PUNE CHAPTER OF WIRC OF ICSI

34TH WORKSHOP ON CRITICAL ISSUES IN CORPORATE LAWS, 2024

Venue: The Grand Legacy (TGL) Resort, Metgutad Village, Mahabaleshwar.

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In this document “the Act” means Companies Act 2013 unless otherwise mentioned and “the
LODR Regulations” means the SEBI (Listing Obligations and Disclosure Requirements)
Regulations 2015
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Definition of ‘Control’
1. What are the essential ingredients of the definition of „control‟ in section 2(27)? This definition
contemplates de jure control only or even de facto control? Does this definition apply in respect
of all the sections of the Act where the word „control‟ is used?

Definition of Free Reserves

2. Section 2 (43) proviso (ii) – whether reserve created for an amount emerged due to change in
depreciation method leading to change in carrying amount of assets, is not a free reserve? Such
reserve is not emerged on account of adjustment of value of asset by applying fair value method
but because of change in depreciation method?

3. Realised gain made by the Company on settlement of debts at less amount than book value as per
NCLT order by successful insolvency resolution process is transferred to capital reserve instead
of offering to revenue. Whether such reserve is free reserve or not? If free reserve, then can it be
available for issue of bonus shares?

Memorandum of Association
4. In compliance with the provision of the Companies Act 1956, Objects clause of the
Memorandum of Association (“MOA”) is divided into below 3 parts.
A. Main Object of the Company to be pursued by the Company on its Incorporation.
B. Object Incidental or Ancillary to the attainment of the Main Object of the Company
C. Other Objects

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 As per Section 4(1)(c) of the Companies Act 2013, the Memorandum of a company shall state
the objects for which the company is proposed to be incorporated and any matter considered
necessary in furtherance thereof.

Queries:
(a) Whether it would be wrong to interpret that the use of the words “proposed to be
incorporated” mentioned in section 4(1)(c) of the Act indicates that only companies
incorporated after the commencement of Companies Act, 2013 are required to categories
their object clauses as per the Act?
(b) Whether subsection (6) of section 4 of the Act should be interpreted independent of section
4(1)(c) of the Act for determining the applicability of the new formats of MOA under Table
1 of Act to company incorporated under the previous company law?
(c) Whether reference to company use in section 4(6) is intended to apply the new formats of the
Table 1 to companies incorporated under the previous company law?
(d) What would be the legislative intent in not expressly clarifying in section 4 of the Companies
Act, 2013 (as other provided in the case of Section 5(9) of the Companies Act, 2013) as to
non-applicable to memorandum of association of a company incorporated under any
previous company law?
(e) Whether the Act or the Regulatory has anywhere clarified or inferred about the non-
applicability of aligning / adopting new formats of MOA to companies incorporated under
any previous company law?
(f) Whether MOA of a company incorporated under Companies Act, 1956 which is limited by
shares, is required to be in Table A of the Act?

Transfer of Shares

5. Can a private company include in its articles of association a provision mandating a

shareholder to transfer shares in certain circumstances to a person nominated by the Board of
Directors?

6. The articles of association of a private company contain the following regulation:

"Company's power of transfer- The company may at any time by special resolution resolve
that any holder of ordinary shares do transfer his ordinary shares. Such member would
thereupon be deemed to have served the company with a sale notice in respect of his ordinary
shares in accordance with article 58 hereof, and all the ancillary and consequential provisions
of these articles shall apply with respect to the completion of the sale of the said shares.
Notice in writing of such resolution shall be given to the member affected thereby. For the
purpose of this article any person entitled to transfer an ordinary share under article 69 hereof
shall be deemed the holder of such share."

Is this regulation valid and enforceable?

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Issue of shares by private placement

7. The management of XYZ Pvt Ltd intends to undertake preferential allotment of shares to its
agents-cum-customers (around 250 persons) and in this regard, circulate an information
memorandum among its network of agents and corporate customers for investment in the
Company‟s equity shares and convertible debentures. Which provisions of the Act and Rules the
Company should comply with?

8. Comfort Advisors Pvt Ltd had paid up capital of Rs. 4 crores and free reserves of Rs. 6 crores as
on 31st March 2023. It wants to do private placement of non-convertible debentures aggregating
to Rs. 5 crores. Whether Comfort Advisors Pvt Ltd can take a view that the amount to be raised
through issue of non-convertible debentures does not exceed section 180 limits and hence no
need to pass special resolution under section 42 for making this issue and pass only board
resolution under section 179(3)(c)?

9. First-go Logistics Pvt Ltd is doing a private placement of equity shares and has passed a special
resolution under section 42 on 5 January 2024 and thereafter on 8 January 2024, it passed a board
resolution under section 179(3)(c) for making issue of equity shares to the proposed offerees. For
compliance of Rule 14(8) of the Companies (Prospectus and Allotment of Shares) Rules, 2014,
the Company is filing the special resolution passed on 5 January 2024 with ROC in e-form
MGT-14 before circulating the offer letter in PAS-4 format to the offerees. Is the Company
required to file the Board resolution passed on 8 January 2024 also with ROC in e-form MGT-14
for compliance of the above-mentioned Rule 14(8)?

