Monday, July 25, 2011
Various Banks Account Facilities for Non Resident Investors in India: -Resident (External) Rupee Accounts (NRE Accounts)/ Ordinary Non-Resident Rupee Accounts (NRO Accounts)/ Non-resident (Non-reportable) Rupee Deposit Accounts (NRNR Accounts)/ Non-Resident (Special) Rupee Accounts with banks in India/ Foreign Currency Accounts
Various Banks Account Facilities for Non Resident Investors in India: -Resident (External) Rupee Accounts (NRE Accounts)/ Ordinary Non-Resident Rupee Accounts (NRO Accounts)/ Non-resident (Non-reportable) Rupee Deposit Accounts (NRNR Accounts)/ Non-Resident (Special) Rupee Accounts with banks in India/ Foreign Currency Accounts
India is now a favorite destination for foreign Investors and Non Residents to Invest in India and for that they require bank accounts. The Reserve bank of India has prescribed various kinds of bank accounts depending upon the requirements for Investment with regulatory provisions.
NRIs/PIOs/OCBs/ are permitted to open bank accounts in India out of funds remitted from abroad, foreign exchange brought in from abroad or out of funds legitimately due to them in India, with authorized dealer.
Such accounts can be opened with banks specially authorized by the Reserve Bank in its behalf [Authorized Dealer (AD)].
There are five types of NRI accounts:-
1. Non-Resident (External) Rupee Accounts (NRE Accounts)
NRIs, PIOs, OCBs are eligible to open NRE Accounts. These are rupee denominated accounts. Accounts can be in the form of savings, current, recurring or fixed deposit accounts. Accounts can be opened by remittance of funds in free foreign exchange. Foreign exchange brought in legally, repartiable incomes of the account holder, etc. can be credited to the account. Joint operation with other NRIs/PIOs is permitted. Power of attorney can be granted to residents for operation of accounts.
The deposits can be used for all legitimate purposes. The balance in the account is freely reportable. Interest lying to the credit of NRE accounts is exempt from tax in the hands of the NRI.
Funds held in NRE accounts may be freely transferred to FCNR accounts of thhe same account holder. Likewise, funds held in FCNR accounts may be transferred to NRE accounts of the same account holders.
2. Ordinary Non-Resident Rupee Accounts (NRO Accounts)
These are Rupee denominated non-reportable accounts and can be in the form of savings, current recurring or fixed deposits. These accounts can be opened jointly with residents in India. When an Indian National/PIO resident in India leaves for taking up employment, etc. outside the country, his bank account in India gets designated as NRO account.
The deposits can be used to make all legitimate payments in rupees. Interest income, from NRO accounts is taxable. Interest income, net of taxes is reportable.
3. Non-resident (Non-reportable) Rupee Deposit Accounts (NRNR Accounts)
NRIs/PIOs/OCBs, other non-resident Individuals/entities are permitted to open these accounts. Accounts can be opened by transfer of freely convertible foreign currency funds from abroad, or from NRE/FCNR accounts. Deposits can be held jointly with a resident. Deposits can be for period from 6 months to 3 years, and can be renewed further. Accounts may also be opened by transfer of funds from the existing NRE/FCNR accounts of the non-resident accounts holders.
The principal is non-reportable; interest can be repatriated. There is no income tax on the interest.
4. Non-Resident (Special) Rupee Accounts with banks in India
NRIs/PIOs presently have the facility of maintaining bank accounts and undertaking financial transactions in India subject to certain exchange control regulations.
In order to simplify the procedures and to provide greater freedom to NRIs/PIOs for putting through financial transactions in India, NRIs and PIOs are now permitted topend bank accounts in India, which will be at par with rupee accounts, maintained fby residents. They can now open Non-Resident (Special) Rupee Accounts with banks in India which will have the same facilities and restrictions as are applicable to rupee accounts maintained in India by residents relating to repatriation of funds held in these accounts and/or income/interest earned on them. The scheme, which has become effective from April 15, 1999 provides thhat the procedure for opening such accounts is the same as that of domestic accounts of resident individuals.
The existing facilities for NRIs/PIOs to maintain and operate Non-resident (Ordinary) i.e., NRO account, Non-Resident, i.e., FCNR account also continues. The repatriation facilities available under these accounts will continue as before.
