Extension of time for repayment of debt
S. 293(l)(b)-Extension of time for repayment of debt
due by a Director, Ordinary Resolution
"RESOLVED that pursuant to the provisions of section 293(l)(b) of the Companies Act, 1956, the Board of Directors of the Company be and is hereby authorised to allow an extension of further period of time, from _________ 2002 up to _________ 2003 for the repayment of the balance amount otherwise due to be fully re-paid by _________ 2002 of Rs. _________ (Rupees _________ _________ only) out of the amount advanced to Mr. __________________ a Director of the Company.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to allow Mr.
__________________ to repay the amount in suitable instalments and at such
intervals as may be intimated to him by the Board."
1. Variation of contract/arrangement in which Director interested.-This is a variation of a
contract or arrangement in which the Director is interested.
2. Terms of remission not to disadvantage of company.-The ten-ns of
remission should not work to the disadvantage of the company.
Remission of moneys due from a Director
"RESOLVED that consent of the Company be and is hereby given for the remission of Rs. __________________ out of the total debt of Rs. _________ due to the Company from Shri XY, Director".
1. Exemption to Banking Companies.-A banking company need not
go to the shareholders if it is just renewal or continuance of an advance made
to its director in the ordinary course of business.
2. Committee of Management not empowered.-The provisions of section
293 of the Act do not apply to the Committee of Management appointed by the
Company Law Board in proceeding under section 397 of the Act.
Extension of time for payment of debt
(Another Format)
S. 293(l)(b)-Extension of time for payment of debt due
by a director-Ordinary Resolution
"RESOLVED that pursuant to the provisions of section 293(l)(b) the Board of Directors of the Company be and are hereby authorised to allow Shri. __________________ Director of the Company extension of time for repayment of debt for a period not exceeding six months for payment of balance amount."
PRACTICE NOTES
1. Approval of General Meeting.-Ensure to obtain approval of
the shareholders in General Meeting for allowing any director extension of time
for repayment of debt or remittance of debt due by a director.
2. Resolution to specify time.-The resolution allowing any director
extension of time must specify the time limit.
3. Banking company.-It is to be noted that no approval of shareholders
in general meeting is required for renewal or continuation of advance made to a
director by a banking company in the ordinary course of business.
Extension of time for re-payment of debt
(Another Format)
S.s 293(1)(b)
Extension of
time for re-payment of debt due by director
"RESOLVED that pursuant
to the provisions of Section 293(l)(b) of the Companies Act, 1956, the Board of
Directors of the Company be and are hereby authorised to extend time for
repayment of debts due by Mr. SPM, Director of the Company for a further period
up to 30th July, 2002."
1. Consent of the Company necessary.-It must be noted that the
Board of Directors should not exercise the power without the consent of the
Company in general meeting. The Resolution must specify the period up to which
time is allowed.
2. Consent, when not required.-In the case of renewal or continuance of an
advance made by a banking Company to its director in the ordinary course of
business, no resolution of the General Meeting is required.
Investment of the amount of compensations
"RESOLVED that the Directors of the Company be and are hereby authorised to invest forty per cent of the amount of Rs. _________ received from the Madhya Pradesh Government as compensation by the Company in consideration of nationalisation of the Company's undertaking for the generation of the electricity, in the shares of M/s. ABC & Company Ltd., Bombay, for the sake of better yield for the time being and until further direction of the Company in the General Meeting."
1. Approval of share-holders required for investment of amount of
compensation.-Approval of the company in a General Meeting is required for investment
of any amount of compensation received by the company as a result of compulsory
acquisition of any undertaking or of any premises or properties used for any
such undertaking.
2. Private company exempted.-The section is not applicable to a private
company not being a subsidiary of a public company.
Offer of debentures to existing shareholders
"RESOLVED that after execution of the trust deed, the debentures be offered to the existing shareholders of the Company as on _________ at _________ par, to be paid by in such instalments as the Board of Directors may
determine.
RESOLVED FURTHER that in the
event of over subscription of the aforesaid debentures, the applicant
shareholders shall be entitled to allotment as nearly as in the same proportion
to the shares now held by them. Any of the debentures not taken up by the
shareholders may be disposed of in such manner as the Board of directors think
fit."
1. Meaning of temporary loans.-Temporary loans in section 293(l)(d) means
loans repayable on demand or written six months from the date of the loan such
as short time, cash credit arrangements, the discounting of bills and the issue
of other short term loans of a seasonal character but does not include loans
raised for the purpose of financing expenditure of a capital nature.
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/-.
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 amount borrowed by the company from directors, members, public
financial institutions, banks and others during the financial year ending on a
particular date are within the borrowing limits of the company and that
necessary resolutions as per section 293(l)(d) of the Act have been passed in
duly convened annual/extraordinary general meeting as per paragraph 24 of the
Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Fresh Issue of Debentures to redeem earlier Issues
S. 293(l)(d)-Authorising Board of Directors to make a
fresh issue of debentures to redeem earlier issue-Ordinary Resolution
"RESOLVED that
authority be and is hereby accorded to the Board of Directors of the Company to
borrow a sum of Rs. 60 Lakhs (Rupees Sixty Lakhs only) for the purpose of
redeeming the 10.5% secured redeemable non-convertible debentures of the
Company, which payments fall due on _________ by the issue of 6,000 Eighteen
and a half percent secured redeemable non-convertible debentures of Rs.
1000/- each, secured by a floating charge on the fixed assets and stock-in
trade of the Company.
RESOLVED FURTHER that the
aforesaid debentures bear interest at 191/2 per cent per annum, the interest
being payable half yearly on 30th September and 31st March of each year and the
aforesaid debentures be paid on or before 31st March, 2002.
RESOLVED FURTHER that the
debentures shall be issued pursuant to the deed of trust to be executed between
M/s. ABC Ltd. as trustees and the Company as per the draft tabled before the
meeting duly initialled by the Chairman for purposes of identification.
RESOLVED FURTHER that the
Board of Directors be and hereby are authorised to issue any of the said new
debentures in exchange for any of the existing debentures liable to be
redeemed.
RESOLVED FURTHER that the
Board of Directors be and hereby are authorised to borrow a sum of Rs.
_________ from the Bank _________ Branch, for the purposes of redeeming the
earlier issue of debentures pending the fresh issue of debentures."
Same as given under Resolution 1037.
"RESOLVED that the
Company do hereby accord its consent to the borrowing of a sum of Rs. 100 lakhs
(Rupees one hundred lakhs) only as term loan from _________ Bank _________
Branch, Nagpur 440 012, on the security inter alia, of mortgage of the entire
undertaking of the company by the Board of Directors, pursuant to section
293(l)(a) or any other applicable provisions of any type of mortgage/charge of
the undertaking of the company for the aforesaid purpose."
1. Words "otherwise disposed of"-Meaning.-It has been clarified that
the words ,otherwise disposed of in section 293(l)(a) do not bring within their
ambit all mortgages or charges on the property of the company but only such
mortgage as is a 'usufructuary' mortgage. Mortgage is a conditional conveyance
of or lien upon land or other property as security for the performance of some
conditions, such as the re-payment of loan. Mortgage connotes only claim
on the property or charge on the property which would be enforceable on the
failure of the conditions upon which the property came to such mortgage or
charge, indicating that the physical possession of the property, such as, land,
building etc., remains with the mortgagor subject to fulfillment of certain
conditions. Usufructuary mortgage connotes the holding of or occupation of the
property physically, under certain conditions, such as, use and profit, and
subject to the right of redemption of the mortgagor. (Letter No. 8/19(293)/64-PR,
dated 21-7-1964).
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
upto Rs. 100/-
Additional borrowing powers of the Directors
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised, pursuant to the
provisions of section 293(l)(d) of the Companies Act, 1956, to borrow money,
from time to time, at its discretion either from the Company's bank or any
other bank, financial institution or any other lending institutions or persons
on such terms and conditions as may be considered suitable by the Board of
Directors up to a limit not exceeding in the aggregate Rs. 600 lakhs
notwithstanding that the money to be borrowed together with the moneys already
borrowed by the Company (apart from temporary loans obtained from the Company's
bankers in the ordinary course of business), will 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."
1. Board's power to borrow money for capital expenditure.-It may be noted that the
Board of Directors has full power and authority to borrow any amount to be used
in capital expenditure (by way of term loan) up to an aggregate amount of paid-up
capital and free reserves of the company for the time being.
2. Resolution to specify amount up to which money to be borrowed by
directors.
-Explanation I to section 293(l) of the Companies Act, 1956, states that every
resolution passed by the company in General Meeting in relation to the exercise
of the power referred to in clause (d) shall specify the total amount up to
which moneys may be borrowed by the Board of Directors.
3. Private company exempted.-The restrictions on the power of the Board of
Directors imposed by this section do not apply to a private company which is
not a subsidiary of a public company.
4. 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/-.
Supersession of authority for borrowing
"RESOLVED that in
supersession of the resolution passed by the Company in the General Meeting
held on _________ 2002 _________, in relation to the exercise of borrowing
power, the Board of Directors of the Company be and is hereby authorised to
borrow money from time to time up to a limit of not exceeding in the aggregate
Rs. 900 lakhs not withstanding that the money to be borrowed, together with
money already borrowed by the company (apart from temporary loans obtained
from the Company's bankers in the ordinary course of business), will 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."
1. Authorising Board to borrow in supersession of earlier resolution.-When the amount of ceiling
fixed on borrowing power at earlier general meeting is found to be inadequate
to the requirements of the company, the resolution passed earlier by the
members can be suitably amended to meet the needs of the company.
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.
"RESOLVED that
authority be and is hereby accorded to the Board of Directors of the Company to
borrow additional Rs. 90 lakhs (Rupees ninety lakhs only) by issue of 9,000 ten
and a half per cent secured debentures of Rs. 1,000/- each secured by
floating charge on any fixed assets of the Company, as described hereunder,
such debentures or any part thereof (in the latter case by drawings) on the
_________2002 _________ or any subsequent half-yearly date of payment of
interest on giving not less than six calendar months' notice in writing of such
intention to the registered holders of the said debentures or their
legal/personal representatives, the debentures being repayable at par and the
interest at the prescribed rate being payable half-yearly as at 30th June
and 31st December, every year, and that the debentures to be so issued will be
through the issue of a prospectus which will be released for public
subscription as on _________ 2002 _________ a copy whereof has been placed
before the meeting for inspection of any member present in this meeting, duly
authenticated by the Chairman hereof and that such debentures be offered for
public subscription at par payable at Rs. _________ per debenture on
application Rs. _________ on allotment and the balance in suitable calls."
1. SEBI Guidelines.-SEBI (Disclosure & Investor Protection)
Guidelines 2000 must be referred to and followed by listed companies.
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. 1100/-.
Limitation on borrowings
"RESOLVED that pursuant to the provisions of section 293(l)(d) of the Companies Act, 1956, the Board of Directors of the Company, be and is hereby authorised to borrow from time to time such sums of money even though the money so borrowed together with money already borrowed exceeds in the aggregate of the paid-up capital and free reserves of the Company provided, however, that the total borrowing apart from the temporary loans taken from the company's bankers shall not exceed Rs _________
1. Borrowing powers of Board.-Section 293 puts several restrictions on the
Board of Directors of a public company or of a private company which is a
subsidiary of a public company. Sub-section (1)(d) of this section
relates to the borrowing power of the Board of Directors of a company (apart
from temporary loans obtained from the company's bankers in the ordinary course
of business).
2. Restrictions on borrowing powers of Board,-What the provision of the
section aims at is to put a restriction on the borrowing power which could be
in practice maintainable by putting a ceiling on the total borrowing for the
purpose. Explanations I and II, added to this section by the Companies
(Amendment) Act, 1960, read as follows:
"Explanation I: Every
resolution passed by the company in General Meeting in relation to the exercise
of the power referred to in clause (d) or in clause (e) shall specify the total
amount up to which moneys may be borrowed by the Board of Directors under
clause (d) or, as the case may be, the total amount which may be contributed to
charitable and other funds in any financial year under clause (e).
Explanation II: The
expression 'temporary loans' in clause (d) means loans repayable on demand or
within six months from the date of the loan such as short term, cash credit
arrangements, the discounting of bills and the issue of other short term loans
of a seasonal character, but does not include loans raised for the purpose of
financing expenditure of capital nature."
3. Board not bound to exercise power given by resolution passed at
General Meeting.-Although the Board should not exercise the powers specified in
different clauses of section 293(l) without the consent of the company in
General Meeting, the Board is not at the same time bound to exercise the powers,
even though the company passed resolutions in respect of the exercise of such
powers. Pothen A.P. v. Hindustan Trading Corporation (P.) Ltd., (1967) 37 Comp
Cases 266: (1966) 2 Comp U 252.
4. Amendment on ceiling fixed by earlier resolution.-Where the amount of ceiling
fixed at one General Meeting with the consent of the members is found
inadequate to the requirements of the company after a certain period, the
resolution passed earlier by the members should be amended to suit the needs of
the company.
5. Filing of Resolution with Registrar.-This resolution should be
filed with the Registrar of Companies within thirty days of passing thereof in
Form No. 23 (Section 192(4)(ee)). Non-filing will attract penalty by way
of fine of upto Rs. 100/-.
Increase in borrowing powers of
Board
S.
293(l)(d)-Increase in borrowing powers of the Board-General Meeting-Ordinary
Resolution
"RESOLVED that in
modification of the resolution passed by the Company pursuant to the provisions
of Section 293(l)(d) of the Companies Act, 1956, the consent of the Company in
terms of the aforesaid section of the Act be and is hereby accorded to the
Board of Directors of the Company borrowing from time to time for the purpose
of the Company's business any sum or sums of money as it may deem proper
notwithstanding that the moneys to be so borrowed together with moneys already
borrowed by the Company, if any, (apart from temporary loans obtained from the
Company's bankers in the ordinary course of business) may exceed the aggregate
for the time being of the paid up capital of the Company and its free reserves,
if any, that is to say, reserves not set apart for any specific purpose
provided that the total amount of the moneys to be so borrowed by the Board
together with moneys already borrowed (apart from temporary loans obtained from
the Company's bankers in the ordinary course of business) shall not exceed Rs.
_________ (Rupees __________________) outstanding at any one time and that for
the implementation of this Resolution the Board may act through any member
thereof or any other person duly authorised by the Board in that behalf."
Same as given under Resolution 1040.
"RESOLVED that in
supersession of the resolution limiting the borrowing power of the Board of
Directors of the Company up to Rs. 1 crore (Rupees one crore only) passed by
the company at the General Meeting held on the _________ 2002 _________ the Board
of Directors of the Company be and is hereby authorised under section 293(l)(d)
of the Companies Act, 1956, to borrow money from time to time up to a limit not
exceeding in the aggregate Rs. 4.75 crores (Rupees four crores and seventy
five lakhs only) notwithstanding that money to be borrowed, together with the
money already borrowed by the Company (apart from temporary loans obtained from
the Company's bankers in the ordinary course of business), will 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 purposes."
1. Revision of borrowing limit.-In case the amount of
ceiling fixed on borrowing power at one general meeting with the consent of the
members is found inadequate to the requirements of the company, the resolution
passed earlier by the members should be amended to suit the needs of the
company.
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/-.
Borrowing in excess of paid-up capital and free reserves
"RESOLVED that the
consent of the Company under the provisions of Section 293(l)(d) and other
applicable provisions, if any, of the Companies Act, 1956, be and is hereby
accorded to the Board of Directors of the Company borrowing, from time to time,
as it may consider fit, any sums of money, on such terms and conditions as the
Board may deem fit notwithstanding that the monies to be borrowed together with
the monies already borrowed by the Company (apart from temporary loan obtained
from the Company's bankers in the ordinary course of business) will exceed the
aggregate of the paid-up share capital of the Company and its free
reserves, that is to say, reserves not set apart for any specific purpose so
that the total amounts of monies so borrowed at any time shall not exceed the
sum of _________ (equivalent to approximately Rupees) for the implementation of
the contract for Civil Works for Refinery at Baghdad."
1. Power exercisable with prior consent in 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).
2. Temporary loans from company's bankers excluded.-Temporary loans obtained
from the company's bankers in the ordinary course of business are to be
excluded, while reckoning the limit up to which a company may borrow. (Cilum
Mining Co., LR 7 EQ 88).
3. Term borrowing does not include debts on purchase of machinery on
deferred payments.-The term borrowing under section 293(l)(d) does not include debts on
account of purchase of machinery on deferred payments. (Letter No. 8/16/(1) 61-PR,
dated 9-5-1961).
4. Hire purchase and leasing transaction do not amount to borrowing.-Hire purchase and leasing
transactions are not covered by this clause, as they do not amount to
"borrowing".
5. Expression "free reserves".-The expression "free
reserves" occurs In is S. 293(l)(d) where free reserves is defined as
"reserves not set apart for any specific purpose." The Act contains
definition of "free reserve" in Explanation (b) to section 372A
meaning those reserves which as per latest audited balance sheet of the
company, are free for distribution as dividend and shall include balance to the
credit of securities premium account but shall not include share application
money.
Borrowing in excess of paid-up capital and free reserves
(Another Format)
A. "RESOLVED
that pursuant to Section 292(l)(d) of the Companies Act, 1956, the Board of
Directors of the Company be and they are hereby authorised and shall be deemed
to have always been so authorised to borrow from time to time moneys (apart
from temporary loans obtained from the Company's bankers in the ordinary course
of business) for the purpose of the Company in excess of the aggregate of the
paid-up capital of the Company and its free reserves (that is to say,
reserves not set apart for any specific purpose), provided that the total
amounts of such borrowings together with the amount already borrowed and
outstanding shall not exceed Rs. 100 crores (Rupees one hundred crores
only)."
"RESOLVED that in
supersession of the Resolution adopted at the Extraordinary General Meeting of
the Company held on 20th August, 2002 and pursuant to the provisions contained
in Section 293(l)(d) of the Companies Act, 1956, the Directors be and are
hereby authorised to borrow moneys (apart from temporary loans obtained from
the Company's banker in the ordinary course of business) in excess of the
aggregate of the paid-up capital of the company and its free reserves
(that is to say reserves not set apart for any specific purpose) provided that
the total amount of such borrowings together with the amounts already borrowed
and outstanding shall not exceed Rs. 50 crores (Rupees fifty crores)."
1. Approval of Shareholders, when required.-The Company is required to
obtain approval of the shareholders of the company where the moneys to be borrowed
together with moneys already borrowed by the company exceeds the aggregate of
the paid-up capital of the company and its free reserves.
2. Temporary Loans excluded.-Temporary loans obtained by the company from
its banker in the ordinary course of business are to be excluded in computing
the limits of borrowing by the company. Section 293(l)(d) does not prohibit the
Board from incurring loans without any limit if these loans are temporary loans
in the sense defined in Explanation to Section 293(l) of the Act. (Department's
circular No. 8/ 16(1)/61-PR, dated 95-1961.)
3.
