Secretarial Standards on Committee meetings

SECRETARIAL STANDARD ON MEETING OF THE BOARD OF DIRECTORS AND COMMITTEES – SS 1

By

CS K VINOTH and CS D HEM SENTHIL RAJ

In today’s business scenario, where the country is heading towards the Globalisation, it may not be possible by the Board of Directors of the Company to be involved in the decision making of each and every activities of the Company. In addition to that it may not be practically possible for a Company to request the Independent Directors or Directors other than the whole-time Directors of the Company to be involved in the day to day decision making of the Company. In order to overcome the difficulties in making timely decision, the Companies Act, 2013 provides the powers to Board of Directors of the Company to delegate their Powers to:

any committee of directors, the managing director, the manager or any other principal officer of the Company or in case of a branch office of the Company, the principal officer of the branch office.  The power to delegate is specified in

Section 179 (3) (d) --------- to borrow monies.

Section 179(3) (e)--------- to invest the funds of the Company.

Section 179(3)(f)---------to grant loans or give guarantee or provide security in                                                       

                                       Respect of loans.   

However, the Act does not restricts the Board of Directors of the Company to form  separate/consolidated Committees for the transacting the business other than those specifically mentioned in Section 179 of the Companies Act, 2013 and The Company (Meetings of Board and its Powers) Rules, 2014.

In this Scenario, we have given the list of things to be taken note while conducting the Board/Committee meetings other than the mandatory committees required to be formed under the Companies Act, 2013 in line with the Secretarial Standards – 1, which is coming in to practice with effect from 1^st July, 2015.

Applicability:

Standard shall be applicable to the Meetings of Board of Directors and Meetings of Committee (s) of the Board of all the Companies except OPC.

 Key Points To Note:

Director to call for Board/Committee Meeting	Now the Director of the Company is vested with the power to request the Board to call for a meeting and the Company Secretary/any person authorised by the Board shall convene a meeting of the Board on requisition of a Director.
Now the Notice of Board Meeting including Committee Meeting shall have Serial Number, which shall be recorded in the minutes in the same passion. Example: 22nd Board Meeting of the Company, 21st Allotment Committee Meeting of the Company etc.		Serial   Number
Issuing Notice of Board/Committee Meeting	Notice of Board Meeting and Committee Meeting shall be issued by Company Secretary; in the absence of a Company Secretary, notice shall be issued by Director or any other person authorised by the Board. Note: SS – 1 provides that notice shall be issued by the Director, which shall include Independent Director, Nominee Director, Alternate Director etc...,
Notice, Agenda and notes on agenda of Board/Committee meeting shall be given at least seven days before the date of Meeting, unless articles of the Company provides for a longer period. In case of dispatch of notice through speed post/registered post/courier, an additional two days shall be added for the service of Notice. Exemption: Notes on items of business which are in the nature of Unpublished Price Sensitive Information may be given at a shorter period of time than stated above, with the consent of a majority of the Directors, which shall include at least one Independent Director, if any. General consent for giving Notes on items of Agenda which are in the nature of Unpublished Price Sensitive Information at a shorter Notice may be taken in the first Meeting of the Board held in each financial year and also whenever there is any change in Directors.		Notice, Agenda and notes on agenda of Board/Committee meeting
Other Items in Agenda of Board/Committee Meeting	Any item not included in the Agenda may be taken up for consideration with the permission of the Chairman and with the consent of a majority of the Directors present in the Meeting, which shall include at least one Independent Director, if any.
To transact urgent business, the Notice, Agenda and Notes on Agenda may be given at shorter period of time than seven days, if at least one Independent Director, if any, shall be present at such Meeting. If no Independent Director is present, decisions taken at such a Meeting shall be circulated to all the Directors and shall be final only on ratification thereof by at least one Independent Director, if any. In case the company does not have an Independent Director, the decisions shall be final only on ratification thereof by a majority of the Directors of the company, unless such decisions were approved at the Meeting itself by a majority of Directors of the company.		Shorter Notice for urgent Business
Quorum and Entries in Attendance Register	Quorum shall be present not only at the time of commencement of the Meeting but also while transacting business. Entries in the attendance register shall be authenticated by the Company Secretary or where there is no Company Secretary, by the Chairman by appending his signature to each page.
Minutes of the Committee meeting shall be taken note by the board of Directors. The time of commencement and conclusion of meeting to be specified. Draft minutes shall be finalised within 15 days from the date of committee meeting. Minutes shall be entered in the Minutes Book within thirty days from the date of conclusion of the Meeting. A copy of signed minutes certified by CS or Director authorised by the Board as the case may shall be circulated to all the members within 15 days after they are signed. Noting of committee meeting minutes shall not be included in circular resolution.		Other Key Points

           Minutes Shall Mandatorily Include the Following as per the SS –1:

Record of election, if any, of the Chairman of the Meeting.

