Approval of list of creditors

 

S. 291-Approval of list of creditors-Board Resolution

 

"RESOLVED that payment be and is hereby authorised to be made to the creditors of the Company as set out in the list of creditors placed before the meeting, and initialed by the Chairman for the purpose of identification."

 

PRACTICE NOTES

 

1. Approval of list of creditors.-It is common for large companies with a large number of creditors to place a composite list of creditors before the Board and obtain consent for payment to them.

 

Co-availing service of an executive

 

S. 291-Co-availing service of an executive-Board Resolution

 

"RESOLVED that the services of Mr. DMK, a Senior Technician employed by the Company, be made available to the under-noted companies with effect from the        2002     , on terms that all expenses on account of his remuneration, perquisites, entitlements, benefits (ex­pressed in terms of money), as may from time to time, be applicable, be shared equally by M/s. PQR & Company Limited M/s. BNP & Company Limited. M/s. SVP & Company Limited.

 

PRACTICE NOTES

 

1. Co-availing service of a person.- Sometimes it may become necessary to lend technical service of a person employed by a company and an arrangement may be worked out for the recovery from the other companies by the appointing company all the expenses in relation to such Technician for sharing among all the companies equally, or on the basis of time utilised.

 

2. Sharing of remuneration by companies co-availing service not applicable for tax-free foreign technician.-The sharing of remuneration by several companies coavailing the service of a Technician will not, however, be applicable in the case of a taxfree foreign Technician pursuant to section 10(6)(viia) of the Income-tax Act, 1961.

 

3. Presumption of common control.-Such co-sharing may raise the presumption of common control.

 

 

Submission of a dispute before an arbitrator

 

S. 291-Submission of a dispute before an arbitrator-Board Resolution

 

"WHEREAS a letter dated the   2002, from the Chief Engi­neer    Project, Government of India (a  Project which the company has undertaken to construct on turnkey basis) disagreeing with the company's contention for a wage escalation due to introduction of the Gratuity Act was received;

 

AND WHEREAS the company's liability there for, was tabled before this meeting;

 

NOW THEREFORE IT IS RESOLVED that the matter be and is hereby referred to the body of the arbitrators, pursuant to the terms of clause   of the agreement between the company and the Government of India through the Chief Administrator . Project, Ranchi, for arbitration over the claim of the company in respect of wage escala­tion.

 

RESOLVED FURTHER that Mr. KKW, a Director, and Mr. SND, the Chief Engineer of the Company, be and are hereby authorised jointly to represent the Company's contentions before such body of arbitrators the composition of which had been earlier agreed upon by the Company."

 

PRACTICE NOTES

 

1. Scope of general powers of Board.-The general power of the Board consists of all such powers and all such acts and things as the company is authorised to exercise and do either under the Companies Act, 1956, or the Articles of Association of the company. For the exercise of certain powers, the Companies Act, 1956, is silent. They could be validly exercised by the Board of Directors. The Board, in such cases, should observe the directions given in the memorandum of articles of the company and also any such directions made by the company in General Meeting. However, no regulation, made by the company in General Meeting shall invalidate any prior act of the Board which would have been valid if that regulation had not been made.

 

2. Reference to Arbitration.-In view of the mandatory provisions of section 8 and section 45 of the Arbitration and Conciliation Act, 1996 once it is established that the matters agitated in a petition under section 397/398 arise out of or in connection with an arbitration agreement, then the Company Law Board has to refer the parties to arbitration. Bhadresh Kantilal Shah v. Magotteaux International, (2002) 111 Com Cases 220 (CLB).

 

Arbitration in Government contracts

 

S. 291-Arbitration in Government contracts-Board Resolution

 

"WHEREAS disputes have arisen between the Company and the Gov­ernment of India represented by the Chief Engineer Project in respect of the implementation of several clauses in the agreement No. .....       ......      dated between the company and the Government of India represented by the aforesaid Chief Engineer.

 

NOW IT IS RESOLVED that the disputes aforesaid be and are hereby submitted to arbitration in accordance with clause of the afore­ said agreement.

 

            IT IS FURTHER RESOLVED that Shri  ……be and is hereby nominated as the arbitrator by the Company."

 

PRACTICE NOTES ……   

 

See under Resolution No. § 606.

 

Gratuity payable to staff

 

S. 291-Gratuity payable to staff-Board Resolution

 

"WHEREAS the Board noted that the Gratuity Act being applicable to the Company, it would be a liability of the Company to pay gratuity to such staff as are covered under the said Act, on retirement from the services of the Company;

 

NOW THEREFORE IT IS RESOLVED that an assessment of liability of the Company for payment of gratuity on accrual basis as at 31st March, .... by a qualified actuary, be and is hereby made.

 

RESOLVED FURTHER that a fund, pursuant to a scheme, under a deed of trust, a copy whereof authenticated by the Chairman, was placed at this meeting, be and is hereby approved and that Mr  ……Director, and Mr  ……the Finance Manager, and Mr  ……an employee of the Company, be the first trustees of the aforementioned Gratuity Fund of the Company.

 

RESOLVED FURTHER that the seal of the Company be affixed to the deed of trust as hereinbefore approved and expressed to be made between the said trustees on the one part and the Company on the other part in presence of Mr. JKW and Mr. VKW, the Directors of the Company, pursuant to Article.... of the Articles of Association of the Company."

 

PRACTICE NOTES

 

1. Payment of gratuity.- Option is open to the company to make payment as and when actual liability arises so that gratuity is provided on cash rather than accrual basis.

 

2. Provision for gratuity liability in the books of accounts-Section 209(3)(b) of the Companies Act, 1956 provides that 'proper books of account shall not be deemed to be kept with respect to the matter specified therein, if such books are not kept on accrual basis and according to double entry system of accounting'. It is mandatory for companies to provide for gratuity liability in their books of accounts in accordance with the provisions of section 209(3)(b) of the Companies Act, 1956, taking into account the Accounting Standard 15 (Accounting for Retirement Benefits in the Financial Statements of Employers) of the Institute of Chartered Accountants of India. [Circular No. 3198, issued by Ministry of Law, Justice and Company Affairs, Department of Company Affairs, vide no. 5/10/98-CL. V, dated 18 May, 1998].

 

Revocation of authorisation to operate a bank account

 

S. 291-Revocation of authorisation to operate a bank account-Board Resolution

 

"RESOLVED that Mr   , a Director of the Company, and Mr  ……senior executive of the Company, having resigned from their respec­tive posts in the company, the authority conferred on the said Mr. PKW and Mr. MPZ to operate the bank account of the Company vide Board Resolution, dated the  ……2002 be and is hereby revoked and that the Company's bankers Bank . Branch, Nagpur 440012 be advised accordingly.

 

RESOLVED FURTHER that the Bank be and is hereby advised to treat - all documents, cheques, negotiable instruments or any other documents or orders signed by the aforesaid Director and the senior executive and pending before the aforesaid date of revocation of authority but not presented to the bank or not paid or remaining pending as on the date of revocation, be treated as valid and binding on the company, and that the Company agrees to accept as valid any such documents retained, paid or negotiated even subsequent to the aforesaid date of revocation of authority.

 

RESOLVED FURTHER that a copy of this resolution be sent to the Bank for notification duly certified under the signature of the Chairman hereof."

 

PRACTICE NOTES

 

1. Changes in list of signatories authorised to operate Bank Account be advised to bank.-The Bankers of the company should be forthwith advised the changes in the list of signatories authorised to operate bank account. In a big company, sometimes executive turnover is high, and the Secretary should advise the Board to adopt appropriate resolution rescinding the bank account operation of the executives concerned for the safety of the company.

 

2. Advice to bank to honour cheques/bills pending on date of revocation of authority.-In practice, it is found that cheques/bills of exchange/other documents/ I instruments to pay' remain pending on the date of revocation of authority. The bank should be clearly advised that all instruments signed by the persons concerned before revocation of authority but not paid or remaining pending for reasons whatsoever should be honoured by the bank to avoid chaos and confusion.

 

3. Resolution be passed by circulation.-This resolution may be passed also by circulation. (Explanation 11 to section 292).

 

Payment of salaries

 

S. 291-Payment of salaries to employees-Board Resolution

 

"RESOLVED that the payment of salaries to the workers and officers of the Company be made in accordance with the schedule placed before the meeting and initialed by the Chairman for purposes of identification."

 

PRACTICE NOTES

 

See under Resolution No. 606.

 

Payment of bonus to employees

 

S. 291-Payment of bonus to employees-Board Resolution

 

"WHEREAS there exists an allocable surplus computed under the provisions of sections, 4, 5 and 6 of the Payment of Bonus Act, 1965;

 

AND WHEREAS it has been mutually agreed that per cent of such allocable surplus would be applied for Payment of bonus to the employees;

 

NOW THREFORE IT IS RESOLVED that Bonus to the extent of ................     of the gross wages and dearness allowance be paid to every employee in respect of the immediate preceding accounting year end­ing on 2002     within   2002     and that the balance of Rs . ……be carried forward as 'set on' under section 15 of the Payment of Bonus Act, 1965."

 

PRACTICE NOTES

 

1. Eligibility for Bonus.-Section 8 of the Payment of Bonus Act, 1965 states that every employee shall be entitled to be paid by his employer in an accounting year, bonus in accordance with the provisions of the Act provided he has worked in an establishment for not less than thirty working days in that year. Thus in order that one employee can claim bonus he has to work for thirty days in a year. According to section 2(B) an employee has been defined to mean other than an apprentice employed on a salary or wage not exceeding Rs. 2500/- per month in any industry to do skilled or unskilled manual, supervisory, managerial, administrative, technical or clerical work of hire or reward whether the term of employment be express or implied. However as per section 9 of the Act an employee shall be disqualified from receiving bonus if he is dismissed from service for fraud, or riotous or violent behavior while on the premises of the establishment or theft, misappropriation or sabotage of any property of the establishment.

 

Definition of allocable surplus.-Sub-section (4) of section 2 of the Payment of Bonus Act, 1965 defines "allocable surplus to mean in relation to an employer, being a company other than a banking company which has not made the arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of that Act, sixty-seven per cent of the available surplus in any accounting year and in any other case, sixty per cent of such available surplus.

 

The definition covers a company which has not made arrangements prescribed under the Income-tax Act for the declaration and payment within India of the dividends payable out of its profits in accordance with the provisions of section 194 of the Act. The allocable surplus for such a company is sixty-seven per cent and for other it is sixty per cent of  the available surplus. In other words allocable surplus is the share of workers out of the surplus available.

 

Payment of maximum bonus.-Section II of the Act states that where in respect of any accounting year referred to in section 10 the allocable surplus exceeds the amount of minimum bonus payable to the employees under that section the employer shall in lieu of such minimum bonus be bound to pay to every employee in respect of that accounting year bonus which shall be an amount in proportion to the salary or wages earned by the employee during the accounting year subject to a maximum of twenty per cent of such salary or wage.

 

2. Payment of additional bonus.-No additional bonus can be paid until allocable surplus does not exceed the minimum bonus.

 

Payment of minimum bonus

 

S. 291-Payment of minimum bonus-Board Resolution

 

"WHEREAS the Company has earned a small profit after charging and adjustment of all working expenses and bad and doubtful debts and depreciation;

 

AND WHEREAS, there is a deficit of 'allocable surplus' if computed for the purpose of the Payment of Bonus Act, 1965 and whereas, it has been made compulsory to pay a flat amount of Rs. 500/- to each employee of the establishment/factory as annual bonus;

 

NOW THEREFORE IT IS RESOLVED that a sum of Rs  …… (Ru­pees only) be paid as bonus to all the employees whether em­ployed in the factory, branches or in the head office as annual bonus under the Payment of Bonus Act, 1965, so that each employee gets a gross amount of Rs. 500/- as bonus irrespective of his/her annual earnings and the percentage thereon.

 

RESOLVED FURTHER that the deficit indicated by 'set off' under section 15 of the aforesaid Act be carried forward for adjustment with the next year's allocable surplus if there be any."

 

PRACTICE NOTES

 

1. Payment of minimum bonus.-According to section 10 of the Payment of Bonus Act, 1965 ev,-,ry employer shall be bound to pay to every employee who has worked in the establishment for all the working days in respect of the accounting year a minimum bonus which shall be 8.33 per cent of the salary or wage earned by the employee during the accounting year or one hundred rupees whichever is higher whether or not the employer has any allocable surplus in the accounting year.

 

However, when an employee has not completed fifteen years of age at the beginning of the accounting year, the provisions of the section shall have effect in relation to such employee as if for the words "one hundred rupees" the words "sixty" rupees were substituted.

 

2. Profit sharing concept.-There had been a basic change of concept of the profit sharing bonus which was amended to provide linkage with the productivity of the factory or productive units of the company. The matter resulted in number of controversies which have not, it appears, been finally solved.