Demat

10. Sucheta Finance Pvt Ltd., which is a private limited company as per its Articles of Association, is
a wholly owned subsidiary of Dream-more Finance Ltd., an unlisted public company. At present,
the equity shares of Sucheta Finance Pvt Ltd are in physical mode. Sucheta Finance Pvt Ltd is
proposing to issue non-convertible debentures.
Questions:
(a) Is it mandatory that the non-convertible debentures be issued in demat mode?
(b) Is it mandatory that the equity shares of Sucheta Finance Pvt Ltd held by its holding company
(which is also the promoter company) be converted into demat mode before making the issue
of non-convertible debentures?

Preference shares
11. Terms and conditions of the 8% Compulsorily Convertible Cumulative Preference Shares
(CCPS) issued by a company provide that “Every member holding 8% CCPS shall have a right
to vote only on resolutions placed before the Company which directly affect the rights attached to
his / its preference shares and any resolution for the winding up of the Company or for the
repayment or reduction of his / its equity or preference share capital and his / its voting right on a
poll shall be in proportion to his / its share in the paid up preference share capital of the
Company. Every member holding 8% CCPS shall have no voting rights otherwise than stated
above, regardless of arrears of dividend payable.
Are these terms in accordance with the provisions of the Companies Act?
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12. A Ltd has issued preference share capital of 10% 1,20,000 shares of Rs 10 each, besides equity
share capital of Rs 10 lakhs consisting of 1,00,000 shares of Rs. 10 each. The Company has not
paid dividend on the preference shares for the preceding two financial years. The preference
shareholders claim that they have acquired voting rights on their shares, while the company
claims that they are not entitled to the voting rights since no dividend was declared due to
absence of profit. Which of the two claims is valid in law?

13. A Ltd has cumulative preference shares which carry 8% dividend. These shares were allotted in
2021. The terms of issue of the shares provide accordingly. The company did not pay dividend
for the financial year 21-22 due to loss. During the FY 22-23 the company made some profit and
it intends to pay part of the arrears of dividend on the preference shares at the rate of 4% as
against 8%. Is this in compliance with the relevant provisions of the Act and the terms of issue of
the preference shares?

14.The second proviso to subsection (2) of section 47 states that “where the dividend in respect of a
class of preference shares has not been paid for a period of two years or more, such class of
preference shareholders shall have a right to vote on all the resolutions placed before the
company.” Two questions arise in connection with this proviso:
 first, when does the period of two years start;
 second, what is the correct interpretation of “all the resolutions placed before the company.”

15. X Pvt Ltd proposes to issue Cumulative Redeemable Preference Shares and one
of the terms of issue seeks to provide as follows:
“The holders of the RPS are not entitled to vote or be deemed holders of equity Shares for any
purpose and such holders of shall, in respect of such capital, have a right to vote only on
resolutions placed before the Company which directly affect the rights attached to his
preference shares and, any resolution for the winding up of the Company or for the repayment
or reduction of its equity or preference share capital and his voting right on a poll shall be in
proportion to his share in the paid-up preference share capital of the Company.
If the dividend RPS has not been paid for any period, the RPS holders shall not have a right to
vote on all the resolutions placed before the company.”
Is this in conformity with the provisions of the Act? [Ref: sections 43 and 47 of the Act]

16.Section 55 (2) second proviso, clause (d) states different treatment for provision of premium on
redemption. It could be out of profits only in case of class companies to whom provisions of
section 133 applies (Accounting Standards) and for other class of companies it could be out of
securities premium account?

Does this mean that companies to whom AS are not applicable are allowed to utilize securities
premium account for payment of premium on redemption and for class of companies to whom
AS is applicable are restricted to use securities premium account for payment of premium on
redemption of preference shares?

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Section 67

17. If A Pvt Ltd proposes to invest money in the Preference Shares to be issued by B Pvt ltd and
subscribed for by A Pvt Ltd, and pay for the preference shares to B, which B would use to
purchase equity shares of A from corporate as well as individual shareholders.

Further, notification dated 5th June 2015 states as under

“Section 67 of the Act shall not apply to private companies-
(a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such a company from banks or financial institutions or any body
corporate is less than twice its paid-up share capital or fifty crore rupees, whichever is lower;
and
(c) such a company is not in default in repayment of such borrowings subsisting at the time of
making transactions under this section”
Queries
Whether financial assistance (by way of RPS) provided by A to B for purchase of its own shares
(where one of the shareholders is a body corporate) would attract provision of section 67 of the
Act?

18. The Exemption Notification mentioned above is relevant and applicable in respect of subsection
(1) of section 67 as well, subject to compliance with the conditions stipulated in the Notification
and, consequently, a private company limited by shares or by guarantee and having a share
capital shall have power to buy its own shares without the consequent reduction of share capital
being effected under section 66 of the Act and such a private company need not comply with
section 68 and the Rules made thereunder [Rule 17 of Companies (Share Capital and
Debentures) Rules, 2014] when it wants to purchase its own shares in view of the exemption
under 462.
Is this interpretation correct?