5. Foreign Currency Accounts
Foreign Currency (Non –Resident) Accounts (Banks) (FCNR (B) Accounts)
NRIs/PIOs/OCBs are permitted to open such accounts in US Dollars, Sterling Pounds, Deutsche Marks, Japanese Yen and Euro. The account may be opened only in the form of term deposit for any of the three maturity periods viz; (a) one year and above but less than two years (ii) two years and above but less than three years and (iii) three years only.
Tax effects
Interest income is tax free in the hands of NRI until he maintains a non-resident status or a resident but not ordinarily resident status under the Indian tax laws.
Utilization
FCNR (B) accounts can also be utilized for local disbursements including payment for exports from India, repatriation of funds abroad and for making investments in India, as per foreign investment guidelines.
Friday, July 1, 2011
Reporting Compliances of Foreign Direct Investment in India/ Time Frame for Issue of Shares in case of Foreign Direct Investment in India/ Compliances for Foreign Direct Investment in India
Reporting Compliances of Foreign Direct Investment in India/ Time Frame for Issue of Shares in case of Foreign Direct Investment in India/ Compliances for Foreign Direct Investment in India
With India’s growing economy Foreign Direct Investment in India is also growing up. The companies for the different parts of the globe investing in India by registration of Subsdiary Company in India, or by setting up joint venture in India, or by registering branch office in India or in any other possible manner. The foreign investment issue is a sensitive part of the economy of any country. In India Reserve Bank of India is keeping watch on the Foreign Investments and regulating the same. As it regulatory part there are some reporting requirement that has been imposed by Reserve Bank of India in case of foreign direct investment in India. The following are the provisions related to the same:
Reporting of inflow of Funds
- An Indian company receiving investment from outside India for issuing shares / convertible debentures / preference shares under the FDI Scheme, should report the details of the amount of consideration to the Regional Office concerned of the Reserve Bank through its AD Category I bank, not later than 30 days from the date of receipt in the Advance Reporting Form enclosed in Annex - 6. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. The Form can also be downloaded from the Reserve Bank's website.
- Indian companies are required to report the details of the receipt of the amount of consideration for issue of shares / convertible debentures, through an AD Category - I bank, together with a copy/ies of the FIRC/s evidencing the receipt of the remittance along with the KYC report (enclosed as Annex – 7) on the non-resident investor from the overseas bank remitting the amount. The report would be acknowledged by the Regional Office concerned, which will allot a Unique Identification Number (UIN) for the amount reported.
Time frame within which shares have to be issued
The equity instruments should be issued within 180 days from the date of receipt of the inward remittance or by debit to the NRE/FCNR (B) account of the non-resident investor. In case, the equity instruments are not issued within 180 days from the date of receipt of the inward remittance or date of debit to the NRE/FCNR (B) account, the amount of consideration so received should be refunded immediately to the non-resident investor by outward remittance through normal banking channels or by credit to the NRE/FCNR (B) account, as the case may be. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions. In exceptional cases, refund / allotment of shares for the amount of consideration outstanding beyond a period of 180 days from the date of receipt may be considered by the Reserve Bank, on the merits of the case.
Reporting of issue of shares
- After issue of shares (including bonus and shares issued on rights basis) and shares issued under ESOP)/ convertible debentures / convertible preference shares, the Indian company has to file Form FC-GPR, enclosed in Annex - 8, through it’s AD Category I bank, not later than 30 days from the date of issue of shares. The Form can also be downloaded from the Reserve Bank's website http://www.rbi.org.in/Scripts/BS_ViewFemaForms.aspx. Non-compliance with the above provision would be reckoned as a contravention under FEMA and could attract penal provisions.
- Part A of Form FC-GPR has to be duly filled up and signed by Managing Director/Director/Secretary of the Company and submitted to the Authorized Dealer of the company, who will forward it to the concerned Regional Office of the Reserve Bank. The following documents have to be submitted along with Part A:
(i) A certificate from the Company Secretary of the company certifying that:
a) all the requirements of the Companies Act, 1956 have been complied with;
b) terms and conditions of the Government’s approval, if any, have been complied with;
c) the company is eligible to issue shares under these Regulations; and
d) the company has all original certificates issued by Authorised Dealers in India evidencing receipt of amount of consideration.
