Tag Archives: 2013

Private placement/ preferential allotment to foreign shareholders

In respect of private placement/ preferential allotment of shares under section 42 of CA 2013, the allotment has to be done within 60 days of the receipt of application money, whereas FEMA gives 180 days time for allotment of shares in case of receipt of inward remittance from foreign shareholders. This is apparently a dichotomy because normally in case of foreign inward remittances companies normally wait for one or more tranches and then allot the shares within 180 days of the first remittance received. Also how do we treat that companies act 2013 gives one time limit for allotment and FEMA regulations gives another time limit for allotment. 

Moreover where one remittance has been received before April 2013 and the second one after April, 2013, which law should be applied, the 1956 Act or the 2013 Act, because for private placement under section 42 requires previous approval of the shareholders by way of special resolution for each of the private offers. So in case do we have to treat each remittance as a separate offer then take separate special resolutions for each offer. 

Moreover, rights issue, ESOP issue and preferential allotment appears in Chapter IV relating to share capital and debentures whereas private placement under section 42 appears in Chapter III relating to Prospectus and Allotment. 

Moreover what is the form to be used for filing allotment under section 62 in respect of rights issue or preferential allotment. Form PAS 3 refers to allotment made under sections 39 and 42 only.

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Share Certificates

The provision regarding the time limit for issue of share certificates to members consequent to new/ fresh allotment of shares or transfer/ transmission of securities are to be found in section 56 of the Companies Act, 2013 which has got a heading “Transfer & Transmission of Securities” instead of at section 46 which has the heading “Certificate of Shares”

According to Section 56(4) share certificates have to be issued to members within 

(a) 2 months from the date of incorporation, in case of subscribers to the memorandum; (previously there was no such time limit);

(b) 2 months from the date of allotment of shares in case of any other allotment (previously it was 3 months u/2 113 of CA 1956);

(c) 1 month from the date of receipt of transfer of securities or date of intimation of securities – (here the word used is securities rather than shares, so it includes both shares as well as debentures, previously it was 2 months time limit);

(d) 6 months from the date of allotment of debentures (previously the time limit was 3 months)

Under proviso to section 113(1) of the Companies Act, 1956 companies could apply for an extension of time limit for issue of certificates upon allotment/ transfer of debentures by a further period of 9 months. Now under the Companies Act, 2013, that proviso has been removed, so the above limits under section 56(4) (a) to (d) are absolute and if the company is unable to issue certificates within that period then penalty process is attracted under section 56(6)  which is minimum Rs.25,000/- for the company but may extend to Rs.5.00 lakhs and minimum Rs.10,000/- for every officer which could extend upto Rs.1.00 lakh per officer.

So all the more reason to adopt a strict compliance system to be in consonance with the new norms of the Act.  The only way for companies to ensure that they have a robust compliance system in place is to effectively engage company secretaries. 

 

 

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annual general meeting

Section 96 of the Companies Act, 2013 relates to annual general meeting of a company. The change in the 2013 Act compared to the 1956 Act is that annual general meeting can now be held on all days including on Sundays and public holidays but cannot be held on National Holidays as declared by the Government. The Central Government has declared three days as Public Holidays i.e. 15th August – Independence Day, 26th January – Republic Day and 2nd October – Gandhi Jayanti Day. So companies can now hold annual general meetings on all days of the year except these three days as above. Section 96(2)

Further, the business hours have been defined in the Act itself as from 9.00 a.m. to 6.00 p.m. which was not there in the 1956 Act. 

Another new addition to the annual general meeting is that in case of listed companies (Section 121), a report on the annual general meeting, stating therein, a confirmation that the meeting was held and conducted as per the provisions of the Act and the Rules have to be filed with the Registrar within 30 days of the annual general meeting. 