Debentures

19.
(a) In the following cases, which provisions of the Companies Act and Rules are attracted?
 Conversion of Non-Convertible Debentures (NCD) into Optionally Convertible
Debentures (OCD)?
 Conversion of NCD into Compulsorily Convertible Debentures (CCD)?
 Conversion of OCD/CCD into NCD?

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 (b) Can OCD/CCDs be issued on right basis to the existing shareholder without following
provisions of Section 42 and Section 62 of the Companies Act, i.e. dealing with preferential
issue / private placement?

Capital Redemption Reserve

20.According to clause (c) of the second proviso to subsection (2) of section 55, where redeemable
preference shares are proposed to be redeemed out of the profits of the company, there shall, out
of such profits, be transferred, a sum equal to the nominal amount of the shares to be redeemed,
to a reserve, to be called the Capital Redemption Reserve Account, and the provisions of this Act
relating to reduction of share capital of a company shall, except as provided in this section, apply
as if the Capital Redemption Reserve Account were paid-up share capital of the company.

Thus, in the case of redemption out of the profits, the company will have to create a Capital
Redemption Reserve Account and credit it with the sum equivalent to the face value of the
preference shares redeemed. Suppose a company has redeemable preference shares of Rs 10,000
consisting of 1,000 shares of Rs 10 each. The company's balance sheet will show this amount
under Share Capital. If the company redeems these shares at face value, this amount will get
eliminated from Share Capital and it will appear as Capital Redemption Reserve Account under
Reserves & Surplus. Now, if this company redeems the redeemable preference shares at a
discounted value of Rs. 500, then creation of CRR to the extent of nominal value of redeemable
preference shares is mandatory?

21. The Capital Clause of the Company is as follows:

“The authorised Share Capital of the Company is Rs.20,62,00,000 (Rupees Twenty crore sixty
two Lakhs only) divided into 86,20,000 (Eighty six Lakhs and Twenty Thousand) Equity
Shares of Rs.10 (Rupees Ten) each and 1,20,00,000 (One Crore Twenty Lakhs) Preference
shares of Rs.10 each with such rights, privileges and conditions attached thereto as may from
time to time be conferred by the Regulations of the Company, with power to increase and
decrease the capital of the Company and to divide the shares in the capital for the time being
into several classes and to attach thereto respectively such preferential, deferred, qualified or
special rights, privileges or conditions as may be determined by or in accordance with the
Regulations of the Company and to vary modify or abrogate any such rights, privileges or
conditions in such manner for the time being be provided by the Regulations of the Company.”

Queries:
a. Whether Company „A‟ can alter its capital clause to include a different class of
preference share capital and issue such different class of shares to a new shareholder i.e.
its another group company?
b. If the answer to above question is Yes, can Company A continue to pay dividend to
existing individual preference shareholder as per the coupon rate of 2% and refrain from
paying dividend to the new shareholder holding another class of preference shares and
also to its equity shareholders?

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 c. Since this is a Private Company can the Company issue new preference shares by
complying with the requirements of Section 55 of the Companies Act, 2013 and allied
rules only, without requiring to comply general provisions of issue of securities under
the Act?

Variation of Rights [Section 48]

22. XYZ Ltd had issued and allotted the 28,00,000, 5% Non-Convertible Non-Cumulative
Redeemable Preference Shares of Rs 100 each in May 2005. The Company now desires to
vary the rights of preference shares holders as under
Particulars Existing terms of Proposed terms of issue giving
Sr issue giving rights to rights to preference share
No preference share holders
holders
1 Coupon Rate 5% 0%
2 Dividend- Cumulative non-Cumulative non-Cumulative
or non-Cumulative
3 Convertibility Non-Convertible Compulsorily Convertible
4 Redemption period 20 years 20 years or as may be decided by
/period of conversion Board of Directors
5 Price at redemption Not Provided
6 Ratio on conversion Not Applicable One Equity share of Rs 10 each
for ten 5% Preference Shares
(Shares after sub-division ratio
proposed above)

Query:
Can all proposed terms of variation of right be varied under section 48 of Act of 2013?

Share Capital

23. The Board of X Pvt Ltd passed a resolution for rights issue of Rs. 100 lakhs and at the same
meeting also passed a resolution to increase the authorised share capital to cover the share capital
due to the rights issue, subject to approval of shareholders at a general meeting. After the
resolution was passed at the general meeting, the Board issued offer letter and thereafter allotted
the shares. Is it correct to pass resolution for right issue when authorised capital was not
sufficient at the time of passing said resolution?

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Section 62
24. Company A has given a loan to Company B. There is no term in the loan agreement giving
option to Company A to get the loan converted into shares and no such term was approved by the
members of Company B by a special resolution. Company B is wholly-owned subsidiary of
Company A. It is proposed that Company B will make a rights issue of shares and the
outstanding loan amount will be converted into shares. Is this in compliance with section 62?

