A Note On The Working Of The Board Of Directors

A NOTE ON THE WORKING OF THE BOARD OF DIRECTORS  by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road  bikaner 334001 rajasthan, india FOR – PGPSE PARTICIPANTS mobile : 91+9414430763 5 DECEMBER 09 www.afterschool.tk 1 WHO IS A DIRECTOR? SEC 2(13) : ANY PERSON WHO OCCUPIES THE POSITION OF A DIRECTOR – BY WHATEVER NAME CALLED 5 DECEMBER 09 www.afterschool.tk 2 CASE STUDY : FERGUSON V.S WILSON Truely speaking the director of a company is an agent of the company 5 DECEMBER 09 www.afterschool.tk 3 Case study : Smith v/s Anderson Directors are truely the trustees of the property fo the company 5 DECEMBER 09 www.afterschool.tk 4 DEEMED DIRECTOR ??? As per sec. 5 , 303, 372A : if directors act on advice of a person, that person is called deemed director. Sec. 7 : if that person is giving professional advice – that person will not be called deemed director. 5 DECEMBER 09 www.afterschool.tk 5 Managing Director ??? Sec 2(26) : a person who has been given substantial powers of management is called managing director - he can be appointed – by - board resolution / articles / AGM / agreements 5 DECEMBER 09 www.afterschool.tk 6 Minimum number of directors Sec. 252 : public company : 3, private company : 2 no maximum limit in law these limits can be set in articles of association sec. 259- when the number of direcors increase  beyond 12, it may require Govt. Permission 5 DECEMBER 09 www.afterschool.tk 7 Directors representing small shareholders (only on public companies with Rs. 5 crore or  more) As per Companies (appointment of small shareholders' director) rules 2001 – there should director / s representing small shareholders. Small shareholders : holding upto Rs. 20000 nominal value (face value) of shares. 5 DECEMBER 09 www.afterschool.tk 8 First directors (sec. 254) May be appointed by articles of association. Regulation 64 of Table A of schedule I : the first directors are appointed by subscribers of  MOA & AOA . 5 DECEMBER 09 www.afterschool.tk 9 Subsequent Directors (sec. 255, 256) They are appointed by AGM 2/3rd directors are retiring directors - 1/3rd may  be non-retiring directors. Thus if you have 12 directors, 8 directors have to retire by rotation. 5 DECEMBER 09 www.afterschool.tk 10 Case study : S. Jabh Singh vs Panesar Mech. Works P. Ltd. Where no period for retirement is prescribed in AOA, then directors will retire when they are removed as per sec. 284. 5 DECEMBER 09 www.afterschool.tk 11 Case : Consolidated Nickel Mines Ltd. When AGM is not held, directors due to retire, will retire on their due date – similarly when AGM is adjourned, the directors due to retire, will retire on that that day retiring director may be reappointed. FIFO in retirements 5 DECEMBER 09 www.afterschool.tk 12 How will you become a director? At least 14 day notice of willingness to become a director with fees of Rs. 500 (by the person or the person who is proposing someone as director). The person must also submit his accent to  become a director to to ROC at least 30 days  before appointment. 5 DECEMBER 09 www.afterschool.tk 13 Can BoD (board of directors) appoint additional directors? Yes – IF AOA authorise it . But this appointment will be till next AGM. If AGM is not held, the director will retire on the date of AGM. (sec. 260) 5 DECEMBER 09 www.afterschool.tk 14 Casual Appointments (Sec. 262) If there is a vacancy, the board may appoint a director as per procedure in AoA. This is casual appointment. 5 DECEMBER 09 www.afterschool.tk 15 ALTERNATE DIRECTOR (SEC. 313) BoD may appoint alternate director in place of  a director who is going for a long vacation the alternate director will leave the position when original director returns. It must be for 3 months or more. 5 DECEMBER 09 www.afterschool.tk 16 Appointment by Central Govt. (sec. 408) If Company Law Board thinks it is necessary, then Central govt. May appoint a director for a  period upto 3 years. This director will not require qualification shares (minimum number of shares to be held  by every director to be eligible to become a director). While counting 2/3rd, we will not take this director into account. 5 DECEMBER 09 www.afterschool.tk 17 rd Appointment by 3 parties Financial institutions like IDBI/IFCI/ICICI/SBI etc. Can appoint addional nominee directors – their particulars have to be submitted in form no. 32. 5 DECEMBER 09 www.afterschool.tk 18 Appointment in AGM As per sec. 263 – a director is appointed by shareholders – by simple majority. Each director will require separate resolution. 5 DECEMBER 09 www.afterschool.tk 19 Principle of Proportional Representation (sec. 265) In order to enable minority shareholders, this  principle has been introduced. The directors appointed by this principle should hold office for 3 years and cannot be removed by AGM as  per sec. 284. rd (upto 2/3 directors may be appointed by this system – by single transferable vote / cumulative voting). 