Wednesday, May 25, 2011

Provisions of Minutes of General Meeting Under Companies Act, 1956

Provisions of Minutes of General Meeting Under Companies Act, 1956
 Minutes of general meetings of a company means and include minutes of statutory meeting, annual general meetings, extraordinary general meetings and minutes of class meetings of shareholders of a company.

Contents of minutes of General meetings
Minutes of a General meeting will state the following:—
  • Date, time and place of the meeting;
  • Kind of meeting, whether committee meeting, annual general meeting or    extraordinary general meeting;
  • Names of members who attended the meeting and others who attended in other capacity indicating the name of the presiding officer, directors, auditors, secretary, etc.;
  • In case of an annual general meeting, the number of the concerned meeting to which the minutes relate;
  • Fact that the notice of the meeting was read;
  • Fact that the directors' report, compliance certificate and accounts were read;
  • Fact that the auditors' report was read;
  • Resolutions adopted in the meeting in the order they were passed at the meeting, with or without specifying the names of the movers and seconders;
  • Vote of thanks;
  • Chairman's signature with date in his own hand.

The minutes of general meeting have its own significance. Sections 193 to 197 of the Companies Act, 1956 contain provisions in relation to various aspects concerning minutes of general meetings of a company.

Signing of minutes of General meetings
Section 193(1A) states that each page of every minutes book shall be initialed or signed and the last page of the record of proceedings of each meeting in such books shall be dated and signed. The minutes of general meetings of members will be recorded and signed within the said 30 days by the chairman of the same meeting. If the chairman is not available, the Board will authorize a director to sign the said minutes.

Chairman's powers related to minutes
The chairman shall exercise an absolute discretion in regard to inclusion or non-inclusion of any matter in the minutes. For instance, the chairman has the discretion to exclude from the minutes any material which, in his opinion:—
(a) is regarded as defamatory of any person;
(b) is irrelevant or immaterial to the proceedings; or
(c) is detrimental to the interest of the company.

Penalty
If default is made in complying with any of the provisions as aforesaid, the company, and every officer of the company, in default shall be punishable with fine, which may extend to Rs. 500. The offence is compoundable under section 621A of the Companies Act.

Keeping of minutes book of General meetings at the registered office
The minutes book of General meetings must be kept at the registered office of the company. As the minutes book of the meetings of a company are primary documents and are evidence of the proceedings recorded therein and where minutes are duly drawn and signed, presumptions, as specified in section 195 of the Act, are required to be drawn until the contrary is proved, it has been provided in the Act that the minutes books shall be kept at the registered office of the company.

Inspection of minutes book
The minute's book should remain open for inspection of members during business hours without payment of any fee. The articles or resolution of the company may impose reasonable restrictions on such inspection but inspection should be allowed on every working day at least for two hours.

Providing copy of the minutes on payment of fee
Any member is entitled to ask for a copy of the minutes of the General meeting and the same must be supplied to him by the company on payment of one rupee for every 100 words or fractional part thereof, within seven days after his request. In case the request from the member is received before the proceedings of the meeting have become 'minutes', that is, before the period of 30 days has expired, the member concerned will not be entitled to the copy of the minutes until the expiry of the said period of 30 days.

Penalty for refusal of inspection or non-furnishing copy of the minutes
If the inspection of the minute book is refused or a copy of the minutes of the meeting is not supplied to the member within 7 days of the requisition, the company and its every officer who is in default will be liable to a fine of Rs. 5,000 in respect of each offence. The aggrieved member may make an application to the Tribunal for relief and the Tribunal may order the company to allow an immediate inspection or to furnish forthwith the member with a copy of the minutes.

Publication of reports of proceedings of General meetings
Sub-section (1) of section 197 states that no document purporting to be a report of a company shall be circulated or advertised at the expense of the company, unless it includes the matters required by section 193 to be contained in the minutes of the proceedings of such meeting. Any contravention of sub-section (1) will entail penalty of fine up to Rs. 5,000.

Related registers and files
Following registers also be taken due care of in relation to minutes of general meetings:—
1. Attendance Register of members;
2. Register of proxy;
3. Index of minutes books.
In addition to the above the file containing the member’s circulations, amendment motion, postal ballot, ballot papers, revocation of proxy, notice under section 257, proof of dispatch of notice to the members and auditors, chairman's speech, agenda papers, etc. should be carefully kept in the custody of the company secretary.

