- Corporate Governance Topic One –

Corporate Social Responsibility – India is the First Country to make the CSR liabilities Mandatory.

 Who have to follow?

Company having net worth more than 500 crore + or profit of 5 cr. + or turnover 1000cr +

 How much to spend?

The companies shall contribute 2% of Avg. Profit of Preceding three FY, note that the profit can
also be in negative, this if a company was at total loss no profit, then it need not pay any money
but it needs to inform that the company was at loss.

 Where to contribute and when to comply?

“Section 7” speaks about different activities a company where a company may spend its profit. (
PMRF, DMRF others are Included in schedule 7) .
 How to spend? The CSR rules provide for the method for expenditure. Also, the CSR
committee explains how the money has to be spent.

Corporate Social Responsibility Implementation (2021 Amendment)

a) The board of the directors to ensure that CSR Activities are Undertaken through –

1. By the company itself.

2. Through a section 8 company established by the company. Or,
3. Through a registered public trust created by the company. Or,
4. Registered society (section 12 A and 80 G of the Income tax act). Or,
5. Or all of the above types established by the central/ State Government. Or,
6. By any entity established by an act of parliament or state legislature, or
7. Through a section 8 company having three years or more experience Or,
8. Through a registered public trust having three years or more experience. Or,
9. Registered society (section 12 A and 80 G of the Income tax act) having three years
or more experience in undertaking similar activities.

 The BOD shall ensure that all this sum paid for CSR is properly utilized.

Since April 2021 –

1. Application for registering as a CSR entity with the state government in CSR 1 form to
be filed before ROC (that the company is intending to undertake the CSR activities
with effect from April 2021).
2. CSR 1 form shall be signed by the entity and shall be verified with the CA, Cost
accountants or CS in practice.
3. Then the company will get the Unique CSR registration number.

The company can also,

1. Engage International organizations to design and monitor the CSR evaluation and Capacity
building as per the policy.
2. Can perform CSR activities in collaboration with other companies .. but the CSR committees
and Companies shall be able to show reports separately.
3. Certification of CFO/ any authorized about utilization of Fund properly.
4. Monitor any ongoing project for completion on timely manner.

Constitution of CSR committee -

1. 3 or more Directors shall be there (which must include at least one Independent Director).
2. An unlisted public company or a private company shall have its CSR Committee without any
independent director if an independent director is not required.
3. A private company having only two directors on its Board shall constitute its CSR Committee
with two directors.
4. In the case of a foreign company, the CSR Committee shall comprise of at least 2 persons of
which one person U/S 380 shall be a person resident in India authorized to accept on behalf
of the foreign company – the services of notices and other documents. Also, the other
person shall be nominated by the foreign company.
5. If a company ceases to be a company required to fulfill requirements u/s 135 (1), then it need
not constitute a CSR committee and not required to comply with the CSR requirements.
6. The company having unspent CSR amount shall constitute a CSR committee and comply with
the provision added in 2022 amendment.

CSR Expenditure –

1. Rule 7 of CSR Rules provides that the administrative overheads shall not exceed five percent.
Overheads comp rise costs of indirect material s, indirect employees and
indirect expenses.
2. The surplus in CSR activities should be CSR unspent account to a Fund specified in Schedule
VII ( it should be done within 6 months from the end of the FY otherwise the amount will
mandatorily be have to be sent to some CSR activity)
3. The Excess CSR amount spent to be spent off in 3 successive financial years (excess amount
does not includes surplus amount).
4. BOD resolution is required for CSR expenditures.
5. One company can also acquire capital assets through CSR funds but it will –
a. Only be held by Section 8 company with CSR registration no. and Charitable
object.
b. Or a registered society (with CSR registration no. and Charitable object .)
 c. a registered public trust- (with CSR registration no. and Charitable object.)
6. Or you can donate the Funds to a Public authority.

Mandatory CSR reporting –

1. Display of CSR activities on its website -: The board shall mandatorily disclose the
composition of CSR committee and CSR policy and projects approved by the Board.

