Sunday, November 22, 2015

Board Meetings Through Video Conferencing.

Matters which cannot be dealt through video conferencing
  • Approval of Financial statements
  • Approval of Board of Directors report

General Rules regarding quorum, venue and participation
  • Every director has to attend at least one Board Meeting in a financial year by participating in person (physical attendance). As per the Companies Act 2013 read with Secretarial Standard SS1, a Director can attend all the meetings in a year through Video Conferencing and may not be present physically in any of the Board meetings. 
  • Participation through video-conferencing will be counted for the purpose of quorum.
  • Venue specified in notice shall be taken as the venue of the meeting and all requisite registers to be kept at the venue.
  • Registers required to be signed by directors shall be deemed to have been signed by directors who are participating through electronic means once they give their consent and same is recorded in the minutes.
  • No person other than directors, Company Secretary, Chairperson and persons whose presence is required pursuant to a legal provision shall be allowed access to the place where any director is attending the meeting either physically or through video conferencing.
Requirements regarding notice
  • Notice to contain details regarding availability of facility of video conferencing.
Duties of Directors
  • Director to intimate, in writing, to Chairperson/CS regarding his intention to participate through video conferencing, at least 3 days in advance (unless waived by Chairperson), else he will be taken as participating in person.
  • At the beginning of the meeting, all directors participating through video conferencing to state on record – their name, location, confirmation regarding clarity in hearing/seeing other participants, confirmation regarding receipt of agenda of meeting and confirmation that no one other than the concerned director is attending or having access to the proceedings of the meeting at their location.
  • To identify themselves before speaking on any agenda.
  • To identify themselves before casting their vote on any motion which is objected to.
  • To confirm the draft minutes within 7 days of circulation.
Role of Chairperson/Company Secretary
Functions to be discharged by Chairman
  • To make roll call at the beginning of the meeting
  • To make a roll call and record the votes in case any motion is objected to.
  • To make roll call at the end of the meeting and after every break.
  • To summarise the decisions taken during the meeting on each item of agenda transacted along with the voting details, at the end of the meeting.
Functions to be discharged by Company Secretary
  • To maintain record of requests received from directors regarding their intention to participate through video conferencing.
Functions to be discharged either by Chairperson or Company Secretary
  • After roll call, to call out the name of persons who are attending meeting through permission of Chairperson and confirm regarding presence of quorum.
  • To state the identity of speaker of agenda, if the speaker fails to do so.
Requirements regarding minutes and secretarial records

  • Video recording of the part of the meeting where chairperson summarises the decisions taken at the meeting shall form part of the secretarial records and be preserved by the company.
  • Minutes shall disclose the particulars of the directors who attended the meeting through video conferencing or other audio visual means.
  • The draft minutes of the meeting shall be circulated among all the directors within 7 days of the meeting either in writing or in electronic mode as may be decided by the Board.
  • Directors to confirm the minutes within 7 days, else their confirmation will be presumed.
  • Thereafter, minutes to be entered in minutes book.

Credits: S.Dhanapal

Tuesday, September 29, 2015

Managerial Remuneration

Section 197 of the Companies Act 2013 [CoAct] is applicable to remuneration paid to Managing Director, Whole-time Director, Part time Directors and managers. section 197 which deals with remuneration payable to managerial personnel is applicable to public companies only.

