COMPANY LAW 2

PRESENTED BY GROUP 5

Group Members Roll no1. Ashutosh Agarkar 012. Fauzia Hasan 223. Sachin Mundra 364. Jane Nazerath 375. Ankit Patel 416. Rajitha Pillai 447. Prasant Sawant 518. Anup Tripathi 59

Roadmap. 1. Buy back of shares.2. Non Voting rights.3. Postal ballot.4. Meeting of shareholders.5. Directors

Qualification, Disqualification, appointment, removal position and power.6. Dividend.7. Nature and Kind of Capital.

COMPANY LAW2

Among these, which power can be exercised only at Board Meeting ?

Contribution to Charitable Trust Donation to Political parties

To clear the temporary loans To dispose off the assets.

Donation to Political parties

Powers to be exercised only at Board Meetings. Section 292 (1) of the Act, provides that the BoD of a company shall exercise the following powers on behalf of the company, and it shall do so only by means of resolution passed at board meeting of the Board. 1. Powers to make a call on the share holders in respect of money unpaid on their shares. 2. Powers to issue debentures. 3. Powers to borrow moneys otherwise than on debentures. 4. Powers to invest funds of the company; and 5. Power to make loans. 6. Power to print share certificates.

Other Powers that can be exercised only at board meetings. a. The power to fill up casual vacancies. b. The power to make donation to political parties. c. Disclosure of interest by a director. d. The power to employ the person as its manager, though he is a director of other company. e. The power to form opinion about the solvency of the company in respect of buy back of shares.

Donation to Political parties

One of the Reason why Companies will not buy back their Shares ?

Utilization of cash reserves

Avoid illegal trading

Better valuation of stocks

To change the capital Structure

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What is Buy Back of Shares ? Buy back is the corporate action in which a company buy backs its shares from the open market from the existing shareholders usually at a price higher than the market price. The company can buy back its shares in any of the proposed manner. 1. From a existing share holder on proportionate basis. 2. From a open market through a. Book building process. b. From Stock Exchange c. From odd lot holders.

How do companies proposed to buy back their shares ? 1. Listed companies are required to intimate stock exchange of General meeting and resolutions thereof.

2. When buyback offer document or public announcement is filed with SEBI, SEBI issues a press release and the offer document is put on the SEBI website

Why Companies do Buy Back their Shares ? 1. Utilization of cash Reserves. 2. Better Valuation of their stocks. 3. As a tool Change their Capital Structure. 4. As a tool Change their Financial Ratio’s.

A Case Study HUL to buy back shares worth Rs 630 crores.

* HUL board proposed to buy back its share worth Rs 630 crores to utilize its cash surplus.

* The Buy back is proposed to effectively utilise the surplus cash and make the balance sheet more leaner and efficient to improve the returns.

Avoid illegal tradingAvoid illegal trading

Can the Board of directors of a company decide to prepare Annual Reports for a Financial year by extending it to 18 Months ?

Yes, With the assent of MCA Yes, with the assent of FM

Yes, by passing ResolutionYes, Registrar

Special permission

The period for which the annual reports is prepared shall be referred to as financial year. It may less than or more than a calendar year, but should not exceed 15 months. However it may be extended to 18 months with special permission of registrar ( Section 210).

Yes, Registrar Special permission

Yes, Registrar Special permission

As per section 205, dividends cannot be paid out of ?As per section 205, dividends cannot be paid out of ?

Current profitsCurrent profits Out of profits for any previousFinancial year or years.

Out of profits for any previousFinancial year or years.

Money provided by Centralor State govt for the dividendMoney provided by Central

or State govt for the dividend Loan fundsLoan fundsLoan fundsLoan fundsLoan fundsLoan funds

Dividends cannot be paid out of the capital even if the Article’s of Association authorises such payment. As per section 205, dividend may be paid out of the three sources only: 1. Out of current profits only. 2. Out of profits for any previous financial year or Years; and 3. Out of the Money provided by the state government or central Govt for the payment of dividend. Director’s who knowingly pay dividend out of the capital shall be held personally liable to company. Interest can be paid out of capital , on the shares of the company with the previous approval of the Central Government under section 208.

