General -Compromise
and Arrangement
1. "Compromise"
what does it mean.-"Compromise" is an expression which implies the existence of
a dispute such as relating to rights, which it seeks to settle, but the word
"Arrangement" is a term of very wide import, and its meaning is not
to be limited to something analogous to a compromise. All modes of reorganising
the share capital, takeover of shares of one company by another including
interference with preferential and other special rights attached to a share can
properly form part of an arrangement with members. [General Motors Cab Co.,
(1973) 1 Ch 377; National Bank Ltd. In re: (1966) WLR 819].
2. "Arrangement"-when this expression not to
be used.-It is not, however, appropriate to use the expression ‘arrangement’
where membership rights are proposed to be surrendered or otherwise terminated
or confiscated without compensation. [Re: NFU Development Trust Ltd., (1973) 1
All ER 135 (Ch D)].
3. Expression
"creditor" what does it include.-The expression 'creditor' here
includes every person having a pecuniary claim, whether actual or contingent,
against the company. Halsbury's Laws of England, Fourth Edn. Vol 7, Para 1530,
page 848. "Creditor in this section is held to include also a contingent
creditor such as the Government Sales-tax, Income-tax or other
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).
4. Section 391-a
complete Code.-Section 391 is a complete code by itself. Once scheme of compromise and
arrangement falls squarely within the four corners of the section, it can be
sanctioned, even it' it involves doing acts for which the procedure is
specified in other sections of the Act. [Re: Maneckchowk and Ahmedabad Mfg. Co.
Ltd, (1970) 40 Comp Cases 819 (Gu.0 and Re: Navjivon Mills Ltd., Kolol, (1972)
42 Comp Cases 265 (Guj.)].
Scope and limit of Schemes
of compromise or arrangement
(a) Applicability of section
to a Company in winding up.-The words of this section, are very wide. They apply
in terms to a Company in winding-up. An arrangement under this section
can, therefore, also take a Company out of winding up. (In Re: Vasant
Investment Corporation Ltd., (1982) 52 Comp Cases 139).
(b) Revival of order of
winding up.-Even though a winding-up order has been mad every member has a
right to file an application under section 391 for the revival of the, Company.
(Rajadhani Grains & Jaggery Exchange Ltd. In re, (1983) 54 Comp Case 166).
(c) Amalgamation not to be
used to by-pass other statutes.-An amalgamation can not be used to by-pass
other statutes. (General Radio & Appliances Co Ltd. v. M.A. Khader
(Deceased), AIR 1986 SC 1218).
(d) Scheme under the Section
not an alternative mode of liquidation.-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 principles and in consequences from those of winding up.
(Himalaya Bank Ltd. v. J Roshan Lal, (1961) 31 Comp Cases 333 (Punj)).
(e) Scheme between Company
and ordinary shareholders without interfering preference shareholders' rights
valid.-The
Section contemplates a scheme between , company and its creditors or any class
of them or between the company and its members or any class of them. 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 views. (Mcleod and Co. v. S.K. Ganguly, (1975) 45
Comp Cases 563).
(f) Scheme approved by
majority binds dissenting shareholders and liquidator f company in winding up.-Once a scheme of compromise
and arrangement under this section is approved by statutory majority, it binds
the dissenting minority, the company and also the liquidator, if the company is
in winding up. (Re, Nav Jivan Mills Ltd. Kolol (1972) 42 Comp Cases 265 (Guj.))
(g) 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, party to the scheme, if no
sections of the Companies Act existed. If any part of the Scheme includes
anything which the parties cannot bind themselves to do then that par of the
scheme has to be treated as a nullity. (Re, Shinner, (1958) 3 All ER 273).
(h) Word
"arrangement" what does it mean.-The word 'arrangement' in
this section is liable to be interpreted widely. When a proposed scheme
affected the contractual relationship subsisting between the company and its
members by requiring the compan3 to register a third party applicant in place
of existing members as the holder of the company's shares, the scheme was an
arrangement within the meaning of this Section. (Re Savoy Hotel Ltd., (1981) 2
All ER 647 (Ch D)).
"Arrangement", the
word is of wide import and includes re-organisation of share capital by
the consolidation of different classes of shares or division of shares into
shares of different classes or by both the methods. (Hindustan Commercial Bank
v. Hindustan General Electric Corporation, (1960) 30 Comp Cases 367).
(i) Right of creditor
against sureties.-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) 40 Comp Cases 927 (SQ.)
(j) Sanction of High Courts
required.-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 of a statutory majority at the meetings. (In re:
Ahmedabad Manufacturing & Calico Printing Co. Ltd., (1972) 42 Comp Cases
493 (Guj)).
(k) Joint application by
both Companies when within the jurisdiction of same High Court.-It is not enough for the
transferor company alone to apply to the Court for the necessary sanction, though
where both the companies are within the Jurisdiction of the same High Court, a
joint application may be made. However, the Department is of the view that
where both the Companies are situated in the same State and only one company
moves the court under section 391, the company may be advised to make the other
company a party to the petition as in the scheme of amalgamation there is an
identity of interest between the transferor company and the transferee company.
(W.A. Board Sell & Co. v. Mettur Industries Ltd., (1966) 36 Comp Cases 197
(Mad). (Deptt. Circular No. 14 of 1973, dated 5-6-1973).
(1) Separate petitions by
transferor and transferee.-In the case of an amalgamation, separate petitions
by the transferor and transferee companies should be filed. Having regard to
the particulars required to be considered in respect of either of them, a
common petition by one of them alone is not maintainable. (Electro-Carborium
Private Ltd. v. Electric Materials Company Private Ltd., (1979) 49 Comp Cases
825).
(m) Court not to sanction
scheme which is not approved by creditors.-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.
In exercising its powers
under this section the Court will have to see that in addition to the
provisions of the Act being complied with, the members or creditors or any
class or classes of them were fairly represented by those who attended the
meeting, that the statutory majority were acting bona fide and not coercing the
minority in order to promote any other interests adverse to those of the class
represented by them and the arrangement is such as an intelligent honest man
belonging to the class concerned or affected, might reasonably approve. (Sehgal
(MM) v. Sehgal Paper Mills Ltd., (1986) 60 Comp Cases 510 (P&H) Re: Dorman
Long & Co., 1934 Ch 635)).
(n) Approval of proposed
arrangement or compromise a condition precedent.-Approval of the proposed
arrangement or compromise is a condition precedent to the making of an
application for sanction. Sehgal (MM) v. Sehgal Paper Mills Ltd., (1986) 60
Comp Cases 510 (P&H).
(o) Scheme which is not bona
fide" will not be sanctioned.-A scheme will not be sanctioned even if the
shareholders and creditors consent, if the object of the scheme is not but only
to cover up misdeeds of delinquent directors. (Pioneer Dyeing House Ltd. v. Dr.
Shankar Vishnu Marathe, (1967) 37 Comp Cases 546 (DB) (Bombay)).
(p) Resolutions must be
passed by statutory majority.-It is settled law that before the court sanctions a
scheme under Sections 391 and 394 of the Companies Act, 1956, it should
normally be satisfied of three matters:-
(1) The court should be
satisfied that the resolutions are passed by the statutory majority in value
and in number in accordance with s. 391(2) of the Companies Act at a meeting or
meetings duly convened and held. This factor is jurisdictional in the matter of
confirmation of the scheme. The court should not usurp the right of the members
or creditors to decide whether they approved the scheme or not. Therefore, if a
class whose interests are affected by a scheme does not assent to the scheme or
approve it at a meeting convened in accordance with the provisions of S. 391,
the court will have no jurisdiction to confirm the scheme, even if it considers
that the class concerned is being fairly dealt with or that it would approve
the scheme.
(2) The court should satisfy
itself that those who took part in the meeting are fairly representative of the
class and that the statutory meeting, did not coerce the minority in order to
promote the adverse interest of those of the class whom they purport to represent.
(3) Lastly, in exercising
its discretion under Ss. 391 and 394, the court is not merely acting as a
rubber stamp. It is the function of the court to see that the scheme as a
whole, having regard to the general conditions and background and object of the
scheme, is a reasonable one and if the court so finds it is not for the court
to interfere with the collective wisdom of the shareholders of the company.
When once the court finds that the scheme is a fair one, then it is for the
objector to convincingly show that the scheme is unfair and that, therefore,
the court should exercise the discretion to reject the scheme, notwithstanding
the views of a very large majority of the shareholders that the scheme is a
fair one. If the court is of the opinion that there is such an objection to it
as any reasonable man would say that he would not approve of it, then the court
may refuse to confirm the scheme. However, if the scheme as whole is fair and
reasonable, it is the duty of the court not to launch an investigation upon the
commercial merits or demerits of the scheme which is the function of those who
are interested in the arrangement.
(4) There should not be any
lack of good faith on the part of the majority.
The position has been
succinctly stated by LINDLEY L.J. in In re: Alabama, New Orleans, Texas and
Pacific Junction Railway Co., (1891) 1 Ch 213 at 238, 239 (CA) thus: “________
what the court has to do is to see, first of all, that the provisions of that
statute have been compiled with; and, secondly, that the majority has been
acting bona fide. The court also has to see that the minority is not being
overridden by a majority having interest of its own clashing with those of the
minority whom they seek to coerce. Further than that, the court has to look at
the scheme and see whether it is one as to which persons acting honestly, and
viewing the scheme laid before them in the interests of those whom they represent,
take a view which can be reasonably taken by businessmen." (Coimbatore
Cotton Mills Ltd. and Lakshmi Mills Co. Ltd., In re.- (1980) 50 Comp
Cases 623).
(q) Issue of Summons for
directions-not a casual or mechanical approach. -Though under Rule 67 of
the Companies Court Rules the summons for directions under S. 391 (1) is to be
issued ex facie there cannot be a casual or mechanical approach. The Court has
discretion to dismiss the summons at initial stage. [Sakamari Steel &
Alloys Ltd., In re.- (1981) 51 Comp Cases 266.]
(r) Majority required at
meeting for approval of scheme.-Three-fourths majority required is not three-fourths
of the total number of creditors or class of creditors or members or class of
members of the company but only three-fourths of those present at the
meeting and voting. Any member who though present at the meeting, does not vote
for or against, but remains neutral, is not to be taken into consideration.
