Company Management

& Winding up

Dr. K Ashok Anand

Definition of Director
According to the Act, director includes any person occupying the position
of director, by whatever name called. A company is an artificial legal person
and the directors as a body endow the artificial legal person with human face
that can act and react.

Who are Directors?

The persons, through whom a company acts and does its business, are termed
as directors. They are collectively known as board of directors. They are the
brains of the company. A director is a person having control over the
direction, conduct of a company. Board of directors or Board in relation to a
company, means the board of directors of the company.

Who may be Appointed as Director?

No body corporate, association or firm can be appointed director of a
company. Only an individual
Number of Directorships

A person cannot hold office at the same time as a director in more than 15
companies.

Qualifications for Directors

a) The Act prescribes no academic, professional or share qualifications.

b) Articles may provide for any qualifications.
c) Where share qualification is fixed by articles then the Act42 provides:
i. Qualification shares must be taken within 2 months after appointment.
ii. Nominal value of qualification shares must not exceed Rs. 5000 or one
sharewhere its value exceeds Rs. 5000.
iii. Share warrants will not count for this purpose
 Appointment of Directors

Directors can be appointed in the following ways:

a) First Director: The first directors are usually appointed by name in the
articles, or in the manner provided therein. When the articles do not provide
for the appointment of first directors, the subscribers to the memorandum,
shall be deemed to be the first directors of the company.
b) Appointment of Directors by Company: The directors must be
appointed by the company in general meeting. Two-third of the total number
of directors must retire by rotation. Inother words only one-third of the total
number of directors can be non-rotational directors.
c) Appointment of Directors by the Board: The board of directors can
exercise the power to
appoint directors in the following three cases:
i. Additional directors.
ii. Filling up the casual vacancy.
iii. Alternate directors
Appointment of Directors by Third Parties (Nominee Directors): When the
government, foreign collaborators, holding companies, financial institutions, or
other lenders, etc.,nominate a director to represent their interest on the board,
he is called a nominee director.
e) Appointment of Directors by Proportional Representation: Ordinarily,
directors are appointed by simple majority vote. As a result, shareholders
controlling 51% or more votes may elect all directors and the minority as high
as 49% may find no representation on the board. To enable the minority
shareholders to have a proportionate representation on the board, the Act43
gives an option to companies to appoint directors through a system of
proportionate representation,
f) Appointment by Central Government: The central government can appoint
directors on an order passed by the Tribunal (NCLT).
g) Appointment by Small Shareholders: A public company having a paid-up
capital of 5 crore rupees or more, and one thousand or more small hareholders
may have a director elected by such small shareholders. The term small
shareholder means a shareholder holding shares of nominal value of Rs.
20,000 or less.
 Consent for Appointment
Before a person is appointed as a director, his prior written consent is required
to be signed and filed with the Registrar and the Company.
Removal of Directors
Directors can be removed in the following ways:
a) By Shareholders: Shareholders have the option to remove the directors by
passing an ordinary resolution. Company receives a special notice for the
removal of the director before the expiry of his term of office. The notice must
disclose the ground on which the director is proposed to be removed. Director
has a right to make representations.
b) By Central Government: The central government has the power to make
reference to the Tribunal (NCLT) against any managerial personnel, with a
request to inquire in to as to whether or not such a person is fit and proper
person to hold the office of director. On the findings of the Tribunal, the
central government may remove the director.
c) By Tribunal (NCLT): Where an application has been made to the Tribunal
(NCLT) against oppression and mismanagement of companys affairs, the
Tribunal (NCLT) may order the termination of the agreement of the company
with the director
Duties of Directors
Some of the duties of directors are:
a) Duty of good faith.
b) Duty to take reasonable care.
c) Duty to disclose interest.
d) Duty to participate in committees of the board like Audit Committee or
Investors Grievance Committee.
e) Duty to attend board meetings.
Managing Director
a) Meaning: A director who is entrusted with substantial powers of
management which would not otherwise be exercisable by him.
b) Number of companies: Of which one person may be appointed Managing
Director is two.
c) Tenure of appointment: Is five years but eligible for re-appointment for
another term of five years.
Company Meetings and Resolutions

Kinds of Meetings
 Statutory Meeting
Object: The main purpose is to enable the members to know at an early date the
financial position and prospects of the company and also to provide them an
opportunity of discussion on various matters arising out of promotion and
formation of a company.
When Held: Only Once in the life time of the company. It is to be held within a
period of not less than one month but not more than six months from the date the
company is entitled to commence business. This is the first meeting of the
shareholders.
Not Required to be Held: A private company is not required to hold a statutory
meeting. This meeting is also not required to be held by a public company not
having share capital or has unlimited liability or a government company.
Notice: At least 21 days notice is to be given.
Statutory Report: Is presented in this meeting. Its contents include, total shares
allotted, total amount of cash received, an abstract of receipts and payments,
details of contract, directors, brokerage and commission.
In case of default: Penalty is Rs. 5000 and is also a ground for winding up
 Annual General Meeting (AGM)
Which company to hold: Every company either public or private.
When to be held: Every calender year, i.e. once annually.
Gap between two AGM:
a)First AGM: May be held within 18 months from the date of incorporation.
First AGM must be held not later than 9 months from the date of closing of
financial year.
b)Subsequent AGM: There must be one meeting held in each calendar year.
The gap between two AGMs must not be more than 15 months. This period
can be extended to 18 months by the Registrar. Meeting must be held not later
than 6 months from the close of the financial year.
c)Extension of time: Registrar can give extension time upto a maximum of 3
months.
d)Business to be transacted: Ordinary business like consideration of annual
accounts, declaration of dividend, appointment of directors and auditors or any
special business may be transacted.
e)Notice: 21 days.
Default: Central government can give directions as it thinks expedient. Penalty
provided is Rs. 50,000 or in case of continuing default Rs. 2500 per day
 Extraordinary General Meeting (EGM)
All general meetings other than the AGM shall be EGMs. Some of the points relating to
EGM are:
When to be convened: For transacting some urgent or special business that may arise
between two AGMs, e.g. removal of a director/auditor.
Business to be transacted: All business transacted in EGM is called special business and
accompanied by an Explanatory Statement
Who may call:
An EGM may be called by:
The board on its own.
The directors on requisition, if the requisitionists are the holders of 1/10 of total voting
power.
The requisitionists themselves, if the board does not call the meeting within 45 days of
the deposit of a valid requisition.
Meeting must be held within 3 months of the date of deposit of requisition.
The Tribunal ( Court )
An institutional shareholder can requisition an EGM.45
 Board Meeting

