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Noteworthy Rulings under
Companies Act, 2013
Gaurav N Pingle,
Practising Company Secretary, Pune.
(E): [email protected]
(W): www.csgauravpingle.com
Lecture Series on Company Law at Thane Chapter of ICSI
HC: Compulsory voting by postal ballot/e-voting not
applicable to Court-convened meetings
Bombay HC
Justice GS
Patel
In the Scheme of Amalgamation
of
Wadala Commodities Ltd.
with
Godrej Industries Ltd.
Sun., March 10, 2019
2
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Postal Ballot
Extract
of
Sec. 110
of
Cos. Act,
2013
(1) Notwithstanding anything contained in this Act, a company:
(a) shall, in respect of such items of business as the CentralGovernment may, by notification, declare to be transacted only bymeans of postal ballot; and
(b) may, in respect of any item of business, other than ordinarybusiness and any business in respect of which directors or auditorshave a right to be heard at any meeting, transact by means ofpostal ballot,
in such manner as may be prescribed, instead of transacting suchbusiness at a general meeting.
(2) If a resolution is assented to by the requisite majority of theshareholders by means of postal ballot, it shall be deemed to havebeen duly passed at a general meeting convened in that behalf.
Sun., March 10, 2019
3
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Rights of shareholders
Clause
49(I)(A) of
SEBI circular
speaks of
‘Rights of
shareholders’,
which
includes:
Right to participate in and to besufficiently informed on decisionsconcerning fundamental corporatechanges;
Right to participate effectively and vote ingeneral shareholder meetings;
Right to ask questions to the board, toplace items on the agenda of generalmeetings, and to propose resolutions,subject to reasonable limits.
Sun., March 10, 2019
4
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Issue involved in the case:
Whether in view of Sec. 110 of Cos. Act, 2013 and
SEBI Circular (May 21, 2013), a resolution for
approval of Scheme of Amalgamation can be passed
by majority of equity shareholders casting their
votes by Postal Ballot (which includes e-voting) in
complete substitution of an actual meeting?
Sun., March 10, 2019
5
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Justice GS Patel’s incisive commentary
Heart of Corp. Governance lies transparency and well-established principle of
indoor democracy that gives shareholders qualified, yet definite and vital rights in
matters relating to company functioning in which they hold equity.
Principal among these, is not merely right to vote on any particular item of
business, so much as the right to use vote as an expression of an informed decision.
Therefore, Shareholder has an inalienable right to ask questions, seek
clarifications and receive responses before he decides which way he will vote.
Schemes of Arrangement/Compromise are amended at a meeting itself. These
amendments come from the floor or even perhaps from Board itself. Amendment is
then put to vote.
In a postal ballot, no such amendment is possible. If we were to restrict ourselves
to a postal ballot, no shareholder or any director could ever suggest any
amendment. Scheme would stand or fall only in its original form. This is
contrary to the mandate of Sec. 391-394.
Sun., March 10, 2019
6
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
‘Called’ Meeting V/s ‘Ordered’ Meeting
Even so Sec. 230 still speaks of „calling of a meeting‟
and „not merely putting the matter to vote‟. It has to
be remembered that all schemes that are put to meeting
of shareholders are proposed schemes. This means that
they are subject not only to approval by voting but also,
possibly, to an amendment at the meeting itself.
Meetings for approval of Schemes u/s 391/394 of
1956 Act are not „called‟ by Co. Such meetings are
„ordered‟ by the Court.
Sun., March 10, 2019
7
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Dialogue & discourse are fundamental to making of
every such informed decision
Nothing could be more detrimental to shareholders‟
rights than stripping them of the right to question,
the right to debate, the right to seek clarification;
and, above all, the right to choose, and to choose
wisely.
Vote is an expression of Opinion & it must reflect
an informed decision. Dialogue & discourse are
fundamental to making of every such decision.
Sun., March 10, 2019
8
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Conclusion
Provisions for compulsory voting by postal ballot & by e-voting to exclusion ofactual meeting cannot & do not apply to „court-convened meetings‟
At Court convened meetings, provision must be made for postal ballots & e-voting, in addition to an actual meeting.
