1. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk, vaithilegal@yahoo.co.in
2. Public Company – Minimum 3 Directors
Private Company – Minimum 2 Directors
One person Company – 1 Director
Maximum 15 Directors
More than 15 Directors requires a special resolution
(There is no need for Central Govt. approval to
increase number of directors beyond maximum limits.)
3. Sec.149(3) provides that every company shall have atleast one
director who has stayed in India for not less than 182 days in
the previous calendar year.
Financial year is the basis in the new law but for this provision
the reference is to calendar year.
If a foreign citizen meets the requirement of Sec.149(3), he
may become a resident for the purpose of Sec.6 of the
Income Tax Act which refers to 182 days or more in a
previous year.
If a person stays in India between January to July, Sec.149(3) is
met and for the purpose of IT he has stayed only for 90 days in
one previous year and 122 days in the succeeding financial
year.
4. Sec.149 has come into force from 01.04.2014.
Sec. 149(5) provides that the requirements of Sec.149(3) can be complied
within 1 year in respect of existing companies.
MCA has issued a circular dated 26.06.2014 to clarify the previous calendar
year would be construed as calendar year 2014 and the period to be taken
into account for compliance would be between 1st
April to 31st
December
2014.
Accordingly it is clarified that the proportionate number of days for which
the director would need to be a resident in India shall exceed 136 days.
Company law / Tax / Travel Planning
Law has come into force from 1st
April 2014 and unfortunately awareness
has been some what sluggish.
A company which does not have a resident director, as on date is in
trouble.
5. To achieve 136 days in India upto 31st
December, the foreign citizen must
have arrived on 29th
June 2014. Alternatively they have to appoint an
Indian Resident Director.
Companies incorporated between 01.04.2014 to 30.09.2014 should have
resident director at the time of incorporation or within 6 months from
their incorporation.
Companies incorporated after 30.09.2014 need to have resident
director from the date of incorporation itself.
6. Every listed company
Every other public company having paid up capital of Rs.100
crores or more
Every other public company having turnover of Rs.300
crores or more
shall appoint atleast one woman director.
Monetary limits as on the last date of the latest audited
financial statements.
Every company existing on or before the commencement
of this Act shall comply with this requirement within one
year from such commencement.
7. Sec.149 as well as the Rules have come into force from
01.04.2014 and time is available till 31.03.2015.
Latest audited financial statements
Availability
Elevation within the organization
External appointments
Woman director and independent director
Opportunities for women professionals in practice who will
have to balance their carrier / family and ensure that they
meet all the stringent requirements under the Companies
Act for being an independent director.
8. No person can be a director unless he has been allotted a DIN under
Section 154.
Every individual has to make an application electronically in Form-DIR-3
for allotment of DIN.
A person who has been appointed to hold the office is required to furnish
a consent in writing in Form-DIR-2 before the appointment.
Company has to file the consent with the Registrar in Form-DIR-12 along
with prescribed fees within 30 days of appointment.
Contravention in appointment; obtaining more than one DIN and
failure to intimate DIN to Companies where a person is a director is
punishable with imprisonment upto 6 months or fine upto Rs.50,000/.
Sec.158 provides that DIN has to be mentioned in returns,
information or particulars where they relate to the directors or refer
to the director.
9. Sec. 274 of the 1956 Act provided for certain disqualifications, which have been
retained.
There are two more disqualifications through Sec. 164 of the 2013 Act namely:
(i) He has been convicted of the offence dealing with related party transaction under
Section 188 at any time during the last preceding 5 years.
(ii) He has not obtained DIN under Section 152(3).
Section 188 itself has come into force only from 01.04.2014.
Last preceding 5 years. Technically Sec.164 would be reckoned only when
appointments are proposed after 01.04.2019??
Sec.164(1)(d) refers to conviction by a Court of any offence whether involving moral
turpitude or otherwise and sentenced for not less than 6 months and a period of 5
years has not elapsed from the date of expiry of the sentence.
A person who is convicted of any offence and sentenced in respect thereof to
imprisonment for a period of seven years or more shall not be eligible to be
appointed as director in any company.