As the expression used is
'member', not only holders of equity shares but also preference shareholders
will have to be taken into account and the value of their shares included.
Unlike in the case of general meetings held by the company, where-under the
present law, preference shares do not carry voting rights, in the case of the
meeting held under this section under the direction of the Court, the value of
all classes of shares held by members will have to be determined. Or, if the
meetings of the holders of preference shares and equity shares are according to
the nature of the case, ordered by the Court to be held separately, the three-fourths
majority of each class will have to be ascertained separately. If a member is
holder of both classes of shares, he will be entitled to vote at the meetings
of both classes.
(s) Effect of Court Order.-An order of the Court
sanctioning the scheme becomes binding on all the creditors, and the liquidator
and the contributories, so that whether it is valid or not, a shareholder
cannot afterwards question it.
As the scheme, when
sanctioned, comes to have statutory force and has greater sanctity than a mere
agreement between the parties affected, it cannot be varied by a mere agreement
of the parties. (Srimathi Premila Devi v. Peoples Bank of Northern India Ltd..,
(1939) 9 Comp Cases 1).
(t) Court cannot stay
criminal or revenue proceedings.-Having regard to the scope and purpose of sections
390 to 396, it is obvious that the Court has no jurisdiction to order stay of
any criminal or revenue proceedings against the company. (In Re, Uma Investment
Private Ltd.; State of Tamil Nadu v. Uma Investment Ltd., (1977) 47 Com Cases
242).
(u) Stamp duty.-A scheme or arrangement
sanctioned by the Court is an instrument liable to stamp duty, according to its
nature as a conveyance or otherwise, within the meaning of the Stamp Act. (Sun
Alliance Insurance Ltd. v. Inland Revenue Commissioners, (1971) 41 Com Cases
803).
(v) Foreign Companies.-The Court's jurisdiction
under this section extends also to foreign companies having an office within
its jurisdiction and an application can be maintained at the instance of any of
the persons mentioned in the Section.
The jurisdiction under this
section is co-extensive with the jurisdiction to wind up. (Definition of
'Company' in section 390). Also Re, Travancore National & Quilon Bank,
(1939) 9 Corn Cases 14.
(w) Court cannot modify
Scheme if it is reasonable and fair.-The court cannot be called upon to modify a
scheme if it is already reasonable and fair as between all the affected
parties. (Hindustan Pilkington Glass Works Ltd. In Re: 1979 Tax LR (NOC) 142
(Cal)).
(x) Court can modify Scheme
which has been sanctioned by it.-The court has power under the section only to modify
a scheme which has been sanctioned by it under Section 391(2). The court cannot
modify a scheme which is not sanctioned by it. Before the court can pass a
winding up order under this sub-section, it must come to a positive
conclusion that the proposed compromise or arrangement cannot be worked
satisfactorily even with modifications. (S.K. Gupta v. K.P. Jain, (1979) 49
Comp Cases 342).
(xi) Statutory violation.-Plea of incomplete explanatory
statement raised by a few objecting debenture holders was turned down by the
court as they were not able to show any statutory violations or that the scheme
was against public interest and these debenture holders had no locus standi to
raise any objection. Gujarat Lease Financing Ltd. Re, (2002) 36 SCL 838 (GUJ).
(xii) Recall of Courts'
order.-Although
in a scheme of arrangement, Court has power to recall its order convening
meetings, but without any apparent legal or jurisdictional error on record while
passing the ex parte order is established or brought to the notice of the court
to its satisfaction by the objectors, the order passed by the court need not be
recalled.
(xiii) Scheme by relief
undertaking.-A company declared to be a relief undertaking under the Bombay Relief
Undertakings (Special Provisions) Act, 1958 will not affect the right of the
Company to formulate a scheme of arrangement with creditors. It would not be a
case of double protection. Connnerzbank A.G. v. Arvind Why Ltd., (2002) 110 Com
Cases 539 (GUJ).
Procedure of conducting
meeting convened by court regarding amalgamation
1. Chairman of the meeting
(appointed by the Court) to sit on the dias together with Alternate
Chairperson.
2. Chairman of the Company
to sit on the dias along with Chairman of the meeting.
3. The members of the Board
of Directors, if any, present shall also sit on the dias with the Chairman of
the meeting.
4. Secretary, together with other senior officers of the company, shall be on the dias behind the Chairman of the meeting
5. Chairman of the meeting
will start the meeting by reading the order of the Court and the Scheme of
Amalgamation (This may be taken as read with the consent of the creditors
present).
6. Chairman of the meeting
will ask the Secretary to announce the following:
(a) number of notices sent
and amount outstanding,
(b) number of proxies
received and amount represented,
(c) number of
representatives appointed by the companies and amount represented.
7. Chairman of the meeting
will ask the Chairman of the Company to explain the genesis/rationale of
amalgamation.
8. Chairman of the meeting
to invite queries, if any, from the creditors present.
9. Chairman of the meeting
will ask the Chairman of the Company to reply to the queries.
10. Creditor to propose and
second the resolution to be passed.
11. Chairman of the meeting
will direct the creditors to commence polling. Polling is a statutory
requirement. The resolution shall be deemed to have been passed if voted by 75%
of the creditors present either in person or by proxy. (The ballot papers would
be distributed to the creditors at the time of entry).
12. Chairman of the meeting
announce the names of the two scrutineers. These names could be suggested by
the company.
13. On completion of poll,
the Chairman of the meeting declares the meeting closed.
I, SPM, the person appointed
by this Hon'ble Court to act as chairman of the meeting of the Equity
shareholders of the above named company summoned by notice served individually
upon them and by advertisement dated the 17th day of August, 2002 and held on
the 26th day of September, 2002 at 12.00 Noon at Ashoka Hotel, New Delhi do
hereby report to this Hon'ble Court as follows:
1. The said meeting was
attended in person or proxy by 1128 equity shareholder of the said company
entitled together to 3952943 equity shares.
2. The compromise or arrangement embodied in the Scheme of Amalgamation of XYZ Limited with ABC Limited was read out and explained by n-le to the meeting and the question submitted to the said meeting was whether the Equity shareholders of' the said company of the compromise or arrangement embodied in the said scheme of Amalgamation submitted to the meeting and agreed thereto.
3. The said meeting was of
the opinion that the compromise or arrangement embodied in the said Scheme of
Amalgamation should be approved and the result of the voting upon the said
question was as follows:
The under mentioned equity
shareholders present in person or proxy voted in favour of the proposed
compromise or arrangement embodied in the said scheme of Amalgamation being
adopted and carried into effect.
________________________________________________________________________________
Name of member Address
No. of Equity
shares Number of Votes
________________________________________________________________________________
AS
PER ANNEXURE-I
________________________________________________________________________________
The under mentioned equity
shareholders present in person or proxy voted against the proposed compromise
or arrangement embodied in the said Scheme of Amalgamation being adopted and
carried into effect.
________________________________________________________________________________
Name of member Address No. of Equity shares Number of Votes
________________________________________________________________________________
AS PER ANNEXURE-II
________________________________________________________________________________
Thirteen ballot papers were
found invalid for various reasons, details of which are given in Annexure-III.
Dated this ________ day of ________ 2002.
Amalgamation of subsidiaries
with holding company
"RESOLVED
(a) that the draft specimen
scheme of arrangement be and is hereby approved.
(b) that necessary steps be
taken for the alteration of the Memorandum of Association of the Company under
section 17 of the Companies Act, 1956, to include therein a provision for
amalgamation, subject to the approval of the Company Law Board.
(c) that such steps be taken
as may be necessary and expedient to carry into effect the schemes of
arrangement between the subsidiaries and its members on such terms and conditions
as may be approved by the members of the subsidiaries and accepted by the High
Court at Bombay, pursuant to the provisions of sections 391 and 394 of the
Companies Act, 1956, to which this Company would be a party.
(d) that a General Meeting
of the Company be convened for the purpose of amendment of its objects clause
to incorporate the power of amalgamation in the Memorandum of Association of
the company in terms of the draft notice and Explanatory Statement laid on the
table and initialled by the Chairman for the purpose of identification.
(e) that the Board of
Directors be and is hereby authorised to take such steps as may be necessary or
expedient to carry into effect the amalgamation of the subsidiaries with the
Company on such terms and conditions as may be approved by the Board and the
Boards of the subsidiaries and accepted by the Court.
(f) that the Directors of
the Company be and are hereby authorised severally to sign all documents and
papers which are required to be signed for carrying into effect the said
application under section 17 of the Companies Act, 1956, and the said scheme of
arrangement."
PRACTICE NOTES
1. Petition for sanction of
respective High Courts.-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 of a statutory majority at the
meetings.
2. Joint application where
both Companies within the same High Court.-It is not enough for the
transferor company alone to apply to the Court for the necessary sanction,
though, where both the companies are within the jurisdiction of the same High
Court, a joint application may be made. However, the Department is of the view
that where both the companies are situated in the same State and only one
company moves the court under section 391, that company may be advised to make
the other company a party to the petition as in the scheme of amalgamation
there is an identity of interest between the transferor company and the
transferee company.
3. Transferee Company need
not obtain approval when transferor Company a wholly owned subsidiary.-The transferee company need
not obtain approval under section 391 when the transferor company is a wholly
owned subsidiary.
4. Company becoming wholly
owned subsidiary.-Where by a scheme which is partly a compromise and partly an
arrangement, a company becomes a wholly owned subsidiary of another as a result
of the take over of its shares, the scheme if just, fair and legal and validly
approved can be sanctioned under S. 391 and not only under S. 395.
5. Stamp duty.-A scheme or arrangement sanctioned
by the Court is an instrument liable to stamp duty, according to its nature as
a conveyance or otherwise, within the meaning of the Stamp Act.
6. Appeal against orders.-When a scheme involves the
winding up of a company the order of winding up would be appelable as if it
were an order passed in winding up proceedings.
7. Foreign Companies.-The court's Jurisdiction
under this section extends also to foreign companies having, an office within
its jurisdiction and an application can be maintained at the instance of any of
the persons mentioned in the section.
8. Merger of wholly owned
subsidiary with holding company.-Court has sanctioned merger of companies for
economics of scale, reduction in overhead and more productivity, enjoying all
round approval and better utilisation of resources for merger of wholly owned
subsidiary with the holding company and also for amalgamation of transferor
and transferee companies belonging to the same group as it was advantageous to
both for optimum utilisation of resources and exploration of export markets.
