Remuneration to Director other than Managing Director/Whole
time Director (S. 309(4))
The Department has expressed
the view that commission to ordinary Directors can be allowed only if the
Director render some services for which some remuneration appear justified.
However, there is no such restriction in the Act. (Letter No. 2/8/64-PR,
dated 23-3-1964).
Increase in remuneration (S. 310)
In cases where Directors are
only getting sitting fee and if it is proposed to pay them commission also and
the payment of the commission is within the limits prescribed in Part II of
Schedule XIII introduced by the Companies (Amendment) Act, 1988,.no approval of
the Central Government is necessary. In any other case, an application under
section 310 will be required.
The giving of monetary
benefits in any form to past or retiring Managing or Whole-time Director or
Manager also comes within the purview of this section and requires the approval
of the Central Government. (Press Note, dated 9th August, 1963 issued by the Department
of Company Affairs).
Even in cases where the
intended increase may be well within what is permitted by section 309 (e.g.
five per cent of the net profits payable to a Whole-time Director without
the approval of the Central Government) it will require approval of the Central
Government under section 310 if it is an increase in remuneration of the nature
provided in that section. (Department's file No. 6(a) CL 1/66).
General permission under
Foreign Exchange Management Act (Receipt and Payment to a Person Resident
Outside India) Regulations, 2000, has also been granted to a company in India
to make payment of sitting fees or commission or remuneration or travel
expenses to and from or within India to its non-whole time directors who
is on a visit to India for company's work subject to the terms and conditions
mentioned in paragraph 3 of FEMA Notification 16/RB-2000, dt.3-5-2000.
Payment of Sitting Fees for
each Meeting
"Rule 10B of the
Companies (Central Governments) General Rules and Forms prescribes that for the
purposes of the first proviso to section 310, the amount of remuneration by way
of fee for each meeting of the board of directors or a committee thereof, shall
not exceed the sum of five thousand rupees."
[Notification No. GSR 58(E),
dated 17th January, 2000, w.e.f. 1-4-2000].
Remuneration of Directors
"RESOLVED that subject
to the approval of the Company in General Meeting and the approval of the
Central Government, Mr. KKW, the Managing Director of the Company, shall
receive remuneration and perquisites, as detailed hereunder, during the period
of his continuance in the office of the Managing Director, pursuant to article
__________ of the Articles of Association of the Company and pursuant to the
provisions of sections 198, 309(3) and/or other applicable provisions of the
Companies Act, 1956."
1. Limits on remuneration
payable to Directors.-Section 198 stipulates that the overall managerial
remuneration payable to all the persons, such as, the Managing/Whole-time
Director, Manager etc., in any financial year shall not, altogether exceed
eleven per cent of the net profits of the company for that financial year
computed in the manner laid down in sections 349, 350 and 351 except that the
remuneration of the Directors shall not be deducted from gross profits.
2. Remuneration to be
determined in accordance with and subject to provisions of section 198.-Pursuant to section 309(l),
the remuneration payable to the Directors of a company, including any Managing
or Whole-time Director, shall be determined, in accordance with and
subject to the provisions of section 198 and this section either by the
articles of the company, or by a resolution or if the articles so require, by a
Special Resolution, passed by the company in General Meeting. The proviso to
sub-section (3) puts a ceiling on remuneration, inasmuch as the
remuneration shall not exceed five per cent of the net profits for one
Managing/Whole-time Director, and if there is more than one such
Director, ten per cent for all of them together.
3. Central Government
approval not required when remuneration payable within scale of percentage of
net profits.-It may, however, be observed that the remuneration payable to the Managing/Whole-time
Director and/or Manager within the scale of percentage of net profits envisaged
under section 198 read with section 309(l) does not require approval of the
Central Government provided the amount of remuneration actually paid in any one
year does not constitute an increase over what has been paid in the previous
year.
4. Remuneration to be
authorised by articles or by a Special Resolution of General Meeting.-The remuneration of
Directors can be determined either by the articles of the company or by a
Special Resolution of the members of the company, if the articles so require.
In the absence of any provision in regard to remuneration payable to the
Director, an Ordinary Resolution of the general body of members is sufficient
if such remuneration does not exceed the percentage and the amount mentioned
above. The Board of Directors cannot adopt a resolution to remunerate
themselves; it can only recommend to the members.
5. Central Government
approval not necessary when remuneration proposal as per Schedule XIII.-If the remuneration proposed
is in accordance with the provisions of Schedule XIII approval of the Central
Government will not be necessary.
Remuneration of Directors
(Another format)
"RESOLVED that subject
to the approval of the Central Government pursuant to the provisions of
sections 269 and 309 of the Companies Act, 1956, and other applicable
provisions, if any remuneration payable to Mr.____________________ the Managing
Director of the Company, for a period of five years commencing from the
__________ 2002 __________ be fixed at the following terms, or with such
modifications thereof (not being modifications more advantageous to Mr.
____________________) as may be approved by the Central Government and agreed
to by the Board and Mr. ____________________”
1. Payment of remuneration
to Managing/Whole-time Director.-Because of the narrow range within which
remuneration may be sanctioned by the Central Government under section 309(l),
it is desirable to seek the approval of the Central Government for the
remuneration payable to the Managing/Whole-time Director on the strength
of the resolution given above. The application for payment of minimum
remuneration to the Managing/Whole-time Director should be made in Form
No. 25C.
2. Forwarding to members the
abstract of terms of contract or variation with requisite memorandum.- Pursuant to section 302 of
the Companies Act, 1956, a company, entering into a contract for appointment of
a Managing Director must, within twenty-one days from the date of
entering into the contract or of the varying of the contract, as the case may
be, send to every member of the company an abstract of the terms of the
contract or variation, together with a memorandum clearly specifying the nature
of the concern or interest of the Director in such contract or variation.
3. Maintenance of register
of contract and keeping it open to inspection of members.-Pursuant to sub-section
(6) of section 302, a company is to maintain a register showing particulars of
all contracts entered into by the company for the appointment of a Manager or
Managing Director, at the registered office of the company and they shall be
kept open to inspection by any member of the company, at such office, and any
member can take abstracts/copies from such register of contracts.
4. Application to Central
Government for appointment/re-appointment of Managing/Whole-time
Director.-All public companies and private companies, which are subsidiaries of
public companies, should make simultaneous applications in Form No. 25A and in
Form No. 25C to the Central Government for appointment/re-appointment of
Managing/Whole-time Directors and for fixing their remuneration.
5. Circulation of memorandum
of interest of concerned director in a contract as Managing/Whole-time
Director to directors.-Usually, after the Board considers an
agreement/contract with any Director for the appointment of a Managing/Whole-time
Director, a 'memorandum of interest' of the concerned Director in a contract as
Managing/Whole-time Director/Manager is circulated giving details of
remuneration and other terms applicable to the Director concerned.
6. Payment of guarantee
commission to Director not remuneration.-Payment of guarantee
commission to a Director of a company is not remuneration for providing some
service to the company so as to attract section 309. (Suessen Textile Bearing
Ltd. v. Union of India, (1984) 55 Com Cases 492 (Delhi). However, payment of
interest to a Director for advancing loans to a company is a return on
investment which can be earned even by depositing money with the bank and
cannot be said to amount to remuneration within the meaning of section 309.
7. Payment of travelling and
daily allowance to be made on actual basis.-The Central Government,
while fixing the remuneration of Directors, do not stipulate that travelling
and daily allowance payable should be in accordance with Income-tax Rules
but companies should ensure that such payment is made on the basis of actual
expenditure which should be kept minimum as far as possible. (Circular No.
5/75, dated 1-2-1975).
8. Sitting fees, travelling
allowance etc. to be paid to directors present in meeting.-Sitting fees, travelling
allowance etc., are to be paid to a Director who is present in a meeting even
if no business is transacted at that meeting for want of quorum. (Circular No.
1/72, dated 2-2-1972).
9. Remuneration to Directors
rendering specific services be paid in terms of percentage of profits.-Remuneration can be paid to
Directors in terms of percentage on profits if these Directors render specific
services to the company apart from attending only Board Meetings. (Letter No.
2/8/64-PR, dated 23-3-1964).
10. Payment of commission to
ordinary directors.-Commission is usually not paid to ordinary Directors when a company is
managed by Managing/Whole- time Directors. But, if a company is not
managed by Managing/Whole- time Directors and some specific duties have
been vested in ordinary Directors, they may be paid commission of one per cent
subject to a ceiling of Rs. 10,000/- per annum. (Letter No. 82 (Misc.)/75-CL.
V, dated 31-3-1976).
11. Central Government
approval not required to appointment made as per Schedule XIII.-If the appointment is in accordance
with the provisions of Schedule XIII the same will not require the approval of
the Central Government.
Fee for attending meetings (S. 310)
With effect from 1-4-2000
Sitting fee has been revised to Rupees five thousand for each meeting of the Board
of Directors or a Committee thereof. [Amendment by GSR 58(E), dated 17-1-20001.
The approval of the Central
Government will be necessary if it is proposed to pay any higher percentage
than prescribed, as setting fee.
Vacation of office of alternate Director (S. 313 (2))
The alternate Director
vacates office if and when the original Director returns to the State where the
Board Meetings are held. This is so whether the original Director attends a
Board Meeting or not. (Department's Letter No. 6/16(313)/68-PR, dated 17-1-2000).
Appointment of Alternate
Director
"RESOLVED that Mr. ____________________ be and is hereby appointed as alternate Director to Mr.____________________ during his absence from India and that he shall vacate such office when the original Director, Mr. PKW, returns to India, pursuant to article __________ of the Articles of Association of the Company."
1. Board can appoint
Alternate director if authorised by Articles otherwise by company in General
Meeting.-The Board of Directors of a company may, if so authorised by its
articles or by a resolution passed by the company in General Meeting, appoint
an alternate Director to act for a Director (original Director) during his
absence for a period of not less than three months.
2. Alternate director to
hold office for the period permissible to original Director.-An Alternate Director
appointed to hold office as such shall continue to hold office for a period not
longer than permissible to the original Director in whose place he has been
appointed and shall vacate office if and when the original Director returns to
the state in which meetings of the Board are ordinarily held irrespective of
the fact as to whether or not the original Director attends a Board Meeting.
(Letter No. 6/16(313)/68PR, dated 5-2-1968).
3. Leave of absence by Board
to original director presumed where alternate director appointed.-Where an alternate
Director is appointed by a resolution of the Board of Directors, the absence of
the original Director from meeting of the Board will not entail vacation of his
office as required by section 283(l)(g) as it is presumed in such a case that
leave of absence has been given by the Board.
4. Fulfillment of
formalities for appointment of alternate director.-Where it is desired to
appoint an alternate Director, the following formalities should be adhered to:
(a) In the case of a public
company or its subsidiary, there should be filed with the company the written
consent of the person to be appointed as an alternate Director. There is no
prescribed form for the same. This formality shall, however, be not necessary
where he, immediately before such appointment, was already a Director of the
company (Section 264(l)).
(b) There should be called a Board Meeting to appoint the alternate Director to act for the original Director during his absence for a period of not less than three months from the state in which the meetings of the Board are ordinarily held (section 313(l)). He will not hold office as such for a period longer than that permissible for the original Director in whose place he has been appointed and shall vacate office if and when the original Director returns to the state in which Board Meetings are ordinarily held (Section 313(2)).
(c) He has to notify about
his appointment to other companies in which he is a Director, Managing
Director, Manager or Secretary within twenty days (section 305).
(d) Form No. 32, in
duplicate should be filed within thirty days of his appointment, with the
Registrar (Section 303(2)).
5. Alternate Director ceases
on return of principal director.-An alternate Director has no locus standi; the
moment the principal Director returns, he ceases to be the Director. Even if
such an alternate Director is appointed as a Managing Director with the
approval of the Central Government the moment he ceases to be a Director of the
company, he also ceases to be a Managing Director. (Letter No. 8/21(200) 76-CL.
V, dated 17-3-1977).
(Another format)
"RESOLVED that pursuant
to the provisions contained in section 313 of the Companies Act, 1956, Shri XYZ
be and is hereby appointed as an alternate Director to Shri ABC, w.e.f. 26-3-2002,
who will be away to USA.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to file necessary returns
with the Registrar of Companies concerned."
1. Articles must authorise
appointment.-The Board of Directors can appoint alternate Directors if it is
authorised by its articles or by a resolution passed by the company in General
Meeting.
2. Alternate directors to
hold office for period for which original director appointed.-The alternate Director shall
hold office for the period for which the Original Director has been appointed.
He shall vacate this office as and when the original Director returns to State
in which meetings of the Board are held.