According to Explanation II to Section 293(l), the expression "temporary
loans" means loans repayable on demand or within six months from the date
of the loan, such as, short term, cash credit arrangements, the discounting of
bills and the issue of other short term loans of a seasonal character but does
not include loans raised for the purpose of financing expenditure of a capital
nature.
4. Borrowing, meaning of.-The term "borrowing" does not include
debts on account of purchase of machinery on deferred payment. (Department's
Letter No. 8/ 16(1)/61 -PR, dated 9-5-1961).
5. Free reserves.-"Free reserves" means reserves not set
apart for any specific purpose given in clause (d) of sub-section (1) of
section 293 itself. The meaning of free reserve is also given in Explanation
(b) to section 372A as those reserves which as per latest audited balance sheet
of the company, are free for distribution as dividend and shall include balance
to the credit of the securities premium account but shall not include share
application money.
6. Private Companies exempted.-The Section is not applicable to a private
company.
7. Total amount to be specified-Every resolution passed by
the company in general meeting in relation to the exercise of the power
referred to in clause (d) of sub-section (1) shall specify the total
amount upto which the moneys may be borrowed by the Board of Directors.
8. Issue of further shares, excluded.-The raising of capital by
the issue of further shares does not come within the purview of borrowing
within the meaning of clause (d) of sub-section (1).
9. Debt incurred, when valid.-No debt incurred by the company in excess of
the limit imposed by clause (d) of sub- section (1) shall be valid or
effectual unless lender proves that he advanced the loan in good faith and
without knowledge that the limit imposed had been exceeded.
10. Filing of resolution.-File Form No. 23 along with the resolution within
thirty days of the passing of the resolution with the Registrar of Companies
concerned, along with requisite filing fee as per Schedule X of the Act. Non-filing
will attract penalty by way of fine of up to Rs. 100/-.
Contribution to charitable and
other funds
"RESOLVED that pursuant to the provisions of section
293(l)(e) of the Companies Act, 1956, the Board of Directors of the Company be
and is hereby authorised to contribute to charitable or other funds, not
directly relating to the business of the Company or the welfare of its
employees, such amount or amounts, the aggregate of which in any financial year
will not exceed Rs _________
1. Power of Board to contribute to general charities.-Power of the Board of
Directors to contribute to any charitable and other funds or general charities
are limited to Rs. 50,000 in a financial year or five per cent of net profits
determined in accordance with sections 349 and 350 of the Companies Act, 1956,
whichever is greater. Thus, the Board may contribute to charities any amount up
to Rs. 50,000 even though the company .has a working loss in that year.
Contribution of this nature being a distinct nature of object, the Memorandum
or the Articles of Association of the company should authorise such
expenditure; otherwise the payment will be ultra vires the powers of the
company.
2. Donation by company.-Section 3 of the Companies (Donation to National
Funds) Act, 1951, provides that any company may, notwithstanding anything
contained in the Companies Act, 1956 or any other law for the time being in
force regulating the affairs thereof, and notwithstanding that Memorandum and
Articles of Association of the company do not enable it so to do, by a Special
Resolution passed in accordance with the provisions contained in section 81 of
the Companies Act, 1956, authorise the making of donation by issue of shares to
the Gandhi National Memorial Fund, or the Sardar Vallabhbhal National Memorial
Fund, or to any other fund established for a charitable purpose which by reason
of its national importance has been approved by the Central Government for the
purposes of this section. These provisions indicate that a company may issue
shares to such National Memorial Fund and adjust the value thereof against the
donation.
3. Contribution to funds approved by Government not to be included for
determining limit provided by Section 293(l)(e).-Any contribution made to the
National Defence Fund or any other fund approved by the Central Government under
section 293B should not be included in determining the limit provided in
section 293(l)(e) of the Companies Act, 1956. (Letter No. 8/5](293B)/66-CL.V,
dated 31-8-1966).
4. Filing of resolution with Registrar.-The resolution when passed
should be filed with the Registrar of Companies within 30 days in Form No. 23
along with requisite fee as per Schedule X of the Act. Non-filing will
attract penalty by way of fine of upto Rs. 100/-.
Contribution to Education Institutions Abroad
RESOLVED that pursuant to
the provisions of section 293(l)(e) of the Companies Act, 1956, and other
applicable provisions, if any, and subject to the approval of the Reserve bank
of India, the Board of Directors of the Company be and is hereby authorised to
contribute such funds from the company's foreign exchange earnings for setting
up Chairs in Educational Institutions abroad and for other welfare measures
which are likely to benefit Indian Community outside India, as the Board deems
fit and proper from time to time.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorise take every step that may be
necessary in connection therewith and incidental and ancillary thereto.
1. Setting up of Chairs in Educational Institutions abroad.-Indian Corporate with proven
track record can contribute funds from their foreign exchange earnings for
setting up Chairs in Educational Institutions abroad and for other welfare
measures which are likely to benefit community outside India. Such cases will
be considered by the Reserve Bank of India on case to case basis. [A.P. (Dir.
Series) Circular No. 25 dated 1-3-2002].
2. Application to RBI.-Companies desirous to contribute in such
institutions are required to make the application to the company's bankers who
are authorised dealers in foreign exchange. They will forward the application
with their favourable comments to the RBI.
Contribution to charitable and other funds
(Another Format)
"RESOLVED that pursuant
to the provisions of section 293(l)(e) of the Companies Act, 1956, and other
applicable provisions, if any, the Board of Directors of the Company be and is
hereby authorised to contribute to charitable and other funds not directly
relating to the business of the Company or the welfare of its employees from
time to time in any financial year to the extent of Rs. 5,00,000/- or 5%
of its average net profits as determined in accordance with the provisions of
sections 349 and 350 of the Act during the three financial years immediately
preceding, whichever is greater."
1. Contribution to any fund or institution in excess of prescribed
limit.-In
case the contribution to any fund or institutions in any financial year exceeds
Rs. 50,000/- or 5% of the average net profits as determined in terms of
sections 349 and 350 of the Act during the three financial years immediately
preceding, whichever is greater, the section will be attracted.
2. Resolution to specify amount to be contributed.-The maximum amount to be
contributed in any financial year must be specified in the resolution.
3. Power to make contribution must exist in Memorandum.-The Memorandum of
Association must contain the power to make contribution; otherwise carry out
the necessary amendment in the objects clause as per procedure prescribed in
the Practice Notes under earlier Resolution.
4. Contribution to political party prohibited.-Contribution to political
funds is prohibited by section 293A of the Act.
5. 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.
Contribution to charitable and other funds
(Another Format)
"RESOLVED that pursuant to the provisions of Section 293(l)(e) of the Companies Act, 1956 and other applicable provisions, if any, the Board of Directors of the Company be and are hereby authorised to contribute, from time to time, in any financial year to any charitable and other funds or general charities or other purposes not directly relating to the business of the Company or the welfare of its employees up to a total amount of Rs. 4,00,000/- or five per cent of its average net profits as determined in accordance with provisions of Sections 349 and 350 of the Act during the three financial years immediately preceding whichever is greater."
1. Approval by General Meeting.-The approval of the company
in general meeting is only required in case the contribution in any financial
year exceeds Rs. 50,000/- or 5% of the average net profits during the
three financial years immediately preceding, whichever is greater.
2. Determination of average net profits.-The average net profits are
to be determined in accordance with the provisions of Sections 349 and 350 of
the Act.
3. Maximum amount to be specified.-The resolution must specify
the maximum amount to be contributed by a Company in any financial year.
4. Provision in the Memorandum to be noted.- Before making any
contribution check up whether the power to make contribution exists in the
Memorandum of Association. In case it contains any condition subject to which
contributions are to be made, then any contribution so made must be subject to
such conditions. Restrictions contained in this Section does not apply to a
Private Company.
5. Unrestricted Power of Board.-Please note that the power
of the Board is unrestricted when contribution is made to a fund directly
relating to the business of the Company or the welfare of the employees of the
Company.
6. Contribution to National Defence Fund.-The contribution made by the
Board of Directors of a Company to National Defence Fund under Section 293-B
of the Act is not to be included in determining the limit prescribed in clause
(e) of sub-section (1) of section 293 of the Act. [Deptt. Letter No. 8151
(293-B) 166-CL. V, dated 31st August, 1966.]
7. 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.
Contribution for charitable
purposes
"RESOLVED that the consent of the Company under the- provisions of Section 293(l)(e) and other applicable provisions, if any, of the Companies Act, 1956 be and is hereby accorded to the Company contributing, over and above the amount available under the said provisions during the financial year 2000-2001 to charitable and other funds not directly relating to the business of the Company or the welfare of its employees, an amount of Rs. 75,000/- as Grant-in-Aid to the Public Enterprises Centre for Continuing Education."
1. Memorandum of Association must contain power for making contribution
to charitable funds etc.-The power to make contributions to charitable and
other funds must be contained in the Memorandum of Association of the Company.
2. Approval of General Meeting.-Where contribution to
charitable or other funds not directly relating to the business of the company
or the welfare of the employees exceeds Rs. 50,000/- or five per cent of
average net profits during three financial years immediately preceding financial
year whichever is greater, approval of the company in general meeting is
required to be obtained.
3. Determination of net profits.-Net profits to be determined
in accordance with the provisions contained in sections 349 and 350 of the Act.
4. Resolution to specify amount.-Every resolution passed by
the company In general meeting must specify the total amount which may be
contributed to charitable and other funds in any financial year.
5. Power of Board not conditioned on existence of profit.-The power of the Board to
contribute to general charities is not conditioned on the existence of any
profits. They may contribute up to Rs. 50,000/- even though the company
may be working at a loss.
6. Private companies exempted.-The restrictions on the powers of the Board
of Directors imposed by Section 293(l)(e) do not apply to a private company
which is not a subsidiary of a public company.
7. Contribution to National Defence Fund and Prime Minister's National
Relief Fund.-The contributions made by the Board of Directors of the company to the
National Defence Fund and Prime Minister's National Relief Fund are not to be
taken into account in determining limit prescribed by Section 293(l)(e).
Contribution to National Defence Fund
RESOLVED that pursuant to
the provisions of section 293-B, the Board of Directors be and is hereby
authorised to contribute such amount as it thinks fit to the National Defence
Fund or any other Fund approved by the Central Government for the purpose of
national defence.
1. Disclosure in profit & loss account.-Every company should
disclose in its profits and loss account the total amount or amounts
contributed by it to the Fund during the financial year to which the amount
relates as per sub-section (2) of section 293-B.
2. List of Funds approved.-The following funds have been approved by the
Central Government.
|
Sl.
No |
Name
of the Fund |
Name
of the State |
|
1. |
The Chief Secretary to the Government of Andhra
Pradesh, Hyderabad, National Defence Fund. |
Andhra
Pradesh |
|
2. |
The National Defence Fund, Andhra Pradesh State
People's Committee. |
Andhra
Pradesh |
|
3. |
Bihar State National Defence and Jawan's Welfare
Fund. |
Bihar |
|
4. |
The National Defence Fund, Madras. |
Madras |
|
5. |
The Chief Minister's Defence Fund, Kerala |
Kerala |
|
6. |
The Chief Minister's Defence Services Welfare
Fund, Rajasthan |
Rajasthan |
|
7. |
The Chief Minister's Defence Forces Welfare
Fund,Lucknow |
Uttar
Pradesh |
|
8. |
The Chief Minister's Defence Purposes Fund of
Uttar Pradesh, Lucknow |
Uttar
Pradesh |
|
9. |
The Chief Minister's West Bengal Account National Defence Fund Notification No. F. 8/89 (293B)/62-PR, dated
the 21st Feb., 1963) |
West
Bengal |
|
10. |
The Prime Minister's National Relief Fund-See Notification No. G.S.R. 2561, dated 18-10-1975. |
|
|
11. |
Gujarat Chief Minister's Sainik Fund-See Notification No. 8/89 (293B)/62-PR, dated 16-1-1963 |
Gujarat |
Secretarial
Practice Notes: Contributions to National Defence Fund, etc.
If any contributions were
made to the National Defence Fund or any other Approved Fund, check that:
(i) Board resolution/general meeting resolution
passed to this effect?
(ii) the total amount of contribution had been disclosed in the profit and loss account of the financial year to which the amount related?
Appointment of sole selling agents (S.
294)
The appointment of sole
selling agents must be approved by the company in the first General Meeting
held after the date on which the appointment is made; otherwise it will be
invalid.
In case the appointment is
invalid, the same cannot be got ratified by approving it at a subsequent
meeting. Shalagram Jhajharia v. National Company Ltd., (1965) 35 Comp Cases
706, The power exercisable by the Company Law Board under sub-section
(5)(c) of section 294 is not violative of Article 14 of the Constitution, nor
opposed to natural justice. Nanavati & Co. Private Ltd. v. R. C. Dutt,
(1975) 45 Comp Cases 91 (Bom) (DB). The expression 'shall not appoint a sole
selling agent except subject to the condition that the appointment shall cease
to be valid if it is not approved' has been construed as requiring the
insertion of such clause as a mandatory condition in all appointments of sole
selling agents; and if any appointment is made without containing such clause,
the appointment is void ab initio. Arantee Manufacturing Corporation v. Bright
Bolts Private Ltd., (1967) 37 Comp Cases 758.
A contract of appointment as
distributor of a company's products is not a contract for appointment of a sole
selling agent and need not be placed before the company in General Meeting.
Globe Motors Ltd. v. Mehta Teja Singh & Co., (1984) 55 Comp Cases 445 (Del)
(DB).
The sole selling agency agreement which does not incorporate the conditions prescribed in sub-section (2) of section 294 of the Act will be void ab initio and will continue to remain so even if it is approved by the company in General Meeting held after the date on which the appointment is made as an agreement which is invalid from the start cannot be treated as valid if the General Meeting approves it . The failure to incorporate the condition that the appointment is subject to the approval of the general meeting is an offence. A. V. Kasargod v. ROC, (2001) 105 Com Cases 676 (Kant.)
Appointment of overseas sole selling agents
"RESOLVED that pursuant to the provisions of sections 294 and 294AA of the Companies Act, 1956, and subject to the approval of the Central Government and the Reserve Bank of India, the Company hereby approves of and consents to the appointment of M/s. Centron Corporation of the U.S.A., as the selling agents of the Company in the United States of America and other countries outside India for the sale of the Company's goods, namely, the cotton piece goods, for a period of five years commencing from the _________, 2002 on payment of commission at a rate not exceeding two per cent of the invoice value or such other rate as may be approved by the Central Government and the Reserve Bank of India.
RESOLVED FURTHER that the
Directors of the Company be and are hereby authorised to make any modification
in the terms and conditions of the above sole selling agency as may be approved
by the Central Government."
1. Special Resolution required for certain companies.-The aforementioned
resolution is applicable to companies having a paid-up capital of not
less than Rs. 50 lacs. In other cases, the resolution will be ordinary and that
reference to S. 294AA and to the approval of the Central Government should be
deleted.
2. Consent of shareholders by Special Resolution and approval of
Central Government required.-In the case of companies having a paid-up
capital of Rs. 50 lakhs or more a sole selling agent can be appointed only with
the consent of the company accorded by a Special Resolution and with the
approval of the Central Government.
3. Approval of Reserve Bank.-For the appointment of overseas sole selling
agents ensure to obtain approval of the Reserve Bank of India.
4. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required
to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the appointment of sole-selling agents was made in compliance
with the provisions of the Act as per paragraph 16 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Appointment of domestic sole selling agents
S. 294-Appointment of domestic sole selling agents-Ordinary
Resolution
"RESOLVED that pursuant
to the provisions of section 294 and other applicable provisions, if any, of
the Companies Act, 1956, approval be and is hereby accorded to the appointment
of M/s. XYZ & Company Private Ltd. as the sole selling agents of the
Company's products for the whole of western region for a period of five years
commencing from the _________ 2002 on such terms and conditions as contained in
the agreement, a copy of which is produced before this meeting and initialled
by the Chairman for the purpose of identification."
1. Appointment of sole selling agent.-The sole selling agent is
not to be appointed for any area for a term exceeding five years at a time.
2. Extension of term.-The extension of the term of office of sole selling
agent should not be exceeding five years on each occasion.
3. Appointment to be approved by first general meeting.-The appointment of sole selling
agent has to be got duly approved by the first General Meeting held after the
date on which appointment is made. If the General Meeting disapproves the
appointment then such appointment ceases to have effect immediately.
Appointment of sole selling agents
(Another Format)
"RESOLVED that consent
of the shareholders be and is hereby accorded to the appointment of M/s. ABC
Limited as sole selling agents of the Company for the sale of Water Meters
manufactured by the company at its plant at Ghaziabad in the Union Territory of
Delhi and in the State of Uttar Pradesh for a period of five years with effect
from 1st April, 2002, on the terms and conditions set out in the agreement, as
per draft placed before the meeting and duly initialled by the Chairman for the
purposes of identification.
RESOLVED FURTHER that the
Managing Director of the company be and is hereby authorised to execute the said agreement with M/s. ABC Limited
and to do all such acts and things as may be necessary in this regard."
1. Appointment to be done by resolution of general meeting.-The appointment of sole
selling agent can be done by the company by passing a resolution at the General
Meeting.
2. Appointment
not to exceed rive years at a time.-The appointment of sole selling agent for any
area cannot exceed for a term exceeding five years at a time.
3. Approval of Reserve Bank to be obtained for appointment of sole
selling agent outside India.-In case of appointment of any sole selling agents
outside India, ensure that the approval of the Reserve Bank of India has been
obtained.
4. Approval to appointment to be obtained in first general meeting held
after the date on which appointment made.-The appointment must be
approved by the company in the first General Meeting held after the date on
which the appointment is made, otherwise it will be invalid.
5. Invalid appointment cannot be got ratified at subsequent meeting.-In case the appointment is
invalid, the same cannot he got ratified by approving it at a subsequent
meeting. Shalagram Jhajharia v. National Company Ltd., (1965) 35 Comp Cases
706.
6. Explanatory Statement to set out terms and conditions of
appointment.-The Explanatory Statement annexed to the resolution or the resolutions
must set out therein the terms and conditions on which the sole selling agent
has been appointed for the information of the shareholders.
7. Central Government approval be obtained when Section 294AA become
applicable.-Approval of the Central Government will be required in case the
provisions of' section 294AA of the Act are applicable to such appointment.
8. Information as to terms and conditions.-Any proceeding taken under
sub-section (5) should be guided by the principles of natural Justice.
When the Central Government makes an order varying the terms of' a sole selling
agency agreement, it should give an opportunity to the sole selling agent or
agents affected to be heard before making any order prejudicial to him or them,
even though the order may be only an administrative order. The power
exercisable by the Company Law Board under sub- section (5)(c) of section
294 is not violative of Article 14 of the Constitution, nor opposed to natural
Justice. Nanavati & Co. Private Ltd. v. R. C. Dutt, (1975) 45 Comp Cases 91
(Bom) (DB).