Transfer of Unspent CSR amount –

For Unspent amount pertains to ‘ongoing projects’ - Transfer such unspent amount to a separate
bank account of the company to be called as ‘Unspent CSR Account’. Within 30 days from the
end of the financial year.

For - Unspent amount pertains to ‘other than ongoing projects’, transfer unspent amount to any
fund included in Schedule VII of the Act, Within 6 months from the end of the financial year.

The board’s Report must consist of Annual report on CSR.

In case of foreign company, the balance sheet to contain CSR Annual Report.

In case the company’s liability exceeds more than 3 crore, then the Impact assessment by
Independent agencies should be taken and Presented before the Board.

What If a company defaults?

If the company fails to comply then the company shall be liable to pay twice the amount liable
or one crore, whichever will be Less and 1/10 th shall also be paid by the person liable.

There are many other obligations and difficulties are there Don’t need to read.

Four Subcommittees in a Listed Company-

1. Audit Committee - Charged with the principal oversight of financial reporting and disclosure,
the Audit Committee aims to enhance the confidence in the integrity of the company’s
financial reporting, the internal control processes and procedures and the risk management
systems.
 1.1. Composition –
1.1.1. At least three members, 2/3 would be Independent Director.
1.1.2. If company has outstanding superiority Equity share then all members be
Independent Directors.
1.1.3. The Chairman of the Audit Committee shall be an independent director.
1.1.4. The Chairman of the Audit Committee shall be present at Annual General Meeting
to answer shareholder queries.
1.1.5. The Company Secretary shall act as the secretary to the committee.
1.2. Meetings –
1.2.1. As per the revised clause 49 the Audit Committee should meet at least four times
in a year and not more than 120 DAYS shall elapse between two meetings.
1.2.2. The quorum shall be either two members or one third of the members of the audit
committee whichever is greater, but there should be a minimum of two independent
members present.
2. Risk Management Committee-
2.1. Composition –
2.1.1. Minimum 3 members, with at least one independent director.
2.1.2. In case SR Equity – Then at least 2/3 Independent Director.
2.1.3. Chair person shall be a senior executive (CEO, CFO, CS, whole time Director) of
the company.
2.1.4. He/she shall be present in all meeting to answer queries.
2.2. Meetings-
2.2.1. Quorum – two members or one third of the members of the committee. . It is mostly
of BOD
2.2.2. However, if not, then at least one of the board member shall be present at the
meeting,
2.2.3. The quorum for a meeting of the Risk Management Committee shall be either two
members or one third of the members of the committee, whichever is higher,
including at least one member of the board of directors in attendance.
2.2.4. Shall be Held at least twice a year – with gap of not more than 180 days.
3. Nomination and remuneration committee – evaluation of every director’s performance. ,
formulate the criteria for determining qualifications, positive attributes and independence of a
director and recommend to the Board a policy, relating to the remuneration for the directors,
key managerial personnel and other employees
3.1. Composition –
3.1.1. The Committee so constituted by the Board shall consist of three or more non-
executive directors out of which
3.1.2. not less than one-half shall be independent directors.
3.1.3. In case Outstanding SR Equity – Then at least 2/3 Independent Director.
3.1.4. The Chairman of the Committee shall be an independent director.
3.2. Quorum -
3.2.1. at least two or 2/3 of total membership whichever is Higher.
3.2.2. One Independent Director Must necessarily attend.
3.2.3. Meeting chaired by chairmen of the Committee, who’ll be present in all meetings.
3.2.4. Convened once a year.
4. Stake Holders Relations Committee- The main function of the committee is to consider and
resolve the grievances of security holders of the company.
4.1. Composition –
4.1.1. Minimum three members, with at least one Independent Director.
4.1.2. In case SR Equity – Then at least 2/3 Independent Director.
4.1.3. The chairperson – shall be elected by board members. who shall be present in all
AGMs to answer queries.
4.1.4. Meeting Once in a year.

-Composition of Board (How will a Promoter compose the Board) -

Appointment of Director sec. 152

If the AoA is silent on the appointment of Directors, then the subscribers to the memorandum shall
be deemed to be the First directors of the Company, however if the first signatories exceed the
Max. Limit of directors, then the subscribers among themselves shall decide who will be the first
directors. Then the others may be appointed as regular directors in the first AGM.