 

Export promotion tour

 

S. 291-Export promotion tour-Board Resolution

 

"WHEREAS the Company holds a 'blanket permit' to visit the foreign customers at any time, such permit having been issued by the Reserve Bank of India;

 

AND WHEREAS Mr. TNT is one of the approved representatives, as mentioned in the Schedule of Representatives attached to the aforesaid permit;

 

AND WHEREAS, it has become necessary to have technical discussion with the prospective customers in the United Kingdom and the continent, in connection with export of Company's products;

 

NOW THEREFORE IT IS RESOLVED that Mr. TNT be and is hereby authorised to proceed to the United Kingdom and Continent for the purpose of disposal of technical queries raised by the prospective customers in those countries and that the authority given for the release of rupee equivalent to f 500 besides buying an air ticket for Mr. TNT as per the itinerary prepared by him be approved.

 

RESOLVED FURTHER that the Board hereby agrees to abide by all the acts and actions to be taken by the said Mr. TNT in the course of his duties, who shall, however, submit a full report to the Board of Directors about the outcome of his negotiations with all the customers."

 

PRACTICE NOTES

 

1. Blanket Exchange permit by RBI-The Reserve Bank of India, on application made by a company or concern having export business, may issue 'blanket exchange permit' to such exporting company indicating therein the names of the representatives of the company who may meet foreign customers. The holders of such permits, which are generally issued on an annual basis, may draw exchange from authorised dealers for approved purposes without obtaining prior approval of the Reserve Bank of India each time.

 

Resignation of a Director

 

S. 291-Resignation of a Director-Board Resolution

 

"RESOLVED that while expressing sincere appreciation of the Board for the efficient and matured advice of Mr to this company during the tenure of his office as a Director of the company, that his resigna­tion be and is hereby accepted being effective from  ……2002 ……as per his letter dated the 2002  ……which is produced be­fore this meeting."

 

PRACTICE NOTES

 

1. Resignation of Director.-On a Director vacating his office on the Board, the company is required to file a return in duplicate in Form No. 32, pursuant to section 303 of the Companies Act, 1956. At the discretion of the Board, resignation may be accepted with effect from the date of resignation letter submitted to the Board by the Director concerned or may be accepted at the Board meeting from the date of the meeting. Form No. 32 should, however, be filed with the Registrar of Companies within thirty days from the date of resignation or acceptance thereof whichever is later. The letter of resignation from a Director may be in a very simple form reading as follows:

 

"I hereby tender my resignation from the Board with immediate effect (with effect from   ) and shall be obliged if the same be accepted from the date hereof (from that date)."

 

2. Resignation of Managing/Whole-time Directors.-Resignation of Managing Directors/Whole-time Directors being governed by agreement with the company in regard to terms and conditions of appointment should be in accordance with those terms. Resignation as Managing Director does not ipso facto lead to resignation as Director. Resignation of a director takes effect from the date of resignation. S.R Shankar v. Amman Steel Corporation, (2002) 110 Com Cases 50 (Mad).

 

3. Withdrawal of resignation by a Director.-Resignation of a Director can be withdrawn by him at any time before the resignation takes effect. Union of India v. Gopal Chandra Misra, AIR 1978 SC 694.

 

Dismissal of a Managing Director

 

Ss. 291/2(26)-Dismissal of a Managing Director-Board Resolution

 

"RESOLVED that the service of Mr  ……the Managing Di­rector of the Company, be dispensed on and from the expiry of three months from date and that the said Mr. TKK be also given the option to tender his resignation from the Board of Directors with effect from any date earlier than the period of the said three months."

 

PRACTICE NOTES

 

1. Cessation of Managing Directorship.-If the Board is not satisfied with the Managing Director's services, it can ask such Managing Director to resign from the membership of the Board. The termination of the agreement appointing him as a Managing Director may be initiated by the Board on the same line as for any other officer of the company. On ceasing to be a Managing Director, there is no automatic cessation as a member of the Board. Of course, the company should, within thirty days from such cessation of the Managing Directorship, file a return in duplicate in Form No. 32 notifying the change to the Registrar of Companies.

 

Dismissal of employee

 

S. 291-Dismissal of employee-Board Resolution

 

"RESOLVED that Shri  ……the Assistant Manager (Finance) of the Company be and is hereby relieved of his duties and is termi­nated from service with effect from (or forthwith)."

 

PRACTICE NOTES

 

1. Delegated by the Board.- Generally the powers of the Board of Directors of any Company to terminate the services of the employees other than principal officers of the company are delegated to the senior executives of the company and in such a case passing a board resolution for terminating the services of any employee is not needed.

 

Resignation from the services by the Whole-time Director/General Manager/Secretary

 

S. 291-Resignation from the services by the Whole-time Director/General Manager/Secretary-Board Resolution

 

"RESOLVED that Mr. SSG, a whole-time Director of the Company, be and is hereby released with immediate effect after waiving the condition of requiring him to give three months' prior notice before leaving the services of the Company, such waiver being permissible in terms of the agreement between the Company and Mr. SSG and that all the dues payable to Mr. SSG, as per terms of the agreement, be settled and that the Secretary of the Company be instructed to convey the thanks of the company to Mr. SSG, the General Manager, for carrying out his duties for long years diligently and faithfully."

 

PRACTICE NOTES

 

1. Board not competent to waive notice period.-If the amount of salary for three months in lieu of notice is already payable and is a debt due to the company, the Board would not be competent to waive the notice for the waiver of notice would amount to remission of debt within the meaning of S. 293(l)(b) which requires a General Body resolution.

 

2. Board competent to waive notice period where person concerned not a Director.-Board alone would, however, be competent where the person concerned is not a Director.

 

3. Waiver permissible in terms of agreement.-Agreement must permit waiver.

 

Nomination of director in another Company

 

Ss. 291/257-Company serving notice under section 257(l) to nominate a director in another Company of which it is a member-Board Resolution

 

"WHEREAS the Company is a member of M/s. XYZ & Company Limited;

 

AND WHEREAS, the Company desires to propose the appointment of Mr  ……a Director of this company on the Board of M/s. XYZ & Company Limited;

 

AND WHEREAS, the Company for the aforesaid purpose intends to serve a notice pursuant to section 257(l) of the Companies Act, 1956, signifying the candidature of Mr. VKW for the office of Director in the ensuing Annual General Meeting of M/s. XYZ & Company Limited to be held on the  ……2002               , the text of the notice pursuant to section 257(l) of the Companies Act, 1956, being produced hereunder at this meeting;

 

NOW THEREFORE IT IS RESOLVED to serve a notice under section 257 in this behalf and that the Secretary be authorised to serve notice to the said M/s. XYZ & Company Limited in respect of such appointment and also to make a deposit of Rs. 500/- with XYZ & Co. Ltd. as required under the said section."

 

PRACTICE NOTES

 

1. Nomination of representative on the Board of another Company.-A company who is a substantial shareholder of another company may appoint one of their representatives on the Board of the latter company. Such representative may be selected by the shareholding company by a Board Resolution.

 

2. Circulation of notice of nomination to members.-Pursuant to sub-section (I A) of section 257, the company receiving such notice must circulate the notice to the individual members for their consideration in the ensuing General Meeting. To avoid time and expenses of serving individual notice, the company may circulate such notice at least seven days before the meeting by advertising at least in two newspapers circulating in the concerned place.

 

 

Authority to solicitors/lawyers to initiate action on behalf of company

 

S. 291-Authority to the solicitors1lawyers to initiate action on behalf of the company-Board Resolution

 

"WHEREAS there had been infringement of certain copyrights of which the Company is the registered user;

 

AND WHEREAS considering that such infringement may hamper business interest of the Company;

 

NOW THEREFORE IT IS RESOLVED that M/s. BPC & Company, the solicitors of the Company, be and are hereby authorised to initiate action, give notice and take any other legal action as they may consider proper and, if necessary, institute any legal proceedings in this behalf."

 

PRACTICE NOTES

 

1. Authorisation to Solicitors/Lawyers to initiate action on behalf of Company.- This is an executive authority vested in the Board which is usually invoked either by the Managing Director or a committee of Directors.

 

Appointment of lawyer on retainer ship basis

 

S. 291-Retainership to a lawyer as a lump sum fee-Board Resolution

 

            "RESOLVED that M/s be appointed as Lawyers for the Company on and from   at a retainer ship of Rs .             perquarter."

 

PRACTICE NOTES

 

See under Resolution No. 606.

 

Authorisation to Secretary to handle legal action

 

S. 291-Authorisation regarding legal action-Board Resolution

 

"RESOLVED that Mr. A.B., Secretary of the Company be and is hereby authorised to institute or defend legal proceedings, civil or criminal, for and on behalf of the Company and for this purpose, to verify, sign, affirm and/or present pleadings, petitions, affidavits, statements and vakalatnamas, engage counsel and tender evidence both oral and documentary in this connection."

 

PRACTICE NOTES

 

Same as given under Resolution No. 606.

 

Settlement of legal dispute

 

S. 291-Auth.orityfor settlement of legal dispute-Board Resolution

 

"RESOLVED that the legal dispute between XYZ Ltd. and the Com­pany pending as civil suit No . ……on the file of    Court, be and hereby is settled on the following terms namely:­

 

RESOLVED FURTHER that Shri AB, the Secretary of the Company be and is hereby authorised to sign all necessary papers to enable the company's lawyers to obtain a consent order of the court on the basis of the above settlement."

 

PRACTICE NOTES

 

Same as given under Resolution No. 606.

 

Authorisation to Managing Director to incur capital expenditure

 

S. 291-Authorisation to Managing Director to incur capital expenditureBoard Resolution

 

"RESOLVED that Mr. A.B., the Managing Director of the Company, be and is hereby empowered to incur expenditure of a capital nature, subject to a maximum limit of Rs ……during one financial year."

 

PRACTICE NOTES

 

1. Authorisation to Managing Director to incur capital expenditure.-Without a resolution to this effect, the Managing Director, unless his agreement or the resolution appointing him empowers to this effect, cannot incur capital expenditure without the concurrence of the Board.

 

Revaluation of fixed assets

 

Ss. 291/210-Revaluation of fixed assets-Board Resolution

 

"RESOLVED that the fixed assets of the Company, mentioned below, being unrepresentative of the value these can fetch under the prevailing market price, especially the land and buildings which were acquired and constructed, be and are hereby revalued as per the recommendation of M/s. DBC & Company, the valuers and architects, who were appointed some months back and whose valuation report is hereby tabled and accepted:

 

Situated at                                 Present book                             Revised

value                                        Value

            Rs.                                           Rs.

 

            1. Land under Dag No               4,00,000                                    20,00,000

measuring

            2. Land under Dag No               6,50,000                                    34,00,000

            Measuring

 

RESOLVED FURTHER that the appreciation as above over book value be transferred to Capital Reserve Account of the Company and that such reserve should not be utilised until such measures are taken as are provided in article ... of the Articles of Association of the Company .

 

PRACTICE NOTES

 

1. Interpretation of Capital Reserve.-In Clause (c) of paragraph 7 of Part III of Schedule VI of the Act it is stated that capital reserve shall not include any amount regarded as free for distribution through the profit and loss account.

 

2. Utilisation of revaluation of assets.-For listed companies the reserve created out of revaluation of assets cannot be used for issue of bonus shares.

 

Resolution constituting attorney for signing pleadings and representing the company in legal proceedings

 

S. 291-Constitution of attorney for signing pleadings and representing the company in legal proceedings-Board Resolution

 

"RESOLVED that Mr. A.B., the Works Manager of the Company be and is hereby authorised to sign and execute pleadings, engage counsel, give evidence and to do all other acts necessary in connection with the proposed litigation to be filed by the Company against M/s. Y and Co. Ltd."

 

PRACTICE NOTES

 

Authorisation to an employee to sign pleading and to represent Company in litigation.-Generally the Directors of the company as its principal officers would represent the company in its litigation. They can, however, delegate this duty to one of its other employee on the above terms.

 

Performance guarantee/guarantees for advance against contract

 

S. 291-Performance guarantee/guarantees for advance against contract­ Board Resolution

 

"RESOLVED that the Company's bankers .        Bank    Branch, Nagpur 440 012, be and is hereby requested for the issue of a guaran­tee for rupees twenty-five lakhs in favour of Heavy Corporation, Hardwar, U.P., incorporating in the said guarantee certain specific terms, as may be required by the said Corporation, for the purpose of negotiating a contract with them for commissioning on turnkey basis a chemical plant by  ……2002            for a contracted amount of Rs. 5.50 crores, the terms and details of which are incorporated in the draft agreement to be entered into between the Company and the Corpora­tion, and submitted to this meeting.

 

RESOLVED FURTHER that Mr  ……and Mr ……the Directors of the Company, be and are hereby jointly authorised to execute and sign such counter- guarantee for an equivalent amount in favour of the Bank, in the form as required by the said Bank."

 

PRACTICE NOTES

 

1. Request to Bank for issuance of guarantee.-Issue of guarantee by banks in favour of a customer of a company is a common feature, and usually a limit up to which total guarantees may be issued in favour of different customers is negotiated within the overall credit limit granted to the company under composite security arrangement. In' most of the cases, the issue of each bank guarantee should be authorised by a Board resolution specifying the amount and the party in favour of whom the guarantee is to be issued. The bank, in addition to any security to cover the issue of the guarantee, may require the issue of guarantee to be supported by a counter-guarantee executed by the company under proper authority.

