Corporate Laws

Stamp Duty upon increase in authorised share capital

2011-04-28T21:45:00.000-07:00

The Petitioner questions the authority and competence of the Registrar of Companies (ROC) and the Collector of Stamps, Government of National Capital Territory of Delhi (GNCTD), to levy and collect stamp duty on the increased authorized share capital under the Indian Stamp (Delhi Amendment) Act, of 10 2007 (Act).

On 15th January 2010, the Petitioner further increased its authorized share capital from Rs. 8.50 crores to Rs. 125 crores. The Collector of Stamps was requested to clarify whether as per Article 10 of the Schedule IA of the Indian Stamp (Delhi Amendment) Act, 2007 any additional stamp duty on increase in the authorized capital was payable.
On or about 17th March 2010 the ROC informed the Petitioner that in terms of Regulation 17 of the Companies Regulations 1956, the Form 5 dated 27th January 2010 filed by the Petitioner had been examined and kept pending on the ground that the company had not paid the stamp duty on the Form 5 with reference to the increased authorized capital. The Petitioner was directed to file complete Form 67 in all respects by 15 th April 2010. The Petitioner paid a sum of Rs. 58,25,000/- to the ROC as fees. The Petitioner was directed to pay the stamp duty on increase in the authorized share capital by 15th April 2010 failing which the e-Form 5 would be treated as invalid and would not be taken on record in terms of Regulation 17 of the Companies Regulations 1956.The Petitioner then wrote to the ROC on 4th March 2010 stating that there is no provision in the Delhi Stamp Act to pay the stamp duty on increase in the authorized share capital. However, the ROC insisted by e-mail dated 15th April 2010 that the Petitioner should file Form-67 in all respects and clarified that if the stamp duty is not paid by the Petitioner, the amount of Rs. 58,25,000/- deposited with the ROC will stand forfeited.

Collector of stamps opined "As per document submitted by the company it has been observed that the Authorized share capital of the company has been increased from 8.50 crores to Rs. 125 crores in the meeting of the Board of Directors held on 22nd December 2009. As per Article 10 (a) and (b) of Schedule 1A of the Indian Stamp Act, 1899, stamp duty W.P. (C) 2393/2010 Page 3 of 10 chargeable on the authorized capital of the company is 0.15% of the authorized share capital with a monetary ceiling of Rs. 25 lakhs. Thus, the stamp duty chargeable on the authorized share capital of Rs. 125 crore comes to Rs. 18,75,000/-. In case you have already paid the stamp duty on authorized share capital of Rs. 8.50 crore i.e. Rs. 1,27,500/-, you are required to deposit the balance amount of stamp duty in the office of the Registrar of Companies as usual."

It is submitted that the Act is a fiscal statute which does not specifically mention any duty payable in respect of increase in the authorised share capital. It admits of a strict construction. The words in other cases occurring in clause (b) of Article 10 of Schedule IA refers to the cases in which original authorized share capital exceeds Rs. one lakh at the time of incorporation and registration of the company and not to the subsequent increased authorized share capital. This distinction was clearly understood by other State Legislatures. A reference was drawn to the Article 10 of the Indian Stamp Act as amended by State legislatures of Rajasthan, Madhya Pradesh and Andhra Pradesh. For instance, Article 10 as amended by the Madhya Pradesh state legislature reads as under:
Article 10. Articles of Association of a Company
(a) Where the company has no share capital. - One thousand rupees.
(b) Where the company has share capital or increased share capital. - 0.15 per cent of such nominal nominal share capital subject to a minimum of one thousand rupees and a maximum of five lakh rupees.

Argument on side of Colletor of stamps was petitioner itself applied for adjudication and decision of collector shall be binding. And earlier when petitioner had increased authorised share captital, it had paid stamp duty.

