and the Companies

Report
Master Class on Company Law
By C. S. Kelkar
Partner
C. S. Kelkar & Associates,
Company Secretaries
Points covered in the Presentation
Part I
Roles, responsibilities and powers of Directors
 Directors: Types, tenure, rotation, appointment,
composition
 Duties, liabilities and accountability
 Independent directors: appointment, databank,
code of conduct(schedule IV), rotation,
immunity
 Board Committees: types, compositions, terms
of reference
Part II
Meetings of Board
 Board meetings: participation by video
conferencing, secretarial standards, records
 Board meetings and other relaxations for
small companies and OPCs
Woman
Director
Additional
Director
Nominee
Director
Board of
directors
Alternate
Director
Independent
Director
Resident
Director
Independent Director-Sec 149
Applicable to Public Co.
Rs. 10 crores
or more paid
up capital
Listed
Company
Independent
Director
Rs 100
Crores or
more
turnover
Rs 50 Crores
or more
outstanding
boroowings
5
Resident Director Sec 149(3)
• Mandatory for ALL Companies
• Every company must have a Director who has
stayed in India for a total period of 182 days or
more in previous calendar year.
• Existing Companies, not fulfilling this condition, to
appoint Resident Director at earliest.
• MCA has clarified that period to be taken into
consideration will be calendar year 14. Hence, on
proportionate basis, number of days Director
should be resident in India shall exceed 136 days.
Woman director – Public Co. Only
(Sec. 149)
Listed
Company
Public
company
having capital
of Rs. 100
Crores or
more
Women
Director
Public
Company
having
turnover of Rs
300 Crores or
more
Additional Directors Sec. 161
• The Board of Directors can appoint any
person as additional director by passing a
resolution.
• A person who fails to get appointed as a
director in a general meeting cannot be
appointed as an additional Director by the
Board of Directors.
Alternate Director Sec. 161
• The Board of Directors may appoint an
alternate for a director during his absence
from India for a period of not less than
three months
• An alternate director vacates office when
the original director returns to India
• A person shall not be appointed as
alternate director for more than one
person in a company
Nominee Director Sec. 161
• the Board may appoint any person as a director
nominated by any institution.
• Such appointed nominee director shall not be
treated as an independent director.
• The institution instead of appointing director on
the board can appoint observer on the board.
• Companies law has not defined the role and
liabilities of observer.
Pointers for CS
Types of Director Private
Company
Public Company
Listed
Company
Woman Director
No
1. Paid up share capital of
one hundred crore or
more
2. Turnover of Three
hundred crore or more
Yes
Independent
Director
No
1. Paid up share capital of
Yes
Ten crore Rupees or more
or
2. Turnover of one hundred
crore rupees or more or
3. Aggregate outstanding
loan , Debenture Deposits
exceeding Fifty crore
Resident Director Yes
Yes
Yes
Tenure
• Managing Director/Whole Time Director or
Manager can be appointed for a term of five
years at a time. Sec 196(2)
• Additional Director appointed by Board of
Directors shall be appointed till the
conclusion of next AGM. The appointment
of Additional Director should be approved
by members in general meeting. Sec 162
Rotation of Directors
• Unless the articles provide for the
retirement of all directors at every annual
general meeting, not less than two-thirds of
the total number of directors of a public
company shall—
a) be persons whose period of office is liable
to determination by retirement of
directors by rotation; and
b) save as otherwise expressly provided in
this Act, be appointed by the company in
general meeting.
Rotation of Directors
• At the first annual general meeting of a
public company held next after the date of
the general meeting at which the first
directors are appointed and at every
subsequent annual general meeting, onethird of the directors for the time being as
are liable to retire by rotation.
• The directors to retire by rotation at every
annual general meeting shall be those who
have been longest in office.
Pointers for CS
Private Company
Public Company
Articles of Association
Applicable
Articles can provide for
provisions for retirement
by rotation. These
provisions shall prevail
over the Companies Act,
2013.
