or public meeting. (Concise
Oxford Dictionary).
Resolution formalises business decisions
Derived from the above
meaning, a RESOLUTION is a formal agreement as to adoption of proposal put
before an assembly of persons or meeting. Wherever a unison of persons working
as a body arises, the activities of such bodies can only be ventilated through
a proper exposition-'RESOLUTION'. The word is applicable to denote the
desire of any assembly of persons including a company which is in effect an
assembly of persons incorporated under the statute of a country being an
artificial juristic person having perpetual succession.
Resolution
goes with authority
A company is comprised of
the members who contribute to the capital of the company, managed by the
Directors who are the representatives of the members. The activities of the
company are regulated by the Government and its agencies to conform to the
requirements set forth in the various statutes of which the Companies Act,
1956, is the principal regulatory force. The compliance of these regulations
either requires certain action (resolution) to be taken at the Board of Directors'
level or its committee or the exposition through Resolution, made at a members'
meeting.
Resolution gives sanction to an act
A 'Resolution' presupposes
an assembly of either the Directors or the members who are to deal with the
business and to record the consensus of the assembly. In the context of company
management, it is of either a Board Meeting or of a General Meeting of the
members. The passing of a resolution should be construed as the manner in which
a meeting formally acts expressing the intent and purpose of the meeting, and
if it is a meeting of members, it means the will of the company. If it is a
Meeting of the Board of Directors, it also mean's the will of the company
through exposition of the intent of the executive action initiated or to be
initiated subject to the limiting and regulatory force of the different
statutes.
Recorded resolution is evidence
A resolution is thus a
decision or an exposition of opinion or consensus of a proposal submitted
before a meeting. A resolution is entered in the minutes of the particular
meeting, which represent the record of proceedings of that meeting. Minutes are
prima facie evidence of the proceedings of the meeting (Section 194). There is
a statutory presumption as to the validity of the minutes of a meeting and if
there is a controversy raised regarding its genuineness or validity, evidence
of a conclusive nature must be adduced to support it. BDA Breweries &
Distillers Ltd. v. Cruickshank & Co. Ltd., (1997) 25 CLA 275 (Bom).
Presumptions to be drawn where minutes
duly drawn and signed
Minutes of meetings whether
general or board of its committee when kept in accordance with the provisions
of section 193 will make the meeting deemed to have been duly called and held
until the contrary is proved and all proceedings thereat to have duly taken
place and in particular all appointments of directors or liquidators made at
the meeting will be deemed to be valid (section 195). The presumptions under
this section is not available to the minutes of an extraordinary general
meeting held on requisition. Bhankerpur Beverages (P.) Ltd. v. Sarabhjit Singh,
(1996) 86 Com. Cases 842 (P & H). Although presumption under section 195 is
a rebuttable one where contrary evidence is adduced, so long minutes of meetings
are recorded and signed within the prescribed period it will be presumed that
it is properly kept and it will be receivable in evidence and-if it is
not so done, presumption as to its validity is not available.
Powers
of the Board and the General Body
The Companies Act, 1956,
requires certain matters to be dealt with by a Board Meeting. In limitation of
Board's authority, certain matters have to be dealt with only by the members
through an ordinary resolution; for protecting the interest of minority, it,
further provides that certain resolutions can only be passed by the members
with three-fourths majority, termed as 'Special Resolution'. Any
resolution required to be passed by the general meeting should usually have a
backing of a board resolution and in the said board meeting the agenda, time
and venue of the general meeting is generally determined.
Composition
of the Board of Directors
The composition of the board
is important in as much as it determine the ability & the board of
collectively provide the leadership and ensures that no one individual or a
group is able to dominate the board. The executive directors (like director-finance,
director personnel) are involved in the day to day management of the companies;
the non-executive directors bring external and wider perspective and
independence to the decision making. Till recently, it has been the practice of
most of the companies in India to fill the board with representatives of the
promoters of the company, and independent directors if chosen were also
handpicked thereby ceasing to be independent. This has undergone a change and
increasing the boards comprise of following groups of directors-promoter
director, (promoters being defined by the erstwhile Malegam Committee),
executive and non-executive directors, a part of whom are independent. A
conscious distinction has been made by the Committee between two classes of non-executive
directors, namely, those who are independent and those who are not. [Para 6.3
of Report of the Kumar Mangalam Birla Committee on Corporate Governance]
Resolution passed by circulation
Normally, 'Resolution' is
passed in a meeting, either of the Board of Directors or the members of the
company, duly convened within the framework of the provisions of the Companies
Act and/or the Articles of Association of the company. There is, however, one
exception for which reference may be made to the provisions of section 188 and
section 289 and Regulation 81 of Table A. Being useful, section 289 and
Regulation 81 are reproduced below.
Section 289. -A resolution by the Board of Directors may be passed by
circulation if the same has been circulated in draft, together with the
necessary papers, if any, to all the Directors, or to all the members of the
committee, then in India (not being less in number than the quorum fixed for a
meeting of the Board or Committee, as the case may be), and all other Directors
or members at their usual address in India, and has been approved by such of
the Directors as are then in India, or by a majority of such of them, as are
entitled to vote on the resolution.
Regulation 81 of Table A. -Save as otherwise expressly provided in the
Act, a resolution in writing, signed by all the members of the Board or of a
Committee thereof, for the time being entitled to receive notice of a meeting
of the Board or committee, shall be as valid and effectual as if it had been
passed at a meeting of the Board or committee, duly convened and held.
Resolution by circulation
should cover only those items which could be passed through circulation as
certain powers are to be exercised by the Board only at meetings.
Paragraph 6 of Secretarial
Standard 1 provides the following on the subject matter of passing of Board
Resolution by circulation:
(i) A resolution proposed to
be passed by circulation should be sent in draft, together with the necessary
papers,
individually to all the
directors or in the case of a Committee Meeting to all the members of the
committee; [6.1]
(ii) The draft resolution to
be passed by circulation and the necessary papers should be circulated by hand
or by post or by facsimile, or by e-mail or by any other electronic mode;
[6.2]
(iii) The resolution should
be deemed to have been passed on the date on which it is signed and dated as
approved by all the directors then in India being not less than the quorum or
on the date on which it is approved by the majority of the Directors entitled
to vote on the Resolution, whichever is earlier. [6.3]
(iv) Resolutions sent for
passing by circulation should be noted along with the decision thereof ' at the
next meeting of the Board or the committee, as the case may be and recorded in
the Minutes of such meeting. (6.4]
Authenticity of
circular resolution
A resolution as above is
called resolution passed by circulation. To ensure its authenticity, such a
resolution should be recorded in the minutes of the next Board Meeting.
Circular resolution has limited scope
The circulation of
resolution, however, is limited in scope. Circular resolutions cannot be passed
where the articles of the Company or the provisions of the Companies Act, 1956,
stipulate that a particular act (adoption of a resolution there for) has to be
performed at a meeting.
Circulation of
proposed resolution
The Companies Act generally
provides for the members' powers to be exercised in a General Meeting only but
section 188 of the Act provides for circulation of any statement with respect
to the matter referred to in any proposed resolution or any business to be
dealt with at a meeting subject to certain conditions mentioned in that very
section at the expense of the requisitions. Sub-section (2) of section
188 provides for the number of members necessary for a requisition. Such a
circulation is to be regarded as a circulation of a statement and not a
circulation of a resolution.
If one is to follow the
definition of Ordinary and Special Resolutions as provided in section 189 of
the Companies Act, 1956, which presupposes convening of a General Meeting with
due notice of such meeting to the members, it may be concluded that no
resolution could be passed by the members just by agreeing to such passing of
the resolution by all the members without convening a General Meeting as
provided in section 189 referred to hereinabove.
Resolution
passed by Postal Ballot (S. 192A)
A listed company in the case
of resolutions relating to certain businesses as prescribed by the Companies
(Passing of the Resolutions by Postal Ballot) Rules, 2001, should be passed
only by means of postal ballot instead of transacting the business in general
meeting of the company. The list of businesses in which the resolutions are to
be passed through postal ballot are the following
(i) alteration in the
objects clause of memorandum of association;
(ii) alteration of articles
of association in relation to insertion of provisions defining a private
company;
(iii) buy-back of own shares by a company
under section 77A;
(iv) issue of shares with
differential voting rights under section 86(a)(ii);
(v) change in place of
registered office out side local limits of any city, town or village;
(vi) sale of whole or
substantially the whole of undertaking of a company under section 293(l)(a);
(vii) giving loans or
extending guarantee or providing security in excess of the limit prescribed
under section 372A(l);
(viii) election of small shareholders' director
under section 252(l) proviso;
(ix) variation in the rights
attached to a class of shares or debentures or other securities as specified
under section 106.
"Quorum" means the
minimum number of persons required to be present at a meeting for transacting
corporate business. In the absence of a quorum the proceedings of the meeting
will be a nullity. The provisions of the Companies Act, 1956, are very specific
in regard to minimum number of Directors or members who shall form a quorum
either for a Board Meeting or for a General Meeting of the members and require
that without quorum, no business can be transacted subject, of course, to certain
exceptions. Section 287 provides for the quorum of Board Meetings and section
174 provides for the quorum of General Meetings. The provisions contained in
section 174 may be overridden by the articles of association of a company to
the extent of providing a larger quorum and not a smaller quorum.
The general rule is that at least two Directors or one-third of the total number of Directors, whichever is higher should be present in order to constitute a quorum of a meeting of the Board and for a General Meeting, at least five members of a company should be personally present in the case of public company (other than a public company which
has become such by virtue of section 43A) and at least two members should be personally present in the case of any other company. In exception to the above provisions, there may be valid meeting with 'one person' present. Following are the cases of one-man meeting:
(a) Where all of the shares of a particular class (Preference Shares) are held by one person, that person can
constitute a meeting of
preference shareholders., This may also happen in the case of debenture-holders'
meeting where all the debentures issued by a company are held by one person.
(b) Usually the articles of
companies authorise the Board of Directors, subject to the provisions of the
Companies Act, to delegate any of its powers to a committee consisting of such
Director or Directors as it thinks fit, and if there is no stipulation in such
delegation in regard to quorum, one person, if he forms such committee, shall
constitute a valid meeting of that committee.
(c) Regulation 75 of Table
'A' of Schedule I provides (and most of the companies' Articles of Association
similarly provide) that if the number of Directors is reduced below the quorum
fixed by the Act for a meeting of the Board, the continuing Director or
Directors may act for the purpose of increasing the number of Directors or for
summoning a General Meeting. In such a case, one Director may form a valid meeting
for the limited purpose of appointment of a new Director or Directors or for
summoning a General Meeting of the company.
(d) In the event of default
of holding an Annual General Meeting of a company in accordance with section
166, Explanation under sub-section (1) of section 167 of the Act provides
that with the direction of the 'Company Law Board', one member of the company
shall be deemed to constitute a meeting (one member present in person or by
proxy).
(e) If a meeting other than
the Annual General Meeting cannot be called according to the manner prescribed
by the Act or the articles, Explanation to sub-section (1) of section 186
provides that the Company Law Board may order a meeting to be held by one
member present in person or by proxy.
Where the total number of
members of a company becomes reduced below the quorum fixed for a meeting, it
would appear that the rule as to quorum will be satisfied, if all the members
of the company though less than the quorum fixed under the articles are present.
[Palmer's Company Law]
The required quorum should
not only be present at the time when the meeting proceeds to do business
(Regulation 49 in Table A) but it should also be present when questions are
brought before the meeting and are being decided. Henderson v. Lonitt & Co.
Ltd., (1894) 1 Rethe 674,
Quorum being a mandatory
provision even adjourned board meetings should have quorum and if such meetings
are held without quorum. They will be void. Maharani Yogeshwari Kumari v. Lake
Shore Palace Hotel, (1996) 21 CLA 107 (Raj).
Secretarial Standard on Quorum (ICSI-SS-1)
Paragraph 3 of Secretarial
Standard I provides that quorum in meetings of the Board should be present
through out the meeting and no business should be transacted when the quorum is
not so present. It also provides that where the member of directors is reduced
below the minimum fixed by the articles of association, no business should be
transacted unless the member is first made by the remaining directors or
through a general meeting.
Representation of Corporation at Meetings
A company, which is a member
or creditor or debenture holder of another company, may be represented at
meetings of members or creditors of that other company by persons authorised by
resolution. The representative of a body corporate appointed under section 187
of the Companies Act, 1956 is a member personally present for purposes of
counting a quorum, (Re, Kelantan Coconut Estates Ltd., 1920 WN 274). Such an
authorised person is entitled to exercise the same rights and powers including
the right to vote by proxy.
One individual representing several
persons
The provisions of section
187 as well as section 187A are quite significant in the context of the words'
'personally present' excluding proxies and 'members personally present' in
section 174 of the Act with respect to quorum for meeting. The representative
of a body corporate appointed under section 187 is to be considered as an
individual member. Thus, if two or more bodies corporate who are members of a
company prefer a single person to represent them in a General Meeting of that
other company, each of the bodies corporate will be treated as personally
present through that individual representing it. If, for instance, a single
person represents three bodies corporate, his presence will be counted as three
members 'personally present' within the meaning of section 174 of the Act,
Macleod (Neil) & Sons Ltd., Petitioners, 1967 Scottish Law Times 46.
In State of Kerala v. West
Coast Planter's Agencies Ltd., (1958) 28 Comp Cases 13, the word 'meeting' has
been construed as coming together of two or more persons. Generally, therefore,
more than one person will be necessary to constitute a meeting. Thus, in
connection with a quorum to be formed for a meeting with the representations
considered under sections 187 and 187A, at least two members' physical presence
is called for except in cases where Company Law Board has given direction under
explanation to section 167(l) and 186(l) that one member of the company,
present in person or by proxy shall be deemed to constitute a meeting.