As per Rule 31(1)(c) of the Companies (Management and Administration) Rules, 2014

the report shall contain the details in respect of the following, namely:-

(i) the day, date, hour and venue of the annual general meeting;
(ii) confirmation with respect to appointment of Chairman of the meeting;
(iii) number of members attending the meeting;
(iv) confirmation of quorum;
(v) confirmation with respect to compliance of the Act and the Rules, secretarial standards made there under with respect to calling, convening and conducting the meeting;

(vi) business transacted at the meeting and result thereof;
(vii) particulars with respect to any adjournment, postponement of meeting, change in venue; and
(viii) any other points relevant for inclusion in the report.
(d) the Report shall contain fair and correct summary of the proceedings of the meeting.

Rule 31(1)(b) states that the Report shall be dated and signed by the Chairman, or in case of his inability to sign, by any two directors of the company one of whom shall be a Managing Director, if there is one and the Company Secretary of the company. 

 

 

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Service of Documents on Members

Section 20(2) of the Companies Act, 2013 provides that a document may be served on a member by sending it him by post or by registered post or by speed post or by courier or by hand delivery at his office or address or by such electronic means as may be specified.

Hitherto delivery by electronic means was not recognised as a mode of delivery of documents by a company to its member. 

Rule 35(4)(a)(i) of Companies (Incorporation) Rules 2014 defines “electronic means”  fax or electronic mail commonly known as e-mail which the member has provided the no. or address thereof from time to time for sending documents to him. This clause includes the e-mail id of the member.

Rule 35(4)(a)(ii) – It further includes posting of an electronic message board or network that the member has designated for these communications, and which transmission shall be validly delivered to the member upon the posting thereof. This clause is not clear – does it mean the various social media platforms like facebook, twitter, linkedin, whatsapp which the member has specified for the purpose.  Obviously the character limitation of some of these platforms will create further problems. 

Rule 35(4)(a)(iii) – other means of electronic communication; The Government has left it open for any further advances in technology. 

 

Rule 35(4)(b) – the electronic transmission should create a record that is capable of retention, retrieval and review and which may thereafter be rendered into a clearly legible tangible form. 

Courier has been defined as documents sent by a courier which provides proof of delivery

 

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Companies Act, 2013 – commencement provisions

The Ministry of Corporate Affairs has vide its General Circular no. 8/2014 dated 4th April, 2014 clarified that companies whose financial year commenced from 1st April, 2014 shall be governed by the Companies Act, 2013 and those companies whose financial year commenced earlier than 1st April, 2014 i.e. where the financial year was from 1st January 2014 – then in that case the relevant statute would be the Companies Act, 1956. Therefore for the financial year ended 31st March, 2013, the relevant statute that will be applicable is the 1956 Act.  

The relevant last para of the said circular is reproduced hereunder for easy reference.

Although the position in this behalf is quite clear, to make things absolutely clear it is hereby notified that the financial statements (and documents required to be attached thereto), auditors report and Board’s report in respect of financial years that commenced earlier than 1st April, 2014 shall be governed by the relevant provisions/Schedules/rules of the Companies Act. 1956.

A Copy of the circular can be found here i.e.

Click to access General_Circular_8_2014.pdf

 

 

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Companies Act, 2013 – Table of Fees

The Ministry of Corporate Affairs has published the Table of Fees pursuant to Rule 12 of the Companies (Registration of Offices and Fees) Rules, 2014. Accordingly, the fees payable for registration of documents at the MCA portal are as follows:

For company having nominal share capital

1) of upto Rs.100,000                                                            Rs.200/-

2) above Rs.1 lakh but less than Rs.5 lakhs                          Rs.300/-

3) Rs. 5 lakhs or more but less than Rs.25 lakhs                   Rs.400/-

4) Rs.25 lakhs or more but less than Rs.1 crore                    Rs.500/-

5) Rs.1 crore and above                                                        Rs.600/-

In case of delays in filing documents, the following would be applicable:

Delay of 

1) upto 15 days (in case of section 93, 139 & 157               ONE TIME

2) more than 15 days to 30 days ( in case of section 93, 

139 & 157) and upto 30 days in case of other forms           TWO TIMES of normal filing fee

3) More than 30 days and upto 60 days                              FOUR TIMES of normal filing fee

4) More than 60 days and upto 90 days                              SIX TIMES of normal filing fee

5) More than 90 days and upto 180 days                            TEN TIMES of normal filing fee

6) More than 180 days and upto 270 days                           TWELVE TIMES of normal filing fee

Where the documents were supposed to be filed under the old regime i.e. under the Companies Act, 1956 and are being filed now, the above filing fee schedule will become applicable. 