Section 152(6)(a) of
Companies Act, 2013
Not applicable
two-thirds of the total
number of directors shall
be liable to retire by
rotation.
one-third of the directors
out of the Directors to
retire by rotation shall
retire at every AGM.
Appointment of the directors (Sec. 152)
• Applicable to
Companies:
both
Private
and
Public
– Declaration by the Appointee that he/she is
not disqualified mandatory [Sec 152(4)]
– Consent to act as director to be filed with
the Company
– Company to file the consent with ROC.
Number of Directorships Sec. 165
Companies Act, 1956
Companies Act, 2013
Total directorship of Director Total directorships of
should not exceed 15.
Director should not exceed
20.
Directorship in public
company should not exceed
10.
Composition of Board of Director
Private Company
Private Limited Company
(minimum2 Directors)
Resident Director
(compulsory)
Resident or non
resident director
Category
Executive/non
executive
Category
Executive/non
executive
Composition of Board of Director
Public limited
Public Limited
Company (minimum
3 Directors)
Resident Director
(compulsory)
Independent
Director
Woman Director
(at least 2)
if applicable
If applicable
Category
Executive/non
executive
Category
Non Executive
Category
Executive/non
executive/indepen
dent Director
Composition of Board of Director
Listed Company
Resident Director
(compulsory)
Category Executive/non
executive
Listed Company
(minimum 3 Directors)
1/3rd Independent
Director
(mandatory)
Category
Non executive
Women Director
(Compulsory)
Category - Executive/
non executive/
independent Director
•
•
•
•
•
Duties/responsibilities of directors
For the first time, duties of directors have
been specified in the Act.
A director shall:
(i) Act in accordance with the company’s
Articles
(ii) Act in good faith in order to promote
the objects of the company for the benefit
of its members as a whole, and in the best
interests of the company
(iii) Exercise his duties with due and
reasonable care, skill & diligence.
Duties/responsibilities of directors
• A director shall not:
• (i) Involve in a situation where he may
have direct or indirect interest
• (ii) Achieve or attempt to achieve any
undue gain or advantage either to himself
or to his relatives
• (iii) Shall not assign his office
Liabilities of Director
• Companies Act, 2013 cast a criminal liability and
civil liability on “officer who is in default” which
includes Executive Director and KMP.
• Definition of Officer in default is as follows:
• “officer who is in default”, for the purpose of any
provision in this Act which enacts that an officer
of the company who is in default shall be liable to
any penalty or punishment by way of
imprisonment, fine or otherwise, means any of
the following officers of a company, namely:—
• (i) whole-time director;
• (ii) key managerial personnel;
• (iii) where there is no key managerial personnel,
such director or directors as specified by the
Board in this behalf and who has or have given
his or their consent in writing to the Board to
such specification, or all the directors, if no
director is so specified;
• iv) any person who, under the immediate
authority of the Board or any key managerial
personnel, is charged with any responsibility
including maintenance, filing or distribution of
accounts or records, authorises, actively
participates in, knowingly permits, or knowingly
fails to take active steps to prevent, any default;
• (v) any person in accordance with whose advice,
directions or instructions the Board of Directors
of the company is accustomed to act, other than a
person who gives advice to the Board in a
professional capacity;
• (vi) every director, in respect of a contravention
of any of the provisions of this Act, who is aware
of such contravention by virtue of the receipt by
him of any proceedings of the Board or
participation in such proceedings without
objecting to the same, or where such
contravention had taken place with his consent or
connivance;
• (vii) in respect of the issue or transfer of any
shares of a company, the share transfer agents,
registrars and merchant bankers to the issue or
transfer;
Independent Director (Sec. 149)
Who can be independent director
Who can’t be Independent
Director
is
Managing
Director,
Possesses relevant expertise and Who
Nominee Director , Whole time
experience
Director of the Company
Who is or was not a promoter of Who is related to promoters or
the company
directors in the company its
holding, subsidiary or associate
company
None of whose relative has
pecuniary relation with the
Company, its holding, subsidiary
