Unit - 3
Management
The management of a company is entrusted with the board of directors which consist of whole time director, managing director, whole time director. According to section 2(34) of the companies act 2013, director means a director appointed to the Board of a company.
Appointment of directors (section 152)
The provisions related to appointment of directors are-
(1) Where no provision is made in the articles of a company for the appointment of the first director, the subscribers to the memorandum who are individuals shall be deemed to be the first directors of the company until the directors are duly appointed and in case of a One Person Company an individual being member shall be deemed to be its first director until the director or directors are duly appointed by the member in accordance with the provisions of this section.
(2) Save as otherwise expressly provided in this Act, every director shall be appointed by the company in general meeting.
(3) No person shall be appointed as a director of a company unless he has been allotted the Director Identification Number under section 154.
(4) Every person proposed to be appointed as a director by the company in general meeting or otherwise, shall furnish his Director Identification Number and a declaration that he is not disqualified to become a director under this Act.
(5) A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment in such manner as may be prescribed: Provided that in the case of appointment of an independent director in the general meeting, an explanatory statement for such appointment, annexed to the notice for the general meeting, shall include a statement that in the opinion of the Board, he fulfils the conditions specified in this Act for such an appointment.
(6) (a) Unless the articles provide for the retirement of all directors at every annual general meeting, not less than two-thirds of the total number of directors of a public company shall—
(i) be persons whose period of office is liable to determination by retirement of directors by rotation; and
(ii) save as otherwise expressly provided in this Act, be appointed by the company in general meeting.
(b) The remaining directors in the case of any such company shall, in default of, and subject to any regulations in the articles of the company, also be appointed by the company in general meeting.
(c) At the first annual general meeting of a public company held next after the date of the general meeting at which the first directors are appointed in accordance with clauses (a) and (b) and at every subsequent annual general meeting, one-third of such of the directors for the time being as are liable to retire by rotation, or if their number is neither three nor a multiple of three, then, the number nearest to one-third, shall retire from office.
(d) The directors to retire by rotation at every annual general meeting shall be those who have been longest in office since their last appointment, but as between persons who became directors on the same day, those who are to retire shall, in default of and subject to any agreement among themselves, be determined by lot.
(e) At the annual general meeting at which a director retires as aforesaid, the company may fill up the vacancy by appointing the retiring director or some other person thereto.
(7) (a) If the vacancy of the retiring director is not so filled-up and the meeting has not expressly resolved not to fill the vacancy, the meeting shall stand adjourned till the same day in the next week, at the same time and place, or if that day is a national holiday, till the next succeeding day which is not a holiday, at the same time and place.
(b) If at the adjourned meeting also, the vacancy of the retiring director is not filled up and that meeting also has not expressly resolved not to fill the vacancy, the retiring director shall be deemed to have been re-appointed at the adjourned meeting, unless—
(i) at that meeting or at the previous meeting a resolution for the re-appointment of such director has been put to the meeting and lost;
(ii) the retiring director has, by a notice in writing addressed to the company or its Board of directors, expressed his unwillingness to be so re-appointed;
(iii) he is not qualified or is disqualified for appointment;
(iv) a resolution, whether special or ordinary, is required for his appointment or re-appointment by virtue of any provisions of this Act; or
(v) section 162 is applicable to the case
Resignation of director (Section 168)
(1) A director may resign from his office by giving a notice in writing to the company and the Board shall on receipt of such notice take note of the same and the company shall intimate the Registrar in such manner, within such time and in such form as may be prescribed and shall also place the fact of such resignation in the report of directors laid in the immediately following general meeting by the company:
Provided that a director shall also forward a copy of his resignation along with detailed reasons for the resignation to the Registrar within thirty days of
(2) The resignation of a director shall take effect from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later: Provided that the director who has resigned shall be liable even after his resignation for the offences which occurred during his tenure.
