When an Indian Private Limited Company can be regarded as deemed public company if its shares are held by a foreign parent company ?- AN INTERPRETA​TION ON SECTION 4(7) OF COMPANIES ACT, 1956

When an Indian Private Limited Company can be regarded as deemed public company if its shares are held by a foreign parent company ?

INTERPRETA​TION ON SECTION 4(7) OF COMPANIES ACT, 1956

Section 4(7) in The Companies Act, 1956

(7) 1[ A private company, being a subsidiary of a body corporate incorporated outside India, which, if incorporated in India, would be a public company within the meaning of this Act, shall be deemed for the purposes of this Act to be a subsidiary of a public company if the entire share capital in that private company is not held by that body corporate whether alone or together with one or more other bodies corporate incorporated outside India.

If we analyse the above section ,the following can be construed:

1. The Indian Company is a private limited company

2. The foreign parent company would have to fall within the definition of public company under Indian Companies Act if it is incorporated India

3. The entire capital of Indian private limited company should have been held by the foreign company either singly or together with other foreign companies.

On further analysis , we can come into the following conclusion:

1.An Indian subsidiary company (private company ) is held by a foreign private limited company , then it will not be considered as the subsidiary of the said foreign company.

2. If the foreign parent company if does not fall under the definition of a public company under Indian Companies Act, then it will not be construed as subsidiary of such foreign company.

3.If the share capital of Indian private company is held jointly by an Indian investors or companies and along with foreign parent company , then it will not fall under the above section.

4. Where the entire share capital of an Indian company is held by two or more foreign body corporate or by a foreign body corporate along with a nominee shareholder holding a single share, the provisions of section 4(7) will not get attracted.

5. Where a foreign body corporate does not hold more than 50% of the equity share capital of the Indian company nor does it control more than 50% of total voting power of such company, the Indian company would not qualify as “subsidiary” of a foreign company, in which case the provisions of section 4(7) will not get attracted.

6. The charter and bye laws of foreign body corporate should contain following restrictions as imposed on a private company in India so as to ensure that if such company were incorporated in India it would have been a private company:

a. restriction on transfer shares;

b. limiting the number of members to fifty;

c. prohibiting any invitations to the public to subscribe for any shares in, or debentures of, the company;

d. prohibiting any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

If such provisions are there in the foreign parent company, then the Indian private limited company will not fall under the provisions of section 4(7).

ADDITIONAL DIRECTOR CAN BE APPOINTED THROGUH CIRCULAR RESOLUTION

Appointing Additional Director in case of urgency- we can have circular resolution
 

Whether a company can Appoint an Additional Director through Circular Resolution ?

 

Unless the Articles of associaion of the company requires for appointment of Additional Director at Board meeting, he can be appointed by circular resolution. Companies Act, is silent on this issue.

Matters which can be approved by the circular resolution

All matter other than those which require shareholders' approval as contemplated in section 293 and other sections and matters which require approval of the Central Government, or the CLB/Tribunal or Regional Director can be passed by the directors or committee of directors by circular resolution. An illustrative list of matters which can be approved by the by passing circular resolution is given below:
(i) Opening a current account for the company with a bank;
(ii) Authorising the company secretary to file suits in civil courts on certain urgent matters;
(iii) Authorising on officer of the company to sign declaration forms;
(iv) Authorising for affixing common seal to a document the content of which have already been discussed and approved at a Board meeting;
(v) Authorising the managing director to fix the dates of closure of register of member/register of debentureholders;
(vi) Fixing 'record date' for rights or bonus issue or authorizing managing director for fixing the 'record date';
(vii) Changing the rate of interest payable on fixed deposits whenever the Government amends rule 3(c) of the Companies (Acceptance of Deposits) Rules, 1975;
(viii) Convening an extra ordinary general meeting on requisition of certain members;
(ix) Authorising on officer to make application for telex, fax and telephone connection for the company;
(x) Changing the registered office within the same town or city;
(xi) Appointing on Auditor in the casual vacancy caused by death of Auditors;
(xii) Appointing Additional Director in case of urgency;
(xiii) Appointing Alternate Director in case of urgency;
(xiv) Engaging a practising Company Secretary to issue compliance certificate contemplated by proviso to section 383A(1) of the Act;
(xv) Authorising an officer of the company to file criminal complaints in a Judicial Magistrate's Court for dishonour of cheque under section 138 of the Negotiable Instruments Act, 1881;
(xvi) Authorising the printing of share certificates;
(xvii) Appointment of Cost Auditors;
(xviii) Authorising Managing Director to sign the Listing Agreement with Stock exchange;
(xix) Nominating a director as occupier of a factory;
(xx) Forming subcommittees of thee Board, in case of urgency;
(xxi) Approving Transmission of shares before a Right Issue;
(xxii) Approving a mutual fund scheme by the Board of an Assets management company;
(xxiii) Authorising contribution to National Defence Fund;
(xiv) Making investment in the shares of Company's Employees Cooperative Credit society;
(xxv) Appointing the first Auditors within one month of incorporation of the company, in case the Board is unable to meet within a month from the date of incorporation of the company;
(xxvi) Fixing the date and time of an adjourned general meeting in case the adjourned general meeting is not desired to be held on the same day in the next week;
(xxvii) Appointing a representative of the company to represent the company in the general meeting of any other company;
(xxviii) Authorisation of the Board to keep company's books of account at a place other than the registered office