Held:
The order dated 11th August 2010 of the Collector of Stamps proceeds on the footing that under Article 10 (a) and (b) of Schedule IA of the Act, stamp duty chargeable on the authorized capital of the company is 0.15% of the authorized share capital with a monetary ceiling of Rs. 25 lakhs. There is no provision for charging stamp duty on "increase" in the authorised share capital. A statute authorizing the levy of stamp duty is in the nature of a fiscal statute inasmuch as it provides for involuntary exaction of money. This cannot be done except by the authority of law. The provisions of a fiscal statute admit of strict construction. In the absence of an express provision in the Act permitting levy of stamp duty on the increase in authorised share capital, it is not possible to legally sustain the impugned demand. The legislatures in Rajasthan and Madhya Pradesh and a few other States have acknowledged the need to have specific provisions and have accordingly amended the Schedule IA of the Act providing for levy of stamp duty on the increase in the authorized share capital.
The fact that the Petitioner earlier paid stamp duty when the authorized share capital was increased to Rs. 8.5 crores cannot act as an estoppel against the Petitioner. Also, the mere fact that the website of the ROC indicates that stamp duty shall be 0.5% of amount on increase in the authorized share capital does not lend a legal basis for such levy, in the absence of any amendment to the Act to that effect.

Note: Unless this decision is ovverruled or the stamp law in Delhi is modified - companies having registered office at Delhi need not pay stamp duty on increased authorised share capital. Incidentally, the Bombay Stamp Act 1958 - as applicable in Maharashtra (article 10) covers levy of stamp duty on increased authorised share capital on articles of association. It is interesting to note that article 39 (of Schedule I to the Bombay Stamp Act) do not provide for levy of stamp duty on increase of authorised share capital. So, may be, if articles of association do not include clause on authorised share capital (and refers to clause of memorandum of association), then in such cases, it appears that stamp duty on increase of authorised share capital may not be payable.

Meetings are toxic!

2011-01-11T04:20:00.000-08:00

As per Rework (Author: Fried, Jason, Heinemeier Hansson, David Published: Vermilion)

"Meetings are toxic
The worst interruptions of all are meetings. Here’s why:

They’re usually about words and abstract concepts, not real things.
They usually convey an abysmally small amount of information per minute.
They drift off-subject easier than a Chicago cab in a snowstorm.
They require thorough preparation that most people don’t have time for.
They frequently have agendas so vague that no-body is really sure of the goal.
They often include at least one moron who inevitably gets his turn to waste everyone’s time with nonsense.
Meetings procreate. One meeting leads to another meeting leads to another . . .

It’s also unfortunate that meetings are typically scheduled like TV shows. You set aside thirty minutes or an hour because that’s how scheduling software works (you’ll never see anyone schedule a seven-minute meeting with Outlook). Too bad. If it only takes seven minutes to accomplish a meeting’s goal, then that’s all the time you should spend. Don’t stretch seven into thirty.

When you think about it, the true cost of meetings is staggering. Let’s say you’re going to schedule a meeting that lasts one hour, and you invite ten people to attend. That’s actually a ten-hour meeting, not a one-hour meeting. You’re trading ten hours of productivity for one hour of meeting time. And it’s probably more like fifteen hours, because there are mental switching costs that come with stopping what you’re doing, going somewhere else to meet, and then resuming what you were doing beforehand.

Is it ever OK to trade ten or fifteen hours of productivity for one hour of meeting? Sometimes, maybe. But that’s a pretty hefty price to pay. Judged on a pure cost basis, meetings of this size quickly become liabilities, not assets. Think about the time you’re actually losing and ask yourself if it’s really worth it.

If you decide you absolutely must get together, try to make your meeting a productive one by sticking to these

simple rules:

Set a timer. When it rings, meeting’s over. Period.
Invite as few people as possible.
Always have a clear agenda.
Begin with a specific problem.
Meet at the site of the problem instead of a conference room. Point to real things and suggest real changes.
End with a solution and make someone responsible for implementing it.

