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APPOINTMENT AND QUALIFICATION

OF DIRECTORS
Mr. Sid has applied for directorship in Tees Limited after complying with the provisions of Section
160 of the Companies Act, 2013 and Rule 13 of the Companies (Appointment and Qualification of
Directors) Rules, 2014. Tees Limited decided to conduct the general meeting on 17th July, 2021,
regarding the candidature of Mr. Sid for the office of director and listed the notice in its website
on 5th July, 2021. On 8th July, 2021 one of the shareholders objected to the company that the
notice was not issued properly. Examine the following situations and comment as per the provisions
of the Companies Act, 2013.
- Whether action taken by Tees Limited regarding service of notice is valid?
- Whether there is any alternative available to Tees Limited, if it is decided not to serve
notice individually to its members?

(i) As per Section 160 of the Companies Act, 2013 read with Rule 13 of the Companies (Appointment and
Qualifications of Directors) Rules, 2014, a person (other than a retiring director) shall be eligible for appointment
as a director in a company at any general meeting (whether in AGM or EGM), if he has given a notice in writing
under his hand signifying his candidature as a director at least 14 days before the meeting at the registered
office of the company.

Even, other member of the company who intends to propose such other person as a director can also give a written
notice at the registered office of the company signifying his intention to propose the other person as a
candidate for directorship at least 14 days before the meeting.

The company shall inform its members regarding the candidature of a person for the office of director in
accordance with the manner prescribed in Rule 13 of the Companies (Appointment and Qualifications of
Directors) Rules, 2014. At least 7 days before the general meeting, the company shall inform its members
of such candidature-
(1) by serving individual notices through electronic mode to such members who have provided
their e-mail addresses for communication purposes and in writing to all other members;
and
(2) by placing notice of such candidature on its website, if any.
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When there is no need to serve notices individually: It shall not be necessary for the company to serve
individual notices if it advertises such candidature, not less than 7 days before the meeting:
(a) at least once in a vernacular newspaper in the principal vernacular language of the district
in which the registered office of the company is situated, and at least once in English
language in an English newspaper circulating in that district.

Accordingly, in the given case, the action taken by Tees Limited regarding service of notice is not valid as no individual
notices were served to the members and neither had it advertised Mr. Sid’s candidature in any vernacular newspapers.
Placing the notice on the website will not suffice.

(ii) Yes, there is an alternative available to Tees Limited, if it is decided not to serve notice to its members if the
following procedure is followed:
As per proviso to Rule 13 of the Companies (Appointment of Directors) Rules, 2014 it shall not be necessary for
the company to serve individual notices if it advertises such candidature, not less than 7 days before the meeting:
(a) at least in a vernacular newspaper in the principal vernacular language of the district in which the
registered office of the company is situated and circulating in that district
(b) at least once in English language in an English newspaper circulating in that district.

Mr. X is a director in ABC Limited. He is a man of wide knowledge of commercial matters.

The company has not filed financial statements with the Registrar of Companies for
the years ended 31st March 2017, 31st March 2018 and 31st March 2019. However, it has
filed the annual returns for those years in compliance of the provisions of the Companies
Act, 2013. Considering Mr. X’s huge experience, PQR Limited wants to induct him as a
director on its Board. Referring to the provisions of the Companies Act, 2013, examine
the validity of such proposition.

Answer.
Mr. X cannot be appointed as a director in PQR Limited since he has incurred disqualification to
be appointed as a director in any company.

Legal Provision
Pursuant to Section 164 of the Companies Act 2013, a person who is or has been a director of
a company which fails to file the Financial Statements or the Annual Return of the Company
for and continuous period of three financial years shall not be eligible for reappointment as
director in that company or in any other company for a period of 5 years.
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Facts of the Case
In this case, ABC Limited has failed to file the Financial Statements for three consecutive
Financial Years. The company has filed the Annual returns for the said period. Since the financial
statements have not been filed, the Director (Mr. X) has been disqualified.

Conclusion
Mr. X cannot be appointed as the director in PQR Limited or any other company, until 5 years
have elapsed from the date on which ABC Limited failed to file the annual returns. Mr. X shall
also vacate his office of directorship from ABC Limited under section 167 of the Companies Act
2013.

Royal Limited is a company listed at Madras Stock Exchange, incorporated on 1stJanuary,

2015. The Board of Directors of the company decides to appoint in its Board Women
Director and the Resident Director.

A. Explaining the provisions of the Companies Act, 2013, state whether it is mandatory
for the company to appoint such directors in its Board.

B. What would be your Answer in case the company is a non-listed company and the
Board of Directors decided not to have the Women Director in the company’s Board?
C. What shall be your Answer in case the company in question is not listed at any of
the Exchanges? The paid-up share capital of the company is Rs 50 crore and the
turnover of the company is Rs 200 crore.
Decide whether the company is mandatorily required to appoint the woman director.

Answer:
Provision: [Relevant Sec 149(1), (3) of the Companies Act, 2013 as follows]
In accordance with the provisions of the Companies Act, 2013 as contained under section 149,
appointment of Woman director and Resident Director is regulated by the said provisions.
Accordingly:
Woman Director
At least one-woman director shall be on the Board of such class or classes or companies as may
be prescribed. [Second proviso to section 149(1)]. Rule 3 to the Companies (Appointment and
Qualification of Directors) Rules, 2014 provides that the following classes of companies shall
appoint at least one-woman director:
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i. Every listed company
ii. Every other public company having:
(a) Paid up share capital of Rs. 100 crore or more; or
(b) Turnover of Rs. 300 crore or more.

Further, any intermittent vacancy of a woman director shall be filled up by the Board at the
earliest but not later than immediate next Board meeting or three months from the date of such
vacancy, whichever is later.

The Articles of Association of a company have fixed the maximum strength of the board
as 12 directors. At present the Board has 9 directors of whom 6 are liable to retire by
rotation and 3 not liable to retire by rotation. The Board wishes to appoint 3 additional
directors.
Can they appoint as desired as per provisions of the Companies Act, 2013?

Answer:
Provision:[Relevant section 161(1) of the Companies Act, 2013]
a. If AOA is silent then GM-OR shall authorise Board to pass BM-OR for appointment of additional
di-rector shall be appointed by GM-OR or if AOA gives power then additional director shall be
appointed by BM-OR.
b. Power to amend AOA is of GM by passing Special Resolution. So it will not be wrong to say
that the power to appoint AD shall be given by GM to BOD through AOA & then BOD can
appoint AD in BM by passing OR. The BOD can appoint additional directors within maximum
limit fixed by AOA.
c. However BOD cannot appoint any person as AD if he has lost from being appointed as director
at GM of company.
d. Such AD will have tenure till next AGM or date on which AGM should have been held, whichever
is earlier.

Rotational & Non Rotational Directors:

Sec 152(6) Provides for minimum 2/3 of total directors appointed shall be rotational directors.
This indirectly means there can be maximum 1/3 of total directors, non-rotational directors.

If the AOA authorises the BOD to appoint additional director, then nothing in this section can
restrict the powers of BOD to appoint the same. The only condition is such appointment of
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additional directors shall be within the maximum limit specified by AOA of the company.
Additional Directors are neither rotational nor non-rotational. That means the additional director
shall not be counted in total number of directors in case of sec 152(6).

Explanation:
In the given case AOA maximum limit is 12 directors and actually company only appointed 9
directors i.e. 6 rotational and 3 non rotational. Thus 3 additional directors can be appointed in
above case as it is permitted by AOA of company. This will not even violate the provision of sec
152(6) as additional directors is not counted in total number of directors in such case. The only
requirement remains that such appointment of additional director by BOD shall be authorised by
AOA.

Answer:
Thus in the above case company can appoint 3 additional directors as required as it is within
maximum limit of AOA, only if power to appoint Additional Director is given by company to BOD
in such case.

