UNIT 2
KEY MANAGEMENT PERSONNEL (KMP)
Q1) Explain the meaning, definition and appointments of managing director.
A1) DIRECTORS:
The shareholder are cannot take care of the management of the company. the company is as of the artificial person and can't act by way of itself. therefore the shareholders have to elect from among them few people as their representative. They’re known as Directors. The directors are collective referred to as board of Directors.
DEFINATION:
As per Section 2(34) of Companies Act 2013 “Director means a director appointed to the Board of a company.”
MEANING:
A director may be a person from a group of managers who leads or supervises a particular area of a company.
Companies that use this term often have many directors spread throughout different business functions or roles.
MANAGING DIRECTORS
WHOLETIME DIRECTORS
MANAGERS
APPOINTMENT OF WHOLE-TIME DIRECTOR OR MANAGER
(1) No company shall appoint or employ at the same time a managing director and a manager.
(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:
Provided that no re-appointment shall be made before one year before the expiry of his term.
(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who —
(a) is below the age of twenty-one years or has attained the age of seventy years:
Provided that appointment of an individual who has attained the age of seventy years could also be made by passing a special resolution during which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
(b) is an undercharged insolvent or has at any time been adjudged as an insolvent;
(c) has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.
(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and therefore the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule:
Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:
Provided further that a return within the prescribed form shall be filed within sixty days of such appointment with the Registrar.
(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager isn't approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.
Q2) Explain the meaning, roles and Appointment of company secretary.
A2) Section 2(24) of the companies Act, 2013 defines “company secretary” or “secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act;
A company secretary may be a principally an employee even though he holds very high rank. He / She could also be the Chief Executive & then his position is near to those of the directors. in reality, he's the sole employee who has advisory powers.
CS advice is pursued in carrying out general administration and within the decision-making process at the time of framing policies of the company. he's consulted to work out the lawful s uggestions of policy decisions. Therefore, he/she is that the only outsider who is present at the Board meetings.
Company Secretary is that the one that may be a member of the (ICSI) Institute of Company Secretary of India appointed by the company to perform the functions of the company Secretary.
Time period for such appointment of company secretary:
The Companies Act 2013 doesn't provide the period wherein the company has to designate Company Secretary as (KMP) key managerial personnel. But it's advisable to appoint a corporation Secretary as KMP within the first board meeting which is to be conducted after applicability of such a provision.
PROCESS FOR APPOINTMENT OF COMPANY SECRETARY
Arrange for board meeting only after giving notice to every director to discuss besides others the following matters. Approve the terms and conditions at which the company Secretary (CS) is proposed to be appointed.
Roles and responsibilities of company secretary
The three main areas, a company Secretary, has the role to play viz. to the Board, to the company, and to the Shareholder.
Core Duties of the company Secretary
• Meetings of the Board of Directors
• General Meetings
• Memorandum and Articles of Association
• Requirements of Stock Exchanges
• Statutory Registers
• Statistical Books
• Statutory Returns
• Report and Accounts
• Registration of Shares
• Communications to and from Shareholder
• Issues of Share and Capital and Restructuring
• Acquisitions, Disposals, and Mergers
• Corporate Governance
• Common Seal of the company etc.
Q3) Explain Managerial remuneration in detail.
A3) Just as profits drive business, incentives drive the managers of business. Not surprisingly then, during a fiercely competitive corporate environment, managerial remuneration is an important piece within the management puzzle. While it's important to incentive the workforce performing the challenging role of managing companies, it's equally important to not go overboard with the perks and therefore the pay. In India, to keep a check on unnecessary profit squandering by companies and, at the same time, to make sure adequate and reasonable compensation to managerial personnel, the law intervenes to try to to the balancing act.
REMUNERATION TO MANAGERIAL PERSONNEL
Q4) Explain the difference between managing directors, manager, and whole time director.
A4) Difference Managing director and Whole Time Director
1. Power:
MD: A managing director is director who is entrusted with substantial powers of the management.
