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Book:LegalandRegulatoryEnvironmentofBusiness
2007CengageLearningInc.Allrightsreserved.Nopartofthisworkmaybyreproducedor
usedinanyformorbyanymeansgraphic,electronic,ormechanical,orinanyothermanner
withoutthewrittenpermissionofthecopyrightholder.
Chapter14:CompanyManagement,Meetings,
andWindingupofCompany
(pp.252281)
CompanyManagement,Meetings,andWindingupofCompany:Chapter
Objectives
LearningObjectives
1.Directors:appointment,qualifications,disqualifications
2.Managingdirector
3.Managerialremuneration
4.Corporategovernance
5.KindsofcompanymeetingsBoardmeetings,meetingsofmembers
6.Resolutionsminutes
7.WindingupbytheTribunal,voluntarygroundsforwindingupbytheTribunal
8.Windingup:commencementconsequences
9.Voluntarywindingup
10.Dissolutionofacompanyandfurtherdevelopments
CompanyManagement,Meetings,andWindingupofCompany:Chapter
Overview
:iStock
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CompanyManagement:AnOverview
Acompanybeingaseparatelegalpersonalityshouldbeoperatedatadistancefromitsmembersor
shareholders.Tofacilitatethis,shareholderselectandappointtheirrepresentativeswhocanbeentrustedwith
theresponsibilityofrunningthecompany.Theseelectedmembers,actuallyconcernedintheoperationofthe
company(onbehalfoftheowners),areknownasdirectors.Thedirectorsofacompanycandowhatthe
companycandoitself,ofcourse,subjecttotherestrictionsimposedbytheCompaniesActandarticlesofthe
company.ThedirectorssoappointedconstituteaBoardastheyjointlyoverseetheactivitiesofthecompany.
IftheBoardofdirectorswishesonepersontobeparticularlyaccountablefordaytodayaffairsofthe
company'sbusinessontheirbehalf,thatpersonisgenerallyappointedastheManagingDirectorortheWhole
TimeDirector.SuchaManagingDirectororwholetimeDirectorworksundertheoverallsupervisionand
controloftheBoardofdirectors.TheActthoughdoesnotexpresslydefinethetermdirectoritcontains
specificprovisionsregardingqualifications,appointment,powers,duties,remuneration,removal,andliabilities
ofdirectors.
WhoCanBeaDirector?
Directorsarethosewhoperformthedirectingfunctionirrespectiveofthelabelattachedtothem.Exceptthis
obligation,thereisnoformalacademicorprofessionalqualification,oranupperagelimitfixedbycompanylaw
forelectingorappointingapersonasdirector.Section2(34)merelyprovidesthatdirectormeansadirector
appointedtotheBoardofacompany.
However,onlyindividualsbarringminorscanbedirectors.EverycompanyshallhaveaBoardofDirectors
consistingofindividualsasdirectors[Section149(1)].
Thus,nocorporatebody,association,orfirmcanbeappointedasdirectorsofacompany.
Everycompanyshallhave
P.252
(a)aminimumnumberofthreedirectorsinthecaseofapubliccompany,twodirectorsinthecaseofaprivate
b
company,andonedirectorinthecaseofaOnePersonCompanyand( )amaximumoffifteendirectors.
However,acompanymayappointmorethanfifteendirectorsafterpassingaspecialresolution.
Moreover,suchclassorclassesofcompaniesasmaybeprescribedshallhaveatleastonewomandirector
[Section149(1)].
EverycompanyexistingonorbeforethedateofcommencementofthisActshallwithinoneyearfromsuch
1
commencementcomplywiththerequirementsoftheprovisionsofsubsection( )[Section149(2)].
EverycompanyshallhaveatleastonedirectorwhohasstayedinIndiaforatotalperiodofnotlessthanone
hundredandeightytwodaysinthepreviouscalendaryeari.e.aresidentdirector[Section149(3)].
Everylistedpubliccompanyshallhaveatleastonethirdofthetotalnumberofdirectorsasindependent
directorsandtheCentralGovernmentmayprescribetheminimumnumberofindependentdirectorsincaseof
anyclassorclassesofpubliccompanies[Section149(4)].
IndependentDirector
Anindependentdirectorinrelationtoacompany,meansadirectorotherthanamanagingdirectororawhole
timedirectororanomineedirector,
(a)who,intheopinionoftheBoard,isapersonofintegrityandpossessesrelevantexpertiseandexperience
i
(b)( )whoisorwasnotapromoterofthecompanyoritsholding,subsidiaryorassociatecompany( )whoisii
notrelatedtopromotersordirectorsinthecompany,itsholding,subsidiaryorassociatecompany
(c)whohasorhadnopecuniaryrelationshipwiththecompany,itsholding,subsidiaryorassociatecompany,or
theirpromoters,ordirectors,duringthetwoimmediatelyprecedingfinancialyearsorduringthecurrent
financialyear
(d)noneofwhoserelativeshasorhadpecuniaryrelationshiportransactionwiththecompany,itsholding,
subsidiaryorassociatecompany,ortheirpromoters,ordirectors,amountingtotwopercentormoreofits
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grossturnoverorthetotalincomeorfiftylakhrupeesorsuchhigheramountasmaybeprescribed,whichever
islower,duringthetwoimmediatelyprecedingfinancialyearsorduringthecurrentfinancialyear
(e)who,neitherhimselfnoranyofhisrelatives
(i)holdsorhasheldthepositionofakeymanagerialpersonnelorisorhasbeenemployeeofthecompanyor
itsholding,subsidiaryorassociatecompanyinanyofthethreefinancialyearsimmediatelyprecedingthe
financialyearinwhichheisproposedtobeappointed
(ii)isorhasbeenanemployeeorproprietororapartner,inanyofthethreefinancialyearsimmediately
A
precedingthefinancialyearinwhichheisproposedtobeappointed,of( )afirmofauditorsorcompany
secretariesinpracticeorcostauditorsofthecompanyoritsholding,subsidiaryorassociatecompanyor( ) B
anylegalorconsultingfirmthathasorhadanytransactionwiththecompany,itsholding,subsidiaryor
associatecompanyamountingtotenpercentormoreofthegrossturnoverofsuchfirm
(iii)holdstogetherwithhisrelativestwopercentormoreofthetotalvotingpowerofthecompanyor
(iv)isaChiefExecutiveordirector,bywhatevernamecalled,ofanynonprofitorganisationthatreceives
twentyfivepercentormoreofitsreceiptsfromthecompany,anyofitspromoters,directorsoritsholding,
subsidiaryorassociatecompanyorthatholdstwopercentormoreofthetotalvotingpowerofthecompany
or
(f)whopossessessuchotherqualificationsasmaybeprescribed[Section149(6)].
DisqualificationforAppointmentofDirectors
Apersonshallnotbeeligibleforappointmentasadirectorofacompany,if:
(a)Heisofunsoundmindandstandssodeclaredbyacompetentcourt
P.253
(b)Heisanundischargedinsolvent
(c)Hehasappliedtobeadjudicatedasaninsolventandhisapplicationispending
(d)Hehasbeenconvictedbyacourtofanyoffencewhetherinvolvingmoralturpitudeorotherwiseand
sentencedinrespectthereoftoimprisonmentfornotlessthansixmonthsandaperiodoffiveyearshasnot
elapsedfromdateofexpiryofthesentence.However,ifapersonhasbeenconvictedbyacourtofanyoffence
andsentencedinrespectthereoftoimprisonmentforaperiodofsevenyears,heshallnotbeeligibletobe
appointedasdirectorinanycompany.
(e)AnorderdisqualifyinghimforappointmentasadirectorhasbeenpassedbyacourtorTribunalandthe
orderisinforce
(f)Hehasnotpaidanycallsinrespectofanysharesofthecompanyheldbyhim,whetheraloneorjointlywith
others,andsixmonthshaveelapsedfromthelastdayfixedforthepaymentofthecall
(g)HehasbeenconvictedoftheoffencedealingwithrelatedpartytransactionsunderSection188atanytime
duringthelastprecedingfiveyearsor
(h)HehasnotbeenallottedDirectorIdentificationNumberunderSection154[Section164(1)].
Besides,noperson,whoisorhasbeenadirectorofacompanywhich
(a)hasnotfiledfinancialstatementsorannualreturnsforacontinuousperiodofthreefinancialyearsor
(b)hasfailedtorepaythedepositsacceptedbyitorpayinterestthereonortoredeemanydebenturesonthe
duedateorpayinterestduethereonorpayanydividenddeclaredandsuchfailuretopayorredeemcontinues
foroneyearormore,shallbeeligibletobereappointedasadirectorofthatcompanyorappointedinother
companyforaperiodoffiveyearsfromthedateonwhichthesaidcompanyfailstodoso[Section164(2)].
Moreover,aprivatecompanymaybyitsarticlesprovideforanydisqualificationsforappointmentasadirector
inadditiontothoseprovidedunderSection164(1)and(2)[Section164(3)].
DirectorIdentificationNumber
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DirectorIdentificationNumberisauniqueidentificationnumberallottedtoapotentialdirectorofanycompany
bytheCentralGovernmenti.e.MinistryofCorporateAffairs.TheconceptofaDINwasintroducedforthefirst
timewiththeinsertionofSections266Ato266GofCompanies(Amendment)Act,2006.Themainpurposeof
introducingDINistokeeparichandauthenticdatabaseofthedirectorsofincorporatedcompanies.Manya
timesitisseenthatadulyincorporatedcompanyvanishedwithitsdirector(s)afterraisingcapitalfromthe
publicandtheprobingagenciesfindithardtotracethem.DINinthisbehalfistheultimatedevicetohelp
probingagenciestracetheabscondingdirector(s)andtherebyaddresstheissue.DINnotonlyhelpsfixingthe
identityofadirectorbutalsorelateshisparticipationinothercompanies,pastandpresent.DINholderis
requiredtoinformtheCentralGovernmentaboutanychangeinhisparticularsasandwhensuchchangestake
place.Thiskeepsthedatabaseofthedirectorslive.
Sections15359oftheNewAct(Companies,2013)whichcorrespondtheSections266Ato266GofCompanies
(Amendment)Act,2006havebeendiscussedbelow:
ProcedureforAllotmentofDIN
Everyindividualintendingtobeappointedasdirectorofacompanyshallmakeanapplicationforallotmentof
DirectorIdentificationNumbertotheCentralGovernmentintheprescribedformandmannerandalongwiththe
prescribedfees[Section153].
AspertherevisedprocedureforDINallotment,anyindividualintendingtoapplyforDINshallhavetomakean
onlineapplicationineFormDIN1andfollowtheprocedurebyloggingontohttp://www.mca.gov.in/MCA21/
TheCentralGovernmentshallallotaDirectorIdentificationNumbertoanapplicantwithinonemonthfromthe
receiptoftheapplicationprovidedtheparticularfurnishedthereinfoundinorder[Section154].
However,noindividual,whohasalreadybeenallottedaDirectorIdentificationNumberundersection154,shall
applyfor,obtainorpossessanotherDirectorIdentificationNumber[Section155].
P.254
EveryexistingdirectorshallintimatehisDirectorIdentificationNumbertothecompany/companieswhereinhe
isadirectorwithinonemonthofitsreceiptfromtheCentralGovernment[Section156].
CompanytoInformDINtotheRegistrar
Everycompanyshall,withinfifteendaysofthereceiptofintimationundersection156,furnishtheDirector
IdentificationNumberofallitsdirectorstotheRegistraroranyotherofficerorauthorityasmaybespecifiedby
theCentralGovernmentwithsuchfeesasmaybeprescribedorwithsuchadditionalfeesasmaybeprescribed
withinthetimespecifiedunderSection403andeverysuchintimationshallbefurnishedinsuchformand
mannerasmaybeprescribed[Section157(1)].
1
IfacompanyfailstofurnishDirectorIdentificationNumberundersubsection( ),beforetheexpiryofthe
periodspecifiedunderSection403withadditionalfee,thecompanyshallbepunishablewithfinewhichshallnot
belessthantwentyfivethousandrupeesbutwhichmayextendtoonelakhrupeesandeveryofficerofthe
companywhoisindefaultshallbepunishablewithfinewhichshallnotbelessthantwentyfivethousand
rupeesbutwhichmayextendtoonelakhrupees[Section157(2)].
Moreover,everypersonorcompany,whilefurnishinganyreturn,informationorparticularsasarerequiredto
befurnishedunderthisAct,shallmentiontheDirectorIdentificationNumberinsuchreturn,informationor
particularsincasesuchreturn,informationorparticularsrelatetothedirectororcontainanyreferenceofany
director[Section158].
ConsequencesofContravention
Ifanyindividualordirectorofacompany,contravenesanyoftheprovisionsofSections155and156,such
individualordirectorofthecompanyshallbepunishablewithimprisonmentforatermwhichmayextendtosix
monthsorwithfinewhichmayextendtofiftythousandrupeesandwherethecontraventionisacontinuingone,
withafurtherfinewhichmayextendtofivehundredrupeesforeverydayafterthefirstduringwhichthe
contraventioncontinues[Section159].
AppointmentofDirectors
Appointmentofdirectorsmaybediscussedunderthefollowingheads.
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AppointmentofFirstDirectors
Generally,thenamesofthefirstdirectorsofanewcompanyareprovidedforinitsarticles.However,ifthe
articlesaresilentonthiscountthenthesubscriberstothememorandum(whoareindividuals)shallbedeemed
tobethefirstdirectorsofthecompanyuntilthedirectorsaredulyappointed.IncaseofOnePersonCompany
anindividualbeingmembershallbedeemedtobeitsfirstdirectoruntilthedirectorordirectorsareduly
appointedbythemember[Section152].
AppointmentofRegularDirectors
Thefirstdirectorsappointedbythearticlesorotherwiseshallactuntilthefirstannualgeneralmeeting(AGM).
InthefirstAGMtheshareholdersshallelectandappointthedirectorsonaregularbasis[Section152(2)].
Everypersonproposedtobeappointedasadirectorbythecompanyingeneralmeetingorotherwise,shall
furnishhisDirectorIdentificationNumber(DIN)andadeclarationthatheisnotdisqualifiedtobeappointedasa
director[Section152(4)].