Saturday, May 14, 2011

Position of Foreign Companies under Indian Companies Act, 1956 (Legal Obligations and Liabilities)


Position of Foreign Companies under Indian Companies Act, 1956
A foreign company planning to set up business operations in India has the two options whether as an Indian company or a foreign company. If the foreign company establishes its business by establishing the company under Indian companies ACT, 1956, all the provisions related to the Indian companies will apply on that company. But if foreign company starts its business as a foreign company through branch, liaison office or project office it has to comply with some other provisions also. Section 591 to 608 of the companies act, 1956 contains the provisions related to the entities incorporated outside India or foreign companies. Sections 591 say that sections 592 to 608 shall apply to all foreign companies. These sections put an obligation upon the foreign companies to submit their information’s to the registrar of companies regarding like accounting information, registration of charges on properties held by it in India, etc.

Foreign Companies [Meaning and Definition]
According to section 591 foreign companies are the:
(a) Companies incorporated outside India which, after the commencement of this Act, establish a place of business within India; and
(b) Companies incorporated outside India which have, before the commencement of this Act, established a place of business within India and continue to have an established place of business within India at the commencement of this Act.

A place of business means premises where there is a physical or visible indication that the company may be contacted there.

It is necessary to mention here that a foreign company is different from a foreign controlled company. According to RBI a company could be treated as a foreign controlled company if , (a) 40 per cent or more of its shares were owned in any one country outside India, (b) it was a subsidiary to a parent company in any country registered abroad, (c) 25 per cent or more of its shares were owned by a foreign-controlled Indian Joint Stock Company, which was not a managing agent, and (d) it was a company managed by a foreign-controlled managing agency company.
A foreign company of which more than 50% paid up capital is held by Indian citizen or bodies corporate would attract more provisions.

Initial Obligations of the Foreign Company:

A foreign company shall within 30 days of establishing a place of business in India deliver to the ROC the following documents:
(a) A certified copy of the charter, statutes, or memorandum and articles, of the company or other instrument constituting or defining the constitution of the company; and, if the instrument is not in the English language, a certified translation thereof;
(b) The full address of the registered or principal office of the company;
(c) A list of the directors and secretary of the company,
(d) The name and address or the names and addresses of some one or more persons resident in India, authorized to accept on behalf of the company service of process and any notices or other documents required to be served on the company; and
(e) The full address of the office of the company in India which is to be deemed its principal place of business in India.
The filing shall be done at two places with the principal Registrar of companies at New Delhi, and with the ROC of the state having jurisdiction where the principal place of the business of the company is situated. Certification of documents shall be in accordance with Rule 16 of the Companies (Central Government’s) Rules and Forms, 1956.

Continual Obligation of Foreign Companies:

The following are the regular obligations of the foreign companies:

1] Return of Alterations:
A foreign company shall within 30 days of change /alteration of any of the following file a return of alteration containing the particulars of the changes:
·        The charter, statutes, or memorandum and articles of a foreign company or other instrument constituting or defining the constitution of the company; or
·        The registered or principal office of a foreign company; or
·        The directors or secretary of the company
·        The name or address of any of the persons authorized to accept service on behalf of the company; or
·        The principal place of business of the company in India,
The governing section is section 593 of the companies act.

2] Accountings:
Section 594 requires a foreign company to maintain books of accounts of its India and world business and three copies it has to be mandatory filed with the ROC every year within 9 months from the closure of the financial year. These accounts should be accompanied by a list of place of businesses in India. In respect of the Indian business of the foreign company the Profit and loss account, balance sheet and other accounting record should be prepared.

3] Stating of the Name:
Section 595 of the companies act, 1956 obligates a foreign company to conspicuously exhibit on the outside of every office or place of business where it carries on business in India, its name and country of incorporation, in letters easily legible in English characters and also in the local language (where it is situated). It must cause both these details also to be stated in all letter heads, business letters, bill heads, and letter papers, and in all notices and other official publications of the company.

4] Service of Notice:
Any process, notice, or other document shall be deemed to be sufficiently served on the foreign company if the notice or document is addressed to any person whose name has been delivered to the Registrar under the foregoing provisions of this Part and left at, or sent by post to, the address which has been so delivered.

5] Notice of Ceasing the Place of Business in India:
If any foreign company ceases to have a place of business in India, it shall forthwith give notice of the fact to the Registrar, and as from the date on which notice is so given, the obligation of the company to deliver any document to the Registrar shall cease, provided it has no other place of business in India.

Effect of Non-Compliance of Obligations:
If a foreign company fails to comply with any of the obligation posed upon by the companies the company shall not be entitled to bring any suit, claim any set off, make any counter-claim or institute any legal proceeding in respect of any contract, dealing or transaction, until it has complied with the provisions of part IX of the companies act But non-compliance would not affect the validity of such contracts. Further If any foreign company fails to comply with any of the foregoing provisions of the Part IX of this act, the company, and every officer or agent of the company who is in default, shall be punishable with fine which may extend to ten thousand rupees, and in the case of a continuing offence, with an additional fine which may extend to one thousand rupees for every day during which the default continues.