The disqualification in Sec.274(1)(g) of the 1956 Act has been retained but under the
new law it is immaterial whether the defaulting company is a public company or
not.
10. A private company can provide for additional disqualifications through its Articles.
Can a Public Company provide for additional disqualifications?
Director has to inform about his disqualification in Form-DIR-8 before he is
appointed or re-appointed.
Rules and Forms have come into force from 01.04.2014.
There is a declaration to the effect that the person has not incurred disqualification
under Sec.164(2) of the Companies Act, 2013 in the previous financial year and that
the person stands free from any disqualification from being a director or to confirm
that there are disqualification.
Directors must ensure that they understand the new provisions of Sec.164 and
file DIR-8 carefully.
Where a company fails to file financial statements / returns or fails to repay any
deposit, etc. as set out in Sec.164(2), Company has to file Form-DIR-9 giving the
names and addresses of all the Directors of the Company during the relevant
financial year.
If DIR-9 is not filed within 30 days of the failure, officers of the Company shall
be officers in default.
11. Not more than 20 companies at the same time including any
alternate directorship.
Maximum number of public companies in which a person can
be appointed as a director shall not exceed 10.
Old Sec.278 which provided for exclusion of certain directorships for
calculation of limits omitted in the new law.
Members may by special resolution specify any lesser
number of companies in which a director of a company may
act as directors. No such provision in the 1956 Act.
Can members judge, decide, restrict the right and liberty of a
director?
Misuse of Sec.165(2)?
12. In the 1956 Act there was no express provision with
reference to duties of directors.
Director has to act in accordance with the Articles.
A Director of a Company shall act in good faith in order to
promote the objects of the Company for the benefit of its
members as a whole and in the best interests of the Company,
its employees, the shareholders, the community, and for the
protection of the environment.
Exercise duties with due and reasonable care, skill and
diligence and exercise independent judgment.
13. Should not involve in a situation in which he may have a direct or
indirect interest that conflicts or possibly may conflict with the
interest of the company.
Should not achieve or attempt to achieve any undue gain or
advantage to himself / relatives / partners / associates.
Provisions are similar to Sec. 171 to Sec. 177 of the Companies Act,
2006 – UK.
Reasonable care Vs. Error of judgment
Directors are not bound to examine the entries in the Company’s
books of accounts – Central Calcutta Bank (1959) 29 CC 437
A Director need not supervise the work of co-directors – Huckerby
Vs. Eliott
Practical issues.
14. Notice in writing to the Company
Resignation takes effect from the date on which the Notice is received by
the Company or the date if any specified in the Notice whichever is later.
Company has to intimate Registrar in Form-DIR-12 within 30 days of the
receipt of notice of resignation.
Director has to forward a copy of his resignation along with reasons in
Form-DIR-11 along with fees within 30 days from the date of resignation.
DIR-11 requires reasons for resignation to be specified.
DIR-11 requires the director to state that the information given is correct
and complete and attention is also drawn at the end of the form to the
provisions of Section 448 and 449 which provide for punishment for
false statement and punishment for false evidence respectively.
If all Directors resigned or vacate their office under Sec.167, the promoter
or in his absence the Central Government shall appoint the required
number of Directors.
15. Company Number Provision
Listed Public Company Atleast one third of the
total number of directors
Sec. 149(4)
Public Companies having
paid up share capital of
Rs.10 crores or more
Atleast two directors must
be independent directors
Rule 4(i) of the Companies
(Appointment and
Qualification of Directors)
Rules, 2014.
Public Companies having
turnover of Rs.100 crores
or more
Atleast two directors must
be independent directors
Rule 4(ii)
Public Companies which
have in an aggregate
outstanding loans,
debentures and deposits
exceeding Rs.50 crores.
Atleast two directors must
be independent directors
Rule 4(iii)
16. Paid up share capital or turnover or outstanding
loans or debentures or deposits as existing on the
last date of the latest audited financial statements
shall be taken into account.
Sec. 149 has been notified from 01.04.2014.
Limits as per audited financial statements for the
year ending 31.03.2014 or 31.03.2015?
17. Higher number of independent directors may be
appointed depending on the composition of the
audit committee.
