Chapter 7: Management and Administration PDF

CHAPTER a 7 MANAGEMENT AND ADMINISTRATION LEARNING OUTCOMES At the end of this Chapter, you will be able to:  Learn about the maintenance of registers and other documents required to be kept by a...

CHAPTER a 7 MANAGEMENT AND ADMINISTRATION LEARNING OUTCOMES At the end of this Chapter, you will be able to:  Learn about the maintenance of registers and other documents required to be kept by a company.  Understand the significance and provisions relating to filing of Annual Return.  Know about pre-requisites of holding meetings for transacting business.  Explicate provisions governing Quorum and appointment of proxies.  Identify the various modes of casting votes.  Know about the ordinary and special resolution.  Elucidate provisions in respect of maintenance of Minutes. © The Institute of Chartered Accountants of India  a 7.2 CORPORATE AND OTHER LAWS  CHAPTER OVERVIEW Registers Companies Annual Return (Management & Administration) Rules, 2014 Pre-requisites of a meeting - Management & Administration Quorum, Chairman, Voting Section 88 - 122 - Companies Act, 2013 Meetings Resolutions Minutes 1. INTRODUCTION Chapter VII Consists of sections 88 to 122 as well as the Companies (Management and Administration) Rules, 2014. A company is an artificial legal entity distinct from its members. The affairs of the company are managed by the members and directors through resolutions passed at the validly held meetings. The day-to-day affairs of the company are managed by the directors who collectively act through Board of Directors. The Board performs its role within the powers granted to it. Certain powers can be exercised by the board on its own and some with the consent of the company at the general meetings. In the capacity as owners of the company, the shareholders ratify the actions of the board at the general meetings. In a way, the general © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.3 a meetings serve as the focal point for the shareholders to converge and give their decisions on the actions taken by the directors. The proceedings of the general meetings are recorded in the ‘minutes book’. On yearly basis, a company is required to hold its Annual General Meeting to transact requisite businesses including adoption of financial statements, appointment/re- appointment of directors and auditors, etc., after the close of the financial year. In between two AGMs, a company may hold extra-ordinary general meetings (EGM) also if there is any need to transact certain urgent business. After the conclusion of AGM, the company is required to prepare Annual Return and file a copy thereof with the jurisdictional Registrar of Companies. Every company is duty- bound to maintain register of members, register of debenture-holders and register of other security holders. Chapter VII of Companies Act, 2013 deals with the provisions relating to management and administration of companies. It covers Sections 88 to 122 and is divided under the following headings– Registers Annual Return Sections 88 - 91 & 95 Sections 92 & 94 Management and Administration Section 88 - 122 of Act read with Companies (Management & Administration) Rules, 2014 Meetings Requisites of Convening a Sections 96 - 102 & 121 Meeting Sections 103 - 120 To initiate, it is imperative that we streamline the understanding of this chapter so as to link it with the essential concepts along with their procedures which can be found in the respective rules, i.e. the Companies (Management and Administration) Rules, 2014 as amended from time to time. © The Institute of Chartered Accountants of India  a 7.4 CORPORATE AND OTHER LAWS Chapter VII applies to all the companies, public and private, and has special provisions applicable to One Person Company (OPC), which are enumerated in section 122 of the Act and are discussed later in this chapter. 2. REGISTERS The provisions relating to maintaining the various registers as per the Companies Act, 2013 are contained in Sections 88 – 91. Along with these provisions, the Companies (Management & Administration) Rules, 2014 are also applicable to the maintenance of registers by a company. Various provisions relating to keeping and maintenance of registers are as follows: - Register of members - Rule 3; Form MGT - 1 - Register of debenture-holders/any other security-holder - Rule 4; Form MGT - 2 - Maintenance of Registers of members etc.- Section 88 - Register of Rule 5 Members, etc. - Index of names of members - Rule 6 - Foreign Register - Rule 7; Form MGT - 3 Section 89 - Rule 9 - Forms MGT-4, Declaration i.r.o. MGT- 5, MGT-6 Registers beneficial interest in any share Section 90 - Register of significant beneficial owners Rule 10 - Procedure for Section 91 - Power to closing the register of members, debenture- close register of holders and other members or debenture security holders holders or other security holders REGISTER OF MEMBERS, ETC. [SECTION 88] Section 88 (1) of the Companies Act, 2013 requires that every company shall keep and maintain the following registers: © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.5 a (i) Register of Members (holding of each class of equity and preference shares of each member residing in or outside India shall be shown separately in the register) (ii) Register of Debenture-holders (DH); and (iii) Register of any other security holders (OSH). Maintenance of Register of Members (i) Every company limited by shares shall, from the date of its registration, maintain a register of its members in Form No. MGT-1. [Rule 3 (1)] However, in case of a company existing on the commencement of the Companies Act, 2013, the particulars as available in the register of members maintained under the Companies Act, 1956 shall be transferred to the new register of members in Form No. MGT-1. In case additional information, required as per the provisions of the Companies Act, 2013 and the Rules made thereunder, is provided by the members, such information may also be added in the register as and when provided. [Proviso to Rule 3 (1)] (ii) In case of a company not having share capital, the register shall contain the following particulars, in respect of each member–  Name of the member, address (registered office address in case the member is a body corporate); email address; Permanent Account Number or Corporate Identity Number (‘CIN’); Nationality; in case member is a minor – name of his guardian and the date of birth of the member, name and address of the nominee;  Date of becoming the member;  Date of cessation;  Amount of guarantee, if any;  Any other interest, if any; and  Instructions, if any, given by the member with regard to sending of notices, etc. [Rule 3 (2)] However, in case of a company existing on the commencement of the Companies Act, 2013, the particulars as available in the register of members maintained under the Companies Act, 1956 shall be transferred to the new register of members in Form No. MGT-1. In case additional information, © The Institute of Chartered Accountants of India  a 7.6 CORPORATE AND OTHER LAWS required as per the provisions of the Companies Act, 2013 and the Rules made thereunder, is provided by the members, such information may also be added in the register as and when provided. [Proviso to Rule 3 (2)] Maintenance of Register of Debenture Holders (DH) or any Other Security Holders Every company which issues or allots debentures or any other security shall maintain a separate register for debenture holders or security holders, as the case may be, for each type of debentures or other securities in Form MGT-2. [Rule 4] Other Requirements applicable to all the Registers Rule 5 contains certain requirements which are applicable to all types of registers (i.e. Register of Members, Register of Debenture-holders and Register of any Other Security Holders). These are stated as under:  Time period for making entries in Register As per Rule 5 (1), entries have to be made in the Register within 7 days of the date of approval by the Board or Committee thereof by approving the allotment or transfer of shares, debentures or any other securities, as the case may be. According to Rule 5 (3), consequent upon any forfeiture, buy-back, reduction, sub-division, consolidation or cancellation of shares, issue of sweat equity shares, transmission of shares, shares issued under any scheme of arrangements, mergers, reconstitution or employees stock option scheme or any of such scheme provided under this Act or by issue of duplicate or new share certificates or new debenture or other security certificates, entry shall be made within seven days after approval by the Board or committee, in the register of members or in the respective registers, as the case may be.  Place of maintaining Register According to Rule 5 (2), the registers shall be maintained at the registered office of the company unless a special resolution is passed in a general meeting authorising the keeping of the register at any other place within the city, town or village in which the registered office is © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.7 a situated or any other place in India in which more than 1/10th of the total members entered in the register of members reside.  Other information also to be referred in register ❖ In terms of Rule 5 (6), if any order is passed by any judicial or revenue authority or by Security and Exchange Board of India (SEBI) or competent authority attaching the shares, debentures or other securities and giving directions for remittance of dividend or interest, the necessary reference of such order shall be indicated in the respective register. ❖ According to Rule 5 (7), in case of companies whose securities are listed on a stock exchange in or outside India, the particulars of any pledge, charge, lien or hypothecation created by the promoters in respect of any securities of the company held by the promoter including the names of pledgee/pawnee and any revocation therein shall be entered in the register within fifteen days from such an event. ❖ According to Rule 5 (8), if promoters of any listed company, which has formed a joint venture company with another company have pledged or hypothecated or created charge or lien in respect of any security of the listed company in connection with such joint venture company, the particulars of such pledge, hypothecation, charge and lien shall be entered in the register members of the listed company within fifteen days from such an event.  