Inthecaseofapubliccompany,unlessthearticlesprovideforretirementofallthedirectorsateveryAGM,at
leasttwothirdsofthetotalnumberofdirectors(excludingindependentdirectors)shallbeliabletoretireby
rotation.Thus,onlyonethirdoftotalnumberofdirectorsshallbenonrotationalorpermanentdirectors.For
X
example,consideracompany Ltd.,whichhas10directors.Inthiscase,sevendirectorsbecomeliableto
retirebyrotation.Thesesevendirectors,unlessotherwisebecomeincompetenttoactasdirectors,shallonce
againbeappointedatthegeneralmeeting.Theremainingthreedirectorsshallalsobeappointedatthegeneral
meeting.TwodirectorsshallretirefromofficeateveryAGM,outofthesevendirectorswhoareeligibleto
retirebyrotation[Section152(6)(c)].
P.255
NoteThefirstAGMmentionedatthebeginningofSection256isactuallythefirstgeneralmeetingheldafter
theappointmentismadeunderSection255,anddoesnotrefertothefirstAGMofthecompany.
ReAppointmentofRetiringDirectors
Whenadirectorretires,he/shecanbereappointedoranotherpersoncanbeappointedasadirector.The
shareholdersintheirgeneralmeetingcanalsoresolvethatthevacancymaynotbefilled.However,ifthepost
ofaretiringdirectorisnotfilledatthegeneralmeeting,andthemeetingdoesnotevenpassaresolutionfornot
fillingthevacancy,thegeneralmeetingwillbeadjournedtillnextweekatthesametimeandplace.Ifthatday
happenstobepublicholiday,themeetingwillbeheldnextday.Ifevenonthatday,thevacancyisnotfilled,or
aresolutionnottofillthevacancyispassed,thentheretiringdirectorisdeemedtobereappointed.However,
hewillnotbedeemedtobereappointedunderanyofthefollowingconditions:
Aresolutionforhisreappointmenthasbeenspecificallylost
Thedirectorexpresseshisinabilitytocontinueasadirector
Heisnotqualifiedforappointment
Aspecificresolutionisrequiredfortheappointmentofthatdirectoror
Asingleresolutionforappointingmorethanonedirectorwaspassedinearliermeeting,incontraventionof
section263[Section256(4)].
AppointmentbytheBoardofDirectors
TheBoardofdirectorsisempoweredtoappointdirectorsinthefollowingfourcategories:
1.Additionaldirector
2.Alternatedirector
3.Nomineedirector
4.Casualdirector
AdditionalDirector
ThearticlesofacompanymayconferonitsBoardofDirectorsthepowertoappointanyperson,otherthana
personwhofailstogetappointedasadirectorinageneralmeeting,asanadditionaldirectoratanytimewho
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shallholdofficeuptothedateofthenextannualgeneralmeetingorthelastdateonwhichtheannualgeneral
meetingshouldhavebeenheld,whicheverisearlier[Section161(1)].
Accordingly,theBoardeitheratthemeetingoftheBoardorbypassingaspecialresolutioninageneral
meetingcanappointanadditionaldirectorontheBoardifsoauthorisedbythearticles.Theywillalthoughenjoy
thesamepowersandrightsasotherdirectorsbutshallholdofficeonlyuptothedateofthenextAGM.Since
theadditionaldirectorsshallholdofficeonlytillthedateofthenextAGM,iftheAGMisadjournedforany
reason,theyshallvacatetheirofficeontheduedate,notwithstandingtheadjournmentofAGM.
AlternateDirector
TheBoardofDirectorsofacompanymay,ifsoauthorisedbyitsarticlesorbyaresolutionpassedbythe
companyingeneralmeeting,appointaperson,notbeingapersonholdinganyalternatedirectorshipforany
otherdirectorinthecompany,toactasanalternatedirectorforadirectorduringhisabsenceforaperiodof
notlessthanthreemonthsfromIndia.
However,nopersonshallbeappointedasanalternatedirectorforanindependentdirectorunlessheis
qualifiedtobeappointedasanindependentdirectorundertheprovisionsofthisAct.
Furthermore,analternatedirectorshallnotholdofficeforaperiodlongerthanthatpermissibletothedirector
inwhoseplacehehasbeenappointedandshallvacatetheofficeifandwhenthedirectorinwhoseplacehehas
beenappointedreturnstoIndia.
Furthermore,ifthetermofofficeoftheoriginaldirectorisdeterminedbeforehesoreturnstoIndia,any
provisionfortheautomaticreappointmentofretiringdirectorsindefaultofanotherappointmentshallapplyto
theoriginal,andnottothealternatedirector[Section161(2)].
NomineeDirector
Ifthearticlesofacompanysoprovide,theBoardmayappointanypersonasadirectornominatedbyany
institutioninpursuanceoftheprovisionsofanylawforthetimebeinginforceorofany
P.256
agreementorbytheCentralGovernmentortheStateGovernmentbyvirtueofitsshareholdingina
Governmentcompany[Section161(3)].
CasualDirector
Inthecaseofapubliccompany,iftheofficeofanydirectorappointedbythecompanyingeneralmeetingis
vacatedbeforehistermofofficeexpiresinthenormalcourse,theresultingcasualvacancymay,indefaultof
andsubjecttoanyregulationsinthearticlesofthecompany,befilledbytheBoardofDirectorsatameetingof
theBoard[Section161(4)].
However,anypersonsoappointedshallholdofficeonlytillthedateuptowhichthedirectorinwhoseplacehe
isappointedwouldhaveheldofficeifithadnotbeenvacated.
AppointmentbytheCentralGovernment
WhereallthedirectorsofacompanyvacatetheirofficesunderanyofthedisqualificationsspecifiedinSection
167(1),intheabsenceofthepromotertheCentralGovernmentshallappointtherequirednumberofdirectors
whoshallholdofficetillthedirectorsareappointedbythecompanyinthegeneralmeeting[Section167(3)].
AppointmentbytheTribunal
TheTribunal,uponthereceiptofanapplicationfromanymemberofacompanyorfromtheCentral
Governmentforrelieffromoppressionsetc.,mayappointsuchnumberofpersonsasdirectors,whomaybe
requiredbytheTribunaltoreporttotheTribunalonsuchmattersastheTribunalmaydirect[Section242(2)
(k)readwithSection241].
AppointmentbyProportionalRepresentation
TheActenablesminorityshareholderstohavetheirrepresentationontheBoard,otherwisedeprived,dueto
maximofasimplemajorityvote,bygivinganoptiontocompaniestoappointdirectorsthroughasystemof
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proportionalrepresentation.Thearticlesmayprovidefortheappointmentofnotlessthantwothirdsofthetotal
numberofthedirectorsofacompany,accordingtotheprincipleofproportionalrepresentation.The
proportionalrepresentationmaybeexercisedbyasingletransferablevoteorbyasystemofcumulativevoting
orotherwise.Suchappointmentsshallbemadeonceineverythreeyearsandcasualvacanciesofsuch
directorsshallbeasperthestatutoryprovisiongivenunderSection161(4)[Section163].
AppointmentofSmallShareholdersDirector
TheCompaniesAct,2013providesforappointmentofadirectorelectedbysmallshareholderswithaviewto
enablethemprotecttheirinterest.InaccordancewithSection151,alistedcompanymayhaveonedirector
electedbysmallshareholdersinsuchmannerandwithsuchtermsandconditionsasmaybeprescribed.
Fortheabovepurposessmallshareholdersmeansashareholderholdingsharesofnominalvalueofnotmore
thantwentythousandrupeesorsuchothersumasmaybeprescribed[ExplanationaddedtoSection151].
AsperRule7oftheCompanies(AppointmentandQualificationofDirectors)Rules,2014,alistedcompanymay
uponnoticeofnotlessthan1000smallshareholdersor1/10thofthetotalnumberofsuchshareholders,
whicheverislower,haveasmallshareholdersdirectorelectedbythesmallshareholders.
CeilingonDirectorships
TheCompaniesActputsaceilingondirectorships.Accordingly,nopersonshallholdofficeasadirector,
includinganyalternatedirectorship,inmorethantwentycompaniesatthesametime.
However,themaximumnumberofpubliccompaniesinwhichapersoncanbeappointedasadirectoristen
whichincludesdirectorshipsinprivatecompaniesthatareeitherholdingorsubsidiaryofapubliccompany
[Section165(1)].
Thus,apersoncanholddirectorshipintenpubliccompaniesandtenprivatecompanies,whetherornotlatter
areholdingorsubsidiarycompaniesoftheformeri.e.publiccompanies.
P.257
However,themembersofacompanymay,byspecialresolution,specifyanylessernumberofcompaniesin
whichadirectorofthecompanymayactasdirector[Section165(1)].
Ifaperson,whoisalreadyholdingofficesasdirectorinmorethanthespecifiednumberofcompanies(i.e.20)
immediatelybeforethecommencementoftheCompaniesAct,2013,shallwithinaperiodofoneyearfromsuch
commencement
(a)choosenotmorethanthespecifiedlimitofthosecompanies,ascompaniesinwhichhewishestocontinueto
holdtheofficeofdirector
(b)resignhisofficeasadirectorintheotherremainingcompaniesand
a
(c)intimatethechoicemadebyhimunderclause( ),toeachofthecompaniesinwhichhewasholdingthe
officeofadirectorbeforesuchcommencementandtotheRegistrarhavingjurisdictioninrespectofeachsuch
company[Section165(3)].
PenaltyforNonCompliance
Anypersonwhoholdsofficeoractsasadirectorofmorethan20companiesincontraventionoftheforegoing
provisionsshallbepunishablewithfinewhichshallnotbelessthanfivethousandrupeesbutwhichmayextend
totwentyfivethousandrupeesforeverydayafterthefirstduringwhichthecontraventioncontinues[Section
165(6)].
ManagingDirectororWholeTimeDirector
IftheBoardwishesonepersontobeparticularlyaccountablefordaytodayaffairsofthecompany'sbusiness
ontheirbehalf,thatpersonisgenerallyappointedastheManagingDirectorortheWholeTimeDirector.The
latterwillexercisehispowerssubjecttothesuperintendence,control,anddirectionoftheBoardofdirectors.
RulesGoverningtheAppointmentoftheManagingDirectororWholeTime
DirectororManager
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Inregardsofappointment,reappointment,tenureetc.ofthemanagingdirectororwholetimedirectoror
manager,Section196providesasunder:
1.Nocompanyshallappointoremployatthesametimeamanagingdirectorandamanager.
2.Nocompanyshallappointorreappointanypersonasitsmanagingdirector,wholetimedirectorormanager
foratermexceedingfiveyearsatatime.
However,noreappointmentshallbemadeearlierthanoneyearbeforetheexpiryofhis(original)term.
3.Nocompanyshallappointorcontinuetheemploymentofanypersonasthemanagingdirector,wholetime
directorormanagerwho
(a)isbelowtheageoftwentyoneyearsorhasattainedtheageofseventyyears
However,appointmentofapersonwhohasattainedtheageofseventyyearsmaybemadebypassinga
specialresolutioninwhichcasetheexplanatorystatementannexedtothenoticeforsuchmotionshallindicate
thejustificationforappointingsuchperson.
c
(b)isanundischargedinsolventorhasatanytimebeenadjudgedasaninsolvent( )hasatanytime
suspendedpaymenttohiscreditorsormakes,orhasatanytimemade,acompositionwiththemor( )hasat d
anytimebeenconvictedbyacourtofanoffenceandsentencedforaperiodofmorethansixmonths.
4.Amanagingdirector,wholetimedirectorormanagershallbeappointedandthetermsandconditionsofsuch
appointmentandremunerationpayablebeapprovedbytheBoardofDirectorsatameetingwhichshallbe
subjecttoapprovalbyaresolutionatthenextgeneralmeetingofthecompanyandbytheCentralGovernment
incasesuchappointmentisatvariancetotheconditionsspecifiedinthatSchedule.
However,anoticeconveningtheBoardorgeneralmeetingforconsideringsuchappointmentshallincludethe
termsandconditionsofsuchappointment,remunerationpayableandsuchothermattersincludinginterestofa
directorordirectorsinsuchappointments,ifany.
Moreover,areturnintheprescribedformshallbefiledwithinsixtydaysofsuchappointmentwiththe
Registrar.
P.258
ManagerialRemuneration
Managerialremunerationreferstotheremunerationpayabletothemanagerialpersonnelofacompany,who
generallycompriseamanagingdirector,directors,andastatutorymanager,ifany.Itisusuallydeterminedin
accordancewiththeprovisionsoutlinedinthearticlesofthecompanyorbyaresolution(specialresolutionif
thearticlessorequire)passedbythecompanyinageneralmeeting.Theremunerationpayabletoanysuch
directordeterminedasperthesaidprovisionsisinclusiveoftheremunerationpayabletosuchdirectorfor
servicesrenderedbyhiminanyothercapacity.
OverallMaximumManagerialRemuneration
Section197,whichdealswithoverallmaximummanagerialremunerationandmanagerialremunerationincase
ofnilorinadequateprofits,providesasunder.
1.Thetotalmanagerialremunerationpayablebyapubliccompanytoitsdirectors,includingthemanaging
director,wholetimedirectoranditsmanagerinrespectofanyfinancialyearshallnotexceed11percentofthe
netprofitsofthatcompanyforthatfinancialyearcomputedinthemannerlaiddowninSection198.
However,thecompanyingeneralmeetingmay,withtheapprovaloftheCentralGovernment,authorisethe
paymentofremunerationexceedingelevenpercentofthenetprofitsofthecompany,subjecttotheprovisions
ofScheduleV.
Moreover,exceptwiththeapprovalofthecompanyingeneralmeeting,
(i)theremunerationpayabletoanyonemanagingdirectororwholetimedirectorormanagershallnotexceed
fivepercentofthenetprofitsofthecompanyandifthereismorethanonesuchdirector,remunerationshall
notexceedtenpercentofthenetprofitstoallsuchdirectorsandmanagertakentogether
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(ii)theremunerationpayabletodirectorswhoareneithermanagingdirectorsnorwholetimedirectorsshallnot
exceed,
A
( )onepercentofthenetprofitsofthecompany,ifthereisamanagingorwholetimedirectorormanager
B
( )threepercentofthenetprofitsinanyothercase.
2.Thepercentagesaforesaidshallbeexclusiveofanyfeespayabletodirectorsundersubsection( ) 5
3.Ifinanyfinancialyear,acompanyhasnoprofitsoritsprofitsareinadequate,thecompanyshallnotpayto
itsdirectors,includinganymanagingorwholetimedirectorormanager,bywayofremunerationanysum
exclusiveofanyfeespayabletodirectors.