or associate company or their
promoters
or
directors,
amounting to two percent or
more of its gross turnover or total
income or 50 lakh whichever is
lower
during
the
two
immediately preceding financial
years
Who has pecuniary relationship
with the company, its holding,
subsidiary or associate company
during the two immediately
preceding financial years or
during the current financial
year
Independent Director (Sec. 149)
Who can be independent director
Who can’t be Independent Director
Who, neither himself nor any of neither himself nor any of his relatives
his relatives holds position of who is or has been an employee
KMP
or proprietor or a partner of
Audit firm , Legal firm , in any of
the
three
financial
years
immediately
preceding
the
financial year
Who
possess
such
other neither himself nor any of his relatives
qualification
as
may
be who holds together with his
prescribed
relatives two per cent. or more of
the total voting power of the
company
Independent Director (Sec. 149)
Who can be independent director
Who can’t be Independent Director
neither himself nor any of his relatives
who is or has been an employee
of the Company or its holding,
subsidiary or associate company ,
in any of the three financial years
immediately
preceding
the
financial year of his appointment.
Appointment
• The appointment of independent director shall be
approved by the company in general meeting.
• an independent director shall hold office for a term up
to five consecutive years on the Board of a company,
but shall be eligible for reappointment on passing of a
special resolution by the company.
• no independent director shall hold office for more
than two consecutive terms, but such independent
director shall be eligible for appointment after the
expiration of three years of ceasing.
Appointment
• No remuneration other than sitting fees ,
commission on profit and reimbursement
of expenses shall be payable.
• Alternate Director of the independent
director should also be an independent
Director .
Databank
• Independent director may be selected from
a data bank containing names, addresses
and qualifications of persons who are
eligible and willing to act as independent
Director maintained by any body, institute
or association.
• It is optional to appoint independent
director from databank .
Code of Conduct (Schedule IV)
• uphold ethical standards of integrity and
probity
• act objectively and constructively while
exercising his duties
• exercise his responsibilities in a bona fide
manner in the interest of the company
• devote sufficient time and attention to his
professional obligations for informed and
balanced decision making
Code of Conduct (Schedule IV)
• not allow any extraneous considerations
that will vitiate his exercise of objective
independent judgment in the paramount
interest of the company as a whole, while
concurring in or dissenting from the
Collective judgment of the Board in its
decision making .
• not abuse his position to the detriment of
the company or its shareholders or for the
purpose of gaining direct or indirect
personal advantage or advantage for any
associated person;
Code of Conduct (Schedule IV)
• refrain from any action that would lead to
loss of his independence;
• where circumstances arise which make an
independent director lose his independence,
the independent director must immediately
inform the Board accordingly ;
• assist the company in implementing the best
corporate governance practices.
Rotation
• Independent Director is not liable to retire
by rotation
Immunity
• An independent director shall be held
liable only in respect of such acts of
omission or commission by a company
which had occurred with his knowledge or
connivance or for failure to exercise due
diligence in such acts {Section149(12)}
Committees of the Board
Particulars
Listed Company
Corporate Social
Responsibility
Committee
Audit Committee
Nomination &
Remuneration
Committee
 Net worth of
Rs 500 Crores
or more OR
 Turnover of Rs
1000 Crores or
more OR
 Net profit of
Rs 5 Crores or
more
Mandatorily
Required
Mandatorily
Required
Committees of the Board
Particulars
Public Limited
Companies
Corporate Social
Audit Committee
Nomination &
Responsibility
Remuneration
Committee
Committee
 Net worth of Rs  Paid-up Capital  Paid-up Capital
500 Crores or
of Rs 10 Crores
of Rs. 10 Crores
more OR
or more OR
or more OR
 Turnover of Rs  Outstanding
 Outstanding
1000 Crores or
loans/ deposits
loans/ deposits
more OR
/debentures, of
/debentures, of
 Net profit of Rs
Rs50Crores or
Rs50 Crores or
5 Crores or
more OR
more OR
more
 Turnover of Rs.  Turnover of Rs.
