Unit 3 Company Law

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Unit 3 company law
Company Law (Karnataka State Law University)
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Unit 3
Director & the Board in Companies Act
The term “director” in Companies Act 2013 under Section 2 (34) is defined as “a director
appointed to the Board of a company”., wherein ―Board of Directors‖ or ―Board‖, in
relation to a company, means the collective body of the directors of the company. As per
Chapter XI, Section 149 of the Companies Act 2013, it is mandatory for every company to
have a Board of Directors, the composition should be as follows:
1. Public Company: Minimum 3 and maximum 15 nos. of Directors; at least 1/3 rd

number of Independent Directors
2. Private Company: Minimum 2 and maximum 15 nos. of Directors
3. One person Company: minimum 1 director
4. At least 1 woman director
5. At least 1 Director who has stayed in India for minimum 182 days in the previous
calendar year.
The Companies Act 2013 gives recognition to the idea of Independent Director, which was
earlier part of the listing agreement only. It means a director other than a whole time director
or the Managing Director or a nominee director who fulfills the criteria’s mentioned in
Section 149.
As per section 266A and 266B of the Companies Act, 1956 Director Identification Number
(DIN) is a unique identification number issued to existing and/or potential directors of any
incorporated company. As per Companies Act provisions every director shall be appointed by
the company in general meeting, provided they have been allotted the Director Identification
Number (DIN) and on submission of a declaration that he/she is not disqualified to become a
director.
An additional director is appointed by the Board of Directors through the Boards vested
power to hold office till next general meeting. An alternate director may be appointed by the
Board of Directors to act as a Director in absence for a period of not less than 3 months and
not more than the allotted period for the director for whom the replacement is.
The Board may appoint any person as a director nominated by any institution in pursuance of
the provisions of any law for the time being in force or any government regulation or
shareholdings, such directors are known as Nominated Directors.
As per Principle of Proportional representation the articles of a company may provide for the
appointment of not less than two-thirds of the total number of the directors of a company, and
such appointments may be made once in every three years and casual vacancies of such
directors shall be filled as provided in sub-section (4) of section 161.
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People of unsound mind, undischarged insolvent, convicted by a court of any offence and
either / or imprisoned for a period of 7 years or more, convicted of the offence dealing with
related party transactions under section 188.
Duties of Director
Major Corporate Debacles of recent times like Kingfisher, Sahara, Satyam etc has again and
again proved the inability of Company Act 1956 to be ineffective in upholding Corporate
Governance. Every time it is the Directors who are responsible in breaking Shareholders
expectation and sometimes betraying the sentiments of stakeholders under a false veil of
charisma, while using the corporate mechanism to fulfill personal welfare. To meet this
challenge Companies Act 2013 has been enacted almost 50 years after the last amendment. It
is built on the principles of responsibility of the Board, protection of interests of the
Shareholders, self- regulation and openness through disclosures. The 2013 amendment has
ensured several effective measures through clearly defining liabilities and responsibilities of
the Directors and penal actions on failure to follow the same.
 The duties, liabilities and responsibilities which promotes corporate governance

through the sincerest efforts of directors in efficient management and swift resolution
of critical corporate issues and sincere and mature decision making to avoid
unnecessary risks to the corporate entity and its shareholders.
 Keeping the interests of company and its stakeholders ahead of personal interests.
1. A director must act in accordance with the Articles of Association of the company
2. A director must pursue the best interests of the stake holders of the company, in good
faith and to promote the objects of the company.
3. A director shall use independent judgement to exercise his duties with due and
reasonable care , skill and diligence.
4. A director should always be aware of conflict of interest situations and should try and
avoid such conflicts for the interest of the company.
5. Before approving related party transactions the Director must ensure that adequate
deliberations are held and such transactions are in interest of the company.
6. To ensure vigil mechanism of the company and the users are not prejudicially affected
on account of such use.
7. Confidentiality of sensitive proprietary information, commercial secrets, technologies,

unpublished price to be maintained and should not be disclosed unless approved by
the board or required by law.
8. A Director of a Company shall not assign his office and any assignment so made shall
be void.
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9. If a director of the company contravenes the provisions of this section such director
shall be punishable with fine which shall not be less than one Lakh Rupees but which
may extend to five Lac Rupees.
To ensure independence and equitableness of the Board, the Companies Act 2013 also casts
various responsibilities on the Independent Directors. An Independent Director is a member
of the Board of Directors, but doesn’t owns any share of the company nor does have any
financial relationship with the company other the sitting fees it receives. As per Schedule IV
of the Companies Act 2013
1. Protecting and promoting interests of all and specially for Minority Stakeholders
2. Acting as a mediator in case of Conflict of Interest amongst the stakeholders
3. Assistance in forwarding independent and equitable judgement to the Board of

Directors
4. Adequate attention towards related party transactions
5. Honest and impartial reporting of any unethical behavior, violation of code of conduct
or any suspected fraud in the company.
Penal Provisions
The Companies Act has various penal provisions to ensure proper adherence to the Duties
and Responsibilities laid out. In Companies Act 1956, the concept of “Officer in Default”
was inclusive of the Board of Directors. Under Section 2 (60) of Companies Act 2013 the
idea of “Officer who is in Default” has been stipulated under lapse in duty in the
circumstances that the officer is in default for any provision of the act and is part of such
contravention either self or participation without objection shall be liable to penalty or
punishment including imprisonment. The Director under scrutiny here can also include
Nominee Directors. The matter is very sensitive as even if the Director is not part of such
meeting , but has received the information of contravention in any form is liable and can be
held party to such act. Hence it is important that the voice of objection of the Director needs
to be mandatorily recorded to avoid any such implication on innocent person.
The penalty amounts applicable under Companies Act 2013 are more higher in denomination
and very stringent compared to the 1956 amendment. The minimum fine applicable is INR
25,00/-, whereas can be even more than INR 25 Crore. Proven Defaulter on Section 166
(codified duties) can be fined anything between 1-5 lakhs. Some examples of violations
which can attract penalties of 1 crore and above are violations for provisions under
 Section 8 : Not for Profit companies,
 Section 42: Subscription of securities on Private Placement
 Section 46: Duplication and issuance of share certificates with intent to defraud
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 Section 74 (3): Failure in repayment of deposits within specified time
 Section 195 (2): Insider Trading
According to Section 149 (12) of Companies Act 2013, an Independent Director is similarly
liable for such acts which is attributable through Board processes with the Director’s
knowledge and with his consent or where the Director has not taken action diligently. Hence
it is extremely important for Independent Directors to give consent to any Board proposal
only with due caution. Although in case of such act of default is noticed by law the summons
are issued irrespective of the category of Director and it lies with the Director to prove its
innocence.
Under the Companies Act 2013 certain defaulters can attract imprisonment, mostly non-
cognizable. However offences connected to fraud or intent to fraud are cognizable (no
warrant required for arrest). Like suppressing any material information or furnishing false
information is cognizable under Section 7 (6), providing misleading statement in the
prospectus under Section 34, inducing fraudulently for investment is cognizable under
Section 36, transfer or transmission of shares with intent to defraud under Section 56 and
offences related to reduction of share capital under section 66.
In Companies Act 2013, under Section 245 , Shareholders or group of minimum 100
Shareholders on behalf of all affected parties can bring “class action suit” against the
Company and the Directors for any wrong doing. This will be taken up by National Company
Law Tribunal for expedited resolution for the shareholders. In addition to Companies Act
2013, lots of other acts are interrelated and can attract penal action based on multiple
conflicts. So , the Director needs to be aware of the interdependencies of different laws and
how they can influence the decisions they are going to implement.
Liability of Directors
The Liability of the Directors can be both joint or collective for any and every act prejudicial
to the interests of the company. Though the Director and the Company are separate entities,
under the following cases the Director may be held liable on behalf of the Company:
 Tax Liability: Unless a Director or any Past Director can prove that the non-recovery
or non-payment of Taxes are attributable as gross neglect or breach of duty, then any
present or past Director (pertaining to the time period of defaulter) will be liable to
pay the shortfall in tax amount and any penalty associated.
 Refunding of share application or excess in share application money
 To pay for qualification shares
 Civil Liability in case of misstatement in Prospectus
 Fraudulent Business Conduct and all associated debts and contracts executed
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 Failure in making disclosures as stipulated SEBI (Acquisition of Shares & Takeovers)

Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992 by the
directors may attract legal proceedings by SEBI
SOME CRIMINAL LIABILITIES ASSOCIATED WITH A DIRECTORS CONDUCT ARE AS

FOLLOWS:
 Cheques Bounced or dishonored: Under Negotiable Instruments Act 1881, signing of

dishonored by a Director may lead to prosecution along with the company
 Offences under Income Tax Act, 1961
 Offences under Labour Laws, specifically in case of Employees Provident Funds and
Miscellaneous Provisions Act, 1952 and Factories Act, 1948
Derivative action is defined as an action by one or more shareholders of a company where the
cause of action is vested in the company and relief is accordingly sought on its behalf.
Though it must be brought in a representative form . A shareholder may bring an action
against the company and its Directors in respect of matters which are ultra vires the
Memorandum or the Articles of the company and which no majority shareholders can
sanction. Directors and the company would also be liable if the conduct of the majority of the
shareholders constitutes a “fraud on minority”, i.e., a discriminatory action. To safeguard the
interests of the company, any member or members may bring a derivative action.
The Liability of any or all the Directors of a limited company can be unlimited if so specified
in the Memorandum or approved through a Special resolution authorized by Articles of
association. Any and all provisions provided in Article of Association to indemnify directors
against default, negligence, breach of duty or trust is void as per Companies Act. However in
case innocence of the director is proven such indemnity can be enforced. Hence this is a very
important clause for Directors and one should always be aware of and try to utilize this to the
maximum benefit possible. The Companies Act allows a company for taking insurance for
protection against loss caused to it by Directors, also the Director can take insurance policy to
compensate for loss incurred due to liability to the company for which premium can be paid
by company itself.
Conclusion
The analysis above is daring enough for someone to opt for becoming a Director, however it
is not that difficult to adhere to if the Directors are fulfilling their duty in the best interest of
the stakeholders. The Directors needs to be more prepared now than before to avoid any
grave circumstance against them or against the company. They should attend as many board
meetings as possible and should be fully aware of the company’s business. They need to
come very much prepared and alert before joining a board meeting. Only participation in
meeting is no more enough, it also needs to be ensured all questions or expressed dissents are
properly recorded in the minutes of the meeting, this is extremely important and is a pertinent
evidence avoid the legal hassles at a later date. Proper training for directors on Corporate
Governance is necessary and will equip them to work in the best interest of the organization.
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It needs to be ensured by self that the Directors are not remaining unadvised, however
knowledgeable or experienced someone may be it will be prudent practice to legal advice in
case of doubts or critical situations. Directors Liability Insurance is very important for
Directors now.
The Companies Act 2013 has very well played its role in enacting Corporate Governance in
the very core of the companies system. However, more than adherence to purpose its relies
on adherence for survival which may fail it someday like all previous amendments. It needs
to be more straight forward while assuring shareholders interest. Fear may allow necessary
shield to hold the corrupt people for some time however it will not be long that bypass to
such rules are already being invented. Corporate Governance needs to be imbibed into the
soul of the system through tangible benefits to the followers , only then it will become the
goal of the companies and will be followed religiously. The best thing is all stakeholders and
shareholders of the companies have faith in the Companies Act and it will keep enlightening
the path to universal Corporate Governance.
Powers to be exercised by the Board only at Meetings (Section 292) Section 292 ofthe Indian
Companies Act, 1956 provides that the board of directors shall exercise the following powers
on behalf of the company only by means ofresolutions passed at meetings ofthe board.
(a) The power to make calls on shareholders in respect ofmoney unpaid on their shares,
(b) The power to authorize the buy back ofshares,(section 77 A)(2)(b),
(c) The power to issue debentures,
(d) The power to borrow moneys otherwise than on debentures,
(e) The power to invest the funds ofthe company,
(f) The power to make loans and
(g) The power to forfeit shares.
The board may, by resolution passed at a meeting, delegate the powers specified in
(d), (e), and (f), above to a committee of directors, managing directors, the manager or any
other principal officer of the company on such conditions as the board may specify.
Other Powers exercisable at Board Meeting Over and above the powers included in
section 292, the Companies Act provides for many other pov/ers which must be exercised
only at meeting of the board. Some ofthese powers are as follows:
(a) The filling of casual vacancies on the board (section 262),
(b) Appointing additional directors (section 260),
(c) Appointing alternate directors (section 313),
(d) Giving consent to contracts in which a director is interested (section 299),
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(e) Recommending the rate of divided for shareholder’s approval at the annual general
meeting,
(f) Receiving notice of disclosure of shareholding by directors and persons deemed to

be directors(section 308),
(g) Making a declaration of insolvency to make winding up of a company as

member’s voluntary winding lip (section 488) and
(h) Appointing first auditors of the company and filling up any casual vacancy in the
office ofthe auditor unless such vacancy arises from resignation of the auditor (section 224).
Powers requiring unanimous consent of all Directors present and entitled to vote at Board
Meeting. Appointing a person as managing director when he is acting as “managing director”
or “manager” of one and not more than one other company (section 316 (2)),
(a) Appointing a person as “manager” if he is acting as the “managing director” or

