REMOVAL OF DIRECTOR UNDER SECTION 283 (1) (G) –PRECAUTIONS TO BE TAKEN:

REMOVAL OF DIRECTOR UNDER SECTION 283 (1) (G) –PRECAUTIONS TO BE TAKEN:

A director can be said to be ceased to be a director under Section 283 (1)(g) of the Companies Act, 1956 for not attending the three consecutive Board Meetings without obtaining leave of absence.

However, this section should not be abused to take revenge on a director by removing him without his consent. This section will be helpful where the director is not traceable, or in a jail or against whom a criminal proceedings is taken or could not be reached for long time.

One should take note the following precautions before removal of a director under this section:

1.Certified copies of minutes can be attached to the Form 32. However in order to avoid future disputes in this matter it is better to have the evidence of dispatch of notice for the meetings to the said Director, confirming due procedure followed as per the Act and as per the AOA.

2. Optionally, one can also attach Board Resolution in this regard and attendance sheet of these meetings and/or minutes sheet copies of these meetings.

You can also refer the decision made by D.S.Dhillion Vs.M/s Honeyrex Products Pvt. Ltd -CP No.60/2000 wherein CLB has asked to apply to a civil court for redressal of grievances by the affected director under the above section.

Generally, a director on the company’s board could be removed by shareholders at an annual or extraordinary general meeting.

If a board meeting notice is served on the other member, he is bound to attend the board meeting. If he fails to attend the meeting, then he may lose the directorship for not attending three consecutive board meetings without leave of absence. Under section 283(1)(g) the office of a Director shall vacate if he absents himself from three consecutive meetings of the Board of Directors or from all meetings of the Board for a continuous period of three months, whichever is longer, without obtaining leave of absence from the Board; 

When a director holds 99% of the share , he is the powerful director and he can remove the 1% holding non-consenting director for smooth running of the business.

However, much care and diligence have to be shown if one uses the proviso of this section. Otherwise, it will end in unnecessary legal battle between the parties.

PROOF FOR SERVICE OF NOTICE IS THE MAIN CRITERIA

Marble City Hospital and Research Center P Ltd v SARABJEET Singh Mokha [2010] 155 CAS 13 (MP) decided on 17-7-2009.

In this case , Madya Pradesh High Court held that services of notices by post and in person not established. Minutes of the meeting in statutory form not produced. Company failed to discharge its onus regarding of services notice. CLB refused to accept the certificate of posting as proof of service of notice on the footing that collateral evidences like dispatch register, register showing payment of postage stamps, accounts books etc were not produced. Hence, CLB held that removal of director under section 284 (1) (g) was not valid. CLB decision was appealed in the High Court by the appellant. High Court held that mere filing of postal certificates would not corroborate service of notice. There should be adequate proof for posting of letter, affixation of stamps etc. High Court also cited the Madhusoodhanam M.S v  Kerala Kamudi P Ltd [2003] where it was held that presumption could be drawn to hold that postal certificate were the proof for dispatching the notices to the respondent. Evidence should be legal, cogent and admissible one. Further, the affidavit filed by the employee of the company to demonstrate personal services of notices lacked specific particulars and details. Even in cases where the respondent was involved in some criminal cases or was absconding or on the grounds that he was not available to civil society, proper service of notice to the respondent should be made by the company.

Hence, If you want to remove a director under section 284 (1) (g), you have to take all precautionary measures as enumerated in the above case.

Can Single Director present in India sign the B/S on behalf of the company?

Query : A company has two director and one director being in India and other in foreign nation. Can a Single Director sign the B/S and P& L account through a validly convened board meeting ?


Even if a single director in India signs the B/S and P&L account and makes a statement in this regard as per requirement of section 215 (2) .
Save as provided by sub-section (2), every balance sheet and every profit and loss account of a company shall be signed on behalf of the Board of directors-

in the case of banking company, by the persons specified in clause (a) or clause (b), as the case may be, of sub-section (2) of section 29 of the Banking Companies Act, 1949 (10 of 1949);

(ii) manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one.