4.Theremunerationpayabletothedirectorsofacompany,includinganymanagingorwholetimedirectoror
manager,shallbedetermined,inaccordancewithandsubjecttotheprovisionsofthissection,eitherbythe
articlesofthecompany,orbyaresolutionor,ifthearticlessorequire,byaspecialresolution,passedbythe
companyingeneralmeetingandtheremunerationpayabletoadirectordeterminedaforesaidshallbeinclusive
oftheremunerationpayabletohimfortheservicesrenderedbyhiminanyothercapacity.
However,anyremunerationforservicesrenderedbyanysuchdirectorinothercapacityshallnotbeincludedif
b
(a)theservicesrenderedareofaprofessionalnatureand( )intheopinionoftheNominationand
1
RemunerationCommittee,ifthecompanyiscoveredundersubsection( )ofsection178,ortheBoardof
Directorsinothercases,thedirectorpossessestherequisitequalificationforthepracticeoftheprofession.
5.AdirectormayreceiveremunerationbywayoffeesforattendingmeetingsoftheBoardorCommittee
thereoforforanyotherpurposewhatsoeverasmaybedecidedbytheBoard.
However,theamountofsuchfeesshallnotexceedtheamountasmaybeprescribed.
Moreover,differentfeesfordifferentclassesofcompaniesandfeesinrespectofanindependentdirectormay
besuchasmaybeprescribed.
6.Adirectorormanagermaybepaidremunerationeitherbywayofamonthlypaymentorataspecified
percentageofthenetprofitsofthecompanyorpartlybyonewayandpartlybytheother.
7.Anindependentdirectorshallnotbeentitledtoanystockoptionandmayreceiveremunerationbywayof
5
feesprovidedundersubsection( ),reimbursementofexpensesforparticipationintheBoardandother
meetingsandprofitrelatedcommissionasmaybeapprovedbythemembers.
P.259
8.ThenetprofitsforthepurposesofthissectionshallbecomputedinthemannerreferredtoinSection198.
9.Ifanydirectordrawsorreceives,directlyorindirectly,bywayofremunerationanysuchsumsinexcessof
thelimitprescribedbythissectionorwithoutthepriorsanctionoftheCentralGovernment,whereitisrequired,
heshallrefundsuchsumstothecompanyanduntilsuchsumisrefunded,holditintrustforthecompany.
Ifanypersoncontravenestheprovisionsofthissection,heshallbepunishablewithfinewhichshallnotbeless
thanonelakhrupeesbutwhichmayextendtofivelakhrupees[Section196(15)].
VacationofOfficebyDirectors
AsperSection167,theofficeofadirectorshallbecomevacantunderanyoneofthefollowingcircumstances:
(a)Heincursanyofthedisqualificationsspecifiedinsection164
(b)HeabsentshimselffromallthemeetingsoftheBoardofDirectorsheldduringaperiodoftwelvemonths
withorwithoutseekingleaveofabsenceoftheBoard
(c)Heactsincontraventionoftheprovisionsofsection184relatingtoenteringintocontractsorarrangements
inwhichheisdirectlyorindirectlyinterested
(d)Hefailstodisclosehisinterestinanycontractorarrangementinwhichheisdirectlyorindirectlyinterested,
incontraventionoftheprovisionsofsection184
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(e)HebecomesdisqualifiedbyanorderofacourtortheTribunal
(f)Heisconvictedbyacourtofanyoffence,whetherinvolvingmoralturpitudeorotherwiseandsentencedin
respectthereoftoimprisonmentfornotlessthansixmonths.
Theofficeshallbevacatedbythedirectorintheabovecaseevenifhehasfiledanappealagainsttheorderof
suchcourt
(g)HeisremovedinpursuanceoftheprovisionsofthisAct
(h)He,havingbeenappointedadirectorbyvirtueofhisholdinganyofficeorotheremploymentintheholding,
subsidiaryorassociatecompany,ceasestoholdsuchofficeorotheremploymentinthatcompany.
Aprivatecompany,however,may,byitsarticles,provideanyothergroundforthevacationoftheofficeofa
directorinadditiontothosespecifiedabove[Section167(4)].
PenaltyforNotVacatingOfficeDuetoDisqualifications
Ifapersonfunctionsasadirectorafterhisofficehasbecomevacantonaccountofanyofthedisqualifications,
specifiedin(a)to(h)above,heshallbepunishablewithimprisonmentforatermwhichmayextendtoone
yearorfinewhichshallnotbelessthanonelakhrupeesbutwhichmayextendtofivelakhrupees,orwithboth
[Section167(2)].
RemovalofDirectors
Removalorterminationofdirectorscanbediscussedunderthefollowingtwoheads:
1.Removalbycompany
2.RemovalbytheTribunal
RemovalbyCompany
UnderSection167,acompany(i.e.,theshareholders)may,byanordinaryresolutionrequiringaspecialnotice,
removeadirectorfromtheBoardbeforetheexpirationofhistermofoffice.However,thedirectorconcerned
shallbeentitledtobeheardbeforepassingoftheresolutionofhisremovalbythecompany.
However,theabsolutepowerapparentlygiventothecompanytoremoveadirectorunderSection167doesnot
applyinrespectofadirectorappointedbytheTribunalunderSection242andthedirectorsappointedaccording
totheprincipleofproportionalrepresentation.
RemovalbytheTribunal
WhereonanapplicationfiledbyanymemberofthecompanyortheCentralGovernmentbeforetheTribunal
againstoppressionandmismanagementofacompany'saffairs(i.e.underSection241),theTribunalfindsthat
thereliefshouldbegranted,itmaypassanorderfortheremovalofthemanagingdirector,manger,oranyof
thedirectorsofthecompany[Section242(2)(h)].
P.260
Whentheappointmentofadirectorissofinished,heshallnotbeentitledtoclaimanydamagesor
compensationfromthecompanyforthelossofoffice.Moreover,suchadirectorcannotbeappointed,except
withtheleave(priorconsent)oftheTribunal,inanymanagerialcapacity(i.e.,manager,managingdirectoror
director)foraperiodoffiveyearsfromthedateofTribunal'sorderterminatingorsettingasidehiscontract
withthecompany[Section243].
Director'sResignation
Resignationmeansgivingupajoborapositionbysomeone.AsperSection168(1),adirectormayresignfrom
hisofficebygivinganoticeinwritingtothecompanyandtheBoardshallonreceiptofsuchnoticetakenoteof
thesameandthecompanyshallintimatetheRegistrarinsuchmanner,withinsuchtimeandinsuchformas
maybeprescribedandshallalsoplacethefactofsuchresignationinthereportofdirectorslaidinthe
immediatelyfollowinggeneralmeetingbythecompany.
Adirectorshallalsoforwardacopyofhisresignationalongwithdetailedreasonsfortheresignationtothe
Registrarwithinthirtydaysofresignationinsuchmannerasmaybeprescribed.
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Theresignationofadirectorshalltakeeffectfromthedateonwhichthenoticeisreceivedbythecompanyor
thedate,ifany,specifiedbythedirectorinthenotice,whicheverislater[Section168(2)].
Notwithstanding,thedirectorwhohasresignedshallbeliableevenafterhisresignationfortheoffenceswhich
occurredduringhistenure.
DutiesofDirectors
Sincedirectorsexercisecontrolandmanagementoverthecompanyandcompaniesarerun(inprincipleat
least)forthebenefitoftheshareholders,thelawrecognisesstrictdutiestobedischargedbythedirectorsin
relationtotheexerciseoftheirpowers.Section166provides:
1.Adirectorofacompanyshallactinaccordancewiththearticlesofthecompany.
2.Adirectorofacompanyshallactingoodfaithinordertopromotetheobjectsofthecompanyforthe
benefitofitsmembersasawhole,andinthebestinterestsofthecompany,itsemployees,the
shareholders,thecommunity,andfortheprotectionoftheenvironment.
3.Adirectorofacompanyshallexercisehisdutieswithdueandreasonablecare,skillanddiligenceand
shallexerciseindependentjudgment.
4.Adirectorofacompanyshallnotinvolveinasituationinwhichhemayhaveadirectorindirectinterest
thatconflicts,orpossiblymayconflict,withtheinterestofthecompany.
5.Adirectorofacompanyshallnotachieveorattempttoachieveanyunduegainoradvantageeitherto
himselfortohisrelatives,partners,orassociatesandifsuchdirectorisfoundguiltyofmakingany
unduegain,heshallbeliabletopayanamountequaltothatgaintothecompany.
6.Adirectorofacompanyshallnotassignhisofficeandanyassignmentsomadeshallbevoid.
Ifadirectorofthecompanycontravenestheaboveprovisions,suchdirectorshallbepunishablewithfinewhich
shallnotbelessthanonelakhrupeesbutwhichmayextendtofivelakhrupees[Section166(7)].
PowersoftheBoardofDirectors
PowersBoardofDirectorscanbediscussedunderthetwoheads:
1.Generalpowers,and
2.PowerstobeexercisedatBoardmeetings.
GeneralPowersoftheBoard
ThegeneralpowersofthedirectorsaredescribedinSection179(1)oftheAct.Accordingly,theBoardof
directorsofacompanyshallbeentitledtoexerciseallsuchpowers,andtodoallsuchactsandthings,asthe
companyisauthorisedtoexerciseanddo.
However,asperprovisoattachedtotheabovementionedSection,theBoardshallnotexerciseanypower
whichistobeexercisedbythecompanyinthegeneralmeetingorwhichshallbeinconsistent,ifexercised,with
theregulationscontainedinthatbehalfintheAct,orinthememorandumorarticlesofthecompany.
P.261
Thatis,thedirectorsarenotempoweredtotakeactiononissuesthatarestipulatedtobethepurviewofthe
generalmeetingofthecompany,orarecountertoregulationscontainedintheAct,orthememorandumand
articlesofthecompany.
However,noregulationmadebythecompanyingeneralmeetingshallinvalidateanyprioractoftheBoard
whichwouldhavebeenvalidifthatregulationhadnotbeenmade[Section179(2)].
PowerstoBeExercisedatBoardMeetings
TheBoardistheprincipalorganofacompany.Section179(3)empowersittoexercisethefollowingpowerson
behalfofthecompany,butitcandosoonlybymeansofresolutionspassedatmeetingsoftheBoard.
(a)Tomakecallsonshareholdersinrespectofmoneyunpaidontheirshares
(b)Toauthorisebuybackofsecuritiesundersection68
(c)Toissuesecurities,includingdebentures,whetherinoroutsideIndia
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(d)Toborrowmonies
(e)Toinvestthefundsofthecompany
(f)Tograntloansorgiveguaranteeorprovidesecurityinrespectofloans
(g)ToapprovethefinancialstatementandtheBoard'sreport
(h)Todiversifythebusinessofthecompany
(i)Toapproveamalgamation,mergerorreconstructionand
(j)Totakeoveracompanyoracquireacontrollingorsubstantialstakeinanothercompany.
However,theBoardmay,byaresolutionpassedatameeting,delegatetoanycommitteeofdirectors,the
managingdirector,themanageroranyotherprincipalofficerofthecompanyorinthecaseofabranchoffice
d f
ofthecompany,theprincipalofficerofthebranchoffice,thepowersspecifiedinclauses( )to( )onsuch
conditionsasitmayspecify.
Moreover,theacceptancebyabankingcompanyintheordinarycourseofitsbusinessofdepositsofmoney
fromthepublicrepayableondemandorotherwiseandwithdrawablebycheque,draft,orderorotherwise,or
theplacingofmoniesondepositbyabankingcompanywithanotherbankingcompanyonsuchconditionsas
theBoardmayprescribe,shallnotbedeemedtobeaborrowingofmoniesor,asthecasemaybe,amakingof
loansbyabankingcompanywithinthemeaningofthissection
RestrictionsonPowersofBoard
Directorsderivetheirpowersorrightsmainlyfromprovisionsinthearticles,astheActprovideslittleguidance
astowhichactionsarewithinthedirector'spowers.Morethandefiningthepowersandrightsofdirectorsasto
whattheyare,theAct,onthewhole,placesmoreemphasisonimposingrestrictionsonsuchrightsandpowers.
Section180(1)providesthattheBoardofDirectorsofacompanyshallexercisethefollowingpowersonlywith
theconsentofthecompanybyaspecialresolution,namely:
(a)Tosell,lease,orotherwisedisposeofthewhole,orsubstantiallythewhole(20%ormoreofthevalueof
theundertakingaspertheauditedbalancesheetoftheprecedingfinancialyear)oftheundertakingofthe
company,orwherethecompanyownsmorethanoneundertakingofthewhole,orsubstantiallythewholeof
anysuchundertaking.
(b)Toinvest,otherthanintrustsecurities,theamountofcompensationreceivedbyitasaresultofany
mergeroramalgamation
(c)Toborrowmoney,wherethemoneytobeborrowed,togetherwiththemoneyalreadyborrowedbythe
companywillexceedtheaggregateofitspaidupsharecapitalandfreereserves,apartfromtemporaryloans
obtainedfromthecompany'sbankersintheordinarycourseofbusiness.
However,theacceptancebyabankingcompany,intheordinarycourseofitsbusiness,ofdepositsofmoney
fromthepublic,repayableondemandorotherwise,andwithdrawablebycheque,draft,orderorotherwise,
shallnotbedeemedtobeaborrowingofmoniesbythebankingcompanywithinthemeaningofthisclause.
ExplanationForthepurposesofthisclause,theexpressiontemporaryloansmeansloansrepayableon
demandorwithinsixmonthsfromthedateoftheloansuchasshortterm,cashcreditarrangements,the
discountingofbillsandtheissueofothershorttermloansofaseasonalcharacter,butdoesnotincludeloans
raisedforthepurposeoffinancialexpenditureofacapitalnature.
(d)Toremit,orgivetimefortherepaymentof,anydebtduefromadirector.
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LoanstoDirectors
1
AsperSection185( ),nocompanyshall,directlyorindirectly,advanceanyloan,includinganyloan
representedbyabookdebt,toanyofitsdirectorsortoanyotherpersoninwhomthedirectorisinterestedor
giveanyguaranteeorprovideanysecurityinconnectionwithanyloantakenbyhimorsuchotherperson.
However,nothingcontainedinthissubsectionshallapplyto
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(a)Thegivingofanyloantoamanagingorwholetimedirector
(i)Asapartoftheconditionsofserviceextendedbythecompanytoallitsemployeesor
(ii)Pursuanttoanyschemeapprovedbythemembersbyaspecialresolutionor
(b)acompanywhichintheordinarycourseofitsbusinessprovidesloansorgivesguaranteesorsecuritiesfor
theduerepaymentofanyloanandinrespectofsuchloansaninterestischargedataratenotlessthanthe
bankratedeclaredbytheReserveBankofIndia.
