Investigation of company's affairs
"RESOLVED that pursuant to section 237 of the Companies Act, 1956, the affairs of the Company be investigated by one or more competent person(s) to be appointed by the Central Government as Inspectors."
1. Investigation of affairs at Company's request.-Where a Special Resolution
is passed by the members of the company at a General Meeting or an order of the
Court declares that the affairs of the company ought to be Investigated by an
Inspector appointed by the Central Government cannot refuse to order
investigation. Of Course the Central Government may also appoint Inspectors to
investigate the affairs of a company on its own motion under circumstances
provided in section 237(b)(i), (ii) and (iii). Thus, while the power of the
Central Government in the former case is obligatory, in the latter case, it is
discretionary. In exercising the discretionary powers, the government will not
usually interfere on the basis of allegations arising out of personal fights
between two predominant groups of shareholders of the company.
2. Factors governing exercise of Central Government's discretionary
power of investigation.-Following factors will govern the exercise of the
Central Government's discretionary power of investigation under section 237(b);
(i) Investigation should be
capable of the solving up any major contravention of the Companies Act or any
other law, which is required to be remedied.
(ii) Affairs of the company
are required to be set right so that these may conform to the accepted
principles and standards of good and efficient management.
(iii) Allegations consisting
of irregular accounting by the company which can only be verified by the
inspection of the books by a qualified Chartered Accountant.
The existence of
circumstances described above may sway the court to pass an order, but it is
not always mandatory that the court can pass a declaration only if the above
conditions exist. No such restrictions are placed by the Legislature even
though the court will exercise its judicial discretion only on sufficient
materials and only after the court is convinced that the situation warrants an
investigation in the interest of the company as a whole. Premier Plantations
Ltd. v. M. Ebrahimkutty, (2002) 110 Com Cases 721 (Ker).
3. Power of Court.-After the Court orders an investigation, usually,
the Court has no further jurisdiction in the matter and cannot go into the
Inspector's report. The Central Government alone can take further proceedings
in the matter. Nadar Press Ltd. v. Ramaiah Nadar, (1968) 1 Comp LJ 287. The
function enjoined on the court is to issue a declaration with reference to the
affairs of the company and not to direct the Central Government to conduct
investigation. Such a declaration concerning the company cannot be issued where
the company is not made a party before the court. Safia Usman v. Union of
India, (2002) 40 Com Cases 710 (Ker).
4. Order of Court for investigation not to amount to judgment within
clause 15 of the Letters Patent.-An order of the Court for investigation does not
amount to a judgment within clause 15 of the Letters Patent, so as to enable an
aggrieved party to appeal. Ramaiah Nadar v. Amrithraj, (1962) 1 MLJ 353.
5. Investigation Order.-A Deputy Commissioner of a district court cannot
order an inquiry in public interest into certain irregularities in the
functioning of a company as it has no power to probe into the working of a
company and such an inquiry could only be ordered under the provisions of the
Act and not otherwise. Edward Ganj Public Welfare Assn. v. State of Punjab,
(2002) 109 Com Cases 5 (P&H).
Appointment of Inspector(s) to investigate into the
affairs of the company
"RESOLVED that the
consent of the shareholders be and is hereby accorded to the Board of Directors
of the Company to approach the Central Government requesting for appointment of
one or more persons as Inspector(s) to investigate the affairs of the Company
in such manner as it may direct.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to make the necessary
application and to do all such acts and things in this regard."
1. Convening of Board Meeting for fixing date, place and agenda of
General Meeting.-Call a Board Meeting and pass the above resolution recommending it to
the shareholders for being passed by them at a General Meeting as a Special
Resolution. Fix up time, date, place and agenda of General Meeting.
2. Notice of General Meeting.-Give 21 days' clear notice to all the
shareholders of the General Meeting.
3. Cases where Central Government cannot refuse to order investigation-
The Central
Government cannot refuse to order investigation in the cases mentioned in
clause (a) of section 237 as it is a mandatory provision.
4. Power of Court.-The order of the Court may be passed in any
proceedings in which the Court is seized of the company's affairs. Alembic
Glass Industries Ltd. Deodatt Purushottam Patel v. Alembic Glass Industries
Ltd., (1971) 42 Comp Cases 63; Delhi Flour Mills Co. Ltd., (1975) 45 Comp Cases
33 (Delhi).
5. Power of Central Government to order investigation.-The Central Government has
under this section power to order investigation where, in its opinion,
shareholders are not given all the information with respect to the affairs of
the company.
6. Government not to lend itself to be a party to disputes arising out
of factional fight.-Where the allegations are more of a recriminatory nature arising out of
a factional fights between two or more predominant groups of shareholders, the
Government will not ordinarily lend itself to be a party to such dispute.
7. Filing of Special Resolution in Form No. 23 with Registrar.-Return in Form No. 23 along
with the Explanatory Statement is to be filed with the Registrar of Companies
concerned within thirty days of the passing of the resolution and paying requisite
filing fee as per Schedule X of the Act. Non-filing will attract penalty
by way of fine of upto Rs. 100/-.
Appointment of Small Shareholders' Director
S. 252(l) Proviso-Appointment of Small Shareholders'
Director-Ordinary Resolution
"RESOLVED that Mr. __________________ be and 'is hereby appointed as the Small Shareholders' Director of the company for a period of three years and his office as a director shall not be liable to determination by retirement of Director by rotation.
1. Small Shareholder.-Small shareholder is a shareholder holding shares of
nominal value of Rs. 20,000/- or less in a public company which has a
paid-up capital of Rs. 5 crores or more. The requirement of a small
shareholders' director will arise when such small shareholders are 1000 or more
in number.
2. Election of a Small Shareholder's Director.-Small shareholder's director
should be elected in the manner provided in Rule 4 of the Companies
(Appointment of the Small Shareholders' Director) Rules, 2001. Such a director
should also be a small shareholder of the company and he cannot be as a whole-time
or managing director. As per Rule 7 of the said Rules, such a director cannot
hold office at the same time as small shareholder's director in more than two
companies. For disqualification and vocation of office of such a director, see
Rules 5 and 6 of the said Rules.
3. Postal Ballot.-Listed companies having a share capital of Rs. 5
crores or more are required to pass the ordinary resolution by postal ballot as
per Rule 4(h) of the Companies (Passing of Resolutions by Postal Ballot) Rules,
2001.
Appointment of Director to retire by rotation
"RESOLVED that Mr.
__________________ be and is hereby appointed as a Director of the Company
whose period of office shall be liable to determination by retirement of
Directors by rotation."
1. Retirement of directors by rotation.-Except any company whose
articles provide for the retirement of all Directors at every Annual General
Meeting, every public company and private company which is a subsidiary of a
public company, must ensure that at least two-thirds of the total number
of Directors are those retiring by rotation. This is a statutory requirement
which cannot be evaded or avoided.
2. Power of Board to appoint additional directors or directors to fill
casual vacancy.-Articles of companies in most cases provide for appointment of
additional Directos or Directors to fill casual vacancies in the Board of
Directors. These powers are exercised by the Board of Directors. The Directors
initially appointed as additional Director or appointed to fill the casual
vacancy must retire pursuant to the provisions of that Act but may be appointed
in General Meeting pursuant to the provisions of section 257 of the Act which
permits a person to seek election for Directorship at any General Meeting if
notice of his candidature as Director of the company is duly notified to the
company.
3. No necessity to file Form 32 again on regular appointment.-Once the particulars of
appointment of additional Directors and Directors filling casual vacancy have
been filed, the same need not be filed (Form No. 32) again on regular
appointment if the same is in conformity of such appointment.
4. Directors nominated by Central Government, financial institutions
and BIFR exempt from requirement as regards retirement by rotation.-The retirement of two-thirds
of the total number of the Directors by rotation is not applicable in the case
of Directors appointed by the Central Government under section 408 of the
Companies Act, 1956, or by any Financial Institutions governed by special
statutes and these Directors are not to be taken into account for reckoning the
two-thirds proportion.
This provision is also not
applicable to the Directors appointed by the Board for Industrial and Financial
reconstruction.
Appointment of Directors for fixed period
“RESOLVED that Shri A B, be
and is hereby appointed as a Director of the Company for a period of 2 years on
and from _________”
1. Retirement of Directors.-In the case of a private company which is not
a subsidiary of the public company, the provision of Section 255(l) of the Act
does not apply and such directors need not retire by resolution. The period of
appointment may therefore be fixed in the resolution of appointment itself. If
no period is fixed, the director holds office till his resignation, removal or
vacation of office.
Appointment of Retiring Director
"RESOLVED that Shri
LMN, whose period of office shall be liable to determination by retirement of
Directors by rotation, be and is hereby appointed as a Director of the
Company."
1. Manner of appointment and vacation of office of one-third of
total number of directors generally provided by Articles.-A company may provide in its
articles the manner of appointment and the vacation of office of not more than
one-third of the total number of Directors. The term of the remaining
2/3rd of Directors shall be liable to determination by retirement of Directors
by rotation.
2. Private company need not have rotational directors.-Private company which is not
a subsidiary of a public company may not have rotational Directors. In other
words, it is permissible for such a private company to provide in its articles
that none of its Directors is liable to retirement by rotation.
3. Articles may provide retirement of all directors by
rotation/retirement of all directors at Annual General Meeting.-The company may also provide
in its articles that all the Directors are liable to retirement by rotation or
even that all the Directors shall retire at every Annual General Meeting.
4. First directors need not retire at first Annual General Meeting.-It is not always necessary
for all the first Directors to retire at the first Annual General Meeting held
after the formation of a company. Except those persons named in the articles as
first Directors who under a specific provision in the articles in accordance
with section 255(2) need not retire at the first Annual General Meeting, other
first Directors (including the subscribers of the Memorandum of Association)
should retire at the first Annual General Meeting.
5. Filing of form.-File Forms No. 29 and 32 with the Registrar of
Companies concerned within thirty days by paying the requisite filing fee as
per Schedule X of the Act. Form No. 32 should be filed in duplicate. Default
made in filing Form No. 32 will make the company and every officer of the
company who is in default punishable with fine of upto Rs. 500/- for
every day during which the default continues.
Re-appointment of Director retiring by rotation
S. 256-Re-appointment of Director retiring by
rotation-Ordinary Resolution
"RESOLVED that Shri LMN, whose period of office is liable to determination by retirement of Directors by rotation and who has offered himself for re-appointment be and is hereby re-appointed a Director of the Company."
1. Private company exempted.-Section 256 does not apply to a private
company which is not a subsidiary of a public company but any such company may
by its articles adopt its own provisions.
2. Directors liable to retire by rotation.-The Directors liable to
retire by rotation shall be those who have been longest in office since their
last appointment.
3. Number nearest to one-third to retire when directors liable to
retire is not three or multiple of three.-If the number of Directors
liable to retire is not three or a multiple of three, then the number nearest
to one- third shall retire from office.
4. Directors not liable to retirement by rotation to be excluded.-The Directors, whose period
of office is not liable to determination by retirement of Directors by
rotation, must be excluded.
5. Director liable to retire by rotation as also additional director
not to continue in office after last day on which Annual General Meeting to be
held.-A
Director who is to retire by rotation at an Annual General Meeting as also an
additional Director appointed by the Board of Directors under section 260,
cannot continue in office after the last day on which the Annual General
Meeting in each year should have been held & required by section 166(l) of
the Act. B.R. Kundra v. Motion Pictures Association (1976) 46 Com Cases 339.
6. Director not deemed to be re-appointed when meeting adjourned
for want d quorum.-If a meeting is adjourned for want of quorum and no decision is taken
at the adjourned meeting on re-appointment of a Director, the Director is
not deemed to be re appointed by virtue of sub-clause (b) of sub-section
(5) of section 256 of the Act. Cardamom Marketing Co. Ltd. v. Krishnaiyer (N),
(1982) 52 Com Cases 299 (DB-Ker).
7. On re-appointment of directors no form need be filed.-No form is to be filed in
the case of reappointment, of Directors.
Re-appointment of a Director retiring by rotation
(Another Format)
"RESOLVED that Mr. __________________ a Director of the Company, who retires by rotation at this meeting, being eligible for re-appointment, be and is hereby re-elected as the Director of the Company whose period of office shall be liable to determination by retirement of Directors by rotation."
1. Ascertainment of directors retiring by rotation.-At least two-thirds of
the total number of directors on the Board of Directors must retire by rotation
and one-third of such retiring Directors are liable to retire by rotation
at every Annual General Meeting. If the number of retiring Directors is not
three or a multiple of three, then the number nearest to one-third shall
retire from office. Thus, if the total number of Directors liable to retire is
five, then at least two Directors should retire by rotation at every Annual
General Meeting.