Registration of Charges:
Under section 600, a foreign company has to file the documents containing the particulars of a charge within 30 days from the date of the creation of charge with the principal registrar as well as the registrar of the state in which the principal place of the business of the company is situated. This is in respect of charge on properties in India which are created by a foreign company after 15th January, 1937 and charges on the properties in India which is acquired by any foreign company after 15th June, 1937. Where the charge is created or the completion of the acquisition of the property which takes place outside India, 30 days after the day on which, the instrument creating or evidencing the charge or copy thereof could, in due course of post and if dispatched with due diligence, have been received in India shall be the time available to file the charge with the Registrar. A foreign company is also under an obligation to provide inspection and copies of trust deed recording the creation of a charge for securing any issue of debentures to the debenture holders.

Winding Up of Foreign Companies:
Section 582 (b) of the companies act makes it clear that the provisions of part X of the act, dealing with the winding up of unregistered companies, shall apply to the foreign companies. [1985 (58) Comp Case 285]. Section 584 of the companies act, 1956 provides that where a body corporate incorporated outside India which has been carrying on business in India, ceases to carrying on business in India, it may be wound up as an unregistered company notwithstanding that the body corporate has been dissolved or otherwise ceased to exist as such under or by virtue of the laws of the country under which it was incorporated. Such winding up can only be made through the court. Where a foreign company ceases to carry on business in India or its substratum is gone or it carries on ultra virus business, it may be wound up under the just and equitable ground.

Wednesday, May 11, 2011

Remedial Measures under the Companies Act, 1956 for Prevention of Oppression and Mismanagement (Section 397 and 398 of the Companies Act 1956)


Remedial Measures under the Companies Act, 1956 for Prevention of Oppression and Mismanagement
A Company functions through its Board of Directors who is guided by the wishes of majority. Prima facia a majority of members of a company are entitle to exercise the powers of a company and generally to control its affairs. It has also been pointed out in earlier cases like in Foss Vs Harbottle it was held that every member holds equal rights and in case of differences issue is decided by majority and the court should not interfere with the internal management of the company. But sometimes majority in the company misuses its powers conferred by the act. Every shareholder is entitled for certain rights in the Company and at the same time, the rights of majority in a Company should not be ignored. There should be a good balance between the exercising powers of the majority in a Company and the rights of minority shareholders.  The majority should not be allowed to oppress the minority and mismanage the company’s properties. The Act provides a relief to the minority from the Company Law Board/ Tribunal and the minority can approach the Company Law Board/ Tribunal seeking various reliefs against the Company or the majority in a Company when the majority in a company exceeds their limits oppresses the minority and mismanages the company’s properties.

Meaning of Oppression
Section 397 of the companies act, 1956 provides relief to the oppressed minority. Basically oppression means exercise of power in an unjust manner. The law has not defined oppression for purposes of this section, and it is left to Courts to decide on the facts of each case whether there “oppression” under section 397 has been committed or not. Although the word ‘oppressive is not defined, it is possible, by way of illustration, to figure a situation in which majority shareholders, by an abuse of their predominant voting power, are’ treating the company and its affairs as if they were their own property’ to the prejudice of the minority share-holders. In Scottish Co-operative Whole Sale Society Ltd. v. Meyer (1958) 3 All ER 66 (HL)) it was held that oppression is the lack of probity and fair dealing in the affairs of a company to the prejudice of some portion of its members or to public interest. In Elder v. Elder & Watson Ltd., oppression has been defined as ““…the conduct complained of should at the lowest involve a visible departure from the standards of fair dealing, and a violation of the conditions of fair play on which every shareholder who entrusts his money to the company is entitled to rely.” The oppressed minority has to show the conduct which is unfair to him and causes prejudice to him in the exercise of his legal and proprietary rights as a shareholder.

Remedies under Section 397: -
Under section 397 the members of a company who comply with the conditions of Section 399 can make an application to the Court for relief under Section 402 of the Act if the affairs of a company are being conducted in a manner oppressive to any member or members including any one or more of those applying. The Court has power to make such orders under section 397 read with section 402 as it thinks fit, if it comes to the conclusion that –
1)      the company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive of any member or members; and
2)      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 up, and
3)      That to wind up the company would unfairly prejudice the petitioners.
Relief under Section 397 Not Available under the following situations:
1)      Where there are minor acts of mismanagement e.g. where passengers traveling without tickets on a company’s buses were not checked or where the petrol consumption by a transport company was excessive. Negligence & inefficiency, even assuming that these are proved, do not amount to oppression or mismanagement as contemplated by the act. [Mohta Bros. Vs Calcutta Landing & Shipping Limited]
2)      Where a shareholder holding 30% of shares of a company is denied access to or inspection of books of accounts of the company. This is because this right is recognized by the Companies Act. [Lalita Rajya Laxmi Vs. India Motor Company]