Elimination of all shareholder participation at an actual meeting is anathema tosome of the most vital of shareholders' rights,
It is strongly recommended that till this issue is fully heard and decided, noauthority or any company should insist upon such postal-ballot-only meeting tothe exclusion of an actual meeting.
Govt. & SEBI should appear before Court, when this matter is next taken up fora consideration of this issue.
Sun., March 10, 2019
9
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
NCLT: Quashes Board resolutions passed without Joint MD
participation, despite availability on ‘Skype’
NCLT, New
Delhi
B.S.V. Prakash
Kumar, Judicial
Member
Rupak Gupta
Vs
U.P. Hotels Ltd.
Sun., March 10, 2019
10
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Cos. (Meetings of Board & its Powers) Rules,
2014
Rule – 3
Cos.
(Meetings of
Board and its
Powers)
Rules, 2014
(Meetings of
Board
through video
conferencing
or other audio
visual means)
Rule 3(3): Co. shall comply with foll.procedure, for convening & conducting BMsthrough video-conferencing or other audiovisual means.
Rule 3(3)(e): Director, who desire, toparticipate may intimate his intention ofparticipation through the electronic mode atbeginning of calendar year and suchdeclaration shall be valid for one calendaryear.
Sun., March 10, 2019
11
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Obligation upon directors convening the meeting to provide every facility
to directors asking video conference
Rule 3 is meant for providing video-conferencing,indeed it is the duty of directors convening the Boardmeeting to inform other directors regarding the optionsavailable to them to participate in video-conferencingmode or other audio video mode or other optionsavailable to them.
It is the obligation upon directors convening themeeting to provide every facility to directors askingvideo conference and enable them to participate inBoard meeting.
Sun., March 10, 2019
12
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
NCLT’s observations on Board Meeting via video-
conferencing
“Sub-rule 3(e) only says that if intimation is given atbeginning of Calendar Year that will remain valid forentire Calendar Year. It is not said anywhere that if it isnot given at beginning of year, Video Conference facilityis not to be provided in that Calendar Year.
It does not mean that directors are not entitled for VideoConferencing if intimation is not given at beginning ofCalendar Year.
When a provision is read, it has to be read wholly and notin pieces”
Sun., March 10, 2019
13
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Sec. 196 of Cos. Act, 2013
Managerial Appointment
(i.e. Appointment of MD, WTD or Manager)
Sun., March 10, 2019
14
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Sec. 196(3)(a) of Cos. Act, 2013
Extract of
Relevant
provision:
No co. shall appoint or continue the employmentof any person as MD, WTD or Manager who:
(a) Is below the age of 21 years or has attainedage of 70 years:
Provided that appointment of a person who hasattained the age of 70 years may be made bypassing a special resolution in which case theExplanatory Statement annexed to the notice forsuch motion shall indicate the justification forappointing such person.
Sun., March 10, 2019
15
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
HC: Director turning 70 years not to attract
automatic ‘mid-stream’ disqualification
Bombay HC
Justice GS
Patel
Sridhar Sundararajan (‘SS’)
Vs
Ultramarine & Pigments Ltd. &
Rangaswamy Sampath (‘RS’)
Sun., March 10, 2019
16
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Broad Facts
RS was appointed as CMD of listed co. on August 13, 1990. OnMay 21, 1998, SS was appointed as director.
On August 1, 2012, RS was re-appointed as CMD for term of 5years till 2017. On same day, SS was also appointed as Joint-MD.
Cos. Act, 2013 was enforced w.e.f. April 1, 2014
RS attained the age of 70 years on November 11, 2014.
SS contended that ―On the 70th birthday of RS, he earned himselfstatutory disqualification‖
Sun., March 10, 2019
17
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Interpretation of Single Judge
Sec. 196(3) does not operate to interrupt
appointment of any Director made prior to coming
into force of 2013 Act.
It also does not interrupt the appointment of MD
appointed after April 1, 2014 where at the date of
MD‟s appointment / re-appointment was below the
age of 70 years but crossed that age during his
tenure.
