Prepared by Vikas Kalyanshetty

Sec 274: Disqualification of a Director (Arises at the point of appointment) Sec No Disqualified if 274 1 (a) declared: unsound mind by a court of competent jurisdiction and finding is in force 1 (b) He is an undischarged insolvent Applicable to Pvt and Public

Pvt and Public 1 (c) He has applied to be adjudged insolvent and his application is pending Convicted by court For an offence involving moral turpitude** Sentenced for imprisonment >=6 months Period of 5 yrs has not elapsed from date of expiry of sentence 1 (e) Not paid his calls on shares held by him** alone or jointly 6 months has elapsed from date of call An order disqualifying has been passed by court u/s 203** unless leave granted by court 1 (g) (A) Added in Cos Amendment Act 2000 Not filed Annual Accounts and Annual returns for any consecutive 3 years ONLY Public Co Pvt and Public Pvt and Public

1 (d)

Pvt and Public

1 (f)

(B)

Has failed to: repay its D eposits or interest thereon or redeem its D ebentures on due date or pay D ividend

Sec No Disqualified if 274 and such failure continues for >= 1 year Provided: He shall not be eligible to be a director of any Public Co for a period of 5 years from the date of default 274 (2) Central govt by notification in official gazette can remove disqualification u/s 274 1 (d) and (e) 274 (3) A Pvt Co can provide for additional disqualification through its articles

Applicable to

ntment) Explanations and department clarifications

Undischarged insolvency period: From date of application upto the last date till the court has restrained him to do business

** Criminal offence with genuine intentionnot coz of negligence..

**Ofcourse shares held in that company where to be appointed

**Sec 203: Fraud breach of trust, misfeance in formation, promotion, mgmt & winding up of any Co

This whole sentence means he is qualified even if he files any one of either Annual return or annual accounts in the consecutive 3 years. Intermittent failure will not attract disqualification Though this sec came into effect from 31/12/00 practically it comes into effect from 30/11/02 Subsequent rectification of default has no consequence Deposit would mean any deposit and not restricted to any definition e.g in 58a only debentures not interest thereupon Department's clarifications: It means dividend declared but not paid within the time specified in section 207 (i.e. within 30 days from date of declaration).

Explanations and department clarifications It means default is effective after 1 year of date of default Subsequent rectification of default has no consequence Trick to remember: only non payment of D-D-D is disqualified and not any other bank loans etc i.e defaulting and appointing co both must be public co to attract disqualification

But a Public CO CANNOT

d by Vikas Kalyanshetty
Sec 270, 272: Share Qualification and penalties Applicable to: Only Public Companies Purpose: Commitment of Directors Sr No Provisions and minute points between the lines

Sec 270 1 Articlies must specifically provide 2 Nominal value of shares<=Rs 5,000 and only 1 share if nominal value exceeds Rs 5,000 3 Voluntarily the director can hold any no of shares 4 Selective provisions in the articles allowed 5 6 This sec talks abt only shares Method of acquiring shares: Any method. As per the provisions dir is reqd to hold or to obtain and who is not already qualified in this respect... Is beneficial interest required? Can shares be gifted to the director Can share be mortgaged Can shares be jointly held? Period of acquisition of share qualification: Within 2 months after his appointment Consequences of failure to hold QS Vacate the office without notice Rs.5,500 per day Sec 272 Sec 283 If at the time of appointment articles silent about QS - It wont apply to the director Time limit of 2 months cant be increased or decreased in the articles Directors who need not obtain 1) Nominee Directors 2) Dir appointed by CG 3) Who are not required by articles 4) Small shareholders director Sec 273: Sec 270 and 272 not applicable to Private Co. except to a subsidiary of a public co

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Explanations and department clarifications

Not mandatory, its only when articles provide e.g 500 shares of Rs 10 each. Nothing to do with Paid up cap or Mkt value But the company can't compel him to buy shares of > Rs 5,000 As the power itself is derived from the articles. i.e it could be pref or equity or both as per the articles As per the dept clarifications to hold or to obtain means the name should appear in the register of members. i.e if he already has shares more than Rs 5K then qualification shares not reqd No as the section is silent upon the beneficial interest in the shares Yes as sec is silent, unless articles specify Yes as sec is silent, unless articles specify Yes as sec is silent, unless articles specify On expiry of 2 months he should be a dir & Co co. should not have been liquidated. Then only dir reqd to take qualification shares

Fine of Rs 500 per day If still continues after vacation Fine of Rs 5,000 Per day Unless he has in writing commited to take it.

It is void as per sec 270 and you have to vacate the office as per sec 283. So its like this if not provided anything in articles its okay - this sec doesnt apply - but if articles do provide it has to be 2 months

Governed u/s 252 Not mandatory but voluntarily pvt co can provide But sec 283 i.e penalty of Rs 5,000 per day will apply even to a pvt co.

d by Vikas Kalyanshetty
Sec 252: Minimum No of Directors Sr No 1 Provisions and minute points between the lines Minimum No of directors a) For Public Co: 3 Directors b) For Pvt Co: 2 Directors 2 Reduction in no of directors below min limit it should be reverted back to minimum within a reasonable time How tp appoint director(s) when it goes below? i) No of Dir below statutory limit but quorum can Board can appoint directors by convening EGM. be formed If any other business transacted in the EGM it'll be invalid ii) No of dir below stat limit and no quorum can Reg 75 of table A provides Even 1 director can handle the EGM be formed. and appoint the directors or call a Gen Meeting. If any other business transacted in the EGM it'll be invalid iii) Co becomes directorless Sec 169: Requisite no of members can convene EGM and appoint directors Sec 186: Any member can make a requisition to CLB to appoint directors Explanations and department clarifications