Unlisted Public Companies (Prefrential Allotment) Rules, 2011

Unlisted Public Companies (Prefrential Allotment) Rules, 2011

Ministry of Corporate Affairs on 14^th December, 2011 issued Notification and has amended the Unlisted Public Companies (Prefrential Allotment) Rules, 2003. The highlights of the Unlisted Public Companies (Prefrential Allotment) Rules, 2011 are as under:

1. In the Unlisted Public Companies (Prefrential Allotment) Rules, 2003 (hereinafter referred to as the said rules), in rule 3, for clause (1), the following shall be substituted, namely: -

‘(1) “preferential allotment” means allotment of shares or any other instrument convertible into shares including hybrid instruments convertible into shares on preferential basis made pursuant to the provisions of subsection (1A) of section 81 of the Companies Act, 1956;

Provided that the

1. name;
2. father’s name;
3. address and
4. occupation

of persons to whom such allotment is proposed to be made shall be mentioned in the resolution passed by the members under that sub-section:

Provided further that persons to whom such offer is proposed, shall not be more than forty-nine as per the first proviso to sub-section (3) of section 67 of the Companies Act, 1956;’.

2. For rule 4 of the said rules, the following shall be substituted, namely:-

“4. Special Resolution.-

(1) No issue of Shares or any other instruments convertible into shares including hybrids convertible into shares on a prefrential basis can be made by a company unless authorised by its articles of association and unless a special resolution passed by the member in a general meeting authorising the Board of Directors to make such issue.

(2) The special resolution referred to in sub-rule (1) shall be acted upon within a period of twelve months.”.

3. After rule 7 of the said rules, the following rule shall be inserted, namely:-

“8. Invitation and allotment of securities.-
(1) No fresh offer or invitation shall be made unless the allotment with respect to any offer or invitation made earlier have been completed in terms of sub-section (9) of section 60B of the Companies Act, 1956.

(2) Any offer or invitation not in compliance with sub-section (1A) of Section 81 read with sub-section (3) of section 67 of the said Act, shall be treated as a public offer and the provisions of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992) shall be complied with.

(3) All monies payable on subscripttion of securities shall be paid through cheque or demand draft or other banking channels but not by cash.

(4) Any allotment of securities shall be completed within sixty days from the receipt of application money and in case the company is not able to allot the securities within the said period of sixty days, it shall repay the application money within fifteen days thereafter, failing which it will be required to be re-paid with interest at the rate of twelve percent per annum:

Provided that the monies received on such application shall be kept in a separate bank account and shall not be utilised for any purpose other than—
(i) for adjustment against allotment of securities; or
(ii) for the repayment of monies where the company is unable to allot securities.

(5) No company offering securities shall release any public advertisements or utilise any media, marketing or distribution channels or agents to inform the public at large about such an offer”.

FILING OF FORM 5 INV UNDER INVESTOR'S EDUCATION AND PROTECTION FUND -SECTION 205C of the Companies Act

MCA vide its circulr for filing form 5 INV - in its recent circular (24 July 2012)  has stated that  that Investor Education and Protection Fund (Uploading of information regarding unpaid and unclaimed amounts lying with companies) Rules, 2012, has mandated every company to file eForm 5INV containing the information of unclaimed and unpaid amounts as referred to in subsection (2) of section 205C of the Companies Act, 1956.

