Removal of Director by Shareholders in Listed Company

Removal of Director by Shareholders in Listed Company

I wrote this post when one of my client asked me that we have a Director who is always in disagreement with the majority of Board and we would like to know ways to remove him from the Board and then, I thought this post would be helpful for those companies who passes through similar situation.
Laws governing the removal of Directors;

It is Shareholders who are the real owners of the company and that’s why all important decisions have to be taken by Shareholders and not Directors. In this situation wherein a Director be removed, shareholders have the power to remove him/ her even before his tenure expires except for a situation where any Director been appointed by Tribunal for prevention of Oppression and mismanagement under Sec 242 and Director been appointed under principle of proportional representation under Sec 163 of the Act.

Relevant Provisions of Companies Act 2013;

Section 169: (1) A Company may by Ordinary Resolution remove a Director not being a Director appointed by Tribunal under Sec 242 before the expiry of the period of his office after giving him reasonable opportunity of being heard.

Provided that nothing contained in this sub section shall apply where the company has availed itself the option given to it under Section 163 to appoint not less than two thirds of total number of Directors according to principle of proportional representation

Meaning: It is right of Shareholders to remove a Director in General Meeting through Ordinary Resolution. Only exception is the Director not being appointed by Tribunal under Sec 242.Make sure that the Director is given reasonable opportunity to be heard.

Also, the provision relating to removal shall not apply where the company has availed itself of the option to appoint not less than two – thirds of the total number of directors according to the principle of proportional representation.

  

Section 169: (2) A Special Notice shall be required of any resolution, to remove a Director  under this section, or to appoint somebody in place of a Director so removed, at the meeting at which he is removed.

A special notice shall be required of any resolution, to remove a director, or to appoint somebody in the place of a director so removed.

What is Special Notice?

Section- 115 of Companies Act, 2013 explains Special notice to Company-

·        Who send Special Notice?

·        Please note that only shareholder/s holding not less than 1% of total voting power or holding shares on which an aggregate sum of not less than Rs. 5,00,000 has been paid up as on the date of notice, can send special notice to the Company for removal of director.

·        Who signs the Special Notice?

·        Shareholders

·        Who decide the Date of meeting?

·        The legal right to decide the date of meeting is with the shareholders.

·        What is the minimum gap between notice of meeting and date of meeting?

·        The special notice shall not be sent earlier than three months from the date of meeting but at least 14 clear days before the date of the meeting, at which the resolution is to be moved.

·        What are the points to be kept in mind from company perspective?

·        The Company to intimate the Directors of the Company. On receipt of notice of a resolution to remove a director, the company shall immediately send a copy thereof to the director concerned, and the director, whether or not he is a member of the company, shall be entitled to be heard on the resolution at the meeting.

·        Whether the concerned Director is given ample opportunity of being heard?

·        Yes. The Director is given reasonable opportunity of being heard. The director concerned may make representation in writing to the company and may request its notification to the  members of the company. The Director may request to send his representations along with the notice to the members and to be heard at the meeting. However, the rights may not be available, if on the application either of the Company or of any other person who claims to be aggrieved.