Due to internal problems in the working of M/s Hera Pheri Ltd., Mr. Raju and Mr. Shyam,
a Director, have submitted their resignations and decided to disassociate themselves
with the working of the company. Mr. Babu Bhaiya, the Managing Director, decides to
refuse their resignations. Examine whether the Managing Director can compel Mr. Raju
and Mr. Shyam to continue as per the provisions of the Companies Act, 2013.

Answer:
Provision:[Relevant section 168 of the Companies Act, 2013 as follows]
a. The resignation in writing shall be given to the company.
b. The BOD shall on receipt of the resignation shall record the same. Resignation shall be
effective from the date the notice is received from the Company or date specified by Director in
notice, whichever is later.
c. The fact of resignation by director shall be placed in the Board Report which shall be placed
in immediately following General Meeting.
d. Within 30 days, the Company shall intimate the ROC in Form DIR-12 about the resignation
and shall post the information on its website, if any. The resigning director shall forward a copy
of the resignation with reasons in Form DIR-11 along with prescribed fees.
e. However, director is liable for the all acts he has done during his tenure.
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Explanation:
The law does not give an option to the Managing Director or the Company or the Board to reject
the resignation of a director and force him to continue.

Answer: Therefore, in the given case, the Managing Director cannot compel Mr. Raju and Mr.
Shyam to continue as directors in view of the above provisions.

Mr. Rancho, a 15% shareholder of a company and other shareholders have lost confidence
in the Managing Director (MD) of the company. He is a director not liable to retire by
rotation and was re-appointed as Managing Director for 5 years w.e.f. 1.4.2015 in the
last Annual General Meeting of the company.
Mr. Rancho seeks your advice to remove the MD after following the procedure laid down
under the Companies Act, 2013.
(a) Specify the steps to be taken by Mr. Rancho and the Company in his behalf;
(b) Draft a suitable resolution to be passed for removal of MD;
(c) Is it necessary to state reasons to support the resolution for his removal?

Answer:
Provision:[Relevant section 169 of the Companies Act, 2013 as follows]
It is a statutory right given to the shareholders to remove the director with ordinary resolution
in any general meeting.
Therefore any provision in any other document or act, e.g. AOA etc. will not restrict right given
to shareholders u/s 169.
As the member have right and not the obligation to removal, disclosure of grounds of removal
is not necessary.
The following person cannot be removed u/s 169 before expiry of terms of their office.

1. The person appointed by CG u/s 242 as nominee director.

2. Nominee Director appointed by financial institution under their respective statute. [for example
SBI have State Bank of India law for its governance.]

3. The director appointed by principle of proportional representation u/s 163.

The special notice is required for the removal of the director or for his replacement.
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For appointment of new director in place of director removed i.e. for the replacement sec 160
shall be complied.
Notice u/s 115 is applicable in case of removal of director in sec 169; as well as in case of
appointment of new director in sec 160. Such notice shall be given by lower of:
c. 1% of voting power holders; or
d. Member(s) holding Rs. 5,00,000 shares having voting powers.

Case Law:
LIC Vs Escorts Ltd 1986 59 Com Cases 548. The SC said that no reason for the removal of
director is required. Irrespective of such reason the director will have right to make representation.

Answer:
Thus Mr. Rancho has right to give special notice for removal of Managing Director if he complies
with the requirements of sec 115 as stated above. However, he need not give any reason for the
same.

Draft Resolution:
Type of Meeting: General Meeting
Type of Resolution: Resolution by Majority / Ordinary Resolution

RESOLVED that pursuant to the special notice under section 169 of the Companies Act, 2013,
received from Mr. Adam a member of the Company, the resolution stated below be and is hereby
included as an item of business in the agenda for the general meeting scheduled to be held on
_______________".

"RESOLVED FURTHER THAT pursuant to section 169 of the Companies Act, 2013, Mr.
______________ be and is hereby removed from his office as Managing director of the
company.

"RESOLVED FURTHER THAT (Name of the person(s) authorized) be and is hereby authorized
to take such further steps as are required under section 169 of the Companies Act, 2013, in
respect of this resolution and to send the notice of the general meeting with relevant explanatory
statement as per the draft placed before the meeting and approved by the Board."
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SPACE FOR NOTES

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Meetings of Board & Its Powers

ABC Limited showed a net profit of Rs. 70 lakh after including the following items credited/debited
to the Profit and Loss Statement for the year ending on 31st March, 2021 for arriving at Profit
before tax.
Other Revenue Amount (Rs)
Profit on Sale of Fixed Assets 7,00,000
Revaluation of assets 5,00,000
Change in carrying amount of an assets on measurement of the asset at 9,00,000
fair value
Expenditure Amount (Rs)
Debt considered bad and written off 6,00,000
Loss of capital nature including sale of the undertaking 3,00,000
Tax Expenses, Current Tax payable 15,00,000
Details of Sale of Fixed Assets:
Sale Value 20,00,000
Original Cost 16,00,000
Written down value 13,00,000
Referring to the above details, you are requested to analyse the provisions of the Companies Act,
2013 and answer the following:
(i) Compute the Company’s net profit as laid down under Section 198 of the provisions of the
companies Act, 2013 to calculate the managerial remuneration.
(ii) Reporting Requirement in auditor’s report regarding managerial remuneration. What are the
modes of payment of managerial remuneration?

According to Section 198 of the Companies Act, 2013 (the Act) net profits for any financial year for the purpose
of managerial remuneration payable under Section 197 of the Act shall be calculated as follows:
Credit shall not be given for those sums specified in Section 198(3)
Less: (if credited to the P & L A/c for arriving at Profit before tax)
- Profits from the sale of any immovable property or fixed assets of a capital nature comprised in the
undertaking or any of the undertakings of the company, unless the business of the company consists,
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whether wholly or partly, of buying and selling any such property or assets:
- Provided that where the amount for which any fixed asset is sold exceeds the written- down value thereof,
credit shall be given for so much of the excess as is not higher than the difference between the original
cost of that fixed asset and its written -down value;
- Any change in carrying amount of an asset or of a liability recognized in equity reserves including
surplus in profit and loss account on measurement of the asset or the liability at fair value.
- any amount representing unrealized gains, notional gains or revaluation of assets.

In making the computation aforesaid, the following sum specified under Section 198(4) shall be deducted:
- debts considered bad and written off or adjusted during the year of account.
Non-Deductible Items [Section 198(5)]
- Loss of a capital nature including loss on sale of the undertaking
- Current Taxes payable by the Company.
(i) Computation of Net Profit for the purpose of calculating Managerial Remuneration as laid
down under Section 198 of the Act.
Particulars Amount
(`)
Net Profit as per Statement of Profit and Loss 70,00,000
Less: Profits on Sale of Fixed Assets not to be included in Profit (Refer working (4,00,000)
note below)
Less: Revaluation of Assets (5,00,000)
Less: Change in carrying amount of an assets on measurement of the asset (9,00,000)
at fair value
Balances 52,00,000
Add: Tax Expenses, Current Tax Payable 15,00,000
Add: Loss of a capital nature including loss on sale of the undertaking 3,00,000

Net Profits as per Section 198 of the Act for the purpose of calculating 70,00,000
the managerial remuneration
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Working Note:
S.No Particulars Amount (`).
A. Original Cost 16,00,000
B. Written Down Value 13,00,000
C. Sale Value 20,00,000
D. Profit on Sale of Fixed Asset 7,00,000
E. Amount to be included in Profit (A) – (B) 3,00,000
F. Amount not to be included in Profit (D) - (E) 4,00,000

Note: Credit shall not be given for profits from the sale of any immovable property or fixed assets
(provided credit shall be given for so much of the excess as is not higher than the difference
between the original cost of that fixed asset and its written- down value). Profit on sale of
fixed assets = ` 20,00,000 (–) ` 13,00,000 (wdv) ` 7,00,000, but credit cannot be greater than
the difference of ` 16,00,000(original cost) (-) ` 13,00,000(wdv)
= ` 3,00,000. Hence ` 4,00,000 should be deducted from the Net Profit.