(3) Where all the directors of a company resign from their offices, or vacate their offices under section 167, the promoter or, in his absence, the Central Government shall appoint the required number of directors who shall hold office till the directors are appointed by the company in general meeting resignation in such manner as may be prescribed.
Removal of directors (Section 169)
(1) A company may, by ordinary resolution, remove a director, not being a director appointed by the Tribunal under section 242, before the expiry of the period of his office after giving him a reasonable opportunity of being heard: Provided that nothing contained in this sub-section shall apply where the company has availed itself of the option given to it under section 163 to appoint not less than two-thirds of the total number of directors according to the principle of proportional representation.
(2) A special notice shall be required of any resolution, to remove a director under this section, or to appoint somebody in place of a director so removed, at the meeting at which he is removed.
(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.
(4) Where notice has been given of a resolution to remove a director under this section and the director concerned makes with respect thereto representation in writing to the company and requests its notification to members of the company, the company shall, if the time permits it to do so,—
(a) in any notice of the resolution given to members of the company, state the fact of the representation having been made; and
(b) send a copy of the representation to every member of the company to whom notice of the meeting is sent (whether before or after receipt of the representation by the company), and if a copy of the representation is not sent as aforesaid due to insufficient time or for the company‘s default, the director may without prejudice to his right to be heard orally require that the representation shall be read out at the meeting.
(5) A vacancy created by the removal of a director under this section may, if he had been appointed by the company in general meeting or by the Board, be filled by the appointment of another director in his place at the meeting at which he is removed, provided special notice of the intended appointment has been given under sub-section (2).
(6) A director so appointed shall hold office till the date up to which his predecessor would have held office if he had not been removed.
(7) If the vacancy is not filled under sub-section (5), it may be filled as a casual vacancy in accordance with the provisions of this Act: Provided that the director who was removed from office shall not be re-appointed as a director by the Board of Directors.
(8) Nothing in this section shall be taken—
(a) as depriving a person removed under this section of any compensation or damages payable to him in respect of the termination of his appointment as director as per the terms of contract or terms of his appointment as director, or of any other appointment terminating with that as director; or
(b) as derogating from any power to remove a director under other provisions of this Act.
Key Takeaways
- The management of a company is entrusted with the board of directors which consist of whole time director, managing director, whole time director. According to section 2(34) of the companies act 2013, director means a director appointed to the board of a company.
According to section 2(54) of the companies act 2013, managing director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
Appointment of Managing Director:
The appointment of a person as managing director in a public or its subsidiary private company shall not have effect unless it is approved by the Central Govt. In case of a new company, the approval must be made within three months of his appointment.
The Central Govt. Shall not accord its approval unless it is satisfied that:
(i) It is the interest of the company to have a managing director,
(ii) The proposed incumbent is a fit and proper person for such appointment,
(iii) His appointment is not against public interest,
(iv) The terms and conditions of the appointment of the proposed managing director is not against public interest.
If his appointment is not approved by the Central Govt., the incumbent must vacate his office from the date of receipt of the disapproval of the Govt.
Disqualifications of Managing Director:
No person can be appointed a managing director if:
(i) He is an un-discharged insolvent, or has at any time been adjudged an insolvent,
(ii) He suspends or has at any time suspended, payment to his creditors,
(iii) He makes, or has at any-time made, a composition with his creditors, or
(iv) He is, or has at any time, convicted by a Court of an offence involving moral turpitude.
The disqualifications applicable to directors apply to managing director.
Powers, duties and responsibilities of the managing director
1. As a member of the Board of Directors he participates in formulating the objectives and policy-making functions of the Board.
2. To execute policies laid down by the Board of Directors.
3. He is the liaison officer between the Board of Directors and the rest of the organisation.
4. To interpret and communicate policies of the company to subordinate employees.
5. To review the operations of the company and present to the Board periodically accounts and statistics showing the progress and the present position of the company.