Rights, Powers, Duties and responsibilities of Directors under the Companies Act 1956

2011-01-07T22:42:00.000-08:00

A company is managed and administered by a board of directors. Running a limited company involves certain duties, which have to be undertaken by the Directors and Company Secretary. This article points out the main duties that need to be remembered when being involved in the administration of a limited company under the Indian Companies Act 1956 (for brevity sake herein after referred to as `the Act' or `the said Act').

It may be noted that there are many provisions of the Act, besides those covered hereunder, which deals with the Directors of the Company. Further many of the provisions of the Act are not applicable to private companies.

Separate Legal Entity

One vital point to remember is that a company is a separate legal entity- it is a legal person in its own right, quite separate and distinct from those who own it, (being the members, usually the shareholders) and from those who run it, (the directors). This founding principle of company law, as established in the case of xtlomon v. AC Salomon Co Ltd (1897) AC 22, has often been the cause of many court cases where people fail to recognise the difference between business people and the companies with which they are involved.

Directors

Every private company shall have at least two directors and public company shall have three directors. Only individual can be director. There are no legal qualifications that are needed by an individual to be a director of a company. The Act provides for disqualifications of directors under certain circumstances. Articles of private company may prescribe more disqualifications than those prescribed under the Act The director(s) are responsible for the management of the company. Their powers can be restricted by the company's articles but, in most cases, they can do anything that the company can do. The director(s), acting as and for the company, must ensure that the company does everything that it is legally obliged to do. The decisions that are made by the director(s) must be made in the best interests of the company. If they are not the decision will be 'ultra vires'.

The interests of the company are those of the shareholders as a whole. They are not the interests of employees, individual shareholders or the director(s) themselves. It may be noted here that private company must have minimum two directors and public limited company shall have minimum three directors.

Lets consider some of the important terms defined under the Act:

"member" means every person who agrees in writing a become a member of a company and whose name is entered in its register of members, shall be a member of the company. It may be noted that the subscribers of the memorandum of a company shall be deemed to have agreed to become members of a company, and on its registration, shall be entered as members in its register of members.

• "Board of Directors" or "Board", in relation to a company, means the Board of Directors of the Company. Term "Director" is defined to include any person occupying the position of Director, by whatever name called_ Thus person may be called `President' or `Executive' and still he may be considered as `Director' of the Company, depending upon circumstances of each case. It may be noted that Bankrupts or incapacitated persons (infants or mentally-challenged) are disqualified. In case of public limited company, Directors must consent in writing before they are appointed

Term "managing director" is defined to mean a director who, (i) by virtue of an agreement with the company or (ii) by virtue of a resolution passed by the company in general meeting or (iii) by virtue of a resolution passed by its board of directors or, (iv) by virtue of its memorandum or articles of association, is entrusted with substantial powers of management, where such substantial powers would not otherwise be exercised by him.

However it may be noted that the power to do administrative acts of a routine nature when so authorised by the Board [such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share,]shall not be deemed to be included within substantial powers of management Another essential condition is that a managing director of a. company shall exercise his powers subject to the suparintendenca, control and direction of its Board of directors. Thus two conditions to be satisfied (i) substantial powers of management, and (ii) exercise such powers subject to the superintendence, control and direction of its Board of directors.

Definition also states that a director occupying the position of a managing director, by whatever name called is considered for the purpose of the Act as managing director. Thus, in case where a director is referred to as 'Non-Executive Director' but actually he enjoys substantial powers in the company then he may be considered as `managing director'.

A public company with paid-up capital of Rs.5 crores or more must have managing director or whole time director or manager. It may be noted here that private company, which is subsidiary of a public company is considered under the Act as public company.