Where there is a delay in filing of more than 270 days then second proviso to section 403(1) will become applicable. 

The second proviso to section 403(1) and section 403(2) states as follows;

Provided further that any such document, fact or information may, without prejudice to any other legal action or liability under the Act, be also submitted, filed, registered or recorded, after the first time specified in first proviso on payment of fee and additional fee specified under this section.
(2) Where a company fails or commits any default to submit, file, register or record any document, fact or information under sub-section (1) before the expiry of the period specified in the first proviso to that sub-section with additional fee, the company and the officers of the company who are in default, shall, without prejudice to the liability for payment of fee and additional fee, be liable for the penalty or punishment provided under this Act for such failure or default.

What this means is that the document will be accepted for registration with maximum additional fees possible i.e. 12 times of the normal filing fee, but the company and the officers in default will also be liable for the penalty or punishment provided under the Act for such failure or default. 

So, effectively companies have been given leeway of upto 300 days i.e. 30 days normal filing period and 270 days additional filing period within which the documents to be filed failing which the prosecution will kick off and the company and officers are liable to receive show cause notices in this regard. 

ALL THE MORE REASON FOR ALL COMPANIES TO EFFECTIVELY ENGAGE COMPANY SECRETARIES FOR THEIR COMPLIANCE NEEDS. 

 

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Companies Act, 2013 – Transfers and Transmissions

The salient features of the changes in the provisions relating to transfers and transmissions in the Companies Act, 2013.

1) The share transfer form alongwith the share certificates has to be delivered to the company within 60 days from the date of its execution; section 56(1); – this is a new provision, there was no time limit earlier

2) The share certificates have to be delivered within a period of one month (earlier two months) from the date of receipt of the transfer documents – section 56(4)(c)

 

 

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Companies Act, 2013 – Commencement of Business

Under the Companies Act, 1956 a private company could start its business immediately upon receiving certificate of incorporation. They were not required to obtained a certificate of commencement of business under section 149 of that Act. 

Now under Section 11 of the Companies Act, 2013, ALL companies cannot commence business or exercise any borrowing powers, unless 

– the subscribers to the memorandum have paid in their subscription monies and a declaration to that effect has been filed with the Registrar and the paid up share capital of the company on the date of declaration is at least Rs.1 lakh for a private company and Rs.5 lakhs for a public company, AND

– the company has filed with the Registrar a verification of its Registered office. 

Section 11(3) further states that where no declaration has been filed within 180 days of the date of incorporation and the Registrar has reason to believe that the company is not carrying on its business or operations, he will initiate action for removal of the company name from the registrar of companies. 

 

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Annual Returns under Companies Act, 2013

The annual returns of shareholders, directors and debts which was made out in Schedule V and covered by section 159 to section 162 of the Companies Act, 1956 is now covered by section 92 of the Companies Act, 2014 and Rule 11 of the Companies (Management and Administration) Rules, 2014

Section 92 of the Act

1) The annual return is now required to be made as at the close of the financial year instead of as at the AGM date as hitherto;

2) It contains substantially more information than what was covered by Schedule V. It covers the following information, viz.

(a) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;
(b) its shares, debentures and other securities and shareholding pattern;
(c) its indebtedness;
(d) its members and debenture-holders along with changes therein since the close of the previous financial year;

(e) its promoters, directors, key managerial personnel along with changes therein since the close of the previous financial year;
(f) meetings of members or a class thereof, Board and its various committees along with attendance details;
(g) remuneration of directors and key managerial personnel;
(h) penalty or punishment imposed on the company, its directors or officers and details of compounding of offences and appeals made against such penalty or punishment;
(i) matters relating to certification of compliances, disclosures as may be prescribed;
(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign Institutional Investors indicating their names, addresses, countries of incorporation, registration and percentage of shareholding held by them; and
(k) such other matters as may be prescribed,

The annual return is required to be signed by a Director AND company secretary or where there is no company secretary, by a company secretary in practice. The format of annual return is in form MGT 7.