3. Automatic reappointment of
retiring directors apply to original Director and not to alternate Director.-If the term of office of the
original Director is determined before he returns to the State in which
meetings are held, any provision for the automatic reappointment of retiring
Directors in default of another appointment shall apply to the original
Director and not to the alternate Director.
4. Filing of return with
Registrar of Companies.-Necessary return in Form Nos. 29 and 32 in duplicate
are to be filed with the Registrar of Companies concerned within thirty days
along with the prescribed filing fee.
Vacation of office of
alternate Director
"RESOLVED that Shri
ABC, Director of the Company having returned to the National Capital Territory
of Delhi from USA, Shri XYZ who was appointed as an alternate Director to act
in the place of Shri ABC, be and is hereby declared to have ceased to be the
alternate Director of the Company.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to file the necessary
return with the Registrar of Companies concerned."
1. Alternate directors to
vacate office when original Directors return to State. - The alternate Director
vacates office if and when the original Director returns to the State where the
Board Meetings are held. This is so whether the original Director attends a
Board Meeting or not. (Department's Letter No. 6/16(313)/68-PR, dated 5-2-1968).
2. Filing of Return with
Registrar of Companies. -Necessary return in Form 32 is to be filed in duplicate with
the Registrar of Companies concerned within thirty days along with the
requisite filing fee.
Holding of office or place of profit by Director (S. 314)
Office or place of profit as
explained in sub-section (3) of section 314 will obviously include
selling and buying agents receiving commission and/or salary. The expression
perquisites will cover any advantage or benefit whether in kind or even service
if it can be measured in terms of money or money value. (Rendell v. Went,
(1964) 2 All ER 464 (HL)). Unless the remuneration paid to a Director is over
and above the remuneration to which he would be entitled as Managing or Whole-time
Director, his holding of office would not be deemed to be an office or place of
profit under the company. (Department's Circular No. 4 of 1976, dated 11-2-1976).
Where a selling agency arrangement already exists, a condition would be imposed
at the time of conveying sanction to the appointment/reappointment of Managing
or Whole-time Director or Manager as the case may be, to the effect that
he shall not either directly or through his wife and son or sons, augment his
income from the company by being associated with the selling agents.
(Department's Circular No. 12(9) Cl. VI/68, dated 19-11-1968).
The section is not
applicable to a contract for sale or purchase of a material by a company to and
from a Director, relative etc.
No omnibus resolution can be
passed by a company under the provisions of section 314. The Special Resolution
contemplated in the section should be passed in respect of individual case.
(Department's Letter No. 8/8(314)/64, dated 21-12-1964).
Holding of office or place
of profit
"RESOLVED that subject to the consent of the Company at a General Meeting of the members, Mr.____________________ a relative of Mr. ____________________ the Managing Director of the Company, be and is hereby appointed to hold an office of profit under the Company as the Assistant Sales Manager with effect from the __________, 2002 __________, as per the terms and conditions mentioned in a statement and submitted to this meeting."
1. Scope of section 314.-Scope of section 314 of the
Companies Act, 1956, is very wide in its application, and the list of
prohibitions is also very wide. In practice, wherever the Board of Directors
appoint someone who is a Director of the company or his relative or a partner
of a firm in which such Director is a partner, or a member or a Director of a
private company, the provisions of section 314 are attracted. The object is to
prohibit a Director and any one connected with him, holding any employment
carrying remuneration of ten thousand rupees or more under the company unless
the company approves of it by a Special Resolution at first General Meeting
held immediately after such appointment. Directors rendering services as
solicitors, chemists or technicians are also covered by this section.
2. Term 'Office' or 'place
of profit'-Meaning. -'Office' or 'place of profit' has been explained in
sub-section (3) of the section and virtually covers any advantage
received by a Director from the company except sitting fees and the
remuneration to which the Director is entitled. The expression 'perquisite'
will cover any advantage or benefit whether in kind or even service, if it can
be measured in terms of money or money-value. (Rendell v. Went, (1964) 2
All ER 464 (HL)).
3. Government Directors
excluded.-Section 314(4) excludes from the provision of this section any Director
appointed by the Central Government under section 408.
4. Section applicable to
both public and private companies.-Provisions of' section 314 apply to both
public and private companies.
5. For appointment of
managerial personnel who are relatives of directors in public company only
Special Resolution required.-By virtue of sub-section (1B) of this section,
in the case of' a public company, appointment of any managerial personnel who
are also relatives of Directors, would only require passing of Special
Resolution because their appointments are already regulated by section 269
which require approval of the Central Government.
6. Words "approval of
the company in General Meeting"-Meaning.-The words approval of the
company in General Meeting' occurring in the proviso to sub-section (I B)
means the approval by a Special Resolution.
7. Appointment of relative
of director as Managing Director.-In the case of a private company the appointment of
a person as a Managing Director who is related to a director of the company
will attract the provisions of section 314(1B) where the remuneration payable
to such managing director is Rs. 20,000/- or more envisaged in subsection
(1B).
8. Ambit of Exemption.-The exemption under sub-section
(1A) also applies to cases falling under sub-section (1B) and the
appointment of the Managing Director of a private company who is a relative of
a Director of that private company will also attract the provision of section
314 (1B).
9. Prescribed sums under the
Rules.-As
per Companies (Central Government's) General Rules and Forms, 1956, and its
rule 10C, the following shall be the remuneration.
“R.10C. (1) The total monthly remuneration for the purpose of
clause (b) of subsection (1) of section 314, shall not be less than rupees ten
thousand, and
(2) The total monthly
remuneration, for the purpose of subsection (1B) of section 314, shall not be
less than rupees twenty thousand.”
10. Application to Central
Government.-Application should be made to the Central Government in Form No. 24B
along with a copy of the Special Resolution passed by the company and a
treasury challan evidencing the payment of the requisite fee.
11. Director acting as
Manager or Secretary.-If a Director of a company works in that company as a Manager
and Secretary, then, in fact, he is the Managing Director of that company
holding office of profit as a Secretary, but section 314 does not apply to a
Managing Director. So, Special Resolution is not needed for his appointment as
a Secretary. (Letter No. 8/16(1)/61-PR, dated 9-5-1961).
12. Section not applicable
to payment of guarantee Commission or interest on loans to directors.-Section 314 is not
applicable in case of payment of guarantee commission or interest on loans to
Directors of a company. (Letter No. 8/26(309)/76-CL.V, dated 9-1-1978).
13. Sale or purchase of
materials by a director or his relative, etc.-The provisions of section
314(l) of the Companies Act do not apply to the sale or purchase of material by
a Company to or from its director or his relative, a firm in which such
director or relative is a partner, any/other partner in such a firm, or a
private company of which the director is a member or director. It would be
enough in such cases if the consent-of the Board of directors of the
Company is obtained as laid down in section 297(l) of the Act.
14. Special resolution in
respect of each individual case.-For appointing any person mentioned in section 314
to any office or place of profit of a company, Special Resolution should be
passed for each individual case and no omnibus resolution can be passed.
(Letter No. 8/8(314)/64, dated 21-12-1964).
15. Employee becoming
relative of director subsequently.-If an employee is appointed to any place of
profit before a Director becomes a Director and continues to hold that office
after he becomes a relative of that Director, then consent of the company by
Special Resolution should be obtained. (Letter No. 8/16(1)/61 -PR, dated
23-1-1961).
16. Section 314(1B)
attracted when firm of Solicitor/Advocates appointed on retainership basis.-Provisions of section 314
(1B) will also attract when a firm of Solicitors or Advocates (being otherwise
covered by the section) are appointed on a regular retainer basis for rendering
legal advice. The provisions will not be applicable to selling arrangements
entered into by a company with any of the persons mentioned in sub-section
(1B). (Circular No. 14/75(8/12/314(1B)/75-CL.V), dated 5-6-1975)
17. Section 314(1B) applicable
when a Managing Director obtains anything by way of remuneration over and above
what he is entitled.-If an individual is appointed as a Managing or Whole-time
Director of a private company carrying remuneration of Rs. 20,000/- or
more per month, who is a partner or relative of the Director or Manager of that
private company, then provisions of section 314(1B) will not be attracted
unless the individual so appointed gets any remuneration over and above the
remuneration which he is entitled as such Managing or Whole-time
Director. (Circular No. 4/76(8/12/314(1B) 75-CL.V), dated 11-2-1976).
18. 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 obtained necessary approvals from the Board of
Directors, members and previous approval of the Central Government pursuant to
section 314 of the Act wherever applicable as per paragraph 11 of the Form of
Compliance Certificate appended to the Companies (Compliance Certificate)
Rules, 2001.
Appointment as Managing
Director of more than two companies
S. 316-Appointment
as Managing Director of more than two companies Board Resolution
“RESOLVED that, subject to
the approval of the members at a General Meeting and the approval of the
Central Government in regard to the appointment of Mr. ____________________ as
the Managing Director of the company notwithstanding that he is also the
Managing Director of M/s. ABC & Company Limited and M/s. XYZ & Company
Limited, the notice dated the __________, 2002 __________, and after notifying
all the Directors then present in India, the Board of Directors unanimously
agree to the appointment of Mr. ____________________ as the Managing Director
and to pay the remuneration and perquisites as per the terms of the draft
agreement, hereby tabled, for a period of five years commencing from the
__________, 2002 __________”
1. Managing Directorship not
to be in more than two public companies.-Pursuant to the provisions
of section 316, a person can be appointed as a Managing Director or Manager in
two companies. A person may, however, become Managing Director of a number of
private companies which are not subsidiaries of public companies but cannot be
a Managing Director of more than two public companies. Pursuant to sub-section
(2) of section 316, appointment of Managing Director/Manager in more than two
companies should first be considered thoroughly by the Board of Directors.
2. Formalities required to
be complied with.-The formalities involved are:-
(a) The notice to the
Directors before appointing the Managing Director should be specific and give
full details;
(b) The resolution should be
passed at a meeting of the Board with the consent of all the Directors present
at the meeting;
(c) Full text of the
resolution to be passed at the Board Meeting should be given to all the
Directors then in India; and
(d) The other formalities of
obtaining consent of the members at a General Meeting to such appointment of
the Managing Director and the approval of the Central Government thereto should
be obtained in due course.
Appointment of Managing
Director or a person who is already Managing Director of another company
"RESOLVED that subject to the approval of the Central Government pursuant to sub-section (4) of section 316, Mr. XYZ who is already the Managing Director of two companies, namely M/s. ABC Limited and M/s. BCD Limited, be and is hereby appointed as a Managing Director of the Company for a period of five years commencing from 1st September, 2002, with the consent of all the Directors present at the meeting of which meeting and the resolution to be moved thereat specific notice was given to all the Directors then in India, on the terms and conditions contained in the draft agreement tabled before the meeting and initialled by the Chairman for purposes of identification and that Shri SPM, the Secretary of the Company be and is hereby authorised to apply to the Central Government for seeking their approval.
RESOLVED FURTHER that Shri
LMD, Director and Shri SPM the Secretary of the Company be and are hereby
authorised to execute the said agreement subject to such
modifications/alterations made by the Central Government while giving their
approval and to affix the common seal of the Company thereon, in accordance
with the Articles of Association of the Company."
1. Draft resolution to be
circulated with resolution.-The draft of the resolution is to be circulated in
advance along with notice of the meeting to all the Directors present then in
India.
2. All directors present
must consent.-Consent of all the Directors present at the meeting is necessary.
3. Payment of remuneration
to Directors.-For payment of remuneration to the Directors, application under section
309(3) of the Act will also be necessary. As per Schedule XIII Part II Section
III, subject to the provisions of sections I and II of the said schedule, a
managerial person could draw remuneration from one or both companies, provided
that the total remuneration drawn from the companies does not exceed the higher
maximum limit admissible from any one of the companies of which he is a
managerial person.
4. Approval not necessary.-If the Director being
appointed is a Managing Director of one more company, approval of the Central
Government is not necessary.
5. Too small companies may
have common Managing Director.-In cases where the two companies are small ones or
are engaged in more or less similar or allied business and/or are situated in
the same area, the Board may, in the interests of efficient and more economical
management of the two companies approve a common managing director but in that
event, the remuneration approved for the appointment in the second company will
be regulated suitably.
6. Appointment made by
circular resolution.-Appointment of a person who was working as a managing director in one
company, as a managing director in another company by a circular resolution
without consent of the other directors was held to be not complying with
statutory provisions. Desein (P) Ltd. v. Elekrime India Ltd., (2001) 3 Comp LJ
459 (CLB).
