Friday, 10 April 2015

Company act 2013 Directors and meeting Bird eye view

Dear Students,
Examination 2015 are few weeks from now. I am
giving below the summary of the topic “BOARD
Sections 149 to 204 of the new Act deal with
Board of Directors in all its parameters. This
topic “Board of Directors” in the examination
paper may fetch 30 to 35 per cent of marks As
we know Companies Act 2013 is rules driven act.
On Board of Directors , rules framed are
(i) Companies (Appointment and Qualification of
Directors) Rules containing 18 rules
(ii) Companies (Meetings of Board and its
powers) Rules containing 17 rules
(iii) Companies (Appointment and Remuneration
of Managerial Personnel) Rules containing 10
Below is the summary of the topic “BOARD OF
summary is in 28 parts connected with Board of
Directors ((Relevant sections and rules are also
indicated )
(1) : Company to have Board of Directors
(Sections 149, 150)
(A) Minimum & Maximum no. of directors and
Resident Director
Woman Director.
Independent Director (ID)
• Who cannot be ID ?
• Qualifications for being ID
• Remuneration & Terms of ID
• Obligations / Liabilities
Schedule IV – Code for Independent Director
(B) Maintenance of Data Bank & Its object to
select the independent directors from this Data
Bank Companies ( Appointment of Directors )
Rule 3 - class of companies for woman director
Rule 4 - Class of companies for Independent
Rule 5 – Necessary qualifications for I.D.
Rule 6 - Maintenance of Data Bank .
(2) Appointment of Directors (Section 152)
(1) First Directors – how are they appointed ?
(2) Appointment of Directors in public co. &
proportion of directors retiring by rotation.
(3) Procedure for the retirement
(4) Appointment of Directors in Private Company
(3) For Appointment of Directors , they be voted
individually (Section 162)
• Two or more than 2 directors not to be
appointed by a single resolution
Appointment of directors to be voted individually
( Section 162)
(4) Defects in Appointment of Director will not
invalidate actions taken ( Section 176)
Act done by a person as a director shall not be
(a) if subsequently it was noticed that his
appointment was invalid by reason of defect or
disqualification Acts done by a director shall not
be valid
If they are done after his appointment has been
noticed by the company to be invalid or to have
been terminated.
(5) Appointment of Director elected by Small
Shareholders (Section 151)
Section 151 and rule 7 of Companies
(Appointment & Qualification of Directors) Rules
enable the small shareholders to have their
representation in the Board of Directors
Section 151 of Companies Act, 2013 Rule 7 of
Companies(appointment & qualification of
directors ) Rules 2014
(6) Meetings of Board of Directors (Sections
173, 174 and 175)
1. Number of Board Meetings.
2. Notice for Board Meeting.
3. Participation of Directors
4. Quorum for Board Meeting
5. Adjournment of Board Meeting
6. Resolution by Circulation
3. and 4 and 5 of (Meetings of Board and
Powers ) Rules 2014
68, 70, 67 of Table F
(7) Additional Director, Director in Casual
Vacancy, Alternate Director, Nominee Director,
Director of proportional Representation
( Sections 161, 163)
(i) Appointment of Additional director/s
(ii) To fill in the casual vacancy.
(iii) Appointment of Alternate Director
(iv) Appointment of directors by proportional
(v) Nominee director.
( 8) Number of Directorship (Section 165
1. Person cannot be director in more than 20
2. Number of public companies not to exceed 10
( 9 ) How a person other than retiring director
may stand for Directorship ? (Section 160)
• Person other than director retiring by rotation
eligible for appointment
• Procedure for the appointment Companies
(Appointment of Directors) Rules 2014
• Rule 13 prescribes procedure for informing
(10 ) How the director to file the consent to act
as director ( Section 152 (5)
• Person appointed as director has to give the
consent. Rule 8 Companies
(Appointment of Director) Rules, 2014
To furnish consent in writing in FORM DIR-1
(11 ) Disqualification for Directorship
• Grounds of Disqualifications applicable to all
• Additional Grounds of Disqualifications
• Articles of Private Company may provide
additional grounds of disqualifications
( 12 ) Vacation of the office of Director (Section
.1. Grounds of Vacation of the office.
2. Director is punishable when he functions as a
director despite his knowledge that he has
3.. Position when all directors vacate their
4.Additional Grounds of vacation can be provided
by Private Company
( 13 ) Removal of Director by Shareholders and
its procedure (Section 169)
1.Removal of directors by shareholders.
2.Procedure for the removal.
3.To fill in the vacancy.
4. Section does not affect.
( 14 ) Resignation by the Director and Managing
Director (Section 168)
1. Right of director to resign
2. Obligation of Board of Directors
3. Obligation & Liability of director 4. Date from
which resignation to take effect.
5. Consequences when all directors resign.
(15 ) Compensation for Loss of Office ( Section
A)Compensation payable
(B)Compensation not payable.
(C)Compensation payable but not be paid in
specified cases.
D) Compensation not payable when winding up
commences and amount insufficient.
(E) Amount of remuneration not prohibited.
(F)Amount of compensation.
(16) Duties of Director ( Section 166)
A director of a company shall act in accordance
with the articles of the company . Articles means
the articles of association of a company as
originally framed or as altered from time to
time. Articles of a company contain the
regulations for the management of the company.