2. Directors longest in office since last appointment to retire by
rotation.-The Directors to retire by rotation at every Annual General Meeting
shall be those who have been longest in office since their last appointment,
but as between persons who become Directors on the same day, those who are to
retire shall in default of and subject to any agreement among themselves, be
determined by lot.
3. Method of determining as to which of directors longer in office.-To determine the Director
who had been longer in office out of, say two Directors appointed on the same
day, it is thought that the Director who has been appointed by an earlier
resolution is the person who must have remained in office longer than the other
Director appointed on the same day by another resolution passed later.
4. Requirement of section 256 not applicable to companies adopting
system of proportional representation.-This requirement will not be applicable to
companies which have adopted the system of proportional representation for the
appointment of not less than 2/3 of the total number of its directors (S. 265).
Non-election of a Director retiring by rotation
"RESOLVED that Mr. X,
who retires by rotation as Director of the Company at this meeting be and is
hereby not re-appointed."
OR
"RESOLVED that Mr. X,
retiring Director being eligible for reappointment and having offered himself
for being so appointed be and is hereby re-appointed Director of the
Company."
1. Two-third directors to retire by rotation unless articles
provide otherwise. -Section 255 states that unless the articles provide for the retirement
of all the Directors at every Annual General Meeting, not less than 2/3rd of
Directors shall be retiring by rotation.
2. Retiring director deemed to have been re- appointed unless
disqualified or unwilling to be re-elected.-A retiring Director shall be
deemed to have been re-appointed unless a motion to reappoint him has
been lost or he has incurred any disqualification or he has expressed his
unwillingness to be so re-elected or it is obligatory that a resolution
of the General Meeting is required for his appointment under any provisions of
the Act.
3. Directors retiring by rotation/additional director not to continue
in office after last day of Annual General Meeting.-A Director who is to retire
by rotation at an Annual General Meeting as also an additional Director
appointed by the Board of Directors under section 260 cannot continue in office
after the last day on which the Annual General Meeting in each year should have
been held as required by section 166(l). Re, Consolidated Nickel Mines Ltd.,
(1914) 1 Ch 883.
Not appointing a retiring Director
"RESOLVED that Mr. __________________ a Director, who retires at this meeting by rotation, be not re-appointed and resulting vacancy be not filled up and that the number of Directors be reduced accordingly."
1. Retiring directors' right for re-appointment.-Retiring Director has a
claim to be re-appointed in the Annual General Meeting in which he is
retiring, it being an exception that the Annual General Meeting may resolve not
to re-appoint him. If the Annual General Meeting has not re-appointed
the retiring Director and has also resolved expressly not to fill-up the
vacancy, the meeting shall stand adjourned till the same day in the next week,
at the same time and place, and if at the adjourned meeting also, the place of
the retiring Director is not filled up and that meeting has not expressly
resolved not to fill the vacancy, the retiring Director shall be deemed to have
been re-appointed at the adjourned meeting.
2. Retiring directors cease to hold office after the date on which
Annual General Meeting ought to be held.-Retiring Director ceases to
hold office after the date on or before which the Annual General Meeting of the
company should have been held. A. Ananthalakshmi Animal v. Indian Traders &
Investments Limited, (1952) 22 Com Cases 324.
Retirement of a Director on failing or deciding not to be
re-appointed
"WHEREAS the Chairman placed before the meeting a proposal for re-election of Mr.__________________ a Director, retiring by rotation at this meeting;
AND WHEREAS Mr. PBX
expressed his desire not to be re-elected and whereas the said proposal
had no proposer and/or seconder, and consequently could not be put to vote;
AND WHEREAS Mr. __________________ consequently vacated his seat from the Board from the date hereof;
NOW THEREFORE IT IS RESOLVED
not to fill up the vacancy so created and that the number of Directors be
reduced accordingly."
1. Retiring director deciding not to be re-appointed.-There may be cases where a
Director retiring by rotation at an Annual General Meeting, at the last moment
and after his re-election proposal has been placed before the particular
Annual General Meeting, decides to withdraw and expresses his desire to retire
at the meeting without seeking reelection. The above resolution takes care of
such a situation.
Appointment of a Director, other than the retiring Director
"RESOLVED that Mr. __________________ who has filed his consent to act as a Director, pursuant to section 264 of the Companies Act, 1956, be and is hereby appointed a Director of the Company whose period of office shall be liable to determination by retirement of Directors by rotation."
1. Right of person who is not a retiring director to seek re-election.-Section 257 affords
opportunity to a person who is not a retiring Director to seek election or
appointment to the office of Director at any General Meeting (not necessarily
Annual General Meeting). The appointment, however, is possible subject to the
availability of a vacancy on the Board pursuant to the Articles of Association
of the company. The opportunity of a notice being given by a member or by the candidate
is available only at a General Meeting of the company, annual or otherwise.
2. Only person having right to vote can move resolution for appointment
of a person as director.-Though the word 'member' is used without any
qualification in section 257 of the Act, it would seem that a member holding
only preference shares cannot give the notice, as he has no right to vote on
the resolution. Only a member having a right to vote on the appointment of a
Director can move a resolution for such appointment.
3. Special notice required to be given for appointing director other
than retiring director.-The proposal to appoint a Director, other than the
retiring Director should be given notice of, to the company not less than 14
days before the date of the meeting along with a deposit of Rs. 500/-.
4. Service of notice on members.-The company in turn should
serve individual notices on the members not less than seven days before the
date of the meeting. Alternatively the proposal should be got advertised in at
least two newspapers, one of which should be in the language of the region in
which the registered office of the company is situate.
5. Only person giving notice has right to move proposal and none else.-It should be noted that the
person who gave notice of the proposal should be personally present at the
meeting and move the proposal. No one should move the proposal on his behalf.
It should be noted that
where a candidate does not himself give notice of his candidature, and some
other person who is a member gives notice of his intention to propose him for
directorship at the meeting, and for some reason or other fails to propose him
at the meeting, then, unless the candidate himself has not less than fourteen
days before the meeting given the notice as required by the section, he will
not be eligible for appointment at the meeting. However, the section does not
prohibit the company itself from appointing him as a director at the meeting,
even though he has not complied with the requirements of the section.
Appointment of a Director in place of one retiring
(Another Format)
Ss. 256/257-Appointment of a Director in place of one
retiring-Ordinary Resolution
"RESOLVED that, Mr. _________________, who has consented to act as a Director, if appointed, be and is hereby appointed a Director of the company, to fill the vacancy caused by the retirement of Mr. XYZ, in respect of which vacancy the company has received a notice in writing pursuant to section 257(1) of the Companies Act, 1956, from a member of the Company proposing appointment of Mr. VKW, as a Director of the Company, and that Mr. VKW's period of office shall be liable to determination by the retirement of Directors by rotation."
Same as under Resolution § 992.
Contested election of Directors
"WHEREAS Mr. LTG, a
Director of the Company, retires at this meeting by rotation but, being
eligible, offers himself for re-election;
AND WHEREAS 'notice' dated _________, 2002 _________, in writing pursuant section 257(l) of the Companies Act, 1956, received from a member proposing appointment of Mr. PKW, as a Director of the Company this Annual General Meeting has been duly circulated to the members of the company along with the 'notice' of this Annual General Meting, as required under section 257(1A) of the Act;
AND WHEREAS pursuant to article _________ of the Articles of Association of the company, the company cannot have more than nine Directors on the Board at a time, the Company already having the maximum number of Directors as per the articles including Mr. LTG, who is retiring at this meeting by rotation seeking re-election;
"NOW THEREFORE IT IS
RESOLVED that Mr. LTG, who re-tires at this Annual General Meeting by rotation,
being eligible, be and is hereby re-elected as a Director of the
company."
"RESOLVED FURTHER that Mr. __________________ who has filed his consent to act as Director, if appointed, be and is hereby appointed as a Director of the company who shall be liable to retire by rotation."
1. Notice to members about candidature.-Directors appointed by
articles of the company should also give notice under section 257(l) when they
are proposed to be elected as Directors at the Annual General Meeting of the
company because they are not retiring Directors. Moreover, additional Directors
and Directors appointed in casual vacancy by the Board are also not retiring
Directors so they should also give notice to the company under section 257(1)
if they seek re-appointment, at the Annual General Meeting of the
company.
2. Private company exempted.-The above requirement is not applicable to a
private company, which is not a subsidiary of the public company. (Section
257(2)).
3. If first resolution adopted second resolution not to be put to vote.-If the first resolution is
adopted by the meeting, automatically the second resolution will fall and need
not be put to vote.
Regular Appointment of a Director appointed in a casual
vacancy by Board
"RESOLVED that Shri SKM who was appointed a director of the Company to fill in the casual vacancy caused by the resignation of Shri AKM and who vacates office at this meeting under section 262 of the Companies Act, 1956 but who is eligible for re-appointment and in respect of whom the Company has received a notice in writing from a member proposing his candidature for the office of director be and is hereby appointed as a Director of the Company."
1. Deposit of Rs. 500/-.-The member proposing the candidature should
deposit Rs. 500/- which will be refunded to him if the person succeeds in
getting elected as a director.
2. Special Business.-This resolution should be placed under special
business requiring explanatory statement under section 173(2) of the Act.
3. Filing of Form 32.-Forrn No. 32 in duplicate should be filed within
thirty days of passing of this resolution with the Registrar of Companies along
with requisite filing fee as prescribed under Schedule X of the Act. Default
made in filing Form No. 32 will make the company and every officer of the
company who is in default punishable with fine of up to Rs. 500/- for
every day during which the default continues.
Additional Director seeking appointment at General Meeting
Ss. 257/260-Additional Director seeking appointment at
General Meeting Ordinary Resolution
"RESOLVED that Shri SKM
a Director who was appointed as an Additional Director in the meeting of the
Board of Directors of the Company held on 23rd August, 2000 and who holds
office as such up to the date of Seventeenth Annual General Meeting and in
respect of whom notices under Section 257 of the Companies Act, 1956 have been
received from some members signifying their intention to propose Shri SKM as a
candidate for the office of Director of the Company be and is hereby appointed
as a Director of the Company."
1. Additional Director seeking appointment at General Meeting.-An additional director or a
director who has been appointed to a casual vacancy seeking, appointment by the
shareholders at a general meeting must satisfy the requirement of Section 257
of the Act since he cannot be considered to be a director retiring by rotation.
(Letter No.8/3(270)/ 63-PR, dated 27-7-1963).
2. Notice in writing.-The notice in writing proposing the name of any
person as a DF rector is to be left at the office of the company not less than
fourteen days before the meeting along with consent in writing of the
candidate. Section 257(1) does not say that such tendering of notice of' 14
days should be before a particular time on the last day and therefore the
rejection of the deposit of such notice one minute later than the closing hour
of a company's cash transaction was erroneous as the time limit was not
applicable in as much as it contravened the provisions of section 257. Oriental
Belle it and Deposit Society Ltd. v. Bharat Kumar K. Shah, (2001) 103 Corn
Cases 947 (Mad).
3. Deposit of Rs. 500/-.-A sum of Rs. 500/- has to be deposited
with the company along with notice. This amount will be refunded to the member
if the person concerned succeeds in getting elected as a director of the
company. If the person proposed is not elected as a director the amount
deposited shall stand forfeited to the company.
4. Notice to members.-The company is required to inform the members the
intention of a member to propose the person as a candidate for the Director
either by serving individual notice on the members not less than seven days
before the meeting or advertising the intention not less than seven days before
the meeting in at least two newspapers circulating in the place where the
registered office of the company is located of which one should be in English
Language and the other in the Regional language of that place.
5. Private company.-Section 257(l) does not apply to a private company
which is not a subsidiary of a public company.
Filling up of casual vacancy in the office of Director
"RESOLVED that Mr. SKM
be and is hereby appointed as a director of the Company to fill up the vacancy
caused by sudden demise of Mr. ABC in respect of which vacancy the Company has
received a notice in writing pursuant to Section 257 of the Companies Act, 1956
from a member of the Company proposing his candidature for the office of
Director of the Company."
1. Deposit of Rs. 500/-.-A person other than a retiring director
proposing himself as a director, or any member proposing him for directorship,
has to deposit with the company concerned a sum of Rs. 500/- which shall be
refunded to such person or member in the event the person concerned succeeds in
getting elected as a director of the company. Conversely, in case such -a
person is not elected as a director, he or the member, as the case may be, will
not be entitled to the refund of Rs. 500/- and the amount deposited shall
stand forfeited to the company (Circular No. 5 of 1989, dated 15-9-1989:
(1989) 66 Com Cases.180).
2. Right of person other than retiring Director to stand for
directorship.- The section permits a person to stand for directorship at any general
meeting which may be held, and not necessarily only at an annual general
meeting. Motion Pictures Assn. Re, (1974) 44 Comp Cases 298 (Del).