Appointment of Managing
Director for more than 5 years by a private company
RESOLVED that subject to the
approval of the company in a general meeting, Mr. ABC be and is hereby
appointed as the Managing Director of the company for 7 years pursuant to
section 317(4) of the Companies Act, 1956;
RESOLVED FURTHER that an
Extraordinary General Meeting of the company be called and held for the
aforesaid purpose on __________ at __________ as per the draft notice and the
explanatory statement placed before the meeting and initialled by the Chairman
for purpose of identification;
RESOLVED FURTHER that the
Secretary of the company be directed to issue the notice to all the members of
the company and take every step needed in connection therewith or ancillary or
incidental thereto.
1. Appointment for more than
5 years.-A private company which is not a subsidiary of a public company can
appoint a Managing Director for more than five years. Otherwise, any public
company or any private company which is a subsidiary of a public company cannot
appoint any Managing Directors of the Company for more than five years at a
time as per section 317 of the Companies Act, 1956.
2. Government companies
exempted.-The provisions of section 317 with regard to the appointment of
Managing Director for a period of only upto five years do not apply to a wholly
owned Government company as per notification GSR 577(E), dated 16-7-1985.
Compensation for loss of
office
"WHEREAS Mr. NBS was
employed for a period of three years as the Managing Director of the Company
from __________, 2002 __________;
AND WHEREAS the Company
wanted to dispense with the services of the said Managing Director;
AND WHEREAS the Company has
duly served notice to the said Managing Director in terms of clause __________
of the agreement between the company and the said Mr. NBS governing his terms
and conditions as the Managing Director of the Company, in terms of clause
__________ of the agreement between the Company and the said Mr. NBS;
NOW THEREFORE IT IS RESOLVED
that an amount of Rs. __________ be paid to Mr. NBS as compensation for the
loss of his office as the Managing Director of the Company."
1. Compensation for loss of
office payable only to Managing/Whole-time Director.-Compensation for the loss of
office or in connection with loss or retirement from office is payable only to
a Managing Director or a Whole-time Director under section 318(l).
2. Board resolution
sufficient.-The section only mentions that 'payment may be made by a company'
without indicating as to whether the resolution connected therewith should be
adopted in a General Meeting by the members or not. Having regard to the
agreement between the company and the concerned Director, which is invariably
approved by the members, it may be presumed that the implementation of a clause
of such agreement is within the competence of the Board of Directors of the
company.
3. Payment not to exceed
remuneration for un expired term or for three years whichever is shorter.-Any payment made to a
Managing or Whole-time Director for the purposes explained above should
not exceed the remuneration which he would have earned if he had been in office
for the un expired residue of his terms or for three years whichever is
shorter, calculated on the basis of average remuneration actually earned by him
during a period of three years immediately preceding the date on which he
ceased to hold the office, or where he held the office for a lesser period than
three years, during such period only but such a Director shall not be entitled
to any payment in the event of the commencement of the winding up of the
company within twelve months before or after the cesser of such office.
Payment to Director for loss
of office on transfer of undertaking or property
RESOLVED that subject to the
approval of the members of the company in a general meeting Mr. ABC, the
Managing director of the company be paid Rs. __________ by way of compensation
for loss of office in connection with transfer of undertaking of the company
to the transferee company as per the particulars with respect to the payment
proposed to be made and placed before this meeting and initialled by the
Chairman for purpose of identification;
RESOLVED FURTHER that an
Extraordinary General Meeting of the company be called and held for the
aforesaid purpose on __________ at __________ as per the draft notice and the
explanatory statement placed before the meeting and initialled by the Chairman
for purpose of identification;
RESOLVED FURTHER that the
Secretary of the company be directed to issue the notice to all the members of
the company and take every step needed in connection therewith or ancillary or
incidental thereto.
PRACTICE NOTES
1. Certain payments
exempted.-The restriction contained in the section does not apply to payments
made in good faith by way of damages for breach of contract or by way of
pension in respect of past services including any super annuation allowance,
gratuity or other similar benefits (Beach v. Reed Corrugasted Cases Ltd.,
(1956) 2 All ER 652; Re, Houghton Main Colliery Co. Ltd., (1956) 3 All ER 300).
The section also does not apply to payments due under service agreements, e.g.,
between the company and its managing director. (Taupo Totara Timber Co. Ltd. v.
Rowe, (1977) 3 All ER 123 (PC)). The prohibition in these sections (319 and
320) applies to all directors including a managing director or a director who
is manager or whole-time director.
2. Approval not necessary
for employee directors.-The section does not require approval for
compensation payments made to directors who are also employees, if the payments
are in accordance with the terms of the contract of service. The section
relates to "proposed payments" and not contractual obligations
incurred before the amalgamation of take-over. Such payments may be
included in such contracts if the articles so allow and the directors are
acting bona fide and in the interests of the company.
Payment to Director for loss
of office in connection with
Transfer of shares
RESOLVED that subject to the
approval of the holders of shares to which the offer relates and other holders
of shares of the same class Mr. ABC, the Managing Director of the company be
paid Rs. __________ by way of compensation for loss of office in connection
with transfer of shares resulting from an offer made to the general body of the
shareholders from the transferees, as per the particulars with respect to the
payment proposed and placed before this meeting and initialled by the Chairman
for purpose of identification.
RESOLVED FURTHER that an
Extraordinary General Meeting of the company be called and held for the
aforesaid purpose on __________ at __________ as per the draft notice and the
explanatory statement placed before the meeting and initialled by the Chair-man
for purpose of identification;
RESOLVED FURTHER that the
Secretary of the company be directed to issue the notice to all the members of
the company and take every step needed in connection therewith or ancillary or
incidental thereto.
PRACTICE NOTES.
1. Particulars of payment to
be sent to shareholders.-When compensation for loss of office in connection
with transfer of shares is paid to any director including Managing Director or
Whole-time Director, the particulars with respect to the payment proposed
to be made should be sent with the notice of offer made for the shares to the
shareholders. Such payment should be made either by the transferees or other
person and not the company.
2. Penalty.-If any director who is in
receipt of such compensation fails to take reasonable steps to secure that the
particulars with respect to the payment to him are included either in the
notice of offer of shares or sent with the notice of offer of shares to the
shareholders will be punishable with fine up to Rs. 2500/-.
3. Absence of quorum.-According to sub-section
(5) of section 320 of the Companies Act, 1956 if at a meeting called for the
purpose of approving any payment as required under the said section, a quorum
is not present and, after the meeting has been adjourned to a later date, a
quorum is again not present, the payment will be deemed to have been approved.
Unlimited liability of
Directors
S. 322-323-
Unlimited liability of Directors-Board Resolution
RESOLVED that subject to
passing of a special resolution in the general meeting of the company and
pursuant to article of the Articles
__________ of Association of the company, the liability of all the directors of
the company be and are hereby unlimited;
RESOLVED FURTHER that
Memorandum of Association of the company be altered by passing the aforesaid
special resolution so as to render unlimited liability of all the directors of
the company;
RESOLVED FURTHER that an
Extraordinary General Meeting of the company be called and held for the
aforesaid purpose on __________ at __________ as per the draft notice and the
explanatory statement placed before the meeting and initialled by the Chair-man
for purpose of identification;
RESOLVED FURTHER that the
secretary of the company be directed to issue the notice to all the members of
the company and take every step needed in connection therewith or ancillary or
incidental thereto.
1. Authorisation in the
articles.-A limited company can make liability of its directors unlimited if it
is so authorised by its Articles of Association and its Memorandum of
Association. In case the memorandum and/or the articles do not contain any such
provision, they should be first altered by passing a special resolution to
include such provision.
2. Consent from existing
directors.-Before including provision in the Memorandum of Association of a
company making liability of director unlimited, a consent in writing should be
obtained in advance from all the existing directors of the company.
3. Filing.-The special resolution after
passing by the members of the company should be filed in Form No. 23 with the
Registrar of Companies along with requisite fee and in case of a listed company
stock exchanges with which the shares of the company are listed should also be
informed.
Giving of guarantee etc. (S. 370)
The percentage up to which
the Board of Directors of the company shall be entitled to advance loan or give
guarantee to other bodies corporate not under the same management as the
lending company prescribed earlier has been deleted by the Companies (Amendment)
Act, 1988, and it is now be prescribed by the Central Government from time to
time under Rule 11B of the Companies (Central Government's) General Rules and
Forms, 1956. The percentages so prescribed may be kept in view while advancing
loans or giving guarantees.
Loans to companies under the same management (S. 370)
Deposits kept by one company
with another company is loan (Press Note 4-6-1985). This section
does not apply to a wholly owned Government company provided that such company
shall obtain the approval of the Central Government or the State Government
before making loan or giving any guarantee or providing any security. On the
principle underlying the provisions of section 370(5), a private company which
becomes a deemed public company by virtue of section 43A will have to recover
the loans given or withdraw the guarantee within a period of six months from
the date of becoming a public company (Notification GSR 309, dated 20-2-1978).
Loans and Investments (S. 372A)
(Inserted by the Companies (Amendment) Act, 1999, w.e.f. 31-10-1998)
Provisions of section 370
have been merged with the provisions of section 372 and a new section 372A has
been inserted in the Act by the Companies (Amendment) Act, 1999 with
retrospective effect from 31st October, 1998. The new section gives power to
the Board Directors of a company to make investment, give loan and guarantee
and provide security in connection with such loan up to 60% of its paid-up
share capital and free reserves or less than 100% of its free reserves,
whichever is more.
Such approval of the Board
should be given by passing a resolution at a meeting of the Board with the
consent of all the directors present at the meeting. The prior approval of the
public financial institution referred to in section 4A of the Act where any
term loan is subsisting, is required only in case the aforesaid making of
investment or giving of loan or guarantee or providing security in connection
with such loan exceeds the limit of 60% of the company's paid-up share
capital and free reserves or is 100% or more of the company s free reserves
whichever is more, and it should be previously authorised by a special
resolution passed in a general meeting. New section 372A totally frees
companies from the hurdle of obtaining approval from the Central Government in
any case. Now it will be the choice of the respective companies to plan the
combination of loan, guarantee, security and investment within the specified
limits with the Board's sanction and above the specified limits with the
sanction of the members by passing a special resolution.
WHEREAS the Company had applied
to Life Insurance Corporation of India (LIC), General Insurance Corporation of
India (GIC) and Unit Trust of India (UTI) for bridge loan aggregating Rs.
__________ against the proposed public/rights issue of equity shares/debentures
of Rs __________;
AND WHEREAS the matter was
discussed by the Board and approved availing of the aforesaid amount as and
when sanctioned by the said financial institutions by executing the necessary
documents;
"NOW THEREFORE IT IS
RESOLVED that the Company do avail bridge loan not exceeding Rs.__________ from
LIC, GIC and UTI (herein after jointly referred to as "the
Institutions") as and when sanctioned, against public/rights issue of
equity share s/debentures of Rs __________ on the terms and conditions as may
be agreed to between the Company and the institutions and that Mr.
____________________ and Mr.____________________ Directors, Mr.
____________________ Secretary and Mr.____________________ Financial Controller
of the Company be and are hereby severally authorised and empowered to
negotiate, finalise, approve and accept the terms and conditions stipulated by
the institutions and any modifications thereto and execute all such deeds,
documents, undertakings, writings and receipts as may be required by the
institutions in connection with the bridge loan to be availed by the Company.
RESOLVED FURTHER that any
two of the following directors, namely Mr. ____________________
Mr.____________________ and Mr. ____________________ be and are hereby jointly
authorised to execute the demand promissory note and such other document(s)
undertaking(s) and deed(s) as may be required to be executed under the common
seal of the company in accordance with the Articles of Association of the
Company in connection with the availing of the aforesaid bridge loan from the
Institutions."
PRACTICE NOTES
1. Loans exempted.-Section 372A of the Act
talks of inter corporate loans and not of loans obtained from financial
institutions.
2. Borrowing within limits.-While taking loans, the
company must keep in mind that the total borrowing of the company should not
exceed the limit fixed by the company in general meeting under section
293(l)(d) of the Act.
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 made loans and investments or given guarantees or
provided securities to other bodies corporate in compliance with the provisions
of the Act and has made necessary entries in the register kept for the purpose
as per paragraph 25 of the Form of Compliance Certificate appended to the
Companies (Compliance Certificate) Rules, 2001.
Giving of guarantee
"RESOLVED that a guarantee in the usual form prescribed by _________ Finance Corporation, a copy of which is submitted to this meeting and initialled by the Chairman hereof, be and is hereby provided by the Company for a total amount not exceeding Rs. 4,50,000 (Rupees four lakhs fifty thousand only) in favour of the said Finance Corporation and that the validity of the guarantee hereby given be for a period of one year from the date of execution thereof, at a consideration of a commission at the rate of one per cent of such guarantee amount, payable by M/s. XYZ & Company Limited to whom the loan has been given by the said _________ Finance Corporation.