According to subsection (2) of section 205C of the Companies Act, 1956,

[205C. Establishment of Investor Education and Protection Fund.—

2) There shall be credited to the Fund the following amounts, namely:—
(a)    amounts in the unpaid dividend accounts of companies;
(b)    the application moneys received by companies for allotment of any securities and due for refund;
(c)    matured deposits with companies;
(d)    matured debentures with companies;
(e)    the interest accrued on the amounts referred to in clauses (a) to (d);
(f)    grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund; and
(g)    the interest or other income received out of the investments made from the Fund:
Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.

From the above , it is clear if a company has balances outstanding in the accounts referred to above from (a) to (g) for a perior of seven years or more than seven years , then it has to be credited to IEPF fund .

Then it goes without saying , if a company do not have any balances outstanding in the clauses (a)to (g ) for seven years or more than seven years , need not file form 5INV.

Thus , MCA is keeping everyone to guess instead of making it plain reading .

Further , there is widespread complaint that excel sheet to be attached with the form 5INV has inherent defects and majority of the companies find it difficult to fill the form itself.

In such scenario, MCA has to immediately look into this defects and should also extend the deadline for futher period so that every company falls under the abvoe rule shall file the form without any procedural infirmities.

MCA has to make its circular to be more clear that the companies that do not have any balances under the heda  (a) to (g) under section 205C need not file form 5INV.

If a company has balances in the heads (a) to (h) of section 2 of the section 205C and in the year 2011 , if the such balances has crossed the period of seven years , then you have to file the form 5INV. (you have to transfer the same to IEPF fund in such cases). (then it becomes due for payment - as per section 205C of the Companies Act ,1956).

Data of last 7 years needs to be given till the date of AGM of 2011.
The latest circular on the subject is detailed below: From the circular , it is very clear that every company has to file form 5INV about their balances in

(a)    amounts in the unpaid dividend accounts of companies;

(b)    the application moneys received by companies for allotment of any securities and due for refund;

(c)    matured deposits with companies;

(d)    matured debentures with companies;

(e)    the interest accrued on the amounts referred to in clauses (a) to (d);

(f)    grants and donations given to the Fund by the Central Government, State Governments, companies or any other institutions for the purposes of the Fund; and

(g)    the interest or other income received out of the investments made from the Fund:

Provided that no such amounts referred to in clauses (a) to (d) shall form part of the Fund unless such amounts have remained unclaimed and unpaid for a period of seven years from the date they became due for payment.

Due for payment is the crucial word used in section 205 of the Companies Act . If a company has balance as described in (a) to (g) in the section 205 C of the Companies Act, if not more than seven has lapsed , then , such companies are mandated to file form 5 INV.

It is now clear that every company has to file form 5 INV mentioning the balances available in the above heads detailed from (a) to (h).

MCA has to clarifywhether a company either private or public which has not declared dividend andhas no balance is unpaid dividend is also mandated to file the form 5-INV?

MCA has now almost clarified and it has stated clearlly that one excel sheet has to be filed for the year 2011 and beyond for the unpaid dividend etc.

Whether the CLB has the authority to cancel the purchase of a property by a director in his individual name though the part of the purchase consideration was paid by the company?

Whether the CLB has the authority to cancel the purchase of a property by a director in his individual name though the part of the purchase consideration was paid by the company?

The HIGH COURT OF MADRAS in the case of T. Vinayaka Perusal v. T. Balan in Co. Appeal No. 24 of 2009 and pounced on April 29, 2011, CLB has no authority to cancel the purchase of a property by a director in his individual name though the part of the purchase consideration was paid by the company.

In the instant case, in the year 1989,, sale deed was executed in favour of the respondent-director, while purchasing the land on behalf of the company. The property was mortgaged by the respondent-director in his individual capacity. The parties also came to know about the property being in the name of the respondent-director, when the suit was filed and got settled by respondent-director by redeeming the property. Therefore, it was not open to the company to challenge the sale, that too, in the CLB, after lapse of 15 years. It seems that the object of moving the CLB was, that the respondents No. 1 to 4 thought that the civil suit for claiming the property would not be competent, as the property not only was registered in the name of the sixth respondent but he acted as the absolute owner thereof throughout all these years, to the knowledge of the company and other Directors and members of the company.