(2) In the case of a company not being a banking company, when only one of its directors is for the time being in India, the balance sheet and the profit and loss account shall be signed by such director; but in such a case there shall be attached to the balance sheet and the profit and loss account a statement signed by him explaining the reason for non-compliance with the provisions of sub-section .

(3) The balance sheet and the profit and loss account shall be approved by the Board of directors before they are signed on behalf of the Board in accordance with the provisions of this section and before they are submitted to the auditors for their report thereon.

From the above mentioned provisions it is clear that one director in India can sign the B/S and P/L Account.


However , section 215 (3) requires even before signing B/S and P& L account , the same has to be approved by the Board.

2) stipulates that the quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher : ( minimum and articles may prescribe more) .

With only one director in India , a valid board meeting cannot be convened under section 287(2) of the Companies Act 1956. Hence , it is suggested an alternate director has to be appointed and this will take care of the requirement of section 287(2) of the Companies Act .

A valid board meeting can be convened with the alternate director and B/S and P&L can be ratified in such meeting .Then , B/S and P&L can be signed by a single director as stated in the section 215 or two directors can sign ( including the alternate director) the same.

This could be the possible solution to the issue.

R.V.Seckar

What is the Valid Quorum for an Annual General Meeting ?

What is the Valid Quorum for an Annual General Meeting ?


Quorum refers to the minimum number of members who must be present at a meeting in order to constitute a valid meeting. A meeting without the minimum quorum is invalid and decisions taken at such a meeting are not binding. The articles of a company may provide for a quorum without which a meeting will be construed to be invalid. As per Section 174 of the Companies Act 1956, unless the articles of a company provide for larger quorum, 5 members personally present (not by proxy) in the case of a public company and 2 members personally present (not by proxy) in the case of a private company shall be the quorum for a general meeting of a company.

An authorised agent for many companies present in AGM shall have to be construed as a single member for the purpose of quorum.

Section 175. Chairman of meeting. (1) Unless the articles of the company otherwise provide, the members personally present at the meeting shall elect one of themselves to be the chairman thereof on a show of hands. Even selection of chairman a meeting to be made by members personally present at the meeting .

We have to make a harmonious reading of both the section 174 & Section 175 of the Companies Act 1956, members personally present shall be a valid quorum for a meeting.


Whether Authorised representative of many corporation has to be considered to be present in person for such companies ?

There is no wrong when a single individual being the nominee or authorised agent for three members. But , the issue is , if he alone present in the AGM or EGM , then it will not be a proper quorum. If two members or fives members personally present along with the proxy holder , then it would be a valid quorum.

If that individual is also member of the company and acts as a proxy for other three shareholders , then one additional member or four present in person in case of pvt ltd or public company respectively , shall be a valid quorum for the meeting.

There is no legal bar for an individual to act as a proxy for 100 other members and he can represent them as their proxy in the meeting . However , such individual cannot be construed as 100 members personally present in the meeting for the purpose of quorum.
In Kelantan Coconut Estates Ltd where the verdict was given in 1920 did speak about the authorised representatives of corporate’s should be treated individual members present in the meeting for the purpose of quorum.

This is English case law and we don't know the wordings of English Company Law that prevailed in 1920. Many amendments have come later including the last 2006 Amendment in UK Company Law.

We have to see the UK company law wordings for the interpretation of case law of Kelantan Coconut Estates Ltd.

But our Indian company law provision is so precise that it demands members personally present will be the quorum of a AGM.

In most of the cases, quorum is presumed unless there is a question about it. As a company secretary, as a prudent secretarial practice, it is better to show both in attendance and in minutes at least minimum two members present in person in private limited companies excluding proxies and authorized representatives . This is mainly to avoid unnecessary questioning of quorum if any disputes arise later on the subject.

EXTENSION OF AGM -SECTION166 OR SECTION 210 ?

Question:

How to get extension of AGM? Whether we have to read the section 166 and section 210 of the Companies Act, 1956 harmoniously for getting extension from Registrar?


At times, it is possible due to certain unforeseen reasons; the companies may not be able to hold the annual general meeting. In such circumstances, the Registrar of Companies – for any special reasons – could grant time extension to hold the annual general meeting of the company by a period not exceeding three months.