RESOLVED FURTHER that Mr. __________________ and Mr. __________________ the Directors of the Company, be and are hereby Jointly authorised to execute the guarantee in this connection under the common seal of the company, in accordance with the Articles of Association of the Company."
PRACTICE NOTES
1. Prescribed ceilings for
loans and investments to companies.-Under section 372A of the Companies Act,
1956, as inserted by the Companies (Amendment) Act, 1999 with retrospective
effect from 31st October, 1998, the Board of Directors of a company can,
without the approval of the shareholders by Special Resolution, make loan, give
guarantee and security in connection with such loan and make investments up to
60% of its paid-up capital and free reserves or less than 100% of free
reserves, whichever is more.
2. Loans, guarantees and
investments exempted.-The following kinds of loans/guarantees are exempted
from the purview of section 372A:
When any loan is made; (i) by a banking company, or an insurance company or a housing finance company in the ordinary course of business; or (ii) by a company whose principal business is the acquisition of shares, stock, debentures or other securities; or (iii) by a private company, unless it is a subsidiary of a public company or (iv) by a company, established with the object of financing industrial enterprises or of providing infrastructural facilities (v) any investment made in shares allotted in pursuance of clause (a) of sub-section (1) of section 81; or (vi) any loan made by a holding company to its wholly owned subsidiary; or (vii) any guarantee given or any security provided by a holding company in respect of loan made to its wholly owned subsidiary; or (viii) acquisition by a holding company, by way of subscription, purchase or otherwise, the securities of its wholly owned subsidiary.
"RESOLVED that the
Company furnishes a guarantee in the usual form guaranteeing the repayment of
principal and interest of the Loan of Rs. 50,00,000/- for a term of
_________ years given by _________ to _________ on _________ provided however
that the total liability of the Company at any time is limited to Rs.
65,00,000/- inclusive of principal and interest on the loan."
1. Board's power.-Board of directors has the
power to give guarantee to any body corporate subject to passing of a special
resolution.
2. Exemptions.-Guarantees given by a
banking or an insurance company or a housing finance company in the ordinary
course of business or by a private company which is not a subsidiary of' a
public company or by a company established with the object of financing
industrial enterprises are exempted from the provisions of section 372A-
of the Act. Section 372A is also not applicable to any loan made by a holding
company to its wholly owned subsidiary or to any guarantee given or any
security provided by a holding company in respect of loan made to its wholly
owned subsidiary or to acquisition by a holding company, by way of
subscription, purchase or otherwise the securities of its wholly owned
Subsidiary and also to investment made in shares in pursuance of clause (a) of
sub-section (1) of section 81.
3. Rate of Interest.-The rate of interest to be
made on the loans should not be lower than the prevailing bank rate of
interest, being the standard rate made public under section 49 of the Reserve
Bank of India Act, 1934.
Guarantee to bank for
subsidiary
S. 372A-Guarantee
to bank for subsidiary-Board Resolution
"WHEREAS M/s. PQR & Company Limited (hereinafter called the subsidiary) has been granted a credit line up to a limit of two crores of rupees on various accounts by its bankers, __________________ Bank, _________ Branch, ANAND 388001
AND WHEREAS the subsidiary
has requested for guaranteeing this credit;
NOW THEREFORE IT IS RESOLVED
that the banking facility on various accounts aggregating to two crores of
rupees granted to this subsidiary of the Company, by __________________ Bank,
_________ Branch, ANAND 388001, be and is hereby secured by the execution of a
guarantee by this Company for two crores of rupees in favour of the aforesaid
bank in the usual guarantee form in use by the bank, by two Directors of this
company."
1. Maintenance of register
of investment.-It is obligatory to maintain a register to record particulars of every
loan, guarantee or security within seven days of the making of such loan,
giving of such guarantee or the provision of such security.
2. Filing of charge with
Registrar by the borrowing company.-Where the loan is secured by a charge,
provisions of section 125 of Chapter V of the Act regarding 'registration of
charges' are to be compiled with by the borrowing company so as to verify
whether the other company has filed with the Registrar a copy of the instrument
of the charge within thirty days after the date of its creation. This
requirement will be complied with if the charges fall under one of the matters
stated under (a) to (i) of sub-section (4) of section 125 of the
Companies Act, 1956.
3. Special Resolution
required.-Where the loan or guarantee given or security provided and investments
made by a company, directly or indirectly, exceeds 60% of its paid-up
share capital and free reserves or 100% of its free reserves, whichever is
more, such loan or guarantee given or security provided or investment made
should be previously authorised by a special resolution passed in a general
meeting.
4. Money lending/financing
by banking companies.-All banking companies (and not the Banks) after
nationalisation should comply with the provisions of section 372A, with regard
to their money lending and financing transactions. (Circular No. 14/76, dated
25-6-1976).
Investment in Shares of
Specific Companies
"RESOLVED that consent
of the Board of Directors be and is hereby accorded to the Company for
investing in the following shares:
|
Company name |
Number of Equity shares |
Total cost |
|
1. XY Ltd. |
5,00,000 |
Rs. 100,00,000/- |
|
2. _________ |
_________ |
_________ |
|
3. _________ |
_________ |
_________ |
1. The Companies (Amendment)
Act, 1999.-This Amendment Act with effect from 31st October, 1998, has inserted a
new section 372A wherein it has clubbed both the provisions of the old sections
370 and 372 which sections now stand inapplicable to a company from the
commencement of the said Amendment Act. The new section 372A has now freed
companies from Central Government's approval. Now, loans, guarantee, security
and investments upto 60% of a company's paid-up share capital and free
reserves or less than 100% of its free reserves whichever is more can be made
just with the Board's sanction and loans, guarantee, security and investments
above the aforesaid limits can be made with the sanction of special resolution
passed in a general meeting.
2. Exemptions.-Section 372A(8) exempts the
following companies from the operation of the said section:
(i) a banking company or an insurance company, or a housing finance company in the ordinary course of its business, or a company established with the object of financing industrial enterprises, or of providing infrastructural facilities;
(ii) a company whose
principal business is the acquisition of shares, stock, debentures or other
securities;
(iii) a private company,
unless it is a subsidiary of a public company;
(iv) any investment made in shares allotted in pursuance of clause (a) of subsection (I) of section 81.
(v) any loan made by a
holding company to its wholly owned subsidiary;
(vi) any guarantee given or any security provided by a holding company in respect of loan made to its wholly owned subsidiary, or
(vii) any acquisition by a
holding company, by way of subscription, purchases or otherwise, the securities
of its wholly owned subsidiary.
Purchase of shares etc. of other companies (S. 372)
The percentage up to which
the Board of Directors of the company shall be entitled to invest in the shares
of any other body corporate prescribed earlier has been deleted by the
Companies (Amendment) Act, 1988, and it will be prescribed by the Central
Government from time to time. The percentages so prescribed may be kept in view
while making investment.
Inter-corporate investment (S. 372(4))
The exemption under sub-section 14(d) will be available if and only if, on the date the investment is made, the company in which the investment is made, is already a subsidiary of the investing company." The exemption is not available to the investment made in the other body corporate as a result of which the other body corporate becomes a subsidiary company. In other words, the provisions of section 372 will also apply in the case of investment proposed to be made in the shares of a new company.
Inter-corporate
deposit (S. 372)
Guidelines for Indian direct investment in joint ventures and
wholly owned subsidiaries abroad
Indian Direct Investment in
JVs/WOS abroad (Master Circular dated 4-4-2001)
Overseas investments in
Joint Ventures (JV); and wholly owned subsidiaries (WoS) have been recognised
as important avenues for promoting global business by Indian entrepreneurs in
terms of foreign exchange earnings like dividend, royalty, technical know-how
fee and other entitlements on such investments. They are also a major source of
increased exports of plant and machinery and goods from India. Joint ventures
have also been perceived as a medium of economic co-operation between India
and other countries. Transfer of technology and skill, sharing of results of
R&D, access to wider global market, promotion of brand image, generation of
employment and utilisation of raw materials available in India and in the host
country are other significant benefits arising out of such overseas
investments.
In keeping with the spirit
of liberalisation, which has become the hallmark of economic policy in general,
and Exchange Control Regulations in particular, Reserve Bank has been
progressively relaxing its rules and simplifying the procedures both for
current account as well as capital account transactions.
Section 6 of the Foreign
Exchange Management Act provides powers to Reserve Bank to specify, in
consultation with the Central Government the classes of permissible capital
account transactions and limits upto which exchange is admissible for such'
transactions. Section 6(3) of the aforesaid Act provides powers to Reserve Bank
to prohibit, restrict or regulate various transactions referred to in the sub-clauses
of that sub-section, by making regulations.
In exercise of the above powers, Reserve Bank has issued Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2000 vide Notification No. FEMA 19/RB-2000 dated 3 May, 2000 (as amended vide Notification No. FEMA 40/RB2001, dated 2 March, 2001) (hereinafter referred to as the notification). The notification seeks to regulate acquisition and transfer of a foreign security by a person resident in India i.e. investment by Indian entities in overseas joint ventures and wholly owned subsidiaries as also investment by a person resident in India in shares and securities issued outside India.
Indian parties are
prohibited from making investment in a foreign entity engaged in real estate
business or banking business.
1. In terms of a regulation
4 of the notification, general permission has been granted to residents for
purchase/acquisition of securities and sale of shares/securities so acquired
(a) out of funds held in RFC
account; and
(b) acquired as bonus shares
on existing holding of foreign currency shares.
2. General permission has also been granted to a person resident in India for purchase of securities out of their foreign currency resources outside India as also for sale of securities so acquired.
SECTION B
DIRECT INVESTMENT OUTSIDE
INDIA
In terms of regulation 6 of
the notification, any Indian party has been permitted to make investment in
overseas joint venture/wholly owned subsidiary by submitting Form ODA, duly
completed to an authorised dealer, upto the amounts mentioned below:
(a) US $ 50 mn. or its
equivalent in any one financial year, (additional amount of US $ 25 mn. for investments
in Myanmar and SAARC countries, other than Nepal, Bhutan and Pakistan).
(b) Indian rupees upto Rs.
350 cores in Nepal and Bhutan in any one financial year.
The above ceiling will
include contribution to the capital of the overseas JV/WOS, loan granted to the
JV/WOS, and 50% of guarantees issued to or on behalf of the JV/WOS. Such
investments are subject to the following conditions:
(a) The investment should be
in a foreign entity engaged in the same core activity' [as defined in clause
(d) of regulation 2] carried on by the Indian company;
(b) The Indian party should
not be on Reserve Bank's caution list or under investigation by Enforcement
Directorate.
(c) All transactions
relating to a joint venture/wholly owned subsidiary should be routed through a
branch of an authorised dealer to be designated by the Indian party.
Investment in an overseas JV/WOS may be funded out
of one or more of the following sources:
(i) Balances held in EEFC account of Indian party;
(ii) Drawal of foreign exchange including capitalisation of exports from an authorised dealer in India upto the extent of 25 per cent of Indian party's net worth as on the date of last audited balance sheet;
(iii) Utilisation of proceeds of foreign currency
funds raised through ADR/GDR issues.
Where the investment is entirely funded out of
balances in EEFC account and/or out of proceeds of ADR/GDR issues the condition
that investment should be in the same core activity as stipulated in regulation
6 of the notification will not be applicable.
An Indian party is permitted
to make direct investment without any monetary limit out of funds raised
through ADRs/GDRs in terms of regulation No. 6(6) of the notification.
In terms of regulation 8 of
the notifications, Indian parties engaged in any activity who has already made
an ADR/GDR issue, may acquire shares of foreign companies engaged in the same
core activity in exchange of ADRs/GDRs issued to the latter in accordance with
the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares
(Through Depository Receipt Mechanism) Scheme 1993, and the guidelines issued
there-under from time to time by the Central Government, subject to compliance
with the following conditions:
(a) ADRs/GDRs are currently
listed on any stock exchange outside India;
(b) such investment by the
Indian party does not exceed the higher of the following amounts, namely:
(i) amount
equivalent of US $ 100 mn., or
(ii) amount equivalent to 10
times the export earnings of the Indian party during the preceding financial
year as reflected in its audited balance sheet. For the purpose of reckoning
the limit, the investment already made under regulation 6 in the same financial
year are to be included.
(c) the ADR and/or GDR issue
for the purpose of acquisition is backed by underlying fresh equity shares
issued by the Indian party;
(d) the total holding in the
Indian party by persons resident outside India in the expanded capital base,
after the new ADR and/or GDR issue, does not exceed the sectoral cap prescribed
under the relevant regulations for such investment;
(e) the valuation of the
shares of the foreign company is made,
(i) as per the
recommendations of the investment banker, if the shares are not listed on any
stock exchange; or
(ii) based on the current
market capitalisation of the foreign company arrived at on the basis of monthly
average price on any stock exchange abroad for the three months preceding the
month in which the acquisition is committed, and over and above, the premium,
if any, as recommended by the investment banker in its due diligence report in
other cases.