(ii) Reporting requirement in Auditors’ report regarding managerial remuneration [Section 197(16) of the
Act]: The auditor of the company shall, in his report under Section 143, make a statement regarding
remuneration as under:
- whether the remuneration paid by the company to its directors is in accordance with the provisions
of Section 197;
- whether remuneration paid to any director is in excess of the limit laid down under Section 197;
and
- give such other details as may be prescribed.

(iii) Mode of payment of Managerial Remuneration [Section 197(6) of the Act]: A director or manager
may be paid remuneration in any of the following manner, either–
- by way of a monthly payment, or
- at a specified percentage of the net profits of the company, or
- partly by one way and partly by the other.
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What do you understand by the expression 'resolution by circulation'? List out four
matters which cannot be passed by the directors by resolution by circulation.

Matters which cannot be decided by circular resolution:

a) To fill a casual vacancy occurred in the Board. [Section 161(4)]
b) Power to make calls on shareholders in respect of money unpaid on shares. [Section
179(3)]
c) To authorize buy-back of securities up to 10%* of the total paid-up equity capital and
free reserves [Section 68]
d) Power to issue debentures [Section 179(1)(c)]
e) Power to borrow moneys otherwise than on debentures. [Section 179(1)(d)]
f) Power to invest the funds of the company. [Section 179(1)(e)]
g) Power to make loans [Section 179(1)(f)]
h) Power to delegate to any committee of directors, managing director, manager or any
other principal officer of the company or in the case of branch office of the company,
a principal officer of the branch office, the powers specified in clauses (d) to (f)
[Proviso to Section 179(3)]
i) Decision to make any political contribution [Section 182]
j) To give general notice of interest specifying firms or bodies corporate in which the
director may be deemed to be concerned or interested. [Section 184(1)]
k) To accord consent to a contract in which a director or other specified persons are
interested. [Section 188]
l) In the case of a public company or a private company, if it is a subsidiary of a public
company, to appoint a person as a managing director, if he is already a managing
director or manager of any other company, by an unanimous resolution. [Section 203]
m) In the case of a public company or a private company, if it is a subsidiary of a public
company, to appoint a person as a manager, if he is already a manager or managing
director of any other company, by an unanimous resolution. [Section 203]
n) To make a declaration of solvency where it is proposed to wind up the company
voluntarily. [Section 305]
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(i)In MAP Limited, the following directors are getting sitting fees.
Director’s Name Sitting fees (INR)
Mr. X (Non-Executive Independent Director) INR 70,000
Mrs. Y (Non-Executive Woman Director) INR 80,000
Mr. Z (Non-Executive Director) INR 60,000
Mr. L (Non-Executive Director) INR 50,000
The Boards of Directors of MAP Limited increased the sitting fees of Mr. Z and Mr. L to one
lakh rupees each and continued the sitting fees of Mr. X and Mrs. Y at the old fees stated
above. Referring to the provisions of the Companies Act, 2013, examine whether the decision of
the Board of Directors to increase the sitting fees of few directors and maintaining the same
sitting fees for remaining directors shall be deemed to be valid.
(ii) Whether Mr. X, an Independent Director and Mrs. Y, a Woman Director shall be entitled for
remuneration, other than the sitting fees, and if so, what shall be the maximum remuneration
payable to each of them per annum in case the Company has no profit and its effective capital
is ` 250 crore as at the 31st March, 2021.

(i) Sitting Fees to Directors [Section 197(5) of the Companies Act, 2013]
A director may receive remuneration by way of fee for attending meetings of the Board or
Committee thereof or for any other purpose whatsoever as may be decided by the Board subject to
the conditions imposed by Rule 4 of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 as under:
- The sitting fees shall not exceed one lakh rupees per meeting of the Board or committee thereof.
(As per Rule 4)
- The sitting fee payable to the Independent Directors and Women Directors shall not be less than
that payable to other directors. (As per Proviso to Rule 4)
Accordingly, increasing the sitting fees of Mr. Z and Mr. L is within the limit prescribed under the said Rule 4.
However, maintaining the same sitting fees for the Mr. X and Mrs. Y is not valid in line with the requirement
to the stated provision i.e., it shall not be less than that payable to Mr. Z and Mr. L.
Therefore, the decision of the Board of Directors to increase the sitting fees of few directors and maintaining
the same sitting fees for remaining directors shall be deemed to be invalid.

(ii) According to proviso to Section 149(9) of the Companies Act, 2013, if a company has no profits or its
profits are inadequate, an independent director may receive remuneration, exclusive of any fees payable under sub-
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section (5) of section 197, in accordance with the provisions of Schedule V.
Further Schedule V specifies that where in any financial year during the currency of tenure of a managerial
person or other director, a company has no profits or its profits are inadequate, it may pay remuneration to
the managerial person or other director not exceeding the limits under table (A) and (B).

Explanation.- For the purposes of Section I, Section II and Section III, the term "or other director" shall mean
a non-executive director or an independent director.
As per the above provision, if in any financial year, a company has no profits or its profits are inadequate, the
company shall not pay by way of remuneration any sum (exclusive of sitting fees) to its directors, including
any managing or whole- time director or manager or any other non-executive director (includes a woman
director) or an independent director, except in accordance with the provisions of Schedule V
i.e. ` 24 Lakh plus 0.01% of the effective capital in excess of ` 250 crore, where the effective capital of the Company
is ` 250 crore and above.

Accordingly, the maximum remuneration payable per annum to Mr. X an Independent Director and Mrs. Y, a woman
Director (who is also non-executive director) individually will be ` 24 Lakhs plus 0.01% of the effective capital
in excess of ` 250 crores, where the effective capital is `250 crore and above.
Since in the given case, the effective capital of the Company is ` 250 crore, therefore, Mr. X and Mrs. Y can be
paid maximum annual remuneration of ` 24 Lakh each.

A director insists that his note of dissent be recorded in the minutes of the Board
meeting which he attended and did not agree to some of the points of the agenda.
Comment.

Answer
As per Section 118 of the Companies Act, 2013, in case of meeting of Board of Directors or
of a committee of Board, the minutes shall contain name of the directors present and also
name of dissenting director or a director who has not concurred the resolution.

Thus, contention of director is correct and his note of dissent must be recorded in minutes
of the board meeting.
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The board of directors of Jaidev Ltd. desirous of transacting certain matters through
video conferencing, seek your advice on the matters which cannot be dealt with through
video conferencing. As a Company Secretary, Advice the Board.

Answer
Manner of participation in Board Meetings [Section 173(2)]: The participation of directors
in a meeting of the Board may be either in person (personally present) or through video
conferencing or other audio visual means.
The system of video conferencing or other audio visual means must be capable of recording
and recognizing the participation of the directors and of recording and storing the proceedings
of such meetings along with date and time.
As per Rule 4 of the Companies (Meetings of Board and -its Powers) Rules, 2014 following
matters shall not be dealt with in a meeting through video conferencing or other audio visual
means:
(i) The approval of the annual financial statements;
(ii) The approval of the Board's report;
(iii) The approval of the prospectus;
(iv) The Audit Committee Meetings for consideration of accounts and
(v) The approval of the matter relating to amalgamation, merger, demerger, acquisition
and takeover.
Where there is quorum presence in a meeting through physical presence of directors, any
other director may participate conferencing through video or other audio visual means.

A director insists that his note of dissent be recorded in the minutes of the Board
meeting which he attended and did not agree to some of the points of the agenda.
Comment.