(ii) A certificate from Category I Merchant Banker or Chartered Accountant indicating the manner of arriving at the price of the shares issued to the persons resident outside India.
- The report of receipt of consideration as well as Form FC-GPR have to be submitted by the AD bank to the Regional Office concerned of the Reserve Bank under whose jurisdiction the registered office of the company is situated.
- Part - B of Form FC-GPR should be filed on an annual basis by the Indian company, directly with the Reserve Bank6. This is an annual return to be submitted by 31st of July every year, pertaining to all investments by way of direct/portfolio investments/re-invested earnings/other capital in the Indian company made during the previous years (i.e. the information in Part B submitted by 31st July 2010 will pertain to all the investments made in the previous years up to March 31, 2010). The details of the investments to be reported would include all foreign investments made into the company which is outstanding as on the balance sheet date. The details of overseas investments in the company both under direct / portfolio investment may be separately indicated.
- Issue of bonus/rights shares or stock options to persons resident outside India directly or on amalgamation / merger with an existing Indian company, as well as issue of shares on conversion of ECB / royalty / lumpsum technical know-how fee / import of capital goods by units in SEZs has to be reported in Form FC-GPR.
Monday, June 13, 2011
VARIOUS LIABILITIES, RELIEFS, DEFENCES AND PROTECTIONS TO THE DIRECTORS UNDER INDIAN LAWS
VARIOUS LIABILITIES, RELIEFS, DEFENCES AND PROTECTIONS TO THE DIRECTORS UNDER INDIAN LAWS
A company is legally separate and distinct from its members. It is ultimately an artificial creation and it acts through its servants or agents. The decisions of a majority of its members in general meetings are regarded as the acts of the corporation. The majority acts through the Board of Directors. Board of Directors, as a whole, is generally delegated all powers of the management and it may sub-delegate any of these powers to individuals directors or other servants and managers. There is a relationship akin to agency between the corporation and its board as well as the servants or agents that are delegated with specific responsibilities. These Corporate executives are assigned with immense power which must be regulated not only for public good but also for the protection of those whose investments are involved. A director must however exercise his expert skill and knowledge for the company. He should exercise skill and care in carrying out their managerial functions. In addition to fiduciary duties there are some statutory duties also that have been provided under the Companies Act, 1956. A director has to perform his functions with reasonable care. If the directors unable to perform their duties they can be held to be liable under the provisions of this Act. At the time of winding up of a company the liquidator has a vital role to play. But since the directors are the key officers of the company they are also having some liabilities which are as under:
LIABILITY TO THE COMPANY:
Directors owed the following liability to the company:
Duties of Skill and Care: Unless the Articles of the Company provide otherwise, the directors are responsible for the management of the company. They should exercise skill and care in carrying out their managerial functions. However, a mere error of judgment will not amount to a breach of the duty of care which a director owes to a company. A professionally qualified or expert person who is a director must however exercise his expert skill and knowledge for the company.
Liability for negligence: A director has to perform his functions with reasonable care. He has to attend with due diligence and caution the work assigned to him. Directors may not know the nature of the company’s trade, because all that the law expects from them is that if they know they must use the knowledge for the benefit of the company. Accordingly the directors were held guilty of negligence when they participated in a transaction without trying to know whether the transaction was really for the purposes of the company or they were authorized by the Board in that respect, and it was no defence for any director to show that he believed that he was bound to sign because the other directors wanted it or that he joined under protest or that even without his joining, the other directors were determined to carry out the transaction. Directors were also held liable where they released the company’s funds for paying the debt without trying to know whether anything was really due and for purchasing the assets without knowing whether there was any real transfer of those assets. Liability for negligence also followed where without any board resolution being properly passed a single member was allowed to manage a part of the company’s business and he misconducted himself. S.201 renders void any provision in the company’s articles or in any agreement which excludes liability for negligence, default, and misfeasance, breach of duty or breach of trust. Directors would decidedly be liable for omitting to do what they could have done in the circumstances. Where the president of an investment company improvidently invested in companies in which he was interested and caused loss, his fellow directors were held liable because they had left the investment of the company’s funds to the president’s unfettered discretion and exercised no supervision over him.