The company has the power to put a restrictions on declarationof dividend , the purpose behind it is -

to get ICAI approval To safe guard the interest of the creditors

To avoid the speculation in stock market

To get the SEBI approval

Restrictions on declaration of dividend and purpose behind it. The restriction that the company law puts on declaration of dividends by a companies is that they must be paid only out of profits and after providing for depreciation. The purpose behind it is to ensure that the assets of companies are preserved for the benefit of their creditors and not to be distributed among members of the companies in the guise of dividends.

To safe guard the interest of the creditors

To safe guard the interest of the creditors

Among these which one is a part of Shareholder’s meetings.Among these which one is a part of Shareholder’s meetings.

Class MeetingsClass Meetings Board MeetingsBoard Meetings

Meetings of the Committees of Board

Meetings of the Committees of Board Meetings of CreditorsMeetings of Creditors

What is Meeting ?

A meeting may be generally defined as a gathering or assembly or getting together of one or more persons for transacting any lawful business for entertainment or the like. There must be at least any two persons to constitute a meeting. In case of exceptional case even a one person can constitute a meeting.

Company meetings may be classified as Share holders Meetings

Statutory Meeting. Annual General Meeting Extraordinary general Meeting and Class Meetings

Board Meetings Meetings of the Committees of the board. Meetings of the debenture holder’s. Meetings of the Creditors Meetings of the contributors in winding up.

Class MeetingsClass MeetingsClass MeetingsClass Meetings

As per section 274, a person is not capable of being appointed as director of a company, if-

As per section 274, a person is not capable of being appointed as director of a company, if-

He is un-discharged in solvent.He is un-discharged in solvent.

He is not from corporate family He is not from corporate family

Doesn’t possess management academic degree

Doesn’t possess management academic degree

The company is not listed.The company is not listed.

The Companies Act of 1956, does not lay down any qualification for a person to be appointed as a director of a company. However ,it mentions disqualifications of the directors, which are contained in section 274 of the Act.

Section 274 lays down: 1.A person shall be not be capable of being appointed as a director if , a. He has been found of unsound mind. b. He is an un-discharged insolvent. c. He has applied to be adjudicated as an insolvent and his application is pending. d. He has been convicted by a court involving of any moral turpitude, and sentenced in respect thereof imprisonment not less than six months and a period of 5 years have not elapsed from the date of expiry of the sentence. e. he has not taken any call in respect of 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 is un-discharged in solvent.He is un-discharged in solvent.He is un-discharged in solvent.He is un-discharged in solvent.

A director cannot be removed from the office before the expiry of his term by-A director cannot be removed from the office before the expiry of his term by-

Shareholders of the companyShareholders of the company

Central GovernmentCentral Government Company law boardCompany law board

State GovernmentState Government

Removal by Shareholders. Directors of the company may be removed before the expiry of the Period of his office by the shareholders by passing a resolution at a general meeting. The following directors cannot be removed by the company unless Mentioned in the terms of their appointment. 1. A director appointed by the central government. 2. A director of a Private holding office for life on the first day of the April 1952 whether or not he is subject to retirement under an age limit by the virtue of articles or otherwise. 3. The company has avail itself the option to appoint not less than 2/3 of the total no of directors. 4. A director appointed by financial institution or Bank under the terms of loan agreement.

Removal by Central Government (Sec 388B to 388C) The Central Government may remove the managerial personnel of the company from the office on the recommendation of the CLB. The central Government may take the reference of the CLB where it is of the opinion that there are circumstances suggesting- 1. The person is concerned in the misconduct and mismanagement of the company, has been in connection there with guilty of fraud. 2. The person is not conducting the business with sound business principles and prudent commercial practices. 3. The company has been conducted or managed by a person which is likely to cause damage to interest of the stakeholders. 4. That the business of a company is managed by such a person with an intent to defraud its creditors. .

Removal by company law board. Where on an application to the company law board for prevention of oppression under sec 397 and mismanagement under sec 398 of the Act, the CLB finds that the relief out to be granted, it may by order, terminate or set aside any agreement of the company with a director or the managing director or other persons in such terms as it may think just equitable. The court may constitute an advisory Board for proper management of the company. It can appoint a special officer or a company.

