Management and Administration

As per Section 168 of the Companies Act, 2013, read with relevant rules:

Procedure for Resignation:

1. Director's Notice: A director intending to resign must give a notice in writing to the company.
2. Board Meeting: The Board of Directors must take note of the resignation in a Board meeting.
3. Company's Filing (e-Form DIR-12): The company must intimate the Registrar of Companies (ROC) about the resignation in e-Form DIR-12 within 30 days of receiving the notice of resignation. This form must be accompanied by a copy of the resignation letter and the Board resolution taking note of the resignation.
4. Director's Filing (e-Form DIR-11): The director who has resigned may also forward a copy of his resignation along with reasons for resignation in e-Form DIR-11 to the ROC within 30 days from the date of resignation.

Implications of Resignation:

1. Effective Date: The resignation takes effect from the date on which the notice is received by the company or the date specified by the director in the notice, whichever is later.
2. Liability: A director who has resigned shall be liable even after his resignation for the offences committed during his tenure.
3. Vacancy: The vacancy created by the resignation of a director may be filled by the Board as a casual vacancy, if permitted by the Articles of Association, or by the members in a general meeting.

A special resolution is passed when the votes cast in favor of the resolution by members present (in person or proxy) are not less than three times the number of votes cast against it. It is required for major decisions like altering the MOA/AOA, reducing share capital, etc.

As per Section 164 of the Companies Act, 2013, a person shall not be eligible for appointment as a director of a company if:

1. He is of unsound mind and stands so declared by a competent court.
2. He is an undischarged insolvent.
3. He has applied to be adjudicated as an insolvent and his application is pending.
4. He has been convicted by a court of any offence, whether involving moral turpitude or otherwise, and sentenced to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence. However, if a person has been convicted of any offence and sentenced to imprisonment for seven years or more, he shall not be eligible to be appointed as a director in any company.
5. An order disqualifying him for appointment as a director has been passed by a court or Tribunal and the order is in force.
6. He has not paid any calls in respect of any shares held by him, and six months have elapsed from the last day fixed for the payment of the call.
7. He has been convicted of the offence of related party transactions under Section 188 at any time during the last preceding five years.
8. He has not complied with the provisions of Section 152(3) regarding obtaining a Director Identification Number (DIN).
9. He is a director of a company which has not filed financial statements or annual returns for any continuous period of three financial years, or has failed to repay the deposits or interest due thereon or redeem any debentures or pay interest due thereon or pay any dividend declared and such failure continues for one year or more. (This disqualification applies for five years from the date of such failure).

The Companies Act, 2013, distinguishes between Ordinary Resolution and Special Resolution based on the majority required for their passing and the types of matters they address. Both are crucial for decision-making by shareholders in a general meeting.

Ordinary Resolution (Section 114(1)):

• Majority Required: An ordinary resolution is passed when the votes cast in favour of the resolution (whether on a show of hands, or by electronic means, or by a poll) exceed the votes cast against the resolution. In simpler terms, it requires a simple majority (more than 50%) of the votes cast.
• Notice: Requires ordinary notice (at least 21 clear days) of the general meeting, unless a shorter notice is agreed upon by a majority in number and 95% of the paid-up share capital.
• Applicability: Used for routine business and matters that do not significantly alter the company's constitution or fundamental structure. Examples include:
  • Adoption of financial statements and directors' reports.
  • Declaration of dividends.
  • Appointment and remuneration of auditors.
  • Appointment of directors liable to retire by rotation.
  • Removal of a director (with special notice).

Special Resolution (Section 114(2)):

• Majority Required: A special resolution is passed when the votes cast in favour of the resolution are not less than three times the number of the votes, if any, cast against the resolution (i.e., at least 75% majority) by members entitled to vote and voting on the resolution.
• Notice: Requires that the intention to propose the resolution as a special resolution has been specifically mentioned in the notice calling the general meeting.
• Applicability: Used for significant decisions that affect the company's constitution, structure, or fundamental rights of shareholders. The Act specifically requires a special resolution for certain matters. Examples include:
  • Alteration of Memorandum of Association (e.g., change of name, objects clause).
  • Alteration of Articles of Association.
  • Issue of shares with differential voting rights.
  • Reduction of share capital.
  • Buy-back of shares.
  • Voluntary winding up of the company.
  • Appointment of Independent Directors for a second term.

In essence, a special resolution signifies a higher level of shareholder consensus is required for matters of greater importance.