ExplanationForthepurposesofthissection,theexpressiontoanyotherpersoninwhomdirectoris
interestedmeans
(a)Anydirectorofthelendingcompany,orofacompanywhichisitsholdingcompanyoranypartneror
relativeofanysuchdirector
(b)Anyfirminwhichanysuchdirectororrelativeisapartner
(c)Anyprivatecompanyofwhichanysuchdirectorisadirectorormember
(d)Anybodycorporateatageneralmeetingofwhichnotlessthantwentyfivepercentofthetotalvoting
powermaybeexercisedorcontrolledbyanysuchdirector,orbytwoormoresuchdirectors,togetheror
(e)Anybodycorporate,theBoardofdirectors,managingdirectorormanager,whereofisaccustomedtoactin
accordancewiththedirectionsorinstructionsoftheBoard,orofanydirectorordirectors,ofthelending
company.
ConsequencesofContraventionoftheProvision
Ifanyloanisadvancedoraguaranteeorsecurityisgivenorprovidedincontraventionoftheprovisionsofsub
1
section( ),thecompanyshallbepunishablewithfinewhichshallnotbelessthanfivelakhrupeesbutwhich
mayextendtotwentyfivelakhrupees,andthedirectorortheotherpersontowhomanyloanisadvancedor
guaranteeorsecurityisgivenorprovidedinconnectionwithanyloantakenbyhimortheotherperson,shall
bepunishablewithimprisonmentwhichmayextendtosixmonthsorwithfinewhichshallnotbelessthanfive
lakhrupeesbutwhichmayextendtotwentyfivelakhrupees,orwithboth[Section185(2)].
CorporateGovernance
Corporategovernance,thebuzzwordofcorporateidentity,isusedinavarietyofcontexts.Inrelationto
company'sdecisionmakingitimpliesasetofprocesses,customs,policies,laws,andinstitutionsaffectingthe
wayacompanyisdirected,administeredorcontrolled.ThereportoftheSEBICommitteeonCorporate
Governancedefinesitastheacceptancebymanagementoftheinalienablerightsofshareholdersasthetrue
ownersofthecorporation,andoftheirownroleastrusteesonbehalfoftheshareholders.Itisabout
commitmenttovalues,aboutethicalbusinessconductandaboutmakingadistinctionbetweenpersonaland
corporatefundsinthemanagementofacompany.TheabovedefinitionisdrawnfromtheGandhianprincipleof
trusteeshipandtheDirectivePrinciplesoftheIndianConstitution.Corporategovernanceisviewedasethicsand
moralduty.Italsoincludestherelationshipsamongthemanystakeholdersinvolvedandthegoalsforwhichthe
corporationisgoverned.Corporategovernanceasamatteroffactconcernsallissuesaboutthebestwaytorun
acompany.
PartiestoCorporateGovernance
PartiesinvolvedincorporategovernanceincludetheChiefExecutiveOfficer(CEO),theBoardofdirectors,
management,andshareholdersandotherstakeholderswhichincludesuppliers,employees,creditors,
customers,andthecommunityatlarge.
Incorporations,theshareholdersdelegatedecisionrightstothemanagertoactinthecompany'sbestinterests.
Thisseparationofownershipfromcontrolimpliesalossofeffectivecontrolbyshare
P.263
holdersovermanagerialdecisions.Partlyasaresultofthisseparationbetweenthetwoparties,asystemof
corporategovernancecontrolsisimplementedtoassistinaligningtheincentivesofmanagerswiththoseof
shareholders.
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ABoardofdirectorsoftenplaysakeyroleincorporategovernance.Itistheirresponsibilitytoendorsethe
organization'sstrategy,developdirectionalpolicy,appointandremunerateseniorexecutives,andtoensure
accountabilityoftheorganizationtoitsownersandauthorities.
TheCompanySecretaryisahighrankingprofessionalwhoistrainedtoupholdthehigheststandardsof
corporategovernance,effectiveoperations,compliance,andadministration.
Allpartiestocorporategovernancehaveaninterest,whetherdirectorindirect,intheeffectiveperformanceof
theorganization.Directors,workers,andmanagementreceivesalaries,benefits,andreputation,while
shareholdersreceivecapitalreturn.Customersreceivegoodsandservices,suppliersreceivecompensationfor
theirgoodsorservices.Inreturntheseindividualsprovidevalueintheformofnatural,human,social,and
otherformsofcapital.
PrinciplesofCorporateGovernance
Commonlyacceptedprinciplesofcorporategovernanceinclude
RightsandEquitableTreatmentofShareholders
Organizationsshouldrespecttherightsofshareholdersandhelpshareholderstoexercisethoserights.They
canhelpshareholdersexercisetheirrightsbyeffectivelycommunicatinginformationthatisunderstandableand
accessibleandencouragingshareholderstoparticipateingeneralmeetings.
InterestsofOtherStakeholders
Organizationsshouldrecognisethattheyhavelegalandotherobligationstoalllegitimatestakeholders.
RoleandResponsibilitiesoftheBoard
TheBoardneedsarangeofskillsandunderstandingtobeabletodealwithvariousbusinessissuesandtohave
theabilitytoreviewandchallengemanagementperformance.Itneedstobeofsufficientsizeandhavean
appropriatelevelofcommitmenttofulfilitsobligations.Thereareissuesabouttheappropriatemixofexecutive
andnonexecutivedirectors.ThekeyrolesofachairpersonandaCEOshouldnotbeheldbythesameperson.
IntegrityandEthicalBehaviour
Ethicalandresponsibledecisionmakingisnotonlyimportantforpublicrelations,butitisalsoanecessary
elementinriskmanagementandavoidinglawsuits.Organizationsshoulddevelopacodeofconductfortheir
directorsandexecutivesthatpromotesethicalandresponsibledecisionmaking.
DisclosureandTransparency
Organizationsshouldclarifyandmaketherolesandresponsibilitiesoftheboardandmanagementpublicly
knowntoprovideshareholderswithalevelofaccountability.Thedisclosureofmaterialmattersconcerningthe
organizationshouldbetimelyandbalancedtoensurethatallinvestorshaveaccesstoclear,factualinformation.
IssuesInvolvingCorporateGovernance
Keepinginviewthewidespectrumofcorporategovernance,itisnotpossibletogiveacompletelistingofthe
issuesinvolvedtherein.However,forreference,thefollowingpressingissuescanbeenumerated:
1.Internalcontrolsandtheindependenceoftheentity'sauditors
2.Oversightandmanagementofrisks
3.Oversightofthepreparationoftheentity'sfinancialstatements
4.Reviewofthecompensationarrangementsforthechiefexecutiveofficerandotherseniorexecutives
5.Theresourcesmadeavailabletodirectorsincarryingouttheirduties
6.ThewayinwhichindividualsarenominatedtopositionsontheBoard
7.Dividendpolicy.
CompanyMeetings:Introduction
Acompanyisanassociationofseveralpersonsforsomecommonobject(s)inwhichdecisionsaremade
accordingtotheviewofthemajority.Variousissueshavetobediscussedanddecidedaccordingly.These
deliberationstakeplacethroughvariousmeetingswhichoccurbetweenthemembersandbetweenthedirectors
aswell.Thus,meeting,inthisregard,maybedefinedasanassemblage
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orgatheringofsomeauthorisedpersonsforconductingsomelawfulbusiness.Forameetingtotakeplacethere
mustbe,obviously,atleasttwopersonsattendingit.However,incertainexceptionalcircumstances,one
membercanconstituteavalidmeetingevenifhedoesnotholdproxiesforothermembers.TheCompanies
Act,2013containsvariousprovisionsgoverningcompanymeetings.Theseregulationshavetobeobservedand
compliedwithwhileholdingsuchmeetings.Hence,theimportanceofmeetingscannotbeunderemphasizedin
caseofcompanies.
KindsofCompanyMeetings
Companymeetingscanbecategorisedintothethreetypesmeetingsofmembers,boardmeetings,andother
meetings.Meetingsofmembersareagainclassifiedintotwotypesgeneralmeetingsandclassmeetings.
Generalmeetingsaresubdividedintoannualmeetingsandextraordinarymeetings.Othermeetingsinclude
classmeetings,meetingsofdebentureholdersandcreditors.
Figure14.1containsaflowchartdepictingthevarioustypesofcompanymeetings.
Fig.14.1 Kindsofcompanymeetings
MeetingsofMembers
Thesearethemeetingswheremembers/shareholdersofthecompanymeettodiscussvariousmattersand
takedecisionsbymeansofpassingresolutions.Meetingsofmembersmaybeclassifiedasgeneralmeetings
andclassmeetings.
GeneralMeetings
GeneralmeetingsmaytakeanyofthefollowingformsasandwhenrequiredundertheprovisionsoftheAct:
1.AnnualGeneralMeeting,and
2.ExtraordinaryGeneralMeeting.
AnnualGeneralMeeting
Anannualgeneralmeeting(AGM)mustbeheldeachyearbyeverycompanyotherthanaOnePerson
Company.AGMisanimportantplatformbywhichthegeneralbodyofshareholdersfindsanopeningtoexercise
theirpowerofcontrol.
RulesRelatingtoanAnnualGeneralMeeting
Followingaretherulesgoverningannualgeneralmeetings:
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(i)AcompanyshallholditsfirstAGMwithin9monthsfromthedateofclosingofthefirstfinancialyear.Insuch
acase,itneednotholdanyAGMintheyearofitsincorporation[Section96(1)].
(ii)Notmorethan15monthsshallelapsebetweentwoAGMs.However,everyAGM(otherthanfirstAGM)shall
beheldwithinaperiodofsixmonthsfromthedateofclosingofthefirstfinancialyear[Section96(1)].
P.265
(iii)IncasethereissomedifficultyinholdinganyAGM(exceptthefirstone),theRegistrarmay,foranyspecial
reasonsshown,grantanextensionoftimeforholdingthemeetingbyaperiodnotexceedingthreemonths
[Section96(1)].
(iv)Everyannualgeneralmeetingshallbecalledduringbusinesshours,thatis,between9a.m.and6p.m.on
anydaythatisnotaNationalHolidayandshallbeheldeitherattheregisteredofficeofthecompanyorat
someotherplacewithinthecity,townorvillageinwhichtheregisteredofficeofthecompanyissituated
[Section96(2)].
However,theCentralGovernmentmayexemptanycompanyfromtheprovisionsofthissubsectionsubjectto
suchconditionsasitmayimpose.
(v)Anoticeofatleast21cleardayseitherinwritingorthroughelectronicmodeshallbegiventothemembers
unlessconsentisaccordedtoashorternoticebyallthemembers,holdingnotlessthan95percentofvoting
rightsinthecompany.Thenoticemustcontainastatementofthebusinesstobetransactedatsuchmeeting.
Thetime,date,day,andplaceofthemeetingmustbementionedinthenotice[Section101(1)&(2)].
(vi)Thenoticeofthemeetingshallbegivento
(a)Everymemberofthecompany,thelegalrepresentativeofanydeceasedmemberortheassigneeofan
insolventmember
(b)Theauditororauditorsofthecompanyand
(c)Everydirectorofthecompany[Section101(3)].
(vii)Anymemberofacompanyentitledtoattendandvoteatameetingofthecompanyshallbeentitledto
appointanotherpersonasaproxytoattendandvoteatthemeetingonhisbehalf.However,aproxyshallnot
havearighttospeakatsuchmeetingandshallnotbeentitledtovoteexceptonapoll.Aproxyformshouldbe
enclosedwiththenotice.Theproxyformshallbesignedbytheappointerorhisattorneydulyauthorisedin
writing[Section101(1)&(5)].
(viii)Unlessthearticlesofthecompanyprovideforalargernumber,
(a)incaseofapubliccompany,
(i)fivememberspersonallypresentifthenumberofmembersasonthedateofmeetingisnotmorethanone
thousand
(ii)fifteenmemberspersonallypresentifthenumberofmembersasonthedateofmeetingismorethanone
thousandbutuptofivethousand
(iii)thirtymemberspersonallypresentifthenumberofmembersasonthedateofthemeetingexceedsfive
thousandshallbethequorumforameetingofthecompanyand
b
( )inthecaseofaprivatecompany,twomemberspersonallypresent,shallbethequorumforameetingof
thecompany[Section103(1)].
Moreover,ifthequorumisnotpresentwithinhalfanhourfromthetimeappointedforholdingameetingofthe
company
(a)themeetingshallstandadjournedtothesamedayinthenextweekatthesametimeandplace,ortosuch
otherdateandsuchothertimeandplaceastheBoardmaydetermineor
(b)themeeting,ifcalledbyrequisitionistsundersection100,shallstandcancelled.
However,incaseofanadjournedmeetingorofachangeofday,timeorplaceofmeetingunderclause( ),the a
companyshallgivenotlessthanthreedaysnoticetothememberseitherindividuallyorbypublishingan
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advertisementinthenewspapers(oneinEnglishandoneinvernacularlanguage)whichisincirculationatthe
placewheretheregisteredofficeofthecompanyissituated[Section103(2)].
Ifattheadjournedmeetingalso,aquorumisnotpresentwithinhalfanhourfromthetimeappointedfor
holdingmeeting,thememberspresentshallbethequorum[Section103(3)].
(ix)Unlessthearticlesofthecompanyotherwiseprovide,thememberspersonallypresentatthemeetingshall
electoneofthemselvestobetheChairmanthereofona showofhand
[Section104].
BusinesstoBeTransactedatanAnnualGeneralMeeting
AteveryAGM,thefollowingmattersshallbetransacted.SincesuchmattersaretransactedateveryAGM,they
areknownasordinarybusinesses.AllothermattersandbusinesstobetransactedattheAGMarespecial
businesses.
ThefollowingmattersconstituteordinarybusinessatanAGM:
P.266
(i)TheconsiderationoffinancialstatementsandthereportsoftheBoardofDirectorsandauditors
(ii)Thedeclarationofdividend
(iii)Theappointmentofdirectorsintheplaceofthoseretiring
(iv)Theappointmentandfixingoftheremunerationoftheauditors[Section102(2)].
