Meeting Of Board And Its Committee
Frequency of the Meetings of the Board [Section 173 (1)]
The Act provides that the first Board meeting should be held within thirty days of the date of incorporation.
Thereafter there shall be minimum of four Board meetings every year and not more one hundred and twenty days shall intervene between two consecutive Board meetings
Further in this context Secretarial Standard on Board Meetings (SS-1) issued by ICSI clarifies that the Board shall meet at least once in every calendar quarter, with a maximum interval of one hundred and twenty days between any two consecutive Meetings of the Board, such that at least four meetings are held in each calendar year.
In case of One Person Company (OPC), small company, dormant company and private company which is start-up, at least one Board meeting should be conducted in each half of the calendar year and the gap between two meetings should not be less than Ninety days. However, this provision would not apply to a one person company in which there is only one director on its Board.
Preparation of Notices for meetings of Board
The Act requires that not less than seven days’ notice in writing shall be given to every director at the registered address (whether in India or outside India) as available with the company, unless the Articles prescribe a longer period.
Notice of an adjourned Meeting shall be given to all Directors including those who did not attend the Meeting on the originally convened date and unless the date of adjourned Meeting is decided at the Meeting, Notice thereof shall also be given not less than seven days before the Meeting.
Agenda of Board/Committees Meetings
The Act does not prescribe such requirement to circulate Agenda etc. However Good governance envisage such requirement. Secretarial Standard on Board Meetings provide exhaustively on the Agenda management.
The Agenda, setting out the business to be transacted at the Meeting, and Notes on Agenda shall be given to the Directors at least seven days before the date of the Meeting, unless the Articles prescribe a longer period.
Quorum for Board Meetings [Section 174]
One third of total strength or two directors, whichever is higher, shall be the quorum for a meeting. For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall also be counted, unless he is to be excluded for any item of business under any provisions of the Act or the rules – Section 174(1)
Section 174 is not applicable to One Person Company in which there is only one director.
If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of directors, the number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time.
Chairman of the meeting of the Board/ Committee
The Chairman of the Company shall be the chairman of the Board. If the company does not have a Chairman, the Directors may elect one of themselves to be the chairman of the Board. In case of committee meeting, a member of the committee appointed by the Board or elected by the Committee as chairman of the Committee, in accordance with the Act or any other law or the Articles, shall conduct the meetings of the committee.
If no Chairman has been so elected or if the elected chairman is unable to attend the meeting, the Committee shall elect one of its members present to chair and conduct the meeting of the committee, unless otherwise provided in the articles.
Passing of Resolution by Circulation
A company may pass the resolutions through circulation. The resolution in draft form together with the necessary papers may be circulated to all the directors or members of committee at their address registered with the company in India by hand or by speed post or by courier or through electronic means which may include e-mail or fax.
The said resolution must be passed by majority of directors or members entitled to vote.
If more than one third of directors require that the resolution must be decided at the meeting, the chairperson shall put the resolution to be decided at the meeting.
Minutes
Section 118 provides that every company shall prepare, sign and keep minutes of proceedings of every general meeting, including the meeting called by the requisitionists and all proceedings of meeting of any class of share holders or creditors or Board of Directors or committee of the Board and also resolution passed by postal ballot within thirty days of the conclusion of every such meeting concerned.
Meeting of Board
In addition to the first meeting to be held within thirty days of the date of incorporation, there shall be minimum of four Board Meetings every year and not more one hundred and twenty days shall intervene between two consecutive Board Meetings.
In case of One Person Company (OPC), small company and dormant company, at least one Board Meeting should be conducted in each half of the calendar year and the gap between two meetings should not be less than Ninety days.
Matters not to be dealt with in a Meeting through Video Conferencing or other Audio Visual Means
- the approval of the annual financial statements;
- the approval of the Board’s report;
- the approval of the prospectus;
- the Audit Committee Meetings for consideration of accounts; and
- the approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Quorum for Board Meeting
- One third of total strength or two directors, whichever is higher, shall be the quorum for a meeting.
- For the purpose of determining the quorum, the participation by a director through Video Conferencing or other audio visual means shall also be counted.
- If at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested and present at the meeting, being not less than two shall be the quorum during such time.
Meeting Of Board And Its Committee Descriptive Questions
Question 1. The Board of directors of a company met thrice in the year 2012 and the fourth meeting was not held for want of quorum. As a Company Secretary, examine the provisions of the Companies Act, 2013 and decide with reasons whether the company has complied with the requirement of minimum number of meetings to be held in a calendar year or violated the requirement thereof?
