Provisions of Companies Act 2013 pertaining to Board & Administration Sushrut Chitale

1. Provisions of Companies Act 2013 pertaining to Board & Administration Sushrut Chitale

2. Directors

3. Snapshot – Directors requirements • Paid up capital / turnover / loans / deposits as of last date of latest audited financial statements to be taken in to account • Listed company – 1/3 of total as Independent director – time period of 1 year given to comply with provisions of this section. Minimum requirement of at least 2 independent directors where criteria met

4. Sec 149 – Company to have Board of Directors • Every company shall have - a) Minimum 3 directors – Public Company Minimum 2 directors – Private Company Minimum 1 director - One Person Company b) Maximum of 15 directors. (More than 15 allowed by special resolution) • At least 1 director whose stay in India is not less than 182 days in previous calendar year

5. Sec 149 – Company to have Board of Directors • An independent director means a director (other than MD/WTD/ nominee director); • who, in Boards’ opinion, is a person of integrity and possesses relevant expertise & experience • who is / was not a promoter of company / subsidiary / holding / associate company; and is / was not related to promoters / directors • who does not have pecuniary relationship with company / Group during last 2 / current financial year • Whose relatives do not have pecuniary relationship exceeding 2% of gross turnover or total income of Rs. 50 lakhs, whichever is lower, in current / last 2 financial years • Who or his relative has not been KMP in company / Group in past 3 financial years

6. Sec 149 – Company to have Board of Directors • Who or his relative has not been partner in firm of CA/CS/CMA who were auditing Books of Company / Group in past 3 financial years • Who or his relative has not been partner in legal / consulting firm who has transactions in past 3 financial years with company / group exceeding 10% of turnover of the Firm • Who along with relatives does not hold >2% of voting power • Who or his relative do not run an NGO which receives >25% of receipts from company / promoters / Group; or holds >2% voting power in company • Independent director to give Annual Declaration that he / she meets criteria for independence. • Independent director not entitled to stock option

7. Sec 149 – Company to have Board of Directors • Independent directors can hold office for 2 consecutive terms of 5 years each. Thereafter, he / she can again be eligible by taking a break of 3 years. These provisions to be applied prospectively • Independent director to be liable for acts of omission / commission committed with his knowledge and with his consent / connivance / where he had not acted diligently.

8. Sec 150 – Selection of Independent Directors • Shall be selected from the data bank of persons eligible & willing to act as such. • Appointment shall be approved in general meeting. • Company shall exercise proper due diligence before selection. • Explanatory statement annexed to notice containing agenda for appointment of independent director to include justification for such person’s appointment.

9. Sec 151 – Small shareholders director • A listed company may: a) suo moto or b) i) by application from at least 1000 shareholders or whichever is ii) one-tenth of total small shareholders lower • Only 1 small shareholder for a company • Small shareholders – those who hold shares with nominal value of < Rs. 20,000 • Small shareholder’s director’s tenure to be 3 years – not eligible for re-appointment on expiry of tenure for another 3 years • A person may be small shareholder director in maximum 2 companies at a time.

10. Sec 152 – Appointment of Directors • First directors – Subscribers of MOA (unless AOA specifies some other person). • Every director to be appointed in general meeting. • At every AGM, one-third of the directors are liable to retire by rotation. If number is neither three nor a multiple of three, then number nearest to one-third, shall retire. • Company may fill up the vacancy by appointing retiring director or some other person. • If vacancy is not filled-up then meeting shall be adjourned. But if the vacancy is not filled up even in adjourned meeting, then the retiring director shall be deemed to be re-appointed. • Public Company – If there is a casual vacancy, it may be filled by BODs

11. Sec 160 – Person other than retiring director • A person other than retiring director, shall be eligible for appointment as director. • The person / any member proposing the person to deliver notice in writing for candidature at company’s registered office 14 days before AGM. • Deposit of Rs. 100,000 also be submitted • Company to inform members about such candidature at least 7 days before AGM through individual notices / through website / through notice in newspaper • Deposit is refunded if proposed person gets elected or gets > 25% of votes.

12. Sec 161 – Appointment of Additional Director, Alternate Director and Nominee Director • AOA may confer power to BODs to appoint any person as additional director to hold up to next AGM. • AOA may also confer power to BODs to appoint any person as alternate director for a director during his absence for a period of not less than 3 months from India. • Alternate director to vacate the office if the director in whose place he has been appointed returns to India. • One person can not be alternate director for more than 1 director in the same company.