"Remuneration"  is defined u/s 2(78) of CoAct as any money or its equivalent given or passed to any person for services rendered by him and includes perquisites as defined under the Income Tax Act, 1961. Section 17(2) of Income Tax Act, 1961 has given an inclusive definition of the term “perquisite”, which includes
  1. Value of rent-free accommodation provided to the assessee by his employer.
  2. Value of any concession in respect of rent for any accommodation provided to the assessee by his employer. 
  3. The value of any benefit or amenity granted or provided free of cost or at a concessional rate to employee directors; or to employees who have substantial interest and certain specified employees with some exceptions. 
  4. Sums paid by the employer in respect of any obligation which, but for such obligation, would have been payable by the assessee. 
  5. Sums payable by the employer to effect an assurance on the life of the assessee employee or to effect a contract for an annuity. 
  6. W.E.F assessment year 2010-11, value of securities / sweat equity shares allotted or transferred by the employer or former employer to the employee.
  7. W.E.F assessment year 2010-11 a contribution made by an employer to an approved superannuation fund to the extent it exceeds Rs 1 lakh. 
  8. Value of any other fringe benefit or amenity as may be prescribed. 
  9. The first proviso states that certain medical benefits are not treated as perquisites in certain specific situations. Any expenditure incurred by the Company to affect any insurance on the life of, or to provide any pension, annuity or gratuity for, any of the persons aforesaid or spouse or child shall be included in managerial remuneration. 
Definition of remuneration as well as perquisites are inclusive in nature and hence it covers every amount that the company pays or spends for or for the benefit of a Director, in whatever form and by whatever name. 
Any remuneration for services rendered by such director which is of professional nature shall not be included in the managerial remuneration. Further, a director may receive remuneration by way of a fee for each meeting of the Board, or a committee thereof attended by him. 
If insurance is taken by a company on behalf of its Key Managerial Personnel for indemnifying against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, (Directors and officers liability insurance) the premium paid on such insurance shall not be treated as part of remuneration. However if such Key Managerial Personnel is found guilty then such insurance shall be treated as income as part of remuneration. 
If a manager or any director enjoys benefit or amenity without the company incurring any expenditure therefor, such benefit or amenity may not be included in the managerial remuneration. 
An Independent director shall not be entitled to receive stock option. However, in case of other directors, Stock options would be part of remuneration.

Limit on remuneration as % of net profit. 
Section 197 of the Companies Act, 2013 provides a way to pay managerial remuneration in case of Company’s having adequate profits. A Public Company can pay remuneration to its directors including Managing Directors and Whole-time Directors, and its managers which shall not exceed 11% of the net profit as calculated in a manner laid down in section 198 of the CoAct. Wherein a Company in which there is onlhy one Managing Director or Whole-time Director or Manager the remuneration to be paid shall not exceed 5% of net profits and where there are more than one of such Directors, remuneration payable shall not exceed 11 % of the net profit.

Payment of remuneration in excess of the above limit.
A company can pay more remuneration in accordance with Part II of Schedule V of CoAct.

Payment of remuneration in excess of above limits with the permission of shareholders.
A company with inadequate profit may pay remuneration @ 200% of the limit mentioned in Part II of Schedule V if shareholders have given their approval through a special resolution.
Where a managerial person does not hold Rs. 5 lacs worth of shares or more or an employee or a director of the company not related to any director or promoter at any time during the two years prior to his appointment as a managerial person, In such cases, the company can pay to him up to maximum of 2.5% of the “current relevant profits” and up to 5% with the approval of shareholders by a special resolution. The term “current relevant profit” means profit calculated under section 198 but without deducting the excess of expenditure over income as defined in section 4(1) of section 198 relating to all usual working charges in respect of those years during which the managerial person was not an employee, director or shareholder of the company or its holding and subsidiary companies.
However, Section IV Part II of Schedule V states that a managerial person shall be eligible for the following perquisites which shall not be included in the computation of the ceiling on remuneration specified in Section II and Section III:— 
  1. Contribution to provident fund, superannuation fund or annuity fund to the extent these either singly or put together are not taxable under the Income-tax Act, 1961 (43 of 1961); 
  2. Gratuity payable at a rate not exceeding half a month’s salary for each completed year of service; and 
  3. Encashment of leave at the end of the tenure.
When profit is adequate – the entire value of perquisites as per IT Act, 1961 will be considered in the managerial remuneration. However in the event of inadequacy of profits or nil profits, only the taxable amount of perquisites should be considered. 

In case of expatriate the amounts paid under the heads of income mentioned below will not be considered as managerial remuneration.
  1. Children’s education allowance 
  2. Holiday package studying outside India or family staying outside India 
  3. Leave travel concession
If any managerial personnel receives any amount in excess of limits mentioned under the provisions of the CoAct, It is his obligation to refund such amount to the company and until such sum is refunded, hold it in trust for the company. 

Further, if a Company wants to pay remuneration exceeding Schedule V of the Act then approval from Central Government is compulsory. 

Section 197 of the CoAct allows a managing or whole-time director of a company to receive compensation from its holding company or subsidiary provided the same shall be disclosed in the director’s report.