9. Penalty.-If a Company refuses or neglects to furnish the required by the Central
Government under clause (a) of sub-section (5) or (6), or to produce to
the person appointed under clause (b) of sub-section (5) or (6) any books
and papers which are in custody or power or otherwise to give to that person
any assistance which it is reasonably able to give, the company and every
officer of the company who is in default will be punishable with fine of upto
Rs. 50,000/- and with a further fine of Rs. 500/- for every day
after the first during which such refusal or reglect continues.
10. Judicial construction.-The expression 'shall not appoint a sole
selling agent except subject to the conditions that the appointment shall cease
to be valid if it is not approved' has been construed as requiring the
insertion of such clause as a mandatory condition in all appointments of sole
selling agents, and if any appointment is made without containing such clause, the
appointment is void ab initio. Arantee Manufacturing Corporation v. Bright
Blots Private Ltd., (1967) 37 Comp Cases 758.
11. Appointment as distributor not a contract for appointment as sole
selling agent.-A contract of appointment as distribution of a company's products is
not a contract for appointment of a sole selling agent and need not be placed
before the company in General Meeting. Globe Motors Ltd. v. Mehta Teja Singh
& Co., (1984) 55 Comp Cases 445 (Del) (DB).
12. Sole selling agency agreement not incorporating conditions
prescribed void ab initio.-The sole selling agency agreement which does not
incorporate the conditions prescribed in sub-section (2) of section 294
of the Act will be void ab initio and will continue to remain so even if it is
approved by the company In General Meeting held after the date on which the
appointment is made as an agreement which is Invalid from the start cannot be
treated as valid if the general meeting approves it.
Appointment of sole selling agent by a
company having a paid-up
share capital of
Rs. 50 lakhs or more (S. 294AA(3))
The appointment includes 're-appointment'
also. The restrictions imposed by the section apply equally to sole selling
agents, buying and purchasing agents. If the authority of a Special Resolution
is already in force all that is required is only the additional approval of the
Central Government8.
In case the provisions of
section 294AA(3) are not attracted to the appointment of sole selling agents at
the time of entering of agreement with them, it will not be obligatory on the
companies to comply with the said provisions for the continuance of said
appointments for the remaining duration of their current tenure even if the
provisions of subsection (3) of section 294AA become applicable after the
appointment due to increase in the capital.
No company having a paid-up
share capital of Rs. 50 lakhs or more shall appoint a sole selling agent except
with the consent of the shareholders accorded by a Special Resolution and the
approval of the Central Government.
Where after the appointment
of a sole selling agent has been made, the company's paid-up capital is increased
to Rs. 50 lakhs or more, the company need not comply with the provisions of sub-section
(3) of section 294AA"'.
In case the provisions of
section 294AA(2) of the Act are not attracted to the appointment of sole
selling agents at the time of entering of agreement with them, it will not be
obligatory on the companies to comply with the said provisions for the
continuance of the said appointments for the remaining duration of their
current tenure but not during any extension thereof even if the provisions of
sub-section (2) of section 294AA become applicable after the appointment
due to the selling agents acquiring substantial interest as defined in the
Explanation under the Section.
Appointment of any individual, firm or body corporate having
substantial interest in the company as sole selling agent
"RESOLVED that subject
to the approval of the Central Government pursuant to the provisions of section
294AA of the Companies Act, 1956, and other applicable provision, if any, of
the Companies Act, 1956, M/s. ABC Limited be and are hereby appointed as sole
selling agent of the Company for marketing its products in the National Capital
Territory of Delhi for a period of three years with effect from 12th July,
2002, on the terms and conditions set out in the draft agreement placed before
the meeting, duly initialled by the Chairman for the purpose of identification,
subject, however, to such changes or modifications suggested by the Central
Government while approving the appointment.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to make the necessary
application to the Central Government and to do all such acts and things as may
be necessary in this regard."
1. Prior approval of Central Government required-No company shall appoint any
individual, firm or body corporate having substantial interest in the company
as its sole selling agent unless such appointment has been previously approved
by the Central Government.
2. Appointment of sole selling agents by companies having paid-up
capital of Rs. 50 Lakhs or more.-No company having a paid-up share capital of
Rs. 50 lakhs or more shall appoint a sole selling agent except with the consent
of the shareholders accorded by a Special Resolution and the approval of the
Central Government.
3. Restrictions applicable to sole selling agents, buying and
purchasing agents. The provisions of sub-sections (5), (6) and (7) of section on 294 shall
apply to sole selling or the sole purchasing or buying agents of the company.
4. Effect of increase in paid-up capital on appointment.-Where after the appointment
of a sole selling agent has been made, the company's paid-up capital is
increased to Rs. 50 lakhs or more the company need not comply with the
provisions of sub-section (3) of section 294AA .
5. Continuation and extension of pre-existing appointments.-In case the provisions of
section 294AA(2) of the Act are not attracted to the appointment of sole
selling agents at the time of entering of agreement with them it will not be
obligatory on the companies to comply with the said provisions for the
continuance of the said appointments for the remaining duration of their
current tenure but not during any extension thereof even if the provisions of
sub-section (2) of section 294AA become applicable after the appointment
due to the selling agents acquiring substantial interest as defined in the
Explanation under the section.
6. Filing of return with Registrar.-File return in Form No. 23
within thirty days of passing of the resolution along with requisite filing fee
as per Schedule X of the Act. A certified copy of the agreement setting out
therein the terms and conditions is also be filed within the Registrar of
Companies with thirty days of appointment. Non-filing will attract
penalty by way of fine of up to Rs. 100/-.
7. Citizen's Charter.-As per the Citizen's Charter of the Department of
Company Affairs, Schedule I, Serial No. 12, the application to the Central
Government is required to be processed within 30 days. [Press Note No. 9/99
dated 9-8-1999].
Appointment of sole selling
agents having substantial interest in
the company (Another Format)
"RESOLVED that subject to the approval of the Central Government and pursuant to the provisions of sections 294 and 294AA of the Companies Act, 1956, approval be and is hereby accorded to the appointment of M/s. ABC & Company Ltd., which has a substantial interest as the sole selling agents of the Company's products for the eastern region for a period of five years commencing from _________, 2000, on such terms and conditions as contained in the agreement produced before this meeting and initialled by the Chairman for the purpose of identification.
RESOLVED FURTHER that the
Directors of the Company be and are hereby authorised to make any modifications
in the terms and conditions of the aforesaid agreement as may be sanctioned by
the Central Government and agreed to by the Directors of the company and M/s.
ABC & Company Ltd."
1. Appointment to be approved by first general meeting held after the
date on which appointment made.- According to section 294, appointment of any sole
selling agents must be approved by the company in the first Annual General
Meeting held after the date on which the appointment is made, and if the
company in the General Meeting disapproves such appointment, it will cease to
be valid.
2. Appointment of sole selling agents by companies having paid-up
capital of Rs. 50 lakhs or more.-Appointment of sole selling agents who have
substantial interest in the company must be made with the approval of the
Central Government and any appointment of sole selling agents by a company
whose paid-up share capital is Rs. 50 lakhs or more must be made by a
Special Resolution in addition to the approval of the Central Government. The
objective of these provisions is to see that the Managing or whole-time
Directors do not merely supplement their income, directly or indirectly, by
associating themselves with the sole selling agents of the companies.
3. Appointment to be conditional upon General Meeting approval.-Because of the provisions of
sub-section (2) of section 294, any agreement of sole selling agency
which does not provide that the appointment of sole selling agents will cease
to be valid if not approved by the company in the General Meeting will be void
ab initio and will continue to be so even if it is approved by the company in
the General Meeting. An agreement which is invalid from the beginning cannot be
treated as valid if it is approved by the General Meeting
4. Appointment of Sole Selling Agent prohibited.-Appointment of sole selling
agents for the following goods has been prohibited for a period of five years
from the date of notifications mentioned against them:
|
(i)
Sugar |
GSR 724(E), dt. 5-9-1985. GSR 768(E), dt. 10-9-1990 GSR 628(E), dt. 10-9-1995 |
|
(ii)
Vanaspati |
extended for a period of five years and only
Vanaspati extended for a period of two years from 27-12-2000 by
GSR 927(E) from the date of publication of this Notification in official gazette. |
|
(iii)
Cement |
GSR 743(E), dt. 18-9-1985 GSR 782(E), dt. 18-9-1990 GSR 792(E), dt. 18-9-1995 GSR
726(E), dt. 18-9-2000 |
|
(iv)
Paper |
extended for a period of two years. |
|
(v) Every category of 'bulk drug', 'drug' and
'formulations' as defined in the Drugs (Price Control) Order, 1995, not being- |
GSR 461 (E) dt. 18-4-1988. GSR 219(E), dt. 18- 4-1991 GSR 390(E), dt. 18- 4-1994 GSR 223(E), dt. 19- 4-1997 GSR 364(E), dt. 27- 4-2000 Extended
for a period of three years. |
(a) any bona fide
preparation included in Ayurvedic (including Siddha) or Unani (Tibb) systems of
medicines; or
(b) any preparation included
in the Homoeopathic system of medicines.
5. Continuation and extension of pre-existing appointments.-Approval of the Central
Government is not required to be sought under section 294AA(3) for simply
continuing with the existing appointment if it was not required at the time
when the appointment was first made.
6. Effect of increase in paid-up capital on appointment.-Similarly, provisions of
section 294AA(3) are not required to be complied with for the continuance of
any sole selling agents as a result of increase of paid-up share capital
of a company unless they are required at the time of their appointment.
up share capital of Rs. 50 lakhs or more
"RESOLVED that subject
to the approval of the Central Government pursuant to sub-section (3) of
section 294AA and other applicable provisions, if any, of the Companies Act,
1956, approval of the shareholders be and is hereby given to the appointment of
M/s. LMN Limited as sole selling agent of the Company for a period of five
years effective from 25th June, 2002, on the terms and conditions set out in
the draft agreement placed before the meeting and duly initialled by the
Chairman of the meeting for the purposes of identification, subject, however, to
such alterations/ modifications made by the Central Government while approving
the appointment."
OR
"RESOLVED that subject
to the approval of the Central Government pursuant to the provisions of section
294AA(3) and other applicable provisions, if any, of the Companies Act, 1956,
approval of the shareholders be and is hereby accorded to the appointment of
the following firms as its sole selling agents in respect of the territories
indicated against their names for the sale of the products of the Company for a
period of five years commencing from 25th May, 2002, as per the terms and
conditions embodied in the draft agreement submitted to the meeting and duly
initialled by the Chairman of the meeting for the purpose of identification and
subject to the alteration s/modifications as may be suggested by the Central
Government while approving the appointments:
|
Name
of the agent |
Territory |
|
1.
LMN Private Limited. |
National
Capital Territory of Delhi |
|
2.
ABC and Co. Limited. |
State
of Madhya Pradesh |
|
3.
XYZ and Co. Limited. |
State
of Maharashtra |
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to make the necessary
application to the Central Government and to do all such acts and things as may
be necessary."
1. Approval of shareholders and Central Government.-Approval of the shareholders
by a Special Resolution and the Central Government is required.
2. Appointment includes "re-appointment".-Appointment includes
"re-appointment also.
3. Restrictions applicable
to sole selling agents, buying and purchasing agents. -The restrictions imposed by
the section apply equally to sole selling agents, buying and purchasing agents.
4. Only Central Government
approval required when authority exists in Special Resolution.-If the authority of a
Special Resolution is already in force all that is required is only the
additional approval of the Central Government
5. Effect of increase in
paid-up capital on appointment.-In case the provisions of section 294AA(3)
are not attracted to the appointment of sole selling agents at the time of
entering of agreement with them, it will not be obligatory on the companies to
comply with the said provisions for the continuance of said appointments for
the remaining duration of their current tenure even it' the provisions of sub-section
(3) of section 294AA become applicable after the appointment due to increase in
the capital".
"RESOLVED that subject
to the sanction of the Central Government, consent be and is hereby accorded to
the lending of a sum of Rs.________ to Mr. A.B., a Director of the company for
purchase of ________ and repayable by ________
1. Loan to Directors for
house building.-The loan would be admissible only to the whole-time employees of
company, namely, managing directors, whole-time directors, etc. The
amount of loan would not exceed a maximum of rupees one lakh and would be given
only where the cost of land together with the cost of construction does not
exceed rupees four lakhs. The borrowers would be required to furnish sufficient
security including mortgage of the land and the house to be constructed, for
the repayment of the loan amount.
2. Penalty.-Every person who is
knowingly a party to any contravention of the provisions of sub-section
(1) or (3) of section 295 including in particular any person to whom the loan
is made or who has taken the loan in respect of which the guarantee is given or
the security is provided will be punishable either with fine of up to Rs.
50,000/- or with simple Imprisonment for a term of 6 months.
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 company has advanced loan amounting to a specified amount to the
directors and or pet-sons or firms or companies referred to in section
295 of the Act after complying with the provisions of' the Act as per paragraph
8 of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
4. Citizen's Charter.-As per the Citizen's Charter
of the Department of Company Affairs, Schedule I, Serial No. 13, the
application to the Central Government is required to be processed within 30
days. [Press Note No. 9/99 dated 9-8-1999].
5. Guidelines.-The Department of Company
Affairs has issued guidelines providing Stringent norms for loans or corporate
guarantee or furnishing security under sections 295 and 372A to the directors
of companies or their relations by Press Release dated 18-22002. While
making, the application to the Central Government such guidelines should be
followed.
Sections 198, 269, 310 and
311 have been amended by the Companies (Amendment) Act, 1988. Section 198 has
been amended with a view to providing that in cases where a company has no
profits or its profits are inadequate, the company should not pay to its
Directors including any Managing or whole- time Director or Manager by
way of remuneration except with the previous approval of' the Central
Government. However, this restriction is not applicable to fees payable to
Directors under section 309(2). The cases of appointments covered by section
269 read with Schedule XIII are not affected by this provision.
Further, section 269 has
been amended to provide for compulsory appointment of a Managing or whole-time
Director or a Manager by a public company or private company which is a
Subsidiary of a public company, having a paid-up share capital of such
sum as may be prescribed. Vide Notification GSR No. 694(E), dated 10-6-1988
with effect from 15-6-1988 the Government has prescribed a limit of
Rs. one crore.
1.
The Central Government had amended Schedule XIII to the Companies Act, 1956 on
14th July, 1993 introducing, sweeping changes in provisions governing
managerial appointment and remuneration. Amongst others, salary and perquisite
limits were raised from Rs. 1.80 lakhs and Rs. 1.35 lakhs per annum,
respectively, to Rs. 6.00 lakhs and Rs. 4.50 lakhs per annum; the ceiling on
Commission on net profits was withdrawn; mandatory 10% reduction in salary in
the event of absence or inadequacy of profits was stopped and loss-making
companies were delegated powers to appoint managerial personnel without Central
Government's approval on par with profit-making companies.
2.
With a view to giving still greater freedom to companies in regard to managerial
appointment and remuneration, Central Government have once again amended
Schedule XIII to the Act effective from 1st February, 1994. The salient
features of the amendments made in the Schedule are as under:-
A. a company with adequate net profits will now have full freedom to work out a suitable remuneration package for its managerial personnel within the limit of 5% of its net profits if it has one, and 10% of its net profits if it has more than one managerial person;
B. (i) in the event of absence or inadequacy of' net profits in any financial year (i.e., where managerial remuneration exceeds 5% or 10% of net profits, as the case may be), managerial remuneration will have to be limited to amounts (varying from Rs. 40,000/- per month to Rs. 87,500/- per month, depending on the effective capital of the company) specified in Section II of Part II of the Schedule;
(ii) such remuneration may
be paid as 'minimum remuneration' without the approval of the Central
Government;
(iii) loss making companies
or companies with inadequate net profits have the freedom to work out suitable
remuneration package(s) for their managerial personnel within the limits
specified in Section II of Part II of the Schedule;
C. approval of the Central Government will now be required by companies in regard to managerial remuneration only if tile remuneration is in excess of the limits (related to the effective capital of the company) specified in Section II of Part II of the Schedule;
D. the condition that a sick company should seek Government clearance for appointment of managerial personnel has been withdrawn;
E. approval of Central Government is no longer required for a Managing Director or Manager of a company to become Managing Director or Manager of another company provided fie draws remuneration from one of the two companies, subject to the ceiling provided in Section II of Part II of the Schedule;
F. approval of Central
Government will not be required for appointment of any person below the age of-25
but after the age of maturity and beyond the age of 70 provided a special
resolution is passed for such appointment.
Consequential amendments
have also been made to sections 310 and 311 providing for increase in
remuneration within the limits prescribed in Schedule XIII.
On 12th September, 1996 the
Central Government further amended Schedule XIII in tile following manner:
(1) Appointment of managerial personnel who has not
completed the age of 25 years, but has attained the age of majority and also a
person who has attained the age of 70 years by passing a special resolution;
(2) Drawing of remuneration by a managerial person from one or both, companies subject to the ceiling provided in Section III of Part II of Schedule XIII, that is the total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of' the companies of which he is a managerial person.
On 16-1-2002 and
also on 14-8-2002 the Central Government further amended para 1 of
Section II of Part II of Schedule XIII in the following manner:
Remunerations
payable by Companies having no profit or inadequate profits
Schedule XIII-Amended
(w.e.f. 16-1-2002)
G.S.R. 36(E), dt. 16-1-2002.-In exercise of the powers
conferred by sub-section (1) of section 641 of the Companies Act, 1956 (1
of 1956), the Central Government hereby makes the following further amendments
in Schedule XIII of the said Act, namely:-
In the said Schedule, in Part II, in section II,-
(a) for paragraph 1, the following shall be
Substituted, namely:-
1.
Notwithstanding any thing contained in this Part, where in any financial year
during the Currency of tenure of the managerial person a company has no profits
or its profits are inadequate, it may pay remuneration to a managerial person
by way of salary, dearness allowance, perquisites and any other allowances,-
(A) not exceeding ceiling
limit of Rs. 24,00,000 per annum or Rs. 2,00,000 per month calculated on the
following scale:-
|
Where
the effective capital of Company is |
Monthly remuneration payable shall not exceed
(Rupees) |
|
(i)
less than rupees 1 crore |
75,000/- |
|
(ii)
rupees 1 crore or more but less than rupees 5 crores |
1,00,000/- |
|
(iii)
rupees 5 crores or more but less than rupees 25 crores |
1,25,000/- |
|
(iv)
rupees 25 crores or more but less than rupees 50 crores |
1,50,000/- |
|
(v)
rupees 50 crores or more but less than rupees 100 crores |
1,75,000/- |
|
(vi)
rupees 100 crores or more |
2,00,000/- |
Provided that the ceiling limits specified Linder
this sub-paragraph shall apply, if
(i) payment of remuneration
is approved by a resolution passed by the Remuneration Committee.
(ii) the company has not
made any default in repayment of any of its debts (including public deposits)
or debentures or interest payable thereon for a continuous period of thirty
days in the preceding financial year before the date of appointment of such
managerial person.
