Board Resolutions of a Running Company

8/3/2019 Board Resolutions of a Running Company

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BOARD RESOLUTIONS OF A RUNNING COMPANY

Nature of resolutions

As stated in the preceding Chapter, Board resolutions may be of the following categories:

(a) Resolutions which are connected purely with internal management of the

company or deal with internal administration and regulation of the affairs of the

company;

(b) Resolutions affecting the interest of the members or outsiders, such as,

making calls on partly paid shares/buying back of securities, issue debentures,borrow moneys otherwise than on debentures, investing funds of the company

power to make loans and issue of right shares, etc.;

(c) Resolutions which are required to be passed by the Board under the

companies Act, 1956 and/or other statutes.

Internal management

Resolutions which are purely for facilitating internal management are not limited in their

scope by the provisions of the statute and it is only in rare cases that the Articles of

Association provide that certain businesses can be transacted only at a Board Meeting.

These resolutions should, however, ensure that:

(i) all matters have been considered from all angles, discussed thoroughlydiffering viewpoints and experiences of the Directors have been applied to the

problems;

(ii) policy and other important decisions are recorded, where necessary, in a

precise form, in the body of the resolution, thus facilitating historical

consideration and future guidance and directions;

(iii) policy matters are considered only in a Board Meeting;

(iv) difference of opinions among Board members is ironed out as far as possible,

paving preferably the way for a unanimous decision;


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(v) decisions which cast duties or obligations, or confer rights on executives and

other staff are stated in specific and clear terms.

Whether required to be passed by the statute or not, once passed, any resolution, falling in

any of the categories, has a legal force, either under the Companies Act, 1956 or some

other Act. Thus approval of the Board of Directors regarding some expenses may be

considered as authentic proof by the Income-tax Officer assessing the income of the

company, that the expense was wholly and necessarily incurred for the purpose of the

business. The resolution failing in category (b) above may be a valuable piece of

evidence in any legal action taken by aggrieved members and on the other hand, absence

of a resolution falling under category (c) may be taken as a proof that there was no

requisite authority for doing any act which might have been done without a resolution

having been passed.

SPECIMEN RESOLUTIONS

Operation of Bank Account

Regn. 70. Operation of Bank Account-Change therein-supersession of all resolution-

Board Resolution

"RESOLVED that in supersession of all resolutions passed in this behalf,

the following Officers of the Company be and are hereby authorised to

operate singly the Company's Current Accounts with Bank of Baroda,Parliament Street, New Delhi and the Oriental Bank of Commerce Ltd.,

Connaught Circus, New Delhi-

1. Shri SPM, Director

2. Shri SKM, Chief Executive

3. Shri RSR, Manager Works


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RESOLVED FURTHER that the said Shri RSR is authorised to operate the

aforesaid accounts to the extent of Rs. 50,000/- (Rupees fifty thousand only) at a

time.

RESOLVED FURTHER that the aforesaid Banks be and are hereby authorised to

honour all cheques, drafts, bills of exchange, promissory notes and other

negotiable instruments signe, drawn, accepted or made on behalf of the Company

by the aforesaid officers and to act on any instructions so given relating to the

said Banking Accounts of the Company whether the same be overdrawn or not or

relating to any transactions of the Company."

PRACTICE NOTES

1. Authority to operate Bank Accounts.-The Board may authorise any officer of the

Company to operate the Bank Accounts of the Company either singly or jointly.

2. Copy of resolution given to the Bank.-The certified true copy of the board resolutionshould be forwarded to the concerned Bank or Banks along with a forwarding letter

stating therein the company's decision to make a change in the signatories of operation of

bank accounts of the company.

3. Bills of Exchange and Promissory notes.-A bill of exchange, hundi or promissory

note shall be deemed to have been made, accepted, drawn or endorsed on behalf of a

company if drawn, accepted, made, or endorsed in the name of, or on behalf of or on

account of, the company by any person acting under its authority, express or implied(Section 47).

4. Notice of Board Meeting.-Notice of a Board Meeting should be given in writing to

every director of the company for the time being in India and at his usual address in India

to every other director. Penalty for failing to giving notice as aforesaid will make everyofficer of the company whose duty it is to give notice punishable with fine of Rs. 1,000/-.

Change in authorisation in Bank Account

(Another format)


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Miscellaneous-Bank Account-Change in authorisation-supersession of all resolutions-

Board Resolution

"RESOLVED that in supersession of the resolution passed by the Board of Directors attheir Meeting held on 3rd November, 2000, Bank of Baroda, Parliament Street, New

Delhi be and is hereby authorised to honour all cheques, bills of exchange, promissory

notes drawn, accepted and all negotiable instruments whatsoever made on behalf of theCompany by Ms. SJ, the Managing Director of the Company and to act on any

instructions so given relating to the account whether the same be overdrawn or not or

relating to the transactions of the company.

RESOLVED FURTHER that the Secretary of the company be directed to send a

copy of this Resolution to Bank of Baroda, Parliament Street, New Delhi for their

information and record."

PRACTICE NOTES

1. General Powers of the Board.-Since a company cannot operate on its own being an

artificial juristic person, section 291 of the Act has provided that the Board of Directorswill exercise all powers and do all acts and things as the company is authorised to

exercise and do.

2. Passed by circulation.-For change in operation or authorisation of bank account also a

resolution passed by circulation under section 289 is valid and can be so done as per the

provisions of section 289.

Bank Account-Revision of credit facility

Miscellaneous-Revision of Bank's credit facilities-Board Resolution


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"RESOLVED THAT the company do avail of the following credit facilities from Indian

Overseas Bank and State Bank of India as per limits set out against each credit facility:

Indian Overseas Bank State Bank ofIndia

(a) Letters of Credit (Foreign) Rs. 600 lakhs -

(b) Letters of Credit (Inland) Rs. 400 lakhs Rs. 350 lakhs

(c) Letters of Guarantee Rs. 300 lakhs Rs. 200 lakhs

(d) Bridging loan for balancing equipment - Rs. 170 lakhs

(e) Cash Credit facilities for other projects - Rs. 410 lakhs

(f) Cash Credit limit - Rs. 510 lakhs

RESOLVED FURTHER that Shri SKM, Managing Director of the company beand is hereby authorised to sign singly all documents and papers which may be

required in this connection under the Common Seal of the Company."

PRACTICE NOTES


artificial juristic person, section 291 of the Act has provided that the Board of Directors

will exercise all powers and do all acts and things as the company is authorised toexercise and do.

2. Board Resolution passed by circulation.-Increase in credit facilities is a major issue

and it should not be passed by circulation of the resolution among the directors undersection 289 and usually Banks insist that such a resolution should be passed at a duly

convened Board Meeting under section 292(l)(c) although there is no restriction imposed

by the Act to do so.

3. Ensuring that credit limits are within the overall limits of borrowing.-While

increasing the credit limits the company should also adhere to the limits set under section

293(l)(d) and ensure that the total borrowing does not exceed the maximum limit

approved by the general meeting.


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Bank Overdraft/Cash/Credit facility

Miscellaneous.-Over draft/Cash Credit Facilities-Board Resolution

"RESOLVED that the company do request the State Bank of India, Parliament

Street, New Delhi, for allowing the company the overdraft/cash credit facility to

the extent of Rs. 10,00,000 (Rupees ten lakh only) for meeting the working

capital needs of the company.

RESOLVED FURTHER that the Managing Director of the company be and is

hereby authorised to secure the said facilities against the hypothecation of

furnished goods, raw-materials, etc., of the company and to execute all

documents and papers as required by the said Bank and to do all such acts, deeds

and things as may be necessary to secure the above facilities.

RESOLVED FURTHER that the General Manager (Finance) be and is herebyauthorised to operate the said account and to deal with all matters connected

therewith."

PRACTICE NOTES

1. Delegated to a Committee.-For obtaining overdraft or cash credit facilities from any

bank, Board of Directors can delegate its power to any committee under section 292(l)(c)

of the Act by passing a resolution at a meeting of the Board and then the resolution

should be passed by the said committee so constituted to deal with overdraft or cash

credit facilities of the company.

2. Overdraft/cash credit whether temporary loans.-Section 293(l)(d) will not beapplicable to a company's obtaining overdraft or cash credit facilities from any bank as

such borrowing will be in the nature of temporary loans obtained from company'sbankers in the ordinary course of business.