Incaseanyotherbusiness(specialbusiness)hastobetransacted,astatementsettingoutthefollowing
materialfactsconcerningeachitemofthespecialbusinesstobetransactedatageneralmeetingshall
accompanythenoticecallingthemeeting,namely:
(a)thenatureofconcernorinterest,financialorotherwise,ifany,inrespectofeachitemsof
(i)everydirectorandthemanager,ifany
(ii)everyotherkeymanagerialpersonneland
i
(iii)relativesofthepersonsmentionedinsubclauses( )and( )ii
(b)anyotherinformationandfactsthatmayenablememberstounderstandthemeaning,scopeand
implicationsoftheitemsofbusinessandtotakedecisionthereon[Section102(1)].
ConsequencesofNotHoldingAnnualGeneralMeeting
DefaultinholdinganAGMmayresultinthefollowingconsequences:
1.AnymemberofthecompanymayapplytotheTribunalwhichmayinturncall,ordirectthecallingofthe
meeting,andgivesuchancillaryorconsequentialdirectionsasitthinksexpedient.TheNCLTmayalso
directthatonememberpresentinpersonorbyproxyshallbedeemedtoconstitutethemeeting.A
meetingheldinpursuanceofthisorderwillbedeemedtobeanannualgeneralmeetingofthecompany
[Section97].
2.IfanydefaultismadeinholdinganAGMinaccordancewithSection96/97/98orincompliancewithany
directionsoftheTribunal,asthecasemaybe,thecompanyandeveryofficerofthecompanywhoisin
defaultshallbepunishablewithfinewhichmayextendtoonelakhrupeesandinthecaseofacontinuing
default,withafurtherfinewhichmayextendtofivethousandrupeesforeverydayduringwhichsuch
defaultcontinues[Section99].
ExtraordinaryGeneralMeeting
AnextraordinarymeetingisusuallycalledbytheBoardofdirectorsinemergencies,say,fortakingupsome
urgentbusinessthatcannotbekeptpendingtillthenextAGM.Everybusinesstransactedatsuchameetingisa
specialbusiness.Anexplanatorystatementofthespecialbusinessmustalsoaccompanythenoticecallingthe
meeting.Thenoticeshouldalsogivethenatureandextentoftheinterestofthedirectorsormanagerinthe
specialbusiness,asalsotheextentoftheshareholdinginterestinthecompanyofeverysuchperson.
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WhoCanCallanExtraordinaryGeneralMeeting?
Anextraordinarygeneralmeetingmaybecalledby:
(i)TheBoardonrequisitionsThemembersofacompanyhavetherighttoseekcallingofanEGMbythe
Board.TheBoardofdirectorsmustcallanextraordinarygeneralmeetingofthecompanyifrequiredtodoso
bythefollowingnumberofmembers.
(a)inthecaseofacompanyhavingasharecapital,suchnumberofmemberswhohold,onthedateofthe
receiptoftherequisition,notlessthanonetenthofthepaidupsharecapitalofthecompanyasonthatdate
carryingtherightofvoting
(b)inthecaseofacompanynothavingasharecapital,suchnumberofmemberswhohave,onthedateof
receiptoftherequisition,notlessthanonetenthofthetotalvotingpowerofallthemembershavingonthesaid
datearighttovote[Section100(2)].
(ii)BytherequisitionistsIftheBoarddoesnot,withintwentyonedaysfromthedateofreceiptofavalid
requisitioninregardtoanymatter,proceedstocallameetingfortheconsiderationofthatmatteronadaynot
laterthanfortyfivedaysfromthedateofreceiptofsuchrequisition,themeetingmaybecalledandheldbythe
requisitioniststhemselveswithinaperiodofthreemonthsfromthedateoftherequisition[Section100(4)].
ClassMeetings
Classmeetingsaremeetingswhichareheldbytheholdersofaparticularclassofshares(i.e.,wheretheshare
capitalofacompanyisdividedintodifferentclassesofshares),e.g.,preferenceshareholders.Suchmeetings
arenormallycalledwhenitisproposedtoalter,varyoraffecttherightsofthatparticularclassofshareholders.
Atsuchmeetings,thesemembersdiscusstheprosandconsofthe
P.267
proposalandresolveaccordingly.Unlessarticlesofthecompanyotherwiseprovides,allprovisionspertainingto
callingofageneralmeetinganditsconductdoapplytoclassmeetingsinthesamewayastheyapplywith
respecttogeneralmeetingsofthemembers.However,allresolutionsinaclassmeetingarerequiredtobe
passedasspecialresolutions.
MeetingsoftheBoard
Meetingsoftheboardrefertomeetingsofdirectors.Theprotectionofinvestorsisoneoftheprimarythemesof
theCompaniesAct.TheActprovidestheshareholdersaforumofselfprotection.Theforumisthegeneral
meetingofshareholders.Apartfromthis,havingregardtothepositionandstatusenvisagedfordirectorsand
therolethatisassumedtothemintheaffairsofthecompany,itisalsoessentialtoholdmeetingsoftheBoard
atregularintervalsandtodiscussinthesemeetings,allmajorconcerns.Thisenablesthedirectorstobein
touchwiththemanagementofcompanyaffairsasoftenastheyshouldbe.Rulesrelatedtoboardmeetingscan
besummarizedasunder.
(i)EverycompanyshallholdthefirstmeetingoftheBoardofDirectorswithinthirtydaysofthedateofits
incorporationandthereafterholdaminimumnumberoffourmeetingsofitsBoardeveryyearinsuchamanner
thatnotmorethanonehundredandtwentydaysshallintervenebetweentwoconsecutivemeetingsofthe
Board[Section173(1)].
However,theCentralGovernmentmay,bynotification,directthattheprovisionsofthissubsectionshallnot
applyinrelationtoanyclassordescriptionofcompaniesorshallapplysubjecttosuchexceptions,modifications
orconditionsasmaybespecifiedinthenotification.
(ii)TheparticipationofdirectorsinameetingoftheBoardmaybeeitherinpersonorthroughvideo
conferencingorotheraudiovisualmeans,asmaybeprescribed,whicharecapableofrecordingand
recognisingtheparticipationofthedirectorsandofrecordingandstoringtheproceedingsofsuchmeetings
alongwithdateandtime[Section173(2)].
ProvidedthattheCentralGovernmentmay,bynotification,specifysuchmatterswhichshallnotbedealtwithin
ameetingthroughvideoconferencingorotheraudiovisualmeans.
(iii)AmeetingoftheBoardshallbecalledbyaminimumsevendaysnoticeinwritingtoeverydirectorathis
addressregisteredwiththecompanyandsuchnoticeshallbesentbyhanddeliveryorbypostorbyelectronic
means[Section173(3)].
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However,ameetingoftheBoardmaybecalledatshorternoticetotransacturgentbusinesssubjecttothe
conditionthatatleastoneindependentdirector,ifany,shallbepresentatthemeeting:
Furthermore,incaseofabsenceofindependentdirectorsfromsuchameetingoftheBoard,decisionstakenat
suchameetingshallbecirculatedtoallthedirectorsandshallbefinalonlyonratificationthereofbyatleast
oneindependentdirector,ifany.
(iv)Everyofficerofthecompanywhosedutyistogivenoticeunderthissectionandwhofailstodososhallbe
liabletoapenaltyoftwentyfivethousandrupees[Section173(4)].
(v)AOnePersonCompany,asmallcompanyandadormantcompanyshallbedeemedtohavecompliedwith
theprovisionsofthissectionifatleastonemeetingoftheBoardofDirectorshasbeenconductedineachhalfof
acalendaryearandthegapbetweenthetwomeetingsisnotlessthanninetydays[Section173(5)].
However,nothingcontainedinthissubsectionandinsection174shallapplytoOnePersonCompanyinwhich
thereisonlyonedirectoronitsBoardofDirectors.
(vi)ThequorumforameetingoftheBoardofDirectorsofacompanyshallbeonethirdofitstotalstrengthor
twodirectors,whicheverishigher,andtheparticipationofthedirectorsbyvideoconferencingorbyotheraudio
visualmeansshallalsobecountedforthepurposesofquorumunderthissubsection[Section174(1)].
(vii)WhereameetingoftheBoardcouldnotbeheldforthewantofquorum,then,unlessthearticlesofthe
companyotherwiseprovide,themeetingshallautomaticallystandadjournedtothesamedayatthesametime
andplaceinthenextweekorifthatdayisanationalholiday,tillthenextsucceedingday,whichisnota
nationalholiday,atthesametimeandplace[Section174(4)].
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OtherMeetings
Acompanymayprovidethroughitsarticlesforthemeetingsofotherpersonsrelatedtoandinterestedinthe
affairsofthecompany,i.e.,meetingsofdebentureholdersandcreditorsofthecompany.Thebasicaimofthe
provisionofthesemeetingsistoensuretheprotectionofinterestofdebentureholdersandcreditors,asthe
casemaybe,intheaffairsofthecompany.Thesemeetingsmaybecalledbythecompany,eitherasarunning
concernorintheeventofwindinguptomakecertainarrangementswithitsdebentureholdersandcreditors.
VotingbyShowofHands
Thetermvotemeansanexpressionofawishoropinioninademocraticandformalwayfororagainsta
proposal.Generally,preliminarymattersaredecidedatageneralmeetingbyashowofhands.Ifthemajority
ofthepersonsraisetheirhandsinfavourofaparticularresolution,thenunlessapollisdemandedunder
Section109orthevotingiscarriedoutelectronicallyitistakenaspassed[Section107(1)].
AdeclarationbytheChairmanofthemeetingofthepassingofaresolutionorotherwisebyshowofhands
1
undersubsection( )andanentrytothateffectinthebookscontainingtheminutesofthemeetingofthe
companyshallbeconclusiveevidenceofthefactofpassingofsuchresolutionorotherwise[Section107(2)].
VotingthroughElectronicMeans
TheCentralGovernmentmayprescribetheclassorclassesofcompaniesandmannerinwhichamembermay
exercisehisrightstovotebytheelectronicmeans[Section108].
DemandforPoll
Votingbyashowofhandsoperatesontheprincipleofonememberonevote.However,sincethefundamental
votingprincipleinacompanyisoneshareonevote,ifapollisdemanded,votingtakesplaceaccordingly.
Beforeorondeclarationoftheresultofthevotingonanyresolutiononashowofhands,apollmaybeordered
tobetakenbytheChairmanofthemeetingonhisownmotion,andshallbeorderedtobetakenbyhimona
demandmadeinthatbehalf,
(a)inthecaseofapubliccompanyhavingasharecapital,bythememberspresentinpersonorbyproxy
whereallowed,andhavingnotlessthanonetenthofthetotalvotingpowerorholdingsharesonwhichan
aggregatesumofnotlessthanfivelakhrupeesorsuchhigheramountasmaybeprescribedhasbeenpaidup
and
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(b)inthecaseofanyothercompany,byanymemberormemberspresentinpersonorbyproxy,where
allowed,andhavingnotlessthanonetenthofthetotalvotingpower[Section109(1)].
However,thedemandforapollmaybewithdrawnatanytimebythepersonswhomadethedemand[Section
109(1)].
PostalBallot
Acompany
(a)shall,inrespectofsuchitemsofbusinessastheCentralGovernmentmay,bynotification,declaretobe
transactedonlybymeansofpostalballotand
(b)may,inrespectofanyitemofbusiness,otherthanordinarybusinessandanybusinessinrespectofwhich
directorsorauditorshavearighttobeheardatanymeeting,transactbymeansofpostalballot,insuch
mannerasmaybeprescribed,insteadoftransactingsuchbusinessatageneralmeeting.
(c)Ifaresolutionisassentedtobytherequisitemajorityoftheshareholdersbymeansofpostalballot,itshall
bedeemedtohavebeendulypassedatageneralmeetingconvenedinthatbehalf[Section110].
P.269
Resolutions
Amotion,withorwithoutamendmentsisputtovoteatameeting.Amotionwhenpassedbyrequisitemajority
ofvotesbytheshareholdersbecomesacompanyresolution.Thus,aresolutionmaybedefinedastheformal
decisionofameetingonanyproposalplacedbeforeit.
KindsofResolutions
Broadlyspeaking,therearethreetypesofresolutionsundertheCompaniesAct,1956:ordinary,special,and
thoserequiringaspecialnotice.
OrdinaryResolution
Anordinaryresolutionisonewhichispassedbyasimplemajority.AsperSection114(1),aresolutionshallbe
anordinaryresolutionifthenoticerequiredunderthisActhasbeendulygivenanditisrequiredtobepassed
bythevotescast,whetheronashowofhands,orelectronicallyoronapoll,asthecasemaybe,infavourof
theresolution,includingthecastingvote,ifany,oftheChairman,bymemberswho,beingentitledsotodo,
voteinperson,orwhereproxiesareallowed,byproxyorbypostalballot,exceedthevotes,ifany,cast
againsttheresolutionbymembers,soentitled.
SpecialResolution
Aspecialresolutionisonewhichispassedbyatleastthreefourthsclearmajority,i.e.,thenumberofvotes
castinfavouroftheresolutionisatleastthreetimesthenumberofvotescastagainstit,eitherbyashowof
handsorbyapoll,inpersonorbyproxy.AsperSection114(2),aresolutionshallbeaspecialresolutionwhen
(a)theintentiontoproposetheresolutionasaspecialresolutionhasbeendulyspecifiedinthenoticecallingthe
generalmeetingorotherintimationgiventothemembersoftheresolution
(b)thenoticerequiredunderthisActhasbeendulygivenand
(c)thevotescastinfavouroftheresolution,whetheronashowofhands,orelectronicallyoronapoll,asthe
casemaybe,bymemberswho,beingentitledsotodo,voteinpersonorbyproxyorbypostalballot,are
requiredtobenotlessthanthreetimesthenumberofthevotes,ifany,castagainsttheresolutionbymembers
soentitled..
Specialresolutionsareneededtodecideonimportantmattersofthecompany.Examples,wherespecial
resolutionsarerequiredareasfollows:
(a)Toaltertheobject'sclauseofthememorandum
(b)ToalterorchangethenameofthecompanywiththeapprovaloftheCentralGovernment
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(c)Toalterthearticlesofthecompanyand
(d)TochangethenameofthecompanybyomittingthewordLimitedorPrivateLimited.TheCentral
GovernmentmayallowacompanywithcharitableobjectstodosobyaspecialresolutionunderSection8of
theCompaniesAct,2013.