13. Sec 164 – Disqualifications for appointment • A person shall not be eligible for appointment, if he is- • Of unsound mind • An undischarged insolvent • Applied to be adjudicated as insolvent & application is pending • Convicted by court of any offence & sentenced to imprisonment for not less than 6 months & 5 years yet to pass for expiry of such sentence (if person has been convicted & sentenced for more than 7 years, he can not be Director in any company any time in future) • Order is passed by a court or Tribunal disqualifying him • Has not paid any call money for 6 months • Convicted of any offence dealing with related party transactions • Has not been allotted with DIN

14. Sec 164 – Disqualifications for appointment • If a person is a director of a company; • which has not filed financial statements for continuous period of 3 financial years • which has failed to repay deposits / interest thereon / debentures / dividends & such failure continues for more than 1 year, then he can not be appointed as director in any company for 5 years • Private company may specify additional disqualifications in AOA

15. Sec 165 – Number of Directorships • No person to hold directorship (including any alternate directorship) in more than 20 companies at a time (not more than 10 in public co). • Directorship in Private companies that are holding or subsidiary company of a public company shall be calculated as directorship in public companies. • 1 year time frame given to align number of directorships to the above numbers.

16. Sec 168 – Resignation of Directors • Shall resign by giving a notice in writing. • Resignation shall take effect from the date notice is received by the company or any date specified by director, whichever is later. • When all the directors resign – Promoters or in their absence, Central Government shall appoint the required number.

17. Sec 169 – Removal of Directors • Company may remove by passing ordinary resolution. • Special notice is required to be given. • Director shall be entitled to be heard. • If director gives any representations in writing, the company has to either send it along with notice or director can read out in the meeting. • The vacancy is to be filled up in the same meeting. • The appointed director to hold the office till the time the predecessor would have held the same.

18. Sec 177 – Audit Committee • Composition – At least 3 members. Majority to be independent. Majority to also have ability to read and understand financial statement • 1 year time given to meet requirements specified in the new Act. • Terms of reference to include; • Recommendation for appointment for auditors • Review & monitor auditor’s independence and performance and effectiveness of audit process • Examination of financial statements & auditors’ report • Approval of related party transactions Scrutiny of inter-corporate loans and investments • Valuation of undertakings/assets of the company • Evaluation of internal financial controls & risk management systems • Monitoring end use of funds raised through public offers

19. Sec 177 – Audit Committee • Statutory auditors to have right to be heard at audit committee meetings when it considers auditors’ meeting but don’t have right to vote • Board’s report to disclose composition of Audit committee & where Board has not accepted recommendation of Audit committee, the same to be disclosed in report along with reasons therefor • Every listed company to have whistle blower mechanism

20. Sec 178 – Other Committees Nomination & Remuneration committee • Composition – 3 or more non-executive directors (at least half to be independent). Chairperson of company can not chair the committee. • Terms of reference – to deal with matters pertaining to appointment, removal, promotions and other matters for executive directors & senior management. Stakeholders Relationship committee • Company with >1000 shareholders, debenture-holders, deposit-holders to constitute Stakeholders Relationship committee • Composition – to be decided by Board (NED to chair the committee)

21. Board meetings & powers

22. Sec 173 – Meetings of Board • Every company shall hold first Board meeting within 30 days of its incorporation. • Thereafter, minimum 4 meetings every year (provided not more than 120 days shall elapse between two meetings). • Meeting shall be called by giving notice of not less than 7 days in writing to every director at his registered address. • Meeting may be called at shorter notice provided at least 1 independent director, if any, is present. • One Person Company , Small Company and Dormant Company can hold one meeting in each half year of a calendar year (provided time gap between two meetings is not less than 90 days). • Board meetings can be held through video conferencing except for certain business which needs to be decided at an actual meeting of the Board

23. Sec 174 – Quorum for Meetings of Board • Quorum – One-third of total strength or two directors, whichever is higher. • When the number of interested directors at any time equals or exceeds two-third, the non-interested directors, not less than two, form the quorum. • If Board meeting can not be held for want of quorum, meeting to be held to same day, time & place in next week. If such day is a national holiday, then meeting to be held on next succeeding day. However, Articles can specify another option in case meeting can not be held for want of quorum.

24. Sec 175 – Passing of Resolution by Circulation • Board can pass the resolution by circulation provided it is circulated in draft along with necessary papers, if any, to all the directors or members of the committee at their registered address. • If one-third of the directors require the resolution to be passed at the meeting, then the Chairman shall put it in meeting.