A One Person Company and a small company shall have its annual return signed by a company secretary or where there is no company secretary by a Director of the company. 

Small company means a company other than a public company with paid up share capital of upto Rs.50 lakhs OR turnover of Rs.2 crores. The government may specify higher limits for a small company but it cannot exceed paid up share capital of Rs.5 crores or turnover of Rs.20 crores. 

The annual return by a listed company or a public company with paid up share capital of Rs.10 crores or more OR turnover of Rs.50 crores or more shall be mandatorily certified by a Company Secretary in Practice and the Certificate shall in form MGT 8.

An extract of the annual return is required to be attached to and shall form part of the Board report. This form of annual return is in form MGT 9.

The time period for filing the annual return is the same as at present i.e. within 60 days from the date of the annual general meeting. 

To summarise, Annual Return of 

One Person Company/ Small company – to be signed by the Company Secretary and in its absence, Director. 

Companies with paid up capital between Rs.50 lakhs and upto Rs.10 crores OR turnover upto Rs.50 crores – Director and Company Secretary and where there is no Company Secretary, by Company Secretary in Practice.

Listed companies and companies with paid up capital above Rs.10 crores or turnover above Rs.50 crores – certification by a Company Secretary in Practice.   

Section 93

Every listed company is also required to file a return in form MGT.10 regarding changes in the shareholding of promoters and top ten shareholders within 15 days of such change. This is a new requirement under the Companies Act. 

 

 

 

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Companies Act, 2013 – Board of Directors – sections 152 to 164

Some major changes have been highlighted below:

Section 152(3) – No person can be appointed as a Director unless he has been allotted a Director Identification Number. 

Previously he could be appointed a Director upon his making an application for DIN. Now his appointment can be taken by the Board only if he has a valid DIN. 

Section 152(4) & (5) – Every director is required to give a declaration that he is not disqualified to become a Director under the Act alongwith his DIN and also give his consent for appointment as Director. The consent has to be filed with the ROC within 30 days from the date of his appointment. 

Previously consent letter was required only for public companies. Now it is required for all companies. 

In case of an independent director there should be a statement in the explanatory statement attached to the notice of his appointment that in the opinion of the Board he fulfills the condition specified in the Act for his appointment as an independent director. 

This is a rigorous compliance requirement necessitating the Board to give its opinion on the suitability of the person to be appointed as an independent director. Not only should the director fit the criteria for being an independent director, but also the qualifications required under the Rules. 

Section 152 (6) – retirement of directors by rotation not applicable to private companies which are subsidiaries of public companies which was hitherto covered by the Act. 

For the purpose of calculation of two thirds of “total number of directors” independent directors shall not included in the “total number of directors”

Section 160  – The notice under section 257 of the Companies Act, 1956 which was hitherto not required for private companies by virtue of section 257(2) thereof, is now required for all companies. The notice is also required to given with a deposit of Rs.1.00 lakh (earlier Rs.500/-) which shall be refunded if candidate gets elected as a Director or gets at least 25% of the votes in his favor either by show of hands or by poll. 

Therefore private companies also have to comply with this requirement both in terms of notice u/s 160 as also cash deposit of Rs.1.00 lakh from the director/ member proposing his name. 

Section 161(2) – Alternate Director is for period of absence “from India” for not less than 3 months.

Earlier it was “absence from the state”

Alternate Director cannot be appointed for an independent director unless the alternate is also qualified to be appointed as an Independent Director.  

Section 164 deals with disqualification of Directors.

Section 164 (1) (a) – A person will be disqualified for appointment as director if he is of unsound mind and stands so declared by a competent court. The earlier clause was “he has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force”  

Which means that if a person ceases to be of unsound mind, he should get a declaration to that effect by a competent court in order to be eligible for appointment as a Director. 