State GovernmentState GovernmentState GovernmentState Government

Which capital as per Section 99 of the companies Act, 1956, not to callexcept in the event and the purpose of company being wound up ?

Which capital as per Section 99 of the companies Act, 1956, not to callexcept in the event and the purpose of company being wound up ?

Capital ReserveCapital Reserve

Subscribed capitalSubscribed capital Capital AssetsCapital Assets

Reserve capitalReserve capital

Meaning of term capital ? The term capital has variety of meanings. It may mean one thing to an economist, another to a business accountant, still another to an a business man ore a lawyer. A lay man thinks a capital which a company raises by issue of its shares. it uses this money to meet business requirements like Business premises and stock in trade.

In relation to a company limited by shares, the word capital means the share capital.

Share capital is not essential in the formation of the company under the companies Act, but where the memorandum provides for “Share Capital”, it is synonymous with the term “Capital” and the memorandum must state the amount of capital and its division into various types, number and value of shares.

Companies Limited by guarantee or unlimited companies or companies u/s 25 need not have share capital.

TYPES OF CAPITAL

1. Authorized Capital. 2. Issued Capital. 3. Subscribed Capital. 4. Called up Capital. 5. Uncalled Capital. 6. Reserve Capital. 7. Capital Reserve. 8. Preference or Equity Share Capital

Reserve Capital: It is that part of the uncalled capital of a company which the limited company has decided by special resolution in terms of section 99 of the companies Act, 1956, not to call except in the event and for the purpose of the company being wound up and therefore that proportion of the capital shall not be capable of called up. Reserve capital should not be confused with capital reserve, which is created out of profits.

Reserve capitalReserve capitalReserve capitalReserve capital

A director who is interested in a transaction of the company mustDisclosed his interest to ?

A director who is interested in a transaction of the company mustDisclosed his interest to ?

ICSIICSIICAIICAI

Company law BoardCompany law BoardCompany boardCompany board

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A director who is interested in a transaction of the company must disclose his interest to the Board. Section 297, in this regard provides that a director of the company or his relative, a firm in which such a director or relative is a partner, any other partner in such a firm, or a private company in which a director is a a member or a director, shall not enter into contract with the company. (a) for the sale, purchase or supply of any goods, materials or services; or (b) for underwriting the subscription of any shares on or debentures of the company. Section 297 of the aforesaid contracts with the consent of the board of the directors by a resolution passed at a meeting of the board. But where, the paid up share capital of the company is one crore or more, previous approval of the central government is also required.

Exceptions In the following cases, the aforesaid approvals shall not be required. 1. The purchase or sale of goods and materials from the company, or to the company for cash at the prevailing market rates. 2. Any contract sale where the sale, purchase or supply of goods in which either the company or the director, relative, firm, partner or private company as the case may be regularly does business. 3. Any transaction with or by a banking or an insurance company in the ordinary course of its business. 4. In such a circumstances of urgent. However, the consent of the board must be obtained at a meting with in three months of the date on which the contract was entered into.

Case 2. Satyam Violated Company law : RoC Satyam computers had violated key provision of the companies Act in the controversial proposal to acquire promoter - related Companies. In approving the acquisition of 100 % in Maytas Properties and 51% in Maytas Infrastructure, Satyam’s board has violated 372 A of the Companies Act. Section 372 A of the companies Act says that no company can acquire shares in any other “Body Corporate” through subscription purchase or otherwise for an amount greater than 60% of the acquiring company share Capital and free reserves or 100 % of its free reserves which ever is higher, after loans, guarantees and investments.

Case 2. Satyam Violated Company law : RoC Satyam computers had violated key provision of the companies Act in the controversial proposal to acquire promoter - related Companies. In approving the acquisition of 100 % in Maytas Properties and 51% in Maytas Infrastructure, Satyam’s board has violated 372 A of the Companies Act. Section 372 A of the companies Act says that no company can acquire shares in any other “Body Corporate” through subscription purchase or otherwise for an amount greater than 60% of the acquiring company share Capital and free reserves or 100 % of its free reserves which ever is higher, after loans, guarantees and investments.