Respondents Nos. 1 to 4 filed Company Application No. 171 of 2006 in C. P. No. 7 of 2004 (T. Balan v. Unicentre Agencies Engg. (P.) Ltd. [2011] 167 Comp. Cas. 59/[2009] 96 SCL 71 (CLB-Chennai) to set aside the sale made by Thiru G. George in favour of the appellant, by claiming that the schedule property belonged to M/s. Unicentre Agencies and Engineering P. Ltd., the fifth respondent, though it was registered in the name of the sixth respondent. This was for the reason that a sum of Rs. 1,00,000 (rupees one lakh only), forming part of the sale consideration was paid by Thiru G. George from the funds of the company. Whereas a sum of Rs. 1,50,000 (rupees one lakh fifty thousand only) was paid by Thiru G. George.

The claim of respondents Nos. 1 to 4 was that the lands to the extent of same proportion, i.e., 1.60 acres out of 4.01 acres to be restored to the company.

. The appellant alleged that the learned Company Law Board has erroneously held that sale by the sixth respondent to the appellant was not approved by the shareholders or the board of the company, as also that the Company Law Board, without giving any finding, with regard to the sale consideration, wrongly held that price was inadequate and not beneficial to the company. The jurisdiction of the Company Law Board to set aside the sale is also questioned.

The grounds of challenge by the appellant are that the Company Law Board failed to notice that the land in dispute stood in the name of individual and not in the name of company, so as to bring it within the ambit of mismanagement. The challenge is also on the ground that the learned Company Law Board exceeded the jurisdiction under sections 402 and 403 of the Companies Act, to set aside the sale by the director in his individual capacity. The appellant also challenged the findings of the Company Law Board, that the sale by Thiru G. George in favour of the appellant was hit by lis pendens.

The following questions were put forth by the applellanats.

 “(i)  Whether the Company Law Board is within its jurisdiction under sections 402 and 403 of the Companies Act, 1956, to set aside the sale of immovable properties of an individual by such person in favour of the appellant ?

(ii)  Whether the Company Law Board exceeded its jurisdiction in ordering restoration of a portion of the subject property to the company and thereby wrongly assumed to itself the power of a civil court ?”

It was alleged by the plaintiffs that  “The properties have been purchased for a sum of Rs. 2.50 lakhs, which was met by the company to a tune of Rs. 1 lakh, which works out to 40 per cent. of the total consideration of Rs. 2.50 lakhs and the balance considerations was paid by the second respondent from and out of his resources. The company would therefore be entitled for 40 per cent. of the total extent of the properties,.

Admittedly, in this case, right from the date of purchase, the company never came in possession or in ownership of the property.

It was argued by  the respondents that the Company Law Board could deal with the property, still the limitation prescribed is three months, prior to the filing of the petition. In this case, the property was purchased in the name of the sixth respondent in 1989, therefore, the Company Law Board had no jurisdiction to deal with this property.

There is a statutory bar under section 52 of the Transfer of Property Act against alienation of any property involved in a proceeding, without the authority or the prior permission of the court, as laid down in Dhanalakshmi v. P. Mohan [2005] 2 CTC 254 and G. Krishnamoorthy v.Sukumar [2003] 1 CTC 405. The Privy Council held in Puran Chand Nahatta v. Monmotho Nath Mukherjee, AIR 1928 PC 38, that any purchaser of the property during the pendency of a suit, can enjoy the property subject to any order which may be passed by the court in the pending suit

This proposition again cannot be disputed. In the present case, admittedly, sale deed was executed in favour of the sixth respondent in the year 1989, while purchasing the land on behalf of the company. The property was mortgaged by the sixth respondent in his individual capacity. The parties also came to know about the property being in the name of the sixth respondent, when the suit was filed and got settled by the sixth respondent, by redeeming the property. Therefore, it was not open to the company to challenge the sale, that too, in the Company Law Board, after lapse of 15 years..

 The reliance of this also is misconceived, firstly, for the reason that it is the decision of the Company Law Board, which is not binding and secondly for the reason that in the present case, respondents Nos. 1 to 4 challenged the sale in favour of the sixth respondent after lapse of more than 15 years, which certainly causes prejudice to the sixth respondent, as well as the appellant.

 The finding of the Company Law Board, therefore, cannot be sustained, as the reading of the impugned order shows that the learned Company Law Board proceeded on presumption, that the property of the company has been sold to the appellant, during the pendency of the proceedings, therefore, sale was hit by the principles of “lis pendens”, which is fully wrong. The Company Law Board does not have jurisdiction to set aside the sale in favour of the sixth respondent, as under section 402, limitation to deal with the property to transfer is regarding the sale made three months prior to filing of the company petition, or during the pendency of the proceedings.