What is the minimum and Max. Limit?

One person Company- Minimum 1.

Private Company – Minimum 2.

Public company – Minimum 3.

Max- 15 directors and same could be increased by special resolution.

Note: All these Numbers Do not Include the Independent Directors.

1. The Directors of the company are appointed In The AGM, by passing a resolution in the AGM,
(One resolution cannot appoint more than one director unless, unless if a previous resolution
for the same is passed with complete majority)., however additional Director may be appointed
in the same AGM or in any EGM.
2. The directors are appointed after allocation of DIN U/S 154, the people proposed to be directors
should submit the DIN along with declaration that person is not disqualified to be a director
under CA, 2013 to the company, which then sends it to MCA (within 15 days). {(A director
must Inform the company that he has been allotted the DIN Number within 30 days of getting
it)}
3. Director’s consent to hold the office as director and such consent has been filed with the
Registrar within thirty days of his appointment in such manner as may be prescribed.

Rotation of Directors (Only in Public - Unless AoA provide for retirement of Directors (Only
regular directors, not including Independent Directors, Nominee directors etc. at every AGM not
less than 2/3 of directors of a public company shall be retiring every year. And the rest would be
appointed in AGM. The criterion is whoever has spent the most time as the director shall retire.

Suppose there are total 15 directors in a public (unlisted company), 4 of which are independent, 7
of them are executive and 4 are non-executive and non-independent. For calculating 2/3rd
independent directors are not included in the calculation. So, 11*2/3 will be 7.333. It will be
rounded off to next number 8. 8 directors are retiring by rotation.

Exempted from Rotation Rule -

1. Government Company – The government appoints, removes and transfers the directors; thus,
the rotation retirement does not apply to Directors of the Government companies.
 2. Private Companies – Are exempted from Rotation.

For First Directors –

At the first annual general meeting of a public company held next after the date of the general
meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at
every subsequent annual general meeting, one-third of such of the directors for the time being as
are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the
number nearest to one-third, shall retire from office.

In case the they were appointed directors on the same date then they shall decide by draw of lots.

At the annual general meeting at which a director retires as aforesaid, the company may fill up
the vacancy by appointing the retiring director or some other person thereto.

At least one director must stay in India for at least 182 days in India.

Reappointment of Directors -

Can a person retiring in One AGM be reappointed?

If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved
not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the
same time and place, or if that day is a national holiday, till the next succeeding day which is not
a holiday, at the same time and place.

If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting
also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have
been re-appointed at the adjourned meeting, unless—

(i) at that meeting or at the previous meeting a resolution for the re-appointment of such director
has been put to the meeting and lost;

(ii) the retiring director has, by a notice in writing addressed to the company or its Board of
directors, expressed his unwillingness to be so re-appointed;

(iii) he is not qualified or is disqualified for appointment;

(iv) a statutory requirement is there like - a resolution, whether special or ordinary, is required for
his appointment or re-appointment by virtue of any provisions of this Act;

(v) section 162 is applicable to the case.

Disqualification of Directors – Section 164

A person may become Disqualified by two ways – a) The person is ineligible.

b) In eligible Due to some occurrence.

A) Person Ineligible –

 The Director is of unsound mind and stands so declared by a competent court.

 The Director is an undischarged insolvent.

 The Director has applied to be adjudicated as an insolvent and his application is pending.
(Including cases where he is declared undischarged Insolvent, and even during CIRP
process)

 The Director has been convicted by a court of any offence, sentenced for more than six
months and a period of five years has not elapsed from the date of expiry of the sentence.
(S.R Sahara, Ramalingam Raju) Also, any person who has been convicted of any offence
and sentenced to imprisonment for a period of seven years or more, will not be eligible to
be appointed as a director in any company. (Disqualification forever).

Note: Even If you go to appeal this condition remains Intact.