Section 164(1)(d) – he has been convicted by a court of any offence “whether involving moral turpitude or otherwise”. The earlier clause was restricted only to moral turpitude. 

So now he gets disqualified regardless of the nature of the offence. 

Further the sub-section goes on to state in the Proviso that “if a person becomes convicted of any offence and sentenced to an imprisonment of 7 years or more, then he shall not be appointed as a Director in any company.

So this becomes a permanent bar to the person becoming a Director if he is convicted and sentenced to a term of 7 years and more. 

Section 164(1)(e) – an order disqualifying him from appointment has been passed by a Court or Tribunal and the order is in force.

Previously the order of Court should have been passed in pursuance to section 203 of Companies Act, 1956. Now it is just an order by a court or tribunal disqualifying him from being appointed as a Director. 

Section 164(1)(g) – new clause has been added whereby Director gets disqualified if he has been convicted of an offence involving related party transactions at any time during the last 5 years. 

Section 164(1)(h) – another new clause added whereby Director gets disqualified if he has not obtained a DIN. 

This obviously applies to existing Directors who have not yet obtained a DIN because any new Director after the commencement of the Act cannot be appointed unless he has a DIN in place. 

Section 164(2) – the old section 274(1)(g) has been moved to this sub-section. It applies to all companies, not only public companies as erstwhile. Further the disqualification is attracted where the company in which he is a Director fails to file the financial statements OR annual returns for any three consecutive financial year. Earlier it was failure to file both financial statements AND annual returns. The disqualification is that he cannot be re-appointed in that company or appointed as a Director in any other company for a period of 5 years from the date on which company fails to do the filings.  

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One Person company under Companies Act, 2013

One Person Company

The Companies Act, 2013 introduces a new concept of “One person company”. This is the first time such a concept is being introduced in India. Basically it is giving legal corporate status of Proprietorship form of doing business. Salient features of this new concept are explained below:

DEFINITION:

Section 2(62) defines a “One Person Company” means a company which has only one person as a member.

INCORPORATION:

Section 3(1)(c ) – OPC can be formed only as a private company.

In the subscription clause of the memorandum of association of an OPC, the member will state that he is subscribing to all the shares in the capital of the company.

The Table F which is the model Articles of Association of a company limited by shares incorporates provisions of an OPC especially regarding membership, nominees, annual general meetings and board meetings.  The relevant clauses are clause 27, 48 and 76 respectively.

Rule 3 of Companies (Incorporation) Rules provides that

–      only a natural person who is an Indian citizen and resident in India shall be eligible to incorporate a OPC and to become a nominee for the sole member of the OPC

(so body corporates, foreigners cannot incorporate an OPC);

–      a person cannot incorporate more than one OPC or become a nominee in more than one OPC; (But he can be a member of one OPC and nominee of another OPC)

–      Where a member of an OPC becomes a member of another OPC by virtue of his nomination in that second OPC, he shall opt out of either one within a period of 180 days;

–      A minor cannot become a member or nominee of OPC or holds shares with beneficial interest;

–      An OPC cannot be incorporated or converted into a company under section 8 of the Act, which is the erstwhile section 25 companies or not for profit companies;

–      An OPC cannot carry out NBFC activities including investment in securities of any body corporate;

–      An OPC cannot convert itself voluntarily into any kind of company for a period of two years from the date of its incorporation unless within that period its paid up share capital increases to more than Rs.50 lakhs OR average annual turnover during the relevant period exceeds Rs.2 crores;

Section 12(3) second proviso states that the words “One Person Company” shall be mentioned in brackets below the name of such company wherever it is printed, affixed or engraved.  So it should be mentioned as follows:

ABC Private Limited (OPC)

CONVERSION OF OPC INTO PRIVATE/ PUBLIC COMPANIES

Rule 6 of the Companies (Incorporation) Rules, provides that where the paid-up share capital of an OPC exceeds Rs.50 lakhs or its average annual turnover during the relevant period exceeds Rs.2 crores then within 6 months from the date on which its paid up share capital increased as above or the last day of the relevant period for the turnover purposes, it shall convert itself into either a private company or a public company. “Relevant period” means a period of three immediately preceding consecutive financial years.