Initiating a resolution by circulation
A resolution to be put
before a Board Meeting of the company may be initiated either by a director or
at the requisition of a director by the secretary of the company. A resolution
to be put before a General Meeting of the company may be initiated either by
the management of the company, i.e., by the Board of Directors or by the
member(s) either in group or otherwise. The relevant provisions in the
Companies Act granting power to director(s) and to member(s) to initiate a
resolution are:
(i) Pursuant to section 289,
the Board of Directors of a company or a committee thereof cannot pass a
resolution duly by circulation, unless the resolution has been circulated in
draft together with the necessary papers, if any, to all the directors, or to
all the members of the committee, then in India (not being less in number than
the quorum fixed for a meeting of the Board or committee, as the case may be),
and to all other directors or members at their usual address in India, and has
been approved by such of the directors as are then in India, or by a majority
of such of them, as are entitled to vote on the resolution.
(ii) Pursuant to section
188, a company shall, on the requisition in writing of a certain number of
members (unless the company otherwise resolves), at the expense of the
requisitionists, give to members of the company entitled to receive notice of
the next Annual General Meeting, notice of any resolution which may be intended
to be moved at that meeting by such members, circulate to the members as
mentioned above any statement of not more than one thousand words with respect
to the matters referred to in any proposed resolution or any business to be
dealt with at that meeting. The number necessary for a requisition shall be
member or members representing not less than one-twentieth of the total
voting power of all the members having right to vote on the day of such
requisition on the resolution or business to which the requisition relates or
not less than one hundred members having the right aforesaid and holding shares
in the company in which there has been paid-up an aggregate sum of not
less than one lakh of rupees in all. The intended resolution may be moved by
the requisite number of members to be dealt with at an Annual General Meeting
or at any other General Meeting after circulation of such requisition to the
members in each case.
Whether a member has
strictly complied with the requirements of section 188 is a question of fact
and cannot be adjudicated in exercise of the court's, extraordinary
jurisdiction under Article 226. Naresh Kumar Jain v. Union of India, (1996) 23
CLA 238 (Delhi).
Default in complying with
the provisions of this section is punishable with fine of Rs. 50,000/-
(iii) Pursuant to section
257(l), on being proposed (by himself or by some other member) for the office
of a Director (not being a retiring Director), a person shall be eligible for
appointment to the office of Directors at any General Meeting provided the
notice in writing intending to propose him has been left at the office of the
company by the person himself or by any member at least fourteen days before
the meeting along with a deposit of five hundred rupees which shall be refunded
to such person or to such member if the person succeeds in getting elected as a
director. The qualification or the right of the member has not been specified.
A question may arise as to whether or not a member holding preference shares
only is entitled to exercise the right at a General Meeting. As a preference
shareholder is not capable of voting at a General Meeting in the usual course,
it may be argued that a preference shareholder is not entitled to move such a
resolution. For himself, only a member having right to vote on the issue of the
appointment of a Director can move a resolution for such appointment. It should
also be noted that the person who has given the notice of the resolution should
be personally present at the meeting and move the resolution. No one else on
his behalf can move the resolution at the General Meeting.
Provisions of this section
do not apply to a private company, unless it is a subsidiary of a public
company.
Non-compliance of the
procedure prescribed for the appointment of new directors in place of the
retiring directors would render the appointments invalid. Notice of proposal as
required by section 257 was not circulated in this case. Namita Gupta v. Cachar
Native Joint Stock Co. Ltd., (1999) 98 Com Cases 655 (CLB-PB).
Paragraph 1. 1 of
Secretarial Standard I states that unless the articles of association provide
otherwise, any director of a company may and the manager or secretary on the
requisition of a director should at any time, summon a meeting of the Board of
Directors. Paragraph 1.1 of Secretarial Standard 2 states that the Board of
Directors of a company should convene a general meeting. The Board of Directors
should either at a meeting of the Board or by passing a resolution by
circulation convene or authorise the convening of a general meeting (ICSI-SS.
1).
Power to convene a meeting
which normally vests in the Board of Directors has also been vested in the
following:-
(i) the 'Company Law Board'
can call an Annual General Meeting (Sec. 167);
(ii) the member or members
holding not less than one-tenth of the total voting power can give a
requisition to the Board of Directors for calling Extraordinary General Meeting
(Sec. 169);
(iii) the Company Law Board
can also order a General Meeting (other than the Annual General Meeting) to be
called (Sec. 186).
(iv) the Company Law Board
on application under section 397 or 398 (Sec. 402(g)).
Power of Court to convene meetings
Powers are also conferred on
the Court and the Central Government in the case of Government companies to
order meetings of the creditors or class of creditors or of members, as the
case may be, as provided in Part VI, Chapter V of the Companies Act dealing
with compromises, arrangements and reconstructions.
Pursuant to section 391, the
Court may, in the case of any company other than a Government company, on the
application of the company or of any creditor or member of the company, or in
the case of a company which is being wound up, of the Liquidator, order a
meeting of the creditors or class of creditors, or of members or class of
members, as the case may be, to be called, held and conducted in such manner as
the Court directs. The Court under this section even extends to see whether the
resolutions were passed by the statutory majority or not: In re: Hindustan
General Electric Corporation Ltd., AIR 1959 Cal 679 : 62 Cal WN 889. The Court
can also under this section condone the delay in notice period in appropriate
cases. Suman Metals Ltd. Re, (1999) 98 Com Cases 89 (Bom).
Establishment
of Company Law Board
An independent Company Law
Board had been established by the Amendment Act, 1988 to exercise the judicial
and quasi-judicial functions hitherto exercised by the courts or the
Central Government, besides the powers already statutorily vested in the Board
by the Amendment Act of 1974. The Board has to regulate its own procedure and
is to be guided by the principles of natural justice and has to act in its
discretion. The Government reconstituted the Board as an autonomous Board with
effect from 31st May, 1991, and Company Law Board Regulations, 1991 were made
by the said Board under subsection (6) of section 1OF of the Companies Act,
1956.
Company Law Board-A quasi-judicial
body
The Company Law Board will
be a quasi- judicial body to exercise some of the judicial and quasi-judicial
functions as are presently being exercised either by the Court or the Central
Government. The orders of the Board will be appealable to the High Court on
questions of law. Some of the important changes resulting from the enforcement
of the remaining provisions of the Amendment Act of 1988 are as under:
(i) The erstwhile section
111 empowered the Central Government (power delegated to the Company Law Board)
to hear appeals against refusal to register transfer or transmission of shares.
Section 111 has now been amended and the provisions of section 155 have been
assimilated therein empowering the Company Law Board also to rectify register
of members. Earlier the powers under section 155 vested in the High Court. The
Depositories Act further amended section 111 by inserting sub-section
(14) to that section whereby only private companies and deemed public companies
can make an appeal to the Company Law Board under this section.
(ii) The power under section
111 A for rectification of register of members and debenture holders on
transfer and transmission of a public company on its appeal or application.
This section was inserted by the Depositories Act, 1996 w.e.f. 20-9-1995.
(iii) The power under
section 167 for calling an Annual General Meeting which was earlier with the
Central Government has been given to the Company Law Board.
(iv) The power under
sections 397/398 for relief in cases of oppression and mismanagement was
exercised by the High Court. This power has now been conferred on the Company
Law Board.
(v) Section 621-A is a
new provision empowering the CLB and the Regional Director to compound offences
punishable by fine by imposing penalties in lieu of prosecution. Where the
maximum amount of fine, which may be imposed for an offence, does not exceed
Rs. 50,0001-, the same can be compounded by the Regional Director and
other offences can be compounded by the Board. It is hoped that these provisions
will ensure compliance of law by the companies and save their time and expenses
in litigation.
With the creation of the
Company Law Board certain administrative powers, hitherto delegated to the
Board under section 637 of the Act, have now been withdrawn. Some of these
powers are-powers to grant extension of time for repayment of deposit,
exemption from holding Annual General Meeting at the registered office,
allowing payment of dividend without providing for depreciation and making
changes in the format of the annual accounts, permission for appointment of
sole selling agents and approval for entering into contracts in which directors
are interested. These powers will now be exercised by the Central Government.
The Government has also made
consequential changes in the rules and regulations made under the Companies
Act, 1956. Since the CLB will regulate its own procedure under section 10E(6)
of the Act, the Companies (Appeal to the Central Government) Rules, 1957, the
Company Law Board (Procedure) Rules, 1964 and the Company Law Board (Bench)
Rules, 1975 have been rescinded with effect from 31st May, 1991. The Board will
now be guided by the Company Law Board Regulations, 1991, in the conduct of its
business. These Regulations were amended by the Company Law Board (Amendment)
Regulations, 2000, dated 14-12-2000 to insert Additional Principal
Bench in Chennai where Principal Bench matters company within the jurisdiction
of the Southern Region can be referred. These Regulations have been again
amended by the Company Law Board (Amendment) Regulations, 2002, dated 3-9-2002
providing principal bench and additional principal bench matters to be heard by
one or more members and regional bench matters also to be heard by one or more
members. The Government has also prescribed fees for making an application to
the CLB vide the CLB (Fees on Applications & Petitions) Rules, 1991. These
Rules have been recently amended w.e.f. 1-4-2000 vide GSR 219(E),
dated 2-3-2000 enhancing fees under sections 17(2), 49(10), 79(2),
80A(l) proviso 144(4), 163(6), 167, 186, 225(3) proviso, 235(2), 237(b), 250,
284(4) proviso, 304(2)(b), 307(9), 397/398, 407(l)(b), 408, 409(l) &
614(l). During the transitional period, section 68 of the Companies (Amendment)
Act, 1988 provides for the manner for disposal of pending applications by the
Court (in respect of which powers have been conferred on the Board) and the CLB
(in respect of which powers of the Central Government were earlier delegated to
the Board) as under:
(1) Any matter or proceeding
which, immediately before the commencement of the Companies (Amendment) Act,
1988 was pending before any court shall, notwithstanding that such matter or
proceeding would be heard by the CLB after such commencement, be continued and
disposed of by that court after such commencement in accordance with the
provisions of the principal Act (The Companies Act, 1956) as they stood
immediately before such commencement.
(2) Any matter or proceeding
which, immediately before the commencement of the Companies (Amendment) Act,
1988 was pending before the CLB by virtue of any notification issued by the
Central Government shall, unless such matter or proceeding would be heard by
the CLB after such commencement, be heard and disposed of by the Central
Government.
Subsequent to the amendments
brought out by the Companies (Amendment) Act, 1988, the Depositories Act, 1996
brought certain amendments in the Companies Act, 1956 with effect from
September 20, 1995. Section I 11 A has been inserted giving power to the Company
Law Board to hear appeals against refusal to register transfer of shares of
public companies.
Powers of the High Court transferred to
the Company Law Board
|
S. No. |
Sections of the Companies
Act, 1956 |
Extent of Powers |
|
1. |
43
proviso |
To grant
relief to a private company from consequences of default in complying with
conditions constituting a company a private company.
|
|
2. |
49(10) |
To direct an immediate inspection of register of
investments of company not held by it in its own name.
|
|
3. |
113(3) |
To direct the
company and any officer there of to deliver the shares/debentures
certificates within prescribed time.
|
|
4. |
118(3) |
To direct
that the copies of trust deed be sent to the person requiring it.
|
|
5. |
144(4) |
To compel an
immediate inspection of copies of instruments creating charges and company's
register of charges.
|
|
6. |
155 |
To rectify
register of members merged with section 111(4) and new section 111A added by
the Depositories Act, 1996.
|
|
7. |
163(6) |
To compel an
immediate inspection of registers, indexes, returns etc. or furnishing of
extracts or copies to the person requiring it.
|
|
8. |
188(5) |
To dispense
with circulation of members' resolutions.
|
|
9. |
196(4) |
To compel an
immediate inspection of the minute books or direct that the copy required
shall forthwith be sent to person requiring it.
|
|
10. |
225(3)
Proviso |
To dispense
with circulation of representation of retiring auditors.
|
|
11. |
284(4)
Proviso |
To dispense
with circulation of representation of director who is to be removed.
|
|
12. |
304(2)(b) |
To compel an
immediate inspection of register of directors etc.
|
|
13. |
307(9) |
To compel an
immediate inspection of register of Directors' shareholdings etc.
|
|
14. |
Chapter
IV-A Part VI 388B to 388E |
To recommend
to Central Government for removal of managerial personnel from office.
|
|
15. |
Chapter
VI 397 to 407 |
Prevention of
oppression and mismanagement.
|
|
16. |
407 |
To
grant leave from termination or setting aside of agreement. |
|
17. |
614 |
Enforcement
of duty of company to make returns etc. to the Registrar of Companies. |
|
18. |
Schedule
XI |
Form
in which sections 539 to 544 are to apply to cases where an application is
made under section 397 or 398. |
Matters to be
dealt with by the Principal Bench and Regional Benches of Company Law Board
|
S. No. |
Sections of the Companies
Act1956 |
Subject |
|
1. |
235 |
To declare by
an order that affairs of a Company be investigated by Inspector(s).
|
|
2. |
237 |
To form an
opinion as to circumstances suggesting investigation into the affairs of a
Company.
|
|
3. |
247 |
Investigation
of ownership of Company.
|
|
4. |
248 |
To require
information regarding persons having an interest in Company.
|
|
5. |
250 |
Imposition of
restrictions upon shares and debentures and prohibition of transfer of shares
or debentures in certain cases.
|
|
6. |
388B |
To recommend
removal of managerial personnel from office.
|
|
7. |
Chapter
VI of Part VI 397 to 403 |
To prevent
oppression and mismanagement
|
|
8. |
407 |
To grant
leave from termination or setting aside of agreement.
|
|
9. |
408(l),
(2) and (5) |
To decide
whether it is necessary to appoint Government Directors on the Board and to
advise Central Government.
|
|
10. |
409 |
To prevent
change in Board of Directors likely to effect Company prejudicially.
|
|
11. |
2A
of MRTP Act |
Determination
of any question of group, interconnection or same management.