Sun., March 10, 2019
18
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Contextual reading of the words in Sec. 196(3)
Interprets Sec. 196(3), use of words “No company
shall appoint or continue the employment of….”,
states that words should be read contextually.
Draws parallel reference from Sec. 269 of 1956
Act, holds ―there was no „discontinuance‟ of MD at
the age of 70 years and the section applied only to
his appointment (including re-appointment)‖.
Sun., March 10, 2019
19
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
„70 years‟ was never an automatic mid-stream
disqualification
70 years was never an automatic mid-stream
disqualification even under 1956 Act.
Single Judge relied on SC ruling in P. Suseela & Ors.
Vs University Grants Commission (2015) wherein it
was held that ―it is relevant to distinguish between an
existing right and vested right. Where a statute
operates in future it cannot be said to be retrospective
merely because within the sweep of it operation all
existing rights are included‖
Sun., March 10, 2019
20
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
HC: Automatic disqualification trigger for directors turning 70,
though appointment made pre-Cos Act, 2013
Bombay HC
Justice VM
Kanade
&
Justice Dr.
Shalini
Phansalkar-
Joshi
Sridhar Sundararajan (‘SS’)
Vs
Ultramarine & Pigments Ltd. &
Rangaswamy Sampath (‘RS’)
Sun., March 10, 2019
21
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
“MD attaining 70 years would immediately be
disqualified”
Bombay HC‘s Single Judge Order was quashed.
Division Bench held that disqualification for MD appointment on groundof age limit would act ‗automatically‘
Thus, MD attaining 70 years would immediately be disqualified.
RS was disqualified from continuing as MD, unless he fulfilled therequirements of the proviso i.e. company has to continue his appointmentby a special resolution and, secondly, that resolution must state the reasonwhy the continuation is necessary.
Intention was to change earlier position by providing that person who hasbeen appointed as MD before he was 70 years old is prohibited fromcontinuing as MD once he has attained the age of 70.
Sun., March 10, 2019
22
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
“Language of Sec. 196(3)(a) is plain,
simple & unambiguous”
HC rejected RS‘s contention that Sec. 196(3)(a) is not applicable to MD‘s
appointment before April 1,2014, held ―it would otherwise retrospectively
affect vested right of such MD and, secondly, that there is presumption
against legislation operating retrospectively‖.
Language of Sec. 196(3)(a) is plain, simple and unambiguous and it
applies to all MDs who have attained the age of 70 years and there is no
distinction between MD who have been appointed before April 1, 2014 and
those after April 1, 2014.
Div. Bench rejected reliance on MCA Circular that clarified conditions
specified in Schedule XIII Part – 1 of Cos. Act, 1956 (requiring
satisfaction only at the time of appointment).
Sun., March 10, 2019
23
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Cos. Act, 2013 vis-à-vis SEBI LODR Reg.
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
24
Reg. 17(1A) of SEBI (LODR) Regulations:
No listed entity shall appoint a person or continue the
directorship of any person as a non-executive director who
has attained the age of 75 years unless a special resolution
is passed to that effect, in which case the Explanatory
Statement annexed to the notice for such motion shall
indicate the justification for appointing such a person.
[effective from April 1, 2019]
Nomination
Nomination of Shares
Sun., March 10, 2019
25
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Sec. 109A of Cos. Act, 1956
Relevant
Extract of
Section
109A(3) of
Cos. Act,
1956
Notwithstanding anything contained in any other law for the time being
in force or in any disposition, whether testamentary or otherwise, in
respect of such shares in, or debentures of, the company, where a
nomination made in the prescribed manner purports to confer on any
person the right to vest the shares in, or debentures of, the company, the
nominee shall, on the death of the shareholder or holder of debentures of,
the company or, as the case may be, on the death of the joint holders
become entitled to all the rights in the shares or debentures of the
company or, as the case may be, all the joint holders, in relation to such
shares in, or debentures of the company to the exclusion of all other
persons, unless the nomination is varied or cancelled in the prescribed
manner.