Answer
As per Section 118 of the Companies Act, 2013, in case of meeting of Board of Directors or
of a committee of Board, the minutes shall contain name of the directors present and also
name of dissenting director or a director who has not concurred the resolution.

Thus, contention of director is correct and his note of dissent must be recorded in minutes
of the board meeting.
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Powers of the directors of a company are co-extensive with those of the company.
Comment.

Answer
The Board of Directors of a company shall be entitled to exercise all such powers, and to. do
all such acts and things, as the company is authorized to exercise and do. However, in
exercising such power or doing such act or thing, the Board shall be subject to the provisions
contained in the Companies Act, 2013, or in the memorandum or articles or in any regulations
made by the company in general meeting.

Thus, the Board shall not exercise any power or do any act or thing which is to be exercised
or done by the company in general meeting.

Thus, it is clear that subject to the restrictions contained in the Companies Act, 2013 MOA
and AOA, the powers of directors are co-extensive with those of the company itself.

It is mandatory for every director of a company to disclose his interest or nature of

his concern in other companies in which he is a director. Comment.

Answer
Disclosure of interest by director [Section 184(1)]: Every director shall at the first Board
meeting in which he participates as a director disclose his concern or interest in any company
or bodies corporate, firms, or other association which shall include the disclosure of
shareholding held by him in Form MBP - 1.
Whenever there is any change in the disclosures already made, then fresh discourse should
.be made at the first Board meeting held after such change.
Consequence of non-disclosure of interest:
a. Punishment for director for contravention [Section 184(4)]: If a director of the
company contravenes the provisions of Section 184(1) or (2), such director shall be
punishable
 with imprisonment for a term which may extend to 1 year or
 with fine which shall not be less than Rs 50,000 but which may extend to Rs
1,00,000 or
 with both.
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b. Vacation of office of director [Section 167]: The office of a director shall become vacant
in case he acts in contravention of the provisions of Section 184 relating to entering into
contracts or arrangements in which he is directly or indirectly interested.
Thus, it is mandatory for every director of a company to disclose his interest or nature
of his concern in other companies in which he is director.

Balance sheet of Doremon Ltd. shows a paid-up capital of Rs 5 Crore and free reserve
of Rs 2 Crore. Due to heavy financial requirements of the company, it plans to apply
for a loan of Rs 8 Crore with TPC Bank Ltd. Advise the company on the formalities to
be fulfilled. Also advise on the alternative course of action, if any.

Answer
As per Section 180(1)(c), the Board of directors of a company cannot borrow a sum which
together with the monies already borrowed exceeds the aggregate of the paid-up share capital
of the company and its free reserves apart from temporary loans obtained from the company's
bankers in the ordinary course of business unless they have received the prior sanction of
the company by a special resolution in general meeting.

As per the facts given in case, total paid-up capital and its free reserves of the Doremon
Ltd. is Rs 7 Crores and company intend to apply for loan of Rs 8 Crores which exceeds the
aggregate of the paid-up share capital of the company and its free reserves; hence sanction
by a special resolution in general meeting is necessary.
Alternatively, the Doremon Ltd. can take loan up to 7 Crore by passing board resolution
and complying with the provisions of its article and approval of shareholder by way of
special resolution will not be necessary.
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SPACE FOR NOTES

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KMP & CS
It has been found that Mrs. Shweta, director of a company, has drawn remuneration
in excess of the prescribed limits. The Chief Financial Officer of the company has
sought your advice in the matter. As the Secretary of the company, advise the Chief
Financial Officer, the course of action that may be taken in this regard.

Answer
Refund of excess remuneration [Section 197(9)]: If any director draws or receives, directly
or indirectly, by way of remuneration in excess of the limit prescribed, he shall refund such
sums to the company and until such sum is refunded, hold it in trust for the company.

Company cannot waive the excess remuneration paid to managerial person [Section
197(10)]: The Company shall not waive the recovery of any sum refundable by managerial
person.

Penalty [Section 197(15)]: If any person contravenes the provisions of Section 197, he shall
be punishable with fine which shall not be less than Rs 1,00,000 but which may extend to
Rs 5,00,000.

Thus, Mrs. Shweta cannot keep the excess remuneration. She shall refund such excess
remuneration to company. Until such refund is made, he shall hold it in trust for the company.
Further, company cannot waive the recovery of excess remuneration.

Mr. Tushar is MD of Book My Lectures. He wish to pay the remuneration of Rs. 15 crore
to all the Directors of the Company for the year ended 2019-20. Total Profit of the
Company is Rs. 80 Crore.
Can Company do so ?

Answer
Overall maximum managerial remuneration [Section 197(1)]: Total managerial remuneration
payable by a public company, to its directors in respect of any financial year shall not exceed
11% of the net profits. Net profit for this purpose will be calculated as per Section 198.
However, the company in general meeting may, authorize the payment of remuneration
exceeding 11% of the net profits, subject to the provisions of Schedule V.
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Maximum remuneration to managing director or whole-time director or manager: Except
with the approval of the company in general meeting the remuneration payable to any one
managing director; or whole-time director or manager shall not exceed 5% of the net profits
and if there is more than one such director remuneration shall not exceed 10% of the net
profits to all such directors and manager taken together.
Maximum remuneration to part-time director (non-executive director): Except with the
approval of the company in general meeting the remuneration payable to part-time 'director
(non-executive director) shall not exceed -
a) 1% of the net profits, if there is a managing or whole-time director or manager
b) 3% of the net profits in any other case.
Sitting fee not to be included in remuneration [Section 197(2)]: The percentages aforesaid
shall be exclusive of any sitting fees payable to directors for attending the board meetings.
Mode of payment of remuneration [Section 197(6)]: A director or manager may be paid
remuneration either by way of a monthly payment or at a specified percentage of the net
profits of the company or partly by one way and partly by the other.

CS Yogesh Chandak is a leading practitioner and consultant for Corporate & Allied Laws
services. He resides in Mumbai near to the BKC commodity stock exchange and does
trading in commodity derivatives. Every day, he invests nearly 50% of his time to settle
the commodity transactions. Is CS Yogesh Chandak liable for professional misconduct?

As per Clause (10) of the Part I of the First Schedule, a Company Secretary in Practice
shall be deemed to be guilty of professional misconduct, if he engages in any business or
occupation other than the profession of Company Secretary unless permitted by the Council
so to engage.

However, the Council has granted general permission to the members to engage in certain
specific occupation. In respect of all other occupations specific permission of the Institute is
necessary.
In this case, CS Yogesh Chandak is engaged in the occupation of trading in commodity
derivatives which is not covered under the general permission.
Hence, specific permission of the Institute has to be obtained otherwise he will be deemed
to be guilty of professional misconduct under Clause (10) of Part I of First Schedule of the
Company Secretaries Act, 1980.
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State the Guideline issued by ICSI for advertisement through website.