|
Regional Benches consisting of [one or
more members]
|
S. No. |
Sections of the Companies
Act, 1956 |
Subject |
|
1. |
111 |
Appeal against refusal of a private or deemed
public company to register transfer or transmission/rectification of register of
members. |
|
2. |
111A |
Appeal against refusal of any other company to
register transfer or transmission/application for rectification of register
or records of a company or depository. |
|
3. |
269(7) |
Decision on a reference made by the Central
Government on appointment of managing or whole-time director without
the approval of Central Government in contravention of the requirements of
Schedule XIII. |
Single member sitting at the Regional
Bench
|
S. No. |
Sections of the Companies
Act, 1956 |
Subject |
|
1. |
17(2) |
Confirmation
of alteration of memorandum of association as to change of place of the
registered office from one State to
another of a company.
|
|
2. |
18(4) |
Extension of
time for filing documents for registration of alteration.
|
|
3. |
19 |
To revive
order made under section 17.
|
|
4. |
43 |
To grant
relief from consequences of failure to comply with conditions constituting it a private company.
|
|
5. |
49(10) |
To direct an
immediate inspection of Register of investments if the inspection is refused.
|
|
6. |
58A(9) |
To direct the
company to make repayment of matured deposits.
|
|
7. |
58AA(3) |
Pass an appropriate order within 30 days from the
date of receipt of intimation under sub-section (1) of section 58AA. |
|
8. |
79(2) |
To sanction issue of shares at a discount. |
|
9. |
80A
Proviso |
To consent to the issue of further redeemable
preference shares in lieu of irredeemable preference shares. |
|
10. |
113(l) |
To extend the period for delivery of certificates
or debentures |
|
11. |
113(3) |
To direct the company and any officer of the
company to make good the default providing time-limit for issue of
share/debenture certificates. |
|
12. |
117B(4) |
To order imposition of such restrictions on the
incurring of any further liabilities as it thinks necessary in the interests
of the holders of the debentures. |
|
13. |
117C(4) |
To direct the company to redeem the debentures
forth with by the payment of principal and interest due thereon. |
|
14. |
118(3) |
To direct furnishing of copy of debenture trust
deed to person requiring it. |
|
15. |
141(1)
and (3) |
To extend time or condone delay in filing
particulars of a charge or modification of a charge or intimation of payment
of satisfaction of a charge with the Registrar of Companies. |
|
16. |
144(4) |
To direct inspection of copies of instrument
creating charges or register of charges. |
|
17. |
163(6) |
To direct inspection of registers and returns or
to furnish the copies thereof to the person requiring it. |
|
18. |
167 |
To direct calling of annual general meeting. |
|
19. |
186 |
To order calling of general meeting (other than annual
general meeting). |
|
20. |
188(5) |
Decision regarding circulation of members'
resolution. |
|
21. |
196(4) |
To
pass an order directing that a copy of balance-sheet and auditor's
report demanded be furnished forthwith to
person concerned. |
|
22. |
219(4) |
To order that a copy of balance-sheet and
auditor's report demanded be furnished forth with to person concerned. |
|
23. |
225(3) |
Proviso Decision
with regard to rights of an Auditor. |
|
24. |
284(4) |
Proviso Decision
with regard to rights of a Director. |
|
25. |
304(2)(b) |
To pass an order directing immediate inspection of
register maintained under section 303. |
|
26. |
307(9) |
To pass an order directing immediate inspection of
register maintained under the section. |
|
27. |
614(l) |
To order directing a company to make good the
default from its failure to make returns etc. to Registrar of Companies. |
|
28. |
621A |
To compound offences. |
Same power as of the Court also vests in
Central Government
In exercise of the power of
the Central Government to provide for an amalgamation of two or more companies
in national interest pursuant to section 396 of the Companies Act, or the
amalgamation or reconstruction of a Government company under section 391, the
Central Government may cause a General Meeting of the members of each of the
companies involved to be called in order to consider the draft of the proposed
order containing terms of amalgamation of such companies. Provisions of section
396 are intended to allow companies to avoid observance of the usual procedure
prescribed by the Companies Act, 1956 for amalgamation which leads to prolonged
delays being detrimental to the national interest.
Liquidator's power to call a meeting
In the process of winding up
of company under the Companies Act, the Liquidator/Official Liquidator of the
body corporate who assumes the power of the Board of Directors is required to
do all administrative acts and in so doing can also call meetings of the
members, contributories or of the creditors.
Moving a formal resolution
is the act of proposing a resolution before a meeting and is known as 'motion'.
The resolution, in the normal circumstances, would have been brought before the
meeting through the Chairman of the meeting. A motion is a proposal, under
consideration before it is voted upon and a resolution is the adoption of a
motion duly made and seconded and entered in the minutes book of the meeting.
But every motion need not be followed by a resolution as where a motion is made
for adjournment of the meeting or for confirmation of minutes of the previous
Board Meeting or leave of absence of directors.
One should keep in mind the
following points while framing a motion:
(i) A motion should be
within the ambit of the businesses included in the notice of the meeting or in
connection with them.
(ii) The words or thought in a motion should be definite and unambiguous.
(iii) A motion must be in
writing and signed if required by the articles of association of the company.
(iv) A motion must comply
with the Companies Act, 1956 and also with the articles of association.
(v) The mover of the motion
should be competent to move it.
Formal Motions and their types
Formal motions can be called
those motions which do not affect the subject matter of a meeting but
regulations the procedure of a meeting. Such motions usually either hasten or
postpone decisions at a meeting and they are proposed without provisions
notice. Such formal motions can be of the following types:
(i) Closure of the motion;
(ii) Deferring a motion;
(iii) Motion to proceed to the next business of the
agenda;
(iv) Motion to adjourn the discussion;
(v) Motion to adjourn the meeting.
Usually, businesses to be
transacted in an Annual General Meeting are incorporated in the 'Notice' of the
meeting itself. Because of the statutory requirements of section 173 under
which all businesses to be transacted at the Annual General Meeting are to be
deemed special with the exception of the businesses relating to (i)
consideration of the accounts, balance-sheet and the reports of the Board
of Directors and Auditors thereon, (ii) declaration of a dividend, (iii) the
appointment of Directors in the place of those retiring, and (iv) the
appointment of, and fixing of the remuneration of the Auditors, it becomes
necessary to circulate the full text of the proposed resolution on any special
business with Explanatory Statement annexed thereto, so as to place before the
shareholders all material facts which have a bearing on the question on which
the shareholders have to form their opinion. It is to be noted that although
appointment of auditors is required to be made by a special resolution under
section 224A where not less than 25% of the subscribed share capital is held,
by a combination of public financial institution Government, Central Government
or State Government or a nationalized bank or an insurance company, the item
does not come under special business and no explanatory statement is needed to
be circulated. Explanatory statement should be given only for special businesses
irrespective if the fact of their being passed as ordinary resolutions or
special resolutions going by the simple provisions of section 173(2).
At the meeting, the Chairman
reads out the full text of the resolution and asks for a mover or proposer to
formally move the resolution. It is still a moot question, if any resolution
moved by a proposer would require a ‘seconder’ or not. In practice, however,
the Chairman asks for a seconder, mainly as a test as to whether there is some support
of the motion but unless required by the articles, the law does not require a
seconder.
It is customary, in circulating the proposed resolution, to indicate sufficiently the intention to incorporate any amendment before it is passed, by using such words as "to pass a resolution.... with or without amendments".
How far, if at all, a formal
resolution moved as 'motion' in a meeting can be amended and to what extent?
"The consensus is that any amendment relevant to the motion may be moved
provided that it does not go beyond the scope of the notice convening the
meeting. Where an amendment is not germane to the notice under consideration or
comprises matters which are irrelevant to the issue, such amendment or
amendments may be disallowed by the Chairman as unacceptable, but if an
amendment is improperly withheld by the Chairman from the meeting, the Court
will declare the resolution invalid (Henderson v. Bank of Australia, (1890) 45
Ch D 330). If such an amendment is proposed under a motion properly seconded,
the Chairman should put to the meeting the motion as amended. If there are more
amendments than one, they may be put to the meeting in the order in which they
are proposed, or if this is inconvenient, in the order in which the Chairman
considers them most convenient. If an amendment is proposed to an amendment,
the former should be put first and if it is passed, the amendment, as amended,
should then be put, followed by the resolution as amended. In all amendments of
motions placed and seconded at a meeting, the only criterion to be kept in view
is whether or not the business that may be transacted in a meeting could be
verbally proposed or proposed without the requisite 'notice' as required under
the Companies Act, 1956.
Amendments to a motion may
be by way of addition or insertion of new words or by way of omission of some
words from the original motion. Amendments can also be omission of s9me words
and addition of some other words in their place or some other place in the body
of the motion.
Statutory limitation of amendment
In view of the provisions of
sections 173 and 189 of the Companies Act, it seems the scope of an amendment
to an ordinary resolution, where the notice sets out the exact terms of the
proposed resolution, is circumscribed by the matters set out in the notice
calling the meeting. In regard to an amendment of a Special Resolution,
provisions of sub-section (2) of section 189 being mandatory, the
provisions must be strictly complied with. Sub-section (2) of section 189
provides that-
“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 of the General Meeting; and
(c) the votes cast in favour
of the resolution (whether on a show of hands, or on a poll, as the case may
be) by members who, being entitled so to do, vote in person, or where proxies
are allowed, by proxy, are not less than three times the number of the votes,
if any, cast against the resolution by members so entitled and voting.”
There is another type of
resolution envisaged by section 190 which is a resolution that requires special
notice under sections 225 and 284 relating to appointment of an auditor other
than the retiring auditor and removal of director or the appointment of a
director in place of the director so removed.
The amendment of a notified
resolution should be considered within the mandatory provisions of the section,
such as, "the intention to propose the resolution as a Special Resolution
has been duly specified" in the notice proposing such resolution. It is
observed that the scope of verbal proposition of amendment of a 'Specific
Resolution' becomes in effect a fresh proposition which should be notified in
the same manner. Authoritative view in this regard is that a 'Special
Resolution' should be passed substantially in the form in which it appears in
the notice of the meeting. If there is something wrong in the basis of the
resolution, a fresh resolution to be moved as Special Resolution may be
notified in accordance with and within the scope of section 189 of the Act in a
subsequent General Meeting.
It is advisable to use the
words 'with or without modification' while drafting the notice for the special
resolution. The use of such words will permit minor amendments in the special
resolution at the meeting.
While drafting a resolution the following points
should be kept in mind:
(i) Ensure that all essential facts are included in
the resolution.
(ii) Do not use any meaningless words or phrases in
the resolution.
(iii) Do not use any
ambiguous words, phrases or statements inconsistent with other parts of the
body of the resolution.
(iv) Instruments, documents
or persons referred to in the resolution should be properly identified.
(v) Where the resolution is
being passed pursuant to any provisions of any particular Act or any of the
articles ensure that it mentions that particular section or article.
(vi) Where the resolution
requires the approval any authority or Government or Court, ensure that it
mentions that fact.
(v) Try to confine the
resolution to one subject matter and use separate resolution for separate
subject matters even though interconnected.
(vi) Ensure that the
resolution is brief, precise, and can did and also easily adaptable to suit a
situation.
Passing of a Board
Resolution is an expression of administrative will of the company as to the
consensus of an action to be taken. The Directors of a body corporate are at
the apex of the administrative set-up, having been appointed by the
members of the company.
Board's power co-extensive with
Company's
In the Board of Directors
(and not an individual Director) is vested the power of management conferred by
the Companies Act or the Memorandum or Articles of the company. All decisions
and actions should properly emanate from the Board of Directors in the form of
a consensus of a meeting thereof, that is, in the form of a resolution (Section
291). The board of a company provides leadership and strategic guidance,
objective judgment independent of management to the company and exercises
control over the' company, while remaining at all times accountable to the
shareholders. The measure of the board is not simply whether it fulfils its
legal requirements but more importantly, the board's attitude and the manner it
translates its awareness and understanding of its responsibilities. an
effective corporate governance system is one, which allows the board to perform
these dual functions efficiently. The board of directors of a company, thus
directs and controls the management of a company and is accountable to the
shareholders. [Para 6.1 of the Report of the Kumarmangalam Birla Committee on
corporate governance].
The Board may, subject to
the provisions of the Act and the Articles of Association of a company,
delegate any of its powers to a committee or committees consisting of such
number of Directors as it thinks fit. Any committee so formed shall, in the
exercise of the powers so delegated, conform to any regulations or limitations
that may be imposed on it by the Board. A committee as aforesaid may consist of
even one person. But a committee constituted for the purpose of issue of share
certificates or duplicates of share certificates, etc. should consist of at
least three Directors if the total strength of the Board of Directors is more
than six, and two Directors if the total strength is less than six. Where the
memorandum and articles of association of a company authorise its board of
directors to take certain decisions and permit the delegative of such authority
the board may delegate such authority and such authorised person is competent
to take section under the authority. Hindustan Petroleum Corpn. Ltd. v. Sardar
Chand, (1991) 6 CLA (Snr.) 28 (Punj & Har).
Resolutions requiring special notice
I. Fourteen days' clear notice.-Section 190 casts a duty on
the members to give to the company 14 days' clear notice of his intention to
move the resolution. 14 days' clear notice means, the day on which notice is
served on the company and the day of the meeting are to be excluded.
II. Cases in which special notice required.-Under the Act special notice
is required to be given in the following cases:
(1) Removal of an auditor
appointed by the Board within one month of the date of registration and
appointment of other person as an auditor in his place (S. 224(5)(a)).
(2) Removal of an auditor
appointed in general meeting or by the Board to fill in any casual vacancy
before the expiry of his term after obtaining previous approval of the Central
Government (S. 224(7) & S. 225(4)).
(3) At an annual general
meeting appointing as auditor a person other than a retiring auditor or
providing expressly that a retiring auditor shall not be reappointed (S.
225(l)).
(4) To remove a director or
to appoint somebody instead of director so removed at the meeting at which he
is removed (S. 284(2) & (5)).
Once a notice under section
169 is received by a company which itself indicates the business to be
transacted in the meeting and which meeting is to be held within a stipulated time
frame as provided in that section, the question of issuing a separate special
notice under section 190 would not arise. Keredla Suryanarayana & Others v.