Meaning of Mismanagement
Generally if the affairs of a company are being running by the Board in a manner which is prejudicial to the interest of the company or to the public it is said to be mismanaged. In Re, Albert David (1964) CWN 163, 172 it was held that if a company was being run by the Board in their own interest overriding the wishes and interest of the majority of shareholders is deemed to be mismanagement. Courts have also ruled that erosion of a company’s substratum, abuse of fiduciary duties, and misuse of funds are all instances of mismanagement that come within the ambit of section 398.

Relief under Section 398: -
A requisite number of members (as laid down in sec. 399) may apply to the Company Law Board/ Tribunal for an order under this section and the Company Law Board/ Tribunal may grant relief. This section states that:
1)      Any members of a company who complain:
a)      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
b)      that a material change not being a change brought about by, or in the interests of, any creditors including debenture-holders, or any class of shareholders, of the company 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 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/ Tribunal for an order under this section, provided such members have a right so to apply in virtue of section 399.
2)      If, on any application under sub-section (1), the Company Law Board/ Tribunal 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 Company Law Board/ Tribunal may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

Persons Entitle to Apply: - [Section 399]
(1) The following members of a company shall have the right to apply under section 397 or 398:-
(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 members 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.

(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), 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/ Tribunal under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled.

Powers of Company Law Board/ Tribunal [Section 420]
Under section 397 and 398 the CLB/Tribunal has all the necessary powers to end oppression as well as prevent management of the company. Section 402 further lay down that an order under section 397 or 398 may provide for:
1)      The regulation of the conduct of the company’s affairs in future. [Richardson & Cruddas Ltd. Vs Hardas Mundra]
2)      The purchase of the shares of any member of the company by the company.
3)      In the case of purchase of the shares by the company, consequent reduction of its share capital.
4)      The termination, setting aside or modification of an agreement between the company and managing director, or any other director, and manager.
5)      The termination, setting aside or modification of any agreement with any person, provided due notice has been given to him and his consent obtained
6)      Any other matter for which, in the opinion of the CLB/ NCLT, it is just and equitable that provision should be made.
7)      Not to change in the Board of Directors. If a change in the Board of directors is likely to take place which (if allowed) would affect prejudicially the affairs of the company, the CLB/Tribunal may, if satisfied, after such inquiry as it thinks fit to make that it is just and proper so to do by order, direct that no resolution passed or that may be passed or no action taken or that 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 CLB/Tribunal. [Section 409]
8)      If CLB/NCLT orders any alteration in memorandum or articles, company can not introduce any provision inconsistent to the order. [Section 404(i)]
9)      If order set asides or modifies any agreement causing any loss then any claim for the loss can not be made. [Section 407(i)(a)]
10)   The managerial personnel set aside shall not be eligible to serve company for 5 years. [Section 407(i)(b)]

Powers of Central Government [Section 408]
The requisite minimum number of members can apply to the central government for relief from oppression and mismanagement under Sec. 397 and 398. The minimum number shall be 100 or members not holding less than 1/10th of the total voting power. The following are the reliefs can be provided:
1)      The central government may appoint such number of persons as the CLB/NCLT specifies as being necessary to safeguard the interest of the company, or its shareholders or the public interest to hold the office as directors of the company to prevent oppression and mismanagement. The directors so appointed shall not hold office more than three years from the date of appointment. Government may appoint additional directors also.
2)      Any person can appointed by the central government to hold office as director or additional director and the government may issue such directions to the company as it may consider necessary to be appropriate in regard to its affairs.
3)      The central government may require the persons appointed as directors to report to the government from time to time with regards to affairs of the company.
4)      The government may issue directions that may include:
a)      To remove an auditor already appointed and appoint another auditor in his place.
b)      To alter the articles of the company.
5)      Section 388-B and 388-E empowers the central government to remove managerial personnel from office on recommendation of CLB/NCLT
Conclusion:
Even though the company is operated by the majority through directors, they are not free to do such an act which is only in their personal interest and not in the interest of the company. The companies act has substantially protected the rights of minority shareholders. Minority shareholders can take recourse to the provisions of section 397 and 398 in cases where companies indulge in oppression or mismanagement, prejudicial to the affairs of the company and public interest. The Company Law Board/ Tribunal have been assigned with substantial powers to protect the interests of the minority shareholders.