3. Appointing new Director.-It should be noted that where a candidate
does not himself give notice of his candidature, and some other person who is a
member gives notice of his intention to propose him for directorship at the
meeting, and for some reason or other falls to propose him at the meeting,
then, unless the candidate himself also has not less than fourteen days before
the meeting given the notice as required by the section, he will not be
eligible for appointment at the meeting.
4. Jurisdiction of court.-The company court does not have jurisdiction to
compel a company to circulate the notice of a person's candidature. (Rajendra
Mellon (No. 2) v. Cochin Stock Exchange Ltd., (1990) 69 Comp Cases 231 (Ker).
5. Section not applicable to a Private Company.-Section 257(l) does not
apply to a private company which is not subsidiary of a public company.
6. Government companies exempted.-This section does not apply
to wholly owned Government Companies. (Notification: GSR 906, dated 30-7-1981).
7. Section 25-companies exempted.-This section does not apply
to section 25companies whose articles provide for election of directors by
ballot (S.O. No. 1578, dated 1-7- 1961).
8. Penalty for default.-Failure to comply with the provision's of sub-section
(I A) by the company is punishable under Section 629A by fine of Rs. 5,000/-
and also Rs. 500/- per day during the continuance of the default. The
offence is compoundable under Section 621 A.
Fixing the maximum/minimum number of Directors
"RESOLVED that pursuant to the provisions of section 258 and subject to the provisions of sections 252, 255, 259 and article _________ of the Articles of Association of the Company, the number of Directors of the Company shall not be less than four nor more than twelve."
1. Fixing maximum/minimum number of directors.-A company may not appoint
the maximum number of Directors allowed under the articles of the company.
While it must have the minimum number of Directors required pursuant to section
252, the company may, at a General Meeting, fix the maximum number of Directors
within the limit placed by the articles. The company may keep the composition
of the Board as fixed by this resolution until the same is superseded by
another resolution adopted at a subsequent General Meeting without contravening
the provisions of sections 255 and 259 and the articles of the company.
2. Section applicable to all companies.-This section applies to all
companies, public or private. Where a minimum number of Directors has been
fixed under such resolution pursuant to section 258, the Directors cannot
function unless there is the n1mmILlin number functioning. If the number falls
below the minimum so fixed, the continuing Directors may, if empowered by an
article similar to Regulation 75 of Table 'A' of Schedule 1, act
notwithstanding any vacancy in the Board. But, if and so long as their number
is reduced below the quorum fixed by the Companies Act, 1956, for a meeting of
the Board, the continuing Director or Directors may act for the purpose of
increasing the number of Directors to that fixed for the quorum.
3. Proposal by Shareholder.-The Board of Directors of' a company only
have the power to increase or reduce the number of directors in the company and
then make a proposal for the same to the general meeting and a shareholder can
make such a proposal only through a requisition. Ravi Shankar Taneja v.
Motherson Triplex Tools (P) Ltd., (2001) 4 Comp LJ 102 (CLB).
Increase in the number of Directors
"RESOLVED that the
number of Directors in office for the time being be and is hereby increased
from seven to twelve."
1. Increase in Directors to be within permissible limit.-The increase should be
within the maximum number provided in the Articles of Association of the
company.
2. No resolution required for reduction in number of director.-No resolution is necessary
if the number of Directors is proposed to be reduced. However, ensure that the
reduction is not below the minimum fixed by the Act. The company, by simply not
filling the vacancy created by retirement of any director at an annual general
meeting, may reduce the strength of the Board.
3. Maximum number exclusive of Nominee Directors.-Thc maximum number prescribed
by articles is exclusive of the nominee Directors appointed by the Financial
Institutions by virtue of powers vested in them by Acts constituting those
institutions and the Directors appointed by the Central Government under
section 408 of the Act.
4. Central Government approval required for increase beyond twelve.-Increase beyond 12 in number
will require approval of the Central Government under section 259 of the Act.
5. No separate resolution for increase in number required while
appointing directors within permissible limit.-Where the number of
Directors as authorised by the Articles of Association is seven but if there
are only five Directors functioning, appointment by a resolution of the General
Meeting of two more Directors does not require a separate resolution of the
company as it is implicit In the resolution to increase the number. Laljibhai
C. Kapadia v. Lalji B. Desai, (1973) 43 Comp Cases 17 (Bom).
Increase in number of Directors beyond twelve
S.-259- Increase in number of Directors beyond
twelve-Special Resolution
"RESOLVED that subject to the approval of the Central Government consent of -the members be and is hereby given for substituting the existing article No. 79 of the Articles of Association of the Company by the following article:
"79. The
number of Directors shall not be less than three nor more than fifteen."
1. Convening of Board Meeting.-Call a Board Meeting and pass the above
resolution recommending it to the shareholders for being passed by them as a Special
Resolution. Fix date, time, place and agenda of a General Meeting.
2. Approval of Central Government required for increasing number of
directors beyond twelve.-Approval of the Central Government is necessary for
increasing the number of Directors beyond twelve.
3. Government policy as regards increase in the number of directors.-While according approval the
Central Government will take into consideration the size of the company, the
nature of business and justification for increase in number.
4. Filing of Special Resolution with Registrar.-File the special resolution
in Form No. 23 along with the Explanatory Statement with the Registrar of
Companies concerned and the amended copy of the Articles of Association within
thirty days by paying the prescribed filing fee. Non-filing of this form
will make the company and every officer of the company who is in default
punishable with fine of up to Rs. 100/-.
5. Private & Government Companies Exempted.-Private company unless it is
a subsidiary of a public company is exempted from the provisions of section
259. Government Companies are also exempted vide Notification GSR 235, dated 31-1-1978.
Increase in the number of Directors beyond twelve
"RESOLVED that subject to the approval of the Central Government article _________ of the Articles of Association of the Company be amended by deleting the number 'nine' in words appearing in line 2 of the said article and by replacing it by the word 'fourteen' therefor."
1. Special Resolution required where articles require alteration.-Where an increase in the
number of directors will involve an alteration of the articles, a special
resolution would be necessary for the purpose. Ram Kissendas Dhanuka v. Satya
Charan Law, (1950) 20 Comp Cases 133.
2. Private companies exempted.-The section does not apply to a private
company unless it is subsidiary of a public company.
3. Government companies exempted.-This section does not apply
to Government companies.
4. Penalty.-Any increase in the number of directors without approval of Central
Government shall not have any effect and will be void. This does not involve
contravention of this provision.
Increase in the number of Directors beyond twelve
(Another Format)
"RESOLVED that pursuant
to sections 258 and 259 of the Companies Act, 1956, and subject to the approval
of the Central Government, the number of Directors of the company be increased
from nine to fourteen."
1. Central Government approval required for increasing of a permissible
number to more than twelve.-The purpose of amendment of the article is to
increase the permissible maximum number of Directors to more than twelve.
Pursuant to section 259, increasing of a permissible number, to more than
twelve shall not have any effect unless approved by the Central Government and
shall become void if and in so far as, it is disapproved by that Government.
2. Points to be taken into consideration while increasing number of
directors beyond limit fixed by Articles.-The following further points
should be noted-
(i) The number of Directors
cannot be increased beyond the limit fixed by the articles of Association
unless they are suitably altered. Furthermore, in the case of a public company,
or any of its Subsidiary company, an increase in the number of' Directors
cannot be made even by altering articles except with the previous approval of
the Central Government
(a) In the case of a company
which was ill existence oil the 21st day of July, 1951, even if the increase
was within the permissible maximum under its articles as in force oil that
date; and
(b) in the case of' a company which come or may come into existence after that date, an Increase which is within the permissible maximum under its articles as first registered.
(ii) Government Directors
appointed under section 408, Directors appointed by BIFR and nominee Directors
of' certain financial institutions governed by special Statutes which dispense
with the requirements of' these provisions of' the Companies Act will not be
taken into account while counting number of Directors.
3. Procedure to be followed for effecting increase in number beyond
fixed by articles.-Procedure to follow is to-
(a) Call a Board Meeting to
consider the increase in number beyond the limits and fix up the day, time,
place and agenda for convening a General Meeting to (i) pass an Ordinary
Resolution it' the increase is within the limits fixed under the existing
articles or a Special Resolution if the increase is beyond the limits fixed
thereunder thus altering the relevant articles Suitably, and (ii) appoint
Director, both effective from the date of approval of' the Central Government,
where the increase is beyond the number twelve.
(b) Issue notices for the
General Meeting proposing the resolution with suitable Explanatory Statements.
(c) Forward three Copies of
Such notice to the Stock Exchange with which the company is enlisted.
(d) Hold the General Meeting
and pass the resolutions.
(e) Forward a copy of the
proceedings of' the General Meeting to the Stock Exchange with which the
company is enlisted.
(f) It any resolution Is a Special Resolution, file the same with Explanatory Statement with the Registrar of' companies in Form No. 23 within thirty days of the passing (Section 192).
(g) Where an application is
to be made to the Central Government-
(i) Give general notice to all the members Indicating, the nature of the application to be made to the Central Government and publish the notice at least once in a newspaper of the principal language of the district in which the registered office of the company is situate and circulating in that district and at least once in English language in an English newspaper circulating in that district (Section 640B).
(ii) Send a copy of the application along with all the documents to the Registrar (Rule 20A).
(iii) Forward three copies of the general notice published in the newspapers to the Stock Exchange if the company is listed on it (according to Standard Listing Agreement).
(iv) Make the
application in Form No. 24 and enclose the following:
(a) Copies of each of
present Memorandum and Articles of Association and of those which were in force
on 21st July, 1951 or, if the company came into existence later on, then on the
date of its registration.
(b) A copy of the resolution
passed and the full proceedings of the General Meeting with full details about
voting in a separate sheet.
(c) A treasury challan
showing the requisite fees as prescribed under the Companies (Fees on
Applications) Rules, 1999 having been deposited.
(d) Copies of the notices
together with a certificate by the
company as to the due publication thereof.
(h) In any other case,
either appoint the Director as an Additional Director under section 260 or
appoint him in the General Meeting and complete the respective formalities.
4. Appointment of directors beyond permissible limit effective only on
receipt of Central Government approval.-The appointment of the
Director made in the General Meeting, will be effective only on receipt of the
approval of the Central Government. Alternatively, the appointment of the
Director may not be made at that meeting; but on receipt of the Government's
approval, the same may be made as Additional Director in the Board Meeting
pursuant to section 260.
5. Citizens Charter.-As per Citizen's Charter of the Department of
Companies Affairs, Schedule I, Serial No. 8, the application to the Central
Government under section 259 is required to be processed with 30 days of the
date of submission. [File No. 5/25/99CL-V; Press Note No. 9/99 dated 9-8-1999].
Appointment of more than one Director by a single resolution
"RESOLVED that the
appointment of Sarva Shri A.B. and C., retiring Directors of the Company and
who are eligible for re-appointment and have given their consent for such
re-appointment be made by a single resolution."
1. Resolution required to be passed before formal resolution appointing
directors by a single resolution put to vote.-This resolution has to be
passed before a formal resolution appointing the Directors by a single
resolution is put to vote to the General Meeting.
2. Resolution electing more than one director by single resolution not
valid.-If
this is not done, the resolution electing more than one Director at a time will
not be valid. R.S. Mathur v. Dr. Raghuraj Bahadur, 1967 Allahabad 145.
3. Director retiring by rotation and re-appointed not required to
file consent with Registrar.-Only a Director who retires at an Annual General
Meeting and is reappointed thereat is not required to file with the Registrar
of Companies his consent to act as a Director. In a case where all the
Directors retire at a General Meeting are reappointed thereat, there is no
retirement by rotation within the meaning of the Explanation below sub-section
(5) of section 256 or sub-section (2) of section 264.
4. Exemptions.-This section does not apply to a private company
unless it is a subsidiary of a public company, and to wholly owned Government
companies, and sub-section (1) this section also does not apply to
section 25 Companies.
Appointment of two or more Directors under single resolution
(Another Format)
"RESOLVED that unanimous approval be and is hereby accorded to put the motions for the appointment of Mr. __________________ and Mr. __________________ as the Directors of the Company under a single resolution."
1. Resolution authorising their appointment required without
dissentient vote when two or more directors to be appointed by single
resolution.-At a General Meeting of a public company, a motion shall not be made
for the appointment of two or more persons as Directors of' a company by a
single resolution. If two or more Directors are to be appointed or elected by a
single resolution, it necessary first to pass a resolution authorising their
appointment or election in that manner without even one dissentient vote being
given against such resolution.
2. No automatic reappointment of directors retiring by rotation.-The passing of such a
resolution will not amount to automatic re-appointment of the Director
retiring by rotation in default of another appointment.
Appointment of more than one Director by a
single resolution
(S.263)
If two or more Directors are to be appointed or elected by a single resolution, it is necessary first to pass a resolution authorising their appointment or election in that manner without even one dissentient vote being given against such resolution.