Updating of change in status of members Rule 5 (4) states that if any change occurs in the status of a member or debenture-holder or any other security holder: - whether due to death or insolvency or change of name or due to transfer to Investor Education Protection Fund (IEPF) or due to any other reason, entries thereof explaining the change shall be made in the respective registers. © The Institute of Chartered Accountants of India  a 7.8 CORPORATE AND OTHER LAWS  Rectification in register According to Rule 5 (5), if any rectification is made in the register maintained under section 88 by the company pursuant to any order passed by the competent authority under the Act, the necessary reference of such order shall be indicated in the respective register. Index of names Section 88 (2) provides that every register maintained under section 88 (1) shall include an index of names included therein. However, according to Rule 6 of the Companies (Management and Administration) Rules, 2014, the maintenance of index is not necessary where the number of members is less than 50. Rule 6 also provides that the company shall make the necessary entries in the index simultaneously with the entry for allotment or transfer of any security in such Register. Register and Index of Beneficial Owners being maintained by a Depository Section 88 (3) is an enabling provision, which sets out that the register and index of beneficial owners maintained by a depository under section 11 of the Depositories Act, 1996, shall be deemed to be the corresponding register and index for the purposes of this Act. Foreign Register [Section 88(4) read with rule 7] ◼ Maintenance of Foreign Register: A company which has share capital or which has issued debentures or any other security may, if so authorised by its articles, keep in any country outside India, a part of the register of members or debenture holders or of any other security holders or of beneficial owners, resident in that country. The register shall be called “Foreign Register”. ◼ Other requirements relating to Foreign Register: In case a company decides to keep a Foreign Register, it shall comply with the following requirements: (i) Filing of notice of the situation of the office: Within 30 days from the date of the opening of any Foreign Register, the company shall file © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.9 a with the Registrar of Companies, notice of the situation of the office where such register is kept. The notice shall be filed in Form No. MGT– 3 along with the requisite fee. (ii) Filing of notice in case of change or discontinuance: In the event of any change in the situation of such office or of its discontinuance, the company shall, within 30 days from the date of such change or discontinuance, as the case may be, file notice in Form No. MGT-3 with the Registrar of Companies, of such change or discontinuance. (iii) Foreign Register part of company’s register: A foreign register shall be deemed to be part of the company’s register (to be called ‘principal register’) of members or of debenture-holders or of any other security holders or beneficial owners, as the case may be. (iv) Format of Foreign Register: The foreign register shall be maintained in the same format as the principal register. (v) Inspection, etc. of Foreign Register: A foreign register shall be open to inspection and may be closed, and extracts may be taken therefrom and copies thereof may be required, in the same manner, as is applicable to the principal register. However, advertisement before closing the register shall be inserted in at least two newspapers circulating in the place wherein the foreign register is kept. (vi) Decision of the appropriate competent authority binding in regard to the rectification: If a foreign register is kept by a company in any country outside India, the decision of the appropriate competent authority in regard to the rectification of the register shall be binding. (vii) Making of Entries in Foreign Register: Entries in the foreign register shall be made after the Board of Directors or its duly constituted committee approves the allotment or transfer of shares, debentures or any other securities, as the case may be. (viii) Transmission of a copy every entry: The company shall transmit to its registered office in India, a copy of every entry in any foreign register within 15 days after the entry is made. © The Institute of Chartered Accountants of India  a 7.10 CORPORATE AND OTHER LAWS (ix) Keeping of Duplicate Foreign Register at Registered Office: The company shall keep at the Registered Office a duplicate register of every foreign register duly updated from time to time. (x) Duplicate Foreign Register to be part of Principal Register: Every duplicate foreign register shall be deemed to be the part of the principal register, for all purposes of the Companies Act. (xi) Transactions not to be registered in any other Register: No transaction with respect to any shares or as the case may be, debentures or any other security, registered in a foreign register shall, during the continuance of that registration, be registered in any other register. (xii) Transfer of Entries on discontinuation: The company may discontinue the keeping of any foreign register and thereupon all entries in that register shall be transferred to some other foreign register kept by the company outside India or to the principal register. Penalty for failure to maintain register in accordance with the provisions of Section 88(1) and 88(2) If a company does not maintain a register of members or debenture-holders or other security holders or fails to maintain them in accordance with the provisions of sub-section (1) or sub-section (2), the company shall be liable to a penalty of three lakh rupees and every officer of the company who is in default shall be liable to a penalty of fifty thousand rupees. Nature of offence The offence under this section is a compoundable offence under section 441 of the Act. Details of Nominations in the register It is important to note that Form MGT – 1 and MGT – 2 require details of nomination as referred to in section 72 of the Act, read with Rule 19 of the Companies (Share Capital and Debentures) Rules, 2014 to be entered in the register of members and register of debenture-holders or other security holders as the case may be. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.11 a Authentication of entries [Rule 8] ◼ The entries in the registers maintained under section 88 and index included therein shall be authenticated by the company secretary of the company or by any other person authorised by the Board for the purpose, and the date of the board resolution authorising the same shall be mentioned. ◼ The entries in the foreign register shall be authenticated by the company secretary of the company or person authorised by the Board by appending his signature to each entry. Illustration 1 Luxy Hairstylefs Private Limited allotted 500 shares in the name of Mr. Zoey’s daughter, Mila, who is 4 years old. Mr. Joe, the Director of the Company, has approached you to advise him on the entries to be made in the register of members, since Mila is incompetent to contract in her capacity as minor. Answer: Since minors are not competent to enter into any contract, their names cannot be entered in the register of members without the details of guardians. Therefore, Mr. Joe is advised that while filling MGT – 1, the name of a minor shall be entered only if the details of the guardian are available. Thus, Zoey’s name shall also appear in the register of members of Luxy Hairstyles Private Limited since Mila is a minor. Illustration 2 Tanya and Tarun who recently got married were jointly allotted 1000 shares by New Hospitality Services Private Limited. Tarun intimated the company that only the name of his wife should appear in the records of the company in respect of joint holding of shares allotted to them. The directors of the company are not sure whether this is possible, given that the shares are held in the names of both Tanya and Tarun. Answer: Joint holders of shares may request the company to enter their names in the register in a certain order, or execute transfers to have their holdings split, with the result that part of the holding is entered showing the name of one holder and part showing the name of other holder. However, the condition of Tarun that only the name of his wife, Tanya, should appear in the register as a member cannot be acceded to, although the names can be entered in the order such that the name of his wife appears first. The reason for this is that the articles © The Institute of Chartered Accountants of India  a 7.12 CORPORATE AND OTHER LAWS of most companies provide that, in the case of exclusion of the other joint holders, and for this purpose, seniority shall be determined by the order in which the names stand in the register of members. DECLARATION IN RESPECT OF BENEFICIAL INTEREST IN ANY SHARE [SECTION 89] Section 89 of the Companies Act, 2013 contains provisions relating to declaration of beneficial interest in any share. Rule 9 of the Companies (Management and Administration) Rules, 2014 provides for procedural aspect. Any Person holding beneficial interest in the shares of that company [Section 89(2)] Member not holding beneficial interest in Any changes in the the shares of a beneficial interest company [Section of persons making 89(1)] declarations [Section 89(3)] shall file a declaration of beneficial interest within 30 days and company shall also file a return with ROC in 30 days ◼ Declaration by registered holder of shares: A person whose name is entered in the register of members of a company as the holder of shares in that company but who does not hold the beneficial interest in such shares (hereinafter referred to as “the registered owner”), shall file with the company, a declaration to that effect in Form No. MGT-4, specifying the name and other particulars of the person who holds the beneficial interest in such shares. The declaration MGT-4 shall be made within a period of thirty days from the date on which his name is entered in the register of members of such company. [Section 89 (1) and