Module - I,II, III - Directors

Section 2(34) of the Companies Act of the Companies Act, 2013 defines a ‘director’ to
mean a director appointed to the Board of a company.
Every company shall have a board of directors and only natural persons can become
directors.

Composition of Directors - Section 149 - Every public company shall have a

minimum of three directors and Two directors in case of private company while One
director in case of One person company. The maximum limit on a company is to
appoint a maximum of 15 fifteen directors. A company may appoint more than
fifteen directors after passing a special resolution in a general meeting and approval
of the Central Government is not required. Every listed company shall appoint at
least one woman director within one year from the commencement of the second
provision to Section 149(1) of the Act.
Every company needs to have at least one director who stays in India for a period
not less than 182 days in a financial year. (Resident director mandatory in both
Private and Public company).
Every Public listed company will have at least one-third of the total number of
directors as independent directors.

Independent Director - Section 149 (6)

Independent is a director other than the whole time, nominee and managing director
who in the opinion of the Board is a person of integrity and possesses relevant
expertise and experience.
He personally should not have been
- a promoter (or related to promoters) of the company, its holding, subsidiary
or associate company.
- who has or had no pecuniary relationship with the company, its holding,
subsidiary or associate company, or their promoters, or directors, during the
 two immediately preceding financial years or during the current financial
year. (Exception: Transaction not exceeding 10% of his total income)
- holds or has held the position of a key managerial personnel or is or has been
employee of the company or its holding, subsidiary or associate company in
any of the three financial years immediately preceding the financial year in
which he is proposed to be appointed.
- Has not been an employee or proprietor or a partner, of firm of auditors or
company secretaries in practice or cost auditors Co, hold subs. Or associate co.
/ legal or consulting company which had transactions with Co, hold subs. Or
associate co. in any of the three financial years immediately preceding the
financial year in which he is proposed to be appointed, He should not have
individually or together with his family member two percent voting power.

- He should not hold position of a CEO or any other similar position in a

non-profit that receives twenty-five per cent. or more of its receipts from the
company, any of its promoters, directors or its holding, subsidiary or associate
company or that holds two per cent. or more of the total voting power of the
company.

He at the first meeting of board , and then first meeting of every financial year and
also in a meeting which ‘might’ change his status as Independent director declare
that he meets the criteria of independence as provided in sub-section (6).

Term - He/she 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 and disclosure of such appointment in the Board's report.
Remuneration - Sections 149(9) and 197(7) read together provide that subject to the
provisions of section 197, an independent director may receive remuneration by way
of sitting fees for attending meetings of the Board or Committees thereof,
reimbursement of expenses for participation in the Board and other meetings and
profit related commission as may be approved by the members. He shall, however,
be not entitled to any stock option
Appointment - Section 150 - An independent director may be selected by Data bank
of people willing to be independent director by any notified (centre govt.) institute
and association where due diligence lies with the company while selecting Ind. Dir.
from Data Bank.
Appointment of independent director shall be approved by the company in general
meeting Section 152 (2) with the explanatory statement annexed to the notice of the
general meeting providing justification as to why that particular person has been
chosen.
Re-appointment- Section 152 - Can only be re-appointed for two consecutive terms
but for the third term he will have to wait three years. The re-appointment of an
independent director shall be on the basis of a report of performance evaluation.
Removal of Director - MCA circular mandated the removal of independent director
by special resolution.

Schedule IV1 of Companies act Code for Independent Directors

Guidelines of professional conduct

1. Uphold standards of integrity and probity

2. Act objectively and constructively
3. Exercise responsibilities with bona fides for the company
4. Devote time and attention
5. informed decision making
6. Not allow extraneous consideration
7. Not abuse position to the detriment of Company or Shareholders
8. Refrain from action affecting independence
9. Assist Company in implementing best Corporate Governance practises.

1
https://ca2013.com/wp-content/uploads/2015/07/Schedule4.pdf
Roles and Function

1. help in bringing an independent judgement to bear on the Board’s

deliberations especially on issues of strategy, performance, risk management,
resources, key appointments and standards of conduct
2. bring an objective view in the evaluation of the performance of board and
management; scrutinise the performance of management in meeting agreed
goals and objectives and monitor the reporting of performance;
3. satisfy themselves on the integrity of financial information and that financial
controls and the systems of risk management are robust and defensible;
4. safeguard the interests of all stakeholders, particularly the minority
shareholders;
5. balance the conflicting interest of the stakeholders;
6. determine appropriate levels of remuneration of executive directors, key
managerial personnel and senior management and have a prime role in
appointing and where necessary recommend removal of executive directors,
key managerial personnel and senior management
7. moderate and arbitrate in the interest of the company as a whole, in situations
of conflict between management and shareholder’s interest

Duties
1. undertake appropriate induction and regularly update and refresh their skills,
knowledge and familiarity with the company
2. seek appropriate clarification or amplification of information and, where
necessary, take and follow appropriate professional advice and opinion of
outside experts at the expense of the company
3. strive to attend all meetings of the Board of Directors and of the Board
committees of which he is a member
4. participate constructively and actively in the committees of the Board in
which they are chairpersons or members
5. strive to attend the general meetings of the company
6. where they have concerns about the running of the company or a proposed
action, ensure that these are addressed by the Board and, to the extent that
they are not resolved, insist that their concerns are recorded in the minutes of
the Board meeting
7. keep themselves well informed about the company and the external
environment in which it operates
8. not to unfairly obstruct the functioning of an otherwise proper Board or
committee of the Board
9. pay sufficient attention and ensure that adequate deliberations are held before
approving related party transactions and assure themselves that the same are
in the interest of the company
10. ascertain and ensure that the company has an adequate and functional vigil
mechanism and to ensure that the interests of a person who uses such
mechanism are not prejudicially affected on account of such use
11. report concerns about unethical behaviour, actual or suspected fraud or
violation of the company’s code of conduct or ethics policy
12. acting within his authority, assist in protecting the legitimate interests of the
company, shareholders and its employees
13. not disclose confidential information, including commercial secrets,
technologies, advertising and sales promotion plans, unpublished price
sensitive information, unless such disclosure is expressly approved by the
Board or required by law
 Appointment of Directors Sec. 152