Doing such would require a shareholder authorization through a special resolution passed in a general meeting . The law also states that such a resolution must be only through postal ballot and with advance intimation from RoC.

As per Satyam’s 2007-08 Balance sheet total share Capital and Free Reserves were ` 2136.37 crore. Applying the rule of 60% of this or 100% of Free Reserves and deducting the total amount of investments, loans and guarantees the figure come to ` 788 crore for which the board did not require approval.

Satyam’s Board which included prominent personalities approved an investment of ` 7,920 crore in the Maytas Firms. Thus failed to adhere 372 A of the Companies Act.

It was also pointed out that satyam has not filed any resolution as required by 293 of the companies act of the 1956 regarding the nature and proposed acquisition of stakes in Maytas infrastructure and Maytas properties.

It can be observed that satyam also violated 297, 299 and 300 and 301 of the act that the deal with realted party transactions like rules on board sanctions for resolutions in which directors are interested.

RoC said that the Books show that the Raju and family has 36.4% stake in Maytas Infrastructure and 100 percent stake in Maytas Properties.

Company boardCompany boardCompany boardCompany board

Which is the business which resolution needs to be passed throughPostal ballot ?

Buy back of shares ofa company

Appointment of companysecretary

Appointment ofLegal advisors

Appointment of CompanyAuditors

The companies (passing the resolution by postal ballot) Rules, 2001. In these rules unless the context otherwise requires- (a) “Act” means the companies act (1 of 1956). (b) “Postal Ballot” includes voting by shareholders by postal or electronic mode instead of voting personally by presenting for transacting the businesses in a general meeting of a company. (c) “Requisite majority” with regard to special resolution means votes cast in favour of the business is three times more than the votes cast against with regard to ordinary resolution, votes cast in favour is more than the votes cast against.

2 A. Method for sending Notices (a) A company may issue notices either- (i) under registered post acknowledgement due or; (ii) under certificate of posting; and (b) With an advertisement published under leading English newspaper and in one vernacular Newspaper circulating in the state in which the registered office of the company is situated, about having dispatched the ballot papers.

List of resolutions in which shall be passed through postal ballot. (a) Alteration in the object cause of memorandum.

(b) Alteration in Articles of Association in related to insertion of provisions defining private company.

(c) Buy back of own shares by the company under subsection (1) of sec 77A:

(d) Issues of shares with differential voting rights as to voting or dividend or otherwise under sub-clause (ii) of clause (a) of section 86;

(e) Change in place of registered office.

(f) Sale of wholly or substantially the whole of undertaking of a company. (g) Giving loans or extending guarantee or providing security in excess of the Limit.

(e) Variation in the rights attached to a class of shares or debentures or other securities as specified under section 106 .

Buy back of shares ofa company

Buy back of shares ofa company

Which of the following condition is not required if the company wants to issue shares with differential voting rights?

Approval from MCA

Not defaulted in meetingInvestors grievances

AoA authorises the same

Approval fromshareholders

Conditions Every company limited by shares may issue differential rights as to dividend, voting or otherwise, if – 1. The company has a distributable profits for three financial years preceding the year in which it was decided to issue such shares. 2. The company has not defaulted in filing the returns for three financial years immediately preceding the financial year in which it was decided to issue shares. 3. The company has not failed to repay its deposits or interest thereon due date or redeemed its debenture on due date or paid dividend. 4. The articles of association of the company authorises the issues of shares with differential voting rights.

5. The company has not been convicted of any offence arising under , SEBI Act 1992, SCRA Act , 1956, FEMA Act of 1999.

6. The company has defaulted in meeting investors grievances.

7. The company has obtained the approval of the shareholders in general meeting by passing a resolution.

8. The listed public company obtained approval of shareholders through postal ballot.

Approval from MCAApproval from MCA

The shareholders in the AGM unanimously passed a resolution for paymentOf dividend higher than recommended by Board of Directors ? Resolution is ?