An OPC can however voluntarily convert itself into a private company or a public company by increasing its members but only after 2 years from the date of its incorporation.

CONVERSION OF PRIVATE COMPANY INTO OPC;

An existing private company other than a section 8 company (i.e. not for profit company) having paid up share capital of Rs.50 lakhs or less OR average annual turnover during the relevant period of Rs.2 crores or less can convert itself into an OPC by passing a special resolution in the general meeting;

Before passing such special resolution, the private company should obtain No Objection to conversion in writing from members and creditors;

The private company can then start the procedure for conversion by submitting the relevant documents to the ROC.

A public limited company cannot obviously convert itself into an OPC.

 NOMINATION:

The memorandum of OPC  shall indicate the name of the other person who has given his consent in the prescribed form to be so named and who shall, in the event of the member becoming incapacitated due to death or incapacity to contract, become the member of the company. The written consent of such other person shall also be filed alongwith the incorporation documents while forming OPC;

The memorandum of the company shall state the name of the person who in the event of the death of the subscriber shall become the member of the company.

The member has powers at any time to change the name of the nominee by giving notice in the prescribed form. The new nominee should also give his consent to his name so appearing and any change in the nominee shall require amendment in the memorandum of association.

Rule 4 of the Companies (Incorporation) Rules deals with nomination process:

The nominee can withdraw his nomination by giving his consent to the member and also the OPC. In that case, the member shall nominate another person within 15 days of the notice of withdrawal after obtaining his written consent and send intimation of such nomination to the company. The OPC is required to file the notice of withdrawal of consent and fresh nomination within a period of 30 days from the notice of withdrawal.

ANNUAL RETURNS AND FINANCIAL STATEMENTS:

Section 92 provides that the annual return of an OPC should be signed by the company secretary or where there is no company secretary by a director.  This is a very queer kind of provisions because it fails to reason why an OPC should appoint a Company Secretary in its rolls since the provisions regarding mandatory appointment of KMP is way beyond the life of an OPC as per the Act. It should have been better if the requirement was that the annual return be signed by a Company Secretary in Practice.

Section 134(1)  states that the financial statement(s) of the OPC shall be signed by one Director on behalf of the OPC before they are given to the Auditors for their Report thereon. Section 2(40) excludes the cash flow statement from the definition of financial statement in case of OPC.

The Board report of the OPC need not contain the detailed disclosures as are enumerated in section 134(3) but should contain explanations or comments on every qualification, reservation or adverse remark made by the auditor in his audit report.

The Third Proviso to section 137(1) gives leeway to an OPC to file its financial statement along with other documents that are required to be filed/ attached with it, with the Registrar within 180 days from the closure of the financial year. Here since there is no concept of annual general meeting for OPC, it is 180 days from the closure of the financial year. So basically OPCs have six months to file its annual financial statements with the Registrar.

GENERAL MEETINGS AND BOARD MEETINGS

Section 96 provides that an OPC is not required to hold the mandatory annual general meeting.

Section 98 regarding power of tribunal to call meetings of members is not applicable to OPC.

Sections 100 to 111 is also not applicable to OPCs.

Section 100 – convening of extra-ordinary general meetings;

Section 101 – notice of general meeting

Section 102 – explanatory statement

Section 103 – quorum for general meetings

Section 104 – chairman of meetings

Section 105 – proxies

Section 106 – restriction on voting rights

Section 107 – voting by show of hands

Section 108 – voting through electronic means

Section 109 – demand for poll

Section 110 – postal ballot

Section 111 – circulation of members’ resolutions

Since the provisions of general meetings are being excluded for an OPC, the question remains how the matters that are generally decided upon at the general meetings in case of normal companies are dealt with in OPCs. This question has been answered in section 122 (3) as follows:

122 (3) For the purposes of section 114, any business which is required to be transacted at an annual general meeting or other general meeting of a company by means of an ordinary or special resolution, it shall be sufficient if, in case of One Person Company, the resolution is communicated by the member to the company and entered in the minutes-book required to be maintained under section 118 and signed and dated by the member and such date shall be deemed to be the date of the meeting for all the purposes under this Act.