 Record of presence of Quorum.

The names of Directors who sought and were granted leave of absence.

The mode of attendance of every Director whether physically or through Electronic Mode.

In case of a Director participating through Electronic Mode, his particulars, the location from where and the Agenda items in which he participated.

The name of Company Secretary who is in attendance and Invitees, if any, for specific items and mode of their attendance if through Electronic Mode.

Noting of the Minutes of the preceding Meeting.

Noting the Minutes of the Meetings of the Committees.

 The text of the Resolution(s) passed by circulation since the last Meeting, including dissent or abstention, if any.

 The fact that an Interested Director was not present during the discussion and did not vote.

 The views of the Directors particularly the Independent Director, if specifically insisted upon by such Directors, provided these, in the opinion of the Chairman, are not defamatory of any person, not irrelevant or immaterial to the proceedings or not detrimental to the interests of the company.

 If any Director has participated only for a part of the Meeting, the Agenda items in which he did not participate.

The fact of the dissent and the name of the Director who dissented from the Resolution or abstained from voting thereon.

Ratification by Independent Director or majority of Directors, as the case may be, in case of Meetings held at a shorter Notice and the transacting of any item other than those included in the Agenda.

 The time of commencement and conclusion of the Meeting.

     By

     CS D HEM SENTHIL RAJ

     CS K VINOTH

Discussion on Important queries under Companies Act

Discussion on Important queries under Companies Act
@ Chennai West Study Circle meeting – 25 April 2015

1. Related party transactions between group companies (Private Limited

Companies): Deadlock when all Directors/ Shareholders are relatives:

If Private Company has only two shareholders. How a resolution related to an

agreement between a shareholder and Company can be passed?

Discussion

In case of a Private Limited Company, only if the related party transaction is not at arms length and not in ordinary course of business, Special resolution of shareholders will be required.

The probable solution as on date is : Taking one or two more Director/ Shareholder into the Company/ Board & pass the necessary resolution with disinterested quorum. Such inducted Directors may even resign after the resolution is passed.

It is difficult for some management to convince it though;

Hope Private Company exemptions notification come soon, after which this can be rectified.

2. Private Limited Company – Issue of shares to a new shareholder

Private Limited Companies if they want to issue shares to a person who is not

an existing shareholder, they need to follow the procedure of issuing offer

letter, making a private placement, Valuation from a CA, etc. This is

cumbersome & can be avoided.

Discussion

As per Sec. 62 (1) (a) (ii) , if shared are issued to existing shareholders and if they renouce, then it can be issued to other shareholders without following Offer letter, Pvt placement, etc “in the interest of the Company”.

3. On resignation of a Director: Consequence for not filing DIR 11

What are the implications, if the Director fails to file his resignation with the MCA, despite the company filing the same with the MCA?

Discussion

Few members opined that it is better to make Form DIR 11 as voluntary and can be used by Director when the Company refuses to intimate the ROC about the Director’s resignation. In other cases, it becomes difficult to file such Form; at times need to apply for Digital signature after the Director’s resignation.

Other members informed few reasons &  the need to have this Form.

It was mentioned that no penalty has been provided for non filing of DIR 11. Sec. 172 will be applicable where no penalty has been provided under Companies Act 2013. Not sure if this section will be applicable in this case. Different views emerged in this regard.

4. Independent Director- Should he be appointed in AGM Only?

As the Act authorizes appointment of Independent Director to

shareholders, some opine that they cannot be appointed as Additional

Director by the Board. So should we call for AGM or EGM for appointing

Independent Director?

Discussion

Additional Director can be appointed in Board; Confirmation of him as Independent Director can happen in AGM; Some companies take a stricter view & hold an EGM for appointing Independent Director; many CS felt that it is not required. MCA clarification in this regard would be really helpful.