5 DECEMBER 09 www.afterschool.tk 20 MD / whole time director (sec. 269) Every public company having 5 crore or more capital must have an MD / whole time director. It requires permission of Central Government / or apply as per schedule XIII and submit return in form 25C within 90 days of appointment. 5 DECEMBER 09 www.afterschool.tk 21 Schedule XIII – part I The person being appointed as MD must not have violated any act like Central Excise, Income Tax, Wealth Tax, Customs, FEMA etc. Age – between 25 and 70 (A major with less than 25 years age / more than 70 ,can also  become, if special resolution + govt. Permission is obtained). must not have violated COFEPOSA 5 DECEMBER 09 www.afterschool.tk 22 Maximum period of term The maximum period is 5 years reappointment is permitted. 5 DECEMBER 09 www.afterschool.tk 23 Maximum remuneration (sec. 198) 5% total managerial remuneration of the company = 11% of profit (computed as per sec. 349 and 350) for part time director : 1% (if MD is there, 3%, if there is no MD) 5 DECEMBER 09 www.afterschool.tk 24 Sitting fees (sec. 309) Maximum fees : 20000 for each meeting (when turnover is above 50 crore and capital + reserves at least 10 crores). Otherwise maximum : 10000 / per meeting. 5 DECEMBER 09 www.afterschool.tk 25 Qualification of directors (sec. 274) Qualifications are not mentioned, but disqualifications are mentioned in the law. A  person of unsound mind, undischarted insolvent, a person imprisoned for moral turpitude for 6 months or more is not eligible for directorship. 5 DECEMBER 09 www.afterschool.tk 26 Case : Oriental Metal Pressing works P. Ltd vs. Bhaskar  kashinath The court held that only individual can be director, a firm or association cant be director, as it is a position of trust. 5 DECEMBER 09 www.afterschool.tk 27 Case : People's bank of northern India Articles of association may exempt persons of  technical / professional qualification from having qualification shares. Otherwise the articles may require the director to have qualification shares. 5 DECEMBER 09 www.afterschool.tk 28 Qualification shares (sec. 270) Director must have qualification shares in 2 months from appointment the nominal value of qualification shares should not be more than Rs. 5000  bearer of share warrant cant be said to be holding qualification shres. 5 DECEMBER 09 www.afterschool.tk 29 Penalty : sec 272 If a director doesnt acquire qualification shares in 2 months, he shall pay penalty Rs. 500 per  day. (all these provisions are applicable only on public companies) 5 DECEMBER 09 www.afterschool.tk 30  Number of directorship (max.) sec. 275  No person can become director of more than 15 companies (public companies) 5 DECEMBER 09 www.afterschool.tk 31 Sec. 278 – what to exclude from 15 companies Following are not counted in 15 companies :  private company unlimited company a company in which the person is alternate director  association association not for profit  penalty : (sec. 279) : upto 50000 if if you become director  of more than 15 public companies 5 DECEMBER 09 www.afterschool.tk 32 Vacation of post of director (sec. 283) A director has to vacate if : he is of unsound mind, he doesnt acquire qualification shares in 2 months, he is judged insolvent, convicted for moral turpitude & imprisoned for 6 months or more, absents the 3 consecutive meetings or for 3 months (without leave), he doesnt disclose his interest in a contract (sec. 299), by court (sec. 203), when he is there as an employee, but he retires. 5 DECEMBER 09 www.afterschool.tk 33 Removal of director (sec. 284, 388B, 402, ) Shareholders can remove a director by ordinary resolution. They have to send a special notice (14 day notice) for this meeting and pass the resolution. They cant remove a director appointed by Govt / financial institution. (sec. 284) 5 DECEMBER 09 www.afterschool.tk 34 Removal by govt. In case of fraud If the director is engaged in fraud, mal practices, anti-social activities etc. Or the company is not managed properly or the company is working against the interest of  lenders / financers, or the company is following unsound business practices, The director can be removed by government as per  sec. 388B to 388E. 5 DECEMBER 09 www.afterschool.tk 35 Removal by company law board In order to prevent oppression and mismanagement, CLB can remove director  (sec. 397,398,402) – that director cant become director of another company for 5 years. 