A director of a company
(a) shall act in good faith to promote the objects
of the company
(b) will act for the benefits of its members as a
(c) Will act in the interest of the company, its
employees, the shareholders, the community
(d) Will take efforts for the protection of
( 17 ) Appointment and Remuneration of
Managerial Personnel ( Sections 196, 197, 198,
199, 200, 203)
• Section 196 deals with the appointment and
disqualifications of managing director, whole
time director or manager.
• Section 197 refers to the overall managerial
remuneration payable and remuneration payable
individually. Section also deals with the mode of
• Section 198 provides for the calculation of
• Section 199 specifies the circumstances when
remuneration paid can be recovered.
• Section 200 deals with considerations the
Central govt. will take into account while fixing
the limit.
• Section 203 refers to class of companies
where the key managerial personnel should be
Companies (Appointment & Remuneration of
Managerial Personnel ) Rules, 2014
• Rules 3, 4,5, 6,7, 8
( 18) Related Party Transactions (Section 188)
1.Contract with related party requires Board’s
2 Who is related party ?
3 .When prior special resolution is needed ?
4.Non applicability of the section when the
contract is made in ordinary course of business
Appointment of related party to place of profit.
Requires Board’s consent and in specified cases
the special resolution
( 19 ) Disclosure of Interest by Director ( Section
1. Director to disclose his interest in a company
or firm etc.
2. Director to disclose his interest in contract
entered or to be entered
3. Consequence if the disclosure not made
(20) Loans to Directors (Section 185)
• Shall not Advance any loan to any of its
• OR
• to any other person in whom the director is
interested • Shall not give any guarantee or
provide any security for loan taken by director
or taken by such other person in whom the
director is interested.
( 21 ) Powers of Board of Director (Sections
179, 180 & 181)
All powers with the board except
.Section 179 (1) deals with general powers.
Board of Directors under this section will
exercise all powers except the powers reserved
for general meeting. Powers by directors in their
For matters listed in section 179 (3) of
Companies Act 2013 directors must sit in board
meeting. Company is entitled to their collective
Powers by Board with consent of general
For matters listed in sections 180, 181, Board
to exercise with consent of general meeting.
( 22 ) Contribution fo Political Party (Section
(1) Who can or who cannot contribute?
(2) Limits of contribution
(3) Expenses by co. on advertisement.
(4) Procedural safeguards.
(5) Penalties.
-- Contribution to National Defence Fund under
section 183 of the new act.
( 23 ) Loan and Investment by company
Loans and Investment by Company in other body
corporate ( Section 186 (2)
• How and when can the company give any loan
to any person or other body corporate ?
• How and when can the company give guarantee
or provide security in connection with loan to
any body corporate or person ?
• How can the company acquire by way of
subscription or purchase the securities of any
other body corporate. ?
• These questions are being dealt and answered
in this chapter.
Consent of all directors present in Board
meeting & special resolution
(a)Up to 60 per cent of paid up capital and free
reserve and securities premium or 100 per cent
of free reserve and securities premium
whichever is higher - Board’s consent is needed
(b) Limit is exceeded , board’s consent and
special resolution needed.
(c)Section does not apply in certain cases.
Companies (Meetings & Powers of Board of
Directors Rules, 2014
1.Rule 11 Loan to wholly owned subsidiary and
limit exceeds . Special resolution is not needed.
2.Rule 12 refers to maintenance of register.
( 24 ) Constitution of Committees (Sections
177 , 178)
Under Section 177:
1. Audit Committee
2. Vigil Mechanism
Will be constituted. Under Section 178
1. Nomination & Remuneration Committee
2. Stakeholders Relationship Committee
Shall be constituted.
( 25 ) Director Identification Number (DIN)
(Sections 153, to 159)
1.Application for allotment of DIN
2.Allotment of DIN
3.Director to inform to company of DIN
4Company to inform the Registrar
5.Obligations Companies ( Appointment of
Directors ) Rules, 2014
Rule 9 – Application for allotment
Rule 10-Allotment of DIN
Rule 11- cancellation of DIN
( 26 ) Maintenance of Registers of Directors, Key
Managerial Personnel and Register of Contracts
( Sections 170, 171, 189, 190)
1.Register of Key Managerial Personnel.
2.register of contracts in which directors
3.Register of contracts of employment of MD
etc. Companies (Appointment of Directors )Rules
Rule 17 –
Rule 18
( 27 ) Restrictions on Non cash transaction
( Section 192),
Contracts by one person company ( Section 193)
etc. etc.
(a) Restriction in non-cash transactions. (Section
192 of the new companies act)
- No co. shall enter into arrangement without
prior approval of company in general meeting.
- Notice
(b) Contract by one person company (section
(c) Prohibition on forward dealing in securities of
company by director or key managerial person
section 194 of the new act.
(d) Prohibition of Insider Trading. Section 195 of
the new act.
- Insider Trading meaning
- Price sensitive information
(28 ) Secretarial Audit for Bigger Companies &
Functions of Company Secretary
1.Secretariat Audit Report be annexed
2.Functions of Company Secretary
Companies (Appointment and Remuneration )
Rules, 2014
1.Rule No. 9 what are the companies where
Secretarial Audit Repot shall be annexed To
annex Secretariat Audit report in specified
2.Rules No. 10 – Duties of Company Secretary.