Every Director is appointed by the company in the Annual General meeting in a

public company. However in Private company if the articles are silent as to the
appointment of directors, or do not specifically provide for appointment of directors
otherwise than in a general meeting, then the directors are to be appointed in general
meeting by the shareholders - Calcutta High Court in the case of Swapan Das Gupta
v. Navin Chand Suchanti.
If nothing is mentioned in AOA about the appointment of the first director, the
subscribers to the memorandum who are individuals shall be deemed to be the first
directors of the company until the directors are duly appointed. No Director can be
appointed without DIN.
To appoint someone as a director two things are essential - DIR 2(expressing consent)
+ DIN; company in turn then file DIR 12 + DIR 2 from their behalf.
Consent -152 (5) - A person does not act as a director till he gives his consent to hold
the office as director and such consent has been filed with the Registrar within thirty
days of his appointment in such manner as may be prescribed.
Rotation Director
At every annual general meeting 2/3rd of the total number of directors2 are directors
whose period of office is liable to determination by retirement of directors by
rotation. At every subsequent annual general meeting, one-third of such directors for
the time being are liable to retire by rotation, or if their number is neither three nor a
multiple of three, then, the number nearest to one-third, shall retire from office.
The directors to retire by rotation at every annual general meeting shall be those who
have been longest in office since their last appointment, but as between persons who
became directors on the same day, those who are to retire shall, in default of and
subject to any agreement among themselves, be determined by lot [Section
152(6)(d)].

2
Total Number of directors does not include Independent directors.
Deemed Re-appointment
At the annual general meeting at which a director retires as aforesaid, the company
may fill up the vacancy by appointing the retiring director or some other person
thereto [Section 152(6)(e)].
Section 152(7) provides that if the vacancy of the retiring director is not so filled up
and the meeting has not expressly resolved not to fill the vacancy, the meeting shall
stand adjourned till the same day in the next week, at the same time and place, or if
that day is a national holiday, till the next succeeding day which is not a holiday, at
the same time and place.
If at the adjourned meeting also, the vacancy of the retiring director is not filled up
and that meeting also has not expressly resolved not to fill the vacancy, the retiring
director shall be deemed to have been re-appointed at the adjourned meeting, except
in the following cases :
1. at any previous meeting, a resolution for his re-appointment was put to vote, but
was lost; or
2. the retiring director has, in writing, expressed his unwillingness to continue; or
3. he is not qualified or is disqualified for appointment; or
4. a special or ordinary resolution is necessary for his appointment; or
5. it is resolved to fill two or more vacancies by a single resolution (Sec. 162).

Re-appointment of director other than Retiring Director

Section 160 along with Rule 13 of Companies (Appointment and Qualification of
Directors) Rules, 2014 lay down the procedure of appointment of a person other than
retiring director -
1. He or his proposer submits his candidature notice in writing fourteen days
before the meeting in the company's registered office.
2. With a deposit of 1 lakh , refunded if he gets elected or gets 25% of votes.

Voting - Section 162 - Every director is voted upon individually a resolution can not
have two or more directors without first such unanimously passed resolution to
have this resolution.
 Appointment by Board of Directors Section 161

The Board of Director (if authorised by AoA or some resolution passed by company)
can appoint any person as - (Exception - not a person who fails to get appointed as a
director in a general meeting cannot be so appointed)
1. Additional Director - Board of Directors the power to appoint any person as
an additional director at any time. However, a person who fails to get
appointed as a director in a general meeting cannot be so appointed. It may
thus be noted that without a power given by the Articles, the Board cannot
appoint additional directors3 The person appointed as additional director
shall hold office up to the date of the next annual general meeting or the last
date, on which the annual general meeting should have been held, whichever
is earlier.
2. Alternate Director - is a director who is, not being a person holding any
alternate directorship for any other director in the company, to act as an
alternate director for a director during his absence for a period of not less than
three months from India.
An alternate director shall not hold office for a period longer than that
permissible to the director in whose place he has been appointed and shall
vacate the office if and when the director in whose place he has been
appointed returns to India
Exception - No alternate director for Independent director.
3. Filling up casual Vacancy - A casual vacancy is one that arises otherwise than
by retirement or the expiration of the time fixed for an appointment. Thus, if
the office of any director appointed by the company in a general meeting is
vacated before his term of office expires in the normal course, the resulting
casual vacancy may, subject to any regulations in the articles of the company,
be filled by the Board of Directors at a meeting of the Board.
The director fills up a casual vacancy and the same has been approved in the
immediately next general meeting, then the person appointed will hold office

3
Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holdings Ltd. AIR 1981 SC 1298
 not until the next AnnualGeneral Meeting only but for the entire period for
which the person in whose place he was appointed would have held office.

Director Identification Number

Section 153 provides that the Central Government may prescribe any identification
number which shall be treated as Director Identification Number for the purposes of
this Act. [Section 152(3)]. Section 153 requires that every individual intending to be
appointed as director of a company shall make an application for allotment of
Director Identification Number to the Central Government
Every applicant, who intends to be appointed as director of an existing company
shall make an application electronically in Form DIR-3, to the Central Government
for allotment of a Director Identification Number (DIN) along with such fees as
provided under the Companies (Registration Offices and Fees) Rules, 2014.
However, in case of proposed directors not having approved DIN, the particulars of
maximum three directors shall be mentioned in Form No. INC-32 (SPICe) and DIN
may be allotted to maximum three proposed directors through Form INC-32 (SPICe).
The Central Government shall, within one month from the receipt of the application
under section 153, allot a Director Identification Number

Role of Directors
Duties of a director are mentioned under Section 166.
● They adhere AoA of the company
● They act in good faith and implement objects met out in the Memorandum of
Association.
● They are entrusted with applying reasonable care and diligence.
● They have a duty to not gain any undue advantage or get involved in any
situation of conflict of interest.
● They can not assign their office to anyone such assignment is void ab initio.
 Disqualification of Director

(1) A person shall not be eligible for appointment as a director of a company, if —