Any casual vacancy of independent directors must
be filled-up by the Board at the earliest, (not later
than immediate next Board meeting or 3 months
from the date of such vacancy, whichever is later).
18. Should be a person of integrity and possess relevant
experience and expertise in the opinion of the Board.
Should possess such qualifications as may be prescribed.
Rule 5 provides that an independent director shall possess
appropriate skills, experience and knowledge in one or more
fields of finance, law, management, sales, marketing,
administration, research, corporate governance, technical
operations or other disciplines related to the company’s
business.
19. A person who is / was a promoter of the Company / Holding / Subsidiary /
Associate (CHSA)
A person who is related to the promoters or directors of the CHSA.
A person who has / had pecuniary relationship with the CHSA or their
promoters or directors during the two immediately preceding financial
years or during the current financial year – Sec.149(6)(c)
A person whose relatives has / had pecuniary relationship or transaction
with CHSA or their promoters or directors amounting to 2% of the gross
turnover or total income or Rs.50 lakhs or such higher amount as may
be prescribed, whichever is lower during the two immediately
preceding financial years or during the current financial year – Sec.149(6)
(d)
A person as well as his relative holds or has held the position of key
managerial personnel or is or has been an employee of CHSA in any of the
preceding three financial years
20. A person or relative is or has been an employee /
proprietor / partner in a firm of auditors / company
secretaries in practice / cost auditor of CHSA in the
immediately preceding 3 financial years.
A person or relative is or has been an employee /
proprietor / partner in any legal or consulting firm
in the immediately preceding 3 financial years, that
has or has had any transaction with CHSA
amounting to 10% or more of the gross turnover
of such firm.
21. A person or his relative holds together with
his relatives 2% or more of the total voting
power of the Company.
A person or his relative is a Chief Executive
or Director by whatever name called of any
non-profit organisation that receives 25% or
more of its receipts from the Company or
Promoters or Directors or HSA or that holds
2% or more of voting power of the Company.
22. Sec. 2(77) defines a ‘relative’ covering the
following persons:-
Members of HUF;
Husband and wife;
Such other persons as prescribed.
23. Rule 4 of the Companies (Specification of definitions Details) Rules, 2014
specifies the following persons:-
Father including step father
Mother including step mother
Son including step son
Son’s wife
Daughter
Daughter’s husband
Brother including step brother
Sister including step sister
Every independent director at the first meeting of the Board in which he
participates and thereafter at the first meeting of the Board in every financial
year or whenever there is a change in circumstances affecting his independent
status must give a declaration that he needs the criteria of independence
specified in Sec.149(6).
24. Listed companies will have to revisit their appointment of
independent directors.
Extremely difficult to get good quality independent directors
who add value to the Board.
Sec.149(9) provides that an independent director shall not be
entitled to any stock options.
Stock options.
Large companies – complex transactions – multiple layers –
paucity of time.
Agenda papers.
25. The boards may have to select new Independent Directors for the
additional committees to be set up and ensure that the existing
Independent Directors meet the eligibility criteria under the New Act.
Independent Directors shall hold office for a term upto 5 consecutive
years.
Cannot hold office for more than 2 consecutive terms but shall be eligible
for appointment after the expiry of 3 years of ceasing to become an
independent director.
MCA has clarified that appointment of any term whether for 5 years or
less would be treated as one term under Sec.149(10).
MCA has clarified that appointment of independent directors under the
new Act would need to be formalized through a letter of appointment in
view of the specific provisions of Schedule-IV.
26. Para VII of Schedule-IV to the Act provides that the
Independent Directors shall hold at least one meeting in a year
without the non-independent directors and members of
management.
This meeting shall review the performance of the non-
Independent Directors, the Board as a whole, the Chairperson and
assess the quality, quantity and timeliness of the flow of
information between the management and the board.
Para VIII of Schedule-IV provides that the performance evaluation
of independent directors shall be done by the entire board of
directors excluding the director being evaluated and on the
basis of the report it shall be determined whether to continue
the term of appointment of the independent director.
27. Rana India Ltd. is an unlisted public company with a paid up
capital of Rs.50 crores formed through a Joint Venture
Agreement between X Inc., USA and Bharath Y Ltd. a PSU.