Opening of Bank Account for Public Issue


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Miscellaneous-Bank Account-Opening of-For Public Issue-Board Resolution

RESOLVED that the Company do open a Bank Account styled as "ABC Limited Public

Issue Account" with the banks hereinbelow mentioned and that the said Banks be and arehereby authorised to receive applications as well as money for __________ Equity shares

in accordance with the instructions as may be issued by the Company from time to time.

RESOLVED FURTHER that the said banks be and are hereby authorised to

honour all cheques, refund and/or pay order drawn on behalf of the Company

severally by Shri ______________ and Shri ______________ and to act on

instructions so given by any of them relating to the said banking account of the

Company.

Name of Banker Address

1

2

3

PRACTICE NOTES


artificial juristic person, section 291 of the Act has provided that the Board of Directorswill exercise all powers and do all acts and things as the company is authorised to

exercise and do.

2. Whether can be passed by circulation.-There is no bar for such a resolution to be

passed by circulation under section 289 as this matter is outside the items mentioned

under section 292(l) but anything to be done in connection with a public issue should be

through a properly convened Board Meeting to avoid subsequent complications.


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Appointment of Bankers for the Company's Public Issue

Miscellaneous-Bankers to Issue-Appointment of-Board Resolution

"RESOLVED that the Bankers hereinbelow mentioned be and are hereby appointed as

bankers to the Company's Public issue of ______________Equity shares of Rs. 7/- each

for cash at par:-

Name of Banker Address

1

2

3

4

5

PRACTICE NOTES

1. Selection of Banker's name.-Select a few names of the leading Scheduled Banks

before passing this resolution and allow preferences to be viewed at the meeting of the

Board where discussion on this subject matter takes place.

2. Board Meeting.-Hold a Board Meeting including the details of the different Banks in

the agenda for the Board Meeting and get them approved by the Board by passing a

resolution.


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3. Information to Stock Exchange, etc.-Inform the Stock Exchanges concerned on

which the shares of the company are to be listed. Also send intimation to the brokers to

the issue etc.

4. Freedom to determine the denomination.-A company is free to issue shares in any

denomination determined by it in accordance with section 13(4) of the Act and incompliance with norms as already specified and as may be specified by SEBI from time

to time. [Clause 3. 7 of SEBI (Disclosure & Investor Protection) Guidelines, 2000].

Adoption of common seal (S. 34(2))

The possession of a common seal with its name engraved on it in legible characters is astatutory requirement of an incorporated body, having a legal personality of its own.' A

company registered under the Companies Act, 1956, should have only one common seal

for use within India. The general practice is to use a metallic common seal. A company

can have an official seal for use outside India which is a facsimile of the common seat of

the company, with the addition on its face of the name of the territory, district or place

where it is to be used under section 50. The common seal of the company being the

signature of the company should be adopted at its first Board Meeting and its impression

should be taken in the minutes book of the Board.

Opening of a branch office

S. 2(9)-Opening of a branch office-Board Resolution

"RESOLVED that the company's sales depot situated at ________, be and is herebydeclared as a 'branch office' within the meaning of section 2(9) of the Companies Act,

1956 and not a 'sales depot' and Mr __________ be authorised to take all such actions asmay be necessary for the establishment of this branch office."

PRACTICE NOTES


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1. Meaning of Branch Office.-Section 2(9)(a) defines 'branch office' in relation to a

company to mean (i) any establishment described as a branch office by the company, or

(ii) any establishment carrying on similar or identical activity in relation to the head

office of a company, or (iii) any establishment engaged in any production, processing or

manufacture. It also says that this does not include any establishment specified in anyorder made by the Central Government under section 8.

2. Declaration of an establishment as branch office.-The Board may, by passing a

resolution, describe any establishment other than the registered office or have any

establishment which may be prevented by the Central Government under section 8 from

being declared as the branch office not to be a branch office. Declaring any establishment

of a company to be a branch office can be done by passing a Board Resolution but

declaring any establishment not to be a branch can be done only under the order of the

Central Government under section 8.

3. Advantage of declaring an establishment as branch office.-Considering the purport

of sub-clauses (a), (b) and (c) of clause (9) of section 2, any factory located in any town

or village, any establishment carrying on either the same or substantially the same

activity as that carried on by the head office of the company may be treated as a 'branch

office'.

There is a definite advantage of declaring an establishment not covered by the definition

contained in sub-clauses (b) and (c) of the section to be a branch office because in the

case of a branch office, only summarised quarterly returns or returns at shorter intervalsmay be sent to the registered office pursuant to the provisions of section 209(2) of the

Companies Act. Pursuant to section 228, the audit of the accounts of a branch office need

not be done by the company's Auditor, but may be done by another qualified Auditor

appointed by the company in a General Meeting. If the branch office is situated outside

India, then the accounts of such branch office may be audited either by the company's

Auditor or by the other person appointed in a General Meeting to be a branch Auditor or

by an Accountant duly qualified to act as an Auditor of the branch office in accordance

with the laws of that other country.

4. Exemption from Branch Audit.-Under the provisions of section 228(4) a companymay be entitled to exemption from the audit of a branch office under the Companies(Branch Audit Exemption) Rules, 1961, either automatically or by obtaining Central

Government's approval by making an application in the form prescribed under the said

Rules.


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5. Power of Central Government to declare an establishment not to be branch

office.-To prevent the abuse of the aforesaid provisions, section 8 gives power to the

Central Government to declare by order an establishment not to be a branch office, so

that the concessions granted under sections 209(2), 228 or 229 to a 'Branch Office' are

not available in every case.

Establishment of a new branch

S. 2(9)-Establishment of a new branch-Board Resolution

WHEREAS the company has been engaged in business of heavy engineering consisting

of a forgeshop and graded steel casting foundry since July, 2000, and have so farconcentrated mainly on the western region.

AND WHEREAS the company has now assessed that substantial demand of the

company's products comes mainly from the south and central region of the

country.

AND WHEREAS there is no sophisticated unit producing such products in any

region which may cater to the needs of the south and central region of thecountry.

AND WHEREAS the contemplated region is in close proximity to the

sources of raw materials and cheap labour from the eastern and thesouthern regions.

AND WHEREAS the cost of freight on procurement of raw materials and cost offreight on distribution of the finished products to such south and central market

areas will be most economical, compared to cost of distribution from the existing

manufacturing unit of the company at Thana.

AND WHEREAS expert technical consultant has completely studied the

technical and feasibility of setting up a new factory at such site as per the report


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of such consultant which is hereby tabled and it appears from such report that the

recommendations made therein are quite logical and economical.

AND WHEREAS the company by making an application under the Industries

(Development and Regulation) Act, 1951, have obtained necessary licence for

the establishment of a factory at _________ (near Bangalore) with a capacity of

10,000 tones per year.

NOW THEREFORE, IT IS-"RESOLVED that the company may take immediate

action for the establishment of manufacturing unit at __________ (near

Bangalore), and that the project division of the company be advised to completeall technical and mechanical drawings forthwith and place orders for the

construction and fabrication of the workshop buildings and equipments for the

setting up of the manufacturing facilities as licensed for a capital outlay of Rs.

320 lakhs and to do all such things as may be deemed necessary and incidental to

the establishment of a manufacturing unit in the village __________ in the

vicinity of the Bangalore city in the State of Karnataka and for the purpose of

setting up the factory, the Managing Director of the company be and is hereby

authorised and directed to initiate immediately negotiation to buy a suitable plot

of land near about the said location, and submit his recommendation to the Board

of Directors for the latter to consider the suitability of the proposed purchase of

land, terms and conditions of such purchase and the consideration of such plot of

land.

RESOLVED FURTHER that the company prefer a land on outright purchase

basis as, lease-hold property will not be suitable, for the company.

RESOLVED FURTHER that the Managing Director and Mr. PKW a director of

the company be entrusted with the overall responsibility and authority of

implementation and completion of the project preferably within the amount

budgeted therefor, and that Mr. PKW be and is hereby advised to submit his

progress report to the Board of Directors beginning with negotiation for the

purchase of land to the completion of the setting up of the factory, plant and

machinery."

PRACTICE NOTES


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1. Place of manufacture treated as Branch Office.-Pursuant to the provisions of section

2(9)(b), any establishment carrying on either the same or substantially the same activity

as that carried on by the head office of the company, shall be termed as a branch of the

company.

It is construed that under the definition of a branch, as covered by the aforesaid

provisions, a factory or manufacturing facility located in any town or village, other than

the place where the registered office is situated will be identified as a 'branch office'.