● he is of unsound mind and stands so declared by a competent court;
● he is an undischarged insolvent;
● he has applied to be adjudicated as an insolvent and his application is
pending;
● He has been convicted by a court of any offence, whether involving moral
turpitude or otherwise, and sentenced in respect thereof to imprisonment for
not less than six months and a period of five years has not elapsed from the
date of expiry of the sentence. If a person has been convicted of any offence
and sentenced in respect thereof to imprisonment for a period of seven years
or more, he shall not be eligible to be appointed as a director in any company;
an order disqualifying him for appointment as a director has been passed by a
court or Tribunal and the order is in force;
● he has not paid any calls in respect of any shares of the company held by him,
whether alone or jointly with others, and six months have elapsed from the
last day fixed for the payment of the call;
● he has been convicted of the offence dealing with related party transactions
under section 188 at any time during the last preceding five years;
● he has not got the DIN
● Section 165(1) limits the number of directorships to 10 public companies and
total companies to 20.
Additionally, No person who
- has not filed financial statements or annual returns for any continuous period
of three financial years.
- has failed to repay the deposits accepted by it or pay interest thereon or to
redeem any debentures on the due date or pay interest due thereon or pay
any dividend declared and such failure to pay or redeem continues for one
year or more, shall be eligible to be re-appointed as a director of that company
or appointed in other company for a period of five years from the date on
which the said company fails to do so
Additional disqualifications for directors of a private company - A private company
may by its articles provide for any disqualifications for appointment as a director in
addition to those specified above.
Removal of Director - Section 169

Section 169 recognises the inherent right of shareholders to remove the directors
appointed by them. It is not even necessary that there should be proof of
mismanagement, breach of trust, misfeasance or other misconduct on the part of the
directors. Where the shareholders feel the policies pursued by the directors or any of
them are not to their liking, they have the option to remove the directors by passing
an ordinary resolution in the same way as they have the right to appoint directors by
passing an ordinary resolution.
Section 169 provides that a company may, by ordinary resolution of which special
notice as per section 115 has been given, passed in general meeting, remove a
director before the expiry of his term of office. However, the following directors
cannot be so removed:
(i) Directors appointed by the Tribunal;
(ii) Directors appointed under the system of proportional representation.
On receipt of the special notice for removal of a director, the company must
forthwith send a copy thereof to the director concerned and the director, whether or
not he is a member of the company, shall be entitled to be heard on the resolution at
the meeting. If he makes a representation in writing and requests the company to
notify it to the members, the company must, if the time permits it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of
the representation having been made; and
(b) send a copy of the representation to every member of the company to whom
notice of the meeting is sent (whether before or after receipt of the representation by
the company)

Filling vacancy caused by removal of a director -A vacancy created by the removal

of a director under this section may, if he had been appointed by the company in a
general meeting or by the Board, be filled by the appointment of another director in
his place at the meeting at which he is removed. However, a special notice of the
intended appointment must have been given. A director so appointed shall hold
office till the date up to which his predecessor would have held office if he had not
been removed. If a vacancy is not filled by the company in a general meeting, the
Board of directors may fill it as if it were a casual vacancy in accordance with section
161. However, the Board cannot appoint the removed director [Section 169(7)].
 Case Laws

Mukut Pathak vs Union of India

Interpreted the provisions of Section 164(2) of the Companies Act, 2013 including
disqualification of directors, retrospective applicability of the section and
applicability of principles of natural justice and discussed its consequent
repercussions under Section 167(1) of the CA 2013.
Facts - The Petitioners in the present case were directors in various companies who
were disqualified under clause (a) of Section 164(2) of CA 2013 for default on the
part of the concerned companies in filing the annual returns and financial statements
for three financial years.

The Petitioners challenged the Impugned List, essentially, on four grounds namely:
First, it was contended that Section 164 of CA 2013, could not be applied
retrospectively as the said Section came into force on April 01, 2014;
Second, that the Petitioners were not provided an opportunity to be heard inasmuch
as no show cause notice was issued to the Petitioners intimating them about their
disqualification as directors and such omission is in violation of principles of natural
justice;
Third, that on a plain interpretation of Section 164(2)(a) of CA 2013, the Petitioners
cannot be disqualified to act as directors of the companies which had not defaulted
in filing their annual returns and financial statements for a period of three
consecutive years; and
Fourth, that the defaults under Section 164(2) of CA 2013 result in the directors being
disqualified from being appointed/re-appointed as directors but does not result in
them demitting office as a director.

The court said that -

● The judgement in Mukut Pathak, The High Court clarified that there is no
dispute that the Companies Act, 1956 as well as CA 2013 expressly obliges a
company to file its financial statements and its annual returns within the
 stipulated period. the High Court was of the view that even though the
financial year ending March 31, 2014 had ended prior to Section 164 of CA
2013 coming into force, the AGM in respect of the said financial year was
required to be held by September 20, 2014, that is, after the Section 164 of CA
2013 had come into force and therefore, any default in holding this meeting
would invite the consequences under CA 2013. Thus, merely because an
enactment draws on events that are antecedent to its coming into force does
not render the said enactment retrospective.
● The provision does not entail any decision-making process on the part of the
authorities and as a result in such circumstances the principles of natural
justice such as rule of audi alteram partem would be inapplicable.
● The expression ‘other company’ shall mean all companies other than the
Defaulted Company and the term ‘appointment’ shall mean to include any
‘reappointment’ as well.

Sandeep Agarwal vs Union of India

The Petitioners – Mr. Sandeep Agarwal and Ms. Kokila Agarwal, both of whom are
directors in two companies namely Koksun Papers Private Limited (hereinafter,
“Koksun Papers”) and Kushal Power Projects Private Limited (hereinafter, “Kushal
Power”). The name of Kushal Power was struck off from the Register of the
Companies on 30th June, 2017, due to non-filing of financial statements and annual
returns. The Petitioners, being directors of Kushal Power, were also disqualified.

Kushal power was brought under CFSS scheme Companies Fresh Start Scheme,
Koksun Papers i.e. the Petitioners, to continue the business of the active company in
the fitness of things and also in view of the judgement in Mukut Pathak (supra), the
disqualification of the Petitioners as directors was set aside.
 Remuneration
Section 198
 Remuneration payable (from that 11% max.)

If there is one MD/WTD/manager If there are more than one MD WTD

(then 5%) max 10% to them
Directors other than above get 1% Director other than above get max 3%

To exceed these particular limits - Special resolution. And in case of default approval
o the financing institute.