 The Company Law Board failed to notice that the material placed on record showed that respondents Nos. 1 to 4 was estoppel by their conduct to challenge the sale, as they permitted the sixth respondent to mortgage the property as collateral security by projecting him to be the owner. Even in the suit filed in the year 1995, the sixth respondent was shown to be the owner of the property mortgaged to the bank, but no steps were taken by respondents Nos. 1 to 4 to seek remedy of getting the sale set aside in favour of the sixth respondent.

 The sixth respondent, being the registered owner, has sold the property to the appellant in his individual capacity, and not as director of the company.

For the reasons stated above, this company appeal is allowed. The order passed by the Company Law Board is set aside. The petition, filed by respondents Nos. 1 to 4 under sections 397 and 398 of the Companies Act, 1956, is ordered to be dismissed. No costs.

WHETHER 21 DAYS CLEAR NOTICE IS MANDATORY FOR AN AGM OR EGM ?

WHETHER 21 DAYS CLEAR NOTICE IS MANDATORY FOR AN AGM OR EGM

Somalingappa Shiva Putrappa Mugabasav

vs

Shree Renuka Sugars Ltd {2002} 110 Comp Cases  ?

The Karnataka High Court has in a recent case of Somalingappa Shiva Putrappa Mugabasav vs Shree Renuka Sugars Ltd {2002} 110 Comp Cases thrown out a petition challenging the proceedings of an Annual General Meeting (AGM) on mere technical grounds.

The facts of this particular case in a nutshell are given hereunder :-

i) The AGM of a company ‘A’ was required to be held on or before the 30th December 2000. To convene the AGM a notice was prepared on the 4th December 2000. In view of the all India postal strike which commenced on the 5th December 2000, the notice and the explanatory statement for the AGM were sent by courier on the 6th December 2000;
ii) The petitioner recieved the notice on the 19th Dec 2000. The petitioner then filed a suit on the 27th Dec 2000 praying for a permananent injunction against holding the AGM on the 30th Dec 2000 and for striking off as null and void the annual report circulated along with the notice. The petitioner’s plea was that he was not given 21 days clear notice by the company.

However, the HIgh Court did not concur with the petioner’s view. The High Court threw out the petition of the petitioner on the following grounds :- i) The company had issued the notice on the 6th December 2000, thus there was a gap of 24 days between the date of despatch and the date of the meeting;

ii) When the legislature has deliberately ommitted to state that non compliance with section 171 would invalidate the proceedings at the meeting and section 171 of the Companies Act expressely declares that accidental ommission to give notice or non reciept of the notice shall not invalidate the proceedings at the meeting , the said section cannot be interpreted to mean contrary to the express intention expressed by the legislature;

ii) The legislature has not specifically spelt out whether this 21 days notice shoud be computed from the date of service of notice or from the date of notice itself. Under these circumstances it is not open to the courts to interpret the said section to mean that 21 days is to be calculated from the date of actual service of notice of the meeting. The shareholders are scatterred all over the country and if it interpreted that from the date of service of the notice to each shareholder , the meeting is to be held 21 days thereafter then it would be impossible to conduct a meeting. Thus there cannot be an interpretattion that for convening a General meeting 21 days clear notice is mandated;

iv) The whole object of giving 21 days notice is to give a reasonable opportunity to the shareholders and if it is demonstrated that such reasonable opportunity has been denied deliberately with malafide intention and such denial has adversely affected the interests of the shareholders then the court on proof being submitted can invalidate the proceedings of such a meeting. However, in absence of such prejudice being made out the meeting cannot be invalidated on mere technical ground that 21 days clear notice was not given. A shareholder cannot be allowed to blackmail the company on such grounds.

The above decision has made one thing very clear and that is 21 days clear notice is not required to convene an AGM . This in effect would mean that the notice convening a AGM cannot be treated as invalid just because the time gap between the day it is recieved by the shareholder and the date of the AGM is less than 21 days . We can also refer to section 53(2)(b) of the Companies Act 1956 as per which the notice of a general meeting is deemed to have been served on a member on the expiration of 48 hours after the notice is posted. Thus it will be sufficient compliance for a company to post a notice convening an AGM atleast 23 days prior to the date of the meeting. In the above cited case of the Karnataka High Court the company ‘A’ had posted the notice 24 days prior to the date of the AGM and this doubtlessly cannot be challenged on mere technical grounds

What is the Effective Date of Increase of Authorised Share Capital?