WTD: A whole-time director is an employee of the company entrusted with powers as per terms of employment.
2. Prohibition:
MD: Section 197 A of the Act prohibits a company from having simultaneously both a managing director and a manager.
WTD: A whole-time director could also be appointed alongside a manager director.
3. Restriction:
MD: No individual are often appointed for more than five years at a time. [Sec. 317]
WTD: there's no such restriction regarding the appointment of a whole-time director.
4. Number of directorship:
MD: a person are often managing a person can't be whole- director of two companies or time director of more than even more in certain cases, one company. [Sec. 316]
WTD: a person can't be whole-time director of quite one company.
5. Appointment:
MD: The appointment of managing director doesn't necessarily require the consent of the shareholders of the company by means of resolution.
WTD: The appointment of a whole- time director requires the consent of shareholders of the corporate by a special resolution.
Difference between manager and managing director
1. Need:
Manager: A manager may or might not be a director of the company.
MD: A managing director must be a director of the company also .
2. Power:
Manager: in case of a manager, Sec. 2 (24) of Act provides that he has the management of the entire or substantially the entire of a company.
MD: just in case of a managing director Sec. 2(26) of the Act provides that he's entrusted with substantial powers of the company.
3. Number:
Manager: a company cannot have more than one manager.
MD: a company may have quite one managing director.
4. Contract:
Manager: A manager needn't be under a formal contract of service.
MD: A managing director is appointed by virtue of an agreement with the company.
5. Disqualification:
Manager: in case of appointment or employment of manager the disqualifications shall operate only if they occurred during the five years immediately preceding the date of his appointment. [Sec. 385]
MD: just in case of appointment or employment of a managing director, the same disqualifications will operate albeit they have taken place at any time during the life of that person. [Sec. 26]
6. Removal of disqualification:
Manager: The Central Government by way of notification within the official gazette may remove the disqualifications for the appointment of manager.
MD: there's no such provision just in case of managing directors.
Q5) Elaborate corporate social responsibility.
A5) Introduction:
Corporate Social Responsibility (CSR) are often defined as a Company’s sense of responsibility towards the community and environment (both ecological and social) during which it operates. Companies can fulfill this responsibility through waste and pollution reduction processes, by contributing educational and social programs, by being environmentally friendly and by undertaking activities of similar nature. CSR isn't charity or mere donations. CSR may be a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies don't limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth. CSR is said to increase reputation of a company’s brand among its customers and society.
The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR. This article aims to analyse these provisions (including all the amendments therein).
Applicability of CSR Provisions:
• On every Company including its holding or subsidiary having:
Net worth of Rs. 500 Crore or more, or
Turnover of Rs. 1000 crore or more, or
Net Profit of Rs. 5 crore or more
A foreign company having its branch office or project office in India, which fulfills the criteria specified above
However, if a company ceases to satisfy the above criteria for 3 consecutive financial years then it's not required to comply with CSR Provisions till such time it meets the specified criteria.
CSR Committee:
Every Company on which CSR is applicable is required to constitute a CSR Committee of the Board:
CSR Activities
Q6) Explain the role of board of director.
A6) DEFINATION
The definition of Board of Directors is given in Section 2(10) of Companies Act, 2013 like Section 2(6) of Companies Act, 1956.
As per the new definition it refers to “ a collective body of the Board” Board of Directors :
The definition of Director as given in Section 2(34) of Companies Act, 2013 like section 2(13) of Companies Act, 1956
“Director refers to one who has been appointed as such by the Board”
This definition is restrictive .
The definition in Companies Act, 1956 was inclusive and will ask anyone occupying the position of director by whatever name called.
ROLE OF BOARD OF DIRECTOR IN ACOMPANY
A Director may be a a part of collective body of Directors called the Board of Directors. responsible for the superintendence, control and direction of the affairs of the company.
(a) Director as agent: - a company as an artificial person, acts as through directors who are elected representatives of the shareholders and execute decision making for the advantage of shareholders.
