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    28 views26 pages

    3 Company Law

    Uploaded by

    Yash Kala

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    © All Rights Reserved
    Download as PDF or read online from Scribd
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    ee ee cre ie Nae aah (eo Noting efi or hncl tat ona a Company vans - INTRODUCTION AND INTERPRETATION Where a Registrar or inspector cals forthe books of account and other books and papers under Section 206, it shall be the duty of every director, officer, or other employee of the company to produce all such documents to the Registrar or inspector and furnish him with such statements, information orexplanationsiin such form asthe Registrar or nspectormay require and shallrender ll assistance tothe Registrar or inspector n connection with such inspection. = Sec. 207 (1), The Companies Act, 2013, Inspection and inquiry, as the Act describes, ate the means provided by the legislator to administer the regime of good governance to achieve the objectives set by the law. Trust but zerifj is a wise saying. When applied in the context of enforcing the lav its the most useful principle. The government truss its citizens because it belongs to its own people. It verifies the activities of the citizens as well as the artificial legal entities that consist of all kinds of ‘human associations recognised by law: establishments, companies, non-profit organizations, and charitable institutions, because it bears the responsibility to do so. ‘The Companies Act, 2013, empowers the companies to establish self-governance and liberty to act in the interes of allt allows the companies to draw up their own charter, the Articles of Association, and adhere to it, From the appointment of its directors tothe rights of its last employee, all is well-defined and set for fairness and justice. | t | ‘The Companies Act, 2013: The Control and Governance of a Company ‘The Companies Act, 2013, empowers the government to make rules and statutes to enforce the law: Various agencies, from the Registrar of Companies (ROC) to the courts of law and from statutory bodies to control the activities of the companies to imposition of penalties, are established to verify the actions of the company. Chapter XV ofthe Act, Section 206-229, is titled as Engpectin, Inquiry and Inestigation, which delineates the control exercised by the authority of the government. For instance, the ROC. after scrutiny of the documents, such as annual returns of the company upon examination, finds discrepancies and inaccuracies or has received reliable information about the company ‘that needs to be checked against facts and comes to the conclusion that an investigation into ‘the matter s indispensable, he may do so as prescribed by the law. The processes commence with a written notice. Then, the investigation may proceed and, if there is any miscarriage of law it may be investigated, and if not settled as per established law but challenged by the company management, it may be moved to the court of law and justice sought and done. ‘Thus, the control and governance of the company may be distinguished as internal and ‘external. The internal governance consists of the administration and management of the company by its officers, such as the board of governors, finance and operations officers, executives, and employees. They function in all aspects of running a company and achieving the et objectives. The ‘external control and governance and control re in the domain of the government. The government acts according to the law established by the parliament through various agencies it has established for the ‘purpose. Whether tis the exercise of internal control and governance or the external one, both fianction systematically under the law. Manager's Map Figure 11.1. Understanding the Company Act 2013 na | 14 Legal Aspects of Business BOARD OF DIRECTORS, DIRECTORS, AND OFFICERS OF THE COMPANY Control of a Company *Controt shail include therightto appoint majority ofthe directors orto control the management orpolicy decisions exercisable by a person or persons acting individually or in concer rectly or indirectly including by virtue of their shareholding or management rights or shareholders ‘agreements or voting agreements or in any other manner. ~Sec.2 (27), The Companies Act, 2013 Control, in this context, is to exercise power over an organization. The power is invested in ‘aperson or a group of persons known as Board of Directors by virtue of an established law and the/Board, in turn, bears responsibilty for the actions before such law: The basis for the exercise of power in a company comes from the contract documents of Memorandum of Articles (MOA) and Articles of Association (AOA) that are endorsed by the legal agency or authority the ROC, a body corporate established by the Central Government as its statutory body. Empowerment by law is the reason for the exercise of power. The concept of control is the most important one in the Companies Act, 2013. Chair persons, directors, managers, and other officers of the company should deeply understand the implications ofthe term. The legislator has empowered the corporations and those who run it with a sense of freedom and responsibility. Self governance, empowerment, or any other term applicable describes the nature of the new Act. Control of the companys a democratic exercise n decision-making for the management, of the company. A group of individuals is elected by the shareholders of a company to take decisions on their behalf. The head of this group of elected members is given the position ‘of Chairperson and the others are known as Directors. From their election until their vacation from their positions the group is governed by the rules stated in the Articles of Association, ‘which are in accordance with the stipulations in the company’s law: This class of people is known