In case of advertisement through website:

a) A Company Secretary or a firm of Company Secretaries may display photograph of the
Company Secretary or partners of the firm of Company Secretaries in Practice.
b) While designing or hosting the particulars on the website, certain keywords should be
provided so as to enable the search engine to locate the website and these keywords will
not be visible or displayed on the website. Any one of the following keywords may be
used for this purpose. Company Secretary/ Company Secretary in Whole-time
Practice/Company Secretary in Practice/Practicing Company Secretary /Indian Chartered
Secretary/Indian Certified Corporate Secretary/Indian CS/ Indian Company
Secretary/Corporate Advisor/Company Law Consultant/Secretarial Auditor/Secretarial
Consultant/Indian Certified Public Secretary/CS /ACS /FCS /PCS /CSP. However, the
keywords shall not be materially different from the designations used for a Company
Secretary.
c) The website may provide a hyperlink to the website of ICSI, its Regional Councils and
Chapters and other regulatory bodies of the Government, after obtaining necessary
permission from the concerned body.
d) A Company Secretary in Practice may provide online advice to their clients or other
members/firms of Company Secretaries who specifically request for the same
e) A Company Secretary or a firm of Company Secretaries may disclose the fact that he/she
or their firm has been Peer Reviewed. Any such disclosure shall clearly state the period
for which the Peer Review has been conducted and in case the member has more than
one office or place of practice, then it shall be mentioned that the Peer Review has been
done for which branch office.
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SPACE FOR NOTES

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General Meetings
Differentiate between E-Voting & Voting by Show of Hands

Points E-voting Voting by show of hands

Meaning Electronic voting is a form of Vote given by members
machine based voting in which voters personally presenting at the
make their selections with the aid of meeting by raising their hands is
machine or computer. known as voting by show of
hands.
Applicability The Central Government may At any general meeting, a
prescribe the class or classes of resolution put to the vote of the
companies and manner in which a meeting shall in the first
member may exercise his right to instance be decided on a show
vote by the electronic means. of hands.

Section Section 108 of the Companies Act, Section 107 of the Companies
2013 makes provisions relating to e- Act, 2013 makes provisions
voting. relating to show of hands.
Mandatory Every listed company or a company Voting by show of hands can be
having not less than 1,000 members adopted by any company and it
shall provide to its members facility is optional.
to vote on resolutions by electronic
means.
Physical Physical presence of members at Physical presence of members at
presence meeting is not necessary in case of meeting is necessary in case of
e-voting. voting by show of hands.

Distinguish between Motion & Resolution

Points Motion Resolution

Meaning Motion is a proposal submitted for a A resolution is the formal
discussion and a decision adopted by expression of the decision of the
means of a resolution. A motion meeting when a motion has been
becomes a resolution only after the duly voted and passed by the
requisite majority
---------------------------------------------------------------------------------------------------------------------------------
requisite majority of members have
adopted it.
Official decision Every motion is not the official A resolution once adopted and
decision of the company. recorded in the minutes becomes
the official decision of the
company.
Significance in In case of company meetings, only A resolution relates to only such
meeting such motions are proposed as are matters that are covered in notice
covered by the agenda. However, of the meeting. No resolution can
certain motions may arise out of the be passed in respect of matters
discussion and the standing orders which are not covered in notice of
of various bodies allow such motions the meeting.
to be discussed at the meeting
without proper notice in writing.

State whether a board meeting of a company can be held at any place.

Answer
As per Section 96(2), an annual general meeting can be called during business hours, that
is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday.
There is no similar provision for holding board meeting. Thus, the meetings of the board of
directors maybe held at any place convenient to the directors even outside the business hours
and even on a national holiday unless the articles provide otherwise.

E-Voting mechanism improves shareholders' participation in corporate decision-making.

Ans.: The idea behind postal ballot is 'corporate democracy'. Presently, many listed companies
have Lakhs of shareholders spread all over India. It is not possible for most of them to attend
general meeting and vote thereat. Thus, resolutions are passed at general meeting only by
few members who attend the meetings. To remedy this situation, concept of postal ballot
was first brought into force on 15.6.2001 vide Section 192A of the Companies Act, 1956.
These provisions are continued in Section 110 of the Companies Act, 2013.

Thus, through postal ballot process shareholder who cannot attend the meeting can also vote
by sending postal ballot and large number of shareholders are involved in decision making;
hence postal ballot mechanism improves shareholders' participation in corporate decision- -
making
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Every annual general meeting of the company must be held in each calendar year.

Annual general meeting (AGM) is an important annual event where members get an
opportunity to discuss the activities of the company.

Annual General Meeting [Section 96(1)]: Every company, other than OPC is required to
hold an AGM every year. Following are the key provisions regarding the holding of an AGM:
1. Annual general meeting should be held once every year.
2. First AGM of the company should be held within 9 months from the closing of the first
financial year. Hence, it shall not be necessary for the company to hold any AGM in the
year of its incorporation.
3. Subsequent AGM should be held within 6 months from the closing of the financial year.
4. The gap between two AGM should not exceed 15 months.

In case, it is not possible for a company to hold an annual general meeting within the
prescribed time, the Registrar may, for any special reason, extend the time within which
any AGM shall be held. Such extension can be for a period not exceeding 3 months. [Proviso
to Section 06(1)]
No such extension of time can be granted by the Registrar for the holding of the first
AGM.

The time gap between the date of approval of financial statements by the Board of
directors of 4 company and the date of notice of annual general meeting should be 45
days. Comment.

As per Section 101, notice of every meeting including AGM has to be given 21 clear days
before the date of meeting.
As per Section 134(1), the financial statement shall be approved by the Board of Directors
before signing.
As per Section 136(1), a copy of the financial statements, auditor's report and every other
document required by law to be annexed or attached to the financial statements, which are
to be laid before a company in its general-meeting, shall be sent to –

(1) Every member of the company

(2)Every trustee for the debenture-holder
(3) All persons who are entitled notice of the meeting (i.e. auditor, directors, legal
representative of any deceased member and the assignee of an insolvent member)
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The notice of the meeting is required to be sent at least 21 clear days. Hence, financial
statements have also to be sent at least 21 clear days before the meeting.

Thus, the board of director should approve the financial statement at least before sending
the notice of AGM. There is no specific provision in the Companies Act, 2.013 regarding gap
between approval of financial statement and sending the notice of meeting.

Articles of association of a company reserved the powers for calling the annual general
meeting. The Managing Director of the company, without reference to the Board, called
an annual general meeting. Is the annual general meeting validly called? If not, what
should be done to make it valid? Discuss with reference to case law, if any.

The annual general meeting of a company can be called by a proper authority i.e. board of
directors in case of company. However, the board of director can delegate the authority to
call general meeting to the company secretary or other officer. In such case meeting called
by company secretary or other officer as per the direction of the board will be valid meeting.
However, it was held that, where a secretary or other officer issued notice calling a general
meeting but he had no power to do so under the AOA of the company, the notices were
null & void and meeting held pursuant thereto was also null & void. [Al-Amin Seatrans Ltd.
v. Owners and Party Interested in Vessel NI.V 'Loyal Bird'(1996) 1 Comp. LJ 258 (Cal.)]
But, it will be valid if before the meeting is held the board ratifies the act. [Hooper v. Kevr
Stuart & Co. (1900) 83 Law Tunes 729]

Angry Bird Ltd. called its AGM on 30th September, 2019. The notice of the meeting
was posted on 8th September, 2019. With reference to the provisions of the Companies
Act, 2013, examine whether the notice given by the company was valid.
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Robert, a member of MLM Ltd. submitted his proxy to the company before the
scheduled time of the Annual General Meeting. The Articles of the company provided
that proxy can be submitted to the company 70 hours before the scheduled time of
the meeting. The chairman of the company rejects the proxy on the ground that it is
in violation of the Articles. Referring to the provisions of the Companies Act, examine
the validity of the chairman's decision to reject the proxy.

As per Section 105, the instrument appointing the proxy must be deposited with the
company, 48 hours before the meeting. Any provision contained in the articles, requiring a
longer period than 48 hours shall have effect as if a period of 48 hours had been
specified.
As per facts given in case, the Article of MLM Ltd. provided in its article that proxy can
be submitted to the company 70 hours before the scheduled 'time of the meeting. Such
provision is not valid.
As per Section 105 all the proxy form presented before 48 hours of the meeting are valid
and must be accepted by the company. Thus, Chairman's decision to reject the proxy form
on the ground that it is not submitted before 70 hours before the scheduled time of the
meeting is not valid.
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A company has 120 members. It sends notice of general meeting to all of them. 20
members did not attend the meeting. Out of remaining 100 members who were present,
20 members abstained from voting. Advice the company, how many members should
vote in favour of a resolution, if it has to be passed as a special resolution?