Often term `manager' is misunderstood. The definition of `manager' is defined in a similar manner as term `managing director'. The term "manager" is defined to mean an individual (not being the managing agents) who, subject to the superintendence, control and direction of the Board of directors, has the management of the whole, or substantially the whole, of the affairs of a company, and includes a director or any other person occupying the position of a manager, by whatever name called. The only difference between `managing director' and `manager' is that `manager' may or may not be under a contract of service of the C:omparry, whereas `managing director' is always under contract of service, which may be specified either by resolution or agreement or memorandum or articles of association.
The term "officer" is defined to include any director, manager or secretary or any person in accordance with whose directions or instructions the Board of directors or any one or more of the directors is or are accustomed to act. Thus officer of the company includes all said persons.

It may be noted that most of the provisions of the Act uses the term `an officer of the company who is in default' to make them liable to punishment or penalty. Term is defined under the Act to mean all the following officers of the company, namely:

managing director or managing directors
the whole-time director or whole-time directors;
the manager,
the secretary,
any person in accordance with whose directions or instructions the Board of directors of the company is accustomed to act';
any person charged by the Board with the responsibility of complying with that provision

It must be noted that the person so charged has given his consent to take-up any such responsibilities.

Further where any company does not have managing director, whole time director or manager, then any director so specified by the Board as rer3ponsible for compliance of the Act then such director is liable.

And where, as in most cases, no director is made responsible for compliance of the Act, all the directors of the Company are liable.

Memorandun and Articies of Association

Every company must have a Memorandum of Association which details:

the name of the company
name of the State where the registered office is situated
the objects of the company
the liability clause
the capital clause
the subscribers to the memorandums clause.

The memorandum must be signed by each subscriber in the presence of at least one witness. A company may not alter the conditions contained in its memorandum except by express provision of the Companies Act.

The 'objects' of the company are a statement as to what the object of the company is. Generally many objects are specified besides the main objects.

Limited Liability

A company may have limited liability for its members. If the company is unable to pay its debts and is put into liquidation, the members will not be required to contribute more than they have actually paid or agreed to pay towards settling its debts.

Capital

Earlier there was no statutory minimum capital amount for a private limited company. However with the introduction of the Companies (Amendment) Act 2000, minimum paidup capital of rupees one lakh is a must for private company and rupees five lakhs for public limited company. For existing companies, two years time is given to increase capital to the minimum paid up capital so prescribed.

ARTICLES OF ASSOCIATION OF PRIVATE COMPANY MUST CONTAIN THE FOLLOWING CLAUSES

restricts the rights to transfer its shares, if any,
limits the number of its members to fifty not including -(i) persons who are in the employment of the company, and (ii) persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased;
prohibits any invitation to the public to subscribe for any shares in, or debentures of, the company; and
Prohibits any invitation or acceptance of deposits from persons other than its member, directors or their relatives;

These clause are required to be included in the articles of a company in order to constitute it a private company. If the company makes default in complying with any of those clauses, the company shall cease to be entitled to the privileges and exemptions conferred on private companies by or under the Act.

In the case of a company limited by shares, the standard form for articles of association in form of'Table 'A' is prescribed and this can be used in its entirety to constitute the Articles of a company. Table A is given in Schedule I to the Companies Act. The company may adopt either Table A or it can have its own Articles of Association. Thus, the company can draw up its own Articles or modify Table A, but they must contain the rules for the conduct of the internal affairs of the company.

Some of the Duties of Directors:

A director can be director in maximum of 15 public companies.
Company's articles may provide for qualification shares, in such cases, directors must subscribe such shares within 2 months of becoming director in the company.
Directors must disclose annually to the Board of Directors their interest as director, shareholder in other companies, partnership in other companies, names of companies where relatives of director are shareholder, director or partner, names of other partners of such partnership firms; list of relatives. Directors must also notify any change in the said information.
Director of public company must not take part in the discussion on item of agenda where director is interested in any way.
To maintain books of accounts and related accounts.
To ensure that accounting standards are properly followed. Accounting standards are notified by Government the in consultation with the Institute of Chartered Accountants of India.
To convene and conduct Board meetings and shareholders meetings.
The over all compliance of the Act and other applicable laws.
To ensure annual filings with the Registrar of Companies annual accounts, annual return and compliance certificate from practising company secretary, where applicable. Companies with paid-up share capital of Rs.10 lakhs and above but below 200 lakhs shall obtain such certificate from practising company secretary.