NO PROFIT OR INADEQUATE PROFIT IN SPECIAL CIRCUMSTANCES

In certain special circumstances, a company without profit or inadequate profit may pay managerial remuneration in excess of limits specified in Section II above and that too without the approval of Central Government. Provided:

  • The company paying managerial remuneration in excess of maximum specified limits is either a foreign company or a company who has got approval of its shareholders in this regard and the total managerial remuneration payable by such company is within the permissible limits of Section 197 of Companies Act’2013.
  • A company can pay managerial remuneration up to two times of the amount specified in Section II, given above, provided: 
    • A newly incorporated company and is in existence for last seven years from the date of its incorporation, or
    • A sick company in respect of which a scheme for revival and rehabilitation has been ordered by BIFR or NCLT for a period of five years from the date of sanction of revival scheme
  • Where such excess managerial remuneration is fixed by BIFR or NCLT, subject to fulfilment of certain additional conditions apart from that given in Section 197 of Companies Act’2013
RESTRICTION ON INDEPENDENT DIRECTOR 
  • Section 197(5) of the CoAct specifically permits different fees to be paid to Independent Directors, there is no such enabling provision with respect to profit related commission. This means profit related commission may be paid uniformly to all non-executive directors. A company may pay such commission within the limit of 1% or 3% of the net profits, as the case may be. Further, Independent Directors cannot be granted stock options. 
  • A company resident in India, shall make payment in rupees to non Whole Time Directors who are resident outside India and is on visit to India for the company’s work and is entitled to payment of sitting fees or commission or remuneration, and travel expenses to and from and within India, in accordance with the provisions contained in the company’s MOA & AOA or in agreement entered into by it or in any resolution passed by the company in general meeting or by Board, provided the requirements of any law, rules, regulations, directions applicable for making such payments are duly complied with.
ADJUSTMENT OF MANAGERIAL REMUNERATION ACCORDING TO FOREX FLUCTUATIONS
  • Where an expatriate is occupying the position of managerial person he may be paid a remuneration taking foreign currency as a base. In case of devaluation of currency there was a need to compensate such non-resident managerial persons to maintain these remittances at the pre-devaluation level and such increase in remuneration is allowed even if the resultant increased remuneration exceeds the statutory limits imposed by the Companies Act.

REMUNERATION PAYABLE TO A MANAGERIAL PERSON FROM TWO COMPANIES
  • Subject to the provisions of sections I to IV, a managerial person shall draw remuneration from one or both companies, provided that 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. 
PENALTY TOWARDS NON-COMPLIANCE
  • If any person contravenes the provisions of the section 197, he shall be punishable with fine which shall not be less than 1 lakh rupees and may extend to 5 lakhs rupees If a company or any officer of a company or any other person contravenes any of the provisions of this Act or the rules made there under, the company and every officer of the company who is in default or such other person shall be punishable with fine which may extend to Rs.10,000/-, and where the contravention is continuing one, with a further fine which may extend to Rs.1,000/- for every day after the first during which the contravention continues.

Sunday, September 20, 2015

independent director - companies act 2013

Requirements:

An independent director is someone who does not have any material or pecuniary relationship with the company/directors. Section 149(6) of the Companies Act 2013 [Act] prescribes the criteria for independent directors which are as follows: 

  1. such individuals must possess integrity and relevant industrial expertise; 
  2. such individuals must not have any material or pecuniary relationship with the company or its subsidiaries; 
  3. they or their relatives should not have had any pecuniary relationship with the company or its subsidiaries, amounting to 2% or more of its gross turnover or total income or INR 5 million, whichever is less, during the two immediately preceding financial years or in the current financial year; 
  4. such appointees or their relatives should not have any key managerial position in the company or its subsidiary companies during any of the three preceding financial years; 
  5. such persons or their relatives should not have been an employee of the company or its subsidiary companies during any of the three preceding financial years; 
  6. they or their relatives must not be a director of a nonprofit organization, which receives 25% or more of its receipts from the company or its subsidiary companies or its promoters/directors or from anyone who holds 2% of voting rights in such companies;
  7. such individuals must not be a promoter of the company or its subsidiaries; 
  8. they must not hold more than 2% voting rights in the company either by themselves or together with their relatives.
However 'independence' is not affected if a relative of the independent director holds a key position in a competitor entity. Both under the Companies Act and SEBI's Listing Agreement, it is possible for a director to be an independent director of a company, though his or her spouse/ relative is a director of a competitor company,

Remuneration:

The Act expressly disallows independent directors from obtaining stock options and remuneration other than sitting fees and reimbursement of travel expenses for attending the board and other meetings. Profit related commission may be paid to them, but subject to the approval of the shareholders. The reason for restricting the remuneration was to prevent personal financial nexus with the company and to safeguard their independence. However, the flip side is if the remuneration is not attractive then it would be difficult for companies to attract suitable and experienced persons for the position.