(b) Director as employee: - Directors are liable as employee under provisions of Companies Act.
When the director is appointed as whole time director of the company then that particular director shall be considered as employee director or whole time director of the company.
(c) Director as officers: - Director treated as officer of an Company. they're liable to certain penalties if the provision of the companies act aren't strictly complied with or in case of violations.
Director as Trustee :-
Director is treated as trustees of the Company‘s money and property and of the powers entrusted to and vested in them only as trustee.
Q7) Explain the prevention of oppression and mismanagement.
A7) DEFINATION
The word oppression in common parlance refers to a situation or an act or instance of oppressing or subjecting to cruel or unjust impositions or restraints.
According to Lord Keith,” Oppression means, lack of morality and fair dealings within the affairs of the company which can be prejudicial to some members of the company
The term mismanagement refers to the method or practise of managing ineptly, incompetently, or dishonestly.
However it's to be noted that the terms aren't defined under the companies act and is left to the discretion of the court to decide on the facts of the case whether there's oppression or mismanagement of minority or not.
Instances which may be termed as mismanagement
1. Preventing directors from functioning
2. Violations of statutory provisions
3. Violations of provisions of MOA & AOA of the company
4. Misuse of funds etc
A company may be a distinct entity separate from the owners of the company where management and ownership is separated by a thin line of roles and responsibilities bestowed upon themselves. during a broad sense it's a group of persons who have come together or who have contributed money for some common purpose and have incorporated themselves into distinct legal entity. the whole scheme of the companies Act, is to make sure proper conduct of the affairs of the company in public interest and preservation of image of country in public interest.
The section which covers oppression and mismanagement is 241 of companies Act 2013 and chapter XVI which corresponds to a clubbed section of 397 and 398 of the erstwhile Companies Act, 1956 .
As India may be a democratic country, the companies being a legal citizen also bestows in itself the power of democracy. Corporate democracy is more vulnerable to it because it's reckoned with the number of shares and not with number of individuals involved. The rule of majority has been made applicable to the management of the affairs of the company. The members pass resolution on various subjects either by simple or three-fourth majority. Once resolution is gone by majority it's binding on all members. As a result, court won't ordinarily intervene to guard the minority interest affected by resolution. However there are exceptions to this rule- Prevention of Oppression and mismanagement being one such ground.
Hence, it's to be noted that this section are often invoked whenever there's oppression of the minority or there's mismanagement of the affairs of a company which is prejudicial to the public interest or to the interest of the company and its members. Thus, where a director is oppressed he doesn't have remedy under this section unless he's also a shareholder of the corporate . This section also specifies the circumstances during which an application could also be made to the Tribunal by an member of a company or by the central Government for relief in cases of oppression and mismanagement.
Application to tribunal for relief (section 241)
1. Application are often filed if it's likely that the affairs of the company are going to be conducted during a manner prejudicial to
2. The Central government in its own opinion apply to the tribunal
Relief against;
Any affairs are /being conducted in a manner
Material change, not being a change brought about by or interest of creditors (inclusive debenture holders or any class of shareholders)
Change could also be through
Which will be prejudicial to the interest of Company/members
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Q8) Elaborate Powers of Tribunal (Section 242)
A8) 1. If the tribunal found that the affairs of the company is being conducted during a manner prejudicial to the interests of the company / its members/ to public interest and if wind up is unfairly prejudice to such member /members and therefore the facts would justify that it's just and equitable to wind up the company- Tribunal may make such order as it thinks fit.
2. Other than the general powers specified , an order may provide for ,
The setting aside of
i. Any transfer , delivery of goods
ii. Payment, execution or
iii. Other act relating to property
Made /done by/against the company within 3 months before the date of the application which would if made /done by/against an individual , be deemed in his insolvency to be a fraudulent preference.