Sun., March 10, 2019
26
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Sec. 72(3) of Cos. Act, 2013
Relevant
Extract of
Section 72(3)
of Cos. Act,
2013
Notwithstanding anything contained in any other law for the time being
in force or in any disposition, whether testamentary or otherwise, in
respect of the securities of a company, where a nomination made in the
prescribed manner purports to confer on any person the right to vest the
securities of the company, the nominee shall, on the death of the holder of
securities or, as the case may be, on the death of the joint holders, become
entitled to all the rights in the securities, of the holder or, as the case may
be, of all the joint holders, in relation to such securities, to the exclusion
of all other persons, unless the nomination is varied or cancelled in the
prescribed manner.
Sun., March 10, 2019
27
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
HC: Settles succession law; Legal heir, not
‘nominee’ entitled to deceased person’s shares
Bombay High Court
Justice GS Patel
The Judgment has been upheld
by the Division Bench of
Bombay HC
Jayanand Jayant Salgaonkar
Vs
Jayashree Jayant Salgaonkar
Sun., March 10, 2019
28
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Objective of Sec. 109A & meaning of ‘vest’
Sec. 109A & 109B of Cos. Act, 1956 must be read as code in itself andtheir statutory intent must be gleaned from the plain meaning of words.
Objective of Sec. 109A: ―Fundamental focus of Sec. 109A is not the law ofsuccession. Sole intention is to afford the company or depository a legallyvalid quittance so that it does not remain forever answerable to a raft ofsuccession litigations, but the nominee continues to hold in a fiduciarycapacity and is answerable to all claimants under succession law‖
‗Vest‘& ‗Nominee‘ are to be seen from that statute alone & no other.
Nominations u/s 109A-109B & Bye-Law 9.11 of Depositories Act cannot& do not displace law of succession, nor do they open 3rd line ofsuccession
Sun., March 10, 2019
29
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Harsha Nitin Kokate case is „per incuriam‟
Non-obstante clause over-rides every other statutory provision,including Succession Act. There can be no quarrel with this well-settled proposition.
Bombay HC‘s decision in Harsha Nitin Kokate case does notconsider Apex Court‘s decisions in Vishin N. Khanchandani‘s case,Shipra Sengupta‘s case, Challamma Vs Tilaga. Each one of thesewas binding on Kokate case.
View taken in Kokate case is contrary to, and does not consider anyof these. It is, for that reason, per incuriam
Per incuriam= Through/characterized by lack of due regard to law/ facts
Sun., March 10, 2019
30
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Bombay HC – Division Bench observations
Right of a Nominee against shares of a deceased shareholder is not
absolute and asserted that said right vests with ‗legal heir‘ of the deceased;
Sec. 109A of Cos. Act, 1956 is not intended to provide a mode of
succession or to establish norms for dealing with matters of succession;
Object of Section is to ensure that deceased shareholder is represented by
someone;
Object of Section is also to ensure that commercial sector does not suffer
because of potential delay on part of legal heirs of a deceased shareholder
in establishing their rights of succession in order to claim the shares;
“Companies Act has nothing to do with the law of succession”
Sun., March 10, 2019
31
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Participation in board meeting through video conferencing – Whether
right of a director or subject to availability of facility by Co.?
NCLAT
New Delhi
Achintya Kumar Barua alias
Manju Baruah
Vs.
Ranjit Barthkur
[2018] 91 taxmann.com 123
(NCLAT)
Sun., March 10, 2019
32
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Section 173(2) of Cos. Act, 2013
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
33
The participation of directors in a meeting of the Board may beeither in person or through video conferencing or other audio visualmeans, as may be prescribed, which are capable of recording andrecognising the participation of the directors and of recording andstoring the proceedings of such meetings along with date and time:
Provided that the Central Government may, by notification, specifysuch matters which shall not be dealt with in a meeting throughvideo conferencing or other audio visual means:
Provided further that where there is quorum in a meeting throughphysical presence of directors, any other director may participatethrough video conferencing or other audio visual means in suchmeeting on any matter specified under the first proviso.