Bonus Shares

25. Whether a company can-

(a) Issue bonus preference shares.
(b) Issue bonus debentures.
(c) Make a selective bonus issue, i.e. bonus shares issued to one or some of the members, but not
to all shareholders.

Buy Back

26. Section 68 (1) provides 3 sources form where buy back of securities can be made by the
Company. Clause (c) provides for “proceeds of the issue” and clause (a) and (b) provides for
free reserves and securities premium account
It is understood that source (a) and (b) represents liability side of balance sheet and buy back
could be made by using the amounts available at free reserves and securities premium account.
However there is no clarity as to source (c ) which use the word “proceeds of the issue”. There
appears to be no such entry available at liability side of balance sheet. Upon issue of securities by
the company, proceeds collected are apportioned on allotment and moved to share capital and/ or
securities premium as the case may be.

So, the question is what is contemplated by the “proceeds of the issue”? Is this indicating
proceeds received and shown in the bank account on the assets side of the balance sheet?

So, can there be a situation that if company has issued equity shares at premium and on allotment
proceeds are apportioned to share capital and securities premium account and same is freely
available for calculation of 25% figure for buy back of equity shares but on the other hand
company is not allowed to use proceeds available at bank account in the assets side to make
payment to shareholders against the said buy back?

What is the common factor between clause (a) (b) and (c)?

Or can a view be taken that proceeds of the issue term indicates share application money pending
allotment at liability side and same can‟t be used?

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Significant Beneficial Owner - S. 90

27. In Spectrum Paints Pvt Ltd, 95% shares are held by Evershine Trust, a discretionary trust. The
trustee of Evershine Trust is Diligent Trustees Pvt Ltd. In Diligent Trustees Pvt Ltd, 51% shares
are held by Mr. Vaidya and 49% shares are held by Mrs. Vaidya. Spectrum Paints Pvt Ltd has
sent BEN-4 to Evershine Trust. Whether Mr. and Mrs. Vaidya need to give BEN-1 to Spectrum
Paints Pvt Ltd OR whether Evershine Trust can reply to Spectrum Paints Pvt Ltd stating there is
no SBO?

28. New Bazaar LLP has four body corporate partners holding 25% contribution each. Three
partners have given LLP BEN-1 and the fourth partner is not in talking terms with the LLP or
any designated partners. Hence New Bazaar LLP has sent BEN-4 to the fourth partner and 30
days are about to expire and no reply is received from the fourth partner. If reply is not received
till the 30th days of sending BEN-4, then what is expected to be done by New Bazaar LLP?

29. New Orient Advisors LLP has two individual partners – Mr. Abhay and Mr. Suraj. They both are
holding partnership in this LLP in their capacity of Karta of their respective HUFs. Whether Mr.
Abhay and Mr. Suraj need to give LLP BEN-1 to this LLP OR do they need to give Form 4A and
Form 4B to this LLP OR both forms?

30. A and B, brothers, are shareholders of X Ltd, each holding less than 10% of the share capital of
the company. they are at loggerheads and not on speaking terms and involved in litigation against
each other. The Company Secretary of X Ltd identified them as SBO and advised them to make a
declaration under section 90, to which both of them objected on the ground that they cannot be
considered „acting together or in concert‟ under section 90 and the Rules made thereunder. What
should the Company Secretary do in this scenario?

31. SAV India Private Limited is a private company incorporated under the Companies Act, 1956.
The Company‟s Board consists of three non-executive directors and six executive directors.
92.05% of the voting shares of the company are held by SAV Inc, USA and it is the holding
company of SAVH Inc, USA. SAVH Inc usually chooses persons for appointment as directors of
SAV India and recommends them to SAV Inc. The Board of SAV India takes decisions at board
meetings with affirmative vote of at least one Non-Executive Director nominated by SAV Inc.
As per Rule 2(h)(iv) of the Companies (Significant Beneficial Owners) Rules, 2018, „Significant
beneficial Owner‟ in relation to a reporting company means an individual referred to in sub
section (1) of section 90, who acting alone or together or through one or more persons or trust,
possesses one or more of the following rights or entitlement in such reporting company, namely,
inter alia, has right to exercise, or actually exercises, significant influence or control, in any
manner other than through direct holdings alone.

Queries:
(i) Whether members of SAVH Inc will have to make a declaration under SBO regulations
though they only have a recommendatory role?
(ii) Whether non-executive directors have to make declaration under SBO regulations keeping in
view the fact that they have affirmative rights to vote on resolutions of Board?

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Dividend

32. A Ltd proposes to pay an interim dividend from the surplus (accumulated profits of prior years)
in the financial year 23-24. It has a loss up to sixth month of the current financial year. The
Company has 8% preference shares and no dividend has been paid on these shares for the
previous financial year. The Company is confident that it would make sufficient profit to pay
dividend on the preference shares for the financial year 23-24. Can the Company pay the interim
dividend as proposed.

