Companies Act_Practical problems_25

The paid up capital of Needy Private Limited is Rs. 5 lakhs. Liberal Finance Ltd. has agreed to grant a loan or Rs. 2 crores to Needy Private Limited on the condition that Liberal Finance Ltd. shall have a right to nominate Mr. Successful, Mr. Achiever and Mr. Reliable as directors on the Board of Needy Private Limited. The articles of Needy Private Limited require every director to hold qualification shares of a nominal value of Rs. 20,000. Answer the following in view of the provisions of the Companies Act, 1956:

(i) Whether appointments of the three directors by Liberal Finance Ltd. can be made in accordance with the Loan Agreement entered into by Liberal Finance Ltd. and Needy Private Limited?

(ii) Whether the three directors nominated by Liberal Finance Ltd. shall have to obtain the qualification shares. If yes, what will be the value of the qualification shares?

(ii) Assuming that all legal requirements for appointment of the three directors are complied with, and the three directors hold requisite qualification shares, if any, whether these directors are required to disclose their interest in an agreement put for consideration in the Board meeting of Liberal Finance Ltd., and can they vote thereat?

Companies Act_Practical problems_24

Director’s Responsibility Statement is required to be made only when a company has not made compliances with the provisions of the Companies Act, 1956. The contents of the Director’s Responsibility Statement shall be such as deem fit by the directors. Comment.

Companies Act_Practical problems_23

The directors of a company have to travel very often for the company’s business. The company makes some advances to them for this purpose which sometimes exceed the actual requirements. Comment.

Companies Act_Practical problems_22

As a secretary of ST Ltd. advise the Board of directors regarding appointment of an alternate director, an additional director, and a director filling a casual vacancy. The articles of ST Ltd. does not contain any provision regarding appointment of any directors

Companies Act_Practical problems_21

A company failed to file annual accounts and annual return for two consecutive financial years (although such documents were ready for filing). The annual accounts and annual return for third financial year are not ready as on last date of filing annual return. Suggest the course of action to be adopted by the company and consequences if default is made in third year also.

Companies Act_Practical problems_20

Give your views in the following cases:

(i) Mr. A, a whole time director of the company is appointed as a secretary at a remuneration of Rs. 5,600 per month. No approval of shareholders is obtained in the first general meeting. Mr. B, another director of the company contends that Mr. A shall cease to be a director as from the date of first general meeting. Comment.

(ii) Mr. X is already a director in 15 companies. He has been appointed as a director in RT Ltd. on 23.4.2004 and in ST Ltd. on 30.4. 2004. Mr. X resigns from one of his earlier directorships on 13.5.2004. On the same date, he intends to accept the directorship in RT Ltd. and ST Ltd. Comment.

Companies Act_Practical problems_19

The balance sheet of M/s. Hush Hush Ltd., as at 31.3.1999 filed with registrar of companies, Mumbai disclosed that the liabilities amounted to Rs. 2.75 crores as against the assets of Rs. 1.25 crores. On the basis of the scrutiny of the Balance Sheet, the registrar filed a winding up petition against the company stating that it is commercially insolvent and that the company is unable to pay its debts on the ground that the value of liabilities far exceeded the value of assets. Examine whether the company has any case to defend against the winding up petition filed by the registrar.

Companies Act_Practical problems_18

The directors of a company held more than 75% shares in the company. The company was carrying on business of construction of projects. The directors acquired certain contracts in their own name in breach of trust and made profits for themselves. In the annual general meeting, they passed a resolution that the company had no interest in the contract. The minority shareholders filed a case against directors asking them to account for the profits. Discuss.

Companies Act_Practical problems_17

Where the appointment of a sole selling agent is made without a condition that the appointment is subject to approval of members but later on members’ approval is obtained, the appointment of sole selling agent is validated. Comment.

Companies Act_Practical problems_16

Examine whether the quorum is present in the following cases:

(i) In a Board meeting, only 3 directors were present out of the total of 11 directors. None of the 3 directors was interested in any of the items of the agenda.

(ii) In a meeting of the Board, out of the total of 11 directors, 7 directors were present of which only 2 directors were not interested in one of the transactions.

(iii) The articles of association of a company fixed 3 as the quorum for a meeting of the Board. At a meeting of the Board, all the 5 directors were present. They allotted the shares of the company to 3 of the directors. Is the allotment valid?

How to draft resolution ?

It is a general practice to start a resolution with the words “Resolved that………, but strictly speaking it is not compulsory. It denotes that the text of the resolution is decided formally.

If a resolution runs into paragraphs then it is conventional to split the resolution into different parts eg: “Resolved further that……..

Usually surplus or meaningless words are not included in the resolutions.
The language used should be direct and simple, because it is meant for reading by the common shareholders etc.

Reference to documents approved at a meeting should be included. For eg: Appointment of MD – Draft agreement.

Must indicate the relevant Section pursuant to which that resolution is passed eg: “Resolved that pursuant to Section……of the Companies Act 1956……… This is preferably be included in beginning part of the resolution. If more than one provision is hit then, include the words “and any other applicable provisions in the Companies Act, 1956”.