The Indian party is required
to report such acquisition in Form ODG to the Reserve Bank within a period of
30 days from the date of the transaction.
In terms of regulation 17B
of the notification, partnership firms registered under the Indian Partnership
Act, 1932 engaged in the field of chartered accountancy, legal practice and
related services, information technology and entertainment software related
services and medical and health care services are permitted to make investment
in foreign concerns abroad engaged in similar activity without prior approval,
provided
(a) such investment does not
exceed US $1 (one) million or its equivalent in one financial year;
(b) the investing firm is a
member of the respective All India professional organisation/body; and
(c) a report containing (i)
name, full address, registration and membership particulars of the investing
firm; (ii) full details of investment abroad; (iii) date and amount of
remittance/amount of capitalisation of fees/other entitlements due to the
investing firm; (iv) name and address of the foreign concern together with its
line of activity; (v) identification number, if already allotted by the Reserve
Bank, is submitted to the Reserve Bank through the authorised dealer within 30
days of making such investments.
In all other cases of direct
investment abroad which are not covered under the previous paragraphs including
investment by partnership firms not eligible under the automatic route, Reserve
Bank's prior approval would be required. For this purpose, applications
together with documents should be made in:
(a) Form ODB if the
investment is by way of exchange of shares of a foreign company/block
allocation.
(b) Form ODI in all other
cases.
Reserve Bank, inter alia,
would take into account following factors while considering such applications:
(a) Prima facie viability of
the joint venture/wholly owned subsidiary outside India;
(b) Contribution to external
trade and other benefits which will accrue to India through such investment;
(c) Financial position and
business track record of the Indian Party and the foreign entity;
(d) Expertise and experience
of the Indian party in the same or related line of activity of the joint
venture or wholly owned subsidiary outside India.
An Indian party with proven
track record, which has exhausted the permissible limit outlined in paragraph
B.1, may make an application in Form ODB along with necessary documents to the
Reserve Bank for block allocation of foreign exchange for overseas investments.
Such applications shall be approved by the Reserve Bank, subject to such terms
and conditions as considered necessary after taking into account the factors
outlined in paragraph B.6 above.
In terms of regulation 7 of
the notification, an Indian party seeking to make investment in an entity
engaged in the financial sector should also fulfil the following additional
conditions:
(i) earned net profit during
the proceeding three financial years from the financial services activities;
(ii) be registered with the
appropriate regulatory authority in India for conducting the financial sector
activities;
(iii) has a minimum net
worth of Rs. 15 crores as on the date of the last audited balance sheet; and
(iv) fulfilled the
prudential norms relating to capital adequacy as prescribed by the concerned
regulatory authority in India.
Indian parties are also
permitted to capitalise the payments due from the foreign entity towards
exports made to it, fees, royalties or any other payments due from the foreign
entity within the ceilings applicable. Export proceeds remaining unrealised
beyond a period of six months from the date of export will require the prior
approval of Reserve Bank before capitalisation.
In terms of regulation 13 of
the notification, an Indian party before giving consent to the decisions
relating to-
(a) undertaking any activity
other than the activity in which the foreign entity was engaged/or proposed to
be engaged at the time of investment by the Indian party; or
(b) participation in the
capital of another foreign entity; or
(c) alteration of the
company's capital structure, authorised or issued, or its shareholding pattern,
is required to obtain the
prior permission of Reserve Bank, if it holds 50% or more of the paid-up
capital of the foreign entity; and
(i) the foreign entity has
been in operation for a period of less than two years; or
(ii) the Indian party has
not repatriated the amount of dividends, fees and royalties due to it from the
foreign entity; or
(iii) proceeds of exports to
the foreign entity have not been realised in accordance with the Foreign
Exchange Management (Export of Goods and Services) Regulations, 2000; or
(iv) additional capital
contribution will be required from India; or
(v) the percentage of equity
shareholding of the Indian party in the foreign entity is being reduced
otherwise than in pursuance of the laws of the host country.
The above restrictions are
not applicable in case the investment in the foreign entity is made entirely
out of the balances held in the Indian party's EEFC account balances and/or out
of the foreign currency resources raised by way ADR/GDR issue.
An Indian party may remit
earnest money deposit or issue a bid bond guarantee for acquisition of a
foreign company through bidding and tender procedure and also make subsequent
remittances through an authorised dealer in accordance with the provisions of
regulation 14 of the notification.
An Indian party which has
made direct investment abroad is under obligation to (a) receive shares
certificate or any other document as an evidence of investment; (b) repatriate
to India the dues receivable from foreign entity; and (c) submit the
documents/annual performance report to Reserve Bank, in accordance with the
provisions specified in Regulation 15 of the notification.
Sale of shares of JV/W0S
abroad held by an Indian party would require prior approval of Reserve Bank.
An Indian party may pledge
the shares of JV/WOS to an authorised dealer or a financial institution in
India for availing of any credit facility for itself or for the JV/WOS abroad
in terms of regulation 17 of the notification.
SECTION C
INVESTMENT IN FOREIGN
SECURITIES OTHER THAN BY WAY OF
DIRECT INVESTMENT
Issue or transfer of foreign
security by a person resident in India is prohibited except in case of an
Indian company or a body corporate created by an Act of Parliament, which has
obtained an approval of Government of India, Ministry of Finance to issue
Foreign Currency Convertible Bonds (FCCBs) to a person resident outside India.
Such a company or body corporate is required to submit to Reserve Bank a report
within 30 days from the issue of the FCCBs giving the following details and
documents:
(a) A copy of Government's
approval for issue of FCCBs.
(b) Total amount for which
FCCBs have been issued.
(c) Names of the investors
resident outside India and number of FCCBs issued to each of them.
(d) The amount repatriated
to India through normal banking channels and/or the amount received by debit to
NRE/FCNR accounts in India of the investors (duly supported by bank
certificate).
C. 2 permission for purchase/acquisition of foreign
securities in certain cases
General permission has been
granted to a person resident in India who is an individual-
(a) to acquire foreign
securities as a gift from any person resident outside India; or
(b) to acquire shares under
cashless employees stock option scheme issued by a company outside India,
provided it does not involve any remittance from India, or
(c) to acquire shares by way
of inheritance from a person whether resident in or outside India;
(d) to purchase equity
shares offered by a foreign company, if he is an employee or a director of an
Indian office or branch of a foreign company or of a subsidiary in India of a
foreign company or an Indian company in which foreign equity holding is not less
than 5 1 per cent provided: (a) such shares are issued at a concessional.
price; and (b) the amount of consideration for purchase of shares does not
exceed US $ 20,000 or its equivalent in any one calendar year. Authorised
dealers are permitted to allow remittances for purchase of shares by eligible
persons under this provision.
The shares acquired by a
person resident in India in accordance with the provisions of Foreign Exchange
Management Act, 2000 or rules or regulations made there under are allowed to be
pledged for obtaining credit facilities in India from an authorised dealer,
Reserve Bank would consider
applications from residents for acquisition of foreign securities, if it
represents-
(a) qualification shares for becoming a director of
a company outside India,
(b) rights shares provided
the consideration for acquisition does not exceed US $ 10,000 in a block of
five calendar years.
(c) purchase of shares of a
JV/WOS abroad of the Indian promoter company by the employees/directors of
Indian promoter company which is engaged the field of software where the
consideration for purchase does not exceed US $ 10,000 or its equivalent per
employee in a block of five calendar years; the shares so acquired do not
exceed 5% of the paid-up capital of the joint venture or wholly owned
subsidiary outside India; and after allotment of such shares, the percentage of
shares held by the Indian promoter company, together with shares allotted to
its employees is not less than the percentage of shares held by the Indian
promoter company prior to such allotment.
(d) purchase of foreign
securities under ADR/GDR linked stock option schemes by resident employees of
Indian software companies including working directors provided purchase
consideration does not exceed US $ 50,000 or its equivalent in a block of five
calendar years.
Reserve Bank may on
application permit Mutual Funds in India to purchase foreign securities,
subject to such terms and conditions as may be stipulated.
PART II
Authorised dealers may allow
investments up to the permissible limits on receipt of applicable in Form ODA
in triplicate together with Form A-2, duly filled in, from the Indian
party/parties making investments in a JV/WOS abroad subject to their complying
with the conditions specified in regulation 6 or 17B of notification FEMA No.
19/RB2000 dated 3-5-2000 as applicable. [Investment in financial
services should however comply with additional norms stipulated at regulation 7
ibid.] In case of investments by a registered partnership firm under regulation
17B, authorised dealers may satisfy themselves that the firm is a member of
their respective all India professional organisation/body [e.g., Institute of
Chartered Accountants of India (ICAI) for Chartered Accountants; National
Association of Software and Service Companies (NASSCOM); Electronics Export and
Computer Software Promotion Council (ESC) for software firms; Indian Medical
Council (IMC) for medical firms and Bar Council of India or respective State
Bar Councils for legal firms, etc.]. Before allowing the remittance authorised
dealers are required to ensure that the necessary documents, as prescribed in
Form ODA, have been submitted.
(i) Immediately after
effecting the remittance, the authorised dealers are required to forward two
copies of Form ODR along with a report on remittance in the Form ODR, in
duplicate (format enclosed) to the Chief General Manager, Exchange Control
Department (Overseas Investment Division), 3rd floor, Amar Building, Murnbal'-400
001. Authorised Dealers may ensure that the remittances on account of
investments by partnership firm are reported with the superscription
'Remittance by partnership firm under Regulation 17B', in both Form ODA and
Form ODR. In cases where the investment is being made jointly by more than one
Indian party, Form ODA is required to be signed jointly by all the investing
parties and submitted to the designated branch of the authorised dealer, who in
turn is required to immediately forward the same to the Reserve Bank, together
with a consolidated Form ODR. The same procedure may be followed where the
investment is made out of the proceeds of ADR/GDR issues of Indian party in
terms of regulation 6(6) of the notification.
(ii) Clause (vi) of sub-regulation
(2) of regulation 6 provides that all transactions relating to investment in a
JVIWOS are to be routed through only one branch of an authorised dealer
designated by the Indian party. For proper follow-up, the authorised
dealers are required to maintain party-wise record in respect of each
JV/WOS separately.
(iii) Authorised dealers may
allow remittance towards loan to the JV/WOS and/or issue guarantee to/on behalf
of the JV/WOS abroad.
In terms of regulation 11,
Indian parties are permitted to make direct investment in JV/WOS abroad by way
of capitalisation of exports or other dues/entitlements like royalties,
technical know-how fees, consultancy fees, etc. In such cases also, the
Indian party is required to submit details of the capitalisation in Form ODA
which in turn is to be forwarded by the designated branch of authorised dealer
to the Chief General Manager, Exchange Control Department, Central office,
Overseas Investment Division, Amar Building (3rd floor), Mumbai 400 001-together
with a report in Form ODR. Such investments by way of capitalisation are also
to be reckoned while computing the cap of 25% prescribed in terms of regulation
6. Further, in cases where the export proceeds are being capitalised in accordance
with the provisions of Regulation 11, the authorised dealers are required to
obtain a custom certified copy of the invoice as required under regulation
12(2) and forward it to the Reserve Bank together with Forms ODA and ODR.
On receipt of the Forms ODA
and ODR from the authorised dealers, the Reserve Bank will allot an unique
identification number of each JV or WOS abroad, which is required to be quoted
in all the future correspondence by the authorised dealer or Indian party with
the Reserve Bank. Authorised dealers may allow additional investment in an
existing overseas concern set up by an Indian party, in terms of regulation 6
or 17B only after the Reserve Bank has allotted necessary identification number
to the overseas project.
In terms of regulation 9, in
certain cases investment in JV/WOS requires prior approval of the Reserve Bank.
Authorised dealers may allow remittances under these specific approvals granted
by Reserve Bank and report the same to the Chief General Manager, Exchange
Control Department, Central Office, Overseas Investment Division, Amar Building
(3rd floor), Mumbai 400 001 in the Form ODR.
A. 6 Further, in terms of
regulation 9(A), Indian parties are eligible for block allocation of foreign
exchange upto a specified limit under a specific approval obtained from the
Reserve Bank. Authorised dealer may allow remittances for overseas investment
by Indian parties on the basis of such approvals issued by Reserve Bank,
subject to the terms and conditions stipulated therein. While allowing
remittances in respect of individual overseas concerns under the scheme of
block allocation, Authorised dealers may obtain necessary information in Form
ODA and forward the same to the Reserve Bank after superscription remittance
under Block Allocation Approval No. _________ dated _________ along with the
report of remittance in Form ODR.