Case when there is no profit.

 General Concept of Meeting

Meetings getting together of people for transacting in any lawful purpose.

There are three requisite of valid meetings -
1. Duly Convened
2. Legally constituted
3. Properly Conducted
Section 179 empowers the board of directors to manage the affairs of the company
thus holding meetings of members and directors.

Shareholder meeting - Annual General Meeting

AGM (Section 96) - Annual General meeting of the body of the members. Every
company whether public or private having share capital or not limited or limited
must hold a meeting. Except for One person company
First AGM must be held in 9 months of the date of the closing of the financial year.
One meeting is held each calendar year.
Gap between two AGM must not be more than 15 months
No meeting must be held 6 months from close of financial year
Extension of time may be granted by Registrar for special reason for a period of not
more than 3 months
If a meeting is done beyond statutory time it cannot be void or illegal there may be a
penalty by tribunal upto 1 lac and 5000rs fine each day in case of default. (sec 99)
- After default tribunal may call or direct the calling of AGM on the application
of any member of the company under section 96 and 97.
The Board of Director has power to postpone or cancel a meeting notice of which has
already been given with bona fide and proper reason.
The meeting is to be held
- During business hours 9 am - 6 pm
- Anyday which isn't a national holiday
- Unlisted company can have meeting anywhere with consent of member or at
the Registered office
 - Sec 8 company -decided by BoD
- Govt company - any place approved by the government or where the
company has registered office.
Two kinds of business to be transacted as mentioned un/s 102
Ordinary Business
- Financial statements and reports of the board of directors and auditors.
- Declaration of any dividend
- Appointment of directors
- Appointment and fixing rem of auditors
Special Business
- Any other business would be special business
- The explanatory note to be attached to the notice
Extraordinary General Meeting.

All general meetings other than AGM are called EGM. An EGM is convened for
transacting some special or urgent business that may arise between 2 AGM - change
in RO, removal of director or auditor, shift of RO.
Who may call the EGM?
1. Board of Director
2. Board of Director requisition of members
3. Tribunal
4. Requisitioned member in case of failure of BoD calling a meeting
Meeting by BoD

↙ ↘
In issues of right and shares To increase rem of MD and WTD

Meeting on requisition of members

↙ ↘
C w share capital; Members with C w/out share capital
10% paid up share capital. 10% voting rights.

The requisition should disclose the matters up for consideration in RO.

BoD should call a meeting within 21 days of valid deposit of requisition.
Meeting to be done within 45 days of the date of deposit of requisition.

Meeting called by requisition to Tribunal

When the Board of Director fails to call a meeting as requested by requisitioners the
meeting may be called by -
1. By requisitionist themselves (above mentioned requisition eligibility apply)
Only difference along with 10% paid up share capital or majority share capital.

Power of Tribunal under Section 97 (AGM)and 98 (EOGM)

1. If any default is made in holding the annual general meeting of a company
on the application of any member of the company tribunal can do it even at
one person quorum
2. If for any reason it is impracticable to call a meeting of a company, other than
an annual general meeting then suo motu or after application it can call
EOGM
Board of Director meeting
According to section 173(1), every company shall hold the first meeting of the Board
of Directors within thirty days of the date of its incorporation. As per section 173(1)
read along with SS-1* provides that every company must hold a minimum number
of four meetings of its Board of Directors every year and the gap between two Board
meetings must not be more than one hundred and twenty days.
A One Person Company, small company and dormant company shall be deemed to
have complied with the provisions of this section if at least one meeting of the Board
of Directors has been conducted in each half of a calendar year and the gap between
the two meetings is not less than ninety days.
Notice of BoD
SS-1 requires every meeting of the Board to be serially numbered. A meeting of the
Board shall be called by giving not less than seven days’ notice in writing to every
director at his address registered with the company and such notice shall be sent by
hand delivery or by post or by electronic means. SS – 1, in this regard, provides that
the notice in writing of every Meeting shall be given to every Director by hand or by
speed post or by registered post or by courier or by facsimile (fax) or by e-mail or by
any other electronic means [Section 173(3)].
A meeting of the Board may be called at shorter notice to transact urgent business
subject to the condition that at least one independent director, if any, shall be present
at the meeting.
Who calls?
a director may, and the manager or secretary, on the requisition of director, shall, at
any time, summon a meeting of the Board. As per SS-1, any Director of a company
may, at any time, summon a Meeting of the Board.
The notice must state the date, time and place of the meeting. (rule of notice and
agenda same as made out below.)
Quorum
According to section 174(1), the quorum for a meeting of the Board of directors shall
be 1/3rd of its total strength (any fraction contained in that 1/3rd to be rounded off
to one) or two directors, whichever is higher*. “Total strength” shall not include
directors whose places are vacant - Explanation (ii). Again, interested director(s)
shall not be counted for the purposes of quorum. “Interested director” means a
director within the meaning of sub-section (2) of section 184
SS -1 - says quorum to be present throughout.
Same rules of adjournment applied as given below.

Rules for sending Notice.