Ss. 394-395-Notification
of acquisition of shares-Board Resolution
"RESOLVED that the Secretary, Shri ________________ notify the ________________ Stock Exchange of the acquisition of ________ equity shares of Rs. 10/- each by M/s. ________________ which together with the shares already held by them exceeds in the aggregate 5% of the voting capital of the Company."
1. Requirements of Listing
Agreement.-Under clause 40A of the Listing Agreement the company must notify the
Stock Exchange within 2 days when any person acquires or agrees to acquire
securities of a company when the total nominal value of such securities
together with the total nominal value of securities already held by such person
exceeds 5% in the aggregate of the voting capital of the company.
2. Valuation of shares.-Unless some material is
produced before the court to show that the valuation of shares was unfair the
court will sanction the scheme. Varuna Investment Ltd. Re, (2001) 106 Com Cases
410 (Bom).
3. Objection by official
liquidator.-The court did not accept the objection raised by the Official
Liquidator on the plea that the scheme in its implementation will be violative
of section 42 and 77, as it felt that such scheme are controlled by provisions
specially designed for the purpose and not by sections 42 and 77. New Vision
Laser Centres (Rajkot) (P) Ltd. Re: (2002) 36 SCL 697 (GUJ).
4. Assignment of Trade
Marks.-Trade
Marks and in the nature of intellectual property rights. Their assignments as a
consideration for transfer of shares in a scheme of demerger has been held to
be valid. Duphar Interfran Ltd. Re, (2001) 104 Com Cases 629 (Bom.).
5. Capital Gains Tax.-Capital Gains Tax is clearly
applicable in the transfer of shares of amalgamating company to the amalgamated
company as the rights of the assessees in the capital asset being their shares
in the amalgamating company stood extinguished upon the amalgamation of the
amalgamating company with the amalgamated company and as such there is a
transfer of shares within the meaning of section 2(47) of the Income-tax
Act and it was a transaction to which section 47(vil) of Income tax Act
applied. CIT v. Grace Collis, (2001) 2 Comp LJ 3 84 (SC).
Purchase of shares from the
shareholders of transferor company
by the transferee company
"RESOLVED that subject
to the approval of the Company being accorded in terms of section 81 (1A) of
the Companies Act, 1956, to the Board of Directors of the company be and is
hereby authorised to issue and allot ________ Equity shares of Rs. 10/-
each in the Company as fully paid up to the members of the transferor Company
in consideration of their option to transfer their shares held in transferor
company to the Company in the ratio of ________ Equity shares of Rs. 10/-
each fully paid up in the Company for every ________ Equity Shares of Rs. 10/-
each fully paid up in the transferor company."
1. Transferee company to
issue shares after scheme is duly approved and accepted.-If the transferee company
proposes to give an option to the members of the transferor company to accept in
exchange the shares of the transferee company in exchange of their existing
shareholding in the transferee company the Board of transferee company may
issue shares after the scheme is duly approved and accepted.
2. Obtaining of approval
under section 81(1A).-Obtain approval of the members of the transferee
company under section 81 (1A) to issue further shares to persons other than the
existing shareholders of the company.
"WHEREAS the Company
has acquired equity shares carrying more than 10% of the value of shares of
M/s. ABC Ltd.;
NOW IT IS RESOLVED that an
offer be and is hereby made by the company to the equity shareholders of ABC
Ltd. for the acquisition of the equity shares of M/s. ABC Ltd. on the following
terms:
1. The offer shall be made
to the shareholders whose names appear on the register of members on ________
2. The offer shall be for
the acquisition from the shareholders on additional aggregate of ________
equity shares of Rs. ________ each representing a 20 per cent of the total
issued equity capital of ABC Ltd.
3. The company will accept
shares from the equity shareholders even if such shares in the aggregate are
less than 20% of the total issued capital of M/s. ABC Limited. However if the
shares offered exceed 20% in the aggregate, the company shall have the option
to accept or reject the same after consultation with the concerned authorities.
The offers up to 20% in the aggregate shall be accepted according to the order
in which they are received by the company.
4. Subject to clause 3 above
the company shall acquire from each shareholder accepting the offer his full
shareholding up to 100 equity shares of a face value of Rs. 10/-.
5. The company offers for each share of M/s. ABC Ltd. a price of Rs. ________ The price shall be payable by cheque/D.D.
6. The offer will remain
open till ________
RESOLVED FURTHER that the
draft offer document containing all the details required under clause 40B of
the listing agreement, now initialled by the Chairman for identification be and
is hereby approved.
RESOLVED FURTHER that Shri. ________________ Secretary of the Company be and is hereby authorised to make a public announcement of the take over offer documents to M/s. ABC company limited and its shareholders to the shareholders of the company to SEBI and to ________ stock exchange in terms of Regulation 8 of the Securities and Exchange Board of India (Substantial Acquisition of shares and takeovers) Regulations, 1997 and that Shri ________________ Secretary be authorised to receive the shares sent in pursuance of this offer and pay the sale consideration.
1. Authorisation in the
Memorandum.-Power to acquire shares or any class of shares of another company under
any scheme or contract Involving transfer of shares should be present in the
memorandum of association of the company
2. SEBI Regulations.-If the company is a listed
company then the provisions of SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997 should be followed before acquiring the shares.
"WHEREAS the Company
has received an offer from M/s. XLY Ltd. Linder a scheme sign of oblique
contract involving transfer of shares of the company with a letter requesting
the company to recommend the offer to its shareholders;
AND WHEREAS the Board is of
the opinion that the offer is a fair and reasonable one;
NOW THEREFORE IT IS RESOLVED
that the offer be and is hereby recommended to the shareholders of the Company
and that Shri ________________, Director be and is hereby authorised to convene
a general meeting to approve the aforesaid scheme sign of oblique contract by
the holders of not less than nine-tenths in value of the said shares.
ALTERNATIVELY
WHEREAS the Company has
received an offer (etc.);
AND WHEREAS the Board is of
the opinion that the offer is not advantageous to the shareholders for the
following reasons:
1. ________________
2. ________________
NOW THEREFORE IT IS RESOLVED
that the shareholders be and are hereby advised to reject the offer and that
Shri ________________, Director be and is hereby is authorised to inform the
shareholders of the advice of the Board and make a public announcement in one
issue of ________ of the take over offer and the Board's advice."
1. Requirements under
Listing Agreement.-Clauses 40A(b) and 40B of Listing Agreement provide that no person
shall acquire shares carrying more than 10% of the voting rights of a company
unless the conditions in clause 40B of the Listing Agreement are complied with.
2. Conditions of Listing
Agreement.-These conditions are the following among others:
(a) A public announcement of
the offer must be made by the offeror and the offeree company.
(b) The offer documents must
be sent to the offeror company, the shareholders of the offeror and the offeree
company to the stock exchange and SEBI.
(c) The price offered must
be as per clause 40B(8).
3. Offeree company
(a) The offer must first be
placed before the Board of the offeree company.
(b) The Board of the offeree company shall not, without the general body's approval, issue any securities, acquire, sell dispose of or agree to acquire, sell or dispose of, assets of a substantial value.
4. Share Exchange Ratio.-In a scheme involving
demerger share exchange ratio cannot be irrelevant and a share exchange ratio
suggested by financial experts and overwhelmingly approved by shareholders
cannot be described as sham or bogus or so absurd or perverse that it could be
said that the shareholders, who over whelmingly approved it were nevertheless
uninformed. Renuka Datta v. Duphar Interfran Ltd., (2002) 1 Comp LJ 318 (Bom).
"RESOLVED that an Extraordinary General Meeting of the Company be convened to consider and if thought fit to approve the issue of ________ equity shares on a rights basis of 1:1 to the existing share holders as on ________
PRACTICE NOTES
1. Listing Agreement.-Clause 4013(12) of the
listing agreement prohibits the Board of an offeree company to issue any
securities during the currency of the take over bid unless approval is obtained
from the general Body.
2. Form of the Resolution.-The resolution by the
general body will be in the normal form and either special or ordinary
depending upon the Articles of the company and read w1ith section 81 of the
Act."
3. Listed companies.-A company taking over a
listed company should adhere to the provisions of Securities and Exchange Board
of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
4. Application to the Company Law Board.-To prevent takeover, an
application may be made to the Company Law Board under section 250 or under
section 409 of the Act.
Amalgamation of companies by
Central Government
in public interest
S. 396-Amalgamation
of companies by Central Government in public interest Board Resolution
WHEREAS the company is
holding 90% of equity shares of ABC Co. Ltd.;
AND WHEREAS the company and
the said ABC Co. Ltd. have same line of business;
AND WHEREAS it will be in
public interest that both the companies be amalgamated subject to the approval
of the Central Government for which an application should be made by the
company as well as by the ABC Co. Ltd.;
NOW, THEREFORE, IT IS
RESOLVED that subject to the approval of the Central Government pursuant to
section 396 of the Companies Act, 1956, ABC Co. Ltd. be amalgamated with the
company in public interest.
RESOLVED FURTHER that the
Secretary of the company be authorised to make an application to the Central
Government and take necessary steps as may be required from time to time in
connection therewith or ancillary or incidental thereto.
1. Amalgamation in Public
Interest.-This is a new provision and it is intended to provide, at the instance
of the Government, for the amalgamation of two or more companies in the public
interest. Occasionally, cases arise where such an amalgamation in the public
interest is clearly a necessity. The observance of the usual procedure
prescribed by the existing Act in such cases will lead to prolonged delays
which will be detrimental to the public interest. It has been made clear that
any order made by the Government should provide for the old shareholders, and
the old debenture- holders and other creditors, having the same interest
in the company resulting from the amalgamation as they have in the original
companies. Any order made by the Government under this section will be laid on
the table of both Houses of Parliament and will therefore be subject to the
Parliamentary scrutiny.
2. Application and
procedure. -For making an application to the Central Government, there is no
prescribed form and the said application should be made by both the companies
separately in their respective letter heads addressing them to the Secretary,
Department of Company Affairs, Shastri Bhawan, 5th Floor, A-Wing, Dr.
Rajendra Prasad Marg, New Delhi-110001. Before making the application
each of the company should prepare a scheme of amalgamation which should be
approved by the Board of Directors of the respective companies and certified
true copy of which should be attached to the application to the Central
Government.
