Appointment of Executive
Committee
S. 292(l) proviso-Executive
Committee-Board Resolution
"RESOLVED that Mr.__________________ and Mr. __________________ be and are hereby appointed to constitute a committee of the Board of Directors, named as 'Executive Committee' to exercise the assignments
hereunder mentioned and to continue to function as a committee until otherwise resolved by the Board, to carry on the executive authority in the management of the company in relation to branch and factory administration, increments, transfer of staff, provided that such Executive Committee shall have no power or authority in any of the following matters, namely
(a) To appoint or dismiss
any Director in the full-time employment of the company (Whole-time
Director).
(b) Make any decision
affecting expenditure on capital outlay of more than Rs. 85,000/- under
any single item or project
(c) Vary the remuneration
including travelling expenses and sitting fees of any Director, whether whole-time
or otherwise.
(d) Employ, discharge or
release any senior executive officer of the company who is in receipt of
Rs.35,000/- per month or over.
1. Formation of committees.-Under section 292(1) proviso
the board of directors can by a resolution passed at a meeting delegate to any
committee of directors, the managing director, the manager or any other
principal officer of the company to the extent specified therein and on such
conditions as the board may prescribe.
2. Chairman of the
committee.-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 member present may choose
one of their member to be Chairman of the meeting.
Appointment of Purchase
Committee
"RESOLVED that Mr. __________________ and Mr. __________________ Directors of the Company be and are hereby appointed to constitute a Purchase Committee of the Board of Directors with power to make any long term contract with any supplier of raw materials, chemicals or components, formulate purchase policy to be followed by the company in procurement of raw materials and consumable stores of any description provided that such Purchase Committee shall refer to the Technical Committee in respect of purchase of any equipment, machinery or any replacement thereof, and that no commitment for capital expenditure shall be made by such Purchase Committee without prior approval of the Board of Directors of the Company."
1. General powers of the
Board.-The
Board of Directors of a company is entitled to exercise all powers and to do
all acts on behalf of the company as the company is authorised to do except those
required to be done by the company in general meeting.
2. Authority given to
others.-The
Board of Directors of a company can by a resolution authorise any person to do
a particular act and such authority will be valid till it is taken back again
by the board.
Appointment of Technical
Committee
"RESOLVED that Mr. __________________ and Mr. __________________ the Directors of the Company, be and are hereby appointed to constitute a Technical Committee of the Board to deal with all technical problems involved in the production and maintenance of plant, disposal of effluence, etc., and that the following powers and authorities in relation to the matters involving technical skill be also delegated to the said committee:
(a) Power to
__________________
(b) Power to __________________, etc."
1. Power of Board be
delegated to Committee of Directors.-Subject to the conditions laid down in S.
292, the Board of Directors of a company, can delegate any of its powers to a
committee. There are certain powers like issue of shares or debentures which
can be exercised only in Board Meetings and these functions can not 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 power or authority on the Director or officer to enter into such
contract or agreement, if in fact no authority has been conferred.
2. Rules as regards
proceedings of meeting of Board applicable to meeting of committee of Board.-A committee may elect a
Chairman of its meetings. Similar rules as regards proceedings of the meeting
of the Board of Directors apply to a meeting of the committee of the Board.
Like Chairman of the Board, the Chairman of a Committee of Directors also must
be present within five minutes of the time appointed for holding the meeting;
otherwise, the members present may choose one of their number to be the
Chairman of the meeting. A committee may meet and adjourn as it thinks fit.
Similarly, resolutions arising at any meeting of a committee should be
determined by a majority of votes of the members present, and in case of an equality
of votes, the Chairman shall have a second or casting vote.
S. 292(l) Proviso-Remuneration
Committee-Board Resolution.
"RESOLVED that Mr. __________________ and Mr. __________________ the directors of company be and are hereby appointed to constitute a Remuneration Committee of the Board of Directors of the Company to deal with and approve remuneration of managerial personnel of the company.
1. Schedule XIII of the Act.-Companies having no profits
or inadequate profits desiring to pay remuneration to its managing
director/whole-time director as per Part II, Section II of Schedule XIII
must approve the remuneration by a resolution passed by the Remuneration
Committee.
2. Secretarial Standard.-Provisions of paragraphs
2.2, 3.2, 5.2 and 6.1 of Secretarial Standard 1 should be adhered to while
convening the Remuneration Committee Meetings.
Delegation of power to
borrow moneys, invest the funds of the
company and to make loans
"RESOLVED, pursuant to
the provisions made in the proviso to subsection (1) of Section 292, that the
principal officer of the Company, namely, the Secretary of the Company, be and
is hereby authorised to borrow moneys up to Rs. 50 lakhs, invest the funds of
the Company up to Rs. 60 lakhs and make loans to any organisation up to Rs. 65
lakhs."
See under Resolution No. 674.
See Resolution No. 28.
Sale or lease of the undertaking [S. 293(l)(a)]
Undertaking means business
unit or enterprise. Rustomjee Cavasjee Cooper v. Union of India, AIR 1970 SC
564. The Board of Directors are free to act within the ambit of the resolution
passed by the shareholders but it cannot be compelled to exercise the powers
given to it by the shareholders. Pothen v. Hindustan Trading Corporation (P)
Ltd., (1967) 37 Com Cases 266. Selling of the shares of the company held by it
in another company does not amount to sale of an undertaking within the meaning
of section 293(l)(a). Yellamma Cotton, Woollen and Silk Mills Co. Ltd., (1970)
40 Corn Cases 466 (Mysore). Once the General Meeting has agreed to the
investment of funds of the company in a particular manner after considering the
pros and cons of the matter and the investment is not opposed to any provision
of law, it is not right for the Court to take a view different from the view
taken by the shareholders. Natesar Spinning and Weaving Mills, ITR (1960) Mad
257. Temporary loans are excluded from the limit. Temporary loans are such
loans which are payable on demand or within six months from the date of the
loan. These are in the nature of cash credit arrangement, discounting of bills and
short-term loans of a seasonal character. Letter No. 8/16(1)/61-PR,
dated the 9-5-1961. Rising of capital by issue of shares is not
borrowing of money. Hindustan Commercial Bank Ltd. v. Hindustan General
Electric Corporation Ltd., AIR 1960 Cal 637. A unit of the company which has
been closed for five years cannot be held to be an undertaking within the
meaning of this sub-section and these provisions do not apply to a
proposed sale of the unit. Pramod Kumar Mittal v. Andhra Steel Corporation
Ltd., (1982) 2 Comp LJ 629. The term borrowing under section 293(l)(d) does not
include debts on account of purchase of machinery and deferred payments,
(Department's letter No. 8/16(1)/61-PR, dated 9-5-1961). if
the borrowing by the Directors is ultra vires their powers, the Directors may
be personally liable to damages to the tender. Firbank's Executors v.
Hymphreys, (1886) 18 QBD 54. If the borrowing is unauthorised, the company will
be liable to repay, if it is shown that the money had gone into the company's
coffers. Lakshmi Ratan Cotton Mills Co. Ltd. v. J.K. Jute Mills Co. Ltd.,
(1957) 27 Com Cases 660. In a notice of the general for approval of the
shareholders of a resolution under this clause, it is mandatory that
explanatory statement sets out the material facts of the item of business and
if such a resolution is passed without disclosing the material facts it is in
violation of the requirement of section 173 and is a void resolution and an
agreement on the strength of a void resolution if permitted would defeat the
provisions of law. Y.S. Spinners Ltd. v. Official Liquidator, Ambica Mills
Ltd., (2000) 100 Com Cases 547 (Guj).
Sale or disposal of
undertaking
"RESOLVED that subject
to the approval of the Company in General Meeting, the stamping unit of the
Company which is incurring losses for last several years be disposed of by way
of outright sale pursuant to the offer made by M/s. BKP & Co. Ltd., dated
the _________ 2002 _________, which is hereby tabled and the terms of which
after perusal and discussion are hereby approved."
1. Restrictions on power of
Board.-Section
293 imposes restrictions on the general power of the Directors. The actions
that have been indicated in the section are nevertheless, required to be taken
by the Board of Directors within such limitations or directions as may be
determined by the company at a General Meeting of the members. The Board of
Directors is usually empowered to dispose of old machinery or equipment as this
is not considered an undertaking or part of the undertaking of the company.
2. Restrictions on sale or
disposal of undertaking.-Sub- section (1)(a) of section 293 puts
restrictions on the Board of Directors disposing of the whole, or substantially
the whole of the undertaking of the company, or where the company owns more
than one undertaking, of the whole or substantially the whole, of any such
undertaking.