 

Fixation of selling price: MRTP Act

 

S. 291-Of the Companies ActlS.33 of the MRTP Act - Resale Price Maintenance

 

"RESOLVED that the Sales Manager of the Company be and is hereby authorised to fix the Company's selling price in such a way that the retailers may have liberty to sell the various products of the Company within the maximum selling price prescribed by the Company and marked on the package or wrapper to such goods so that the fixation of rate does not lead to restrictive trade practices within the provisions of the Monopolies and Restrictive Trade Practices Act, 1969."

 

PRACTICE NOTES

 

1. Fixation of retail selling price.-A price list to maintain the minimum selling or retaining price amounts to restrictive trade practice within the provisions of the Monopolies and Restrictive Trade Practices Act, 1969, and, therefore, the company should maintain only a maximum retail selling price to avoid the mischief of the restrictive trade practices under that Act.

 

Reference to the solicitors for legal action

 

S. 291-Reference to the solicitors for legal action-Board Resolution

 

"WHEREAS the Company's debtor, M/s. RST & Company Limited, is not paying its debts in spite of vigorous persuasion and follow up by the Company for the last two years;

 

AND WHEREAS the debt is doubtful of recovery. and legal action for the realisation of the debt is needed;

 

NOW THEREFORE IT IS RESOLVED that relevant papers be handed over to the solicitors of the Company to apply to the Court for the winding up of M/s. RST & Company Limited and realise the assets there from in satisfaction of the debts of the Company.

 

RESOLVED FURTHER that Mr . ……or Mr  ……the Directors of the Company, individually be and is hereby authorised to swear af­fidavit and sign any document required by the solicitors and do all and everything for the implementation of the legal action considered hereinabove."

 

PRACTICE NOTES

 

1. Initiation of action for realisation of debts.-One of the very common grounds under which action for realisation of debts is initiated against a company is a provision pursuant to section 433, clause (f), which entitles the creditor to apply to the Court for winding up and realisation of assets for the satisfaction of debt. Clause (f) is a ground for winding up of the company, if it could be proved that 'the company is unable to pay its debts.'

 

2. Winding up not to be used as a method of recovery.-Quite often, however, the Court does not favour this method to be utillsed merely as a means for reallsing debts due from a company. Bukhtearpur Bihar Light Rly. Co. Ltd. v. Union of India, AIR 1954 Cal 499.

 

Agreement with the employees' union

 

S. 291-Agreement with the employee's union-Board Resolution

 

"RESOLVED that approval be and is hereby accorded to the agreement made between the company and the employees' union for a period of three years from the date of execution thereof, as per the draft of a memorandum of agreement between the company on the one part and the employees' union on the other part, codifying the conducts of employer-employee relationship, the procedure for promotion and increment, office hours and discipline and procedure for mutual settlement of disputes without resorting to strike or lock-out, etc., placed before this meeting.

 

RESOLVED FURTHER that Mr ……or Mr……the Director of the Company, be and is hereby authorised to sign such memorandum of agreement with the employees' union with authority to vary, modify, correct or rectify the portions necessary in such agreement at his/their absolute discretion."

 

PRACTICE NOTES

 

1. No requirement to execute Agreement with employees' union under Common Seal.-The memorandum of agreement with the employees' union is not required to be executed under the common seal of the company but through one or more authorised representative(s) empowered by the Board to sign such agreement on behalf of the company, the other signatories obviously being the President/Secretary or any other representative(s) of the employees' union.

 

Exercise of lien on shares

 

S. 291/Regn. 9- Exercise of lien on shares-Board Resolution

 

"RESOLVED that pursuant to Article  ……of the Articles of As­sociation of the Company, the right of lien on 100 ordinary equity shares having consecutive numbers   to  …… (both inclusive), held by and registered in the name of Mr. CDE and comprised in share certificate No  ……be exercised by the Company in view of the non-payment of the final call of Rs  ……per share made on   ……2002, …… and payable on or before  2002

 

RESOLVED FURTHER that until the amount outstanding on account of the final call is paid, the dividends payable on such shares be retained by the Company and applied towards the amount so outstanding and that the Secretary of the Company be asked to send necessary notice of such lien to Mr. CDE, the holder of such shares, and secure possession of the aforesaid share certificate to be retained in the custody of the Company."

 

PRACTICE NOTES

 

1. Exercise of lien on shares.- Regulation 9 of Table 'A' provides for the company's power of lien which is always first and paramount for any debts due by such member (shareholder) to the company.

 

2. Lien effective on partly paid shares only.-The lien is effective only on partly paid shares.

 

3. Directors empowered to exempt any share from lien.-The Board of Directors may at any time declare any share to be wholly or in part exempt from the provision of this clause.

 

Enforcement of lien by sale of shares

 

S. 291/Reg. 12-Enforcement of lien by sale of shares-Board Resolution

 

"RESOLVED that shares numbered  ……to ……(both inclusive), be and are hereby sold at the ruling market price and that Mr ……Director of the Company, be authorised to execute the necessary transfer deed as the transferor, pursuant to article of the Articles of Association of the company."

 

PRACTICE NOTES

 

1. Articles must contain power for enforcement of lien.- Power for enforcement of lien must be contained in the articles of the company. In the absence of such power, then can only be enforced through a suit in a Court of law. Lien and forfeiture are different rights exercisable by a company for non-payment of calls. Thus, after enforcement of forfeiture of shares, exercise of lien and action to precipitate such right is not possible.

 

2. Enforcement of lien by sale of shares does not amount to selling by company of its own share.-Sale in this case does not amount to selling by the company of its own shares under section 77 as there is no reduction of capital.

 

Fees on registration of documents

 

S. 291/Reg. 24-Fees on registration of documents-Board Resolution

 

"WHEREAS clause 9 of the Listing Agreement entered into with the Bombay Stock Exchange Association, requires the Company not to charge any fees in this behalf.

 

NOW THEREFORE IT IS RESOLVED that fee for registration of probate, letters of administration, death certificates relating to any member/debenture- holders, certificate of marriage and powers of attorney in relation to any matter submitted to the Company be not charged.

 

RESOLVED FURTHER that the Article  ……of the Articles of Asso­ciation of the Company conferring power on the company to charge fees in such events, be suitably amended by calling a General Meet­ing, in conformity with clause 9 of the Listing Agreement entered into with the Bombay Stock Exchange."

 

PRACTICE NOTES

 

1. Listing Agreement enforceable only after its execution.- The clauses of the Listing Agreement are enforceable after execution of the agreement for listing of shares. This is in spite of the contrary provision in the Articles of Association of the company which should then be amended.

 

Reimbursement of Traveling Expenses to Directors

 

S. 291/Regn. 65-Reimbursement of Traveling Expenses to Directors- Board Resolution

 

"RESOLVED that reimbursement by the Managing Director of the sum of Rs. 35,000/­representing to and for Air fare and out of pocket expenses to Shri BCP, the Director of the company for attending the 35th Board Meeting held on 25th July, 2002, at Delhi be and is hereby ratified and confirmed."

 

PRACTICE NOTES

 

1. Power for reimbursement in Articles.-The power for reimbursement of traveling and out of pocket expenses must be available in the Articles of Association of the company.

 

2. Expenses to be reimbursed.- Directors may be reimbursed only the actual expenses incurred by them in attending the Board Meeting.

 

3. Term 'remuneration' does not include traveling expenses.-The remuneration under section 309 of the Companies Act, 1956, does not include traveling expenses.

 

4. Express provision in the Articles for reimbursement of traveling expenses etc.-Unless there is express provision in the Articles of a company, the Directors will not be entitled to traveling expenses etc. Young v. Naval Military and Civil Service Cooperative Society of South Africa, (1905) 1 KB 687.

 

5. Payment not unauthorised if sanctioned by a resolution.-If a company sanctions the payment by a resolution the payment cannot be said to be unauthorised. Sugar Automotive P. Ltd. v. CIT, M.P.I., (1984) 55 Comp Cases 141.

 

Reimbursement of Traveling and out of pocket expenses

 

S. 291/Regn. 65-Reimbursement of expenses to directors-Board Resolution

 

"RESOLVED that reimbursement of the sum of Rs. 20,000/- to Shri. RLM, Director of the Company towards traveling and out-of-pocket expenses for attending the Board Meeting of the Company held on  ……by……the Managing Director be and is hereby approved."

 

PRACTICE NOTES

 

1. Payment of traveling expenses etc., to Directors for attending Board Meeting.-In addition to the remuneration payable to directors, they may be paid all traveling, hotel and other expenses incurred by them in attending and returning from meetings of the Board of Directors or any committee thereof or general meeting of the company.

 

2. Reimbursement of expenses in connection with business of company.-The directors shall also be reimbursed expenses incurred by them in connection with any business of the company.

 

Reimbursement of expenses to Directors

 

S. 291/Reg. 65-Reimbursement of expenses to Directors-Board Resolution

 

"RESOLVED that approval be and is hereby accorded to the reim­bursement of traveling expenses and out-of-pocket expenses as per the bill for Rs . ……for attending Board meeting held on the  2002 to Mr  ……a Director of the Company."

 

PRACTICE NOTES

 

1. Reimbursement of traveling and out-of-pocket expenses to Directors.-Directors are entitled to be reimbursed of the traveling and out-of-pocket expenses for attending a Board Meeting. The Whole-time Directors, however, would not be entitled to any such out-of-pocket expenses except the remuneration sanctioned by the company/Government.

 

Insurance of company's property

 

S. 291-Insurance of company's property-Board Resolution

 

"RESOLVED that the Policy of Insurance covering the Company's factory, buildings, plant, machinery and stocks against fire and flood are placed before the meeting duly initialed by the Chairman, be and is hereby approved and Mr. A.B., a Director of the Company be and is hereby empowered to execute the Policy of Insurance under the common seal of the Company.

 

RESOLVED FURTHER that the Secretary of the Company is hereby directed to issue a cheque favouring the Insurance Company in respect of the premium due on the policy."

 

PRACTICE NOTES

 

1. Renewal of Insurance.- Renewal of insurance policies of the company is a regular annual event and therefore can be done on the basis of a blanket board resolution.

 

2. Passing of resolution by circulation.- The aforesaid resolution can be passed by circulation under section 289 of the Act.

 

Approving budget of the company

 

S. 291-Approval of budget-Board Resolution

 

"RESOLVED that the annual budget of the Company in respect of advertising and publicity expenditure for the period   to be and is hereby approved."

 

PRACTICE NOTES

 

1. General powers of the Board.- The Board of Directors of a company is entitled to exercise all powers and to do all acts on behalf of the company as the company is authorised to do except those required to be done by the company in general meeting.

 

2. Committee of the Board.- The budget of the company is usually approved by the Budget Committee of the Board formed by the Board under section 292. As per paragraph 2.2 of Secretarial Standard 1, Committees of the Board should meet at least as often as stipulated by the Board or as prescribed by any other authority.

 

Approval of Budget

 

S. 291-Approval of budget-Board Resolution

 

"RESOLVED that the budget for the year ended 31st March, 19... in respect of the following items be and is hereby approved:

 

ITEMS                                                 BUDGETED AMOUNT

 

1. Production                                                     Rs. 50,00,000

 

            2. Sales expenses                                              Rs. 10,00,000

 

RESOLVED that the sales/production, etc. Budget for the year ended ............... I for a total sum of Rs.  submitted by Shri  manager and initialled by the Chairman for identification be and is hereby approved."

 

PRACTICE NOTES

 

Same as given under Resolution No. 641.

 

Ratification of act of Managing Directors

 

S. 291-Ratification of act of Managing Directors-Board Resolution

 

"RESOLVED that the borrowing of a sum of Rs . ……by the Man­aging Director of the Company from financial institution on the terms and conditions set out in the General Form of Loan Agreement, a copy of which is placed before the meeting, duly ini­tialed by the Chairman for purposes of identification thereof, be and is hereby ratified and approved.

 

RESOLVED FURTHER that Mr. A.B. and Mr. C.D. Directors of the Company be and are hereby jointly authorised to sign and execute the loan documents, under the common sea] of the Company, in the manner provided in the Articles of Association of the Company."

 

PRACTICE NOTES

 

1. Renewal of Insurance.-Renewal of insurance policies of the company is a regular annual event and therefore can be done on the basis of a blanket board resolution.

 

2. Passing of resolution by circulation.-The aforesaid resolution can be passed by circulation under section 289 of the Act. While passing this resolution by circulation paragraphs 6.1, 6.2, 6.3 and 6.4 of Secretarial Standard 1.

 

Revision of salary scale pursuant to agreement

 

S. 291-Revision of scales of pay pursuant to agreement with employees-Board Resolution

 

"RESOLVED that approval be and is hereby accorded to the revision in the scales of pay of Class I Employees in terms of the agreement entered into between the Company and the employees' union, a copy of which is placed before the meeting, duly initialed by the Chairman."