Ramadas Motor Transport Ltd. & Other, (1999) 98 Com Cases 518 (CLB-PB).
Immediately on receipt of
the notice of the intention to move any such resolution has been received, the
company shall give notice of the resolution in the same manner as it gives
notice of the meeting to the members as also to the auditors or Director concerned.
If it is not practicable to do so, the company shall give notice thereof either
by advertisement in the newspaper having an appropriate circulation or in any
other modes allowed by the Articles of Association of the company. In all
circumstances notice must be given not less than seven days before the meeting.
If default is made in complying with the provisions of either of the sections
viz., 19-0, 225 and 284, the company and every officer of the company who
is in default shall be punishable with fine which may extend to Rs. 5 000/-.
Passing
of resolution by circulation by the Board
Section 289 provides that
when the Board of Directors of a company wants to get a resolution passed by
circulation, then the draft of the resolution together with the necessary
papers are to be circulated to all the directors or to all the members of the
committee then in India and to all other directors or members of the committee
at their usual addresses in India. The resolution shall be deemed to have been
duly passed by the Board or by a committee if it has been approved by such of
the directors as are then in India or by a majority of the directors as are
entitled to vote on the resolution.
Exercise of power at Board Meeting
The powers mentioned herein
below must be exercised at the meeting of the Board of Directors only and not
by passing resolutions by circulation:
(a) to fill up a casual
vacancy among directors (S. 262).
(b) to make calls on
shareholders in respect of money due (S. 292(l)(a)).
(c) to authorize
the buy-back referred to in section 77A(2)(b) proviso (s.
292(l)(aa)
(d) to issue debentures (S.
292(l)(b)).
(e) to borrow moneys
otherwise than on debentures (S. 292(l) (c)).
(f) to invest the funds of
the company (S. 292(l)(d)).
(g) to make loans (S.
292(l)(e)).
(h) to accord consent to a
director for entering into contracts with the company (S. 297).
(i) disclosure of concern or
interest of a director in a contract with the company (S.299).
(j) disclosure of
shareholdings by directors (S. 308).
(k) appointment of person as
Managing Director or Manager holding such a post in another company (Ss. 316
& 386).
(l) investment in shares of other companies beyond
specified limits (S. 372A).
It is implicit in S. 291
that powers vested in the Board must be exercised according to the view of the
majority of the Board which reflects the collective wisdom of the Board by a
majority of votes, unless the articles otherwise provide that the decision
shall be unanimous. A provision in the articles of association of the company
that powers of the Board shall be exercised not according to the majority of
the votes-or by the directors but according to the wishes of a section of
the Board of Directors not constituting the majority is destructive of the scheme
of S. 291 of the Act. An article providing that in respect of certain specified
matters a resolution of the Board or its committee shall not be passed unless
one of the directors of the company representing a certain group is present at
the meeting and votes in favour of the resolution is ultra vires of S. 252 read
with S. 291.
If articles say proceedings
would be instituted by the managing director of the company and if any suit is
filed by a person who holds a power of attorney that suit was held not to be
maintainable. Ferruecio Sias v. Jai
Manga Ram Mukhi, (1998) 93 Com Cases 750 (Delhi). When a director holding power
of attorney from other directors institutes a money suit on behalf of the
company, it was held the suit was competent. Ganga Saran and Sons Pvt. Ltd. v.
Sachdeva Offset and Packing Industries Pvt. Ltd., (1999) 98 Com Cases 351 (Del-DB).
A complaint filed by a company must have authorization to that effect either in
a resolution of the Board of Directors or under the standing orders or articles
of association of the company and not just by a paid employee of the company.
Medical Chemicals and Pharmaceuticals P. Ltd. v. Minerals and Metal Trading
Corpn. Ltd., (2002) 108 Com Cases 24 (Mad).
In limitation of the powers
of the Board, section 292 and certain other sections provide for certain powers
to be exercised by the Board only in a meeting, i.e., in a Board Meeting duly
convened and held in terms of the provisions of the Companies Act and the
Articles of the Company already stated in paragraph 52 above.
There are certain other
matters in reference to which the provisions of the Act would require a
resolution at a Board Meeting and not one by circulation.
They are-
|
Sub-rule
(2) of Rule 4 of the Companies (Acceptance of Deposits) Rules, 1975: |
The advertisement inviting
deposits can only be issued on the authority and in the name of the Board of
Directors of the
company. The fulfilment of the requirement of this rule requires the Board
of Directors to consider the text of advertisement, and other matters
incidental thereto only at a meeting of the Board |
|
Section
262: |
In the case of a public company or a private
company which is a subsidiary of a public company, filling of casual
vacancies among Directors. |
|
Section
297: |
Giving consent to contracts by the company with
any Director or his relative, or a firm of which the Director or his relative
is a partner or a private company in which the Director is, a member or
Director, f6r the sale, purchase or supply of any goods, materials or
services, or for underwriting of the subscription of any shares in or
debentures of the company. |
|
Section
299: |
Disclosure of interest in any contract and/or
arrangement by a Director or Directors. This section is attracted only when
the Director(s) of one company holds in the other, either by himself or
alongwith the other Directors, more than two per cent of the paid-up
capital of the other company. Every director who fails to comply with sub-section
(1) or (2) will be punishable with fine of Rs. 50,000/-. |
|
Section
301: |
Placing of the Register of contracts for signature
of the Directors present. If default is made in comply with the provisions of
sub-section (1), (2) and (3) the company and every officer of the company who is in default will
in respect of each default be punishable with fine of Rs. 5,000/-. |
|
Section
308: |
Notice of disclosure of shareholdings of Directors
has to be done at a meeting of the Board. Any person who fails to comply
with sub-section (1) or (2) will be punishable with imprisonment for a
term of 2 years or with fine of Rs. 50,000/- or with both. |
|
Sections
316(2): |
Appointment or employment of a person as its Managing
Director where such Director is the Managing Director or Manager of any other
company (including a private company which is not a subsidiary of a public
company) should be approved by all the Directors present at the meeting of
which (and of the resolution to be moved thereat) specific notice has been
given to all the Directors then in India. |
|
Section
372A: |
To make any loan to any other
body corporate or to give any guarantee or provide any security in connection
with a loan made by any other person to or to any other person by any body
corporate, or to acquire by way of subscription, purchase or otherwise the securities of, any
other body corporate, not exceeding 60% of a company's paid-up share
capital and free reserves or less than 100% of a company's free reserves,
which ever is more. Any loan or investment to be made or guarantee or
security to be given by the company under sub-section (1) of this
section should be sanctioned by a resolution passed at a meeting of the Board
with the consent of all the Directors present at the meeting except those
not entitled to vote thereon, and also after circulating a notice of the
resolution to be moved at the meeting to every Director in the manner
specified in section 286 of the Companies Act. Prior approval of the Public
Financial Institution should be obtained by the Board if there is any default
in repayment of loan or payment of interest to the said Institution as per
the terms and conditions of loan. If default is made in complying with the
provisions of this section other than sub-section (5) relating to
register of loans and investments, the company and every officer of the
company who is default will be punishable with imprisonment of 2 years or
with fine of Rs. 50,000/-. |
|
Section
386: |
To appoint or employ any person as Manager if he is either the Manager or the Managing Director of any other company with the consent of all the Directors present at the meeting of which (and of the resolution to be moved) specific notice has been given to all the Directors then in India. |
|
Section
488: |
To make a declaration of solvency in voluntary winding up. Any director making a declaration under this section without having reasonable grounds for the opinion that the company with be able to pay its debts in full within the period specified in the declaration will be punishable with imprisonment for a term of 6 months or with fine of Rs. 50,000/- or with both. |
Section 292A inserted by the
Companies (Amendment) Act, 2000, provides that every public company having a
paid up capital of not less than Rs. 5 crores must constitute a committee of
the Board known as "Audit Committee" which should consist of not less
than 3 directors and such member of other directors as the Board may determine
of which two thirds of the total member of members should be directors other
than the managing or whole-time director. Every audit committee should
act in accordance with terms of reference to be specified in writing by the
Board. The members of such a committee should elect a Chairman from amongst
themselves. The annual report of the company should also disclose the
composition of the Audit Committee.
The auditors, the internal
auditor, if any, and the director- in-charge of finance should
attend and participate at meetings of the audit committee but should not have
the right to vote. The audit committee should have discussions with the
auditors periodically about internal control systems, the scope of audit
including the observations of the auditors and review the half-yearly and
annual financial statements before submission to the Board and also ensure
compliance of internal control system. The audit committee should have
authority to investigate into any matter in relation to the items specified in
this section or referred to it by the Board and for this purpose should have
full access to information contained in the records of the company and external
professional advice, if necessary. The recommendations of audit committee on
any matter relating to financial management including the audit report should
be binding on the Board. The chairman of the audit committee should attend the
annual general meetings of the company to provide any clarification on matters
relating to audit. If default is made in complying with the provisions of this
section, the company, and every officer who is in default, will be punishable
with imprisonment for I year or with fine of Rs. 50,000/-, or with both.
There are few words more
reassuring to the investors and shareholders than accountability. A system of
good corporate governance promotes relationships of accountability between the
principal actors of sound financial reporting-the board, the management
and the auditor. It holds the management accountable to the board and the board
accountable to the shareholders. The audit committee's role flows directly from
the board's oversight function. It acts as a catalyst for effective financial
reporting.
The Committee is of the view
that the need for having an audit committee grows from the recognition of the
audit committee's position in the larger mosaic of the governance process, as
it relates to the oversight of financial reporting.
A proper and well
functioning system exists therefore, when the three main groups responsible for
financial reporting-the board, the internal auditor and the outside
auditors-form the three-legged stool that supports responsible
financial disclosure and active and participatory oversight. The audit
committee has an important role to play in this process, since the audit
committee is a sub-group of the full board and hence the monitor of the
process. Certainly, it is not the role of the audit committee to prepare
financial statements or engage in the myriad of decisions relating to the
preparation of those statements. The committee's job is clearly one of
oversight and monitoring and in carrying out this job it relies on senior
financial management and the outside auditors. However it is important to
ensure that the boards functions efficiently for if the boards are
dysfunctional, the audit committees will do no better. The Committee believes
that the progressive standards of governance applicable to the full board
should also be applicable to the -audit committee.
The Committee therefore
recommends that a qualified and independent audit committee should be set up by
the board of a company. This would go a long way in enhancing the credibility
of the financial disclosures of a company and promoting transparency.
This is a mandatory recommendation.
The following
recommendations of the Committee, regarding the constitution, functions and
procedures of audit committee would have to be viewed in the above context. But
just as there is no "one size fits all" for the board when its comes
to corporate governance, same is true for audit committees. The Committee can
thus only lay down some broad parameters, within which each audit committee has
to evolve its own guidelines.
The composition of the audit
committee is based on the fundamental premise of independence and expertise.
The Committee therefore recommends that
-the audit committee should
have minimum three members, all being non executive directors, with the
majority being independent, and with at least one director having financial and
accounting knowledge;
-the chairman of the
committee should be an independent director;
-the chairman should
be present at Annual General Meeting to answer shareholder queries;
-the audit committee
should invite such of the executives, as it considers appropriate (and
particularly the head of the finance function) to be present at the meetings of
the Committee but on occasions it may also meet without the presence of any
executives of the company. Finance director and head of internal audit and when
required, a representative of the external auditor should be present as
invitees for the meetings of the audit committee;
-the Company Secretary
should act as the secretary to the committee.
These are mandatory recommendations.
The Committee recommends
that to begin with the audit committee should meet at least thrice a year. One
meeting must be held before finalisation of annual accounts and one necessary
every six months.
This is a mandatory recommendation.
Powers of the audit committee
Being a committee of the
board, the audit committee derives its powers from the authorisation of the
board. The Committee recommends that such powers should include powers:
-To investigate any
activity within its terms of reference.
-To seek information
from any employee.
-To obtain outside legal or other professional advice.
-To secure attendance
of outsiders with relevant expertise, if it considers necessary.
This is a mandatory recommendation.
Functions of the Audit Committee
As the audit committee acts
as the bridge between the board, the statutory auditors and internal auditors,
the Committee recommends that its role should include the following:
-Oversight of the
company's financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and
credible.
-Recommending the
appointment and removal of external auditor, fixation of audit fee and also
approval for payment for any other services.
Reviewing with management
the annual financial statements before submission to the board, focussing
primarily on:
-Any changes in
accounting policies and practices.
-Major accounting
entries based on exercise of judgment by management.
-Qualifications in
draft audit report.
-Significant
adjustments arising out of audit.
-The going concern
assumption.
-Compliance with
accounting standards.
-Compliance with stock
exchange and legal requirements concerning financial statements.
-Any related party
transactions i.e. transactions of the company of material nature, with
promoters or the management, their subsidiaries or relatives etc. that may have
potential conflict with the interests of company at large.
Reviewing with the
management, external and internal auditors, the adequacy of internal control
systems.
-Reviewing the
adequacy of internal audit function, including the structure of the internal
audit department, staffing and seniority of the official heading the
department, reporting structure, coverage and frequency of internal audit.
-Discussion with
internal auditors of any significant findings and follow-up thereon.
-Reviewing the
findings of any internal investigations by the internal auditors into matters
where there is suspected fraud or irregularity or a failure of internal control
systems of a material nature and reporting the matter to the board.
-Discussion with
external auditors before the audit commences, of the nature and scope of audit.
Also post-audit discussion to ascertain any area of concern.
-Reviewing the
company's financial and risk management policies.
-Looking into the
reasons for substantial defaults in the payments to the depositors, debenture
holders, shareholders (in case of non-payment of declared dividends) and
creditors.
This is a mandatory recommendation. [Paras 9.1 to
9. 10 of the Report of the Kumar Manglam Birla Committee on Corporate
Governance]
Restrictions on powers of Board
I.