This provision, however does not apply for the first annual general meeting of the company which is required to be held within a period of not more than eighteen months from the date of its incorporation and if the first general meeting is held within that period, the company is not require to hold any annual general meeting in the year of its incorporation or in the following year

As per section 166 of the Companies Act, 1956, the companies could hold its annual general meeting within fifteen months of the last annual general meeting. So long as the companies hold annual general meeting within the above specified time limit, no approval from any of the regulator is required for holding such meeting.

Sub-section 3 (b) of section 210 specifies that the company is required to hold its annual general meeting within six months from the end of the financial year.

At times, there is a possibility of non-compliance emerging on this subject – while compliance would be in order for section 166 for holding the annual general meeting within nine months (taking into consideration of three month’s extended period of time by ROC) , there could not non-compliance under section 210 – for not holding the annual general meeting within six months from the end of the financial year - due to different timing specified in both these sections for holding annual general meeting.

To remove this difficulty in interpreting, Department of Corporate Affairs) has issued its Circular No. 8/45(166)/64-PR dated 12-1-1965 on this subject which states that both the section 166(1) and Section 210 (4) should be read harmoniously together.

Whether for purposes of section 159 the time within which is it required to be held is governed solely by section 166.

DCA has received a reference from the Regional Director, Madras about the confirmation of the views contained in this Department's Letter No.8/45(166)/64-PR, dated 12.1.1965 [copy reproduced below] which, inter alia, stated that for the purpose of section 159, the time within which the annual general meeting is required to be held is governed solely by section 166 and section 210 is not relevant in such cases. This Department has since carefully considered the matter and do not see any sufficient reason to review the above views which are again reiterated and confirmed.
The following is the solution to the issue:

Draft a letter/ application on the letter head of the company giving the back ground about date of incorporation etc and explain the reasons as to why the company cannot convene the AGM on or before 30th September. Please note that as per the Ministry of Company Affairs Circulars:-

(a) Non Completion of Audits- both Statutory & C & AG audits are not valid reasons.
(b) Non availability of Chairman's for holding the Board meeting to obtain approval for accounts & convening the AGM are also not valid reason.

1. For instance , IFCI Financial Services Ltd got the extension as its amalgamation process was at its final stage. Where merger, acquisition is under process.

2.Preparation of accounts delayed as accounts details were corrupted due to compute virus as held in
Sera Sera Productions Case:
K Sera Sera Productions Ltd has informed BSE that the date of the Annual General Meeting was fixed as September 30, 2010. But due to some unavoidable reasons Company’s server got crashed and the backup of tally got corrupted. The Board of directors of the Company has decided to make an application to Registrar of Companies (ROC) Maharashtra, Mumbai for extension of holding Annual General Meeting. Accordingly the Company has made an application to the vide SRN A92421601 on August 26, 2010 requesting for extension of time for the purpose of holding the Annual General Meeting. The said application was approved by The Registrar of Companies (ROC) Maharashtra, Mumbai on August 30, 2010. The Company has been granted an extension for holding its Annual General Meeting upto December 31, 2010.
Source: BSE
R.V.Seckar

Can Single Director present in India can sign the Balance sheet and P&L through a validly convened Board Meeting ?

Query : A company has two director and one director being in India and other in foreign nation. Can a Single Director sign the B/S and P& L account through a validly convened board meeting ?


Even if a single director in India signs the B/S and P&L account and makes a statement in this regard as per requirement of section 215 (2) .

215. Authentication of balance sheet and profit and loss account

(1) Save as provided by sub-section (2), every balance sheet and every profit and loss account of a company shall be signed on behalf of the Board of directors-

(i) in the case of banking company, by the persons specified in clause (a) or clause (b), as the case may be, of sub-section (2) of section 29 of the Banking Companies Act, 1949 (10 of 1949);

(ii) in the case of any other company, by its ¹[* * *] manager or secretary, if any, and by not less than two directors of the company one of whom shall be a managing director where there is one.