Approvals required for the resolution should be mentioned. For eg: subject to the approval of Central Government or subject to the confirmation of Company Law Board……….
With effect from date of the resolution may be indicated. For eg: Appointment of sole selling agent.

It is conventional to write a preamble to resolution. For eg:

Kind of meeting: Board/GeneralType of resolution: Simple/ordinary/special

Connecting words like, be and is hereby (denoting one concept) or be and are hereby (denoting more than one concept) is conventional. For eg: “Mr…….., director of the company be and is hereby appointed…….”

“Mr……. and Mr……. be and are hereby appointed…….”

Companies Act_Practical problems_15

Premier Housing Finance Company Ltd. is prepared to give housing loans to the employees of Supreme Chemicals Ltd. subject to the condition that the loans are guaranteed by Supreme Chemicals Ltd. Supreme Chemicals Ltd. is not a listed company and the company will be exceeding the limits prescribed under the Companies Act, 1956 by providing such guarantee. The company desires to give the guarantee early as part of employees’ welfare measure without waiting for the next annual general meeting, which is due only after eight months. Advise the company about the legal requirements under the Companies Act, 1956 to give effect to the above proposal. What would be your advice, if the company was required to provide security instead of guarantee?

Supreme Chemicals Ltd. proposes to give guarantee to a body corporate and as such it attracts section 372 A of the Companies Act, 1956. Where the aggregate of bonus and investments so far made the amounts for which guarantee or security so far provided along with the proposed investment guarantee etc. exceeds the limits prescribed under Section 372 A(i), such investments, guarantee etc. are required to be authorised by a special resolution passed in a general meeting. Only after the special resolution is so passed, such investments, etc. can be made [First proviso to Section 372 A(1)]. However the second proviso to Section 372 A(1) provides an exception in the case of guarantee. The Board may give guarantee without being previously authorized by a special resolution, subject to the following condition:

(i) Unanimous resolution is passed in the meeting of the Board authorizing to give guarantee

(ii) Obtaining shareholders previous approval by special resolution is prevented by exceptional circumstances. In this case there is an urgent necessity.

(iii) The Board resolution for providing the guarantee is confirmed at a general meeting (annual or extraordinary) within 12 months from the date of the Board Meeting.

(iv) The special resolution must be specify the particulars prescribed in the 3rd proviso to Section 372 A(1) such as the Limit, particulars of the Company to which guarantee is proposed to be given, purpose of the proposed guarantee, and other relevant details. Subject to this above conditions, Supreme Chemicals Ltd. may give guarantee to Premier Housing finance Co. Ltd. without obtaining previous approval of the shareholders by special resolution. This exception is available in the case of guarantee only. The board cannot provide security unless it is previously authorized by a special resolution, as the prescribed limits are likely to be exceeded.

Companies Act_Practical problems_14

Articles of Association of a listed company has fixed payment of sitting fee for each Meeting of Directors subject to maximum of Rs. 10,000. In view of increased responsibilities of independent directors of listed companies, the company proposes to increase the sitting fee to Rs. 25,000 per meeting. Advise the company about the requirement under Companies Act, 1956 to give effect this proposal.

Under Section 310 of the Companies Act, 1956 approval of the Central Government shall not be required where sitting fee for each meeting of the Board of a Committee thereof does not exceed the prescribed sum under Rule 10-B of the Central Government’s (General Rules & Forms, 1956) as under:

1. Companies with paid up capital of Rs. 10 crores and above or turnover of Rs. 50 corres and Above Sitting fee not to exceed Rs. 20,000.

Other companies Sitting fee not to exceed Rs. 10,000 Any increase in the sitting fee will require amendment of relevant provision of the Articles of Association.

In the given case, the proposed sitting fee of Rs. 25,000 will require approval of the Central Government as the same exceeds the prescribed limits. The company can pay the sitting fee upto Rs. 20,000 depending upon the aforesaid parameters laid down in Rule 10-B.

Companies Act_Practical problems_13

Ram & Company was appointed as auditor of ABC Ltd. at the Annual General Meeting held on 30th September, 2004. Can Ram & Co. continue as auditor of the company in case the next annual general meeting has not been held in time ? What would be the position in case the next annual general meeting was held on 30th September, 2005, but adjourned without considering the business of appointment or re-appointment of auditor ?

The tenure of an auditor is laid down in section 224(1) of the Companies Act, 1956. It is from the conclusion of the annual general meeting to the conclusion of the next annual general meeting. Therefore, the tenure of office of the auditor does not expire on the last date on which the annual general meeting was due to be held in terms of Section 166. Hence Ram & Co. can continue as auditor even if the AGM for the year 2005 has not been held in time. In case AGM for 2005 was held on 30.9.05 that adjourned without considering the business of appointment or reappointment of auditor, the tenure of Ram and Co. will extend till the conclusion of the adjourned meeting.