Some of the liabilities of Directors:

Directors owe a duty of honesty, good faith and to always act in the best interests of the company. They must not vote on matters which present a conflict of interest to their duties elsewhere. While in theory they are not liable for the debts of the corporation, access to their personal assets has been opened by several laws. One example is if directors consent to prohibited resolutions such as the buy-back of shares when the company is insolvent or allow an issue of shares before being fully paid. Personal liability can sometimes be avoided is a dissent is recorded in the minutes.
Private company must have minimum two members and for public company minimum seven members shall be there. If at any time the number of members of a company is reduced, below minimum and the company cannier on business for more than six months while the number is so reduced, then every member of the company during the time that it so carries on business after those six months and is cognizant of the fact that it is carrying on business with fewer than minimum members, shall be severally liable for the payment of the whole debts of the company contracted during that time, and may be severally sued therefore.
All investments made by a company on its own behalf shall be made and held by Company in its own name. However this rule does not apply to investments made by a company whose principal business consists of the buying and selling of shares or securities. Further a company may hold any shares in the name of its subsidiary, in the name of any nominee of the company (to ensure that the number of members of the subsidiary is not reduced, below minimum). Company may also deposit with the bankers of the company, any shares or securities (i) for the collection of arty dividend or interest payable thereon; and (ii) to facilitate the transfer of shares or securities. The company can also deposit with, or transfer to, any person any shares or securities, by way of security for the repayment of any loan advanced to the company or the performance of any obligation undertaken by it. The company can also hold its investments in the name of a depository when such investments are in the form of securities held by the company as a beneficial owner. In all said cases where investments are not held in company's name, the company shall maintain register thereof If company keeps investment otherwise than stated above, the company, and every officer of the company who is in default, shall be punishable with fine upto rupees fifty thousand.
Service of documents on members by Company: A document may be served by a company on any member thereof either personally, or by sending it by post to him to his registered address in India, or if he has no registered address in India, to die address, if any, within India supplied by him to the company for the giving of notices to him. Where a document is sent by post, service thereof shall be deemed to be acted by properly addressing, prepaying and posting a letter containing the docnnnent. Such service shall be deemed to have been effected -(i) in the case of a notice of a meeting, at the expiration of forty-eight hours after the letter containing the same is posted, and (ii) in any other case, at the time at which the letter would be delivered in the ordinary course of post. A document advertised in a newspaper circulating in the neighborhood of the registered office of the company shall be deemed to be duly served, on every member of the company who has no registered address in India and has not supplied to the company an address within Indiaa for the giving of notices to him, on the day on which the advertisement appears.
Authentication of documents and proceedings: A document or proceeding requiring authentication by a company may be signed by a director, the manager, the secretary or other authorised officer of the company, and need not be under its common seal. However where the Act requires special manner of signing he same be followed, for example signing of Directors' Report. Provisions of Section 58A applies to both private limited and public limited company. However, in view of fact that private company cannot accept deposits except from its shareholders, directors or relatives of directors, the impact of section is reduced.
Liabilities for non compliance of the Deposit Rules:
If company has accepted deposits in contravention of the deposit rules, it shall make repayment of such deposit within 30 days. And if company fails to do so-(a) the company shall be punishable with fine of not less than twice the amount of the deposit^-, AND (b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extent to five years and shall also be liable to fine.
Where a company has failed to repay any deposit or part thereof (after accptance in compliance of the deposit rules) in accordance with the terms and conditions of such deposit, the Company Law Board (CLB) may, if it is satisfied that it is necessary so to do to safeguard the interests of die company, the depositors or in the public interest, either on its own motion or on the application of the depositor, direct the company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order: However the CLB may, before making any order, give a reasonable opportunity of being heard to the company and the other persons interested in the matter.