(2) In the case of a company not being a banking company, when only one of its directors is for the time being in India, the balance sheet and the profit and loss account shall be signed by such director; but in such a case there shall be attached to the balance sheet and the profit and loss account a statement signed by him explaining the reason for non-compliance with the provisions of sub-section .

(3) The balance sheet and the profit and loss account shall be approved by the Board of directors before they are signed on behalf of the Board in accordance with the provisions of this section and before they are submitted to the auditors for their report thereon.

From the above mentioned provisions it is clear that one director in India can sign the B/S and P/L Account.

However , section 215 (3) requires even before signing B/S and P& L account , the same has to be approved by the Board.

Section 287(2) stipulates that the quorum for a meeting of the Board of directors of a company shall be one-third of its total strength (any fraction contained in that one-third being rounded off as one), or two directors, whichever is higher : ( minimum and articles may prescribe more) .

With only one director in India , a valid board meeting cannot be convened under section 287(2) of the Companies Act 1956. Hence , it is suggested an alternate director has to be appointed and this will take care of the requirement of section 287(2) of the Companies Act .

A valid board meeting can be convened with the alternate director and B/S and P&L can be ratified in such meeting .Then , B/S and P&L can be signed by a single director as stated in the section 215 or two directors can sign ( including the alternate director) the same.

This could be the possible solution to the issue.

R.V.Seckar

CAN AGM BE HELD WITH ONE PROXY REPRESENTING ALL MEMBERS?

A Public Ltd. Company called for general meeting and all ten members of the Company appointed to one and only Mr. A as their proxy, will the general meeting will be valid where various provisions passed as per given agenda ?

Please go through the following English Case:

Re El Sombrero Ltd, [1958]3All ER 1 Wynn-parry, J.
•
Facts: The Company consisted of only three members. No general meeting of the company was ever held .The quorum for general meeting was two persons present in person or by proxy. Two of the members were un willing to attend any meeting of the company .The third member who held 90% of the shares of the company applied unders.135 of the companies Act,1948( s.371 of the 1985 Act)for an order convening a meeting and directing that one person present in person or by proxy to constitute quorum. But this was opposed by the other two members.
•
In this case there was no impracticability as to convening the meeting but the problem was that the convened meeting could not be conducted because there was reasonable expectation that insufficient members would be present at the meeting either in proxy or in person so as to constitute a quorum.
•
The court also tried to make distinction between impracticability and impossibility. Impracticability means whether as a practical matter, the desired meeting of the company can be convened or not?Inthis case it could be convened. But the person who ought to convene the meeting was willfully abstaining from doing so. Hence the implication would be that there was impossibility of holding and conducting the meeting.

In the given case , there was no impossibility of holding and conducting the meeting. All the members have given their consent to a proxy to act and vote on behalf of them at the General Meeting.

According to Section 176, a member is entitled to appoint another person as his proxy to attend and vote instead of himself. The term “ person” signifies a natural person meaning thereby an individual .

U/S 189 (2) of the Companies Act 1956 for a valid special resolution , vote casts in favour of the resolution by the members present in person or by proxy are not less than 3 times the vote casted against the resolution.

Before a meeting can transact any business the following requirements must be satisfied:
a. Meeting, must be duly convened by proper authority
b. Proper notice must be served to all persons entitled to receive it
c. A quorum must be present ( Section 174)
Quorum is defined as the minimum number of members present at the meeting for the
business to be transacted validly. In respect of general meetings it is five members in case
of a public meeting and 2 in case of any other company.

It is to be noted that for the purpose of ascertaining the quorum only members present in person, and not in proxies are to be counted .

As a prudent secretarial practice ,for the purpose of a valid quorum , there should be a minimum quorum present by members in person.

Hence , a single proxy present at an AGM shall be invalid quorum and meeting will be held invalid even if article provides for the same

Can a shareholder propose a resolution for Annual General Meeting? If yes, will the proposal be part of Agenda for AGM which would be circulated to al

Yes . But provisions in section 188 of the companies Act ,1956 and s 257 of the companies Act shall have to be followed.

When a Member can ask the company to circulate the resolution?