ResolutionRequiringaSpecialNotice
Resolutionrequiringaspecialnoticeisaspeciesofordinaryresolution.Therearecertainmattersspecifiedin
theAct,whichmaybediscussedatageneralmeetingforwhichapriorintentiontomovetheresolutionhasto
begiventothemembers.AsperSection115,where,byanyprovisionoftheCompaniesActorinthearticlesof
acompany,aspecialnoticeisrequiredofanyresolution,noticeoftheintentiontomovesuchresolutionshallbe
giventothecompanybysuchnumberofmembersholdingnotlessthanonepercentoftotalvotingpoweror
holdingsharesonwhichsuchaggregatesumnotexceedingfivelakhrupees,asmaybeprescribed,hasbeen
paidupandthecompanyshallgiveitsmembersanoticeoftheresolutioninsuchmannerasmaybe
prescribed.
Suchapriorintentionintheformofaspecialnoticeenablesthememberstobepreparedonthemattertobe
discussedandgivesthemtimetoindicatetheirviewsontheresolution.
IncaseaspecialnoticeofresolutionisrequiredbytheCompaniesAct,bythearticlesofacompany,the
intentiontoproposesucharesolutionmustbenotifiedtothecompanyatleast14cleardaysbeforethe
meeting.Cleardaysmeansthatthedayonwhichthenoticeisservedordeemedtobeservedandthedayof
themeetingshallbeexcluded.
P.270
Thefollowingmatters,inordertobetakenupfordiscussion,requireaspecialnoticebeforethemeeting:
(a)Toappointanauditorotherthanaretiringauditoratanannualgeneralmeeting
(b)Toresolveatanannualgeneralmeetingthataretiringauditorshallnotbereappointed
(c)Toremoveadirectorbeforetheexpirationofhisperiodofoffice
(d)Toappointanotherdirectorinplaceofaremoveddirectorand
(e)Wherethearticlesprovideforservingaspecialnoticeforaresolution,inrespectofanyspecifiedmatter.
Aresolutionrequiringaspecialnoticemaybepassedeitherasanordinaryresolution(withsimplemajority)or
asaspecialresolution(withthreefourthsmajority).
Minutes
Everycompanymustkeeprecordsofalltheproceedingsofameeting,knownasminutes.Theminutesarea
gistofthediscussionsatthemeetingandthefinaldecisionstakenthereatandactasevidenceofthe
proceedingsrecordedtherein.Itnormallyincludesonlytheresolutionsactuallypassed.AsperSection118(1),
everycompanycausesminutesoftheproceedingsofeverygeneralmeetingofanyclassofshareholdersor
creditors,andeveryresolutionpassedbypostalballotandeverymeetingofitsBoardofDirectorsorofevery
committeeoftheBoard,tobepreparedandsignedinsuchmannerasmaybeprescribedandkeptwithinthirty
daysoftheconclusionofeverysuchmeetingconcerned,orpassingofresolutionbypostalballotinbookskept
forthatpurposewiththeirpagesconsecutivelynumbered.
Theminutesofeachmeetingshallcontainafairandcorrectsummaryoftheproceedingsthereat.All
appointmentsofofficersmadeatanyofthemeetingsmustbeincludedintheminutesofthemeeting[Section
118(2)&(3)].
InthecaseofameetingoftheBoardofdirectorsoritsCommittee,theminutesmustalsostatethenamesof
directorspresentatthemeeting,andthenamesofdirectors,ifany,dissentingfrom,ornotconcurringwitha
resolutionpassedatthemeeting[Section118(4)].
Thechairmanmayexcludefromtheminutesanymatterswhicharedefamatory,irrelevantorimmaterialor
whicharedetrimentaltotheinterestsofthecompany.ThediscretionoftheChairmanwithregardtothe
inclusionorexclusionofanymatterisabsoluteandunfettered[Section118(5)&(6)].
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Theminutebooksoftheproceedingsofgeneralmeetingsmustbekeptattheregisteredofficeofthecompany.
Everymemberwillhavearighttoinspect,freeofcostduringbusinesshoursattheregisteredofficeofthe
company,theminutebooks.Furthermore,anymembershallbeentitledtobefurnished,withinsevendays
afterhe/shehasmadearequesttothecompany,withacopyofanyminutesonpaymentofRupeeonefor
everyhundredwordsorfractionthereof.
Ifapersonisfoundguiltyoftamperingwiththeminutesoftheproceedingsofmeeting,heshallbepunishable
withimprisonmentforatermwhichmayextendtotwoyearsandwithfinewhichshallnotbelessthantwenty
fivethousandrupeesbutwhichmayextendtoonelakhrupees[Section118(4)].
WindingupofaCompany:Introduction
Windingupameansbywhichacompanyisdissolvedisanunfortunate,butmanytimesinevitablepartof
companymanagement.Acompanyeitherhastogroworitwilldecayandrunoutofbusiness.
Somecompaniesmayflourishandgrow,whilesomeunfortunateonesmayincurlossesandmayhavetobe
closeddown.Ironically,acompanywhichisgrowingandmakinggoodprofitsmayalsolandintotrouble.Even
bluechipcompanieslikeMetalBox,GMMotors,andGuestKeenWilliams,etc.,havebecomesick.Conversely,
acompanylikeReliance,whichwasnowhereontheindustrialhorizonaboutthreedecadesago,isnowcounted
amongtheFortune500companiesintheworld.Ontheotherhand,awellheeledMNCliketheLehman
Brothersisfacingpossibleclosureafterbecomingbankrupt.Nonetheless,itdoesnotmeanthatcompaniesin
financialdifficultiesalonearewoundup.Legally,evenafinanciallysoundcompanycanbewounduponthe
basisofnumerousothergrounds,thoughitisnotusuallydone.Windinguporliquidationisnotjustalegal
exercisetosatisfythedebtsofcreditors,butalsosignifiesthelossofbrandvaluethatthecompanyenjoyedin
itsentirehistory.
P.271
ImplicationofWindingUp
Windingupistheprocessofbringingtoanendthelegalpersonalityofacompanyasacorporatebody.During
thisprocessthecompanyceasestocarryonitsusualbusiness,theassetsarerealized,theproceedsare
utilizedinpayingoffthedebts,andthesurplus,ifany,isdistributedamongstcontributories prorata
.Generally,
windingupisassociatedwithsinkingandlossmakingcompanies.Tothatextent,windingupissimilarto
insolvencyproceedingsinrespectofanindividual.However,evenasolventcompanycanbewoundupunder
certaincompellingcircumstances.
ModesofWindingUp
AccordingtoSection270oftheCompaniesAct,2013,acompanymaybewoundupeither:
1.Compulsorilyi.e.bytheTribunalor
2.Voluntarily.Thiscanbeeithermembersvoluntarywindinguporcreditorswindingup.
CompulsoryWindingUp
CompulsorywindingupisonewhichtakesplacebyanorderoftheTribunal.ChapterXX,PartIoftheNewAct
dealswiththecompulsorywindingupprocess
GroundsforWindingupbytheTribunal
Section271oftheActwhichdealswiththecompulsorywindingupofacompanycontainsthecaseswherethe
Tribunalmayorderthewindingupofacompanyonapetitionsubmittedtoit.Theseareasfollows.
InabilitytoPayDebt
Acompanycanbewoundupifitisunabletopayitsdebts(i.e.,therealizablevalueofitsexistingassetsisnot
sufficienttodischargeitsexistingliabilities)[Section271(1)(a)].
Acompanyisdeemedtobeunabletopayitsdebtsinthefollowingsituations.
(a)Ifacreditor,byassignmentorotherwise,towhomthecompanyisindebtedinasumexceedingonelakh
rupeesthendue,hasservedonthecompany,bycausingittobedeliveredatitsregisteredoffice,byregistered
postorotherwise,ademandrequiringthecompanytopaythesumdueandthecompanyhasfailedtopaythe
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debtswithintwentyonedaysafterthereceiptofsuchdemandortoprovideadequatesecurityorrestructure
orcompoundthedebttothereasonablesatisfactionofthecreditor
(b)ifanyexecutionorotherprocessissuedonadecreeororderofanycourtortribunalinfavourofacreditor
ofthecompanyisreturnedunsatisfiedinwholeorinpartor
(c)ifitisprovedtothesatisfactionoftheTribunalthatthecompanyisunabletopayitsdebts,and,in
determiningwhetheracompanyisunabletopayitsdebts,theTribunalshalltakeintoaccountthecontingent
andprospectiveliabilitiesofthecompany[Section271(2)].
SpecialResolutionbytheMembers
Generally,shareholdershavefullfreedomtodecidethecourseofaction,acompanyshouldadopt.Theyarethe
bestjudgesaboutthefutureofthecompany.Hence,theycanpassaspecialresolution,withatleast75per
centofmembersattendingandvoting,forwindingup.Onpassingofsucharesolution,thecompanycanfilea
windinguppetitionwiththeTribunal[Section271(1)(b)].
OtherGroundsforWindingupbyTribunal
TheActalsoprovidesthefollowinggroundsforwindingupofacompanybytheTribunal:
1.IfthecompanyhasactedagainsttheinterestsofthesovereigntyandintegrityofIndia,thesecurityof
theState,friendlyrelationswithforeignStates,publicorder,decencyormorality[Section271(1)(c)].
2.Ifaschemeofrevivalandrehabilitationofasickcompanyisnotapprovedbythecreditorsinthe
2
mannerspecifiedinsubsection( )ofsection262,thecompanyadministratorshallsubmitareportto
theTribunalwithinfifteendays,theTribunalmayorderforthewindingupofthesickcompany[Section
271(1)(d)].
3.IfonanapplicationmadebytheRegistraroranyotherpersonauthorisedbytheCentralGovernmentby
notificationunderthisAct,theTribunalisoftheopinionthattheaffairsofthecompanyhavebeen
conductedinafraudulentmannerorthecompanywasformedforfraudulentandunlawfulpurposesor
thepersonsconcernedintheformationormanagementofitsaffairshavebeenguiltyoffraud,
misfeasanceormisconductinconnectiontherewithandthatitisproperthatthecompanybewoundup
[Section271(1)(e)].
P.272
4.IfthecompanyhasdefaultedinfilingwiththeRegistraritsfinancialstatementsorannualreturnsfor
immediatelyprecedingfiveconsecutivefinancialyears[Section271(1)(f)].
5.TheTribunalhaswidediscretionarypowersandthereforemayorderwindingupifitisoftheopinion
thatitisjustandequitabletodoso[Section271(1)(g)].
However,thisisaresiduarypower,whichshouldbeexercisedonlyintheinterestofthecompany,its
employees,shareholdersandcreditorsandinpublicinterest.Someoftheinstances,wheretheTribunalhad
orderedwindingupunderthisclauseareasunder:
(i)Whensubstratumofthecompanyhasdisappeared,i.e.,companyisunabletoachieveanyofitsmain
objects,e.g.,ifitissubstantiallyimpossibletoobtainnecessaryapprovalsoracompanyisunabletoestablish
thebusinessforwhichitisformed,etc.
(ii)Itisimpossibletocarryonbusinessexceptatalossandthereisnoreasonablehopeofmakingprofits.
However,merelossesinafewyearsarenotsufficient,iftherearesomehopesofearningprofitsinfuture.
(iii)Existingorprobableassetsareinsufficienttomeetknownexistingliabilities.
(iv)Completedeadlockinthemanagementduetohostilityamongdirectorswhichcannotberesolvedin
generalorBoardmeetings.However,mereconflictsandfrictionsamongsomedirectorsisnotsufficientto
orderwindingup.
(v)Ifthecompanyisonlyabubble,i.e.,itdoesnothaveanyrealbusinessorpropertytocarryon.
(vi)Itisinpublicinterestthatthecompanybewoundup.Asacorollary,windingupcanbedeclinedifitis
againstpublicinterest.
PetitionforWindingupbytheTribunal
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ApetitiontotheTribunalforwindingupofacompany,asperSection272,canbemadebyanyofthefollowing.
1.Companyitself
2.Anycreditororcreditors,includinganycontingentorprospectivecreditororcreditors
3.Acontributoryorcontributories
4.Anycombinationofcreditors,company,orcontributoriesactingjointlyorseparately
5.TheRegistrar
6.AnypersonauthorisedbytheCentralGovernmentinconsequenceofinvestigationunderSection213of
theActor
7.BytheCentralGovernmentoraStateGovernmentwherethecompanyhasactedagainsttheinterestsof
thesovereigntyandintegrityofIndia,thesecurityoftheState,friendlyrelationswithforeignStates,
publicorder,decencyormorality.
CommencementofWindingupandAppointmentofanOfficialLiquidator
Proceedingsofwindingupareconductedbyanofficialadministrator,calledliquidatorunderthesupervisionof
theTribunal.TheliquidatorisattachedtoeachHighCourt.He/sheisappointedbytheCentralGovernmentand
worksunderthesupervisionoftheRegionalDirectorofDepartmentofCompanyAffairs.
TherulesgoverningtheappointmentofaliquidatorarestatedinSection275oftheCompaniesAct,2013,
reproducedbelow:
1.ForthepurposesofwindingupofacompanybytheTribunal,theTribunalatthetimeofthepassingof
theorderofwindingupshallappointanOfficialLiquidatororaliquidatorfromthepanelmaintained
2
undersubsection( )astheCompanyLiquidator.
2.TheprovisionalliquidatorortheCompanyLiquidator,asthecasemaybe,shallbeappointedfroma
panelmaintainedbytheCentralGovernmentconsistingofthenamesofcharteredaccountants,
advocates,companysecretaries,costaccountantsorfirmsorbodiescorporatehavingsuchchartered
accountants,advocates,companysecretaries,costaccountantsandsuchotherprofessionalsasmaybe
notifiedbytheCentralGovernmentorfromafirmorabodycorporateofpersonshavingacombination
ofsuchprofessionalsasmaybeprescribedandhavingatleasttenyearsexperienceincompany
matters.
3.WhereaprovisionalliquidatorisappointedbytheTribunal,theTribunalmaylimitandrestricthispowers
bytheorderappointinghimoritorbyasubsequentorder,butotherwiseheshallhavethesamepowers
asaliquidator.
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4.TheCentralGovernmentmayremovethenameofanypersonorfirmorbodycorporatefromthepanel
2
maintainedundersubsection( )onthegroundsofmisconduct,fraud,misfeasance,andbreachofduties
orprofessionalincompetence:
However,theCentralGovernmentbeforeremovinghimoritfromthepanelshallgivehimorita
reasonableopportunityofbeingheard.