Rule 9 (1)] © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.13 a ◼ Declaration by person holding beneficial interest in shares: Every person who holds or acquires a beneficial interest in share of a company shall make a declaration to the company in form MGT-5, within 30 days after acquiring such beneficial interest, specifying the nature of his interest, particulars of the person in whose name the shares stand registered in the books of the company and such other particulars as may be prescribed. [Section 89 (2) and Rule 9 (2)] ◼ Declaration in case of change in beneficial interest: Where any change occurs in the beneficial interest in any shares in respect of which a declaration has been filed under section 89 (1) by the registered owner and under section 89 (2) by the beneficial owner then, within 30 days of such change, a declaration is to be made to the company. ◼ Filing of return by the company with the Registrar: Where any declaration under section 89 is made to a company, the company shall make a note of such declaration in the register concerned and shall file, within thirty days from the date of receipt of declaration by it, a return in Form No. MGT-6 with the Registrar in respect of such declaration with fee. [Section 89 (6) and Rule 9 (3)] ◼ Consequence of non-filing of declaration: Where a declaration required to be made under section 89 is not made by the beneficial owner, then, any right with respect to such shares shall not be enforceable by the beneficial owner or by any person claiming through him. [Section 89 (8)] ◼ Exemption: Rule 9 shall not apply to a trust which is created to set up a Mutual Fund or Venture Capital Fund or such other fund as may be approved by SEBI. Accordingly, such entities need not file the declarations as envisaged by this rule. ◼ Duty of the Company to pay dividend not affected: Nothing contained in this section shall be deemed to prejudice the obligation of a company to pay dividend to its members under this Act and the said obligation shall, on such payment, stand discharged. ◼ Meaning of beneficial interest: For the purposes of section 89 and section 90, beneficial interest in a share includes, directly or indirectly, through any contract, arrangement or otherwise, the right or entitlement of a person alone or together with any other person to— © The Institute of Chartered Accountants of India  a 7.14 CORPORATE AND OTHER LAWS (i) exercise or cause to be exercised any or all of the rights attached to such share; or (ii) receive or participate in any dividend or other distribution in respect of such share. [Section 89(10)] Exemption from the provisions of section 89 [Section 89(11)] The Central Government may, by notification, exempt any class or classes of persons from complying with any of the requirements of this section, except sub- section (10), if it is considered necessary to grant such exemption in the public interest and any such exemption may be granted either unconditionally or subject to such conditions as may be specified in the notification. Exemption to a Government Company- In case of Government Company - Section 89 shall not apply. [Notification No. GSR 463 (E), dated 5th June, 2015] The above-mentioned exemption shall be applicable to a government company which has not committed a default in filing its financial statements under section 137 or annual return under section 92 with the Registrar- [Notification No. GSR 582 (E), dated 13 th June, 2017]. Penalty for default [Sections 89 (5) & 89 (7)] Two kinds of penal provisions as described below are included under section 89 – (i) Relating to Default made by persons required to make a declaration - If any person fails to make a declaration as required under sub-section (1) or sub- section (2) or sub-section (3), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day after the first during which such failure continues, subject to a maximum of five lakh rupees. [Section 89(5)] (ii) Relating to Default made by a company - If a company, required to file a return under sub-section (6), fails to do so before the expiry of the time specified therein, the company and every officer of the company who is in default shall b e liable to a penalty of one thousand rupees for each day during which such failure continues, subject to a maximum of five lakh rupees in the case of a company and two lakh rupees in case of an officer who is in default. [Section 89(7)] © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.15 a REGISTER OF SIGNIFICANT BENEFICIAL OWNERS IN A COMPANY [SECTION 90] As per Section 90 of the Companies Act, 2013, every Significant Beneficial Owner (SBO) is required to disclose the nature of his interest and other particulars within the prescribed period of time to the Company, which in turn will inform the same to the Registrar of Companies. In this connection, MCA has issued the Companies (Significant Beneficial Owners) Rules, 2018, which deal with identification and reporting in connection with SBO. Definition of Significant Beneficial Owner: The term 'significant beneficial owner' “SBO” has been defined in section 90 of the Act as every individual, who acting alone or together, or through one or more persons or trust, including a trust and persons resident outside India, holds beneficial interests, of not less than twenty-five per cent. or such other percentage as may be prescribed, in shares of a company or the right to exercise, or the actual exercising of significant influence or control as defined in clause (27) of section 2, over the compa ny (herein referred to as "significant beneficial owner"). However, the Companies (Significant Beneficial Owners) Amendment Rules, 2019 ("Amendment Rules") has amended the definition of the term SBO. In terms of Rule 2(1) (h) of the SBO Rules, the term ‘Significant Beneficial Owner’ (SBO) is defined as an individual who— i. acting alone or together, or ii. through one or more persons or trust, possess one or more of the following rights or entitlements in the Reporting Company (i.e. the company in respect of which SBO declaration is required to be filed): (i) holds indirectly, or together with any direct holdings, not less than 10% of the shares; (ii) holds indirectly, or together with any direct holdings, not less than 10% of the voting rights in the shares; (iii) has the right to receive or participate in not less than 10% of the total distributable dividend, or any other distribution, in a financial year through indirect holdings alone, or together with any direct holdings; (iv) has the right to exercise, or actually exercises, significant influence or control, in any manner other than through direct holdings alone. © The Institute of Chartered Accountants of India  a 7.16 CORPORATE AND OTHER LAWS In simple terms, SBO is an individual who either alone or together with other individuals or trust, exercises rights or entitlements in the Reporting Company by way of holding 10% shares or 10% voting rights or right to receive 10% or more dividend, both indirect and direct holdings or right taken together or such individual exercises significant influence or control, indirectly or along with direct holding in the Reporting Company. The amended Rules further explain that if an individual does not hold any indirect right or entitlement as mentioned in (i), (ii) or (iii) above, he will not be considered to be a 'significant beneficial owner'. Significant influence: The term “significant influence” was previously not defined specifically for the rules, and hence, to provide clarity, the following definition has been inserted through SBO rules: “Significant influence” means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies. [Rule 2 (1) (i)] Majority stake: The Amendment Rules inserted a new term, “Majority Stake,” which means: (i) holding more than one-half of the equity share capital in the body corporate; or (ii) holding more than one-half of the voting rights in the body corporate; or (iii) having the right to receive or participate in more than one-half of the distributable dividend or any other distribution by the body corporate. [Rule 2 (1) (d)] Direct and Indirect shareholding: The Amendment Rules provide that when an individual holds any rights or entitlement directly in the reporting company, the said individual shall not be considered as SBO. An individual will be considered to hold a right or entitlement directly in the Reporting Company, if he satisfies any of the following criteria: a. the shares in the Reporting Company representing such right or entitlement are held in the name of such individual; b. the individual holds or acquires a beneficial interest in the shares of the Reporting Company under section 89 (2), and has made a declaration in this regard to the Reporting Company. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.17 a Indirect shareholding is, when a shareholder is a (a) body corporate; (b) Hindu Undivided Family; (c) Partnership entity; (d) Trust; (e) Pooled investment vehicle. Onus on the reporting company to identify a SBO and cause him to make declaration: The duty is on the reporting company to identify a SBO and cause such SBO to make a declaration in the prescribed Form. As per sub-section (5) of section 90 read with the Amendment Rules, every reporting company shall give notice in the Form BEN-4 to any person (whether or not a member of the company) whom the company knows or has reasonable cause to believe: (a) to be a significant beneficial owner of the company; (b) to be having knowledge of the identity of a significant beneficial owner or another person likely to have such knowledge; or (c) to have been a significant beneficial owner of the company at any time during the three years immediately preceding the date on which the notice is issued, and who is not registered as a significant beneficial owner with the company as required under this section. Maintenance of Register of SBO and Inspection thereof: According to section 90 (2) and 90 (3) read with Rule 5, every company shall maintain a register of significant beneficial owners in Form No. BEN-3 which shall be open for inspection during business hours, at such reasonable time of not less than two hours, on every working day as the board may decide, by any member of the company on payment of such fee as may be specified by the company but not