Notice may be defined as Any reasonable form with information enabling the person
to attend the meeting and take part in deliberations.
The rules regarding notice are mentioned in section 101 - It should specify - date
time and place
Nature of business to be transacted, complete agenda to be part of the notice, for
special business an explanatory statement should also be attached
It must be served according to the articles read with the companies act [SS2]
- Served by hand, ordinary post, speed post, registered post, courier fax email
or any other electronic means.
- Email on registered email address
Presumption of service of Notice served by post
- On expiry of 48 hours from the time of posting Rule 35 Comp Incorp rules
2014
For AGM and EGM , 21 clear day notice to be given section 101
AGM may be called at shorter notice if consent is accorded by not less than 95%
members.
Whom to be given As per section 101
- Every member
- Legal representative of deceased member
- Assignee of an insolvent member
- Auditors
- Every director
Quorum of various Meetings
Quorum means the minimum number of members who must be present at a
meeting as required by rules/law.
For General Meeting Sec 103
Public company - 5 members if total number of members is not more than 1000
- 15 if number is between 1000 and 5000
- 30 more than 5000
Private - 2 members
Rules Regarding Quorum
- Only members physically present counted, not proxies
- Preference shareholder, equity shares without voting rights are not to be
counted except where proposed business affects preference shareholders.
- Joint holders of shares are treated as a single member.
- Member present in 2 capacities may be counted as 2
- Company is a member of another company, it may authorise a person by a
resolution to act as its representative at a meeting of the latter company.
- If the number of members of a company is reduced below the quorum in
AoA, quorum is deemed to be satisfied if all the members of the company
attend the meeting.
If quorum is not met (sec. 103)
In general meeting
- Within ½ hr if the requisition quorum is unfulfilled then the meeting shall
stand dissolved.
- Meeting shall be adjourned on the same day in next time or any other time as
BoD may decide and notify
- If even after adjournment the quorum is not there in ½ hr then present people
will be considered quorum.
SS2 mandates quorum to be present at all times. It is a mandatory provision.
Quorum will always be presumed unless questioned in meetings and records.
Director has to be present; Auditors and secretarial auditors to be present unless
exempted by company.
One person quorum is not a meeting. Sharps vs Dawes.
Exception
● Class meeting
● Sec 97 and 98
● Delegation of committee
● Adjournment of meeting.
Different types of Voting
Voting happens to ascertain the general sense of meeting. There are different type of
votes
1. By show of hands - one person one vote if members are less than 1000.
2. E voting
3. Ballot - Section 110 where postal ballot is allowed.
4. Demand for poll - A demand for poll maybe made under Section 109 and
form MGT 12 by a person with not less one-tenth of the total voting power or
an aggregate sum of not less than five lakh rupees. The demand for a poll
may be withdrawn at any time by the persons who made the demand. It will
be regulated by the chairman.

E-Voting, Ordinary Resolution and Special Resolution

By voting electronically (Section 108 read with rule 20 of Companies (Management
and Admin ) Rules , 2014(voting by electronic means)
As per Section 108 read with rule 20, every listed company and companies having
more than 1000 shareholders are required to give e-voting option to their
shareholders.
As per the decided case of Supreme Court, in case of listed companies listing
agreement shall prevail in comparison to company law. Therefore, in the case of
listed companies option for postal ballot is also to be provided to shareholders who
do not have access to e voting facility. It includes both e-voting and remote e-voting.

Resolution
Once a motion has been put to members and they have voted in favour of it, it
becomes a resolution. There are three kinds of motion
1. Ordinary resolution 144(1) - when a motion is passed by simple majority by
the members voting at a general meeting it is said to be an ordinary
resolution. All the matters which are not required by Companies Act or
articles to be done by special reso comes under this - for example
appointment of directors, auditors; declaration of dividend.
2. Special resolution - Resolution is special when the intention to propose special
resolution has been duly specified in the notice calling the general meeting
- Notice given 21 clear days before
- 3/4th majority
- No valid votes to be considered against the n of people present and
voting
Matters for which special reso is required
- To alter the MoA /AoA
- Reduce capital of company
Proxy and its powers and rules.
Under Section 105 Proxy is a representative of a shareholder who may be described
as his agent to carry out the task which the shareholder has himself decided upon.
Appointment of a proxy
Under Section 105(1) any member who is entitled to attend and vote in a company
meeting can appoint a proxy. However, a proxy cannot be appointed by a member of
a company not having a share capital unless the Articles provide for it.
The government can also prescribe a class or classes of companies that may not
allow its members to appoint a proxy.
How many members can proxy represent?
Not More than 50 members - Whose aggregate shareholding carrying voting rights
must not exceed 10%. In case a member has more than 10% shareholding carrying
voting rights, then the proxy for this member cannot represent anybody else.
As per 6.1 of the Secretarial Standard on General Meetings, if a proxy is appointed
for more than 50 members, he has to choose and confirm 50 members before the
inspection period starts. If he does not confirm, he will be appointed proxy for the
first 50 members, and the other proxies (instruments) would be declared invalid.

Apart from this, if the member of a company is a body corporate or the President of
India or the Governor of a state, then such member’s authorised representative is
empowered to appoint a proxy under his/her signature.

Notice and Proxy form

Section 105(2) - The notice of the meeting must contain attendance slip and proxy
form w clear instruction because the same has to be deposited 48 hrs before.
According to Rule 19(3) of the Companies (Management and Administration) Rules,
2014, the appointment of a proxy has to be in Form No. MGT.11.
Signed by appointer (Company and Individual) and must be in writing.
Invalid – if not Properly stamped, no name and no Date.
If multiple proxies are received for the same member, then the proxy bearing the
latest date would be valid. Virender Kumar Goel v. Raghu Raj.

Revocation

• Can be revoked
• Articles contains the Provision on revocation

Generally, a proxy stands revoked when a written notice of such revocation, signed
by the member appointing the proxy, is received by the company. This notice has to
be given before the meeting commences.
Additional Rules
1. The instrument is valid only for the meeting for which it was
created including any adjournment of such meeting.
 2. A member who had not appointed a proxy for the original meeting may
appoint one for the adjourned meeting if the Articles of the company provide
for it.
3. Relationship of Agent and Principal.
4. A proxy appointed for the original meeting gets revoked when a new proxy is
appointed for the adjourned meeting of the original one.
5. What if the original member attends the meeting – Proxy will be revoked.
6. She/He doesn’t have the right to speak and doesn’t have right to vote
7. She/he won't be counted in the quorum
8. She/he can’t vote by show of hands.
9. Can only represent a limited number of members.

Corporate Governance

Corporate Governance refers to the ideal standards of operations of companies, the

application of best Management Practices, Compliance of Laws in true letter and
spirit and adherence to ethical standards for effective management and distribution
of wealth and discharge of social responsibility for sustainable development of all
stakeholders.
Objectives of Corporate Governance: -
Corporate Governance is aimed at creating an organisation which maximises the
wealth of shareholders. It envisages an organisation in which emphasis is laid on
fulfilling the social responsibilities towards the stakeholders in addition to the
earning of profits. The objectives of Corporate Governance is to ensure the following:

1. Properly constituted Board capable of taking independent and objective

decisions.
2. Board is independent in terms of Non-Executive and Independent Directors.
3. Board adopts transparent procedures and practices.
4. Board has an effective machinery to serve the concerns of the Stakeholders.
5. Board to monitor the functioning of the Management Team.
6. Properly constituted Board capable of taking independent and objective
decisions.
7. Board is independent in terms of Non-Executive and Independent Directors.
8. Board adopts transparent procedures and practices.
 9. Board has an effective machinery to serve the concerns of the Stakeholders.
10. Board to monitor the functioning of the Management Team.
11. Board remains in effective control of the affairs of the Company.