For a public company, the quorum depends on the number of members: 5 members personally present if total members are <= 1000; 15 members if total members are > 1000 but <= 5000; and 30 members if total members exceed 5000.

The Companies Act, 2013, provides for various modes of appointing directors:

1. Appointment by Subscribers to Memorandum: The first directors are usually named in the Articles of Association or appointed by the subscribers to the memorandum.
2. Appointment by Members in General Meeting: This is the most common method, where directors are appointed by an ordinary resolution of members at an Annual General Meeting (AGM).
3. Appointment by the Board of Directors: The Board can appoint:
   • Additional Director: If authorized by the Articles, the Board can appoint any person as an additional director, who holds office up to the next AGM.
   • Alternate Director: If authorized by the Articles or a resolution, the Board can appoint an alternate director for a director who is absent from India for not less than three months.
   • Nominee Director: The Board can appoint a nominee director by any financial institution, government, or by virtue of special provisions in the Articles.
   • Casual Vacancy: If a director's office falls vacant before the expiry of his term (e.g., due to death, resignation), the Board can fill this casual vacancy, subject to approval by members in the immediate next general meeting.
4. Appointment by Tribunal: The National Company Law Tribunal (NCLT) can appoint directors in cases of oppression and mismanagement.
5. Appointment by Proportional Representation: A company may provide in its Articles for the appointment of not less than two-thirds of the total number of directors according to the principle of proportional representation, either by a single transferable vote or by cumulative voting.
6. Appointment of Small Shareholders' Director: Listed companies may have a director elected by small shareholders (holding shares of nominal value not exceeding Rs. 20,000).

An Independent Director, as defined under Section 149(6) of the Companies Act, 2013, is a director other than a managing director, a whole-time director, or a nominee director, who meets specific criteria of independence. The primary purpose of independent directors is to enhance corporate governance by providing an objective perspective to the Board's deliberations.

Key Criteria for Appointment (Section 149(6) and Schedule IV):
A person shall be eligible for appointment as an independent director if he/she:

1. Is a person of integrity and possesses relevant expertise and experience.
2. Is not or was not a promoter of the company or its holding, subsidiary, or associate company.
3. Is not related to promoters or directors in the company, its holding, subsidiary, or associate company.
4. Has or had no pecuniary relationship with the company, its holding, subsidiary or associate company, or their promoters, or directors, during the two immediately preceding financial years or during the current financial year, other than remuneration as such director or having transaction not exceeding ten percent of his total income.
5. None of his relatives has or had any pecuniary relationship or transaction with the company, its holding, subsidiary or associate company, or their promoters, or directors, amounting to two percent or more of their 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.
6. Neither he nor any of his relatives:
   • holds or has held the position of a KMP or is or has been an employee of the company or its holding, subsidiary or associate company in any of the three immediately preceding financial years;
   • is or has been an employee or partner of any firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or legal or consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten percent or more of the gross turnover of such firm;
   • holds together with his relatives two percent or more of the total voting power of the company;
   • is a Chief Executive or director, by whatever name called, of any non-profit organisation that receives twenty-five percent or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds twenty-five percent or more of the total voting power of the company;
   • is not a material supplier, service provider or customer or a lessor or lessee of the company.
7. Possesses such other qualifications as may be prescribed.

The Companies Act, 2013, mandates companies to maintain various statutory registers to ensure transparency, compliance, and proper record-keeping. These registers are crucial for stakeholders to access information and for regulatory oversight. Some of the important registers include:

1. Register of Members (Section 88): Contains details of all shareholders, including their names, addresses, shareholding, date of becoming/ceasing to be a member, and other prescribed particulars.
2. Register of Debenture Holders and Other Security Holders (Section 88): Contains details of debenture holders and holders of other securities, including their names, addresses, and particulars of debentures/securities held.
3. Register of Directors and Key Managerial Personnel (KMP) (Section 170): Contains particulars of directors and KMP, including their DIN, name, address, nationality, date of birth, date of appointment, remuneration, and other directorships/KMP positions held.
4. Register of Charges (Section 85): Contains details of all charges created by the company on its assets, including the amount of charge, date of creation, and property charged.
5. Register of Investments not held in its own name (Section 187): A company must maintain a register of investments held by it in any property, shares, or other securities, in the name of any other person.
6. Register of Contracts or Arrangements in which Directors are Interested (Section 189): Contains particulars of all contracts or arrangements with a related party in which any director is interested.
7. Register of Loans, Guarantees, Security, and Acquisition of Securities (Section 186): Contains particulars of loans given, guarantees provided, security offered, or acquisition of securities by the company.