33. Terms and conditions of the 8% Compulsorily Convertible Cumulative Preference Shares
(CCPS) issued by a company include the following:
(a) Capital represented by 8% CCPS shall be Compulsorily converted into such equity shares of
Rs. 100/- each fully paid up, at the applicable fair market value of the equity shares
(determined by an independent valuer and in accordance with provisions of the Act and Rules
and Regulations as may be applicable), on the date of conversion of the 8% CCPS.
(b) In calculating the number of equity shares due on conversion, the company shall factor the
Unpaid dividends on the date of conversion as additional capital of the CCPS shareholder.
Is this valid?
34. Whether interim dividend can be paid to preference shareholders?

Section 135- CSR

35. ABC Pvt. Ltd. („ABC‟), was incorporated in the month of June 2020. The net profits of the
company for the past periods are given below:
Amount in INR)
Particulars 2023-24 2022-23 2021-22 2020-21
(estimate) (first year)
Total Net profit before 200 116 9998 267
tax
Average Profit for last 3 3460 5132 267 NA
years
CSR obligation @2% on 69 103 5 -
above

As depicted in the above table, ABC earned a high profit in Financial Year („FY‟) 2021-22. The
profits for FY 2022-23 are much lower. The same trend of significant lower profitability is likely
to continue during the current FY 2023-24 and FY 2024-25.

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 Questions:
(i) Can ABC Pvt. Ltd. determine its CSR obligation for FY 2023-24 and FY 2024-25 based on
the respective financial years‟ profits (for example say INR 200 for FY 2023-24), instead of
average profits for last three years in terms of provisions of the Companies Act, 2013?
(ii) Can any alternate interpretation be possible to section 135(5) of the Companies Act, 2013
based on the profitability trends of the company?

36. GGL is engaged in business of City Gas Distribution and is supplying gas to various segments of
customers, i.e. residential, commercial and industrial as well as supplying CNG for vehicles.
GGL, as a part of its CSR initiatives, has been supplying free gas to various crematoriums in the
state of Gujarat and claim the amount towards gas supply to crematoriums as CSR expenditure.
For the financial year 2022-23, GGL is required to spend the amount towards CSR as per
provisions of the Companies Act, 2013 and one of the CSR expenditures is supply of Free gas to
various crematoriums in the state of Gujrat. There is no specific permission or prohibition with
respect to possibility of CSR expenditure in kind in the Act and CSR Rules. However, in the
revised FAQ vide General Circular No. 14/2021 dated 25th August, 2021, MCA has expressed its
view as under:

3.12 Whether contribution in The requirement comes from Section 135 (5)
kind can be monetized that states that “The Board of every company
to be shown as CSR shall ensure that it spends…” Therefore, CSR
expenditure? contribution cannot be in kind.

Queries:
(a) Can clarification issued by way of Frequently Asked Questions (FAQ), supersede main
provisions of the Companies Act, 2013? Is it valid and legally enforceable?
(b) Can GGL continue the free Gas supply to Crematoriums directly and claim it as eligible CSR
Expenditure in view of MCA‟s FAQ issued vide General Circular No. 14/2021 dated 25th
August, 2021?

37. ABC Ltd has apprentices working in its manufacturing sites and also in R & D facility. The
apprentices are Trade Apprentices as well as Graduate Trainee Engineers. The number of
apprentices is more than the number of apprentices which are mandatorily required to be engaged
as per the Apprentices Act, 1961. ABC has come across an office Memorandum issued by the
Ministry of Corporate dated 24 May 2022 and also an extract of Minutes of Meeting dated 12
December 2016 which states: “If companies are spending funds for payment of stipend to the
apprentices, or for any other activities involving 'employment enhancing vocation skill', over and
above the mandatory requirements under the Apprentices Act or any other statutory obligations
as the case may be, such spending may be met from the available CSR funds.”

Questions:

a. Whether the stipend paid for apprentices over and above the mandatory requirement could be
claimed as an expenditure incurred under the Corporate Social Responsibility?

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 b. If yes, whether ABC Limited should claim the CSR expenditure in respect of only such
apprentices who have completed 12 months of apprenticeship training or in respect of all the
apprentices during the particular financial year?

38. Are sections 135 and 181 in juxtaposition? Should a company seek approval of shareholders
under Section 181, if its CSR contribution exceeds 5% of the average net profit for the three
immediately preceding financial years?

39. As per the erstwhile General Circular No. 21/2014 dated 18th June, 2014, it was clarified that
CSR activities should be undertaken by the companies in project/ programme mode and one-off
events such as marathons/ awards/ charitable contribution/ advertisement/ sponsorships of TV
Programmes etc. would not be qualified as part of CSR expenditure. However, as per the revised
FAQs on CSR issued by General Circular No. 14 /2021 dated 25th August, 2021, instead of a
clear prohibition, it is mentioned that the intention of CSR is encourage companies to undertake
the activities in a project or programme mode rather than as a one-off event. Accordingly, can a
company undertake one-off events such as marathons / charitable contributions promoting the
activities mentioned in Schedule VII under its CSR Action Plan?

Books of Accounts

40. Techno Advisors Pvt Ltd has registered office at Gujarat. It wants to maintain the books of
accounts on a cloud server and wants to keep back-up of the books of accounts on daily basis at
its corporate office at Mumbai, where its Finance team sits. Whether Techno Advisors Pvt Ltd
needs to file e-Form AOC-5 for doing this?