 

PRACTICE NOTES

 

1. Delegated to the committee.-Revision of pay scales of employees and other important personnel matters are usually delegated to a committee called wage payment committee and need not be handled by the board of directors itself.

 

2. Passing of resolution by circulation.-The aforesaid resolution can be passed by circulation under section 289 of the Act.

 

Application of reserves for meeting expenses

 

S. 291/Regn. 87-Transferfrom reserves-Board Resolution

 

"RESOLVED that a sum of Rs ……be and is hereby transferred from the general reserves of the company to its profit and loss account for the purpose of being utilised to write off the preliminary expenses of the company."

 

PRACTICE NOTES

 

1. General Powers of the Board.-The Board of Directors of a company is entitled to exercise all powers and to do all acts on behalf of the company as the company is authorised to do except those required to be done by the company in general meeting.

 

2. Application of share premium account.-In writing off the preliminary expenses of the company, the amount in the share premium account can also be utilised under section 78(2)(b).

 

Transfer of amount from general reserve to Profit and Loss Account

 

S. 291/Regn. 87-Transfer of amount from general reserve to profit and loss account-Board Resolution

 

"RESOLVED that the following amounts be and hereby are transferred from the general reserve of the Company to the profit and loss account of the Company for the purposes indicated below:

 

            1. Rs . -Preliminary expenses

            2. Rs . -Goodwill written off."

 

PRACTICE NOTES

 

1. General Powers of the Board.-The Board of Directors of a company is entitled to exercise all powers and to do all acts on behalf of the company as the company is authorised to do except those required to be done by the company in general meeting.

 

2. Application of share premium account.-In writing off the preliminary expenses of the company, amount in the share premium account can also be utilised but not for writing off goodwill.

 

Transfer of amount to general reserve

 

S. 291/Regn. 87-Transfer of amount to General Reserve Account-Board hesoluti6n

 

"RESOLVED that a sum of Rs . ……be transferred to the General Reserve out of the profits of the year ended 31-3-2002 in compliance with Rule 2 of the Companies (Transfer of Profits to Reserves) Rules, 1975."

 

PRACTICE NOTES

 

1. Prohibited by the Rules.-The Companies (Transfer of Profits to Reserves) Rules, 1975 prohibits the declaration or payment of dividend unless a minimum percentage transferred to the Reserves.

 

Assigning duties to principal officer called but not really Directors

 

S. 291-Assigning duties to principal officer called but not really Directors Board Resolution

 

"RESOLVED that the senior officers of the Company holding the position of departmental Managers be designated as Sales Director, Production Director, Personnel Director, Accounts & Finance Director, it being clearly understood that such Directors shall not be construed and, in fact, shall not be 'Directors' within the meaning of the Companies Act, 1956 or any other statute nor shall they have any of the power(s) of a Director within the meaning of the Companies Act, 1956 or any other statute, and that the liability of the aforesaid departmental Directors be limited to the terms of the agreements only between the persons concerned and the Company and that they shall not be subject to any of the liabilities of the Directors under the Companies Act, 1956, or any other statute in force from time to time.

 

RESOLVED FURTHER that the appointment, removal and fixing the terms and conditions of appointment of the aforesaid departmental Directors shall be determined by the Board and that the departmental Directors, as aforesaid, shall not have any right if access to the books of the Company except in the course of their official duties without specific sanction of the Board of Directors.

 

RESOLVED FURTHER that the Board of Directors, at their discretion, may choose to invite any of such departmental Directors to attend Board Meeting to explain only such matters as they may be called upon to apprise and that such Directors shall have no power otherwise to participate in discussion or deliberation of the Board Meeting nor have any right to vote thereat."

 

PRACTICE NOTES

 

1. Designating heads of Departments as departmental Directors.-There is no such term as 'departmental directors' in the Companies Act, 1956 and the appointment of departmental Directors as such is not regulated by the Companies Act except as provided in S. 292. In some companies it is quite common to designate the senior officers, who are heads of departments, as Directors for the departments. Following the American pattern of corporate management, the practice of designating senior officers as President and Vice-President is also quite common. In effect, if the powers exercised by the 'President' are equivalent to those of a Manager or Managing Director, and it is designed to remunerate a person as 'President', the company should comply with the formalities of appointment and remuneration of managerial personnel under the Companies Act, 1956.

 

Opening and operating bank account

 

S. 291-Opening & operating bank account-Board Resolution

 

"RESOLVED that an account in the name of the Company be opened with the     Bank at and that Mr …… and Mr ……the Di­rectors of the Company, be and are hereby authorised jointly to sign the necessary forms and documents in this behalf.

 

RESOLVED FURTHER that the Bank be instructed to honour all cheques, promissory notes, and other orders drawn by and all bills accepted on behalf of the Company whether such account be in credit or overdrawn, and to accept and credit to the account of the Company all moneys deposited with or owing by the Bank of any account or accounts at any time or times kept or to be kept in the name of the Company and the amount of all cheques, notes, bills, other negotiable instruments, orders or receipt, provided they are endorsed/signed individually by Mr …… and Mr ……the Directors of the Company, and Messrs. PNX, XYZ, NMD, the authorised signatories for the time be­ing of the Company on behalf of the Company and such signature(s) shall be sufficient authority to bind the Company in all transactions between the Bank and the Company including those specifically referred to herein.

 

RESOLVED FURTHER that Mr  ……and Mr ……the Directors of the Company and Messrs. PNX, XYZ, NMD, the authorised signato­ries of the Company, be and are hereby authorised jointly to withdraw and deal with any of the Company's securities or properties or docu­ments of the title thereto which may be deposited with the Bank from time to time whether by way of security or otherwise.

 

RESOLVED FURTHER that the persons hereinabove, be and are hereby authorised jointly to -acknowledge all types of debts on behalf of the Company.

 

RESOLVED FURTHER that the Company, through their authorised persons as mentioned hereinabove, be and are hereby authorised to borrow from time to time as may be required from the aforesaid Bank by way of cash credit, loan, overdraft, discounting of bills,.opening of letters of credit (inland and/or foreign) releasing of documents against receipts, signing or counter-signing of guarantees, and under any other type of credit line or facility up to an amount of Rs. 1,00,00,000/- in the aggregate.

 

RESOLVED FURTHER that Mr  ……and Mr ……      the Di­rectors of the Company, be and are hereby  authorised jointly to sign, seal, get registered and deliver on behalf of the Company, all docu­ments and forms relating to all its advances and credit facilities as aforesaid as also for lodgement and withdrawal of securities in ac­ counts of the Company, and to secure such advances temporarily or otherwise against pledge, mortgage, charge, hypothecation in lieu of all future and present stock of raw materials, stores, work-in-progress, finished goods, and book debts and of all or any other properties of the Company, movable or immovable, and such other securities including goods that may be acceptable to the bank in such form or forms as may be required by the Bank, and to sign any instruments/instructions, indemnities and counter-indemnities which may be required by the Bank from the Company in connection with the Company's business.

 

RESOLVED FURTHER that Mr  ……and Mr . ……the Directors of the Company, be and are hereby authorised jointly to exer­cise the powers vested in them by the resolution in addition to such powers as may be conferred on them individually by virtue of the Powers of Attorney already granted to them or by virtue of any provi­sions contained in this behalf in the Memorandum and the Articles of Association of the company.

 

RESOLVED FURTHER that Mr  ……and Mr ……      the Directors of the Company, be and are hereby authorised jointly to affix the com­pany's seal on the documents in terms of article of the Articles of Association of the Company.

 

RESOLVED FURTHER that the Bank be furnished with a copy of the Memorandum and the Articles of Association of the Company and a list of the names and specimen signatures of the Directors and other officers of the Company, as authorised hereinabove, to sign on behalf of the Company and be informed from time to time by a notice in writing signed by the Chairman, of any changes which may be made in this behalf so as to entitle them to act upon such notice until the receipt of further notice signed by the Chairman.

 

RESOLVED FURTHER that a copy of any resolution of the Board purported to be certified as correct by the Chairman of the meeting shall, as between the bank and the Company, be conclusive evidence of passing of the resolution so certified.

 

RESOLVED FURTHER that a copy of these resolutions be sent to the Bank, which resolutions shall remain in force until notice of their withdrawal, change or cancellation is given to the Bank in the manner hereinbefore mentioned, in writing, by or under the authority of the Chairman of the Company.

 

RESOLVED FURTHER that the borrowings of the Company under the above resolutions are within the borrowing powers of the Directors, and that no restrictions and conditions on the exercise of such borrowing power exist or have been imposed by the Company in a General Meeting.

 

RESOLVED FURTHER that the borrowings of the Company under the above resolutions are within the unexhausted borrowing powers of the Company, or within the powers conferred by resolution passed by the shareholders of the Company at a duly convened General Meeting authorising the Board of Directors of the Company to borrow in excess of the aggregate of the Company's paid-up capital and free reserves.

 

RESOLVED FURTHER that no debentures have been issued by the Company creating a floating or specific charge on the securities which may be deposited against advance to be taken in pursuance of the above resolution nor is there a prior charge thereon in favour of any bank or lender for raising any other advance."

 

PRACTICE NOTES

 

1. Private Company may provide additional disqualifications.-A private company, which is not a subsidiary of a public company, can provide in its articles, additional grounds other than those provided in section 283 on which a Director should vacate office.

 

2. When additional ground has effect of removing director power to be exercised at general meeting.-When any such additional ground mentioned in its articles has the effect of removing a Director, then that power should only be exercised in its General Meeting and any such power given to the Board by the articles will be ineffective by virtue of section 9.

 

3. Leave of absence to director.- It is customary for the Board to grant leave of absence to the Director even without any formal request being made by the Director in this behalf. If such leave of absence is not granted, the Board should record reasons for not doing so.

 

Agreement with depository for dematerialisation of shares

 

S. 291-Agreement with depository for dematerialisation of shares-Board Resolution

 

WHEREAS the company has received a direction from the Securities and Exchange Board of India dated             2002 asking the com­pany to dematerialise its share with effect from  ……2002;

 

AND WHEREAS the company approached the National Securities Depository Ltd. to be the depository of the company to hold its shares in the dematerialised form;

 

AND WHEREAS the said National Securities Depository Ltd., has agreed to be the depository of the company.

 

NOW, THEREFORE, IT IS RESOLVED that a bipartite agreement as per the draft given by the bye-laws of the said depository and placed before this meeting initialed by the Chairman for the purpose of identification be and is hereby entered into.

 

RESOLVED FURTHER that the Secretary of the company be authorised to sign the said agreement on behalf of the company and other documents and papers as may be necessary from time to time in connection therewith and incidental or ancillary thereto.

 

PRACTICE NOTES

 

1. Bye-laws of the depository.- When a company is required to dematerialise its shares in fungible form under the directions of the SEBI, it is required to enter into an agreement with a depository to be appointed for this purpose. The said agreement should be as per the specimen given in the bye-laws of the depository and can be either bipartite or tripartite. The tripartite agreement has to be entered into where the concerned company has appointed a Registrar to the issue or share transfer agent for processing its share transfer work.

 

2. Entering the name of depository in the register of members.-Once the shares are dematerialised in the fungible form certificate of securities are surrendered to the company by the participant on behalf of the beneficial owners. On receipt of the certificates of securities the company should mutilate and cancel them and substitute in its record being the register of members, the name of the depository as the registered owner. The company should also send a certificate to the concerned depository appointed by the company as well as every Stock Exchange where the securities are listed as to, the receipt, mutilation and cancellation of certificates of securities.

 

3. Certain provisions of the Act not applicable-Sections 153, 153A, 153B, 187B, 187C and 372 of the Companies, Act, 1956 are not applicable to depository in respect of securities held by it on behalf of the beneficial owners.

 

External commercial borrowing of US $ 50 million under Automatic route

 

S. 291-External commercial borrowing of US $ 50 million under Automatic route -Board Resolution

 

WHEREAS the company is proposing to expand its existing capacity from 30,000 tons to 50,000 tons;

           

AND WHEREAS the said expansion is proposed to be financed by obtaining external commercial borrowing of US $ 50 million by way of bank loans;

 

NOW THEREFORE, IT IS RESOLVED that external commercial borrowing of US $ 50 million be and is hereby obtained from ..............

 

RESOLVED FURTHER that the Secretary of the company be and is hereby authorised to submit through the company's authorised dealer 3 copies of the loan agreement of the Regional Office of the Reserve Bank of India, New Delhi after signing the same with the lender, enclosing necessary documents and papers and to do each and everything that may be necessary in connection therewith or ancillary or incidental thereto.

 

PRACTICE NOTES

 

1. Maturity period.-The maturity period of ECB should not be less than three years and the choice of repayment schedule within the said maturity period of three years should be decided by the company in advance and mentioned in the application made to the RBL From 14th June, 2000 the average maturity of ECBs for the purpose of ECB Guidelines shall be weighted average of all disbursements taking each disbursement individually and its period of retention by the borrower.