5 DECEMBER 09 www.afterschool.tk 36 Loans to director (sec. 295) Without prior permission from government, no company can give loan to its director / firm (where the director of this company is a partner  / proprietor ) / company of its director (its (its director is holding 25% voting power in that company), however, these provisions dont apply to private / banking / holding company 5 DECEMBER 09 www.afterschool.tk 37 WHO MAY CALL BOARD MEETING ? Any director can call a board meeting or he may make a requisition for a board meeting as  per Regulation 73 of table A of schedule I. 5 DECEMBER 09 www.afterschool.tk 38  NUMBER OF BOARD MEETINGS? At least one in 3 months and at least 4 meetings in a year. At least 15 notice of the  board meeting must be given at the address of  the director / fax. There must be at least 7 days notice of agenda / notes to agenda of the board meeting. 5 DECEMBER 09 www.afterschool.tk 39 QUORUM (SEC. 287) It means the minimum number of persons who must be present in the board meeting. At least 1/3rd must be present (or two = whichever is more). Only those who are disinterested can come and participated. Those who are interested in the matters, cannot vote. If  quorum is not present, adjourn the meeting for  same day, next week. A fresh notice is required if it is sine de adjournment. 5 DECEMBER 09 www.afterschool.tk 40 Validity of the act of directors (sec. 290) The powers of directors are defined in law and also in articles of association. They can act in their powers. Even if a director is disqualified or later on it is discovered that he was not appointed properly, his acts done earlier will remain valid and binding on the company. 5 DECEMBER 09 www.afterschool.tk 41 Minutes of the meeting of the  board of directors Minutes of the board meetings must be  prepared in 30 days of the meeting and must be  preserved in minutes book – duly serial numbered. The chairman must sign each page of the minutes book. The minutes book should not have loose leaves. The chairman may remove the material which is irrelevant. 5 DECEMBER 09 www.afterschool.tk 42 Minutes book as evidence Minutes book is a legal evidence as per sec. 194, so it should be properly kept. Any director  can inspect the minutes book. 5 DECEMBER 09 www.afterschool.tk 43 Chairman of the board of directors meetings Chairman can be elected by the board of  director. If there is no chairman or he is absent, the meeting may select its chairman in 5 minutes of the meeting. As per regulation 74 of Table A of Schedule I, chairman has a casting vote. 5 DECEMBER 09 www.afterschool.tk 44 Sudha Soni has said that she s he will not be able to attend  board meetings as she is going to the USA. Will you still send her notice for board meetings (she being a director). If alternate director is appointed, will you still send her a notice of the meeting? Yes – in both the cases, notice has to be sent to the director. In the second case, to both the directors 5 DECEMBER 09 www.afterschool.tk 45 Is it necessary that the notice of  BOM must specify the business to  be discussed?  No – it can be sent separately. (we have discussed - it requires only 7 days notice, but  board meeting requires 15 day notice). 5 DECEMBER 09 www.afterschool.tk 46 Can board meeting be held on  public holiday / after business hours? Yes 5 DECEMBER 09 www.afterschool.tk 47 Case : as per law you have to have one meeting at least in every quarter. However, due to lack  of qorum (as your directors are mostly in the USA), no meeting is held. Have you violated the law?  No – you made an efforts – the meeting was not held due to lack of quorum. 5 DECEMBER 09 www.afterschool.tk 48 Board held a meeting on 31 Jan, as every year you have a meeting on 31 Jan. No notice was given. Is it a valid meeting? Yes, it is still a valid meeting. 5 DECEMBER 09 www.afterschool.tk 49 Audit committee ? ? ? Sec. 292 A and clause 49 of listing agreement requires every company to appoint an audit committee of directors. It will look into the working of the company. 5 DECEMBER 09 www.afterschool.tk 50 Clause 49 It requires that audit committee must be appointed by all those companies which are listed companies. Audit committee can have only independent directors. The company secretary will be the secretary of the audit committee also. It must have meetings just like  board of directors. 5 DECEMBER 09 www.afterschool.tk 51 Registers of directors (sec. 303) Every company must keep a register of the directors. The register must be a bound book. It will also prepare a form no. 32 and file with the registrar of the companies about the directors. (in 30 days of appointment of the dreictors) comapny must keep a resiter of all the contracts in which director is interested (sec. 301) register of shareholding of directors (sec. 307) is also necessary . 5 DECEMBER 09 www.afterschool.tk 52 Offences and penalties (sec. 630, 621A, 633) If directors commit any mistake / offence, he is  punishable by Rs. 10000 / with / without imprisonment upto 2 years as per sec. 630, however, court can grant relief as per sec. 633. 