5. Listed Companies – Quorum of 30 members in AGM .. A concern

Companies having more than 5000 shareholders need to have 30 members as

the quorum for General meeting. This could give rise to practical difficulties,

particularly when the Registered office is situated in Non metro ( A city like

Tirunelveli, etc)

Discussion

Members present agreed that it is difficult to have 30 members quorum when meetings are conducted at a remote place. When E voting has come in and most of the members have voted through E Voting already, not sure why Act insist for 30 members for AGM. This a difficulty and may be represented to MCA.

6. Managerial Remuneration – Schedule V – Does it apply to Private Limited

Company as well?

There are two interpretations going around regarding Schedule V : one view

is that the limits is applicable for the Managerial remuneration in case of

Private Companies also; other view that it is not applicable. Which one is

correct?

Discussion

It was felt that the limits mentioned in Sch V is not applicable to Private Limited Companies. (Different views & interpretations emerged during discussion)

Even on a strict  interpretation, holding that Schedule V applies to Private Limited Companies, you can pass Special resolution in General meeting and can pay the remuneration fixed by shareholders.

7. Managerial Remuneration – Can companies pay higher amount till

approval?

As per the Companies Act, 1956,the Companies can take post-facto approval

from Central Government for payment of remuneration exceeding the

schedule XIII limits to Managing Director. Till receipt of approval, MD/WTD used to hold such money paid as remuneration in trust and need to return, incase approval is not obtained. As per new Companies act, is listed Companies and Subsidiary of listed Companies can take the same stand? or without prior approval, remuneration cannot be paid more than limits given in Schedule V of the Companies Act, 2013?

Discussion

It was suggested to pay only what is legally allowed / payable. Excess salary may not be paid without approval as the words used are prior approval.

8. CFO & CS Salary: Shall it be approved by Nomination & Remuneration

Committee?

Companies normally take the approval for MD remuneration (including

increase) by specifying all the components in the Board resolution. Is similar

resolution needs to be passed in Nomination and Remuneration Committee &

Board for CFO and CS remuneration?

Further increase in the senior management remuneration – whether it needs

to be approved by Nomination and Remuneration Committee? Or just noting

of the same in Nomination and Remuneration Committee is sufficient?

Discussion

One view was that : It is better to draft a Compensation policy and it may be adopted by the Committee. If the increase/ appraisal is as per this policy, that will suffice.

Another view was: Better to have the approval of the Committee for increase in salary for CFO, CS & Top management.

9. CSR ACTIVITIES : Whether they should be restricted to Schedule VII

of the Act only?

Discussion

      MCA vide General Circular No. 21/2014 dated June18, 2014 has clarified that the statutory provision and provisions of CSR Rules, 2014, is to ensure that while activities undertaken in pursuance of the CSR policy must be relatable to Schedule VII of the Companies Act 2013. However, the entries in the said Schedule VII must be interpreted liberally so as to capture the essence of the subjects enumerated in the said Schedule. The items enlisted in the Schedule VII of the Act, are broad-based and are intended to cover a wide range of activities.

10. Financial year… 31st March..

If a Company wants to have Financial year to 31st December, going forward,

shall it apply to Central Government year on year basis or a one time approval

can be given by Central Government to have 31st December as the year end?

Discussion

Law is silent whether Central Govt can give approval for 1 year or indefinitely; Companies can mention in their prayer that they are doing so because their parent (Holding) company has a December year ending; hence as long as the parent’s year ending is December, the Subsidiary may also have December year end. We need to wait and watch how approvals are given in the next few years.

11. Resident Director

Every Company to have one Director who has stayed in India for atleast 182

days in the previous Calendar year.

If a person has come and stayed in India for more than 182 days in the

current calendar year, why it is not considered?

Discussion:

Yes. Law as on date take into account 182 days in previous calendar year. If he has stayed in current year, it is not taking that into account. Need representation to rectify.

12. Independent Director’s relative: Cannot work in the Company or

subsidiary at all !

The word "employee" (section 149 (6) e ( i) )prohibits any of independent

directors relatives to work in the status of employee. Can the relative work

as trainee or intern in the company ? Will that affect the status of

independency of independent director? Any definition available for

"employee " under companies act?

Discussion:

As per the definition given, any relative cannot be appointed as an employee. But he can provide consultancy services

Sec. 149 (6)

none of whose relatives has or had pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two per cent. or more of its gross turnover or total income or fifty lakh rupees or such higher amount as may be prescribed, whichever is lower, during the two immediately preceding financial years or during the current financial year;

As per this Section, we can appoint him as a consultant (not on the rolls of the Company) and he can provide Consultancy services.