2. Part of Head Office.-If an establishment is not a branch office of the company, it will

form part of the head office and will be dealt with as such for audit and other purposes[Letter No. 8/16(1)/61-PR, dated 9-5-1961].

Establishment of company not treated as branch office

S. 2(9) read with S. 8-Establishment of company not treated as branch office-Board

Resolution

"RESOLVED that the sales office of the company situated at 124 Panchkuian

Road, New Delhi, which performs the same activity as the head office of thecompany situated at 123 Panchukuian Road, New Delhi be not treated as the

branch office of the company and that the order of the Central Government

issued vide letter No . ________ dated _________ be and is hereby noted."

PRACTICE NOTES

1. Branch Office-meaning.-An office is different from a shop of the company and a

branch office must at least possess the character of an office of the company. Eastern

Distillary Sugar Factory v. Municipal Council, (1933) 3 Corn Cases 310, 313 Mad.

2. Head office and branch office.-Section 8 empowers the Central Government to

declare that an office shall not be treated as a branch office. The term 'head office',


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though it may be the registered office, need not necessarily be so. It is usually the place

where the substantial business of the company is carried and its negotiations conducted.

3. Audit.-An establishment which is not branch office of a company will form part of the

head office for audit purposes. See letter No. 8/16(1)/61-PR, dated 9-5-1961.

4. Application to Central Government.-For making the application to the Central

Government, necessary authorisation should be obtained from the Board. There is no

prescribed form of the said application to be made to the Central Government and

therefore, application should be made on a plain paper giving full details and adequate

justification for the order prayed for declaring the branch office not to be treated as abranch office. Application fee should be accompanied by way of treasury challan or

demand draft as required by Companies (Fees on Applications) Rules, 1999.

5. Limitation.-Central Government will not declare the branch office as part of the head

office if the company itself has already declared it as a branch office.

6. Foreign branch is also a branch office.-Anything done by a company's branch office

outside India cannot be said to be done by foreign concern and such a branch office is a

part and parcel of the company's life and anything done by it will be deemed to be done

by the company itself. Union of India v. G.A. Randarian Ltd., (1992) 75 Com Cases 486

(Cal).

Issue of Derivative

S. 2(12B)-Issue of Derivatives-Board Resolution

"RESOLVED that the Board of Directors be and is hereby authorised to issue

derivatives from time to time to such persons or authorities as it deems fit subject

to such approvals from such authorities and as per such guidelines as may be

required.


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RESOLVED FURTHER that Mr _________ the director and Mr

_________ the Secretary of the Company be and are jointly authorised to

obtain the required approvals and permissions on behalf of the companyand to do every deed and act in connection therewith and incidental or

ancillary thereto.

PRACTICE NOTES

1. Definition of Derivative.-Definition of derivative given in section 2(12B) refers to the

definition given in section 2(aa) of the Securities Contracts (Regulation) Act, 1956. It

gives an inclusive definition saying that a security derived from a debt instrument, share

loan whether secured or unsecured, risk instrument or contract for differences or any

form of security and a contract which derives its value from the prices or index of

prices .of underlying securities will be included in the definition of derivative.

2. Inserted by the Companies (Amendment) Act, 2000.-Section 2(12B) was inserted

by the Companies (Amendment) Act, 2000, to allow companies to have alternative form

of securities to meet their financing needs other than simply by three types of securities

namely, pure debt instruments, ordinary shares and preference shares and also to make

financial market more flexible in terms of choice of instruments.

3. Value of Derivative.-A derivative is a product whose value is derived from the valueof underlying asset, index a reference rate. The underlying asset can be equity, forex

commodity, or any other asset. The definition of derivative given in the SecuritiesContracts (Regulation) Act, 1956 is in the nature of a financial derivate.

Payment of Interim Dividend

S. 2(14A) -Payment of Interim Dividend-Board Resolution

RESOLVED that an interim dividend at the rate of 10 per cent.

accounting for Rs _________ be paid out of the distributable profits of the


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company for the interim period ending __________ on all the equity

shareholders of the company whose names appear on the register of

members of the company on __________

RESOLVED FURTHER that the register of members of the company and the

share transfer books be closed for __________ day from _________ to__________

PRACTICE NOTES

1. Dividend includes interim dividend.-Sub-section (14A) is added to section 2 of the

Act by the Companies (Amendment) Act, 2000, so that all interim dividend may also betreated as dividend as per section 205, 205A, 205B, 206, 206A and 207. Requirements of

these sections are to be complied with now as regards payment of interim dividend also.

2. Restriction on disbursement of interim dividend.-Period of disbursement of interim

dividend to shareholders is now fixed at 30 days just like final dividend. Earlier there was

no period fixed for disbursement of interim dividend but period of disbursement of final

dividend was only fixed to 42 days. Companies (Amendment) Act, 2000 has reduced the

period of disbursement of final dividend from 42 days to 30 days and since by definition

dividend includes interim dividend, payment of interim dividend should also be made

within 30 days. Other provisions of the Act applicable to final dividend are alsoapplicable to the payment of interim dividend.

3. Companies (Compliance Certificate) Rules, 2001.-If the company's paid-up share

capital is less than Rs. 2 crores but is equal to or more than Rs. 10 lakhs, the company has

to obtain a compliance certificate from a secretary in whole-time practice to be filed with

the Registrar of Companies mentioning therein inter alia that the due compliance of the

provisions of the Act as per paragraph 13(ii), 13(iii) and 13(iv) of the Form of

Compliance Certificate appended to the said Rules.

Employees Stock Option


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S. 2(15A)-Giving Stock Options to employees-Board Resolution

"RESOLVED that Employees Stock Option be given to all the employees of the

company earning a gross salary of Rs ________ per month and above as on

___________ subject to such terms and conditions as may be decided and

imposed from time to time by the Board and approved by the members of the

company by passing a Special Resolution under section 81(1A).

RESOLVED FURTHER that the Secretary of the Company be and is hereby

authorised to carry out the modalities of giving of such options to employees.

PRACTICE NOTES

1. Definition.-As per the definition given in clause (15A) of section 2, employees stock

option means the option given to the whole-time directors, officers or employees of a

company, which gives such directors, officers or employees the benefit or right to

purchase or subscribe at a future date, the securities offered by the company at apredetermined price.

2. Companies (Amendment) Act, 2000.-This was inserted by the Companies(Amendment) Act, 2000 to secure greater employee participation giving the right

incentive signals and rewarding loyalty as well as years or service through employees

stock option.

3. SEBI Guidelines.-SEBI has issued SEBI (Employees Stock Option Scheme and

Employees Stock Purchase Scheme) Guidelines, 1999 and listed companies should

comply with the provisions of these Guidelines while giving stock options to theiremployees.

4. Passing of Special Resolution.-After passing of the Board Resolution a General

Meeting is to be held to pass a Special Resolution thereat approving the giving of such

stock options to employees.


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Change of Financial year

S. 2(17)-Change of Financial year-Board Resolution

"RESOLVED that the financial year of the company be changed to theperiod from _________ 2002 _________ to _________ 2002 _________

both days inclusive, and that subsequent 'financial year' of the company be

changed to a period of one calendar year beginning from _________ ofone year and concluding on _________ of the subsequent year."

PRACTICE NOTES

1. Prior approval of Income-tax Officer required for change of Financial year.-

Changing of a financial year is subject to prior approval of the concerned Income-tax

Officer pursuant to sub-section (4) of section 3 of the Income-tax Act, 1961.

2. Importance of financial year.-'Financial year' in relation to a body corporate isimportant as profit and loss account and the balance-sheet are to be prepared in respect of

a financial year (balance-sheet as on the concluding date of such financial year) for the

purpose of laying such accounts before the Annual General Meeting of the company.

3. Financial year with reference to company's accounts.-Pursuant to sub-section (4) of

section 210, a financial year, with reference to which the accounts of the company are

prepared, may be less or more than a calendar year, but it is not to exceed 15 months. The

maximum period for which a company may prepare its account in relation to a financial

year may be extended to 18 months with special permission having been granted in that

behalf by the Registrar of Companies.

4. Definition.-Financial year means in relation to anybody corporate, the period in

respect of which any profit and loss account of the body corporate laid before it in annual

general meeting is made up, whether that period is a year or not.