Wednesday, September 16, 2015

Private Companies can accept loan from Directors and Relatives of Directors

Companies (Acceptance of Deposits) Second Amendment Rules, 2015


Ministry of Corporate affairs vide its notification dated 15/09/2015 has provided that with immediate effect a private company can accept unsecured loans from directors and also from a relative of Director provided that at the time of lending money the relative of director from whom money is received must furnish to the company, a declaration in writing stating that the amount is not being given out of funds acquired by him by borrowing or accepting loans or deposits from others and the company shall disclose the details of money so accepted in the Board’s report (Annual Report). Further more such relative need not be a shareholder of the company.

With this amendment a private company is allowed to take loans, deposits from members, Directors and relatives of directors not exceeding aggregate of 100% of its paid up capital, free reserves and securities premium account..

Sunday, August 09, 2015

Meaning of Director - Companies Act 1956

Meaning of Director
As per section 2(13) of the Companies Act 1956, Directors includes any person occupying the position of Directors by whatever name called. The definition of Director is inclusive definition. It includes any person who occupies the position of a Director is known as Director whether or not designated as Director. It is not the name by which a person is called but position he occupies and the functions and duties which he discharges that determines whether he is a Director or not. Simply, Director means a person who controls or supervises the affairs of business. Therefore, the Director is liable for every act which he control.

He is duly appointed by the Company through Articles of Association or in general meeting, to control the business of the Company and authorised by Articles of Association to contract on behalf of the Company. A Director is a person charged with the conduct and management of the company’s activities. Under Companies Act, Directors are the primary agent of the Company to transact its business. He has to exercise strategic oversight over business operations while directly measuring and rewarding management’s performance. Simultaneously he has to ensure compliance with the legal framework, integrity of financial accounting and reporting systems and credibility in the eyes of the stakeholders through proper and timely disclosures.

Legal position of Director:
It is difficult to define the exact legal position of the Directors of a Company. The companies act does not define the actual position of Directors. The Director shall act as a agent or trustee or managing partner in the Company. In agency term, the Director acts on behalf of the Company. So the Company is liable for contracts executed by Director. Director also acts as a trustee. He stands in a fiduciary position towards the company in respect of his powers and capital under his control. There exists a relationship of a trustee and trust between the directors and the shareholders of the Company. The directors have been held trustees of the assets of the Company and in many cases the courts have directed them to reimburse the loss to the Company, where it was found that directors have applied the Company’s money for personal purpose or undue advantage. He shall exercise his powers in the interest of the Company. The Directors enjoys the vast power of management and acts as a decision making body.

Powers of Director
Director has no power to act on behalf of the company in any matter, except to the extent to which any power or powers of the Board have been delegated to him by the Board, within the limits prescribed under the Companies Act or any other law or memorandum and articles of association of the Company.

Rights of Director
As specified in the Secretarial Standards applicable under Companies Act 2013,
  • A Director is entitled to inspect the Minutes of a Meeting held before the period of his Directorship.
  • A Director is entitled to inspect the Minutes of the Meetings held during the period of his Directorship, even after he ceases to be a Director.

Saturday, June 13, 2015

Privileges, Concessions to private companies

The Ministry of Corporate Affairs has issued a notification to give exemptions to private companies under the Companies Act to improve ease of doing business in India.

Some important exemptions that have been provided in the Notification with respect to the private companies are that the transactions between any company which is holding, subsidiary or an associate of such company and subsidiary of holding shall not be treated as Related Party Transactions. With the removal of restrictions on the powers of Board, it would be easy for the private companies to operate their business.

The Notification provides that the interested directors of a private company may participate in such meeting wherein contract or arrangement or proposed contract or arrangement entered into or to be entered into is discussed after disclosure of interest. Also, the member of a private company can vote on such resolution, to approve any contract or arrangement which may be entered into by the company, if such member is a related party.

Further, Loan to Directors etc., may be provided by a private company in whose share capital another body corporate has invested any money and if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower, and such a company has no default in repayment of such borrowing subsisting at the time of making transactions under this section.