As per Section 114, a resolution shall be a special resolution when:

a) The intention to propose the resolution as a special resolution has been duly specified
in the notice calling the general meeting or other intimation given to the members
of the resolution.
b) The notice required under the Act has been duly given and
c) The votes cast in favour of the resolution, are required to be not less than 3 times
the number of the votes, if any, cast against the resolution.
As per the facts given in case, a company has total 120 members. 20 members did not
attend the meeting. Out of reaming 100 members, 20 members abstained from voting.
Total number of members voting is 80. Thus, in order to pass special resolution company
needs 60 or more votes in favour of resolution.
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SPACE FOR NOTES

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Accounts of the Company

Adoption of accounts is an important business to be transacted only at general
meetings.

(1) An important business to be transacted at an annual general meeting is adoption of

the accounts including:
(a) Financial statement (including consolidated financial statement )
(b) Director report and
(c) Auditor report

(2) The financial statement are required to be placed only at an annual general meeting
not at any general meeting.

(3) In case, if the financial statements are not ready for laying at the annual general
meeting, the company may adjourn the said annual general meeting to a subsequent date.
This may be done by adopting an appropriate resolution adjourning the said annual general
meeting to a specified date or to a date to be specified later.

A director has absolute right of inspection of books of account. Comment.

Inspection of books of account [Section 128(3)]: The books of account and other books
and papers shall be open for inspection at the registered office of the company or at such
other place in India by any director during business hours.
In the case of financial information maintained outside the country, copies of such financial
information shall be maintained and produced for inspection by any director subject to
prescribed conditions. The inspection in respect of any subsidiary of the company shall be
done only by the person authorized in this behalf by a resolution of the Board of Directors
of holding company. The officers and other employees of the company shall give to the person
making inspection all assistance in connection with the inspection which the company may
reasonably be expected to give.
A director is entitled to take inspection of accounts personally or through an agent provided
that there is no reasonable objection to the person chosen and the agent undertakes not to
utilize the information obtained by him for any purpose other than the purpose of his principal.
[Vakharia v. Supreme General Film Exchange Co. Ltd. (1948) 18 Corn Cases 34: AIR 1948
Born 3011]
---------------------------------------------------------------------------------------------------------------------------------
Powerhouse Limited had its last AGM on 13th May 2018 for the FY Ended 2017-
18. For the FY 2018-19, Company has not called any AGM till date and the
management is in dilemma as to whether to file AOC-4 & MGT-7 to the ROC,
since the AGM for this year has not been taken.
As a Company Secretary, Advice as to whether such forms need to be filed to
ROC and if yes then by what time.
---------------------------------------------------------------------------------------------------------------------------------
Financial statements shall be signed by only by the Chairperson of the
company.
Approval and signing of financial statement [Section 134(1)]: The financial statement,
including consolidated financial statement, if any, shall be approved by the Board of
Directors before signing.
The financial statements are signed on behalf of the Board by the following persons:
 The Chairperson (where he is authorized by the Board) or
 Two directors out of which one shall be Managing Director and the CEO
 The CFO and the Company Secretary (if they are appointed)
In the case of OPC, the financial statements are signed by only one director, for submission
to the auditor for his report.
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SPACE FOR NOTES

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Dividend & Distributable Profits

Dividend can be paid out of capital if the Articles of Association authorize such
payment. Comment.
Ans- Dividend cannot be paid out from capital as per sec-123(1) of Companies Act, 2013 Sources
from where dividend may be paid out :=
1) Out of current years of profits after providing depreciation in accordance with the provision
of schedule -2
2) Out of profits from previous financial years
3) Out of money provided by the central Government for the payment of dividend.
If MOA & AOA gives power to the company to pay dividend out from capital of the company
shall be invalid.

Shakira ltd, Bod declared interim dividend just after closure of financial year but
the company incurred losses in the same financial year so as a company secretary
what will be your advise for declaration of interim dividend?
Ans- Whenever a company incurred losses after declaring interim dividend in the current financial
year then such interim dividend shall not be declared at a higher rate than the average dividends
declared by the company during 3 immediately preceding financial year.
This will be my advice to BOD of shakira ltd for declaration of interim dividend.

What are the Exceptions for which dividend is not paid by the company?
Ans- Sec 127
1)Operation of Law
2)The directions of the shareholders cannot be compiled with and the same is communicated to
him.
3)Dispute for title to dividend.
4)Dividend is set-off against any other due.
5)Situation which is not under control of company

In how many days company should deposit money to where after declaring
dividend , and if it remains unclaimed or unpaid for long time what will be
procedure for it? Explain in brief.
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Ans- The amount of dividend should be deposited by the company in schedule bank within 5
days of declaration of dividend.
If it remains unpaid it should be transferred in unpaid dividend account u/s 124 which is a
special account opened in any schedule bank within 7 days after expire of 30 days from declaration
of dividend
Company shall within 90 days from making any transfer of an amount of dividend u/s 124(1)
shall prepare a statement containing their Name, Last name and such other relevant details and
place it on a website after approval of Central Government.
Any money which remain un-claimed or un-paid for 7 years it should be transferred by company
in Investor Education And Protection Fund account (IEPF) established under the act u/s 125.

If company fails to pay dividend within 30 days after the declaration of dividends
what will be the penalty for that?
Ans- According to sec-127 of companies Act,2013 following are the penalties:-
(a) every director of the company shall, if he is knowingly a party to the default, be punishable
with imprisonment which may extend to two years and with fine which shall not be less than
Rs.1000 for every day during which such default continues.
(b) the company shall be liable to pay simple interest at the rate of 18% per annum during
the period for which such default continues.

In the event of adequacy or absence of profit what are the conditions for declaring
of dividend?
Ans-In the event of adequacy or absence of profits in any year, a company may declare dividend
out of surplus subject to the fulfilment of the following conditions, namely:-
(1) The rate of dividend declared shall not exceed the average of the rates at which dividend
was declared company, which has not declared any dividend in each of the three preceding
financial year.
(2) The total amount to be drawn from such accumulated profits shall not exceed one tenth of
the sum of its paid-up share capital and free reserves as appearing in the latest audited financial
statement.
(3) The amount so drawn shall first be utilised to set off the losses incurred in the financial
year in which dividend is declared before any dividend in respect of equity shares is declared.
(4) The balance of reserves after such withdrawal shall not fall below fifteen percent of its paid
up share capital as appearing in the latest audited financial statement.
---------------------------------------------------------------------------------------------------------------------------------
What shall be credited in IEPF account?
Ans-a. the amount given by the Central Government by way of grants after due appropriation
made by Parliament by law in this behalf for being utilised for the purposes of the Fund.
b. donations given to the Fund by the Central Government, State Governments, companies or
any other institution for the purposes of the Fund
c. the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-
section (5) of section 124
d. the amount in the General Revenue Account of the Central Government which had been
transferred to that account under sub-section (5) of section 205A of the Companies Act, 1956,
as it stood immediately before the commencement of the Companies (Amendment) Act, 1999,
and remaining unpaid or unclaimed on the commencement of this Act
e. the amount lying in the Investor Education and Protection Fund under section 205C of the
Companies Act, 1956
f. the interest or other income received out of investments made from the Fund
g. the amount received under sub-section (4) of section 38
h. the application money received by companies for allotment of any securities and due for
refund
i. matured deposits with companies other than banking companies
j. matured debentures with companies
k. interest accrued on the amounts referred to in clauses (h) to (j)
l. sale proceeds of fractional shares arising out of issuance of bonus shares, merger and
amalgamation for 7 or more years
m. redemption amount of preference shares remaining unpaid or unclaimed for 7 or more years;
and n. such other amount as may be prescribed
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SPACE FOR NOTES

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Deposits
Provisions of Section 73 are not applicable to guarantee companies and Section 8
companies (i.e. associations not for profit).
Ans.: Proviso to Section 73(1) read with Rule 1(3) of the Companies (Acceptance of
Deposits) Rules, 2014 excludes following from the provisions relating to deposit -
(i) Banking Companies,
(ii) Non-banking financial companies as defined in the RBI Act, 1934 and registered
with RBI,
(iii) A housing finance company registered with NHB established under the National
Housing Bank Act, 1987, and
(iv) Any other company as may be specified by the Government in this regard.