Subsidiary

41. New Age Communications Pvt Ltd is a partner in Dreamland Ventures LLP holding 95%
contribution. There is one individual Mr. Aakash holding 5% contribution. As per the LLP
Agreement of Dreamland Ventures LLP, all decisions shall be taken by New Age
Communications Pvt Ltd. Whether Dreamland Ventures LLP will be considered as subsidiary of
New Age Communication Pvt. Ltd. Whether Dreamland Ventures LLP will be considered as a
subsidiary of New Age Communications Pvt Ltd for the purpose of consolidation of accounts by
New Age Communications Pvt Ltd?

Appointment and Retirement of Directors

42. If a director who is liable to retire by rotation has not furnished Form DIR-8 and other annual
disclosure forms as required under the Act, can he be deemed to have not offered himself for re-
appointment?

43. Under the Act, where a director who is liable to retire by rotation and has offered himself for re-
appointment, is it mandatory for his re-appointment to be placed before the shareholders for their
approval?

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44. Assuming the answer to the above question is in the negative, can the Board place a resolution
before the shareholders for non-reappointment of the director retiring by rotation and to not fill
the vacancy caused by his retirement from the Board?
Alternatively, can the Board merely place a resolution before the shareholders to not fill the
vacancy caused by his retirement from the Board without dealing with appointment or non-
reappointment of the retiring director?

45. Under the Act, is it permissible for the Board to include an explanatory statement in the notice of
its AGM in respect of re-appointment of a director retiring by rotation which is an item of
ordinary business, recommending that such director should not be reappointed due to the grounds
as may be set out in such notice? Is the Board required to disclose this information in the Board‟s
report required pursuant to Section 134 of the Act?

46. Assuming the answer to the above question is yes and the shareholders vote against the item of
ordinary business to re-appoint the director retiring by rotation, are the shareholders required to
pass a separate resolution to not fill the vacancy arising due to such non-reappointment under
Section 152(7)(a) of the Act? If yes, how can such resolution or action be included in the notice
or placed before the shareholders such that the AGM is not adjourned as per the provisions of
Section 152(7)(a) of the Act?

47. What would be the consequence if a resolution to not reappoint a director and to not fill the
vacancy caused due to his retirement is defeated by the shareholders? Would the director be
considered to have been reappointed? Would the provisions of section 152(7) apply in such a
situation?

48. If, after the AGM notice has been issued by the Company, Mr. D insists that he is eligible and
wants to be re-appointed, is the Company required to include the resolution for his re-
appointment before the shareholders?

49. Alternatively, if Mr. D issues a notice under Section 160 of the Companies Act, fourteen days
prior to the AGM along with a deposit of Rs.1,00,00, proposing his candidature for appointment
as a director of the Company, is the Company required to place the resolution for his re-
appointment before the shareholders at the said AGM?

50. Are provisions of section 196(3) applicable to a private company? If yes, is compliance
thereunder necessary in the case of a person (who is above 70) if he is designated as a permanent
director in the articles of association of the company?

51. What is the effect of sub-regulation (1D) inserted in Regulation 17 by SEBI in LODR
Regulations on 14.6.23, which reads as follows:

“(1D) With effect from April 1, 2024, the continuation of a director serving on the board of
directors of a listed entity shall be subject to the approval by the shareholders in a general
meeting at least once in every five years from the date of their appointment or reappointment,
as the case may be:
Provided that the continuation of the director serving on the board of directors of a listed
entity as on March 31, 2024, without the approval of the shareholders for the last five years or
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 more shall be subject to the approval of shareholders in the first general meeting to be held
after March 31, 2024:
Provided further that the requirement specified in this regulation shall not be applicable to
the Whole-Time Director, Managing Director, Manager, Independent Director or a Director
retiring as per the sub-section (6) of section 152 of the Companies Act, 2013, if the approval of
the shareholders for the reappointment or continuation of the aforesaid directors or Manager is
otherwise provided for by the provisions of these regulations or the Companies Act, 2013 and
has been complied with:
Provided further that the requirement specified in this regulation shall not be applicable to
the director appointed pursuant to the order of a Court or a Tribunal or to a nominee director of
the Government on the board of a listed entity, other than a public sector company, or to a
nominee director of a financial sector regulator on the board of a listed entity:
Provided further that the requirement specified in this regulation shall not be applicable to a
director nominated by a financial institution registered with or regulated by the Reserve Bank
of India under a lending arrangement in its normal course of business or nominated by a
Debenture Trustee registered with the Board under a subscription agreement for the debentures
issued by the listed entity.
Independent Director

52. ABC Ltd was converted from private to public w.e.f 29/05/2023. The authorized capital of the
Company is Rs 15 Crores and paid-up capital is around Rs 13.80 Crores. Turnover 23cr. XYZ,
Company Secretaries, (Partnership Firm) has been providing secretarial services to the ABC Ltd
since its inception and certifying all the e-forms. Secretarial Audit is not applicable to the
Company and the fees received by XYZ from the Company is not exceeding 10% of total income
of XYZ. None of the partners has any pecuniary relation with the Company except the
professional fees for providing CS Services. Can one of the partners of XYZ, who has 60% share
in XYZ be appointed as an Independent Director of ABC in terms of section 149 of the Act?