(B)
not exceeding the ceiling limit of Rs. 48,00,000 per annum or Rs. 4,00,000 per
month calculated oil the following scale:-
|
Where
the effective capital of Company is |
Monthly
remuneration payable shall not exceed (Rupees) |
|
(i)
less than rupees 1 crore |
1,50,000/- |
|
(ii)
rupees 1 crore or more but less than rupeos 5 crores |
2,00,000/- |
|
(iii)
rupees 5 crores or more but less than rupees 25 crores |
2,50,000/- |
|
(iv)
rupees 25 crores or more but less than rupees 50 crores |
3,00,000/- |
|
(v)
rupees 50 crores or more but less than rupees 100 crores |
3,50,000/- |
|
(vi)
rupees 100 crores or more |
4,00,000/- |
Provided that the ceiling limits specified under
this sub-paragraph shall apply, if-
(i) payment of remuneration
is approved by a resolution passed by the Remuneration Committee;
(ii) the company has not
made any default in repayment of any of its debts (including public deposits)
or debentures or interest payable thereon for a continuous period of thirty
days in the preceding financial year before the date of appointment of such
managerial person;
(iii) a special resolution
has been passed at the general meeting of the company for payment of
remuneration for a period not exceeding three years;
(iv) a statement along with
a notice calling the general meeting referred to in clause (iii) is given to
the shareholders containing the following information, namely-
I. General Information:
(1) Nature of
industry
(2) Date or
expected date of commencement of commercial production
(3) In case of new
companies, expected date of commencement of activities as per project approved
by financial institutions appearing in the prospectus
(4) Financial
performance based on given indicators
(5) Export performance
and net foreign exchange collaborations
(6) Foreign
investments or collaborators, if any.
II. Information about the appointee:
(1) Background
details
(2) Past
remuneration
(3) Recognition
or awards
(4) Job profile
and his suitability
(5) Remuneration
proposed
(6) Comparative remuneration
profile with respect to industry, size of the company, profile of the position
and person (in case of expatriates the relevant details would be w.r.t. the
country of his origin)
(7) Pecuniary relationship
directly or indirectly with the company, or relationship with the managerial
personnel, if any.
III. Other information:
(1) Reasons of loss or
inadequate profits
(2) Steps taken or proposed
to be taken for improvement
(3) Expected increase in
productivity and profits in measurable terms.
IV. Disclosures:
(1) The shareholders of' the
company shall he informed of' the remuneration package of the managerial
person.
(2) The following
disclosures shall be mentioned in the Board of Director's report under the
heading "Corporate Governance", if any, attached to the annual
report:-
(i) All elements of
remuneration package such as salary, benefits, bonuses, stock options, pension
etc. of all the directors;
(ii) Details of' fixed
component and performance linked incentives along with the performance
criteria;
(iii) Service
contracts, notice period, severance fees;
(iv) Stock option details,
if any, and whether the same has been issued at a discount as well as the
period over which accrued and over which exercisable.
(C)
exceeding the ceiling limit of Rs. 48,00,000 per annum or Rs. 4,00,000 per
month calculated on the following scale:-
|
Where
the effective capital of Company is |
Monthly
remuneration payable exceeds (Rupees) |
|
(i)
less than rupees 1 crore |
1,50,000/- |
|
(ii)
rupees 1 crore or more but less than rupees 5 crores |
2,00,000/- |
|
(iii)
rupees 5 crores or more but less than rupees 25 crores |
2,50,000/- |
|
(iv)
rupees 25 crores or more but less than rupees 50 crores |
3,00,000/- |
|
(v)
rupees 50 crores or more but less than rupees 100 crores |
3,50,000/- |
|
(vi)
rupees 100 crores or more |
4,00,000/- |
Provided that the ceiling Ili-nits specified
under this sub-paragraph shall apply, If-
(i) payment of remuneration
is approved by a resolution passed by the Remuneration Committee,
(ii) the company has not
made any default in repayment of any of its debts (Including public deposits)
or debentures or interest payable thereon for a continuous period of' thirty
days in the preceding financial year before the date of appointment of such
managerial person;
(iii) a special resolution
has been passed at the general meeting of' the company for payment of
remuneration for a period not exceeding three years;
(iv) a statement along with
a notice calling the general meeting referred to In clause (110 is given to the
shareholders containing the following information, namely-
(D)
not exceeding Rs. 2,40,00,000 per annum or Rs. 20,00,000 per month in respect
of companies in Special Economic Zones as notified by Department of Commerce
from time to time:
Provided that these
companies have not raised any money by public issue of shares or debentures in
India:
Provided further that such
companies have not made any default in India in repayment of any of' its debts
(including public deposits or debentures or interest payable thereon for a
continuous period of thirty days in any financial year."
I. General Information:
(1) Nature of' industry
(2) Date or expected date of
commencement of commercial production
(3) In case of new
companies, expected date of commencement of' activities as per project approved
by financial institutions appearing in the prospectus
(4) Financial performance
based on given indicators
(5) Export performance and
net foreign exchange collaborations
(6) Foreign investments or
collaborators, if any.
II. Information about the appointee:
(1) Background details
(2) Past remuneration
(3) Recognition or awards
(4) Job profile and his
suitability
(5) Remuneration proposed
(6) Comparative remuneration
profile with respect to industry, size of the company, profile of the position
and person (in case of expatriates the relevant details would be w.e.f the
country of his origin)
(7) Pecuniary relationship
directly or indirectly with the company, or relationship with the managerial
personnel, if any.
III. Other information:
(1) Reasons of loss or
inadequate profits
(2) Steps taken or proposed
to be taken for improvement
(3) Expected increase in
productivity and profits in measurable terms.
IV. Disclosures:
(1) The shareholders of' the
company shall be informed of the remuneration package of the managerial person
(2) The following
disclosures shall be mentioned in the Board of director's report under the
heading "Corporate Governance", if any, attached to the annual
report:-
(i) All elements of
remuneration package such as salary, benefits, bonuses, stock options, pension
etc. of all the directors;
(ii) Details of fixed
component and performance linked incentives along with the performance
criteria;
(iii) Service contracts,
notice period, severance fees;
(iv) Stock option details,
if any, and whether the same has been issued at a discount as well as the
period over which accrued and over which exercisable.
Provided further that the
conditions specified in sub-paragraph (C) shall apply in the case the
effective capital of the company is negative.
Provided also that the prior
approval of the Central Government is obtained for payment of remuneration on
the above scale.
(b) after Explanation III,
the following Explanations shall be inserted, namely,-
"Explanation IV. -For
the purposes of this section, "Remuneration Committee" means that a
committee which consists of at least three non-executive independent
directors including nominee director or nominee directors, if any.
Explanation V. -For the
purposes of this clause, the Remuneration Committee while approving the
remuneration under this section, shall,
(a) take into account,
financial position of the company, trend in the industry, appointees
experience qualification past performance, past remuneration etc.
(b) be in a position to
bring about objectivity in determining the remuneration package while striking
a balance between the interest of the company and the shareholders.
Explanation VI. -For
the purposes of' Paragraph 1, "negative effective capital" means the
effective capital which is calculated:-
(a) in accordance with the provisions contained in
Explanation 1 of this Part;
(b) less than zero".
[Issued by Ministry of Law
Justice and Company Affairs, Department of Company Affairs].
(D) not exceeding Rs.
2,40,00,000 per annum or Rs. 20,00,000 per month in respect of companies in
Special Economic Zones as notified by Department of Commerce from time to time
Provided that these
companies have not raised any money by public issue of shares or debentures in
India:
Provided further that such
companies have not made any default in India in repayment of any of its debts
(including public deposits or debentures or interest payable thereon for a
continuous period of thirty days in any financial year."
File No. 12/7/2000 CL.VII
GOVERNMENT OF INDIA
DEPARTMENT OF COMPANY AFFAIRS
Shastri Bhawan. 5th Floor
'A' Wing, Dr. R.P. Road.
New Delhi- 110 001
Dated: 27-12-2000
Subject: Appointment of Managerial Personnel and payment of Managerial
Remuneration in
case of Companies having no profit or inadequate profit -
rationalization thereof
Cases are coming to the
Department of Company Affairs wherein Public Companies or Private Companies
which are subsidiaries of Public Companies are Submitting applications to the
Department of Company Affairs for approval of the Central Govt. for appointment
of and/or payment of remuneration to managerial personnel in excess of the
limits prescribed in sections 269, 310, 311 & 387 and in terms of section
198(4) read with schedule XIII to the Companies Act. 1956, which provides
scales of remuneration (salary. dearness allowance, perquisites and any other
allowance).
2. The scales of' monthly
remuneration prescribed in para I of section II of part II of Schedule XIII
have since been revised vide notification GSR No. 215(E) dated 02-03-2000.
The revised scales are as under:-
|
Where
the effective capital of the company is |
Monthly
remuneration payable shall not exceed |
|
(i)
less than rupees 1 crore |
rupees
75,000 |
|
(ii)
rupees 1 crore or more but less than rupees 5 crores |
rupees
1,00,000 |
|
(iii)
rupees 5 crores or more but less than rupees 25 crores |
rupees
1,25,000 |
|
(iv)
rupees 25 crores or more but less than rupees 100 crores |
rupees
1,50,000 |
|
(v)
rupees 100 crores or more |
rupees
2,00,000 |
3. Where a particular
Company intends to pay a remuneration higher than that prescribed in the
Companies Act read with the necessary Schedule, an application may be made to
the Department of Company Affairs giving in detail the justification along with
a copy of the resolution passed by the Board/AGM as the case may be.
4. In order to reduce
subjectivity and to bring in an element of greater transparency and
objectivity, the Company which submits an application for a remuneration which
is higher than the prescribed limit must take into consideration the following
factors (detailed note on each as applicable be furnished) and give a detailed
justification. The application for increase in the remuneration should not be
submitted in a mechanical way:
(i) Reasons for loss/inadequacy of profit.
(ii) Steps taken to improve the performance of the
company.
(iii) Financial
health/performance of the Company as may be reflected by effective capital, Net
worth, Turnover, Profit/loss, dividend declared, etc.
(iv) Nature of industry -
high technology area, core sector, infrastructure field, etc.
(v) Export performance and net foreign exchange
earned.
(vi) Performance of the Company in socio-economic
activities.
(vii) General performance of Industry in the
relevant sector.
(viii) Foreign investment and foreign collaboration.
(ix)
Expansion/Diversification/Modernisation/Technology up gradation.
(x) Qualification, experience period of association
and contribution of the proposed appointee.
(xi) Requirement of personal skill and challenges
ahead.
(xii) Past remuneration of the proposed appointee.
(xiii) Creativity/innovativeness of the proposed
appointee/company.
(xiv) Recognition/Award obtained by the proposed
appointee/company.
(xv) The amount of
remuneration proposed to be paid including salary, allowances, perquisites and
whether it will have any effect on the overall financial health of the Company.
(xvi) Any other factors
relevant to the proposal, which the company may like to bring to the notice of
the Govt. justifying their proposal.
5. Deficiencies generally observed in respect of the applications on
the above subject are listed below:-
(i) Application fee is not
paid in proper manner. Sometimes the Demand draft is not for the full amount of
application fee and sometimes the demand draft is not payable in favour of Pay
& Accounts Officer, Department of Company Affairs, New Delhi as prescribed
in rule 2 of the Companies (Fees for application rules, 1961) as amended vide
GSR No. 501(E) dated 06-7-1999.
(ii) Application is not
filled in properly and completely in respect of all the columns. If a column is
left blank, the letters N.A. should be filled up implying 'Not Applicable'.
(iii) Applications are
submitted after remuneration in excess of Schedule III has already been paid to
the managerial person.
(iv) Certified copies of
Newspaper clippings of notices, in original, published in the Newspaper in
English and in local Newspaper in local language as required in terms of
section 640-B of the Companies Act are not furnished.
(v) Certified copies of
Directors report and audited accounts of the company for each of the last 5
financial years of the company are not enclosed.
(vi) In case of foreign
collaboration, certified copy of the FIPB approval letter(s) is not
furnished.
(vii) Remuneration drawn by
the proposed appointee from the applicant company or from any other company
during the past 3 years prior to the proposed date of appointment is not
indicate in terms of monetary package.
(viii) Requirements of
section 316(2)/(4) of the Companies Act are not followed where the proposal is
for appointment as managerial person in two or more than two companies and
resolution is not passed by all the companies concerned.
(ix) Estimated project cost
and source of finance together with projected equity, position regarding growth
in effective capital, projection of turnover and net profit and computed under
section 198 of the Companies Act, 1956 for the next five years is not given as
required in col. 4 of the application (Form 25A & 26) in respect of new
Companies.
(x) Figure of turnover, net
profit as computed under section 198 of the Companies Act, as
projected/unaudited for the year in which the application is made, is not given
even if the application is made towards the end of Financial Year/after the end
of Financial Year, unaudited figures of working results are not furnished.
(xi) In case of proposal for
mid-term increase for remaining period, it is not indicated how the requirement
of section 269(2) of the Companies Act, 1956 read with Part I & II of
Schedule XIII was met at the time of appointment of MD/WTD/Manager and how the
mid-term increase in remuneration is justified in terms of working
results of the Company.
(xii) Papers/documents
attached with the application are not authenticated and seal of the company is
not put on each paper.
6. Attention is also invited to explanation to Section 198 of the
Companies Act, 1956 which states Remuneration' includes any expenditure
incurred by the Company giving benefit to its director/managers on items
mentioned at (a) to (d) of the said explanation i.e.
(i) In providing any rent
free accommodation or any other benefit or amenity in respect of accommodation
free of charge, to any of the persons specified in sub-section (1).
(ii) In providing any other
benefit or amenity free of charge or at a concessional rate to any of the
persons aforesaid;
(iii) In respect of any
obligation or service which but for such expenditure by the company, would have
been incurred by any of the persons aforesaid; and
(iv) To effect any insurance
on the life, or to provide any pension, annuity or gratuity for any of the
person aforesaid or his spouse or child.
The term 'Salary' under the
provisions of the Income Tax Act has been defined to include all payments
received by a person in employment and includes wages, fees, commission,
perquisites, profits in lieu of or in addition to salary, advance salary,
pension, gratuity, encashment of leave etc. Certain items of perquisites are,
however, excluded, to the extent permissible for the purpose of payment of
Income Tax as per Central Board of Direct Taxes circular No. 781 (F. No.
275/192/99-IT (B) dated 5-11-99). It has been observed that
companies sometimes indicate the value of perks stating that the same is as per
Income Tax Act. This is not the correct position and value of perquisites
included in the total remuneration under section 198 of the Companies Act, 1956
is to be indicated as per actual cost. Income Tax liability as per CBDT
circular is to be indicated separately.
7.
The applicant companies should thereof, hereafter also ensure that the
prescribed forms are completely and properly filled in regard to all the
details so that the applications submitted are complete and r at the time of
submission itself. This will result in quicker and faster disposal. In this
regard a list is also enclosed to facilitate proper filing of the applications.
It is hoped that with filing of complete application disposal would be quicker.
8. Copy
of this circular is also available at the Web Site of the Department of Company
Affairs at the following address: http/www.nic.in/dca.
9.
Please cooperate by furnishing all the above requirements to facilitate
expeditious clearance of your proposal.
Please ensure before
submitting the application that the following information/documents have been
furnished:
(i) Proper application fee in the manner provided
vide GSR No. 501 (E) dated 6-7-99.
(ii) Copies of public notices
in English and in local newspapers in local language.
(iii) Monetary value of each
of' the perquisites and allowances and total remuneration package (in the form
of statement annexed) valued as per actual cost.
(iv) Appropriate and clear
resolution in support of the proposal.
(v) In case of' appointment
as Managerial personnel in two or more companies the manner in which compliance
of section 316(2)/(4) has been made.
(vi) Reasons for
loss/inadequacy of profits, steps taken to improve the financial performance
and future projections.
(vii) Full & proper
justification for proposed appointment/remuneration.
(viii) The manner in which
compliance of section 269(2) of the Companies Act was met at the time of
appointment/reappointment of the managerial person where mid term increase in
remuneration is proposed.
(ix) Application for
condonation of delay under section 637B along with justification and requisite
application fee where the application was not submitted within 90 days of date
of appointment/reappointment.
(x) Monetary value of total
remuneration in Rupees or Rupees equivalent drawn by the proposed appointee
during last three years from the applicant company or any other company.
(xi) Copy of the Directors
report and the audited accounts of the company for each of the last five
financial years of the company.
(xii) Each column of the
application is filled up.
(xiii) Copies of FIPB
approvals, in case of foreign collaboration/investment.
(xiv) Each page of
application and documents attached is authenticated under the sea] of the
applicant company.
Basic Salary
Bonus Gratuity (Non taxable)
Contribution to Provident
fund (Non taxable)
Contribution to Super
annuation fund/Annuity fund (Non taxable)
Entertainment allowance
Special allowance
Accommodation
Gas/Electricity/Water
expenses
Children
education
Transport
and driver
Leave
Travel concession (Non taxable)
Medical
reimbursement (Non taxable)
Insurance
(a) Personal effect
(b) Medical (Non taxable)
Servant, mail, cook
Security
Telephone
Club fee
Total
Note 1 Any other item(s),
which the company wants to indicate, may be added in the appropriate group
above.
Note 2 As per explanation given under section 198 of
the Companies Act, 1956, the salary and perquisites included in the total
remuneration should be valued as per actual cost.
Note 3 Income tax liability be indicated on a
separate sheet to be attached.
STATEMENT OF INCOME TAX
LIABILITY W.R.T. REMUNERATION PROPOSAL
Remuneration of a Whole-time Director
"RESOLVED that subject
to the approval of the Central Government and pursuant to section 309(3) and
other applicable provisions of the Companies Act, 1956, and subject to such
modifications (if any) which the Central Government may direct or make in this
regard, consent be and is hereby accorded to the payment of remuneration to Mr.
PKW, a Whole-time Director of the Company of Rs. 95,000/- p.m. plus
commission at the rate of 1 % of the net profit of the company subject to
maximum of Rs. 18,000/- p.m. plus perquisites the monetary value of which
shall not exceed Rs. 95,000/- p.m."
1. Modes of payment of remuneration to Managing/whole- time
Director.-Section 309(3) permits a company to pay a Director in the Whole-time
employment or a Managing Director, remuneration either by way of monthly
payment or at a specified percentage of the net profits of the company or
partly by one way and partly by the other but such remuneration should be
limited to five per cent of the net profits for one such Director, and if there
is more than one such Director, ten per cent for all of them together.
2. Manner of remunerating director to be provided in articles.-The articles of the company
may provide the manner in which remuneration is payable to the Directors.
3. Passing of Ordinary/Special Resolution as per Articles.-A resolution of the members
in General Meeting (by Ordinary Resolution) may also be passed for the purpose.
A Special Resolution is required to be passed if the articles so require.
4. Remuneration at specified percentage to be paid to Directors for
rendering specific service.-Remuneration at a specified percentage may also be
paid to Directors other than whole-time and Managing Directors provided
those Directors render specific service to the company.
Variation in the remuneration of a Whole-time Director
"RESOLVED that subject
to the approval of the Central Government and pursuant to section 309 of the
Companies Act, 1956, the remuneration of Mr. A.B., Whole-time Director of
the Company be and is hereby modified by reimbursement of rent to Mr. A.B. in
respect of the residential premises occupied by him subject to ceiling of Rs.