3. Word
"undertaking"-Meaning.-The Companies Act does not define precisely
the word 'undertaking'. By an ‘undertaking’ is meant business unit or
enterprise through which a company may be said to be engaged in gainful
occupation. For example, each of the several factories or manufacturing plants
of a company will be considered to be an undertaking from the business point of
view. It does not consist of assets or property; it is productive organisation,
so to speak, and signifies a going concern engaged in the production,
distribution, etc., of goods or services; sometimes it means also the entire
business or organisation of a company. Sale or disposal of one single machinery
cannot be construed as disposal of an undertaking or part of an undertaking
within the meaning of section 293(l)(a). R.C. Coopers v. Union of India, (1970)
1 Comp LJ 244: (1970) 40 Com Cases 325: AIR 1970 SC 564.
"WHEREAS a letter dated the_________ 2002 _________, from the Industrial Development Bank of India (hereinafter called 'IDBI') was placed on the table approving in principle release of Rs. 10,00,000/- (Rupees ten lakhs) only to the company for the purchase of a sophisticated milling machine from the Hindustan Machine Tools Limited, Bangalore, on security by way of hypothecation of the machine;
NOW THEREFORE IT IS RESOLVED
that the said machine be and is hereby bought and hypothecated along with the
existing machineries of the company in favour of the said IDBI, on the terms
which are hereby accepted, namely, that the loans so advanced by the IDBI shall
be repayable in five years' time and shall carry a rate of interest of nine per
cent per annum on the outstanding amount.
RESOLVED FURTHER that Mr. __________________ and Mr. __________________ being the Directors of the Company, be and are hereby authorised jointly to execute the necessary documents under the seal of the Company, wherever required, in this connection, as per Article _________ of the Articles of Association of the Company."
1. Compliance with
provisions of section 293(l)(a) not necessary for obtaining loans by mortgaging
whole or substantially whole of undertaking but usufructuary mortgage requires
consent of general meeting.-Whether an equitable mortgage created by deposit of
title deeds and a hypothecation of undertaking or part of the undertaking of
the company comes within the mischief of the section has been the subject
matter of conflicting clarification from the Department of Company Affairs from
time to time and certain clarifications given earlier were cancelled b the
Central Government b a Circular No.2/3/69-CL. V, dated 31-7-1970
but the Circular which is now in force is No. 8/19(293)/64-PR, dt. 21-7-1964,
which states:
“which states that the point
raised was considered and the Central Government is of the view that if a
company mortgages the whole or substantially the whole of its undertaking for
obtaining loans or other financial assistance, it need not comply with the
provisions of section 293(l)(a) of the Act, but if it is a usufructuary
mortgage, the said section would be attracted. In this view of the matter, the
question of conflict between the provisions of section 293(l)(a) and section
292(l)(b) may not arise.”
"WHEREAS Mr. __________________ a Director of the Company, took an unsecured loan of Rs. 100,000 to meet partially the cost of a flat he has purchased, carrying nominal rate of interest at six per cent per annum;
AND WHEREAS the entire loan
with interest thereon is repayable within a period of three years from the date
of the advance of the loan;
AND WHEREAS being unable to
fulfil his commitment in respect of repayment of the aforesaid debt in full in
stipulated time;
AND WHEREAS he has now
applied to the Board of Directors for extension of time for the payment of debt
by another one year vide his letter dated the _________ 2002 _________, which
is hereby tabled and perused;
NOW THEREFORE IT IS RESOLVED
that subject to the consent of the Company being obtained in a General Meeting,
the date of repayment of the balance of the debt amounting to Rs. 10,500/-
due to Mr.__________________ a Director of the Company, be extended by further
one year beginning from _________, 2002 _________, and that in case of default
in paying any instalment, the balance outstanding shall become due and payable
immediately."
1. Loan to Director.-Previous approval of the
Central Government is required for advancing loan to a director under section
295 of the Act and for non-compliance of this requirement is punishable
with fine of up to Rs. 50,000/- or with simple imprisonment for a term of
6 months.
2. Loan to Director for
purchase of flat.-Previous approval of the Central Government has to be obtained for
giving loan to Directors for purchase of flat. The loan would be admissible
only to the whole-time employees of the company, namely, managing
directors, whole-time directors, etc. The amount of loan would not exceed
a maximum of Rs. 1 lakh and would be given only where the cost of land together
with the cost of construction does not exceed rupees four lakhs. The borrowers
would be required to furnish sufficient security including mortgage of the land
and the house to be constructed, for the repayment of the loan amount.
3. Application is to be made
to Central Government for waiver or modification of condition.-If the extension of time
granted to the Director conflicts with any condition imposed in the letter of
approval under section 295, an application should be made to the Central
Government for waiver or modification of the condition imposed.
Investment of compensation
money other than in trustee
securities
"WHEREAS the
undertaking of the Company for generating and distribution of electricity has
been taken over by the State Government pursuant to a notification No _________
dated the _________ 2002 _________ enacted subsequently as _________ Electric
Supply (Acquisition of Undertaking) Act, 1976;
AND WHEREAS the compensation agreed to be paid for the takeover of such undertaking has duly been received by the Company from the said State Government on the _________ 2002 _________ ;
AND WHEREAS the Company has
met or satisfied without litigation, arbitration or otherwise, all the
outstanding liabilities of the creditors of the company as were on the date of the
acquisition of the undertaking, in full settlement of such creditors;
AND WHEREAS adequate surplus
received as compensation after meeting all liabilities remain with the company
to invest;
NOW THEREFORE IT IS RESOLVED
that subject to the consent of the Company at a General Meeting, an amount of
Rs. 75,00,000/- (Rupees seventy-five lakhs) only be invested in purchase
of equity shares in the capital of M/s. ABC & Co. Ltd., a high dividend
yielding company until Company's scheme of manufacturing of high tension
electricity conductor wire and power project is approved by the Central
Government and the members at a General Meeting in due course."
1. Take-over of
undertaking.-This is an important specimen resolution which can be adopted where
there is take-over of undertakings, either by the Central or State
Government.
2. Investment of
compensation received by company in respect of acquisition of undertaking.-The Board of directors of a
public company or of a private company which is a subsidiary of a public
company with the approval of the share-holders in general meeting can
invest otherwise than in trust securities the amount of compensation received
by the company in respect of the acquisition of the undertaking either by the
Central or State Government.
"RESOLVED that pursuant
to the authority given by the members of the Company under section 293(l)(d) at
a General Meeting held on the _________ 2002 _________, to the Board of
Directors, to borrow, within a limit of Rs. 10 crores, a further amount of Rs.
2.50 crores from the _________, Bank _________, Branch, Nagpur 440 012, be borrowed
as a medium term loan repayable within a period of seven years from the date of
disbursement thereof to be covered by the security by way of equitable mortgage
by deposit of the title deeds already made with the said Bank."
1. Expression
"Temporary Loan"-Meaning.-Section 293(l)(d) imposes
some restrictions on the borrowing powers of the Board. Under the Amending Act
(LXV of 1960), an explanation of the expression 'temporary loans' has been
added in the absence of which it was causing confusion in the minds of lending
banks whether all types of loans/advances should fall within the scope of this
section requiring approval of the members of the company for borrowing beyond
certain limit. Explanation II added to this section states that the expression
'temporary loans' in clause (d) means loans repayable on demand or within six
months from the date of the loan, such as, short term loans, cash credit
arrangement, discounting of bills and the issue of other short-term loans
of a seasonal character, but does not include loans raised for the purpose of
financing expenditure of capital nature. In effect, temporary loans obtained
from the company's bankers in the ordinary course of business, and not for the
purpose of acquiring any capital assets for the company are to be excluded,
when reckoning the limit up to which a company may borrow. (Letter No.
8/16(1)/61 -PR dated 9-5-1961).
2. Public deposits not
subject to restrictive provisions of section 293(l)(d).-A question may arise as to
whether or not public deposits accepted by the company pursuant to section 58A
of the Companies Act, 1956, and the-Companies (Acceptance of Deposits)
Rules, 1975, should be subjected to the restriction of borrowing under section
293(l)(d). It seems the acceptance of deposits, though a form of borrowing
guarded and regulated by separate ceilings, may not be subject to the
restrictive provisions of section 293(l)(d) of the Act.
3. Hire Purchase and leasing
transaction.-Purchase of machinery on deferred payment basis is not covered by the
term 'borrowings' in section 293(l)(d). (Letter No. 8/16(1) 61-PR dated 9-5-1961).
4. Compliance Certificate.-Companies having a paid up
share capital of less than Rs. 2 crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the amount borrowed by the company from directors, members, public
financial institutions, banks and others during the financial year ending is
within the borrowing limits of the company and that necessary resolutions as
per section 293(l)(d) of the Act have been passed in duly convened general
meeting as per paragraph 24 of the Form of Compliance Certificate appended to
the Companies (Compliance Certificate) Rules, 2001.
S. 293(l)(e)-Contribution
to employees' welfare fund-Board Resolution
"RESOLVED that subject to the approval of the Company at a General Meeting pursuant to section 293(l)(e) of the Companies Act, 1956, an amount of Rs. 6,50,000/- (Rupees six lakhs fifty thousand) only be contributed to Army Wives Welfare Society, a society of the wives of the army personnel either in service or retired, formed for helping advancement of education and higher studies and making them self-employed by any other means."
1. Shareholders' approval
required for contribution to welfare funds beyond prescribed limits.-Powers exercisable under the
provisions of section 293(l), clauses (a) to (e), rest upon the Board of
Directors but its unfettered liberty in dealing with the funds of the company
is restricted to a limit and any action beyond the limits provided therein
under the clauses (a) to (e) of the said section is subject to the consent of
the company to be obtained at General Meeting.