5.ThetermsandconditionsofappointmentofaprovisionalliquidatororCompanyLiquidatorandthefee
payabletohimoritshallbespecifiedbytheTribunalonthebasisoftasksrequiredtobeperformed,
experience,qualificationofsuchliquidatorandthesizeofthecompany.
6.UponappointmentasaprovisionalliquidatororCompanyLiquidator,asthecasemaybe,suchliquidator
shallfileadeclarationwithinsevendaysfromthedateofappointmentintheprescribedformdisclosing
conflictofinterestorlackofindependenceinrespectofhisappointment,ifany,withtheTribunaland
suchobligationshallcontinuethroughoutthetermofhisappointment.
7.Whilepassingawindinguporder,theTribunalmayappointaprovisionalliquidator,ifany,appointed
c 1
underclause( )ofsubsection( )ofsection273,astheCompanyLiquidatorfortheconductofthe
proceedingsforthewindingupofthecompany.
RemovalandReplacementofaLiquidator
TheTribunalmay,onareasonablecausebeingshownandforreasonstoberecordedinwriting,removethe
provisionalliquidatorortheCompanyLiquidator,asthecasemaybe,asliquidatorofthecompanyonanyof
thefollowinggrounds,namely:
(a)Misconduct
(b)Fraudormisfeasance
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(c)Professionalincompetenceorfailuretoexerciseduecareanddiligenceinperformanceofthepowersand
functions
(d)Inabilitytoactasaprovisionalliquidatororasthecasemaybe,CompanyLiquidator
(e)Conflictofinterestorlackofindependenceduringthetermofhisappointmentthatwouldjustifyremoval.
2.Intheeventofdeath,resignationorremovaloftheprovisionalliquidatororasthecasemaybe,Company
Liquidator,theTribunalmaytransfertheworkassignedtohimorittoanotherCompanyLiquidatorforreasons
toberecordedinwriting.
3.WheretheTribunalisoftheopinionthatanyliquidatorisresponsibleforcausinganylossordamagetothe
companyduetofraudormisfeasanceorfailuretoexerciseduecareanddiligenceintheperformanceofhisor
itspowersandfunctions,theTribunalmayrecoverorcausetoberecoveredsuchlossordamagefromthe
liquidatorandpasssuchotherordersasitmaythinkfit.
4.TheTribunalshall,beforepassinganyorderunderthissection,provideareasonableopportunityofbeing
heardtotheprovisionalliquidatoror,asthecasemaybe,CompanyLiquidator.
StatementofAffairsoftheCompany
IfthecompanyfilesthePetition,itshallbeaccompaniedwiththestatementofaffairs(Statement)inFormNo.
4readwithsection272(5)oftheNewAct.ThePetitionshallstatethefactsuptoaspecificdate,whichshallnot
bethedatemorethanfifteendayspriortothedateofmakingoftheStatement.ACharteredAccountantin
practiceshalldulycertifythisStatement.ThefeeforfilingthePetitionshallbesubmittedasprescribedin
AnnexureBofthedraftrules.TheStatementshouldfurnishthefollowinginformationorparticulars:
(a)Debtsandliabilitiesofthecompany
(b)Assetsofthecompany,showingseparatelythecashinhandandinbankandnegotiablesecurities
(c)Namesandcurrentresidentialandofficialaddressesofthedirectors.
AdvertisementofthePetition
SubjecttothedirectionsoftheTribunal,thepetitionshallbeadvertisedinnotlessthanfourteendaysbefore
thedatefixedforhearinginonedailynewspaperinEnglishlanguageandonedailynewspaperintheprincipal
regionallanguagecirculatingintheStateorunionterritorywheretheregisteredofficeofcompanyissituated.
TheadvertisementneedstobecarriedoutinFormNo6.Thepreviousrequirementofpublicationintheofficial
gazetteoftheStateorunionterritorymentionedinCompanyCourtRules(1959),hasbeendoneawaywith
underthenewAct.
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Final(WindingUp)OrderandItsContent
TheTribunalafterhearingthePetitionhasthepowertodismissit,withorwithoutcost,ortomakeaninterim
order,asitthinksfit,orcanappointtheprovisionalliquidatorofthecompanytillthepassingofthewindingup
order.AnorderforwindingupofacompanywillbeinForm11andcontainsthefootnoteprescribingthe
followingduties:
a.Tosubmitthecompleteandauditedbookofaccountsuptothedateoforder
b.ToattendtheCompanyLiquidatorattherequiredtimeandplacewithallinformation
c.Tosurrendertheassetsofthecompanyanddocumentsrelatedtoit,includingthosedocumentsfromwhich
thebenefitfromtheassetsaccrues.
VoluntaryWindingUp
Acompanycanbewoundupvoluntarily
(a)ifthecompanyingeneralmeetingpassesaresolutionrequiringthecompanytobewoundupvoluntarilyas
aresultoftheexpirationoftheperiodforitsduration,ifany,fixedbyitsarticlesorontheoccurrenceofany
eventinrespectofwhichthearticlesprovidethatthecompanyshouldbedissolvedor
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(b)ifthecompanypassesaspecialresolutionthatthecompanybewoundupvoluntarily[Section304].
DeclarationofSolvency
Whereitisproposedtowindupacompanyvoluntarily,itsdirectorordirectors,orincasethecompanyhas
morethantwodirectors,themajorityofitsdirectors,shall,atameetingoftheBoard,makeadeclaration
verifiedbyanaffidavittotheeffectthattheyhavemadeafullinquiryintotheaffairsofthecompanyandthey
haveformedanopinionthatthecompanyhasnodebtorwhetheritwillbeabletopayitsdebtsinfullfromthe
proceedsofassetssoldinvoluntarywindingup[Section305(1)].
However,inaccordancewithSection305(2),theabovedeclarationshallhavenoeffect,unless
(a)itismadewithinfiveweeksimmediatelyprecedingthedateofthepassingoftheresolutionforwindingup
thecompanyanditisdeliveredtotheRegistrarforregistrationbeforethatdate
(b)itcontainsadeclarationthatthecompanyisnotbeingwounduptodefraudanypersonorpersons
(c)itisaccompaniedbyacopyofthereportoftheauditorsofthecompanypreparedinaccordancewiththe
provisionsofthisAct,ontheprofitandlossaccountofthecompanyfortheperiodcommencingfromthedate
uptowhichthelastsuchaccountwaspreparedandendingwiththelatestpracticabledateimmediatelybefore
themakingofthedeclarationandthebalancesheetofthecompanymadeoutasonthatdatewhichwouldalso
containastatementoftheassetsandliabilitiesofthecompanyonthatdateand
(d)wherethereareanyassetsofthecompany,itisaccompaniedbyareportofthevaluationoftheassetsof
thecompanypreparedbyaregisteredvaluer.
MeetingofCreditors
Thecompanyshallalongwiththecallingofmeetingofthecompanyatwhichtheresolutionforthevoluntary
windingupistobeproposed,causeameetingofitscreditorseitheronthesamedayoronthenextdayand
shallcauseanoticeofsuchmeetingtobesentbyregisteredposttothecreditorswiththenoticeofthemeeting
ofthecompanyunderSection304[Section306(1)].
TheBoardofDirectorsofthecompanyshall
(a)causetobepresentedafullstatementofthepositionoftheaffairsofthecompanytogetherwithalistof
creditorsofthecompany,ifany,acopyofdeclarationunderSection305andtheestimatedamountofthe
claimsbeforesuchmeetingand
(b)appointoneofthedirectorstopresideatthemeeting[Section306(2)].
Wheretwothirdsinvalueofcreditorsofthecompanyareoftheopinionthat
(a)itisintheinterestofallpartiesthatthecompanybewoundupvoluntarily,thecompanyshallbewoundup
voluntarilyor
(b)thecompanymaynotbeabletopayforitsdebtsinfullfromtheproceedsofassetssoldinvoluntary
windingupandpassaresolutionthatitshallbeintheinterestofallpartiesifthecompanyiswoundupbythe
TribunalinaccordancewiththeprovisionsofPartIofthisChapter,thecompanyshallwithinfourteendays
thereafterfileanapplicationbeforetheTribunal[Section306(3)].
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Thenoticeofanyresolutionpassedatameetingofcreditorsinpursuanceofthissectionshallbegivenbythe
companytotheRegistrarwithintendaysofthepassingthereof[Section306(4)].
Ifacompanycontravenestheaboveprovisions,thecompanyshallbepunishablewithfinewhichshallnotbe
lessthanfiftythousandrupeesbutwhichmayextendtotwolakhrupeesandthedirectorofthecompanywho
isindefaultshallbepunishablewithimprisonmentforatermwhichmayextendtosixmonthsorwithfine
whichshallnotbelessthanfiftythousandrupeesbutwhichmayextendtotwolakhrupees,orwithboth
[Section306(5)].
PublicationofResolutiontoWindUpVoluntarily
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WhereacompanyhaspassedaresolutionforvoluntarywindingupandaresolutionunderSection306(3)is
passed,itshallwithinfourteendaysofthepassingoftheresolutiongivenoticeoftheresolutionby
advertisementintheOfficialGazetteandalsoinanewspaperwhichisincirculationinthedistrictwherethe
registeredofficeortheprincipalofficeofthecompanyissituated[Section307(1)].
Ifacompanycontravenestheaboveprovision,thecompanyandeveryofficerofthecompanywhoisindefault
shallbepunishablewithfinewhichmayextendtofivethousandrupeesforeverydayduringwhichsuchdefault
continues[Section307(2)].
CommencementofVoluntaryWindingUpandItsEffect
Avoluntarywindingupshallbedeemedtocommenceonthedateofpassingoftheresolutionforvoluntary
windingupundersection304[Section308].
Inthecaseofavoluntarywindingup,thecompanyshallfromthecommencementofthewindingupceaseto
carryonitsbusinessexceptasfarasrequiredforthebeneficialwindingupofitsbusiness[Section309].
AppointmentofaCompanyLiquidator
AsregardsappointmentofaCompanyLiquidatorincaseofvoluntarywindingupofacompany,Section310of
theCompaniesAct,2013providesasunder:
1.Thecompanyinitsgeneralmeeting,wherearesolutionofvoluntarywindingupispassed,shallappoint
aCompanyLiquidatorfromthepanelpreparedbytheCentralGovernmentforthepurposeofwindingup
itsaffairsanddistributingtheassetsofthecompanyandrecommendthefeetobepaidtotheCompany
Liquidator.
2.Wherethecreditorshavepassedaresolutionforwindingupthecompanyundersubsection( )of 3
section306,theappointmentoftheCompanyLiquidatorunderthissectionshallbeeffectiveonlyafterit
isapprovedbythemajorityofcreditorsinvalueofthecompany.
However,wheresuchcreditorsdonotapprovetheappointmentofsuchCompanyLiquidator,creditors
shallappointanotherCompanyLiquidator.
3.ThecreditorswhileapprovingtheappointmentoftheCompanyLiquidatorappointedbythecompanyor
appointingtheCompanyLiquidatoroftheirownchoice,asthecasemaybe,passasuitableresolution
withregardtothefeeoftheCompanyLiquidator.
4.UponappointmentasaCompanyLiquidator,suchliquidatorshallfileadeclarationintheprescribedform
withinsevendaysofthedateofappointmentdisclosingconflictofinterestorlackofindependencein
respectofhisappointment,ifany,withthecompanyandthecreditorsandsuchobligationshallcontinue
throughoutthetermofhisoritsappointment.
NoticeofAppointmentofaCompanyLiquidatortoBeGiventotheRegistrar
ThecompanyshallgivenoticetotheRegistraroftheappointmentofaCompanyLiquidatoralongwiththename
andparticularsoftheCompanyLiquidator,ofeveryvacancyoccurringintheofficeoftheCompanyLiquidator,
andthenameoftheCompanyLiquidatorappointedtofilleverysuchvacancywithintendaysofsuch
appointmentortheoccurrenceofsuchvacancy[Section312(1)].
Ifacompanycontravenestheaboveprovisions,thecompanyandeveryofficerofthecompanywhoisin
defaultshallbepunishablewithfinewhichmayextendtofivehundredrupeesforeverydayduringwhichsuch
defaultcontinues[Section312(2)].
PowersandDutiesofaCompanyLiquidator
AsperSection314,theCompanyLiquidatorshall:
1.Performsuchfunctionsanddischargesuchdutiesasmaybedeterminedfromtimetotimebythe
companyorthecreditors,asthecasemaybe
primafacie
2.Settlethelistofcontributories,whichshallbe evidenceoftheliabilityofthepersonsnamed
thereintobecontributories
3.Callgeneralmeetingsofthecompanyforthepurposeofobtainingthesanctionofthecompanyby
ordinaryorspecialresolution,asthecasemayrequire,orforanyotherpurposehemayconsider
necessary
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4.Maintainregularandproperbooksofaccountinsuchformandinsuchmannerasmaybeprescribed
andthemembersandcreditorsandanyofficerauthorisedbytheCentralGovernmentmayinspectsuch
booksofaccount
5.Preparequarterlystatementofaccountsinsuchformandmannerasmaybeprescribedandfilesuch
statementofaccountsdulyauditedwithinthirtydaysfromtheclosingofeachquarterwiththeRegistrar,
failingwhichtheCompanyLiquidatorshallbepunishablewithfinewhichmayextendtofivethousand
rupeesforeverydayduringwhichthefailurecontinues
6.Paythedebtsofthecompanyandshalladjusttherightsofthecontributoriesamongthemselvesand
7.Observeduecareanddiligenceinthedischargeofhisduties.
5
IftheCompanyLiquidatorfailstocomplywiththeprovisionsoftheaboveSectionexceptsubsection( )heshall
bepunishablewithfinewhichmayextendtotenlakhrupees[Section314(8)].
CompanyLiquidatortoSubmitReportontheProgressofWindingUp
TheCompanyLiquidatorshallreportquarterlyontheprogressofwindingupofthecompanyinsuchformand
insuchmannerasmaybeprescribed,tothemembersandcreditorsandshallalsocallameetingofthe
membersandthecreditorsasandwhennecessarybutatleastonemeetingeachofcreditorsandmembersin
everyquarterandapprisethemoftheprogressofthewindingupofthecompanyinsuchformandinsuch
mannerasmaybeprescribed[Section316(1)].