“manager” of one and not more than one other company (section 380 (2)),
(b) Making loans to or invest in any shares and debentures of any other body
corporate (section 372A).
. Restrictions on Powers of Board (Section 293) Powers Exercisable With the General
Meeting Section 293 of the Indian Companies Act, 1956
imposes certain restrictions on the powers ofthe board of directors. Such powers can
be exercised by the board only with the consent in general meeting. These powers are:
(a) The power of directors relating to the sale or lease or otherwise disposal of the
company’s undertaking.
The board of directors can sale or lease the company’s undertaking with the consent
of the company in general meeting. However, the sale of one out of the three vessels ofthe
company which was not in use was held to be not a sale ofthe company’s undertaking so as to
require shareholder’s resolution. The sale was also found to be necessary for raising funds of
the company’s business and the shareholders were not allowed to question it. In P.S Offshore
Interland Services P Ltd v. Bombay Offshore Suppliers Ltd,10 it was held that a closed or out
of function unit of a company may be an undertaking. Also in Pramod Kumar Mittal v.
Andhra Steel Corpn Ltd,* 11 it was held that an undertaking in a complete and complex weft
and the various types of business and assets are threads which cannot be taken a part from the
weft.
( b) To remit or give time for payment of any debt to the company by a director,12
except in the case ofrenewal or continuance of an advance made by a banking company to its
directors in the ordinary course of business.
(c) To invest (excluding trust securities) the amount of compensation received in

respect ofthe compulsory acquisition of any undertaking or property ofthe company.
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(d) To borrow moneys and where the moneys to be borrowed (together with the
moneys already borrowed by the company) are more than paid up capital of the company and
its free reserves. That is to say reserves in the share premium account, general reserve, profit
and a loss account, and capital redemption aecount).The amount of temporary loans raised
from banks in the ordinary course of business is excluded. This, however, does not include
loans raised for the purpose of financing expenditure of a capital-' nature.
(e) To contribute to charitable and other funds not directly relating to the business of
the company or the welfare of its employees, amounts exceeding in any financial year, fifty
thousand or 5 percent of the average net profits of the three preceding financial years,
whichever is greater.
Section 293 (2) (a) ofthe Indian Companies Act,1956 provides that incase the
directors sell or lease the company’s undertaking without the consent of the shareholders in
general meeting, the title of a buyer or other person who buys or takes a lease in good faith
and after exercising due care and caution, will not be affected. Besides, a company whose
ordinary business is to sell the property is not governed by the restriction
Incase the company has borrowed money in excess of the limit stipulated in (d)
above, the lender may fail to enforce the loan against the company unless the lender prove
that he advanced the loan in good faith and without the knowledge that the limit had been
exceeded. The restrictions imposed by section 293 do not apply to an independent private
company.
Power of Directors to Allot Shares. Directors of a company have powers to allot

shares but this power must be exercised bonafide for the benefit ofthe company as a whole
because this power is t / a fiduciary one. In Grant v. John Grant& Sons Ltd, it was held that
when the company not in need of further capital and the directors issued shares only to
maintain their control or for defeating the wishes ofthe existing majority of the shareholders,
the allotment was improper. In another case of Punt v. Symons &Co Ltd,the directors used
the shares with the object of creating a sufficient majority to enable them to pass a special
resolution depriving other shareholders special rights conferred on them by the company’s
articles.
It was held that when issue of shares to persons who are, obviously meant and
intended to secure the necessary statutory majority in a particular interest, it could not be fair
and bonafide exercise of the power Power of Directors to Make Calls on Shares. The Articles
of Association of companies generally provide that the power to make calls in advance from
the shareholders in respect of unpaid amount on shares vest in the directors. The power to
make calls is a fiduciary one and shall not be used by the directors for their own benefit. This
power cannot be delegated by the directors to any committee of directors, the managing
agent, secretaries, treasurers or the manager,
In Poiner Alkali Works Ltd v. Amiruddin s. Tayyabji, it was held that where the
articles provide that every shareholder shall be liable to pay the amount of every call to the
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persons and at the time and place appointed by the directors, the resolution should specify the
time, place and amount of the payment of the call.
In East and West Insurance Co Ltd v. Mrs. Kamla Jayanti Lsl Mehta, it was held that
when the time for the payment ofthe call is not fixed by the board of directors, the call is
valid although there was an omission in specifying the place and person whom the call is to
be paid. A valid resolution making a call must state;
(a) The amount ofthe call,
(b) The time when the call should be paid,
(c) The person to whom the payment is to be made and
(d) The place where the payment is to be made. The court will not interfere with the
exercise ofthe power of directors in the absence of proof of malafides and resolution so
passed in the absence of malafides is conclusive evidence that the money is required for the
purpose ofthe company. It is breach of duty on the part ofthe directors to place themselves in
a more advantageous position as regards payment of amount due on their shares than the
other shareholders, unless approved ofby the shareholders.
Thus, in European Central Rail Co, Re, the directors paid into the company’s account
due on their shares and immediately thereafter withdrew it as the fee, it was held that the
payment was not for the of the company and they remained liable to pay.
Power of Directors to Forfeit Shares The power to forfeit shares is usually contained
in the articles of association. If such power is not contained in the articles then the resolution
passed in general meeting upon the forfeiture is in fructuous. In Huth v. Clarke, it was held
by the court that in absence of any authority given to them by articles of association, the
directors have no power to forfeit shares for non payment of calls by the shareholders. It is
however, usual to give such power to the directors, where no such power exists; the articles
can be suitably altered, In Kashi Ram v. Kishori Chand,it was held that forfeiture ofshares by
r a managing director was not valid unless the articles of association allow him to do so. In
Re Esparto Trading Co, the court held that directors cannot exercise this power in order to
relieve the shareholders, who can pay their calls from liability merely because they are
willing to pay the forfeiture is void, The directors have no power to forfeit shares even when
the uncalled capital has been charged infavour oftrustees for the debenture holders,
Power of Directors to call Annual General Meeting and Statutory Meetings The
directors are the agents of the company hence, it’s their duty to call general meetings of the
company, when they consider it expedient. The annual general meeting must be held once in
each (calendar) year. The first annual general meeting is to be held within eighteen months
from the date of its incorporation. While the statutory meeting is to be held within six months
ofthe commencement ofthe business. The Board of directors shall atleast 21 days before the
day on which the nn meeting is held, forward a report to every member ofthe company. The
statutory report forwarded by the directors shall set out the total number ofshares allotted and
the amount of cash received by the company in respect ofsuch shares,
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. Power of Directors to Control General Meetings Where the articles of association of

the company vests the powers of Carrying on business of the company in the directors, the
company in general meeting cannot override the director’s powers of carrying on the business
by prescribing a regulation of passing a resolution inconsistent with the articles, Bttt the
company in general meeting may in certain cases determine whether or not an action shall be
commenced in the name of the company in the view of the rules laid down in Foss v.
Harbottle. Therefore the directors have to exercise this power vested in them for th§ benefit
of the company. The directors should conduct the company’s business upon the same footing
that it would be continued as a going concern and should balance a long term view against
short form interests ofthe present members
A company is an association of several persons. Decisions are made according to the

view of the majority. Various matters have to be discussed and decided upon. These
discussions take place at the various meetings which take place between members and
between the directors. Needless to say, the importance of meetings cannot be under-
emphasised in case of companies. The Companies Act, 1956 contains several provisions
regarding meetings. These provisions have to be understood and followed.
For a meeting, there must be at least 2 persons attending the meeting. One member
cannot constitute a company meeting even if he holds proxies for other members.
Kinds of Company Meetings :Broadly, meetings in a company are of the following

types :-
I. Meetings of Members :
These are meetings where the members / shareholders of the company meet and
discuss various matters. Member’s meetings are of the following types :-
A. Statutory Meeting :
A public company limited by shares or a guarantee company having share capital is

required to hold a statutory meeting. Such a statutory meeting is held only once in the
lifetime of the company. Such a meeting must be held within a period of not less than one
month or within a period not more than six months from the date on which it is entitled to
commence business i.e. it obtains certificate of commencement of business. In a statutory
meeting, the following matters only can be discussed :-
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Floatation of shares / debentures by the company
Modification to contracts mentioned in the prospectus
A meeting therefore, can be defined as a lawful association, or assembly of two or

more persons by previous notice for transacting some business. The meeting must be validly
summoned and convened. Such gatherings of the members of companies are known
as company meetings.
the eight main types of company meetings. The types are: 1. Statutory Meeting 2.
Annual General Meeting 3. Extraordinary General Meeting 4. Meeting of the Board of
Directors 5. Class Meeting 6. Meeting of Creditors 7. Meeting of Debenture Holders 8.
Meeting of Creditors and Contributories.
Company Meeting Type # 1. Statutory Meeting:
Every public company limited by shares—and every company limited by guarantee

and having a share capital—must, within a period of not less than one month and not more
than six months from the date at which the company is entitled to commence business, hold a
general meeting of the members which is to be called the Statutory Meeting.
In this meeting the members are to discuss a report by the Directors, known as the
Statutory Report, which contains particulars relating to the formation of the company.
Private companies are exempted from holding this meeting.
Statutory Report:
The nature of business conducted at the statutory meeting involves consideration and
adoption of the Statutory Report. The Statutory Report is drafted by Directors and certified as
correct by at least two of them. A copy of the report must be sent to every member at least 21
days before the date of the meeting. A copy is also to be sent to the Registrar for registration.
Section 165(3) provides that the Statutory Report must contain the following
particulars:
(i) The total number of fully paid-up and partly paid-up shares allotted;
(ii) The total amount of cash received by the company in respect of the shares;
(iii) An abstract of the receipts, classifying them according to source and mentioning
the expenses incurred for commission, brokerage etc.
(iv) The names, addresses and occupations of directors, auditors, managers and sec-
retaries and changes of the names, addresses etc.
(v) Particulars of contracts which are to be submitted to the meeting for approval,
with proposed modifications, if any;
(vi) If any underwriting contracts have not been carried out, the reasons therefor;
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(vii) The arrears due on calls from directors and others;
(viii) Particulars of commissions and brokerages paid to directors and managers.
Particulars as regards cash in the Statutory Report are to be certified as correct by the
auditors of the company.
The members of the company who are present in the Statutory Meeting are at liberty
to discuss any matter relating to the formation of the company or arising out of the Statutory
Report, whether previous notice has been given or not. But no resolution can be passed of
which notice has not been given in accordance with the provisions of the Act.
If default is made in complying with the provisions of Section 165, every Director or
any other officer of the company who is in default shall be punishable with a fine which may
extend to Rs. 500.
Company Meeting Type # 2. Annual General Meeting:
General Meeting of a company means a meeting of its members for specified

purposes.
There are two kinds of General Meetings:
(i) The Annual General Meeting and
(ii) Other General Meetings.
The statutory provisions regarding the Annual General Meeting are:
(a) Section 166:
The first Annual General Meeting of a company may be held within a period of not
more than 18 months from the date of its incorporation. If such a meeting is held within the
period, it is not necessary for the company to hold any annual general meeting in the year of
its incorporation or in the following year.
Subject to the above-mentioned provision, a company must hold an Annual General