These registers must be kept at the registered office of the company and be open for inspection by members and other specified persons during business hours, subject to reasonable restrictions.

An Extraordinary General Meeting (EGM) is any general meeting of a company's members other than an Annual General Meeting (AGM). EGMs are called to transact urgent or special business that cannot wait until the next AGM.

Circumstances for Calling an EGM:
EGMs are typically called to discuss and pass resolutions on matters such as:

• Alteration of Memorandum or Articles of Association.
• Issuance of new shares or debentures.
• Removal of directors or auditors.
• Approval of significant related party transactions.
• Voluntary winding up of the company.
• Any other matter requiring shareholder approval that arises between two AGMs.

Authority to Convene an EGM (Section 100 of the Companies Act, 2013):
An EGM can be convened by the following:

1. By the Board of Directors: The Board of Directors has the power to call an EGM whenever they deem it necessary to transact any special business.
2. By Requisitionists: Members holding at least one-tenth of the paid-up share capital carrying voting rights (or one-tenth of the total voting power in the case of a company not having a share capital) can make a requisition to the Board to call an EGM. The requisition must state the matters for consideration. Upon receiving a valid requisition, the Board must proceed to call a meeting within twenty-one days from the date of deposit of the requisition and hold it within forty-five days from the date of deposit of the requisition. If the Board fails to do so, the requisitionists themselves can call the meeting within three months from the date of the requisition.
3. By the National Company Law Tribunal (NCLT): If for any reason it is impracticable to call a meeting of a company, other than an AGM, the Tribunal may, either suo motu or on the application of any director or member, order a meeting to be called, held, and conducted in such manner as the Tribunal thinks fit.

Key Managerial Personnel (KMP) are individuals who hold significant positions in a company and are entrusted with substantial powers and responsibilities in the management of the company. Their roles are crucial for the day-to-day operations and strategic direction.

Who constitutes KMP (Section 2(51) of the Companies Act, 2013):
KMP, in relation to a company, means:

1. The Chief Executive Officer (CEO) or the Managing Director (MD) or the Manager;
2. The Company Secretary (CS);
3. The Whole-time Director (WTD);
4. The Chief Financial Officer (CFO);
5. Such other officer, not more than one level below the whole-time director or the Chief Executive Officer or Managing Director, who is in whole-time employment, designated as KMP by the Board; and
6. Such other officer as may be prescribed.

Requirements for Appointment (Section 203 of the Companies Act, 2013 and Rules):

1. Mandatory Appointment: Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have the following whole-time key managerial personnel:
   • Managing Director, or Chief Executive Officer, or manager and in their absence, a whole-time director;
   • Company Secretary; and
   • Chief Financial Officer.
2. Private Companies: Private companies are not mandatorily required to appoint KMP, but if they do, the provisions relating to KMP would apply.
3. Board Resolution: Every whole-time KMP shall be appointed by means of a resolution of the Board of Directors, which shall contain the terms and conditions of such appointment including the remuneration.
4. Restriction on Holding Office: An individual shall not be appointed or reappointed as the chairperson of the company as well as the managing director or Chief Executive Officer of the company at the same time, unless the articles of such company provide otherwise, or the company does not carry on multiple businesses.
5. Return to ROC: A company must file a return of appointment of KMP in e-Form DIR-12 with the Registrar of Companies within 30 days of the appointment.

Section 166 of the Companies Act, 2013, outlines the statutory duties of a director, which are based on principles of fiduciary duty and care. These duties are crucial for ensuring good corporate governance and protecting stakeholders' interests:

1. Act in Accordance with Articles: A director shall act in accordance with the company's Articles of Association.
2. Act in Good Faith: A director shall act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community, and for the protection of the environment.
3. Exercise Due Care, Skill, and Diligence: A director shall exercise his duties with due and reasonable care, skill, and diligence and shall exercise independent judgment.
4. Avoid Conflict of Interest: A director shall not involve himself in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
5. No Undue Gain or Advantage: A director shall not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates. If a director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
6. No Assignment of Office: A director shall not assign his office, and any assignment so made shall be void.

Violation of these duties can lead to penalties and liabilities for the director.