When to hold: At least once in every three calendar months

and 4 meetings every year.

Notice: To be given to every director in writing. No form or

period of notice is laid down. Usually a weeks notice is
sufficient. The notice must state, the date, time and place of
meetings.

Quorum: 1/3 of the total strength or two, whichever is higher.

Passing of resolution by circulation is permissible
 Motion
A proposal under consideration by members in a meeting before it is voted
upon.

Resolution
Any motion voted upon and agreed to in a meeting and entered in minutes. In
other words, a motion when passed, with or without amendment, is called a
resolution.

Types of Resolution:

Ordinary resolution

Special resolution

Resolutions requiring special notice

What is an Ordinary Resolution: A motion passed by simple majority of the
members voting at a general meeting.

Special Resolution: The votes cast in favour, by whatever means, by members

present should not be less than three times the votes cast against the
resolution. Intention as special resolution should be specified in the notice or
intimation of the meeting. Some of the matters for which special resolution is
required are to alter objects clause of memorandum or to alter articles.

Resolution Requiring Special Notice: Notice of the intention to move the

resolution should be given to the company not less than 14 clear days before the
meeting at which it is to be moved. Examples - appointing an auditor other than
the retiring one, removing a director before expiry of period of his office.
 Accounts and Audit

Every company is required to maintain proper books of account

Inspection of Books of Account

Books of account and other books are open for inspection by:
Any director
The Registrar
Authorised officers of the central government.
Authorised officers of SEBI (for listed companies only).

A shareholder has no statutory right to inspect books of account. However, if the

articles specifically provide for such a right then he can inspect

Filing of Annual Accounts

Every company is required to file with the Registrar three copies of annual accounts
within thirty days from the date they were laid before the company at the AGM
 Auditor
A person is qualified to be an auditor of a company if he is a practicing chartered
accountant within the meaning of the Chartered Accountants Act, 1947

Appointment of Auditor

First Auditor: Is appointed by the board, if not then by the company in general meeting

Subsequent Auditor: Is appointed every year by the members in AGM by passing an

ordinary resolution
 Prevention of Oppression and Mismanagement
The Principle of Majority Rule- Foss v. Harbottle.
The management of companies is based on the rule by majority, like any democratic set up.
The principle of majority rule is often described as the rule in Foss v. Harbottle. Briefly the
facts in this case were that

Two minority shareholders alleged that directors and solicitors of the company were guilty of
fraudulent acts which resulted in loss to the company. They decided to take action for
damages against the directors. The court dismissed the suit of the minority shareholder on the
ground that the acts of the directors were capable of confirmation by the majority of
shareholders and held that the proper plaintiff for wrongs done to the company is the
company itself, and not the minority shareholders, and as such the company could act only
through its majority shareholders.

There are many exceptions to the majority rule. One of them is - where prevention of
oppression and mismanagement is applicable
 Acts held as Oppressive
The court has held following acts as oppressive:

Not calling a general meeting and keeping shareholders in dark.

Non-maintenance of statutory records and not conducting affairs of the company in
accordance with the Act.
Depriving a member of the right to dividend.
Transfer of shares held by company to some shareholders otherwise than by making an
offer to all.
Allotment of shares by directors in a manner by which majority of shareholders is reduced
to minority.
Failure to distribute the amount of compensation received on nationalisation of business of
company among the members, where required to be distributed.
Countermanding decision of the board who controls majority voting power, and not
allowing board to perform its functions.
If sale of assets is made by a company to some of its directors and simultaneously giving
them loan to purchase the same.
Issue of further shares benefiting a section of the shareholders.
Meaning of Winding up

Winding- up of a company represents the steps for the last stage in

its life. It means a proceeding by which a company is dissolved.

Modes of Winding up
There are two modes of winding-up. These modes are:
Compulsory winding-up under orders of the National Company
Law Tribunal (NCLT).
Voluntary winding-Up
a) Shareholders Voluntary winding up
b) creditors Voluntary winding up
Sl. No. Members Voluntary Creditors Voluntary

Winding-up Winding-up

1. Directors declaration of solvency is a No such declaration is required.

must.

2. Meeting of members and passing a No meeting of members is necessary.

resolution is required.

3. No Committee of Inspection. Such a Committee may be constituted.

4. Members have dominating control. Creditors have dominating control.

5. Members appoint the liquidator. Creditors have choice over members.

The End

Dr. K Ashok Anand