Answer:
Question 2. Comment on the following:
- A director insists that his note of dissent be recorded in the minutes of the Board meeting which he attended and did not agree to some of the points of the agenda.
- A member of a company has statutory right to appoint proxy for attending the general meeting of the company. Similarly, a director can also appoint his proxy for attending the meetings of Board of directors of the company.
- A meeting of the Board of directors was scheduled to take place at the factory premises of a company and not at the registered office. At the scheduled date and time, the required quorum was not present. The Chairman of the meeting announced that the meeting is dissolved. Answer:
Question 3. Comment on the following:
Secretarial Standard does not empower Company Secretary of a company to call a meeting of Board of Directors on its own.
Answer:
Secretarial Standard does not empower Company Secretary of a company to call a meeting of Board of Directors on its own.
Any Director of a company may, at any time, summon a meeting of the Board, and the Company Secretary or where there is no Company Secretary, any person authorised by the Board in this behalf, on the requisition of a Director, shall convene a meeting of the Board, in consultation with the Chairman or in his absence, the Managing Director or in his absence, the whole-time Director, where there is any, unless otherwise .provided in the Articles.
Question 4. Articles of Reality Ltd. provides that directors participating through audio-visual means in its Board meetings shall always be counted for quorum. Examine the validity of this provision with reference to the Companies Act, 2013.
Answer:
Under Section 173 of Companies Act, 2013, read with Rules 3 and 4 of Companies (Meetings of Board and its powers) Rules, 2014, a director participating in a meeting through video conferencing or other audio visual means shall be counted for the purpose of quorum, unless he is to be excluded for any items of business under Rule 4.
As per Rule 4 the following matters shall not be dealt with in any meeting held through video conferencing or other audio visual means.
- The approval of the Annual Financial Statements;
- The approval of the Board’s report;
- The approval of the prospectus;
- The Audit Committee Meetings for consideration of financial statement including consolidated financial statement, if any, to be approved by the Board under sub section (1) of Section 134 of Companies Act, 2013; and
- The approval of the matter relating to amalgamation, merger, demerger, acquisition and takeover.
Provided that in case where there is quorum in a meeting through physical presence of directors, any other director may participate through
Question 5. A Board meeting of a listed public company was called at shorter notice to transact an urgent business. None of the Independent directors could attend the meeting. Examine the validity of resolution(s) passed at the meeting referring to the provisions of the Companies Act, 2013.
Answer:
Accordingly to Section 173(3) of the Companies Act, 2013 a meeting of the Board may be called at shorter notice to transact urgent business subject to the condition that at least one independent director, if any, shall be present at the meeting.
In case of absence of independent directors from such a meeting of the Board, decisions taken at such a meeting shall be circulated to all the directors and shall be final only on ratification thereof by at least one independent director, if any.
Accordingly, all decisions taken at the meeting needs to be circulated to all the directors and shall be final only on ratification of atleast one independent director.
Question 6. Prepare an Agenda items for a Board Meeting with a minimum of any eight items to be discussed.
Answer:
Agenda Items for meeting of the Board of Director of the Company Scheduled to be held on (day), (Date) at (Venue)) at (Time) (meeting No.) 2019-20-(Any 8 items)
Question 7. In a Board of Directors meeting of a private company held on 15th November, 2019 all the directors present, unanimously decided that the next meeting of the Board of Directors would be held on 29th November, 2019 at the registered office of the company. As a Company Secretary do you think a notice of the meeting of the Board of Directors need be sent to ensure legal compliance?
Answer:
According to Section 173(3) of the Companies Act, 2013, a meeting of the Board shall be called by giving not less than seven days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.
As per Secretarial Standard-1, the Notice of the meeting of the Board shall be given even if meetings are held on pre-determined dates or at pre-determined intervals.
Hence, in the instant case even if the directors have agreed unanimously to hold the meeting on November 29, 2019, then also the Company Secretary need to send the Notice, Agenda and the Notes thereon separately for each Meeting in the aforesaid manner to ensure legal compliance.
Question 8. Dhanvantri is the Chairman of the Risk Management Committee of Advanced Solutions Ltd. A meeting of this Committee of Directors has been scheduled to be held on 5th December, 2019 at 3.00 p.m. At 3.10 p.m. though the requisite quorum is present, Dhanvantri is not present. Can the meeting be still held or requires to be adjourned? Answer with reference to the relevant provisions.