 An order disqualifying the Director for appointment as a director has been passed by a
court or Tribunal and the order is in force.
  The Director has not paid any calls in respect of any shares of the company held by him,
whether alone or jointly with others, and six months have elapsed from the last day fixed
for the payment of the call.

 The Director has been convicted of the offence dealing with related party transactions
under section 188 at any time during the last preceding five years.

 Has exceeded Maximum directorships.

Directors Otherwise Eligible become Ineligible -

 A company in which the Director is a part of the Board has not filed financial statements
or annual returns for any continuous period of three financial years.

 The company has failed to repay the deposits accepted by it or pay interest thereon or to
redeem any debentures on the due date or pay interest due thereon or pay any dividend
declared and such failure to pay or redeem continues for one year or more.

MCA v. Gobardhan Singh and Ors. – CASE NAME NOT SURE SHE TOLD THIS AFTER
FACTS-

Facts – Section 248 r/w 164 of the companies act empowers ROC to remove the name of
companies from the register in case of Non’ Compliance and Directors.

MCA issued a notice to ROC directing it to remove names of companies who are in Non –
Compliance with different provisions.

Along with the same directors were disqualified for Non- Compliance U/S 164(2).

More than 3 lakh companies got Delisted, and Thousands of petitions in High courts.

Different HC different orders, some said ROC is current and some said Restore the status Quo.

Against HC orders MCA approached the SC, which in turn stayed the HC orders.

MCA in SC argued that the circular was an effective tool for Corporate Governance, also it is an
automatic provision.

SC held – MCA notification Valid, Directors are Disqualified.

Q- Can ROC Deactivate DIN?

Satya Narayan Banik and Ors. V. UOI

Facts - Hahnemann International Pvt. Ltd. The disqualification happened by operation of Section
164 (2) for not filing balance sheets and annual returns for a continuous period of three years from
the year 2014-15.

ROC Delisted the company, and it Deactivated the DIN number after Disqualifying the Directors.

Petitioner argued -

1) Because of Such an Action by MCA – The company was not able to avail the MCA’s Fresh
start scheme in 2020.

2) No notice or hearing before disqualification.

3) ROC not authorized to deactivate DIN.

Held-

1) Court said that ( Chutiya hai kya) they have intentionally not fulfilled the norms require, this
was a result of Wilful negligence.

2) Prior notice is not required, section 164 is an automatic provision, you do not meet requirements
you get disqualified. No natural justice applicable here.

3) However Rule 11 Companies (Appointment and Qualification of Directors) Rules, 2014 does
not permit cancellation of or deactivation of DIN on account of disqualification of a director
under Section 164(2) of the Act at all. That DIN could be cancelled on account of the death of a
director or a director being declared as a person of unsound mind by a competent Court or being
adjudicated as a insolvent or for other reasons, but, not for suffering a disqualification
under Section 164(2) of the Act.

The petitioner should approach the authority for reissuance of DIN number, it can not be
reactivated.

Relationship of Directors -
“It is to be noted that all of the Directors have fiduciary relationship with the company they shall
not exceed the AOA and MOA. ”

Board of a Listed Company –

1. SEBI (Listing Obligation and Disclosure Requirements) Regulation, 2015 (hereinafter

‘regulation’). Regulation 17 deals with the composition of Board of Directors.
2. Some of the key elements of regulation are-
Optimum combination of executive and non-executive director with at least one-woman
director and minimum 50% of directors should be non-executive directors. [Regulation
17(1)(a)].
3. In case the chairperson of the board of director is a non-executive director, at least one-third
of the board shall comprise of independent director. [Regulation 17(1)(b)] .
4. In case a listed entity does not have regular non-executive director, at least half of the board
shall comprise of independent director. [Regulation 17(1)(b)] .
5. If a regular non-executive chairperson is the promoter or company or related to promoter or
person occupying management position, half of the board shall comprise of independent
directors. [Regulation 17(1)(b)]
6. In case a listed company has outstanding superior voting equity shares, half of the board shall
comprise of independent directors. [Regulation 17(1)(d)]
Also,
1. Board of directors of top 500 entities shall have at least one-woman independent director by
April 1, 2019. [Regulation 17(1)(a)] .
2. Board of directors of top 1000 entities shall have at least one-woman independent director by
April 1, 2020. [Regulation 17(1)(a)] .
3. There shall be minimum 6 directors in case of top 1000 entities, with effect from April 1,
2019, and in case of top 2000 companies, with effect from April 1, 2020. [Regulation
17(1)(c)].
Thus, the minimum number of Directors becomes – Public Listed – 6.
Public Unlisted – 3.
 Top entities shall be determined on the basis of market capitalization as at the end of immediate
previous financial year.