2. Contribution to charity
etc.-As
regards contributions to any charitable and other funds not directly relating
to the business of the company or the welfare of its employees (provided in
clause (e) of sub-section (1) of section 293), the maximum amount in any
financial year should not exceed fifty thousand rupees or five per cent of the
company's average profits as determined in accordance with the provisions of
sections 349 and 350 during the three financial years immediately preceding, whichever
is greater. One very vital factor that should be remembered is that unless the
memorandum or the articles authorise such expenditure, it will be ultra vires
the power of the company. The Directors cannot make gratuitous payments out of
company's money, and these are ultra vires except so far as they are permitted
by the Companies Act, 1956, such as those specified in sections 293, 293A, 318
and 320 of the Act, the provisions under the Payment of Bonus Act, 1965, and
the Gratuity Act, 1972.
3. Periodicity of
resolutions passed depend on terms of resolutions and circumstances under which
passed.-Pursuant
to Explanations I, II and III to sub-section (1) of section 293, the
periodicity of resolutions to be passed under clauses (d) and (e) of sub-section
(1) of section 293 should depend on the terms of the resolutions so passed and
the circumstances under which they were passed. (Circular No.8/19(293)/64-PR,
dated 15-9-1964).
4. Contribution to
charitable trusts in the form of fully paid shares instead of cash.-Companies may contribute to
any charitable trusts in the form of fully paid shares instead of cash to the
extent the amount represented by such shares does not exceed the limits
specified in section 293(l)(e) and all statutory requirements are complied
with. But, such companies should not undervalue the shares so contributed to
avail of the statutory ceilings. (Letter No. 12/13/60-PR (S) dated 18-3-1960).
5. Contribution to National
Defence Fund excluded.-In calculating the limit specified in section
293(l)(e), contribution made to National Defence Fund under section 293B need
not be taken into account. (Letter No.. 8/51(293B)/66-CL.V, dated 31-81966).
The Department of Company Affairs have opined that expenditure incurred on advertisement in souvenir issued by political parties may be a donation in disguise of advertisement and would attract section 293-A. (Department's Letter No. 8/20/293-A/69-CL. V, dated 12th February, 1970).
Donation to Charitable
institution
"RESOLVED that a sum of
Rs. 50,000/- of the Company be paid to ABC Institution which is a
charitable institution within the meaning of Income-tax Act, 1961 as
d6nation."
1. To check whether
charitable institution recognised.-Check up that the institution is a charitable
institution recognised as such under the Income-tax Act, 1961 as amended
from time to time.
2. Donations to be within
limit.-The
limit of Rs. 50,000/- or 5% of its average net profits, whichever is
greater is to be complied with. The donations should be within that limit.
3. Memorandum of Association
to empower company.-The power to donate should be contained in the Memorandum of
Association of the company; otherwise alter the memorandum.
4. Section not attracted for
donation to certain National Relief Funds.-Donations to certain
National Relief Funds are not attracted by this section. (293B)
5. Expenditure incurred on
advertisement in souvenir of political parties attract section 293A.-The Department of Company
Affairs have opined that expenditure incurred on advertisement in souvenir
issued by political parties may be a donation in disguise of advertisement and
would attract section 293-A. (Letter No. 8/20/293-A/69-CL. V,
dated 12th February, 1970).
Contribution to the
Political Party
"RESOLVED that pursuant
to the provisions of Section 293A of the Companies Act, 1956, the approval of
the Board of Directors be and is hereby given to the Company for contribution
to Congress Party an amount not exceeding five per cent of the average net
profits as determined in accordance with the provisions of sections 349 and 350
of the Companies Act, 1956 during the three immediately preceding financial
years."
1. Contribution to political
party prohibited.-A Government Company and a Company which has been in existence for less
than three financial years cannot contribute any amount or amounts directly or
indirectly to any political party or for any political purpose to any person.
2. Requirement of Board
Resolution.-A resolution of the Board of Directors is required for making any
contribution to any political party or for any political purpose to any person.
3. Deemed contribution for
political purpose.-A donation or subscription or payment given by a company on its behalf
or on its account to a person, to its knowledge is carrying on any activity,
which can reasonably be regarded as likely to effect public support for a
political party shall also be deemed to be contribution of the amount of such
donation, subscription or payment to such person for a political purpose.
4. Expenditure when amount
to deemed contribution.-The amount of expenditure incurred directly or
indirectly by a company on advertisement in any publication in the nature of a
souvenir, brochure, tract, pamphlet or the like by or on behalf of a political
party or for its advantage shall also be deemed to be a contribution to such
political party and where such publication is not by or on behalf of but for
the advantage of a political party to be a contribution for a political purpose
to the person publishing it.
5. Disclosure in Profit and
Loss Account.-Every Company is required to disclose in its profits and loss account
any amount(s) contributed by it to any political party or for any political
purposes to any person during the financial year to which that account relates
giving particulars of the total amount contributed and the name of the party or
person to which or to whom such amount has been contributed.
6. Penalty.-If a company makes any
contribution in contravention of the provisions of Section 293-A then the
Company shall be punishable with fine which may extend to three times of the
amount so contributed and every officer of the Company who is in default shall
be punishable with imprisonment for a term which may extend to three years and
with fine.
Contribution to Political
Party
(Another format)
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised to contribute for
every financial year any sum or sums not exceeding in the aggregate Rs.
_________ to such political party or parties as it deems fit and proper."
1. Amount of contribution.-The aggregate of the amounts
which is to be contributed by a company in any financial year should not exceed
five per cent of the company's average net profits during the three immediately
preceding financial years.
2. Disclosure in profit and
loss account.-The amount of contribution to political party should be disclosed in
the profit and loss account giving particulars of the total amount contributed
and the name of the political party to which such amount has been contributed.
3. Penalty.-Contravention of the provisions of Section
293-A will call for fine three times the amount of contribution.
"RESOLVED that pursuant to section 293B of the Companies Act, 1956, Mr. __________________, a Director of the Company, be and is hereby authorised to contribute up to a sum of Rs. 80,000/- to the National Defence Fund or to any other Fund approved by the Central Government for the purpose of national defence."
1. Funds approved by Central
Government.-Funds approved by the Central Government for the purpose of national
defence are the following:
|
Sl. No. |
Name of the Fund |
Name of the State |
|
1. |
The Chief Secretary to the Government of Andhra
Pradesh, Hyderabad, National Defence Fund |
Andhra Pradesh |
|
2. |
The National Defence Fund, Andhra Pradesh State
Peoples' Committee |
Andhra Pradesh |
|
3. |
The Bihar State National Defence and Jawans'
Welfare Fund |
Bihar |
|
4. |
The Chief Minister's Defence Fund, Kerala State |
Kerala |
|
5. |
The National Defence Fund, Madras |
Tamil Nadu |
|
6. |
The Chief Minister's Defence Services Welfare
Fund, Rajasthan |
Rajasthan |
|
7. |
The Chief Minister's Defence Forces Welfare Fund,
Lucknow |
Uttar Pradesh |
|
8. |
The Chief Minister's Defence Purposes Fund of
Uttar Pradesh, Lucknow |
Uttar Pradesh |
|
9. |
The Chief Minister's West Bengal Account National
Defence Fund |
West Bengal |
|
10. |
Gujarat Chief Minister's Sainik Fund |
Gujarat |
|
11. |
The Prime Minister's National Relief Fund see
Notification No. GSR 2561 dated 18- 101975. |
|
Contribution to National
Defence Fund etc.
S. 293-B-Contribution
to National Defence Fund etc.-Board Resolution
"RESOLVED that consent
of the Board of Directors be and is hereby accorded to the Company to the
contribution of Rupees Two Lakhs to the National Defence Fund".
1. No limit prescribed for
contribution to National Defence Fund.-No limit has been prescribed for contribution
to the National Defence Fund. Therefore any amount can be contributed with the
approval of the Board of Directors and approval of the shareholders is not
required.
2. Contribution to Fund
approved by Central Government.-The contribution is to be made to the National
Defence Fund or any other Fund approved by the Central Government for the
purpose of national defence.
3. Disclosure in Profit and
Loss Accounts.-Disclosure has to be made by every company in its Profit and Loss
Account indicating therein the amount contributed by it to the National Defence
Fund or any other fund approved by the Central Government for the purpose of
national defence.
Appointment of Sole Selling
Agent
"RESOLVED that Shri __________________ is appointed as a sole selling agent of the Company for its products in the area of for a period of 5 years on and from _________ on the terms and conditions contained in the agreement accepted by the aforesaid Shri __________________ and now placed before the meeting, subject to the condition that the appointment shall cease to be valid if it is not approved by the Company in its first general meeting held after the date of appointment."
1. Approval of General Body.-Section 294(2) prohibits the
appointment of a sole selling agent except on the condition that the
appointment shall cease to be valid if it is not approved by the general body.
2. Prohibition in certain
cases.-The
Central Government has prohibited the appointment of sole selling agents in
sugar, vanaspati, cement and paper under section 294AA. Cement and Paper is
prohibited for 2 years w.e.f. 18-9-2000, Bulk drugs, drugs and
formulations for 3 years w.e.f. 17-4-2000 and Vanaspati for 2 years
from publication of Notification No. GSR 927(E) dated 21-12-2000,
in the official gazette.
3. General Body Resolution.-See also form of Resolution
to be passed by the general body, and the Companies (Appointment of Sole
Agents) Rules, 1975.