Even in case of Board meetings of OPCs, section 122(4) gives the answer:

122(4) Notwithstanding anything in this Act, where there is only one director on the

Board of Director of a One Person Company, any business which is required to be transacted at the meeting of the Board of Directors of a company, it shall be sufficient if, in case of such One Person Company, the resolution by such director is entered in the minutes-book required to be maintained under section 118 and signed and dated by such director and such date shall be deemed to be the date of the meeting of the Board of Directors for all the purposes under this Act.

What this means is that where there is more than one Director in the Board of Directors of the OPC, then they should convene and hold Board meetings as are done by normal companies and the procedure and practices to be followed by normal companies in such cases should be followed by the said OPC.

Section 173(5) provides that OPCs shall be required to convene only one meeting in each half of a calendar year provided however that the gap between two Board meetings is not less than 90 days.  This is a peculiar provision which says that the gap between two Board meetings of an OPC should be not less than 90 days between each meeting. What will happen if an urgent Board meeting is required to be convened before 90 days from the conclusion of the first Board meeting. I thought the wording should have read as “not more than 90 days”

Again this provision is not applicable where the Board of Director of OPC comprises of only one Director. In that case of course the  provisions of section 122(4) applies.

Section 174 is regarding quorum of meetings of Board of Directors. This section will not apply to an OPC which has only one Director in its Board of Directors.

DIRECTORS:

Section 149(1)(a) provides that minimum one director should be appointed in an OPC. There is no restriction to appointing more than one director in an OPC, but maximum no. of directors that can be appointed is 15 as per section 149(1)(b).

Section 152(1) provides that the subscriber to the memorandum shall be deemed to be the first director of the company until director(s) are duly appointed by the member in accordance with the provisions of the section.

RELATED PARTY TRANSACTIONS:

Section 193 is important regarding related party contracts by OPC. It says:

193. (1) Where One Person Company limited by shares or by guarantee enters into a

contract with the sole member of the company who is also the director of the company, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in a memorandum or are recorded in the minutes of the first meeting of the Board of Directors of the company held next after entering into contract:

 Provided that nothing in this sub-section shall apply to contracts entered into by the company in the ordinary course of its business.

 (2) The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes of the meeting of its Board of Directors under sub-section (1) within a period of fifteen days of the date of approval by the Board of

So related party contracts with the sole member who is also the Director of the company are required to be entered in the memorandum or minutes and also communicated to the Registrar within 15 days of the Board meeting where the contract is approved.

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Corporate Identification Number in letter heads

Section 12(3)(c ) of the Companies Act, 2013 which comes into effect from 1st April, 2014 provides that 

(3) Every company shall—

(c) get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and (d) have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed:
Provided that where a company has changed its name or names during the last two years, it shall paint or affix or print, as the case may be, along with its name, the former name or names so changed during the last two years as required under clauses (a) and (c):

Important Changes

The Corporate Identity Number which is a 21 digit number allotted by the Ministry of Corporate Affairs – this needs to be now printed in the company letter heads/ invoices and any other official documents of the company. 

Where there is a change in the name of the company during the last two years then the former name shall also be mentioned along with the current name. It can be mentioned as “erstwhile XYZ Private Limited” in brackets under the new name. The period for which the old name should be mentioned is not specifically stated, but from the language one would infer that it is a requirement for two years. 

The old name should also be mentioned in the name plates which is required to be prominently affixed outside the registered office of the company. 

So all companies are requested to please start complying with this new requirement from 1st April, 2014 onwards. 