as Board of Directors. ‘The Board is the head of the company. It decides all the activities of the company and they bear primary responsibility for their actions before the law. As a part of governing the ‘company they appoint all the officers of the company such as Chief Executive Officer (CEO), Chief Finance Officer (CFO), and Chief Operations Officer (COO) as may be required for the working of the company. These officers are called Senior Managers in management jargon. ‘Then, there are other executives of the company who carry on the tasks their seniors may assign them; and, finally, there are employees who actually perform the task. The bigger the company, the longer isthe line of command from the board to the last employee, The art of management lcs in the effective decision-making of the board and the efficiency of governance. ‘Today, the control of the companies has evolved and is now commonly referred as Corporate Governance, Ia the past, the experience has not been a good one in controlling the actions of the companies. Asa result, there have been economy-crippling financial scams where banks, stock brokers, and other financial institutions caused irrepairable damage to the investors. The values of corporate governance consist of ethical action towards all the stakeholders. The Companies Act, 2013: The Control and Governance ofa Company 325. eis to understand and balance the interests of all the parties. The stakeholders consist of shareholders, board of directors, management, customers, suppliers, financiers, government, and the whole society. Corporate governance, therefore, is not only a scientific system of control but also a conscientious action that i just and fair to all the stakeholders. Board of Directors “Board of Directors“ or “Boar inrelation to. company, means the collective bodyofthedirectors ofthe company. ~Sec. 2(10),The Companies Act, 2013 Every company shallhavea Board of Directors consisting ofindvidualsasdirectorsandshallhave— (@/Aminimum numberof thre dectorsin the case of public company, tw decors inthe case ‘ofa private company, and one diector in the case of One Persan Company; and (@)Amaximum offen decors: Provided that acompany mayappointmorethan teen dectrs ‘after passing a special resolution: Provided further that such las or classes of companies as may ‘be prescribed, shall have atleast one woman director. ~ Sec. 149,The Companies Act, 2013 ‘Through the realization of the Memorandum of Association and the Articles of Association, a legal entity comes into existence as provided and approved by the lave. The members of the Board of Directors are mere agents of this legal (artificial) person who work on the behalf of the company and representall ts members, They may be elected one day and may be dismissed ‘on another day. The new Companies Act, 2013, has a special intention to make the company as democratic as possible so that it exists and functions in the society as a.good citizen. Number of directors: + Private company: 2 + Public company: 3 + One-Person Company: 1 + Maximum number: 15 + Among them, at least one woman director Functions: + Conduct board meetings *+ Constitution of committees such as audit, finance, and personnel * Conduct AGM + Take decisions in all matters of administration and management of the company Board Meeting ‘The Board of Directors has become modern as communication has advanced. The meetings can be conveniently organised through audio-visual means of telecommunications such as video conferencing, The following are the essential features of board meetings: + First board meeting within 30 days + Four board meetings every year by each company 16 Legal Aspects of Business + Gap between two meetings—not more 120 days + Board meeting through video conferencing or audio visual means + Minimum 7 days’ notice * Quorum—higher of 1/3 or 2 Powers of the Board Section 149 of the Act empowers the Board of Directors to the following powers: + All resolutions to be taken at Board Meetings + Approve Financial Statement and Board Report + Decision on diversification of Business *+ Approving amalgamation, merger, or reconstruction + Decision on takeover or acquisition in another company + Issue of securities + Decision to contribute for political ends + Filla casual vacancy in the Board + Decision to enter into a joint venture or technical or financial collaboration or any col- laboration agreement + Decision to commrence a new business + Decision to shift the location of a plant or factory or the registered office ‘+ Appoint or remove key managerial personnel (KMP) and senior management personnel ‘one level below the KMP + Appoint internal auditors + Adoption of common seal + Take note of the disclosure of director's interest and shareholding Powers under Section 179: + To sell investments held by the company (other than trade investments), constituting five percent or more of the paid-up share capital and free reserves of the investee company + To accept public deposits and related matters + To approve quarterly, half-yearly, and annual financial statements Disclosures (®) Filing annual returns: Under Section 92of the Act, companies ate required to prepare an annual return containing the particulars ofthe entre financial year relating to all the business activites, particulars of holdings, subsidiaries, and associate companies; also, details of promoters, directors, ‘key management personne, allits committee reports, and details of meetings of board, Attendance details, all legal matters including legal proceedings and penalties. (Gi) Report to shareholders: ection 134 (3) mandates in addition to the board reports tobe given to shareholders. These consist of an extract ofthe annual returns [Sec. 92 (3)]; meetings of the board directors’ responsibility statement; declaration of the independent directors; company’s policy on appointment ofthe directors, their remuneration (Sec. (49(6)], including criteria