4. Penalty for default.-If a company refuses or
neglects to furnish the information required by the Central Government under
clause (a) of sub-section (5) or clause (a) of sub-section (6) or
to produce to the person appointed under clause (b) of sub-section (5) or
clause (b) of sub-section (6) any books and papers which are in its
custody or power or otherwise to give to that person any assistance which it is
reasonably able to give, the company and every officer of the company who is in
default shall be punishable with fine of up to Rs. 50,000/- and with a
further fine of up to Rs. 500/- for every day after the first during
which such refusal or neglect continues. Where non-compliance with the
mandatory directions contained in section 294(2) was not only in respect of the
first agreement but was in respect of the second and third agreement it was
held that the offences committed were of the nature of continuing offences. AY.
Kasargod v. ROC, (2001) 105 Com Cases 676 (Kant.).
5. Compliance Certificate.-Companies having paid-up
share capital of less than Rs. 2 crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the appointment of sole-selling agents was made in compliance
of the provisions of the Act as per paragraph 16 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Appointment of Selling
Agents of Different Territories
"RESOLVED that subject
to the approval of the shareholders of the Company, the following firms be and
are hereby appointed as Agents in the Territories mentioned against their names
for the sale of the Company's products, namely, Microscopes, Pressure Gauges
and the spare parts there for:
|
Sl. No |
Name of the Agent |
Territory |
Period |
|
1. |
M/s.
ABC (Private) |
Maharashtra, Gujarat, Andhra
Pradesh and the Union Territories of Goa, Daman & Diu |
One
year |
|
2. |
M/s.
XYZ (Private) Limited |
Rajasthan |
Two
year |
RESOLVED FURTHER that the Standard Selling Agency
Agreement placed on the Table and duly initialled by the Chairman of the
Meeting for the purposes of identification be and is hereby approved.
RESOLVED FURTHER that Shri
SKM, Managing Director of the Company be and is hereby authorised to execute on
behalf of the Company the Selling Agency Agreement with the above firms and to
make such variations/modifications in the terms and conditions as may be
mutually agreed to _________
RESOLVED FURTHER that the
approval of the Company in next General Meeting be obtained to the aforesaid
appointments and the Secretary of the Company be and is hereby authorised to
take such further action as may be necessary in this connection."
1. Appointment of Sole
Selling Agents for rive years at a time.-A company shall not appoint
sole selling agents for any area for a term exceeding five years at a time.
However, the Company is not prohibited from re-appointing or extending
their term of office for a further period not exceeding five years on each
occasion.
2. Stipulation of condition
is must that appointment would cease if not approved by shareholder.-The expression in sub-section
(2) to the effect that the Board of Directors of a Company shall not appoint a
sole selling agent for any area except subject to the condition that the
appointment shall cease to be valid if it is not approved by the company in the
first general meeting held after the date on which the appointment Is made. It
has been held that any agreement which does not incorporate that condition
should be held to be void and of no effect even though a general meeting may
have approved of it. (Arantee Manufacturing Corporation v. Bright Bolts (P.)
Ltd., (1967) 37 Comp Cases 758). Thus such a condition must be embodied in the
agreement in case the appointment is made by the Board of Directors.
3. Appointment ceases to
have effect if disapproved in general meeting.-If the company in
general meeting disapproves the appointment it shall cease to be valid from the
date of that general meeting.
4. Power of Central
Government to call for particulars of Sole Selling Agent-on refusal Govt.
may appoint Inspector to investigate.-The Central Government has power to call for
particulars regarding the terms and conditions of the sole selling agents. If
the company refuses or neglects to furnish any such information; the Central
Government may appoint an Inspector to investigate and report on the terms and
conditions of appointment of sole selling agent.
5. Government may call for
particulars where company has more than one selling agent and on failure to
furnish information to appoint Inspectors.-Where the company has more
than one selling agents the Central Government may require the company to
furnish the information regarding the terms and conditions of appointment of
all selling agents. If the company refuses or neglects to furnish the
information, the Central Government may appoint an Inspector to investigate and
make a report in this regard.
6. Penalty when information
not furnished.-The Company has to comply with the provisions contained in the section
and/or furnish the information asked by the Government or to the Inspector
appointed by the Central Government. In default the company and every officer
of the company who is in default shall be punishable with fine up to Rs.
50,000/- and further fine up to Rs. 500/- for every day after the
first during which the default continues.
7. Section 294 applicable to
both public and private company.-This section is applicable to a public as well as a
private company.
Payment of Compensation to
Sole-Selling Agent for loss of office
“RESOLVED that the Sole Selling Agent of the Company M/s. ABC be and is hereby paid Rs. _________ as compensation for loss of its office due to reconstruction of the company as per the scheme of reconstruction approved by the Board and also the company in general meeting held on _________ 2002.
RESOLVED FURTHER that the
Secretary of the Company be directed to obtain the undertaking as per the draft
placed before this meeting and initialled by the Chairman for the purpose of
identification, signed by the said sole selling agent to the effect that he
should not accept any appointment of a sole-selling agent from the
reconstructed company for a period of two years from _________”
1. Prohibition of payment of
compensation.-Sub- section (1) of section 294-A prohibits a company from
paying compensation to a sole selling agent for loss of office in five cases
mentioned therein from clause (a) to (e). One of the restrictions is that a
sole selling agent cannot be paid compensation for loss of office where he
resigns in view of the reconstruction or amalgamation of the company and is
appointed as the sole selling agent of the reconstructed or amalgamated
company.
2. Extent of compensation
payable.-The compensation which may be paid by a company to its sole selling
agent for loss of office should not exceed the remuneration which he would have
earned if he had been in office for the unexpired residue of his term or for 3
years, whichever is shorter, calculated on the basis of the remuneration
actually earned by him during a period of 3 years immediately preceding the
date on which his office ceased or was terminated, or where he held his office
for a lesser period than 3 years, during such period.
Loans to Directors
"RESOLVED that pursuant
to section 295 and subject to the approval of the Central Government
Rs._________ be and is hereby given to Mr. ABC as loan for a period of 2 years
at an interest of 2% per annum and as per other terms and conditions as laid
down in the agreement placed before this meeting and initialled by the Chairman
for the purpose of identification.
RESOLVED FURTHER that the
Secretary be authorised to make the necessary application to the Central
Government for obtaining approval and to take all steps that may be necessary
in connection therewith or incidental or ancillary thereof."
1. Previous approval of the
Central Government.-The approval to be obtained from the Central Government for giving
loans to directors must be previous approval and not post approval. The
application should be made in the letter head of the Company as there is no
prescribed form along with requisite fees paid by way of bank draft as per
Companies (Fees on Applications) Rules, 1999.
2. Exemptions from the
provisions.-Loans made or guarantee given or security provided by a private company
unless it is a subsidiary of a public company or by a banking company or by
holding company to its subsidiary. Government companies are also exempted from
the provisions of section 295 provided they obtain approval of their
administrative ministries or the concerned State Government as the case may be.
3. Penalty for default.-Every person who is
knowingly a party to any contravention of sub-section (1) or (3) of
section 295, 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, shall be punishable either with fine of up to Rs. 50,000/-
or with simple imprisonment for a term of 6 months.
4. Guidelines for company
loans to directors and their relatives.-The Department of Company
Affairs has issued guidelines providing stringent norms for loans or corporate
guarantee or furnishing security to the directors of the company or their
relations vide Press Release dated 18-2-2002. While making the
application to the Central Government under this section these norms should be
strictly followed.
5. Compliance Certificate.-Companies having paid-up
share capital of less than Rs. 2 crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has advanced loan amounting to the specified amount to
its directors and/or persons or firms or companies referred in section 295 of
the Act after complying with the provisions of the Act as per paragraph 8 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
347. Contract with Directors
etc. (S. 297)
The consent contemplated is
not a general consent but a consent referable to each particular or specific
contract or contracts. Consent requires knowledge of the necessary facts and
materials which leads to the consent and cannot be given in a general or
abstract manner. Walchandnagar Industries Ltd. v. Ratanchand Khimchand
Motishaw, (1953) 23 Com Cases 343. Where facts and circumstances of a case
requires approval of the Central Government under section 269 or section
314(1B) or section 294AA and also under section 297, approval under section
269, section 314(1B) or section 294AA of the Act would be enough and no
separate approval under section 297 of the Act is necessary. (Department’s
circular No. 18/76, dated 29th June, 1976). Proviso to section 297(l) does not
apply to the contract of employment of a Director as Managing or Whole-time
Director. (Department's circular No. 13/75, dated 5th June, 1975).
Contract with Directors
"RESOLVED that approval
of the Board of Directors be and is hereby given to the company for the
execution of a contract with M/s. ABC Private Ltd., in which Mr. XYZ, a
Director of the Company is interested, for supply of the packing machinery to
the Company as per terms and conditions set out in the draft agreement placed
before the meeting and initialled by the Chairman for the purposes of
identification.
RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to execute the agreement with M/s. A.B.C. Private Ltd. under the common seal of the Company, affixed on the agreement in accordance with Article _________ of the Articles of Association of the Company."
1. Interested director not
to participate in Board's proceeding.-The interested Director is not to participate
in the Board's proceeding and to vote on the resolution.