Preservation of books and
papers of amalgamated company
S. 396A-Preservation
o books and papers of amalgamated company-Board Resolution
"WHEREAS amalgamation
of M/s. ABC & Company Limited and M/s. XYZ & Company Limited has now
been completed with the Company;
AND WHEREAS all formalities
of amalgamation including incorporation of accounts are now completed in all
respects;
NOW THEREFORE IT IS RESOLVED
that the books and papers of both the above amalgamated companies, that is,
M/s. ABC & Company Limited and M/s. XYZ & Company Limited, be and are
hereby preserved separately under the direct responsibility of the Secretary of
the Company who should ensure not to dispose of any paper, book, voucher or
record without the prior permission of the Central Government in this
regard."
1. Permission of Central
Government.-For disposing of the books and papers of a company whose shares have
been acquired or which has been amalgamated with another company, prior
permission of the Central Government should be obtained.
2. Purpose of permission-Examination of books and
papers is done by the Central Government appointed persons to ascertain whether
they, contain any evidence of the commission of an offence in connection with
the promotion or formation or the management of the affairs of the company.
Period of preservation of
books and papers of amalgamated companies
Section 209(4A) provides
that the books of accounts of every company relating to a period of not less
than eight years immediately preceding the current year shall be preserved in
good order, and section 550 provides for the preservation of books in winding
up. It was observed that in many cases where the liquidated companies were
amalgamated with other companies, the amalgamating company took charge of the
properties including the books of the liquidated companies with a view to
destroying evidence within a short time after amalgamation. This section
provides that books and accounts of the amalgamated companies should be
preserved in their entirety until such time as an independent and responsible
office of the rank of Official Liquidator attached to the respective High
Court, has gone through the accounts and records and satisfied himself that the
proceedings for winding up or amalgamation have been conducted fairly and
without detriment to the members of the public. It is worth referring here to
the Schedule to the Companies (Preservation of Disposal of Records) Rules,
1966, which specifies the period of preservation of different books.
(See Rules 2 and 3 of the Companies (Preservation
and Disposal of Records) Rules, 1966.)
|
Name of documents |
Period |
|
1 |
2 |
|
(1) Register of members commencing from the date
of the registration of the company |
Permanent |
|
(2) Index of members |
Permanent |
|
(3) Register of debenture-holders |
15 years after the redemption of debentures |
|
(4) Index of debenture- holders |
15 years after the redemption of debentures |
|
(5) Copies of all annual returns prepared under
sectionsl59 and160 and copies of all certificates and documents required to
be annexed thereto under sections 160 and 161 |
8 years from the date of filing with the Registrar |
The powers vested in the
High Court under Section 404 have been now conferred on Company Law Board by
the Companies (Amendment) Act of 1988 with effect from 31st May
1991.
Application to Company Law
Board for relief in cases
of oppression and
mismanagement
WHEREAS the company is
holding 12% equity shares in the paid-up share capital of ABC Co. Ltd.;
AND WHEREAS the affairs of
the said company being conducted in a manner oppressive to the company being a
member of the said ABC Co. Ltd.;
AND WHEREAS the affairs of
the said ABC Co. Ltd. also being conducted in a manner prejudicial to the
interest of the company;
AND WHEREAS a material
change has taken place in the management of the said ABC Co. Ltd. by change of
ownership of the said company's shares to the extent of 8% in the total paid-up
share capital of that company and by reason of such change there is likelihood
that the affairs of that company will be conducted in a manner prejudicial to
the interests of that company;
AND WHEREAS the company
being a member of that company must try to seek remedy against such oppression
and the mismanagement;
NOW, THEREFORE, IT IS
RESOLVED that an application be and is hereby made by the company to the
Company Law Board pursuant to sub-section (2) of section 397 and also
under subsection (2) of section 398.
RESOLVED FURTHER that Messrs
XYS and PNQ, the directors of the company be jointly and severally authorised
to make the said application to the Company Law Board and to sign any documents
and papers with regard to the said application and to take every action that
may be needed in connection therewith or ancillary or incidental thereto
including appointment of authorised representative to appear before the Company
Law Board as and when required.
1. Application and
procedure.-Application to the Company Law Board should be made by way of a
petition to be prepared in Form No. 1 in Annexure II of the Company Law Board
Regulations 1991 along with documents and papers given in column 4 of Annexure
III at item 27 of the Company Law Board Regulations. An application fee of Rs.
5,000/- should be paid along with the aforesaid application by way of a
Demand Draft drawn in favour of 'Pay and Accounts Officer, Department of
Company Affairs, New Delhi' and payable at New Delhi.
2. Meaning of oppression.-Oppression, according to the
dictionary meaning of the word, is any act exercised in a manner burdensome,
harsh and wrongful. "Oppression under section 210 (the corresponding
section of the English Companies Act of 1948 and Ss. 459-461 of the Act
of 1985) may take various forms. It suggests to my mind, as I said in Elder v.
Elder & Watson Ltd., (1952) Scottish Cases 49, a lack of probity and fair
dealing in the affairs of a company to the prejudice of some portion of its
members. The section confers a wide power on the Court to deal with such a
situation in an equitable manner which it did not have in the case of a company
prior to the passing of the Act of 1948." Per LORD KEITH in Scottish Co-operative
Whole Sale Society Ltd. v. Meyer, (1958) 3 All ER 66 (HL). Followed in Needle
Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd.,
(1981) 51 Com Cases 743 at 777: AIR 1981 SC 1298.
3. Gleanings from cases.-In a case under this section
it is not necessary to establish any personal prejudices for any relief The
remedy under this section is available in respect of the affairs of a banking
company also. PIK Securities (P.) Ltd. v. United Western Bank (P.) Ltd., (2001)
4 Comp LJ 81 (CLB).
Company Law Board viewed the
act of the company in sending the notice deliberately to the local address of
the non-resident majority shareholders to be of oppressive nature. Shiv
Nath Ray Bajaj v. Nafab India (P.) Ltd., (2002) 108 Com Cases 642 (CLB). Filing
of a winding up petition is not a bar to the filing of a petition for
prevention of oppression and mismanagement. Praful M. Patel v. Wonderweld
Electrodes (P.) Ltd., (2002) 36 SCL 825 (CLB). For a petition filed under this
section Company Law Board may undertake enquiry and investigations into
allegations like non-receipt of notice, absence of minutes, shiphoning
off funds and monetary mismanagement. K. Venkateswara Rao v. Phoenix Share and
Stockbrokers (P.) Ltd., (2002) 35 SCL 561 (Bom). When there is substantial gap
between the view points of the parties as to the valuer's fixation of price of
shares, Company Law Board, could not undertake to do the valuation work in the
state of such a serious dispute. Kaikhosnow K. Framji v. Consulting Engineering
Services (India) Ltd., 2002 110 Com Cases 482 (CLB). Date of valuation of
shares will be the date back to the period up to which accounts showed the
state of the assets and not the date of petition as there were no accounts
showing the position of assets upto that date. Nikil Rubbers (P.) Ltd. Re,
(2002) 108 Com Cases 438 (CLB). In an incorporated partnership, removal from
directorship may amount to oppression. Praful M. Patel v. Wonderweld Electrodes
(P.) Ltd., (2002) 36 SCL 825 (CLB). The question of pursuing parallel
proceedings does not arise where there is no commonality of allegations between
the allegations made in the civil suit filed and a petition filed under this
section. Kshounish Chowdhury v. Kero Rajendra Monolithics Ltd., (2002) Comp LJ
552 (CLB). If is only the Company Law Board which can deal with causes under
sections 397 to 404 as these special set of sections contain a complete code
for redressal of grievances arising out of oppression of member or
mismanagement of affairs. Anil Gupta v. JX Gupta, (2002) 47 CLA 50 (P&H).
Whether affairs of the company in sections 397 and 398 would include the
affairs of subsidiary company will depend upon the facts of each case. Shankar
Sundaram v. Amalgamations Ltd., (2002) 111 Com Cases 252.
4. Mismanagement not proved.-Reduction in profits or
incurring of losses may create a suspicion but it is not the same thing as a
proof of financial mismanagement or even a presumption of it. Jagajit Singh
Chawla v. Tirath Ram Ahaja Ltd., (2002) 2 Comp LJ 72 (CLB). A bona fide
shifting of registered office of a company, causing no loss to the company does
not amount to mismanagement. Hanuman Prasad Bagri v. Bagree Cereal (P.) Ltd.,
(2001) 105 Corn Cases 493 (SC).
Carrying out orders of the
CLB
"RESOLVED that the order dated ________ passed by the Company Law Board pursuant to the power vested under sections 397 and 398 be and is hereby noted and that the Board of Directors of the Company directs that
(1) Shri ________________ and Shri ________________ Directors purchase ________ Equity shares of Rs. 10/- each held by Shri ________________ and Shri ________________ in the company at a price as specified in the order.
(2) M/s. ________________ the Sole Selling Agent be served with a notice that the company propose to exercise its option not to renew the Agreement after expiry of the term of five years.
(3) Shri ________________ Finance Director be served with a notice draft whereof placed on the Table conveying intention of the company to terminate the agreement after one month from the date of receipt of notice.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby directed to ensure compliance of the
above and submit a report to the Board at its next Meeting."
1. Power of Company Law
Board.-The
Company Law Board pursuant to the powers vested in it under sections 397 and
398 of the Companies Act, 1956 after enquiry and hearing the parties pass such
an order as it may deem fit with a view to bring to an end or prevent the
matters complained of or apprehended. Company Law Board orders directing
reconstitution of the board of directors of the company with persons having
differences which would lead to deadlock and appellants refused to co-operate
with the administrator appointed by the Company Law Board, on appeal the court
affirmed the said order rejecting the appeal. Graphic Machinery and Appliances
(P.) Ltd. v. PX Mukherjee, (2000) 99 Com Cases 264 (Cal). Company Law Board in
a proceeding under section 397/398 excercises equitable jurisdiction and in
moulding the relief all such aspects that contributes to this have to be taken
into consideration. Mrs. Nelu Kohli v. Nikil Rubber (P.) Ltd., (2001) 1 Comp LJ
168 (CLB).