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Issue of Hybrid

S. 2(19A)-Issuing of Hybrids-Board Resolution

"RESOLVED that the Board of Directors be and is hereby authorised toissue Hybrids from time to time to such persons or authorities as it deems

fit subject to such approvals from such authorities as may be required.

RESOLVED FURTHER that Mr _________ the Secretary of the company

be and is authorised to obtain the required approvals and permissions onbehalf of the company and take any steps in connection therewith and

incidental and ancillary thereto.

PRACTICE NOTES

1. Derinition.-Hybrid means any security which has the character of more than one type

of security, including their derivatives.

2. Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000).-Clause (19A) of section 2

was inserted by the Companies (Amendment) Act, 2000 to introduce one of the various

forms of securities like debt-equity, hybrids, derivatives, options and shares with

differential rights to accompany corporate growth. Hybrids is an omnibus term that

allows for any combination of securities, including their derivatives or options.

Information Memorandum

S. 2(19B) -Circulation of Information Memorandum for issue of securities-Board

Resolution


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"RESOLVED that the Information Memorandum containing particulars as per

the draft placed before the meeting and initialled by the Chairman for the purpose

of identification be approved to be circulated to the public for issue of securities

of the company prior to the filing of the prospectus with the Registrar of

Companies to assess the price and the terms of issue of securities.


authorised to take every step that may be necessary in connection therewith and

incidental and ancillary therewith.

PRACTICE NOTES

1. Definition.-Information memorandum means a process undertaken prior to the filing

of a prospectus by which a demand for the securities proposed to be issued by a company

is elicited and the price and the terms of issue for such securities is assessed by means of

a notice, circular, advertisement or document.

2. Companies (Amendment) Act, 2000 (w.e.f. 13-12-2000).-Clause (19B) of section 2

was inserted by the Companies (Amendment) Act, 2000. This new expression is relevant

for the purposes of section 60A and 60B also inserted by the same Amendment Act. In

order to explore the demand for securities and also the price at which securities may be

offered to the public, a public company may before issuing prospectus circulateinformation memorandum and red-herring prospectus to the public. The information

memorandum and the red-herring prospectus must carry the same obligations as are

applicable in the case of a prospectus and any variation between the two must be

highlighted as variations by the issuing company.

Appointment of a Manager

S. 2(24)-Appointment of a Manager-Board Resolution

"RESOLVED that Mr. A, who is working as a manager of the company be and is

hereby appointed as a manager within the meaning of section 2(24) of the

Companies Act, 1956, on the same terms and conditions as hitherto.


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RESOLVED further that Mr. B, secretary of the company be and is hereby

directed to file the necessary returns with the Registrar of Companies and, if

necessary, make application to the Central Government for approval of

appointment of manager and payment of remuneration to him for a period of five

years from _________

PRACTICE NOTES

1. Shareholders' approval.-After the appointment by the Board of Directors, the

appointment of a Manager should be approved by the general meeting by passing an

ordinary resolution for the purpose of giving remuneration.

2. Central Government's approval.-The appointment of a Manager also needs Central

Government's approval in case the said appointment is not in accordance with the

conditions specified in parts (I), (II) and (III) of Schedule XIII to the Act. The said

application should be made in Form No. 25A within 90 days from the appointment along

with requisite application fees as per Companies (Fees on Applications) Rules, 1999 by

way of treasury challan or demand draft.

3. Filing of Forms.-Form No. 32 in duplicate should be filed with the concernedRegistrar of Companies within 30 days of the appointment after paying the prescribed

fees as per Schedule X to the Act. File a return in Form No. 25C within 90 days from the

date of appointment with the concerned Registrar of Companies with requisite fees only

in cases where the Central Government's approval is not required.

4. Manager in one Company only.-Unlike a managing director, a manager can be

appointed only in a single company because he is incharge of whole of the affairs of the

company.

This is despite enabling provision in section 386(2). If he is to be appointed in more thanone company, a lot of explaining will be necessary. But if a person who is already a

manager or managing director of one and not more than one other company is appointed

or employed by a company, such appointment or employment is made or approved by a

resolution passed at a meeting of the Board with the consent of all the directors present at


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the meeting and of which meeting and of the resolution to be moved thereat, specific

notice has been given to all the directors then in India [Section 386(2) proviso].

5. Individuals to be appointed as Managers.-No firm or body corporate or association

can be appointed as a manager and only individuals can be appointed as such as per

section 384 of the Companies Act, 1956.

6. Government Company's exempted.-Provisions of section 386 and 388 of the Act

relating to number of companies of which a person may be appointed a manager and

application of sections 269, 310, 311, 312 and 317 to managers will not apply to

government companies.

7. Companies (Compliance Certificate) Rules, 2001.-If the company's paid-up share

capital is less than Rs. 2 crores but is equal to or more than Rs. 10 lakhs, the company has

to obtain a compliance certificate from a secretary in whole-time practice to be filed with

the Registrar of Companies mentioning therein inter alia that the appointment of manager

has been made in compliance with the provisions of section 269 read with Schedule XIII

to the Act and approval of the Central Government has been obtained in respect of his

appointment not being in terms of Schedule XIII as per paragraph 15 of the Form of

Compliance Certificate appended to the said Rules.

Appointment of a Manager

S. 2(24) & 386(2)-Appointment of a Manager who is already a Managing Director of

another company-Board Resolution

"RESOLVED that Mr. B who is already a Managing Director of XYZ PrivateLtd., be and is hereby appointed as a manager within the meaning of section

2(24) of the Companies Act, 1956 read with section 386(2) of it on the terms and

conditions as per the agreement tabled at the meeting and initialled by theChairman for the purpose of identification.

RESOLVED FURTHER that, Mr. C, the secretary of the company be and is

hereby authorised to file the necessary returns with the Registrar of Companies

and if necessary make application to the Central Government for approval of


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appointment of manager and payment of remuneration to him for a period of five

years from _________ to _________

PRACTICE NOTES

Same as given under Resolution 65.

Holding general meeting on a public holiday

S. 2(38) proviso-Holding general meeting on public holiday-Board Resolution

"RESOLVED that the ensuing Annual General Meeting convened to beheld on _________ for which notice has already been issued prior to the

declaration of that day as a public holiday be held as scheduled, in terms

of the proviso to section 2(38) of the Companies Act, 1956."

PRACTICE NOTES

1. Meaning of public holiday.-According to section 2(38) of the Act, public holiday

means public holiday within the meaning of the Negotiable Instruments Act, 1881. But a

day declared by the Central Government to be a public holiday after the issue of the

notice convening the Annual General Meeting will not be applicable as per proviso to

section 2(38) of the Act.

2. Exemption given by the Central Government.-Central Government may exempt anyclass of companies from the operation of the provisions prohibiting holding of annual

general meeting on a public holiday, as per proviso to section 166(2) of the Act.


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3. Other general meetings.-The prohibition against holding meeting on a public holiday

applies only to annual general meeting and not to any other general meeting or class

meeting.

Appointment of secretary in whole-time practice

S. 2(45A)-Appointment of secretary in whole-time practice-Board Resolution

"RESOLVED that Mr ___________________________ who is a secretary in whole time

practice within the meaning of sub-section (2) of section 2 of the Company SecretariesAct, 1980, and who is not in full time employment be and is hereby appointed to perform

such functions as may be performed by a secretary in whole-time practice under theCompanies Act, 1956, and under any other law for the time being in force until otherwisedetermined by the Board."

PRACTICE NOTES

1. Prohibition.-Under section 6 of the Company Secretaries Act, 1980, no member of the

Institute of Company Secretaries shall be entitled to practice unless he has obtained acertificate of practice from the Council of the Institute under Company Secretaries

Regulations, 1982.

2. Performing secretarial duties and functions.-In case the secretary in whole-time

practice is appointed as aforesaid to perform the duties and functions of regular secretary

of a company where the company's paid-up share capital is less than Rs. 2 crores, Form

No. 32 in duplicate in his favour is to be filed with the concerned Registrar of Companies

within 30 days of his appointment as such.

3. Appointment compulsory in certain case.-Proviso to sub-section (1) of section 383-

A as inserted by the Companies (Second Amendment) Act, 1999, provides that a

company having a paid-up share capital of less than Rs. 2 crores but Rs. 10 lakhs andmore must have a certificate obtained from a secretary in whole-time practice to be filed

with the Registrar of Companies stating therein whether the company has complied with

all provisions of the Companies Act, 1956 or not. The said Certificate will be in such


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form and should be filed within such time and also will be subject to such conditions as

prescribed by the Companies (Compliance) Certificate Rules, 2001.