6. To formulate the employment and compensation plan in accordance with the accepted policies of the company.
7. To appoint high officials of the company.
8. To plan the development and expansion of business.
9. To organise meetings with department heads.
10. To promote high morale among the employees of company by creating a sense of belonging.
11. To maintain contact with the govt., chamber of commerce, trade unions and community at large.
12. To maintain a harmonious relationship between line and staff managers.
Key Takeaways
- The appointment of a person as managing director in a public or its subsidiary private company shall not have effect unless it is approved by the central govt. In case of a new company, the approval must be made within three months of his appointment.
Section 2(94) of the companies act 2013 stated that Whole-time Director has been defined to include a director in the whole-time employment of the company. The definition of ‘whole-time director’ is an inclusive definition. A whole-time director refers to a director who has been in employment of the company on a fulltime basis and is also entitled to receive remuneration. A whole-time director is a director rendering his services on whole time basis to the company.
Position of a whole-time director
The position of a whole-time director is a position of significance under the Act. A whole-time director is considered and recognised as a ‘key managerial personnel’ in clause (51) of section 2 of the Act. Further, he is an officer in default (as defined in clause (60) of section 2) for any violation or noncompliance of the provisions of Act.
Appointment in other companies
For appointment of whole-time director, the provisions of section 196 read with schedule V are required to be complied with. As the services are rendered wholetime, logically, a director cannot be in whole-time employment in more than one company. However, the Act does not prohibit a person who is already a wholetime director of another company to be appointed as a director of another company. When the whole-time director is a key managerial person under the provisions of section 203, he may be appointed as a whole-time director in a subsidiary company as provided in sub-section (3) of section 203.
Remuneration of whole-time director
The remuneration of the whole-time director is required to be paid after complying with the provisions of section 197 and schedule V of the Companies Act, 2013 and rules made thereunder.
Key Takeaways
- A whole-time director refers to a director who has been in employment of the company on a fulltime basis and is also entitled to receive remuneration. A whole-time director is a director rendering his services on whole time basis to the company.
A company meeting may be defined as a concurrence or coming together of at least a quorum of members in order to transact either ordinary or special business of the company. Different types of company meetings are discussed below-
Figure: Types of company meetings
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.
2. Annual General Meeting:
General Meeting of a company means a meeting of its members for specified purposes. The provisions related to annual general meeting are highlighted section 94 of the company act-
(1) Every company other than a One Person Company shall in each year hold in addition to any other meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it, and not more than fifteen months shall elapse between the date of one annual general meeting of a company and that of the next:
Provided that in case of the first annual general meeting, it shall be held within a period of nine months from the date of closing of the first financial year of the company and in any other case, within a period of six months, from the date of closing of the financial year: Provided further that if a company holds its first annual general meeting as aforesaid, it shall not be necessary for the company to hold any annual general meeting in the year of its incorporation:
Provided also that the Registrar may, for any special reason, extend the time within which any annual general meeting, other than the first annual general meeting, shall be held, by a period not exceeding three months.
(2) Every annual general meeting shall be called during business hours, that is, between 9 a.m. And 6 p.m. On any day that is not a National Holiday and shall be held either 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 situate: Provided that the Central Government may exempt any company from the provisions of this subsection subject to such conditions as it may impose.
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.
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.
Quorum means the minimum number of members required to hold a meeting. According to the Company 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.
Quorum for meetings (section 103)
(1) Unless the articles of the company provide for a larger number,—
(a) in case of a public company,—
(i) five members personally present if the number of members as on the date of meeting is not more than one thousand;
(ii) fifteen members personally present if the number of members as on the date of meeting is more than one thousand but up to five thousand;
(iii) thirty members personally present if the number of members as on the date of the meeting exceeds five thousand;
(b) in the case of a private company, two members personally present, shall be the quorum for a meeting of the company.