2. Company Law Board not
concerned with management.-The Company Law Board is not concerned with the past
management except where the past project itself as a continuing wrong and
pervades the conduct of the company's affairs. (C.B. Pardhanani v. M.B.
Pardhanani, (1990) 69 Comp, Cas 106 (Kant).
3. Recourse to the
provisions of section 402.-Once Company Law Board on a petition under section
398 comes to the conclusion that the affairs of the company are being conducted
in a manner prejudicial to public interest or in a manner prejudicial to the
interests of the company, it can have recourse to the provisions of section 402
to mould the relief. Under section 402 the jurisdiction and powers are two-fold,
one corrective and other preventive in nature. Monohar Rajaram Chhabaria v.
Union of India, (2002) 110 Com Cases 162 (Cal).
4. Interest of Company.-While exercising powers
under section 402 in a petition under section 398, the court is considering not
only the relief that is sought for but also what is the nature of the complaint
and how the same has to be rectified. It is the interest of the company that is
being considered and not the individual dispute between the minority
shareholders and majority shareholders. Shri Ramdas Motor Transport Ltd. v.
Karedla Suryanarayana, (2002) 110 Com Cases 193 (A.P.).
Alteration of memorandum or
articles pursuant to the Company
"RESOLVED that pursuant to the order of the Company Law Board dated the ________, 2002 ________, under section 404(2) of the Companies Act, 1956, the article numbers ________ and ________ of the Articles of Association of the Company, be and are hereby altered in accordance with the provisions of the Act, and that the said provisions shall apply accordingly to the articles so altered, and that the Secretary of the Company be directed to file a certified copy of the Company Law Board's order altering or giving leave to alter the article numbers ________ and ________ of the Articles of Association of the Company within thirty days of the obtaining of such order with the registrar of companies."
1. Power conferred on
Company Law Board.-By the Companies (Amendment) Act, 1988, powers hitherto vested in the
High Court for alteration of Memorandum or Articles of Association pursuant to
Court's order under section 397 or 398 of the Act have been conferred on the
Company Law Board formed under section 10E of the Act. The powers exercised by
the High Court under the section have been conferred on Company Law Board by
the Companies (Amendment) Act, 1988 with effect from 31st May, 1991.
2. Right to apply under
sections 397 and 398.-Not less than one hundred members of the company or
not less than one-tenth of the total number of its members, whichever is
less, or any member or members holding not less than one-tenth of the
issued share capital of the company, may apply to the Company Law Board under
section 397 for relief in cases of oppression of minority or under section 398
for relief in cases of mismanagement.
3. Obtaining of consent.-Where any members of a
company are entitled to make an application comprising the members as mentioned
above, any one or more of them having obtained the consent in writing of the
rest may make the application on behalf and for the benefit of all of them.
4. Power of Central
Government to relax requirement.-The Central Government may, pursuant to an
application under section 399, if in its opinion circumstances exist which make
it just and equitable so to do, authorize any member of the company to apply to
the Company Law Board under section 397 or 398, notwithstanding the fact that
they are less than the requisite number of members as required by these
sections.
5. Wide nature of Powers.-The powers of Court (Company
Law Board) under sections 397 to 407 of the Companies Act, 1956 are very wide.
In fact the Court (Company Law Board) may make any order for regulation of the
conduct of the Company's affairs upon such terms and conditions as may in the
opinion of the Court (now Company Law Board) be just and equitable in all the
circumstances of the case. The constitution of an advisory board by orders of
Court (Company Law Board) in a proper case for company management is within the
competence of the Court (Company Law Board) under the section, Richardson &
Cruddas Ltd. v. Haridas Mundra, 63 CWN 439 : AIR 1959 Cal 695. Where interim
Board is appointed the Court (Company Law Board) has power to give suitable
guidance and instructions from time to time. Lord Krishna Sugar Mills Ltd. v.
Abinash Kaur, (1974) 44 Comp Cases 210.
6. Right of Central
Government to apply under sections 397 and 398.-Pursuant to section 401 the
Central Government has a right to join in such proceedings to Company Law Board
or may itself apply to the Company Law Board for an order under section 397 or
398.
7. Alteration of Memorandum
or Articles.-Under section 404, a Company cannot make any change/amendment either in
the memorandum or articles of the Company. Where the Company Law Board makes
alteration either in the memorandum or articles of a Company, then,
notwithstanding any other provisions in the Act, the Company shall not have
power except to the extent, if any, permitted in the order, to make, without
leave of the Company Law Board any alteration whatsoever, which is inconsistent
with the order, either in the memorandum or in the articles (Section 404(1)).
8. Penalty for default.-A certified copy of every
order of the Company Law Board altering or giving leave to alter a company's
memorandum or articles should be filed by the company with the Registrar of
Companies within 30 days after the making thereof and if default is made in
complying with this requirement, the company and every officer of the company
who is in default will be punishable with fine of upto Rs. 50,000/-.
Oppression and mismanagement
(S. 408)
This section has been recast
by the Companies (Amendment) Act, 1988. The Central Government has been
empowered to appoint Directors on an order passed by the Company Law Board to
effectively safeguard the interest of the company or its shareholders or the
public interest to prevent mismanagement or oppression. The power is in the
nature of a preventive action and can be exercised by the Company Law Board
either on a reference made by the Central Government or an application made by
the requisite number of members specified therein. The Government has also been
enabled to effectively intervene by issuing directions to the company on which
Government Directors have been appointed as regards change of Auditors of the
company or alteration of its articles.
Appointment of Government
Directors
S. 408-Appointment of Govt.
Directors by the Central Government-Board Resolution
"WHEREAS the Company
Law Board is satisfied that there has been oppression and/or mismanagement in
the affairs of the company, after allowing due hearing to the present
management of the Company;
AND WHEREAS the Company Law
Board considered it necessary to effectively safeguard the interest of the
company, or its shareholders or the public interest;
AND WHEREAS the Central
Government by an order number ________ dated the ________ 2002 ________, which
is hereby tabled, directed appointment of three Directors, Mr. NMP, Mr. STQ
and Mr. ZAT;
NOW THEREFORE IT IS RESOLVED
that they be welcomed to join the Board for a period of three years effective
from ________, 2002 ________
RESOLVED FURTHER that the
Secretary of the Company be and is hereby directed to file Form No. 32 in
duplicate with the Registrar of Companies immediately."
1. Power of Central
Government to appoint directors.-Pursuant to Company Law Board's order, the Central
Government is empowered under section 408 to appoint Directors for a period not
exceeding three years at a time (who may be re-appointed before the
expiry of such period) in order to prevent the affairs of the company from
being conducted either in a manner which is oppressive to any members of the
company or in a manner which is prejudicial to the interest of the company or
to the public interest. Where a company has already appointed reputed persons
on its board of directors for remedial steps and the RBI is also monitoring the
affairs of the company so there was no need for appointing government
directors. Central Government v. Peerless General Finance and Investments Co.
Ltd., (1999) 95 Com Cases 846 (CLB-PB). The power under this section is
extraordinary and can be exercised only upon satisfaction that the affairs of
the company are grossly mismanaged or where it is felt that quick action is
needed. The power under this section is both remedial and preventive in nature.
It can be exercised only if the Company Law Board is satisfied that the
appointment of directors is necessary to prevent continuance of mismanagement.
Monohar Rajaram Chhabria v. All India Shaw Wallace Employees Federation, (2002)
110 Com Cases 162 (Cal).
2. Satisfaction of Company
Law Board.-Before resorting to this section, it is a condition precedent that the
Company Law Board should be satisfied that the affairs of the Company are being
conducted,
(1) either in a manner oppressive to any member, or
(2) in a manner prejudicial to the interests of the
Company or the public interest.
3. Affording of
opportunity to persons charged with mismanagement.-The enquiry under
this section is usually quasi-judicial affording the persons charged with
mismanagement an opportunity to represent their cases through a laywer and
produce evidence where necessary. Baldevdas Reheja v. Union of India, (1977) 79
Bom LR 581.
4. Government control under
section 408.-Sub- section (6) has been amended by the Amendment Act of 1988,
empowering the Central Government to issue directions, inter alia, to remove
the auditor and to appoint another auditor in his place and to alter the
Articles of Association of the Company. Although these changes made by the
Amendment Act, 1988 are no doubt drastic ones in relation to issue of
directions by the Government, yet the same do not empower the Government to
interfere in the day to day management of the company.
Appointment of Government
Directors on the Order of the CLB
"RESOLVED that the appointment of Shri ________________ and Shri ________________ being the nominees of the Central Government as ordered by the Company Law Board as directors on the Board of the Company for a period of three years be and is hereby noted and that they shall not be liable to retirement by rotation.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby authorised to file the necessary
returns with the Registrar of Companies."
1. Affecting rights of the
Board.-The
section must be construed strictly inasmuch as it affects the rights of the
Board of Directors to manage the company. (Peerless General Finance &
Investment Co. Ltd. v. Union of India, (1989) 1 Comp LJ 56, 71.)
2. Notwithstanding anything
contained in this Act.-The section opens with the words
"notwithstanding anything contained in this Act". This is a non-obstante
clause which vests overriding powers in the Government to nominate directors to
prevent mismanagement or oppression. (Oriental Industrial Investment Corpn.
Ltd. v. Union o India, (1981) 51 Com Cases 487, 493 (Del).
3. No change in Board
without confirmation.-After the Central Government has appointed one or
more directors under this section and so long as they remain in office, no
change in the Board of Directors shall have effect unless confirmed by the
Company Law Board.
4. Filing of return with
Registrar.-Ensure to file Forms No. 29 and 32 with the Registrar of Companies
concerned within thirty days from the date of appointment. Form No. 32 should
be filed in duplicate.
S. 416-Contracts
by company as undisclosed principal-Board Resolution
"RESOLVED that a
memorandum in writing setting out the terms and conditions of a contract
entered into between M/s. BCD Private Limited and Mr. KKW but purported to be
made on behalf of the company, being an undisclosed principal as laid on the
table, be and is hereby confirmed, and that the salient points in the said
memorandum and the obligations arising out of such contract as binding on the
Company be accepted."