Detailed Process for removal of Director by shareholders

1.	A Special notice for the removal of director be furnished by No. of members (according to requirement of Section- 115 of Companies Act, 2013) to the company at least 14 days before the meeting at which it is to be moved, exclusive of the day on which the notice is served and the day of the meeting. (Section 169)
2.	The company shall, immediately after the receipt of special notice of the intention to move any such resolution, give its members notice of the resolution in the same manner as it gives notice of the meeting.
3.	If it  is not possible for the company to give notice to all the members, publish by advertisement in the newspaper having an appropriate circulation not less than 7 days before the meeting.
4.	The company must give intimation to the concerned director of the intended resolution by sending a copy of the special notice received by it, forthwith on receipt thereof. The director shall have the right to be heard on the resolution at the meeting.
5.	The director, who is sought to be removed, can make a representation in writing against his removal and request the company to notify it to the company’s members [section 169]. If the director requests the company to notify the members of the company his representation against his removal and the representation is of reasonable length and it has been received not too late, the company must (a) Mention in the notice of the resolution to be moved at the annual general meeting, the fact of the representation having been received; and (b) Send a copy of the representation to every member along with the notice of the meeting if the representation has been received before sending the notice of the meeting or separately if the representation has been received after sending the notice of the meeting. If the representation could not be sent to the members because it was received too late or because the company made a default in sending it, the company must read out the representation at the annual general meeting, if the director requires it to do so. In addition, director can make oral representation at the annual general meeting.
6.	Hold and convene a General meeting to discuss besides others the following matters: To pass a [Ordinary resolution] for the removal of director.
7.	In case of listed companies, file a copy of the proceeding of the general meeting in the Stock exchange (s) where the securities of the company are listed.
8.	File [e-form no. DIR 12] with the Registrar of Companies within 30 days of passing the resolution.
9.	Pay the requisite fees, as prescribed by the Companies (Registration Offices and Fees) Rules, 2014.

For more details, contact CS Neha Seth at csnehaseth.cp@gmail.com or call us at 9871903449

Secretarial Audit for bigger companies: A formality or Serious Audit

Secretarial Audit for bigger companies: A formality or Serious Audit

Due to Non Compliance by the specific department or employees, Directors and Managing Directors are being jailed and not even bailed because no proper secretarial Audit is performed in big companies.

While adding Secretarial Audit for bigger companies in the law, government thought to make it mandatory to make sure that 13-15 Lakhs companies operating in India are enough compliant that the stakeholders can trust their compliance function.

Monitoring these companies is very important. Law is just because to protect the interests of stakeholders. If companies do not follow law, the interests of stakeholders are infringed

So, there are below mentioned companies which required Secretarial Audit to be done independently;

-          (1)   Every listed company

-          (2)   Every public company having a paid-up share capital of Fifty Crore rupees or more; or

-          (3)   Every public company having a turnover of Two Hundred Fifty Crore rupees or more.

-          Secretarial Audit is also mandatory to a private company which is a subsidiary of a public company, and which falls under the prescribed class of companies

Pls note that if during the year company reduces the capital then also Secretarial Audit is mandatory.

Secretarial Audit of course is benefitting companies and therefore, companies are following practice to opt for Secretarial Audit voluntarily, thereby reducing the risk of closing down the factories, etc. So, basically promoter is more focused on running the business and not compliance as a whole, to him and to the Board, and Independent agency/ firm doing Secretarial Audit is of great help.

It is important to note that when there is a default in a company, then, Executive Directors who are generally Promoters are targeted first for the non Compliance while their employees (If Professionals as Directors), and Non Executive Directors are wedged later.

Now from the angle of Investor, if Secretarial Audit has adverse remarks/ qualifications, then, he may choose to divest his investment and move out.

Even when seen from the view of consumers, if it is well governed company, he gets confidence in the company and accordingly whole society is benefited

Now, the question from the company comes, how to select the Secretarial Auditors from the list of so many Practicing Company Secretaries are concerned. Whether it should be reference or send emails to PCS or the one who has proper knowledge and have set detailed procedures on how to do Secretarial Audit.

There are various factors upon which the Secretarial Auditors are been chosen;

-          Knowledge of Corporate Laws

-          Big Team

-          Manuals/ Checklists and Systems

-          Adherence to timeline

-          A person who is honest and unbiased.

After selecting the appropriate team/ firm, now he is to be appointed by Board formally, all the appointments goes through Audit Committee.

Scope of Laws;

As per the Secretarial Report MR-3 there are some mentioned acts in it which are:

 (i) The Companies Act, 2013 (the Act) and the rules made there under;.

