Common FAQ under the Companies Act

FREQUENTLY ASKED QUESTIONS ON COMPANIES ACT, 2013

There are many confusions on provisions of Companies Act, 2013, so I am prepared some common frequently asked questions based on the interpretation of provisions of the Companies Act, 2013, the rules made there under as also the clarifications, notifications and orders issued by the Ministry of Corporate Affairs.

1. Whether every company is required to alter its Articles of Association as per the new format under the Companies Act, 2013 ?

Ans. Sub-section (6) of Section 5 provides that the articles of a company shall be in respective forms specified in Tables, F, G, H, I and J in Schedule I as may be applicable to such company.

Sub-section (9) of section 5 provides that nothing in this section shall apply to the articles of a company registered under any previous law unless amended under the Act.

It is not necessary but suggested that whenever a company amends its articles, it should ensure that subsequent to the amendment, the AOA is as per the format specified under the Companies Act, 2013.

2. Can private company take loan from outsider ?

Ans. The company cannot take loan from outsider (other than from director, relative of director, members, any other company and banks etc. )

As per section 73 read with Rule 2(1)(c) of Companies (acceptance of Deposit) Rules, 2014, there is prohibition for taking loan from individuals, firms, LLP etc. which are not members of the company.

3. In terms of Section 73 of Companies Act, 2013 read with Rule 2(1)(c)(vii) of Companies (acceptance of Deposit) Rules, 2014, deposits do not include receipt of money from Director of the Company, but money received from a member is treated as deposit. In case deposit is taken from a person who is both a director and a member of the Company, will such receipt of money be treated as deposit or not?

Ans. Although, there is no specific provision which clarifies the question above. The usage of the words "but does not include" provides exemption to items listed thereof and the words "any amount received from a person who, at the time of the receipt of the amount, was a director of the Company" make it clear that any amount received from a person who was a director at the time of receipt of the amount is exempt irrespective of the fact that he might be a shareholder also.

However, such director of the company is required to furnish to the company at the time of giving the money, a declaration in writing to the effect that the amount is not being given out of funds acquired by him by borrowing or by accepting loans or deposits from others.

4. In terms of proviso to section 101(1) of the Companies act, the notice of general meeting may be shorter than 21 days if consent in writing or electronic mode is given by members entitled to vote at such meetings. Does this mean that if we follow section 101 for obtaining consent of the members to call the general meeting at shorter notice, then it will be possible for the company to send the audited financials along with the notice at shorter notice?

Ans. Section 136 requires that a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements….. shall be sent to every member of the company, to every trustee for debenture holder......... ’ not less than 21 days before the meeting. There is no provision for sending the financial statements with the shorter notice. That is to say that financial statements are required to be sent at least 21 days before the meeting.

5. According to section 103 of Companies Act, 2013, in case of a Private Limited Company, 2 members personally present shall be the Quorum. If Quorum is not present within half an hour from the time appointed for holding a meeting, then the meeting shall stand adjourned, and if at the adjourned meeting also, Quorum is not present, the members present shall be the Quorum. In case, there are only 2 shareholders. Out of these, one cannot attend AGM, according to above, whether one person attending the AGM, would be taken as quorum in case of adjourned meeting?

Ans: No, one person can not form quorum of an adjourned meeting. Please refer to Department of Company Affairs’ (now Ministry of Company Affairs) Letter No. 8/16(1)/61-PR dated May 19, 1961 wherein the views of the Department on this issue are also that a single person cannot by himself constitute a quorum at the adjourned AGM.

There are, however, some exceptions to this general rule which permit a Meeting to be constituted of only one Member. These are:

Where a person holds all the shares of a class, that person may constitute a class Meeting.
Where default is made in holding an Annual General Meeting in accordance with Section 96 of the Act, the Tribunal while ordering the convening of the Meeting, may direct that one Member present in person or by proxy will constitute the Quorum [Proviso to sub-section (1) of Section 97 of the Act].

Where it is impracticable to call a Meeting in the manner prescribed by the Act or the Articles, the Tribunal may order a Meeting to be held and direct that one Member present in person or by Proxy shall be deemed to constitute a Meeting [Proviso to sub–section (1) of Section 98 of the Act].

6. Whether section 107 for show of hands or section 109 for demand of poll is relevant for companies covered under Rule 20 of Companies (Management and administration) Rules, 2014 relating to voting through electronic means ?

Ans. The Ministry of Corporate Affairs vide General Circular 20/2014 dated 17th June, 2014 clarified that companies which are covered under section 108 read with rule 20 of Companies (Management and Administration) Rules, the provisions relating to show of hands or demand for poll would not be relevant.