 

2. Choice of currency and security of the ECB.-Choose in advance the currency of the loan to be obtained by way of ECB and also the basis of interest rate on it whether floating or fixed and mention the choice in the application to the RB1. The security to be provided to the lenders of the ECB should also be decided prior to the making of the application in consultation with the lenders and the proceeds of ECB should not be utilised for investment in stock market or for speculation in the real estate.

 

3. The validity period of ECB approval.-The ECB approval is valid for a period of six months, i.e., the executed copy of the loan agreement should be submitted within this period. Only in case of power project the authority of the approval will be a period of one year. No extension of validity period is allowed but a fresh application can be submitted after expiry of one month. Bonds, debentures, FRNs and other such instruments will have additional validity period of 3 months for all the ECB approvals across the board. [Press note dated 5-5-1999].

 

4. ECB Guidelines revised.-(1) Change made in structured obligation of ECB Guidelines to the effect that henceforth denomination of debt service in a post-default situation may be in rupees or in forex as envisaged initially in the contract document. (2) ECB Guidelines earlier gave flexibility to domestic investors to raise ECBs upto a maximum of USD 50 million, now it has been enhanced to USD 200 million to finance equity investment in downstream infrastructure projects. (3) Prepayment of ECBs have been now permitted 100% prepayment where the source of funds is from EEFC accounts. From 14th June 2000, all prepayment approvals of given by RBI as per prevailing guidelines on prepayment even in cases where ECBs have been approved earlier by the Ministry of Finance. (4) 100% EOUs will be permitted to have foreign currency exposure up to 60% of the project cost. (5) End-use relaxation has been given to the effect that henceforth ECB's can be used for any purpose except investment in real estate and in capital markets. (6) All infrastructure projects will be permitted to have ECB exposure of 50% of the project cost which was 35% earlier. Greater flexibility beyond 50% of the project cost may be allowed based on merits. Corporate are eligible to enter into loan agreements with overseas lenders for raising. (7) ECB for an amount upto US $ 50 million or for refinancing an existing ECB and for this they are not required to obtain any prior approval for raising ECB.

 

5. ECB prepayment freed.-The RBI on 5th August 2002, announced prepayment of external commercial borrowings (ECB) to be put on automatic route and would be effective till March 31, 2003. Corporate can make the prepayment of ECB without any cap provided that such outflow is matched by its forex inflows in the form of foreign investment in the company. Corporate can also make such prepayment without any cap out of its Export Earners' Foreign Currency Accounts. The RBI has also allowed prepayment of ECBs to the extent of 10% of the outstanding loan once during the entire duration of the loan. Besides the automatic route can also be taken by those where the residual maturity of the loan does not exceed one year. For these two categories, the RBI has capped the prepayment at $ 50 million.

 

External commercial borrowing of more than US $ 50 million and upto 100 million

 

S. 291- External commercial borrowing of more than US $ 50 million and upto 100 million-Board Resolution

 

WHEREAS the company is proposing to expand its existing capacity from 50,000 tons to 70,000 tons;

 

AND WHEREAS the said expansion is proposed to be financed by obtaining external commercial borrowing of US $ 100 million by way of bank loans;

 

NOW, THEREFORE, IT IS RESOLVED that external commercial borrowing of US $ 100 million be and is hereby obtained by making an application to the Reserve Bank of India, Exchange Control Department Central Office Mumbai.

 

RESOLVED FURTHER that the Secretary of the company be and is hereby authorised to make the aforesaid application in the prescribed format enclosing necessary documents and papers and to do each and everything that may be necessary in connection therewith or ancillary or incidental thereto.

 

PRACTICE NOTES

 

1. Application to the RBI.-For raising ECB more than $ 50 million but up to $ 100 million an application is to made to the Reserve Bank of India in a prescribed format to be obtained from the RBI. Automatic route is not available to raising of ECB more than $ 50 million.

 

External commercial borrowing of more than US $ 100 million

 

S. 291-External commercial borrowing of more than US $ 100 million-Board Resolution

 

WHEREAS the company is proposing to make a new investment by putting up a new plant at village             District in the State of Uttar Pradesh;

 

AND WHEREAS the said new investment is proposed to be financed by obtaining external commercial borrowing of US $ 100 million by way of supplier's credit;

 

NOW, THEREFORE, IT IS RESOLVED that external commercial borrowing of US $ 100 million be and is hereby obtained by making an application to the Joint Secretary (ECB), Department of Economic Affairs, Ministry of Finance, North Block, New Delhi-110 001;

 

RESOLVED FURTHER that the Secretary of the company be and is hereby authorised to make the aforesaid application in the prescribed format enclosing necessary documents and papers and to do each and everything that may be necessary in connection therewith or ancillary or incidental thereto.

 

PRACTICE NOTES

 

1. Maturity period.- The maturity period of ECB should not be less than five years and the choice of repayment schedule within the said maturity period of five years should be decided by the company in advance and mentioned in the application made to the Ministry of Finance.

 

2. Choice of currency and security of the ECB.-Choose in advance the currency of the loan to be obtained by way of ECB and also the basis of interest rate on it whether floating or fixed and mention the choice in the application to the Ministry of Finance. No application fee is required to be paid for this application. The security to be provided to the lenders of the ECB should also be decided prior to the making of the application in consultation with the lenders and the proceeds of ECB should not be utilised for investment in stock market or for speculation in real estate.

 

3. The validity period of ECB approval.-The ECB approval is valid for a period of six months, i.e., the executed copy of the loan agreement should be submitted within this period. Only in case of power project the authority of the approval will be a period of one year. No extension of validity period is allowed but a fresh application can be submitted after expiry of one month. Bonds, debentures, FRNs and other such instruments will have additional validity period of 3 months for all the ECB approvals across the board. [Press note dated 5-5-1999].

 

Allotment of fractional shares in a bonus issue

 

Ss. 291/81/Regn. 96-Table A-Allotment of fractional shares in a bonus issue-Board Resolution

 

"RESOLVED that in terms of the resolution of the general body passed at the Extraordinary General Meeting of the company held on  ……an aggregate of new equity share representing frac­tions in the bonus issue, be and are hereby consolidated into market­ able lots of  ……equity shares and allotted to Mr. A.B. a trustee of XYZ Trust for sale at prevailing market prices.

 

RESOLVED FURTHER that the net sale proceeds after defraying the expenses of the sale be distributed to the shareholders entitled to fractional shares in proportion to their respective holdings."

 

PRACTICE NOTES

 

1. Adherence to Department of Company Affairs Guidelines.-The Guidelines dated 8th October, 1993, for creation of Trust for disposal of odd lot of share be properly adhered to.

 

2. Company's duty to check records of the Trustee.-The books of the trustee should be closely monitored by the company and, it should also maintain surveillance on the books of the trustee.

 

Recommendation of bonus issue

 

Ss. 291/81/Regn. 96-Recommendation of Bonus Issue-Board Resolution

 

"RESOLVED that subject to the approval of ' shareholders in General Meeting a sum of Rs ……from and out of the General Reserves of the Company be capitalised and applied in payment of  ……No. of Equity Shares of Rs. 30/- each forming part of Un-issued Capital which shares shall be allotted as bonus shares to the Members of the Company in the proportion of  ……Bonus Shares for every  No. of Equity Shares held by the Member on a date to be determined by the Board of Directors of the Company. Fraction be ignored and that such bonus shares shall rank pari passu in all respects with the existing equity shares of the company including entitlement for any dividends that may be declared in respect of the year ending.

 

RESOLVED FURTHER that an Extraordinary General Meeting called for and held on  ……at Hrs  ……to consider and pass necessary resolution for giving effect to this recommendation."

 

PRACTICE NOTES

 

1. Provision of bonus shares not necessary in the Articles.-Proviso to sub-section (3) of section 205 of the Act provides for capitalisation of profits and reserves of a company for the purpose of issuing fully paid bonus shares or paying up any amount, for the time being unpaid on any shares held by the members of the company. Since such a provision is already present in the Act, specific provision need not be there in the Articles of Association of the Company.

 

2. What reserves can be applied for issue of bonus shares.-The share premium account and the capital redemption reserve account should only be applied in the paying up of un issued shares to be issued to members of the company as fully paid bonus shares.

 

Recommendation of bonus issue with differential voting rights

 

Ss. 291/86(a)(ii)-Recommendation of bonus issue with differential voting rights-Board Resolution

 

"RESOLVED that subject to the approval of shareholders in General Meeting a sum of Rs  ……from out of the free reserves of the com­pany be capitallsed and applied in payment of      No. of Equity Shares of Rs . ……each with differential voting rights each forming part of the un-issued capital which shares shall be allotted as bonus shares to the members of the company in the proportion of Bo­nus Shares for every  ……No. of Equity Shares held by the mem­ber on a date to be determined by the Board of Directors of the com­pany.

 

RESOLVED FURTHER that the fraction if any in the aforesaid be ignored and that such bonus shares with differential voting rights be issued in accordance with the terms and conditions prescribed by the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001.

 

RESOLVED FURTHER that an Extraordinary General Meeting be called for and held on  ……at  ……hrs             to consider and pass necessary resolution for giving effect to this recommendation.

 

PRACTICE NOTES

 

1. Pre-requisites for issue of bonus shares with differential voting rights.-The company issuing such shares must be a company limited by shares and it must have distributable profits in terms of section 205 for the 3 financial years preceding the year in which it decides to issue such shares. The company should not have defaulted in filing annual accounts and annual returns for the 3 financial years immediately preceding the financial year in which it decides to issue such shares and it has not failed to repay its deposits or interest thereon on due date or redeem its debentures on due date or pay dividends. The company should not have been convicted of any offence arising under the SEBI Act, 1992, the Securities Contracts (Regulations) Act, 1956 the Foreign Exchange Management Act, 1999 or it has not defaulted in meeting investor grievances. The bonus shares to be issued with differential rights must be equity shares only.

 

2. Postal Ballot.- If the company which is issuing the bonus shares with differential voting rights is a listed company then the approval of the shareholders should be taken through postal ballot.

 

3. Compliance Certificate.-Companies having paid-up share capital of less than Rs. 2 Crores but equal to or more than Rs. 10 lakhs are required to obtain a Compliance Certificate from a secretary in whole-time practice to be filed with the Registrar of Companies mentioning therein inter alia that the company has issued bonus shares with differential voting rights during the financial year and compiled with the provisions of the Act as per paragraph 19 of the Form of Compliance Certificate appended to the Companies (Compliance Certificate) Rules, 2001.

 

Conversion of partly paid into fully paid shares

 

Ss. 291/81/Regn. 96-Conversion of partly paid into fully paid shares Board Resolution

 

"RESOLVED that subject to no objection of the Securities and Exchange Board of India and subject to such terms as it may impose, the sum of Rs  ……standing to the credit of the company's general reserve be capitalised and applied for paying up in full the uncalled liability of Rs  ……per share on the equity share issued by the company."

 

PRACTICE NOTES

 

1. Articles must contain power.-The articles should empower the exercise of such a power.

 

2. SEBIs nod.-The company should get the proposal filed with the Securities and Exchange Board of India (SEBI).

 

3. SEBI (DIP) Guidelines 2000.-Clause 2.7 of the said guidelines provides that no company shall make a public or rights issue of equity shares or any security convertible at later date into equity shares, unless all the existing partly paid-up shares have been fully paid or forfeited.

 

Guarantee given by Directors

 

S. 292-Guarantee given by Directors-Board Resolution

 

"RESOLVED to note that Mr  ……and Mr, ……the Directors of the Company, who are agreeable to give personal guarantee for the re­payment of the credit lines sanctioned by the Bank (and have been ac­cepted by the Bank) would act as the joint and several guarantors such guarantee forming collateral security against the credit lines granted by the        Bank    Branch, Nagpur-440 012."

 

PRACTICE NOTES

 

1. Guarantee given by Directors.- The Reserve Bank of India has reviewed the practice of commercial banks and other financial institutions taking personal guarantees from the Directors and other managerial personnel or sister concerns of borrowing companies while sanctioning loans. In some cases, such guarantees are taken essentially to make up for the insufficiency of tangible security offered or the weak financial position of the borrowing concern. In some other cases, guarantees are taken as a matter of routine even though the financing institutions have the security of the company's tangible assets. An important reason for taking guarantees so far has been the feeling that with the signing of the guarantees, the personal interest of the Directors and other managerial personal in the company IS Strengthened and hence, the banks taking such guarantees can be reasonably confident of the continuity of good management.

 

2. Payment of guarantee commission to directors.- If the Directors giving guarantee receive guarantee commission from the company of which they are Directors and which is the borrowing company then they would be deemed to receive remuneration for rendering service in "any other capacity" within the meaning of s. 309 of the Act.

 

Interest on arrears of call money

 

S. 292(l) W-Interest on call money arrears-Board Resolution

 

"RESOLVED that interest at 13% per annum from 31-3-2002 till date of payment be charged in respect of the arrears of call money due from the shareholders mentioned in the defaulters list, a copy of which is placed before the meeting and initialed by the Chairman, and the Secretary of the Company be directed to inform the shareholders accordingly and issue a Public Notice in this behalf."

 

PRACTICE NOTES

 

Articles to empower company.- This power can be exercised only if permitted by the Articles of Association of the company.