4. No other business or profession.-Under Regulation 168 of the Company Securities

Regulations, 1982, a company secretary in practice is prohibited from engaging himself

in any other business or occupation.

5. Practising in firm name except with the approval of the Council of the Institute.-

A company secretary in practise cannot practise in a firm name unless the Council of the

Institute of Company Secretaries of India approves it on application made to them.

Shares with differential rights

S. 2(46A)-Issue of shares with differential rights-Board Resolution

"RESOLVED that pursuant to section 86(a)(ii) of the Companies Act,1956 and subject to the approval of the members in a general meeting

_________ equity shares with differential voting rights as to dividend,

voting or otherwise of Rs _________each be and are hereby issued to_________ at par.

RESOLVED FURTHER that the secretary of the company be and is hereby

authorised to take every steps that may be needed in connection therewith or

incidental or ancillary thereto.

PRACTICE NOTES

1. Definition.-S hare with differential rights means a share that is issued with differential

rights in accordance with the provisions of section 86. This definition if read with section

86 would be shares issued with differential rights as to dividend voting or otherwise and

essentially refers to equity shares that carry differential voting or dividend rights. The

capital raised by issue of such shares is equity share capital. Share with differential rights,

though termed as equity is a hybrid instrument which can carry the features of


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participating preference shares in respect of dividend and right to vote on other matters

than their own interest.

2. Companies (Amendment) Act 2000 (w.e.f. 13-12-2000).-Clause (46A) of section 2

was inserted by the Companies (Amendment) Act, 2000 pursuant to the

recommendations of the Working Group to facilitate companies to mobilise funds

through new financial instruments. This clause should be read with the provisions of

section 86 which has the effect of enlarging the share categories mentioned therein. As a

result of this enlargement section 88 which prohibited issue of shares with

disproportionate voting rights had to be deleted by said Amendment Act.

3. Companies (Issue of Share Capital with Differential Voting Rights) Rules 2001.-

These Rules have been prescribed under section 86(a)(ii) so that shares with differential

rights as to dividend, voting or otherwise may be issued in accordance with these rules

and subject to such conditions as thereby prescribed. Rule 3 of the said rules give nine

conditions subject to which such shares can be issued. Rule 4 of the said rules provides

for maintaining a register as required under section 150 containing the particulars of

differential rights to which the holder is entitled to.

Revision in scales of pay with Employees

Miscellaneous-Revision of scales of pay pursuant to agreement with employees-Board Resolution

"RESOLVED that approval be and is hereby accorded to the revision in

the scales of pay of Class I Employees in terms of the agreement entered

into between the company and the employees union, a copy of which isplaced before the meeting, duly initialled by the Chairman."

PRACTICE NOTES

1. Internal Regulation.-Review and revision of scales of pay of employees is absolutely

an internal business of the company and can be delegates to any Committee of the 3oard

if the company is having huge number of employees.


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2. Recommendation of expert.-Revision of pay scales of employees can be also made

after obtaining recommendation from an expert or a consultant or an advisor.

Execution of agreement between Company and Employees

Miscellaneous-Agreement with the employees' union-Board Resolution

"RESOLVED that approval be and i5 hereby accorded to the company for

execution of the agreement between the company and the employees'

union for a period of five years from the date of execution thereof, as perthe draft of the agreement placed before the meeting and initialled by the

Chairman for purposes of identification, codifying the conducts of

employer-employee relationship the procedure for promotion, office hoursand discipline and procedure and other related matters.

RESOLVED FURTHER that Shri _______________________ Secretary and Shri

________________________ Chief Personnel Manager of the company be and arehereby jointly authorised to sign the agreement with the employees' union with authority

to vary, modify, correct or rectify the portions necessary in such agreement at theirabsolute discretion."

PRACTICE NOTES

1. Validity of Contracts.-An agreement signed on behalf of the company binds the

company but before it is so signed provisions of section 46 of the Act relating to form of

contracts should be adhered to.

Formation of a subsidiary

S. 4(2)-Formation of a subsidiary by amending the articles-Board Resolution


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"WHEREAS the Articles of Association of the Company have been amended to

provide for the appointment of the majority of directors of this company by

Rushabh Management & Infosys

AND WHEREAS the said Rushabh Management & Infosys is also entitled, by

virtue of the amended Articles of Association, to remove the majority ofdirectors;

AND WHEREAS, out of the five directors of the company, three directors must

be appointed by the said Rushabh Management & Infosys;

NOW THEREFORE IT IS RESOLVED that the Annual Accounts and otherreports of the company be presented along with the Annual Accounts and other

reports of the said Rushabh Management & Infosys, pursuant to provisions of

section 212(l) of the Companies Act, 1956."

PRACTICE NOTES

1. Inter corporate investments.-Although section 372A exempts loans and investments

by holding company in its subsidiary, this exemption will be available where the

subsidiary is a wholly owned subsidiary and not otherwise, by virtue of the new

provisions introduced in clause (c) of sub-section (8) of section 372A, by the Companies

(Amendment) Act, 1999 with effect from 31-10-1998.

2. Prohibition.-Section 42 of the Act prohibits investments by a subsidiary in its holding

company. A subsidiary's holding company's holding company is also its holding

company.

Formation of a new company as a subsidiary company

S. 4(2)-Formation of a new company as a subsidiary-Board Resolution


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"RESOLVED that pursuant to the Memorandum of Association of the company

and section 4(l)(a) of the Companies Act, 1956 approval of the Board be and is

hereby recorded to the formation of a new company under the name of

_________ or _________ or _________ as may be approved by the Registrar of

Companies.

RESOLVED FURTHER that the Memorandum of Association of the company

and the Articles of Association of the new company vesting in the company the

power to control the composition of the Board of Directors of the new company

in the company, draft where-of placed on the Table be and is hereby approved."

PRACTICE NOTES

1. Composition of Board of Directors.-Section 4 of the Act provides that a company

shall become the subsidiary of the other company where the latter controls the

composition of the Board of Directors of the former company.

2. Exemption not available.-An investment that has the effect of making other company

the subsidiary of the former company shall not be exempted from the provisions of

section 372A of the Act.

3. Applicability of section 372A.-Section 372A is applicable only in case the investment

is made out of the funds of the company. [Navjivan Mills Co. Ltd. Kelol in re: 1972(42)

Com Cas 265 Guj].

4. Subsidiary not agent of holding company.-A company whose shares are controlled

by another company is not by mere existence of that control properly to be described as

agent. English Sewing Cotton Co. Ltd. v. I.R.C., (1947) 1 All ER 679 (CA).

5. Director of Holding Company against its subsidiary.-A director of a holding

company does not automatically become a director or a shareholder of its subsidiary, nor

can claim control of the management of the subsidiary nor has any fiduciary duty in


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regard to it. BDA Breweries & Distilleries Ltd. v. Cruickshank & Co. Ltd., (1997) 25

CLA 275 (Bom).

Incorporation of Subsidiary

S. 4-Resolution for incorporation of a subsidiary-Board Resolution

"RESOLVED that Shri AB and BC, directors of the Company, be and are hereby

jointly and severally authorised to incorporate a company as a subsidiary of the

Company under the provisions of the Companies Act, 1956 with (1) the name

and style of XYZ Ltd. or PQR Ltd. or LMU Ltd. or SPK Ltd. whichever is

available; (2) an authorised capital of Rs. 90,00,000/- divided into 9,00,000equity shares of Rs. 10/- each; and (3) having the following objects as its main

objects viz. 1 __________________ 2 __________________ (4) The Articles of

Association of the subsidiary to be incorporated shall be in pari materia with

those of the company.

RESOLVED FURTUER that Shri AB and BC be and are hereby authorised to do

all acts and deeds necessary in connection with and incidental and ancillary to the

incorporation of the subsidiary as aforesaid."

PRACTICE NOTES

1. Resolution under section 372A.-Subscription to the memorandum of association of

the subsidiary may attract section 372A and if so, the necessary resolution under section

372A will have to be passed separately, by the investing company.

2. Holding of shares-The existing company should hold at least more than half in

nominal value of the equity share capital of the new company as per section 4(l)(b)(ii).

More than half in nominal value of the equity share capital means more than half of the

total paid up value or amount on the entire equity share capital issued and allotted by the

new company.