50% of the shares in Rana India are held by X Inc. and 50% of
the shares are held by Bharath Y.
The Company’s Board of Directors consists of six directors,
three directors appointed by each shareholder as per the JV
Agreement.
As per the JV, X has the right to nominate the Managing
Director who shall hold the responsibility of being a full time
CEO and Bharath Y has the right to appoint a Finance Director
who shall also hold the responsibility of full time Chief Finance
Officer.
Companies Act, 2013.
28. Rana Ltd. will have to comply with Sec.178 and constitute
the nomination and remuneration committee of the board
consisting of 3 or more non-executive directors out of which
one half shall be independent directors. All decisions with
reference to director remuneration, senior management
remuneration shall be taken by this committee. In this
context, even though there is a joint venture agreement
between the shareholders which governs the inter-se
relationship and the constitution of the board, the provisions
of the new law would prevail and the company will have to
comply with the requirements of Section 178.
29. Schedule IV of the Companies Act introduced from
01.04.2013 provides for a code for ‘Independent
Directors’.
It is divided into guidelines of professional conduct;
role and functions; duties; manner of appointment;
re-appointment; resignation and removal; separate
meetings and evaluation mechanism
Sec.149(8) provides that the Company and the
independent directors shall abide by the
provisions specified in Schedule-IV.
30. Independent director shall help in bringing an independent judgment to
bear on the Board’s deliberations on issues of strategy, performance, risk
management, resources, key appointments and standards of contacts.
Scrutinize the performance of the management in meeting agreed goals
and objectives and monitor the reporting of performance.
Satisfy themselves on the integrity of the financial information and that
financial control and the systems of risk management are robust and
defensible.
Safeguard the interest of all stakeholders particularly minority
shareholders.
Balance the conflicting interest of the stakeholders.
Moderate and arbitrate in situations of conflict between management and
shareholders interest. … …
31. Independent Directors are to be inducted into companies
through selection by the Board from a database where
several eligible candidates are listed. Examples of such
databases are indianboards.com, iodonline.com and icsi.edu
Authorized bodies are required to maintain a data bank of
persons willing and eligible to be appointed as independent
directors.
Company must carry out its own due diligence before
appointment.
A person who wants to get his name included in the data
bank should make an application in Form-DIR-1.
Whether an independent director can be truly independent?
32. Sec. 149(12) provides that an independent director or a non-executive
director who is not a promoter / key managerial personnel shall be held
liable only in respect of acts of omission or commission by a Company
which had occurred with his knowledge, attributable through Board
process and with his consent or connivance or where he had not acted
diligently.
Board process
Sec. 448 deals with punishment for a false statement. If in any return,
report, certificate, financial statement, prospectus, statement or other
documents required under the Act or Rules, any person makes a
statement which is false in any material particulars knowing it to be
false or omits any material fact knowing it to be material it shall be
treated as fraud under Sec.447.
Sec. 439 provides that not withstanding anything in CrPC, every offence
except the offence set out in Sec. 212(6) shall be deemed to be non-
cognizable.
Sec. 212(6) refers to Sec. 448 and provides that bail would be granted only
after hearing the public prosecutor.
33. Companies Act, 2013 Indian Penal Code, 1860 UK Companies Act,
2006
Fraud in relation to affairs of the
Company or any body corporate
includes any act, omission,
concealment of any fact or
abuse of any position committed
by any person or any other
person with the connivance in
any manner, with intent to
deceive, to gain undue
advantage from or injure the
interest of the Company or its
shareholders or its creditors or
any other person whether or
not there is any wrongful gain
or wrongful loss – Explanation
(i) to Section 447.
A person is said to do a
thing fraudulently if he
does that thing with
intent to defraud but not
otherwise – Sec. 25 of the
Indian Penal Code.
The Supreme Court in the
case of Dr.Vimala Vs.
Delhi Administration (AIR
1963 SC 1572) has held
that ‘defraud’ involves two
elements, deceit and injury
to the person deceived
A director is liable
only if—
(a) he knew the
statement to be
untrue or misleading
or was reckless as to
whether it was
untrue or
misleading, or
(b) he knew the
omission to be
dishonest
concealment of a
material fact. – Sec.