Meeting each year. Not more than 15 months shall elapse between the date of one Annual
General Meeting and the next. The Registrar may, for any special reason, extend the time of
holding an Annual General Meeting (other than the first Annual General Meeting) by a pe-
riod not exceeding 3 months.
The notice, by which an Annual General Meeting is called, must specify it as such.
Every Annual General meeting shall be called during business hours, on a day which is not a
public holiday, at the Registered Office of the company or at some other place within the
town or village where the Registered Office is situated. The Central Govt. may exempt any
class of companies from the provisions mentioned in this paragraph.
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The time of holding of the Annual General Meeting may be fixed by the articles of the
company. A public company or a private company which is a subsidiary of a public
company, may, by a resolution passed in one general meeting, fix the time for its subsequent
general meetings. Other private companies may do so by a resolution agreed to by all the
members thereof.
(b) Section 167:
If default is made in holding an Annual General Meeting in accordance with Sec. 166,
the Regional Director of the Company Law Board may, on the application of any member of
the company, call or direct the calling of a general meeting. He may also give directions
regarding the calling, holding and conducting the meeting. Such a meeting shall be deemed to
be an Annual General Meeting of the company
(c) Section 168:
If the provisions of Sections 166 and 167 are not complied with, the company and
every officer of the company be fined.
(d) Section 171:
A general meeting may be called by giving not less than 21 days’ notice in writing.
The Annual General Meeting may be called with a shorter notice if it is agreed to by all the
members entitled to vote in the meeting. The Court has no power to direct the calling of the
Annual General Meeting.
Company Meeting Type # 3. Extraordinary General Meeting:
Any general meeting of the company which is not an Annual General Meeting or a
Statutory Meeting is called Extraordinary General Meeting. An Extraordinary General
Meeting is held for dealing with some business of special or extraordinary nature and which
is outside the scope of the Annual General Meeting
This meeting is also held to transact some urgent business that cannot be deferred till
the next Annual General Meeting. This meeting may be called by the Directors or
requisitioned by the member’s according to Sec.169 of the Companies Act, 1956. The Board
of Directors can be compelled to hold
Extraordinary General Meeting upon request or requisition made for it, under the
following conditions:
(a) The requisition must be signed by members holding at least 1/10th of the paid- up
capital of the company, in the case of companies having a share-capital; and by members
holding at least 1/10th of the total voting power in other cases.
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(b) The requisition must set out the matters which will be considered at the meeting.
(c) The requisition must be deposited at the Registered Office of the company.
The Board must, within 21 days of the receipt of a valid requisition, issue a notice for the
holding of the meeting on a date fixed within 45 days of the receipt of the requisition. If the
Board does not hold the meeting as aforesaid, the requisitionists can call a meeting to be held
on a date fixed within 3 months of the date of requisition.
Resolutions, properly passed at a meeting called by the requisitionists, are binding on the
company.
Company Meeting Type # 4. Meeting of the Board of Directors:
The management of the company is vested on the Board of Directors. Therefore, the
Directors are to meet frequently to decide both policy and routine matters.
The provisions regarding Board Meeting are:
1. Board Meeting must be held once in every three calendar months and at least four times in
every year. This provision may be exempted by the Central Govt.
2. Notice of Board Meeting shall be given in writing to every director for the time being in
India and at his usual address in India.
3. The Quorum:
Quorum means the minimum number of members required to hold a meeting. According to
the Act, quorum is constituted by 5 members personally present in the case of a public
company and 2 members personally present in the case of other companies.
The articles may prescribe a larger number. If there is no quorum within half an hour of the
notified time for starting the meeting, it is dissolved. No quorum is necessary in any
adjourned meeting.
In every organisation there should be a provision in their constitution or by-laws or Articles

of Association fixing the number which should constitute a quorum. If, however, no quorum
is fixed in the constitution or articles, the first meeting should decide what should constitute
the quorum of the meeting.
The quorum of members must be present not only at the beginning but it also be maintained
throughout the meeting. Otherwise the business transacted at the meeting will be invalid. If a
quorum is not present at the starting time, the Chairman may allow some extra time (e.g. half
an hour) to enable the meeting to form the quorum.
If even the quorum is not present, the meeting shall stand adjourned and will be held again at
a place, time and date as may be determined by the Chairman.
4. The Agenda:
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Agenda means “things to be done” at the meeting. It is the list of businesses to be transacted
at the meeting. The Secretary prepares the agenda in consultation with the Chairman. The
notice of every meeting must specify the business to be transacted in the meeting.
The Act states that the notice must annex an “Explanatory Statement” at which some special
business is to be transacted. The statement must contain all the material facts relating to each
item of the business, indicating the nature and extent of the interest of every director and
manager of the company. The statement must mention the time and place where all
documents relating to special business can be inspected.
The business transacted in a shareholders’ meeting can be divided into two classes:
(i) Ordinary and
(ii) Special.
Ordinary means consideration of accounts and the Balance Sheet; declaration of dividend;
appointment of directors and appointment and fixation of remuneration of auditors. Any other
business is special business.
5. Chairman:
Unless otherwise laid down in the articles, the members personally present at the meeting
shall elect a Chairman from amongst themselves by show of hands. But if a poll is demanded,
it must be taken forthwith with a Chairman elected for the purpose. Every director has one
vote but the Chairman has an extra vote known as casting vote, i.e., either for or against the
resolution.
6. Proxy:
Any member, entitled to attend and vote in a meeting, can appoint another person to attend
and vote on his behalf. The person appointed is called the Proxy. The appointment of a Proxy
must be made by a written instruction signed by the appointer and deposited with the
company, not more than 48 hours before the meeting.
A Proxy is not entitled to speak in the meeting and vote only in a poll unless the
articles provide otherwise. A Proxy need not be a member of the company. A member of a
private company cannot appoint more than one Proxy to attend on the same occasion, unless
the articles otherwise provide.
A body corporate which is a member of a company can appoint a representative or proxy, by

resolution of the Board. The President of India or the Governor of a State, if he is a member
of a company, may appoint any person to act as his representative in a meeting.
7. Method of Voting:
Resolutions are to be voted upon, in the first instance, by show of hands. The Chairman’s
declaration of the results of voting by show of hands is conclusive.
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A poll is to be taken:
(i) If the Chairman so directs;
(ii) In all cases, if it is demanded by members holding at least 1/10th of the voting power or
paid-up capital;
(iii) In the case of public companies if it is demanded by at least 5 members present and
entitled to vote; and
(iv) In the case of private companies if it is demanded by any one member if not more than 7
members are present and by 2 members if more than 7 members are present.
A poll on a resolution for adjournment or for the appointment of a Chairman is to be taken

immediately. In other cases it is to be taken when the Chairman decides, but it must be within
48 hours of the demand for poll.
A poll is to be taken in the manner decided by the Chairman. The usual method is to ask each
member to record his decision on ballot papers provided for the purpose. The Chairman shall
appoint two scrutinizers to scrutinize the ballot papers.
Notice:
Notice is an instrument of giving intimation to all persons who are entitled to attend a
meeting regarding the place, date, time and purpose of the meeting.
Requisites of a valid notice are:
(i) Notice must be issued in accordance with the provisions of the statute.
(ii) It should be in writing. Oral notice may also be sufficient.
(iii) Notice must state the nature of the meeting.
(iv) Notice must be given not only to members but also to all persons entitled to attend a
meeting, for e.g., in case of Annual General Meeting, notice has to be served to the auditors
of the company.
(v) Proper length of notice must be given. A General Meeting requires 21 days’ notice in
writing. A meeting may be called by a shorter notice if all members give their consent.
(vi) Notice must be adequate. It must clearly state the place, date and hour of the meeting. A
complete agenda is appended as a part of the notice.
(vii) Notice must be signed and issued by the proper authority.
(viii) Notice is not the same as a circular. Notice is given to members but circulars are given
to customers and public.
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Company Meeting Type # 5. Class Meeting:
These meetings are held by a particular class of shareholders for the purpose of
effecting variation in the Articles in respect of their rights and privileges or for conversion of
one class into another.
The provision for variation must be contained in the Memorandum or Articles and this
variation must not be prohibited by the terms of issue of shares of that particular class. Such
resolutions are to be passed by three-fourth majority of the members of that class.
Company Meeting Type # 6. Meeting of Creditors:
These meetings are called when the company proposes to make a scheme of
arrangement with its creditors. The Court may order a meeting of the creditors or a class of
creditors on the application of the company or of liquidator in case of a company being
wound-up.
Such a meeting is held and conducted in such a manner as the Court directs. If arrangement is
passed by a majority of three-fourth in value of creditors and the same is sanctioned by the
Court, it is binding on all the creditors.
Company Meeting Type # 7. Meeting of Debenture Holders:
These meeting are called according to the rules and regulations of the Trust Deed or
Debenture Bond. Such meetings are held from time to time where the interests of debenture
holders are involved at the time of re-organisation, reconstruction, amalgamation or winding-
up of the company. The rules regarding the appointment of Chairman, notice of the meeting,
quorum etc. are contained in the Trust Deed.
Company Meeting Type # 8. Meeting of Creditors and Contributories:
These meetings are held when the company has gone into liquidation to ascertain the
total amount due by the company to its creditors. The main purpose of these meetings is to
obtain the approval of the creditors and contributories to the scheme of compromise or
rearrangement to save the company from financial difficulties. Sometimes, the Court may
also order for such a meeting to be held.
When a company desires to vary the rights of debenture-holders, such meetings are to be held
according to the rules laid down in the Debenture Trust Deed. They are also held to enable
the company to issue new debentures or to vary the rate of interest payable to debenture-
holders. The term “contributory” covers every person who is liable to contribute to the assets
of the company when the company is being wound-up.
Essentials of Company Meetings
The essential requirements of a company meeting can be summed up as follows:
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1. Two or More Persons: To constitute a valid meeting, there must be two or more
persons. However, the articles of association may provide for a larger number of persons to
constitute a valid quorum.
2. Lawful Assembly: The gathering must be for conducting a lawful business. An

unlawful assembly shall not be a meeting in the eye of law.
Previous Notice: Previous notice is a condition precedent for a valid meeting. A

meeting, which is purely accidental and not summoned after a due notice, is not at all a valid
meeting in the eye of law.
4. To Transact a Business: The purpose of the meeting is to transact a business. If