What is the Effective Date of Increase of Authorised Share Capital?

Even though the members approval the increase in authorised capital in EGM or GM , it cannot be construed as final approval as resoloution can be rescinded or kepti in abeyance  as other formaliities have to be followed like

1. Filing of spl resolution in Form 23

2.Filing of Form 5 with fess for increase in authorised capital.

If a company passes a resolution in AGM/EGM for increase of authorised share capital.

No form 23 or form 5 is filed - No stamp-duty has been paid .

Will the company still can show the increased amount as its authorised share capital in the MOA & AOA from the date of AGM/EGM where resolution has been passed.

Hence , increase in authorised share capital needs further legal compliances to be carried over by the company untill then it cannot claim that it has increased authorised sharecapital.

Just passing the resolution is not essential but further legal compliance will have to be carried out.

For instance , in the case of merger , the approval by the court will be the relevant date and not the passing of resolution for merger.

The order of the Court approving a merger does not take effect until a certified copy of the same is filed by the company with the Registrar of Companies.

The same provision will be applicable in the case of increase of authorised share capital by a company

Any increase in the authorized share capital would come into effect immediately on passing of any valid resolution in this behalf, and filing of the requisite e-Forms 5, 23, being a ministerial act and procedural in nature, would not influence the date of increase of the authorized share capital as decided by Company Law Board in the case of 

Kobian (P)Ltd.v Kobian India (P) Ltd. (2005) 64 CLA 281 (CLB)

So from the above it should be date of passing resolution.

Thus, if a company passes a special resolution in a general meeting for increase of authorised share capital , and if it carries on the other formalities like filing of form 5 and form 23 , paying the appropriate fees to the government for increase of share capital ,then the effective date for such increase of authorised share capital will the date of passing the resolution by the members of the company.





This is a real case study . A Listed Company passed special resolution 2 year back for Increase in Auth. Capital but did not filed form 5/Form 23 due to lack of funds nor it acted on the resolution like changes in MOA/Auth. Capital in Balance Sheet. Now, it want to give effect to this resolution but penalty comes around Rs. 5 lakh so it propose to pass new resolution saying that old resolution is nullified & then pass a fresh special resolution for more or less same purpose and file to ROC in today's date.

Since the above company is a listed company and hence , there would be a few check points here : what was the authorized share capital shown in all filings by the company since the increase? What was the amount shown in the audited Balance Sheets since that date? Was the increase and no filing of forms questioned by the Auditors? What response was given to them? If you have been showing the increased amounts in annual filings as well as filings with stock exchanges, it will be very clear that the increase was acted upon, but compliances were not completed. If not, you have a valid justification that the increase was indeed, not acted upon.


If the Company in the Balance Sheet for these two years has shown the enhanced figure, then it is left with no choice than to file the penalty and the effective date of the Increase in Authorised Share Cap would be that date.

CAN THE DIRECTORS OF A COMPANY EXPEL OR REMOVE A SHAREHOLDER BY INSERTING A NEW CLAUSE IN ARTICLES ?

CAN THE DIRECTORS OF A COMPANY EXPEL OR REMOVE A SHAREHOLDER BY INSERTING A NEW CLAUSE IN ARTICLES ?

No. It is not possible. It is ultravires the provisions of the Companies Act.

Departmental Circular no.32 of 1975 dated November 1, 1975, which provides that the insertion of an article providing for expulsion of a member is ultra vires the powers of the Company.

Further, it has been held by the Supreme Court in the case of Bajaj Auto Ltd. vs. N. K. Firodia (1971) read with Article 141 of the Constitution that 'assumption by the Board of Directors of a Company of any power to expel a member by amending its Articles of Association is illegal and void'.

However , there is an alternate route is viable to make dissenting shareholder(s) less prominent  by resorting to the following:

One way to ensure that a member's influence is reduced is to have a rights / preferential issue and get shares allotted to others. The rights issue method works if the member who is to be sidelined is a minority and does not have the financial resources to match the others. Also, on record the need for a rights issue has to be established by way of a genuine business need.

To a large extent what a Company could do also depends on the provisions in the existing Articles/ Shareholders Agreement (if any), the percentage of shareholding of the existing member and whether the Comapny is a public or private company .