1. Contract by agents of
Company in which Company is undisclosed principal. - Pursuant to section 416 of
the Companies Act, 1956, every person being a Manager or agent of a public company
or its subsidiaries, may enter into contracts for and on behalf of the company
in which contract the company is an undisclosed principal. Every such person on
such occasion shall forthwith deliver the memorandum to the company and send
copies thereof to each of the Directors, and such memorandum shall be filed in
the office of the company and laid before the Board of Directors at its next
meeting. For lapses on the part of the agent for such disclosure, the contract
is voidable at the option of the company.
Contracts by Agents of
Company in which it is undisclosed principal
WHEREAS Mr. ________________ manager of the company who has entered into a contract with Mr.________________ for or on behalf of the company;
AND WHEREAS in the said
contract the company is an undisclosed principal;
AND WHEREAS a memorandum in
writing of the terms of the contract has been made at the time of entering into
the contract and the person with whom it is entered into has been specified
therein;
NOW THEREFORE IT IS RESOLVED
that the said memorandum as placed before the meeting be and is hereby taken on
record.
PRACTICE NOTES
1. Default in complying with
section 416.-If default is made in complying with the requirements of section 416,
the contract shall at the option of the company be voidable as against the
company and the person who enters into the contract or every officer of the
company who is in default as the case may be shall be punishable with fine of
upto Rs.2000/-.
2. Copies of memorandum to
be sent.-Every person who enters into a contract must forthwith send the
memorandum to the company and should also send copies thereof to each of the directors
of the company.
Depositing Employees
security deposits or money in bank
RESOLVED that the amount of Rs. ________________ constituting moneys or security deposited with the company by employees in pursuance of their contract of service with the company be and is hereby deposited in the Kalkaji Post Office in the name and style of "ABC Employees Security Deposit Account" as a savings account.
1. Time of such deposit.-The money or security
deposit of employees should be deposited within 15 days from the date of
deposit in either a post office savings bank account or in a special account to
be opened by the company for the purpose in the State Bank of India or in a
Schedule Bank.
2. Utilisation of the money
or security deposit.-No portion of such moneys or security deposit should be utilised by the
company except for purpose agreed to in the contract of service.
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 received a specified amount as security from its
employees during the year under certification and the same has been deposited
as per provisions of section 417(l) of the Act as per paragraph 32 of the Form
of Compliance Certificate as appended to Companies (Compliance Certificate)
Rules, 2001.
Constitution of Companies
Provident Fund Scheme
"RESOLVED THAT
(i) A Contributory Provident
Fund styled "XYZ Limited Provident Fund Trust" be constituted for the
benefit of the employees of the Company with effect from 20th April, 2002.
(ii) The draft Rules of the
Trust placed on the Table are hereby approved.
(iii) The Trust shall
consist of six Trustees. The employer and employees shall have power to
nominate three representatives each on the Board of Trustees.
(iv) The following persons
shall be Company's representatives on the Board of Trustees for a period of one
year from 20th April, 2002.
1. Shri ________________
2. Shri ________________
3. Shri ________________
Shri
________________ shall be the Chairman of the Board of Trustees.
(v) A Savings Bank Account
styled "XYZ Limited Provident Fund Trust Account" be opened with the
Bank of Baroda, Parliament Street, New Delhi, Shri ________________ Chairman of
the Trust, is hereby authorised to operate the aforesaid Account.
(vi)
Shri ________________ is further authorised to take all necessary action in
this connection."
1. Deposit of Provident Fund
monies.-Section
418(l) requires that the provident fund monies of employees of the company
should be invested either in approved trust securities or in a Post Office
Savings Bank account and only when a certain percentage of the monies exceeds
the limit for deposits in the Post Office Savings Bank account, the excess may
be deposited in a Scheduled Bank.
2. No restrictions on amount
to be deposited in Post Office.-There are no restrictions at present on the
maximum amount that may be deposited in a Post Office Savings Bank and all the
provident fund monies have, therefore, to be kept only in the Post Office
Savings Bank till they are invested in trust securities.
3. Exempted Funds to keep
reserves in Scheduled Banks.-Funds exempted under section 17 of the Employees' Provident
Fund Act, 1952, are required to keep their reserves deposited in Scheduled
Banks except to the extent that they have to be invested.
4. Application of Employees
Provident Funds Act rules to S. 418.-Where the provisions of the Employees Provident
Fund Act, 1952 are applicable to the Provident Fund constituted by a company,
the provisions of section 418 of the Companies Act need not be complied with by
the company. (F. No. 8/58(418)/63-PR).
5. Penalty on contravention.-The default under this section
and section 419 is punishable in accordance with the provisions of section 420.
6. Right to interest (Sub-section
(2)).-Sub-section
(2) of section 418 only imposes a restriction on the right of an employee of a
company to receive interest at any rate exceeding that specified therein. It
does not prohibit an employee from receiving and the trustees of a provident
fund from paying voluntarily interest at a higher rate if they can afford to do
so. (Letter No. 8/20(418)-65-CL. V, dated 28-9-1965).
7. Deposit of Provident Fund
money with Scheduled Bank.-It would be in order for Trustees of a Provident
Fund constituted by a company to deposit the fund monies in fixed deposit with
a scheduled bank under section 418(l)(a)(ii). (Letter No. 8/20/(418) /65-CL.
V, dated 7-9-1965).
8. Employees' contribution
to fund to be deposited within 15 days.-Amounts collected from the
employees of a company as their contributions to a Provident Fund constituted
by the company are in the nature of trust monies in the hands of the company
and should be paid to the trustees of the fund without any avoidable delay. An
employee's contribution should, therefore, be deposited within fifteen days
from the date on which it is collected from the employee concerned instead of
within 15 days from the date on which the total amount of contribution is
collected from all the employees. (Letter No. 8/32(418)/64-PR, dated 27-8-1964).
9. 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 deposited both employee's and employer's contribution
to Provident Fund with prescribed authorities pursuant to section 418 of the
Act as per paragraph 33 of the Form of Compliance Certificate as appended to
the Companies (Compliance Certificate) Rules, 2001.
Nomination on Board of
Employee's Provident Fund Trust
"RESOLVED that the
company do nominate Shri SKM, Managing Director of the Company on Board of
Employees' Provident Fund Trust as Chairman of the Board of Trustees with
effect from 1st July, 1998.
RESOLVED FURTHER that Shri
SKM be and is hereby authorised, singly, to operate on the Savings Bank Account
of ABC Limited Employees' Provident Fund Trust Account with Bank of Baroda, New
Delhi, make term deposits and open accounts with Post Master, General Post
Office, New Delhi, to sign withdrawal slips of payment of interest and
principal amount of term deposits and give discharge in this behalf to Post
Master, General Post Office, New Delhi and to do all other things, for the
purpose of buying, selling, investing, endorsing, transferring, discharging,
securities, deposits for and on behalf of the Trust and the Banks and Post
Master, General Post Office, New Delhi shall honour all instructions given by
him in this regard.
RESOLVED FURTHER that Shri
SKM, Chairman of the Trust be and is hereby authorised to buy, sell, endorse,
transfer, negotiate and/or otherwise deal with Government Securities,
Industrial Finance Corporation of India/Agricultural Refinance and Development
Corporation Bonds for and on behalf of the ABC Limited Employees' Provident
Fund Trust. He be and is hereby also authorised to execute bonds of indemnity
and documents etc. on behalf of the Trust."
1. Principal and Interest to
be deposited.-All moneys contributed to the fund or received or accrued by way of
interest should be deposited within 15 days to any Post Office saving bank
account or to any special account opened by the company in the State Bank of
India or in a scheduled bank or be invested in the securities mentioned or
referred to in clauses (a) to (e) of section 20 of the Indian Trusts Act, 1882.
2. Penalty.--Contravention of provisions
of section 418 of the Act is punishable with imprisonment for six months or
with fine of up to Rs. 1,000/-.
3. Compounding of offence.-The fine of Rs. 1,000/-
for contravention of provisions of section 418 is compoundable by the Regional
Director concerned as per section 621A(l)(b).
S. 488-Winding
up on the ground that substratum is lost-Board Resolution
"WHEREAS the Company
has lost its substratum;
AND WHEREAS the Board of
Directors considered a note on the proposal of voluntary winding up of the
Company;
NOW THEREFORE IT IS RESOLVED
that the Directors be and are hereby jointly authorised to record their
declaration to be verified by an affidavit by all the Directors present and
that the Company would be able to pay its debts in full within a period of two
years from the date of commencement of the winding up.
RESOLVED FURTHER that the
Company's solicitors be apprised of the situation and asked to draw up the
necessary affidavit to be executed before the High Court."
1. Delivering copy of
declaration of solvency for registration with Registrar. -Within five weeks
immediately preceding the date of the passing of the resolution for winding up,
the company has to deliver to the Registrar a copy of this declaration made for
registration before the date of resolution.
2. Declaration of solvency
to be accompanied by a copy of report of Auditors. -Such declaration is to be
accompanied by a copy of the report of the Auditors of the company (prepared,
as far as circumstances admit in accordance with the provisions of this Act)
and the profit and loss account of the company for the period commencing from
the date up to which the last such account was prepared and ending with the
latest practicable date immediately before the making of the declaration, and
the balance-sheet of the company made out as on the last mentioned date
and also embodying statement of the company's assets and liabilities as at that
date. If the declaration of solvency is not made in accordance with law, the
resolution of winding up and all the subsequent proceedings will be null and
void. Raja Mohan Mansha v. Lakshminath Saigal, (1963) 1 Comp LJ 285. If the
declaration is not filed but the resolution for members' voluntary winding up
is passed, then such winding up will not amount to members' voluntary winding
up. Vasica v. Janda Rubber Works, AIR 1950 Punj 188. But if after such non-filing
of declaration, liquidator is appointed and winding up proceedings are
commenced, then the winding up should be a creditors' winding up and be made in
accordance with the provisions of sections 500 to 509. Again If the declaration
is not filed and also the creditors' meeting is not convened due to absence of
creditors, then the company cannot be treated under liquidation unless a new
resolution is passed for winding up of the company and the declaration to that
effect is filed with the Registrar. (Circular Letter No. 42(139) CL. II/59,
dated 13-11-1959).
3. Winding up of company
will have no effect.-When the declaration of solvency under section 488(l) is filed but not
within the time limit of five weeks and also it does not accompany Auditors'
report, as required under section 488(2), then the winding up of the company
will have no effect. (Circular Letter No. 42(139)-CL.II/59, dated 22-2-1960).