22,000/- per month."
1. Perquisites to whole-time director to be within limits
prescribed in Part II of Schedule XIII.-The perquisites granted to
the whole-time director will have to be within the limits prescribed in
paragraph 2 of Section II of Part II of Schedule XIII to the Act which will not
be included in computation of ceiling specified in paragraph I of Section II of
Part II of the Schedule.
2. Contribution to provident fund etc.-Contribution to provident
fund, super annuation fund or annuity fund will be granted to a whole-
time director to the extent these either singly or put together are not taxable
under the Income Tax Act, 1961. Gratuity payable at a rate not exceeding half a
month's salary for each completed year of service and encashment of leave at
the end of the tenure will also be paid as perquisites to the whole-time
director.
3. Citizen's Charter.-As per Citizen's Charter of the Department of
Company Affairs, Schedule I, Serial No. 10, the application made to the Central
Government is required to be processed within 30 days. [Press Note No. 9/99,
dated 9-8-1999]
4. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required
to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has obtained the necessary approval of the Central
Government as may be prescribed under the provisions of the Act as detailed
below as per paragraph 17 of the Form of Companies Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.
Remuneration of Managing Director/Whole-time Director
"RESOLVED that subject
to the approval of the Central Government, Mr. ABC, the Managing Director of
the Company be paid a remuneration for his services rendered to the Company as
Managing Director during the period of his appointment/re-appointment
from 15th June, 2002 to 14th June 2007, on the terms and conditions embodied in
the draft agreement tabled before the meeting and initialled by the Chairman
for purposes of identification.
RESOLVED FURTHER that Shri
LMN, Director and SPM, Secretary of the Company be and are hereby authorised to
execute the said agreement on behalf of the Company under the common seal of
the company on the terms and conditions as per the aforesaid draft agreement or
with such modifications/alterations as may be made by the Central Government
and agreed to by the Board of Directors of the company and the Managing
Director/whole-time Director."
OR
"RESOLVED that subject
to the limits contained in Section II of Part II of Schedule XIII to the Act,
Mr. XYZ, the Managing Director of the Company be and is hereby authorised to
receive remuneration for his services as Managing Director during the period of
his appointment to this office, namely from 15th June, 2002 to 14th June 2007,
as per terms and conditions embodied in the agreement as per draft tabled
before the meeting and duly initialled by the Chairman for purposes of
identification.
RESOLVED FURHTER that Shri
LMN, Director and Shri SPM, Secretary of the Company be and are hereby
authorised to execute the said agreement on behalf of the Company and to affix
the common seal of the company thereon."
1. Separate resolutions to be passed for appointment and payment of
remuneration.-This resolution has to be passed at the General Meeting in addition to
the resolution for the appointment of the Managing Director pursuant to section
269 of the Act read with paragraph I of Part III of Schedule XIII. This
resolution is confined to the remuneration while the resolution under section
269 is for the appointment.
2. Central Government approval required when remuneration in excess of
limits specified in Part II of Schedule XIII.-If the remuneration proposed
in the resolution is within the limits of salary/commission and perquisites
laid down in Part II of Schedule XIII, no approval of the Central Government is
necessary and in that case the resolution in the alternative above may be passed.
If, however, the remuneration proposed is in excess of the limits contained in
Part II of Schedule XIII, approval of the Central Government is necessary and
unless it is so approved, remuneration in excess of the limits laid down in
Part II of Schedule XIII should not be paid.
3. Managing/whole-time Director can receive remuneration from any
company including subsidiary.-The Managing Director concerned will be allowed to
receive remuneration from any other company including any subsidiary of the
company provided such amount is subject to the ceiling provided in Section III
of Part II of Schedule XIII.
4. Excess remuneration to be refunded when not waived by Central
Government.-Any remuneration received by the Managing Director in excess of the
limits laid down in Section III Part II of Schedule XIII or in excess of the
remuneration sanctioned by the Central Government, as the case may, shall be
refunded by him unless the recovery thereof is waived by the Central Government
on an application made to it by the company under sub-section (5-B)
of section 309 of the Act.
Remuneration to Director other than Managing Director/
Whole-time Director
"RESOLVED that the
Directors of the Company other than the Managing/Whole-time Director be
paid commission of an amount equal to 1% of the net profits of the Company for
each financial year or part thereof to be computed in accordance with the
provisions of section 198(l) of the Companies Act, 1956, and that the said
amount be divided equally among the Directors (other than the
Managing/Whole-time Director)."
OR
"RESOLVED that subject
to the limits laid down in the proviso to sub-section (3) of section 309
and section 198 of the Act, the Directors of the Company be paid remuneration
of an amount equal to 3% of the net profits of the Company for each financial
year (as defined in section 2(17) of the Act) or part thereof and computed in
the manner prescribed in section 198(l) of the Act to be equally divided among
them."
1. Resolution applicable when company has Managing/whole- time
director.-The Specimen (1) of the resolution is applicable when there is a
Managing/whole-time Director in the company.
2. Resolution to be passed in case of Board Managed Company.-If, however, the company is
Board managed company having no Managing/whole- time Director and it is
proposed to remunerate them by payment of a percentage of net profit, resort
may be had to the latter format of the resolution given above.
3. Commission on higher rate to be paid after Government approval.-If it is proposed to pay
commission at a rate higher than 1% or 3% as the case may be, application to
the Central Government has to be made and only after receiving its approval,
higher commission can be paid.
4. Payment of remuneration to directors.-If the provisions on the
lines of subsection (4) of section 309 is already contained in the Articles of
Association of the company, when it was incorporated, payment of commission
within the limits of 1% or 3% of the net profits will not require any approval
of the Central Government and after passing the Special Resolution under
section 309(4), such payment can be made. However, if such a provision is not
contained in the Articles of Association of the company and a provision to this
effect is made for the first time, payment can still be made without any
approval of the Central Government provided the Directors are not receiving any
sitting fees for their attendance at the Board Meeting. On the contrary, if
they are receiving sitting fee for quite some time and thereafter it is
proposed to remunerate them by way of payment of commission pursuant to section
309(4) of the Act, it will amount to an increase in their remuneration for the
payment of which application under section 310 of the Act will be necessary.
5. Payment of commission to Managing/whole-time director.-Commission cannot be paid to
Managing/Whole- time Director under sub-section (4) but this can be
paid under sub-section (3).
6. Prescribed sitting fee for attending Board Meeting.-For attending the Board
Meeting, sitting fee not exceeding the sum of rupees five thousand has been
prescribed.
For payment of the sitting
fees exceeding the limits prescribed above, Central Government approval will be
required. They can also be paid actual travelling and halting allowance.
7. Payment of commission to ordinary director.-The Department has expressed
the view that commission to ordinary Directors can be allowed only if the
Director, render some services for which some remuneration appear justified.
However, there is no such restriction in the Act.
8. Filing of Form No. 23 along with Explanatory Statement.-Form No. 23 along with
Explanatory Statement is to be filed with the Registrar of Companies concerned
within thirty days of the passing of the resolution by paying the prescribed
fee. Non-filing will attract penalty by way of fine of up to Rs. 100/-.
Remuneration to Directors
(Another Format)
"RESOLVED that subject
to approval of the Central Government the remuneration of ordinary directors
shall be a sum of Rs._________ per month to be paid to each director on or
before the 7th day of the next succeeding month."
1. Mode of Payment.-As per the amended sub-section 309(4) any
director who is not a managing or whole-time director may now be paid
remuneration by way of monthly, quarterly or annual payment of the Central Government
grants approval for such payment.
2. General Meeting Resolution.-The resolution must be passed at an ordinary
resolution at the General Body Meeting unless the Articles require a special
resolution. See Section 309(l).
Commission on profits to Directors
"RESOLVED that in
conformity with the provisions of article _________ of the Articles of
Association of the Company and pursuant to the provisions of section 309(4) of
the Companies Act, 1956, authority be and is hereby accorded to the payment of
commission to the Directors of the Company (other than a Managing/Whole-time
Director) of one per cent of the net profits of the company to the extent the
same is in excess of rupees twenty-five lakhs in each financial year (to
be calculated in accordance with the provisions of Sections 349 and 350 of the
Companies Act) over a period of five years from the ensuing financial year
extending _________ 2002 up to and including the financial year of the company
ending as on _________ 2007, to be divided between such Directors in such
manner as the Board of Directors may from time to time determine."
1. Remuneration of ordinary Director.-In terms of sub-section
(4) of section 309, remuneration can be paid to the Directors who are neither
in the whole-time employment of the company nor are Managing Directors.
Approval of the Central Government is necessary where remuneration to ordinary
Directors is paid by way of monthly, quarterly or annual payment. Consent of
the company in a General Meeting by a Special Resolution is, however,
sufficient if such remuneration is paid by way of commission and is either
within one per cent where any whole-time or Managing Director is there or
three per cent of the profits of the company where all are part-time
Directors. Again, consent of the General Meeting and approval of the Central
Government should be obtained if the aforesaid percentage is exceeded in any
case. Sub-section (7) of this section limits the tenure of the Special
Resolution which shall remain in force for a period of five years, but may be
renewed, from time to time, by Special Resolution for further periods of not
more than five years at a time.
2. Private company exempted.-The provisions of this section do not apply
to a private company unless it is a subsidiary of a public company.
3. Commission to NRI Director.-General permission has been granted to a
company in India to make payment of commission or remuneration to its non-whole-time
director who is on a visit to India for company's work subject to the terms and
conditions mentioned in paragraph 3 of the FEMA Notification 16/RB-2000,
dated 3-5-2000.
Waiver of over payment of remuneration
"RESOLVED that in terms
of the permission accorded by the Central Government vide letter No. _________
dated the _________ _________, 2002, approval be and is hereby given to the
waiver of recovery of the sum of Rs. _________ (Rupees __________________ only)
paid in excess of the permissible limits to Mr.___________________________ a
whole-time Director, by way of salary and money value of perquisites
during the financial year ended _________, 2007."
1. Government while sanctioning appointment indicate scale of
remuneration. -The Central Government, in sanctioning the appointment of a
Managing/Whole-time Director, may indicate the scale of remuneration
being the maximum managerial remuneration pursuant to sections 198 and 309
payable in respect of any financial year.
2. Waiver of excess remuneration.-Under section 309(5B), the
company concerned shall not have any right to waive the recovery of any sum
refundable to it which is overpaid to such Whole-time/Managing Director
over and above the scale prescribed under the aforesaid sections. Section
309(5A) provides that if any Director draws or receives, directly or
indirectly, by way of remuneration any such sums in excess of the limits
prescribed by this section and without the prior sanction of the Central
Government where it is required, the Director concerned shall refund such sums
to the company and until such sum is refunded, such Director should hold it in
trust for the company.
Waiver of recovery of excess remuneration
(Another Format)
"RESOLVED that subject
to the approval of the Central Government, consent of the Company be and is
hereby given for waiving the recovery of an amount of Rs. 45,579/- paid
to Mr. XYZ, the Managing/Whole-time Director of the Company during the
period from 15th June, 2001 to 14th June, 2002 in excess of the limits
prescribed in Part II of Schedule XIII or in excess of the limits contained in
the Central Government letter No __________________ Dated _________
RESOLVED FURTHER that an
application in the prescribed form be made to the Central Government and the
Company Secretary be and is hereby empowered to take necessary action in this
regard."
1. Application to contain full justification for increase.-While making the application
, give full Justification as to in what circumstances payment of remuneration
could not be contained within the limits prescribed in Schedule XIII Part II or
of the approval of the Central Government, as the case may be. There is no
prescribed form of this application".
2. When payment not waived by Government, Company to recover
remuneration.-If the Central Government does not waive the recovery, the same has to
be recovered from the Managing/Whole-time Director. The company has no power
to waive the recovery without the approval of the Central Government.
3. Application for Central Government approval on authority of Board
Resolution.-Application can be made to the Central Government on the authority of a
Board Resolution also and approval of the shareholder may be taken thereafter
if it is insisted upon.
4. Waiver of recovery not sanctioned by Government unless excess
payment unavoidable.-Normally waiver of the recovery is not sanctioned by the Central
Government unless it is convinced that the excess payment was unavoidable.
Increase in sitting fee beyond limits
"RESOLVED that subject to the approval of the Central Government article _________ of the Articles of association of the Company be and is hereby substituted by the following:
unless otherwise determined
by the company in the General Meeting, each Director other than the Managing or
any other Director who is in the whole-time employment of the company
shall be entitled to receive out of the funds of the company for his services
in attending meetings of the Board or a committee of the Board, a fee of Rs.
5,000/- for each meeting of the Board or committee thereof attended by
him."
1. Prescribed maximum sitting fee for attending Board Meeting.-The amount of remuneration
by way of fee for each meeting of the Board of Directors or a Committee thereof
shall not exceed a sum of rive thousand rupees. [Vide R. 10B of the Companies
(Central Government's) General Rules & Form 1956, as amended vide GSR
58(E), dated 17-1-20001.
The approval of the Central
Government for increase in remuneration will be necessary if it is proposed to
pay any higher amount than prescribed as above.
2. Publication of notice in newspaper.-A notice is to be given to
the members in pursuance of section 640B and any person having any objection
may send his objection to the Central Government within thirty days of such
notice.
3. Documents to be attached with application.-There is no prescribed form
of this application. The following documents should be attached to the
application:
(i) Two certified copies of
each of the notices published in English and in vernacular paper under section
640B;
(ii) A copy of the Board
Resolution or the resolution passed in the General Meeting, as the case may be,
regarding the increase in remuneration;
(iii) A copy of the annual
accounts of the company for the last two years. If your company has already
submitted this along with other applications to the Department, then a copy of
such of the annual accounts which had not been furnished to the Department
should be sent;
(iv) A copy of the agreement, if any;
(v) Evidence showing payment
of the prescribed fees under the Companies (Fees on Applications) Rules, 1999.
4. Justification for increasing remuneration.-Full Justification should be
given in the application for increasing the remuneration payable to a Director
or Directors along with full details of perquisites, valued in monetary terms,
to be paid to the Director.
5. Forwarding of application to Registrar.-A copy of the application
together with a copy of each of the documents enclosed thereto should be given
to the Registrar simultaneously with the application to the Central Government.
6. Payment of remuneration over and above sitting fees require Central
Government approval.-If a Director is only paid sitting fees for attending Board Meetings,
then any payment of remuneration under section 309 to him over and above such
sitting fees will attract section 310 and the approval of the Central
Government should be obtained even though such remuneration is paid to him for
the first time.
7. Central Government approval required for making any payment to
director. -
Approval of the Central Government should be obtained under section 310 for
making any payment to the Director for doing any work for the company which
involves 'rendering of services ordinarily expected to be rendered by that
Director'. Such approval must be obtained before any remuneration is actually
paid to the Director and not afterwards. No approval of the Government will be
given to such payment of increased remuneration with retrospective effect.
8. Prior approval of Central Government required for any monetary
benefit to retired Managing/whole-time director or Manager.-If any monetary benefit,
such as, gratuity, salary in lieu of leave, etc., is allowed to any retired
Managing or Whole-time Director or Manager of the company for past
services rendered by them which they are not entitled to receive as per their
service contract, then such payment should be made with prior approval of the
Central Government under section 3 10 of the Companies Act, 1956, for increase
in their remuneration.
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 company has obtained necessary approval of the Central Government as may be
prescribed under the provision of the Act as detailed below as per paragraph 17
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
Increase in sitting fees within
limits
S. 310-Increase in sitting Fees within the prescribed
limits-Special Resolution
"RESOLVED that the
sitting fees of each director attending a Board Meeting be increased to Rs.
5,000/- per meeting on and from the 1st September, 2002."
1. Central Government's approval not required- Increase of directors'
sitting fees does not require Central Government approval if the amount of such
fees does not exceed the sum of five thousand rupees per meeting per person
irrespective of the paid-up share capital of the company. [w.e.f. 17-1-2000].
2. FEMA Regulations.-General permission has been granted under FEMA
(Receipt and Payment to a Person Resident Outside India) Regulations, 2000, to
a company in India to make payment of sitting fees to its non-whole-time
director who is on a visit to India for company's work subject to the terms and
conditions mentioned in paragraph 3 of FEMA Notification No. 16/RB-2000,
dated 3-5-2000.
Increase in remuneration without government approval
RESOLVED that pursuant to
the provisions of section 310 of the Companies Act, 1956, the consent of the
Company be and is hereby accorded to the increase in the remuneration of Mr. X,
the Managing Director of the company from Rs. 55,000/- per month to Rs.
80,000/- per month by way of salary with effect from 15th June, 2002, other
terms and conditions including commission and perquisites remaining unchanged.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to make necessary
application to the Central Government for seeking their approval to the
increase in the remuneration and to do all such acts and things as may be
necessary in this regard."
OR
"RESOLVED that the
Company having become a deemed public company with effect from 15th June, 2002,
pursuant to the provisions of section 43A of the Companies Act, 1956, approval
of the Central Government be sought to the payment of sitting fee of Rs.
_________ to the Directors of the Company for attending the meeting of the
Board of Directors of the Company and the Secretary of the Company be and is
hereby directed to take all necessary action in this regard."
OR
"RESOLVED that approval
of the Company be and is hereby given to the increase in the remuneration by
way of perquisites of Mr. X, the Managing Director of the company as shown
below:
1. Gratuity,
2. House Rent Allowance,
3. Pension,
4. Medical facilities.
With effect from 15th June,
2002, and up to the expiry of the term of his appointment that is 31st March,
2006.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to make necessary
application to the Central Government pursuant to section 310 of the Act in the
prescribed form."
1. Alteration of Articles.-If there is no provisions in the Articles of
Association of the company, first insert such an article in the Articles of
Association. For alteration of articles follow the procedure prescribed in the
Practice Notes under earlier Resolution.
2. No approval required when increase within limits of Schedule XIII.-If the remuneration after
increase is within the limits laid down in Part II of Schedule XIII, no
approval of the Central Government is required. Now, a company can pay minimum
Rs. 75,000/- per month as salary even if there are no profits or the
profits are inadequate, where the effective capital is less than Rs. 1 Crore.
3. Payment of sitting fee.-If the sitting fee being paid to the
Directors of a deemed public company prior to the 15th June, 1988, was more
than prescribed by the Central Government under second proviso to section 310
of the Act, approval of the Central Government is necessary. However, if the
increased fee is within the limits prescribed, no approval of the Central
Government is required.
4. Central Government approval not required when payment of sitting fee
and commission within limit.-In cases where Directors are only getting sitting
fee and if it is proposed to pay them commission also and the payment of the
commission is within the limits prescribed in Section I, II and III of Part II
of Schedule XIII no approval of the Central Government is necessary. In any
other case, an application under section 310 will be required.
5. Monetary benefits to past or retiring Managing/whole-time
director/Manager come within purview of section.-The giving of monetary
benefits in any form to past or retiring Managing or Whole-time Director
or Manager also comes within the purview of this section and requires the
approval of the Central Government.