Answer:
Regulation 72 of Table F of Schedule I to the Companies Act, 2013 provides that if at the meeting of Committee, the Chairman is not present within five minutes after the time appointed for holding the meeting, the members present may choose one of their members to be Chairman of the Meeting.
In the above case, the Chairman of the Risk Management Committee is not present within the 5 minutes of the scheduled time of the meeting and the requisite quorum is present. Therefore, the members present may elect any one among them to act as the Chairman of the meeting and hold the meeting.
Question 9. R is a newly qualified CS and seeks your advice on passing of Resolution by Circulation. Advise him suitably as to the procedure to be followed in this regard.
Answer:
A company may pass the resolutions through circulation:
- As per Section 175 of the Companies Act, 2013, no resolution shall be deemed to have been duly passed by the Board or by a committee thereof by circulation, unless the resolution has been circulated in draft form together with the necessary papers to all the directors or members of committee at their addresses registered with the company in India by hand delivery or by post or by courier or through electronic means which may include E-mail or fax.
- The said resolution must be approved by majority of directors or members who are entitled to vote.
- Although, where not less than one-third of the total number of Directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting of the Board.
- The resolution passed through circulation be noted at a subsequent meeting of the Board or the committee and made part of the minutes of such meeting.
- As per Secretarial Standard – 1, the decision of the Directors shall be sought for each Resolution separately.
- Not more than seven days from the date of circulation of the draft of the Resolution shall be given to the Directors to respond and the last date shall be computed accordingly.
An additional two days shall be added for the service of the draft Resolution, in case the same has been sent by the company by speed post or by registered post or by courier. Passing of Resolution by circulation shall be considered valid as if it had been passed at a duly convened meeting of the Board.
This shall not dispense with the requirement for the Board to meet at the specified frequency.
The Resolution is passed when it is approved by a majority of the Directors entitled to vote on the Resolution, unless not less than one-third of the total number of Directors for the time being require the Resolution under circulation to be decided at a Meeting.
The Resolution, if passed, shall be deemed to have been passed on the earlier of:
- the last date specified for signifying assent or dissent by the Directors, or
- the date on which assent has been received from the required majority, provided that on that date the number of Directors, who have not yet responded on the resolution under circulation, along with the Directors who have expressed their desire that the resolution under circulation be decided at a Meeting of the Board, shall not be one third or more of the total number of Directors; and shall be effective from that date, if no other effective date is specified in such Resolution.
Question 10. A has been appointed as a Company Secretary in the Company by a circular Resolution. In addition, he has also been advised to act as a Group Company Secretary and head of the parent Company and its subsidiary. Examine with reference to the provisions of the Act.
Answer:
According to Section 179(3) read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, provides that the Board of Directors of a company shall appoint or remove key managerial personnel by means of resolutions passed at meetings of the Board.
Hence, appointment of A as a Company Secretary in the company cannot be done by circular resolution.
As per Section 203(3) of the Companies Act, 2013, a whole time key managerial personnel (KMP) shall not hold office in more than one Company except in its subsidiary company at the same time.
In the above case, A has is also advised to act as a Group Company Secretary consisting of a group of a parent company in which he has been appointed and its subsidiary.
Hence, he can act as a Group Company Secretary to look after the parent company and its subsidiary.
Alternate
Section 179(3) read with Rule 8 of Companies (Meetings of Board and its Powers) Rules, 2014, provides that the Board of Directors of a company shall appoint or remove key managerial personnel by means of resolutions passed at meetings of the Board.
Hence, appointment of A as a Company Secretary in the company cannot be done by circular resolution.
Conclusion:
In the given case, A has been appointed as a Company Secretary in the company by a circular resolution which is not valid hence he cannot be advised to act as a Group Company Secretary and head of the parent Company and its subsidiary.
Question 11. X is a company secretary of XYZ Ltd. He is of the opinion that the notice, agenda and notes on agenda of the board meeting should be send only to the alternate director and not to the original director of the company. Advice in this matter.
Answer:
According to Section 173, the notice of Board meeting is to be sent in writing to every director at his address registered with the company.
SS-1 provides that the Notice, Agenda and Notes on Agenda shall be sent to the Original Director also at the address registered with the company, even if these have been sent to the Alternate Director.
