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 .


 

NOW COMPANIES CAN CONVENE THE BOARD MEETING THROUGH VIDEO CONFERENCING

It is not mandatory for companies to provide its directors, the facility to attend meetings through video conferencing.

Now , it is optional for the companies to organise the board meeting of the company through video conferencing. For listed companies , they have to adhere the listing rules over and above MCA rules.

v Inform every director of board meeting including that they can participate through video conference and also get confirmation from them whether they will participate in person or video conference.

v Place of meeting will be the place, where chairman or company secretary is sitting.

v A roll check will be made by chairman and every director and company secretary present in the meeting will state his name, designation, city etc.

v Record the proceedings of the meeting and preserve the same for one year.

v At the end, decision of the meeting will be announced by the Chairman.

Ref: MCA Circular 28/2011 dated 20/05/2011.

The following case law will throw some light on the subject.


In State of Maharashtra v. Dr Praful B. Desai (2003) the Supreme Court held, as to the question whether recording of evidence by video conferencing is permissible:

“Video conferencing has nothing to do with virtual realty. Advance in science and technology have now, so to say, shrunk the world. They now enable to see and here events, taking place for away, as they are actually taking place. Video conferencing is advancement in science in technology which permits one to see here and talk with someone far away with the same facility and ease as if he is present before you i.e. in your presence. In fact he/she is present before you on a screen. Except for touching one can see, here and observe as if the party is in the same room. In video conferencing both parties are in presence of each other. Recording of evidence by Video conferencing also satisfied the object of providing, in section 273, that evidence be recorded in the presence of the accused. The accused and his pleader can see the witness as clearly as if the witness was actually sitting before them. The advancement of science and technology is such that now it is possible to setup video conferencing equipment in the Court itself for recording the evidence through video conferencing.”

Why a Charge has to be registered with ROC under Section 125 of the Companies Act ,1956

INDUSTRIAL DEVELOPMENT BANK OF INDIA v. THAPAR AGRO MILLS LTD [DEL]

– No charge has been registeredUnder section 125 in favour of IDBI by the Creditor Thapar Agro Mills – IDBI obtaining decree from DRT.  Whether the decree creates a charge in the assets of the company – Held, No.Sections 125 and 460(6) – Companies Act, 1956 –

Facts:

IDBI had advanced loan of Rs. 200 lacs to the company in liquidation in August, 1992. As per loan agreement, the company in liquidation ( Thapar Agro Mills Ltd) was to allot Non Convertible Debentures (in short “NCDs”) after complying with the SEB I guidelines and other pre-requisites like appointment of trustees, creation of security etc.

However, despite various reminders, the company in liquidation neither issued NCDs to the appellant nor paid interest or other charges in accordance with the agreement. The company also failed to create security as required. Consequently, the appellant filed an application under Section 19 of the Recovery of  Debts Due to Banks and Financial Institutions Act, 1993 for recovery of Rs.2,96,22,963.00 along with pendente lite and future interest and costs of litigation, which was decreed in favour of IDBI.

However, the Official Liquidator vide order dated 06th May, 2005 rejected the appellant’s claim as secured creditor on the ground that the appellant’s charge was not registered under Section 125 of the Companies Act, 1956. In this case, neither a charge was created by the company in liquidation nor by operation of any law or by the decree of the DRT.

The order of the DRT, Chandigarh amply proves that no NCD was ever issued and hence no charge/security was created by the company. The DRT did not declare petitioner to be a secured creditor. But merely because appellant is in possession of a decree for recovery, does not mean that appellant becomes a secured creditor. In fact, every decree holder is entitled to seek sale of assets of the defendant, in the event the decree is not satisfied.

High Court is of the view that if appellant’s submissions were to be accepted, then every sundry/unsecured creditor after obtaining a decree from the Civil Court would have to be treated as a secured creditor - which is untenable in law. Consequently, as there is no charge in favour of the appellant, the appellant cannot be considered as a secured creditor.

This decision emphasizes the need to register the charge with ROC under section 125 to become a secured creditor in the case of insolvency or winding up of a company. It is not also not understandable why IDBI has not insisted to register the charge with ROC under section 125 of the Companies Act 1956.