25. Sec 179 – Powers of Board • BODs are entitled to exercise all the powers as the company is authorised to exercise and do. • BODs shall exercise following powers only at a Board meeting; • Make calls on shareholders • Authorise buy-back • Issue securities • Borrow monies • Invest the funds of the company • Grants loans or give guarantee • Approve quarterly, half yearly, annual financial statements / financial results & Board’s report • Diversify the business of the company • Approve amalgamation, merger or reconstruction

26. Sec 179 – Powers of Board • Take over a company or acquire controlling stake • Make political contributions • Appoint / remove KMP • Take note of appointment / removal of 1 level below KMP • Appoint internal auditors & secretarial auditor • Take note of disclosure of director’s interest & shareholding • Buy, sell investments held by company (other than trade investments) constituting >5% of paid up cap + free reserves of investee companies) • Invite / accept / renew public deposits • Review / change terms and conditions of public deposits • Routine investment powers out of the above can be delegated

27. Sec 180 – Restrictions on Power of Board • BODs to exercise following powers only with consent of company (by special resolution); • Sell, lease or dispose of the whole or substantially the whole of the undertaking. • Invest in trust securities the amount of compensation received as a result of merger or amalgamation • To borrow money, where the total borrowings will exceed aggregate of its paid up share capital & free reserves. • To remit or give time for repayment to any director • These provisions also applicable to private companies. Special resolution passed at AGM in respect of above to be filed with ROC within 30 days.

28. Management & Administration

29. Sec 88 – Register of Members, etc • Every Company shall keep & maintain following registers: • Register of Members • Register of debenture-holders • Register of any other security holders • If AOA permits, the company may keep a part of its register in any country outside India, called as “foreign register”. • Such registers are to be maintained at the registered office of the company, except in some cases at any other place if the special resolution is passed. • In case of existing companies, particulars to be compiled within 6 months

30. Sec 92 – Annual Return • Annual return to contain particulars as on close of financial year • Changes in members & debenture-holders since date of close of financial year • Annual return of following types of companies to require certification by practising CS; • Listed companies • Company with paid up capital ≥ Rs. 10 crores; • Company with turnover ≥ Rs. 50 crores • Annual return to be filed within 60 days of AGM in Form MGT-7 • Extract of Annual return to be included in Board’s report

31. Sec 93 – File return – Promoters’ stake change • Return to be filed by listed company within 15 days, if there is change of > 2% in shareholding position of Promoters & Top-ten shareholders.

32. Sec 94 – Place of Keeping Registers • The Registers and copies of annual return filed have to be kept at the registered office. • It can be also be kept at any other place (where at least 1/10th of members reside) by passing a Special Resolution. • Members may take extracts from any register or a copy of such register during business hours on any working day (at least 2 hours to be specified by Board for this – maximum fee of Rs. 10 per page extracted) • Periodicity of safe keeping – 8 years

33. Sec 96 – Annual General meeting • Every company other than One Person Company should hold AGM in each year. • Not more than 15 months shall elapse between two AGMs. • 1st AGM to be held within 9 months of closing of first F.Y. and in other cases within 6 months of close of FY • Power given to ROC to allow 3 months extension for holding AGM • AGM to be held between 9 am and 6 pm on any day that is not a National Holiday

34. Sec 100 –Extraordinary General Meeting • EGM can be called; • At any time by the Board • Requisition of members holding ≥ 1/10th of paid-up capital • Requisition of members with ≥ 1/10th of voting power (in case of no share capital) • If Board does not call for EGM within 45 days of date of requisition, members themselves can requisition EGM within 3 months • In case of requisitioned meeting, the Company to give notice of resolutions to be moved by members if such requisition is deposited at registered office in the prescribed time

35. Sec 101 – Notice of Meeting • Clear notice of not less than 21 days to be given either in writing or through electronic means. • Shorter notice is allowed provided it is approved as such by ≥ 95% of members entitled to vote • Notice shall be given to: • Every member of the company • Auditor or Auditors of the company and • Every director of the company. • Omission to give notice shall not invalidate the proceedings of the meeting.

36. Sec 102 – Statement to be annexed to notice • At any general meeting, all business other than below, shall be deemed special; • Consideration of financial statements, Auditor & Board report • Declaration of dividend • Appointment of directors in place of those retiring • Appointment of Auditors & fixing their remuneration • All special business to require explanatory statement, and details of directors / KMP / relatives interested in the same • If the item to be transacted relates to or affects any other company, extent of shareholding interest in such other company held by promoter, director or any KMP shall also be set out, if it is ≥ 2% of paid-up capital of that other company

37. Sec 103 – Quorum for meetings • In case of Public company: • 5 members personally present if members ≤ 1000 • 15 members if members is > 1000 but ≤ 5000 • 30 members if total members > 5000 • In case of Private Company – 2 members to be personally present. • AOA can specify larger number than above as quorum • If quorum is not present within half-an hour from scheduled time, it shall stand adjourned to same day in next week at same time and same place. • At adjourned meeting, members present shall form a quorum.

