Latest revision as of 21:36, 20 June 2022

The Companies Act, 2013

The Companies Act, 2013

[edit] Resolutions requiring special notice

115. Where, by any provision contained in this Act or in the articles of a company, special notice is required of any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than one per cent. of total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has been paid-up and the company shall give its members notice of the resolution in such manner as may be prescribed.

[edit] Section 115: a director's (or chairman’s) removal

The Times of India|frame|500px]]

Tatas Will Need To Mobilise Shareholders With Substantial Holdings To Oust Mistry From Boards Of Listed Group Cos

The decision by the board of a company, say, Tata Sons to oust a chairman or director, say Cyrus Mistry, raises questions over the latter continuing on boards of group companies. Those boards where Mistry is chairman could re-designate him as non-executive director by voting on resolutions which will require a simple majority to go through. But if listed companies seek to remove Mistry entirely from the board, the process can be extremely onerous.

Section 115 of the Companies Act, 2013, says only shareholders holding not less than 1% of total voting power or holding shares of at least Rs 5 lakh can send a special notice to the company for a director's removal. A group of shareholders can join hands for this purpose, but the notice has to be signed by all these shareholders who get together.

Here's the fine print on what it will take for a company, say the Tatas of Bombay House, to evict Cyrus Mistry from group companies:

Replacement Of Chairperson

Who can replace? The board of directors (BOD) have the right to replace a board mem ber from the position of the chairperson (the technical term used is replace and not remove, as another person is appointed in lieu of the replaced member as the chairperson). According to legal experts, the Companies Act, 2013, doesn't provide for any specific process for removal of a chairperson. “A chairperson is the first among equals, however, he can be replaced by a simple majority of the board of directors, present and voting,“ explains Shriram Subramanian, founder and MD, InGovern Research Services. What is the process? A meeting of the BOD is required to be called under section 173(3) by giving a seven days notice in writing to every director at his registered address. A leeway is also available for a shorter notice period. “Such a meeting can be called by gi ving a shorter notice, the only requirement is that at least one independent director sho uld be present at this proposed board meeting,“ says a legal expert. For instance, Ratan Tata replaced Cyrus Mistry , as chairperson of Tata Sons.

Removal Of A Director Of A Company

Who can remove? Only the shareholders have the right to vote on a resolution for remo val of a director before the ex piry of his term. They can eit her initiate the process of re moval themselves or can vote on a resolution proposed by the board of directors. The re moval is done by an ordinary resolution passed by a simple majority of the shareholders who are present and voting.

Section 169 (1) merely requires that the director who is sought to be removed shall be given a reasonable opportunity of being heard. A special notice is required of any resolution to remove a director.

Process initiated by shareholders: It is not just any shareholder, who can give a special notice, but only shareholder or shareholders holding a certain minimum shares or value of shares. This makes the process slightly more complex.

Section 115 prescribes that only shareholders holding not less than 1% of the total voting power or holding shares of at least Rs 5 lakh (paid up share capital as on the date of the notice) can send a special notice to the company for removal of the director.

A group of shareholders can join hands for this purpose, but the special notice has to be signed by all these shareholders who have got together.

The Life Insurance Corporation is the largest institutional investor in Tata group companies. The insurer has 13.6% stake in Tata Steel, 13.12% in Tata Power and 9.81% in Tata Global Beverages. LIC insiders say that it is almost impossible to remove a director in the normal course.

[edit] Schedule IV

[edit] Code of Conduct for independent directors

directors must safeguard minority shareholders' interest, resolve conflict, Nov 07 2016 : The Times of India

After the ouster of Cyrus Mistry as chairman of Tata Sons, the spotlight has shifted to Tata Group companies where Mistry continues to head the board.

Last week, all six independent directors of Indian Hotels Company (the Taj Group) backed Mistry's leadership.

With at least one-third of directors required to be independent, the focus is on their role and responsibilities, which have been spelt out in the Code of Conduct for independent directors, contained in Schedule IV of the Companies Act, 2013.

“Safeguarding the interest of all stakeholders, particularly the minority shareholders; and balancing the conflicting interest of stakeholders are two key responsibilities,“ says an independent director of a Tata Group company .