The Board of Directors can exercise its powers in the following cases only
after obtaining the necessary consent of the company in General Meeting, if the
company is a public company or a private company which is a subsidiary of a
public company.
|
Section
293(l)(a) |
To sell, lease out or otherwise
dispose of the whole or part of the undertaking of the company. But such consent
is not required for sale of one of three vessels of a public company by the Board of Directors. P.S. Off
shore Inter Land Services (P.) Ltd. v. Bombay Offshore Suppliers & Services
Ltd., (1991) 5 CLA 376 (Bom). Sale of shares is also not sale of undertaking
and there fore consent of general meeting is not required to be taken. Tracstar
Investment Ltd. v. Gordon Woodroff Ltd., (1996) 20 CLA 267 (Mad). |
|
Section
293(1)(b) |
To remit or give time for the repayment of any
debt due by a Director except in the case of renewal of an advance made by a
banking company to its Director in the usual course of business. |
|
Section
293(l)(c) |
To invest amount of compensation received in
compulsory acquisition of its properties. |
|
Section
293(l)(d) |
To borrow money in excess of the aggregate of the
paid up capital of the company and its free reserves, that is to say,
reserves not set apart for any specific purpose. |
|
Section
293(1)(e) |
To contribute to charities other than for
political purpose or to political parties. |
II.
The following powers can be exercised by the Board of directors with the
approval of Central Government:
|
1.
Sections 21 and 22 |
Change of name. |
|
2.
Section 108B |
Transfer of shares by a body corporate or bodies
corporate under the same management holding whether singly or in the
aggregate ten per cent or more of the nominal value of the subscribed equity
share capital of any other company. Every body corporate which makes any
transfer of shares without giving any intimation to the Central Government
will be punishable with fine of Rs. 50,0001-. Where the contravention
is made by a company, every officer of the company who is in default will be
punishable with imprisonment for term of 3 years or with fine of Rs. 50,000/-. |
|
3.
Section 108C |
Transfer of shares of foreign company by any body
corporate or bodies corporate under same management which holds or hold in
the aggregate ten per cent or more of the nominal value of equity share
capital of a foreign company. Every body corporate which make any transfer of shares in contravention
of the provisions of section 108C will be punishable with fine of Rs.50,000/-.
Where any such contravention is made by a company, every officer of the
company who is in default will be punishable with imprisonment for a term of
3 years or with fine of Rs. 50,000/- or with
both. |
|
4.
Section 198(4) |
Payment of minimum remuneration if the same is not
in accordance with the provisions of Schedule XIII. |
|
5.
Section 205A |
Payment of dividend out of accumulated profits
transferred to reserves where such declaration is not in accordance with
rules made by the Central Government Companies (Declaration of Dividend out
of Reserves) Rules, 1975. If a company fails to comply with any 6f the
requirements of this section the company and every officer of the company,
who is in default would be punishable with fine of Rs. 5,000/-for
every day during which the failure continues. |
|
6.
Section 233B(2) |
Appointment of cost auditors for audit of cost accounts
of company. If default is made in complying with the provisions of this
section, the company will be liable to be punished with fine of Rs. 50,000/-
and every officer of the company who is in default will be liable to be
punished with imprisonment for a term of the 3 years or with fine of Rs.
50,000/-, or with both. |
|
7.
Section 268 |
Amendment of provisions
relating to managing, whole-time or non-rotational directors.
Without Central Governments' approval the amendment will be come void as if it is
disapproved by that Government. |
|
8.
Section 269 |
Appointment of managing or whole-time
director or manager when conditions stipulated in Schedule XIII are not
complied with. If such appointment is not approved by the Central Government
and if the appointee omits or fails to vacate his office he will be
punishable with fine of Rs. 5,000/- for every day during which he omits
or fails to vacate such office. |
|
9. Section 294AA (2) &(3) |
Appointment of sole selling agents in certain
cases. |
|
10.
Section 295 |
Grant of Loans to Directors etc. Every person who
is knowingly a party to any contravention of section (1) or (3) of this
section including in particular any person to whom the loan is made or who
has taken the loan in respect of which the guarantee is given or the security
is provided will be punishable either with fine of Rs. 50,000/- or with
simple imprisonment for a term of 6 months. |
|
11.
Section 297(l) Proviso |
Contracts in which directors are interested by
companies having a paid-up share capital of not less than Rs. One
crore. |
|
12.
Section 309(3) |
Payment of remuneration to a whole-time
Director or a managing Director exceeding five per cent of net profits
and if there is more than one such director more than ten percent for all of
them together. |
|
13.
Section 309(4) |
Payment of remuneration at a rate exceeding one
percent or three per cent of net profits to a director or directors. |
|
14.
Section 310 |
Increase in remuneration of any director including
a managing or whole-time director or any amendment thereof when such
increase is not in accordance with Schedule XIII. |
|
15.
Section 311 |
Increase in remuneration of managing director on
reappointment when such increase is not in accordance with Schedule XIII. |
|
16.
Section 314(1B) |
Appointment of a relative/partner of a director to
any office or place of profit exceeding certain specified limits. |
Powers which cannot be exercised by Board
The following
powers cannot be exercised by the Board
of directors but to be exercised by the shareholders in general meeting only:-
|
1.
Section 17(l) |
Alteration of provisions of the memorandum of
association so as to change the place of registered office from one State to
another or with respect to the objects of the company. |
|
2.
Section 31 |
To alter articles of association. |
|
3.
Section 61 |
To vary terms of a contract mentioned in
prospectus or statement in lieu of prospectus. |
|
4.
Section 77A |
To purchase its own shares or other specified
securities referred as buy-back. Penalty for default is punishment with
imprisonment for a term of 2 year or with fine of Rs. 50,000/- or with
both for the company or any officer of the company who is in default. |
|
5.
Section 79 |
To
issue shares at a discount. |
|
6.
Section 79A |
To
issue sweat equity shares |
|
7.
Section 81 (1A) |
To offer further shares to any person whether such
person is a member or not. |
|
8.
Section 94(l)(a) |
To
increase share capital. |
|
9.
Section 94(1)(b) |
To consolidate and divide all or any of its share
capital into shares of larger amount. |
|
10.
Section 94(l)(c) |
To
convert all or any of its fully paid-up shares into stock and reconvert
that stock into fully paid-up shares of any denomination. |
|
11.
Section 94(l)(d) |
To sub-divide shares into shares of smaller
amount. |
|
12.
Section 94(l)(e) |
To
cancel shares. |
|
13.
Section 100 |
Reduction of share capital. |
|
14.
Section 149(2A) |
To commence any new business.
If a company commences any such business in contravention of this sub-section,
every person who is responsible for the contravention will be punishable with
fine of Rs.5,000/- for every day during which the contravention continues. |
|
15.
Section 163(l) Proviso |
To keep register of members, indexes, returns and
copies and certificates and documents at any other place other than the
registered office of the company. |
|
16.
Sections 224(3)/ 224A |
To appoint auditor other than first auditors. |
|
17.
Section 258 |
To increase or reduce the number of directors
within limits fixed by articles. |
|
18.
Section 284 |
To remove director before expiry of his period of
office and to appoint another person in his place. |
|
19.
Section 309(l) |
To determine remuneration of directors |
|
20.
Section 313(l) |
To appoint alternate director in absence of power
in articles. |
|
21.
Section 314(l) |
To appoint a director or his relative to any
office or place of profit carrying a total monthly remuneration as may be
prescribed. |
|
22.
Section 372A |
To make any loan to any other body corporate or to
give any guarantee or provide any security in connection with the loan
made by any other person to, or to any other person by, any body corporate or
to acquire by way of subscription, purchase or otherwise the securities of
any other body corporate, exceeding sixty per cent of a company's paid up
share capital and free reserves or hundred per cent or more of a company's
free reserves, whichever is more. In exceptional circumstances which prevent
any company from obtaining previous authorisation by a- special
resolution passed in a general meeting for giving a guarantee, the board may
authorise to give guarantee in accordance with the provisions of section 372A
by passing a board resolution in its meeting provided the said resolution of
the board is confirmed within twelve months in a general meeting of the
company held immediately after passing of the board resolution. Penalty for
default in complying with the provisions of this section except sub-section
(5) relating to maintenance of register of loans and investments, will make
the company and every officer of the company who is in default punishable
with imprisonment of 2 year or with fine of Rs. 50,000/- |
Meetings of the Board of
Directors, in the case of 'every company, must be held at least once in every
three months' and at least four such meetings must be held every year (Section
285). Three months would mean the real months of the calendar year. Notice of
every meeting of the Board of Directors of a company must be given in writing
to every Director for the time being in India, and at his usual address in
India, to every other Director (Section 286(l)). Though the Companies Act has
not prescribed any form of 'Notice' to be given, the notice, to be effective,
must mention place of the meeting (usually the registered office of the
company), time as well as the date of the meeting, clearly. Articles of
Association usually do not provide for any form of notice and no form has also
been prescribed in Schedule 1, Table W, of the Act. Every officer of the company
whose duty it is to give notice of Board Meetings and who fails to do so will
be punishable with fine of Rs. 1000/-
As per paragraph 2.1 of secretarial standard 1 the maximum interval of 120 days between two board meetings
should be present. Each meeting of the Board should be of such duration as
would enable proper deliberations to take place on items placed before the
board meeting. [ICSI-SS1]
Paragraph 1.2.1 of secretarial standard 1, states that notice in
writing of every meeting should be given to every director by hand or by post
or by facsimile or by e-mail or by any other electronic mode and where a
director specifies a particular mode, the notice should be given to him by such
mode. As per paragraphs 1.2.2., 1.2.3 of secretarial standard 1 the notice of a
board meeting should specify the day, date and time and full address of the
venue of the meeting and it should be given even when meetings are held on pre-determined
date. or at pre-determined intervals.
The usual practice followed
by the Secretary of the company is to send the notice of the meeting to all the
Directors, following consideration of a tentative date of the next Board
Meeting decided upon by the Directors at the previous meeting. The Secretary who
prepares 'Agenda' for the meeting, circulates 'Agenda' with such supporting
papers as may be considered useful for meaningful discussion on the subject is
to be disposed of at the meeting. There is no provision either in the Companies
Act or in Table 'A' requiring or prescribing length of the notice for a Board
Meeting, but the notice should be reasonable and the reasonableness depends on
the circumstances of each case. The validity of a meeting cannot be impugned
merely on the ground of shortness of notice, where the director who had
received the notice just two days before the meeting did not attend it.
(Industrial Credit & Investment Corporation of India Ltd. v. Parasrampuria
Synthetics Ltd. and others, (1998) 28 CLA 141 (Delhi).
As per paragraph 1.2.4 of
secretarial standard 1 unless the articles of association prescribe a longer
notice period, notice should be given at least fifteen days before the date of
the meeting and no business should be transacted at a meeting if notice in
accordance with this standard has not been given. [ICSI-SS 1]
In case of directors
residing in a foreign country, they should be given at least four weeks notice
for any Board Meeting or fix the dates of next Board Meeting in a Board
Meeting. [Boiron v. SBL Ltd. and other, (1998) 30 CLA 21 (CLB)].
In case of NRI directors
staying in USA where notices of Board Meetings have been sent to their local
addresses in India cannot be considered to be valid notices and accordingly no
notices for the said meetings should be deemed to have been given to the said
directors. (2000) 2 Comp LJ 289 (CLB).
Frequency of Meetings of Board and Committee
A meeting of the Board of
Directors must be held at least once in every three calendar months, and there
should be held at least four directors' meetings every year. Thus not more than
three months should pass, without a directors' meeting being held, and no year
should expire without at least four directors' meetings having been held in it
except where Central Government by notification has directed that this
provision will not apply to any class of companies.
In other words, there must
be four meetings at least in each year. Whether the 'year' is taken as the
calendar year or financial year of the company, it will not affect the
requirement of the section 285. From the use of the words "calendar
months" in the marginal note to the section, it may be presumed that only
"calendar year" is intended.
As per paragraph 2.2 of
secretarial standard I committee should meet at least as often as stipulated by
the Board of Directors or as prescribed by any other authority. [ICSI-SS
1]
Department's view.-The Company Law Board has expressed the view that
the terms of section 285 will be sufficiently complied with if the Board of a
company meets once on any date between the lst of January and 31st of March,
then once between April and June and so on. In larger companies, it is usual to
hold Board Meetings at regular intervals, e.g., monthly or fortnightly. In
small companies, Board Meetings will only be held when there is sufficient
business to justify the holding of a meeting, subject to the provisions of this
section. Department's letter No. 10/3/72- CL III, dated 2-6-1973.
Section 25 companies are
required to hold at least one meeting within every six calendar months.
[Notification No. SO 1578, dated 1-7-1961]
Central Government can also
direct by notification under proviso to section 285 that the provisions of this
section shall apply in relation to any class of companies or shall apply in
relation thereto subject to such exceptions, modifications or conditions as may
be specified in the notification.
The measure of the board is
buttressed by the structures and procedures of the board. The various
committees of the board recommended in this report would enable the board to
have an appropriate structure to assist it in the discharge of its
responsibilities. These need to be supplemented by certain basic procedural
requirements in terms of frequency of meetings, the availability of timely
information, sufficient period of notice for the board meeting as well as
circulation of agenda items well in advance, and more importantly, the
commitment of the members of the board.
The Committee therefore
recommends that board meetings should be held at least four times in a year,
with a maximum time gap of four months between any two meetings. The minimum
information as given in Annexure 2
should be available to the board.
This is a mandatory recommendation.
The Committee further
recommends that to ensure that the members of the board give due importance and
commitment to the meetings of the board and its committee, there should be a
ceiling on the maximum number of committees across all companies in which a
director could be a member or act as Chairman. The Committee recommends that a
director should not be a member in more than 10 committees or act as Chairman
of more than five committees across all companies in which he is a director.
Furthermore it should be a mandatory annual requirement for every director to
inform the company about the committee positions he occupies in other companies
and notify changes as and when they take place.