Committee Recommendations

Cadbury Committee 1991 The Committee on the Financial Aspects of

Corporate Governance under the chairmanship of
Sir Adrian Cadbury was set up in May 1991
● the CEO and Chairman of companies
should be separated;
● boards should have at least three
non-executive directors, two of whom
should have no financial or personal ties to
executives; and
● each board should have an audit
committee composed of nonexecutive
directors

CII Task Force 1998 CII took a special initiative on Corporate

Governance, the first institution initiative in
Indian Industry. The objective was to develop and
promote a code for Corporate Governance to be
adopted and followed by Indian companies,
whether in the Private Sector, the Public Sector,
Banks or Financial Institutions, all of which are
corporate entities. It was called Desirable
Corporate Governance: A Code

Kumar Mangalam Birla The Securities and Exchange Board of India (SEBI)
Committee 1999 had set up a Committee on May 7, 1999 under the
Chairmanship of Kumar Mangalam Birla to
promote and raise standards of corporate
governance. The Report of the committee was the
first formal and comprehensive attempt to evolve
a Code of Corporate Governance, in the context of
prevailing conditions of governance in Indian
companies, as well as the state of capital markets
at that time. The recommendations of the Report,
led to inclusion of Clause 49 in the Listing
 Agreement in the year 2000

Naresh Chandra 2002 The Enron debacle of 2001 involving the

hand-in-glove relationship between the auditor
and the corporate client important factors which
led the Indian Government to wake up and in the
year 2002, Naresh Chandra Committee was
appointed to examine and recommend inter alia
amendments to the law involving the
auditor-client relationships and the role of
independent directors

Narayan Murthy Committee SEBI therefore constituted a Committee under the

2004 Chairmanship of Shri N. R. Narayana Murthy, for
reviewing implementation of the corporate
governance code by listed companies and for
issue of revised clause 49 based on its
recommendations.

Kotak Committee 2017 With the aim of improving standards of Corporate

Governance of listed companies in India, the
Committee was requested to make
recommendations to SEBI on the following issues:

Ensuring independence in spirit of Independent

Directors and their active participation in
functioning of the company;
Improving safeguards and disclosures pertaining
to Related Party Transactions;
Issues in accounting and auditing practices by
listed companies;
Improving effectiveness of Board Evaluation
practices;
Addressing issues faced by investors on voting
and participation in general meetings;

Enron Case and Satyam Scam

The Satyam and Enron cases are often used as prominent examples of corporate
governance failures. The primary reason behind that is that all the mechanisms that
are usually put in place to prevent such an instance from happening, for example,
the auditors, the board of directors, etc., either intentionally or unintentionally,
allowed tremendous amount of fraudulent activities to occur within the companies.
The Satyam scam came into light in India in 2009, and it is often referred to as India’s
Enron. The IT Company was found by the Raju family in 1987 and was considered to
be one of the most promising companies in India. However, just like Enron, Satyam’s
accounts had major discrepancies, and the irregularities ranged to more than Rs.
7,000 crores.
These fraudulent accounting techniques could be carried out due to the failure of the
boards of directors and the auditing firms of these two companies. While the
directors signed off on the shady techniques, the auditing firms overlooked the gaps
in the financial reports and gave their approval to them. Thus, it can honestly be said
that the Enron and Satyam scandals could be possible due to a combined effort. This
article discusses the activities of the two companies in detail while looking
exclusively at the failings of the directors and auditors.
 Role of Whistleblower

Whistle blowing means calling the attention of the top management to some
wrongdoing occurring within an organisation. A whistleblower may be an
employee, former employee or member of an organisation, a government agency,
who has willingness to take corrective action on the misconduct.
A whistleblower is a person who publicly complains about concealed misconduct on
the part of an organisation or a body of people, usually from within that same
organisation. This misconduct may be classified in many ways: for example, a
violation of a law, rule, regulation and/or a direct threat to the public interest, such
as fraud, health/safety violations, and corruption.

The Securities Exchange Board of India (“SEBI”) has mandated that every listed
company should have a whistle- blower policy and make employees aware of such
policy to enable employees to report instances of leaks of unpublished price sensitive
information. (SEBI - Listing Obligation and Disclosure Requirement, Regulations
2015.

Regulation 18 of the SEBI (LODR) Regulations contains the substance of Clause 49.
All publicly listed corporations are required by the Listing Agreement to adopt a
whistle-blower policy.
It gives employees a way to report any type of misappropriation, fraud, or actual
and unethical behaviour to the Board.
Moreover, an employee who wants to report any form of fraudulent behaviour or
malpractice in the company must be granted access to the company’s Audit
Committee, according to these clauses. Following that, the corporation must
communicate this information to all of its personnel.

Moreover, the company must affirm that it has not denied any person access to the
audit committee and protected the whistle-blowers from unfair treatment. Such
affirmation shall form the part of the annual report of corporate governance.
The Regulation 18 standards are intended to instil a sense of responsibility in a
company’s employees and to inform them that it is their right and privilege to
remain vigilant. Employees have the right to blow the whistle against illegal acts,
and the company promises to safeguard such employees from any type of
harassment or termination.

With effect from December 2019, the SEBI has also introduced a reward mechanism
for incentivizing ‘Informants’ to report violations of insider trading laws to SEBI. In
the year 2021, SEBI has also increased the reward for whistle-blowers on insider
trading to make it more attractive. SEBI has increased the reward payable to
whistle-blowers under its prohibition of insider trading regulation from 1 crore to 10
crores in order to encourage whistleblowers to come forward to the regulator.