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Officer who is in default

S. 5(f)-Officer in default-Board Resolution

RESOLVED that Shri. AB, General Manager (Finance) be and is hereby

charged with by the Board with the responsibility of complying with the

following provisions of the Companies Act, 1956 viz. _________ as mentioned

in the consent given by him in Form 1AB placed before this meeting and

initialled by the Chairman for the purposes of identification.

RESOLVED further that the Secretary Shri ________________________

be and is hereby directed to file Form lAA with the Registrar ofCompanies _________

PRACTICE NOTES

1. Default by consent-Section 5(f) of the Companies Act, 1956 provides that 'any person'

may become an Officer in default if his consent is obtained in Form No. 1AB of theCompanies Central Government's General Rules and Forms, 1956 and the Board charges

him with the responsibility of complying with particular provisions of the Companies

Act, 1956.

2. Filing return.-A return in Form No. 1AA should be filed with the Registrar of

Companies within 30 days under section 5(g) proviso.

3. Criminal liability of ordinary directors.-A reading of the relevant provisions

including the definitive of "officer who is in default as given in section 5 of theCompanies Act, 1956, would make it amply clear that the criminal liability of ordinary

directors would arise only in respect of a company which has no managing director or a

whole-time director or a manager and where particular directors are not specified to be

liable by the company. Smt. G. Vijaylakshmi & Others v. Securities and Exchange Board

of India & Another, (2000) 100 Com Cases 726 (A.P.).


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4. Averment necessary.-A director cannot be made liable without averment in the plaint

that he was responsible for the affairs of the company or that the offence was committed

with his consent or connivance. The consent or connivance of the director must be clearly

pleaded and cannot be inferred. Sunil Kumar Chhaparia v. Dakka Eshwararaid, (2002)

108 Com Cases 687 (AP).

Officer who is in default-Charging with responsibility

(Another format)

S. 5(f)-Charging of any person with the responsibility of complying ally provisions

of the Act-Board Resolution

"RESOLVED that Shri. SPM, the Cost Accounts Officer, of the Company, beand is hereby charged with the responsibility of complying with the provisions of

the Companies Act, 1956 as per details set out in Form No. 1AB the consent

letter, a copy of which was placed before the meeting and initialled by the

Chairman thereof for the purposes of identification."

PRACTICE NOTES

1. Person charged.-Any person can be charged by the Board with the responsibility of

complying with any provisions of the Act. The person so charged shall be deemed to be

officer in default.

2. Different persons charged.-The Board may fix responsibility of different persons for

compliance with different provisions of the Act, while fixing such responsibility, the

Board has to apply its mind to ensure that a competent and reliable person was charged

with the duty and was in a position to discharge that duty.

3. Prior consent required.-Prior consent of person so charged with the responsibility of

complying with the provisions of the Act has to be obtained by the Board in Form 1AB.


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4. Need not be officer.-The words used in the section are "any person". Thus a person

need not be an officer of the Company.

5. Filing return.-Rule 4BB of the Companies (Central Government's) General Rules and

Forms, 1956 provides that the Company shall within thirty days of exercising its powers

pursuant to the provisions of clause (f) file with the Registrar of Companies concerned in

a return Form No. 1AA duly signed by Secretary or where there is no Secretary, by a

director. Every return relating to exercise of power under clause (f) shall be accompanied

by the consent given to the Board of Directors by the person concerned in Form 1AB.

6. Accountant Prosecuted.-Where the requirements of section 138 and 141 of theNegotiable Instruments Act, 1881 are satisfied the accountants of the company can be

prosecuted. Dev. v. State o A.P., (2002) 108 Com Cases 607 (AP).

Officer who is in default-Charging with responsibility

(Another format)

S. 5(f)-Charging any person with responsibility-Board Resolution

"RESOLVED that pursuant to the provisions contained in clause (f) of section 5

of the Companies Act, 1956, Shri. SPM, Cost Accounts Officer, who has given

his consent in Form IAB, a copy of which was placed before the meeting and

initialled by the Chairman thereof for the purposes of identification, be and is

hereby charged with the responsibility of complying with the undernoted

provisions of the Companies Act, 1956 "Section _________ of the Companies

Act, 1956."

PRACTICE NOTES

1. Different persons charged.-Responsibility of different persons for compliance with

different provisions of the Companies Act, 1956 can be fixed by the Board.


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2. Mens rea not essential.-It is not necessary to prove that the default has been

committed by the officer knowingly or wilfully. Thus mens rea is not an essential

ingredient for establishing the offence in question. In Sukhbir Saran Bhatnagar v.

Registrar of Companies, (1972) 42 Comp Cases 408, it was held that where there is

failure to comply with a statutory provisions and the mere failure is made punishable, it isclear that mens rea is ruled out.

3. Prior consent required.-The Company has to obtain prior consent from the person so

charged with the responsibility of complying with the provisions of the Act.

4. Filing return.-The Company shall within thirty days of exercising its powers pursuantto provisions of clause (f), file with the Registrar of Companies a return in Form IAA

accompanied by the consent given to the Board of Directors by the person concerned in

Form IAB'.

5. Accused not specified as officers in default.-If a complaint is silent about the fact

whether the accused are "officers in default" or not they cannot be held answerable for

the alleged offences committed by the Company under the Act merely because they are

directors of the company. Rameshchandra Manial Kotla v. State of Gujarat, (1998) 30

CLA 313 (Guj).

Officer who is in default-Withdrawal of consent

S. 5(f)-Officer who is in default- Withdrawal of Consent-Board Resolution

"RESOLVED that the withdrawal of consent by Shri. SPM, the Cost Accounts

Officer of the Company, who had been charged with the responsibility ofcomplying with the provisions of the Companies Act, 1956 as mentioned in his

consent letter, dated 5th December 1996, be and is hereby noted.

RESOLVED FURTHER that Secretary of the Company be and is hereby

directed to file Form No. 1AC with the Registrar of Companies, Kanpur."


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PRACTICE NOTES

1. Revocation of consent.-Where, the consent given pursuant to the proviso to clause (f)

of section 5 of the Act has been revoked or withdrawn, the Company shall within thirty

days of such revocation or withdrawal file with the Registrar of Companies a return in

Form No. IAC.

Officer who is in default-Withdrawal of consent by officer

(Another format)

S. 5(g) and (f)-Withdrawal of consent-Board Resolution

"RESOLVED that the letter received from

Shri._________________________ (Officer) Director wholly (or

partially) withdrawing his consent earlier given under section 5(g)/(f),(such partial withdrawal relates to section) placed before the meeting and

initialled by the Chairman for the purposes of identification be and is

hereby taken on record.

RESOLVED FURTHER that the Secretary, Shri______________________ be and is hereby directed to file Form IAC in

this regard with the Registrar of Companies."

PRACTICE NOTES

1. Time for riling of Form IAC.-Form IAC should be filed within thirty days from the

day of revocation or withdrawal of the consent with the concerned Registrar of

Companies with requisite filing fee as prescribed under Schedule X.

2. Interpretation of officer who is in default.-If no person is charged by the Board to be

officer in default with the consent of that person in the prescribed Form No. 1AB, then


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managing directors, whole-time directors and manager apart from the secretary, if any

and if the company does not have such managerial personnel, prosecution will be filed

against all ordinary directors apart from the secretary [Circular No. 6/94, dated 24-6-

1994].

3. Automatically cannot made liable.-From the mere fact that a person was a director at

the time when the offence was committed by the company, he cannot be automatically

roped in. It has to be shown that he played some part in the commission of the offence. K.

Janaki Manollaran v. Gayatri Sugar Complex Ltd., (2000) 108 Com Cases 899 (AP).

Specifying one or more members as Officer in default

S. 5(g)-Specifying one or more members as Officer in default-Board Resolution

"RESOLVED that Shri. AB and CD be specified as Officers in default as

required under section 5(g) of the Companies Act as mentioned in the letter of

consent received from the above directions placed before this meeting andinitialled by the Chairman for purposes of identification.

RESOLVED FURTHER that Shri X, Secretary be and is hereby authorised tofile the necessary Form No. lAA with the Registrar of Companies."

PRACTICE NOTES

1. Officer in default.-Where the company does not have a managing director(s), whole-

time director(s) or manager the Board can specify one or more of its members as officers

in default.

2. Letter of consent.-It is advisable to obtain a letter of consent from the Directors

concerned although it is not obligatory.


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3. Filing return.-A return of Form No. 1AA must be filed in 30 days, with the Registrar

of Companies concerned.