Now, a big relief to the private companies which will help in the capital formation is that the companies can accept deposits from members which is not exceeding 100 % of aggregate of the paid up share capital and free reserves.

The private companies need not file with the Registrar the resolutions passed by the Board with respect to Section 179 (3) which will in turn help the private companies to reduce cost of compliance.

For appointment of managing director, whole-time director or manager by a private company, there is no requirement that the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at its meeting and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule.

The Private company can have its own regulations in its article of association for the following sections of companies Act, 2013:- 

 Section 101 – Notice of general meetings 
 Section 102 – Explanatory Statement 
 Section 103 – Quorum for meeting 
 Section 104 – chairman of meetings 
 Section 105 – Proxies 
 Section 106 – Restriction of voting rights 
 Section 107 – Voting by show of hands 
 Section 109 – demand for poll

Thursday, April 23, 2015

When to file form MGT 14 under Companies Act 2013

Passing of below mention Resolutions necessitates filing form MGT 14. The resolution should be filed with ROC within 30 days of passing the resolution.

Section- 8

For a company registered under Section- 8 to convert itself into a company of any other kind or alteration of its Memorandum or Articles

Section – 12
Shifting of Registered Office address

Section-13 
Alteration in MOA.

Section - 14
Alteration in Article.

Section 13(8)
A company, which has raised money from public through Prospectus and still has any unutilized amount out of the money so raised, shall not Change its objects for which it raised the money through prospectus unless a special Resolution is passed by the company.

Section 27(1)
A company shall not, at any time, vary the terms of a contract referred to in the prospectus or objects for which the prospectus was issued, except subject to the approval of, or except subject to an authority given by the company in general meeting by way of special resolution.

Section 48(1)
Where a share capital of the company is divided into different classes of shares, the rights attached to the shares of any class may be varied with the consent in writing of the holders of not less than three-fourths of the issued shares of that class or by means of a special resolution passed at a separate meeting of the holders of the issued shares of that class.

Section 54
Issue of Sweat Equity Shares.

Section 62(1) (c)
Preferential allotment of shares.

Section 65
Conversion of Unlimited company into limited company.

Section 66(1)
Reduction of Share Capital.

Section 67(3) (b)
Special resolution for approving scheme for the purchase of fully-paid shares for the benefit of employees.

Section 68(2)(b)
Buy Back of Shares.

Section 71(1)
A company may issue debentures with an option to convert such debentures into shares, either wholly or partly at the time of redemption: Provided that the issue of debentures with an option to convert such debentures into shares, wholly or partly, shall be approved by a special resolution passed at a general meeting.

Section 76
Inviting deposits from person other then members.

Section-94
Keep registers at any other place in India.

Section 140(1)
The auditor appointed under section 139 may be removed from his office before the expiry of his term only by a special resolution of the company, May appoint more than 15 directors by passing of Special resolution.

Section- 149(10)
Re-appointment of Independent Director.

Section 165(2)
Subject to the provisions of sub-section (1), the members of a company may, by special resolution, specify any lesser number of companies in which a director of the company may act as directors.

Section- 180
The Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution, namely-
  1. To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings. 
  2. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation. 
  3. to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business. 
  4. to remit, or give time for the repayment of, any debt due from a director.
Section- 185
For approving scheme for giving of loan to MD or WTD.

Section- 188
To enter into related party transaction with the company if paid up capital of company exceed Rs.10/- Crore.

Section- 186(3)
Loan& Investment by company exceeding 60% of paid up share capital or 100% of free reserve. 

Section- 196
Appointment of a person as Managerial Personnel if, the age of Person is exceeding 70 year.

Schedule V
Payment of remuneration to Managerial personnel if, profits of company are Inadequate.

Section 271(1)(b)
Special Resolution for winding up of the company by Tribunal.