2. Board's approval not
necessary to contract for supply of goods not exceeding Rs. 5,000/-. -For contract or
contracts relating to supply of goods and materials, the value of which does
not exceed Rs. 5,000/- in the aggregate in any year, no Board's approval
is necessary.
3. Section not applicable to
rendering of professional services.-This section is not applicable where the
services are in the nature of professional services given by a firm of
solicitors or advocates.
4. Company having paid-up
capital of not less than Rs. one crore to obtain approval of Central Government
for contract.-Previous
approval of the Central Government is to be obtained for any such contract
where the company has a paid-up capital of not less than Rs. one crore.
5. Contract must relate to
particular transaction and not to a general one.-The contract entered into by
the company with any Director must relate to a particular transaction and
should not be a general one.
6. Consent not to be a
general consent but referable to specific contract.-The consent contemplated is
not a general consent but a consent referable to each particular or specific
contract or contracts. Consent requires knowledge of the necessary facts and
materials which leads to the consent and cannot be given in a general or
abstract manner. Walchandnagar Industries Ltd. v. Ratanchand Khimchand
Motishaw, (1953) 23 Com Cases 343.
7. No separate approval
necessary under section 297 when Central Government approval required under
section 269/314(1B)/294AA.-Where facts and circumstances of a case require
approval of the Central Government under section 269 or section 314(1B) or
section 294AA and also under section 297, approval under section 269, section
314(1B) or section 294AA of the Act would be enough and no separate approval
under section 297 of the Act is necessary. (Department's Circular No. 18/76,
dated 29-6-1976).
8. Proviso to section 297(l)
not applicable to contract of employment of director/Managing/Whole -time
director.-Proviso to section 297(1) does not apply to the contract of employment
of a director as Managing or Whole-time Director. (Department's Circular
No. 13/75, dated 5-6-1975).
9. Compliance Certificate.-Companies having paid-up
share capital of less than Rs. 2 crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Compames mentioning therein inter
alia that the company has duly complied with the provisions of section 297 of
the Act in respect of contracts specified in that section as per paragraph 9 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Contract with any Director
(Another format)
"RESOLVED that the
contract for the supply of 50 tonnes of rolled sections of various
specifications, entered into between the Company and Mr. __________________ a
Director of the Company, who is interested in it as per Entry No. 32 in the
Register of Contract, be and is hereby approved, pursuant to section 297 of the
Companies Act, 1956."
1. Consent of Board
necessary for contract with any director or his relative.-The consent of the Board of
Directors is necessary for a Director of the company, or his relative, a firm
in which such Director or relative is a partner, or a private company of which
the Director is a member or Director, to enter into a contract with the
company.
2. Contracts for supply of
services included.-Section 297 covers not only sale/purchase or supply of any goods or
materials, but also services, the value of which or the cost of which exceeds
five thousand rupees in the aggregate in any year comprised in the period of
the contract or contracts. This section does not apply to contracts relating to
immovable properties and also for rendering of services as distinct from supply
of services.
3. Approval of Central
Government required when directors interested.-Where the company with which
a contract is made by an interested Director has a paid-up share capital
of not less than rupees one crore, no such contract shall be entered into
except with the previous approval of the Central Government. Contracts entered
into for supply of professional services given by firms of solicitors and
advocates fall outside the scope of section 297. Moreover, proviso to section
297(l) does not apply to a contract of employment of a Director as a managing
or Whole-time Director. (Circular No. 8/11/75-CL. V, dated 5-6-1975).
4. Board's consent be
obtained before entering into contract or within three months.-Pursuant to sub-section
(4) of section 297, the consent of the Board of Directors to a contract must be
obtained (must be done at a meeting of the Board) before the contract is
entered into or within three months of the date on which the contract was entered
into. The Board has also, in such cases, the option to avoid the contract. In
other words, if the Board chooses to condone the defect and pass a resolution
not to avoid the contract or gives ex post fact to consent, there is the end of
the matter. The company in the General Meeting cannot interfere unless the act
of the Board amounts to a breach of trust, resulting in loss of the company.
5. Previous approval of
Central Government must.-Even if Board's approval is not taken in cases
mentioned in sub-section (3) of section 297, previous approval of the
Central Government must be obtained by any company which has a paid-up
capital of rupees one crore or more. (Letter No. 8/1175-CL. V, dated 29-3-1975).
6. Cheque treated as cash
payment.-A cheque is to be treated as cash payment for the purpose of section
297. (Letter No. 8/2(Misc)/75-CL. V, dated 6-6-1975).
7. No separate approval
needed under section 297 when Central Government approval required under
sections 269/314(1B)/294AA.-Where approval of the Central Government is needed under section
269 or section 314(1B) or section 294AA and also under section 297, then the
approval taken under section 269 or 314(1B) or 294AA is enough and separate
approval additionally under section 297 is not necessary. (Circular No. 18/76
(2/103/75-CL. XIV and 1/1/76-CL V), dated 29-6-1976).
8. Section 297 not
applicable to contract entered into with dealers on principal to principal
basis.-The
provisions of section 297 are not applicable to contracts entered into by companies
with dealers on a principal to principal basis unless these contracts are in
respect of goods which the dealers sell or supply on an agency basis on behalf
of the private company or firm manufacturing the goods supplied. (Circular No.
8/297/56-PR, dated 2-8-1956).
Contract with a private
company
"RESOLVED that a draft
agreement in connection with the Company's negotiation with M/s. XYZ &
Company Private Limited for the use and occupation of office space measuring
5,500 sq. ft. at__________________ Mumbai, including the services of telephone,
Toilet and security at a consolidated amount of Rs. 100,000/- per month
for a period of five years from the date of commencement thereof, which is
initialled by the Chairman for purpose of identification and submitted to this
meeting, be and is hereby approved being beneficial to the company and that
such agreement be executed under the common seal of the Company pursuant to
article _________ of the Articles of Association of the Company in the presence
of Mr. __________________ and Mr. __________________ the Directors, and Mr.
XYZ, Secretary of the Company, Mr. PMM, a Director of the Company, being
interested in the contract, having abstained from the discussion and voting
thereof in this meeting."
1. Contract with interested
director must be specific and not general.-A contract in which a
Director is interested must be a specific one and not general transaction
(Walchand Nagar Industries Ltd. v. Ratan Chand, AIR 1953 Bom 285). If a
Director is not aware of some person being his relation, then he will be
relieved in a bona fide case. Proviso to section 297(2)(b) applies only to
contracts that involve purchase or supply of goods, materials or services in
which Director or relative regularly trades. A contract of the above type is
not included within the proviso.
2. Compounding of offence.-For any default under the
section penalty can be imposed under section 629A and the same is compoundable
under section 621A. Otto Burlingtons Mail Orders (P.) Ltd. Re, (1999) 96 Com
Cases 525 (CLB-NB). Offence was directed to be compoundable against the
company and the directors on payment of fee of Rs.75,000/- even though
prior approval of the Central Government was not obtained for purchasing goods
through partnership firms in which some of the directors of the company were
interested but considering the negligible quantity of goods involved. Dintex
Ltd. Re, (2001) 104 Com Cases 735 (CLB).
Disclosure of interest by Directors (S. 299)
The contract or arrangement
hit by this section is one in which the Director has a personal interest
conflicting with his duties towards the company and does not cover cases where
there is no personal interest involved. Public Prosecutor v. TP. Khaitan,
(1956) 2 MLJ 590. Where a company issued certain debentures to a bank to secure
an overdraft and the overdraft had previously been guaranteed by some
Directors, this was held to be an interest which ought to be disclosed to the Board.
Victors Ltd. v. Lingard, (1927) 1 Ch 323.
Interest is not personal
interest only nor is it confined to pecuniary interest only. If to the
knowledge of the Director concerned, a relative of his coming within the list
in Schedule 1-A is concerned in a contract or arrangement, the Director
must disclose the same to the Board. Fateh Chand Kad v. Hindson (Patiala) Ltd.,
(1957) 27 Com Cases 340. Non-disclosure does not render the contract void
or a nullity. It renders the contract voidable at the instance of the company
and makes the Director accountable for any secret profit which he has made.
Hely-Hutchinson v. Brayhead Ltd., (1968) 1 Comp LJ 263.
Where a Director is a
trustee since the trustee is the owner of the share, it would be necessary in
such cases to disclose to the company his 'interest' arising out of his
membership in the companies concerned as a joint holder or as a trustee as the
case may be. (Company News and Notes, dated 1st July, 1963).
Failure to comply with the
requirements of this section will cause vacation of the office of the Director
and will also subject him to the penalty under sub-section (4) of section
299. (See section 283(1)(i)).
There should be clear and
specific allegations of facts creating duty of disclosure and violation of that
duty should be established. There should be the intention to defraud
shareholders. Gordon Woodroffee & Co. Ltd. U.K. v. Gordon Woodroffe Ltd.,
(1999) 97 Com Cases 582 (Mad).
Allegations made by complaining members that directors of the company had failed to disclose their interest in a contract with a firm with whom it had regular dealings had full knowledge of the relevant facts and so there was no violation of the provisions of the section so as to attract any penal provisions. Suryakant Gupta v. Rajaram Corn Products (Punjab) Ltd., (2001) 2 Comp LJ 155 (CLB).