5 DECEMBER 09 www.afterschool.tk 53 Case : Rohit Samsukha wants to resign from the post of MD, can he do so ?  No, he has to follow the terms and conditions of the contract. He can resign only as per  terms. However, other directors can resign any time – even orally – whether the company accepts it or not, but Rohit is MD, he cant. 5 DECEMBER 09 www.afterschool.tk 54 Pankaj is not a member of our company,  but he wants to inspect our register of  directors, can he do so ? Yes – during business hours. For members it is free, but for others (Pankaj), there is a fee of  Re. 1. 5 DECEMBER 09 www.afterschool.tk 55 ABC ltd and XYZ ltd. Make a contract, Sudha has interest in the contract, but she doesnt disclose it in the board meeting or in form 24AA , she holds .1% in both the companies. What will happen? Ordinarily fine of 50000 , however, there are exceptions - so probably Sudha will escape due to these exceptions – like she has very small holding (less than 2%) 5 DECEMBER 09 www.afterschool.tk 56 5 DECEMBER 09 www.afterschool.tk 57 Case : MR electronics components Advance salary to the wife of a director will not come in sec. 295 5 DECEMBER 09 www.afterschool.tk 58 Case : Dr. Fredie Ardeshir  Sale of flat on instalment to the director will not come under sec. 295 5 DECEMBER 09 www.afterschool.tk 59 Contract with firms related to director (sec. 297) A company cannot enter into a contract with another firm / company in which its own director is a partner / owner, unless it has been approved by the board. Exemptions : if it is cash transaction, or it is a ordinary transaction in banking / insurance firm or if the value of transaction is less than Rs. 5000 per annum. 5 DECEMBER 09 www.afterschool.tk 60 Case study Professional services (like auditing, consultancy) dont come in sec. 297. 5 DECEMBER 09 www.afterschool.tk 61  Notice by director  A director has to give notice in form 24AA when a company is about to enter into contract in which director is interested. The notice must  be given to the board of directors when they meet. (sec. 299)  penalty : Rs. 50000 5 DECEMBER 09 www.afterschool.tk 62 Case : fire stone tyre & rubber co v/s synthetics and chemicals co. Interest here means personal interest – not official interest and includes closeness of  relatives (like father – son). 5 DECEMBER 09 www.afterschool.tk 63 Director not to participate in some meetings (sec. 300) A director cannot participate in a meeting in which a matter / contract related to his issue issue / in which he is interested, is discussed. 5 DECEMBER 09 www.afterschool.tk 64 Office of profit Sec. 314 Director / his relatives cannot hold an office of   profit having remuneration of Rs. 10000 or  more per month – without special resolution. Any firm / company in which director is a  partner / owner also cant hold a place of profit without special resolution 5 DECEMBER 09 www.afterschool.tk 65 Restriction on the powers of the  board Sec. 293 restricts the powers of the board : it cant remit loan due to director or his firm, it cant invest compensation received otherwise than as per law, it cant dive charity of more than 5% of profit (or 50000) it cant borrow more than equity + reserves without  permission. 5 DECEMBER 09 www.afterschool.tk 66 Can the directors keep accounts in other places than registered office? Yes – the board of directors have to take a decision and communicate it in 7 days to ROC (registrar of companies) in form23 AA. It can keep its accounts of branch offices at  branch office – but a summarised report should  be sent to the registered office at intervals of 3 months. 5 DECEMBER 09 www.afterschool.tk 67 Can a director inspect any book of  accounts? Yes - during business hours ( sec. 209 (4) ) 5 DECEMBER 09 www.afterschool.tk 68 How long should the directors keep the books of accounts  preserved? For 8 years. 5 DECEMBER 09 www.afterschool.tk 69 How should directors get the accounts and reports approved from shareholders? Within 6 months of date of closure of financial year,it must be adopted by AGM as per sec. 210 financial year can be extended upto 15 months and with permission of ROC, upto 18 months. 5 DECEMBER 09 www.afterschool.tk 70 Signing of annual accounts Annual accounts must be signed by 2 direcotrs / manager / secretary if you have MD, he must sign it. Sec. 216 : P & L as per format must be attached with balance sheet. Sec. 217 : board of director must add his report on working of company with the annual account. 5 DECEMBER 09 www.afterschool.tk 71 THANKS.... GIVE YOUR SUGGESTIONS AND JOIN AFTERSCHOOOL NETWORK / START AFTERSCHOOOL SOCIAL ENTREPRENEURSHIP NETWORK IN YOUR CITY [email protected] PGPSE – WORLD'S MOST COMPREHENSIVE PROGRAMME IN SOCIAL ENTREPRENEURSHIP 5 DECEMBER 09 www.afterschool.tk 72
View more...
   EMBED