Section 304(b)
Special Resolution for winding up of company

AS PER SECTION 179(3)
The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:—these resolutions are also necessary to file in MGT-14.
  1. To make calls on shareholders in respect of money unpaid on their shares. 
  2. To authorize buy-back of securities under section 68.
  3. To issue securities, including debentures, whether in or outside India; 
  4. To borrow monies; 
  5. To invest the funds of the company; 
  6. To grant loans or give guarantee or provide security in respect of loans; 
  7. To approve financial statement and the Board’s report; 
  8. To diversify the business of the company; 
  9. To approve amalgamation, merger or reconstruction; 
  10. Take over a company or acquire a controlling or substantial stake in another company; 
  11. Any other matter which may be prescribed.
In addition to the items mention above the following resolutions should also to be filed with ROC in MGT-14 per Rule 8 of Companies (Meetings of Board and its Powers), Rules 2014-
  1. To make political contributions. 
  2. To appoint or remove key managerial personnel (KMP) 
  3. To take note of appointment(s) or removal(s) of one level below the Key Management Personnel; 
  4. To appoint internal auditors and secretarial auditor; 
  5. To take note of the disclosure of director’s interest and shareholding; 
  6. To buy, sell investments held by the company (other than trade investments), constituting 5% or more of the paid up share capital and free reserves of the investee company; 
  7. To invite or accept or renew public deposits and related matters; 
  8. To review or change the terms and conditions of public deposit; 
  9. To approve quarterly, half yearly and annual financial statements or financial results as the case may be.
Items 3, 5, 6, 7, 8 and 9 have been omitted vide Companies (Meetings of Board and its Powers) Amendment Rules, 2015

Resolutions required to be Filed Under Companies Act,2013 in form MGT 14

Section 117(3) of the Companies Act 2013 specifies the list of resolutions that should be filed with the ROC along with Explanatory statement if any within 30 days of passing such resolution through filing of Form MGT 14.



List of Resolutions/Agreements given in Section 117(3)
  1. Special Resolutions;
  2. Resolutions which have been agreed to by all the members of a company, but which, if not so agreed to, would not have been effective for their purpose unless they had been passed as special resolutions;
  3. Any resolution of the Board of Directors of a company or agreement executed by a company, relating to the appointment, re-appointment or renewal of the appointment, or variation of the terms of appointment, of a Managing Director;
  4. Resolutions or agreements which have been agreed to by any class of members but which, if not so agreed to, would not have been effective for their purpose unless they had been passed by a specified majority or otherwise in some particular manner; and all resolutions or agreements which effectively bind such class of members though not agreed to by all those members;
  5. Resolutions passed by a company according consent to the exercise by its Board of directors of any of the powers under clause (a) and clause (c) of sub-section (1) of section 180;
  6. Resolutions requiring a company to be wound up voluntarily passed in pursuance of section 304;
  7. Resolutions passed in pursuance of sub-section (3) of section 179 as listed below; and
  8. Any other resolution or agreement as may be prescribed and placed in the public domain.
List of Resolutions given in Section 179(3)
  1. to make calls on shareholders in respect of money unpaid on their shares; 
  2. to authorise buy-back of securities under section 68; 
  3. to issue securities, including debentures, whether in or outside India; 
  4. to borrow monies; 
  5. to invest the funds of the company; 
  6. to grant loans or give guarantee or provide security in respect of loans; 
  7. to approve financial statement and the Board’s report; 
  8. to diversify the business of the company; 
  9. to approve amalgamation, merger or reconstruction; 
  10. to take over a company or acquire a controlling or substantial stake in another company; 
  11. any other matter which may be prescribed (PRESCRIBED IN RULE 8 OF Companies (Meetings of Board and its Powers) Rules, 2014
List of Resolutions given in rule 8(5) read with Section 179(3)
  1. to make political contributions; 
  2. to appoint or remove key managerial personnel (KMP); 
  3. to take note of appointment or removal of one level below the Key Management Personnel; *
  4. to appoint internal auditors and secretarial auditor;
  5. to take note of the disclosure of director’s interest and shareholding; *
  6. 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; *
  7. to invite or accept or renew public deposits and related matters; *
  8. to review or change the terms and conditions of public deposit; *
  9. to approve quarterly, half yearly and annual financial statements or financial results as the case may be. *
Vide circular issued on 5 June 2015 Private companies have been given certain privileges and hence Section 179 does not apply to Private companies and there is no need to file form MGT-14 for above listed resolutions.

Change in the address of statutory registers
As per rule 15(6) of Companies (Management and Administration) Rules, 2014 [Chapter-7 ], a copy of the proposed special resolution in advance to be filed with the registrar as required in accordance with first proviso of sub-section (1) of section 94, shall be filed with the Registrar, at least one day before the date of general meeting of the company in Form No. MGT.14.