Officer in default specified

(Another format)

S. 5(g)-Officer in default specified-Board Resolution

"RESOLVED that in pursuance to the provisions contained in clause (g) of

section 5 of the Companies Act, 1956, Shri. UKR and SPM, the Directors of the

Company be and are hereby specified as officers who are in default for thepurposes of complying with the provisions of the Companies Act, 1956."

PRACTICE NOTES

1. Public and Private.-The provisions of this Section apply to both public and private

Companies.

2. Officer in default.-As per section 269, a public company or a Private Company which

is a subsidiary of a public company having paid-up capital of Rs. Five crores is required

to appoint a Managing Director, whole-time director or manager and the officers so

appointed will be officers in default. Under section 383-A, a company having a paid-up

capital of Rs. 2 crores or more is required to appoint a whole-time Secretary and he will

be an officer in default.

3. Director in default, when.-A Board managed Company will be required to pass

necessary resolution under clause (g) so as to name the director or directors who will be

Officer(s) in default for purposes of section 5.

4. Board can specify.-In the absence of any Managing Director, whole-time director or

manager, the Board can specify any director or directors as officer who is in default for

purposes of this section. In case no action is taken by the Board under this clause, all the


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directors of the Company have to be treated as officers in default. It may be noted that no

time has been prescribed for specifying the name of directors by the Board which has the

option to identify any director, failing which all the directors will be deemed to be

officers in default.

5. Prior consent not necessary.-It is not necessary to obtain prior consent of the

directors so charged.

6. Filing return.-The company may charge different directors for different provisions of

the Act. A return in Form No. IAA is to be filed by the Company with the Registrar of

Companies concerned within thirty days of exercising its powers.

7. Default in filing annual returns, balance-sheet etc.-A reading of section 220(3)

which deals with 'officer who is in default', shows that even after retirement from the

company, a director can come under the definition of an 'officer in default' Anita Chadha

v. ROC, (1998) 31 CLA 60 (Delhi).

8. Director's resignation.-Where the complaint contained the averment that the person

in questions were directors on the date of the cheque and were also in charge of the day-

to-day affairs of the company, merely on the fact that they had resigned before the notice

of complaint was issued by the payee of the cheque, the court refused to quash the

prosecution. Ashvin C Muthiah v. Multipack, (2002) 108 Corn Cases 563 (Mad).

Establishment declared by Central Government not to be a Branch Office

S. 8-Establishment declared by Central Government not to be a Branch Office-

Board Resolution

WHEREAS the company had made an application" to the Central Government

under section 8 of the Companies Act, 1956 for obtaining an order to declare the

company's establishment at place which is carrying on the same activity as

that carried on by the head office of the company is not to be treated as a branch

office of the company;


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AND WHEREAS the company has received an order dated _________ from the

Central Government approving the company's application and declaring the

establishment of the company situated at _________ place is not to be treated as

branch office of the company under section 8 of the said Act;

NOW THEREFORE IT IS RESOLVED that the establishment of the

company situated at _________ place will not be treated as a branch officeof the company for all or any of the purposes of the said Act.

PRACTICE NOTE

1. Application to the Central Government-Under section 8 of the Companies Act1956, any establishment of a company which either carries the same or substantially the

same activity as that carried on by the head office of the company or any establishment of

the company situated at any place outside the head office and engaged in any production,

processing or manufacture will be treated as a branch office of the company unless and

until the Central Government by order declare that establishment not to be treated as a

branch office.

There is no prescribed form of application to be made to the Central Government and

therefore, the said application should be made on the letter head of the company along

with a demand draft of the amount of application fee on the basis of the authorised sharecapital of the company as per Companies (Fees on Application) Rules, 1999. The said

application should be accompanied by documents and papers showing that the saidestablishment cannot be called a branch office of the company in the true sense of the

term.

2. Necessity of treating an establishment as a branch office.-The requirement of

treating any establishment of a company as its branch office means maintaining proper

records and accounts of that establishment required under different sections of the

Companies Act, 1956, specially section 228 and the Companies (Branch Audit

Exemption) Rules, 1961 prescribed under sub-section (4) of that section.

Appeal against order of Company Law Board to issue right shares to the transferee


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S. 10F-Appeal against order of Company Law Board-Board Resolution

"WHEREAS the company filed a petition under section 111(4)(a)(i) of the

Companies Act, 1956, the company having entered in the register of themembers, the name of the transferee when the instruments of transfers

were unstamped;

AND WHEREAS, on application by the transferee, the Company Law Board had

ordered the company to issue right shares against the shares which were lodged

unstamped;

AND WHEREAS, the company is aggrieved by the said order dated 15-12-2001of the Company Law Board;

NOW THEREFORE IT IS RESOLVED that an appeal be filed before the

Madras High Court against the said order of the Company Law Board, under

section 1017 of the Companies Act, 1956."

PRACTICE NOTES

1. Jurisdiction.-Jurisdiction is with that High Court under which registered office of the

company falls.

2. When appeal lies.-Appeal lies on a point of law and also on a mixed question of fact

and law, and should be filed within 60 days from the date of communication of the

decision or order of Company Law Board.

3. Power of High Court under section 10f.-Under section 10F, a court cannot ordinarily

go into a pure question of fact as found by CLB except where the finding is erroneous orperverse. The power of the High Court under 10F is similar to its power under section

100 of the Code of Civil Procedure. As held by the Supreme Court in Mattulal v. Radhe

Lal, AIR 1974 SC 1596, the Court's jurisdiction would undoubtedly be barred in dealing

with question of fact, unless it could be shown that there was an error of law in arriving at


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it or that it was based on no evidence at all or was arbitrary, unreasonable or perverse.

Rajendra Kumar Malhotra v. Harbans Malhotra & Sons Ltd., (1999) 34 CLA 360 (Cal.)

4. What constitutes question of law.-Where the High Court found that the Company

Law Board passed the order in a manner unknown to law and in an arbitrary manner apart

from the fact that the findings recorded by it on the merits of the case were not only

perverse but unknown to adjudicatory process of land and there being an error apparent

on the face of the order of the Company Law Board, a question of law definitely had

arisen from out of the order of the Company Law Board to be decided by the court under

section 10F. Shri Ramdas Motor Transport Ltd. v. Karedla Suryanarayana, (2002) 110

Com Cases 193 (AP).

5. Application of the provisions of CPC 1908 and Court Rules.-The Companies

(Court) Rules, 1959 apply to all proceedings in the High Court as defined in the said

Rules. Therefore, the said Rules would apply to all appeals under section 10F. Rule 6 of

the said Rules makes the procedural provisions of the Code of Civil Procedure, 1908,

applicable to appeals filed under section 10F. So it is clear that only procedural and not

the substantive provisions of the Code of Civil Procedure alone would apply and the

Rules of the Original Side of the High Court will have no application to an appeal under

section 10F. Manohar Rajaram Chhabria v. Union of India, (2002) 110 Com Cases 162

(Cal).

6. Appeal in the Form of a Memorandum.-Order 41, rule 1 of the Code of Civil

Procedure is a procedural provision and would, therefore, apply to all appeals undersection 10F, under the said Rule, every appeal has to be preferred in the form of a

memorandum signed by the appellant or his pleader and has to be accompanied by a copy

of the decree appealed from and of the judgement on which it is founded.

Appeal against order of Company Law Board to rectify register of members

S. 10E-Appeal against order of Company Law Board-Board Resolution

"WHEREAS the company is aggrieved by the order of the Company Law Board,

dated 15th May, 2002, passed under sub-section (5) of section 111 of the

Companies Act, 1956, directing rectification of the register of the members of the

company;


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AND WHEREAS consultation with lawyers about the appeal to be filed had

taken some time by reason of the sudden death of Mr ________________, senior

advocate who was proposed to be engaged for filing the appeal before the High

Court;

AND WHEREAS, engagement of new counsel and consultation with him maytake the period of permissible time for appeal beyond sixty days;

NOW THEREFORE IT IS RESOLVED that an application be made to the High

Court, while filing the appeal for condonation of delay in filing the said appeal

within the further period of sixty days;

RESOLVED FURTHER that this appeal be filed before the Madras High Court,

the registered office of the company being situated in the State of Tamil Nadu."

PRACTICE NOTES

1. Appeal within the further period of 60 days.-Proviso to section 10F lays-down thatthe High Court may, if it is satisfied that the appellant was prevented by sufficient cause

from filing the appeal within the said period, allow it to be filed within a further period

not exceeding sixty days.