 

Power to make calls

(Another format)

 

S. 292(l)(a)-Power to make calls-Board Resolution

 

"RESOLVED that the second and final call of Rs. 10/- per share be and is hereby made on the holders of 90,000 equity shares of Rs. 10/each in the equity capital of the Company and that the amount of calls be payable on or before 30th September, 2000, at the registered office of the Company or at any Branch of the State Bank of India operating in the Union Territory of Delhi."

 

PRACTICE NOTES

 

1. Restriction in Articles.-Please check up whether there is any restriction in the Articles of Association on the amount to be called at one time.

 

2. Resolution to be passed at Board Meeting and not by circulation.-The resolution has to be passed at a proper Board Meeting held after due notice to Directors and not by circulation.

 

3. Power not to be delegated to committee of Directors/Managing Director.-The power to make calls cannot be delegated to any Committee of Director or Managing Director, etc.

 

4. Listing agreement to be complied with before making calls.-If the shares are quoted on the Stock Exchange, check up the provisions of the Listing Agreement which are to be complied with before making the calls.

 

5. Opening of special call account.-A special call account be opened for this purpose with the bankers of the company and a resolution be passed to this effect.

 

Power to buy-back securities

 

S. 292(1)(aa)-Power to authorise the buy-back of securities-Board Resolution

 

"RESOLVED that the Board of Directors of the Company be and is hereby authorised and shall deemed to have always been so authorised to buy-back   equity shares of the company from the members whose names appear on the Register of Members as on out of the free reserves of the company.

 

RESOLVED FURTHER that the Secretary to the Company be authorised to carry out the buy back procedure as per the provisions of the Companies Act, 1956 and rules and regulations made there under.

 

PRACTICE NOTES

 

Same as given under Resolution No. 245.

 

Power to issue debentures

 

Ss. 292(1)(b)/293(l)(d)-Power to issue debentures-Board Resolution

 

"RESOLVED that the Board of Directors of the Company be and is hereby authorised and shall deemed to have always been so authorised to raise or borrow from time to time at its discretion by issue of redeemable non-convertible debentures of Rs. 100/- each carrying interest at the rate of 15% per annum up to a limit of rupees one crore.

 

RESOLVED that the consent is hereby given to the company raising a loan of Rs. 70,00,000/­by issuing 70,000 redeemable non-convertible debenture of Rs. 100/- each carrying interest @ 10% per annum and securing the same by way of equitable mortgage through the deposit of the title deeds relating to the immovable property of the company, such debentures to be paid on or before 31st December, 2002, at the latest or at any time, at the option of the company after 31st December, 2002 on giving three months' prior notice to the holders of the debentures.

 

RESOLVED FURTHER that the debentures shall be issued, pursuant to the deed of trust to be executed between Messrs ABC Ltd., as trustees and the Company as per draft tabled before the meeting duly initialed by the Chairman for purposes of identification.

 

RESOLVED FURTHER that the said trust deed be executed by the Managing Director of the Company and any one of the Directors of the company under the common seal of the company.

 

RESOLVED FURTHER that after execution of the trust deed, the debentures be offered for public subscription at par, the full amount thereof being payable on application and that the offer be made by way of prospectus in terms of the draft tabled before the Directors, duly initialed by the Chairman for purposes of identification.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby directed to file with the Registrar of Companies a copy of the prospectus and to do all such acts and things as may be required in this connection.

 

RESOLVED FURTHER that the schedule for advertising and circulating the prospectus tabled before the Board and initialed by the Chairman for the purposes of identification be and is hereby approved and the Secretary of the Company be and is hereby directed to take necessary action.

 

RESOLVED FURTHER that arrangements be made with the State Bank of India through its main branch, Parliament Street, New Delhi to make arrangement for receiving the subscription at all its branches in the Union Territory of Delhi and keeping the subscription so collected in a separate account captioned "10% redeemable non-convertible debenture."

 

PRACTICE NOTES

 

1. Power exercisable at Board Meeting.-The resolutions cannot be passed by circulation. A proper Board Meeting is required to be held after due notice to all the Directors.

 

2. Power not to be delegated to Committee of Directors.-The Board cannot delegate this power to any Committee of Directors.

 

3. Follow Guidelines of SEBI.-Ensure to follow Securities and Exchange Board of India (Disclosure and Investor Protection) Guidelines, 2000.

 

4. Mortgaging whole or substantially whole of undertaking.-If the company is mortgaging its whole or substantially the whole of its undertaking, first pass a resolution pursuant to section 293(l)(a) of the Act before passing the Board Resolution.

 

5. Listed company to obtain permission of Stock Exchange concerned and get prospectus and letter of offer approved.-If the company is enlisted on any recognised Stock Exchange, permission of the Stock Exchange concerned be obtained and get the prospectus and the letter of offer approved from them.

 

6. For issue of convertible debentures follow provisions of Section 81 and Public Companies (Terms of Issue of Debentures and of Raising Loans with Option to convert such Debentures or Loans into Shares) Rules, 1977.-If it is proposed to issue convertible debentures, the provisions of section 81 and Public Companies (Terms of Issue of Debentures and of Raising Loans with an option to convert such Debentures or Loans into Shares) Rules, 1977, should be taken into account and if the issue is not in accordance with the said rules, prior approval of the Central Government pursuant to section 81(3)(a) of the Act should be obtained.

 

7. Obtain prior approval of Central Government in case issue not in accordance with Rules.-If the issue is not in accordance with the provisions of Public Companies (Terms of Issue Debentures and of Raising Loans with an option to convert such Debentures or Loans into Shares) Rules, 1977, prior approval of the Central Government pursuant to Section 81(3)(a) of the Act should be obtained.

 

8. Filing of returns with Registrar of Companies.-File returns pursuant to sections 125, 128 and 129 of the Act with the Registrar of Companies concerned.

 

Power to borrow otherwise than on debentures (S. 292(l)(c))

 

Where Directors of a company have borrowed funds without authorisation from the company, the company cannot repudiate liability to repay if the funds have been used for the benefit of the company. Kumar Krishna Rohatgi v. State Batik of India, (1980) 50 Com Cases 722 (DB) (Pat).

 

Even if a resolution is duly passed at a meeting of the Board, Directors' borrowing for ultra vires purposes being beyond the powers of the Board and of the company in General Meeting will not bind the company. National Provincial Bank v. Introductions Ltd., (1969) 1 All ER 887.

 

Strangers dealing with a company are entitled to assume that a Director or Manager who acts in conformity with the company's articles, might have been but was not in fact authorised to borrow . was acting under the company's authority. Siva Sankara Panicker v. Kerala Financial Corporation, (1980) 50 Com Cases 817 at 832.

 

Borrowing of moneys otherwise than on debentures by way of unsecured loan

 

S. 292(l)(c)-Borrowing of moneys otherwise than on debentures by way of unsecured loan-Board Resolution

 

"WHEREAS the overdraft limit of Rs  ……granted by the Bank Branch, Nagpur 440 012, has almost reached the said level;

 

AND WHEREAS the Company will have to pay Rs  ……as the last installment of advance tax pursuant to the Income-tax Act, 1961, within 2002          ;

 

AND WHEREAS the Company approached M/s. XYZ Investments Co. Ltd., Nagpur-440 012, for an unsecured loan of the aforesaid amount of Rs  ……repayable on the            .

 

NOW THEREFORE IT IS RESOLVED that the Company do borrow an amount of Rs  ……from M/s.XYZ Investments Co. Ltd., carrying interest at the rate of per cent per annum provided that the monthly accrued interest shall become payable within ten days from the concluding date of the previous month."

 

PRACTICE NOTES

 

1. Board's power to borrow money otherwise than on debentures.- The board's power to borrow moneys otherwise than on debentures must be exercised only by means of resolutions passed at meetings of the Board. Borrowing from the bank within the ambit of prescribed section 293(l)(d) and the Explanation there under may be done by adopting a resolution of the Board of Directors (but not by circulation). Such a power may also be delegated to any committee of Directors.

 

Power to borrow otherwise than on debentures within the limit approved by members

 

S. 292(l)(c)-Power to borrow otherwise than on debentures within the limit approved by members-Board Resolution

 

"RESOLVED that consent of the Board be and is hereby given to the Company borrowing from Banks, Financial Institutions etc., money(s) up to the limit of rupees twenty five lakhs outstanding at any one time, apart from the money(s) already borrowed under any specific resolution and subject to the limit of rupees one crore fixed by the shareholders vide their resolution dated 2-7-2002, passed pursuant to section 293(l)(d) of the Act and that the Managing Director and any one other Director of the Company be and are hereby empowered jointly to execute on behalf of the Company all documents and to issue receipts, promissory notes etc., and to affix the common seal of the company thereon."

 

OR

 

"RESOLVED that the Managing Director of the Company be and is hereby authorised to borrow money to the extent of Rs. 25 lakhs from Banks on such terms and conditions as to repayment, interest or otherwise as he may think fit for the purpose of erection and installation of the plant at factory premises.

 

RESOLVED FURTHER that the Managing Director be and is hereby authorised to execute all documents on behalf of Company which may be required to be executed for the purpose."

 

PRACTICE NOTES

 

1. Borrowing limit not to be exceeded.-Ensure that borrowing never exceeds the limit up to which money can be borrowed pursuant to a resolution passed under section 293(l)(d) of the Act.

 

2. Fixation of limit.-In case of borrowing from the Bank, it will be appropriate to fix the limit of overdraft, cash credit etc., within which limit the Managing Director may operate. The resolution should also indicate the amount outstanding at any one time up to which the money can be borrowed by the delegate.

 

3. Strangers entitled to assume that directors acting within authority.-Strangers dealing with a company are entitled to assume that a Director or Manager who consistently with the company's articles, might have been but was not in fact authorised to borrow, was acting under the company's authority. Siva Sankara Panicker v. Kerala Financial Corporation, (1980) 50 Com Cases 817 at 832.

 

4. Borrowing for ultra vires purposes not to bind company.-Even if a resolution is duly passed at a meeting of the Board, Directors' borrowing for ultra vires purposes being beyond the powers of the Board and of the company in General Meeting, will not bind the company. National Provincial Bank v. Introductions Ltd., (1969) 1 All ER 887.

 

5. Company cannot repudiate liability where borrowing is without authorisation.-Where Directors of a company have borrowed funds without authorisation from the company, the company cannot repudiate liability to repay if the funds have been used for the benefit of the company. Kumar Krishna Rohatgi v. State Bank of India, (1980) 50 Com Cases 722 (DB) (Pat).

 

Temporary accommodation from bank

 

S. 292(1)(c)-Temporary accommodation from bank-Board Resolution

 

"RESOLVED that the Company do borrow an additional amount of Rs. 25 lakhs over and above the existing cash credit limit granted to the Company by  ……Bank . Branch, Nagpur 440 012, as per the letter dated the 2002, submitted to this meeting, to be covered within the existing security of current assets hypothecated to the bank and drawing being regulated within applicable margin thereon and that such additional temporary drawing (borrowing) is re­ paid or the drawings on the said Cash Credit Account be brought down to the substantive limit of Rs. 1 crore within 31st March being the end of the financial year of the Company.

 

RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to file the necessary return of modification of charge to the Registrar of Companies, arising out of temporary extension of limit of the Cash Credit Account.

 

RESOLVED FURTHER that Mr  ……and Mr ……the Directors of the Company, be and are hereby severally authorised to execute all necessary documents in this behalf as may be required by the bank."

 

PRACTICE NOTES

 

1. Borrow within limits.-The overall borrowing limits set by a company in a general meeting by passing a resolution pursuant to section 293(l)(d) should not be exceeded while taking such temporary loans from banks.

 

Temporary accommodation from Bank

(Another format)

 

S. 292(l)(c)-Temporary Accommodation from Bank-Board Resolution

 

"RESOLVED that the Company do borrow and accept the additional credit facilities to the limit of Rs. 100 lakhs, as in principle agreed by Bank . Branch, Nagpur 440 012, on the terms and conditions as may be stipulated by the said bank secured by the pledge of imported steel goods and that a verified list showing price of each item authenticated under the signature of the Chairman be lodged with the said bank, the drawings carrying a rate of interest at the rate of .......per cent per annum.

 

.RESOLVED FURTHER that in addition to the interest, the rent of the pledged go down, the salary of the go down-keeper and the dawns (payable monthly) be borne by the Company and that it will also reimburse any additional expenditure that may be incurred by the bank solely and necessarily for the maintenance of the pledged stock and pledged go down.

 

RESOLVED FURTHER that Mr  ……and Mr ……      the Directors of the company, be and are hereby jointly and severally authorised to execute all necessary documents in this behalf."

 

PRACTICE NOTES

 

1. Borrowing within limits.-The board of directors should ensure that the total borrowings do not cross the limit fixed by the company in general under section 293(l)(d) of the Act. If so then another general meeting should be called to get the approval of the shareholders of the company.

 

2. Validity of borrowing incurred beyond limits.-If a company incurs any debt in excess of the limits imposed by section 293(l)(d) of the Act, then such borrowing will be valid or effectual of the lender proves that he advanced the loan in good faith and without knowledge that the limit imposed had been exceeded.