for qualifications, comments, adverse remarks; loans, guarantees, and investments (Sec. 186), related party transactions, state of company affairs; reserves; dividends to be paid, material TEXT ee TEXT TEXT The Companies Act, 2013: The Control and Governance ofa Company 327° changes in the financial position; foreign exchange; policy on risk management; corporate social responsibility; formal evaluation on the performance of the board. Director “Director* means a director appointed tothe Board ofa company. ~Sec.2(34), The Companies Act, 2013 Appointment: ‘Where no provision is made inthe articles ofa company for the appointment ofthe fst director, the subscribers tothe memorandum who are individuals shal be deemed tobe te fist alirectors ‘of the company until the arectors are duly pointed and in case ofa One Person Company, an ‘individual being member shal be deemed tobe its first director until the director or directors are duly appointed by the member in accordance with the provisions of tis section. ~ Sec. 152(1),The Companies Act, 2013 ‘The director is appointed or is an elected member of the board of directors of a company; heis one of the decision-makers for the company. He need not be an employee, such as full- time director of the company or a shareholder. He is, however, duty-bound to be present for the board meetings and vote without proxy. The director is part of the collective decision- ‘making process of the company. Although the subscribers to MOA and AOA are directors but only until they are ratified in the Annual General Meeting by a special resolution. The director has to be voted individually. For private companies, consent shall be obtained from ROG. Approval of the Central Government is required if itis not according to Schedule V. ‘One-person Company director will be deemed to be the director from the incorporation of the company itself: The tenure of the fulltime director is only for 5 years. Any default in these matters of appointment will attract punishment or imprisonment up to 6 months and fine, %500 a day for the period in which the default continues. Duties of a Director ‘Subjectto the provisions ofthis Act adirectorofacompany shal actin accordancewiththeartices ‘of the company. ~ Sec. 166. (1),The Companies Act, 2013 Section 166 (2-7) lays down the duties as follows: + Tact in good faith to promote the objects of the company + To act diligently and to exercise independent judgement. + Not to involve in any conflict of interest with the company + Not to gain undue for oneself or for one's relatives or partners or associates + Not to assign his office *+ Any contravention to duty will attract penal procedure and punishable with fine not less than @1 lakh extending to %5 lakh 328 Legal Aspects of Business Disqualification of the Director Section 164 (1) lays down the following disqualifications for a director: + Unsound of mind and stands so declared by court + Undischarged insolvent; or pending application for insolvency * Conviction by court for any offence and sentenced to penal punishment until its expiry; serving sentence for more than 7 years disqualifies completely | Mlustration A directoris the most important person because he is part of every decision that the company takes and bears legal responsibilty for the actions of the company. To understand the role of a director, we may illustrate it as follows: Asagent of the company Figure 11.2 Role of Director Table 11.1 Kinds of Directors Interested director | Section 2(49tnteresteddirector'means a director | Under Section 184s not supposed ‘whos in any way, whether by himselfor through | to vote or participate in business any of his elatves or firm, body corporate, or meeting. | ‘other association of individuasin which he or any of is relatives is a partner, director, ora member, Interested in a contractor arrangement, or proposed Contract or arrangement, entered into orto be entered into by or on behalf of a company. ail The Companies Act, 2013: The Controland Govemance ofa Company 329° Designation Definition, Role Nominee director | Section? 496}: An independent directorin relation | Heisanindependent dlrector who to company, means director other than a hhasno interest the company by managing director ora fulltime director or way of managing director any officer nominee directo ofthe company, or shares etc Managing director Section. 2(54)‘Managing director meansa director wha, | The AOA endaws upon the byvirtue ofthe artides ofa company oran areement | managing director high powers with the companyora resolution passedinitsgeneral | in the management and ‘meeting or byits Board ofDirectorsisentusted with | administration ofthe company. substantial powers of management ofthe afar ofthe ‘company andinludes a dector occupying thepstion ‘of managing director by whatevername called. q | Small shareholder Section 151: Alisted company may have one ‘Asal shareholder isone who is, director director elected by such small shareholdersin sucha | holding shares of nominal value ‘manner and with such terms and conditions asmay_ | of not more than £20,000 or such t beprescribed, ‘other sum as may be prescribed. Fulltime director | Section 94 includes a drector inthe full-time 3 employment ofthe company. officer Section 259) Ofcer'incudes any director manager or | Itisa general name to any of the WP or any personin accordance with whose directions | directors or managers to signify ‘orinstructions the Board of Diectorsorany one or | that they are authorised persons to mare of theditectorss orare accustomed to act. Fepresent the company. Resident director | Section 149 (3]:Every company shall have at east | Every company would be required " ‘one director who has stayed in India fora total ‘tohaveat least one director who has period of not less than 182 days in the previous _| stayed inindiafor net less than 182 calendar year.

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