Only a Director who retires at an Annual General Meeting and is re-appointed thereat is not required to file with the Registrar of Companies his consent to act as a Director. In a case where all tile Director retire at a General Meeting, are reappointed thereat, there is no retirement by rotation within the meaning of the Explanation below sub-section (5) of section 256 or sub-section (2) of section 264.
Appointment of directors to be voted on collectively
WHEREAS the aforesaid
resolution has been passed without a single dissenting vote;
NOW THEREFORE IT IS RESOLVED
that Shri A, Shri B and Shri C be all re-appointed at this meeting."
1. Individual voting of Director's appointment.-The director's appointment
in a company should be made by way of individual voting by passing separate
resolutions for appointment of each director. A single resolution may be passed
appointing all the directors only if separate resolution has been first passed
by the members to appoint directors by a single resolution. Such a single
resolution should be passed unanimously without any vote being given against
it.
2. Collective voting when void.-Director's appointment by
passing a single resolution is void otherwise than mentioned above, whether or
not such passing of a resolution is objected at the time when the said
resolution was moved. In case such a resolution is moved and passed any
provision for automatic re-appointment of a director retiring by rotation
in default of another appointment will not be applicable.
3. Motion of appointment, meaning of.-Motion of appointment means
a motion for approving a person's appointment, or for nominating a person for
appointment. This meaning should be applied only for the purposes of section
263 of the Act.
Appointment of director to be voted on collectively
(Another Format)
"WHEREAS the aforesaid
resolution has been passed without a single dissenting vote;
NOW THEREFORE IT IS RESOLVED that Mr. __________________ and Mr. __________________ be and are hereby appointed as directors of the company.
Same a. under Resolution § 1005.
appointment of Directors
"RESOLVED that the
existing article 99 of the Articles of Association of the Company be and is
hereby substituted by the following article.
"99. Not less than
2/3rd of the total number of Directors of the company shall be appointed
according to the principle of proportional representation by single
transferable vote, the appointments being made once in every three years and
interim casual vacancies shall be filled in accordance with the provisions
mutatis mutandis of section 262. Provided that at the first Annual General
Meeting of the company held after the adoption of this article, all the
retiring Directors of the company shall retire and in their place appointment
shall be made according to this article; the retiring Directors shall be eligible
for re-appointment under this article."
1. Follow procedure for amendment of articles as given under earlier
resolution.-Follow the procedure for the alteration of Articles of Association
prescribed in the PRACTICE NOTES under earlier Resolution.
2. Filing of Resolution along with amended Articles with Registrar.-Form No. 23 together with
Explanatory Statement be filed with the Registrar of Companies concerned within
thirty days of the passing of the resolution on payment of prescribed filing
fee as per Schedule X. A copy of the amended Articles of Association should
also be filed with the Registrar of Companies concerned. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
Amendment of provision relating to Managing/whole-time
Directors
"RESOLVED that the existing article 97 of the Articles of Association of the Company be substituted by the following article:-
"The term of office of the Chairman, Managing Director and the whole-time Directors shall not be liable to determination by retirement of Directors by rotation."
"So long as LIC, IDBI
and ICICI hold not less than 25% of the equity shares in the company, they
shall be entitled to nominate one Director each on the Board of the company
whose term of office shall not be liable to determination by retirement of
Directors by rotation. They shall not be required to hold any qualification
shares."
1. Central Government's approval not required - If a new article on the
above lines is inserted in the Articles of Association of the company for the
first time, no approval of the Central Government will be necessary if the
existing article pertaining, to the appointment of Managing Director/Whole-time
Directors or non-rotational Directors is to be amended. No approval of
Central Government required for insertion of new article pertaining to
appointment of managing/ whole-time directors or non-rotational
directors.
2. Appointment, re-appointment complying with S. 269, approval
not necessary -No approval of the Central Government under section 268 is required for
appointment or re-appointment of managerial personnel, if made in terms
of section 269 of' the Act read with its Schedule XIII.
3. Provision not applicable.-Amendment of' a provision relating to
appointment of Directors liable to retire by rotation does not attract this
section.
4. Follow procedure for amendment of Articles as given under earlier
Resolution.-For amendment of Articles of Association, follow the procedure given in
the Practice Notes under earlier Resolution.
5. Filing of Resolution along with amended Articles with Registrar.-File Form No. 23 along with
the Explanatory Statement and a copy of the amended Articles of Association
with the Registrar of Companies concerned within thirty days of' the passing of
the resolution on payment of prescribed filing fee. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
Amendment regarding appointment of non-rotational Directors
"RESOLVED that pursuant
to the agreement entered into between the Company and X and Company Ltd., and
subject to the approval of the Central Government, article _________ of
Articles of Association of the company be Substituted by the following article
-
Article_________
"Notwithstanding
anything to the contrary contained in these articles, so long is any monies
remain owing by the company to X and Company Ltd., and so long as X and Company
Ltd., continues to hold shares in the company, X and Company Ltd. shall have
the right to appoint its nominees or nominees to the Board of Directors subject
to a maximum of 1/3rd of the total strength of the Board, and to remove from
Such office such nominee or nominees and to appoint other nominee or nominees
in their place. Such appointees shall not be liable to hold qualification
shares, nor shall they be liable to retirement by rotation."
1. Filing of resolution in Form No. 23 along with explanatory statement
with Registrar.-Thc resolution along with the Explanatory Statement has to be filed
with the Registrar of Companies in Form No. 23 along with the requisite filing
fees within thirty days of the passing of the resolution. Non- fill ng,
will attract penalty by way of fine of up to Rs. 100/-.
2. Amendment of provisions relating to managing, whole-time or
non-rotational directors.-No amendment to any provision relating to the
appointment, re-appointment of a Managing Director, Whole-time
Director or non-rotational Director can be given effect to Without the
sanction of the Central Government.
3. Application to Central Government for approval of amendment in the
provision of Appointment.-Make an application to the Central Government in
Form No 25B for approval to amendment of provision relating to managing, whole-time
or non-rotational directors accompanied by a copy of the Memorandum and
Articles of Association in which the amendments are to be made along with one
copy of the revised version of the relevant articles, and a treasury challan
obtained for payment of the requisite fee specified in the Companies (Fees on
Applications) Rules, 1999. If the amendment is in respect of a provision
contained in any agreement entered into by the company or in any resolution
passed by it or by its Board of Directors then a copy of" the agreement or
resolution, as the case may be, orl'o1nal and revised should be furnished.
4. Forwarding of copy of application to Registrar.-Forward a copy of the
application to the Registrar of Companies concerned simultaneously with the
application to the Central Government.
5. Publication of notice under section 640B.-Before making the
application to the Central Government a general notice is to be published in a
English newspaper and in a vernacular daily in the language of the district
where the registered office of the company is situated and newspapers cuttings
are to be attached with the application.
6. Annex certified copy of each notice.-Ensure to annex one
certified copy each of the notice issued in the newspapers.
7. Applicability.-Provisions of section 268 are applicable only to
public companies and private companies which are subsidiary of public
companies.
8. Processing time 30 days.-As per the Citizen's Charter of the
Department of Company Affairs, Schedule I Serial No. 9 the approval is required
to be processed within 30 days. [No. 5/25/99-CL-V, dated 9-8-1999]
Variation in terms of appointment of Managing Director
"RESOLVED that Subject
to the approval of the Central Government Linder section 268 and other
applicable provisions, if any, of the Companies Act, and subject to Such
modification as the Central Government may require which the Board of Directors
is hereby authorised to accept, not being modifications more favourable to the
Managing Director, the Company hereby accords its approval for variation in the
terms of appointment of the Managing Director, to the effect that the term
providing for the payment of a commission of 0.5% of the net profits of the
company, subject to a maximum of 50% of annual salary already approved by the
company and the Central Government be and is hereby modified so that an amount
equivalent to 1% of the net profit of the Company computed as laid down Linder
section 309(5) of the Companies Act Subject to a maximum of 50% of annual
salary be utilised by the Company at the option of the Board of Directors in
the form of payment in cash to the Managing, Director."
1. Item of special business.-This can be passed by way oil ' an Ordinary
Resolution. However, this will be an item of special business in an Annual
General Meeting requiring an Explanatory Statement pursuant S. 173.
2. Variation not effective until approved by Central Government.-This variation will not have
effect until the company applies and obtains approval of the Central
Government.
Appointment of a Whole-time Director
"RESOLVED that subject
to the approval of the Central Government under section 269 and other
applicable provisions of the Companies Act, 1956, the consent of the members be
and is hereby accorded to the appointment of Mr. __________________ now holding
a position of Works Manager, as a Whole-Time Director of the company,
for a period commencing from the date of this meeting and until five years
ending as on _________, 2007 _________, on such terms and conditions as the
Central Government may approve."
1. Term appointment and whole-time employment-Meaning.-An appointment includes re-appointment
and whole-time Director includes a Director in the whole-time employment
of the company.
2. Private company exempted but not deemed public company.-The section is not
applicable to a private company, when a private company becomes a public
company, by virtue of the provisions of section 43A of' the Companies Act,
1956, the provisions of section 269 become applicable from the day such private
company becomes public.
3. Difference
between whole-time Director and Managing Director- Whole-tine
Director and a Managing Director differ
significantly so that-
(a) a Managing Director, pursuant to section 316(2) may occupy such position (Managing Director) in two companies simultaneously, while a Whole- time Director cannot function in such manner;
(b) by virtue of section 317 of the Act, while a Managing Director cannot be appointed at a time for a period exceeding five years, there is no such restriction on the appointment of a whole-time Director, so that he may be appointed for a longer period without the necessity for renewal every five years provided, however, that his office of Director is not the one subject to retirement by rotation of the Directors. Of course, it is possible to take a view that a whole-time director is nothing but a Managing Director in whole-time employment.
4. Approval of Central Government required when Branch Manager
appointed as a Director.-The Department of Company Affairs is of the view
that when a Branch Manager of a company is appointed as a Director of the
company, then he will be holding the position of a Whole-time Director
and so his appointment must be made with the approval of the Central Government
under section 269. Similarly, if a whole-time employee of a company is
appointed as an alternate Director of the company, his appointment will attract
the provisions in relation to a Whole-time Director in sections 269, 309
and 314. Of course, this view is not strictly in conformity with the law.
5. Section 269 not applicable to whole-time directors holding
office before private company becoming deemed public company.-Where a private company becomes
a deemed public company under section 43A, the provisions of section 269 will
not be applicable to its whole-time Director, holding office immediately
before such conversion, as no fresh appointment is involved in such a case.
But, the provisions of other sections, such as, sections 198, 255, 309, 310,
311, etc., will automatically apply to such a deemed public company from the
date it becomes a deemed public company.
6. Appointing one of directors as whole-time director-requirements.-For appointing one of the
Directors to be a whole-time Director it is necessary to-
(i) See that the articles of
the company provide for the office of the whole-time Director.
(ii) Call a Board Meeting
and consider the terms and conditions on which the Whole-time Director is
to be appointed and to fix up the date, time, place and agenda for calling a
General Meeting. In the case of a public company or its subsidiary the
appointment, either in the Board Meeting or in the General Meeting, will be
effective only on approval of the Central Government.
(iii) Issue notices with
suitable Explanatory Statement, hold the General Meeting, and pass the
resolution.
(iv) Forward three copies of
the notice and a copy of the proceedings of the General Meeting to the Stock
Exchange if the company is listed on any Stock Exchange.
(v) Where application is to
be made to the Central Government, as aforesaid, it is necessary to-
(a) Give general notice to
all the members indicating the nature of the application to be made to the
Central Government also to publish the notice at least once in a newspaper of
the principal language of the district in which the registered office of the
company is situated and circulating in that district and at least once in
English in an English newspaper circulating in that district (Section 640B).
(b) Forward three copies of
the general notice published in the newspaper to the stock exchange, if the
company is listed on a recognised Stock Exchange (according to Standard Listing
Agreement).
(c) Forward to the Stock Exchange a copy of the proceedings of the General Meeting, if the Managing Director is appointed by a General Meeting.
(d) Send a copy of the application along with all the documents to the Registrar of Companies (Rule 20A).
(e) Make the application in Form No. 25A and for obtaining the approval of the Central Government and enclose thereto-
(i) A certified true copy of
the existing and proposed agreement in this regard, if any.
(ii) A certified
true copy of the resolution passed.
(iii) A certified true copy
of the audited balance-sheet and the profit and loss account for the last
two years.
(iv) Where the company has
not yet commenced any business or whose accounts have not been audited:
(a) a copy of
the prospectus, if issued;
(b) particulars of capital
proposed;
(c) amount of long terms
loans and sources of such loans;
(d) expected date of
commencement of production/business;
(e) estimated turn-over
and profit for the next three years;
(f) details of industrial
licence, if any;
(g) extent of foreign collaboration,
if any.