6. Central Government approval required for increase in remuneration
even increase within what is permitted by section 309.-Even in cases where the
intended increase may be well within what is permitted by section 309 (e.g.,
five per cent of the net profits payable to a Whole-time Director without
the approval of the Central Government) it will requite approval of the Central
Government under section 310, if it is anincrease in remuneration of the nature
provided in that section.
Increase in remuneration to Directors with Government Approval
"RESOLVED that pursuant
to the provisions of section 310 and other applicable provisions, if any, of
the Companies Act, 1956, and the laws prevailing for the time being and subject
to the approval of the Central Government, as may be required and such
alterations and modifications, if any, that may be effected by the Central
Government in granting such approvals pursuant to any change in policies or
laws, guidelines, rules and regulations relating to managerial remuneration or
in response to any applications for review and reconsideration submitted by the
company in that behalf which the Board of Directors be and is hereby authorised
to agree to, consent of the Company be and is hereby accorded to the payment of
enhanced remuneration and perquisites to Shri. __________________ who was re-appointed
as Managing Director at the Extra-ordinary General Meeting of the members
of the Company held on _________ for a period of five years effective from
_________ as per the terms and conditions set out in the supplemental agreement
proposed to be entered into by the Company, the draft whereof is placed before
the meeting and duly initialled by the Chairman for purposes of identification,
with effect from _________ and till the expiry of his present term of office,
that is _________ without affecting in any way the payment of the present
remuneration and perquisites already sanctioned by the Central Government and
that the Board of Directors be and is hereby authorised to alter and vary such
revised terms and conditions in accordance with the laws from time to time in
force as may be agreed to by the Directors and acceptable to Shri.
__________________ provided that such alterations are not less beneficial to
the company.
RESOLVED FURTHER that
subject to the provisions of section 198 and other applicable provisions, if
any, of the Companies Act, 1956, the same remuneration and perquisites as set
out in the draft supplemental agreement proposed to be entered into between the
company and Shri. __________________ be paid and granted to Shri.
__________________ as minimum remuneration, notwithstanding that in any
financial year of the Company during the remaining term of his office as the
Chairman and the Managing Director, the company has made no profits or the
profits made are inadequate.
RESOLVED FURTHER that the
Board of Directors be and is hereby authorised to take such steps as may be
necessary and desirable to give effect to this resolution."
1. Central Government approval required when increase in remuneration
not in consonance with Schedule XIII.- Increase in remuneration of any director
including a managing or whole-time director, requires Central Government
sanction so long as the same is not in consonance with Schedule XIII. An
increase can be effected only by amending some provision or other, or passing
some resolution, for a company cannot act except by resolutions passed by the
Board or in general meetings.
Increase in remuneration with Government Approval
(Another Format)
"RESOLVED that subject
to the approval of the Central Government, consent be and is hereby accorded to
the payment of increased remuneration to Mr. A.B., the Managing Director of the
company in terms of the supplemental agreement entered into between the company
and Mr. A.B., a copy of which is placed before the meeting and initialled by
the Chairman.
1. Private Companies Exempted.-Central Government approval is not required
in case of increase of remuneration of managing director of a private company
which is not a subsidiary of a public company.
2. Central Government's approval not needed.-If the increase in
remuneration is only by way of a fee for each meeting of the Board or a
committee thereof attended by any such director and the amount of such fee
after such increase does not exceed Rs. 5,000/-, no approval of the
Central Government is needed for such increase.
3. Prescribed form of the application.-The application to the
Central Government should be made in Form No. 26 along with certified copies of
annual accounts for last four financial years, shareholders resolution,
newspaper clippings published under section 640B and requisite application by
way of treasury challan or demand draft as prescribed under the Companies (Fees
on Applications) Rules, 1999.
Director to receive sitting fees from subsidiary
"RESOLVED that pursuant
to section 310 of the Companies Act, 1956, and other applicable provisions, if
any, Mr. __________________ a Director of the company be and is hereby allowed
to draw sitting fees from the subsidiary of the company M/s__________________
Ltd., in which he is a Director."
1. Special Resolution required for sitting fee from subsidiary.-This will have to be passed
as a Special Resolution.
2. Filing of Form No. 23 along with Explanatory Statement with
Registrar.-Form
No. 23 along with
Explanatory Statement is to be filed with the Registrar of Companies concerned
on payment of requisite filing fee within thirty days of' the passing of the
resolution. Non-filing will attract penalty by way of fine of upto Rs.
100/-.
"RESOLVED that the
existing article 75 of the Articles of Association of the company be and is
hereby substituted by the following article:
"75. The sitting fee payable to Directors for
attending the meeting of the Board of Directors or any of its Committees shall
be Rs. 5,000/- for every meeting. They shall also be entitled to
reimbursement of travelling expenses and halting charges incurred by
them."
1. Changes made in prescribed Maximum sitting fee.-Prior to the coming into
force of the Companies (Amendment) Act, 1988, the maximum sitting fee which
could be paid to Directors other than the Managing/whole-time Director of
the company was Rs. 250/-. This was increased to an amount which may be
prescribed by the Central Government from time to time. The Central Government
prescribed Rs. 250/- to Rs. 1000/- as the sitting fee effective
from 15th June, 1988 up to 26-8-1993 as under:-
If the paid-up capital
is Rs. 5 lakhs Rs.
250
If the paid-up capital
is up to Rs. 5 crores Rs.
500
If the paid-up capital
is up to Rs. 10 crores Rs.
750
If the paid-up capital
is over Rs. 10 crores Rs.
1000
With effect from 27-8-1993
the amount of remuneration by way of sitting fee for each meeting of the Board
of Directors or a Committee thereof shall not exceed a sum of two thousand
rupees, irrespective of the amount of paid-up share capital of a company.
[Vide R. 10B of the General Rules & Forms, 1956, as amended by GSR 581(E),
dated 27- 8-1993].
With effect from 17-1-2000,
the amount of remuneration by way of sitting fee as aforesaid has been further
increased to Rs. 5,000/- under said Rule 10-B by GSR 58(E).
Therefore, if the increase
in the sitting fee is up to the prescribed limit, no approval of the Central
Government is necessary. The approval of the Central Government will be necessary
i it is proposed to pay any higher amount than prescribed. Full justification
will have to be given for paying higher amount.
2. Follow procedure for alteration of articles.-For alteration of articles,
follow the procedure given in Practice Notes under Resolution No. 809.
3. Filing of Form No. 23 along with Explanatory Statement with
Registrar.-Necessary return in Form No. 23 along with Explanatory Statement be
filed with the Registrar of Companies concerned within thirty days of passing
of the Special Resolution by paying the prescribed filing fee. Non-filing
will attract penalty by way of fine of upto Rs. 100/-.
Increase in remuneration on re-appointment of Managing
Director
"RESOLVED that subject
to the approval of the Central Government, if necessary, the remuneration
payabl6 to Mr. X on his re-appointment as Managing Director of the
Company with effect from 15th June, 2002, for a period of five years be fixed
at Rs. 2,25,000/- by way of salary plus I% commission on net profits of
the Company and perquisites as per draft of the agreement tabled before the
meeting and initialled by the Chairman for purposes of identification.
RESOLVED FURTHER that Shri
LMO, Director and Shri SPM, Secretary of the Company be and are hereby
authorised to execute the agreement on behalf of the Company after
incorporating therein modifications, if any, made by the Central Government,
and to affix the common seal of the company thereon."
1. Central Government approval not required when increase in
remuneration within limits prescribed in Part II of Schedule XIII. -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.
2. No return to be filed with Registrar and resolution to be passed if
proposed increase covered by earlier resolution.-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.
3. Private company exempted.-The section does not apply to a private
company unless it is subsidiary of a public company.
Increase in remuneration on re-appointment of Managing
Director (Another Format)
S. 311-Increase in remuneration of Managing Director on
reappointment-Ordinary Resolution
"RESOLVED that subject to the approval of the Central Government, consent be and is hereby accorded to the re-appointment of Mr. A.B. as Managing Director of the Company for a further period of 5 years on a revised remuneration of Rs._________ and subject to the other terms and conditions set out in the agreement, a copy of which is placed before the meeting duly initialled by the Chairman."
1. Approval of Central Government.-If the original remuneration
had been fixed at a particular percentage or figure, an increase of it after
the commencement of this Act within the limits allowed by section 309 is
permitted without the sanction of the Central Government. The approval under
section 311 is not necessary in cases where the increase is in accordance with
Schedule XIII.
2. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required
to obtain a Compliance Certificate from a secretary in whole-time practice
to be filed with the Registrar of Companies mentioning therein inter alia
that the company has obtained necessary
approval of the Central Government as may be prescribed under the provision of
the Act as detailed below as per paragraph 17 of the Form of Compliance
Certificate appended to the Companies (Compliance Certificate) Rules, 2001.
Appointment of alternate Director
"RESOLVED that pursuant
to the provisions of section 313(l) of the Companies Act, 1956, authority be
and is hereby given to the Board of Directors of the Company to appoint a
suitable person as alternate Director to act for Mr. AB who is likely to stay
in the U.S.A. during large part of the year 2002 and that the alternate
Director so appointed will hold office only in the absence of Mr. A.B. from the
State (in which meetings of the Board are ordinarily held) and shall vacate his
office as and when Mr. A.B. returns to this State."
1. Alternate director to comply with all provisions relating to a
director.-Apart from members passing a resolution for appointment of alternate
Director, articles may also authorise the Board of Directors to appoint
alternate Director. In such a case, members' resolution is not required.
Although the alternate Director acts for the original Director, he is to comply
with all the provisions of the Companies Act, 1956, relating to a Director, it
is required to lodge with the company a declaration, pursuant to section 264(l)
of the Act. On being appointed, he is to file (through the company) Form No.
29, pursuant to section 264(2), with the Registrar of Companies, testifying his
consent to act as a Director. This process is to be repeated every time fie
vacates office or is appointed as alternate Director. Besides the alternate
Director is also subject to the liability, rights and duties of that of any
other Director, e.g., section 274 relating to disqualification. Section 283 as
re(yards vacating of office and section 314 regarding the holding o any office
or place of profit and also sections 268, 269, 309, 310 and 311 so far as they
are applicable to other Directors, he is also bound by the provisions of
sections 297 and 29.9 and must disclose the nature of' his concern or interest,
if any, in contracts and arrangement of the company. Sections 300 and 301 also
apply to him.
Remuneration of a relative of a Director
"RESOLVED that subject to the approval of the Central 6overnment pursuant to sub-section (1B) of section 314 the authority be and is hereby accorded to the Board of Directors of the Company to appoint Mr. JKW as Sales Manager holding office of profit under the Company, he being a relative of the Whole-time Director, Mr. PKW, of the Company, for a period of five years with effect from _________, 2002, pursuant to the terms and conditions including those relating to remuneration as contained in an agreement between the Company of the one part and the said Mr. __________________ on the other part, a copy whereof initialled by the Chairman was placed before this meeting."
1. Holding of office or place of profit by relative of a director.-Without obtaining consent of
the company by Special Resolution at the first General Meeting after the
appointment of a relative (except as Director) or his relative etc., to hold
any office or place of profit which carries a total monthly remuneration of Rs.
10,000/- or more, the incumbent shall be deemed to vacate his office or
its office as such. Remuneration payable to a Director as such Director or
Manager, banker or trustee for the debenture-holders is excluded from the
purview of the section. The approval of the Central Government is required in
addition to Special Resolution if a partner or relative of a Director or
Manager or a firm in which such Director or Manager or their relative is a
partner or a private company in which such Director or Manager or their
relative is a Director or member holds office or place of profit which carries
a total monthly remuneration of not less than Rs. 20,000/-.
2. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required
to obtain a Compliance Certificate from a secretary in whole-time
practice to be filed with the Registrar of Companies mentioning therein inter
alia that the company has obtained necessary approvals from the Board of
Directors, members and previous approval of the Central Government pursuant to
section 314 of the Act, wherever applicable as per paragraph 11 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate) Rules,
2001.
Holding of office or place of profit by Director
"RESOLVED that consent
of the Company be and is hereby given to the appointment of Mr. X, a relative
of Mr. Y, a Director of the company."
OR
"RESOLVED that Messrs
LMN, consultants, a firm in which Mr. Y's relative is a partner or XY Private
Ltd., in which Mr. Y is a Director or member, be and is hereby appointed as
consultants to the Company on a monthly remuneration exclusive of all out-of-pocket
expenses for a period of five years commencing from 15th June, 2002."
OR
"RESOLVED that Mr. X, a
Director of the Company be and is hereby appointed to hold an office of profit,
namely, legal adviser under the company on the terms and conditions, as per
draft placed before the meeting and initialled by the Chairman for purposes of
identification."
1. Expression 'Place of Profit'.-The office of profit has
been defined in sub-section (3) of section 314. In the case of a
Director, if he receives by way of remuneration any amount in excess of what he
is entitled to in his capacity as a Director, he is deemed to hold an office of
profit. In other cases, any payment made to a relative of a Director or to a
firm or a private company in which the Director is interested, being a partner
in the firm or a member/Director in the private company, shall be deemed to be
holding office or place of profit. In all these cases, it is necessary to pass
a Special Resolution of the company.
2. Payment of monthly remuneration exceeding prescribed limit.-If the monthly remuneration
exceeds the limit prescribed by the Central Government under sub-section
(1)(b) of section 314 of the Act, approval of the Central Government will be
required for which an application has to be made in the prescribed form.
3. No approval required when remuneration paid within prescribed limit.-No approval is required if
the remuneration paid is within the prescribed limit.
4. Payment of monthly remuneration attracts sub- section (1B) but
not lump sum payment.-Sub-section (1B) of section 314 is attracted
if payment is made by way of monthly remuneration; lump sum payment for
services rendered will not attract this section.
5. Central Government approval required when remuneration fixed on time-scale
exceeds limit prescribed by sub-section (1B).-Remuneration may be fixed on
a time scale. Whenever the scale exceeds the limit prescribed under sub-section
(1B), application to the Central Government will be necessary. The object
underlying this section is to prevent abuse of the power by the Directors to
confer benefits on their relatives, firms etc.
6. Section not applicable when employee becoming relative of director
subsequently.-If the person holding the office of profit was not a relative of the
Director, when ]Initially appointed in the company but becomes so related after
his appointment, this section will not be applicable.
7. Appointment of director to office of profit irrespective of
remuneration requires special resolution.-In the case of a Director,
if he holds an office of profit irrespective of the remuneration paid to him, a
Special Resolution is necessary.
8. Remuneration exceeding limit prescribed requires special resolution
and Central Government approval.-Special Resolution pursuant to sub-section (1)
and approval of the Central Government pursuant to sub- section (1B)
shall be necessary if the remuneration paid exceeds the limit prescribed.
9. Section applicable to private companies but remuneration payable to
director not attracted.-This section applies even to private companies but
the remuneration paid to the Directors in their capacity as Director does not
attract this section.
10. Section not applicable to rendering of professional services by
Advocate or solicitor unless paid on monthly basis.-An Advocate or Solicitor
holding the office of Director and being paid for his services in his
professional capacity does not attract this section unless fie is paid monthly
remuneration by way of retainer. Prior approval is not necessary provided
Special Resolution is passed soon after the appointment.
11. Fresh Special Resolution required for subsequent appointment on
higher remuneration except giving increment.-Fresh approval will be
necessary for every subsequent appointment on a hi-her remuneration not
covered by the previous resolution. However, if the appointment is on a time
scale of pay, fresh approval will not be necessary while giving increment in
that scale.
12. Office or place of profit include appointment as sole selling
agent.-Office
or place of profit as explained in sub-section (3) will obviously include
selling and buying agents receiving commission and/or salary. The expression
perquisites will cover any advantage or benefit whether in kind or even service
if it can be measured in terms of money or money value. Rendell v. Went, (1964)
2 All ER 464 (HL).
13. Payment of remuneration over and above to which Director entitled
as Managing/whole-time director, deemed to be holding office or place of
profit.-Unless
the remuneration paid to a Director is over and above the remuneration to which
he would be entitled as Managing or Whole-time Director, his holding of
office would not be deemed to be an office or place Of Profit under the company.
14. Managing/whole- time director not to augment income either
directly or through 'Wife and son by associating with selling agents.-Where a selling agency arrangements
already exist, a condition would be imposed at the time of conveying sanction to
the appointment/re-appointment of Managing or Whole-time Director
or Manager, as the case may be, to the effect that he shall not either directly
or through his wife and son or sons, augment his income from the company by
being associated with the selling agents.
15. Section not applicable to contract for sale or purchase of material
by a director or his relative etc.-The section is not applicable to a contract
for sale or purchase of a material by a company to and from a Director,
relative etc.
16. No omnibus resolution to be passed.-No omnibus resolution can be
passed by a company under the provisions of section 314. The Special Resolution
contemplated in the section should be passed in respect of individual case.
Appointment of Director as a consultant
"RESOLVED that consent
of the Company be and is hereby accorded under section 314(l) to Mr. BCF, a
Director of the company holding the position of a consultant of the Company for
a period of four years with effect from _________, 2002,
authorising the said Mr. BCF, a Director of the company, to draw a
remuneration of Rs. _________ per month with entitlement
of being reimbursed of travelling and hotel expenses incurred by him in and about
the performance of his duties as a consultant and that remuneration hereof or
any other payment in connection with his duties paid/payable (if any) so far to
the said Mr. BCF, be and is hereby ratified."
Director when deemed to be holding office or place of profit.-A Director is deemed to be
holding an office or place of profit where, in addition to remuneration payable
to him as Director he receives from the Company remuneration for other services
rendered otherwise than as a Director.
Appointment of a Director as a
consultant
(Another Format)
"RESOLVED that pursuant to section 314(l) of the Companies Act that Mr. BCF, a Director of the Company, be and is hereby appointed as a consultant of the company for a period of four years with effect from _________, 2002, at a remuneration of Rs. _________ per mensem besides being entitled to reimbursement of travelling and hotel expenses incurred by him in connection with the performance of his duties as a consultant and otherwise upon terms and conditions set forth in an agreement to be made between the Company and Mr. BCF, a draft whereof is submitted to this meeting and for the purposes of identification, initialled by the Chairman, and that the Board of Directors of the Company be directed to enter into such agreement in the name and on behalf of the company."
1. Provision applicable to salaried directors.-Directors, who are not
taking any salary or commission cannot be said to be falling within the ambit
of the provisions of section 314(l)(a) as per sub-section (3)(a) of
section 314 of the Act.
2. Remuneration for services rendered in any other capacity.-Any director getting
remuneration for services rendered by him in any capacity over and the
remuneration he is entitled to as a director should also be treated as total
remuneration of that director unless the services so rendered are of a
professional nature and in the opinion of the Central Government the director
possesses the requisite qualification for the practice of the profession as per
section 309(l) proviso (a) and (b), of the Act.