Defense for the directors- statutory provision [s.633]-
Section 633 gives a defense to the directors as special protection against a liability that may have been incurred in good faith. Where it appears to the court that the director sued, “has acted honestly and reasonably, and that having regard to all the circumstances of the case….he ought to fairly to be excused, the court may relieve him either wholly or partly from his liability on such terms as it may think fit. Three circumstances must be shown to exist. The position must be such that the person to be excused is shown to have acted honestly, secondly, reasonably, and thirdly, having regard to all the circumstances he ought fairly to be excused. In a case before the Orissa High Court, where the annual general meeting of a company could not be held in time on account of the dissolution at the material time of the Company’s Board of Directors by a court order, the court granted relief against liability for default.
Duty to attend board meetings: If some persons are guilty of gross non-attendance, and leave the management entirely to others, they may be guilty by this means if breaches of trust are committed by others. The defendants were directors of a trust company whose by-laws required monthly directors' meetings. A meeting was omitted because of the absence of several directors upon vacations. Losses resulted to the trust company which would have been prevented had the directors met and exercised proper supervision over certain loans. Held, that the directors are accountable to the trust company for such losses.
Misuse of corporate information- Exploitation of unpublished and confidential information belonging to the company is a breach of duty and the company can ask the director in question to make good its loss, if any. Any knowledge or information generated by the company is the property of the company, commonly known as intellectual property. Turn over of business, profit margins, list of customers, future plans, any personal use of such knowledge is equivalent to misappropriation of property. Use of such information can be restrained by means of an injunction. Any gain made by the use of inside information has to be accounted for to the company.
FIDUCIARY AND COMMON LAW DUTIES:
Directors owe a number of fiduciary and common law duties to the company. These duties include:
- Duty to act with honesty
- Duty to account for any profit made
- Duty not to exploit corporate opportunities to their own advantage.
- Duty to ensure that the capital of the company is used only for the legitimate business.
- Duty not to use the company’s assets for the benefit of a rival concern
- Duty to repay the company any profit they make on shares in the company
LIABILITY FOR BREACH OF TRUST-
Good faith requires that all the endeavors of the directors must be directed to the benefit of the company so that the ultimate benefit should be gone to the legitimate shareholders of the company. Thus where a director of a company, being also the member of another company, earned business from the other company by providing some business facility of his company, he was held liable to account for such profits, although the company had itself not lost anything and also could not have earned the bonus. But there is some situation where directors may make personal use of company’s opportunity and where the corporation is insolvent and defunct; its officers are free to act for themselves, since such condition is ascertainable and not easily feigned. Where the opportunity is outside the scope of corporate business, or where the corporation has shown no interest in the property, an officer may buy for himself. There is no breach of duty if a director competes with his company or olds some interest in the rival company or is a director in a competing company. If a company had given special training to a director, he may be restrained by the company from using those special skills for the benefit of the rival company. A director who acquires property while in office will, however, be liable to account for his profit upon resale if two elements are present. He must have acquired property only by reason of the fact that he was a director and in the course of the exercise of the office of director.
LIABILITY UNDER SEBI (INSIDER TRADING) REGULATIONS, 1992-
For prevention of use of unpublished price sensitive information for money making through stock market The Securities and Exchange Board of India has formulated SEBI (Insider Trading) Regulations, 1992. Since directors are given the shares of the company in which they are the directors of the company and they also have the right to sell the shares of the company after a lock in period. When director decide to sell their shares however acquired or to buy more shares, their trading comes to be governed by the legislation on insider trading.. “If the director has access to unpublished price sensitive information, such as information on future earnings, figures, security issues, assets disposal and purchases, etc., which if it were made public would have a significant effect on the share prices, it is illegal for them to trade on such information.
TORTIOUS LIABILITY OF DIRECTORS: -
Directors as such are not liable for the torts or civil wrongs of their company. To make a person liable for a tort, e.g. for negligence, trespass, nuisance or defamation it must be shown that he was himself the wrongdoer or that he was the employer or principal of the wrongdoer in relation to the act complained of, or that the tort was committed on his instructions.