(v) A copy of the Memorandum
and the Articles of Association revised up to-date marking the relevant
article or the authority under which the appointment is made.
(vi) Copies of the notices
published in the newspaper(s) certified by the company to have been duly
published.
(vii) Evidence showing
payment of necessary fees the Companies (Fees on Applications) Rules, 1999.
7. Central Government approval not required when appointment fulfils
conditions of Schedule XIII.-The approval of the Central Government will not be
required in case the appointment fulfils the conditions set out in Schedule
XIII appended to the Companies Act, 1956.
8. Small Shareholders' Director.-Public Companies having paid-up
share capital of Rs. 5 Crores or more and having a small shareholders' director
he cannot be appointed as a whole-time or managing director as per Rule
4(8) of the Companies (Appointment of the Small Shareholders' Director) Rules,
2001.
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 Companies mentioning therein inter
alia that the appointment of managing director/whole-time director has been
made in compliance with the provisions of section 269 read with Schedule XIII
to the Act and approval of the Central Government has been obtained in respect
of his appointment not being in terms of Schedule XIII, as per paragraph 15 of
the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
S. 269-Appointment of Managing Director and approval of
terms thereof-Ordinary Resolution
"RESOLVED that, subject to the approval of the Central Government and pursuant to sections 268, 269 and 309 of the Companies Act, 1956, approval be and is hereby given to the appointment of Mr. JKW, as the Managing Director of the Company, for a period of five years from _________, 2002 _________, on the terms and conditions contained in an agreement (a draft of which is laid on the table and for the purpose of identification initialled by the Chairman hereof) and that the Directors be authorised to alter and vary the terms and conditions of the said appointment without increasing the remuneration mentioned therein and in such manner as may be directed by the Central Government."
1. Appointment/re-appointment of Managing/Whole- time
Director governed by Section 269.-Section 269 of the Companies Act, 1956, deals with
the appointment or re-appointment of Managing (also whole-time)
Directors of the company and provides that such appointment of the Managing
Director if not made in accordance with Schedule XIII shall have no effect
unless approved by the Central Government.
2. Expression "shall not have any effect unless approved by
Central Government-Meaning.-The expression 'shall not have any effect unless
approved by the Central Government' has been Judicially tested. In a criminal
appeal case against a person who was already the Managing Director of a company
and who had been re-appointed and had continued to act as Managing
Director before his re-appointment was approved by the Central
Government, it was observed by the Allahabad High Court that the section does
not prohibit a person from functioning as a Managing Director before the
receipt of the approval of the Central Government.
3. Form prescribed.-Form of application to be used for the approval of
the Central Government is Form No. 25A.
4. Central Government approval not necessary in case appointment
conforms to requirement of Schedule XIII.-Approval of the Central
Government will not be necessary in case the appointment conforms to the
requirements of Schedule XIII appended to the Act.
5. No separate resolution required for payment of minimum remuneration
and perquisites.-Where the resolution approves an agreement between the company and the
Managing Director which itself contains the terms of remuneration no separate
resolution is required to be passed for payment of minimum and substantive
remuneration and perquisites in terms of sections 198 and 309. Pursuant to
section 302, what a company should do is that it should circulate to the
members a memorandum of interest of the Managing/whole-time Director.
6. Requirement of resolution of shareholders.-The managerial remuneration,
pursuant to sections 198 and 309, is, however, required to be approved by members'
resolution subject only to the provisions of the articles of the company or by
Special Resolution, if the articles so require. The remuneration is exclusive
of fees for professional services rendered by a Director. Thus, where a
solicitor who is also a Director gets remuneration from the company for
professional services rendered as a solicitor or lawyer, such professional fees
will be outside the ambit of remuneration within the meaning of section 198 or
309.
7. Word "profession"-Meaning.-'Profession' involves the
idea of an occupation requiring purely intellectual skill or manual skill,
contributed, as in painting and sculpture or surgery by the intellectual skill
of the operator, as distinguished from an occupation which is substantially
concerned with the production or sale or arrangements for the production or
sale of commodities. A journalist whose contributions have any literary form,
is engaged in a profession, whereas the proprietor of a news-paper or
periodical controlling the printing, publishing, etc. does not engage himself
in a profession but in a trade or business.
8. Penalty.-If the appointment requiring
Central Government's approval is disapproved by the Central Government, the
appointee should vacate office on the date of which the decision of the Central
Government is communicated to company and if he omits or falls to do so, he
will be punishable with fine of up to Rs. 5,000/- for every day during
which he omits or falls to vacate such office.
Appointment/re- appointment of Managing/Whole-time
'Director
S. 269-Appointmentlre -appointment of
Managing/Whole -time Director-Ordinary Resolution
"RESOLVED that Shri ABC
who fulfills the conditions specified in Part I, Part II and Part III of
Schedule XIII to the Companies Act, 1956, be and is hereby appointed as the
Managing Director/Whole-time Director/ Manager of the Company for a
period of five years effective from _________ and that he may be paid remuneration
by way of salary, commission and perquisites in accordance with Part II of Schedule
XIII of the Act.
OR
"RESOLVED that Shri ABC
be and is hereby appointed as Managing Director/Whole-time
Director/Manager of the Company subject to the approval of the Central
Government for a period of five years effective from _________ and that he may
be paid remuneration as follows:
(i)
Salary
(ii) Commission
(iii) Perquisites: Housing,
Medical re-imbursement, Leave Travel Concession, Club fee Personal
Accident Insurance, Gratuity, Provident Fund etc.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to make an application to
the Central Government seeking their approval to the above appointment."
1. Central Government approval not necessary when person appointed
eligible under Part I of Schedule XIII.-If the person to be
appointed is eligible under Part I of Schedule XIII, no approval of the Central
Government is necessary.
2. Central Government approval not necessary when remuneration payable
within limits prescribed in Part II of Schedule XIII.-Further, if the remuneration
proposed to be paid to him is within the limits prescribed in Part II of
Schedule XIII, no approval of the Central Government will be required.
3. Certificate of Auditor or Secretary of company or Secretary in whole-time
practice to be attached with return certifying that requirements of Schedule
XIII complied with.-The Auditors or the Secretary of the company and where there is no
Secretary, a Secretary in Whole-time practice shall have to certify that
requirements of Schedule XIII have been complied with. This certificate is to
be incorporated in a return which is to be filed with the Registrar of
Companies within 90 days of the appointment.
4. Approval accorded by Government when appointee fit and proper person
as well as terms and conditions reasonable.-While giving its approval,
the Central Government shall see that the person to be appointed is a fit and
proper person for such appointment and that terms and conditions of appointment
are fair and reasonable.
5. Appointee to vacate office when appointment rejected by Government.-If the appointment is not
approved, the appointee shall vacate office soon after the receipt of the
communication of the Central Government rejecting the appointment by the
company.
6. When appointment made without approval of the Central Government
either on information or suo motu refer matter to Company Law Board.-If the appointment is made
without the approval of the Central Government, where it is so required, the
Central Government either on any information received or suo motu refer the
matter to the Company Law Board who after issuing a notice to the company and
the appointee terminate the appointment if it has been made in contravention of
the requirement of Schedule XIII. On the passing of this order the appointment
shall cease and the appointee shall have to refund to the company the entire
amount of salary, commission and perquisites received by him in addition to
fine which may be imposed upon him. The company will be liable to fine of upto
Rs. 50,000/- and the appointee will he liable to a fine of Rs. 1 lakh.
7. Penalty for non-compliance of order of Company Law Board.-If the order of the Company
Law Board is not obeyed and is contravened, every officer of the company in
default shall be punishable with imprisonment extending up to three years,
besides fine up to Rs. 500/- for each day of default.
8. Acts valid during period of illegal appointment.-The acts done by a person
whose appointment is not approved during the period of his illegal appointment
shall be valid if there are otherwise valid.
9. Central Government approval required for appointment and not for
removal.-The Central Government's approval is required only for the appointment
of a Managing Director and not for his removal. Pyare Lal Gupta v. Agarwal,
(DP) (1983) 53 Comp Cases 586 (111).
10. Central Government approval not required when Secretary appointed
as a part-time director.-Appointment of' a whole-time Company Secretary
as a part-time Director on the Board of Directors of the company does not
require approval of tile Central Government under section 269(l) of the Act so
long as substantial powers of Management of the affairs of the company are not
vested in the incumbent.
11. Government company exempted.-Section 269 does not apply
to a Government company.
Appointment of Managing Director or whole-time Director
A. "RESOLVED that subject to the
approval of the Central Government under Section 269 of the Companies Act, 1956
this Meeting hereby approves the appointment of Shri SKM as the Managing
Director of the Company for a period of 5 years with effect from 30th
September, 2002 and the payment of such remuneration to Shri SKM during the
tenure of his appointment as set out in the Agreement dated 18th July, 2002 (a
copy of which was placed before the Meeting) entered into between the Company
and Shri SKM."
OR
B. "RESOLVED that as required by
Schedule XIII to the Companies Act, 1956, this Meeting hereby approves the
appointment of Shri SKM as a Whole-time Director of the Company for a
period of 5 years with effect from 14th September, 2002 and the payment Of Such
remuneration to Shri SKM during the tenure of his appointment as Set Out In the
letter dated l4th September, 2002 issued to him by the Company (a copy of which
was placed before the Meeting)."
1. Conditions for appointment.-No person shall be eligible for appointment
as a Managing Director or whole-time director or manager of a Company
unless he satisfies the following conditions namely:-
(1) lie has not been sentenced to imprisonment for any period or to a fine exceeding Rs. 1,000/- for the conviction of an offence under any of the Acts specified in Para (a) of Part 1, Schedule XIII;
(2) he had not been detained
for any period under the Conservation of Foreign Exchange and Prevention of
Smuggling Activities Act, 1974 (52 of 1974):
Provided that where the
Central Government has given its approval to the appointment of a person
convicted or detained under sub- paragraph (a) or sub paragraph (b), as
the case may be, no further approval of the Central Government shall be
necessary for the subsequent appointment of that person if he had not been so
convicted or detained subsequent to such approval;
(3) he has completed the age
of twenty-five years and has not attained the age of seventy years or the
age of retirement, if any, specified by the company, whichever is earlier;
(4) where lie is managerial
person In more than one company, he opts to draw remuneration from one or more
companies subject to the ceiling provided in Section II of Part II of the said
Schedule;
(5) he is resident in India.
Explanation: For the purpose
of this Schedule, resident in India includes a person who has been staying in
India for a continuous period of not less than twelve months immediately
preceding the date of his appointment as a managerial person and who has come
to stay in India,
(i) for taking up employment
in India, or
(ii) for
carrying on a business or vocation in India.
2. Board Meeting.-Hold a Board Meeting and
approve the appointment including remuneration, terms of appointment etc.
3. Consent.-If the appointee is not a
director, then obtain consent from the appointee (S.264).
4. Disclosure by interested
Directors.-The Interested directors must disclose their concern at the meeting
itself (Sections 299 & 302).
5. Director's relative.-If the appointee is a
relative of any director, then Special Resolution is to be passed at the
general meeting
6. Stock Exchange.-In case the shares of' the
company are listed on a Stock Exchange, then send necessary intimation to the
said Stock Exchange.
7. Filing of resolution.-File a copy of the
resolution along with Form No. 23 within thirty days of' the passing of
resolution by the Board. Annex thereto agreement, it' any, Non-filing
will attract penalty by way of fine of upto Rs. 100/-.
8. General Meeting.-Hold a General Meeting and
pass resolution Ordinary/Special as per articles.
9. Forwarding of copy of
notice of Meeting to Stock Exchange.-Forward three copies of- notice as well
as proceedings of the meeting to the concerned Stock Exchange.
10. Filing with Registrar of
Companies.-Also file a copy of the Resolution with the Registrar alone, with Form
23 within thirty days of passing of the resolution. Non-filing will
attract penalty by way of fine of upto Rs. 100/-.
11. Appointment subject to
approval of shareholders.-In terms of paragraph 1 of Part III of Schedule XIII
to the Act, the appointment and remuneration of managerial personnel shall be
subject to approval by a resolution of the shareholders in the general meeting.
The said resolution in the general meeting can be passed even after the expiry
of ninety days, period from the date of appointment by the Board of Directors
and is required to be filed with the Registrar of Companies so long as the
resolution passed by the Board of Directors has already been enclosed with the
said return.
12. No approval of Central
Government required if increase in remuneration is in accordance with Schedule
XIII (subject to amended Schedule XIII w.e.f. 2.3. 2000).-Approval of the Central
Government will not be required in cases where the increase in remuneration is
in accordance with the terms and conditions specified in Part II read with Part
III of Schedule XIII. Moreover, no return is required to be filed with the
concerned Registrar of Companies and no further resolution in respect of
paragraph I of Part III will be required to be passed if the proposed increase
is already covered by an earlier resolution of the shareholders.