Share

Preview only show first 6 pages with water mark for full document please download

Transcript

A NOTE ON THE WORKING OF

THE BOARD OF DIRECTORS

by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
FOR – PGPSE PARTICIPANTS
mobile : 91+9414430763

5 DECEMBER 09 www.afterschool.tk 1
WHO IS A DIRECTOR?

SEC 2(13) : ANY PERSON WHO OCCUPIES
THE POSITION OF A DIRECTOR – BY
WHATEVER NAME CALLED

5 DECEMBER 09 www.afterschool.tk 2
CASE STUDY : FERGUSON
V.S WILSON

Truely speaking the director of a company is
an agent of the company

5 DECEMBER 09 www.afterschool.tk 3
Case study : Smith v/s Anderson

Directors are truely the trustees of the property
fo the company

5 DECEMBER 09 www.afterschool.tk 4
DEEMED DIRECTOR ???

As per sec. 5 , 303, 372A : if directors act on
advice of a person, that person is called
deemed director.
Sec. 7 : if that person is giving professional
advice – that person will not be called deemed
director.

5 DECEMBER 09 www.afterschool.tk 5
Managing Director ???

Sec 2(26) : a person who has been given
substantial powers of management is called
managing director - he can be appointed – by
- board resolution / articles / AGM /
agreements

5 DECEMBER 09 www.afterschool.tk 6
Minimum number of directors

Sec. 252 : public company : 3, private
company : 2
no maximum limit in law
these limits can be set in articles of association
sec. 259- when the number of direcors increase
beyond 12, it may require Govt. Permission
5 DECEMBER 09 www.afterschool.tk 7
Directors representing small
shareholders
(only on public companies with Rs. 5 crore or
more)
As per Companies (appointment of small
shareholders' director) rules 2001 – there
should director / s representing small
shareholders.
Small shareholders : holding upto Rs. 20000
nominal value (face value) of shares.
5 DECEMBER 09 www.afterschool.tk 8
First directors (sec. 254)

May be appointed by articles of association.
Regulation 64 of Table A of schedule I : the
first directors are appointed by subscribers of
MOA & AOA .

5 DECEMBER 09 www.afterschool.tk 9
Subsequent Directors (sec. 255,
256)

They are appointed by AGM
2/3rd directors are retiring directors - 1/3rd may
be non-retiring directors. Thus if you have 12
directors, 8 directors have to retire by rotation.

5 DECEMBER 09 www.afterschool.tk 10
Case study : S. Jabh Singh vs
Panesar Mech. Works P. Ltd.

Where no period for retirement is prescribed in
AOA, then directors will retire when they are
removed as per sec. 284.

5 DECEMBER 09 www.afterschool.tk 11
Case : Consolidated Nickel Mines
Ltd.

When AGM is not held, directors due to retire,
will retire on their due date – similarly when
AGM is adjourned, the directors due to retire,
will retire on that that day
retiring director may be reappointed.
FIFO in retirements

5 DECEMBER 09 www.afterschool.tk 12
How will you become a director?

At least 14 day notice of willingness to become
a director with fees of Rs. 500 (by the person
or the person who is proposing someone as
director).
The person must also submit his accent to
become a director to ROC at least 30 days
before appointment.
5 DECEMBER 09 www.afterschool.tk 13
Can BoD (board of directors)
appoint additional directors?

Yes – IF AOA authorise it .
But this appointment will be till next AGM.
If AGM is not held, the director will retire on
the date of AGM.
(sec. 260)

5 DECEMBER 09 www.afterschool.tk 14
Casual Appointments (Sec. 262)

If there is a vacancy, the board may appoint a
director as per procedure in AoA. This is
casual appointment.

5 DECEMBER 09 www.afterschool.tk 15
ALTERNATE DIRECTOR (SEC.
313)

BoD may appoint alternate director in place of
a director who is going for a long vacation -
the alternate director will leave the position
when original director returns. It must be for 3
months or more.

5 DECEMBER 09 www.afterschool.tk 16
Appointment by Central Govt.
(sec. 408)
If Company Law Board thinks it is necessary,
then Central govt. May appoint a director for a
period upto 3 years.
This director will not require qualification
shares (minimum number of shares to be held
by every director to be eligible to become a
director).
While counting 2/3rd, we will not take this
director into account.
5 DECEMBER 09 www.afterschool.tk 17
rd
Appointment by 3 parties

Financial institutions like
IDBI/IFCI/ICICI/SBI etc. Can appoint
addional nominee directors – their particulars
have to be submitted in form no. 32.

5 DECEMBER 09 www.afterschool.tk 18
Appointment in AGM

As per sec. 263 – a director is appointed by
shareholders – by simple majority. Each
director will require separate resolution.

5 DECEMBER 09 www.afterschool.tk 19
Principle of Proportional
Representation (sec. 265)
In order to enable minority shareholders, this
principle has been introduced. The directors
appointed by this principle should hold office
for 3 years and cannot be removed by AGM as
per sec. 284.
(upto 2/3rd directors may be appointed by this
system – by single transferable vote /
cumulative voting).
5 DECEMBER 09 www.afterschool.tk 20
MD / whole time director (sec.
269)

Every public company having 5 crore or more
capital must have an MD / whole time director.
It requires permission of Central Government /
or apply as per schedule XIII and submit return
in form 25C within 90 days of appointment.