STATUTORY LIABILITY OF THE DIRECTORS UNDER THE COMPANIES ACT:-
Provisions of the companies act 1956 directors have burdened the directors with some statutory liabilities. These liabilities are as mentioned below:
Misleading Prospectus- If a prospectus contains some untrue statement and if on the basis of which a person has subscribed the shares of that company then the directors of the company are liable to compensate the person who has subscribed shares on the faith of the prospectus, which contained untrue statement. The Director should compensate every such subscriber for any loss or damage he may have sustained by reason of such untrue statement in an action in tort and also under section 62 of the Act to pay compensate. If the Director discovers a mistake in the prospectus, it is his duty to specifically point it out. The Director may also have to face criminal prosecution for untrue statement in the prospectus. He may be imprisoned for two years and fined Rs.5000.
Inducement to invest- The Directors are liable to criminal prosecution for inducing or attempting to induce a person by statement or even forecast which is false or misleading to enter into or to offer to enter into any agreement to buy shares of the company. They shall be punishable with imprisonment for a term which may extend to five years, or with fine which may extend to Rs.10,000, or with both.
Maintenance of proper books of accounts: -
Where directors manage a company then each director shall be responsible (if there is no managing director) that the company should maintain and keep proper books of account. Default or non-compliance will make the Director punishable with imprisonment for a term not exceeding six months or fine of Rs.100 or both. In the event of winding up, failing to keep proper accounts will make him punishable with one-year imprisonment and for falsification of book imprisonment for eight years.
Liability for Unauthorized Contracts- The directors of the company are authorized to enter into the contracts on behalf of the company subject to the articles of the company. The contract will be binding on the company. But share holder can impose some restrictions upon the powers of the directors to make contracts. But the directors may be held personally liable for any loss caused to the company as a result of the unauthorized transaction. The directors' actions can be ratified by a separate, special resolution of the shareholders, which will relieve the directors from liability.
Reduction of members’ below the minimum: If at any time the number of a company reduced, in case of a public company or, in the case of a privatr company, below two and the company carries on the business for more than six months while the number is so reduced, every person who is a member of the company and knows of the fact shall be severally liable for all the debts of the company contracting during that time.
Personal Liability of Directors:
A director may incur personal liability towards the company if:
- He acquires non-cash assets of the company or the company acquires such assets from him without also obtaining the approval of the shareholders. The contract may be set aside, and the company may recover any of its loss, or his gain, from the director;
- The company makes a payment by way of compensation to a director for loss of office without details of it being disclosed to and approved by the shareholders. The payment is unlawful, and as such can be recovered from the director;
- A payment is made to him (by the company or some third party) on the transfer of the whole or any part of its undertaking by way of compensation for loss of office or in consideration of his retirement, again without shareholder approval. The payment is held on trust for the company and as such can be recovered from him.
The directors of a company incur a personal liability in the following circumstances:
- Where they contract in their own names;
- Where they use the company's name incorrectly, e.g., by omitting the word 'Limited';
- Where the contract is signed in such a way that it is not clear whether it is the principal (the company) or the agent who is signing, and
- Where they exceed their authority, e.g., where they borrow in excess of the limits imposed upon them
LIABILITY TO SHAREHOLDERS
While a director owes fiduciary duties to the company, he owes no such duty to the shareholders. He does, however, owe to the shareholders - collectively, not individually. They could be liable for improper use of corporate assets that exist for the benefit of all shareholders or for favoring one group of shareholders over another in a takeover battle.
Liability for Infringement of Personal Rights If the directors override the rights which the company's Articles confer upon the shareholders, by causing the company to act in a manner inconsistent with those rights, they will incur a liability, in damages, to the shareholders for procuring a breach of contract.
Statutory Liabilities A director may incur liability for losses suffered by shareholders resulting from non-compliance with legislation. For example for breach of statutory pre-emption rights, misrepresentation in the prospectus or for any dishonest disclosure to the shareholders
LIABILITY TO CREDITORS AND OUTSIDERS:
Liability on Contracts: Where the directors enter into a contract on behalf of the company, in the unlikely event of the company itself not being bound by that contract, the director may incur liability to the other party.
Potential Liability of Directors for the Breach of Fiduciary Duty to Creditors: Officers and directors of an insolvent company owe fiduciary duties to creditors, and are under a heightened duty to maximize value in connection with the inevitable break up of the company. After determination of the insolvency of the company, officers and directors are charged with a fiduciary responsibility of protecting the interests of creditors based on an "informed business judgment" standard of care.