Gulmohar Ltd. failed to pay interest on repayment of deposits. One depositor

approached the consumer forum with the request to issue order against the company
for payment of interest on deposits. The company contended that the consumer forum
was not a proper authority to issue such directions. Advise the company suitably.
Ans.: In Neela Raje v. Amogh Industries [RP No. 409 of the 1992 dated 26.8.1993, 840 12
CLA 90 (NCDRC)], the National Commission was faced with a query as to whether a
complaint lodged in regard to the failure to pay interest on repayment of the principal
amount on the maturity of a deposit by a company could be entertained by a consumer
forum.
The commission pointed out that after the Amendment Act, 1993, a consumer forum can
direct payment of amounts due to a depositor under the provisions of Section 14 of the
Consumer Protection Act, 1986.
Thus, the contention of Gulmohar Ltd. is not valid.

Jetha & sons ltd want some funds for there short terms requirement of funds
for maximum 4 months as a form of deposits and you Mr.Bhide is a company
secretary please give your opinion on this matter. Is company able to ask for
this short term deposit ? If yes what are the conditions for it?

Ans)
---------------------------------------------------------------------------------------------------------------------------------
Yes, it can accept deposits for 4 months
as per Companies (Acceptance & Deposits)Rule,2014 any company cannot accept deposit
which is repayable earlier than 6 months or more than 36 months from the date of
acceptance of deposit
but there is an expectation here if company required deposit for meeting its short term
requirement of funds, accept or renew such deposits for repayments earlier than 6 months
from the date of deposit provided that :-
a)such deposits shall not exceed 10% of aggregate of paid-up share capital , free reserves
and security premium
b)Such deposit are not repayable earlier than 3 months from the date of such deposit or
renewals.
There were Mr. Rohit Sharma , Mr. Virat kohli , Mr. M.S. Dhoni these 3 had joint
names in deposit to the company now virat kolhi wants his wife anushka
sharma’s name in that too but company denies him to registered her name.
After sometime Mr.Virat kohli sues the company for the same.What are the
remedies available to Mr.Virat kohli here?

Ans)
Here no remedies are available to Mr.kohli.
According to Companies(Acceptance of Deposit)Rules,2014 deposits may be accepted in joint
names not exceeding 3, with or without any of the clauses, namely ,”Jointly”, “Either or
surviver”, “First named or Survivor”, “Anyone or Survivor”.
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SPACE FOR NOTES

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Prospectus
Public Companies can issue 'shelf prospectus'
Ans.: Sometimes, securities are issued in stages over a period of time. In such case filing of
prospectus each time will be expensive and hence provision of self prospectus has been
introduced.
Thus, suppose if the company wants to issue securities in one year time span in stages, such
company has to file self prospectus at the time of first issue and at the time of second and
subsequent issue within period of one year they have file only information memorandum and
need not to file prospectus again. Thus, information memorandum indicates the changes that
have occurred between two issues of securities.

Shelf Prospectus [Section 31]: Shelf prospectus means a prospectus in respect of which the
securities are issued for subscription over a certain period without the issue of a further
prospectus.
1) Any classes of companies, as the SEBI may provide by regulations, may file a shelf
prospectus with the ROC at the stage of the first offer of securities which shall
indicate a period of 1 year as the validity period of such prospectus.
2) The period of 1 year shall commence from the date of opening of the first offer of
securities.
3) In respect of a second or subsequent offer of securities issued during the period of 1
year, no further prospectus is required to be issued.
The information memorandum shall be prepared in Form PAS-2 and filed with the ROC
along with the fee within 1 month prior to the issue of a second or subsequent offer of
securities under the shelf prospectus. [Rule 10 of the Companies (Prospectus & Allotment
of Securities) Rules, 2014]

Nothing should be stated as a fact which is not so and no fact should be

purposefully omitted.

It is the duty of those who issue the prospectus to be truthful in all respects. This golden
rule was pronounced in New Brunswick and Canada Railway & Land Co. v. Muggeridge
(1860) 3 LT 651, and has come to be known as the "golden legacy".
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Those who issue a prospectus must state all the facts and information with strict and
scrupulous accuracy. Nothing should be stated as a fact which is not so and no fact should
be purposefully omitted.

In short, the true nature of the company's venture should be disclosed and there should not
be concealment of any material fact.

Thus, even if every specific statement is literally true, the prospectus may be false if by
reason of the suppression of other material facts, it conveys a false impression.

Cases in which prospectus is not required to be issued

Answer
In the following cases a prospectus is not required to give the all .necessary details:
i. Where a person is a bona fide invitee to enter into an underwriting agreement
with regard to shares or debentures. [Section 33(1) (a)]
ii. Where the securities are not offered to public. [Section 33(1) (b)]
iii. Where the issue relates to shares or debentures uniform in all respects, with
the shares or debentures already issued and dealt in or quoted at a recognized
stock exchange [Section 26(2)].
iv. Advertisement of prospectus [Section 30]: Where an
advertisement of any prospectus of a company is published in any
manner, entire prospectus is not required to be issue. However, it
shall be necessary to specify therein the contents of its
memorandum as regards the objects, the liability of members and
the amount of share capital of the company, and the names of the
signatories to the memorandum and the number of shares subscribed
for by them, and its capital structure.
v. Advertisement of prospectus should also adhere to the guidelines
issued by SEBI as to the code of advertisement.
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SPACE FOR NOTES

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Share Capital
Bonus issue may be viewed as a 'right issue' except that money is paid by the
company on behalf of the investing shareholders from its reserves. Comment.

Ans.: In right issue the company gives right to existing shareholder to purchase the shares of
the company. Thus, shareholder gets the right to purchase further shares in company. In such
case the amount is invested by the shareholder form own funds.
When a company is prosperous and accumulates large distributable profits, it converts these
accumulated profits into capital and divides the capital among the existing members in proportion
to their entitlements. Thus, in case of bonus issue, reserves which belong to shareholder is
paid/converted into equity shares. Hence, it is correct to say that bonus issue may be viewed as
a 'right issue' except that money is paid by the company on behalf of the investing shareholders
from its reserves.
Section 62 ensures pre-emptive rights of shareholder. Discuss.
Further issue of share capital [Section 62]: Where at any time, a company having a share
capital proposes to increase its subscribed capital by the issue of further shares, such shares
shall be offered to:

(1) Existing shareholder in proportion to the paid-up share capital on those shares by sending
a letter of offer. Such right issue is subject to the following conditions:
- The offer shall be made by notice specifying the number of shares offered, time for accepting
offer which maybe minimum 15 days and maximum 30 days.
- The notice shall be dispatched through registered post or speed post or through electronic mode
to all the existing shareholders at least 3 days before the opening of the issue.
-If offer is not accepted within period specified, it shall be deemed to have been declined.
-The offer shall include a right to renounce the shares in favour of any other person and this
fact should be specifically mentioned in the notice.
-After the expiry of the time specified in the notice or on receipt of earlier intimation from the
person that he declines to accept the shares offered, the Board of Directors may dispose of them
in manner which is advantageous to the shareholders and the company.
(2) To employees under a scheme of employees stock option by passing special resolution and
complying with prescribed conditions.
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(3) To other persons by passing a special resolution either for cash or for a consideration other
than cash. The price of such shares has to be determined by the valuation report of a registered
valuer subject to prescribed conditions.
Securities premium shall be utilized only for certain specific purposes only.
Comment.