 

Reduction of interest on overdrawn cash credit limit

 

S. 292(l)(c)-Reduction of interest on overdrawn cash credit limit-Board Resolution

 

"RESOLVED that approval be and is hereby accorded to the reduction in the rate of interest on the outstanding drawings from time to time against the cash credit facilities afforded by the  ……Bank, ……Branch, Nagpur 440 012, from the prevailing effective rate of 15 per cent per annum to 12.5 per cent per annum at quarterly rest with effect from  ……2002 ……

 

RESOLVED FURTHER that Mr  ……and Mr ……      the Directors of the company, be and are hereby jointly and severally authorised to exe­cute all necessary documents as required by the bankers.

 

RESOLVED FURTHER that the Secretary of the Company be - and is hereby authorised to file the necessary return showing modification of charges with the Registrar of Companies."

 

PRACTICE NOTES

 

1. Board's power to borrow money in the ordinary course of business.-The borrowing for the purposes of business of the company in the ordinary course subject to restrictions provided under S. 292(l)(c) and Exp. 11 to section 293(l)(d) is within the competence of the Board of Directors, but the borrowings must be for such business activities as are not ultra vires the objects of the company set out in its Memorandum of Association. Borrowing beyond the powers of the company and hence beyond the powers of the Directors does not have the legality of creating a debt, legal or equitable, and any instrument executed or security given therefor is void, and resolution passed at a Board Meeting authorising borrowing for ultra vires purposes being beyond the powers of the Board and of the company (if such resolution is passed at a General Meeting) will not bind the company. National Provincial Bank v. Introductions Limited, (1969) 2 Comp LJ 28(1969) 1 All ER 887, confirming (1968) 2 All ER 221 (CA).

 

2. Restrictions imposed on powers of Board by section 58A.- Section 58A, puts an added restriction on the power of the Directors to borrow by way of acceptance of unsecured loan from the public to the extent of 25 per cent of the paid-up capital and free reserves of the company. Not necessary if it is a private company, if there is no mortgage or if the borrowing is within the limit laid down in s. 293(l)(d).

 

Borrowing from financial institutions

 

S. 292(l) (c)-Borrowing from financial institutions-Board Resolution

 

"RESOLVED that subject to approval in General Meeting, Not necessary if it is a private company, if there is no mortgage or if the borrowing is within the limit laid down in s. 293(l)(d). the Company do borrow from the Finance Corporation (hereinafter referred to as 'the Corporation') a sum of Rs. 1,00,00,000/- (Rupees one crore) only, on the terms and conditions as set out in the standard form of the Loan Agreement (copy annexed hereto duly signed by the Chairman for the purpose of identification) subject, however, to such amend­ments, modifications, deletions and additions therein as may be mutu­ally agreed to between the Corporation and Mr .             or Mr . Di­rectors of the Company, who be and are hereby jointly authorised to negotiate and finalise the terms and conditions contained in the stan­dard form of the Loan Agreement, the salient features of which are placed before the meeting in a statement.

 

RESOLVED FURTHER that the aforesaid loan sanctioned by the Corporation, be secured by way of first charge by hypothecation/mortgage of the new machinery and equipment acquired/to be acquired by the company for the scheme of diversification/modernization and also by way of equitable mortgage of the existing lands, buildings, fixed machinery, plant and fixtures of the company.

 

RESOLVED FURTHER that the said Loan Agreement containing the terms and conditions of the aforesaid facility, after finalisation, be approved by Mr  ……or Mr . ……the Directors, on behalf of the Company and that the same be      executed under the common seal of the Company in the presence of Mr . ……and Mr . ……two of the Directors, and the Secretary of the Company.

 

RESOLVED FURTHER that the following documents, the standard form whereof are placed before this meeting (duly signed by the Chairman of this meeting) be and are hereby approved subject to such changes and modifications as may be agreed between the Corporation and Mr . ……or Mr .    the Directors of the Company:

 

(i)         Deed of hypothecation for the machinery and equipment under the diversification scheme;

(ii)        Deed of hypothecation for three plenomillers and three tarret lathes already installed in the premises of the company.

 

RESOLVED FURTHER that Mr  ……or Mr  ……the directors of the Company, be and are hereby authorised to finalise all agreements deeds, documents, letters of undertaking, declarations and other papers as may be required to be executed by the Corporation to secure the said loan and further do all such acts, deeds relating to the properties of the Company with the corporation with an intent to create an equitable mortgage in favour of the corporation and hypothecation of new machinery and equipment acquired/to be acquired for the scheme of its diversification as security for the said loan.

 

RESOLVED FURTHER that the common seal of the Company be affixed to the deeds of release/modification/hypothecation/guarantee promissory notes and to such other documents as may be required to be executed under the common seal of the Company in favour of the Corporation to secure the aforesaid loan in the presence of Mr ..........and Mr  ……two of the Directors and the Secretary of the Company.

 

RESOLVED FURTHER that Mr  ……or Mr  ……the Director, of the Company be and is hereby authorised to take such action for registra­tion of the said documents with the Registrar of Companies and the Sub-Registrar of Assurances under the Registration Act, and/or for filing of the particulars of charges with the Registrar of Companies under the Companies Act, 1956, and also to do all other things as may be considered expedient and necessary by the Corporation for the completion of the transaction referred to above."

 

PRACTICE NOTICES

 

1. Filing of charge.- Once such loan agreement is executed subject to change of company's prospectus, Form Nos. 8 and 13 should be filed within 30 days of creation of such charge with the Registrar of Companies along with requisite fee prescribed under schedule X of the Act.

 

2. General Meeting approval.- General Meeting approval should also be taken under section 293(l)(a) for charging companies properties.

 

Borrowing short-term working capital by issue of Commercial Paper

 

S. 292(l) (c)-Non -Banking Companies (Acceptance of Deposits Through Commercial Paper) Directions, 1989-Borrowing short-term working capital by issue of Commercial Paper-Board Resolution

 

"RESOLVED that pursuant to the applicable provisions of the NonBanking Companies (Acceptance of Deposits Through Commercial Paper) Directions, 1989 and the guidelines issued there under and such other approvals, permissions and sanctions as may be necessary, the approval of the Board of Directors be and is hereby accorded to the raising of Rs  ……by issue of Commercial paper to (name of Bank or NRI) for a period of more than three months and not exceeding six months at (mention here the rate).

 

RESOLVED FURTHER that the draft of the proposal placed on the table be and is hereby approved and the Managing Director of the Company be and is hereby authorised to submit the said proposal to the Reserve Bank of India through ……the lead Bank and to do all such acts, deeds and things as may be necessary in this re­gard."

 

PRACTICE NOTES

 

1. Type of borrowing.-The company can borrow short term working capital by issue of commercial paper.

 

2. Eligibility Criteria.-The tangible net worth of the company should not be less than rupees four crores in terms of the latest balance-sheet company has been sanctioned working capital limit by banks/All India Financial Institutions and the borrowal account of the company is classified as a standard asset by the financing banks/institutions.

 

3. Amount which can be raised by issue of commercial paper.-The company can raise up to the company's working capital (fund based) limit by issue of commercial paper.

 

4. Non-resident can invest.-The non-resident Indian can also invest in the commercial paper but the same is neither transferable nor the amount repaid on maturity repatriable.

 

5. Issue of commercial paper exempt under the Deposit Rules.-Issue of commercial paper is exempt from the provisions of the Companies (Acceptance of Deposits) Rules, 1975.

 

6. Credit Rating.-The company should obtain credit rating from an agency approved by the Reserve Bank of India for issue of commercial paper.

 

7. Denomination and period of issuance.-Denomination of commercial paper should be in multiple of Rs. 5 lakhs. The maturity period of commercial paper should not be less than 15 days and more than one year from the date of issue. The maturity date of the Commercial Paper should not go beyond the date up to which the credit rating of the issuer is valid.

 

Temporary borrowing of money

 

S. 292(l)(c)-Temporary borrowing of money other than on debenture-Board Resolution

 

"RESOLVED that a sum of Rs. 25 lakhs be borrowed from Eskay Financiers Ltd., against hypothecation of raw materials in the factory, which raw materials at any one point of time is of the value of more than Rs. 60 lakhs;

 

RESOLVED FURTHER that Mr. A. and Mr. B. Directors of the Company be and are hereby authorised jointly to execute the deed of hypothecation."

 

PRACTICE NOTES

 

1. Resolutions to be passed at a Board Meeting.-In the case of the following items the board of directors of the company should pass resolutions only at a meeting held by the board and not by circulation of resolution provided under section 289 of the Act:

 

(a) the power to make calls on shareholders in respect of money unpaid on their shares;

(b) the power to issue debentures;

(c) the power to borrow moneys otherwise than on debentures;

(d) the power to invest the funds of the company; and

(e) the power to make loans.

 

2. Delegation of Board's power.-Board of Directors of a company can delegate to any committee of directors, the managing director, the manager or any other principal officer of the company the following three powers:

 

(a) the power to borrow moneys otherwise than on debentures;

(b) the power to invest the funds of the company; and

(c) the power to make loans.

 

3. Total amount specified.-The resolution by which the aforesaid delegation is made by the board of directors should specify the total amount outstanding at any one time up to which moneys may be borrowed by the delegate.

 

4. Right of the company.-The right of the company to impose restrictions and conditions on the exercise by the board of directors of any of the powers given in sub-section (1) of section 292 of the Act still remains with it and it can do so by convening a general meeting and passing resolution imposing restrictions and conditions on those powers.

 

Investment of funds (S. 292(l)(d))

 

Funds are to be invested only in shares of those companies in which there is reasonable expectation of receiving adequate return from the investment. In other words, the Directors must act bonafide in the interest of the company while exercising the power.

 

The purchase of property for some purpose other than the receipt of income is not an investment. Re, Power Public Trustees v. Hastings, (1947) 2 All ER 282 : 1947 Ch 572. The words 'Invest and investment' are to be taken in the business sense of laying out of money for interest or profit. Wamanlal Chhota Lal Parekh v. Scindia Steam Navigation Co. Ltd., (1944) 14 Com Cases 69.

 

 

Investment of funds of the company

 

S. 292(l)(d)-Investment of funds of the company-Board Resolution

 

WHEREAS a letter dated the  ……2002 ……from the Collector of Central Excise, Bombay, was placed stating that in order to execute a General Security Bond in Form No. B2 for Rs. 1,50,000/- in favour of the Chairman of the Board for the manufacturing of certain compo­nents using stainless steel, 7-Year National Savings Certificates for Rs. 25,000/- are required to be purchased and pledged in favour of the President of India;

 

AND WHEREAS the pledge holder in the instant case is the Assistant Collector who shall hold security for the utilisation of the excise free godown, the Form No. B2 being the bond in the form prescribed under the excise manual which was tabled and perused;

 

"NOW THEREFORE IT IS RESOLVED that twenty-five 7-Year National Savings Certificates of Rs. 1,000/- each be bought in the name of the company and they be and are hereby endorsed in favour of the President of India and pledged through Mr  ……a Director of the Company, with the Assistant Collector of Central Excise as se­curity under the Excise Rules together with the necessary bond in Form No. B2 of the Excise Manual for an amount of Rs. 1,50,000/-."

 

PRACTICE NOTES

 

1. Power to invest funds of company.-Pursuant to section 292(1)(d), the power to invest the funds of the company is exercisable on behalf of the company by the Board of Directors. The words 'investment of funds', in a broader sense, includes almost every activity requiring application of the company's funds. However, judging from the tenor of the provisions, the words should be interpreted in a limited sense of acquiring shares and securities, the application of money in the purchase of some property from which interest or profit is expected and which property is purchased in order to be held for the sake of the income which it will yield. (In re, Wragg, (1919) 2 Ch. 58). The purchase of property for some purpose other than the receipt of income is not an investment. In re, Power Public Trustee v. Hastings, (1947) 2 All ER 282: 1947 Ch. 572.

 

2. Purchase of National Savings Certificates comes within scope of section 292(l)(d).-In the aforesaid case of purchase of National Savings Certificates, although the purpose of acquiring the certificate is to lodge the same as security in support of the Bond but nevertheless, this meets the contention that the income out of these certificates accrues to the company only and should, therefore, be considered as coming within the scope of section 292(l)(d).

 

 

Investment of funds

(Another format)

 

S. 292(1)(d)-Investment of funds-Board Resolution

 

"WHEREAS the Government of Maharashtra proposes to raise 'loan' from the public by the issue of securities/bonds carrying interest every year;

 

AND WHEREAS, the Finance Commissioner, Government of Maharashtra has made an appeal to the Company vide his letter dated the  .................2002;

 

AND WHEREAS the said bonds carry a rate of interest of         per cent per annum being issued at Rs. 99.50 Ps. (for Rs. 100 Bond) re­payable at par in ten years;

 

NOW THEREFORE IT IS RESOLVED that Mr. KKW, a Director of the Company, be and is hereby authorised to make an investment up to an amount of Rs. 75,000/- out of the funds of the Company in the aforesaid State Government Securities."