This is a mandatory recommendation. [Paras 11.1
& 11.2 of the Report of the Kumarmangalam Birla Committee on Corporate
Governance]
Director's
right to attend Board Meetings
A director has a right by
the constitution of the company to take part in its management, to be present
and to vote at the meetings of the Board of Directors. Even if the director
does not attend some meetings, it has been sometimes held that he is bound to
know what is done in his absence. So long as a director is lawfully elected and
he has not vacated office, he is entitled to an injunction to restrain his
brother directors from excluding him from the Board. (Pulbrook v. Richmond
Consolidated Mining Co., (1878) 9 Ch D 610). A meeting called deliberately at a
time when some particular directors were absent to pass certain resolutions was
held to be a fraudulent exercise which vitiated the meeting. TH. Paul (Dr.) v.
City Hospital (P.) Ltd., (1999) 97 Com Cases 216 (Ker).
Director's duty to attend Board Meetings
Though a director is not
bound to attend all meetings of the Board, it will be dereliction of duty
amounting to negligence if he fails, without sufficient cause, to attend
important meetings. Wilful non-attendance may amount to negligence for
which he may be held liable, if prejudice thereby is caused to the company or
the general body of shareholders. However, if a director of a public company or
a private company which is a subsidiary of a public company absents himself
from three consecutive meetings of the Board of Directors or from all meetings
of the Board for a continuous period of three months, whichever is longer,
without obtaining leave of absence from the Board, the office of that director
will become vacant under section 283(l)(g). The three month period as mentioned
aforesaid would commence only from the date of the first meeting that a
director absents, himself from attending. Vinod Kumar Mittal v. Kaveri Lime
Industries Ltd. and Others, (2000) 100 Com Cases 66 (CLB-PB).
As per paragraphs 4.1 and
4.2 of secretarial standard I an attendance register, containing the names and
signatures of the directors present at the meeting should be maintained and
leave of absence should be granted to a director only when a request for such
leave has been communicated to the secretary or the Board of Directors or to the
Chairman. [ICSI-SS 1].
It is not necessary that the
Board must meet at the registered office of the company only as there is no
provision in the Companies Act, 1956 with regard to the place of Board of
Directors meetings. The Companies Act including Schedule I, Table 'A' does not
provide anything which militates against the holding of a Board Meeting at a
place other than the registered office. Directors can hold a Board meeting even
in a foreign country where circumstances justify it. Of course, certain books
and registers which the Directors are to peruse at a Board Meeting are required
to be maintained at the registered office only. Subsection (5) of section 301,
for example, requires that the register of contracts, etc. shall be kept at the
registered office only and removal of such register from the registered office
is not permissible under the Companies Act. The Board may, however, meet at any
place and transact any business at a meeting where production of the register
of contracts under section 301(2) may not be necessary. Directors can hold a
Board Meeting even in a foreign country where circumstances justify it. A
meeting of the Board of Directors could be held on a conference telephone but
not by separate phone calls as held in an Australian case. Maguacrete Ltd. v.
Douglas Hill, (1988) 7 ACLC 117 at 119 (Aust).
The Department's view on
this subject is as follows: -“While it is conceded that there is nothing
in the Companies Act requiring Board Meeting to be held only at the registered
office of a company, it has to be appreciated that compliance with the
statutory requirement in sub-section (2) of section 301 without involving
breach of sub-section (5) of the said section 301 of the Act or vice
versa will be practicable only if those meetings before which the register is
required to be placed under sub-section (2) are held at the company's
registered office”.
The Department would not
raise any objection if an adjourned Board meeting is held on a public holiday
for the convenience of the directors although it considers that an original
meeting should also normally be held only on a working day. [Letter No.
8/11(285) 63-PR, dated 2-1-1963]
Notices of Board Meetings
under S. 286 must be sent to all directors. Failure to do so will render the
resolutions passed at the meeting null and void. (Parmeswari Prasad Gupta v.
Union of India, (1974) 44 Com Cases 1) Penalty for not giving notice of a Board
Meeting is fine of upto Rs. 1,000/- for every officer of the company
whose duty it is to give notice.
The Act does not provide for
notice of adjourned meeting. Notice of adjournment of a meeting need not be
given unless the Articles of Association otherwise provide (Promod Kumar Mittal
v. Southern Steel Ltd., (1980) 50 Com Cases 555.: 1980 Tax LR 2029 (Cal)).
Since an adjournment is only a continuation of the meeting, the notice for the
first meeting holds good for all the adjournments. (Kerr v. Wilkie, (1860) 1 LT
101). If however, the meeting is adjourned sine die, a fresh notice must be
given. No new business can be introduced unless notice of such new business is
given. (R. v. Grimshaw, (1847) 10 QBD 747).
As per paragraph 1.2.4
secretarial standard I also notice need not be given of an adjourned meeting
other than a meeting that has been adjourned sine die but notice of the
reconvened adjourned meeting should be given to those directors who did not
attend the meeting which had been adjourned. [ICSI-SS-1]
Quorum is necessary not only
in an original meeting of the Board of Directors as per section 287(2) but it
is also necessary in an adjourned Board Meeting although there is no provision
regarding quorum for an adjourned meeting of the Board of Directors. Adjourned
meetings of the Board of Directors, having only two directors in which only the
managing director was present are void and non est because provisions relating
to quorum for meetings of Board of directors are mandatory. Maharani Yogeshwari
Kumari v. Lake Shore Palace Hotel, (1995) 3 Comp LJ 418 (Raj).
Ratification of improper notice
Where notice is not given as
required but all directors attend the meeting and do not object to the absence
of notice, or where the absentee directors do not complain of want of notice,
the proceedings at the meeting will not be invalid, especially, if they are
ratified at a subsequent meeting at which the absentee directors are present.
(Bharat Fire and General Insurance Co. Ltd. v. Parameshwari Prasad Gupta, AIR
1968 Delhi 68).
A director is entitled to a
notice even though he is outside India provided he has made sufficient
arrangement with the company for sending such notice to him. The right to
receive notice cannot be waived. (H.M. Ebrahim Sait v. South Indian Industrial
Ltd., (1938) 8 Com Cases 308). In a recent case Company Law Board has held that
notice of a Board Meeting should be given at least four weeks before the
meeting where the director is staying in a foreign country. (Boirone v. SBL
Ltd. and others (1998) 30 CLA 21 (CLB)).
But if the Board has decided
to meet at fixed intervals the distribution of a formal notice can be waived.
In such cases, it is usual to combine the agenda in the form of a notice. Subject
to such qualifications, it is necessary to send notice to each and every
director who is for the time being in India, even if a particular director has
informed the company that he would not be able to attend.
The section does not provide
that notice for convening a Board Meeting must be issued at least a certain
number of days prior to the meeting. However, the articles of a company may
prescribe such time-limit. It has been held that a few minutes' notice
would suffice. (Browne v. La Trinidad, (1887) 37 Ch D 1 (CA).) However, in
another case it was held that a few hours' notice was not sufficient because
the Board meeting was held by certain directors, who wanted to ensure that the
other directors did not attend the same. (In Re Homer District Consolidated
Gold Mines, (1888) 39 Ch D 546 (CA)).
It is unusual for any
specific length of notice to be required by the articles because for the
efficient conduct of business, it must be possible to call an emergency meeting
in a crisis.
The notice must be a
definite notice. A contingent notice is not a sufficient notice. (Alexander v.
Simpson, (1889) 43 Ch D 139 (CA)).
Notice
to interested directors
Notice must be given to a
director even though he is precluded from voting at the meeting on the business
to be transacted. (Re Homer District Mines, (1888) 39 Ch D 546 (CA)).
Notice to Directors residing abroad
Section 286 requires notices
to be sent to directors who are in India at the time of the notice. Even where
there is no provision of this kind, notice need not be given to a director who
is abroad unless he is within easy reach. Halifax Sugar Refining Co. Ltd. v.
Francklyn, (1890) 61 LT 563. Notice sent by facsimile is adequate notice.
(Ferrucio Sias v. Jai Manga Raul Mukhi, (1994) 1 Comp LJ 345 (Del)).
The notice of a directors'
meeting need not necessarily disclose the purpose of the meeting, Compagnie de
Mayville v. Whitley, (1896) 1 Ch 788 (CA). But if the meeting is extraordinary
or special, it is better to state the purpose. The general rule, however, is
that at a Board meeting called by a general notice, any business whatever may
be transacted.
The law also does not
require an agenda for the meetings of the Board to accompany the notice.
(Abnash Kaur v. Lord Krishna Sugar Mills Ltd., (1974) 44 Com Cases 390, 413
(Del)). The Board of directors can transact business even without a formal
agenda. (Sunil Dev. v. Delhi & District Cricket Association, (1990) 2 Comp
LJ 254 (Del)). For detailed discussion on this point, see GUIDE TO COMPANIES
ACT, A RAMAIYA'S 15th Edition, 2001.
As per paragraphs, 1.2.6 and
1.2.7 of secretarial standard 1, the Agenda setting out the business to the
transacted of the meeting and notes on Agenda should be given at least 7 days
before the date of the meeting and each item of business should be supported by
a note setting out the details of the proposal and where approval by means of a
resolution is required, the draft of such resolution should be set out in the
note. According to paragraph 1.2.8 of Secretarial Standard 1, the notice,
Agenda and notes on Agenda may be given at shorter periods of time than those
stated above, if the majority of members of the Board or of the committee, as the
case may be, agree. The, proposal to hold the meeting at a shorter notice
should be stated in the notice and the fact that consent thereto was obtained
should be recorded in the minutes. [ICSI-SS-1].
There is no provision for issuance of an agenda for meetings of the Board of Directors. Matters not included in the agenda can be considered in the meeting of the Board of Directors with the permission of the chairman under the residuary clause in the agenda. Dr. TM. Paul v. City Hospital (Pvt.) Ltd. and Others, (1999) 97 Com Cases 216 (Ker).
As per paragraph 1.2.9 of
Secretarial Standard 1, any supplementary item not originally included in the
Agenda may be taken up for consideration with the permission of the Chairman
and with the consent of the majority of the directors present in the meeting.
No supplementary item which is of significance or is in the nature of
unpublished price sensitive information should be taken up by the Board without
prior written notice. [ICSI-SS 1]
It is only an officer in
default and not the company that is penalised for contravention of sub-section
(1) for sub-section (2) says that every officer of the company whose duty
it is to give notice as aforesaid and who fails to do so shall be punishable
with fine which may extend to one thousand rupees. The offence is compoundable
by the Regional Director under section 621 A.
Business at meetings of directors
Where a meeting has been
properly convened, the directors may transact at the meeting all business within
their powers, even if the notice of the meeting may not have specified all the
items of business to be transacted. (Compagnie de Mayville v. Whitley, (1896) 1
Ch 788 (CA)).
Where any thing is done at a
meeting held without proper notice to all the directors entitled to notice, the
act irregularly done or resolution irregularly passed at such meeting, may
subsequently be ratified and regularised at a properly convened meeting
subsequently held. (Parmeswari Prasad Gupta v. Union of India, (1974) 44 Corn
Cases 1).
The agenda is compiled by
the secretary, possibly in collaboration with the chairman or managing
director. The chairman is not obliged to adhere strictly to the exact order of
the business set out in the agenda, although it is customary for him to secure
the assent of the meeting to any variation.
The first item in the agenda
is usually the approval of the minutes of the last Board meeting. The next
business usually refers to matters arising out of the previous minutes. Then
would follow matters of a routine nature.
Record of attendance of Directors
According to Regulation 71
of Schedule I, Table A, every director present at any, meeting of the Board or
of a committee thereof is required to sign his name, in a book to be kept for
that purpose. The duty of taking signatures on attendance book of a Board
Meeting falls on the secretary of the company. Even though there is no similar
provision in the articles of association of a company it is a good secretarial
practice to maintain an attendance book of all Board Meetings and committees
thereof so as to make the directors' presence at these meetings authentic to be
included in the minutes prepared under sections 193, 194 and 195.
Section 287 of the Companies
Act, 1956 contains provisions with regard to a Board Meeting. As per this
section the quorum for a meeting of the Board of Directors of a company is one-third
of its total strength, (any fraction therein will be rounded off as one) or two
directors, whichever is higher. Total strength as per sub-section (1) of
this section should be counted after deducting there from the number of
interested directors.
Where at any time the number
of interested Directors exceeds or is equal to two-thirds of the total
strength, the number of the remaining Directors, that is to say, the number of
the Directors who are not interested, present at the meeting being not less
than two, shall be the quorum during such time. A quorum means the minimum
number of directors who are authorised to act as a Board and do not suffer from
any disability, at a duly convened Board Meeting. (Kuldip Singh Dhillon (Col.)
v. Paragaon Utility Financiers P. Ltd., (1988) 64 Com Cases 19, 29 (P&H)).
Adjournment for want of quorum
Where all but one of the
Directors are interested and there is no quorum, then, unless the articles
otherwise provide, the meeting would automatically stand adjourned till the
same day in the next week at the same time and place and if that day is a public
holiday, then the next succeeding day (Section 288). Section 288 is silent as
to the lack of quorum in the adjourned meeting. Even for adjourned meetings of
the Board quorum is necessary as it is mandatory and adjourned Board Meetings
without quorum are void and non est. Maharani Yogeshwari Kumari v. Lake Shore
Palace Hotel, (1996) 21 CLA 107 (Raj).
A Board Meeting not held for
want of quorum will not count towards the number of meetings required to be
held under section 285. In case there is want of requisite quorum due to
reduction in the number of Directors, the continuing Director(s) can act only
for two purposes:
(i) to increase the number of Directors to the
requisite number for quorum; and
(ii) to summon a General Meeting of the company.
This is so if the company's
articles of association has a provision similar to Regulation 75 of Table A of
Schedule I to the Act. In the absence of such a provision in the articles,
continuing directors as reduced below the prescribed quorum are not competent
to act. York Tramways Co. v. Willows, (1882) 8 QBD 685.
Presumption as to presence of quorum
A quorum is presumed to be
present unless the presumption is questioned at the meeting or the records
disclose that a quorum was, in fact, not present.