1
IftheCompanyLiquidatorfailstocomplywiththeprovisionsofsubsection( ),heshallbepunishable,in
respectofeachsuchfailure,withfinewhichmayextendtotenlakhrupees.[Section316(2)]
ReportoftheCompanyLiquidatortotheTribunal
WheretheCompanyLiquidatorisoftheopinionthatafraudhasbeencommittedbyanypersoninrespectof
thecompany,heshallimmediatelymakeareporttotheTribunalandtheTribunalshall,withoutprejudiceto
theprocessofwindingup,orderforinvestigationundersection210andonconsiderationofthereportofsuch
investigation,theTribunalmaypasssuchorderandgivesuchdirectionsunderthisChapterasitmayconsider
necessaryincludingthedirectionthatsuchpersonshallattendbeforetheTribunalonadayappointedbyitfor
thatpurposeandbeexaminedastothepromotionorformationortheconductofthebusinessofthecompany
orastohisconductanddealingsasanofficerthereoforotherwise[Section317(1)].
FinalMeetingandDissolutionoftheCompany
Asregardsthefinalmeetinganddissolutionofthecompany,Section318providesasunder:
1.Assoonastheaffairsofacompanyarefullywoundup,theCompanyLiquidatorshallprepareareportofthe
windingupshowingthatthepropertyandassetsofthecompanyhavebeendisposedofanditsdebtfully
dischargedordischargedtothesatisfactionofthecreditorsandthereaftercallageneralmeetingofthe
companyforthepurposeoflayingthefinalwindingupaccountsbeforeitandgivinganyexplanationthereof.
2.ThemeetingreferredaboveshallbecalledbytheCompanyLiquidatorinsuchformandmannerasmaybe
prescribed.
3.IfthemajorityofthemembersofthecompanyafterconsideringthereportoftheCompanyLiquidatorare
satisfiedthatthecompanyshallbewoundup,theymaypassaresolutionforitsdissolution.
4.Withintwoweeksafterthemeeting,theCompanyLiquidatorshall
(a)sendtotheRegistrar
(i)acopyofthefinalwindingupaccountsofthecompanyandshallmakeareturninrespectofeachmeeting
ii
andofthedatethereofand( )copiesoftheresolutionspassedinthemeetingsand
1
(b)fileanapplicationalongwithhisreportundersubsection( )insuchmannerasmaybeprescribedalong
withthebooksandpapersofthecompanyrelatingtothewindingup,beforetheTribunalforpassinganorder
ofdissolutionofthecompany.
5.IftheTribunalissatisfied,afterconsideringthereportoftheCompanyLiquidatorthattheprocessofwinding
uphasbeenjustandfair,theTribunalshallpassanorderdissolvingthecompanywithinsixtydaysofthe
4
receiptoftheapplicationundersubsection( ).
5
6.TheCompanyLiquidatorshallfileacopyoftheorderundersubsection( )withtheRegistrarwithinthirty
days.
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5
7.TheRegistrar,onreceivingthecopyoftheorderpassedbytheTribunalundersubsection( ),shallforthwith
publishanoticeintheOfficialGazettethatthecompanyisdissolved.
IftheCompanyLiquidatorfailstocomplywiththeprovisionsofthissection,heshallbepunishablewithfine
whichmayextendtoonelakhrupees[Section318(8)].
DissolutionofaCompanyandFurtherDevelopments
Whereacompanyhasbeendissolved,theTribunalmayatanytimewithintwoyearsofthedateofthe
dissolution,onapplicationbytheCompanyLiquidatorofthecompanyorbyanyotherpersonwhoappearsto
theTribunaltobeinterested,makeanorder,uponsuchtermsastheTribunalthinksfit,declaringthe
dissolutiontobevoid,andthereuponsuchproceedingsmaybetakenasifthecompanyhadnotbeendissolved
[Section356(1)].
ItshallbethedutyoftheCompanyLiquidatororthepersononwhoseapplicationtheorderwasmade,within
thirtydaysafterthemakingoftheorderorsuchfurthertimeastheTribunalmayallow,tofileacertifiedcopy
oftheorderwiththeRegistrarwhoshallregisterthesame,andiftheCompanyLiquidatororthepersonfailsso
todo,theCompanyLiquidatororthepersonshallbepunishablewithfinewhichmayextendtotenthousand
rupeesforeverydayduringwhichthedefaultcontinues[Section356(2)].
CompanyManagement,Meetings,andWindingupofCompany:Exercises
I.ObjectivetypeQuestions
1.Whoamongthefollowingpersonscannotbeappointedasadirectorofanycompany?
(a)anundischargedinsolvent
(b)apersonfoundbyacompetentcourttobeofunsoundmind
(c)apersonwhohasbeenconvictedbyacourtofanoffenceinvolvingmoralturpitudeandsentencedin
respectthereoftoimprisonmentfornotlessthansixmonths,andaperiodoffiveyearshasnotelapsedfrom
thedateoftheexpiryofthesentence
(d)Alloftheabove
2.Whoamongthefollowingisnotacompetentauthoritytoremoveadirectorfromhisoffice?
(a)Shareholders
(b)BoardofDirectors
(c)CentralGovt.
(d)Tribunal
3.Whichofthefollowingdutiesisnotageneraldutyofdirectorsofacompany?
(a)Dutyofgoodfaith
(b)Dutyofcare
(c)DutytoattendBoardmeetings
(d)Dutynottodelegate
4.Annualgeneralmeeting(AGM)mustbeheldby
(a)Everycompany
(b)Everypubliccompany
(c)EverycompanyotherthanaOnePersonCompany
(d)EverycompanyotherthanaOnePersonCompanyandaSmallCompany
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5.WhendoestheBoardcallanExtraordinaryGeneralMeeting?
(a)Wheneverdirectorsthinkfit,bypassingaresolutiontothateffectintheBoard'smeeting
(b)Ontherequisitionofmembersholdingnotlessthanonetenthofthetotalvotingrightsonthematterof
requisition
(c)OntheapplicationoftheCompanyLawBoard
(d)Inalltheabovecases
6.Thepersonsentitledtothenoticeofaclassmeetingare
(a)Everymemberofthecompany
(b)Auditorsofthecompanyforthetimebeing
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(c)Shareholdersoftheparticularclassonly
(d)Auditors(forthetimebeing)andtheshareholdersofthatparticularclass
7.ApetitiontotheTribunalforwindingupofthecompanycanbefiledby:
(a)Themembers
(b)Thecreditors
(c)TheRegistrar
(d)Alloftheabove
8.WhichofthefollowingcanbethesolidreasonsforpassingthewindinguporderbytheTribunal?
1.Inabilitytopaydebts
2.Ifthecompanyhas,byaspecialresolution,resolvedthatthecompanybewoundupbytheTribunal.
3.IfthecompanyhasactedagainsttheinterestsofthesovereigntyandintegrityofIndia,thesecurityofthe
State,friendlyrelationswithforeignStates,publicorder,decencyormorality.
4.IfthecompanyhasmadeadefaultinfilingwiththeRegistraritsfinancialstatementsorannualreturnsfor
immediatelyprecedingfiveconsecutivefinancialyears.
5.IftheTribunalisoftheopinionthatitisjustandequitablethatthecompanyshouldbewoundup.
AnswerCodes:
(a)(1),(2),(3)and(5)
(b)(1),(2),(3)and(4)
(c)(1),(3),(4)and(5)
(d)(1),(2),(3),(4)and(5)
9.Acompanyisdeemedtobeunabletopayitsdebtsifitfailstopayitscreditorwithinthreeweeksofthe
demandasumexceeding
(a)10,000
(d)25000
(c)50,000
(d)1,00,000
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10.Duringthewindingupprocess
(i)Theassetsofthecompanyarerealized
(ii)Thesurplusispaidbacktothemembers prorata
(iii)Theproceedsareutilizedinpayingoffthedebtsandliabilities
(iv)Thecompanyceasestocarryonitsnormalbusiness.
Whatisthecorrectsequenceofabovestages?
(a)(i),(ii),(iii),(iv)
(b)(i),(iii),(ii),(iv)
(c)(iv),(i),(ii),(iii)
(d)(iv),(i),(iii),(ii)
II.ReviewQuestions
1.WhocanbeaDirector?Brieflydiscussthemodesofappointmentofdirectors.
2.CanthedirectorsofacompanybeappointedbytheBoardofdirectors?Elaborate.
3.Discusstherestrictionsimposedinrespectofdirector'spowers.
4.DiscussbrieflytheprovisionsoftheCompaniesAct,2013withregardtoremovalofadirectorfromhis/her
office.
5.Commentonthefollowing:
(a)Alternatedirectors
(b)Additionaldirectors
(c)Nomineedirector
(d)Resignationbydirector
(e)Appointmentofdirectorsbyproportionalrepresentation
(f)Independentdirectors
6.DiscusstherulesgoverningtoBoardmeetings.
7.Describetherelevanceofanannualgeneralmeeting.Discussthestatutoryprovisionswithrespecttothe
noticeofanannualgeneralmeetingastothelength,time,place,formandpersonsentitledtheretoandthe
business,generallytransacted.
8.Describetheessentialsofavalidmeeting.
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9.Writeexplanatorynotesonthefollowing
(a)Quorum
(b)Proxy
(c)Motion
(d)Minutes
(e)Agenda
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10.Definearesolution.Describethepurposeofordinaryandspecialresolutions,andresolutionsrequiringa
specialnotice.
11.Whatdoyoumeanbythewindingupofacompany?Brieflydiscusswhetherisitpossibletorevivea
dissolvedcompany?
12.DescribethegroundsforwindingupbytheTribunal.
13.Discusstheconsequencesofawindinguporder.
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CompanyManagement,Meetings,andWindingupofCompany:Chapter14In
Review
LearningObjectives
Directors:appointment,qualifications,disqualifications
Managingdirector
Managerialremuneration
Corporategovernance
KindsofcompanymeetingsBoardmeetings,meetingsofmembers
Resolutionsminutes
WindingupbytheTribunal,voluntarygroundsforwindingupbytheTribunal
Windingup:commencementconsequences
Voluntarywindingup
Dissolutionofacompanyandfurtherdevelopments
KeyTerms
Directors:Peoplewhoperformthedirectingfunctionirrespectiveofthelabelattachedtothem
DirectorIdentificationNumber:Auniqueidentificationnumberallottedtoapotentialdirectorofany
companybythecentralgovernment
Managerialremuneration:Remunerationpayabletothemanagerialpersonnelofacompany
Corporategovernance:Asetofprocesses,customs,policies,laws,andinstitutionsaffectingthewaya
companyisdirected,administered,orcontrolled
Resolution:Theformaldecisionofameetingonanyproposalplacedbeforeit
Minutes:Recordsrecordsofalltheproceedingsofameeting
Windingup:Themeansbywhichacompanyisdissolved
Directorsaretheelectedrepresentativesofshareholders,entrustedwiththeresponsibilityofrunningthe
company.
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ApersonshallnotbeeligibletobecomeadirectorofacompanyincorporatedundertheCompaniesAct,
2013,ifhe/shesuffersfromanydisqualificationsoutlinedundertheAct.Whenanyfactarisesduringthe
tenureofofficeofadirectorwhichmakeshim/herineligibletocontinueasadirector,theBoardmay,
uponbeingsatisfiedofthatfactdeclarehis/herofficetobevacant.
TheBoardchoosesoneofitsmemberstobethechairorchairpersonoftheBoardofdirectors,
traditionallycalledManagingDirector.Themanagingdirectorshallbeappointedforaninitialperiodnot
exceedingfiveyearsandshallbedeemedtohavebeenreappointedunlesstheBoardofdirectors
passesaresolutiontothecontrary.
Thedirectorsmaybepaidoutofthefundsofthecompanysuchremunerationandallowances,including
sittingfeesforattendingBoardmeetings,subjecttoprovisionsgivenintheAct.
Corporategovernanceconcernsallissuesaboutthebestwaytorunacompany.
Companymeetingsmaybeclassifiedas:MeetingsofBoardofDirectors,MeetingsofmembersAnnual
generalmeetings,andExtraordinarygeneralmeetings.
MeetingsoftheBoardrefertothemeetingsofdirectors.Directorsaresupposetomeeteverythree
monthsinaformalwaytotakecertainimportantdecisionsconcerningcompany'sbusinessandaffairs
collectivelythroughpassingresolutions.
EverycompanymustineachyearholdinadditiontoanyothermeetingsageneralmeetingasitsAnnual
GeneralMeeting(AGM).AnAGMisanimportantmeansbywhichshareholdersfindanopportunityto
exercisetheirpowerofcontrol.AllgeneralmeetingsotherthanAGMsarecalledextraordinarygeneral
meetings.SuchmeetingsareusuallycalledbytheBoardofdirectorsinemergenciesforsomeurgent
businesswhichcannotbekeptpendingtillthenextAGM.
Ameetingtobevalidmustbeproperlyconvened,legallyconstitutedandvalidlyconducted.Theremust
beaChairmantopresideovertheproceedingsofthemeeting.Therulesofquorummustbemaintained
andtheprovisionsoftheActandthearticlesofthecompanymustbedulycompliedwith.
Aresolutionistheformaldecisionofameetingonanyproposalputbeforeit.Therearebroadlythree
typesofresolutionsundertheAct:ordinary,special,andthoserequiringaspecialnotice.
Everycompanymustkeepdetailsofallproceedingsatthemeetingsintheformofminutes.
Acompanyisajuristicpersonthatcomesintoexistencebywayofincorporationandcanbedissolvedby
undertakingawindingupprocessaspertheprovisionsoftheNewActi.e.theCompaniesAct,2013.The
windingupprocessisthelaststageinthelifeofacompany,whereinitsexistenceisdissolvedandallits
assetsareusedtosatisfythecreditorsandshareholders.AcompanycanbewoundupbytheTribunal
orbythemembersofthecompanyvoluntarily.
GroundsforwindingupbytheTribunalincludeaSpecialresolutionbythemembersinabilitytopay
debtoranyothergroundwhichisjustandequitable.
Apetitionforwindingupcanbemadebythecompanyitselfanycreditororcreditors,includingany
contingentorprospectivecreditororcreditorsacontributoryorcontributoriesanycombinationof
creditors,companyorcontributoriesactingjointlyorseparatelytheRegistrarofCompaniesandany
personauthorisedbytheCentralGovernment.
Voluntarywindingupispermissibleonlywhenthecompanyissolvent.Ifacompanyproposestohave
voluntarywindingup,itwillorganiseameetingofcreditorsonthesamedayorthenextdayofthe
generalmeetingwhereresolutionforvoluntarywindingupisproposedtobepassed.
Adissolvedcompanymay,however,berevivedbytheTribunalundercertaincircumstances.
P.281
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