* Please note that vide Companies (Meetings of Board and its Powers) Amendment Rules, 2015 dated 18-Mar-2015 Govt. has omitted the certain events from compulsory filing of MGT.14 those items are struck off from the above list.

Appointment of Company Secretary

Whole-time Company Secretary

As per Companies Act 2013 every company should appoint a whole time company secretary whose paid up share capital is not less than Rs. 5.00 Crores.

A whole time Company secretary of a company can be appointed as a non executive Director of another company. However a Company secretary can not be appointed as whole-time company secretary of another company.

A whole time Company secretary can be appointed as a non-executive director of the same company provided there are more than two directors in the company.


Secretarial Audit Report

As per sub-section (1) of section 204 of the Companies Act 2013 every company that attracts the below listed criteria should carry out a Secretarial Audit and submit the Secretarial Audit Report in form No.MR.3

  1. Every public company having a paid-up share capital of not less than Rs.50 crores or
  2. Every public company having a turnover of not less than Rs.250 Crores

Thursday, March 12, 2015

Inter-corporate Loans and Investments, Loans to employees

Companies Act 2013

section 186 of Companies Act 2013 governs loans, investments and guarantees by a company. Section 186 provides that a company may give loans or provide security/guarantee up to 60% of its (paid up capital + free reserves + securities premium) or 100% of (free reserves + securities premium), whichever is higher. For transactions exceeding these limits, approval of members is required to be sought by way of a special resolution.

on 10th March 2015, Ministry of Corporate Affairs clarified that loans and/or advances made by the companies to their employees, other than the Managing or Whole time directors (which is governed by section 185) are not governed by the requirements of section 186 of the Companies Act, 2013, if it is in accordance with the condition of services to all employees and are also in accordance with the remuneration policy, in cases where such policy is required to be formulated. Due to this clarification now a Company is not required to maintain a register of loans given to its employees in the format MBP2 and does not disclose the details of loans given to its employees in the Directors report as specified u/s 186(9)

Companies Act 1956
The new provisions of section 372A (1956) is applicable only to Public Limited Companies and provide for a combined limit of sixty percent of the paid up share capital and free reserves (which term includes reserves free for distribution as dividend including the amount in the securities premium account) or one hundred percent of free reserves whichever is higher, for grant of loan (which term includes debentures) to any other body corporate, giving of any guarantee or provision of security in respect of a loan to or by any body corporate and acquisition of securities (which term includes shares, debentures, bonds and other marketable securities, etc.) of any other body corporate by way of subscription, purchase or otherwise. These powers are given to the board of a company by the statute .The scope of section 372A is much larger than the erstwhile section 372. Needless to say that there must a basic provision in the memorandum/articles of a company authorizing the board to make inter-corporate loans and investments.However, in exceptional circumstances, the board may provide guarantee without the previous authorization of shareholders. The Board needs to take approval of shareholders in the immediately succeeding meeting of members.

Conditions

  1. No loan, provision of guarantee or security or investment can be made unless the resolution sanctioning the same is passed at a meeting of the board with the consent of all the directors present at the meeting and with the prior approval of the public financial institution where any term loan is subsisting. However, prior approval of the financial institution is not required, if the aggregate of the investments made, loan granted, guarantees given or security provided together with the proposals in this regard does not exceed 60% of the limit referred to above, provided there is no default in repayment of loan or interest thereon.
  2. No loan can be given to any body corporate at a rate of interest lower than the prevailing bank rate.
  3. If a company has defaulted in the matter of public deposits under section 58A of the Act, such a company is prohibited from availing of the provision in section 372A of the Act. This is a temporary restriction, as the prohibition does not apply when the default under section 58A is made good.
EXCEPTIONS

The regulatory provisions of section 372A are not applicable in the following cases : -

  1. to any loan made, any guarantee given or any security provided or any investment made by a banking or insurance company or a housing finance company in the ordinary course of their business or to a company established with the object of financing industrial enterprises or of providing infrastructural facilities;
  2. to a company whose principal business is the acquisition of shares, stock, debentures or other securities;
  3. to a private company unless it is a subsidiary of a public company;
  4. to any investment made in rights issue;
  5. to any loan made, any guarantee given or security provided to or acquisition of shares by a holding company in its wholly owned subsidiary.