In terms of regulation 17A,
partnership firms not eligible under regulation 17B may make overseas
investment by obtaining the specific approval of the Reserve Bank. Authorised
dealer may allow remittances for overseas investments by registered partnership
firms in accordance with such approvals granted by Reserve Bank and report the
same to the Chief General Manager, Exchange Control Department, Central Office,
Overseas Investment Division, Amar Building (3rd floor), Mumbai 400 001 in
fresh ODR with a superscription 'Remittance by partnership firm under
Regulation 17A'.
(i) In terms of regulation
14 of the Notification dated 3-5-2000, authorised dealers may, on
being approached by an Indian party which is eligible for investment under
regulation 6, allow remittance towards earnest money deposit (EMD) to the
extent eligible after obtaining Form A2 duly filled in or may issue bid bond
guarantee on their behalf for participation in bidding or tender procedure for
acquisition of a company incorporated outside India. On winning the bid,
authorised dealers may remit the acquisition value after obtaining Form A2 duly
filled in and report such remittance (including the amount initially remitted
towards EMD) to the Chief General Manager, Exchange Control Department, Central
Office, Overseas Investment Division, Amar Building (3rd floor), Mumbai 400 001
in Form ODR, along with the details of the investment in Form ODA, in
duplicate, submitted by the Indian party. Authorised dealers while permitting
remittance towards EMD should advise the Indian party that in case they are not
successful in the bid, they should ensure that the amount remitted is
repatriated in accordance with Foreign Exchange Management (Realisation, Repatriation
& Surrender of Foreign Exchange) Regulations, 2000 (cf. Notification No.
FEMA 9/2000-RB, dated 3 May, 2000).
(ii) In cases where an
Indian party, after being successful in the bid/tender decides not to proceed
further with the investment, authorised dealers should submit details of
remittance allowed towards EMD/invoked bid bond guarantee in Form ODR to the
Chief General Manager, Exchange Control Department, Central Office, Overseas
Investment Division, Amar Building (3rd Floor), Mumbai 400 001.
[Circular No. EC CO. PCD No.
53/15.02.76/2001-02, dt. 4-4-2001, issued by RBI Exchange
Control Dept.]
Investment by Directors [S. 372(5)]
The expression 'shall not be
entitled to acquire by way of subscription, purchase or otherwise' means that
the investment will be invalid if made in contravention of the provisions of
section 372 which are mandatory. Mannalal Khetan v. Kedarnath Khetan, (1977) 47
Comp Cases 185.
"REEOLVED that pursuant to section 372A of the Companies Act, 1956 the Company do purchase _________ equity shares of Rs. 10/- each of _________ and that the resolution be approved by all the Directors present unanimously.
RESOLVED FURTHER that Mr. __________________ and Mr. __________________ Directors be and are hereby severally authorised to take all necessary action and execute all necessary documents in this regard."
1. Notice given to every
director.-Ensure that notice of the resolution to be moved at the meeting of the
Board had been given to every director along with the notice of the meeting.
2. Consent of all directors
required-En sure that the resolution is passed by the Board of directors with
the consent of all the directors present at the meeting except those who were
not entitled to vote (not applicable in case of an investment company).
3. Procedure. -(a) Convene a general
meeting and pass the special resolution, if the investments along with loan,
guarantee and security provided in connection with such loan exceeds 60% of a
company's paid-up share capital and free reserves or 100% of its free
reserves, whichever is more.
(b) Take prior approval of
the public financial institution if any term loan of the company is subsisting
where a special resolution is passed if there is any default in repayment of
loan instalments or payment of interest thereon.
(c) File the special
resolution in Form No. 23 with the concerned Registrar of Companies within 30
days of its passing after paying requisite fees as per Schedule X of the Act.
(d) Make entries in the
register of investments with specified particulars, within 7 days of making
such investments.
(e) Ensure that the register of investments is kept at the registered office of the company and is kept open for inspection and extracts thereof are supplied to members, if required, on payment of requisite fee.
(f) Ensure that a statement
showing all the investments in the bodies corporate was annexed to the balance
sheet of the company.
Inter-corporate
Investment
(Another format)
"RESOLVED that consent of the Board of Directors be and is hereby given to the Company making an investment up to the extent of Rs. 50 lakhs in the equity capital of XYZ Limited and that the Managing Director of the Company be and is hereby authorised to sign the application/share transfer forms as may be necessary in this connection on behalf of the Company."
1. Prescribed ceiling of investments.-The Board of directors of a
company shall be entitled to invest in the shares of any other body corporate,
pursuant to sub-section (1) proviso of section 372A up to-
(i) sixty per cent of the paid-up share
capital and free reserves of the company, or
(ii) less than hundred per cent of free reserves of
the investing company whichever is more.
2. Passing of resolution in
General Meeting.-If the investment is made in excess of the limits prescribed above
approval of the shareholders in the General Meeting by passing a special
resolution will be necessary.
3. Investment in shares of
subsidiary company.-No approval is required for investment in shares issued to the holding
company by its wholly owned subsidiary.
4. Register of investment to be maintained.-Register of investment
should be maintained.
Investment by Directors
"RESOLVED that consent
of the Board of Directors be and is hereby accorded to the Company for
subscribing to 100,000 equity shares of Rs. 10/- each in the equity
capital of Messrs ABC Limited.
RESOLVED FURTHER that the
Managing Director of the Company be and is hereby authorised to do all such
acts and things as may be necessary in this connection."
PRACTICE NOTES
1. Percentage of investment
by Board.-The percentage up to which the Board of Directors of the company
directly or indirectly shall be entitled to invest in the shares of any other
body corporate is up to 60% of the company's paid-up share capital and
free reserves or less than 100% of its free reserves whichever is more. These
may be kept in view while making investments.
2. Passing of resolution
with consent of all directors present.-The investment has to be sanctioned by a
resolution passed at a meeting of the Board with the consent of all the
Directors present at the meeting. Further notice of the meeting at which the
resolution is to be moved must be given to all the Directors in the manner
prescribed by section 286 of the Companies Act, 1956.
3. Entry of particulars in
the Register of Investment.-Particulars of every investment shall be entered in
the Register maintained in terms of sub-section (5) of section 372A of
the Act.
Investment in convertible
debentures/non- convertible
debentures of a body corporate
under the same management
"RESOLVED that the
Company do invest in 11 percent convertible debentures of Rs. 100/- each
for a value of Rs. _________ being offered by _________ a company in the same
group to the public by prospectus.
RESOLVED FURTHER that Shri __________________ Managing Director of the Company be and is hereby authorised to make the necessary application for the purchase of the said convertible debentures."
1. Computation of ceiling
limits.-Ensure
that the existing investment in the debentures of the bodies Corporate together
with the proposed investment is within sixty percent of the paid-up share
capital and free reserves of the investing company or less than hundred per
cent of its free reserves, whichever is more.
2. Prescribed ceiling on
investments.-Also ensure that all investments including investments in securities of
other companies are within the maximum limit of sixty percent and that the
investment in the proposed debentures is within sixty percent of the paid-up
share capital and free reserves of the company or less than hundred per cent of
its free reserves, whichever is more. If it exceeds the above limits, prior
approval of the members of the company should be obtained in a General Meeting
by passing a special resolution.
Investment in shares etc. of
other companies
"RESOLVED that pursuant
to section 372A of the Companies Act, 1956, the Company do purchase 5,50,000
equity shares of Rs. 10/- each of M/s. MPC & Company Limited and that the
resolution be passed by all the Directors present unanimously.
RESOLVED FURTHER that Mr. __________________, a Director of the Company, be and is hereby authorised to sign/execute the necessary documents in this connection."
1. Investment by Board of
Directors.-The Board of Directors of the investing company are entitled to invest in
the securities of any other body corporate up to 60% of the paid-up share
capital and free reserves of the company or less than 100% of its free reserves
whichever is more. Thus, whether the other body corporate is a public or a
private company, the investing company, if it is a public company, cannot
purchase more than the prescribed percentage of the company without complying
with the provisions contained in section 372A.
2. Passing of resolution in
General Meeting.-In the undernoted cases approval of the shareholders by special
resolution is necessary:
(a) when aggregate of
investments in all other bodies corporate exceeds sixty per cent of the
aggregate of the paid-up share capital and free reserves of the investing
company; or
(b) when the aggregate of
investment in all other bodies corporate is hundred per cent or more of the
free reserves of the investing company.
3. Passing of resolution
with consent of all Directors present.-Pursuant to subsection (2), no investment
shall be made by the Board of Directors of an investing company in pursuance of
sub-section (1) in the shares of the other body corporate unless it is
sanctioned by a resolution passed at a meeting of the Board with the consent of
all the Directors present at the meeting, except those not entitled to vote
thereon. If any Director differs in the proposal or votes against such
resolution, the whole process should be repeated, that is, further notice of
resolution to be moved in this connection should be given to all the Directors
present in India in the manner specified in section 286 of the Companies Act,
1956.
4. Restriction not
applicable.-In the case of investments in shares made by
(a) a private company,
unless it is a subsidiary of a public company;
(b) any banking or insurance
company or housing finance company in the ordinary course of business;
(c) any company established
with the object of financing industrial enterprises or of providing
infrastructural facilities;
by a holding company to its
wholly owned subsidiary;
any company whose principal
business is the acquisition of shares, stock, debentures or other securities.
the proposal should be
placed before a Board Meeting and approved by a resolution. This power may also
be delegated by the Board in accordance with the provisions of section 292.
5. Entry in Register of
Investment.-Particulars
of investment should be entered in a register to be kept for the purpose in
accordance with section 372A (5).
6. Filing of Special
Resolution.-If a Special Resolution is passed, the same should be filed with the
Registrar within thirty days of its passing in Form No. 23.
7. Power cannot be
delegated.-This power of the Board of Directors to make investments cannot be
delegated to any Committee of Directors or the Managing Director or Manager or
any other person specified in first proviso to section 292(l).
8. Subscription amounts to
subscribing for shares.-If an existing company subscribes to the Memorandum
of Association of a new company through its nominees, provisions of section 372A
will be attracted as such subscription amounts to subscribing for shares in the
new company.
363. Indian Direct Investment Abroad
Appointment of whole-time Secretary (S. 383A)
By the Companies (Amendment)
Act, 1988, section 383A has been amended to enable the Central Government to
prescribe the paid-up share capital limit from time to time for
appointment of Whole-time Secretary, instead of the ceiling limit of Rs.
25 lakhs or more as provided in the section itself. For failure to comply with
the provisions of' section 383A the company and every officer of' the company
who is in default shall be punishable with a fine which may extend to Rs.500/-
for every day during which the default continues.
The Government has since
framed Companies (Appointment and Qualifications of Secretary) Rules, 1988,
vide Notification GSR No. 1105(E), dated 29-11-1988.
As per these rules companies
having paid-up share capital of not less than Rs. 2 crores are required
to have a Whole-time Secretary who should be a member of' the Institute
of Company Secretaries of India.
The Companies (Amendment)
Act, 2000 has inserted a proviso to sub-section (1) of' section 383-A
to provide that a company whose paid-up capital is Rs. 10 lakhs or more
but less than Rs.2 crores is required to employ a whole-time secretary to
file with the Registrar of Companies a certificate in the form within the time
and subject to such conditions prescribed by the Companies (Compliance
Certificate) Rules, 2001 [GSR 52(E) dated 31-1-2001] as to whether
the company has complied with all the provisions of' the Companies Act, 1956.
This certificate is also required to be attached with the Board of Directors
report made under section 217. As per paragraph 12.2 of Secretarial Standard-2
the Compliance Certificate given by the practicing company secretary and
attached to the Director's Report should be read at the Annual General Meeting.
Appointment of Secretary
"RESOLVED that Shri RPS
be and is hereby appointed as Company Secretary of the company on a monthly
salary of Rs. 5500/- in the scale of Rs. 7000-100-9000 for a
period of three years with effect from 1st June, 2002, on the terms and
conditions embodied in the letter of appointment placed before the meeting and
initialled by the Chairman for purposes of identification.
RESOLVED FURTHER that the
Managing Director of the company be and is hereby authorised to sign and Issue
the said letter of appointment to Shri RPS."
1. Only individual to be
appointed as Secretary.-Only an individual can be appointed as Secretary of
the company.
2. Companies to have whole-time
Secretary.-Under the Companies (Appointment and Qualification of Secretary) Rules,
1988, a company having a paid-up capital of Rs.2 crores or more should
have a Secretary who is a member of the Institute of Company Secretaries of
India.
3. Special Resolution
required when Director appointed as Secretary.-Where a Director is
appointed Secretary it would appear that the sanction of a Special Resolution
of the general body would be necessary under section 314 as the office of
Secretary is not covered by the exceptions mentioned therein.