2. Appeal on question of law.-When the finding of the CLB is based upon no evidence

or upon surmises, conjectures and assumptions, it tantamounts to a finding on as evidence

and consequently, it becomes a question of law appealable under section 10F. Scientific

Instruments Co. Ltd. v. Rajendra Prasad Gupta, (1999) 34 CLA 36 (All). A company

appealed against the directions of the Company Law Board for refund of deposits

contending that the directions were workable. This was held to be not a question of Lawand therefore, the appeal was not maintainable. United Western Batik Ltd. v. CLB,

(2001) 107 Com Cases 63 (Kant).

3. Appeal before Single Judge.-Appeals from orders of the Company Law Board should

be heard by the Company Judge of the concerned High Court sitting singly and not by a


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Division Bench. Tin Plates Dealers Association (P.) Ltd. v. Satish Chandra Samwalka,

(2002) 108 Com Cases 295 (Cal).

Association registered under the Companies Act, 1956

S. 11(2)-Association with more than twenty persons to be registered under the

Companies Act, 1956- Board Resolution

"WHEREAS an association by the name and style, Tobacco Association of India

had been formed to promote, protect and safeguard the trade, commerce, interests

and future of the Tobacco Industry in India particularly those of the cigarette

manufacturers in India with twenty tobacco growers;

AND WHEREAS two hundred more tobacco growers have expressed

their intention to join the association as members;

AND WHEREAS no association consisting of more than twenty persons can be

formed for any business for acquisition of gain, unless it is registered as a

company under the Companies Act, 1956;

NOW THEREFORE IT IS RESOLVED that the association be formed as a

company under the Companies Act, 1956 with the Company as one of the

subscribers to the memorandum of association.


authorised to take every step and action that may be necessary in connection

therewith and incidental and ancillary therewith."

PRACTICE NOTES


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1. Licence Company.-Such an Association when registered as a Company is usually

formed as a guarantee company under section 25 of the Act after obtaining Licence from

the concerned Regional Director.

2. Application to Regional Director.-For obtaining Licence, an application on plain

paper should be made to the concerned Regional Director and steps should be taken as

given in Companies Regulations, 1956.

3. Availability of name.-Before applying to the Regional Director for a Licence, an

application should be made to the concerned Registrar of Companies for availability of

the name of the proposed guarantee company in Form No. lA.

4. Penalty for default.-Every person who is a member of a company, association or

partnership formed in contravention of section 11 will be punishable with fine of Rs.

10,000/- [Section 11(5)].

Association registered under the Companies Act, 1956

S. 11(l)-Association with more than ten persons to be registered-Board Resolution

RESOLVED that a company be and is hereby registered under the Companies

Act, 1956 to carry on the business of banking with more than ten persons with

the company being one of the subscribers.

RESOLVED FURTHER that an application be made to the Registrar of

Companies, N.C.T. of Delhi and Haryana for availability of name of such

proposed company.

RESOLVED FURTHER that the Secretary of the Company be and is herebyauthorised to do the needful in connection with the formation and registration of

the proposed company.


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PRACTICE NOTES

1. Prohibition of forming a company association or partnership.-Section 11 (1)

provides that no company, association or partnership consisting of more than 10 persons

shall be formed for the purpose of carrying on the business of banking unless it is

registered as a company or is formed in pursuance of some Indian law.

2. Licence Company.-Such an Association when registered as a Company is usually

formed as a guarantee company under section 25 of the Act after obtaining Licence from

the concerned Regional Director.

3. Application to Regional Director.-For obtaining Licence, an application on plainpaper should be made to the concerned Regional Director and steps should be taken as

given in Companies Regulations, 1956.

4. Availability of name.-Before applying to the Regional Director for a Licence, an

application should be made to the concerned Registrar of Companies for availability ofthe name of the proposed guarantee company in Form No. lA.

5. Penalty for default.-Every person who is a member of a company, association orpartnership formed in contravention of section 11 will be punishable with fine of Rs.

10,000/- [Section 11(5)].

Formation agreement for incorporating a company

S. 12-Formation agreement" for incorporating a company-Board Resolution

"WHEREAS Mr. X of Dhantoli, Nagpur-440012, being one of the

promoters and Mr. Y of 22, Panch Sheel Enclave, New Delhi- 110020

have agreed to form a private limited company for the purpose of carryingon the business of exporting readymade garment;


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NOW THEREFORE it is hereby agreed that Mr. X will forthwith take

steps to incorporate a private limited company with its registered office at

Dhantoli, Nagpur-440012 with the name "Oriental Garment ExportsPrivate Ltd." or some such name made available by the Registrar of

Companies, Maharashtra, at Mumbai;

AGREED FURTHER that parties hereinbefore mentioned shall make provisions

in the Memorandum of Association for reimbursement of expenses for procuring

the incorporation of the company including the cost and expenses for preparation

of this agreement."

PRACTICE NOTES

1. Application for name.-An application should be made for the proposed name to the

Registrar of Companies, Bombay in prescribed Form No. 1A.

2. Incorporation.-After name is made available by the Registrar of Companies, steps

should be taken to incorporate the company.

3. Partnership converted into private company.-When a partnership is converted into a

private limited company it does not any longer retain the character of a partnership.

Official Liquidator v. Rain Swarup, (1997) 26 CLA 90 (All).

Existing company incorporating a new company

S. 13-Existing company incorporating a new company-Board Resolution

"RESOLVED that a new company with the name and style Rushabh

Management & Infosys, or some similar name as may be made available

by the Registrar of Companies, West Bengal at Kolkata be incorporatedwith the following officers of the company as subscribers to the

memorandum of association:


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1. Mr. A. Accounts Manager

2. Mr. B. Finance Manager

3. Mr. C. Personnel Manager

4. Mr. D. Company Secretary

5. Mr. E. Administrative Manager

6. Mr. F. Legal Manager

7. Mr. G. Marketing Manager

RESOLVED FURTHER that M/s. Mukheriee & Chakraborti, Solicitors be and

are hereby appointed to draft the Memorandum of Association in consultation

with the Secretary and Legal Manager of the company, keeping in mind that the

main object of the company will be to process and export marine food products,

that the registered office of the company will be situated in Calcutta, that the new

company will be limited by shares, that the authorised share capital of the

company shall be Rs. 5 crores divided into 50,00,000/- equity shares of Rs. 10/-

each and that the subscribers to the memorandum shall take minimum 1500

shares each."

PRACTICE NOTES

1. Application for name.-An application should be made for the proposed name to the

concerned Registrar of Companies, in prescribed Form No. 1A.

2. Incorporation.-After name is made available by the Registrar of Companies, stepsshould be taken to incorporate the company.

3. Minimum paid-up share capital.-Under section 3(l)(iii) the minimum paid up share

capital of a private company should be Rs. 1 lakh.


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4. Objects clause of memorandum of Association.-The object clause of the

Memorandum of Association of a company permitting the company inter alia to enter

into partnership for any purpose which may seem calculated directly or indirectly to

benefit the company does enable the company to form a partnership. S. Sivashanmugham

v. Butterfly Marketing Private Ltd., (2001) 105 Com Cases 763.

Authorisation to Company Secretary to appear before CLB

S. 17-Authorisation to Company Secretary for appearance before Company Law

Board/Bench-Board Resolution

"RESOLVED that Shri SPM, Company Secretary be and is hereby authorised toappear before the Hon'ble Company Law Board and/or any of its Benches to

pursue the proceedings relating to petition filed by the company under section 17

of the Companies Act, 1956 for transfer of the Registered Office of the company

from the State of Uttar Pradesh to the National Capital Territory of Delhi.

RESOLVED FURTHER that Shri. SPM, Company Secretary is also authorised

to file petition, make corrections, additions, modifications, alterations etc. in

various documents/papers filed with Company Law Board and to authenticate

under his signatures all such corrections, additions, modifications, alterations

etc., on behalf of the company and also to do all such acts, deeds or things as maybe considered necessary or expedient or incidental thereto. He is also authorised

to file, inspect and to take copies of the documents on behalf of the company."

PRACTICE NOTES

1. Memorandum of Appearance.-A certified true copy of the aforesaid resolution is

required to be filed with the concerned Bench Office along with Memorandum of

Appearance prepared in Form No. 5 given in Anne

Board Resolutions of a Running Company

Documents

Transcript of Board Resolutions of a Running Company