Tally

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More


Overview

The revised Secretarial Standard in substitution of the earlier version which was mandated for application from July, 1, 2015 has been released by the ICSI after due approval of the Central Govt. and the same shall become applicable effective from October,1, 2017. Thus General Meetings of companies which are held latest by September,30, 2017 shall be governed by the provisions contained in the earlier version. The Central Govt. having approved the revised version under Section 118(10)of the Companies Act,2013(hereinafter referred to as 'The Act'), adherence to the standard is therefore mandatory as per the provisions of the Act.

Scope of revised version

Like its predecessor, the revised standard also deals with the conduct of e-voting and postal ballot.

It has been expressly made inapplicable to a One Person Company (OPC) and to a company which has been licensed under Section 8 of the Act or the corresponding provisions of any previous enactment thereof. 'Not for profit companies' registered under Section 8 of the Act or under Section 25 of the 1956 Act do not have to comply with the requirements of the Standard It has been clarified that although the standard shall not apply to a Section 8 company, the applicable provisions of the Act relating to General Meetings shall, however, apply to such a company.

It is pertinent to note that vide Notification F.No.1/2/2014-CL.I dated 5.6.2015, the provisions of Section 118 of the Act were in entirety exempt for a Section 8 Company subject to the exception that Minutes may be recorded within thirty days of the conclusion of every meeting in case of companies where the articles of association provide for confirmation of minutes by circulation.

It follows from the above that while the requirements of SS-2 shall not apply in respect of general meetings of a Section 8 company, all the provisions of the Act in relation to the holding of a general meeting of its members shall be ensured by a company belonging to the above genre.

'Ordinary Business'- Can it include Ratification of appointment of Auditors

Section 102(2)(a) of the Act sets out the items of business which are not to be deemed as 'special items ' to be transacted at the Annual General Meeting(AGM) of a company. Arising out of the introduction of Section 139 in the Act which corresponds to Section 224 of the 1956 Act, companies which fall within the ambit of Section 139(2) have to appoint Auditors at a time for a term of five consecutive years. Once appointment for the above term is approved by the members, in line with the requirements of the first proviso under Section 139(1), it is necessary to seek the ratification of the members for the above appointment at every AGM held thereafter until the completion of their term ,subject to receipt of confirmation from the Auditors that they are eligible to continue in office.. .It is pertinent to note that seeking 'ratification' of the members for the appointment has not been included in the items of business which are to be deemed 'ordinary' under Section 102(2)(a).

In the aftermath of the issue of the earlier version of SS-2 , the ICSI had in its 'FAQs' clarified in response to queries from the fraternity that 'ratification' of the appointment of Auditors being analogous to 'appointment/re-appointment' of Auditors, it should be considered as part of 'ordinary' business to be transacted at the AGM. Accordingly, since the onset of Section 139(2) in the Statute, companies have been considering in their notices for the AGMs the 'ratification' of the appointment of Auditors as part of 'ordinary business 'under Section 102(2)(a).This brings us to the moot question whether 'ratification' is to be considered synonymous with 'appointment/re-appointment'. The Black’s Legal Lexicon defines Ratification as 'the confirmation of a previous act done either by the party himself or another: confirmation of a voidable act'

The term has also be described as under:

'When a person communicates to another , by words or by actions that the person accepts and approves of the action of the other, this amounts to ratification-The term has also been defined also to mean 'an agreement to adopt an act done by another for us'.

Viewed against the perspectives of the above interpretations of the term, it cannot be said that the term ratification is synonymous with either 'appointment or re-appointment' .In as much as ratification of appointment of Auditors does not expressly figure in the items set out under Section 102(2)(a), there exists some doubt, in certain quarters as to whether the same should be accommodated under the purview of the above Section.

Notwithstanding the above, as stated above, companies have been considering the item relating to 'ratification' of appointment of Auditors under Section 102(2)(a) in their AGM Notices and so far no qualms have been raised from any quarter. The doubt however continues to linger on whether it would be legally appropriate to consider ratification of appointment of Auditors as part of ordinary business. If one looks at the issue dispassionately one will but agree that seeking ratification of the members every year for the appointment of Auditors, given that the Auditors have been appointed for a term of five years by the members is inappropriate and perhaps an idle formality. All that should be necessary for the company is to seek a confirmation from the Auditors that they are eligible to continue with the appointment and that they are not disqualified in any way during their tenure of five years. As the shareholders have already approved their appointment for a term of five years , there really is no need to 'ratify' their appointment at every AGM. It is precisely for this reason that the whole exercise of ratification of appointment has been considered superfluous leading to the proposal in the companies (Amendment) Bill 2017 which has been approved by the Lower House to delete the rigmarole of seeking ratification of the members for the appointment of Auditors through the omission of the first proviso under Section 139(!).

In both the original and revised version of SS-2 ratification of the appointment of Auditors has been considered within the scope of 'ordinary business'. This gives rise to the larger question whether it is appropriate to redefine an expression in the Standard, given the fact that the Mother legislation does not provide for such amplitude. Viewed against this perspective, it is submitted that the Standard travels beyond the scope of the Act where it comes to adding a further dimension to the term 'ordinary business'.

Notice of Meeting to be hosted on the website till the conclusion of the Meeting (Para 1.2.3)

In the earlier version too there existed the requirement that if the company has a website, the notice for the meeting should be hosted on its website. The revised version provides additionally that the notice should be on display in the website till the conclusion of the Meeting.

Notice for the AGM to state the Serial Number of the Meeting (Para 1.2.4)

The additional requirement is that in case of the notice for the Meeting of the AGM, the serial number of the Meeting should be stated on the Notice. Readers are aware that regardless of the above additional requirement, companies invariably have the practice of stating the serial number of the AGM on the body of the notice as say, the 'Notice for the 25th AGM of XYZ Limited'.