It includes adequate protections against victimisation of employees who use the

system, as well as direct access to the Chairman of the Audit Committee in
extraordinary circumstances. The presence of the mechanism can then be properly
disseminated within the organisation once it has been formed.
 Role of Auditor

Section 143 enumerates the role and power of auditors, Every auditor of a company
shall have a right of access at all times to the books of account and vouchers of the
company to make sure :-
All loans, transactions, selling of debentures shares are done in a manner to not be
prejudicial to the company.
The auditor shall make a report to the members of the company on the accounts
examined by him and on every financial statement which are required by or under
this Act to be laid before the company in general meeting.
The provide
1. Audit report
2. Reporting failure
3. Reporting Indictable offence
4. Exercising professional integrity

Roles of an auditor
1. Protecting interest of stakeholders
2. Promoting accountability
3. Crisis management
4. Mitigating risk factors

National Financial Reporting Authority (NFRA) is a body formed under Section 132
of the Companies Act, 2013, for the purpose of handling the matters related to
accounting and auditing standards. One of the many functions of NFRA is to
monitor and enforce the compliance as per the auditing standards.
The Ministry of Corporate Affairs (MCA) has announced a new format of statutory
audits of companies. The MCA has notified Companies (Auditor’s Report) Order,
2020 on 25 February 2020 (CARO 2020). The order (CARO 2020) replaces the earlier
order under Companies (Auditor’s Report) Order, 2016.
Introduction to CARO 2020 - CARO 2020 is a new format for issue of audit reports in
case of statutory audits of companies under Companies Act, 2013. CARO 2020 has
included additional reporting requirements after consultations with the National
Financial Reporting Authority (NFRA). NFRA is an independent regulatory body for
regulating the audit and accounting profession in India. The aim of CARO 2020 is to
enhance the overall quality of reporting by the company auditors.
Applicability of CARO 2020
CARO 2020 is applicable for all statutory audits commencing on or after 1 April 2021
corresponding to the financial year 2020-21. The order is applicable to all companies
which were covered by CARO 2016. Accordingly, the order applies to all the
companies except the following companies specifically excluded from its purview:
● One person company.
● Small companies (Companies with paid up capital less than/equal to Rs 50
lakh and with a last reported turnover which is less than/equal to Rs 2 crore).
● Banking companies.
● Companies registered for charitable purposes.
● Insurance companies.
● Some of the Private companies
.
Reporting Requirements Under CARO 2020
The auditor’s report (CARO 2020) shall include a statement on the following
matters, namely:
1. Details of tangible and intangible assets.
2. Details of inventory and working capital.
3. Details of investments, any guarantee or security or advances or loans given.
4. Compliance in respect of a loan to directors.
5. Compliance in respect of deposits accepted.
6. Maintenance of costing records.
7. Deposit of statutory liabilities.
8. Unrecorded income.
9. Default in repayment of borrowings.
10. Funds raised and utilisation.
 11. Fraud and whistle-blower complaints.
12. Compliance by a Nidhi.
13. Compliance on transactions with related parties.
14. Internal audit system.
15. Non-cash dealings with directors.
16. Registration under section 45-IA of RBI Act, 1934.
17. Cash losses.
18. Resignation of statutory auditors.
19. Material uncertainty on meeting liabilities.
20. Transfer to fund specified under Schedule VII of Companies Act, 2013.
21. Qualifications or adverse auditor remarks in other group companies.
In a case where the auditor’s answer to any of the requirements mentioned above is
unfavourable or negative, then the auditor’s report shall also state the basis for such
unfavourable or qualified answer. Also, in a case where the auditor is unable to
express any opinion on any specific matter, the report shall indicate such fact along
with the reasons as to why it is not possible for the auditor to give an opinion on the
same.
 Prevention of Oppression and misrepresentation

Majority Rule - The principle of rule by majority has been made applicable to the
management of the affairs of companies. The members pass resolutions on various
subjects either by simple majority or by three-fourth majority. Once a resolution is
passed by the requisite majority then it is binding on all the members of the
company. As a resultant corollary, the court will not ordinarily intervene to protect
the minority interest affected by the resolution, as on becoming a member, each
person impliedly consents to submit to the will of the majority of the members.
Thus, if wrong is done to the company, it is the company which is the legal entity
having its own personality, and that can only institute a suit against the wrongdoer;
and shareholders (members) individually do not have a right to do so.

Foss vs Harbottle An action was brought by two minority shareholders, ‘F’ and ‘T’,
of a company, on behalf of themselves and all other shareholders against the
directors and solicitor of the company, alleging that they were guilty of buying their
own land for company’s use and paying themselves a price greater than its value
thereby they had caused company a loss. It was alleged that the directors were acting
in concert and affecting various fraudulent and illegal transactions whereby the
property of the company was misapplied and wasted. It was prayed that the
defendant might be decreed to make good to the company's losses. The question was
as to the maintainability of the suit.
The Court held that the action could not be brought by the minority shareholders.
The wrong done to the company was one which could be ratified by the majority of
members. The company was the proper plaintiff for wrongs done to the company,
and the company can act only through its majority shareholders. The majority of the
members should be left to decide whether to commence proceedings against the
directors.
This rule laid down that
 1. If a company has suffered any financial loss it is the company and not the
minority shareholder who can sue.
2. They need to preserve the majority's right to decide.
3. If every individual member were given unfettered right to decide there would
be endless litigation.
The Delhi High Court in ICICI v. Parasrampuria Synthetic Ltd. SCL July 5, 1998 has
held that this rule won't be applicable of Foss vs Harbottle
It should, however, be noted that the aforesaid ‘Principles of Foss v. Harbottle’ only
applies where a corporate right of a member is infringed. The rule does not apply
where an individual right of a member is denied.
Exception :-
Ultra vires and illegal acts
Breach of fiduciary duties
Fraud or oppression against minority
Where the personal rights of an individual member have been infringed

Grounds for relief

Any member who has right to apply under Section 244

↓
May complain to tribunal

↓
A. If the affairs of company are being done in a way
- Prejudicial to public interest
- Or to any member or members
- To the interest of the company

B. Material change in company which will lead to above mentioned thing

Any material change not in the interest of the members has taken place in mgmt and
because of this the affair of company will be conducted in manner prejudicial to
interest of members or any class of members.