Acceptance of deposits in excess of the limits prescribed under the deposit rules - (a) the company shall be punishable, -(i) where such contravention relates to the acceptance of any deposit, with fine not less than an amount equal to the amount of the deposit so accepted; (ii) where such contravention relates to the invitation of any deposit, with fine upto ten lakh rupees but not less than fifty thousand rupees; AND (b) every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to fifty years and shall also be liable to fine.
Small depositors -- "A small depositor" means a depositor who has deposited, in a financial year, a sum not exceeding twenty thousand rupees in a company and includes his successors, nominees and legal representatives.
Every company, which accepts deposits from small depositors, and made default in repayment of any such deposits or part thereof or any interest thereupon, then such company shall intimate to the CLB within sixty days from the date of default made by it, that it has made default and also intimate the names and addresses of each small depositor, the principal sum of deposits due to them and interest accrued thereon. Such intimation to CLB shall be given on monthly basis.
The company shall not, at any time, accept further deposits from small depositors, unless each small depositor, whose depositt has matured, has been paid the amount of the deposit and the interest accrued thereupon However company can (a) renew any deposit for which small depositor voluntarily has asked for renewal or (b) keep any deposit, whose repayment has become impracticable due to the death of the small depositor or whose repayment has been stayed by a competent court or authority.
Where a company has during its life time, made a default in the repayment of a deposit or part thereof or any interest thereupon to a small depositor, it shall state, in every future advertisement and application form inviting deposits from the public, the total number of small depositors and amount due to them in respect of which such default has been made.
Further, where a company has accepted deposits from small depositors has been waived, the fact of such waiver shall be mentioned by the company in every advertisement and application form inviting deposits issued after such waiver.
Where a company has accepted deposits from small depositors and subsequent to such acceptance of deposits, obtains funds by taking a load for the purposes of its working capital from any bank, it shall first utilise the funds so obtained for the repayment of any deposit or any part thereof or any interest thereupon to the small depositor before applying such funds for any other purpose.
Every application form, issued by a company to a small depositor for accepting deposits from him, shall contain a statement to the effect that the applicant has been apprised of- (a) every past default by the company in the repayment of deposits or interest thereon, if any, such default has occurred; and (b) the waiver of interest, if any and reasons therefore.
Whoever knowingly fails to comply with die aforesaid provision or comply with any order of the CLB shall be punishable with imprisonment which may extend to three years and shall also be liable to fine for not less than five hundred rupees for every day during which such non-compliance shall continues.
If a company or any other person contravenes any of the said provision of small depositor, then every person, who at the time the contravention was committed, was a director of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

Default in acceptance or refund of deposits to be coginizabte - Every offence connected with or arising out of acceptance of deposits shall be cognizable offence under the Code of Criminal Procedure, 1973. No court shall take cognizance of any offence except on a compliant made by the Central Government or any officer authorised by it in this behalf Regional Directors are authorized by the Central Government to make such complaints.

Company Secretary

The Companies Act states that every company with paid up share capital of Rs.50 lakhs and above shall have a company secretary.

As the secretary is an officer of the company, they may be criminally liable for defaults committed by the company. The liability could include failure to file: in the time allowed; any change in the details of the company's directors and secretary; and the company's annual return.

The company secretary usually undertakes such duties as:

maintaining the statutory registers - members, directors and secretaries and directors' interests
ensuring that statutory forms are filed promptly
sending the Registrar copies of resolutions and agreements
ensuring that people entitled to do so, can inspect company records
convening Board meetings and shareholders meeting
complying with the listing agreements requirements, where company is listed on the stock exchange
legal documentation
general administration