 (ii) The Securities Contracts (Regulation) Act, 1956 (‘SCRA’) and the rules made there under;

 (iii) The Depositories Act, 1996 and the Regulations and Bye-laws Framed there under ;

 (iv) Foreign Exchange Management Act, 1999 and the rules and regulations made thereunder to extent of Foreign Direct Investment, Overseas Direct Investment and External Commercial borrowings 

 (v) The following Regulations and Guidelines prescribed under the Securities and Exchange Board of India Act, 1992 (‘SEBI Act’):- 

(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011;

(b) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992; 

(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009; 

(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999; 

(e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer Agents) Regulations, 1993 regarding the Companies Act and dealing with client; 

(g) The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009; and 

(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;

(vi).............................................................. (Mention the other laws as may be applicable specifically to the company) 

(i) Secretarial Standards issued by The Institute of Company Secretaries of India. 

(ii) The Listing Agreements entered into by the Company with ….. Stock Exchange(s), if applicable; 

According to the point (vi) we also have to compliance all other acts which are applicable to that particular company.

So, it depends upon the type of Company. 

Company Specific laws applicable on Company like Labour Laws, Environmental Laws, Factories Act applicable on company, however, we have prepared certain list of Laws applicable on each Industry.

After checking the Industry specific Laws, we need to look upon Secretarial Standards issued by ICSI.

Further, it is very important to fetch details from previous Annual Report and areas like;

-          Insider Trading

-          Inter Company Transactions

-          Inter related Transactions

-          Loans and advances given to companies

-          Use of IPO funds

-          Donation to Political parties

-          CSR

-          Board processes

-          Managerial Remuneration

Company role/ CS in employment Role

-          To provide the auditors with records/ information

-          Sec 204 provides duties of CS in company

-          And also Secretarial Auditors are required to be invited in AGM

To know more, Contact CS Neha Seth at csnehaseth@gmail.com , neha@steerabidance.com or call us at 9871903449

NCLT meaning and Opportunities for Company Secretaries

NCLT & NCLAT  PROVIDING HUGE OPPORTUNITIES TO COMPANY SECRETARIES

We are glad that NCLT has come due to which plethora of opportunities have been arose for professionals like Company Secretaries.

·       PCS (Practicing Company Secretary) can now appear before the tribunals and handle the cases on their own for their clients rather outsourcing their work to some advocate.

·       PCS (Practicing Company Secretary) can now appear for matters relating to compromise, arrangements, amalgamations and winding up.

·       Since all the powers of BIFR have been transferred to National Company Law Tribunal and all matters before BIFR and AAIFR would also be dealt by NCLT and NCLAT respectively. Accordingly, Company Secretaries could play a role in this area.

·       The new Bankruptcy and Insolvency Code also gave the NCLT the role of adjudicating bankruptcy cases for companies. Accordingly, Company Secretaries in practice could play a role in this area.

·       Also, a company secretary in practice can be appointed as a Technical Member of National Company Law Tribunal subject to working experience of fifteen years (15 Yrs) as Company Secretary in Practice.

Areas for practice after NCLT;

-        Matters related to Arbitration, Compromise, Arrangements and Reconstruction

-        Winding up

o  On the ground of inability to pay debts

o  Or other than grounds of inability to pay debts

o  Voluntary Winding up

Meaning of NCLT AND NCLAT?

Ø The National Company Law Tribunal (NCLT) is a quasi-judicial body  in India that adjudicates issues relating to companies in India.

Ø The NCLT was established under the Companies Act, 2013 and was constituted on 1 June 2016.

Ø The NCLT has eleven benches, two at New Delhi (one being the principal bench) and one each at Ahmedabad, Allahabad, Bengaluru, Chandigarh, Chennai, Guwahati, Hyderabad, Kolkata and Mumbai. 

Ø Appeal against the orders of the Tribunal shall be heard by the Appellate Tribunal (NCLAT) at New Delhi.

Ø With the establishment of the NCLT and NCLAT, the Company Law Board under the Companies Act, 1956 will stand dissolved.

 Rules related to NCLT

http://nclt.gov.in/orders/Rules_NCLT_latest.pdf

NCLT Website

http://www.nclt.gov.in

http://www.nclat.gov.in

CONSTITUTION OF THE TRIBUNAL

The National Company Law Tribunal consists of a President and such number of judicial and Technical Members as the Central Government may deem necessary. The President of the Tribunal is a person who is or has been a Judge of the High Court for five (5) years.