the meeting has no definite object or summoned without any predetermined object, it is not a
valid meeting. Some business should be transacted in the meeting but no decision need be
arrived in such meeting.
The purpose of the meeting is to enable members to know all important matters
pertaining to the formation of the company and its initial life history. The matters discussed
include which shares have been taken up, what money has been received, what contracts have
been entered into, what sums have been spent on preliminary expenses, etc. The members of
the company present at the meeting may discuss any other matter relating to the formation of
the Company or arising out of the statutory report also, even if no prior notice has been given
for such other discussions but no resolution can be passed of which notice have not been
given in accordance with the provisions of the Act.
A notice of at least 21 days before the meeting must be given to members unless consent is
accorded to a shorter notice by members, holding not less than 95% of voting rights in the
company.
A statutory meeting may be adjourned from time to time by the members present at the
meeting.
The Board of Directors must prepare and send to every member a report called the "Statutory
Report" at least 21 days before the day on which the meeting is to be held. But if all the
members entitled to attend and vote at the meeting agree, the report could be forwarded later
also. The report should be certified as correct by at least two directors, one of whom must be
the managing director, where there is one, and must also be certified as correct by the
auditors of the company with respect to the shares allotted by the company, the cash received
in respect of such shares and the receipts and payments of the company. A certified copy of
the report must be sent to the Registrar for registration immediately after copies have been
sent to the members of the company.
A list of members showing their names, addresses and occupations together with the number
shares held by each member must be kept in readiness and produced at the commencement of
the meeting and kept open for inspection during the meeting.
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If default is made in complying with the above provisions, every director or other officer of
the company who is in default shall be punishable with fine upto Rs. 500. The Registrar or a
contributory may file a petition for the winding up of the company if default is made in
delivering the statutory report to the Registrar or in holding the statutory meeting on or after
14 days after the last date on which the statutory meeting ought to have been held.
Contents of Statutory Report must provide the following particulars:- (a)The total number of
shares allotted, distinguishing those fully or partly paid-up, otherwise than in cash, the extent
to which partly paid shares are paid-up, and in both cases the consideration for which they
were allotted.(b) The total amount of cash received by the company in respect of all shares
allotted, distinguishing as aforesaid.(c) An abstract of the receipts and payments upto a date
within 7 days of the date of the report and the balance of cash and bank accounts in hand, and
an account of preliminary expenses.(d) Any commission or discount paid or to be paid on the
issue or sale of shares or debentures must be separately shown in the aforesaid abstract.(e)
The names, addresses and occupations of directors, auditors, manager and secretary, if any, of
the company and the changes which have taken place in the names, addresses and
occupations of the above since the date of incorporation.(f) Particulars of any contracts to be
submitted to the meeting for approval and modifications done or proposed.(g) If the company
has entered into any underwriting contracts, the extent, if any, to which they have not been
carried out and the reasons for the failure.(h) The arrears, if any, due on calls from every
director and from the manager. (i) The particulars of any commission or brokerage paid or to
be paid, in connection with the issue or sale of shares or debentures to any director or to the
manager.
The auditors have to certify that all information regarding calls and allotment of shares are
correct.
B. Annual General Meeting
Must be held by every type of company, public or private, limited by shares or by

guarantee, with or without share capital or unlimited company, once a year. Every company
must in each year hold an annual general meeting. Not more than 15 months must elapse
between two annual general meetings. However, a company may hold its first annual general
meeting within 18 months from the date of its incorporation. In such a case, it need not hold
any annual general meeting in the year of its incorporation as well as in the following year
only.
In the case there is any difficulty in holding any annual general meeting (except the
first annual meeting), the Registrar may, for any special reasons shown, grant an extension of
time for holding the meeting by a period not exceeding 3 months provided the application for
the purpose is made before the due date of the annual general meeting. However, generally
delay in the completion of the audit of the annual accounts of the company is not treated as
"special reason" for granting extension of time for holding its annual general meeting.
Generally, in such circumstances, an AGM is convened and held at the proper time . all
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matters other than the accounts are discussed. All other resolutions are passed and the
meeting is adjourned to a later date for discussing the final accounts of the company.
However, the adjourned meeting must be held before the last day of holding the AGM.
A notice of at least 21 days before the meeting must be given to members unless
consent is accorded to a shorter notice by members, holding not less than 95% of voting
rights in the company. The notice must state that the meeting is an annual general meeting.
The time, date and place of the meeting must be mentioned in the notice. The notice of the
meeting must be accompanied by a copy of the annual accounts of the company, director’s
report on the position of the company for the year and auditor’s report on the accounts.
Companies having share capital should also state in the notice that a member is entitled to
attend and vote at the meeting and is also entitled to appoint proxies in his absence. A proxy
need not be a member of that company. A proxy form should be enclosed with the notice.
The proxy forms are required to be submitted to the company at least 48 hours before the
meeting.
The AGM must be held on a working day during business hours at the registered
office of the company or at some other place within the city, town or village in which the
registered office of the company is situated. The Central Government may, however, exempt
any class of companies from the above provisions. If any day is declared by the Central
government to be a public holiday after the issue of the notice convening such meeting, such
a day will be traeted as a working day.
A company may, by appropriate provisions in its its articles, fix the time for its annual
general meeting and may also by a resolution passed in one annual general meeting fix the
time for its subsequent annual general meetings.
Companies licensed under Section 25 are exempt from the above provisions provided
that the time, date and place of each annual general meeting are decided upon beforehand by
the Board of Directors having regard to the directions, if any, given in this regard by the
company in general meeting.
In case of default in holding an annual general meeting, the following are the
consequences :-
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Any member of the company may apply to the Company Law Board. The Company
Law Board may call, or direct the calling of the meeting, and give such ancillary or
consequential directions as it may consider expedient in relation to the calling, holding and
conducting of the meeting. The Company Law Board may direct that one member present in
person or by proxy shall be deemed to constitute the meeting. A meeting held in pursuance of
this order will be deemed to be an annual general meeting of the company. An application by
a member of the company for this purpose must be made to the concerned Regional Bench of
the Company Law Board by way of petition in Form No. 1 in Annexure II to the CLB
Regulations with a fee of rupees fifty accompanied by (i) affidavit verifying the petition, (ii)
bank draft for payment of application fee.
Fine which may extend to Rs. 5,000 on the company and every officer of the
company who is in default may be levied and for continuing default, a further fine of Rs. 250
per day during which the default continues may be levied.
Business to be Transacted at Annual General Meeting :
At every AGM, the following matters must be discussed and decided. Since such
matters are discussed at every AGM, they are known as ordinary business. All other matters
and business to be discussed at the AGM are specila business.
The following matters constitute ordinary business at an AGM :-
Consideration of annual accounts, director’s report and the auditor’s report
Declaration of dividend
Appointment of directors in the place of those retiring
Appointment of and the fixing of the remuneration of the statutory auditors.
In case any other business ( special business ) has to be discussed and decided upon,
an explanatory statement of the special business must also accompany the notice calling the
meeting. The notice must should also give the nature and extent of the interest of the directors
or manager in the special business, as also the extent of the shareholding interest in the
company of every such person. In case approval of any document has to be done by the
members at the meeting, the notice must also state that the document would be available for
inspection at the Registered Office of the company during the specified dates and timings.
C. Extraordinary General Meeting
Every general meeting (i.e. meeting of members of the company) other than the
statutory meeting and the annual general meeting or any adjournment thereof, is an
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extraordinary general meeting. Such meeting is usually called by the Board of Directors for
some urgent business which cannot wait to be decided till the next AGM. Every business
transacted at such a meeting is special business. An explanatory statement of the special
business must also accompany the notice calling the meeting. The notice must should also
give the nature and extent of the interest of the directors or manager in the special business,
as also the extent of the shareholding interest in the company of every such person. In case
approval of any document has to be done by the members at the meeting, the notice mus also
state that the document would be available for inspection at the Registered Office of the
company during the specified dates and timings.
The Articles of Association of a Company may contain provisions for convening an

extraordinary general meeting. Eg. It may provide that "the board may, whenever it thinks fit,
call an extraordinary general meeting" or it may provide that "if at any time there are not
within India, directors capable of acting who are sufficient in number to form a quorum, any
director or any two members of the company may call an extraordinary general meeting".
Extraordinary General Meeting on Requisition :
The members of a company have the right to require the calling of an extraordinary
general meeting by the directors. The board of directors of a company must call an
extraordinary general meeting if required to do so by the following number of members :-
members of the company holding at the date of making the demand for an EGM not
less than one-tenth of such of the voting rights in regard to the matter to be discussed at the
meeting ; or
if the company has no share capital, the members representing not less than one-tenth
of the total voting rights at that date in regard to the said matter.
The requisition must state the objects of the meetings and must be signed by the
requisitioning members. The requisition must be deposited at the company's registered office.
When the requisition is deposited at the registered office of the company, the directors should
within 21 days, move to call a meeting and the meeting should be actually be held within 45
days from the date of the lodgement of the requisition. If the directors fail to call and hold the
meeting as aforesaid, the requisitionists or any of them meeting the requirements at (a) or (b)
above, as the case may be, may themselves proceed to call meeting within 3 months from the
date of the requisition, and claim the necessary expenses from the company. The company
can make good this sum from the directors in default. At such an EGM, any business which is
not covered by the agenda mentioned in the notice of the meeting cannot be voted upon.
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Power of Company Law Board to Order Calling of Extraordinary General Meeting :
If for any reason, it is impracticable to call a meeting of a company, other than an

annual general meeting, or to hold or conduct the meeting of the company, the Company Law
Board may, either i) on its own motion, or ii) on the application of any director of the
company, or of any member of the company, who would be entitled to vote at the meeting,
order a meeting to be called and conducted as the Company Law Board thinks fit, and may
also give such other ancillary and consequential directions as it thinks fit expedient. A
meeting so called and conducted shall be deemed to be a meeting of the company duly called
and conducted.
Procedure for Application under Section 186 :
An application by a director or a member of a company for this purpose is required to

be made to the Regional Bench of the Company Law Board before whom the petition is to be
made in Form No 1 specified in Annexure II to the CLB Regulations with a fee of Rs200.
The petition must be accompanied with the following documents -
Evidence in proof of status of the applicant.
Affidavit verifying the petition.
Bank draft evidencing payment of application fee.
Memorandum of appearance with copy of the Board's resolution or executed vakalat

nama, as the case may be.
D. Class Meeting
Class meetings are meetings which are held by holders of a particular class of shares,
e.g., preference shareholders. Such meetings are normally called when it is proposed to vary
the rights of that particular class of shares. At such meetings, these members dicuss the pros
and cons of the proposal and vote accordingly. (See provisions on variations of shareholder’s
rights). Class meetings are held to pass resolution which will bind only the members of the
class concerned, and only members of that class can attend and vote.
Unless the articles of the company or a contract binding on the persons concerned
otherwise provides, all provisions pertaining to calling of a general meeting and its conduct
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apply to class meetings in like manner as they apply with respect to general meetings of the
company.
II. Meetings of the Board of Directors
- Meeting of the Board of Directors
- Meeting of a Committee of the Board
III. Other Meetings
A. Meeting of debenture holders
A company issuing debentures may provide for the holding of meetings of the
debentureholders. At such meetings, generally nmmatters pertaining to the variation in terms
of security or to alteration of their rights are discussed. All matters connected with the
holding, conduct and proceedings of the meetings of the debentureholders are normally
specified in the Debenture Trust Deed. The decisions at the meeting made by the prescribed
majority are valid and lawful and binding upon the minority.
B. Meeting of creditors
Sometimes, a company, either as a running concern or in the event of winding up, has
to make certain arrangements with its creditors. Meetings of creditors may be called for this
purpose. Eg U/s 393, a company may enter into arrangements with creditors with the sanction
of the Court for reconstruction or any arrangement with its creditors. The court, on
application, may order the holding of a creditors' s meeting. If the scheme of arrangement is
agreed to by majority in number of holding debts to value of the three-fourth of the total
value of the debts, the court may sanction the scheme. A certified copy of the court's order is
then filed with the Registrar and it is binding on all the creditors and the company only after
it is filed with Registrar.
Similarly, in case of winding up of a company, a meeting of creditors and of

contributories is held to ascertain the total amount due by the company and also to appoint a
liquidator to wind up the affairs of the company.
Requisites of a Valid Meetings
The following conditions must be satisfied for a meeting to be called a valid