4. Declaration to be
verified by an affidavit.-The declaration should be filed in Form No. 149 of
the Companies (Court) Rules 1959 (Rule 313 of the said Rules). This declaration
is to be verified by an affidavit before a Magistrate.
Members' voluntary winding
up
"WHEREAS that the audited Balance-sheet as at ________ and the profit and loss account of the Company for the period commencing from ________ to ________ and the Auditors' report thereon are approved;
AND WHEREAS the Board has
made a full enquiry into the affairs of the Company and has formed the opinion
that the Company has no debts (or the company will be able to repay its debts
in full within________ i.e., within 3 years from the date of commencement of
the winding up);
NOW THEREFORE IT IS RESOLVED
that a declaration verified by an affidavit be and is hereby made by all the
members of the Board (or by Shri A, B & C the majority of the members of
the Board) to the above effect.
RESOLVED FURTHER that Shri ________________ the Secretary of the Company be and is hereby authorised to deliver the declaration and affidavit to the Registrar of Companies.
RESOLVED FURTHER that an extraordinary general meeting of the company be and is hereby convened on ________ at ________ to consider and, if thought fit, pass the following Resolutions:
(1) That the company be and
is hereby wound up voluntary as special resolution.
(2) That Shri ________________ be appointed as the Liquidator of the company at a remuneration of ________ as ordinary resolution.
(3) That the following
powers be exercised by the Liquidator."
1. Declaration of Solvency.-Under section 484
read with section 488 the Board has to make a declaration of Solvency before
convening a meeting of the company to pass a special resolution for voluntary
winding up.
2. Time of making the
declaration.-The declaration of solvency should be made within 5 weeks immediately
preceding the passing of the resolution of winding up and a copy of the
declaration should be delivered to the Registrar of Companies.
Convening meeting of the
creditors
"RESOLVED that a meeting of the creditors of the Company be convened and held on ________, the ________, 2002 ________ at the registered office of tile Company, at ________ a.m./p.m., for the purpose of presenting a statement of assets and liabilities of the Company, and that Mr. ________________ a Director of the Company, be and is hereby appointed as the Chairman of the said creditors' meeting."
1. Convening meeting of
creditors.-Pursuant to section 500, the company is required to cause a meeting of
the creditors of the company to be called for the day or next following the day
on which there is to be held the General Meeting of the company at which the
resolution for voluntary winding up is to be proposed, and shall cause notices
of the meeting of creditors to be sent by post to the creditors simultaneously
with the sending of the notices of the meeting of the company.
2. Responsibility for
calling meeting of creditors.-The responsibility of the company under this section
is divided. The company is to initiate calling a meeting of the creditors,
issue notices and advertisements, etc. and the Board of Directors of the
company would cause a full statement of the position of the company's affairs
together with a list of creditors of the company and the estimated amount of
their claims to be laid before the meeting of the creditors to be held, as
aforesaid, and appoint one of their number to be the Chairman and preside at
the said meeting
Creditors' voluntary winding
up
"RESOLVED that an
Extraordinary General Meeting of the Company be and is hereby convened on
_________ (date) at _________ (place) to consider the following items of
business:
(1) To pass as special
resolution the following that the company be and is hereby wound up voluntary
as a creditors' voluntary winding up.
(2) To pass as ordinary
resolutions with or without modifications:
(i)
that Shri. __________________ be and is hereby appointed as a Liquidator of
the company,
(ii) that a
committee of inspection be and is formed consisting of the following persons.
RESOLVED FURTHER that a meeting
of the creditors of the Company be convened at _________ (time) on _________
(date) at _________ (place) to consider the following items of business:
(same as above).
RESOLVED FURTHER that Shri __________________ Director of the Company be and is hereby appointed to preside over the creditors' meeting.
RESOLVED FURTHER that Shri. __________________ Secretary of the Company be and is hereby directed to issue notices and advertisements convening the meeting as required by law."
1. What is creditors'
winding up.-A creditors' winding up is where the declaration of solvency is not
filed.
2. Creditors' Meeting.-The meeting of the creditors
should be held on the same day or the next day following the members' meeting.
3. Issue of Notices.-Notices and advertisements
must be issued as per section 500.
Application to the Company
Law Board for enforcement
of duty to make returns
WHEREAS the company is a creditor of ABC Co. Ltd.
which owes Rs. _________ to the company;
AND WHEREAS the Company has served a notice to the
said company for filing a charge with the Registrar of Company;
AND WHEREAS fourteen days have
passed from the date of service of the said notice to the said company and the
said company has not yet complied with the requirement;
NOW THEREFORE IT IS RESOLVED
that an application be and is hereby made to the Northern Region Bench of the
Company Law Board under section 614 of the Companies Act, 1956 for an order
directing the said company and any officer thereof to make good the default
within such time as may be specified by the order.
RESOLVED FURTHER that the
secretary of the Company be and is hereby authorised to file necessary
application with the Northern Bench of the Company Law Board and take all steps
that may be needed in connection therewith or incidental or ancillary thereto.
1. Application to the
Company Law Board.-Application to the Company Law Board should be made by way of a
petition to be prepared in Form No. 1 in Annexure II of the Company Law Board
Regulations, 1991 along with documents and papers given in column 4 of Annexure
III at item 31 of the Company Law Board Regulations. An application fee of Rs.
500/- should be paid along with the said application by way of demand
draft drawn in favour of "Pay and Accounts Officer, Department of Company
Affairs, New Delhi" and payable at New Delhi.
2. Validity of Mortgage.-In an application under this
section, Company Law Board would not go into the validity of the mortgage where
a dispute arose between the bank and the company as to whether a charge had
been really created in favour of the bank on any of the properties of the
company. Indian Overseas Bank v. Essar Machine Works Ltd., (2002) 47 CLA 28
(CLB). In another matter before the Company Law Board, it has observed that the
transaction with the borrower as well as the transaction with the company being
disputed, such disputed claims could not be adjudicated on the basis of
affidavits and counter affidavits filed by the parties and moreover the Company
Law Board would not go into the validity of mortgage in these proceedings.
Saradha Finance v. Alsa Investments (P.) Ltd., (2002) 110 Coin Cases 713 (CLB).
3. Costs to be borne by the
defaulting company.-Sub-section (2) of section 614 provides that all costs of and
incidental to the application shall be borne by the company or by any officers
of the company responsible for the default.
"RESOLVED that the Company do approach the Central Government for the appointment of statutory auditors for auditing accounts for the period ending on 31-3-2002.
RESOLVED FURTHER that Shri
SKM, Managing Director of the Company be and is hereby authorised to fix the
remuneration for the statutory auditors for the said year as well as out of
pocket expenses which may be incurred in connection with audit.
RESOLVED FURTHER that the
Secretary of the Company be and is hereby directed to make necessary
application to the Central Government for appointment of statutory auditors of
the company and to do all such acts and things incidental thereto."
1. Board Meeting.-Hold a Board Meeting and
pass a resolution for approaching Central Government for the appointment of
Statutory Auditors.
2. Application to Central
Government.-The application is to be made to the Secretary, Department of Company
Affairs, Shastri Bhavan, New Delhi.
3. Appointment of first
auditors in Government Companies.-Under section 619 read with sub-section (5) of
section 224 of the Companies Act, 1956, the first auditor or auditors of the
company are required to be appointed by the Central Government on the advice of
the Comptroller and Auditor-General of India within one month of the date
of registration of the Company.
4. Power to conduct test
audit in Government companies.-Under clause (b) of subsection (3) of section 619
the Comptroller and Auditor General has the power to conduct a supplementary or
test audit of the company's accounts by such person or persons as he may
authorise in this behalf. The person to be so authorised may well be the
Auditor appointed under sub-section (2) of section 619. It Is not
necessary to rely on the powers of the Comptroller and Auditor-General
under clause (a) of sub-section (3) for the purpose in view. (Extracts
from File No. 17/116/67-1 GQ.
5. Guidelines for Government
companies regarding fixation of auditor's remuneration.-While recommending the
remuneration of the auditors, the Board of Directors of the company concerned
should take a comparative view of the affairs of the company, so as to assess
whether there has been any significant growth in its activities since the
preceding year. Where, however, the same fee has been continued to be paid to
the auditors during the past few years, the comparative view of ' its
activities may be taken into account since the period when the fee was last
fixed or revised.
6. Removal of auditor.-The appointment and removal
of the auditor or auditors rests with the Central Government and the Auditor-General
of India exercises full control over the auditor. (Guru Gobinda Basu v. Sankari
Prasad Ghosal, (1963) 33 Com Cases 1132, 1136 (SC).)
7. Additional Report by
Statutory Auditor.-In exercise of the powers vested in the Comptroller and Auditor General
vide clause (a) of sub-section (3) of section 619, the Comptroller and Auditor
General has issued directions under which all professional auditors of Central
Government Companies have to submit a report (in addition to the report to be
furnished by them under section 227 of the Act) covering various matters
specified in the questionnaire to the Company along with the certified copy of
the Balance-sheet and Profit and Loss Account or as soon as possible
thereafter within a period not exceeding 2 months. Two copies of such report
are to be submitted to the Comptroller and Auditor General simultaneously.
8. Companies coming within
the provisions of S. 619-B.-Though companies coming within the provisions of
section 619-B of the Act are not Government Companies but for the
purposes of section 619 of Act they are to be treated as Government Companies.
Hence the auditors for the audit of accounts of these companies are also to be
appointed by the Central Government.
9. Scrutiny by independent
auditor.-An application to the court for appointment of an independent agency
for examining the accounts of a Government Company because there seemed to be
over expenditure was likely to bring down business was not granted as no ground
was made out for such appointment. Mechanical & Electronic Workers Union v.
National Textiles Corporation, (2001) 33 SCL 402 (Ker).
Filing of complaint for
offences under the Act
RESOLVED that the Company
being a shareholder of ABC Co. Ltd., a complaint in writing be and is hereby
filed with the High Court for offences alleged to have been committed by that
company against the Companies Act, 1956.
RESOLVED FURTHER that the
Secretary of the company be and is hereby authorised to file the said complaint
for and on behalf of the company and take any steps that may be necessary in
connection therewith or incidental or ancillary thereto.