LEGAL JURISDICTION

Ø On June 01, 2016, the Ministry of Corporate Affairs (MCA) published a notification regarding the constitution of the National Company Law Tribunal (NCLT) & National Company Law Appellate Tribunal (NCLAT) with effect from the June 01, 2016.

Ø The constitution of the aforesaid Tribunals is in exercise of the powers conferred by Sections 408 and 410 respectively of the new Companies Act, 2013.

Ø The Companies (Second Amendment) Act, 2002 provides for the setting up of a National Company Law Tribunal and Appellate Tribunal to replace the existing Company Law Board (CLB) and Board for Industrial and Financial Reconstruction (BIFR).

Ø The setting up of the NCLT and NCLAT are part of the efforts to move to a regime of faster resolution of corporate disputes, thus improving the ease of doing business in India.

Ø NCLT and NCLAT will also pave the way for the faster implementation of the bankruptcy code.

Ø Their setting up is expected to reduce the burden on courts.

Ø The establishment of the National Company Law Tribunal (NCLT) consolidates the corporate jurisdiction of the following authorities:

1. Company Law Board

2. Board for Industrial and Financial Reconstruction.

3. The Appellate Authority for Industrial and Financial Reconstruction

4. Jurisdiction and powers relating to winding up restructuring and other such provisions, vested in the High Courts.

ADVANTAGES OF NCLT & NCLAT

The constitution of NCLT and NCLAT was a step towards to improving the ease of doing business by bringing all aspects of Company Law matters under one roof. Some of the most important advantages are as under:-

·       Single window: The most important benefit that the tribunal will act as a single window for settlement of all Company law related disputes effectively. It shall avoid unnecessary multiplicity of proceedings before various authorities or courts.

·       Speedy Process: The NCLT and the NCLAT are under a mandate to dispose of cases before them as expeditiously as possible. In this context, a time limit of three (3) months has been provided to dispose of cases, with an extension of ninety (90) days for sufficient reasons to be recorded by the president or the Chairperson, as the case may be.

·       Reduction of work of High Court: The number of pending cases with High Court is too high and now the matters in respect to compromise, arrangement, amalgamations and winding up transferred to NCLT.

·       The speedy disposal of cases will save time, energy and money of the parties.

For more details, contact CS Neha Seth at 9871903449 or email us at csnehaseth@gmail.com

MERGER OR AMALGAMATION OF INDIAN COMPANY WITH FOREIGN COMPANY

MERGER OR AMALGAMATION OF INDIAN COMPANY WITH FOREIGN COMPANY

Section 234 of Companies Act 2013

As per MCA Notification No. 1/37/2013 and in exercise of the powers conferred by sub section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 13^th day of April, 2017 as the date on which the provisions of section 234 of the Companies Act, 2013 shall come into force. The link to download the notification is mentioned below;

http://www.mca.gov.in/Ministry/pdf/section234Notification_14042017.pdf

Section 234 of the Companies Act, 2013 talks about the Merger and Amalgamation of Indian Company with the Foreign Company.

INDIAN COMPANY means a company as defined under section 2(20) of the Companies Act, 2013.

As per Section 2(20) of the Companies Act, 2013

“Company” means a company incorporated under this act or under any previous company law.

FOREIGN COMPANY means a company or a body corporate as defined under section 2(42) of the Act, incorporated outside India in jurisdictions as may be notified by the Central Government from time to time for the purpose of section 234 of the Companies Act, 2013.

As per Section 2(42) of the Companies Act, 2013

“Foreign company” means any company or body corporate incorporated outside India which-

(a)    Has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b)   Conducts any business activity in India in any other manner.

This particular Section seeks to provide the mode of merger or amalgamation between the companies registered in India as per the Companies Act, 2013 and the foreign Companies that are registered as per their own country’s legislation.