exceeding fifty rupees for each inspection. Application to the Tribunal [Section 90 (7)]: The company shall,— (a) Where that person fails to give the company, the information required by the notice within the time specified therein. (According to Rule 7 notice shall be given in Form No. BEN-4 for providing information within 30 days of date of notice); or (b) Where the information given is not satisfactory, apply to the Tribunal within a period of fifteen days of the expiry of the period specified in the notice, for an order directing that the shares in question be © The Institute of Chartered Accountants of India  a 7.18 CORPORATE AND OTHER LAWS subject to restrictions with regard to transfer of interest, suspension of all rights attached to the shares and such other matters as may be prescribed. Note: According to Rule 7, the reporting company shall apply to the Tribunal in accordance with section 90 (7), for order directing that the shares in question be subject to restrictions including- (i) restrictions on the transfer of interest attached to the shares in question; (ii) suspension of the right to receive dividend or any other distribution in relation to the shares in question; (iii) suspension of voting rights in relation to the shares in question; (iv) any other restriction on all or any of the rights attached with the shares in question. Section 90 (8) states that on any application made under sub-section (7), the Tribunal may, after giving an opportunity of being heard to the parties concerned, make such order restricting the rights attached with the shares within a period of sixty days of receipt of application or such other period as may be prescribed. According to section 90 (9), the company or the person aggrieved by the order of the Tribunal may make an application to the Tribunal for relaxation or lifting of the restrictions placed under section 90 (8) within a period of one year from the date of such order. Provided that if no such application has been filed within a period of one year from the date of the order such shares shall be transferred, without any restrictions, to the authority constituted under sub-section (5) of section 125 (i.e. Investor Education and Protection Fund Authority), in such manner as may be prescribed. Declaration by SBO under Section 90: As regards declaration of significant beneficial ownership under section 90, Rule 3 of SBO Rules, 2018 states as under: (1) Every individual who is a significant beneficial owner (SBO) in a Reporting Company, as on the date of commencement of the Amendment Rules, 2019 (i.e. 8-2-2019), is required to file a declaration in Form No. BEN-1 with the Reporting Company within 90 days from such commencement. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.19 a Note: According to Rule 4, the Reporting Company shall be required to file a return in Form No. BEN-2 with the Registrar in respect of such declaration within 30 days of its receipt from the SBO. (2) Any individual, who subsequently becomes a significant beneficial owner (SBO) in the Reporting Company or whose significant beneficial ownership undergoes any change, shall be required to file a declaration in Form No. BEN-1 with the Reporting Company in within 30 days of such acquisition or change. Explanation: If an individual becomes a significant beneficial owner in the Reporting Company or if his significant beneficial ownership undergoes any change within ninety days of the commencement of the Companies (Significant Beneficial Owners) Amendment Rules, 2019 (i.e. 8-2-2019), it shall be deemed that such individual became the significant beneficial owner or any change therein happened on the date of expiry of ninety days from the date of commencement of said rules, and the period of thirty days for filing will be reckoned accordingly. Non-Applicability of SBO Rules Rule 8 of The Companies (Significant Beneficial Owner) Amendment Rules, 2018 states that the ‘SBO’ Rules shall not be made applicable to the extent the share of the Reporting Company is held by: (a) the Investor Education and Protection Fund Authority [constituted under section 125 (5)]; (b) its holding reporting company provided that the details of such holding reporting company shall be reported in Form No. BEN-2; (c) the Central Government, State Government or any local authority; (d) (i) a reporting company or (ii) a body corporate or (iii) an entity, controlled wholly or partly by the Central Government and/ or State Government(s); (e) investment vehicles such as mutual funds, alternative investment funds (AIFs), Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InVITs) registered with and regulated by the Securities and Exchange Board of India; and © The Institute of Chartered Accountants of India  a 7.20 CORPORATE AND OTHER LAWS (f) investment vehicles regulated by Reserve Bank of India, Insurance Regulatory and Development Authority of India or Pension Fund Regulatory and Development Authority. Penalty for Contravention (a) By SBO: If any person fails to make a declaration as required under sub- section (1), he shall be liable to a penalty of fifty thousand rupees and in case of continuing failure, with a further penalty of one thousand rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees. [Section 90(10)] (b) By Reporting Company: If a company, required to maintain register under sub-section (2) and file the information under sub-section (4) or required to take necessary steps under sub-section (4A), fails to do so or denies inspection as provided therein, the company shall be liable to a penalty of one lakh rupees and in case of continuing failure, with a further penalty of five hundred rupees for each day, after the first during which such failure continues, subject to a maximum of five lakh rupees and every officer of the company who is in default shall be liable to a penalty of twenty-five thousand rupees and in case of continuing failure, with a further penalty of two hundred rupees for each day, after the first during which such failure continues, subject to a maximum of one lakh rupees. [Section 90(11)] It is worth noting that any contravention by Company and Officer in Default of the provisions of Section 90 and SBO Rules is compoundable. Note: Where any person wilfully furnishes any false or incorrect information or suppresses any material information of which he is aware in the declaration made, he shall be liable for punishment for fraud under section 447. [Section 90(12)] Exemption to a Government Company- In case of Government Company - Section 90 shall not apply - Notification No. GSR 463 (E), dated 5th June, 2015. The above-mentioned exemption shall be applicable to a government company which has not committed a default in filing its financial statements under section 137 or annual return under section 92 with the Registrar- Notification No. GSR 582 (E), dated 13th June, 2017. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.21 a POWER TO CLOSE REGISTER OF MEMBERS OR DEBENTURE-HOLDERS OR OTHER SECURITY HOLDERS [SECTION 91] Section 91 (1) deals with the time limits for which the respective registers of members, debenture-holders and other security holders are allowed to be closed. Section 91 (2) mentions the penalty for contravention of the provisions of sub- section (1). Time Limits for Closure of Sec 91 (1) Registers Sec 91 (2) Penalty Provisions Section 91 (1) contains following provisions: (i) Closure Period: A company may close its register of members or register of debenture-holders or register of other security holders for an aggregate period of 45 days in each year but not exceeding 30 days at any one time. (ii) Notice Period: The respective registers of members, debenture-holders or other security holders may be closed by giving minimum 7 days’ notice or such lesser period as may be specified by Securities Exchange Board of India (‘SEBI’) for listed companies or those companies which intend to get their securities listed. Rule 10 of the Companies (Management & Administration) Rules, 2014, specifies the manner of closure of registers as under: (a) A company closing the register of members or the register of debenture holders or the register of other security holders shall give at least seven days previous notice and in such manner, as may be specified by SEBI, if such company is a listed company or intends to get its securities listed,  by advertisement at least once in a vernacular newspaper in the principal vernacular language of the district and having a wide © The Institute of Chartered Accountants of India  a 7.22 CORPORATE AND OTHER LAWS circulation in the place where the registered office of the company is situated, and  at least once in English language in an English newspaper circulating in that district and having wide circulation in the place where the registered office of the company is situated, and  publish the notice on the website as may be notified by the Central Government and on the website, if any, of the Company. [Rule 10 (1)] (b) Exemption to Private Companies: It is to be noted that a private company has been exempted from issuing a public notice in newspapers, provided it issues minimum 7 days’ notice to its members prior to closure of the registers. [Rule 10 (2)] Section 91 (2) contains penalty provisions as stated below: In case of contravention of provisions of section 91(1) (i.e. if the respective registers are closed without giving notice, or after giving a shorter notice than that so provided, or for a continuous or an aggregate period in excess of the specified limits), section 91 (2) states following penalty: ◼ the company and every officer of the company who is in default shall be liable to a penalty of ` 5,000 per day subject to a maximum of ` 1,00,000 during which the register is kept closed. Note: The offence is a compoundable offence under section 441 of the Companies Act, 2013. 3. ANNUAL RETURN [SECTION 92 AND 94] Provisions with regard to Annual Return are contained in section 92 of the Companies Act, 2013 and Rules 11 and 12 of the Companies (Management & Administration) Rules, 2014. As per Rule 11, every company shall file its annual return in Form No. MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file the annual return from the financial year 2020-2021 onwards in Form No. MGT-7A. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.23 a Contents of Annual Return; Form No. MGT 7; Form No. MGT 7A (for OPC and small company) Penalty for Signing of Annual contravention Return Annual Return (Section 92 and Rules 11 & 12) Certification by Company Filing of Annual Secretary in Return with RoC Practice, if required Placement on website Contents of Annual Return According to section 92(1), every company shall prepare a return (referred to as the Annual Return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding— (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; 1 (c) [Omitted] (d) its members and debenture-holders along with changes therein since the close of the previous financial year; 1Clause (c) of section 92(1) was omitted vide the Companies (Amendment) Act, 2017, w.e.f. 5 th March, 2021. © The Institute of Chartered Accountants of India  a 7.24 CORPORATE AND OTHER LAWS (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; 2 (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; and (k) such other matters as may be prescribed, Abridged Form of Annual Return In terms of Second Proviso to Section 91 (1), the Central Government may prescribe abridged form of annual return for One Person Company, small company and such other class or classes of companies as may be prescribed. Accordingly, as per Rule 11 (1) One Person Company and small company shall file the annual return from the financial year 2020-2021 onwards in Form No. MGT-7A. Signing of Annual Return The annual return shall be signed by a director of the company and the company secretary; and in case, there is no company secretary, by a company secretary in practice. 2 In case of Private Company – Clause (g) of sub-section (1) of Section 92 shall apply to private companies which are small companies, as under:- (g) “aggregate amount of remuneration drawn by directors;”. - Notification No. GSR 464 (E), dated 5-6-2015, as amended by Notification No. GSR 583 (E), dated 13th June, 2017. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.25 a However, in relation to 3One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company. Certification of Annual Return by a Company Secretary in practice in certain cases Section 92 (2) read with Rule 11 (2) of the Companies (Management & Administration) Rules, 2014, provides that the annual return, filed by: (i) a listed company or (ii) a company having paid-up share capital of ` 10 crore or more or a turnover of ` 50 crore or more, shall be certified by a Company Secretary in practice stating that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of the Companies Act, 2013. Such certificate shall be in Form No. MGT – 8. Placing of Annual Return on Website 4 Every company shall place a copy of the annual return on its website, if any, and the web-link of such annual return shall be disclosed in the Board's report. [refer Section 92 (3)] 3 In case of Private Company - For proviso to sub-section (1) of Section 92, the following proviso shall be substituted, namely:- "Provided that in relation to One Person Company, small company and private company (if such private company is a start-up), the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.". The above exceptions/ modifications/ adaptations shall be applicable to a private company which has not committed a default in filing its financial statements under section 137 or annual return under section 92 with Registrar. [Notification No. GSR 464 (E), dated 5-6-2015, as amended by Notification No. GSR 583 (E), dated 13th June, 2017.Notification Dated 13th June, 2017] 4 (i) In case of Specified IFSC Public Company - Sub-section (3) of section 92 shall not apply. - Notification No. GSR 8 (E), dated 4th January, 2017. (ii) In case of Specified IFSC Private Company - Sub-section (3) of section 92 shall not apply. - Notification GSR 9 (E), dated 4th January, 2017. © The Institute of Chartered Accountants of India  a 7.26 CORPORATE AND OTHER LAWS Time limit for Filing of Annual Return A copy of annual return shall be filed with the RoC within 60 days from the date on which the Annual General Meeting (‘AGM’) is held. Where no annual general meeting is held in any year, it shall be filed within 60 days from the date on which the annual general meeting should have been held, along with the reasons for not holding the AGM. [Section 92 (4) and Rule 12] Penalty for contravention (i) Section 92(5) specifies as under: if any company fails to file its annual return under sub-section (4), before the expiry of the period specified therein, such company and its every officer who is in default shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with further penalty of one hundred rupees for each day during which such failure continues, subject to a maximum of two lakh rupees in case of a company and fifty thousand rupees in case of an officer who is in default. (ii) Section 92(6) specifies penalty in case of a Company Secretary in Practice as under: If a company secretary in practice certifies the annual return otherwise than in accordance with section 92 or the rules made thereunder, he shall be liable to a penalty of two lakh rupees. Illustration 3 Big Fox Entertainment Limited called its Annual General Meeting on 30 th September, 2021, for laying down the financial statements relating to the Financial Year ended 31 st March 2021 for approval of its shareholders and conducting of other requisite businesses. However, due to want of quorum, the meeting could not take place and was cancelled. The company did not file the annual return for the year ending 31st March 2021, with the jurisdictional Registrar of Companies till date. The directors are of the view that since the Annual General Meeting did not take place, the period of 60 days for filing of annual return is not applicable and thus, there is no contravention of section 92. Answer: The contention of directors is incorrect if they are of the view that there is no contravention of the provisions of the Companies Act, 2013. Section 92 (4) states that every company has to file an annual return with the RoC within 60 days from the date on which Annual General Meeting is held or where no Annual © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.27 a General Meeting is held in any year, it shall be filed within 60 days from the date on which the Annual General Meeting should have been held, along with the reasons for not holding the AGM. In the above case, the Annual General Meeting should have been held by 30 th September, 2021 but it did not take place for want of quorum. Even if it was not held, Big Fox Entertainment Limited was required to file Annual Return within the specified time along with the reasons for not holding the AGM. By not filing Annual Return, the company has contravened the provisions of Section 92 of the Companies Act, 2013 and therefore, it shall be liable for a penalty as specified in Section 92 (5) of the Act. PLACE OF KEEPING AND INSPECTION OF REGISTERS, RETURNS, ETC. [SECTION 94]5 Registered Office Place of keeping registers and returns Can also be kept at a place in India (other than registered office) where more than 1/10th of total members reside, if approved by passing a Special Resolution Place of keeping Registers and Returns In respect of place of keeping Registers and Returns Section 94 (1) and First Proviso state as under: (i) At Registered office: The registers required to be kept and maintained by a company under section 88 and copies of the annual return filed under section 92 shall be kept at the registered office of the company. (ii) At any other place in India: The registers or copies of return may also be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company. 5 Section 93 was omitted by the Companies (Amendment) Act, 2017 w.e.f. 13-6-2018. © The Institute of Chartered Accountants of India  a 7.28 CORPORATE AND OTHER LAWS Inspection of Registers, etc. According to section 94 (2), the registers and their indices, except when they are closed and the copies of all the returns shall be open for inspection by any member, debenture holder, other security holder or beneficial owner, during business hours without payment of any fees and by any other person on payment of such fees as may be prescribed. As per Rule 14 (1), the registers and indices maintained pursuant to section 88 and copies of returns prepared pursuant to section 92, shall be open for inspection during business hours, at such reasonable time on every working day as the Board may decide, by any member, debenture holder, other security holder or beneficial owner without payment of fee and by any other person on payment of such fee as may be specified in the Articles of Association of the company but not exceeding fifty rupees for each inspection. Explanation.- For the purposes of this sub-rule, reasonable time of not less than two hours on every working day shall be considered by the company. Extracts of register or index: According to Section 94 (3) read with Rule 14 (2), any member, debenture-holder or security holder or beneficial owner or any other person can take the extracts without payment of any fee or can also get copies thereof with payment of fee not exceeding ` 10 for each page. Such copies or entries or return shall be supplied within 7 days of deposit of fee. Provided that such particulars of the register or index or return as may be prescribed shall not be available for inspection under sub-section (2) or for taking extracts or copies under this sub-section. As per Rule 14, Notwithstanding anything contained in sub-rules (1) and (2), the following particulars of the register or index or return in respect of the members of a company shall not be made available for any inspection under sub-section (2) or for taking extracts or copies under sub-section (3) of section 94, namely: — (i) address or registered address (in case of a body corporate); (ii) e-mail ID (iii) Unique Identification Number (iv) PAN Number © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.29 a Preservation of Register of Members etc. and Annual Return As per Second Proviso to Section 94 (1), the period for which the registers, returns and records are required to be kept shall be such as may be prescribed. In this respect Rule 15 of the Companies (Management & Administration) Rules, 2014 states as under: ◼ Preservation of register of members: The register of