No requirement of route map and prominent land mark in Notices of Wholly owned Subsidiaries and closely held companies (Para 1.2.4)

The requirement of providing a route map and prominent land mark to the venue of the meeting along with the notice for the meeting has been waived in the case of a wholly owned subsidiary and for a company in which the directors and their relatives alone are members. Given the ground reality that General Meetings in unlisted companies are rarely attended by shareholders, it would have been appropriate to waive the above requirement to private companies as also for unlisted public companies.

Resolutions not to be stated in the Notice for items of ordinary business (Para 1.2.5)

In the earlier version of the standard ,in respect of items of ordinary business, resolutions were not required to be stated in the Notice except where the Auditors or directors to be appointed were other than the retiring auditors or directors as the case may be. The procedure is being eased further in the revised version by the stipulation that resolutions need not be stated in the notice in respect of any item of ordinary business.

Chairman to explain the objective and implications of the Resolutions before they are put to vote at the Meeting (Para 5.2)

In the case of companies which are required to extend the facility of e-voting, given the fact that the e-voting process is supposed to conclude before the commencement of the Meeting, the requirement of the above para cannot be ensured. Further, the objective and implications of resolutions are supposed to be explained eloquently in the Explanatory statement under Section 102 which is to be attached along with the Notice for the Meeting. This being the legal position, it would not be appropriate for the chairman to explain the objective of the resolution. Such action would be disadvantageous in so far as those shareholders who have cast their votes electronically.

The contents of this para should be made applicable only for those companies which do not have to offer the facility of electronic voting.

No need for proposer and seconder for moving Resolutions where remote e-voting is offered (Para 7.1)

The above revision to exonerate the requirement of a member to propose and for another member to second the resolution proposed to be passed at the Meeting is appropriate in the case of those companies which have provided to its members the facility of remote e-voting.

Declaration of Results-Para 8.6

The earlier version also provided for display of the results of the voting process on the Notice Board of the company’s Registered office, its Corporate Office and its Head Office. However the period for which the results shall be on display was not specified. The revised version provides that the results shall be on display for at least three days.

Minutes on loose leaf binders to be bound every three years Para 17.1.6)

As per the earlier version also minutes of Meetings maintained in loose leaf binders were expected to be bound periodically depending upon their size and volume. The flexibility available for this purpose has been removed in the revised version by providing for compulsory binding of the minutes once in three years.

Minutes Books to be maintained only in Registered office of the company(Para 17.1.7)

The earlier version allowed the Board to decide by resolution the place where the minutes books of general meetings were to be maintained in case it was intended to maintain them at any place other than in the company’s registered office. Pursuant to the revised requirements, the minutes books shall be maintained only in the company’s registered office.

Requirements specific to Private Companies

In terms of notification F.No.1/1/2014-CL-V dated 5.6.2015 , the provisions of Chapter VII in the Act, Sections 101 to Section 107 and Section 109 relating to demand for poll shall apply to private companies unless otherwise specified in the respective sections or the Articles of the company provide otherwise. The applicability of the Standard for private companies, therefore, shall be guided by the relevant provisions of the Act stated above as also by the company’s Articles. Certain requirements have been carved out specifically for private companies in the revised version of the Standard which are summarized below:

• The Notice for General Meetings of members shall be hosted on the website of the company ,if any, unless otherwise provided in the Articles.(Para 1.2.3)

• The Notice for the Meeting shall specify the entitlement of a member to appoint a proxy in accordance with this para ,unless otherwise provided in the Articles.(Para1.2.4)

• Where it is proposed to transact items of special business, the explanatory statement under Section 102 shall comply with all the requirements as provided in the said Section unless otherwise provided in the Articles.(Para 1.2.5)

• The length of notice for the Meeting of the members shall be in line with the provisions of the Act as applicable to other classes of companies unless the Articles of the company provide otherwise.(Para 1.2.6).

• Consent for holding meetings at a shorter notice shall be obtained from the same number of members as applicable to other categories of companies unless provided otherwise in the Articles.(Para 1.2.7).

• A private company shall follow the same procedure as adopted by other companies for appointing a chairman for the meeting unless otherwise provided by the Articles.(Para 5.1).

• The appointment of a proxy shall be in accordance with the provisions of para 6.1 of the Standard unless otherwise provided in the Articles.

• The proxy shall be deposited with the company as per Para 6.6.1 of the Standard unless otherwise provided by the Articles. Similar would be the process for inspection of proxies unless otherwise provided by the Articles.(Para6.8.2).

• In case of voting by show of hands, the procedure laid down in para 7.3 shall apply unless the Articles provide otherwise .Poll would also be conducted as per Para 7.4 unless otherwise provided by the Articles.

• Where approval of members is sought for entering into a related party transaction, a member who is a related party shall also be entitled to vote on the resolution.(Para 7.5.2).This is in consonance with Section 188 of the Act.

• The appointment of a scrutinizer shall be in terms of para 9.4 of the Standard unless provided otherwise by the Articles.

• Procedure to be followed for adjournment of meeting for want of quorum shall be as per Para 15.4 of the revised version of SS-2 unless otherwise provided in the Articles.,

Conclusion

We have endeavored to capture above the quintessence of the major changes brought about by the revised version of SS-2.As may be seen , the changes are, in the main cosmetic and in stray cases , intended to align the standard with the Act.. Provisions as applicable to a private company have been set out appropriately. It would be therefore , fair comment to conclude on this note that the revised version comes off at best as old wine served in a new bottle.


Tags :



Category Corporate Law, Other Articles by - Ramaswami Kalidas 



Comments


update