463
34. Children Investment Management Fund (TCI) is a minority shareholder in
Coal India Ltd. owning about 1% while the Government owns 90%.
TCI has basically alleged that the Central Government has illegally
interfered with the functioning of Coal India.
TCI’s argument is that Coal India should have the price of coal aligned
with international prices.
TCI claims loss of opportunity of 1.5 billion USD because of regulatory
intervention.
Government contends that when TCI invested it was aware of risk factors
which provides that operations are extensively regulated by Government
of India, State Governments and Authorities and the compliance cost,
liability and requirements associated with regulatory requirements can
have an impact on operations.
35. Uttar Pradesh Pollution Control Board had directed
Coca Cola to shutdown its bottling plant at
Mehdiganj near Varanasi on alleged violations.
Villager activism based on ground water problem.
National Green Tribunal has stayed the order of the
Pollution Control Board provided the company
keeps its production upto 600 bottles per minute.
Closure / cases / media attention / litigation - Impact
on Board / Directors.
36. Connaught Plaza Restaurant Ltd. is a joint venture between
Mr. Vikram Bakshi and McDonald’s Corporation.
Dispute between the parties travelled through Company Law
Board and is now before the London Court of International
Arbitration.
37. Fund misuse
Violations – Companies Act
Questionable payments
Causing financial losses
Group activism
Over valuation / under valuation – M&A
Conflict of interest
Accounting and auditing practices
Oppression of minority
38. First Board Meeting of the Company must be held within 30
days from the date of incorporation .
Every Company shall hold thereafter minimum of 4 Board
Meetings in a year.
The time period between two meetings shall not exceed
more than 120 days
Participation in the meetings can either be in person or
through video conferencing / audio visual means.
Seven days notice in writing must be given to all the
directors attending the meeting.
39. Shorter notice can be issued for urgent business provided at
least one independent director, if any, is present at the
meeting.
If the independent director is absent, then decisions taken at
the meeting should be circulated to all the directors and will
be final only when ratified by at least one Independent
director if any.
Urgent business?
OPC having more than one Director, small company and
dormant company shall have at least one Board Meeting in
each half of the calendar year. The duration between 2 (Two)
Board Meetings shall not be less than 90 (Ninety) days.
40. Chairman and Company Secretary, if any, shall take due and
reasonable care in ensuring that meetings through VC or
AVM are conducted properly.
Post meeting, the tapes or other electronic recording
mechanism are to be stored as part of records at least before
the completion of audit of that particular year.
Must ensure that no other person other than the concerned
director attends the meeting through VC or AVM.
Notice of the meeting shall inform the option of VC/AVM .
41. Prior intimation shall be given by a director if he intends to
attend through VC or AVM
Requirement of Roll Call by the Chairman with every director
The scheduled venue of a meeting conducted through VC or
AV as set forth in the notice, which shall be in India shall be
deemed to be the place of the said meeting.
Once the meeting has commenced, no person other than
Chairman, Directors, CS and any other person whose
presence is required by the board shall be allowed access to
the place where any director is attending the meeting either
physically or through VC.
42. Draft minutes shall be circulated to all directors within 15
days either in writing or through electronic mode as may be
decided by board.
Every director who attended the meeting shall confirm or
give his comments within 7 days or some reasonable time as
decided by the Board, failing which approval is presumed.
43. Approval of annual financial statements;
Approval of the Board’s report;
Approval of the prospectus;
Audit Committee Meetings for consideration of accounts;
Approval of matters relating to amalgamation, merger,
demerger, acquisition and takeover;
44. An Audit Committee must be established by the following class of
companies:
Every listed company
Every public company with a paid up capital of Rs.10 crore or
more;
Every public company having a turnover of Rs.100 crore or more;
Every public company having in aggregate outstanding loans or
borrowings or debentures or deposits exceeding Rs.50 crores
The paid up share capital, turnover, outstanding loans,
borrowings, or deposits or debentures shall be taken into account
as existing on the date of the last financial statements.
45. The Audit Committee shall consist of a minimum of 3
directors with majority of them as Independent Directors.