(2) If the quorum is not present within half-an-hour from the time appointed for holding a meeting of the company—
(a) the meeting shall stand adjourned to the same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine; or
(b) the meeting, if called by requisitionists under section 100, shall stand cancelled: Provided that in case of an adjourned meeting or of a change of day, time or place of meeting under clause (a), the company shall give not less than three days notice to the members either individually or by publishing an advertisement in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated.
(3) If at the adjourned meeting also, a quorum is not present within half-an-hour from the time appointed for holding meeting, the members present shall be the quorum.
Quorum for meetings of Board (174)
(1) The quorum for a meeting of the Board of Directors of a company hall be one-third of its total strength or two directors, whichever is higher, and the participation of the directors by video conferencing or by other audio visual means shall also be counted for the purposes of quorum under this sub-section.
(2) The continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or of summoning a general meeting of the company and for no other purpose.
(3) Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time. Explanation.—For the purposes of this sub-section, ―interested director‖ means a director within the meaning of sub-section (2) of section 184.
(4) Where a meeting of the Board could not be held for want of quorum, then, unless the articles of the company otherwise provide, the meeting shall automatically stand adjourned to the same day at the same time and place in the next week or if that day is a national holiday, till the next succeeding day, which is not a national holiday, at the same time and place.
Key Takeaways
- A company meeting may be defined as a concurrence or coming together of at least a quorum of members in order to transact either ordinary or special business of the company.
The provisions related to voting is highlighted below-
Demand for poll (section 109)
(1) Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf,—
(a) in the case a company having a share capital, by the members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh rupees or such higher amount as may be prescribed has been paid-up; and
(b) in the case of any other company, by any member or members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power.
Restriction on voting rights (section 106)
(1) Notwithstanding anything contained in this Act, the articles of a company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid, or in regard to which the company has exercised any right of lien.
(2) A company shall not, except on the grounds specified in sub-section (1), prohibit any member from exercising his voting right on any other ground.
(3) On a poll taken at a meeting of a company, a member entitled to more than one vote, or his proxy, where allowed, or other person entitled to vote for him, as the case may be, need not, if he votes, use all his votes or cast in the same way all the votes he uses.
Voting by show of hands (Section 107)
(1) At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded under section 109 or the voting is carried out electronically, be decided on a show of hands.
(2) A declaration by the Chairman of the meeting of the passing of a resolution or otherwise by show of hands under sub-section (1) and an entry to that effect in the books containing the minutes of the meeting of the company shall be conclusive evidence of the fact of passing of such resolution or otherwise.
Voting through electronic means (Section 108)
The Central Government may prescribe the class or classes of companies and manner in which a member may exercise his right to vote by the electronic means.
Key Takeaways
- Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf
Passing of resolution by circulation (section 175)
(1) No resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in India by hand delivery or by post or by courier, or through such electronic means as may be prescribed and has been approved by a majority of the directors or members, who are entitled to vote on the resolution:
Provided that, where not less than one-third of the total number of directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
(2) A resolution under sub-section (1) shall be noted at a subsequent meeting of the Board or the committee thereof, as the case may be, and made part of the minutes of such meeting.
Key Takeaways
- No resolution shall be deemed to have been duly passed by the board or by a committee thereof by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors, or members of the committee, as the case may be, at their addresses registered with the company in india by hand delivery or by post or by courier, or through such electronic means as may be prescribed and has been approved by a majority of the directors or members
Minutes are an official recording of the proceedings of a Board Meeting or Annual General Meeting or any other meeting and the business transacted at the Meeting. All companies registered in India are required to maintain Minutes of all Board and Committee Meetings in a Minutes Book. The provisions related to minutes under this act are highlighted below-
Minutes of proceedings of general meeting, meeting of Board of Directors and other meeting and resolutions passed by postal ballot (Section 118)
(1) Every company shall cause minutes of the proceedings of every general meeting of any class of shareholders or creditors, and every resolution passed by postal ballot and every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in such manner as may be prescribed and kept within thirty days of the conclusion of every such meeting concerned, or passing of resolution by postal ballot in books kept for that purpose with their pages consecutively numbered.