Important facts of case
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
34
One of the directors moved an application before NCLT seeking facility ofattending B/M through video-conferencing;
NCLT directed non-applicants to provide such facilities subject to fulfilling therequirements of Rule 3 of the Companies (Meetings of Board and its Powers)Rules, 2014;
Other directors appealed against the order of NCLT. The other directors wereaggrieved as they had apprehension that when the original petitioner participates inthe meetings through video-conferencing, it would not be possible to ensure thatnobody else was present from where the original petitioner would be participating;
Other directors contended that the Secretarial Standards on meetings of the boardof directors have considered this aspect and they have prescribed that such optionunder the provisions of the Act and the Rules should be restored to only when thefacilities were provided by the company to its directors.
Important observations of NCLAT
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
35
The word „may‟ which has been used in this sub-Section (2) of Section 173 only
gives an option to the Director to choose whether he would be participating in
person or the other option which he can choose is participation through video-
conferencing or other audio-visual means.‖
The word ‗may‘ does not give option to the company to deny this right given to the
directors for participation through video-conferencing or other audio-visual means,
if they so desire;
NCLAT appreciated the provisions in the Act and the Rules with respect to the
meeting of the board of directors through video conferencing or other audio visual
means, termed it as ‗progressive step‘;
NCLAT rejected the other directors‘ defense that Secretarial Standard allows
participation by a director in board meeting through video conferencing only if the
company provides such facility. NCLAT ruled that ―Such guidelines cannot
override the provisions under the Rules. The mandate of Section 173(2) read with
Rules mentioned above cannot be avoided by the companies.‖
„Reduction of share capital‟ can be effected in
pursuance of the order of NCLT u/s 230
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
36
NCLAT,
New DelhiR. Systems International Ltd., In re.
Sec. 230 of Cos. Act, 2013
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
37
Section 230(1) of Companies Act, 2013:
Where a compromise or arrangement is proposed—
(a) Between a company and its creditors or any class of them; or
(b) Between a company and its members or any class of them,
the Tribunal may, on the application of the company or of any creditor or member of thecompany, or in the case of a company which is being wound up, of the liquidator appointed underthis Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, order a meetingof the creditors or class of creditors, or of the members or class of members, as the case may be,to be called, held and conducted in such manner as the Tribunal directs.
Explanation.—For the purposes of this sub-section, arrangement includes a reorganisation of thecompany‘s share capital by the consolidation of shares of different classes or by the division ofshares into shares of different classes, or by both of those methods.
Section 230(12) of Companies Act, 2013: Explanation – For the removal ofdoubts, it is hereby declared that the provisions of section 66 shall not apply to thereduction of share capital effected in pursuance of the order of the Tribunal underthis section.
Observations of NCLT
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
38
The appellant filed an application u/s 230 beforeNCLT in relation to the scheme of arrangementwhich contemplated reduction of share capital inrelation to the appellant company.
NCLT dismissed said the application holding thatprovisions for exclusive reduction of share capitalwere provided elsewhere in the Act and theapplicant, if so advised could prefer applicationunder the said provision of the Act.
On appeal, NCLAT observed as follows:
„Reduction of share capital‟ can be effected in
pursuance of the order of NCLT u/s 230
Sun., March 10, 2019Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
39
NCLAT observes that from the NCLT order, it appears that NCLTreferred to Sec. 66, being specific provision for rejecting theapplication u/s 230 as Scheme and Arrangement related toreduction of share capital;
From Explanation below Sec. 230, it will be evident that for passingan order u/s 230 to compromise or make arrangements with thecreditors and the members, the provisions of section 66 shall notapply for reduction of share capital. Such order can be passed bythe Tribunal u/s 230 of the Act.
NCLT failed to notice the „Explanation‟ below Sec. 230, whichmakes it clear that even for reduction of share capital effected inpursuance of the order of NCLT u/s 230, the provision of Sec. 66shall not apply.
Case was remitted to NCLT to decide the application u/s 230 inaccordance with law.
Q & A Session
Sun., March 10, 2019
40
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune
Thank you members and students
(E): [email protected]
(W): www.csgauravpingle.com
(M): +91 9975565713
Thank you Thane Chapter of ICSI – for the
wonderful opportunity
Sun., March 10, 2019
41
Company Law Lecture Series at Thane Chapter of ICSI (2019)
By Gaurav Pingle, Company Secretary, Pune