The majority of the members of the Audit Committee
including its Chairperson shall be persons with ability to
read and understand the financial statement.
Existing Audit Committee shall be reconstituted within one
year from the date of the commencement of this Act.
Mandatory 29 Accounting Standards.
Recommended 3 Accounting Standards.
22 Guidance Notes on Accounting.
Tax Vs. Accounting issues
46. Terms of reference for the Audit Committee:
Recommendation for appointment, remuneration and terms of
appointment of Auditors
Review and monitor the Auditor’s independence and performance and
effectiveness of Audit process
Examination of the financial statement and Auditor’s report
Approval or any subsequent modification of transactions with related
parties
Scrutiny of inter corporate Loans & Investments
Valuation of undertaking / Assets
Evaluation of internal financial control and risk Management System
Monitoring the end use of funds raised through public offers
47. Vigil mechanism has to be established by the following
companies:-
(i) Listed companies
(ii) Companies that accept deposits from the public
(iii) Companies which have borrowed monies from banks
and public financial institutions in excess of Rs.50 crores.
Directors and employees of the company can report their
genuine concerns and grievances.
If there is an audit committee requirement the vigil
mechanism shall be over seen by the audit committee.
In other cases, the Board shall nominate a director to place a
role of audit committee for the purpose of vigil mechanism.
48. Nomination and Remuneration Committee is mandatory for
Every listed company
Every public company with a paid up capital of Rs.10 crore or
more;
Every public company having a turnover of Rs.100 crore or more;
Every public company having in aggregate outstanding loans or
borrowings or debentures or deposits exceeding Rs.50 crores
The paid up share capital, turnover, outstanding loans,
borrowings, or deposits or debentures shall be taken into account
as existing on the date of the last financial statements.
49. Nomination & Remuneration Committee shall consist of three or more
non-executive directors out of which not less than one-half shall be
independent directors.
The Nomination Committee shall identify persons who are qualify to
become directors, who may be appointed in senior management;
appointment, removal and evaluation of every director’s performance.
Where there are more than 1000 shareholders or debenture holders or
deposit holders or any other security holders at any time during a
financial year, the Company has to constitute Stakeholders Relationship
Committee.
The Stakeholders Relationship Committee shall consist of a chairperson
who shall be a non-executive director and such other members as may be
decided by the Board.
This Committee shall consider and resolve the grievances of the security
holders of the Company.
50. Three new committees – the Nomination and Remuneration
Committee, the Stakeholders Relationship Committee and the
Corporate Social Responsibility Committee, have to be
additionally appointed over and above the Audit Committee.
All these committees require non-executive / independent
directors.
The Committee would have to set out the policies relating to the
remuneration for the directors, key managerial personnel and
other employees and recommend to the board and disclose them
in the board’s report.
51. Board can exercise all such powers and do all such acts and
things as the company is authorised to do subject to the Act /
MoA and Articles.
Where any act or thing can be done by the Company only in
a General Meeting as per the legislation or Memorandum
and Articles then the Board shall not exercise such power.
A regulation made by the Company in a general meeting
cannot invalidate any prior act of the Board which would
have been valid if that regulation had not been made.
52. The following powers shall be exercised by the Board of Directors by
means of resolution passed at a meeting of the board:
make calls on shareholders in respect of money unpaid on their
shares
authorise buy-back of securities under section 68
issue securities, including debentures, whether in India or outside
borrow monies
invest the funds of the company
grant loans or give guarantee or provide security in respect of loans
approve financial statement and the director’s report
diversify the business of the company
approve amalgamation, merger or reconstruction
take over a company or acquire a controlling or substantial stake in
another company
Any other matter which may be prescribed
53. In addition to Section 179, the following powers of the Board shall be exercised
only by way of resolution passed at the meetings of the Board:
to make political contributions;
Appoint or remove key managerial personnel;
Take note of appointments or remove of one level below the KMP;
Appoint internal auditors and secretarial auditor;
to take note of the disclosure of director’s interest and shareholding;
to buy, sell investments held by the company (other than trade investments),
constituting five percent or more of the paid – up share capital and free reserves
of the investee company
to invite or accept or renew public deposits and related matters;
To review or change the terms and conditions of public deposits;
to approve quarterly, half yearly and annual financial statements or financial
statements as the case may be.