Disqualification of Director

53. Mr Hemant is the managing director and key managerial personnel of ABC Ltd. By an order of
the Court of the Special Judge, Central Bureau of Investigation cases, Jaipur, Rajasthan found
Hemant guilty of offences under Section 120B of the Indian Penal Code and Section 13(1)(d)(ii)
of the Prevention of Corruption Act 1988. Consequently, Hemant was sentenced to rigorous
imprisonment of 3 years and a fine of Rs. 30,000. Hemant preferred an appeal against the Order
before the Hon‟ble Rajasthan High Court within the statutory timelines. An order was passed by
the Hon‟ble Rajasthan High Court suspending the aforesaid sentence against Hemant pronounced
by the Hon‟ble CBI Court. As of date, the appeal is pending hearing and final disposal before the
Hon‟ble Rajasthan High Court.

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 Queries:
a) Is Hemant disqualified under Section 164 of the Companies Act as a director of ABC in light
of the Order?
b) Is ABC obligated to vacate Hemant‟s position as a director in light of the Order?
c) Is ABC obligated to vacate Hemant‟s position as a managing director in light of the Order?

Section 117, 180, 186

54. The Members of a company at their Annual General Meeting held on June 01, 2022 had
approved, by passing Special Resolution, the proposal to make loans/ invest/ provide guarantees/
security or to acquire by way of subscription, purchase or otherwise securities upto an amount
not exceeding Rs. 3,000 crores and authorised Board/ Committee to exercise the powers
conferred in the resolution. A similar approach is also followed by the Company in relation to
the borrowings made pursuant to Section 180(1)(c). The Board resolutions passed under Section
179(3) and special resolutions passed under Sections 180(1)(c) and 186 have been filed with
ROC MGT-14 as required by Section 117(3). The Company identifies the parties from time to
time and takes actions under Section 180 and 186 by passing specific resolutions in Board/
Committee meetings as delegated by shareholders within the approved limit.

Query:
Is the power to invest the funds of the Company, grant loans or give guarantee or provide
security in respect of loans or to borrow monies including delegation of such powers to any
Committee of the Board, an inherent right of the Board or should the same be delegated by the
shareholders?

a) If the Company had filed resolutions passed by the Board and shareholders setting the
broader limits (i.e. upto Rs. 3000 Cr. u/s 186 and Rs. 1500 Cr. u/s 180(1)(c)) under
respective sections, is the Company required to file with ROC in e-form MGT-14, each
specific decision taken by Board separately within the approved limits?

Disclosure of Interest by Director

55. Mr. S, the elder brother of Mr. A and uncle of Mr. N, was the Chairman of the Board until July 1,
2023.

Queries:
a) Whether Mr. N and Mr. A will be considered as an Interested Directors in a proposal for the
appointment of Mr. A, Non-Executive Vice Chairman as a Non-Executive Chairman of the
Board?
b) Can Mr. N, who is a son of Mr. A, move a proposal for the appointment of Mr A as a Non-
Executive Chairman of the Board? If yes, will it amount to a valid proposal given that he is

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 an interested person in the proposal to appoint his father as Non-Executive Chairman of the
Board?
c) Whether voting of Mr. A and Mr. N will be counted as a valid votes for taking a decision on
the appointment of Mr A as Non -Executive Chairman of the Board?
d) If Mr N and Mr A are found to be interested directors, then for a proposal to appoint Mr A as
a Non-Executive Chairman of the Board, the total size of the Board will reduce from nine to
seven Directors and in that case, the proposal is required to be approved by at least a simple
majority by 4:3 [four votes in favor and three votes against]. Is this correct?

Section 185

56. NAMC Limited (“NAMC”) intends to grant a loan to NT Limited (“NT”). NAMC is the asset
management company for Neo Mutual Funds and a wholly-owned subsidiary of AC Broking
Private Limited, which in turn, is a wholly-owned subsidiary of NT. NT (the borrowing
company) is the ultimate holding company of NAMC. A loan is proposed to be given by NAMC
within the overall cap (under section 179 read with section 180 of the Act that the Board can
authorize. Will this transaction be covered under section 185 of the Act and what are the
corporate authorisations required for the transaction?

Section 186

57. When one company is a subscriber member of the Memorandum of Association of company
limited by guarantee, whether such undertaking (which is a sort of guarantee provided by a
member) requires compliance with section 179 and 186.

58. A Ltd (holding company) and B Ltd (subsidiary company) are mainly engaged in the business of
Manufacturing and dealing in Cement and allied products. The Companies are having their own
captive mining facilities. The Memorandum of Association of both companies contain the
following clause:
“To carry on the business as manufacturers and dealers in Grey Cement, White Portland
Cement, Ordinary Portland Cement and Cement of all kinds and varieties, Concrete, Lime,
Clay, Gypsum and Lime Stone, Sagole, Soap Stone, Repifix Cement and allied products and
by-products.”
A Ltd proposes to give a loan to B Ltd.