7. Is it mandatory for a company to keep its documents records, registers and minutes in electronic form ?

Ans. According to Rule 27 of Companies (Management and Administration) Rules, 2014, Every listed company or a company having not less than one thousand shareholders, debenture holders and other security holders, may maintain its records, as required to be maintained under the Act or rules made there under, in electronic form.

8. In case a public company has three directors. Out of three directors 1 director is an independent director whose office is not liable to retire by rotation, 1 director is a managing director appointed for a fixed term and 1 is the promoter director/ director appointed pursuant to share purchase agreement/ nominee director etc. whose office also is not liable to retirement by rotation. How can such a company ensure the compliance of section 152 (6) and (7) ?

Ans. In such situations it is advised that companies appoint such number of non-executive directors whose office is liable to retire by rotation and thereby ensure compliance of Section 152(6) and (7).

9. Whether alternate director vacates office when the original director joins video conference at a Board meeting even though he does not return to India ?

Ans. The office of Alternate Director is nowhere related to the attendance of the Original Director in the Board Meeting [also refer MCA Letter No. 6/16/(313)/68-PR, dated 5-2-1963]. The office of Alternate Director shall be terminated if and when the director in whose place he has been appointed returns to India. Therefore, joining meeting by video conferencing by the original director will not vacate the office of the alternate director.

10. When a foreign director joins the meeting by audio/video conference, (where he is counted for the purpose of quorum u/s 174), is it sufficient to say that foreign director was not absent u/s 167(1) (b) even if he does not physically attend even a single Board meeting in a period of 12 months ?

Ans. The requirement of section 167(1)(b) is only for attendance of a Director in the Board Meeting himself; however this section doesn’t deal or regulate the manner of attending the Board Meeting. Therefore, the Board Meeting attended by any Director, whether in person or through video conferencing or other audio visual means, shall be sufficient attendance for the purpose of section 167(1)(b).

11. When does the resignation of a director become effective, on the date which he specifies or the date on which the resignation letter is received by the company or the date on which from DIR- 12 is filed?

Ans. Sub-section (2) of section 168 provides that the resignation of director shall be effective from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later.

12. In case the board delegates its powers to borrow to one of its committee, is the company required to file Form MGT 14 for delegation its power to Committee and also each time the committee exercises the power which is delegated to it ?

Ans: The Company is required to file e-form MGT 14 with the ROC only when the board delegates its power to its committee to borrow and no MGT -14 is required to be filed each time the committee exercise its power to borrow money within the limits authorized by the board.

13. Is sitting fees payable to a director who participates in a meeting through video conferencing ?

Ans. Yes, sitting fee is payable to a director who participates in a meeting through any of two modes viz. in person or through video conferencing or any other audio visual means.

14. Does an alternate director need to obtain a Director Identification Number under Section 153 of the Companies Act, 2013 ?

Ans. As per the provisions of section 153, every individual intending to be appointed as director of a company is required to obtain DIN by complying with the provisions of the Companies Act, 2013 and Director Identification Number, Rules. Therefore, alternate directors are required to obtain DIN.

15. Whether section 8 companies and foreign subsidiary companies are covered in the limit of 20 companies, in which a person can hold directorship under section 165.

Ans. As per sub-section (1) of the section 165, ‘No person shall hold office as a director, including any alternate directorship, in more than twenty companies at the same time. The directorship in a dormant company shall not be included

Therefore, such twenty companies include every company including section 8 companies and foreign subsidiary companies registered under the Companies Act.

16. Is it compulsory for Company Secretary to attend the All Board, Committee and General Meeting ?

Ans: Yes, it is compulsory for a company secretary to attend all Board, committee and general meeting of the Company as it is the one of the duties of the company secretary as mentioned in section 205 of the Companies Act, 2013.

17. Can the KMP of Holding Co. be appointed in only one subsidiary or in all subsidiaries of holding company at the same time ?

Ans: As per section 203(3) of the Companies Act, 2013,a Whole-time KMP of a company shall not hold office in more than one company except in its subsidiary company. This section restricts a person to hold office in more than one company, while at the same time enables a person to hold office in its subsidiary company and ideally he may be appointed in only one subsidiary.

18. Can a company have two Managing Directors ?

Ans: As per section 203 of the COMPANIES ACT, 2013 a company may appoint or employ a person as its MD, if he is the MD or Manager of one and not more than one other company with the consent of all directors present at meeting.

19. In terms of Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014, Share Certificates shall be signed by two directors or by a director and the company secretary, wherever the company has appointed company secretary:

In a company with a large number of shareholders, it may not be practically feasible for the directors and company secretary to sign all the share certificates himself.

In this context, whether company officials/committee, besides the directors and company secretary, can be authorized by the Board to sign the share certificates of the company.

Ans: The company can not authorised any officials/committee to sign the share certificates of the company as per the Rule 5(3) of the Companies (Share Capital and Debentures) Rules, 2014.