54. The Board through a resolution can delegate to any
committee of directors / managing director /
manager or any other principal officer the powers
pertaining to borrowing, investment, grant of loans
or guarantee.
55. Section 180 applies to all companies unlike the erstwhile Section 293 of the
Companies Act, 1956 which applied only to public companies.
All private companies will have to comply with Section 180. However, Draft
Notification proposes to exempt private companies from Sec.180 where
members are 50 or less.
The Board can exercise the following powers only with the consent of the
Company by Special Resolution:
Sell, lease or otherwise dispose of the whole of the undertaking of the company or where
the company owns more than one undertaking, of the whole or substantially the whole of
any such undertaking
Invest otherwise in trust securities the amount of compensation received by it as a result of
any merger or amalgamation
Borrow money, where the money to be borrowed together with the money already
borrowed by the Company exceeds the aggregate paid up share capital and free
reserves, apart from temporary loans obtained from the company’s bankers in the
ordinary course of business - [“Temporary Loans” means loans repayable on demand or
within 6 months from the date of the loan does not include loans raised for capital
expenditure.]
To remit, or give time for the repayment of any debt due from a director
56. Every Special Resolution passed by the company in general meeting
to borrow money shall specify the total amount up to which monies
may be borrowed by the Board.
Special resolution to sell, lease or otherwise dispose off the whole or
substantially the whole of the undertaking may stipulate the conditions
including terms - use, disposal or investment of the sale proceeds.
Title of the buyer/ other person who buys/leases any property/
investment/undertaking in good faith or the sale/ lease of the property in
the ordinary course shall not be affected.
Debt incurred by the company in excess of the limits imposed by the
members shall not be valid unless it is proved by the lender that he has
advanced loan in good faith and has no knowledge that the limit has
been exceeded????
57. Board of directors of a company may contribute to
bona fide charitable and other funds.
Prior permission of the company in general meeting
is required for such contribution exceeding 5% of its
average net profits for the three immediately
preceding financial years.
58. A Company other than a Government Company
and a company in existence for less than three
financial years can contribute directly or indirectly
to any political party.
The contribution in any financial year shall not
exceed 7.5% of the average net profits in three
immediately preceding financial years.
Board approval required and in terms of Rule 8 a
special resolution by the Board is required.
59. Section 293A of the 1956 Act Section 182 of the 2013 Act
Limit of 5% of average net profits. Limit of 7.5% of average net profits.
Net profits to be determined as per
Section 349 & Section 350.
No stipulation to determine net profits
under Section 198.
Prohibition on contribution to political
party or for any political purpose to any
person .
Prohibition only in respect of contribution
to any political party .
Disclosure of contribution to political
party or for any political purpose to any
person in P/L.
Disclosure of contribution to political
party in P/L.
60. The Board of directors of a company or any person
or authority exercising the powers of the board or of
the company in general meeting may 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.
Disclosure in the profit and loss account is required
on the amount contributed during the financial
year.
61. Every Director shall :
at the first Board meeting in which he participates as Director
and thereafter at the first meeting of the Board in every financial year
or whenever there is a change in the disclosure already made, at the
first Board meeting held immediately after the change
Disclose his concern or interest in any company or companies or bodies
corporate, firm, or other association of individuals which shall include the
shareholding in such manner as may be prescribed.
In terms of Rule 9 the Director is required to disclose his interest through
a notice in writing in form MBP 1.
The Director has to give notice of Interest to cause it to be disclosed at
the meeting held immediately after the date of the notice.
All notices must be preserved for 8 years from the end of the financial
year.
62. If one person company, either limited by capital or
guarantee, enters into a contract with sole member who is
also the Director, then the terms of the contract shall be
either contained in Memorandum or are recorded in the
minutes of the first board meeting held next after entering
into contract.
This section shall not apply to the contracts entered in to by
the company in the ordinary course of business.
Every contract entered in to by the company under this
section shall be intimated to the Registrar of Companies
within 15 days of its approval by Board.