There must be an intention
to meet, and the accidental meeting of one against the will of the other will
not constitute a quorum. Barron v. Potter, (1914) 1 Ch 895.
Time at which quorum should be present
As a rule, in the case of a
meeting of the Board of Directors, the meeting cannot transact any business,
unless a quorum is present at the time of transacting the business. It is not
enough that a quorum was present at the commencement of the business.
The quorum of the Board is
required at every stage of the meeting and unless a quorum is present at every
such stage, the business transacted is void. (Balakrishna v. Balu Subudhi, AIR
1949 Pat 184; Bell v. Royal Western India Turf Club Ltd., AIR 1946 Bom 88).
Number of directors reduced below minimum
required for a quorum
Where the number of
directors of the company is reduced below the minimum fixed by the articles,
business may still be transacted if a quorum exists and is present. But where
the number is reduced below the quorum requirement, the directors cannot act
unless the number is first made up by the Board itself or through the general
meeting. (Scottish Petroleum Co. Re, (1883) 23 Ch D 413; (1881-5) All ER
Rep Ext. 1536 (CA); Bank of Syria, Re, :(1900) 2 Ch 272).
Where the Board itself is
not validly constituted in the manner required by section 255, it is not
competent to transact any business, even though a quorum may be present.
Where out of the three
directors required to form a quorum, two had resigned, the court held that the
single remaining director had the following three courses open to him:
(1) He could get members to
call a meeting under S. 169; (2) he himself could call an extraordinary meeting
of shareholders under the articles; or (3) he could move the court (Now CLB) to
call a general meeting under S. 186. (Sorabje v. Sind Punjab Co., (1908) 8 Bom
LR 478).
Interested directors and quorum
As provided in sub-section
(2), at least two dis-interested directors or one-third of the
total strength, whichever is higher, must be present at the meeting in order to
constitute the quorum. If all but one of the directors are interested there can
be no quorum and, therefore, no meeting. Quorum means a minimum number
competent to transact and vote on any business. (Re: North Eastern Insurance
Co. Ltd., (1919) 1 Ch 198).
When considering the quorum,
directors who are not eligible to vote should be excluded. (Yuill v. Greymouth-Point
Elizabeth Railway & Coal Co. Ltd., (1904) 1 Ch 32).
Where there was only
director present who could vote, there was no valid quorum. (Yuill v. Greymouth-Point
Elizabeth Railway & Coal Co. Ltd., (1904) 1 Ch 32; Neal v. Quinn, (1916) WN
223).
Where all or all but one of
the directors are interested, and there is no quorum, the proper way out of the
difficulty will be to have the matter decided by the company in general meeting
by an ordinary resolution, or, if the articles so require by a special
resolution.
In the absence of such an
article, it has been held that where a single director is validly in office, he
cannot act for anything else than calling a general meeting for the purpose of
appointing directors so as to complete t lie quorum. (Rajan Nagindas Doshi v.
British Burma Petroleum Co. Ltd., (1972) 42 Com Cases 197 (Bom)).
Articles can increase but cannot reduce
quorum
The section applies
notwithstanding that the company's articles may provide otherwise. The section
only indicates the minimum number of directors necessary to constitute a proper
quorum. It is open to the company, by its Articles, to indicate a higher, but
not a lower, number or proportion as constituting a valid quorum. (Amrit Kaur
Puri v. Kapurthala Flour Oil & General Mills Co. P. Ltd., (1984) 56 Com
Cases 194 (P&H)).
Articles providing for a
quorum of three at directors' meeting and five directors at a meeting allotting
shares to three of their own number would render the allotment invalid. (In Re:
Sir Hormusji A. Wadia, AIR 1921 Bom 372).
Legal action within reasonable time
The challenge to the
validity of a meeting due to absence of quorum will have to be made by the
person aggrieved within a reasonable time. (Re: Plymoth Breweries v. Penwill,
(1967) 111 SJ 715).
It has to be noted that
while Regulation 74 of Table A of Schedule I expressly provides that questions
arising at meetings of the Board of Directors, shall be decided by a majority
of votes, there is no such express provision applying to companies which do not
adopt the regulations in Table A. In Perrott & Perrott Ltd. v. Stephenson,
1933 All ER Rep 549: (1934) 4 Com Cases 358 BENNET J. expressed the view that
the rule of decision by majority applies only to corporations entrusted with
public duties and not to companies incorporated under the Companies Act. This
means, therefore, that unless the articles of a Company provide specifically
(as they almost invariably do) that the Board may take decisions by majority,
the Board will have to act unanimously in all matters.
A resolution passed at a
properly convened meeting of the Board of directors is binding on the whole
Board and all the directors are duty-bound to co-operate in the
implementation of the resolution, even if some of the directors took no part in
the deliberations of the Board or voted against the resolution. A Court order
obtained on the basis of such a resolution was held to be valid. (Equitticorp
International Plc. Re: (1989) 1 WLR 1010: 1989 BCLC 597 (Ch D)).
The absence of a quorum will
not affect contracts entered into with third parties who are not acquainted
with any defect in the constitution of the Board. (Country of Gloucester Bank
v. Rudry Merthyr Steam & House Coal Colliery Co. Ltd., (1985) 1 Ch 629:
(1895-9) All ER Rep 847 (CA)).
This section shall apply to
section 25 companies only to the extent that the quorum for the Board meeting
shall be either eight members or one-fourth of its total strength
whichever is less provided the quorum shall not be less than two members in any
case (Notification No. SO 1578, dated 1-7-1961).
Regulation 76 of Schedule I,
Table A provides for election of Chairman of a Board Meeting and determining
the period of his holding office and also provides for choosing one of the
directors present at the Board Meeting as the Chairman of the Board Meeting in
case no Chairman is elected as above or, if the elected Chairman is not present
within five minutes after the time appointed for holding the Board Meeting. If
the articles of association of a company do not make any provision as aforesaid
no director conducting any Board Meeting has the legal status of a chairman. -A
chance appointment of a director as a chairman of meetings of the Board does
not make him retain the office of a chairman of the Board of Directors so long
he continues to be a director. Foster v. Foster, (1916) 1 Ch 532.
According to paragraph 5.1
of Secretarial Standard 1, every company should have a chairman who would be
the chairman for meetings of the Board. [ICSI-SS.1]
(a) A Board Meeting duly
convened and held in accordance with the provisions of sections 285, 286 and
287;
(b) Circulation of
resolution in the draft form to all the Directors then in India;
(c) A meeting of a committee
of Director(s) by virtue of and within the limit of the powers delegated by the
Board of Directors.
Regulation 77, Table 'A'
envisages that the Board may, subject to the provisions of the Act and the
Articles of Association of a Company, delegate any of its powers to a committee
or committees consisting of such number of Directors as it thinks fit. Any
committee so formed shall, in the exercise of the powers so delegated, conform
to any regulations or limitations that may be imposed on it by the Board. A
committee as aforesaid, may consist of even one person. But a committee
constituted for the purpose of issue of share certificates or duplicates of
share certificates, etc. should consist of at least three Directors if the total
strength of the Board of Directors is more than six, and two Directors if the
total strength is less than six. [Rule 2(b) Companies (Issue of Share
Certificates) Rules, 1960].
It may be noted that a
committee may consist of one director only. [Re: Fire Proof Doors, (1916) 2 Ch
142].
It is to be noted without an
authority given by the articles, the Board of Directors of a company cannot
delegate any of its powers to a committee. (Howard's case, (1866) 1 Ch App
561). There are certain powers which can be exercised only in Board meetings
(See section 292) and these cannot be delegated. Where a person entering into a
contract, or agreement with a director or other officer of a company has no
knowledge of-any power of delegation contained in the articles, he cannot
rely on such articles as conferring ostensible powers or authority on the
director or officer to enter into such contract or agreement, if in fact no
authority had been given. (Rama Corporation Ltd. v. Proved T and G. Investments
Ltd, (1952) 1 All ER 554).
Quorum for committee of directors
There is no provision either
in the Act or in Schedule I, Table 'A' requiring a quorum for a meeting of a
committee of Directors. Unless the articles of the company or the terms of
appointment make any provision for quorum, the presumption is that all the
members of the committee should be present at a meeting of such committee.
Subject to the provisions of the Companies Act and subject to restrictions, if
any, in the Memorandum and Articles of the company, the Board of Directors may
delegate its authority and power to different committees including single
member committees such as, Finance Committee, Administration Committee, Works
and Technical Committee and so on.
Recording of proceedings of
a committee of Directors meeting in the absence of any provision in the
Memorandum or Articles of Association of the company, should follow the same
pattern as that of the proceedings of a Board Meeting. The Board of Directors,
at their regular meetings should be apprised of the observations passed and
decisions taken at committee meetings for facilitating deliberations and
further action to be taken in any matter.
As regards meetings of
committees of directors where there is no provision of a quorum, the whole of
the Committee must meet. (Re: Liverpool Household Stores Association Ltd.,
(1890) 59 LJ Ch 616). Any excessive or irregular exercise of powers by a
Committee may, however, be ratified by the Board, as the Board by delegating
their powers to Committees, do not divest themselves of powers. (Huth v.
Clarke, (1890) 25 QBD 391).
According to paragraph 3.2
of Secretarial Standard 1, the presence of all the members of any committee
constituted by the Board of Directors is necessary to form the quorum for
meetings of such Committee unless otherwise stipulated by the Board which
constituting the committee [ICSI-SS
1]
Chairman of meeting of committee
Regulation 78 Table 'A'
provides that a Committee may elect a Chairman of its meetings. If no such
Chairman is elected or if at any meeting the Chairman is not present within
five minutes after the time appointed for holding the Meeting, the members
present may choose one of their number to be the Chairman of the Meeting. If no
such provision is made in the articles of association of a company it is
doubtful whether a chairman appointed just like that can have the due legal
status to be a chairman of a committee of the Board.
As per paragraph 5.2 of
Secretarial Standard 1, the Board of Directors, which constituting any committee,
should also appoint the chairman of that committee, unless such appointment is
to be made in pursuance of any other applicable guidelines, rules or
regulations. [ICSI-SS 1]
Committee may decide when to meet
The Committee may meet and
adjourn as it thinks proper.
The questions arising at any
meeting of a committee shall be determined by a majority of votes of the
members present and in case of equality of votes the Chairman shall have a
second or a casting vote. (Regulation 79 of Table A).
Acts done at a meeting of committee valid
All acts done by any meeting
of a committee shall, notwithstanding that it may be afterwards discovered that
there was some defect in the appointment of any one or more of any person
acting as aforesaid, or that they or any of them were disqualified, be as valid
as if every such person had been duly appointed.
The Board when delegating
powers to borrow money, invest moneys and to make loans to a Committee should
specify the amounts upto which such moneys may be borrowed, invested or loans
may be made and the nature of investment or purpose for which the loans may be
made.
A resolution of the Board
may be adopted by the Directors of a company by a simple majority of votes as provided
in Regulation 74(l) of Table 'A' subject, of course, to any specific provision
of the Companies Act, which may require any resolution to be passed
unanimously. Every resolution passed should also conform to any provision in
the memorandum and the articles of the company and must be adopted by:
(a) A Board Meeting duly
convened and held in accordance with the provisions of sections 285, 286 and
287;
(b) Circulation of
resolution in the draft form to all the Directors then in India;
(c) A meeting of a committee
of Director(s) by virtue of and within the limit of the powers delegated by the
Board of Directors.
Two types of Board Resolutions
Board Resolutions can be divided broadly into two
categories:
(a) Resolution itself
amounting to sanction of the company;
(b) Resolution in the nature
of recommendation of the Board to the general body of members of the company
for the ultimate exercise of the authority of the company vested in the general
body, either by virtue of any provision in the Companies Act or by virtue of
any provision contained in the Memorandum or Articles of Association of the
company.
With regard to any
resolution to be passed within the scope of (a) above the general body of
members have no right to interfere except to the extent provided under the
second proviso to sub-section (1) of section 291. With regard to any
resolution under (b) above, it is the Board of Directors who would present duly
approved form of resolution for adoption by the shareholders at a General
Meeting. Such resolutions are circulated on the authority of the Board to the
general body of members in form of 'notice' subject, of course, to the
provisions of the Companies Act. From practical point of view, the general body
of members have only a limited choice of either accepting such fait accompli
Board resolutions or to reject the same. Nevertheless, the Companies Act has
made it mandatory that certain matters vitally affecting the interest of the
company must be approved at a General Meeting of members either by an Ordinary
Resolution or by a Special Resolution, as the case may be. Within these
parameters, the Board of Directors is to decide what type of resolution, either
for the general management of the company on the strength of its own authority
or for the adoption by the members, will be suitable, effective and to the
point, which should meet not only the statutory requirement under the Companies
Act or other relevant statutes (including any requirements of articles of the
company) but would also be the most appropriate and precise exposition of the
management's desire so as to stand a trial in the face of future circumstances
including any legal proceedings that may eventually ensue.
Agenda, Resolutions and Minutes
A resolution is the ultimate
form which a 'motion' takes after it is considered at a meeting, either of the
Board of Directors or of the general body of members, mainly, on the basis of
'agenda'. Agenda simply means a write-up on the items of business to be
transacted at the meeting, explaining the pros and cons as well as the
implications thereof to facilitate consideration at the meeting accompanied by
supporting papers. Although the agenda is not a statutory requirement, in the
present day circumstances of a company's Board consisting of members drawn from
all parts of the country having public image and commercial acumen or
nominee(s) of financial institutions it is but essential that in order to
tackle the subject matter and the issues arising out of such matter, the
Directors do have a comprehensive idea of the subject. A detailed agenda, with
necessary supporting papers or explanations is, therefore, useful to meet this
objective.
Agenda facilitates drawing up resolutions
In the ordinary course, the
Board of Directors, in their meeting disposes of matters comprising of:
(a) items statutorily
required to be considered at a Board Meeting;
(b) items which need
confirmation with regard to the action taken by the committee of Directors and
ratification of the action of the individual Directors in suitable cases;
(c) items in connection with
matters relating to management of the company including reviewing the working
of the company in the form of reports on working prepared by the Managing
Director/Whole-time Director or General Manager and
(d) appraisal of the precise
requirements in regard to matters to be considered at a Board Meeting by
circulation either by way of advance action or by way of ratification.