Although, the mode of sending Notice, Agenda and Notes on Agenda to the original director shall be decided by the company.
Therefore, it is advisable to send the Notice, Agenda and Notes on Agenda both to original and alternate director of the company.
Meeting Of Board And Its Committee Practical Questions
Question 1. A housing company has sold a flat to its Managing Director by accepting 50% in cash and balance in installments. Decide whether this transaction attracts the provisions pertaining to loan to directors under section 185. If so, validate the transaction.
Answer:
Amendment made by Companies (Amendment) Act, 2017
Section 185
- For Section 185 of the principal Act, the following section shall be substituted, namely:
“185.(1) No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt to, or give any guarantee or provide any security in connection with any loan taken by,-- any director of company, or of a company which is its holding company or any partner or relative of any such director; or
- any firm in which any such director or relative is a partner.
- A company may advance any loan including any loan represented by a book debt, or give any guarantee or provide any security in connection with any loan taken by any person in whom any of the director of the company is interested, subject to the condition that-
- a special resolution is passed by the company in general meeting:
Provided that the explanatory statement to the notice for the relevant general meeting shall disclose the full particulars of the loans given, or guarantee given or security provided and the purpose for which the loan or guarantee or security is proposed to be utilised by the recipient of the loan or guarantee or security and any other relevant fact; and - the loans are utilised by the borrowing company for its principal business activities.
Explanation: For the purposes of this sub-section, the expression “any person in whom any of the director of the company is interested” means-- any private company of which any such director is a director or member;
- any body corporate at a general meeting of which not less than twenty-five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or
- any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.
- a special resolution is passed by the company in general meeting:
- Nothing contained in sub-Sections (1) and (2) shall apply to-
- the giving of any loan to a managing or whole-time director-
- as a part of the conditions of service extended by the company to all its employees; or
- pursuant to any scheme approved by the members by a special resolution; or
- a company which in the ordinary course of its business provides loans or gives guarantees or securities for the due repayment of any loan and in respect of such loans an interest is charged at a rate not less than the rate of prevailing yield of one year, three year, five year or ten year Government security closest to the tenor of the loan; or
- any loan made by a holding company to its wholly owned subsidiary company or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or
- any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company:
Provided that the loans made under clause’s (c) and (d) are utilised by the subsidiary company for its principal business activities.
- the giving of any loan to a managing or whole-time director-
- If any loan is advanced or a guarantee or security is given or provided or utilised in contravention of the provisions of this section,-
- the company shall be punishable with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees,
- every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months or with fine
- which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees; and
- the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person, shall be punishable with imprisonment which may extend to six months or with fine which shall not be less than five lakh rupees but which may extend to twenty-five lakh rupees, or with both.”
Case Law Analysis
The facts of this case is similar to a decided case law in Bombay High Court in Eredie Ardesher Mehta (Dr.) Vs. Union of India (1991) 70 Comp. Case 210 (1991) 1 Comp. It was held that the company selling one of its flats to one of its directors on receiving half the price in cash and agreeing to accept the balance in instalments does not amount to giving loan.
Question 2. As the Company Secretary of Joy Ltd., what steps would you take in case the scheduled Board Meeting could not complete the agenda slated thereat. The items of business left untransacted are of extreme importance for the company’s growth and the same cannot be deferred until the next Board meeting because of urgency. Advise the Board about the steps to be taken to get the untransacted items passed.
Answer:
Untransacted Items to be passed by circulation
Resolution may be passed in respect of Board approvals in one of the two ways, either at the Board Meeting or by circulation. The items which could not be transacted and decided at the board meeting, if cannot be deferred till the next board meeting may be passed by circulation provided they do not include such items as are required to be passed only at the meeting of directors under Section 179(3) of the Companies Act, 2013.
Procedure as per Section 175 and Point no 6 of Secretarial Standards
In order to get the un transacted item pass the Board may consider the following procedure as laid down in Section 175 and Point no. 6 of Secretarial Standards on Board Meetings.
- The resolution in draft form together with the necessary papers may be circulated to the directors or members of committee at their address registered with the company in India by post, hand delivery or through electronic means which may include e-mail or fax.
- The said resolution must be passed by majority of directors or members entitled to vote.
- If more than one third of directors require that the resolution must be decided at the meeting, the chairperson shall put the resolution to be decided at the meeting.