63. No director or KMP shall buy in the C / H / S / A
A right to call for delivery or a right to make delivery at a specified
price within a specified time of a specified number of relevant
shares or specified amount of relevant debentures.
A right, as he may elect to call for delivery or to make delivery, etc.
The term “relevant shares” / “relevant debentures” means
shares/debentures of the company in which the concerned person
is a Whole Time Director/ Other KMP or shares or debentures of its
holding and subsidiary companies
Violation – imprisonment for a term which may extend to two
years or fine not less than one lakh but which may extend to five
lakhs or both.
64. No person including the director/KMP shall enter into insider
trading, however, communication required in the ordinary
course of business is exempted.
Violation – punishment by way of imprisonment for a term
which may extend to 5 years or with fine which shall not be
less than Rs.5 lakhs but which may extend to Rs.25 crores or
3 times the amount of profit made out of insider trading
whichever is higher or both.
65. Secretarial audit is mandatory for:
(a) All listed companies
(b) Public company having a paid-up share capital of Rs.50
Crores or more; and
(c) Public company having a turnover of Rs.250 Crores or
more.
66. PARTICULARS LIMIT
Public Company to its directors including
MD / WTD / Manager
Shall not exceed 11% of the net profits
computed as per Sec.198 except that the
remuneration of directors would not be
deducted from the gross profits.
Remuneration to any one MD or WTD or
Manager
Shall not exceed 5% of the net profits and
if there are more than one such director,
shall not exceed 10% of the net profits to
all such directors and manager taken
together.
Remuneration to other directors who are
not MD or WTD.
Shall not exceed 1% of the net profits of
the Company if there is an MD or WTD or
3% of the net profits in any other case.
67. A company having profits can pay remuneration not
exceeding the limits specified in Sec.197.
If there are no profits or inadequate profits, without Central
Government approval payments can be made not exceeding
the limits set out in Schedule-V.
The limits can be doubled if the shareholders pass a Special
Resolution.
Company in its general meeting may with the approval of
Central Government authorize the payment of remuneration
exceeding 11% subject to the provisions of Schedule-V.
68. Every listed company and every other public company
having a paid-up share capital of 10 crore rupees or more
shall have whole-time key managerial personnel;
Sec.2(51) defines ‘key managerial personnel’, in relation to a
company, to mean—
(i) the Chief Executive Officer or the Managing Director or the
Manager;
(ii) the Company Secretary;
(iii) the Whole-time Director;
(iv) the Chief Financial Officer; and
(iv) Such other officer as may be prescribed.
69. An individual shall not be appointed or reappointed as the chairperson
of the company as well as the Managing Director or Chief Executive
Officer of the company at the same time after the date of
commencement of the Act unless
(a) the articles of such a company provide otherwise; or
(b) the company does not carry multiple businesses
A whole-time key managerial personnel shall not hold office in more
than one company except in its subsidiary company at the same time.
A KMP can be a director of any company with the permission of the
Board.
If a whole-time KMP holds office in more than one company at the time
of commencement of the law, he shall within six months choose one
company in which he wishes to continue.
70. No company shall appoint or re-appoint any person as its
managing director, whole-time director or manager for a
term exceeding five years at a time.
No re-appointment shall be made earlier than one year
before the expiry of his term.
71. Who is an un discharged insolvent
Who has at any time suspended payment to his creditors or makes, or
has at any time made, a composition with them
Who has at any time been convicted by a court of an offence and
sentenced for a period of more than six months
72. Who is below the age of twenty-one years or has attained the age of
seventy years?
Can age be a criteria in the era of innovation and can 70 amount to old
age in the era of longevity?
8 year old Harli Jordian, is a marble collector who manages a company
called as Land od Marbles as CEO selling marbles as high as USD 1000.
Sharavan & Sanjay Kumaran are aged 10 & 12 who have created mobile
phone applications which has been downloaded around 10,000 times –
GoDimensions.
Mark Zuckerberg
The Supreme Court in the case of B.P. Sharma Vs Union of India has
held that imposition of an age limit of 60 years for approved guides by
Ministry of Tourism was unconstitutional as it amounted to a total
prohibition to carry on the profession of ones own choice.
73. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk vaithilegal@yahoo.co.in