The Central Government, may in consultation with the Reserve Bank of India make rules for the purpose of merger or amalgamation provided under this clause.

1)      A Foreign company, may with the prior approval of Reserve Bank of India, merge into a company registered under the Companies Act, 2013 or an Indian Company may with the prior approval of RBI merge into a Foreign Company registered outside India.

2)      For this purpose, the payment to be made to the shareholders of merging company would be in the following manner:-

a)      Cash, or

b)      Depository Receipts, or

c)      Partly in Cash, or

d)     Partly in Depository Receipts

3)      The merger or amalgamation of a company into a foreign company, or vice versa, shall comply in all respects with the Foreign Exchange Management Act, 1999 and any applicable regulations there under for which approvals from RBI and Ministry of Finance will be required.
     The Reserve Bank of India has proposed draft guidelines on cross border merger transactions pursuant to the Companies (Compromises, Arrangements and Amalgamation) Amendment Rules, 2017 on 1st May 2017 . The Central Bank has proposed these regulations under the Foreign Exchange Management Act, 1999 in order to address the issues that may arise when an Indian Company and a Foreign Company enter into Scheme of merger, demerger, amalgamation, or rearrangement. These Regulations stipulate conditions that should be adhered to by the Companies involved in the Scheme. The Regulations shall be named Foreign Exchange Management (Cross Border Merger) Regulations. The Reserve Bank of India has invited comments/ suggestions on said guidelines. The comments/ suggestions may be sent latest by 9^th May, 2017.

For more details, contact CS Neha Seth at 9871903449 or email us at csnehaseth@gmail.com or csnehaseth.cp@gmail.com

Conversion of One Person Company into Private Limited Company

There are two types of conversion of OPC into Private Limited; one; Compulsory, Second; Voluntary

A. Compulsory

OPC shall be required to convert itself into either into public or private limited company within 6 months from the later date of following;

- The date of increase in paid up share capital beyond INR 50 Lakhs

and

- the last day of the relevant period during which its average annual turnover exceeds INR 2 Crores.

OPC shall within period of 60 days from the date of applicability of Rule 6(1) give notice in INC 5 to ROC informing that it has ceased to be OPC and that it is now required to convert itself into Private limited company. 

How to calculate 60 days?

The period of 60 days would be calculated from the last date of the relevant period, during which its average annual turnover exceeded INR 2 Crores. Relevant period means the period of immediately preceding three consecutive financial years.

Application for conversion(in case of compulsory) to be filed with ROC in INC 6 within 6 months from the date of applicability.

B. Voluntary

One Person Company can convert itself voluntarily only after two (2) years have expired from the date of incorporation.

As per Rule 6(6) of Companies Incorporation Rules 2014, in case of conversion, the minimum number of directors to be 2(two) in case conversion into Private Limited Company

Minimum 3(Three) Directors if conversion into public limited company

The minimum number of members to be 2(two) in case conversion into Private Limited Company

Minimum 7(Seven) Members if conversion into public limited company

The Resolution for alteration of its MOA AOA shall be communicated by member to its company as per Rule 6(3) of Companies Incorporation Rules 2014. 

Application for conversion(in case of voluntary) to be filed with ROC in INC 6 within 30 days from the date of passing resolution.

Brief Procedure:

1. Draft altered AOA MOA
2. Notice of Board meeting

3. Convene Board Meeting to discuss;

a. Appointment of Additional directors 

b. Allotment of Shares or transfer of shares to the prospective members

4. Passing of Resolution

The Resolution for alteration of its MOA AOA shall be communicated by member to its company as per Rule 6(3) of Companies Incorporation Rules 2014.

5. CA certificate

In case of Compulsory conversion, there is a requirement to obtain CA Certificate if the company exceeds average Annual Turnover 

6. Filing of Application in Form INC 6 with ROC within 30 days of Special resolution

7. Filing of eForm MGT 14 within 30 days of passing of the said resolution

8. Printing of Altered MOA AOA

For more details, Contact CS Neha Seth at csnehaseth@gmail.com or call us at 9871903449