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Chapter XI – Appointment and qualification of directors – section 149

Chapter XI – Appointment and qualification of directors

 

1)      2nd Proviso to section 149(1) – certain select companies to have women directors on their Board – these are (i) every listed company, and (ii) every other public company having paid up share capital of Rs.100 crores or more OR turnover of Rs.300 crores or more. In the first case the listed company should appoint woman director within one year from the commencement of the new act and in the second case, they have been given a three years leeway to comply with this section;

2)      The Rule 11.1 gives three years to a public company (other than listed company) “from the commencement of the 2nd proviso to section 149(1) of the Act” – i don’t understand the meaning of this phrase – “commencement of the 2nd proviso to section 149(1)” – does each of the provisos commence separately on different dates – i thought the entire section should commence at the same date, if at all the Ministry proposes the torturous process of separately intimating commencement of each sections of the Act, as it was done in the case of Competition Act, 2002;

3)      Women directors is made compulsory for all listed companies whereas even independent directors are not compulsory for all listed companies especially the small listed companies having paid up share capital upto Rs. 3 crores, for which the clause 49 is not made applicable so far;

4)      So the provisions of appointment of women directors on the Board is of far reaching consequence as the number of qualified women directors required by India Inc. Is going to be substantial;

5)      Section 149(3) is very important – it says that every company shall mandatorily have one director who is a resident Indian i.e. who has stayed in India for a period of not less than 182 days – this means that the companies cannot have a fully foreign Board – at least one director should be an Indian. All companies who are having fully foreign Board should take steps to induct at least one director on their Board;

6)      Section 149(4) goes contradictory to the existing listing agreement which gives exemption to the small listed companies from the provisions of clause 49 of the listing agreement thereof – it very clearly and equivocally says that every listed company shall have at least one-third of its total strength as independent directors. So SEBI needs to amend clause 49 to bring it in line with the companies act;

7)      Section 149(6) lays down stringent qualifications for being appointed as an independent director – person of integrity, relevant expertise, experience, not a promoter either now or in the past not only of the company, but also of its subsidiary or associate company, or not related to any of the promoters as above, no pecuniary relationship with any of these three classes of companies or whose relatives don’t have pecuniary relationship above a certain limit, or not a Key Managerial Personnel or an employee (even a peon!!) for the last three financial years or not a partner in any audit firm of CA, CS, CWA, legal consulting firm, or holds together with his relatives 2% or more of the voting power of the company or is a Chief executive of a NGO which receives 25% or more of its receipts from the company or its promoters, directors or holds 2% or more of the voting power of the company. Phew!!

8)      Section 149(7) states that every independent director shall at the first meeting at which he is appointed give a declaration that he qualifies in all the criteria that is given in section 149(6) excepting the part regarding person of integrity, expertise and experience which is required to be under an opinion of the Board;

9)      Section 149(8) – the company and its independent directors are required to abide by Schedule IV which is the Code of Conduct for Independent Directors;

10)   Section 149(9) – independent directors cannot be remunerated by way of stock options, but can receive fee, reimbursement of expenses, profit related commission as may be approved by the members – moot point here is that if the independent directors are going to be remunerated in any form by the company in which he is appointed as an independent director in whatever form the remuneration takes, then how can be retain his independence or how can he be called as an independent director;

11)   Section 149(10) & (11) – independent directors can be appointed for a maximum tenure of two consecutive period of 5 years each, but he can be re-appointed after a three year gap during which period he should not be associated in any form either with the company or its subsidiaries or its associate companies. Therefore technically speaking a young independent director can be appointed for 10 years, then take a 3 year sabbatical, come back for another 10 years and so on unless of course the law is changed further in this respect. I thought maximum tenure of 10 years is sufficient and after that “come-back” provisions after the 3 year gap, should have been avoided;

12)   Section 149(12) is very important and dangerous section for independent directors and also non executive directors – it is regarding liability for frauds committed by the company – the independent directors and NEDs can be held liable only if the fraud occurred with his knowledge, attributable through Board processes and with his consent or connivance or where he has not acted diligently – “attributable to Board processes” is not clear – ingredients of “knowledge, board processes and consent or connivance” should be present in the first instance or sheer lack of awareness on the second instance;

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