General notice of interest
“RESOLVED that general
notices of interest pursuant to section 299(3) of the Companies Act, 1956,
received from the following Directors disclosing concern or interest in any
contract or arrangement which may be entered into with such body corporate or
firm as per the statement brought up and read in this meeting be and are hereby
recorded in the register of contracts maintained under section 301 of the
Companies Act, 1956:
Names of the Directors:
1. Mr. __________________
2. Mr. __________________
3. Mr. __________________
4. Mr. __________________
5. Mr. __________________
6. Mr. __________________”
1. General Notice of
interest.-This section, to some extent, overlaps section 297, but it will be seen
that this section has a wider scope as compared to that of section 297.
Pursuant to sub-section (3)(a) of this section, the compliance of
disclosure of interest of a Director under sub-sections (1) and (2) is
always done by giving a general notice to the Board of Directors stating
therein that he is a Director or member of a specified body corporate or a
member of a specified firm and is to be regarded as concerned and interested in
any contract or arrangement which may, after the date of the notice, be entered
into with that body corporate or firm. Pursuant to sub-section (3)(b),
every Director having directorship in other companies or who is a member of any
firm, must give general notice each year in the last month of every financial
year so that such notice is brought up and read at the first meeting of the
Board of the company, subsequent to close of such financial year in which it
would otherwise have expired.
2. Section applicable to
directors nominated by Government.-Provisions of section 299 are also applicable
to Directors nominated by the Government. (Letter No. 8/19(299)/63-PR,
dated 20-9-1963).
3. Notice by director about
transfer of shares and cessor of his personal interest in concerned contract.-As long as the name of a
Director continues to appear in the register of members of another company,
though his shares are transferred to another person, he will be deemed prima
facie to have an interest or concern in the contract or arrangement. So, he
should give a notice under section 299 to the Board stating the fact of the
transfer of his shares to another person and cessor of his personal interest in
the concerned contract.
4. Trustee to disclose his
interest in company.-A trustee, being the owner of the share, should also disclose to the
company his interest arising out of his membership in the concerned companies.
(Company News & Notes, July 1963).
5. Section applicable to
contracts with public and private companies in which directors interested.-Provisions of section 299
are applicable to contracts made with public and also with private companies in
which Directors are interested. (Circular No. 8/299/56-PR dated 15-6-1956).
6. Limit of quantum of
interest only to be applied to direct interest although section covers both
direct and indirect interest.-Introduction of sub-section (6) to this
section through Companies (Amendment) Act, 1960 (LXV of 1960), made the operation
of this section quite confusing. Section 299 in regard to the Directors'
interest will not be effective where any of the Directors of one company or two
or more of them together holds or hold not more than two per cent of the paid-up
share capital in the other company. Holding of paid-up share capital of
any class by all the Directors together is difficult to ascertain at any given
time and this may be the reason why disclosure of interest by the Directors is
made only at a meeting of the Board, and not by circulation or otherwise. In
any case, the point of time with reference to which holding of shares in excess
of two per cent is to be verified must be the date on which the contract is
entered into. Direct interest can be quantified and indirect interest in most
cases cannot be quantified. So, limit of quantum of interest specified in sub-section
(6) can only be applied to direct interest although section 299 covers
disclosure of both direct and indirect interest. (Company News & Notes,
July 1963).
7. Collective responsibility
of directors.-Compliance of the requirements of section 299(6) is the collective
responsibility of the Directors of a company. (Circular No.8/16(1) 61/PR. V,
dated 19-5-1961).
8. Directors to disclose
interest in contract as consequences of non-disclosure serious.-Directors' interest in a
contract must in any case be disclosed and as the consequences of contravention
of' the provisions of disclosures are serious, every Director is advised to
notify the Board at every concluding month of the financial year, the names of
the companies in which the Director holds directorship and see that such notice
is brought up and dealt with at a Board Meeting and interest is noted by the
Board.
9. Compliance Certificate.-Coin pan les having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the directors have disclosed their interest in other firms/companies
to the Board of Directors pursuant to the provisions of the Act and the rules
made thereunder as per paragraph 18 of the Form of Compliance Certificate
appended to the Companies (Compliance Certificate) Rules, 2001.
Disclosure of interest by
Directors
"RESOLVED that the
general notice dated 10th July, 2002, given by Mr. XYZ, Director of the Company
pursuant to section 299(3) of the Companies Act, 1956, disclosing his interest
as a Director/shareholder in the companies mentioned hereunder be and is hereby
noted and that the Secretary of the Company is directed to make necessary
entries in the register maintained for the purpose.
Name of the Company Interested
as
1. A.B.C. Limited Director
2. LMP Private Ltd. Shareholder."
1. Director to give general
notice of his interest.-Every Director has to give a general notice
indicating his interest in the company in which he is interested as a
Director/shareholder.
2. General notice to be
given every year.-This general notice has to be given by a Director every year.
3. Contract in which
director has personal interest conflicting with duties to company hit by section.-The contract or arrangement
hit at by this section is one in which the Director has a personal interest
conflicting with his duties towards the company and does not cover cases where
there is no personal interest involved. Public Prosecutor v. T.P. Khaitan, 2
MLJ 590.
4. Directors having
guaranteed overdraft deemed to be interested.-Where a company issued
certain debentures to a bank to secure an overdraft and the overdraft had
previously been guaranteed by some Directors, this was held to be an interest
which ought to be disclosed to the Board. Victors Ltd. v. Lingard, (1927) 1 Ch
323.
5. Interest to include an
interest in his relative being concerned in a contract or arrangement.-Interest is not personal
interest only nor is it confined to pecuniary interest only. If to the
knowledge of the Director concerned, a relative of his coming within the list
in Schedule 1-A is concerned in a contract or arrangement, the Director
must disclose the same to the Board. (Fateh Chand Kad v. Hindsons (Patiala) Ltd.,
(1957) 27 Com Cases 340).
6. Non-disclosure not
to render contract void but voidable.-Non-disclosure does not render the
contract void or a nullity. It renders the contract voidable at the instance of
the company and makes the Director accountable for any secret profit which he
has made. (Hely-Hutchinson v. Brayhead Ltd., (1968) 1 Comp LJ 263.).
7. Director to disclose
interest where he is trustee.-Where a Director is a trustee since the trustee is
the owner of the share, it would be necessary in such cases to disclose to the
company his 'interest' arising out of his membership in the companies concerned
as a joint holder or as a trustee as the case may be. (Company News and Notes,
dated 1st July, 1963).
8. Consequences of non-disclosure.-Failure to comply with the
requirements of this section will cause vacation of the office of the Director
and will also subject him to the penalty under sub-section (4) of section
299. (See section 283(1)(i)).
9. Penalty for default.-Every Director who fails to
comply with this section shall be punishable with fine which may extend to Rs.
50,000/-.
Entering into contracts in
which a Director is interested
other than contracts covered
by section 297
"RESOLVED that General
notice of directors' interest in other companies received from the Directors
pursuant to the provisions of section 299(3)(b) of the Act were read at the
Meeting and noted."
1. Concern or interest.-The contract or arrangement
hit by the Section is one in which the director has a personal interest
conflicting with his duties towards the company and does not cover any case
where there is no personal interest involved. (Public Prosecutor v. TP.
Khaitan, (1957) 27 Comp Cases 77).
2. Directors "concern
or interest".-A director is required by the section not merely., to disclose that he
is interested, but also the nature of his concern or interest. (Imperial
Mercantile Credit Association v. Coleman, (1963) LR 6 HL 189.
3. Unbiased Advice of
Directors.-The company is entitled to the unbiased advice of every director upon
matters which are brought before the Board for consideration, and a contract
made by a director with the company for profit to himself is invalid (V.
Ramaswami Iyer v. Madras Times Printing and Publishing Company Ltd., AIR 1915
Mad. 1179).
Disclosure of interest by
Director
(Another format)
"RESOLVED that a notice dated the _________, 2002 _________, from Mr. __________________ a Director of the Company, stating that he has been appointed as a Director of M/s. PQR & Company Ltd. with effect from the _________, 2002 _________, as placed before and read at this meeting, be and is hereby recorded in the register of contracts of the Company."
PRACTICE NOTES
1. General notice of
interest.-As a general practice, whenever a Director holds directorship in any
other company, it should be a practice to notify every Board of Directors of
the companies in which he holds directorship about his becoming such Director
of another new company and this should be first taken into consideration before
entering into any contract or arrangement.
2. Duty after ceasing to be
director.-Similarly, a Director, on cessor of his directorship in any other
company, should notify to every Board of Directors of the companies in which he
holds directorship about the cessation as such and for correction/alteration in
the register of contracts.
3. Non-compliance not
to make contract void but voidable.-Non-compliance of the provisions of
this section does not make a contract void or invalidate the contract or
arrangement but will make it voidable at the option of the company.
4. Contract or arrangement
hit in which director has personal interest conflicting with his duties.-The contract or arrangement
hit by sections 297 and 299 is one in which the Director has a personal
interest conflicting with his duties towards the company. (The Public
Prosecutor v. T.P. Khaitan, (1956) 2 MLJ 590: (1957) 27 Com Cases 77.) Interest
as explained should be construed as personal interest only. Thus, even if the
Director himself has no personal interest in any contract or arrangement but a
relative of a Director falling within the list in Schedule 1-A to his
knowledge is-concerned in a contract or arrangement, the Director is
deemed to be indirectly interested and should disclose such interest to the
Board.