13. Nomination and Remuneration committee to have 3 Non Executive

Director

It is a practical difficulty that the Nomination & Remuneration committee

shall have 3 Non Executive Director. A listed Company can exist with 3

Directors ( One promoter Director and 2 Independent Director) for most

part; but this provision insists that this committee need to have 3 Non

Executive Director; at times Nominee/ Investor Directors are there in

Board; but they don’t intend to join any committee. So practical difficulties

arise. It will be better if the provision is changed that Nomination and

Remuneration Committee shall have 2 Non Executive Director.

Discussion:

Yes. As on date need to have 3 Director. Probably this can be amended to 2 Directors. We need to represent.

There was another view that it is better to have atleast 3 Non Executive/ Independent Director in the Board; for example, Audit committee need to have 2 Independent Directors presence for any meeting; if a Company has only 2 Independent Director, it may be difficult at times to have both their presence. So having 3 Independent Directors in a Company is good in many ways.

14. One Lakh Deposit – Is it required for Private Companies also?

Whether Rs. 1 lakh deposit for contesting the Election of Director -

required for private limited companies, in which a new director is appointed

in the General Meeting?

Discussion:

Yes. It is Required. The deposit amount need to come into the Company’s books and can be repaid only after the Director getting elected.

Company cannot accept cheques and keep them without presenting and returing the same cheque given by Director after election. This is not a good practice.

15. Consolidated Financial Statement : Whether Co’s incorporate outside

India is exempt?

Sec 129 (3) speaks about preparation of consolidated financial statements by

all the Companies having one or more subsidiaries.

However, does the MCA notification dated January 16, 2015 (amendment to

the Companies (Accounts) Rules, 2014), exempt companies having subsidiaries

incorporated outside from preparing the consolidated financial statements for

the financial year commencing on or after April 1, 2014? So does Companies

incorporated outside India are exempt from Consolidation?

Discussion

For the current year only the exemption of not attaching the Companies incorporated outside India applies. From next year, exemption is not applicable.

16. ADT 1 – FILING

Whether to file ADT 1 for the reappointment of auditors in AGM 2015, who

       are appointed in AGM 2014 for 5 year?

Discussion

It was suggested that ADT 1 may be filed after the appointment of auditor is ratified every year at the AGM.

17. Auditor – Not reappointed: A practical difficulty

A company has appointed an auditor for 5 years in AGM 2014. Act requires

getting ratification by shareholders in every AGM through appointed for 5

years. In case the appointed auditor is not reappointed in the subsequent

AGM, which form is required to be filed for non reappointment of auditor in

the forthcoming AGM? For new auditor, Form ADT 1 will be filed. Our

question is the earlier ADT 1 is filed for 5 years; How will ROC come to know

that – that particular auditor is no more rendering service to the Company?

Discussion :

ADT 3 to be filed to intimate that the existing auditor is no more rendering service and ADT 1 to be filed to intimate the details of new Auditor.

18. Issue of shares & MGT 14

Section 179 (3)(c) speaks about directors power to issue securities. MGT 14 is

required to be filed for this. If a company proposes to make issue of shares.

When to file the said form, at time of proposal to issue or at time of allotment

of shares?

Discussion

MGT 14 to be filed at the time of Issue of such shares.

19. Private Companies required to Comply with Listing agreement

Private Limited Company wherein just 2 shareholders are there has issued

NCD’s. With this background, the company falls in to the category of Listed

Company as per the definition in Companies Act, 2013 & all Listing related

Compliances need to be adhered to. t is felt that such companies should be

exempted from the compliances pertaining to listed companies . There are

many such private limited companies listing their Debt instruments of this

order.

Discussion:

Yes. Private Companies whose Debentures are listed are covered as of now. Need representation to have easier compliance for such Companies.

20. An Unlisted Public Company which is required to appoint Independent Director and Women Director has not appointed them; what will be the penalty / consequence?

Discussion:

Penalty has been provided under the Act. We need to wait & watch if MCA gives extension for the unlisted Companies to appoint or prosecute/ levy penalty for non appointment.

21. Statutory Register

If a Private company is maintaining Statutory register under Companies Act

1956, Whether all the details related to members, their shareholding

and directors their shareholding details are required to re write

in Statutory register under Companies Act 2013.

Discussion

New statutory register is applicable from 1.4.2014 only; so past details may be maintained in the Statutory register maintained under 1956 Act.

Disclaimer: This is just a summary of discussion happened at a meeting & shall not  be treated as a professional advise.