13. Filing of return.-A return in the prescribed
Form No. 25C is to be filed with the concerned Registrar of Companies within 90
days from the date of such appointment, While filing the return in Form 25C a
copy of the resolution passed by the Board of Directors and/or shareholders in
the general meeting is required to be enclosed with the return.
14. Late filing of return.-Filing of Form 25C
belatedly will not attract section 637B(b). Since this form is a document and
delay in filing this form with the Registrar 01 Companies falls within the
ambit of section 611 and therefore Registrars of Companies shall charge
additional fee on this form filed belatedly at the rate standardized vide Pres
Note No. 2/95 dated 21-3-1995. [General Circular No. 15 of 2002
dated 17-6-2002].
15. No approval of Central
Government under section 268 if appointment made it terms of section 269.-No approval of the Central
Government under Section 268 is required for appointment or reappointment of
managerial personnel if made in terms of section 269 of the Act.
16. Central Government's
Power.-The
Central Government may grant approval for a period lesser than the period for
which the proposal has been made. The Central Government can also reject the
application in case the appointee is not a fit and proper person or his
appointment is not in the public interest or if' the terms and conditions of
his appointment are not fair and reasonable,
17. Appointee to vacate
office when appointment not approved.-If the appointment is not approved by the
Central Government, the person so appointed shall vacate his office as such
managing or whole-time director or manager on the date on which the
decision of the Central Government is communicated to the company. If the
office is not vacated he shall be punishable with fine which may extend to Rs.
500/- for every day during which he omits or fails to vacate such office.
18. Reference to Company Law
Board by Central Government if default is made in seeking approval.-In case of default in
seeking prior approval of the Central Government or when the appointment has
been made in contravention of the requirements of Schedule XIII, Central
Government may refer the matter to the Company Law Board for a decision. The
Company Law Board after giving to tile company and the appointee the reasonable
opportunity of being heard make an order declaring whether contravention of the
requirements of Schedule XIII has or has not taken place.
19. In case contravention
proved appointment will cease.-In case tile Company Law Board comes to the
Conclusion that such contravention has occurred, the appointment shall be
deemed to have come to an end on the date of' such a declaration and all acts
of the managerial personnel whose appointment is invalidated will he deemed to
be valid. However, the company shall be liable to a fine which may extend to
Rs. 50,000/-.
20. Yardstick determining
adequacy of profits.-The Company Law Board was not inclined to arrive at a decision that the
company had acted in contravention of provisions of section 269(9) as the
Central Government had not referred to any guidelines or instructions in
working out whether the profits carried by the company were adequate or not and
the entire reference being based on inadequacy of profits and in the absence
of' ally yardstick determining whether the profit was adequate or not. Central
Government v. Aurofood Ltd., (2002) 38 SCL 516 (CLB).
21. Penalty-Every officer of the company
who is in default shall also be liable to a fine of Rs. 1 lakh. The person
whose appointment has come to an end will be liable to pay a fine of Rs. 1 lakh
refund the entire amount of salaries, commissions and perquisites received
between the date of his appointment and passing of the order by the Company Law
Board. If the Company contravenes the provisions of sub-section (10) of
Section 269 or any direction given by the Company Law Board, every officer of
the company who is in default and the Managing, Director or whole-time
director or Manager shall be punishable with imprisonment for a terms which may
extend to three years and shall also be liable to fine which may extend to Rs.
500/- for every day of default.
22. 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 managing director/whole time director has been
made in compliance with the provisions of section 269 read with Schedule XIII
to the Act and approval of the Central Government has been obtained in respect
of appointment not being in terms of Schedule XIII, as per paragraph 15 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Appointment of whole-time
Directors
"RESOLVED that the appointment of Shri.
__________________ as a whole time Director of the Company for a period of 2
years with effect from _________ on the following terms hereinafter provided
failing within the limits fixed by Schedule XIII of the Companies Act be and is
hereby approved.
1. Salary _________ per month
2. Commission
3. Perquisites
4. Other conditions."
Same as given under Resolution § 1014.
"RESOLVED that subject
to the approval of the Central Government wherever necessary, sanction be and
is hereby accorded to the payment of remuneration as set out herein to Mr.
__________________ Managing Director, with effect from _________ and as
approved by the Board of Directors at a meeting held on _________”
1. Remuneration payable to
Managing Directors.-The appointment and remuneration are subject to the approval of the
shareholders of the company. The ordinary resolution for the purpose, can be
passed either in the annual or the extraordinary general meeting, before the
appointment is made.
Re-designation of
Manager as Managing Director of the
company
"RESOLVED that consent
of the Company be and is hereby accorded to the appointment of Mr. ABC, the
present Manager of the Company, as the Managing Director of the Company on the
terms and conditions contained in the agreement, a draft of which is placed
before the meeting and initialled by the Chairman.
RESOLVED FURTHER that the
Board of Directors be and are hereby authorised to assent to any modifications
to the terms of the draft agreement that the Central Government may
direct."
1. For re-designating
Manager as Managing Director procedure for appointing person as Managing
Director to be followed.-Even though the Manager is being re-designated as
Managing Director, the entire procedure prescribed for appointing a person as
Managing Director will have to be followed.
2. Manager need not be
member of Board.-The manager need not necessarily be a member of the Board, though a
Director of the company could be designated Manager.
Share Qualification of Directors (Amendment of Articles) (S. 270)
A person cannot be said to
be qualified in respect of qualification shares until he is registered as
holder of the shares. Arthanari Transport P. Ltd. v. K.P. Swami Goundar, (f965)
2 Comp LJ 266: (1965) 35 Comp Cases 930 (Mad) (DB). Unless the articles provide
otherwise, if joint holders hold the qualification shares, in their joint
names, any of them is entitled to be appointed Director. Grundy v. Briggs,
(1910) 1 Ch 444. Where a Director becomes insolvent and his shares vest in the
Official Receiver the Director cannot be said to hold the share qualification
after the company receives notice of the insolvency. Sutton v. English and
Colonial Produce Co., (1902) 2 Ch 502.
Appointment of Managing/Whole-time
director below
certain age limit
"RESOLVED that consent
of the Company be and is hereby accorded to the appointment of Mr. ABC who is
22 years of age as the whole time Director of the Company with effect from
_________ for five years as per the terms and conditions provided in Schedule
XIII of the Act and as may be agreed to between the Board of Director and the
said Mr. ABC."
1. No Central Government's
Approval.-For the appointment of a managing or whole-time director in a public
company or in a private company which is a subsidiary of a public company, no
Central Government's approval is required if such appointment is made in
accordance with the conditions specified in Parts I, II and III of Schedule
XIII of the Companies Act, 1956. Proviso (i) to sub-paragraph (c) of Part
I of Schedule XIII provides that any person to be appointed as a managing or
whole-time director who has not completed the age of 25 years but has
attended the age of maturity can be appointed by passing a special resolution
in a general meeting of a company.
2. Filing of return with the
Registrar.-Within 90 days of the appointment of the whole-time director in
accordance with Schedule XIII to the Act, a return in Form No. 25C should be
filed with the concerned Registrar of Companies along with requisite fees in
cash as per Schedule X to the Act. The special resolution passed should also be
filed in Form No. 23 within 30 days, with the concerned Registrar of Companies
along with requisite fees, in cash as per Schedule X to the Act.
3. Late filing of Form 25C.-Filing of Form 25C belatedly
will not attract section 637B(b). Since this form is a document and delay in
filing this form with the Registrar of Companies falls within the ambit of
section 611 and therefore Registrars of Companies shall charge additional fee
on this form filed belatedly at the rate standardized vide Press Note No. 2/95
dated 21-3-1995. [General Circular No. 15 of 2002 dated 17-6-2002].
Appointment of
Managing/Whole-time Director beyond
certain age limit
"RESOLVED that consent
of the Company be and is hereby accorded to the appointment of Mr. XYZ who has
attained the age of 71 years, as the Managing Director of the Company with
effect from _________ for five years as per the terms and conditions provided
in Schedule XIII of the Act and as may be agreed to between the Board of
Directors and the said Mr. XYZ."
Same as given under Resolution § 1018.
Share qualification of
Directors (Amendment of Articles)
"RESOLVED that consent
of the Company be and is hereby accorded for alteration in the Articles of
Association of the Company in the manner following:
That the existing article 88
of the Articles of Association of the Company be deleted and in its place the
following be substituted there for:-
“Unless otherwise determined
by the company in General Meeting, a Director may be appointed without the
holding of any share in his name in the capital of the company"."
1. Holding of qualification
shares.-The
Directors are not required to hold any qualification share unless it is
provided by the Articles of Association of the company.
2. No obligation cast by the
Companies Act on directors for holding qualification shares.-The Companies Act, 1956,
does not cast an obligation on the Directors for holding any share
qualification.
3. Person not to be holding
shares until registered as holder of shares.-A person cannot be said to
be qualified in respect of qualification shares until he is registered as
holder of the shares. Arthanari Transport P. Ltd. v. K.P. Swami Goundar, (1965)
2 Comp LJ 266: (1965) 35 Comp Cases 930 (Mad) (DB).
4. Holding of qualification
shares in joint name.-Unless the articles provide otherwise, if joint holders
hold the qualification shares in their Joint names, any of them is entitled to
be appointed Director. Grundy v. Briggs, (1910) 1 Ch 444.
5. Director not to be
holding qualification shares on receipt of notice of insolvency.-Where a Director becomes insolvent
and his shares vest in the Official Receiver, the Director cannot be said to
hold the share qualification after the company receives notice of the
insolvency. Sutton v. English and Colonial Produce Co., (1902) 2 Ch 502.
6. Filing of Form No. 23 along
with Explanatory Statement with Registrar.-Return in Form No. 23 along
with Explanatory Statement is to be filed with the Registrar of Companies
within thirty days of the passing of the Special Resolution on payment of
prescribed filing fee. The amended copy of the Articles of Association is also
to be filed with the Registrar of Companies concerned. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
"RESOLVED that Mr. XY,
be and is hereby removed from office of the Director in the Company."
1. Requirement of special
notice for removal of director.-Special notice is required for removing a Director.
As soon as the notice is received, it should be sent to the concerned Director
who shall have the right to representation and also will have the right to be
heard at the meeting. A notice proposing the resolution for removing a director
printed carrying gaps which required filling was not filed in good faith and
such notice was an abuse of the statutory power. The company was not bound to
place such a notice before the general meeting. Dabur India Ltd. v. And Ku1nar
Poddar, (2002) 108 Com Cases 293 (CLB).
2. Right of representation.-Any representation made by
the Director concerned will have to be circulated to the shareholders unless it
is too late to do so, in which case it should be read at the Meeting.
3. Right of company or
person aggrieved to petition before Company Law Board.-However, if on an
application cither by the company or any other aggrieved person, the Company
Law Board is satisfied that circulation is an abuse to secure needless
publicity for defamatory matter, copies of the representation need not be sent
out and the representation need not be read at the meting. The Company Law
Board may further order the Director concerned to pay cost of the application
to the company either in whole or in part.
4. Filling of casual vacancy
provided special notice given.-The vacancy may he filled 1n accordance with section
262 by the Board or in General Meeting provided special notice of the intended
appointment is also given along with the notice proposing removal of the
Director. The Director appointed in the vacancy shall hold office for unexp1red
portion of the removed Director.
5. Compensation or damages
for removal.-The removed Director shall be entitled to compensation or damages which
may be payable to him under any contract with the company.
6. Directors appointed by
proportional representation cannot be removed- This section does not apply where
Directors are appointed in accordance with the principle of proportional
representation 111-ii-Suant to section 265 of the Act.
7. Power of Company Law
Board to order meeting to be called.-Where Directors attempt to avoid their
removal by omitting to call a meeting or by not attending with a view to
creating a situation of' 'no quorum' the Court/Company Law Board will convene
the meeting under section 186. Re: El Sombrero Ltd., (1958) 2 All ER I (Ch D).
8. Removal of permanent
director.-A permanent Director entitled under the Articles of Association of a
company to hold office for life can be removed from office. Tarlok Chand Khanna
v. Raikuniar Kapoor, ( 1983) 45 Comp Cases 12 (Del).
9. Statement of reasons not
necessary in support of resolution.-A statement of reasons is not necessary to
Support resolution for removal of a Director. Life Insurance Corporation of
India v. Escorts Ltd., (1986) 59 Comp Cases 548.
10. Filing of return in Form
32-File
return in Form No. 32 (in duplicate) with the Registrar of Companies concerned
when a Director ceases to be a Director of the company within thirty days of
cessation of directorship.