meeting :-
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It must be properly convened. The persons calling the meeting must be authorised to
do so.
Proper and adequate notice must have been given to all those entitled to attend.
The meeting must be legally constituted. There maust be a chairperson. The rules of
quorum must be maintained and the provisions of the Companies Act, 1956 and the articles
must be complied with.
The business at the meeting must be validly transacted.. The meeting must be
conducted in accordance with the regulations governing the meetings.
Notice of General Meeting
A meeting cannot be held unless a proper notice has been given to all persons entitled
to attend the meeting at the proper time, containing the necessary information. A notice
convening a general meeting must be given at least 21 clear days prior to the date of meeting.
However, an annual general meeting may be called and held with a shorter notice, if it is
consented to by all the members entitled to vote at the meeting. In respect of any other
meeting, it may be called and held with a shorter notice, if at least members holding 95
percent of the total voting power of the Company consent to a shorter notice.
Notice of every meeting of company must be sent to all members entitled to attend
and vote at the meeting. Notice of the AGM must be given to the statutory auditor of the
company.
Accidental omission to give notice to, or the non-receipt of notice by, any member or
any other person on whom it should be given will not invalidate the proceedings of the
meeting. The notice may be given to any member either personally or by sending it by post to
him at his registered address, or if there is none in India, to any address within India supplied
by him for the purpose. Where notice is sent by post, service is effected by properly
addressing, pre-paying and posting the notice. A notice may be given to joint holders by
giving it to the jointholder first named in the register of members. A notice of meeting may
also be given by advertising the same in a newspaper circulating in the neighbourhood of the
registered office of the company and it shall be deemed to be served on every member who
has to registered address in India for the giving of notices to him.
A notice calling a meeting must state the place, day and hour of the meeting and must
contain the agenda of the meeting. If the meeting is a statutory or annual general meeting,
notice must describe it as such. Where any items of special business are to be transacted at
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the meeting, an explanatory statement setting out all materials facts concerning each item of
the special business including the concern or interest, if any, therein of every director and
manager, is any, must be annexed to the notice. If it is intended to propose any resolution as a
special resolution, such intention should be specified.
A notice convening an AGM must be accompanied by the annual accounts of the

company, the director’s report and the auditor’s report. The copies of these documents could,
however, be sent less than 21 days before of the date of the meeting if agreed to by all
members entitled to vote at the meeting.
Proxy
In case of a company having a share capital and in the case of any other company, if
the articles so authorise, any member of a company entitled to attend and vote at a meeting of
the company shall be entitled to appoint another person (whether a member or not) as his
proxy to attend and vote instead of himself. Every notice calling a meeting of the company
must contain a statement that a member entitled to attend and vote is entitled to appoint one
proxy in the case of a private company and one or more proxies in the case of a public
company and that the proxy need not be member of the company.
A member may appoint another person to attend and vote at a meeting on his behalf.
Such other person is known as "Proxy". A member may appoint one or more proxies to vote
in respect of the different shares held by him, or he may appoint one or more proxies in the
alternative, so that if the first named proxy fails to vote, the second one may do so, and so on.
The member appointing a proxy must deposit with the company a proxy form at the
time of the meeting or prior to it giving details of the proxy appointed. However, any
provision in the articles which requires a period longer than forty eight hours before the
meeting for depositing with the company any proxy form appointing a proxy, shall have the
effect as if a period of 48 hours had been specified in such provision.
A company cannot issue an invitation at its expense asking any member to appoint a
particular person as proxy. If the company does so, every officer in default shall be liable to
fine up to Rs1,000. But if a proxy form is sent at the request of a member, the officer shall
not be liable. Every member entitled to vote at a meeting of the company, during the period
beginning 24 hours before the date fixed for the meeting and ending with the conclusion of
the meeting may inspect proxy forms at any time during business hours by giving 3 days
notice to the company of his intention to do so.
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The proxy form must be in writing and be signed by the member or his authorised
attorney duly authorised in writing or if the appointer is a company, the proxy form must be
under its seal or be signed by an officer or an attorney duly authorised by it.
The proxy can be revoked by the member at any time, and is automatically revoked
by the death or insolvency of the member. The member may revoke the proxy by voting
himself before the proxy has voted, but once the proxy has exercised the vote, the member
cannot retract his vote. Where two proxy forms by the same shareholder are lodged in respect
of the same votes, the last proxy form will be treated as the correct proxy form.
A proxy is not entitled to vote except on a poll. Therefore, a proxy cannot vote on
show of hands.
Quorum
Quorum refers to the minimum number of members who must be present at a meeting
in order to constitute a valid meeting. A meeting without the minimum quorum is invalid and
decisions taken at such a meeting are not binding. The articles of a company may provide for
a quorum without which a meeting will be construed to be invalid. Unless the articles of a
company provide for larger quorum, 5 members personally present (not by proxy) in the case
of a public company and 2 members personally present (not by proxy) in the case of a private
company shall be the quorum for a general meeting of a company.
It has been held by Courts that unless the articles otherwise provide, a quorum need to
be present only when the meeting commenced, and it was immaterial that there was no
quorum at the time when the vote was taken. Further, unless the articles otherwise provide, if
within half an hour from the time appointed for holding a meeting of the company, a quorum
is not present in the person, the meeting :-
if called upon the requisition of members, shall stand dissolved;
in any other case, it shall stand adjourned to the same day in the next week, at the
same time and place, or to such other day and time as the Board of Directors may determine.
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If at the adjourned meeting also, the quorum is not present within half an hour from
the time appointed for holding the meeting, the members present shall a quorum.
In case the Company Law Board calls or directs the calling of a meeting of the
company, when default is made in holding an annual general meeting, the government may
give directions regarding the quorum including a direction that even one member of the
company present in person, or by proxy shall be deemed to constitute a meeting. Similarly
the Company Law Board may, direct a meeting of the company (other than an annual general
meeting) to be called and held where for any reason it is impracticable to call a meeting and
direct that even one member present in person or by proxy shall be deemed to constitute a
meeting.
Chairman
The chairman is the head of the meeting. Generally, the chairman of the Board of
Directors is the Chairman of the meeting. Unless the articles otherwise provide, the members
present in person at the meeting elect one of themselves to be the chairman thereof on a show
of the hands. If there is no Chairman or he is not present within 15 minutes after the
appointed time of the meeting or is unwilling to act as chairman of the meeting, the directors
present may elect one among themselves to be the chairman of the meeting. If, however no
director is willing to act as chairman or if no director is present within 15 minutes after the
appointed time of the meeting, the members present should choose one among themselves to
be chairman of the meeting. If, after the election of a chairman on a show of hands, poll is
demanded and taken and a different person is elected as chairman, then that person will be
the chairman for the rest of the meeting.
Duties of the chairman
Without a chairman, a meeting is incomplete. The chairman is the regulator of the

meeting. His duties include the following :-
He must ensure that the meeting is properly convened and constituted i.e. that proper
notice has been given, that the required quorum is present, etc.
He must ensure that the provisions of the act and the articles in regard to the meeting
and its procedures are observed.
He must ensure that business is taken in the order set out in agenda and no business
which is not mentioned in the agenda is taken up unless agreed to by the members.
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He must impartially regulate the proceedings of the meeting and maintain discipline at
the meeting.
He may exercise his powers of adjournment of the meeting, should he in good faith
feel that such a step is necessary. The chairman has the power to adjourn the meeting in case
of indiscipline at the meeting. A chairman however does not have the power to stop or
adjourn the meeting at his own will and pleasure. If he adjourns the meeting prematurely, the
members present may decide to continue the meeting and elect another chairman and proceed
with the business for which it was convened.
He must exercise his power to order a poll correctly and must order it to be taken
when demanded properly.
He must exercise his casting vote bonafide in the interest of the company.
Voting and Demand for Poll
Generally, initially matters are decided at a general meeting by a show of hands. If the
majority of the hands raise their hands in favour of a particular resolution, then unless a poll
is demanded, it is taken as passed. Voting by a show of hands operates on the principle of
"One Member-One Vote". However, since the fundamental voting principle in a company is
"One Share-One Vote", if a poll is demanded, voting takes place by a poll. Before or on
declaration of the result of the voting on any resolution on a show of hands, the chairman
may order suo motu (of his own motion) that a poll be taken. However, when a demand for
poll is made, he must order the poll be taken. The chairman may order a poll when a
resolution proposed by the Board is lost on the show of hands or if he is of the opinion that
the decision taken on the show of hands is likely to be reversed by poll. When a poll is taken,
The decision arrived by poll is final and the decision on the show of hands has no effect.
A poll is allowed only if the prescribed number of members demand a poll. A poll
must be ordered by the chairman if it is demanded:-
in the case of a public company having a share capital, by any member or members
present in person or by proxy and holding shares in the company-
which confer a power to vote on the resolution not being less than one-tenth of the
total voting power in respect of the resolution, or
on which an aggregate sum of not less than fifty thousand rupees has been paid up.
in the case of a private company having a share capital, by one member having the
right to vote on the resolution and present in person or by proxy if not more than seven such
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members are personally present, and by two such members present in person or by proxy, if
more than seven such members are personally present.
in the case of any other, by any member or members present in person or by proxy
and having not less than one-tenth of the total voting power in respect of the resolution.
Motion
Motion means a proposal to be discussed at a meeting by the members. A resolution

may be passed accepting the motion, with or without modifications or a motion may be
entirely rejected. A motion, on being passed as a resolution becomes a decision. A motion
must be in writing and signed by the mover and put to the vote of the meeting by the
chairman. Only those motions which are mentioned in the agenda to the meeting can be
discussed at the meeting. However, motions incidental or ancillary to the matter under
discussion may be moved and passed. Generally, a motion is proposed by one member and
seconded by another member.
Amendment
Amendment means any modification to a motion before it is put to vote for adoption.
Amendment may be proposed by any member who has not already spoken on the main
motion or has not previously moved an amendment thereto. There can be an amendment to an
amendment motion also. A motion must be in writing and signed by the mover and put to the
vote of the meeting by the chairman. An amendment must not raise any question already
decided upon at the same meeting and must be relevant to the main motion which it seeks to
amend. The chairman has the discretion to accept or reject an amendment on various grounds
such as inconsistency, redundancy, irrelevance, etc. If the amendment is adopted on a vote by
the members, it is incorporated in the body of the main motion. The altered motion is then
discussed and put to vote and if passed, becomes a resolution.
Kinds of Resolutions
Resolutions mean decisions taken at a meeting. A motion, with or without

amendments is put to vote at a meeting. Once the motion is passed, it becomes a resolution. A
valid resolution can be passed at a properly convened meeting with the required quorum.
There are broadly three types of resolutions :-
1. Ordinary Resolution :
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An ordinary resolution is one which can be passed by a simple majority. I.e. if the
votes (including the casting vote, if any, of the chairman), at a general meeting cast by
members entitled to vote in its favour are more than votes cast against it. Voting may be by
way of a show of hands or by a poll provided 21 days notice has been given for the meeting.
2. Special Resolution :
A special resolution is one in regard to which is passed by a 75 % majority only i.e.