20. As per Section 96 (2), every annual general meeting shall be called during business hours, that is, between 9 a.m. and 6 p.m. on any day that is not a National Holiday and shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situate.

However, in case of the EGM, there is no clarity under Section 100 /101 and rule 17 with regard to the time, day, place of holding the AGM?

Ans. As per Secretarial Standard on General Meetings (SS-2), general meeting (including EGM) shall be called during business hours i.e. between 9 a.m. and 6 p.m. and on a day that is not a National Holiday. A meeting called by the requistionists shall be convened only on a working day.

Annual General Meetings shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated whereas other general meetings may be held at any place within India. A meeting called by the requisitionists shall be held either at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated.

21. Is there any restriction on a company for holding all Board Meetings abroad during the year?

Ans. Section 173 of Companies Act, 2013 does not restrict a company from holding any meeting of its Board of Directors at some other place outside India.

Further, as per Rule 3(6) of the Companies (Meetings of Board and it’s powers) Rules, 2014, with respect to meetings conducted through video conferencing or other audio visual means, provides that the scheduled venue of the meeting as set forth in the notice convening the meeting, shall be deemed to be the place of the said meeting and all recordings of the proceedings at the meeting shall be deemed to be made at such place.

22. Section 173(5) provides that a One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.

Ans. Yes, a small company is required to conduct only two meetings in a year. As per the provisions of sub-section (5) of section 173, the requirement of maintaining gap of minimum ninety days between the two Board meetings is mandated only, in case such OPC, small company or dormant company holds one meeting in each half of a calendar year.

The holding of two meetings in each half of a calendar year with minimum gap of ninety days is a minimum requirement for these companies. There is no bar in holding more than two Board meetings in a year. Such companies may have any number of Board meetings, if required for smooth running of business.

23. XYZ Pvt. Ltd., has two director X and Y. The shares of the company are held by X, Y and Z in the ratio 40%, 40% and 20%, Z is however not a director. The company desires to enter into a contract in which X is interested where a Board resolution is required. How can the Board resolution be passed since there will be only one uninterested Director and Z is not a director?

Ans. As per section 174, Interested director may also be counted towards quoram in such meeting after disclosure of his interest pursuant to section 184 in case of private company.

As per section 188, where any director is interested in any contract or arrangement with a related party, such director shall not be present at the meeting during discussions on the subject matter of the resolution relating to such contract or arrangement.

As per the Section 174(2) of the Companies Act, 2013, the continuing directors may act notwithstanding any vacancy in the Board; but, if and so long as their number is reduced below the quorum fixed by the Act for a meeting of the Board, the continuing directors or director may act for the purpose of increasing the number of directors to that fixed for the quorum, or for summoning a general meeting of the company and for no other purpose.

Thus, in the above situation, the continuing director i.e. Y should call for the general meeting and in the general meeting the contract may be approved.

24. In terms of section 184(2), a director is required to disclose at the meeting of Board, his concern or interest in contract or arrangement with a body corporate. The term “body corporate” has been defined under section 2(11) to include a company incorporated outside India. It be clarified whether a director is required to disclose his interest even in companies incorporated outside India.

Ans. As per the provisions of section 184(2) read with section 2(11), director is required to disclose his concern with respect to all companies including the companies incorporated outside India. Such disclosure is required to be made in form MBP-1.

25. In case the Board delegates its powers to borrow to one of its committee, is the company required to file Form MGT- 14 for delegation its power to Committee and also each time the committee exercises the power which is delegated to it?

Ans. The Company is required to file e-form MGT 14 with the ROC only when the Board delegates its power to its committee to borrow and no MGT -14 is required to be filed each time the committee exercises its power to borrow money within the limits authorized by the Board.

26. In terms of provision of section 203 of Companies Act, 2013, whether an individual can be appointed as CFO as well as company secretary of a company.

Ans. Here, the term used I section 203 is ‘whole-time’ and therefore, two different individuals are required to hold these two key positions.

Will Salary advances made by the Company for only 1 or 2 months (without interest) come in the preview of “Loan”?

27. Can an Alternate Director be appointed to represent 3 directors? If so, in case of voting on a resolution at the Board meeting, how many votes does he have?

Ans. As per section 161 (2), the Board of directors may appoint a person not being a person holding any alternate directorship for any other director in the company, to act as an alternate director. Therefore, an alternate director cannot be appointed to represent three directors.

The author can also be reached at kumarbraj7@gmail.com

DISCLAIMER: The information given in this document has been made on the basis of the provisions of the Companies Act, 1956/2013 and Rules made thereunder. It is based on the analysis and interpretation of applicable laws as on date. The information in this document is for general informational purposes only and is not a legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this document. Under no circumstances whatsoever, we are not responsible for any loss, claim, liability, damage(s) resulting from the use, omission or inability to use the information provided in the document.