Where Directors attempt to avoid
their removal by omitting to call a meeting or by not attending with a view to
creating a situation of 'no quorum' the Court/Central Government will convene
the meeting under section 186. Re: El Sombrero Ltd., (1958) 2 All ER] (Ch D). A
permanent director entitled under the Articles of Association of a company to
hold office for fife can be removed from office. Tarlok Chand Khanna v.
Rajkumar Kappor, (1983) 45 Comp Cases 12 (Del). A statement of reasons is not
necessary to support resolution for removal of a Director. Life Insurance
Corporation of India v. Escorts Ltd., (1986) 59 Comp, Cases 548.
(Another Format)
"RESOLVED that Pursuant
to the provisions of section 284 of the Companies Act, 1956, Mr. BPT, a
Director of the Company, be and is hereby removed from the office of Director
of the Company."
PRACTICE NOTES
1. Power of Board not
affected for revocation of appointment of Managing/other directors made by
Board.-This
section does not affect the power of' the Board of Directors to revoke the
appointment of a Managing or other Directors, made by the Board. Major General
Shambhu Shamsher v. Karnani Brother, AIR 1959 Bom 201.
Passing of Board Resolution
by circulation by amending articles
RESOLVED that pursuant to
section 31 of the Companies Act, 1956, the Articles of Association of the
Company be and are hereby amended by insertion of the following new Article
_________ after Article _________: -
“_________A resolution of
the Board of Directors of the Company or of any of its Committee to be passed
by circulation will not be deemed have been duly passed 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 member 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.
1. Secretarial Standard.-Paragraphs 6.1, 6.2, 6.3 and
6.4 of Secretarial Standard 1 provide For passing of Board Resolution by
circulation and must be adhered to while passing a Board Resolution by
circulation.
2. Filing of Special
Resolution.-A certified copy of the special resolution should be filed in Form No.
23 along with relevant explanatory statement with the Registrar of Companies
concerned along with filing fee as prescribed by Schedule X. Non-filing
will attract penalty by way of fine of upto Rs. 100/-.
3. 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 Board of Directors of' the company duly signed and recorded the
circular resolutions passed in the minutes book maintained for the purpose as
per paragraph 4 of the Form of Compliance Certificate appended to the Companies
(Compliance Certificate) Rules, 2001.
Creation of mortgage to
secure proposed issue of Debentures
"RESOLVED that the
consent of the Company be and is hereby accorded pursuant to the provisions of
Section 293(l)(a) of the Companies Act, 1956, to the Board of Directors of the
Company (the Board) creating such mortgages of and/or charging, on such terms
and conditions and at such time or times and in such form or manner as it may
think fit the whole or substantially the whole or any one or more of the
Company's undertakings or all its undertakings, including the present and/or
future properties, whether movable or immovable comprised in any and/or
existing and/or new undertakings of the Company, as the case may be, together
with the power to take over the management of the business and concern of all
or any such undertaking(s) of the Company in certain events, to or in favour of
the Trustees or Agent and Trustees to be appointed by the Board for the holders
of Debentures up to the value not exceeding Rs. _________ proposed to be issued
by the Company (the Debentures) as security for the Debentures together with
interest thereon, and further/compound interest if any thereon, commitment
charges, liquidated damages, remuneration of the Trustees/Agents and Trustees,
costs, charges, expenses and other monies, payable in the above connection in
terms of the Agreement to be entered into between the Company and the
Trustees/Agents and Trustees in respect of the Debentures, such security to
rank pari passu with or second or subservient to the mortgages and/or charges
already created or to be created in future by the Company or in such manner as
may be agreed to between the concerned parties and as may be thought expedient
by the Board and further that the Board be and is hereby authorised to finalise
and execute the documents and any other deeds papers and writings for creating
the aforesaid mortgages and/or charges and to do all such acts deeds and things
as may be necessary or expedient for implementing this Resolution."
1. Conditions attached to
the resolution.-A company passing the aforesaid resolution may attach such conditions
to the permission as may be specified in the resolution, including conditions
regarding the use, disposal or investment of the sale proceeds which may result
thereof.
2. Filing of the Ordinary
Resolution.-The ordinary resolution should be filed within thirty days of its
passing with the Registrar of Companies in Form No. 23 along with requisite
filing fee as prescribed under Schedule X of the Act. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
Mortgaging properties in
favour of Trustees for
"RESOLVED that the
consent of the Company be and is hereby accorded in terms of Section 293(1)(a)
and other applicable provisions, if any, of the Companies Act, 1956 for
mortgaging and/or charging by the Board of Directors of the Company, whether
pari passu with the existing charge or not of all the immovable and movable
properties of the Company wherever situate, present and future, and the whole
of the undertaking of the Company together with power to take over the
management of the business and concerns of the company in certain events, to or
in favour of Trustees for the Debenture holders in respect of the debentures
privately placed/ to be placed with Unit Trust of India (UTI), Life Insurance
Corporation of India (LIC), General Insurance Corporation of India (GIC), New
India Assurance Company Limited (NIA) and Oriental Insurance Company Limited
(OTC) to secure-
(a) an amount not exceeding
Rs. 200 lacs (Rupees Two hundred lacs only) subscribed/to be subscribed by UTI,
LIC, GIC, NIA, OTC, to debentures by private placement;
(b) the interest at the
respective agreed rates, compound/additional interest, commitment charge,
premia on prepayment or on redemption, costs, charges, expenses and all other
moneys payable by the Company to UTI, LIC, GIC, NIA, OTC, Debenture Trustees in
terms of their respective letters of sanction/memorandum of terms and
conditions/debenture documents entered into/to be entered into by them with the
Company in respect of the said debentures.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to finalise with
UTI, LIC, GIC, NIA, OTC, Debenture Trustees the documents for creating the
aforesaid mortgage and/or charge and to do all such acts and things as may be
necessary for giving effect to this resolution."
OR
"RESOLVED that the
consent of the Company be and is hereby accorded under Section 293(l)(a) of the
Companies Act, 1956 to mortgaging and/or charging by the Board of Directors of
the Company of all the immovable and movable properties, present and future,
and the whole of the undertaking of the Company together with power to take over
the management of business and concern of the Company in certain events to or
in favour of all or any of-
(1) Industrial Development
Bank of India (IDBI),
(2) Industrial Finance
Corporation of India (IFCI),
(3) Indian Overseas Bank
(IOB), and
(4)
The Trustees to the Debentures to be privately placed with Life Insurance
Corporation of India (LIC),
to secure-
(a) (1) The term loan Rs. 120 lakhs (Rupees
one hundred and twenty lakhs only) agreed to be lent and advanced by IDBI to
the Company;
(2) the term loan of Rs. 50
lakhs (Rupees fifty lakhs only) agreed to be lent and advanced by IFCI to the
Company;
(3) the term loan of Rs. 50
lakhs (Rupees fifty lakhs only) agreed to be lent and advanced by IOB to the
Company; and
(4) the Debentures of the
aggregate nominal value of Rs. 50 lakhs (Rupees fifty lakhs only) to be
privately placed with LIC; and
(b) the interest, commitment
charge, costs charges, expenses and other moneys payable by the company in
respect of the said loans.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to finalise with
the said financial institutions the documents for creating the aforesaid
mortgage and/or charge and to do all such acts, deed and things as may be
necessary for giving effect to the aforesaid resolution."
OR
"RESOLVED that pursuant
to Section 293(l)(a) of the Companies Act, 1956 the Board of Directors of the
company be and is hereby authorised to mortgage and/or charge all the present
and future immovable and movable properties and the whole of the undertaking of
the company with power to take over management of the business and concern of
the company in certain events of default for the purpose of securing-
(i) The Industrial Credit
and Investment Corporation of India Limited (ICICI) in respect of its loan in
foreign currencies equivalent to Japanese Yen _________ million or its
equivalent in other foreign currencies equivalent to US _________ dollars (or
about Rs. _________ lacs) lent and advanced and/or agreed to be lent and advanced
by ICICI to the company,
(ii) The Industrial Credit
and Investment Corporation of India Limited (ICICI) in respect of another loan
in foreign currencies not exceeding _________ or its equivalent in other
foreign currencies (or above Rs. _________ lacs), lent and advanced and/or
agreed to be lent and advanced by ICICI to the Company; and
(iii) Industrial Finance
Corporation of India (IFCI) in respect of its foreign currency loan/s of
Swedish Kroner million equivalent to
about Rs. _________ crores lent and advanced by IFCI to the Company. Together
with interest at the respective agreed rates, compound/further/additional
interest including any increase as a result of
devaluation/revaluation/fluctuation in the rates of exchange of the foreign currencies
involved, commitment charge, premium on prepayment, costs, charges, expenses
and other moneys payable by the company in terms of Letters of Sanction and/or
the Loan Agreements/Heads of Agreements entered into/to be enter-ed into
by the Company in respect of the aforesaid term loans.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to finalise with
ICICI and IFCI the documents for creating aforesaid mortgage and/or charge and
to do and execute all such acts, deeds and things as may be necessary, usual or
proper for giving effect to this Resolution."
1. Draft resolution
generally given by lending institutions.-It is to be noted that
resolutions to be passed by the Company are generally provided by the financial
institutions.
2. Prior consent of company
in general meeting must.-The power under the sect1on can be exercised only
with the prior consent of the company in general meeting.
3. Sell, lease or otherwise
dispose of.-The words "otherwise dispose of' cover all other modes of
disposing of property such as transfer by mortgage etc. Execution of equitable
mortgage and pledges is not disposition of the whole or substantially the whole
of the undertaking of the Company. (Sheth Mahanlal Ganpatram v. Sayaji Jubilee
Cotton & Jute Mills Co., (1964) 34 Comp Cases 777 (Guj)). But usufructuary
mortgage can operate as a transfer and therefore requires consent of the
general meeting.
4. Filing of form.-Ensure to file Form No. 23
within 30 days of the passing of resolution with the Registrar of Companies
concerned along with a certified copy of the ordinary resolution and its
relevant explanatory statement. Non-filing will attract penalty by way of
fine of up to Rs. 100/-.
Mortgaging properties in
favour of Lender
"RESOLVED that the
consent of the Company be and is hereby accorded under Section 293(l)(a) of the
Companies Act, 1956, to the Board of Directors of the Company for mortgaging/charging
"in favour of Industrial Finance Corporation of India" all the
immovable and movable properties of the Company both present and future and the
whole of the undertaking of the Company or such of them as may be agreed to
between the Board and the Industrial Finance Corporation of India (hereinafter
referred to as "IFCI") to secure the loan of Rs. 50/- lakhs
(Rupees Fifty lakhs only) from the 1FC together with interest commitment
charges costs and other charges and expenses payable by the Company to lFC1 in
terms of the loan Agreement to be entered into between the Company and the
IFCI."
1. Powers exercisable only
with consent of General Meeting.-The powers under this section can be exercised by
the Board only with the consent of the general body. The Board cannot exceed
the powers in the hope that the general body will ratify their actions.
Duomatic Ltd. Re, (1969) 1 All ER 161 : (1969) 2 WLR 114: (1969) 2 Comp LJ 81
(Ch D).
2. Sell, lease or otherwise
dispose of.-The words 'otherwise dispose of' cover all other modes of disposing of
property such as transfer by mortgage, etc.
3. Execution of equitable
mortgages and pledges not disposition of property. -Execution of equitable
mortgages and pledges is not disposition of the whole or substantially the
whole of the undertaking of the company. Sheth Machanlal Ganpatram v. Sayaji
Jubilee Cotton & Jute Mills Co., (1964) 34 Com Cases 777.
4. Usufructuary mortgage
operates as transfer.-But usufructuary mortgage can operate as a transfer
and therefore requires consent of the general meeting.
5. Transfer of equity shares
in wholly owned subsidiary by holding company not attracted.-Transfer of all equity
shares in a wholly owned subsidiary company by the holding company may not
attract the provision of this section.
6. Meaning of word
"Undertaking".-By an 'undertaking' is meant a business unit or
enterprise which a company may be engaged as gainful occupation. For example,
each one of several factories or manufacturing plants of a company will be
considered an undertaking from the business point of view. It does not consist
of mere assets or property. It is a 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. Rustom Cavasjee Cooper v. Union of India, (1970) 1 Comp LJ 244. A
unit of the company which has been closed for five years can not 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: 1984 Tax LR
2018: (1985) 58 Com Cases 772 (Cal).
7. Resolution authorising
one of directors to dispose of company's assets for satisfaction of debts ultra
vires.-A
resolution by the Board of directors authorising one of themselves to dispose
of the company's assets for the satisfaction of its debts was held to be beyond
the director's powers and therefore ultra vires. U. Ba Din v. Janki Devi, AIR
1938 Rang 447.
8. Usufructuary mortgage
requires consent of General Meeting.-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 provision of section
293(1)(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 a conflict
between the provisions of section 293(l)(a) and section 292(1)(b) necessitating
an amendment of section 293, may not arise. (Letter No. 8/19/(293)/64-
PR, dated 21-7-1964).