1. Cognizance of offence by
court.-Section
621 provides that no court shall take cognizance of any offence against this
Act (except offences under section 545) which is alledged to have been
committed by any company or any officer thereof except, on the complaint in
writing of the Registrar of Companies or SEBI or of a shareholder of the
company or of any person authorised by the Central Government in that behalf.
But court may take cognizance of offences relating to issue and transfer of
securities and nonpayment of dividend on a complaint in writing by a person
authorised by SEBI.
2. Cognizance of offence taken
by special Judge.-The Special Judge for economic offence should not have taken cognizance
of the complaint filed by a person who is yet to become a shareholders, in view
of the clear prohibition contained in section 621. S. Ashok Rao v. State of
Andhra Pradesh, (2001) 106 Com Cases 120 (AP).
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 a list of prosecution initiated against or show cause notices
received by the company for alleged offences under the Act and also the fines
and penalties or any other punishment imposed on the company in such cases is
attached as per paragraph 31 of the Form of Compliance Certificate appended to
the Companies (Compliance Certificate) Rules, 2001.
Complaint for making false
statements
RESOLVED that pursuant to
section 628 of the Companies Act, 1956, a complaint be and is hereby filed in
the court against ABC Co. Ltd. and also against its directors for filing false
statement in the return made in Form No. 32 with the Registrar of Companies,
NCT of Delhi and Haryana.
RESOLVED FURTHER that Mr. __________________ a director of the Company be and is hereby athorised to file the complaint for and on behalf of the Company and take all necessary action that may be needed in connection therewith or incidental or ancillary thereto.
1. Cognizance of offence.-Under section 621 of the
Act, prosecution for offence under the Act can be initiated only by the
Registrar of Companies or a shareholder or a person authorised by the Central
Government. Filing of complaint by a person who is neither of them against a
company and its directors under section 628 averring that the accused had filed
a false statement in Form No. 32 before the Registrar of Companies showing the
petitioner was one of the directors of the company even though he was not
should not have been taken cognizance of by the Special Judge for Economic
offences. S. Ashok Rao v. State of Andhra Pradesh, (2001) 106 Com Cases 120 (A.P.).
2. Jurisdiction of Courts.-For filing complaint under
section 628 the court at the place of the company's registered office alone
will have jurisdiction and there is no jurisdiction also at the place of the
shareholder's registered address. H. V. Jayaram v. ICICI Ltd., (2000) 99 Com
Cases 341 (SC). Karnataka Bank Ltd. v. B. Suresh, (2001) 105 Corn Cases 110
(Kant).
Power of Court to grant
relief
RESOLVED that pursuant to
section 633(2) of the Companies Act, 1956, an application be and is hereby
filed before the High Court of Delhi for relief from liability on the
apprehension of proceedings in pursuance of show-cause notice alleging
violations of the company under section 628 of the said Act.
RESOLVED FURTHER that the Secretary of the Company be and is hereby authorised to file the petition for and on behalf of the Company and to take all actions that may be necessary in connection therewith or incidental or ancillary thereto including appointment of council to appear before the court.
1. Apprehension of
proceeding.-Where any officer of a company has reason to apprehend that any
proceeding will or might be brought against him in respect of any negligence,
default, breach of duty, misfeasance or breach of trust he may apply to the
High Court for relief and the High Court on such application shall have the
same power to relieve him as it would have had if it had been a court before
which a proceeding against that officer had been brought.
2. Conditions of the section
satisfied.-Section 633(2) empowers the High Court to grant relief from liability
in certain cases, provided the conditions laid down under section 633(l) are
satisfied. The said court can be called upon to exercise such power only when
it is satisfied that the defaulting officer has acted honestly and reasonably
and having regard to all circumstances of the case, he ought to be excused. The
court has to satisfy itself to this effect after a serious and careful
consideration of the whole question. Exercise of power under section 633(2) is
discretionary. Farouk Irani v. BIFR, (2002) 110 Com Cases 64.
3. Negligence or deliberate
action.-The
court gave relief to the chairman and managing director of the company as
neither any negligence nor any deliberate action was proved against him as he
was not in the Board of Directors when the violations took place. Madhavan
Nambiar v. ROC, (2002) 108 Com Cases 1 (Mad).
Reference to BIFR by Sick
Industrial Company
S. 15-Sick
Industrial Companies (Special Provisions) Act, 1985-Reference to BIFR-Board
Resolution
"RESOLVED that the company having become a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 as per the duly audited Annual Accounts of the company for the financial year ended _________ (placed before the Meeting and initialled by the Chairman) approval of the Board be and is hereby accorded to the making of a reference to the Board for Industrial and Financial Reconstruction for determination of the measure to be adopted with respect to the company."
PRACTICE NOTES
1. Making of reference to
BIFR.-Under
section 15 of the Act the Board of Directors of the industrial company within
60 days from the date of finalisation of the duly audited accounts of the
company for the financial year as at the end of which the company has become a
sick industrial company shall make a reference to the Board for determination
of the measures which shall be adopted with respect to the company. The proviso
further provides that if the Board of Directors have sufficient reasons even
before such finalisation of the duly audited accounts of the company to form
the opinion that the company had become a sick industrial company within sixty days
after the formation of such opinion the Board of Directors are required to make
a reference to the Board established under section 4 of the Act for the
determination. (Bellary Spinning and Weaving Co. Ltd. v. Syndicate Bank, (1993)
76 (Kar) 426).
2. Where a scheme of revival
of company under preparation section 22(l) attracted.-The fact that a scheme of
revival of the company was under preparation in terms of section 17 of the Sick
Industrial Companies (Special Provisions) Act, 1985 was sufficient to attract
the bar under section 22(l) of the Act. (Reliance Ispat Industries Ltd. v.
Commissioner of Sales Tax, (1993) 77 (MP) 381).
Approval of Scheme of Sick
Industrial Company by BIFR
"RESOLVED that the
scheme prepared by the Board for Industrial and Financial Reconstruction, a
copy whereof placed before the Meeting and initialled by the Chairman be and is
hereby approved subject to modifications mentioned hereunder and the scheme
with modifications suggested be sent to the Board for considering the said
modifications in the scheme."
1. Preparation of Scheme for
revival of Company (Modification proposed). -Where an order is made under sub-section
(3) of section 17 in relation to any sick industrial company, the operating
agency specified in the order shall prepare, as expeditiously as possible and
ordinarily within a period of ninety days from the date of such order, a scheme
with respect to such company providing for any one or more of the following
measures namely:
(a) Reconstruction, revival, rehabilitation.
(b) Take over of the management.
(c) Sale or lease of the sick company.
(d) Others consequential or supplemental measures.
2. Forwarding a copy of
scheme in draft to company, operating agency, etc.-A copy of the scheme
prepared by the Board shall be sent, in draft, to the sick industrial company
and the operating agency and in the case of amalgamation also to the transferee
industrial company and any other industrial company concerned in the
amalgamation for suggestions and objections, if any.
3. Protection under scheme.-Surplus employees of a
public sector undertaking which were already absorbed were employees of State
under a scheme already sanctioned by BIFR and would remain unaffected by Act or
Ordinance. Government of Andhra Pradesh v. V.S.R. Murthy, (2002) 38 SCL 654
(SC).
4. Power of BIFR not
affected.-The order passed by the Delhi High Court in no manner would affect the
jurisdiction of the BIFR to pass appropriate orders under section 18 and in
fact the court's order itself was subject to requisite sanction from BIFR. The
nature and scope of enquiry in the suits pending before Delhi High Court and
the proceedings before the BIFR were totally different. Vinedale Distilleries
Ltd. v. AAIFR, (2002) 108 Corn Cases 166 (AP).
Report to BIFR by Sick
Industrial Company
"RESOLVED that as due to accumulated losses as at _________ more than fifty per cent of the net worth of the company having been eroded during the preceding five financial years, the report prepared under section 23(l)(a)(i) of the Sick Industrial Companies (Special Provisions) Act, 1985 and placed before this Meeting and initialled by the Chairman for the purpose of identification be and is hereby approved and the same be sent to the Board for Industrial and Financial Reconstruction for consideration."
1. Preparation of report on
erosion of more than 50 per cent Company's net worth.-Where the accumulated losses
of the company results in erosion of more than 50 per cent of the Company's
peak net worth during immediately preceding five financial years a report is to
be prepared under section 23(l)(a) of the Sick Industrial Company (Special
Provisions) Act, 1985.
2. Submission of report to
Shareholders and BIFR.-The said report prepared under section 23(l)(a) of
the Sick Industrial Companies (Special Provisions) Act, 1985 is to be got
approved by the Board of Directors of the company and submitted to shareholders
of the company, as well as Board for Industrial and Financial Reconstruction
(BIFR).
Appeal before AA1FR
"RESOLVED that pursuant
to section 25(1) of the Sick Industrial Companies (Special Provisions) Act,
1985 an appeal against the order of the Board for Industrial and Financial
Reconstruction (BIFR) be and is hereby filed with the Appellate Authority for
Industrial and Financial Resolutions (AAIFR) by the company.
RESOLVED FURTHER that Mr.
ABC and Mr, XYZ directors of the company be and are hereby jointly and
severally authorised to file the appeal papers on behalf of the company and to
do such acts and deeds that may be necessary in connection therewith and
ancillary or Incidental thereto.
1. Appeal to be filed within
45 days.-The appeal must be filed within 45 days from the date on which a copy
of the order of BIFR is issued to the company. For the purpose of cornputation
of the period of limitation, the date of service has to be the effective date.
The AAIFR may entertain the appeal even after the said period of 45 days but
not after 60 days from the date as mentioned aforesaid if it is satisfied that
the company was prevented by sufficient cause from filing the appeal in time.
2. AAIFR action.-On receipt of the appeal
from the company the AAIFR may after giving an opportunity to the company to be
heard, if it so desires and after making such further inquiry as it deems fit,
confirm, modify or set aside the order appealed against or remand the matter to
the BIFR for fresh consideration.
3. Person aggrieved.-An appeal under this section
can be filed by any person aggrieved by an order of the BIFR made under the
Act. The appellant need not necessarily be a person who was a party before the
BIFR. There is no bar on an unsecured creditor preferring an appeal. The
expression used is "any person aggrieved." If an unsecured creditor
is aggrieved by the order certainly he can file an appeal. Paam Pharmaceutical
(Delhi) Ltd. v. Union of India, (2002) 109 Com Cases 897 (Del).