the number of votes cast in favour of the resolution is at least three times the number of votes
cast against it, either by a show of hands or on a poll in person or by proxy. The intention to
propose a resolution as a special resolution must be specifically mentioned in the notice of
the general meeting. Special resolutions are needed to decide on important matters of the
company. Examples where special resolutions are required are :-
To alter the domicile clause of the memorandum from one State to another or to alter
the objects clause of the memorandum.
To alter / change the name of the company with the approval of the central
government
To alter the articles of association
To change the name of the company by omitting "Limited" or "Private Limited". The
Central Government may allow a company with charitable objects to do so by special
resolution under section 25 of the Companies Act, 1956.
3. Resolution requiring Special Notice :
There are certain matters specified in the Companies Act, 1956 which may be
discussed at a general meeting only if a special notice is given regarding the proposal to
discuss these matters at a meeting. A special notice enables the members to be prepared on
the matter to be discussed and gives them time to indicate their views on the resolution. In
case special notice of resolution is required by the Companies Act, 1956 or by the articles of
a company, the intention to propose such a resolution must be notified to the company at least
14 days before the meeting. The company must within 7 days before the meeting give the
notice of the proposed resolution to its members. Notice of the resolution is required to be
given in the same way in which notice of a meeting is given, or if that is not practicable, the
company may give notice by advertisement in a newspaper having an appropriate circulation
or in any other manner allowed by the articles, not less 7 days before the meeting.
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The following matters requiring Special Notice before they are discussed before tha
meeting :-
To appoint at an annual general meeting appointing an auditor a person other than a

retiring auditor.
To resolve at an annual general meeting that a retiring auditor shall not be

reappointed.
To remove a director before the expiry of his period of office.
To appoint another director in place of removed director.
Where the articles of a company provide for the giving of a special notice for a
resolution, in respect of any specified matter or matters.
Please note that a resolution requiring special notice may be passed either as an
ordinary resolution (Simple majority) or as a special resolution (75 % majority).
Circulation of Member's Resolution
Generally, the Board of Directors prepare the agenda of the meeting to be sent to all
members of the meeting. A member, by himself has very little say in deciding the agenda.
However, there are provisions in the Companies Act which enable members to introduce
motions at a meeting and give prior notice of their intention to do so to all other members of
the company. If members having one twentieth of the total voting rights of all members
having the right to vote on a resolution or if 100 members having the right to vote and
holding paid-up capital of Rs1,00,000 or more, require the company to do so, the company
must :-
Give to the members entitled to receive notice of the next annual general meeting,
notice of any resolution which may be properly moved and is intended to be moved at that
meeting; and
Circulate to members entitled to have notice of any general meeting sent to them, any
statement of not more than 1,000 words with respect to the matter referred to in any proposed
resolution, or any business to be dealt with at that meeting.
The expenses for this purpose must be borne by the requisitionists and must be
tendered to the company. The requisition, signed by all the requisitionists, must be deposited
at the registered office of the company at least 6 weeks before the meeting in the case of
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resolution and not less than 2 weeks before the meeting in case of any other requisition
together with a reasonable sum to meet the expenses. However, where a copy of the
requisition requiring notice of resolution has been deposited at the registered office of the
company and an annual general meeting is called for a date six weeks or less after the
requisition is deposited, the copy though not deposited within the prescribed time is deemed
to have been properly deposited.
The company is required to serve the notice of resolution and/or the statement to the
members as far as possible in the manner and so far as practicable at the same time as the
notice of the meeting ; otherwise as soon as practicable thereafter.
However, a company need not circulate a statement if the Court, on the application
either of the company or any other aggrieved person, is satisfied that the rights so conferred
are being abused to secure needless publicity or for defamatory purposes. Secondly a banking
company need not circulate such statement, if in the opinion of its Board of directors, the
circulation will injure the interest of the company.
Registration of Resolutions and Agreements
A copy of each of the following resolutions along with the explantory statement in
case of a special business and agreements must, within 30 days after the passing or making
thereof, be printed or typewritten and duly certified under the signature of an officer of the
company and filed with the Registrar of Companies who shall record the same :-
All special resolutions
All resolutions which have been unanimously agreed to by all the members but which,
if not so agreed, would not have been effective unless passed as special resolutions
All resolutions of the board of directors of a company or agreement executed by a

company, relating to the appointment, re-appointment or renewal of the appointment, or
variation of the terms of appointment, of a managing director
All resolutions or agreements which have been agreed to by all members of any class
of members but which, if not so agreed, would not have been effective unless passed by a
particular majority or in a particular manner and all resolutions or agreements which
effectively bind all members of any class of shareholders though not agreed to by all of those
members
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All resolutions passed by a company conferring power upon its directors to sell or
dispose of the whole or any part of the company's undertaking; or to borrow money beyond
the limit of the paid-up share capital and free reserves of the company; or to contribute to
charities beyond Rs50000 or 5 per cent of the average net profits
All resolutions approving the appointment of sole selling agents of the company
All copies of the terms and conditions of appointment of a sole selling agent or sole
buying or purchasing agent
Resolutions for voluntary winding up of a company
Adjournment
Adjournment means suspending the proceedings of a meeting for the time being so
that the meeting may be continued at a later date and time fixed in that meeting itself at the
time of such adjournment or to decided later on. Only the business not finished at the original
meeting can be transacted at the adjourned meeting.
The majority of members at a meeting may move an adjournment motion at a

meeting. If the chairman adjourns the meeting, ignoring the views of the majority, the
remaining members can continue the meeting. The chairman cannot adjourn the meeting at
his own discretion without there being a good cause for such an adjournment. Where the
chairman, acting bona fide within his powers, adjourns the meeting as per the view of the
majority, the minority members cannot to continue with such meeting and, if they do the
proceedings there will be null and void.
An adjourned meeting is merely the continuation of the original meeting and

therefore, a fresh notice is not necessary, if the time, date and place for holding the adjourned
meeting are decided and declared at the time of adjourning it. If a meeting is adjourned
without stipulation as to when it will be continued, fresh notice of the adjourned meeting
must be given.
Postponement
Postponement of a meeting means defering the holding of the meeting itself at a later
date. Postponement is done by the Board of Directors or by the person convening the
meeting. In case of adjournment, it is the decision of the majority of the members present at
the meeting itself.
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Dissolution
Dissolution of a meeting means termination of a meeting. The meeting no longer

exists once it has been dissolved. If within half an hour after the time appointed for holding a
general meeting; the quorum is not present, the meeting shall stand dissolved if it was called
on requisition by members.
Minutes of Proceedings of Meetings
Every company must keep minutes of the proceedings of general meetings and of the
meetings of board of directors and its committees. The minutes are a record of the discussions
made at the meeting and the final decisions taken thereat.
Every company must keep minutes containing details of all proceedings at the
meetings. The pages of the minute books must be consecutively numbered and the minutes
must be recorded therein within 30 days of the meeting. They have to be written directly on
the numbered pages. Pasting or attaching of papers is not allowed. Each page of every such
minutes books must be initialed or signed and last page of the record of proceedings of each
meeting in such books must be dated and signed by :-
in the case of the meeting of the Board of directors or committee thereof, by the
chairman of that meeting or that of the succeeding meeting, and
in the case of a general meeting, by the chairman of the same meeting within the
aforesaid 30 days or in the event of the death or inability of that chairman within the period,
by a director duly authorised by the Board of directors for the purpose.
The Company Law Board, however, may not object if minutes are maintained in
loose leaf form provided all other procedural requirements are complied with and all possible
safeguards against manipulation or interpolation of the minutes are ensured. The loose leaves
must be bound at reasonable intervals. Entering the minutes in a bound minute book by a
chemical process, which does not amount to attachment to any book by pasting or otherwise
is permissible provided on the mechanical impression of the minutes, the original signatures
of the Chairman are given on each page. All appointments of officers made at any of the
meetings must be included in the minutes of the meeting. In the case of a meeting of the
Board of directors or its Committee, the minutes must also state the names of directors
present at the meeting and the names of directors, if any, dissenting from, or not concurring
with a resolution passed at the meeting.
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The chairman may exclude from the minutes any matters which are defamatory,
irrelevant or immaterial or which are detrimental to the interests of the company. The
discretion of the Chairman with regard to the inclusion or exclusion of any matter is absolute
and unfettered.
Where minutes of the proceedings of any meeting have been kept properly, they are,
unless the contrary is proved, presumed to be correct, and are valid evidence that the meeting
was duly called and held, and all proceedings thereat have actually taken place, and in
particular, all appointments of directors or liquidators made at the meeting shall be deemed to
be valid.
The minute books of the proceedings of general meetings must be kept the registered
office of the company. Any member has a right to inspect, free of cost during business hours
at the registered office of the company, the minutes books containing the proceedings of the
general meetings of the company. Further, any member shall be entitled to be furnished,
within 7 days after he has made a request to the company, with a copy of any minutes on
payment of Rupee One for every hundred words or fraction thereof. If any inspection is
refused or copy not furnished within the time specified, every officer in default shall be
punishable with fine up to Rs. 500 for each offence. The Company Law Board may also by
order compel an immediate inspection or furnishing of a copy forthwith. But the minutes
books of the board meetings are not open for inspection of members.
Prevention of operation and mismanagement
Oppression
Oppression is the exercise of authority or power in a burdensome, cruel, or unjust

manner. It can also be defined as an act or instance of oppressing, the state of being
oppressed, and the feeling of being heavily burdened, mentally or physically, by troubles,
adverse conditions, and anxiety.
The Supreme Court in Daleant Carrington Investment (P) Ltd. v. P.K. Prathapan, held
that increase of share capital of a company for the sole purpose of gaining control of the
company, where the majority shareholder is reduced to minority , would amount to
oppression. The director holds a fiduciary position and could not on his own issue shares to
himself. In such cases the oppressor would not be given an opportunity to buy put the
oppressed.
Prevention of oppression
Section 397(1) of the Companies Act provides that any member of a company who
complains that the affair of the company are being conducted in a manner prejudicial to
public interest or in a manner oppressive to any member or members may apply to the
Tribunal for an order thus to protect his /her statutory rights.
Sub-section (2) of Section 397 lays down the circumstances under which the tribunal may
grant relief under Section 397, if it is of opinion that :-
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(a)the company’s affairs are being conducted in a manner prejudicial to public interest or in a
manner oppressive to any member or members ; and
(b) to wind up the company would be unfairly and prejudicial to such member or members ,
but that otherwise the facts would justify the making of a winding up order on the ground that
it was just and equitable that the company should be wound.
The tribunal with the view to end the matters complained of, may make such order as
it thinks fit.
Who can apply
Section 397 of the Companies Act states the members of a company shall have the
right to apply under Section 397 or 398 of the Companies Act. According to Section 399
where the company is with the share capital, the application must be signed by at least 100
members of the company or by one tenth of the total number of its members, whichever is
less, or by any member, or members holding one-tenth of the issued share capital of the
company. Where the company is without share capital, the application has to be signed by
one-fifth of the total number of its members. A single member cannot present a petition under
section 397 of the Companies Act. The legal representative of a deceased member whose
name is again on the register of members is entitled to petition under Section 397 and 398 of
the Companies Act.
Under Section 399(4) of the Companies Act, the Central Government if the circumstances
exist authorizes any member or members of the company to apply to the tribunal and the
requirement cited above, may be waived. The consent of the requisite no. of members is
required at the time of filing the application and if some of the members withdraw their
consent, it would in no way make any effect in the application. The other members can very
well continue with the proceedings.
Conditions for Granting Reliefs
To obtain relief under section 397 the following conditions should be satisfied:-
1. There must be “oppression”- The Punjab and Haryana High Court in Mohan Lal
Chandmall v. Punjab Co. Ltd has held that an attempt to deprive a member of his ordinary
membership rights amounts to “oppression”. Imposing of more new and risky objects upon
unwilling minority shareholders may in some circumstances amount to
“oppression”.However, minor acts of mismanagement cannot be regarded as “oppression”.
The Court will not allow that the remedy under Section 397 becomes a vexatious source of
litigation. But an unreasonable refusal to accept a transfer of shares held as sufficient ground
to pass an order under Section 397 of the Companies Act, 1956.Thus to constitute oppression
there must be unfair abuse of the powers and impairments of the confidence on the part of the
majority of shareholders.
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2. Facts must justify winding up- It is well settled that the remedy of winding up is an
extreme remedy. No relief of winding up can be granted on the ground that the directors of
the company have misappropriated the company’s fund, as such act of the directors does not
fall in the category of oppression or mismanagement.To obtain remedy under Section 397 of
the Companies Act, the petitioner must show the existence of facts which would justify the
winding up order on just and equitable ground.
3. The oppression must be continued in nature – It is settled position that a single act
of oppression or mismanagement is sufficient to invoke Section 397 or 398 of the Companies
Act. No relief under either of the section can be granted if the act complained of is a solitary
action of the majority. Hence, an isolated action of oppression is not sufficient to obtain relief
under Section 397 or 398 of the Act. Thus to prove oppression continuation of the past acts
relating to the present acts is the relevant factor , otherwise a single act of oppression is not
capable to yield relief.
4. The petitioners must show fairness in their conduct-It is settled legal principle that the
person who seeks remedy must come with clean hands. The members complaining must
show fairness in their conduct. For ex-Mere declaration of low dividend which does not
affect the value of the shares of the petitioner ,was neither oppression nor mismanagement in
the eyes of law.
5. Oppression and mismanagement should be specifically pleaded- It is settled law that , in