Sec : 188 (i) a)Resolution -6 weeks b)Other matters-14 days

S.188 (I) (a) – moving of resolution at AGM ,6 weeks

S.188(i) (b) – Circulation of any matter -14 days

Members entitled under S.188- 1/20 th of total voting power or 100 members holding shares having a paid up value of Rs 1 lakh.

When a company is not bound:

Time limit

Defamatory or needless publicity abuse

Central government to order not to comply with

Banking Co

S 188 (6) – NO obligation to circulate in some cases-if it would prejudice interest of the company

The right of a member to circulate resolution cannot be curtailed by the AOA
.
S.190 – Special Notice 14 days before the meeting

Cases where special notice is needed- s 224 (5) (a)

Section 284-
On reading section 284 it is found that it requires a special notice and a ordinary resolution to remove a director, but the special notice shall be served by how many shareholders, section 284 is silent on that, infact the word shareholder nowhere appears in section 284, it only says that “Special notice shall be required of any resolution to remove a director under this section”. The relevant part of section 284 is produced hereunder-

Removal of directors under section 284
(1) A company may, by ordinary resolution, remove a director (not being a director appointed by the Central Government in pursuance of section 408) before the expiry of his period of office…..

(2) Special notice shall be required of any resolution to remove a director under this section, or to appoint somebody instead of a director so removed at the meeting at which he is removed.

(3) On receipt of notice of a resolution to remove a director under this section, the company shall forthwith 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.

Notice moved by a single shareholder, not accepted by the company-

In order to prevent the embarrassment caused by the frivolous notices to remove the director, given by a single shareholder, the companies refuse to circulate the notice to other members (as required by section 284) terming the notice as invalid for non compliance of section 188. Section 188 requires a certain number of shareholders to move a shareholders resolution. The relevant part of the provision is produced hereunder-

In Gopal Vyas vs. Sinclair Hotels and Transportations ltd, the court opined that section 257 is a ‘self contained’ provision and do not need section 188 to be adhered with.

In Karnataka bank vs. AB Datar, it was held that a single shareholder can move resolution for removal of a director.

In the case of Prakash Roadlines vs. Vijay Kumar Narang has reiterated its ratio of Karnataka Banks case and held that the right to move a resolution is a inherent right of the shareholder and the right to move a resolution to elect or remove a director is a individual right which is independent of the requirement of Section 188.

Thus , for removal of director under section 257 , a single shareholder can move the resolution as decided in Gopal Vyas , Karnataka Bank and Prakash Roadlines and for any other matter provisions of section 188 has to be followed.

R.V.Seckar

It is the Nominee not the Legal Heir is entitled to ownership of share - Mumbai High Court

A nominee has the right to the shares after the original shareholder’s death and not the deceased’s heirs, Bombay High Court has ruled.


Dismissing the application of a widow who sought permission to sell the shares belonging to her late husband , Justice Roshan Dalvi held that she had no right to do so since she was not the nominee. The nominee was her late husband’s nephew.

‘‘ The Companies Act sets out that the nomination has to be made during the lifetime of the holder, according to legal procedures. If that procedure is followed, the nominee would become entitled to all the rights in the shares to the exclusion of all other persons (following the death of the shareholder),’’ said the judge. The court said that Harsha Kokate would have no rights over the shares owned by her deceased husband.

Harsha had married Nitin in December 2004. Their marital life was short-lived as Nitin passed away in 2007. A year later Harsha moved the HC seeking to sell the shares in Nitin’s demat account with Saraswat Cooperative Bank. It was found that a year before his death Nitin had nominated his nephew in respect of the shares. Harsha’s lawyers argued that she was entitled to the shares as she was her late husband’s heir and legal representative .

The lawyers also pointed out to the nomination provisions relating to insurance papers as well as shares of a flat in a cooperative housing society. Under the provisions of the Insurance Act as well as the Maharashtra Cooperative Societies Act, nomination only makes a nominee a trustee for the insurances policy or shares of the flat, argued the lawyer. The nominee holds the policy/shares in trust for the estate of the deceased, but has no right over them.