members along with the index shall be preserved permanently and shall be kept in the custody of company secretary of the company or any other person authorised by the Board for such purpose. ◼ Preservation of register of debenture holders/other security holders: The register of debenture-holder or any other security holder along with the index shall be preserved for a period of 8 years from the date of redemption of debentures or securities, as the case may be, and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for such purpose. ◼ Preservation of Copies of documents filed with ROC: Copies of all annual returns prepared under section 92 and copies of all certificates and documents required to be annexed thereto shall be preserved for a period of 8 years from the date of filing with the RoC. ◼ Preservation of Foreign Register of Members: The foreign register of members shall be preserved permanently, unless it is discontinued and all the entries are transferred to any other foreign register or to the principal register. Foreign register of debenture-holders or any other security holders shall be preserved for a period of 8 years from the date of redemption of such debentures or securities. The foreign register shall be kept in the custody of the company secretary or person authorised by the Board. Penalty for refusing the inspection or making any extract or copy required – ◼ If any inspection or the making of any extract or copy required under this section is refused, the company and every officer of the company who is in default shall be liable for each such default, to a penalty of ` 1, 000 for every © The Institute of Chartered Accountants of India  a 7.30 CORPORATE AND OTHER LAWS day subject to a maximum of ` 1, 00,000 during which the refusal or default continues. [Section 94 (4)] ◼ The Central Government* may also, by order, direct an immediate inspection of the document, or direct that the extract required shall forthwith be allowed to be taken by the person requiring it. [Section 94 (5)] * Powers are delegated to Regional Directors. REGISTERS, ETC. TO BE EVIDENCE [SECTION 95] According to Section 95, the registers, indices and copies of annual return shall be prima facie evidence of any matter directed or authorised to be inserted therein by or under this Act. 4. PRE-REQUISITES OF A MEETING Before we move on to our next concept of types of meetings and the procedure to convene them as per the Companies Act, 2013, let us understand the terms which are important to know for convening a meeting. During Meeting Minutes of Meeting - - Notice of Section 118 meeting - Section 101 Inspection of Quorum for minute-books of - Explanatory meetings - Section GM - Section Statement to be 103 119 annexed with Chairman of notice - Section Maintenance & meetings - Section inspection of 102 104 documents in Proxies - Section 105 e-form - Section Before Meeting Voting - Sections 120 106 - 110 Resolutions - Sections 111, 114 - Post - Meeting 117 © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.31 a Key terms: (a) General Meeting: It is the meeting of the shareholders of a company to be held as per the provisions of the Act. The general meeting can be an Annual General Meeting (AGM) or an Extraordinary General Meeting (EGM). An annual general meeting (AGM) is a mandatory yearly gathering of a company's shareholders. The objective of holding an AGM is to provide an opportunity to members to discuss the functioning of the company and take steps to protect their interests. They can discuss any matter relating to the conduct of the affairs of the company. An Extraordinary General Meeting (EGM) can be defined as a meeting of shareholders which is not an AGM. The objective of holding an EGM is to discuss any matter of urgent importance which cannot be postponed till the next Annual General Meeting. (b) Board Meeting: It is the meeting of the Board of Directors of a company. (c) Class Meeting: It is the meeting of particular class of persons, like, creditors, preference shareholders, debenture- holders, etc. The pre-requisites of the meetings are, in general, applicable to all kinds of meetings, although the time limits may differ and there might be a specific mention of a certain type of meeting in the respective section. NOTICE OF A MEETING [ SECTION 101] Section 101 (1) of the Companies Act, 2013 states that in order to properly call a general meeting, a notice of at least 21 clear days is required to be given either in writing or through electronic mode in such manner as may be prescribed. In case of Specified IFSC Public Company - Section 101 shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company. [Notification No. GSR 8 (E), dated 4th January, 2017.] In case of section 8 company, in clause (1) of Sub-section (1) of Section 101 for the words "21 days", the words "14 days" shall be substituted. This exception shall be applicable to a section 8 company which has not committed a default in filing © The Institute of Chartered Accountants of India  a 7.32 CORPORATE AND OTHER LAWS its financial statements under section 137 or annual return under section 92 with the Registrar. [Notification No. GSR 466 (E), 5-6-2015 as amended by Notification No. GSR 584 (E), dated 13th June, 2017.] Contents of the Notice [Section 101(2)] Every notice of a meeting must state the place, date, day and the hour of the meeting and shall contain a statement of business to be transacted at that meeting. Persons entitled to receive the Notice of the General Meeting [Section 101(3)] The notice of every meeting of the company shall be given to: (a) every member of the company, legal representative of any deceased member or the assignee of insolvent member; (b) the auditor or auditors of the company; (c) every director of the company. * Members * Legal representative of the deceased member Notice needs to be * Assignee of the insolvent member served to * Auditor/auditors of the company * Every director of the company Meaning of 21 clear days: The term ‘21 clear days’ means that the date on which notice is served and the date of meeting are excluded while sending the notice of a meeting. A company cannot curtail the requirement of 21 clear days through its Articles of Association. Note: Where a notice of a meeting is sent by post, it shall be deemed to be served at the expiration of 48 hours after the letter containing the same is posted (Rule 35(6) of the Companies (Incorporation) Rules, 2014) © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.33 a Sending of Notice of Meeting through Electronic Mode: As per Rule 18 of the Companies (Management & Administration) Rules, 2014 , sending of notices through electronic mode has been statutorily recognized. Accordingly, it is permitted for a company to give notice through electronic mode. The expression ‘‘electronic mode’’ shall mean any communication sent by a company through its authorized and secured computer programme which is capable of producing confirmation and keeping record of such communication addressed to the person entitled to receive such communication at the last electronic mail address provided by the member. ◼ A notice may be sent through e-mail as a–  Text; or  As an attachment to e-mail; or  As a notification providing electronic link; or  Uniform Resource Locator for accessing such notice. ◼ Rule 18(3)  The e-mail shall be addressed to the person entitled to receive such e-mail as per the records of the company as provided by the depository. It is to be noted that the company shall provide an advance opportunity at least once in a financial year, to the member to register his e-mail address and the changes therein and such request may be made by only those members who have not got their e-mail ID recorded or to update a fresh e-mail ID and not from the members whose e-mail ids are already registered.  The subject line in e-mail shall state the name of the company, notice of the type of meeting, place and the date on which the meeting is scheduled.  If notice is sent in the form of a non-editable attachment to e-mail, such attachment shall be in the Portable Document Format or in a © The Institute of Chartered Accountants of India  a 7.34 CORPORATE AND OTHER LAWS non-editable format together with a ‘link or instructions’ for recipient for downloading relevant version of the software.  The company’s obligation shall be satisfied when it transmits the e- mail and the company shall not be held responsible for a failure in transmission beyond its control.  If a member entitled to receive notice fails to provide or update relevant e-mail address to the company, or to the depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail.  The company may send e-mail through in-house facility or its registrar and transfer agent or authorise any third-party agency providing bulk e-mail facility.  