Appointment of relative of a
Director to an office or place of
profit (Another Format)
"RESOLVED that pursuant
to the provisions of section 314(l B) of the Companies Act, 1956, and subject
to the approval of the Central Government, consent of the Company be and is
hereby accorded to Mr. RTS, a relative of Mr. KKW, a Director of the Company,
to hold an office or place of profit as Commercial Officer of the company in
the Sales Division with effect from the _________ 2002
_________, on the following terms:
(a)
Basic salary-Rs. _________ per mensem;
(b) Dearness
allowance at the rate of ten per cent on the basic salary;
(c) Rent free
residential accommodation;
(d) Contribution to
provident and super annuation funds as per the rules of the company;
(e) Medical benefits for
self and family provided that the total expenses on this account should not
exceed Rs. _________ being one month's basic
salary;
(f) Leave and
leave travel allowance as per the rates of the company."
1. "Remuneration"-Meaning.-This is a typical case where
the provisions of subsection (1B) of section 314 is applicable and the approval
of the Central Government is necessary because of the meaning of the word
'remuneration' as used in the Act. Remuneration for the purposes of section 314
has not been defined specifically but in the section itself, office or place of
profit has been clarified to include commission/salary. Also included under
this term are perquisites which obviously would include any advantage or
benefit, whether in kind or otherwise so long as it can be measured in terms of
money or money value (Rendell v. Went, (1964) 2 All ER 464 (H.L.)). It is safe,
therefore, to rely on the Explanation under section 198 of the Act, although it
is specifically said therein that the Explanation is applicable only in
reference to and for the purposes of sections 309, 310, 311, 318 and 387.
Accordingly, remuneration, pursuant to this Explanation, would include
(a) any expenditure incurred
by the company in providing any rent-free accommodation or any other benefit
or amenity in respect of accommodation free of charge, to any of the persons in
managerial category;
(b) any expenditure incurred
by the company in providing any other benefit or amenity free of charge or at a
concessional rate;
(c) any expenditure incurred
by the company in respect of any obligation or service which but for such
expenditure by the company, would have been incurred by any of such persons;
(d) any expenditure incurred
by the company to effect any insurance on the life of or to provide any
pension, annuity or gratuity.
2. Approval of Central Government to be obtained when salary plus
perquisites exceed the prescribed limit.-The perquisites payable by
the company added with salary and dearness allowance if exceed the ceiling
prescribed under sub-section (1B) of section 314 of the Act, it is
advisable that in such cases the approval of the Central Government is sought
for the appointment of a relative of Director to hold office or place of profit
under the company.
Appointment of relative of
a Director to an office or place of
profit (Another Format)
"RESOLVED that pursuant
to the provisions of section 314(1B) of the Companies Act, 1956, and subject to
the approval of the Central Government, consent of the Company be and is hereby
accorded to Mr. RTS, a relative of Mr. KKW, a Director of the Company to hold
an office or place of profit as Commercial Officer of the company in the Sales
Division with effect from the _________,
2002 on the
following terms :
(a)
Basic salary-Rs. _________ per mensem;
(b) Dearness
allowance at the rate of ten per cent on the basic salary;
(c) Rent free
residential accommodation;
(d) Contribution
to provident and superannuation funds as per the rules of the company;
(e) Medical benefits for
self and family provided that the total expenses on this account should not
exceed one month's salary in a year or three months' salary over period of
three years;
(f) Leave and
leave travel allowance as per the rules of the company.
1. Computation of prescribed remuneration.-It should be noted that only
that remuneration which is paid on monthly basis would enter into the
computation of remuneration for the purpose of determining the applicability of
the provision. Ravindra Kumar Sanyal v. Auto Lamps Ltd., (1984) 55 Comp Cases
742 (Delhi).
Increase in salary etc. to a
relative of a Director
"RESOLVED that subject
to the approval of the Central Government and in pursuance of the provisions of
section 314 of Companies Act, 1956, consent of the Company be and is hereby
accorded to Mr.__________________ a relative of Mr. __________________ a Director of the company,
to hold an office or place of profit as the Commercial Manager of the Company
with effect from _________, 2002 _________ and at an enhanced/changed remuneration as detailed
hereunder:
(a)
Basic salary-Rs. _________ per mensem;
(b) Dearness allowance-at
the rate of fifteen per cent. of the basic salary;
(c) Rent-free
residential accommodation, partly -furnished;
(The other terms remaining
the same as indicated in the previous resolution)".
1. Special resolution required for appointment on higher remuneration
except to appointment on time-scale already approved.-Explanation to sub-section(l)
of section 314 of the Act states that for the purpose of an appointment of the
Director and/or his relative to an office or place of profit, a Special
Resolution according the consent shall be necessary for every appointment in
the first instance and every subsequent appointment except where an appointment
on a time scale has already been approved by the Special Resolution.
Appointment of an employee
as a Director
"RESOLVED that Mr.
A.B., the Works Manager of the Company be and is hereby appointed a Director of
the company.
RESOLVED FURTHER that
consent of the Company be and is hereby accorded under section 314(l) to Mr.
A.B. continuing to hold the position of Works Manager of the company on a
monthly remuneration of Rs.
_________ per
month."
1. Appointment of employee as director.-On the employee being
appointed a Director, a further resolution under section 314(l) has to be
passed consenting to his holding the place of profit already held by him.
2. Works Manager's appointment as director would be a whole-time
director.-In terms of Explanation under section 269 the Works Manager being in
the whole-time employment of the company will be deemed as a whole-time
Director of the company.
3. Approval of Central Government required unless appointment in
accordance with Schedule XIII.-The appointment would require the approval of the
Central Government under section 269 if it is not in accordance with Schedule
XIII to the Act.
Appointment of Managing
Director in more than one company
"RESOLVED that pursuant
to section 316 read with Paragraph I of Part III of Schedule XIII of the
Companies Act, 1956, Mr.
__________________ being
the Managing Director of __________________
company, be and is
hereby appointed as the Managing Director of the Company for a period of five
years with effect from _________ 2002 at a remuneration of
Rs. _________ per month.
1. Board Resolution with consent.-Before taking the approval
of the shareholders in general meeting as required under paragraph I of Part
III of Schedule XIII, such appointment should be approved by a resolution
passed at a meeting of the Board of Directors with the consent of all the
directors present at the meeting and of which meeting and of the resolution to
be moved thereat, specific notice has been given to all the directors then in
India.
2. Circular Resolution.-Appointment of a person working as a managing
director in one company as a managing director in another company by a circular
resolution without consent of the other directors was held to be non-compliance
with statutory provisions. Desein (P.) Ltd. v. Elektrim India Ltd., (2001) 3
Comp LJ 459 (CLB).
Making liability of the
Directors unlimited
"RESOLVED that,
pursuant to the authority conferred by article _________ of
the Articles of Association of the Company, clause _________ of
the Memorandum of Association of the Company be amended, by deleting clause _________ and substituting a new clause _________ therefor as follows:
'The liability of the
members is limited provided, however, that as respects Directors who have
consented pursuant to the provisions of section 323 of the Companies Act, 1956,
the liability of all such Directors shall be unlimited."
1. Authority to amend memorandum to exist in Articles for making
unlimited liability of director.-Authority to amend the memorandum of the company
should be provided in the articles for the purpose of making unlimited the
liability of its Directors or of any Director or Manager. Where the articles do
not so provide, and the liability of such person is sought to be made
unlimited, the articles of the company must first be altered so as to confer
the necessary authority and then only the memorandum can be altered so as to
make the liability of the Director unlimited.
Unlimited liability of Directors
(Another Format)
"RESOLVED that clause III of the Memorandum of Association of the Company be and is hereby substituted by the following clause:
'III. The liability of the
members is limited subject, however, that the liability of a member who is also
a Director of the company shall be unlimited'."
1. Articles must authorise for insertion of provision in Memorandum for
making unlimited liability of directors.-There should be an authority
in the Articles of Association of the company for inserting such a provision in
the Memorandum of Association. If there is no such provision, first carry out
alterations in the Articles of Association of the company.
2. Follow procedure for amendment of Memorandum and Articles.-Follow procedure for
amendment in the Memorandum of Association and the Articles of Association
prescribed in the Practice Notes under earlier Resolution.
3. Filing with Registrar.-Carry out the amendment in all the copies of the
Memorandum and Articles of' Association and file the amended copies thereof
with the Registrar of Companies concerned along with Form No. 23 within thirty
days on payment of prescribed filing fee. Non-filing will attract penalty
by way of fine of up to Rs. 100/-.
4. Resolution not to have retrospective effect.-The resolution will not be
applicable retrospectively. In other words, it will not apply to an existing
Director holding such office before the alterations are made unless he has
consented to his liability becoming unlimited. However, on his re-appointment
as a Director after the alteration has been carried out, his liability will
become unlimited.
Providing guarantee or security in connection with a loan
"RESOLVED that pursuant
to the provisions of section 372A of the Companies Act, 1956, the Board of
Directors of the Company be and is hereby authorised, to give any guarantee or
provide any security in connection with loans made by any other person to or to
any other person by any body corporate up to a limit of Rs. 70 lakhs
outstanding at any time on such terms and conditions as the Board may think
fit, provided that such giving of guarantee or providing of security is in the
opinion of the Board made only for furthering the business interest of the
company."
1. Special Resolution necessary for providing guarantee in certain
cases.-If
guarantee is given or security is provided in connection with a loan made which
exceeds 60% of the company's paid up share capital and free reserves or 100% or
more of the company's free reserves whichever is more under section 372A(l)(b)
of the Companies act, 1956, then such giving of guarantee or providing of
security should be previously approved by a special resolution. The Board of
Directors of a company may give guarantee, without being previously authorised
by a special resolution if,
(a) a resolution is passed
in the meeting of the Board authorising to give guarantee in accordance with
the provisions of this section;
(b) there exists exceptional
circumstances which prevent the company from obtaining previous authorisation
by a special resolution passed in a general meeting for giving a guarantee; and
(c) the resolution of the
Board under clause (a) is confirmed within twelve months, in a general meeting
of the company or the annual general meeting held immediately after passing of
the Board resolution, whichever is earlier.
2. Guarantee includes counter guarantee.-It may be noted that
guarantee includes counter guarantee.
3. Approval of Financial Institution.-Sub-section (3) of
section 372A with effect from 31st October, 1998 requires prior approval of the
public financial institution referred to in section 4A of the Act where any
term loan of the company is subsisting. Prior approval of a public financial
institution shall not be required where the aggregate of the loans and
investments so far made, the amounts for which guarantee or security so far
provided to or in all other bodies corporate, along with the investments,
loans, guarantee or security proposed to be made or given does not exceed the
limit of sixty per cent., of the aggregate of paid up capital and free
reserves, if there is no default in repayment of loan instalments or payment of
interest thereon as per the terms and conditions of such loan to the public
financial institution.
4. Compliance Certificate.-Companies having paid-up share capital
of less than Rs. 2 Crores but equal to
or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from
a secretary in whole-time practice to be filed with the Registrar of
Companies mentioning therein inter alia that the company has made loans and
investments, or given guarantees or provided securities to other bodies
corporate in compliance with the provisions of the Act and has made necessary
entries in the register kept for the purpose as per paragraph 25 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001
5. Postal Ballot.-Listed companies are required to pass the special
resolution for giving loans or extending guarantee or providing security in
excess of the limit prescribed under sub-section (1) of section 372A
through postal ballot as per rule 4(g) of the Companies (Passing of the
Resolutions by Postal Ballot) Rules, 2001.
Providing guarantee to a lender as security for lending to
another body corporate
"RESOLVED that pursuant
to the provisions of section 372A of the Companies Act, 1956, authority be and
is hereby accorded to a guarantee agreement executed by the Company under its
common seal in terms of the draft which has been produced at this meeting and
for the purpose of identification signed by the Chairman thereof jointly with
M/s. PQR & Company Limited, Rushabh Managemet Infosys, for repayment of a loan of Rs. 100 lakhs (with interest)
taken by M/s. NINO Engineering Company Ltd., Nagpur 440012, from the
Commonwealth Development Finance Company Ltd., (U.K.), portion of such
guarantee being subject to the limit of Rs. 90 lakhs."
1. Central Governments' approval no longer required.-With retrospective effect
from 31st October, 1998, the requirement of Central Government's approval has
been totally dispensed with, with the insertion of section 372A by the
Companies (Amendment) Act, 1999.
2. Special Resolution Required.-Passing of Special
Resolution will be required if the amount of guarantee given to a lender as
security for lending to another body corporate exceeds 60% of the paid up share
capital and free reserves of the company or 100% of the company's free
reserves, whichever is more.
Providing guarantee to a Board for advancing loan to an
association of which the company is a member
(Another Format)
S. 372A - Providing guarantee for another lender-Special
Resolution
"RESOLVED that pursuant
to the provisions of section 372A of the Companies Act, 1956, authority be and
is hereby accorded to a guarantee being given by the Company in terms of the
draft which is produced at the meeting and for the purpose of identification
initialled by the Chairman, in favour of the State Bank of India, in connection
with the advances given by the State Bank of India to the _________ Association, such guarantee being subject to a
maximum of Rs. 80 lakhs."
1. Company giving guarantee to Bank.-The provisions of section
372A would be applicable to the guarantee given by a company to the bank for
loans given by the banks.
Providing guarantee in connection with loan(s)
"RESOLVED that pursuant
to the provisions of section 372A of the Companies Act, 1956, and other
applicable provisions, if any, of the Companies Act, 1956, consent of the
Company be and is hereby accorded to the Board of Directors of the Company to
give any guarantee or provide any security in connection with -the loans
made by any other person to or to any other person by any body corporate up to
Rs. _________ provided that the aggregate
of the guarantees or securities provided by the Company shall not exceed the
sum of Rs. _________ at any one time."
1. Special Resolution not required for loans to private company or to a
subsidiary.-In case loan is given to a private company, or to a subsidiary of the
company, Special Resolution not required and only a Board Resolution will
suffice.
2. Loans to companies.-(1) For the purposes of clause (a) to sub-section
(1) of section 372A, no special resolution shall be necessary in the case of
loans made to other bodies corporate along with guarantee given or security
provided or investments made if any, where the aggregate of such loans does not
exceed sixty per cent of the aggregate of the paid-up share capital of
the company and its free reserves or 100% of its free reserves whichever is
more.
The aggregate of the loans
made by the lending company to all other bodies corporate shall, not except
with the prior approval of the members of the company by passing a special
resolution, exceed sixty per cent of the aggregate of the paid-up share
capital of the lending company and its free reserves, or 100% of its free
reserves whichever is more.
3. Resolution must specify limit up to which guarantee given.-While passing the Special
Resolution, it will be necessary to limit the amount up to which loan or
guarantee should be given at any one time. A general resolution without fixing
the limit would not be valid.
4. Particulars of guarantee to be entered in Register.-Particulars of the guarantee
to be given should be entered in the register maintained for the purposes.
5. Filing of Form along with Explanatory Statement with Registrar.-Form No. 23 along with
Explanatory Statement is to be filed with the Registrar of Companies concerned
within thirty days of the passing of Special Resolution by paying the
prescribed filing fee, as per Schedule X of the Act which again is related to
the authorised Share capital of the company. Non-filing will attract
penalty by way of fine of up to Rs. 100/-.
6. Rate of Interest of loan.-Sub-section (3) of section 372A
provides that no loan to anybody corporate should be made at the rate of
interest lower than the prevailing Bank rate of interest, being the standard
rate made public under section 49 of the Reserve Bank of India Act, 1934.
Provision for Guarantee or Security
"RESOLVED that pursuant
to the provisions of section 372A and other applicable provisions, if any, of
the Companies Act, 1956, the Company hereby authorises its Board of Directors
to give any guarantee, or provide any security, in connection with the loan or
loans made by any other person to, or to any other person by, any body
corporate, from time to time, and on such ten-ns and conditions as the
Board of Directors may deem fit provided that the aggregate value of all the
guarantee given or securities provided shall not exceed Rs. 10,000,000/-
(Rupees Ten million) at any one time."
OR
"RESOLVED that pursuant
to the provisions of Section 372A and other applicable provisions, if any, of
the Companies Act, 1956, the Board of Directors of the Company be and is hereby
authorised to give guarantees or provide securities from time to time in
connection with a loan or loans made by any other person, to or to any other
person by any body corporate provided the aggregate of the guarantee so given
or securities so provided and outstanding at any time shall not exceed rupees
...........
1. Board Resolution required.-The resolution by the Board of Directors of
the company is sufficient when any guarantee is given or any security is
provided
(i) by a holding company in respect of any loan made
to its subsidiary; or
(ii) by a private company which is not a subsidiary
of a company;
(iii) to the bodies
corporate up to 60% of its paid-up share capital and its free reserves or
less than 100% of its free reserves whichever is more.
2. Register of Loans Guarantee/Security.-The particulars of every
guarantee given or security -provided should be entered in the register
within seven days of the giving of such guarantee or the provision of such
security chronologically.
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 company has kept and maintained all registers as stated in
Annexure A to this certificate as per the provisions and the rules made
thereunder and all entries therein have been duly recorded as per paragraph 1
of the Form of Compliance Certificate appended to the Companies (Compliance
Certificate) Rules, 2001.
4. Place of keeping Register of Loans.-The register should be kept
at the registered office of the company and should be open to inspection by any
member of the company and extracts thereof be supplied to members, if required,
on payment of requisite fee.
5. Filing of Form with the Registrar of Companies.-File Form No. 23 with a copy
of the Resolution within thirty days of the passing thereof with the Registrar
of Companies concerned, by paying prescribed filing fee as per Schedule X of
the Act, which again is related to the authorised share capital of the
company.,
6. Penalty.-If default is made in entering the particular of guarantee given or
security provided in the register, then the company and every officer of the
company who is in default shall be punished with fine up to Rs. 5000/-
and also with further fine up to Rs. 500/- for every day after the first
during which the default continues.
Making loan to another body corporate
"RESOLVED that,
pursuant to the provisions of section 372A of the Companies Act, 1956, the
Board of Directors be and is hereby authorised to advance to M/s. CDE &
Company Limited an amount not exceeding Rs. 600 lakhs in the aggregate on such
terms and conditions as are incorporated in the draft loan agreement submitted
to this meeting and initialled by the Chairman hereof with a stipulation, so
however, that the rate of interest at no point of time during the currency of
the loan agreement shall be less by more than two per cent of the rate of
interest charged by the company's bankers to the company."
1. Board's power to make loans-Section 372A basically gives power to the
Directors and also to the members on the deployment of company's resources and
on increasing company is commitment and liability by way of extending guarantee
for others. Pursuant to these powers a limit of 60% of the paid-up
capital and free reserves or less than 100% of the company's free reserves
whichever is more, is fixed up to which the Board of Director of a company can
make loan without the approval of the shareholders by a Special Resolution.
2.
Sub-section (8) of section 372A exempts from the provisions of the
section the following:-
(a) a banking company, or an
insurance company, or a housing finance company in the ordinary course of its
business, or a company established with the sole object of financing industrial
enterprises, or of providing infrastructural facilities;
(b) a company whose
principal business is the acquisition of shares, stock, debentures or other
securities;
(c) a private company,
unless it is a subsidiary of a public company.