(2) The minutes of each meeting shall contain a fair and correct summary of the proceedings thereat.
(3) All appointments made at any of the meetings aforesaid shall be included in the minutes of the meeting.
(4) In the case of a meeting of the Board of Directors or of a committee of the Board, the minutes shall also contain—
(a) the names of the directors present at the meeting; and
(b) in the case of each resolution passed at the meeting, the names of the directors, if any, dissenting from, or not concurring with the resolution.
(5) There shall not be included in the minutes, any matter which, in the opinion of the Chairman of the meeting,—
(a) is or could reasonably be regarded as defamatory of any person; or
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interests of the company.
(6) The Chairman shall exercise absolute discretion in regard to the inclusion or non-inclusion of any matter in the minutes on the grounds specified in sub-section (5).
(7) The minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein.
(8) Where the minutes have been kept in accordance with sub-section (1) then, until the contrary is proved, the meeting shall be deemed to have been duly called and held, and all proceedings thereat to have duly taken place, and the resolutions passed by postal ballot to have been duly passed and in particular, all appointments of directors, key managerial personnel, auditors or company secretary in practice, shall be deemed to be valid.
(9) No document purporting to be a report of the proceedings of any general meeting of a company shall be circulated or advertised at the expense of the company, unless it includes the matters required by this section to be contained in the minutes of the proceedings of such meeting.
(10) Every company shall observe secretarial standards with respect to general and Board meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 (56 of 1980), and approved as such by the Central Government.
(11) If any default is made in complying with the provisions of this section in respect of any meeting, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees.
(12) If a person is found guilty of tampering with the minutes of the proceedings of meeting, he shall be punishable with imprisonment for a term which may extend to two years and with fine which shall not be less than twenty-five thousand rupees but which may extend to one lakh rupees.
Inspection of minute-books of general meeting (Section 119)
(1) The books containing the minutes of the proceedings of any general meeting of a company or of a resolution passed by postal ballot, shall—
(a) be kept at the registered office of the company; and
(b) be open, during business hours, to the inspection by any member without charge, subject to such reasonable restrictions as the company may, by its articles or in general meeting, impose, so, however, that not less than two hours in each business day are allowed for inspection.
(2) Any member shall be entitled to be furnished, within seven working days after he has made a request in that behalf to the company, and on payment of such fees as may be prescribed, with a copy of any minutes referred to in sub-section (1).
(3) If any inspection under sub-section (1) is refused, or if any copy required under sub-section (2) is not furnished within the time specified therein, the company shall be liable to a penalty of twenty-five thousand rupees and every officer of the company who is in default shall be liable to a penalty of five thousand rupees for each such refusal or default, as the case may be.
(4) In the case of any such refusal or default, the Tribunal may, without prejudice to any action being taken under sub-section (3), by order, direct an immediate inspection of the minute-books or direct that the copy required shall forthwith be sent to the person requiring it.
Key Takeaways
- Minutes are an official recording of the proceedings of a board meeting or annual general meeting or any other meeting and the business transacted at the meeting.
Case study
M/s Kia Overtrading Ltd. Was ordered to be wound up compulsorily by an order dated 15th October, 2012 of the Delhi High Court. The official liquidator who has taken control of the assets and other records of the company has noticed the following:
(i) The Managing Director of the company has sold certain properties belonging to the company to a private company in which his son was interested causing loss to the company to the extent of Rs. 60 lakhs. The sale took place on 10th May, 2012.
(ii) The company created a floating charge on 1st January, 2012 in favour of a private bank for the overdraft facility to the extent of 5 crores, by hypothecating the current assets viz., stocks and book debts.
References:
1. Bagrail, A.K.: Company Law
2. Chawla& Garg: Company Law
3. Grower, L.C. B.: Principles of Modern Company Law