5 DECEMBER 09 www.afterschool.tk 21
Schedule XIII – part I

The person being appointed as MD must not
have violated any act like Central Excise,
Income Tax, Wealth Tax, Customs, FEMA etc.
Age – between 25 and 70 (A major with less
than 25 years age / more than 70 ,can also
become, if special resolution + govt.
Permission is obtained).
must not have violated COFEPOSA
5 DECEMBER 09 www.afterschool.tk 22
Maximum period of term

The maximum period is 5 years -
reappointment is permitted.

5 DECEMBER 09 www.afterschool.tk 23
Maximum remuneration (sec.
198)

5%
total managerial remuneration of the company
= 11% of profit (computed as per sec. 349 and
350)
for part time director : 1% (if MD is there, 3%,
if there is no MD)

5 DECEMBER 09 www.afterschool.tk 24
Sitting fees (sec. 309)

Maximum fees : 20000 for each meeting
(when turnover is above 50 crore and capital +
reserves at least 10 crores).
Otherwise maximum : 10000 / per meeting.

5 DECEMBER 09 www.afterschool.tk 25
Qualification of directors (sec.
274)

Qualifications are not mentioned, but
disqualifications are mentioned in the law. A
person of unsound mind, undischarted
insolvent, a person imprisoned for moral
turpitude for 6 months or more is not eligible
for directorship.

5 DECEMBER 09 www.afterschool.tk 26
Case : Oriental Metal Pressing
works P. Ltd vs. Bhaskar
kashinath

The court held that only individual can be
director, a firm or association cant be director,
as it is a position of trust.

5 DECEMBER 09 www.afterschool.tk 27
Case : People's bank of northern
India

Articles of association may exempt persons of
technical / professional qualification from
having qualification shares. Otherwise the
articles may require the director to have
qualification shares.

5 DECEMBER 09 www.afterschool.tk 28
Qualification shares (sec. 270)

Director must have qualification shares in 2
months from appointment
the nominal value of qualification shares
should not be more than Rs. 5000
bearer of share warrant cant be said to be
holding qualification shres.

5 DECEMBER 09 www.afterschool.tk 29
Penalty : sec 272

If a director doesnt acquire qualification shares
in 2 months, he shall pay penalty Rs. 500 per
day. (all these provisions are applicable only
on public companies)

5 DECEMBER 09 www.afterschool.tk 30
Number of directorship (max.)
sec. 275

No person can become director of more than
15 companies (public companies)

5 DECEMBER 09 www.afterschool.tk 31
Sec. 278 – what to exclude from
15 companies

Following are not counted in 15 companies :
private company
unlimited company
a company in which the person is alternate director
association not for profit
penalty : (sec. 279) : upto 50000 if you become director
of more than 15 public companies

5 DECEMBER 09 www.afterschool.tk 32
Vacation of post of director (sec.
283)
A director has to vacate if :
he is of unsound mind, he doesnt acquire
qualification shares in 2 months, he is judged
insolvent, convicted for moral turpitude &
imprisoned for 6 months or more, absents the 3
consecutive meetings or for 3 months (without
leave), he doesnt disclose his interest in a
contract (sec. 299), by court (sec. 203), when
he is there as an employee, but he retires.
5 DECEMBER 09 www.afterschool.tk 33
Removal of director (sec. 284,
388B, 402, )

Shareholders can remove a director by
ordinary resolution. They have to send a
special notice (14 day notice) for this meeting
and pass the resolution. They cant remove a
director appointed by Govt / financial
institution. (sec. 284)

5 DECEMBER 09 www.afterschool.tk 34
Removal by govt. In case of fraud

If the director is engaged in fraud, mal-
practices, anti-social activities etc. Or the
company is not managed properly or the
company is working against the interest of
lenders / financers, or the company is
following unsound business practices, The
director can be removed by government as per
sec. 388B to 388E.
5 DECEMBER 09 www.afterschool.tk 35
Removal by company law board

In order to prevent oppression and
mismanagement, CLB can remove director
(sec. 397,398,402) – that director cant become
director of another company for 5 years.

5 DECEMBER 09 www.afterschool.tk 36
Loans to director (sec. 295)

Without prior permission from government, no
company can give loan to its director / firm
(where the director of this company is a partner
/ proprietor ) / company of its director (its
director is holding 25% voting power in that
company),
however, these provisions dont apply to private
/ banking / holding company
5 DECEMBER 09 www.afterschool.tk 37
WHO MAY CALL BOARD
MEETING ?