Sale of land of the company
"RESOLVED that,
pursuant to section 293(l)(a) of the Companies Act, 1956, the Board of
Directors of the Company be and is hereby authorised to deal, negotiate and
dispose of the land situated at _________ under Dag No. _________ Mouza
_________ District, _________ and for
that purpose to sign, seal and deliver such instruments, assignments,
contracts, deeds, conveyances or any other instrument that may be considered
necessary, usual or proper for the sale, lease or otherwise disposing of the
land which according to the Directors may be considered beneficial and
convenient for the company.
1. Conditions attached to
the resolution.-A company passing the aforesaid resolution may attach such conditions
to the permission as may be specified in the resolution, including conditions
regarding the use, disposal or investment of the sale proceeds which may result
thereof.
2. Filing of the Ordinary
Resolution.-The ordinary resolution should be filed within thirty days of its
passing with the Registrar of Companies in Form No. 23 along with requisite
film,,, fee as prescribed under Schedule X of the Act. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
Sale of undertaking of the
company
"RESOLVED that the Board
of Directors of the Company be and is hereby authorised to sell to M/s. ABC
& Company Ltd., the unit of the Company situate at _________ as a going
concern for a price of Rs. 90 lakhs."
1. Disposal of company's
assets.-The
section imposes a restriction upon the competence of the Board to-dispose
of the company's assets. It does not have the effect of depriving the general
body of shareholders who are the owners of the company to dispose of the
company's assets according to their wishes and if the directors do not
collaborate with them they can either replace directors or get a court order in
the matter and ultimately it is their wishes which will prevail. Kriparam v.
Shreyanprasad, AIR 1951 Punj 79.
2. "Undertaking"-Meaning.-From a perusal of the
various legal decisions, it appears that an undertaking means a business unit
or an enterprise in which a company may be engaged, as a gainful occupation.
For example, each one of several factories or manufacturing plants of a company
may be considered to be an undertaking from the business point of view. It does
not consist of mere assets or property; it is a productive organisation so to
say. Thus, even a single plant producing independently something and
contributing to the productivity of the company can be termed as an
undertaking.
3, Postal Ballot.-Listed companies are
required to pass the ordinary resolution for sale of whole or substantially the
whole of undertaking of a company as Specified Under clause (a) of sub-section
(1) of section 293 through postal ballot as per Rule 4(f) of the Companies
(Passing of the Resolutions by Postal Ballot) Rules, 2001.
Lease of undertaking of
company
"RESOLVED that the
Board of Directors of the Company, be and is hereby authorised to lease the
land, building, plant and machinery of the Company to M/s. X and Co. Ltd, in
terms of the draft Indenture of lease placed before the meeting duly initialled
by the Chairman for identification thereof."
1. Leasing of whole or
substantially the whole of company's undertaking.-Where the whole or
substantially the whole of the company undertaking is decided to be leased out,
the Board of Directors will have to get the sanction of the General Body for
such lease.
2. Filing of the Ordinary
Resolution.-The ordinary resolution should be filed within thirty days of its
passing with the Registrar of Companies in Form No. 23 along with requisite
filing fee as prescribed under Schedule X of the Act.
Mortgaging company's
property to debenture trustees
(Another Format)
"RESOLVED that the
consent of the company be and is hereby accorded in terms of section 293(l)(a)
and other applicable provisions, if any, of the Companies Act, 1956, to the
Board of Directors of the company to mortgage and/or charge all the immovable
and moveable properties of the company where so ever situate, present and
future, and whole of the undertaking of the company with power to over the
management of the business and concern of the company in certain events to or
in favour of the trustees for the holders of the rights debentures to secure an
amount not exceeding Rs. 75 lacs of rights debentures of Rs. 100/- each,
carrying interest at the rate of 11% per annum, or such higher rate as may be
stipulated by the SEBI before the execution of the documents and agreed to by
the Board of Directors, proposed to be offered by the company to the Indian
Resident Shareholders of the existing equity shares on the Register of Members
on such date and in such proportion and on such terms and conditions as may be
determined by the Board of Directors of the company, together with interest,
costs, charges, expenses and all other moneys payable by the company in respect
of such rights debentures.
RESOLVED FURTHER that the
Board of Directors of the company be and is hereby authorised to do and execute
all such acts, deeds and things as may be necessary for giving effect to the
above resolution.
RESOLVED FURTHER that the
aforesaid proposal included as an item in the agenda for the ensuing Annual
General Meeting of the company."
1. Power exercisable by
Board only with consent of general body.-The powers under the section
can be exercised by the Board only with the consent of the general body. The
Board cannot exceed the powers in the hope that the general body will ratify
their actions.
2. Filing of the Ordinary
Resolution.-The ordinary resolution should be filed within thirty days of its
passing with the Registrar of Companies in Form No. 23 along with requisite
filing fee as prescribed under Schedule X of the Act. Non-filing will
attract penalty by way of fine of up to Rs. 100/-.
Sale or lease of the
undertaking
(Another Format)
"RESOLVED that the
Company's undertaking/business carried by it at its factory at Jalalabad under
the name and style of 'Jalalabad Steel' be sold to M/s. ABC Limited
(hereinafter called the 'purchaser') at a value of Rs. 50 lakhs as per terms
and conditions contained in the draft agreement of sale, placed before the
meeting, duly initialled by the Chairman of the meeting for purpose of
identification.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to execute the
sale deed, present it before the Registrar of Assurances, admit execution and
to do all such acts and things as may be required in this connection for passing
the unencumbered title of the property to the purchaser."
OR
"RESOLVED that the
Company's packing division at Indore be leased out to M/s. XYZ Limited at a
rental of Rs. Five lakhs annually payable in four quarterly instalments of Rs.
1.25 lakhs each to be paid by the 7th day of January, April, July and October
for a period of five years as per terms and conditions of the lease deed, a
copy of which has been placed before the meeting and has been duly initialled
by the Chairman for the purpose of identification.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to execute the
lease deed in favour of M/s. XYZ and to do all such acts and things as may be
necessary in this regard."
OR
"RESOLVED that consent
of the Company be and is hereby given to the Company creating a charge in
accordance with the form and the terms and conditions as approved by the Union
Bank of India, in favour of the said bank over all the moveable and immoveable
properties of the Company, plant and machinery, raw material and finished goods
in consideration of the said bank having sanctioned a term loan of rupees five
crores and a cash credit limit of Rs. 50 lakhs and a limit of rupees five lakhs
for working capital at 18% interest payable at quarterly rests.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to execute the
deed of hypothecation and other documents on behalf of the Company in favour of
the bank under the common seal of the Company and to do all acts and things as
may be necessary to be done in this connection."
OR
"RESOLVED that pursuant
to section 293(l)(a) of the Companies Act, .1956, the Board of Directors of the
Company be and is hereby authorised to mortgage/hypothecate or/and to create charge
by equitable mortgage through deposit of title deeds or in any other manner,
the moveable and immoveable properties of the company and its plant and
machinery in order to secure unto trustees of the holders of the debentures of
Rs. 100/- each of the total value of Rs. 10,00,000/- to be issued to the
existing equity shareholders of the company as per draft of the scheme of issue
tabled before the Board and initialled by the Chairman for purposes of
identification.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to execute on
behalf of the company all the documents and to do all acts and things as may be
necessary for giving effect to this resolution."
OR
"RESOLVED that the
consent of the Company be and is hereby given, pursuant to section 293(l)(a) of
the Companies Act, 1956, to the hypothecation of the moveable and immoveable
assets of the company, in favour of all or any of the following institutions:
(a) LIC,
(b) GIC and its
subsidiaries,
(c) IDBI,
(d) Trustees of the
debenture- Holders for debentures of Rs. 100/- each issued on _________
RESOLVED FURHTER that the
Board of Directors of the Company be and is hereby authorised to negotiate with
LIC/ GIC/IDBI and its subsidiaries and ABC Limited for hypothecation/mortgaging
and to do all such acts and things as may be necessary for giving effect to the
above resolution."
OR
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised to invest the
amount of compensation received or to be received by the Company in respect of
the compulsory acquisition of its plastic undertaking situated at Allahabad in
such manner as may be considered expedient and beneficial to the company."
OR
"RESOLVED that consent
of the shareholders be and is hereby given to the Board of Directors of the
Company to raise or borrow, at its discretion, 'from time to time, either from
the company's Directors or financial institutions or bankers or elsewhere on
such terms and conditions as to repayment, interest or otherwise as the Board
may deem fit and proper in the best interest of the company up to a limit of
Rs. one crore outstanding at any one time exclusive of the temporary loan which
may be obtained by the company from time to time from its bankers in the
ordinary course of business."
OR
"RESOLVED that pursuant
to the provisions of section 293(l)(a) of the Companies Act, 1956, and other
applicable provisions, if any, of the Companies Act, 1956, consent of the
shareholders be and is hereby given to the Board of Directors of the Company
borrowing from time to time such sum or sum(s) of money as they may deem
requisite for the purposes of the business of the Company notwithstanding that
the money(s) to be borrowed together with the money(s) already borrowed by the
Company (apart from temporary loans obtained from the company's bankers in the
ordinary course of business) shall exceed 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 provided that the total amount together with the
money(s) already borrowed by the Board of Directors shall not exceed the sum of
rupees five crores at any one time."
1. "Undertaking"-Meaning.-Undertaking means business
unit or enterprise. Rustomjee Cavajee Cooper v. Union of India, AIR 1970 SC
564.
2. General body approval
required to leasing or sale of undertaking.-Only lease or sale of
substantial part of the undertaking requires approval of the members.
3. Hire purchase and leasing
transactions not covered by sub-section 1(d).-If the business of the
company is of sale or purchase or leasing of property, it will be an ordinary
business and no resolution of the shareholders will be necessary.
4. Board free to act within
ambit of general body resolution.-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. Hindusthan
Trading Corporation (P.) Ltd., (1967) 37 Comp Cases 266.
5. Lending institution
generally insist upon resolution of shareholders.-Some times the lending
institution like bank insist upon the resolution of the shareholders even
though it is not necessary under the section.
6. Sale of shares held in
another company not a sale of undertaking.-Selling of the shares of the
company held by it in another company does not amount to sale of an undertaking
with the meaning of section 293(l)(a). Yellamma Cotton, Wollen and Silk Mills
Co. Ltd., (1970) 40 Comp Cases 466 (Mysore).
7. Follow guidelines of
SEBI.-Ensure
to comply with the guidelines issued by the Securities and Exchange Board of
India.
8. Lending institutions
require passing of resolution in their format-Lending institutions have
drafted standard resolutions and they require the company to pass resolution in
their forms.
9. Investment of the amount
of compensation.-While seeking approval for the investment of the amount of compensation
received as a consequence of the acquisition of the company's undertaking,
explain to the shareholders in the Explanatory Statement that the undertaking
cannot be carried on or it can be carried on only with difficulty or only after
a considerable time.
10. Court not to take a
different view when investment of funds of company approved by shareholders.-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 provisions 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, ILR (1960) Mad 257.
11. Borrowing in excess of
paid-up capital and free reserves require shareholders' approval.-Approval of the shareholders
is required for borrowing money where the total borrowing exceeds the aggregate
of the paid-up capital and free reserves.
12. Temporary loan excluded
from limit of borrowing.-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.
13. Raising capital by issue
of shares not borrowing.-Raising of capital by issue of shares is not
borrowing of money. Hindusthan Commercial Bank Ltd. v. Hindusthan General
Electric Corporation Ltd., AIR 1960 Cal 637.
14. Insertion of words
"and shall be deemed to always been so authorised" cover up all
existing irregular borrowings.-If some loans have been raised or money has been
borrowed inadvertently, without passing a resolution at the General Meeting,
insert the words "and shall be deemed to always been so authorised"
while passing the resolution pursuant to section 293(l)(d). This will cover up
and ratify all existing irregular borrowings also.
15. Directors empowered to
borrow within limits fixed by shareholders.- After getting the borrowing
limits fixed by the shareholders, borrowing can be done by the Directors within
those limits and no resolutions of the shareholders will be required.
16. Unit closed for rive
years not deemed to be undertaking.-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.
17. Borrowing.-The term borrowing under
section 2931)(d) does not include debts on account of purchase of machinery and
deferred payments .
18. Directors personally
liable for ultra vires borrowings.-If the borrowing by the Directors is ultra
vires their powers, the Directors may be personally liable to damages to the
lender. Firbank's Executors v. Hymphreys, (1886) 18 QBD 54.
19. Company liable to pay
when borrowing unauthorised.-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
offers. Lakshmi Ratan Cotton Mills Co. Ltd. v. J.K. Jute Mills Co. Ltd., (1957)
27 Comp Cases 660.