The notice shall be placed simultaneously on the website of the Company, if any, and on the website as may be notified by Central Government. Non-receipt of Notice: According to Section 101(4) any accidental omission to give notice to or the non-receipt of such notice by, any member or other person who is entitled to such notice for any meeting shall not invalidate the proceedings of the meeting. The onus is on the company to prove that the omission was not deliberate. Illustration 4 Mr. Abhinav, a member of Elixir Logistics Limited, filed a complaint against the company for not serving him a notice for attending the Annual General Meeting. The company, in turn, provided the proof that they had sent the notice, by way of an email to Mr. Abhinav, inviting him to attend the annual general meeting of the company. Mr. Abhinav alleges that he never received the email. State whether the company is liable to be guilty for contravening the provisions of section 101 of the Companies Act, 2013 read with the applicable Rules. Answer: As per Rule 18 (3) (v) of the Companies (Management & Administration) Rules, 2014, the company’s obligation shall be satisfied when it transmits the e- mail and the company shall not be held responsible for a failure in transmission beyond its control. Also, Rule 18 (3) (vi) if a member entitled to receive the notice fails to provide or update relevant e-mail address to the company, or to the © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.35 a depository participant as the case may be, the company shall not be in default for not delivering notice via e-mail. Accordingly, Elixir Logistics Limited shall not be held guilty if there was a failure in transmission beyond its control or in case where Mr. Abhinav did not update his e-mail address. Shorter notice of less than 21 days [Proviso to Section 101 (1)] As noted earlier, usually general meetings need to be called by giving at least a notice of 21 clear days. However, a general meeting may be called after giving shorter notice than that specified in sub-section (1) of Section 101, if consent, in writing or by electronic mode, is accorded thereto— (i) in the case of an annual general meeting, by not less than ninety-five per cent. of the members entitled to vote thereat; and (ii) in the case of any other general meeting, by members of the company— (a) holding, if the company has a share capital, majority in number of members entitled to vote and who represent not less than ninety-five per cent. of such part of the paid-up share capital of the company as gives a right to vote at the meeting; or (b) having, if the company has no share capital, not less than ninety-five per cent. of the total voting power exercisable at that meeting. Where any member of a company is entitled to vote only on some resolution or resolutions to be moved at a meeting and not on the others, those members shall be taken into account for the purposes of sub section (1) of section 101 in respect of the former resolution or resolutions and not in respect of the latter. Illustration 5 The paid-up share capital of Aakash Soaps Limited is Rs. fifty lakh divided into five lakh shares of `10 each. The directors of the company are desirous of calling an extra-ordinary general meeting (EGM) by giving a shorter notice which is less than 21 days. Sixty percent of the members holding shares worth Rs. forty lakh accorded their consent by electronic mode to the shorter notice. Whether EGM can be validly called. © The Institute of Chartered Accountants of India  a 7.36 CORPORATE AND OTHER LAWS Answer: In the above case, consent to call the EGM by shorter notice has been accorded by sixty percent members holding shares worth Rs. forty lakh which works out to 80% (40,00,000/50,00,000 *100) whereas the requirement is that majority in number of members who represent not less than 95% of paid-up share capital which gives them a right to vote at the meeting (i.e. shareholders holding shares worth ` 47,50,000) must consent to shorter notice. Therefore, the EGM cannot be validly called and held. Authority to call a General Meeting A general meeting (AGM or EGM) has to be called by the Board of Directors. An individual director does not have the authority to call a General Meeting. Any notice of General Meeting given without the sanction of the Board is invalid; however, the same can be ratified by the Board. For calling a General Meeting, the Board passes a Board Resolution. EXPLANATORY STATEMENT TO BE ANNEXED TO NOTICE [SECTION 102]6 Section 102 of the Companies Act, 2013 mentions that where any special business is to be transacted at the company’s general meeting, then an ‘Explanatory Statement’ shall be annexed to the notice calling such general meeting. The ‘Explanatory Statement’ must specify, (a) the nature of concern or interest, financial or otherwise, if any, in respect of each items of— (i) every director and the manager, if any; (ii) every other key managerial personnel; and (iii) relatives of the persons mentioned in sub-clauses (i) and (ii); (b) any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon. Ordinary business and Special business: Companies Act, 2013 sets out two types of businesses as under: 6 In case of Specified IFSC Public Company - Section 102 shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company. Notification GSR 8 (E), Dated 4th January, 2017. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.37 a ◼ Ordinary business (OB) ◼ Special business. (SB) Ordinary business includes the following business which are transacted at the Annual General Meeting of a company– (i) the consideration of financial statements and the reports of the Board of Directors and auditors; (ii) the declaration of any dividend; (iii) the appointment of directors in place of those retiring; (iv) the appointment of, and the fixing of the remuneration of, the auditors. 1. Consideration of financial statements and the reports of the Board of Directors and auditors 4. Ordinary 2. Appointment of, and fixing of the business Declaration remuneration of, of any Section 102 (2) dividend the auditors 3. Appointment of Directors in place of those retiring ◼ In the case of AGM, all business to be transacted thereat except the ones stated above are special business. At the EGM, every business transacted is a special business. Explanatory statement is not required for transacting Ordinary Business. ◼ Proviso to section 102 (2) sets out that if any item of special business relates to, or affects, any other company, the extent of shareholding in that other company of every promoter, director, manager and of every other KMP shall be disclosed, if the extent of shareholding is 2% or more of the paid-up share capital of that other company. ◼ In case any item of business refers to any document which is to be considered at the meeting, then the time and place where such document can be inspected should also be specified in the explanatory statement. © The Institute of Chartered Accountants of India  a 7.38 CORPORATE AND OTHER LAWS ◼ Effect of non-disclosure/insufficient disclosure in Explanatory Statement [Section 102(4)]: If as a result of non-disclosure or insufficient disclosure in explanatory statement, any benefit accrues to a promoter, director, manager, other key managerial personnel or their relatives, such person shall hold such benefit in trust for the company, and shall, without prejudice to any other action being taken against him under this Act or under any other law for the time being in force, be liable to compensate the company to the extent of the benefit received by him. Penalty for contravention of the provisions of section 102 Without prejudice to the provisions of sub-section (4), if any default is made in complying with the provisions of this section, every promoter, director, manager or other key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees or five times the amount of benefit accruing to the promoter, director, manager or other key managerial personnel or any of his relatives, whichever is higher. [Section 102 (5)] QUORUM FOR MEETINGS [SECTION 103]7 Quorum means the minimum number of members who must be personally present in order to constitute a valid meeting. Section 103 of the Companies Act, 2013 states that unless the articles of the company provide for a larger number, the quorum for the meeting shall be as follows– Public Company - Private Company - If number of members is not more than 1000, quorum shall be 5 members Two members personally personally present. present shall be the Quorum. if the number of members is more than 1000 but upto 5000, then the quorum shall be 15 members personally present If the number of members exceed 5000, then quorum shall be 30 members personally present. 7 In case of Specified IFSC Public Company - Section 103 shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company. Notification No. GSR 8 (E), Date 4th January, 2017. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.39 a ◼ It is to be noted that the term ‘members personally present’ as mentioned above refers to the members entitled to vote in respect of the items of business on the agenda of the meeting. Adjournment of Meeting for want of Quorum [Section 103 (2) and (3)] If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company— (a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine; or (b) the meeting, if called by requisitionists under section 100, shall stand cancelled: Provided that in case of an adjourned meeting or of a change of day, time or place of meeting under clause (a), the company shall give not less than three days’ notice to the members either individually or by publishing an advertisement in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated. Quorum not present at the adjourned meeting also: Where quorum is not present in the adjourned meeting also within half an hour, then the members present shall form the quorum. Note: The following points have been prescribed by Secretarial Standard – 2: 1. One person can be an authorised representative of more than one body corporate. In such a case, he is treated as more than one Member present in person for the purpose of Quorum. However, to constitute a meeting, at least two individuals shall be present in person. Thus, in case of a public company having not more than one thousand members with a Quorum requirement of five members, an authorised representative of five bodies corporate cannot form a Quorum by himself but can do so if at least one more member is personally present. 2. Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. © The Institute of Chartered Accountants of India  a 7.40 CORPORATE AND OTHER LAWS 3. Members who have voted by Remote e-voting have the right to attend the General Meeting and accordingly their presence shall be counted for the purpose of Quorum. 4. A Member who is not entitled to vote on any particular item of business being a related party, if present, shall be counted for the purpose of Quorum. 