5. Words "in any way
whether directly or indirectly concerned or interested" Meaning.-The meaning of the words 'in
any way whether directly or indirectly concerned or interested' is quite wider
and their application in practice is quite difficult, for the indirect concern
may be connected with even outside relationship pursuant to Schedule 1-A
to the Companies Act, 1956, or of fiduciary relationship as of the trustee and
a beneficiary. Thus, a Director of a company who was by profession solicitor
was in his private capacity solicitors/legal advisers of some of the other
Directors in their private business. It was considered that such solicitor-
Director should be considered to be concerned or interested in those other
Directors so as to be bound to disclose at the meeting of the Board, his concern
or interest in those other companies and also to remain neutral and not take
part in the discussion of or vote on any contract or arrangement in which those
other Directors were concerned, as provided in Section 300(l). (Firestone Tyre
& Rubber Co. v. Synthetics & Chemicals Ltd., (1970) 2 Comp LJ 200: 41
Com Cases 377.)
Interested Director not to participate or vote in the
Board's proceedings
The following note should be recorded at the end of
the resolution.
"Shri __________________ a Director of the
Company being interested did not take part in the discussion of or vote on the
item."
1. Interested director to
abstain from discussion or voting in Board Meeting. - Under sections 297 and
299, the duty of interested Directors consists in expressing their concern or
interest in the contracts made or purported to be made with another company,
firm, etc. Section 300 further restricts the action of such interested
Director, to secure the consent of the Board of Directors, by requiring him to
abstain from discussion on that subject or vote thereat. If he does vote, his
vote is void, that is to say, it has to be ignored. There are no words in sub-section
(1) making the contract or arrangement void for contravention of the sub-section,
but definitely the contract becomes voidable at the option of the company.
Other parties to the contract cannot avoid it. (Naryandas Shreeram Somani v.
Sangli Bank Ltd., (1965) 2 Comp U 99: (1965) 35 Com Cases 596 (SC) on reference
basing old section 91-B of the Indian Companies Act, 1913.)
2. Interested director not
to participate or vote when his near relative is to be appointed on Board.-A Director should not
participate in the discussion or vote on the proposal when a near relative of
such Director is proposed to be appointed on the Board. (Company News &
Notes, March 16, 1965).
3. Section not applicable to
Board Resolution fixing or increasing Director's fee. -Provisions of section 300(l)
do not apply to Board resolution fixing or increasing Director's fees, because
the final decision in this matter has to be taken by the company in General
Meeting. (Letter No. 2/32/63-PR, dated 20-9-1963.)
4. Penalty for default.-Every director who knowingly
contravenes the provisions of section 300 shall be punishable with fine of up
to Rs. 50,000/-
5. Issue of shares,
warrants.-Issue of shares or warrants has been held to be not an arrangement or a
contract within the scope of section 299 or 300. TNK Govindraju Chetty &
Co. v. Kadri Mills (CBE) Ltd., (1998) 30 CLA 49 (CLB-SR).
Register of Contract
"RESOLVED that the
Register of Contracts of companies and firms in which directors are interested
be and is hereby placed before this meeting and the signatures of all the
directors present hereat be and hereby are obtained on the said Register."
1.Time of entering
particulars.-Particulars in the register of contracts should be entered within seven
days of the board meeting where such contracts are approved or within seven
days from the date of receipt of the registered office or within thirty days of
the date of making of such contracts, for other contracts.
2. Penalty.-Contravention of the
provisions of section 301 of the Act is punishable with fine of upto rupees
five thousand.
3. Compounding of offence.-The fine of rupees five
hundred for contravention of provisions of section 301 of the Act is
compoundable by the Regional Director concerned as per section 621-A(l)(b).
4. Compliance Certificate.-Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has made necessary entries in the register maintained
under section 301 of the Act as per paragraph 10 of the Form of Compliance
Certificate as appended to the Companies (Compliance Certificate) Rules, 2001.
Memorandum of interest
"WHEREAS it was required to appoint Mr.____________________ as a Whole-time Director of the Company in terms of agreement between Mr. PKW and the Company, a copy whereof is open for inspection at the registered office of the company during the working hours on any working day;
AND WHEREAS the Board of
Directors at its meeting held on the __________, 2002 __________, appointed Mr.
____________________ as a Whole-time Director of the Company with effect
from the __________, 2002 __________;
NOW THEREFORE IT IS RESOLVED
that a memorandum clearly specifying the nature of interest and terms of the
contract entered into with the said Mr. ____________________ be and is hereby
circulated to the members of the company pursuant to section 302(7) of the
Companies Act, 1956."
1. Disclosure of Directors'
interest to members in contract appointing Manager/Managing Director.-Section 302 deals with
disclosure to members, of Directors' interest in contract appointing Manager,
Managing Director etc. when such terms are in existence and are varied.
2. Forwarding to members the
abstract of terms of contract or variation with requisite memorandum.-The company is required,
within twenty-one days from the date of entering into the contract or of
varying of the contract, as the case may be, to send to every member of the
company an abstract of the terms of the contract or variation, together with a
memorandum clearly specifying the nature of the concern or interest of the
Director in such contract or variation.
3. Section applicable to any
resolution of Board appointing Manager/Managing/Whole-time director or
variations in previous contract or resolution.-These provisions apply in
relation to any resolution of the Board of Directors of a company appointing a
Manager or a Managing Director or Whole-time Director, or varying any
previous contract or resolution of the company relating to the appointment of a
Manager or Managing Director or whole-time Director, in the same way as
they apply in relation to any contract for the like purpose.
4. Abstract of terms and
conditions to be communicated to members.-The abstract of the terms and
conditions should be communicated to the members of the company by way of a
memorandum, a specimen of which is given hereunder:
5. Penalty for default.-If default is made in
complying with the provisions of section 302, the company and every officer of
the company who is default, shall be punishable with fine of up to Rs. 10,000/-
Registered Office:
ANAND 388001.
Abstract of the terms of the contract to be entered into by the company with a Whole-time Finance Director of the company in pursuance of section 302(7) of the Companies Act, 1956.
In pursuance of the
provisions of section 302 of the Companies Act, 1956, the following abstract of
the terms of the contract, proposed to be entered into between the company and
Mr. ____________________, is circulated to the members for their information:
Period of Five
years from ____________________
Appointment: to
____________________
Terms of contract: (i)
Salary Rs. 100,000/- per month
(ii) Commission up to one-fourth per cent of annual net profits of the company computed under section 309(5) of the Companies Act, 1956 as may be determined by the Board subject to a maximum in salary and commission of Rs.15,00,000 per annum.
(iii) Free unfurnished
residential accommodation at the expense of the company, the monetary value of
which evaluated under Rule 3 of the Income-tax Rules does not exceed Rs.
30,000 per month.
(iv) Leave travel allowance
up to a limit of the basic salary only for conveyance expenses either by air or
by steamer or train any where in India for himself, wife and children.
(v) Leave of one month after
working eleven months subject to the sanction by the Board of Directors.
Interest
of (any of) No
director of the company except Mr._________________,
Directors
in the contract: is
interested in this matter
BY ORDER OF THE BOARD
RUSHABH MANAGEMENT &
INFOSYS
Sd/-
Dated:
_______, 2002_______ Managing
Directors.
Change in the Register of Directors
"RESOLVED that the
resignation of Mr. XYZ, a Director of the Company, be accepted with effect from
the __________, 2002 __________ and that the Secretary of the Company be
instructed to change the Register of Directors accordingly and file the return,
in duplicate, with the Registrar of Companies, in Form No. 32 within thirty
days from the said date."
1. Maintenance of Register
of Directors.-Register of Directors should be in bound books, but loose leaf form may
also be used provided the company takes safety measures against manipulation
and tampering and binds them at reasonable intervals. (Letter No. 8/2(203)/62-PR,
dated 7-11-1962.)
2. Names of members of Board
of trustees of UTI and State Bank of India to be entered in Register of
Directors.-Members of the Board of Trustees of the Unit Trust of India and State
Bank of India should also be treated as Directors of a body corporate and so be
entered in the Register of Directors. Persons who are Directors on the Central
Board of Directors of the State Bank of India should also be treated as such.
(Letter No. 8/48/2(13)/64-PR, dated 1/26-8-1964.)
3. Filing of return with
Registrar of Companies regarding appointment of Additional Directors/Directors
in casual vacancy as Directors in Annual General Meeting.-Appointment of Additional
Directors or Directors in casual vacancy as Directors in the Annual General
Meeting amounts to change in the appointment and, thus, must be notified to the
Registrar of Companies under section 303(2) of the Companies Act, 1956.
(Circular No. 8/30(303)/79-CL. V., dated 2-9-1980.)
4. No Return required to be
riled if subscribers to memorandum become Directors.-A company is not required to
file a return under section 303(2) of the Companies Act, 1956, if the
subscribers to the memorandum become the Directors of the company by virtue of
section 254. (Letter No. 8/25(254)/64-PR, dated 10-5-1964.)