Application of premiums received on issue of shares [Section 52]: Securities premium can be
used by the company for the following purposes:
(a)Issuing fully paid bonus shares
(b)Writing off the preliminary expenses
(c)Writing off commission or discount or the expenses on issue of shares or debentures
(d)For providing premium on redemption of redeemable preference shares or debentures
(e)Buy-back of shares and writing off premium on buy-back.
Board of directors of Progressive Ltd. decides to issue equity shares of the
company with differential voting rights. Examining the provisions of the
Companies Act, 2013, state the conditions to be complied with by the company
in this regard.

The Companies (Share Capital & Debentures) Rules, 2014 makes the following provisions
relating to issue of shares with differential voting rights.
(1) Conditions for issuing shares with differential rights [Rule 4(1)1: Company limited by
shares shall not issue equity shares with differential rights as to dividend, voting or otherwise,
unless it complies with the following conditions, namely:
- The AOA authorizes the issue of shares with differential rights.
-The issue of shares is authorized by an ordinary resolution passed at a general meeting.
-In case of listed company, the issue shall be approved by the shareholders through postal
ballot.
-The shares with differential rights shall not exceed 74% of the total post-issue paid-up
equity share capital
-Company has not defaulted in filing financial statements and annual returns for last 3
financial years.
-Company has no subsisting default in the payment of a declared dividend to its shareholders
or repayment of its matured deposits or redemption of its preference shares or debentures
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that have become due for redemption or payment of interest on such deposits or debentures
or payment of dividend.

- Company has not defaulted

o •In payment of the dividend on preference shares or
o •In repayment of principle or interest on any term loan from a PFI or State Level
Financial Institution or Scheduled Bank
o •In dues with respect to statutory payments relating to its employees to any
authority
o In crediting the amount in Investor Education & Protection Fund to the Central
Government.

However, a company may issue equity shares with differential rights upon expiry of 5 years
from the end of the financial year in which such default was made good.
- Company has not been penalized by Court or Tribunal during the last 3 years of any offence
under the RBI Act, 1934, the SEBI Act, 1992, the Securities Contracts Regulation Act, 1956,
the FEMA Act, 1999 or any other special Act.

(2) Disclosures in the explanatory statement [Rule 4(2)]: The explanatory statement to
be annexed to the notice of the general meeting shall contain the prescribed particulars like
- number of shares; percentage of the shares; reasons or justification for the issue; etc.

(3) Conversion [Rule 4(3)]: The company shall not convert its existing equity share capital
with voting rights into equity share capital carrying differential voting rights and vice versa.

(4) Disclosures in the Board's Report [Rule 4(4)]: The board of directors shall disclose in
the Board's Report, the following details, namely:
(i) Number of shares allotted with differential rights.
(ii) Details of the differential rights relating to voting rights and dividends.
(iii) Percentage of the shares with differential rights to the total post issue equity share
capital with differential rights issued at any point of time and percentage of voting
rights which the equity share capital with differential voting right shall carry to the
total voting right of the aggregate equity share capital.
(iv) Price at which such shares have been issued.
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(v) Particulars of promoters, directors or -key managerial personnel to whom such shares
are issued.
(vi) Change in control, if any, in the company consequent to the issue of equity shares
with differential voting rights.
(vii) Diluted EPS calculated in accordance with the applicable accounting standards.
(viii) The pre and post issue shareholding pattern along with voting rights.

(5) Rights of holders of equity shares with differential voting rights [Rule 4(5)]: The
holders of the equity shares with differential rights shall enjoy all other rights such as bonus
shares, rights shares etc., which the holders of equity shares are entitled to, subject to the
differential rights with which such shares have been issued.

(6) Register of Members [Rule (6)]: When company issues equity shares with differential
rights, the Register of Members maintained u/s 88 shall contain all the relevant particulars
of the shares so issued along with details of the shareholders.
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Miscellaneous Topics
Ajay Ltd. borrowed 100 Crore from Prem, without the authority conferred on it
by the articles of association. Later, the money borrowed by Ajay Ltd. was used
by its Board of directors to pay off lawful debts of the company. In this scenario,
Prem, the lender seeks your advice for recovery of his money. Advise him.

In T.R. Pratt. (Born) Ltd. v. E.D. Sassoon and Co. Ltd, (1936) 6 Com Cases 90, it was held
that if the directors borrowed money from the plaintiff beyond their powers the company
cannot repudiate its liability on the ground that the agent had no authority from the company
to borrow. The money having been borrowed and used for the benefit of the principal either
in paying its debts or for its legitimate business, the company cannot repudiate its liability
on the ground that the agent had no authority from the company to borrow.
It was also held that under the general principle of law when an agent borrows money for a
principal without the authority of the principal, but if the principal takes benefit of the
money so borrowed or when the money so borrowed have gone into the coffers of the
principal, the law implies a promise to repay.
Thus, Prem can recover the money borrowed by the directors of Ajay Ltd. without any
authority as money has been used to pay off lawful debts of the company.
Rahees, who is a member of Vivek Ltd., a public company, has very recently
become an insolvent. Can the insolvent Rahees continue as a member of the
company?
Ans.: An insolvent may be a member of a company as long as he is on the register of
members. He is entitled to vote, but he loses all beneficial interest in the shares and company
will pay dividend on his shares to the Official Assignee or Receiver.

Thus, Rahees may be a member of a company as long as he is on the register of members.

In what manner 'membership' in company can be sought?

Ans.: As per Section 2(55), a person may acquire the membership of a company:
(1) By subscribing to the MOA (deemed membership) or
(2) By agreeing in writing to become a member:
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 By making an application for allotment of shares or
 By executing an instrument of transfer of shares or
 By consenting to the transfer of share of a deceased member in his name or
 By acquiescence or estoppel.
(3) Every person holding equity share capital of the company and whose name is entered as
beneficial owner in the records of the depository shall be deemed to be the member of the
concerned company.
The person desirous of becoming a member of a company must have the legal capacity of entering
into an agreement in accordance with the provisions of the Indian Contract Act, 1972. Section
11 of the said Act lays down that, every person is competent to contract who:
a) Is of the age of majority according to the law to which he is subject.
b) Is of sound mind.
c) Is not disqualified from contracting by any law to which he is subject.

Distinguish between: Beneficial owners under depository mode and Registered

owners under depository mode
(4 Marks)
Ans.: Registered Owner & Beneficiary Owner: All the public limited companies are required by
the Companies Act, 2013 to maintain an index of members, wherein they are required to keep a
record or the owners of the company. With the concept of dematerialization of securities and
transfer of shares through book entry system coming up, registered owners are NSDL & CDSL
only.

So, in the index of members of any company, there are only two registered owners, i.e. the two
depositories. The depositories keep a track of all the clients through the depository participants.
Therefore, the registered owners are the depositories whereas the beneficiary owners are the
people who are holding the securities at any given point of time.

Whenever a company declares a bonus issue, the securities are transferred in the name of the
two depositories and they further transfer it to the clients through their participants.

Therefore, the depositories are known as the registered owners and the investors are known as
the beneficiary owners as they get the benefits of all the corporate actions.
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Further, if a company declares a cash dividend, then the details of the holdings by the investors
is given by the respective depository participants to the depository so that the details can further
be given to the RTA (Registrar & Transfer Agents) which would facilitate them to directly
transfer the amount to the bank account of the investor/ holder through the ECS (Electronic
Clearing System).

For having a security of a company in demat form, first a company has to opt for the same. A
company can do so by getting itself registered with at least one of the depositories.

For this, the company has to transfer all its shares to the depository. For differentiating among
all the companies, International Securities Identification Number (ISIN) is assigned to them
which are unique in nature.
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