Right to apply

Winding up companies
Winding up of a company is the process whereby its life is ended and its property
administered for the benefit of its creditors and members. An administrator, called a
‘liquidator’, is appointed and he takes control of the company, collects its assets,
pays its debts and finally distributes any surplus among the members in accordance
with their respective rights.
The code contains provisions for insolvency resolution process as well liquidation of
companies. It also provides for voluntary liquidation of companies. With the passing
of the Code, the concept of voluntary winding up of companies under the
Companies Act, 2013 has been removed.
Winding-up by the Tribunal, may be ordered in cases mentioned in section 271. The
Tribunal will make an order for winding up on an application by any of the persons
enlisted in section 272.
A company may be wound up by the Tribunal—
(a) if the company has, by special resolution, resolved that the company be wound
up by the Tribunal;
(b) if the company has acted against the interests of the sovereignty and integrity of
India, the security of the State, friendly relations with foreign States, public order,
decency or morality;
(c) if on an application made by the Registrar or any other person authorised by the
Central Government by notification under this Act, the Tribunal is of the opinion
that the affairs of the company have been conducted in a fraudulent manner or the
company was formed for fraudulent and unlawful purpose or the persons concerned
in the formation or management of its affairs have been guilty of fraud, misfeasance
or misconduct in connection therewith and that it is proper that the company be
wound up;
(d) if the company has made a default in filing with the Registrar its financial
statements or annual returns for immediately preceding five consecutive financial
years;
(e) if the Tribunal is of the opinion that it is just and equitable that the company
should be wound up

The winding up petition must be presented to the Tribunal. If the petition has been
filed by the Company, it shall be accompanied by a statement of affairs in the form
and manner prescribed. In case the petition is filed by any person other than the
company, the Tribunal will require the company to file its objections along with a
statement of affairs within thirty days.
Consent terms filed with the Tribunal - If the petitioner and the respondent
company enter into MOU regarding repayment of debt during the pendency of the
petition for winding up and the same is filed with the company court (now
Tribunal), the consent terms contained in the MOU become order of the court under
relevant rules - SBI Commercial and International Bank Ltd. v. Badridass Gauridatt
(P.) Ltd. [2002] 35 SCL 723 Bom.

Serious Fraud Investigation Office

Under Section 211 the Central Government is authorised to establish a Serious Fraud
Investigation Office (SFIO) to investigate frauds relating to a company [Section
211(1)]. Section 212(1) states that where the Central government is of the opinion that
it is necessary to investigate into the affairs of a company by the SFIO, it may assign
the investigation to the SFIO. The Central Government may make that assignment
under the following circumstances.
1. on receipt of a report of the Registrar or inspector under section 208;
2. on intimation of a special resolution passed by a company that its affairs are
required to be investigated;
3. in the public interest;
4. on request from any Department of the Central Government or a State
Government.
It may be noted that the SFIO under Section 212(1) can undertake an investigation
only upon a reference being made to it by the Central Government and not suo
motu.

The SFIO shall be headed by a Director (not below the rank of a Joint Secretary) and
consist of such number of experts from the following fields to be appointed by the
Central Government from amongst persons of ability, integrity and experience in
banking, corporate affairs, taxation, forensic audit, capital market, Information
technology, law or such other fields as may be prescribed. The Central Government
is also authorised to appoint such experts and other officers and employees as it
considers necessary for the efficient discharge of its functions.
Under Section 212, the SFIO shall have the following powers -
(i) Exclusive jurisdiction - Once a case has been assigned to the SFIO, no other
investigating agency of the Central Government or any State Government shall
initiate or proceed with investigation if a case has already been initiated in respect of
any offence under this Act. The concerned agency shall transfer all the relevant
documents and records in respect of such offences to SFIO.
(ii) Powers of Inspector under Section 217 – The Investigating Officer shall have the
power of the inspector prescribed under section 217.
(iii) Power to seek information and explanation – The company and its officers and
employees, both present and, shall be responsible to provide all information,
explanation, documents and assistance to the Investigating Officer for conduct of the
investigation.
(iv) Power to arrest – Any person who SFIO believes is guilty of a specified offence
may be arrested, informing him the ground for such arrest. The offences specified are
those that are covered under Section 4471 . A copy of the arrest order and material
justifying the arrest shall be kept in the SFIO in a sealed envelope. The person
arrested shall be taken to a Judicial Magistrate or Metropolitan Magistrate having
jurisdiction within twenty four hours excluding the time necessary for journey from
place of arrest to the court.
 Class Action Suits

Section 245 provides an alternate remedy to the members or depositors of a

company or any class of them by way of class action before the Tribunal. Class action
refers to a law suit where one or several person join together and sue on behalf of a
larger group of persons. A class action is suitable where the issues in question are
common to all affected and the number of persons affected is very large making it
impractical for all of them to join hands.
The application needs to be made in Form No. NCLT-9 of the NCLT Rules alongwith
the requisite documents and fees. A copy of the application is required to be served
on the company, other respondents and other persons as directed by the Tribunal
(Rule 84 of NCLT Rules)
Against whom
A class action application may be filed with the Tribunal against the company, its
directors, auditor or any expert or advisor or consultant or any other person who has
made any incorrect or misleading statement to the company or for any fraudulent,
unlawful or wrongful act or conduct or any likely act or conduct on his part.
Who can Sue?
In company w share capital
Not less than 100 Members or Not less than 5 % of the total number of its members,
whichever is less OR Any member or members holding not less than 5% of the
issued share capital in case of the unlisted Company and not less than 2% of the
issued share capital in case of listed Company, subject to the condition that such
member/s have paid all calls and other dues on the shares
In companies without share capital
Not less than 1/5th of the total number of its Members # The requisite Number of
Depositors who may file an Application before the NCLT shall be [Section 245(3)
read with Rule 84]: Not less than 100 depositors or 5% of the total number of
depositors of the Company, whichever is less,
Orders that can be sought
1. To restrain the company from committing an act which is ultra vires the
articles or memorandum of the Company;
2. To restrain the Company from committing breach of any provision of the
Company’s MOA or AOA;
3. To declare a resolution altering the MOA or AOA of the Company as void if
the resolution was passed by suppression of material facts or obtained by
mis-statement to the members or depositors;
4. To restrain the Company and its directors from acting on such resolution
5. To restrain the Company from doing an act which is contrary to the provision
of the Act or any other law for the time being in force;
6. To restrain the Company from taking action contrary to any resolution passed
by the members;
7. To claim damages or compensation or demand any other suitable action from
or against - director auditor or anyone who did fraud.