According to Shankar Jaganathan, CEO at CimplyFive Corporate Secretarial Services, “This code explicitly requires independent directors to place paramount interest of the company as a whole while taking their decision. A trust test of this criterion is how their decision enhances the sustainability of the company ­ such as enhancing its profitability, irrespective of its impact on any section or group of shareholders.“

Until the introduction of the Companies Act, 2013 (Act), it was only Sebi's listing agreement which called for compul sory appointment of independent directors.However, their role and responsibilities were not clearly defined. Now under section 149 of the Companies Act, everything ranging from their appointment to their qualifying criteria is set out. In addition, a sche dule to the Act also prescribes a code of conduct for them. Here's a lowdown on independent directors...

[edit] Is appointment of independent directors mandatory?

The Companies Act mandates listed firms to have at least one-third of the total number of directors as independent directors.

[edit] Who can be an independent director?

Many companies have seen relatives of promoters step in to fill the mandatory role of a woman director. The Act, however, is stringent when it comes to appointment of independent directors. An independent director cannot be a promoter of the company , or even be related to any promoter or director of the company or its group companies (referred to as holding, subsidiaries or as sociate companies). In addition, he or she is required to be a person of integrity and have relevant expertise and experience. Across In dia Inc or, for instance, Tata Group compani es, independent direc tors comprise experts from different fields Vijay Kelkar, econo mist and former bureaucrat (at TCS); Nawshir Mirza, chartered accountant (at Tata Power); banking and financial expert Deepak Parekh (at Indian Hotels); and industrialists such as Nusli Wadia (at Tata Steel, Tata Motors and Tata Chemicals).

Independent directors also cannot have any pecuniary relationship with the company or group companies during the two immediately preceding financial years prior to their appointment or the current year.However, the ministry of corporate affairs clarified on June 9, 2014 that the concept of pecuniary relationship does not in clude transactions between a company and an independent director that are carried out in the ordinary course of the business and are at an arm's length. Monetary restrictions have also been placed on the pecuniary relationship which relatives of an independent director can have with the company or its group.

[edit] Who appoints an independent director?

Typically , the nominations committee of the board of directors identifies an individual who can be approached for appointment as an independent director. Companies can also select independent directors from candidates who have enrolled themselves with recognised data banks.

Such a director's appointment has to be approved by shareholders in the annual general meeting. The company is required to attach to the notice of the meeting an explanatory statement that the person proposed fulfils the conditions required under the Act, including conditions relating to managerial and pecuniary independence.

[edit] The tenure and perks of an independent director

An independent director An independent director holds office for five years. He she is entitled to a sitting fee and a profit-related commission as approved by shareholders. Under the Companies Act, 2013, independent directors are no longer entitled to employee stock options.

[edit] What are the key responsibilities of independent directors?

The code of conduct requires independent directors to meet at least once a year, without the presence of non-independent directors and management. All independent directors are required to make an effort to attend the meeting to review the performance of non-independent directors and the chairperson of the company .

The role, function and duties outlined in the code include being objective in evaluating board members and management; safeguarding the interest of all stakeholders (particularly the minority shareholders); and balancing the conflicting interest of stakeholders. The code also calls upon independent directors to moderate and arbitrate in the interest of the company as a whole in situations of conflict between the management and shareholders' interest.

[edit] Section 25 company

[edit] A backgrounder

Sandeep Singh, June 4, 2022: The Indian Express

So, what is a Section 25 company?

As per the Companies Act, 1956, a Section 25 company — similar to what is defined under Section 8 under Companies Act, 2013 — is a not-for-profit charitable company formed with the sole object of “promoting commerce, art, science, religion, charity, or any other useful object, and intends to apply its profits, if any, or other income in promoting its objects, and to prohibit the payment of any dividend to its members”.

Section 8 of the Companies Act, 2013 includes other objects such as sports, education, research, social welfare and protection of environment among others.

While it could be a public or a private company, a Section 25 company is prohibited from payment of any dividend to its members. Section 25 states that by its constitution the company is required/ intends to apply its profits, if any, or other income in promoting its objects and is prohibited from paying any dividend to its members.”

What are prominent examples of Section 25 or Section 8 companies?

According to details available with the Ministry of Corporate Affairs, a large number of companies have been formed under the Section. Among these are Reliance Foundation, Reliance Research Institute, Azim Premji Foundation, Coca Cola India Foundation, and Amazon Academic Foundation.

Why are companies formed under Section 25 when there is a Trust structure in place?

Experts say that most people looking to form a charitable entity go for forming a company under Section 25, now Section 8, rather than a Trust structure because most foreign donors like to contribute to a company rather than Trust because they are more transparent and provide more disclosures.

Tax experts say that if a company has to be converted into a not for profit company, they can’t be converted into a Trust, however, they can be converted into a Section 25/ Section 8 company.