Queries:
a) Whether the Companies fall under the category of “Company providing infrastructural
facilities” under section 186(11)(a)?
b) Whether no provision of section 186, except sub-section (1), is applicable to the proposed
loan?
c) Can A Ltd provide loan to any other Company without charging interest as per Section
186(7)?

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59. Health-first Pharma Pvt Ltd has a wholly owned subsidiary - Zeal Pharma Pvt Ltd. Health-first
Pharma Pvt Ltd has paid up capital of Rs. 4 crores and free reserves of Rs. 6 crores as on 31 st
March 2023. In October 2023, Health-first Pharma Pvt Ltd has given a loan of Rs. 7 crores to
Generic Pharma Pvt Ltd and this loan is outstanding as on today‟s date. But Health-first Pharma
Pvt Ltd did not pass special resolution under section 186(3) as it was a loan given to wholly
owned subsidiary. In February 2024, Health-first Pharma Pvt Ltd is proposing to give a loan of
Rs. 2 crores to Lifestyle Developers Pvt Ltd., which is a group company of Health-first Pharma
Pvt Ltd. Whether Health-first Pharma Pvt Ltd needs to pass special resolution under section 186
before giving the proposed loan of Rs. 2 crores to Lifestyle Developers Pvt Ltd?

Related Party Transactions

60. XYZ Limited is a company listed with both BSE and NSE. As per the policy on materiality of
related party transactions of the Company and as decided by Audit Committee, any
upward/downward change in value of a transaction with the related party shall only constitute as
material modification to a transaction. The Company had during the month of December, 2023,
through postal ballot, approved a proposal to enter into a material transaction with related party
under Regulation 23(4) of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (LODR Regulations) which shall be entered at arms-length basis.
Subsequently, due to a change in the terms and conditions of the transaction, the transaction
becomes not at arms‟ length basis. However, the value of the transaction remains same. Should
the company obtain shareholders‟ approval afresh as mentioned under Regulation 23(4) of the
LODR Regulations?

Managerial Remuneration
61. The following questions arise with regard to subsections (9) and (10) of section 197 of the Act:
(i) If the Company has paid excess remuneration to an executive director during the financial
year 2022-23, and the special resolution is defeated by the shareholders for waiver of
recovery of sum in the financial year 2023-24, can the company again go to the shareholder
for passing special resolution in financial year 2024-25, i.e. before the expiry of two years?
(ii) If the answer to question no. 1 is yes, then when the Company takes shareholders‟ approval
in next financial year 2024-25, whether the said director can hold the excess amount in trust
for the Company until then or the director needs to refund the excess amount immediately in
the financial year 2023-24 when the special resolution is defeated?
(iii)Can the Company take shareholders‟ approval for waiver of recovery of sum in EGM or by
way of postal ballot periodically for a period of two years until the special resolution is
passed?
(iv) The period of two years for refund of excess amount is to be calculated from the end of the
financial year or from the end of tenure of the executive director if the said executive director
tenure expires before the end of financial year?

62. Queries regarding remuneration of non-executive directors:

(a) Whether it should be the Special Resolution or Ordinary?
(b) What should be the basis of distribution of remuneration among the Non-Executive Directors
(NED)?

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 (c) Will NED be considered as related parties? if yes, whether we need Audit Committee
Approval over and above NRC, Board and Shareholders,
(d) Whether NEDs or their relatives would be entitled to vote at the meetings of Board and
Shareholders?
(e) Whether payment of commission should be linked to performance parameters?
(f) Since IDs basically deliver performance through participation in the Meetings for which they
get sitting fees paid, whether commission can be in proportion to the participation in the
meetings.
(g) Is there any requirement to comment in the explanatory statement clarifying that these NED
cannot be considered as related parties and therefore they will be eligible to vote and it also
doesn't require Audit Committee Approval.

Producer Company
63. Section 378 O and 378 P provides for the scheme of appointment of directors on the Board of
producer company. The emphasis is on representation of members on the Board by appointing/
electing directors unlike other private companies. Section 378 P (5) use the term “directors of
the Board shall be elected or appointed by the Members in annual general meeting”

Why the specific wording of the Board is used here instead of usual term of “on the Board”. Is
this an effort by the legislators to indicate prominence of Board as a body distinct from its
directors? On the other hand, section 152 does not use such term of “directors of the Board”.

Section 378 P (6) grants power to Board of producer company to co-opt expert directors or
additional directors. This power I believe is to be used by the body known as Board and not by
individual directors.

Now the question here is that if all the elected directors of the Board of producer company ceased
to be directors on completion of their term and there remain only one expert director, then can
such expert director on his own invoke section 174 (2) and co-opt expert/ additional directors and
form quorum? Whether such co-option is valid?

64. Whether section 174 (2) remaining director has only one option to co-opt director to fill up the
vacancy or can he summon general meeting and call for election of directors by the members?

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