5. The stipulation regarding the presence of a Quorum does not apply with respect to items of business transacted through postal ballot. Illustration 6 There are 54 members in Nice Games Private Limited. The company called its annual general meeting on Friday, 1st July 2022 at 2:00 p.m. at its registered office. There were 28 members present till 2:30 p.m. at the venue of the AGM. The Chairman of the meeting proceeded to initiate the meeting and passed the resolutions after observing due process. Comment whether the meeting took place as per the provisions of Companies Act, 2013. Answer: As per the provisions of Section 103 of the Companies Act, 2013, the quorum for a Private Limited Company shall be two members personally present, within half-an-hour from the time appointed for holding a general meeting of the company. Thus, the quorum for the Annual General Meeting of Nice Games Private Limited was complied with and the company has not contravened any of the provisions of the Companies Act, 2013. Illustration 7 Abbey Lights and Sounds Limited has 2300 members. The company called its Annual General Meeting on Tuesday, 23rd August, 2022 at 10.30 a.m. at its registered office situated in Connaught Place, New Delhi. On the day of the meeting, 18 members were personally present by 11.00 a.m. and the Chairman proceeded to initiate the Annual General Meeting. There were 5 special businesses to be discussed at the said meeting and by 2.30 p.m. Agenda 1 to 3 had been discussed and appropriate resolutions were passed. However, due to some emergency, 4 of the members had to leave around 3 p.m. The Chairman granted them the permission and proceeded to discuss Agenda 4 and 5 and accordingly passed resolutions as per the consent of the remaining members. Comment whether © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.41 a the meeting is a properly convened meeting as per the provisions of section 103 of the Companies Act, 2013. Answer: According to Secretarial Standard - 2 (SS-2), Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. In the above case, while the required quorum as per section 103 of the Companies Act, 2013 was present at the time when the meeting started, the quorum was not present at the time of deciding Agenda 4 and 5. Thus, where at the time of transacting business, the number of members is less than the quorum fixed for the meeting, the business cannot be transacted and shall be a nullity. CHAIRMAN OF MEETING [SECTION 104]8 Election of Chairman by Members: Section 104 of the Companies Act, 2013 seeks to provide that unless the Articles of Association of the Company otherwise provide, the members, personally present, shall elect among themselves to be the Chairman on a show of hands. Demand for Poll: The section further provides that if a poll is demanded on the election of the Chairman, the Chairman elected by show of hands shall continue to be the Chairman of the meeting until some other person is elected as Chairman as a result of poll, and such other elected person shall be the Chairman for rest of the meeting. Powers of Chairman: Chairman of the meeting is the person who manages the meetings and ensures that the required decorum of the meeting is maintained at all times, till the meeting is concluded and post that, executes the minutes of the meeting. The Chairman has prima facie authority to decide all questions which arise at a meeting and which require decision at that time. In order to fulfil his duty properly, he must observe strict impartiality. Chairman to have ‘casting vote’ if so provided in the Articles: The Chairman has a casting vote in Board Meetings and general meetings, if specifically empowered by the articles of the company. The term ‘casting vote’ means that in 8 In case of Specified IFSC Public Company - Section 104 shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company. Notification No. GSR 8 (E), Dated 4th January, 2017. © The Institute of Chartered Accountants of India  a 7.42 CORPORATE AND OTHER LAWS the event of equality of vote on a particular business being transacted at the meeting, the Chairman of the meeting shall have a right to cast a second vote. If there is no provision in the articles for a casting vote, an ordinary resolution on which there is equality of votes is deemed to be dropped. Exemption to a Private Company- In case of a private company - Section 104 shall apply, unless otherwise specified in respective section or the articles of the company provide otherwise. - Notification No. GSR 464 (E), dated 5th June, 2015. This exception shall be applicable to a private company which has not committed a default in filing its financial statements under section 137 or annual return under section 92 of the Act, with the Registrar. - Notification No. GSR 583 (E), dated 13th June 2017. 5. PROXIES [SECTION 105]9 Section 105 of the Companies Act, 2013 and Rule 19 of the Companies (Management & Administration) Rules, 2014 contain provisions relating to the proxies. ◼ Appointment of a proxy is an important right of a member of the company. Section 105 (1) provides that any member of a company who is entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf. However, a proxy shall not have the right to speak at such meeting and shall not be entitled to vote except on a poll. ◼ Applicability of the sub-section (1) – Unless the articles of a company otherwise provide, this sub-section shall not apply to a company not having a share capital. The Central Government may also prescribe a class or classes of companies whose members shall not be entitled to appoint another person as a proxy. 9 In case of Specified IFSC Public Company - Section 105 shall apply in case of a Specified IFSC public company, unless otherwise specified in the articles of the company. Notification No. GSR 8 (E), Dated 4th January, 2017. © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.43 a According to Rule 19, a member of a company registered under section 8 (companies formed with charitable objects, etc.) shall not be entitled to appoint any other person as his proxy unless such other person is also a member of such company. A person can act as proxy on behalf of members not exceeding fifty and holding in aggregate not more than 10 per cent of the total share capital of the company carrying voting rights. However, a member who is holding more than 10 per cent of the total share capital of the company carrying voting rights may appoint a single person as a proxy and such person shall not act as proxy for any other person or shareholder. [Rule 19 (2)] ◼ As a compliance requirement, in every notice calling a meeting of a company which has a share capital, or the articles of which provide for voting by proxy at the meeting, there shall appear with reasonable prominence a statement that a member entitled to attend and vote is entitled to appoint a proxy, or, where that is allowed, one or more proxies, to attend and vote instead of himself, and that a proxy need not be a member. [Section 105 (2)] ◼ The appointment of proxy shall be in Form No. MGT-11. [Rule 19(3)] ◼ If the instrument appointing a proxy is in the prescribed Form, it shall not be questioned on the ground that it fails to comply with any special requirements specified for such instrument by the articles of a company. [Section 105 (7)] ◼ The instrument appointing a proxy shall be in writing and signed by the appointer or his attorney duly authorised in writing. If the appointer is a body corporate, the instrument shall be under its seal or be signed by an officer or an attorney duly authorised by the body corporate. [Section 105 (6)] ◼ Section 105 (4) provides that a proxy received 48 hours before the meeting will be valid even if the articles provide for a longer period. ◼ Section 105 (8) provides that every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled during the period beginning twenty-four hours before the time fixed for the © The Institute of Chartered Accountants of India  a 7.44 CORPORATE AND OTHER LAWS commencement of the meeting and ending with the conclusion of the meeting, to inspect the proxies lodged, at any time during the business hours of the company, provided not less than three days' notice in writing of the intention so to inspect is given to the company. In simple words, it can be said that: - every member entitled to vote at a meeting of the company, or on any resolution to be moved thereat, shall be entitled to inspect the proxies lodged. - for the purpose of inspection, a minimum three days’ notice in writing is required to be given to the company. - inspection by any member can be made during the period beginning twenty-four hours before the time fixed for the commencement of the meeting and ending with the conclusion of the meeting. - inspection can be done at any time but only during the business hours of the company. ◼ Penalty for default–  If default is made in complying with section 105 (2), every officer of the company who is in default shall be liable to penalty of five thousand rupees. [Section 105(3)]  If for the purpose of any meeting of a company, invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the company's expense to any member entitled to have a notice of the meeting sent to him and to vote thereat by proxy, every officer of the company who issues the invitation as aforesaid or authorises or permits their issue, shall be liable to a penalty of fifty thousand rupees. Provided that an officer shall not be liable under this sub-section by reason only of the issue to a member at his request in writing of a form of appointment naming the proxy, or of a list of persons willing to act as proxies, if the form or list is available on request in writing to every member entitled to vote at the meeting by proxy. [Section 105(5)] © The Institute of Chartered Accountants of India  MANAGEMENT AND ADMINISTRATION 7.45 a 6. VOTING [SECTION 106-109] The votes cast by the shareholders play decisive role in the business proposed in General Meetings of a company. An equity shareholder has the right to vote for every motion. However, as per the Section 47 of the Companies Act, 2013 preference shareholder is entitled to vote only for a resolution pertaining to his rights. The various modes through which a shareholder can cast his vote are as follows:  Voting by show of hands – (section 107);  Voting by electronic means – (section 108);  Voting by demand of poll – (section 109);  Voting by Postal Ballot – (section 110). Voting by show of hands (Section 107) Voting by electronic means (Section 108) Voting Voting by Poll (Section 109) Voting by Postal Ballot (Section 110) The right to vote is a personal right of a shareholder and he may use it as he likes it. He may split his vote for and against the resolution. © The Institute of Chartered Accountants of India  a 7.46 CORPORATE AND OTHER LAWS RESTRICTION ON VOTING RIGHTS [SECTION – 106]10 Section 106 (1) indicates the supremacy of Articles of Association and specifies that the Articles of a company may provide that: - no member shall exercise any voting right in respect of any share registered in his name on which any amount is due from him on calls or any other sums presently payable by him t