38. Sec 104 – Chairman of Meetings • Unless AOA provide otherwise, members present shall elect the Chairman from amongst themselves by show of hands. • Members may elect Chairman for the meeting by poll, if such poll is demanded by members

39. Sec 105 – Proxies • Members are entitled to appoint another person as a proxy to attend and vote on his behalf. • Proxy shall not have right to speak and shall not be entitled to vote except on a poll. • Proxy form should be submitted before 48 hours of the scheduled time of meeting. • A person appointed as proxy shall act as such on behalf of ≤ 50 members or persons holding ≤ 10% voting rights • If a members hold > 10% of voting rights, he may appoint a proxy, provided such proxy does not act as proxy for any other member

40. Sec 106, 107, 108 – Voting at General meeting • AOA may provide for restriction on voting rights for any member who has not paid call money. • Voting at general meeting to be normally by show of hands, unless poll is demanded / electronic voting is applicable • E-voting facility to be provided to members in case of listed companies, and companies with ≥ 1000 shareholders • A poll needs to be conducted in case; • Chairman decides so on his own motion • It is demanded by members with ≥ 10% voting power or holding shares where ≥ Rs. 5 lakhs has been paid up • It is demanded by members with ≥ 10% voting power (in case of companies without share capital)

41. Sec 110 – Postal Ballot • Voting through postal ballot required in case of following; • Alteration of objects clause of MOA / alteration of AOA • Change in registered office • Change in objects for which a company has raised money and there is still unutilised amounts out of such money • Issue of shares with differential rights / variation in such rights • Buy-back of shares • Election of small shareholder director • Sale of whole / substantial part of undertaking • Giving loans / guarantee in excess of limits mentioned in sec 186 • Additional items may also be transacted through postal ballot • Postal ballot not applicable for Companies with ≤ 200 members • Ordinary business (4 standard items of agenda) to be transacted always at a physical meeting

42. Sec 114 – Ordinary and Special resolutions • Meaning of “Ordinary Resolution”- Resolution is an ordinary one if notice has been duly given and it is required to be passed by show of hands or electronically or by poll and whereby votes cast in favour exceed votes cast against. • Meaning of “Special Resolution” - Resolution is a special one if • Intention to propose it as special is specified in the notice • Notice is duly given • Votes cast in favour ≥ 3 times the number of votes cast against.

43. Sec 115 – Resolution requiring Special Notice • If special notice is required for any resolution, notice of the intention to move such resolution shall be given to the company by members • Holding not less than 1% of total voting power or • Holding shares on which sum not less than Rs. 5 lakh is paid up • Notice to be sent to Company between 3 months & 14 days before date of meeting

44. Sec 117 – Resolutions to be filed with ROC • Copy of following types of resolutions / agreements is to be filed with ROC within 30 days of it’s passing with prescribed fees; • Special resolutions • Board resolution for appointment / reappointment / variation in terms of appointment of MD • Resolutions passed in respect of borrowing powers / disposal of substantial part of undertaking • Resolutions requiring a company to be wound up voluntarily • Certain important Board resolutions • Above resolutions can be filed within 300 days of event with additional fees – beyond such time limit, company will be liable to pay fines

45. Sec 118, 119, 120, 121 – Minutes of Meetings • Minutes to be recorded within 30 days of conduct of meeting • Minutes, document, records, registers can now be maintained in electronic form • Inspection / copies can be given to members in electronic form • Every listed company to file a report of each AGM within 30 days of the conduct of the meeting.

46. Consequences of default

47. Consequences of default

48. Other administration aspects – highlights • In case of new companies, Company can commence business only after subscription shares are fully paid up & verification of registered office is complete • CIN to be quoted on all business letters, bills, invoices, notices etc • In case of change in registered office for existing companies / verification of registered office for new companies, documents pertaining to ownership of premises / lease agreement / letter from owner to company for usage of premises, to be maintained.

49. Sec 203 – Appointment of KMP • Following types of companies to appoint KMP (i.e. WTD / MD / CEO, Company secretary, chief financial officer • Listed companies • Public companies with paid up share capital > 10 crores • A person can be both Chairman & CEO of a company, only if Articles so provide or where there is only 1 business segment. • A KMP not to hold office as such in more than 1 company – he / she though can hold office in subsidiary of a company • A person can be MD of at most 2 companies at a time • Only a person resident in India can be appointed as a MD / WTD / Manager

50. Sec 204 – Secretarial Audit • Secretarial audit required for • Listed companies • Public company with paid up capital ≥ Rs. 50 crores • Public company with turnover ≥ Rs. 250 crores • Secretarial audit to be conducted by company secretary in practice