3. a licensed copy of the Order of the tribunal to be filed with ROC within 30 days of the order of the tribunal
4. Tribunal has the power to form interim order.
5. Alteration to MOA/AOA through the order of the tribunal
6. Altered provisions shall apply
7. Certified copy of the altered order shall be filed with the registrar.
Contravention of Section 242(5) Company ‘ Fine of Rs. l,oo,ooo to Rs. 25,oo,ooo Every officer in Default ‘ imprisonment up to six months ‘ Fine of Rs. 25,000 to Rs. 1,oo,ooo
Q9) Discuss the Consequences of termination/modification of certain agreements (sec, 243)
A9) Where an order made under section 242 terminates, sets aside or modifies an agreement, such order shall not give rise to any claims whatever against the company by any person for damages or for compensation for loss of office or in the other respect either in pursuance of the agreement or otherwise .No managing director or other director or manager whose agreement is so terminated or put aside shall, for a period of 5 years from the date of the order terminating or setting aside shall, for a period of 5 years from the date of the order terminating or setting aside the agreement, without the leave of the Tribunal be appointed or act, as the managing director or other director or manager of the company.
Consequences of termination/modification of certain agreements Contravention of Section 244(1)(b)
The person knowingly acting as Managing Director/ Director/Manager and each other director who is knowingly as party to contravention shall punishable with imprisonment up to six months or fine up to Rs. 5,00,000 or both .
Class Action (Section 245)
Class action are often initiated by such number of member/members, depositor/depositors, or any class of them indicated under sub section (2) of section 245
Certified copy of the altered order shall be filed with the registrar.
Contravention of Section 242(5) Company ‘ Fine of Rs. l,oo,ooo to Rs. 25,oo,ooo Every officer in Default ‘ imprisonment up to six months ‘ Fine of Rs. 25,000 to Rs. 1,oo,ooo
Requisite number of depositors for class Action
The members /depositors/any class of them are of the opinion that the management or conduct of the affairs of the company being conducted during a manner prejudicial to the interests of the company , or its members/depositors is when an application is to be filed
Purpose of application
To claim damages /compensation/demand/suitable action from or against
a. Company/Directors for any fraudulent, unlawful or wrongful or omission or conduct or its or their part
b. The auditor including audit firm of the company for any improper misleading statement of particulars made in his audit report
c. Any expert or advisor or consultant or the other person for any incorrect or misleading statement made to the company or for any fraudulent unlawful or wrongful act or conduct or any likely act or conduct or his part
Liability of Audit Firm
The liability shall be of the firm and every partner who was involved in making any improper or misleading statement of particulars within the audit report or who acted during a fraudulent , unlawful or wrongful manner.
Q10) Explain the considerations to the tribunal and acceptance of application by Tribunals.
A10) Considerations to the Tribunal
• Whether member/members acting in good faith or making an application for seeking an order.
• Whether there's any involvement of persons aside from directors or officers of the company on any of the matters specified.
• Cause of action is one which the member or depositor could pursue in his title instead of through an order.
• Views of the members/depositors of the company- no personal interest (direct or indirect) within the matter being proceeded.
• Whether the cause of action is an act or omission that's yet to occur ,whether the act or omission might be , and within the circumstances would likely to be
• Where the course of action is an act or omission which is already occurred whether act or omission might be an act within the circumstances would be likely to be ratified by the corporate
Acceptance of application by Tribunal
Contravention of section 245 by:
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Application of certain provisions to proceedings under section 241 or section 245 (Section 245)
The provisions of section 337 to 341 (both inclusive) shall apply mutatis mutandis, in relation to an application made to the tribunal under section 241 or section 245.
CONCLUSION
Thus the new Companies Act 2013 in many ways ensures that the rights of the minority shareholders are protected in every possible manner. The stake held by them in a company is not in any manner subservient to the majority and it is the duty of the law to protect their interests from any odious activity of the latter. The Act and the Courts try to strike a fine balance between the Rights of Majority to rule and the protection of interests of the minority shareholders through the prevention of Oppression and Mismanagement.
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