Whether a Minor can be a Signatory to the Memorandum of Association of a Company ?

In case if during a incorporation of a private limited company, if only two signatories are there to the Memorandum of Association and if one is a minor, then it will not be valid as in such situation, a minor who is a signatory to the memorandum of Association of the company will become director automatically by the operation of law if no other name is mentioned in the Articles of Association of such company

Even otherwise , a minor cannot be a signatory to the memorandum of association of a company. Since, signatory to the memorandum of association will automatically become the first directors of the company, in such scenario, a minor cannot be a signatory to the memorandum of association of a company.

Generally , a minor cannot enter into contract hence cannot be the subscribers to MOA. Subscribers to MOA means the person promises to take the shares in proposed company. In this situation Minor cannot promise.

The Companies Act, 1956 generally not define the minimum age limit for becoming a director of the company. A minor is not competent to contract. Under section 184 of the Indian Contract Act, 1872, a person who is not the age of majority can not become an agent. In consequence a minor cannot be appointed to an office of director of a company.

For appointment of a Managerial person he should be one who has completed the age of 25 years and has not attained the age of 70 years.

As per Part I of Schedule XIII is as under, for appointment of MD or WTD , minimum age is fixed as the age of 25 years and has not attained the age of 70 years.

Exception: A special resolution is required for the appointment of a managerial person if he

(i)    Has attained the age of 70 years; or

(ii) Has not completed the age of 25 years, but has attained the age of majority (i.e. 18 years).

Form 32 - there is an instruction that appointee as a director should be of more than 18 age.

Thus, a minor cannot be a subscriber to a memorandum  of any company as he lacks capacity to contract and subscription to memorandum is a contract to subscribe a particular amount of shares and a minor cannot do that under existing laws.

In view of the above , a minor cannot be signatory to the memorandum of association of a company.

THE STAMP PAPERS DO NOT HAVE ANY EXPIRY PERIOD

Citation: Thiruvengada Pillai Vs Navaneethammal and Anr.

Brief: According to a recent Supreme Court judgement dated 19/02/2008 in the case of Thiruvengada Pillai Vs Navaneethammal and Anr,     

Judgment:According to a recent Supreme Court judgment dated 19/02/2008 in the case of Thiruvengada Pillai Vs Navaneethammal and Anr, the stamp papers do not have any expiry period. Relevant extract from SC Judgment is reproduced herein below:

 "The Indian Stamp Act, 1899 nowhere prescribes any expiry date for use of a stamp paper. Section 54 merely provides that a person possessing a stamp paper for which he has no immediate use (which is not spoiled or rendered unfit or useless), can seek refund of the value thereof by surrendering such stamp paper to the Collector provided it was purchased within the period of six months next preceding the date on which it was so surrendered. 

The stipulation of the period of six months prescribed in section 54 is only for the purpose of seeking refund of the value of the unused stamp paper, and not for use of the stamp paper. Section 54 does not require the person who has purchased a stamp paper, to use it within six months.

 Therefore, there is no impediment for a stamp paper purchased more than six months prior to the proposed date of execution, being used for a document

Whether the Whole Time Director can be held personally liable for the defualts done by him or if he is the known party to the defaults?

The whole -time directors are like the employees of the company and if they commit any violations , they will be held responsible.

If you are talking about the violations under the Companies Act, unless otherwise is proved the WTD being officer in default will be personally liable for all violations.

Each section of the Companies Act defining the liability, provides for the persons who would be personally liable for the violations.

 WTD is the officer in default under Section 5(g) of the companies Act, 1956 and for any willful default he will be personally liable and corporate veil can be lifted to see who is behind the scene.

he whole -time directors are like the employees of the company and if they commit any violations , they will be held responsible.

For instance , Section 372A of the Companies Act, Sub-section 1 of Section 372A stipulates that no company can acquire shares in any other “body corporate” through “subscription purchase or otherwise” for an amount exceeding 60 per cent of the acquiring company’s share capital and free reserves or 100 per cent of its free reserves, whichever is higher, as loans, guarantees and investments.

If company wants to invest more than the above limit , it would require shareholder authorization through a special resolution passed in a general meeting. The law also states that such a resolution has to be passed only through a postal ballot and with advance intimation to the RoC.

For instance , Satyam Board under Mr.Raju chairmanship ,approved a proposal to invest Rs 7,920 crore in the Maytas firms ( a subsidiary of Satyam group) whereas under section 372 A, it can invest only to the maximum level of Rs 2,136.37 crores without shareholders approval. Without Shareholders approval , Satyam invested Rs 7920 crores in Maytas.

Satyam board at that time consisted ts like prominent personalities as former cabinet secretary T R Prasad, Harvard Business School’s Krishna Paleppu, designer of the Pentium chip Vinod Dham etc.

Please note that Violating Section 372A would make the officers-in-default (which include the managing director, company secretary and whole time director) liable for punishment, which includes a fine of Rs 50,000 or imprisonment up to two years.

Thus , whole-time directors can be held liable for the violation or infringement of section 372A .

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