- Each business proposed to be passed by way of Resolution by circulation shall be explained by a note setting out the details of the proposal, relevant material facts that enable the Directors to understand the meaning, scope and implications of the proposal, the nature of concern or interest, if any of any Director in the Proposal, which the Director had earlier disclosed and the draft of the Resolution proposed.
- The note shall also indicate how a Director shall signify assent or dissent to the Resolution proposed and the date by which the Director shall respond.
- Each Resolution shall be separately explained. The decision of the Directors shall be sought for each Resolution separately.
- Not more than seven days from the date of circulation of the draft of the Resolution shall be given to the Directors to respond and the last date shall be computed accordingly.
- The Resolution, if passed, shall be deemed to have been passed on the last date specified for signifying assent or dissent by the Directors or the date on which assent from more than two-third of the Directors has been received, whichever is earlier, and shall be effective from that date, if no other effective date is specified in such Resolution.
- The resolution passed through circulation be noted at a subsequent meeting and made part of the minutes of such meeting.
Question 3. Director, Ravi, was appointed on 1st July, 2018. On 2nd July, 2018 he wrote to Managing Director of the company to inspect the minutes of the board meeting held on 1st August, 2017. The Managing Director refused as he was not a director at that time. Ravi attended a meeting held on 1 September, 2018 and resigned on 3rd October, 2018.
On 4th October, 2018 he wrote to the Managing Director to send him a copy of the signed minutes of the meeting held on 1st September, 2018. Again, the Managing Director refused. Are the actions of Managing Director valid under Companies Act, 2013/Secretarial Standards? Comment.
Answer:
According Para 7.7.1. of Secretarial Standard on Board Meeting a Director is entitled to inspect the Minutes of a Meeting held before the period of his Directorship. Further, Para 7.7.2 provides that a Director is entitled to receive a copy of the signed Minutes of a Meeting held during the period of his Directorship, even if he ceases to be a Director.
Therefore, the actions of managing director are not valid. Claim of Mr. Ravi for inspecting the Minutes of a Meeting held before the period of his Directorship and for receiving a copy of the signed Minutes of a Meeting held during the period of his Directorship is valid.
Question 4. A meeting of the Board of Directors was convened to approve the annual financial statements of the company. The company has a total of 9 directors out of which 4 directors were attending the meeting through video-conferencing while the Chairman and 4 other directors were personally present.
Five directors (including the Chairman and those attending the meeting through video-conferencing) gave their assent to approve the financial statements while three directors personally present dissented. Can the Chairman consider the financial statements as approved? Explain with reasons.
Answer:
Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014 prescribes that approval of annual financial statements must not be dealt with in any Meeting through video-conferencing or other audio-visual means.
Although, second proviso of Section 173(2) of the Companies Act, 2013 read with first proviso of Rule 4 of the Companies (Meetings of Board and its Powers) Rules, 2014, provides that where there is quorum present in a meeting through physical presence of directors, any other director may participate in the meeting through video or other audio-visual means.
In the given case, Chairman and 4 other directors were personally present, thus, fulfilling the requisite quorum through physical presence of Directors, the remaining 4 directors attending the meeting through Video Conferencing can participate in the meeting.
Accordingly, assent given by the Chairman and 4 directors participating through video-conferencing to approve the financial statements shall be valid and the resolution shall be deemed to be passed by requisite majority. Space to write important points for revision
Question 5. The Chairman of the Board of Directors of Jagruti Printers Ltd. has sent a draft of Resolution along with necessary papers to all the ten directors of the company to get it passed through a resolution by circulation. The last date for signifying the assent or dissent is 20th November, 2019.
On 15th November, 2019, six directors communicated their assent while on 17th November, 2019 the remaining 4 directors requested that the resolution must be decided at a meeting. Referring to the relevant provisions of the Companies Act, 2013, decide whether the resolution can be deemed to have been passed or requires to be decided at a Board of Directors meeting?
Answer:
As per Section 175 of the Companies Act 2013 states that, no resolution shall be deemed to have been duly passed by the Board of Directors by circulation, unless the resolution has been circulated in draft, together with the necessary papers, if any, to all the directors at their addresses registered with the company in India, by hand delivery or by post or by courier, or through electronic means which may include e-mail or fax and has been approved by a majority of the directors, who are entitled to vote on the resolution.
Although, where not less than one-third of the total number of directors of the company for the time being require that any resolution under circulation must be decided at a meeting, the Chairman shall put the resolution to be decided at a meeting of the Board.