100 Crores or
100 Crores or
more
more
Committees of the Board
Particulars
Corporate Social Audit Committee
Responsibility
Committee
Private Limited
Companies



Net worth of Rs
500 Crores or
more OR
Turnover of Rs
1000 Crores or
more OR
Net profit of Rs
5 Crores or
more
Not Required
Nomination &
Remuneration
Committee
Not Required
Composition of CSR Committee
• Consisting of three or more directors out of
which one shall be an independent director.
• Unlisted public company and a private company
which are not required to appoint independent
Directors, can constitute CRS committee without
independent Director.
• Board’s Report must contain specified details in
respect to CSR like composition of CSR
committee, CSR policy, expenditure made on CSR
etc.
Composition of Audit Committee
• Minimum three directors with majority of
independent directors
• Audit Committee members and Chairman
of Audit Committee shall have ability to
read and understand financial statements
Composition of Nomination &
Remuneration Committee
• Three or more non-executive directors with
majority of independent directors
• Chairperson of the company can act as
committee member but not as the Chairman
of the nomination and remuneration
committee
Pointers for CS
• Whether it
is mandatory for Private
Company to appoint an independent
directors as member of CSR Committee?
As per Companies (Corporate Social
Responsibility Policy) Rule, 2014 no
requirement to appoint Independent Director
for Private company who have CSR
committee.
Meetings
Board Meeting (Sec. 173) and the Companies
(meetings of Board and its Powers) Rule 2014.
• Minimum 4 meetings in a year. Maximum gap
between two meetings – 120 days.
• Minimum Notice of 7 days for a meeting. No
shorter notice permitted unless independent
director is present, if any [Sec 173]
• Small Companies – At least One meeting in each
half of calendar year. Minimum gap between two
meetings – 90 days [Sec 173]
Board Meeting
•
BM
Notice
may
be
delivery/electronic means.
given
by
hand
• Meetings through Video Conferencing permitted.
But proper recording of video conferencing to be
kept.
• Minimum quorum shall be one third of its total
strength or two directors, whichever is higher
Participation by video
conferencing
• The participation of directors in a meeting of
the Board may be either in person or through
video conferencing or other audio visual
means.
• Procedure as per Companies (Meetings of
Board and its Powers) Rules, 2014.
Matter not to be dealt with at
meeting through video
conferencing
• the approval of the annual financial
statements;
• the approval of the Board’s report;
• the approval of the prospectus;
• the Audit Committee Meetings for
consideration of accounts; and
• the approval of the matter relating to
amalgamation,
merger,
demerger,
acquisition and takeover
Pointers for CS
• Whether presence of directors through Video
conference shall be considered for quorum?
- If the procedure of video conferencing is duly
complied by the Company, then the presence
of Director can be considered for quorum.
• What if the Directors attend the meeting
through video conference, however the
procedure is not complied with?
- Directors presence will not be considered for
quorum and also he would not be entitled to
vote on any matter of Board meeting.
Matters to be asked before, during and
after the meeting
Before meeting
Notice of the
meeting should be
sent to all the
directors 7 days
prior to the date of
Board meeting.
Quorum is present
for the meeting. Or
else the meeting
will be adjourned
for want of
quorum.
During meeting
Appointment of
chairman to conduct
the meeting.
Minutes of the
previous meeting
should be
approved and
signed by
Chairman
interested director
in any contract
shall not vote for
approval contract.
After meeting
Minutes of the
meeting should be
forwarded to all
directors within
30 days for their
review.
If any resolution
which require
reporting to ROC,
are passed , then
such compliance
should be
completed.