An Annual General Meeting (AGM) is a mandatory yearly meeting of the shareholders of a company, where they review the company's performance and make important decisions. It is a crucial platform for shareholder democracy and transparency.

Statutory Timelines (Section 96 of the Companies Act, 2013):

1. First AGM: Every company must hold its first AGM within nine months from the closing of the first financial year of the company. If it holds its first AGM as aforesaid, it shall not be necessary to hold any AGM in the year of its incorporation.
2. Subsequent AGMs: Subsequent AGMs must be held within six months from the date of closing of the financial year.
3. Maximum Gap: The gap between two consecutive AGMs shall not exceed fifteen months.
4. Extension: The Registrar of Companies (ROC) may, for any special reason, extend the time for holding any AGM (other than the first AGM) by a period not exceeding three months.

Key Purposes (Ordinary Business):
At every AGM, the following ordinary business must be transacted:

1. Consideration of Financial Statements: To consider and adopt the audited financial statements (Balance Sheet, Profit & Loss Account, Cash Flow Statement) and the reports of the Board of Directors and auditors.
2. Declaration of Dividend: To declare dividends, if recommended by the Board of Directors.
3. Appointment of Directors: To appoint directors in place of those retiring by rotation.
4. Appointment and Remuneration of Auditors: To appoint auditors and fix their remuneration.

In addition to the above, any other business requiring shareholder approval (special business) can also be transacted at an AGM, provided proper notice has been given.

Every company must hold an AGM in each calendar year. The first AGM must be held within 9 months from the end of the first financial year. Subsequent AGMs must be held within 6 months from the end of the financial year, and the gap between two consecutive AGMs must not exceed 15 months. It must be held during business hours on a day that is not a national holiday.

For a Board Meeting to be validly conducted, the Companies Act, 2013, and Secretarial Standard-1 (SS-1) prescribe specific requirements for notice and quorum:

1. Notice of Meeting (Section 173(3) and SS-1):

• Mandatory Notice: Every director is entitled to receive notice of a Board Meeting.
• Minimum Period: A minimum of seven days' notice in writing must be given to every director at his registered address by hand delivery or by post or by electronic means.
• Shorter Notice: A Board meeting can be called at shorter notice to transact urgent business, provided at least one independent director (if any) is 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 by at least one independent director, if any.
• Contents of Notice: The notice should specify the date, time, and place of the meeting. It should also include the agenda of the meeting and notes on the agenda, if any.

2. Quorum for Meeting (Section 174 and SS-1):

• Minimum Quorum: The quorum for a Board meeting is one-third of the total strength of the Board or two directors, whichever is higher.
• Fractions: Any fraction contained in one-third shall be rounded off as one.
• Interested Directors: Interested directors (directors who are party to or concerned with any contract or arrangement) are not counted for the purpose of quorum in respect of the item of business in which they are interested. If the number of disinterested directors is less than the required quorum, then the remaining disinterested directors can transact business only after obtaining the approval of the members in a general meeting.
• Adjournment for Lack of Quorum: If the meeting cannot be held for want of quorum, it stands adjourned to the same day in the next week at the same time and place, or to such other day, time, and place as the Board may determine. If at the adjourned meeting also, a quorum is not present within half an hour from the appointed time, the directors present shall constitute the quorum.

Yes, a director can be removed from office before the expiry of his term, subject to certain conditions and procedures as laid down in Section 169 of the Companies Act, 2013.

Procedure for Removal:

1. Ordinary Resolution: A company may, by ordinary resolution, remove a director before the expiry of his period of office.
2. Special Notice: A special notice is required for any resolution to remove a director or to appoint somebody in place of a director so removed.
3. Service of Notice: On receipt of a special notice of a resolution to remove a director, the company must forthwith send a copy thereof to the director concerned.
4. Right to be Heard: The director concerned has a right to be heard on the resolution at the meeting. He may make a representation in writing to the company and request its notification to members. If the representation is not sent due to the company's default or if it's too late, the director can read it out at the meeting.
5. Filling the Vacancy: The vacancy created by the removal of a director can be filled by the appointment of another director at the same meeting in which the removal takes place, provided special notice of such appointment has been given.

Exceptions (Directors who cannot be removed by ordinary resolution):

• A director appointed by the Tribunal (NCLT) under Section 242.
• A director appointed by the principle of proportional representation under Section 163.
• Independent Directors re-appointed for a second term can only be removed by a special resolution.