 

PRACTICE NOTES

 

1. Powers of Board be delegated to others.-The power of investment of funds of a company exercisable by the Board of Directors under section 292(l)(d) may be delegated to others pursuant to the proviso to section 292, provided a ceiling is fixed by the Board of Directors limiting the authority so delegated. The resolution, delegating such power to invest, should be specific with details of securities in which investments are to be made pursuant to sub-section (3) of this section and the resolution should also specify the total amount up to which the authorised person may invest the funds.

 

 

Investment of funds

(Another format)

 

S. 292 (1) (d)-In vestment of funds-Board Resolution

 

"RESOLVED that subject to the limit of Rs. 20 lakhs at a time and the overall limit of Rs. 60 lakhs, the Managing Director of the Company be and is hereby authorised to invest the surplus funds of the Company in any shares, debentures, securities stock certificates, etc., in any securities floated by the Central Government or any State Government provided that this power shall be exercised subject to the provisions of section 372A of the Companies Act, 1956."

 

OR

 

"RESOLVED that surplus funds of the Company to the extent of Rs.10,00,000/- be invested by purchasing units of the Unit Trust of India."

 

OR

 

"RESOLVED that subject to the provisions of section 372A of the Companies Act, 1956, the surplus funds of the Company to the extent of Rs. 5 lakhs be invested in the purchase of shares, debentures and stock of any public company subject, however, to the condition that the funds so invested shall not exceed Rs. 30 lakhs at any one time.

 

RESOLVED FURTHER that the Managing Director of the Company be and is hereby authorised to sign all documents and to do all such acts and things as may be necessary on behalf of the company."

 

PRACTICE NOTES

 

1. Provisions of Section 372A be kept in mind before investing funds.-Keep in mind the provisions of section 372A of the Act before investment of funds.

 

2. Bonafide exercise of powers.- The power is to be exercised bonafide in the interest of the company and not malafide to promote personal interest of Directors.

 

3. Resolution delegating powers to specify limit of investment.-Delegating power to invest without Ili-nit will be invalid. The resolution delegating power must specify the limit of investment at any one time and also fix overall limit of investment.

 

4 Directors to act bonafide in interest of company.- Funds are to be invested only in shares of those companies in which there is reasonable expectation of receiving adequate return from the investment. In other words, the Directors must act bonafide in the interest of the company while exercising the power.

 

5. Purchase of property other than receipt of income not investment.-The purchase of property for some purpose other than the receipt of income is not an investment. Re, Power Public Trustees v. Hastings, (1947) 2 All ER 282: 1947 Ch 572.

 

6. Words "invest and investment"-Meaning.- The words 'Invest and investment, are to be taken in the business sense of laying out of money for interest or profit. Wamanlal Chota Lal Parekh v. Scindia Steam Naigation Co. Ltd., (1944) 14 Com Cases 69.

 

 

Investment of funds of company in Mutual Fund

 

S. 292(1)(d)-Investment of funds of the company in Mutual Fund-Board Resolution

 

"RESOLVED that a sum of Rs. 10 lakhs, now remaining uninvested, be invested in Can Bank Mutual Fund, which investment has the possibility of yielding to the Company a return of above 30% per annum."

 

PRACTICE NOTES

 

1. Resolutions to be passed at a Board Meeting.-In the case of the following items the board of directors of the company should pass resolutions only at a meeting held by the board and not by circulation of resolution provided under section 289 of the Act:(a) the power to make calls on shareholders in respect of money unpaid on their shares; (b) the power to issue debentures; (c) the power to borrow moneys otherwise than on debentures; (d) the power to invest the funds of the company; and (e) the power to make loans.

 

2. Delegation of Board's power.- Board of Directors of a company can delegate to any committee of directors, the managing director, the manager or any other principal officer of the company the following three powers:(a) the power to borrow moneys otherwise than on debentures; (b) the power to invest the funds of the company; and (c) the power to make loans.

 

3. Total amount specified.-The resolution by which the aforesaid delegation is made by the board of directors should specify the total amount up to which the funds may be invested and also the nature of such investment made by the delegatee.

 

4. Right of the company.-The right of the company to impose restrictions and conditions on the exercise by the board of directors of any of the powers given in sub-section

 

(1)         of section 292 of the Act still remains with it and it can do so by convening a general meeting and passing resolution Imposing restrictions and conditions on those powers.

 

 

Power to make loans

 

S. 292(l)(e)-Power to make loans-Board Resolution

 

"RESOLVED that a sum of Rupees Five lakhs be given on loan to Mr. XYZ, the officer of the Company for purchase of a house."

 

OR

 

"RESOLVED that surplus funds of the Company be utilised by giving loans not exceeding Rs. 100,000/- to any employee of the Company and subject to ail overall limit of rupees ten lakhs outstanding at any one time, for a fixed period not exceeding one year and carrying a rate of interest of not less than 18% per annum payable at quarterly rests and that the Managing Director of the Company be and is hereby authorised to disburse the loans on behalf of the company."

 

OR

 

"RESOLVED that Mr. LMN, the Managing Director of the Company be and is hereby authorised to make loans to any employee of the Company for utilising the surplus funds of the Company, at his discretion, within an overall limit of rupees five lakhs outstanding at any one time and that the loan given to an employee shall in no case exceed Rs. 70,000/-."

 

PRACTICE NOTES

 

1. Limit up to which delegatee can make loan to be fixed.-While delegating the powers to make loan, the lit-nit up to which the delegatee can make loans must be fixed. Unrestricted delegation is invalid.

 

2. Power subject to restrictions and limits imposed by Section 372A.-The power is subject to the restrictions and the limits contained in section 372A-1 of the Act.

 

3. Loans to bodies corporate attract section 372A and loans to directors section 295-The loans to bodies corporate will also attract section 372A of the Act. Loans to Directors will attract section 295 of the Act.

 

4. Auditor's duty to check whether loans repaid as per loan agreement.-The Auditors will check whether the parties to whom the loans are given have been paying the principal amount as per conditions stipulated in the loan agreement and have been regular in payment of interest also, and in cases of default, necessary action has been taken by the company for recovery of the loan.

 

 

Power to make loans

 

S. 292(l)(e)-Power to make loans-Board Resolution

 

"RESOLVED that in terms of Section 292 of the Companies Act, 1956, the Managing Director of the Company be and is hereby authorised to make loans up to an amount of Rs. 25 lakhs on such terms and conditions as he may deem fit and proper so as to utilise the surplus funds of the Company."

 

PRACTICE NOTES

 

1. Total amount of loan to be specified.-Every resolution delegating the power shall specify the total amount up to which loans may be made by the delegatee, the purpose for which the loans may be made and the maximum amount of loans which may be made for each such purpose in individual cases.

 

2. Provisions of section 372A.- The power is to be exercised subject to the restrictions imposed by Section 372A of the Companies Act, 1956. The loans, if any, to other bodies corporate will also have to be in accordance with the provisions contained in section 372A of the Companies Act, 1956.

 

3. Requirements under MOCARO.-The Auditor of the Company in terms of Manufacturing and other Companies (Auditor's Report) Order, 1988 has to state in his Audit Report as to whether the parties to whom the loans have been given by the company are repaying the principal amounts as stipulated and are regular in payment of the interest and , if not, whether reasonable steps have been taken by the company for recovery of the principal and interest.

 

 

Advancing loan

 

S. 292(1)(e)-Advancing loan-Board Resolution

 

"RESOLVED that whereas M/s. XYZ & Co. Ltd. has approached the Company for a temporary accommodation for Rs. 25,00,000 for a period of one year carrying interest at the rate of 18 per cent per annum, and whereas the company has a surplus fund to lend on a temporary basis, Mr. VKW, a Director of the Company, be and is hereby authorised to advance up to a maximum of Rs. 25,00,000/- as loan to M/s. XYZ & Co. Ltd. of Bombay, on the security by way of pledging of shares/debenture bonds, the market value of which will adequately cover the amount of the loan to be advanced, carrying in­terest at the rate of 18 per cent per annum payable monthly.

 

RESOLVED FURTHER that Mr  ……be and is hereby authorised to settle the other terms and conditions of the loan, the repayment period of which shall not exceed one year from the date of the release of the loan by the Company, and the power under section 292(4) of the Companies Act, 1956, be exercisable forthwith subject to the limitations and restrictions contained in section 372A of the said Act."

 

"RESOLVED FURTHER that the Company do advance Rs. 10,000/through Mr. DTK, the Factory Manager of the Thana factory, to tile Workers' Canteen Committee repayable by suitable installment within a period of two years from the date of disbursement thereof but without any interest being charged thereon."

 

"RESOLVED FURTHER that a letter dated the 2002 from Mr. DPC, the Production Manager of the factory at ..................... requesting for a loan of Rs. 35,000/- to assist hire purchase of a car for his personal as well as official use was placed on the table and that the sanction be and is hereby accorded for the payment of Rs. 35,000/- for the aforesaid purpose to Mr. DPC, without interest repayable by way of deduction from his salary at the rate of Rs. 1000/- per month until full recovery is effected of the amount so advanced."

 

PRACTICE NOTES

 

1. Resolution delegating powers to specify total amount up to which delegatee may make loan.-Pursuant to section 292(l)(e), the power to make loan can be exercised by the Board of Directors on behalf of the company. However, pursuant to sub-section (4) of the said section, such power may be delegated to suitable person or persons or to a committee of' the Board. If delegation of' power on this account is made, which should be done by a resolution adopted in a Board Meeting, the relevant resolution should specify the total amount up to which loans may be made by the delegate, the purposes for which the loans may be made and the maximum amount of loans which may be made for each purpose and in each individual case.

 

2. Percentage up to which Board may advance loan or give guarantee regulated by Section 372A.-The total amount of loan that a company may advance or guarantee for others is regulated by the provisions of section 372A-1 of the Companies Act, 1956. The authority of the Board in this regard is limited to such percentages as may be prescribed by the Govt. from time to time of the aggregate of the subscribed capital of the lending company and its free reserves.

 

3. Limitation imposed by Section 58A on powers of Board.-Pursuant to section 58A of the Companies Act, 1956, the Board of Directors also has limited authority up to a ceiling of twenty-five per cent of the aggregate of the subscribed capital of the borrowing company and its free reserves to accept unsecured loan or deposit. If a non-banking company opens a current account with a bank, then it amounts to lending of money by that company and, thus, it should be made by passing a resolution at a meeting of the Board and not by circulation.

 

 

Making loans

 

S. 292(1)(e)-Making loans-Board Resolution

 

"WHEREAS the employees' welfare association has started construction of flats for employees;

 

AND WHEREAS these flats, when built up, will be of the value of not less than Rs. 5 crores,

 

AND WHEREAS the said employees' welfare asso6afionnas as~Ke6 for a loan of Rs. 50 lakhs from the company to help it to complete the construction of the flats;

 

AND WHEREAS the employees' welfare association has agreed to mortgage the flats under construction in favour of the company for securing the aforesaid loan;

 

NOW T14EREFORE IT IS RESOLVED that an amount of Rs. 50 lakhs be granted as loan to the said employees' welfare association;

 

RESOLVED FURTHER that the Secretary of the Company shall execute the necessary document for securing the aforesaid loan."

 

PRACTICE NOTES

 

See under Resolution No. 674.

 

 

Appointment of Allotment/Share transfer committee

 

S. 292(l) proviso-Allotment/Share transfer committee-Board Resolution

 

"RESOLVED that in terms of Article  ……of the Articles of As­sociation of the Company, Mr  ……and Mr…….. be and are hereby appointed to constitute a committee of the Board of Directors to deal with the allotment of proposed 7,00,000 equity shares of Rs. 10/- each and transfer of shares in general and that such committee shall keep complete records of issue of share certificates under the seal of the Company in the manner required under the Companies (Issue of Share Certificates) Rules, 1960, and comply with the provisions thereof."

 

PRACTICE NOTES

 

1. Board may delegate its power to committee.-Subject to the provisions of section 292 of the Companies Act, and subject to the provisions of the articles, the Board may delegate its power to suitable committee or committees to deal with the day-to-day handling of matters and such committee should exercise only those powers delegated to it and should conform to any limitation imposed on it by the Board.

 

 

Adoption of Share Transfer Committee's Report

 

S. 292(l) proviso-Adoption of Share Transfer Committee's Report-Board Resolution

 

"RESOLVED that the transfer of shares of the Company Comprised in the report of the Share Transfer Committee, placed before the meeting and duly initialed by the Chairman be and are hereby noted and confirmed."

PRACTICE NOTES

 

1. Routine item in Board Meeting Agenda.-Adoption of the report of the share transfer committee of the board specially formed for dealing with share transfers, transmissions, issue of duplicate and split certificates is a routine item for adoption in the agenda of a company's board meeting. Such report is adopted at the immediately next board meeting held after the share transfer committee meeting.

 

2. Purpose of adoption.-Although there is not statutory requirement of adopting share transfer committee meetings report at the board meeting but this is done to make the board members know about the transfers and transmissions taken place in the company.