The Liability of Directors on Corporate Insolvency
When a company goes into insolvent liquidation a director of the company may be exposed to a risk of personal liability. The liquidator of the company has the right to investigate the affairs of the company, including the actions of the directors. If there has been any breach of statutory duty or there have been unlawful payments such as loans or compensation, the liquidator will claim against the director. Specifically, there are a number of provisions in the Insolvency Act 1986 which provide for the potential liability of directors, both in the period leading up to liquidation and during the liquidation itself. These include the following matters.
(a) Fraud, etc in anticipation of winding-up. It is a criminal offence to conceal or destroy the company's property, books, records and the like within 12 months before insolvent liquidation (or up to 5 years if done with intent to defraud the creditors). The court may also order repayment, restitution or the payment of compensation by the directors;
(b) Concealment from, and failure to co-operate with, the liquidator. It is a criminal offence not to hand over property, books, etc to the liquidator, or deliberately to make a false Statement of Affairs;
(c) Fraudulent trading. If a liquidator proves that a company carried on its business with the intent to defraud creditors, the court may order the directors responsible to contribute to the assets of the company. This is also a criminal offence.
LIABILITY FOR THE ACTS OF OTHER DIRECTORS:
Generally IN the absence of negligence, a director is not liable for the breach of duty by other directors of which he was ignorant. However, where a director is under a duty of care, imposed by his contract or by the general law, to supervise the activities of another director and he fails to do so, or where he knowingly participates to some degree in or sanctions conduct which constitutes a breach of duty, he will be just as liable for those wrongful acts as the other director.
RELIEF TO THE DIRECTORS FROM LIABILITY:
There are a number of ways in which a director may be relieved from liability which would otherwise be incurred for breach of duty.
- Some breaches may be remedied through the director's conduct being disclosed to a general meeting and being ratified by the shareholders passing an Ordinary Resolution except the following:
- Any breach involving a failure of honesty on the director's part;
- Any breach of duty which results in the company performing an act which it cannot lawfully do e.g by reason of some prohibition imposed by statute or the general law
- Any breach of duty which results in the company performing an act not in adherence with the company's articles;
- A breach of duty bearing directly upon the personal rights of the individual shareholders;
- A breach of duty involving "fraud on the minority"
- If shareholders of the company unanimously approve the relieve of the directors of the company from their liability for any breach of duty the directors can be relieved from such duty.
- Any contract between the directors and the company, or any similar provision in the Articles which attempts to exempt the directors from liability for negligence, default or breach of trust towards the company is void. However, directors may exclude their liability to third parties by means of an express contractual provision or a disclaimer.
- The court has power to relieve a director from some civil or criminal liabilities for negligence, default or breach of trust if it is satisfied that the director has acted honestly and reasonably and in all the circumstances he ought fairly to be excused.
PROTECTION TO THE DIRECTORS FROM LIABILITY:
The following protections available to the directors of the company:
- The company can, in the following circumstances, indemnify a director in respect of his legal costs. This indemnity may be ex gratia, or it may be contained in the director's service contract or in the Articles The power to indemnify is limited to the two cases namely costs incurred by the director in successfully applying for judicial relief re non-payment for shares by a nominee of the company and costs incurred by the director in successfully applying for judicial relief.
- For an independent director, the best way out before landing in a legal mess, of course, is to be a whistle-blower. To point out the minutest of irregularities and make sure they are recorded in the minutes of the meetings.
- A director can obtain insurance to cover certain of his personal liabilities, including the costs of litigation in which he becomes involved in or arising out of his office. A company is permitted to pay the director's premiums on this type of policy.
- The directors have been protected by the business judgment that is applied for the mistakes in the mistakes in judgment by the directors. As long as the director or officers has acted according to the duties of loyalty, obedience and diligence, then the director or officer may be protected by the Business Judgment Rule.
Wednesday, May 25, 2011
Provisions of Minutes of General Meeting Under Companies Act, 1956
Provisions of Minutes of General Meeting Under Companies Act, 1956
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 India India
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
(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
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
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
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
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