‘‘ Since Nitin died intestate (without leaving a will), his widow would be entitled to the shares to the exclusion of the nominee,’’ claimed Harsha’s advocate. The HC disagreed. ‘‘ The provisions (relating to insurance and housing societies) are made merely to give a valid discharge to the insurance company or the cooperative society without vesting the ownership rights in the insurance policy or the membership rights in the Society upon such nominee,’’ said the judge, while pointing out that the provisions of the Companies Act and Depositories Act, that govern equity shares are different.

Both these laws say that the shares would be vested with the nominee on the death of the share holder . ‘‘ Upon such nomination, therefore, all the rights incidental to ownership would follow. This would include the right to transfer the shares, pledge the shares or hold the shares,’’ said the judge.

Can Pledged Shares Can by Gifted ?

FACT OF THE CASE

Mr. A who is Director & Promoter of XYX Limited (Listed Company) want to Gift its entire holding to Mr. B who is the M.D. & Promoter of the same Company. Mr. A and Mr. B are real brothers. The Holding of Mr. A is pledged with Bank.

QUERY:-

Whether Gift Deed can be executed before release of Pledge Shares?

When A have pledged the share with Bank , the original share certificates would have been deposited with the Bank. Further , in the case of pledge , voting rights are also vests with the bankers and if they desire , they can exercise the voting rights but they will not meddle in the ordinary course of business.

Pledging of shares means A have no right over the title of those shares until it is revoked. In such a scenario, no gift can be made and if made without the bank's consent , as you said ,it is void ab initio.

In case of pledged shares , the physical shares will be lodged with the Bank . In such a case , A cannot transfer the shares to B even with the consideration as A cannot produce the physical shares to B and to the Company for transfer.

In both the cases , bank's consent is essential and without that , according to me , any gift or transfer will be invalid and not possible.

A gift can be made if there is no encumbrance over it. When share are pledged with the Bank , the ownership of shares lies with the Bank and A is not a real owner in this case and he cannot gift the shares which as he is not presently owning these shares and if he has made any gift of shares to be effective on the future date , for this also he should take consent from the bank as there would be a clause in the loan agreement that sale or gift of shares is prohibited during the tenancy of the loan period. Can you suggest what would happen if the gift of shares are made at a future date and if loan has not been repaid , the bank has the every right to dispose the shares irrespective of gift made already to B.
As per Sec. 123 of Transfer of Property Act, a gift of immovable property, which is not registered, is bad in law and cannot pass any title to the donee. Any oral gift of immovable property cannot be made in view of the provisions of sec. 123. Mere delivery of possession without a written instrument cannot confer any title. This section speaks about immovable property only and as nothing has mentioned about movable property like Shares. Since the share is an intangible movable property , gift of such property is to be in written so as to avoid any future ambiguity.

Section 126 of the Transfer of Property provides for conditions where a gift may be revoked.The following are those conditions-

According to clause (4 of section 126) the condition should not be illegal, or immoral and should not be repugnant to the estate created under the gift. Section 126 is controlled by sec. 10. As such, a clause in the gift deed totally prohibiting alienation is void in view of the provisions contained in sec. 10. A gift, which was not based on fraud, undue influence or misrepresentation nor was an onerous one, cannot be canceled unilaterally. Such a gift deed can be canceled only by resorting to legal remedy in a competent court of law.

In the above scenario , if gift is made by A to B when there is encumbrance or charge in favour of a bank , whether registration is possible as per section 123 of Transfer of Property act without Bank's consent.

Further ,under section 10 , if a gift is a onerous one , it can be canceled by only resorting to legal remedy . Suppose , if loans are not paid , then such onerous gift will have to revoked by an order of court .

Though onerous gift can be made , my question is whether it can be made without bank's consent as mentioned in the question. Whether it can be registered under section 123 without bank's consent?

What I stress again and again , bank's consent is necessary for gifting of shares pledged with them and in the situation , both A and B do not want bank's consent or ( gift to be made without bank's knowledge ) , is it possible and will it be valid one both under section 10 and 123 of the Transfer of Property Act.