5. Penalty for default.-If default is made in
complying with sub-section (1) or (2) of section 303 the company and
every officer of the company who is in default shall be punishable with fine of
upto Rs. 500/- for every day during which the default continues.
6. Compliance Certificate.-Companies having paid-up
share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs
are required to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has kept and maintained all registers as stated in
Annexure 'A' to this certificate, as per the provisions and the rules made
thereunder and all entries therein have been duly recorded as per paragraph 1
of the Form of Compliance Certificate as appended to the Companies (Compliance
Certificate) Rules, 2001.
Change in the Register of
Directors
(Another format)
"RESOLVED that the
resignation of Shri SKM from the Directorship of the Company, consequent on his
retirement from the Government service, be and is hereby accepted with effect
from __________
RESOLVED FURTHER that the
gratitude and appreciation of the Board for the valuable assistance and advice
tendered by Mr. SKM throughout the period of his association with the Board and
the Company be communicated to him."
1. Resignation of Director
when effective.-The resignation by a director is either effective from the date
mentioned in the letter of resignation or from the date it is accepted by the
Board of Directors.
2. Communication of
resignation of a Director.-Where a Registrar receives any communication from
any director about his (director's) resignation, the Registrar should enquire
whether the resignation of such director is or is not bona fide and if he finds
that such director has bona fide resigned from his directorship of the company,
he should not start any prosecution against such director, irrespective of the
fact whether such resignation was or was not accepted by the company (Circular
Letter. No. 42(400)-CL.11/59, dated the 29th December, 1959).
3. Changes in Register of
Directors etc.-Ensure to make necessary changes in the Register of Directors and the
Register of Directors' shareholdings.
4. Filing of Forms.-File Form 32 with the Registrar
of Companies within thirty days of resignation, in duplicate. In Saumil Dilip
Mehta v. State of Maharashtra, AIR 2002 Bom 104 it was held that the director
ceased to be so as soon as his resignation was accepted by the Board of
Directors. He need not fill Form No. 32 or send notice to the Registrar of
Companies.
5. Default in riling return.-The default in filing the
return can be made good under section 614 by filing a single return containing
all the changes which took place. A separate return for each change is not
needed. Trichinopoly Mills Ltd. Re, (1941) 11 Com Cases 4 (Mad).
"RESOLVED that a letter dated the __________, 2002 __________, from Mr. ____________________ informing that he has been appointed as a Director of M/s. RTT Company Limited, with effect from __________, 2002 __________, produced before and read at this meeting, be and is hereby recorded in the Register of Contract of the Company pursuant to section 303(l) of the Companies Act, 1956.
RESOLVED FURTHER that a letter dated the __________, 2002 __________, from Mr.____________________ informing that he has resigned from the Board of M/s. ABC & Company Limited, with effect from the __________, 2002 __________, produced before and read at this meeting, be and is hereby recorded by deletion of such company's name in the Register of Contract of the Company pursuant to section 303(l) of the Companies Act, 1956."
1. Section applicable to
every Director, Managing Director, Manager or Secretary on appointment and
relinquishment.-This section applies to every Director, Managing Director, Manager or
Secretary of any company when appointed to or relinquished the office of a
Director, Managing Director, Manager or Secretary of any other body corporate.
2. Notice of appointment or
relinquishment to be given within twenty-one days. - The information relating to
such appointment or relinquishment, as the case may be, should be disclosed to
the company, within twenty days of such appointment or relinquishment.
Application to CLB for inspection of register
WHEREAS the company is a
member of XYZ Co. Ltd. holding equity
shares of Rs. __________ each;
AND WHEREAS the Company's
authorised representative when went to inspect the register if that company
kept under section 303 on behalf of the Company on __________, 2002, he was
refused inspection;
NOW THEREFORE IT IS RESOLVED
that an application be and is hereby made to the Company Law Board, North
Region Bench, New Delhi by way of a petition for an order compelling XYZ Co.
Ltd. an immediate inspection of the register of directors of that company kept
under section 303 of the Companies Act, 1956.
RESOLVED FURTHER that the
Secretary of the Company be authorised to prepare, sign and file the said
petition with the Company Law Board and to do everything that is necessary in
connection therewith or ancillary or incidental thereto.
1. Format of the Petition.-The petition to the Company
Law Board should be prepared in Form No. 1 of Annexure II of the Company Law
Board Regulations, 1991 along with fee of Rs. 500/- to be paid by way of
demand draft.
2. Penalty for default.-If any inspection is refused
under sub-section (1) of section 304 the Company and every officer of the
Company who is in default shall be punishable with fine of up to Rs. 500/-.
WHEREAS Mr. ABC the Managing
Director of the company has been appointed as a director of XYZ Co. Ltd., with
effect from __________, 2002;
AND WHEREAS he has
relinquished his office as a director from PQR Co. Ltd.;
AND WHEREAS he has disclosed
his appointment and his relinquishment of office as aforesaid to the company by
a letter which is placed before this meeting for information within twenty-one
days of such appointment and relinquishment.
NOW THEREFORE IT IS RESOLVED
that the said appointment and relinquishment of office of Mr. ABC be and is
hereby taken on record and the Secretary of the company be directed to make necessary
entries in the register of directors of the company immediately.
1. Deemed directors.-The provisions of section
305(l) of disclosing any appointment or relinquishment of office in any other
body corporate as director, managing director, manager or secretary by the
director or managing director or manager or secretary of the company will also
apply to a person deemed to be a director of the company being a person in
accordance with those instructions the board of directors of a company is
accustomed to act.
2. Penalty for default.-If the aforesaid disclosure
is not made within 21 days of the appointment or relinquishment of office is as
aforesaid the said directors, managing director, manager or secretary as the
case may be shall be punishable with fine of upto Rs. 5,000/-.
Inspection of Register of Directors' shareholdings
WHEREAS the company is a
member of ABC Co. Ltd., holding __________ equity shares of Rs.__________ each;
AND WHEREAS the authorised
representative of the company went to inspect the register of directors'
shareholding during the period beginning fourteen days before the date of the
Annual General Meeting of that company to be, held on __________ 2002 under sub-section
(5)(4) of section 307 of the Companies Act, 1956;
AND WHEREAS the said
authorised representative of the company was refused to inspect the said
register of directors' shareholding;
NOW THEREFORE IT IS RESOLVED
that an application be and is hereby made to the Company Law Board, Northern
Region Bench, New Delhi by way of a petition for an order compelling ABC Co.
Ltd., an immediate inspection of its register of directors' shareholding under
sub-section (9) of section 307 of the Companies Act, 1956;
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to prepare, sign and file
the said petition on behalf of the company with the Company Law Board and to do
everything that is necessary in connection therewith or ancillary or incidental
thereto.
1. Application to the
Company Law Board.-The application by way of petition to be made to the Company Law Board
should be prepared in Form No. 1 of Annexure II of the Company Law Board
Regulations, 1991 along with fee of Rs. 500/- to be paid by way of demand
draft.
2. Penalty for default.-If default is made in
complying with the requirement of producing the register of directors'
shareholding at the commencement of every annual general meeting of the company
and keeping the said register open and accessible during the continuance of the
meeting to any person having the right to attend the meeting, the company and
every officer of the company who is in default will be punishable with fine of
up to Rs. 5,000/-. If default is made in complying with sub-section
(1) and (2) of Section 307 or if any inspection is refused under that section,
the Company and every officer of the Company who is in default will be punishable
with fine of up to Rs. 50,000/- and also further fine of upto Rs. 200/-
for every day during which default continues.
Disclosure of Directors'
shareholdings
"RESOLVED that a notice dated the __________, 2002 __________, pursuant to section 308 of the Companies Act, 1956, detailing the number, description and amount of holdings of equity and preference shares and also of holding of debentures of the Company and in the subsidiary of this company either in his own name or in trust for him, received from Mr. ____________________ a Director of the Company, submitted to this meeting, be and is hereby recorded in the Register of Directors' Shareholdings maintained under section 307 of the Companies Act, 1956."
1. Section applicable to all
directors holding shares or debentures.-The section is applicable to
all Directors who are holding shares or debentures of the company in which he
is a Director either in his own name or through somebody in trust or for the
benefit of such Director.
2. Section covers every
director and person in accordance with whose direction Board of Directors
accustomed to Act.-The scope of this section covers every Director who is deemed to be a
Director under Explanation to section 303(l), that is, every person in
accordance with whose directions or instructions the Board of Directors is
accustomed to act.
3. Apart from description
and amount nature and extent of interest in shares or debentures to be recorded
in register.-The recording of' Directors' interest in company's shares/debentures,
apart from description and amount, should also state the nature and extent of
such interest and also the right in or over any such shares or debentures.
4. Share/debenture holding
of Directors/Manager of holding company in subsidiary to be recorded in
register.-As far as the Directors of the holding company are concerned by virtue
of its position to control the composition of the Board of Directors of the
subsidiary company, the share/debenture holding of the Directors/Manager etc.,
of the holding company in such subsidiary company should also be recorded in
the register maintained by the subsidiary company pursuant to section 307 of
the Companies Act, 1956.
5. Penalty for default.-Any person who falls to
comply with the requirements of section 308 will be punishable with
imprisonment for 2 years or with fine of up to Rs. 50,000/- or with both.