Number of Directorships – Public Unlisted s

1. No person, after the commencement of this Act, shall hold office as a director, including any
alternate directorship, in more than twenty companies at the same time:
2. Provided that the maximum number of public companies in which a person can be
appointed as a director shall not exceed ten.
3. For calculating the number of public companies, the directorship in private companies that
are either holding or subsidiary of a public company is included. But the directorship in a
dormant company shall not be included.
17A. Maximum number of directorships. Unlisted- Private and Public.

The directors of listed entities shall comply with the following conditions with respect to the
maximum number of directorships, including any alternate directorships that can be held by them
at any point of time –

(1) A person shall not be a director in more than eight listed entities with effect from April 1,
2019 and in not more than seven listed entities with effect from April 1, 2020:

Provided that a person shall not serve as an independent director in more than seven listed
entities.

(2) Notwithstanding the above, any person who is serving as a whole-time director / managing
director in any listed entity shall serve as an independent director in not more than three listed
entities.

Note: But he can be a director in more than 3 in Unlisted one’s. Unlisted directorships would not
be counted in counting the above directorships.

Explanation– For the purpose of this regulation sub-regulation, the count for the number of listed
entities on which a person is a director / independent director shall be only those whose equity
shares are listed on a stock exchange.
Century Enka Limited vs. Securities Exchange Board of India, National Stock exchange and
Bombay stock exchange. (SAT 2022)

 Facts – Mr. B. K. Birla was a non-independent non-executive director in the appellant

company and died on July 3, 2019 (Note that he was to be counted in the above mentioned 6
director).
 thereby causing a vacancy in the board of directors.
 This vacancy was required to be 3 filled up ( As it was a listed public company in both BSE
and NSE), Now the number of Directors in the company which was previously 6 got
reduced to 5 and this vacancy was eventually filled up by appointment of an independent
director on February 5, 2020.
 But the problem was that between July 3, 2019 to February 5, 2020, there were only 5
directors, but the non-compliance started after three months of his death as it is the given
time to re appoint, noncompliance of Rule 17(1) of LODR regulations. BSE and NSE
imposed a fine for the quarters, Fine was Rs. 5000/- a day.
 Note – as per requirements period of three months or time till the next board meeting
whichever is later to enable the companies to fill the vacancy in consonance with the
provisions of Regulation 25(6) of the LODR Regulations.
 The appellant being aggrieved filed an application before SEBI for waiver of the fine which
was rejected by SEBI.
 In appeal to SAT, Company presented two-fold arguments –
(1) The BSE and NSE cannot differently impose fine, and SEBI under no regulation
has power to impose fine as no provision is there empowering SEBI to impose
fine on such an occurrence (Vacancy by death).
(2) Nowhere in the LODR it is mentioned that by what time should the vacancy
arising due to death should a new director be reappointed. It merely says number
of directors should not be less than 6 and vacancy dure to other causes.
(3) Thus, decision by SEBI, NSE, BSE is arbitrary and Huge Fine is unreasonable.
 Held - There is nothing on Record to show that the three bodies have power to impose fine in
such circumstances, the Fine could only be imposed through a circular with force of law and
nothing SEBI was brought up by SEBI.
 CASE: PVP Ventures ltd. vs BSE, NSE, SEBI. (SAT 2021)

FACTS - BSE and NSE have separately imposed a penalty of Rs. 12 lakhs for violation of
regulation 17 and 19 of the “LODR Regulations” on PVP Ventures. Since the penalty amount
was not paid the stock exchanges suspended the trading activities of the appellant w.e.f. April 09,
2019.