The circulation of agenda to
cover items under (a), (b) and (c) or (d) above is not a difficult task on the
part of the Secretary of the company. The 'agenda'-is prepared in such a
way that with little effort, the same can be converted into resolutions to be
adopted at the Board Meeting. This is done by giving 'notes on agenda' with
draft resolutions.
Draft Minutes to be
circulated to all members. -As per paragraph 8.1 of Secretarial Standard
1, within 7 days from the date of the meeting of the board or the committee or
of an adjourned meeting, the draft minutes thereof should be circulated to all
the members of the Board or the Committee, as the case may be, for their
comments. [ICSI-SS 1]
Minutes to be entered within
thirty days.-Pursuant to section 193 of the Companies Act, read with
paragraph 8.2 of Secretarial Standard 1, minutes of all proceedings of every
meeting of the Board of Directors or every committee of the Board are to be
entered within thirty days of the conclusion of every such meeting in a
register known as "Directors' Minutes Book".
Date entering the Minutes.-The
date of entering the minutes should be specified in the Minutes book by a
director or the Secretary. [Para 8.3] [ICSI-SS
1].
Each page of every minute book must be consecutively numbered.-Each page of every minute book must be consecutively numbered, be or signed and the last page of the minutes of each meeting in the minute book must be dated and signed by the Chairman of the said meeting or the Chairman of the next succeeding meeting. The date, time
and place of the meeting
must be stated in the minutes and they should not be attached to the minute
book by way of pasting or otherwise (Section 193) (1-B) read with para
8.4 of Secretarial Standard 1 [ICSI-SS-1]
Each page of every minute, book to be signed or initialled.-Sub- section (1A)(a) of section 193 mandates every page of every minutes book to be initialled or signed including the last page of the record of proceedings by the chairman of the Board. Under explanation to sub-section (5) of section 193, the chairman is empowered to exercise an absolute discretion in regard to the inclusion or non-inclusive of any matter in the minutes. Thus section 193 casts an obligation on the chairman to authenticate the minutes of the meeting of the Board. When the court directs an advocate to preside over a meeting of the Board he acts as the chairman at that meeting. The minutes prepared or approved by the person appointed to preside over a meeting are to be accepted as authentic and not the minutes prepared by the secretary of the company. Nazir Hoosein and another v. Darayus Bhattena and Others, (2000) 37 CLA 414 (SC).
Attendance of the Directors
at Meetings of Board.-Subject to the provisions contained in the Articles
of Association of a company, every Director present at any meeting of the Board
or of a committee thereof shall sign his name in a book to be kept for that
purpose. (Regulation 71, Table 'A'). In case such a provision is absent in the
concerned company's articles, it will be a good practice to keep an authentic
record of the attendance of the Directors to satisfy the provisions of section
193(4)(a) of the Companies Act, 1956.
Minutes to be kept as
record. -According to paragraph 8.5 of Secretarial Standard 1, Minutes
should not be pasted or attached to the Minutes Book. Extracts of the minutes
should be given only after the minutes have been duly signed. [Para 8.7]
Issue of certified copies of
any Resolution passed. -Certified copies of any resolution passed at a
board meeting may, be issued even pending signing of the minutes by the
chairman, if the draft of that resolution had been placed at the meeting and
was duly approved. [Para 8.8]. Any alteration other than grammatical or minor
corrections, in the minutes as entered should be made only by way of express
approval taken in the subsequent meeting in which such minutes are sought to be
altered. [Para 8.9]
Circulation of Minutes.-Minutes
of meetings of any committee should be circulated to the Board of Directors
along with the agenda for the meeting of the Board next following such meeting
of the committee and should be noted at the board meeting. [Para 8.10] [ICSI-SS 1]
Statutory and other requirements in preparing minutes
In preparing the minutes,
the following statutory requirements under the Companies Act should be
carefully considered before recording the minutes:
(a) The minutes should be
recorded within thirty days of the conclusion of the meeting by making entries
thereof in books kept for that purpose with their pages consecutively numbered
(Section 193(l)).
(b) The minutes of each meeting must contain a fair and correct summary of the proceedings of the Board Meeting (Section 193 (2)).
(c) The names of the
Directors present at the meeting must be mentioned (Section 193(4)(a)).
(d) In case of each
resolution passed at the meeting, the minutes should indicate the names of the
Directors, if any, dissenting from or not concurring in the resolution (Section
193 (4)(b)).
(e) The fact that an
interested director did not participate in the discussion or vote should be
recorded in the Minutes, [Para 9.3] and also should be disclosed therein
whether the interest of directors is direct or indirect."
(f) The Chairman's decision
as to what should be included in any such minutes is final and any matter
irrelevant or immaterial to the proceedings or defamatory to any person or
detrimental to the interests of the company, in the opinion of the Chairman, is
to be dropped (Section 193 (5)).
(g) All appointments of
officers made at the meeting should be included in the minutes of the meeting
(Section 193 (3)).
(h) A separate minute book
for recording the minutes of proceedings of the committee(s) of Directors is to
be maintained.
(i) Actual business
transacted in the meeting and also the formal propositions made and decisions
ultimately taken on them must be stated in the minutes.
(j) Minutes should mention
the brief background of the proposal and the rationale for passing the
resolution or taking the decision. [Para 9.2]
(k) wherever any approval of
the Board or of the Committee is taken on the basis of certain papers laid
before the Board or the committee is taken on the basis of certain papers laid
before the Board or the Committee, proper identification by initiating of such
papers by the Chairman or any Director should be made and a reference thereto
should be made in the minutes. [Para 9.4]
Minutes of Board Meetings
may be recorded in a loose-leaf binder or in a bound book. Pages of the
loose-leaf minute book must be serially numbered and duly typed and the
loose leaves should be bound at reasonable intervals not exceeding six months.
If minutes are maintained on loose-leaf binders appropriate safeguards
against interpolation of the leaves in the books should be taken.
According to paragraph 8.6
Minutes if maintained in loose-leaf form, should be bound at intervals
coinciding with the financial year of the company.
Minutes are evidence and presumptions to be drawn there from
Section 194 of the Companies
Act provides that minutes of meetings kept in accordance with the provisions of
section 193 shall be evidence of the proceedings recorded therein. This
provision does -not mean that minutes are conclusive evidence of
proceedings and cannot be questioned but it means that they will be accepted as
evidence in any legal proceedings. As per sections 195, when minutes of
proceedings of any meeting of Board of Directors or a committee of the Board,
are kept in accordance with the provisions of section 193, then until the
contrary is proved, the meeting will be deemed to have been duly called and
held and all proceedings thereat to have duly taken place -and in
particular, all appointments of directors made at the meeting will be deemed to
be valid.
Exemption to section 25 companies
Section 193 applies to
section 25 companies subject to the modification that minutes may be recorded
within 30 days of the conclusion of every meeting in case of companies where
the articles of association provide for confirmation of minutes by circulation.
(S.O. No. 1578, dated 1-7-1961)
For default made in
complying with the provisions of this section in respect of any meeting, the
company and every officer of the company who is in default is punishable with
fine which may extend to five hundred rupees. The offence is compoundable under
section 621 A.
Section 159 dealing with
annual return to be made by a company having a share capital has been amended
by the Companies (Amendment) Act, 1988, and accordingly the annual return
containing full particulars need be filed once in every six years instead of
once in every three years earlier.
In the case of listed
companies, the annual return should also be signed by a Secretary in whole-time
practice.
Penalty for filing Annual Return
Section 162 provides that if
a company fails to comply with the provisions of section 159, 160 or 161, the
company and every officer of the company who is in default will be punishable
with fine of Rs. 5001- for every day during which the default continues.
The expressions 'officer' and 'director' used in the aforesaid sections will
include any person in accordance with whose directions or instructions the
Board of Directors of the company is accustomed to act. This offence is a
continuing offence as held by Supreme Court in Bagirath Kanoria v. State of MP,
(1984) 3 Comp LJ 49.
Points to be noted by Secretary
The agenda as drawn above
should be approved by the Managing Director or the Chairman (if a Whole-time
Director) before circulation. At the Board Meeting, the Secretary should be
provided with paper and pencil in addition to such agenda to make notes of any
observation, remark or suggestion of any of the Directors and accepted by the
Chairman to be included.
Converting Agenda into minutes
The agenda of the Board
Meeting in the ordinary course with all the secretarial notes and points
discussed, deliberated, mentioned, added and deleted on each agenda item during
the course of the Board Meeting should be converted into minutes in
consultation with the Chairman or Managing Director or Whole-time
Director of the company by the secretary. Specimen minutes are given at Part
IV.
One important Secretarial Practice
After the minutes of the
proceedings of the meeting are prepared it is the practice for the Secretary to
have a few copies made out for circulation among all the Directors of the
company including the Director who had taken leave of absence. After
circulation, the Secretary should see that the proceedings are recorded in the
minute book. Needless to say, recording should conform in all respects to the
requirements of section 193 of the Companies Act, 1956.
Company's Lien on equitable charge created by
shareholder on his shares
Where the articles of
association of a private limited company gave the company a first and paramount
lien over the shares of any shareholder indebted to it, and the shareholder
created an equitable charge on the shares in favour of a third party, the
company's lien was held to have priority over the equitable charge. (Champagne
v. Perrier-Janet: S.A. v. H.H. Finch Ltd., (1982) 3 All ER 713 :(1984) 2
Comp LJ 210). It is doubtful whether there is such a thing as an equitable
charge in India but it is submitted that even if a legal charge had been
created in respect of the shares, the company's lien would still have had
priority, as a company is not bound by any dealings with shares which are
contrary to its articles of association and can refuse to register a transfer
which does not conform to the requirements of the articles.
The company can waive the
lien either expressly or by doing anything which has the effect of waiving the
right. Northern Assam Tea Co., (1870) 10 Eq 458; Bank of Africa v. Salisbury
Gold Mining Co., 1892 AC 281.
Registration of transfer of shares operates as waiver of lien
Where a company registers a
transfer of shares over which it has a lien, the registration will operate as a
waiver of the lien. Turner Morrison & Co. Ltd. v. Hungerford Investment
Trust Ltd., (1972) 42 Com Cases 512: AIR 1972 SC 1311.
No lien on fees due to directors against
unpaid calls
Although a company has a
lien on shares or dividends, for money due, it does not have a lien on fees due
to a director against unpaid calls. (Punjab Electric Power Co. Ltd. v. Suraj
Kishan, (1936) 6 Com Cas 390: AIR 1937 Lah 62.)
Notice of lien enforced by sale of shares for
debts due from cestue que Trust
Where the articles give a
lien against the "holder" of any shares and the holder is a trustee,
the company cannot claim a lien for debts due from the cestue que trust. (Re
Perkins, (1890) 24 QBD 613). Nor can the company alter the register of
shareholders by substituting the name of the beneficiary in the place of the
trustee in order to en-able it to enforce the lien against the
beneficiary. (Re: Ystalyfira Gas Co., 1887 WN 30).
Regulation 10 in Table A of
Schedule I to the Companies Act, 1956 mandates that a minimum 14 days' notice
in writing demanding payment of the amount must be made and any shares in a
company held by a member cannot be sold by a company without giving such a
notice, for appropriation against that member's dues to the company, more so
when the dues are claimed. Dr. T. M. Paul v. City Hospital (P.) Ltd. and
Others, (1999) 35 CLA 164 (Ker).
Where the articles of a
company contain a provision that the company may decline to register a transfer
of shares by a member who is indebted to the company, such a provision may amount
to a passive lien on the shares to the extent of the indebtedness; but it will
not prevail over an equitable charge created by the shareholder. (Bank of
Butterfield & Sons Ltd. v. Golisky, 1926 AC 733. Unity Company Private
Ltd., Diamond Sugar Mills, (1970) 2 Comp LJ 64: AIR 1971 Cal 18).
A call may be effectually
paid in money's worth, otherwise than by cash. But the consideration given by
way of the payment must be something which is bona fide regarded by the parties
as fairly representing the sum due to be discharged. It should not be merely
colourable or illusory. (Re white Star Lime, (1938) 1 All ER 607.)
Interest liability ceases on forfeiture
The liability to pay
interest is on a shareholder and ceases on forfeiture. (Bishamber Nath v. Agra
Electric Stores Ltd., (1932) 2 Com Cases 242: AIR 1932 All 342).
The notice must disclose
sufficient information with particulars of the amount due. A proper notice is
condition precedent to the forfeiture and even the slightest defect in the
notice will invalidate the forfeiture.
As per Regulation 30 of
Schedule I the said notice should name a further day not being earlier than the
expiry of fourteen days from the date of service of the notice on or before
which the payment required by the notice is to be made and state that in the
event of nonpayment on or before the day so named, the share in respect of
which the call was made will be liable to be forfeited.
Forfeiture of shares [Reg. 31 Schedule I]
If the requirements of
notice are not complied with, any shares in respect of which the notice has
been given may at any time thereafter, before the payment required by the
notice has been made, be forfeited by a resolution of the Board to that effect.
Board's power to dispose of forfeited shares
[Reg. 32 Schedule I]
The Board may sell or otherwise dispose of forfeited shares on such terms and in such manner as it thinks fit and at any time before a sale or disposal as aforesaid, the Board of Directors may cancel the forfeiture on such terms as it thinks fit.
Excess money realised on sale of forfeited
shares not to be paid to former owner
When forfeited shares are
sold, the excess of the proceed of sale is not payable to the former owner if
the articles provide otherwise. (Calcutta Stock Exchange Association Ltd., AIR
1957 Cal 438).
Board's power to set aside any sum out of profits as reserve
The Board may before
recommending any dividend set aside out of the profits of the Company any
amount as a reserve to be applied for any purpose to which profits of the
Company may be properly applied.