Appointment of Company
Secretary
(Another format)
"RESOLVED that pursuant
to the provisions of article 150 of the Articles of Association of the Company,
Shri XYZ be and is hereby appointed as the Secretary of the Company in the
scale of Rs. 7000-35000-25000 plus perks as per the rules of the company
w.e.f. 24th January, 2002."
1. Only individual to be
appointed as Secretary.-Only an individual can be appointed as Secretary of
the company. Any firm or body corporate cannot be appointed to this office.
2. Appointing a whole-time
Secretary.-Every company with paid-up capital of Rs. 2 crores and above
shall have a Whole-time Company Secretary. Where the Board of Directors
of any company comprises of only two Directors neither of them shall be
appointed as Secretary of the company.
3. No Secretary to hold
office as Secretary of more than one Company.-No Company Secretary can be
appointed as Secretary of more than one company having such paid-up
capital as may be prescribed by the Central Government from time to time.
4. Penalty.-If a company falls to comply
with the provisions of sub-section (1) of section 383A, then the company
and every officer of the company in default shall be punishable with fine which
may extend to Rs. 500/- for every day during which the default continues.
Appointment of Company
Secretary
(Another format)
"RESOLVED that pursuant to section 383A of the Companies Act, 1956, and other applicable provisions if any, Mr. AB, A.C.S. a member of the Institute of Company Secretaries of India, be and is hereby appointed Company Secretary for a period of five years with effect from at a monthly remuneration of Rs. 15,000/- per month, together with other benefits in the same manner as payable to other employees of the Company."
PRACTICE NOTES
1. More than one Secretary
can be appointed.-A company may have more than one Secretary.
2. Person can act as
Secretary without becoming employee.-A person can act as a secretary of a company
without becoming its employee. There will be no violation of this section even
if he is an employee of some other company as secretary. (State of, Gujarat v.
Coromandal Investment P. Ltd., (1991) 71 Com Cases 470 (GUJ)).
3. Secretary's power and
duties.-The
secretary's duties are largely of ministerial or administrative nature. He has
no power to negotiate contracts or borrow moneys or make policy decisions, nor,
In the absence of special authorisation, acknowledge a debt or other liability.
Lakshmi Rattan Cotton Mills Co. Ltd. v. Aluminium Corporation of India Ltd.,
(1967) 37 Com Cases 586 (All).
Appointment of Secretary in
whole-time practice
WHEREAS the company's paid-up
share capital has increased from Rs. 9 lakhs to Rs. 15 lakhs;
AND WHEREAS under proviso to
sub-section (1) of section 383-A, the company is required to
appoint a whole-time secretary for giving a certificate to be filed with
the Registrar of Companies NCT of Delhi & Haryana;
NOW THEREFORE IT IS RESOLVED
that Mr. AQX be and is hereby appointed to give a certificate in the prescribed
form as to whether the company has complied with all the provision of the
Companies Act, 1956.
RESOLVED FURTHER that the
said certificate be filed with the Registrar of Companies NCT of Delhi &
Haryana, New Delhi within such time and subject to such -conditions as
may be prescribed.
Attached to Board's Report.-The certificate obtained
from the secretary in whole-time practice should be attached to the Board of
Directors Report prepared under section 217.
Removal of Secretary
"RESOLVED that Mr. C.D., the Secretary of the Company having been convicted of an offence involving moral turpitude be and is hereby removed from the office of Secretary of the Company.
RESOLVED FURTHER that Mr.
A.B., the General Manager of the Company be directed to inform Mr. C.D.
accordingly and to take custody of the records in the possession of Mr.
C.D."
PRACTICE NOTES
Removal of Secretary by
Managing Director.-The removal of a secretary by the managing director is bad when the
articles of association give such power only to the Board of directors.
(Haryana Seeds Development Corporation Ltd. v. J.K. Aggarwal, (1989) 65 Com
Cases 95 (P&H)).
Acceptance of resignation of
Secretary
"RESOLVED that the resignation of Mr. CD, Secretary of the Company as per his letter dated _________ with effect from _________ be and is hereby accepted."
PRACTICE NOTES
Resignation to be placed in
Board Meeting.-Whenever a secretary is appointed by the Board of Directors of a
company, his resignation should also be placed before the Board Meeting and
taken on record.
Appointment of a person as
Manager who is also a Manager
of another company
"WHEREAS the Chairman read out a notice dated the _________, 19___, notifying all the Directors then present in India, proposing to appoint Mr. SSG as the Manager of the Company notwithstanding the fact that he is also a Manager/Managing Director of M/s. PQR & Company Limited, subject to the approval of the Central Government;
NOW THEREFORE IT IS RESOLVED
that the said Mr. SSG, be and is hereby appointed by the Board of Directors as
the Manager of the Company and that the Company shall bear fifty per cent of
the remuneration and perquisites payable to such Mr. SSG, as per the terms of
the draft agreement submitted to this meeting and initialled by the Chairman
for the purpose of identification, and that such agreement be continued for
five years from the date of appointment as aforesaid."
PRACTICE NOTES
1. Special notice required
for appointing a person who is already Manager/Managing Director of another
Company.-Pursuant to section 386 of the Companies Act, 1956, where a company
appoints as Manager a person who is already the Manager or Managing Director of
another com any, the appointment should be made or approved by a resolution of
the Board of Directors passed at its meeting for which special notice of the
meeting, particularly inviting attention to this subject should be given to all
the Directors resident in India. Consent of all the Directors present at the
meeting is required.
2. Approval of Central
Government.-It should be remembered that notwithstanding the above formalities, the
appointment of a Manager as well as that of a Managing Director requires the
approval of the Central Government pursuant to section 269 and section 388 of
the Companies Act, 1956.
3. Approval where common
Manager required by two Companies for functioning as a 'single unit'.-Under sub-section (4),
the permission of the Central Government can be given only where a common
Manager is required by more than two companies for their proper functioning as
a 'single unit'. Where they function otherwise than as a single unit, it is not
a case for grant of the permission contemplated by sub-section (4).
Remuneration to Manager
"RESOLVED that Mr. X be
appointed as Manager of the Company with effect from 15th June, 2002, to hold
office for a period of five years ending 14th June, 2007, and the terms of the
agreement contained in the draft placed before the meeting and initialled by
the Chairman for purposes of identification, be and is hereby approved.
RESOLVED FURTHER that the
approval of the Central Government, if necessary, be obtained and the Secretary
of the Company be and is hereby authorised to make an application in this
behalf.
RESOLVED FURTHER that Mr.
XYZ, the Director of the Company be and is hereby authorised to execute the
said agreement with modification, if any, made in the terms and conditions
thereof by the Central Government while according their approval, on behalf of
the company.
1. Company can appoint
Manager only if there is no Managing Director.-The Manager can be
appointed only if there is no Managing Director in the company (Section 197A).
2. Appointment of Manager
subject to provision of section 269.-The appointment of the Manager is subject to
the provisions of section 269 of the Act which has brought him on par with the
Managing Director/Whole-time Director.
3. Approval not required if
person to be appointed not disqualified for appointment.-If the Manager, is not
disqualified under Part I of Schedule XIII, no approval under section 269 for
his appointment is required. Otherwise an application for his appointment has
to be made to the Central Government supported by the resolution of the
shareholders in the General Meeting in the same manner as an application is
made for the appointment/reappointment of a Managing Director/Whole-time
Director.
4. No approval of Central
Government required.-If the remuneration proposed is within the limits prescribed in Part II
of Schedule XIII, no approval of the Central Government will be required;
otherwise the same drill as in the case of Managing Director/Whole-time
Director has to be done.
5. No approval of Central
Government needed.-If the remuneration is within 5% of the net profits of the company,
approval of the Central Government is not necessary.
6. Approval of Central
Government must for company having paid-up capital of rupees one crore or
above.-With
effect from 18-9-1990, it is obligatory on a company having a paid
up capital of Rs. 5 crores or more (or such other amount as may be prescribed
by the Central Government from time to time, pursuant to section 269(l) of the
Act) to appoint a Managing or Whole-time Director or a Manager.
7. Filing of return with
Registrar of Companies.-Form Nos. 29 and 32 are to be filed with the
Registrar of Companies within thirty days, Form No. 32 should be filed in
duplicate.
Removal of managerial personnel (S. 388E)
The Central Government shall
by order, remove from office any director, or any other person concerned in the
conduct and management of the affairs, of a company, against whom there is a
decision of the Company Law Board. The person against whom an order of removal
from office is made shall not hold the office of a director or any other office
connected with the conduct and management of the affairs of any company during
a period of five years from the date of the order of removal.
However, the Central
Government may, with the previous concurrence of the Company Law Board permit
such person to hold any such office before the expiry of the said period of
five years.
On the removal of a person from the office of a director or, any other office connected with the conduct and management of the affairs of the company, the company may, with the previous approval of the Central Government, appoint another person to that office in accordance with the provisions of the Act.
Removal of the General
Manager on the basis of
High Court findings
S. 388E-Removal
of the General Manager on the basis of High Court findings-Board
Resolution
"WHEREAS on a reference
made to the Bombay High Court by the Central Government against the General
Manager of the Company, the High Court passed/recorded its findings that such
General Manager was not a fit and proper person to hold the office of the
General Manager or any other office connected with the conduct or management of
the company;
AND WHEREAS the Central Government, pursuant to section 388E, passed an order number _________ dated the _________, 19___, for the removal of Mr. ANB the General Manager from such office which is hereby tabled;
NOW THEREFORE IT IS RESOLVED
that the General Manager, be and is hereby removed from his office and that the
Board will not assign or entrust him with the conduct and management of the
affairs of the Company in any manner and notwithstanding any agreement with the
said general manager, shall not pay him any compensation for the loss or
termination of office."
1. Changes made by the
Companies (Amendment) Act of 1988.-The power of High Court have now been
conferred on the Company Law Board under the Companies (Amendment) Act, 1988
with effect from 31st May, 1991 and accordingly reference has to be made by the
Central Government to the Company Law Board.
2. Wide power of Company Law
Board.-The
section gives vast powers to the Company Law Board and is applicable in any
case: (1) where in the opinion of that Government there is fraud, misfeasance,
persistent negligence or default or breach of trust on the part of a person
concerned in the conduct and management of a company's affairs; (2) where the
conduct and management of the business of a company are not in accordance with
sound business principles or prudent commercial practices; (3) where the
company is conducted and managed in a manner injurious or damaging to the
interests of the trade, industry, or business in which the company is engaged;
(4) where the business is carried on fraudulently.
3. Right to apply under the
section.-Unlike in the case of applications under section 397 or section 398,
reference under this section can be made only by the Central Government, though
any person interested whether as a shareholder, creditor or otherwise may move
the Government to make the application where a case is made out to the
satisfaction of the Central Government.
4. Interim Order by Company
Law Board.-It is to be noted that interim orders may be passed not only in the
interests of the members or creditors of the company but also where the public
interest requires that such orders should be passed, even though the interests
of the members or creditors may not require the passing of such orders or may
even be prejudicially affected thereby.
5. Reference to the Company
Law Board.-Under Section 388B, reference by the Central Government lies before the
Principal Bench of the Company Law Board by way of an application in Form No.
3. The application made shall be subject to compliance of the provisions of sub-sections
(2), (3) and (4) of section 388B. The concerned managerial personnel shall be
cited as a respondent and in view of the principles of natural justice, he will
have to be heard by the Company Law Board before recording its finding.
Power to compromise or make arrangement with creditors and members
(S. 391)
Section 391 deals with the
right of companies to enter into a compromise or arrangement (a) between itself
and its creditors or any class of them, (b) between itself and its members or
any class of them.
The arrangement contemplated
by the section includes a reorganisation of the share capital of a company by
the consolidation of shares of different classes or by division of shares into
shares of different classes or by both these methods.
It may also include any
arrangement between the company and its shareholders for distribution pro rata
among the shareholders by way of gift, or otherwise any surplus assets of the
company where the memorandum of association contains a clause enabling such
distribution in some such terms as "to distribute by way of gift or
otherwise any assets of the company among its shareholders."
Scheme of compromise/arrangement with members/creditors
(S.391)
A creditor under section 391 includes a contingent creditor, for instance, liability to pay sales tax, income-tax where assessment is not yet complete. Seksaria Cotton Mills Ltd. v. A. E. Naik, AIR 1967 Bom 341. The scheme should be beneficial to the shareholders and creditors and the Court should be satisfied that the scheme is bona fide. Normally, if 3/4th of the creditors (value-wise) and shareholders approve the scheme, the Court will sanction it. However, if it appears that the scheme is not bona fide, the scheme will not be sanctioned. Pioneer Dyeing House Ltd. v. Dr. Shankar Vishnu Marathe, (1967) 2 Comp LJ 16. Exemption from holding meeting of shareholders and creditors was sanctioned by the court as the proposed scheme was already approved by the shareholders of both transferee and transferor companies and there was no objection from the Central Government. Arihant Technomac Ltd. & Arihant LPG (P) Ltd., In re; (2001) 1 Comp LJ 138 (Del).