Secretarial Standard on Board
Meetings (SS-1)
• The Secretarial Standards issued by ICSI are
recommendatory in nature.
• Notice in writing of every Meeting should be
given to every Director by hand or by post or
by facsimile or by e-mail or by any other
electronic mode.
• Unless the Articles prescribe a longer notice
period, Notice should be given at least fifteen
days before the date of the Meeting.
Secretarial Standard on Board Meeting
(SS-1)
• The Board should meet at least once in every
three months, with a maximum interval of
120 days between any two Meetings such
that at least four Meetings are held in each
year.
• Every company should have a Chairman who
would be the Chairman for Meetings of the
Board.
• Leave of absence should be granted to a
Director only when a request for such leave
has been communicated to the Secretary or
to the Board or to the Chairman
• The presence of all the members of any
Committee constituted by the Board is
necessary to form the Quorum for Meetings of
such Committee unless otherwise stipulated by
the Board while constituting the Committee.
• Quarterly or half-yearly financial results should
be approved at a Meeting of the Board or its
Committee and should not be approved by
means of a Resolution passed by circulation.
• Within fifteen days from the date of the Meeting of
the Board or Committee or of an adjourned Meeting,
the draft Minutes thereof should be circulated to all
the members of the Board or the Committee, as the
case may be, for their comments.
• Minutes should not be pasted or attached to the
Minutes Book.
• Minutes, if maintained in loose-leaf form, should be
bound at intervals coinciding with the financial year of
the company.
Relaxations for OPCs and Small companies
Particulars
One Person Company
Small Company
Holding of Board meeting
Not applicable when there Applicable
is only one director on its
Board of Directors.
Applicable if there are
At least one board
meeting of the board of more than one Directors
director has been
conducted in each half
calendar year and gap
between two meeting is
not less than ninety
days
Applicable
Quorum of Board meeting In case of One DirectorNot applicable
In case of more than one
Director- 1/3 of its total
strength or 2 directors
whichever is higher
1/3 of its total strength or
2 directors whichever is
higher
Holding of Annual General Not applicable
meeting
Applicable
Financial statement not
to include cash flow
statement
Applicable
Applicable
Signing of financial
statements
By only one Director
by the chairperson of the
company
where
he
is
authorised by the Board or by
two directors out of which one
shall be managing director and
the Chief Executive Officer, if he
is a director in the company,
the Chief Financial Officer and
the company secretary of the
company, wherever they are
appointed.
Signing of Annual Return
By Company Secretary or
where there is not
Company Secretary by the
Director of the Company.
By Company Secretary or
where there is not
Company Secretary by the
Director of the Company.
Due date of filing for
Financial Statements
with Registrar.
180 days.
30 days
Holding of Annual General Not applicable
meeting
Applicable.
Pointers for CS
• What are the liabilities of Company Secretary
in Employment if there is non compliance of
the above mentioned matters?
- Companies Act, 2013 cast a criminal
liability and civil liability on “officer who is
in default” which includes Company
Secretary in Employment.
• What are the liabilities of Company Secretary
in Practice?
Liabilities of PCS
Particulars
Default
Penalty
Annual
return
Certifies the annual return Fine which shall not be less than
otherwise than in conformity fifty thousand rupees but which may
with Section 92 or the rules extend to five lakh rupees
made there under
Secretarial
audit report
Certification of Secretarial Audit Not less than one lakh rupees but
Report
which may extend to five lakh
rupees
Fraud
or If found to be guilty of fraud or Imprisonment not less than six
False
made false statement
months but may extend to ten years
Statement,
and also liable to fine not less than
return
amount involved in the fraud, but
Certificate
which may extend to three times the
amount involved in fraud
• Any Queries….
Thank you!!!
Contact Details
CS C. S. Kelkar
Cell: +91-98225 02145
Email: [email protected]
Website: www.kelkarcs.com

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