case of oppression a member has to specifically plead on five facts:-
a) what is the alleged act of oppression ;
b) who committed the act of oppression;
c) how it is oppressive;
d) whether it is in the affairs of the company;
e) and whether the company is a party to the commission of the act of oppression.
Prevention of Mismanagement
The present Company Act does provide the definition of the expression
‘mismanagement’. When the affairs of the company are being conducted in a manner
prejudicial to the interest of the company or its members or against the public interest, it
amounts to mismanagement.
Section 398(1) of the Companies act provides that any members of a company who
complain:-
that the affairs of the company are being conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the company; or a material change has
taken place in the management or control of the company, whether by an alteration in its
Board of directors, or manager or in the ownership of the company's shares, or if it has no
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share capital, in its membership, or in any other manner whatsoever, and that by reason of
such change, it is likely that the affairs of the company will be conducted in a manner
prejudicial to public interest or in a manner prejudicial to the interests of the company; may
apply to the Company Law Board for an order of relief provided such members have a right
so to apply as given below.
If, on any such application, the Company Law Board is of opinion that the affairs of the
company are being conducted as aforesaid or that by reason of any material change as
aforesaid in the management or control of the company, it is likely that the affairs of the
company will be conducted as aforesaid, the court may, with a view to bringing to an end or
preventing the matters complained of or apprehended, make such order as it thinks fit.
Right to Complain mismanagement-
1. The following members of a company shall have the right to apply as above:-
a) in the case of a company having a share capital, not less than one hundred members
of the company or not less than one tenth of the total number of its members, whichever is
less, or any member or members holding not less than one-tenth of the issued share capital of
the company, provided that the applicant or applicants have paid all calls and other sums due
on their shares;
b) in the case of a company not having a share capital, not less than one-fifth of the total
number of its members.
2. Where any share or shares are held by two or more persons jointly, they shall be counted
only as one number.
3. Where any members of a company, are entitled to make an application, any one or more of
them having obtained the consent in writing of the rest, may make the application on behalf
and for the benefit of all of them.
4. The Central Government may, if in its opinion circumstances exist which make it just and
equitable so to do, authorize any member or members of the company to apply to the
Company Law Board, notwithstanding that the above requirements for application are not
fulfilled.
5.The Central Government may, before authorizing any member or members as aforesaid,
require such member or members to give security for such amount as the Central Government
may deem reasonable, for the payment of any costs which the Court dealing with the
application may order such member or members to pay to any other person or persons who
are parties to the application.
6. If the managing director or any other director, or the manager, of a company or any other
person, who has not been impleaded as a respondent to any application applies to be added as
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a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient
cause for doing so, direct that he may be added as a respondent accordingly.
Notice to be given to Central Government of application
The Company Law Board must give notice of every application made to it as above to
the Central government, and shall take into consideration the representations, if any, made to
it by that Government before passing a final order.
Right of Central Government to apply
The Central Government may itself apply to the Company law Board for an order, or
because an application to be made to the Company Law Board for such an order by any
person authorized be it in this behalf.
Powers of Tribunal
Under Section 402 of the Companies Act ,1956 the powers of the Tribunal under
Sections 397 and 398 are very wide .These are :-
1. the regulation of the conduct of the company's affairs in future;
2. the purchase of the shares or interests of any members of the company by other
members thereof or by the company;
3. in the case of a purchase of its shares by the company as aforesaid, the consequent
reduction of its share capital;
4.the termination, setting aside or modification of any agreement, howsoever arrived

at, between the company on the one hand, and any of the following persons, on the other
namely:-
a) the managing director;
b) any other director;
c) the manager;
Upon such terms and conditions as may, in the opinion of the Company Law Board, be just
and equitable in all the circumstances of the case ;the termination, setting aside or
modification of any agreement between the company and any person not referred to in clause
(d), provided that no such agreement shall be terminated, set aside or modified except after
due notice to the party concerned and provided further that no such agreement shall be
modified except after obtaining the consent of the party concerned; the setting aside of any
transfer, delivery of goods, payment, execution or other act relating to property made or done
by or against the company within three months before the date of the application, which
would, if made or done by or against an individual, be deemed in his insolvency to be a
fraudulent preference. Any other matter for which in the opinion of the Company Law Board
it is just and equitable that provision should be made.
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Effect of alteration of memorandum or articles of company by order:
Where an order makes any alteration in the memorandum or articles of a company,

then, notwithstanding any other provision of this Act, the company shall not have power,
except to the extent, if any permitted in the order, to make without the leave of the Company
Law Board, any alteration whatsoever which is inconsistent with the order, either in the
memorandum or in the articles. The alterations made by the order shall, in all respects, have
the same effect as if they had been duly made by the company in accordance with the
provisions of this Act.A certified copy of every order altering or giving leave to alter, a
company's memorandum or articles, must within thirty days after the making thereof, be filed
by the company with the Registrar who shall registrar the same.If default is made in
complying with the above provisions, the company, and every officer of the company who is
in default, shall be punishable with fine which may extend to five thousand rupees.
Consequences of termination or modification of certain agreements:
Where an order terminates, sets aside or modifies an agreement:-
the order shall not give rise to any claim whatever against the company by any person
for damages or for compensation for loss of office or in any respect, either in pursuance of
the agreement or otherwise; no managing or other director or manager whose agreement is so
terminated or set aside, shall for a period of five years from the date of the order terminating
the agreement, without the leave of the Company Law Board, be appointed, or act, as the
managing or other director or manager of the company. Any person who knowingly acts as a
managing or other director or manager of a company in contravention of the above provision,
every director of the company, who is knowingly a party to such contravention shall be
punishable with imprisonment for a term which may extend to one year, or with fine which
may extend to five thousand rupees, or with both. The Company Law Board will not grant
leave for appointment as managing director or director or manager of the company unless
notice of the intention to apply for leave has been served on the Central Government and that
Government has been given an opportunity of being heard in the matter.
Powers of Central Government to prevent oppression or mismanagement:
The Central Government may appoint such number of persons as the Company Law
Board may, by order in writing, specify as being necessary to effectively safeguard the
interests of the Company or its shareholders or public interests, to act as directors thereof for
such period not exceeding 3 years on any one occasion as it deems fit if the Company Law
Board:-
On a reference being made to it by the Central Government ; or on an application of

not less than one hundred members of the company or of members of the company holding
not less than one-tenth of the total voting power therein, is satisfied, after such inquiry as it
deems fit to make, that it is necessary to make the appointment or appointments in order to
prevent the affairs of the company being conducted either in a manner which is oppressive to
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any members of the company or in a manner which is prejudicial to the interests of the
company or to public interest.
However, in lieu of passing order as aforesaid, the Company Law Board may, if the
company has not availed itself of the option given to it of proportional representation to
minority shareholders on the Board of the company, direct the company to amend its articles
in the manner provided section 265 and make fresh appointments of directors in pursuance of
the articles as so amended within such time as may be specified in that behalf by the
Company Law Board.
In case the Central Government passes such an order it may, if thinks fit, direct that until new
directors are appointed in pursuance of the order aforesaid, not more than two members of the
company specified by the Company law Board shall hold office as additional directors of the
company. The Central Government shall appoint such additional directors on such directions.
The person appointed as a director by the Central Government in accordance with the above
provisions, need not hold any qualification shares or need to retire by rotation. However, his
office as director may be terminated at any time by the Central Government and another
person appointed in his place. No change in the constitution of the Board of Directors can
take place after an additional director is appointed by the Central Government in accordance
with these provisions unless approved by the Company Law Board. The Central Government
in such cases may also issue such directions to the company as it may consider necessary or
appropriate in regard to its affairs.
Power of the Tribunals to prevent change in Board of Directors :
Where a complaint is made to the Company Law Board by the managing director or
any other director or the manager of a company that, as a result of a change which has taken
place or is likely to take place in ownership or any shares held in the company, a change in
the Board of directors is likely to take place which (if allowed) would affect prejudicially the
affairs of the company, the Company Law Board may, if satisfied, after such inquiry as it
thinks fit to make that it is just and proper to do so, by order direct that no resolution passed
or that may be passed or no action taken or may be taken to effect a change in the Board of
directors after the date of the complaint shall have effect unless confirmed by the Company
Law Board.
Any such order shall have effect notwithstanding anything to the contrary contained in any
other provision of this Act or in the memorandum or articles of the company, or in any
agreement with, or any resolution passed in general meeting by, or by the Board of directors
or, the company. The Company Law Board shall have power when any such complaint is
received by it, to make an interim order to the effect set out above, before making or
completing the inquiry aforesaid. Nothing contained above shall apply to a private company,
unless it is a subsidiary of a public company.
Powers of Inspectors [S.240]:
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Where an inspector investigating the affairs of the company thinks it necessary to

investigate the affairs of another company in the same management or group , he is
empowered to do so. However as mentioned in section 239(2), he has to obtain prior approval
of the Central Government for that purpose. Section 240 has been amended by the
Amendment of 2000 .Sub-section (1) was substituted. The new sub-section provides that it
shall be the duty of all officers and other employees and agents of the company and those of
any other body corporate whose affairs are being investigated under Section 239:
a) to preserve and to produce to an inspector or any other person authorized by him in