Any director can call a board meeting or he
may make a requisition for a board meeting as
per Regulation 73 of table A of schedule I.

5 DECEMBER 09 www.afterschool.tk 38
NUMBER OF BOARD
MEETINGS?

At least one in 3 months and at least 4
meetings in a year. At least 15 notice of the
board meeting must be given at the address of
the director / fax.
There must be at least 7 days notice of agenda /
notes to agenda of the board meeting.

5 DECEMBER 09 www.afterschool.tk 39
QUORUM (SEC. 287)
It means the minimum number of persons who
must be present in the board meeting. At least
1/3rd must be present (or two = whichever is
more). Only those who are disinterested can
come and participated. Those who are
interested in the matters, cannot vote. If
quorum is not present, adjourn the meeting for
same day, next week. A fresh notice is required
if it is sine de adjournment.
5 DECEMBER 09 www.afterschool.tk 40
Validity of the act of directors
(sec. 290)

The powers of directors are defined in law and
also in articles of association. They can act in
their powers. Even if a director is disqualified
or later on it is discovered that he was not
appointed properly, his acts done earlier will
remain valid and binding on the company.

5 DECEMBER 09 www.afterschool.tk 41
Minutes of the meeting of the
board of directors

Minutes of the board meetings must be
prepared in 30 days of the meeting and must be
preserved in minutes book – duly serial
numbered. The chairman must sign each page
of the minutes book. The minutes book should
not have loose leaves. The chairman may
remove the material which is irrelevant.
5 DECEMBER 09 www.afterschool.tk 42
Minutes book as evidence

Minutes book is a legal evidence as per sec.
194, so it should be properly kept. Any director
can inspect the minutes book.

5 DECEMBER 09 www.afterschool.tk 43
Chairman of the board of directors
meetings

Chairman can be elected by the board of
director. If there is no chairman or he is absent,
the meeting may select its chairman in 5
minutes of the meeting.
As per regulation 74 of Table A of Schedule I,
chairman has a casting vote.

5 DECEMBER 09 www.afterschool.tk 44
Sudha Soni has said that she will not be able to attend
board meetings as she is going to the USA. Will you
still send her notice for board meetings (she being a
director). If alternate director is appointed, will you
still send her a notice of the meeting?

Yes – in both the cases, notice has to be sent to
the director. In the second case, to both the
directors

5 DECEMBER 09 www.afterschool.tk 45
Is it necessary that the notice of
BOM must specify the business to
be discussed?

No – it can be sent separately. (we have
discussed - it requires only 7 days notice, but
board meeting requires 15 day notice).

5 DECEMBER 09 www.afterschool.tk 46
Can board meeting be held on
public holiday / after business
hours?

Yes

5 DECEMBER 09 www.afterschool.tk 47
Case : as per law you have to have one meeting
at least in every quarter. However, due to lack
of qorum (as your directors are mostly in the
USA), no meeting is held. Have you violated
the law?

No – you made an efforts – the meeting was
not held due to lack of quorum.

5 DECEMBER 09 www.afterschool.tk 48
Board held a meeting on 31 Jan, as every
year you have a meeting on 31 Jan. No
notice was given. Is it a valid meeting?

Yes, it is still a valid meeting.

5 DECEMBER 09 www.afterschool.tk 49
Audit committee ? ? ?

Sec. 292 A and clause 49 of listing agreement
requires every company to appoint an audit
committee of directors. It will look into the
working of the company.

5 DECEMBER 09 www.afterschool.tk 50
Clause 49

It requires that audit committee must be
appointed by all those companies which are
listed companies. Audit committee can have
only independent directors. The company
secretary will be the secretary of the audit
committee also. It must have meetings just like
board of directors.
5 DECEMBER 09 www.afterschool.tk 51
Registers of directors (sec. 303)
Every company must keep a register of the
directors. The register must be a bound book. It
will also prepare a form no. 32 and file with
the registrar of the companies about the
directors. (in 30 days of appointment of the
dreictors) comapny must keep a resiter of all
the contracts in which director is interested
(sec. 301) register of shareholding of directors
(sec. 307) is also necessary .
5 DECEMBER 09 www.afterschool.tk 52
Offences and penalties (sec. 630,
621A, 633)

If directors commit any mistake / offence, he is
punishable by Rs. 10000 / with / without
imprisonment upto 2 years as per sec. 630,
however, court can grant relief as per sec. 633.

5 DECEMBER 09 www.afterschool.tk 53
Case : Rohit Samsukha wants to
resign from the post of MD, can
he do so ?

No, he has to follow the terms and conditions
of the contract. He can resign only as per
terms. However, other directors can resign any
time – even orally – whether the company
accepts it or not, but Rohit is MD, he cant.