(d) any loan made by a
holding company to its wholly owned subsidiary;
(e) any guarantee given or
any security provided by a holding company in respect of loan made to its
wholly owned subsidiary.
3. Inter corporate deposit treated as loan.-Inter-corporate
deposits will be treated as loans for the purpose of this section. Section 372A
has further prescribed that the aggregate of the loans so made to all bodies
corporate should not, without the approval of the members of the Company by
passing a special resolution, exceed 60% of its paid-up capital and free
reserves or 100% of free reserves whichever no more.
Loans to companies under the same management
"RESOLVED that pursuant
to section 372A of the Companies Act, 1956, the consent of the shareholders be
and is hereby given to the Board of Directors of the Company to the making of
loans to bodies corporate at a _________
rate of interest
subject, however, to the condition that the total amount of such loan to the
bodies corporate does not exceed 80% of the paid-up share capital or
free reserves of the Company or 110% of the free reserves of the company
whichever is more.
OR
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised to make loans to
M/s. ABC Limited to the extent of Rs. 50,00,000 and that the approval of the
Financial Institutions be sought."
OR
"RESOLVED that consent
of the shareholders be and is hereby accorded to the Board of Directors of the
Company for giving of any guarantee or providing any security in connection
with a loan made by Mr. X or to any other person by M/s. A.B.C Limited, up to a
limit of Rs. 50 lakhs at any one time outstanding."
OR
"RESOLVED that the
Board of Directors of the Company be and is hereby authorised to make loans to
any body corporate under section 72A of the Companies Act, 1956, up to a limit
of Rs. 50 lakhs on such terms and conditions as to repayment thereof and
interest thereon as contained in the draft tabled before the meeting and
initialled by the Chairman for the purposes of identification.
OR
"RESOLVED that subject
to the provisions of section 372A of the Companies Act, 1956, and other applicable
provisions, if any, of the Act or of any other law for the time being in force,
the consent of the shareholders be and is hereby given to the Board of
Directors of the Company providing security by way of hypothecation/mortgage
and/or creating charges on all its properties and assets whether moveable or
immoveable with a view to secure (a) credit facilities/loans/guarantees for
securing loans on deferred payment facilities for the amount not exceeding Rs.
1 crore at one time to one company and in the aggregate rupees ten crore to be
obtained from IDBI, ICICI, UTI or from any financial institutions and (b) a
rupee loan or loans in any currency or currencies and credit
facilities/deferred payment facilities/guarantees for securing loans or credit
and deferred payment facilities or/and debentures for an amount not exceeding
in the aggregate the amount of Rs. 20 crores or the equivalent thereof
remaining outstanding at any one time which may be obtained from or to be
issued to the financial institutions and/or Bank and/or to other parties by the
company severally or/and jointly with ABC Co. Ltd and XYZ Co. Ltd together with
interest and any other incidental charges payable in this connection."
1. Passing of Special Resolution.-Before giving loans, Special
Resolution is to be passed if such loan exceeds 60% of the paid-up share
capital and free reserves or 100% of the company's free reserves, whichever is
more.
2. Special Resolution not necessary when loan given within prescribed
limits.-If
the loans are given within the aggregate limits prescribed in the Special
Resolution, separate resolution for giving loan within that limit In any
individual cases will not be necessary.
3. Shareholders approval not required for loan to subsidiary of Private
Company or Private Company unless subsidiary of another public company.-No approval of the
shareholder is required if loan is given to the subsidiary of a private company
or to a private company unless that private company is a subsidiary of an other
public company. Loans given to these companies should not be calculated while
determining the limit prescribed for inter corporate investment under this
section.
4. Section not applicable to loans by banking or insurance company.-If loans are given by a
banking or insurance company in the normal course of its business, this section
is not applicable. The same is the position in the case of companies which have
been set up to give loan for financing industrial enterprises.
5. "Term loan" includes "deposit".-With the coming into force
of the Companies (Amendment) Act, 1988, an Explanation has been added to this
section which clarifies the term 'loan'. The term 'loan' includes any deposit
of money made by one company with another company not being a banking company.
6. Deposits by one company with another termed as loan.-Deposit kept by one company
with another company is loan.
7. Wholly-owned Government company exempt.-This section does not apply
to a wholly owned Government company provided that such company shall obtain
the approval of the Central Government or the State Government before making
loan or giving any guarantee or providing any security.
8. Deemed Public Company.-On the principle underlying the provisions of
section, a private company which becomes a deemed public company by virtue of
section 43A will have to recover the loans given or withdraw the guarantee
within a period of six months from the date of becoming a public company.
9. Loans by subsidiary to holding company.-It must be noted that while
loans by holding companies to their subsidiaries are exempted, loans by
subsidiaries to their holding companies are not exempted and will have to
comply with the provisions of this section. So also guarantees provided by
subsidiaries in respect of loans made to their holding companies will come
within the section.
10. Filing of Form with Explanatory Statement with Registrar.-File Form No. 23 together
with the Explanatory Statement with the Registrar of Companies concerned within
thirty days of the passing of the resolution by paying the prescribed filing
fee, as per schedule X of the Act which is again related to the authorised
share capital. Non-filing will attract penalty by way of fine of upto Rs.
100/-.
Loan to body corporate
"RESOLVED that pursuant
to the provisions contained in Section 372A and other applicable provisions, if
any, of the Companies Act, 1956, the Board of Directors of the Company be and
is hereby authorised to make loans from time to time to any body corporate up
to a limit of 85% of the paid-up share capital of the company and its
free reserves or 110% of free reserves of the company whichever is more on such
terms and conditions as the Board of Directors may deem fit and proper."
1. Prior approval of Financial Institutions.-Prior approval of Financial
Institutions is necessary even for giving of one rupee loan and also prior
approval of the members by passing a special resolution is necessary where the
aggregate of the loans made to bodies corporate exceeds 60% of the aggregate of
the paid-up share capital of the lending company and its free reserves or
100% of the company's free reserves whichever is more.
2. Resolution of Board of Directors enough.-The resolution of the Board
of directors is sufficient where loans made to other bodies corporate does not
exceed 60% of the aggregate of the paid-up share capital of the lending
company and its free reserves or 100% of the company's free reserves whichever
is more.
3. Meaning of Loan.-For the purpose of Section 372A of the Companies
Act, 1956, "loan" includes debentures or any deposit of money made by
one company with another company not being a banking company.
4. Exempted Loan.-Loans made by banking company or an insurance or a
housing finance company in the ordinary course of its business or a company
established with sole object of financing industrial enterprises or of
providing infrastructure facilities are exempted. Loans made by a company whose
principal business is the acquisition of shares, stock, debentures or other
securities are also exempted. Furthermore, loans made by a private company,
which is not a subsidiary of a public company and loans made by a holding
company to its wholly owned subsidiary are also exempted under sub-section
(8) of section 372A.
5. Register of Loans.-The particulars of every guarantee given or security
provided should be entered in the register within seven days of the giving of
such guarantee or the provision of such security chronologically.
6. Place of keeping of Register of Loans.-The register should be kept
at the registered office of the company and should be open to inspection by any
member of the company and extracts thereof be supplied to members, if required,
on payment of requisite fee.
7. Filing of the Special Resolution.-File Form No. 23 with a copy
of the resolution within thirty days of the passing thereof with the Registrar
of Companies concerned. Non-filing will attract penalty by way of fine of
upto Rs. 100/-.
8. Penalty.-If default is made in entering the particular of guarantee given or
security provided in the register, then the company and every officer of the
company who is in default shall be punished with fine up to Rs. 5000/-
and also with further fine up to Rs. 500/- for every day after the first
during which the default continues.
Loan to a firm in which a partner is a body corporate
"RESOLVED that pursuant
to the provisions contained in Section 372A of the Companies Act, 1956,
approval of the Company be and is hereby given to the making of loans from time
to time upon such terms and conditions as the Board of Directors may think fit
and proper to Messrs. Rajaji Investments provided the aggregate of the loans so
provided and outstanding at any time should not exceed the sum of Rs. 100 Lakhs
(Rupees One Hundred lakhs)."
1. Approval of General Meeting.-The Company is required to
pass a special resolution for making of any loan as also for giving any
guarantee or providing any security in connection with a loan made by any other
person to or to any other person by a firm in which a partner is a body
corporate if making.
2. Register of Guarantee.-The particulars of every guarantee given or security
provided should be entered in the register within seven days of the giving of
such guarantee or the provision of such security.
3. Place of keeping the Register.-The register should be kept
at the registered office of the company and should be open to inspection by any
member of the company and extracts thereof be supplied to members, if required,
on payment of requisite fee.
4. Filing of Special Resolution.-File Form No. 23 with a copy
of the Resolution within thirty days of the passing thereof with the Registrar
of Companies concerned.
5. Penalty.-If default is made in entering the particular of guarantee given or
security provided in the register, then the company and every officer of the
company who is in default shall be punished with fine up to Rs. 5,000/-
and also with further fine up to Rs. 500/- for every day after the first
during which the default continues.
Purchase of shares of other bodies corporate
"RESOLVED that pursuant
to section 372A and other applicable provisions, if any, of the Companies Act,
1956, the Board of Directors of the Company be and is hereby authorised to
invest an amount of Rs. 600 lakhs in 6,00,0000 equity shares of Rs. 10/-
each to be issued as fully paid equity shares in the capital of M/s. XYZ &
Company Limited, a company promoted by this Company, notwithstanding the fact
that such investment together with all other investments made by the company
will exceed sixty per cent of the paid-up share capital of the investing
company."
1. Power must in Memorandum of Association.-En sure that power to invest
in shares must exist in the Memorandum of Association.
2. Notice of Resolution.-The notice of the resolution to be moved at the
meeting of the Board is to be given to every director along with notice of the
meeting.
3. Passing of Resolution with consent of all directors.-It is to be noted that
approval for investment in shares is to be obtained by passing a resolution at
a Board Meeting only with the consent of all the directors present at the
Meeting except those who are not entitled to vote. The power cannot be
delegated.
4. Prescribed ceiling of investments in other body corporate without passing
special resolution.-The Board of directors of a company shall be entitled to invest in the
shares of any other body corporate, pursuant to sub-section (1)(c) of
section 372A up to 60% of the company's paid-up share capital and free
reserves or 100% of the company's free reserves, whichever is more.
5. Passing of special resolution in General Meeting.-Where the aggregate of
investments along with loans, guarantee and security made or proposed to be
made in all other bodies corporate exceeds 60% of a company's paid-up
share capital and free reserves or 100% of its free reserves, whichever is
more, such investment should be made after passing a special resolution in a
general meeting.
6. Restrictions not applicable.-The restrictions contained
in the section are not applicable to
(a) any banking or insurance
company;
(b) a private company unless
it is a subsidiary of a public company;
(c) any company established
with the object of financing industrial enterprises in India or of providing
infrastructure facilities;
(d) a housing finance
company in the ordinary course of its business.
(e) a company whose
principal business is the acquisition of shares, stock, debentures or other
securities.
(f) investment made in
shares allotted in pursuance of section 81 (1)(a);
(g) acquisition by a holding
company by way of subscription, purchases or otherwise, the securities of its
wholly owned subsidiary.
7. Entry in Register of investment.-The particulars of
investments are required to be entered in the Register of investment within
seven days of making such investments.
8. Register of investment to be opened to inspection.-The register of investment
is to be kept at the registered office of the company and shall be open to
inspection and extracts thereof be supplied to members if required on payment
of requisite fee.
9. Statement to be annexed to balance-sheet.-The statement showing all
the investments in the bodies corporate is to be annexed to the balance-sheet
of the company.
10. Approval from Financial Institutions.-Where any term loan of a
company is subsisting on any public financial institution referred to in
section 4A of the Companies act, 1956, prior approval of that financial
institution must be obtained for making any investment up to 60% of the paid-up
share capital of the company provided there is default in repayment of loan
instalments or payment of interest.
11. Notice of resolution to contain certain particulars.-The notice of the general
meeting containing the special resolution should indicate clearly the specific
limits, the particulars of the body corporate in which the investment is
proposed to be made, the purpose of investment, specific sources of funding and
such other details.
12. Filing of Special Resolution.-The special resolution
passed for making investment should be filed in Form No. 23 within 30 days of
passing thereof with the Registrar of Companies. Non-filing will attract
penalty by way of fine of upto Rs. 100/-.
13. Penalty.-Penalty for the violation of this section is specified in sub-section
(9) 'which confines itself to the rest of provisions, except sub-section
(5) of section 372A relating to maintenance of register. Sub-section (5)
requires register of investments to be kept and to be constantly posted with up-to-date
information within 7 days. For any failure in this respect, sub-section
(10) of section 372A provides that the company, and every officer of the
company who is in default, shall be punishable with a fine which may extend up
to Rs. 5000/- and a further fine extending up to Rs. 500/- for
every day after the first day during which the default continues. Under sub-section
(9) of section 372A for the violation of the rest of the provisions of the Act,
the company and the officers in default are punishable with imprisonment of two
years or with fine of upto Rs. 50,000/- The offences are compoundable under
section 621 -A.
Purchase of shares of
another company
(Another Format)
"RESOLVED that pursuant
to section 372A of the Companies Act, 1956, the Board of Directors of the
Company be and is hereby authorised to invest by purchase of 5,00,000 equity
shares of Rs. 10/- each in the share capital of M/s. TXR & Company Limited
at a premium of Rs. 2.50 per share notwithstanding the fact the proposed
purchase of 5,00,000 equity shares together with the equity shares already
bought by the company exceeds 60% per cent of the paid-up share capital
and free reserves of the said M/s. TXR & Company Limited."
Same as given-under Resolution 1099.
Resolution modifying earlier resolution regarding investments
"RESOLVED that the Special Resolution passed by the members of the company at an Extraordinary General Meeting held on _________ be and is hereby superseded and that consent be and is hereby -accorded, pursuant to the provisions of the Companies Act, 1956, to the Company making investments in the shares of __________________ Ltd., a company incorporated under the Companies Act, 1956, in excess of the limit of _________ of the paid-up share capital and free reserves of the company.
Same as given under Resolution 1099.
Investment by way of bonds converted into equity shares
S.
372A-Bonds converted into equity-Special Resolution
"RESOLVED that pursuant to the provisions of section 372A of the Companies Act, 1956, the Board of Directors of the Company be and is hereby authorised to accept 1,50,000 equity shares of Rs. 10/- each fully paid at par in the share capital of M/s. CDE & Company Limited issued by way of conversion of 5,000 convertible bonds of Rs. 100/- each issued by that company in exercise of the terms of the issued of such convertible bonds, such investment in equity shares of M/s. CDE & Company Limited being in excess of sixty per cent of the paid-up share capital and free reserves of the company."
Same as given under Resolution 1099.
Inter-corporate investment
"RESOLVED that consent
of the shareholders be and is hereby given to the Board of Directors of the
Company making an investment up to the limit of Rs. 60 lakhs in the equity
share capital of M/s. XYZ Limited, a company incorporated in the State of West
Bengal for setting up a steel plant.
OR
"RESOLVED that pursuant
to the provisions of section 372A and any other applicable provisions, if any,
of the Companies Act, 1956, or of any other law for the time being in force,
the Board of Directors of the Company be and is hereby authorised to make
investments in excess of 60% of the paid up share capital and free reserves of
the company or 100% of the free reserves of the company whichever is more
prescribed under section 372A in the shares of other bodies corporate as they
may, in their absolute discretion deem beneficial and in the interest of the
company, up to the aggregate amount of Rs. 5 crores.
RESOLVED FURTHER that the
Board of Directors of the Company be and is hereby authorised to do all such
acts, deeds and things as may be deemed expedient and necessary to give effect
to this resolution."
Same as given under Resolution 1099.
AMALGAMATION/ARRANGEMENTS
Compromise or arrangement
"RESOLVED that the
compromise or arrangement embodied in the scheme" of amalgamation hereto
annexed and marked 'A' between M/s. ABC & Company Limited and its members
and your Company placed before the meeting and initialled by the Chairman of
the meeting for the purpose of identification, be and is hereby approved and
that all necessary steps to carry the same into effect be taken by the Board of
Directors of the Company."
1. Power of court to compromise or make arrangement.-According to section 391
(1), where a compromise or arrangement is proposed-
(a) between a company and
its creditor or any class of them; or
(b) between a company and
its members or any class of them,
the Court may, on the
application of the company or of any creditor or member of the company or in
the case of the company which is being wound up, of the liquidator, order a
meeting of the creditors or class of creditors or of the members or class of
members, as the case may be, to be called, held and conducted in such manner as
the Court directs.
2. Amalgamation-what does it imply.-Amalgamation implies that a
company (transferor company) transfers to another company (transferee company)
with a view to its business having continued as a going counter by the
transferee company. Amalgamation is, thus, a blending of two or more existing
undertakings into one, the shareholder of one company becoming substantially
the shareholders in the other company which is to carry on the business of the
blended company. The term 'amalgamation' contemplates not only a state of
things into which two companies are so joined as to form a new company but also
the absorption and blending of one by the other.
3. Approval of General Meeting.-The procedure for
amalgamation of companies starts with sanction of a scheme of arrangement by
the concerned companies at a General Meeting under three-fourths majority
in value of either creditors or members or both, as the case may be, very often
amalgamation takes the form of merger of one or more companies with the other
companies involved in amalgamation and forming a new company to take over
assets and liabilities of these companies. The companies whose undertakings are
transferred are called 'transferor companies' while the company which absorbs
or takes over undertaking is termed the 'transferee company'.
4. Application to court for sanctioning of scheme.-Members" approval of
the scheme of amalgamation (or other arrangements) having been obtained, an
application, along with the approved scheme, has to be made by the transferor
as well as the transferee company to the Court or Courts having jurisdiction
over them for the purpose of sanctioning of a compromise or arrangement and if
the Court is satisfied that the compromise or arrangement has been proposed for
the purpose of or in connection with a scheme for the reconstruction of any
company or companies or the amalgamation of two or more companies, and that the
scheme implies the transfer of the whole or any part of undertaking or property
of any company (involved in the scheme) known as the transferor company, the
Court may, by going through the merit of the application, sanction the
dissolution, without winding up, of any transferor(s) company. The Court always
directs that provisions be made for persons who within such time and in such
manner as the Court may direct, dissent from the compromise or arrangement.
5. Filing of certified copy of order with Registrar.-Within thirty days after the
order of the Court is made, the company must file with the Registrar of
Companies (for registration) a certified copy of the order. If default is made
in this respect, the company and every officer of the company who is in default
is liable to a fine, which may extend to fifty rupees.
6. Calculation of voting in Scheme of Arrangement.-In a general meeting for
approving scheme of arrangement or compromise, requisite majority of three-fourths
in value of creditors present, voting will calculated by treating invalid votes
as no votes, and such votes will not be counted for determining percentage.
Votes with conditions attached are also not to be counted. Arvind Mills Ltd. In
Re, (2002) 111 Com Cases 118 (Guj.)