Arguments- separate penalties for the same offence cannot be imposed by the two stock
exchanges separately. The violation, if any, is the same and therefore only one penalty could be 3
imposed.

Held - In the case of WS Industries (India) Limited this Tribunal had directed SEBI to consider
the fact as to whether one penalty could be imposed or separate penalties could be imposed by
the two stock exchanges. It held that separate penalties by the stock exchanges could be imposed.

Thus, Separate penalties for same offence can be imposed by both the Stock exchanges.

-Types of Directors-
1. Additional Director- Section 161(1), CA, 2013.
1.1. Must be a power provided by the AoA.
1.2. if any vacancy arises in Directorship, a person can be appointed as a additional director.
1.3. This is the director other than the person who failed to get appointed as Director in an
AGM or EGM.
1.4. Holds the office till next AGM or till the last date the AGM was supposed to be held.
1.5. In case the scheduled AGM was not held, he/ she must resign on last day the AGM was
supposed to be held.
2. Alternate Director – 161(2)
2.1. Must be a power provided by the AoA or by resolution in AGM.
2.2. He/she must not be an alternate director for any other Director in the company or holding
directorship in the same company.
2.3. He acts as an alternate director to any other director in the company for his absence for a
period of not less than 3 months away from India.
 2.4. The right to appoint an alternate director vest in the Board. The members have no right to
appoint an alternate director, the members can only empower to appoint alternate director
as and when board thinks fit.
2.5. If the Director retires or his term expires, he can be re- appointed, but this re appointment
won’t mean the Alternate director is also re appointed.
3. Nominee Director - Section 161(3).
3.1. Must be a power provided by the AoA.
3.2. the Board may appoint any person as a director nominated by any institution in pursuance
of the
3.2.1. provisions of any law for the time being in force
3.2.2. or of any agreement or by the Central Government or the State Government by
virtue of its shareholding in a government company.
4. Independent Directors- Section 149(4) read with Rule 4 of Companies (Appointment and
Qualification of Directors) Rules, 2014
4.1. Is Applicable on Listed Companies: 1/3rd of total directors be the Independent Director.
4.2. Public companies having capital more than 10 crore or turnover is 100 cr + or, Aggregate
outstanding (Loan + Debentures + Deposits) exceeds 50 cr, : At least 2 directors as
Independent Directors.
4.3. For the companies not falling in above category then, No requirements of appointing at
least 2 Independent Directors.
4.4. Retirement (Term 5 years, only one re-appointment ( by special resolution) by Rotation
of Independent Director in AGM: shall not be applicable to appointment of independent
directors.
4.5. Vacancy of Independent Director: To be filled in the very next Board Meeting or within 3
months of such vacancy, whichever is later.
4.6. This requirement is not applicable in Wholly owned subsidiaries, Dormant companies,
Joint ventures.
4.7. The Liability of Independent director is there when any mischief happens with his
knowledge, otherwise he is a Non-executive Director.
5. Women Director- Section 149(1), Second proviso.
5.1. All Listed companies must have at least one Women Director.
 5.2. All public Companies with Paid up share capital 100 cr + or with turnover of Rs. 300 Cr.+.
5.3. the Board of directors of the top 500 listed entities shall have at least one independent
woman director by April 1, 2019 and the Board of directors of the top 1000 listed entities
shall have at least one independent woman director by April 1, 2020.
5.4. Temporary Vacancy to be filled within 3 months or In next board meeting, whichever
earlier.
6. Small Shareholders Director- [Section 151] “May have”
6.1. Not Mandatory.
6.2. “Small shareholder” means a shareholder holding shares of nominal value of not more
than twenty thousand rupees or such other sum as may be prescribed. (It includes both
paid up value or market value.
6.3. The BOD may appoint “Suo Motu” the small share holder or by Board resolution.
6.4. If in a company 1000 shareholders or 1/10 of Total small share holders may give a
“Notice” to the board for appointing small shareholders directors in the Board.
6.5. They are not required to retire by rotation.