In the above case, majority directors had communicated their assent but subsequently before the due date more than one-third directors have requested that the resolution must be decided at a board meeting.
Question 6. Therefore, the resolution sought to be passed by circulation will be required to be passed only at a Board meeting.
The Board of Directors of Passion Ltd. has passed board resolutions for the following items. Examine the validity of resolution as a secretarial auditor of the company:
- To invest the funds of the company for 15 lakh in ABC Mutual funds;
- To remit, or give time for the repayment of, any debt due from a director;
- To invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;
- To take over a company or acquire a controlling or substantial stake in another company.
Answer:
- Under Section 179(3) (e) of the Companies Act, 2013, the Board of Directors of a company shall exercise the powers to invest the funds of the company of 15 Lakhs in ABC Mutual funds by means of resolutions passed Boards Meetings.
- Under Section 180(1)(d) of the Companies Act, 2013, the Board of Directors of a company shall exercise the power to remit, or give time for the repayment of, any debt due from a director only with the consent of the company by a special resolution at General Meetings.
- Under Section 180(1)(b) of the Companies Act, 2013, the Board of Directors of a company shall exercise the power to invest otherwise in trust securities, the amount of compensation received by it as a result of any merger or amalgamation with the consent of the company by a special resolution at General Meetings.
- Under Section 179(3)(j) of the Companies Act, 2013, the Board of Directors of a company shall exercise the powers to take over a company or acquire a controlling or substantial stake in another company by means of resolutions passed at Board Meetings.
Question 7. The following figures were extracted from the books of X Ltd (audited).
Paid up share capital ₹ 100 Lakh
Reserve & Surplus
General Reserve ₹ 50 Lakh
Security Premium Account ₹ 25 Lakh
Re-valuation Reserve ₹ 25 Lakh
Total ₹ 200 Lakh
Long Term Borrowings ₹ 125 Lakh
Short Term Borrowings (Cash Credit Loan) ₹ 50 Lakh
Temporary Loan for construction of Building ₹ 25 Lakh
Total ₹ 200 Lakh
The Board of Directors further want to borrow a sum of 350 Lakh as Long Term Loan without obtaining the consent of the members in general meeting by special resolution. Advice the Board about the validity of this proposal. What will be your answer if it is a Private Limited company?
Answer:
Under Section 180(1)(c), of the Companies Act, 2013 the board of directors of a company with the consent of the company by a special resolution shall borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital, free reserves and securities premium, apart from temporary loans obtained from the company’s bankers in the ordinary course of business.
Temporary loans means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of bills and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature.
In the given problem, the eligible amount which can be borrowed by the Board is given below:
Paid up share capital ₹ 100 Lakh
Reserve & Surplus
General Reserve ₹ 50 Lakh
Security Premium Account ₹ 25 Lakh
Total ₹ 175 Lakh
Re-valuation Reserve is not treated as free reserve as per Section 2(43).
The total borrowing of the company for the purpose of this sub section is:
Long Term Borrowings ₹ 125 Lakh
Temporary Loan for construction of Building ₹ 25 Lakh
Total ₹ 150 Lakh
Short Term Borrowings (Cash Credit Loan) of 50 Lakhs is considered as temporary loan and loan for construction of building in not consider as temporary loan as per the explanation for temporary loan mentioned above.
Hence, the company can borrow a further sum upto 25 Lakh without seeking the approval from the members. Thus, the board cannot borrow a sum of 50 Lakhs as Long Term Loan without obtaining the consent of the members in general meeting by special resolution.
In case of private company the provision of section 180 does not apply vide exemption notification dated 05th June, 2015 therefore, the board can borrow without approval.
Meeting Of Board And Its Committee Short Notes
Question 1. Write short notes on Passing of Resolution by circulation.
Answer:
Passing of Resolution by Circulation:
A company may pass the resolutions through circulation. The resolution in draft form together with the necessary papers may be circulated to all the directors or members of committee at their address registered with the company in India by hand or by speed post or by courier or through electronic means which may include e-mail or fax.
The said resolution must be passed by majority of directors or members entitled to vote.
If more than one third of directors require that the resolution must be decided at the meeting, the chairperson shall put the resolution to be decided at the meeting.
The resolution passed through circulation be noted at a subsequent meeting and made part of the minutes of such meeting.