Articles of a company usually provisions with regards to Declaration of dividend on the pattern of regulations 85 to 94 of Table A of the companies Act. Under the regulation 85, the power to declare dividends vest with general meeting but it has no power to declare dividends exceeding the amount recommended by Board of Directors.

Accepted Rejected

Challenged Held for discussion

RejectedRejected

During the year 2009, the company held four meetings of the board on 9th Jan, 9th May, 15th Oct and 30th Dec. was this in accordance with provision's of companies Act 1956 ?

During the year 2009, the company held four meetings of the board on 9th Jan, 9th May, 15th Oct and 30th Dec. was this in accordance with provision's of companies Act 1956 ?

Yes, as 4 meetings wereheld in a year

Yes, as 4 meetings wereheld in a year

No, as share holders were Invited.

No, as share holders were Invited.

Yes and section 285 has been followed

Yes and section 285 has been followed

No and Section 285 has beenviolated

No and Section 285 has beenviolated

As per Section 285, at least four meetings shall be held in each calendar year and at least one board meeting should be held in each quarter. As per section 288 , where a board meeting can not be held for want of quorum, then unless articles provide otherwise, it shall automatically stand adjourned to the same day, time and place in the week, or if that a public holiday, than succeeding day, which not a public holiday. Section 285 shall not be deemed to be contravened, if a board meeting could not be held for a want of quorum.

In the present case no meeting was held during the quarter Jul-Sep. Hence, section 285 has been violated.

No and Section 285 has beenviolated

No and Section 285 has beenviolated

No and Section 285 has beenviolated

No and Section 285 has beenviolated

The following shares are issued to employees or directors at a discount or for consideration other than cash ?

The following shares are issued to employees or directors at a discount or for consideration other than cash ?

Equity share with Non voting right.Equity share with Non voting right. Bonus SharesBonus Shares

Preference SharesPreference SharesSweat EquitySweat Equity

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What is Sweat Equity ? Sweat equity shares are the shares issued by a company to its employees or directors as a consideration for providing technical know how or a similar value to a company. A company may issue sweat equity shares of a class shares already issued if the following conditions are met. 1. Such issue should be authorized by a special resolution passed by a company in general meeting. 2. The Resolution should specify the no. of shares, CMP, date of issue , name of the person to whom the issue is made.

3. For listed companies the issue should follow the norms and regulations of SEBI.

4. In case of unlisted companies, sweat equity cannot be issued before one year of commencement of operations. 5. There is cap of 15% on the number of sweat equity shares can be issued without a specific central government approval.

6. The board of directors decision to issue sweat equity has to be approved by passing special resolution at a share holders meeting later in the year. The resolution must be passed by 75% of the members voting for it.

Case Study 3

IPL Kochi Team Controversy Section 79 A of the companies Act, 1956 inserted in 1999 defines ‘sweat equity shares’ to mean “ equity shares issued by the company to employees and directors at discounted price or consideration for Cash. Sweat equity are issued to employees as a compensation who have given their best technical know how or efforts in functioning of the company. Here Ms. Sunanda Pushkar was offered a sweat equity as she was close to the then Minister of External Affairs for state Mr. Shashi Tharoor.

Norms Violated in issue of Sweat Equity to Ms.Pushkar. 1. Issue requires a special resolution passed by the company in general general meeting. Here the issue passed not in a general meeting , but a confidential meeting between the minister and the Team owners ( Rendezvous sports) 2. The resolution should specify no of shares, name of the person , CMP etc. after the company is entitle to commence business. Here , forget the certificate of commencement of business , even MoA and AoA were not in place when the issue was made.

3. In case of unlisted companies, the sweat equity cannot be issued before one year of commencement of operations. Here, the Sweat equity was issued with in 20 days of inception of the company and the business yet to start.

4. Sweat equity is a device that a company utilizes to retain it best talent. Here, it was used to enhance the politcal talent and Good will.

Sweat EquitySweat EquitySweat EquitySweat Equity

BIBLIOGRAPHY

1.TAXMAN’S COMPANY LAW by MAJUMDAR AND KAPOOR2. The Economic Times – HLL case3. Business India – Satyam Case4. INDIA TODAY - IPL KOCHI Case.5. CA question paper- 2009