this behalf with the previous approval of the Central Government, all books and papers of or
relating to the other body corporate, which are in their custody or power; and
b) otherwise to give to the inspector, all assistance in connection with the investigation which
they are reasonable able to give.
For facilitating the task of the inspector it is the duty of all officers in charge of the
management of the company to produce to the inspector all books and papers of the company
which are in the custody and power and to give to the inspector all assistance in connection
with the investigation which they are reasonably able to give.The inspector may examine on
oath any such person and for this purpose require his personal attendance.If a person required
to appear or to produce books, makes a default that is a punishable offence.Where an
inspector finds a person, whom he has no power to examine on oath, ought to be so examined
the inspector may do so with the previous approval of the Central Government. Notes of any
such examination are to be taken in writing and signed by the person examined and may be
used in evidence against him .A refusal to answer any question is also punishable.
Oppression and mismanagement are part and parcel of business. During the course of
business, oppression of small/minority shareholders takes place by the majority shareholders
who are in control of the company. Similarly, mismanagement of business is not uncommon.
When we talk of mismanagement we mean mismanagement of resources. Mismanagement
could mean siphoning of funds, causing losses due to rash decision, not maintaining proper
records, not calling requisite meetings. Finer version of mismanagement could arise where
the management does not act/react to a business situation leading to downfall of business.
The concept of oppression and mismanagement is more relevant or common to family owned
concerns. The reasons are very obvious. Family owned concerns are owned by family
members who over time develop vested interest in business vested interest in their own heirs
being the most common - thereby leading to oppression of other family members. Here
typically, the controlling member of the family appropriates the family holdings by means of
either a fresh issue or fraudulent transfers in his favor or reconstitutes the board in such a
manner as to alienate the other family members. The result is the other family members get
oppressed.
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Seconly, the family owned concerns are not professional managed and their system of
functioning is usually personal. They lack probity and fair play. They generally do business
in a manner where they begin to benefit personally to the exclusion of other members. This
leads to oppression of other family members/mismanagement of companies.
In order to check all these discrepancies the need was felt to have any measure to prevent the
Oppression and mismanagement and thus under Chapter 6th of Part 6th of Companies Act ,
1956 provides for the judicial as well as administrative remedies to check Oppression and
mismanagement. It is a powerful tool which provides such power that even a singer member
can approach Company Law Board if any of his right has been infringed or in order to
prevent the Oppression and mismanagement in the company.
Corporate social responsibility
India’s new Companies Act 2013 (Companies Act) has introduced several new
provisions which change the face of Indian corporate business. One of such new provisions is
Corporate Social Responsibility (CSR). The concept of CSR rests on the ideology of give and
take. Companies take resources in the form of raw materials, human resources etc. from the
society. By performing the task of CSR activities, the companies are giving something back
to the society. Ministry of Corporate Affairs has recently notified Section 135 and Schedule
VII of the Companies Act as well as the provisions of the Companies (Corporate Social
Responsibility Policy) Rules, 2014 (CRS Rules) which has come into effect from 1 April
2014
Applicability
The following companies are required to constitute CSR committee –
1. Companies with net worth of Rs. 500 crores or more, or
2. Companies with turnover of Rs. 1000 crores or more, or
3. Companies with net profit of Rs. 5 crores or more.
If any of the above financial strength criteria is met, the CSR provisions and related rules will
be applicable to the company. These companies are required to form CSR committee
consisting of its directors. This committee oversees the entire CSR activities.
Role of Board of Directors
The board plays an important role in CSR activities. The role of Board are as follows –
1. Approve CSR policy.
2. Ensure its implementation.
3. Disclose the contents of CSR policies in its report.
4. Place the same on Company’s website.
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5. Ensure that statutory specified amount is spend by the company on CSR activities.
It’s important to note that there is no penalty if the specified amount is not spend on CSR
activities. In such case, the board’s report should specify the reason for such short spending.
CSR – Spending, Policies & Activities
Few important points of CSR spending are as follows –
1. The companies covered by section 135 are required to spend at least 2% of their
average net profits during the three immediately preceding financial years.
2. The section postulates that “net profit” shall be calculated in accordance with the
provisions of section 198.
3. Company shall give preference to the local area and areas around it where it
operates, for spending the amount earmarked for CSR activities.
4. Where the company fails to spend such amount, the Board shall, in its report,
specify the reasons for not spending the amount.
5. The CSR committee shall formulate and recommend CSR policy to the Board.
6. The policy shall indicate the activities to be undertaken by the company as

specified in Schedule VII.
7. The CSR Committee shall recommend the amount of expenditure to be

incurred on the activities referred in CSR Policy
8. The CSR Policy of the company shall be monitored by CSR committee from time
to time.
As per schedule VII, the following activities may be included by companies in their CSR
policies:
1. Eradicating hunger, poverty and malnutrition, promoting preventive health care and
sanitation and making available safe drinking water.
2. Promoting education, including special education and employment enhancing

vocation skills especially among children, women, elderly, and the differently abled
and livelihood enhancement projects.
3. Promoting gender equality, empowering women, setting up homes and hostels for
women and orphans; setting up old age homes, day care centers and such other
facilities for senior citizens and measures for reducing inequalities faced by socially
and economically backward groups.
4. Ensuring environmental sustainability, ecological balance, protection of flora and

fauna, animal welfare, agroforestry, conservation of natural resources and maintaining
quality of soil, air and water.
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5. Protection of national heritage, art and culture including restoration of buildings and
sites of historical importance and works of art; setting up public libraries; promotion
and development of traditional arts and handicrafts.
6. Measures for the benefit of armed forces veterans, war widows and their dependents.
7. Training to promote rural sports, nationally recognized sports, para Olympic sports
and Olympic sports.
8. Contribution to the Prime Minister’s National Relief Fund or any other fund set up by
the Central Government for socio‐economic development and relief and welfare of
the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and
women.
9. Contributions or funds provided to technology incubators located within academic

institutions which are approved by the Central Government.
10. Rural development projects.
Net Profit Considered for CSR Spending
Net Profit means the net profit of a company as per its financial statement prepared in
accordance with Section 198 of the Act, but shall not include the following, namely: ‐
1. Any profit arising from any overseas branch or branches of the company, whether
operated as a separate company or otherwise.
2. Any dividend received from other companies in India, which are covered under and
complying with the provisions of section 135 of the Act.
3. Profit from premium of shares/Debentures.
4. Profit from sales of Forfeited share.
5. Profit in terms of capital natures (in terms of undertaking of company or any part of
thereof).
6. Profit from the sale of immovable property/fixed assets/any capital nature.
7. Any surplus change in carrying amount of an assets or liability recognized in equity

reserves.
Following shall not be considered as expenditure:
1. Income tax and any other tax on income
2. Compensation, damages or other payments made voluntarily
3. Loss of capital natures including loss on sale of undertaking of company or any part
of thereof
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4. Any transfer to assets/liabilities revaluation/equity reserves.
Impact of CSR Provision
The new Companies Act 2013 was much awaited. With the new Act coming into force, lots
of new provisions came in picture. One such new provision was relating to CSR activities.
This provision was much debated. Many companies said that this new provision will create
financial burden on them as they need to spend specified percentage of their profits. Now,
since the new Act is in force, every company is following the new regulation. Considering
the intent of law that companies take so many resources from society they should give back
something to it, the provision of CSR is justified. Also there are few good points for
Companies like:
1. The companies can spend less than specified percentage. In such case the board need
to disclose the reason for lower spending in its report.
2. The Institute of Chartered Accountants of India (ICAI) also issued a guidance note
that clarifies that no provision is required in books of companies for CSR spending.
The need to book only actual expenditure.
Also the above spending will help in benefitting the underprivileged who are deprived of
basic necessities. Since the new provision is only one and half year old, it is difficult to
analyze its benefit. But in long run the society as a whole would surely stand benefitted from
it. In cost benefit analysis of this provision, its sure that its benefit will exceed its cost
India`s new Companies Act 2013 (Companies Act) has introduced several new
provisions which change the face of Indian corporate business" Companies Act 2013
(Companies Act) has introduced several new provisions which change the face of Indian
corporate business. One of such new provisions is Corporate Social Responsibility (CSR).
The concept of CSR rests on the ideology of give and take. Companies take resources in the
form of raw materials, human resources etc from the society. By performing the task of CSR
activities, the companies are giving something back to the society.
Ministry of Corporate Affairs has recently notified Section 135 and Schedule VII of
the Companies Act as well as the provisions of the Companies (Corporate Social
Responsibility Policy) Rules, 2014 (CRS Rules) which has come into effect from 1 April
2014.
Applicability: Section 135 of the Companies Act provides the threshold limit for
applicability of the CSR to a Company i.e. (a) net worth of the company to be Rs 500 crore or
more; (b) turnover of the company to be Rs 1000 crore or more; (c) net profit of the company
to be Rs 5 crore or more. Further as per the CSR Rules, the provisions of CSR are not only
applicable to Indian companies, but also applicable to branch and project offices of a foreign
company in India.
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CSR Committee and Policy: Every qualifying company requires spending of at least
2% of its average net profit for the immediately preceding 3 financial years on CSR activities.
Further, the qualifying company will be required to constitute a committee (CSR Committee)
of the Board of Directors (Board) consisting of 3 or more directors. The CSR Committee
shall formulate and recommend to the Board, a policy which shall indicate the activities to be
undertaken (CSR Policy); recommend the amount of expenditure to be incurred on the
activities referred and monitor the CSR Policy of the company. The Board shall take into
account the recommendations made by the CSR Committee and approve the CSR Policy of
the company.
Definition of the term CSR: The term CSR has been defined under the CSR Rules
which includes but is not limited to:
 Projects or programs relating to activities specified in the Schedule; or
 Projects or programs relating to activities undertaken by the Board in pursuance of

recommendations of the CSR Committee as per the declared CSR policy subject to
the condition that such policy covers subjects enumerated in the Schedule.
This definition of CSR assumes significance as it allows companies to engage in

projects or programs relating to activities enlisted under the Schedule. Flexibility is also
permitted to the companies by allowing them to choose their preferred CSR engagements that
are in conformity with the CSR policy.
Activities under CSR: The activities that can be done by the company to achieve its
CSR obligations include eradicating extreme hunger and poverty, promotion of education,
promoting gender equality and empowering women, reducing child mortality and improving
maternal health, combating human immunodeficiency virus, acquired, immune deficiency
syndrome, malaria and other diseases, ensuring environmental sustainability, employment
enhancing vocational skills, social business projects, contribution to the Prime Minister's
National Relief Fund or any other fund set up by the Central Government or the State
Governments for socio-economic development and relief and funds for the welfare of the
Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and
such other matters as may be prescribed.
Local Area: Under the Companies Act, preference should be given to local areas and
the areas where the company operates. Company may also choose to associate with 2 or more
companies for fulfilling the CSR activities provided that they are able to report individually.
The CSR Committee shall also prepare the CSR Policy in which it includes the projects and
programmes which is to be undertaken, prepare a list of projects and programmes which a
company plans to undertake during the implementation year and also focus on integrating
business models with social and environmental priorities and process in order to create share
value.
The company can also make the annual report of CSR activities in which they
mention the average net profit for the 3 financial years and also prescribed CSR expenditure
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but if the company is unable to spend the minimum required expenditure the company has to
give the reasons in the Board Report for non compliance so that there are no penal provisions
are attracted by it.
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Unit 3 Company Law

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Unit 3 company law

Company Law (Karnataka State Law University)

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Director & the Board in Companies Act

1. Public Company: Minimum 3 and maximum 15 nos. of Directors; at least 1/3 rd

2. Private Company: Minimum 2 and maximum 15 nos. of Directors

3. One person Company: minimum 1 director

4. At least 1 woman director

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 The duties, liabilities and responsibilities which promotes corporate governance

7. Confidentiality of sensitive proprietary information, commercial secrets, technologies,

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2. Acting as a mediator in case of Conflict of Interest amongst the stakeholders

3. Assistance in forwarding independent and equitable judgement to the Board of

4. Adequate attention towards related party transactions

 Section 8 : Not for Profit companies,

 Section 42: Subscription of securities on Private Placement

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 Section 74 (3): Failure in repayment of deposits within specified time

 Section 195 (2): Insider Trading

 Refunding of share application or excess in share application money

 To pay for qualification shares

 Civil Liability in case of misstatement in Prospectus

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 Failure in making disclosures as stipulated SEBI (Acquisition of Shares & Takeovers)

SOME CRIMINAL LIABILITIES ASSOCIATED WITH A DIRECTORS CONDUCT ARE AS

 Cheques Bounced or dishonored: Under Negotiable Instruments Act 1881, signing of

 Offences under Income Tax Act, 1961

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(b) The power to authorize the buy back ofshares,(section 77 A)(2)(b),

(c) The power to issue debentures,

(d) The power to borrow moneys otherwise than on debentures,

(e) The power to invest the funds ofthe company,

(f) The power to make loans and

(g) The power to forfeit shares.

(a) The filling of casual vacancies on the board (section 262),

(b) Appointing additional directors (section 260),

(c) Appointing alternate directors (section 313),

(d) Giving consent to contracts in which a director is interested (section 299),

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(f) Receiving notice of disclosure of shareholding by directors and persons deemed to

(g) Making a declaration of insolvency to make winding up of a company as

(a) Appointing a person as “manager” if he is acting as the “managing director” or

(c) To invest (excluding trust securities) the amount of compensation received in

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Power of Directors to Allot Shares. Directors of a company have powers to allot

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(a) The amount ofthe call,

(b) The time when the call should be paid,

(c) The person to whom the payment is to be made and

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. Power of Directors to Control General Meetings Where the articles of association of

A company is an association of several persons. Decisions are made according to the

Kinds of Company Meetings :Broadly, meetings in a company are of the following

A public company limited by shares or a guarantee company having share capital is

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Floatation of shares / debentures by the company

Modification to contracts mentioned in the prospectus

A meeting therefore, can be defined as a lawful association, or assembly of two or