5 DECEMBER 09 www.afterschool.tk 54
Pankaj is not a member of our company,
but he wants to inspect our register of
directors, can he do so ?

Yes – during business hours. For members it is
free, but for others (Pankaj), there is a fee of
Re. 1.

5 DECEMBER 09 www.afterschool.tk 55
ABC ltd and XYZ ltd. Make a contract, Sudha
has interest in the contract, but she doesnt
disclose it in the board meeting or in form
24AA , she holds .1% in both the companies.
What will happen?

Ordinarily fine of 50000 , however, there are
exceptions - so probably Sudha will escape
due to these exceptions – like she has very
small holding (less than 2%)

5 DECEMBER 09 www.afterschool.tk 56
5 DECEMBER 09 www.afterschool.tk 57
Case : MR electronics
components

Advance salary to the wife of a director will
not come in sec. 295

5 DECEMBER 09 www.afterschool.tk 58
Case : Dr. Fredie Ardeshir

Sale of flat on instalment to the director will
not come under sec. 295

5 DECEMBER 09 www.afterschool.tk 59
Contract with firms related to
director (sec. 297)
A company cannot enter into a contract with
another firm / company in which its own
director is a partner / owner, unless it has been
approved by the board.
Exemptions : if it is cash transaction, or it is a
ordinary transaction in banking / insurance
firm or if the value of transaction is less than
Rs. 5000 per annum.
5 DECEMBER 09 www.afterschool.tk 60
Case study

Professional services (like auditing,
consultancy) dont come in sec. 297.

5 DECEMBER 09 www.afterschool.tk 61
Notice by director

A director has to give notice in form 24AA
when a company is about to enter into contract
in which director is interested. The notice must
be given to the board of directors when they
meet. (sec. 299)
penalty : Rs. 50000

5 DECEMBER 09 www.afterschool.tk 62
Case : fire stone tyre & rubber co
v/s synthetics and chemicals co.

Interest here means personal interest – not
official interest and includes closeness of
relatives (like father – son).

5 DECEMBER 09 www.afterschool.tk 63
Director not to participate in some
meetings (sec. 300)

A director cannot participate in a meeting in
which a matter / contract related to his issue /
in which he is interested, is discussed.

5 DECEMBER 09 www.afterschool.tk 64
Office of profit Sec. 314

Director / his relatives cannot hold an office of
profit having remuneration of Rs. 10000 or
more per month – without special resolution.
Any firm / company in which director is a
partner / owner also cant hold a place of profit
without special resolution

5 DECEMBER 09 www.afterschool.tk 65
Restriction on the powers of the
board

Sec. 293 restricts the powers of the board : it
cant remit loan due to director or his firm, it
cant invest compensation received otherwise
than as per law, it cant dive charity of more
than 5% of profit (or 50000) it cant borrow
more than equity + reserves without
permission.
5 DECEMBER 09 www.afterschool.tk 66
Can the directors keep accounts in
other places than registered
office?
Yes – the board of directors have to take a
decision and communicate it in 7 days to ROC
(registrar of companies) in form23 AA.
It can keep its accounts of branch offices at
branch office – but a summarised report should
be sent to the registered office at intervals of 3
months.
5 DECEMBER 09 www.afterschool.tk 67
Can a director inspect any book of
accounts?

Yes - during business hours ( sec. 209 (4) )

5 DECEMBER 09 www.afterschool.tk 68
How long should the directors
keep the books of accounts
preserved?

For 8 years.

5 DECEMBER 09 www.afterschool.tk 69
How should directors get the
accounts and reports approved
from shareholders?

Within 6 months of date of closure of financial
year,it must be adopted by AGM as per sec.
210
financial year can be extended upto 15 months
and with permission of ROC, upto 18 months.

5 DECEMBER 09 www.afterschool.tk 70
Signing of annual accounts
Annual accounts must be signed by 2
direcotrs / manager / secretary
if you have MD, he must sign it.

Sec. 216 : P & L as per format must be
attached with balance sheet.
Sec. 217 : board of director must add his report
on working of company with the annual
account.
5 DECEMBER 09 www.afterschool.tk 71
THANKS....
GIVE YOUR SUGGESTIONS AND JOIN
AFTERSCHOOOL NETWORK / START
AFTERSCHOOOL SOCIAL
ENTREPRENEURSHIP NETWORK IN
YOUR CITY
[email protected]
PGPSE – WORLD'S MOST
COMPREHENSIVE PROGRAMME IN
SOCIAL ENTREPRENEURSHIP
5 DECEMBER 09 www.afterschool.tk 72