Amalgamation of one or more companies with the company
(Ss.391-394)
Even though a winding up
order has been made, every member has a right to file an application under
section 391 for the revival of the company. Rajdhani Grains & Jaggery
Exchange Ltd. In re, (1983) 54 Comp Cases 166. A scheme under the section
cannot be regarded as an alternative mode of liquidation. It is only an
alternative to liquidation. The incidents of a scheme under the section are
different both in principle and in consequences from those of winding up.
Himalaya Bank Ltd. v. J. Roshan Lal, (1961) 31 Comp Cases 333 (Punj). Where a
scheme was entered into between the company and its ordinary shareholders only
without interfering with the rights of the preference shareholders, the scheme
was held to be valid even though a meeting of the preference shareholders was
not called to ascertain their view. Mcleod and Co. v. S.K. Ganguly, (1975) 45
Comp Cases 563. Once a scheme of compromise and arrangement under this section
is approved by a statutory majority, it binds the dissenting minority, the
company and also the liquidator if the company is in winding up. Navjivan Mills
Ltd., Kalol In re, (1972) 42 Comp Cases 265 (Guj). An application under this
sub-section can be made by a creditor or member even in the case of a
company in winding up. M.M. Sehgal v. Sehgal Papers Ltd., (In liquidation),
(1986) 60 Comp Cases 510 (P & H). Creditors in this section is held to
include also a contingent creditor such as the Government, sales tax, income-tax
or other tax liability which has already arisen though the assessment may not
yet have been made. Seksaria Cotton Mills Ltd. v. A.E. Naik, (1967) 37 Comp
Cases 656. Any scheme of arrangement between the creditors and the company will
not, however, affect the liability of any sureties for the company unless the
contract of suretyship otherwise provides. Punjab National Bank Ltd. v. Vikram
Cotton Mills Ltd., (1970) 2 Comp LJ 18. Where a scheme of amalgamation is
proposed, it is incumbent both on the transferor company and the transferee
company to obtain the sanction of the respective High Courts having
jurisdiction over them and seek proper directions for convening the meetings of
those affected by the proposed amalgamation and obtaining the approval
statutory majority at the meetings. Ahmedabad Manufacturing and Calico Printing
Ltd., (1972) 42 Comp Cases 493 (Guj.) In the case of an amalgamation, separate
petitions by the transferor and the transferee companies should be filed.
Having regard to particulars required to be considered in respect of either of
them, a common petition one of them alone is not maintainable. Electro-Carborium
Private Ltd. v. Electric Materials Company Private Ltd., (1979) 49 Comp Cases
825. The Court cannot sanction a scheme which has not been approved by the
creditors even if the consent of the creditors has been withheld mala fide or
arbitrarily or even if the Court considers the scheme to be reasonable and
beneficial to the creditors. Sehgal (MM) v. Sehgal Papers Mills Ltd., (1986) 1
Comp LJ 192. The order does not operate upon the employees of the transferee
company. They would have to be given the option of joining the transferee
company not John Wyeth (India) Ltd., In re, (1988) 63 Com Cases 233 (Bom).
Any scheme which is fair and
reasonable and made in good faith will be sanctioned if it could reasonably be
supported by sensible people to be for the benefit to each class the members or
creditors concerned. Alabama New Orleans Etc. Ry. Co., (1891) 1 Ch 213. A
scheme will not be sanctioned even if the shareholders and creditors consent if
object of the scheme is not bona fide but only to cover up misdeeds of
delinquent Directors. Pioneer Dyeing House Ltd. v. Dr. Shankar Vishnu Marathe,
(1967) 2 Comp LJ 16.
A scheme which is unfair and unworkable will be rejected by the court. Vidiani Engineers Ltd. Re. (2002) 36 SCL 689 (All). Scheme of arrangement or compromise for company declared relief undertaking and enjoying benefit of notification does not affect its right to formulate it and does not become a case of double protection. Commerz bank A.G. v. Arvind Mills Ltd., (2002) 110 Com Cases 539 (Guj). In a scheme of arrangement there is discretion of court to grant or refuse sanction even where the requisite majority creditors have not voted in favour of scheme. Vishnu Chemicals (P.) Ltd., In re,: (20( 110 Com Cases 677 (AP). Sanction cannot be refused by the Court where majority each class of creditors have approved but minority of secured creditors objected. Arvind Mills Ltd., In re, (2002) 111 Com Cases 118 (Guj).
Schemes of compromise and arrangement under
Sections 391 to 395
Schemes of compromise and
arrangement under sections 391 to 395 can only transfer such rights, powers,
duties and property as are capable of being lawfully transferred by a party to
the scheme, if no sections of the Companies Act existed. If any part of t
Scheme includes anything which the parties cannot bind themselves to do then
that p,, of scheme has to be treated as a nullity. Re, Skinner, (1959) 29 Comp
Cases 247. Scheme of amalgamation to produce synergy of business operations
duly approved by overwhelming majority of shareholders of both transferor and
transferee compani sanctioned by court being just and fair and not contrary to
public policy. Balaji Foods, and Feeds Ltd. and Venkateswara Hatcheries Ltd.,
In re, (2001) 1 Comp LJ 91 (Al Under this section the court has the power to do
complete justice to the extent it is possible in the circumstances of the case.
A scheme of arrangement for payment of depositors was pending before the court
for sanction. The court said that an application by an individual creditor for
his payment could be entertained and payment could be ordered. Pro-mila v. DCM
Financial Services Ltd., (2001) 107 Com Cases 358 (Delhi).
In a scheme involving
amalgamation and demerger, the court said that it has powers to make additions to the scheme or omissions there from
solely for the purpose of making it workable. Renuka Datta v. Duphar Interfran
Ltd., (2002) 1 Comp LJ 318 (Bom). In a scheme were majority creditors agreed to
the variation of terms, the court has power to impose the new terms on the
small number in value of the creditors who opposed the scheme. Vishnu Chemicals
(P.) Ltd., Re, (2002) 47 CLA 43 (AP).
S. 391-Amalgamation
of one or more companies with the Company-Board Resolution
"RESOLVED that pursuant
to the provisions of Sections 391 to 395 and other applicable provisions, if
any, of the Companies Act, 1956 and sub-clause (21) of Clause III of the
Objects Clause of the Memorandum of Association of the Company and subject to
requisite approval of the banks and other Creditors to the Company, the Company
ABC Limited be amalgamated with XYZ Limited.
RESOLVED FURTHER that the
Draft Scheme of Amalgamation Submitted to this meeting and initialled by the
Chairman for purposes of identification be and is hereby approved and that Mr.
OPM and Mr. SPM, Directors of the Company be authorised severally to make such
alteration and changes therein as may be expedient or necessary for satisfying
the requirement or condition imposed by the High Court of Delhi provided that
prior approval of the Board shall be obtained for making any material changes
in the said Draft Scheme of Amalgamation as approved in this meeting.
RESOLVED FURTHER that, in
the opinion of the Board, the said Scheme of Amalgamation of ABC Limited
Company with XYZ Limited being advantageous and beneficial to the shareholders
of this Company and the terms thereof being fair and reasonable the proposed
proportion of allotment of shares of 4 equity share of Rs. 100/- each of
the Amalgamated Company XYZ Ltd. for every one equity share of Rs. 10/-
each held by the shareholder of ABC Company, be and is hereby approved to be
made.
RESOLVED FURTHER that Mr.
OPM and Mr. SPM, Directors of the Company be and are hereby severally
authorised to take all steps necessary, in connection with the filing of
(a) applications to the High
Court for directors for holding meetings of the shareholders/creditors of the
Company;
(b) petitions for
confirmation of the scheme by the High Court; and
(c) to do all acts and
things as may be considered necessary and expedient in relation thereto and for
that purpose to engage any counsel."
"RESOLVED FURTHER that
an Extraordinary General Meeting of the members of the Company be convened on
Wednesday the 24th day of July, 2002 at 2.30 p.m. at the registered office of
the Company and that Sh. RPS, Managing Director of the Company, be and is
hereby authorised to issue the notice as per the draft placed before the
meeting and initialled by the Chairman for purposes of identification."
1. Power to amalgamate with other Company.-The Memorandum of
Association must be checked up to ascertain as to whether there exists the power
to amalgamate. If not, first get the objects amended.
2. Board Meeting.-Hold a Board Meeting of the
Companies to be amalgamated and have the scheme of the Amalgamation approved by
the respective Boards.
3. Intimation to Stock Exchange.-Ensure to send intimation to
the concerned Stock Exchange where the shares of the Company are listed.
4. Approval of Financial
Institutions and Banks.-Ensure to obtain the approval of the financial
Institutions/Banks before hand.
5. Application to High
Court.-File
an application to the High Court concerned by Judges Summon in Form 33 of the
Companies (Court) Rules 1959 duly supported by an affidavit in Form 34 of the
Rules. In case the Registered Offices of the Companies to be amalgamated
situate in different States, then move separate applications to the High Court
concerned.
6. Hearing of applications.-The Court after hearing the
summons fix the quorum for respective meetings, that is, of shareholders,
secured creditors, unsecured creditors etc. and fix day, time and venue of the
Meetings.
7. Appointment of
Chairman/Alternate Chairman.-The Court will appoint Chairman and alternate
Chairman of the respective meetings and fix their remuneration.
8. Publication of Notice.-The Companies will then be
required to publish notices along with a statement setting forth the terms of
the compromise or arrangement pursuant to Section 393 of the Act.
9. Notice of Meeting.-The notice as per Form 36 of
the Companies (Court) Rules, 1959 is required to be sent to the creditors and/or
members individually by the Chairman appointed for the Meeting by post under
certificate of posting to their last known address not less than 21 clear days
before the date fixed for the meeting. It shall be accompanied by a copy of the
proposed compromise or arrangement and the statement required to be furnished
under section 393 of the Act and a form of proxy in Form No. 37 of the Rules.
10. Advertisement of notice
of meeting.-The notice of the meeting shall also be advertised in such English and
Hindi Newspapers as the Court may direct not less than 21 days before the date
fixed for the meeting. The advertisement shall be in Form No. 38 of the Rules.
11. Copy of compromise or
arrangements to be furnished to creditors or members.-Every creditor or member
shall be furnished by the Company, free of charge and within 24 hours of a
requisition being made for the same, with a copy of the proposed compromise or
arrangement together with a copy of statement required to be furnished under
section 393 of the Act.
12. Affidavit of service.-The Chairman of the meeting
or other person directed to issue the advertisement and notice of the meeting
shall file an affidavit of service not less than seven days before the date
fixed for holding the meeting showing that the directions regarding issue of
notices and the advertisement have been complied with.
13. Result of meeting to be
decided by Poll.-The decisions of meetings on all resolutions shall be ascertained only
by taking a poll.
14. Chairman's Report.-Tile Chairman will be
required to file his report to the Court duly supported by an affidavit within
the period stipulated by the Court. Tile report shall be in Form No. 39 of the
Rules.
15. Petition for confirming
compromise or arrangements.-In case the proposed compromise or arrangement is
agreed to without modification as provided by sub-section (2) of section
391 of the Act, the Company shall within seven days of the filing of the report
by the Chairman present petition to the Court for confirmation of the compromise
or arrangement. The petition shall be in Form No. 40 of the Rules.
16. Service of petition on
Regional Director.-Serve a copy of the petition on the Regional Director, Department of
Company Affairs.
17. Report of Official
Liquidator.-No order for dissolution of any transferor Company shall be made by the
Court unless the official Liquidator has on scrutiny of the books and papers of
the Company made a report to the Court that the affairs of the Company have not
been conducted in a manner prejudicial to the interests of its members or to
public interest.
18. Notice for hearing of
petition.-The notice of hearing of the petition is to be advertised not less than
ten days before the date fixed for hearing.
19. Filing with Registrar of
Companies.-The order of the Court is to be filed with the Registrar along with
Form No. 21 within 30 days of the order. The order made by the court under sub-section
(2) of section 391 will not have effect until a certified copy of the order has
been filed with the Registrar of Companies concerned.
20. Copy of order to be
annexed with copy of Memorandum of Association.-Annex a copy of the Order
with every copy of the memorandum of association of the Company issued after
the certified copy of the order has been filed with the Registrar of Companies.
21. Closure of Book.-The Registrar of members of
transferor Company will be closed in order to know names of persons who are
entitled to the shares.