Prepared by Vikas Kalyanshetty

Sec 259: Maximum No of Directors Sr No 1 Provisions and minute points between the lines Maximum No of directors: a) Pvt Co Explanations and department clarifications a)As specifies in the articles of the company b) No prior govt approval reqd b) Public Com 2 No Govt approval reqd if : a) Company coming into existance before 21st July 1951 and amendment n articles to increase above 12 is before 21 july 1951 b) Co incorporated with > 12 directors after 21 july 1951 and not through any amendment Exemptions to Sec 259 a) Pvt Co b) Govt Co c) CO formed u/s 25: charitable Sec 258: Right of Co to change no of directors 1 Within Max limit how many dir co will have at present? 2 a) Maximum shall be as per articles b) If exceed 12 govt approval reqd

This decision will be taken by shareholders in the GM by ordinary resolution

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Can sec 258 be used as a mechanism to remove No!! You have to remove them through Sec directors? 284 or by resignation So even if dir are more than the reduced max no of dir, they can continue until they resign or are removed as per 284 Whether separate resolution reqd u/s 258 before No Appointment u/s 257 will work as both dir are appointed u/s 257? sec 258 and 257 Section applies to both pvt and pub co

Prepared by Vikas Kalyanshetty

Sr No Provisions and minute points between the lines Sec 275: Maximum No of Directorships 1 A person shall not hold office > 15 companies Sec 278: Exemptions from clculation of limits for directorships 1 Pvt Co - not a sub/holding co of pub co 2 Unlimited Co 3 Sec 25 Co 4 Alternate director If 1st 3 Cos above converts into a pub co 3 months grace period is given to directors Sec 276: Transitory Provision: 1 Not relevant after 12 feb 2001 Reduction of directorship from 20 to 15 in the 2 Amendment Act 2000. Following 5 steps to be taken: a) Choose the 15 companies b) resign his office in other pub cos c) intimate the chioce to each of the co d) intimate the registrar e) intimate the central govt An ordinary dir can resign immediately, but if an MD reitires aceptance is reqd. but in case of 276 acceptance is not reqd. i.e sec 276 overrides the artices i.e 2 months after the date of amendment (i.e 13/12/00 Explanations and department clarifications

So chill madi

3 Resignation shall become effective immediately

Prepared by Vikas Kalyanshetty

SN Provisions Sec 277(1): 15 Cos to 16th Co 1 A person is a dir in 15 cos He can join 16th co only when he effectively vacates his directorship in 1 of those 15 cos within 15 days of appointment otherwise his appointment is void. Sec 277 (2): 14th to 16th Co or more 2 A person dir of 14 Cos he is appointed as dir of 2 or more cos (i.e more than 15) He shall choose which directorships he wishes to hold and vacate within 15 days from the last appointment. Failing to do so All the new appointments shall become void New appoinment: All appointments 15 days prior to last appointment. i.e 15th to 16th Co - if gap > 15 days - 277(1) apply If 15th to 16th - if gap < 15 days (linking 14th & 16th) - 277 (2) apply Effectively vacates: sec 276 NA here. i.e he has to get acceptance also Explanations/ Dept clarifications

Choose word has been used unlike effectively vacate in 277 (1): Means effecivenly vacate in case of existing appoinments and choose from new appointments.

277(1) and 277(2) are mutually exclusive

Sec 279: Penalty 4 Fine of Rs 50,000

Prepared by Vikas Kalyanshetty

SN Sec 253: Provisions Only individuals can be director Explanations/ Dept clarifications No Company or firm or association

Sec 312:

No dir shall assign his office to any other Assign:Selling or transferring of office of directorship: person If he does assignment is void Case Law: Oriental Metal Pressing Pvt Ltd V B/K Thakoor (1961) Office of Dir cant be sold with or without consideration Assignment can done only when director is alive. But if a person gives directorship thru will it is equivalent to appointment.

Prepared by Vikas Kalyanshetty

SN Provisions Sec 254: First Directors 1 2 Names of 1st dir in articles of association If names not mentioned articles may authorise the subscribers to MoA (who are individuals) to appoint. In absence of above 2 cases subscribers to MoA shall be be deemed to be the directors Law cant provide for extreme situations: e.g if > 12 subscribers to MoA what to do? Co will not be incorporated Explanations/ Dept clarifications

How long 1st directors hold office? Named in articles or appointed by subscribers to MoA Need not vacate at 1st AGM These directors will go into cycle of 255/56 wherein some directors retire by rotation & some do not Deemed directors hold office until GM held after incorp but before 1st AGM Directors appointed in 1st GM u/s 257 will then go into the cylce of 255/56

Pre par ed by Vika s Kal yan shet ty

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SN Provisions Explanations/ Dept clarifications Sec 255/56 cases: Reappointment of retiring directors 1 Sec 255/56 not a method by which a person can enter the A person can enter only by 2 ways: co as a director a) Enter as 1st directors b) By sec 257 route i.e appointment other than retiring directors 2 Total Directors=rotational dir + non rotational Dir Rotational directors a) Retire by rotaion as per 256 b) He can stand for reappoinment c) Again retires d) thus goes into cycle of 255/56 Non rotational directos a) Do not retire by rotation b) however they are not to be costrued as permanent directors 3 How many rotaional and non rotational directors? Rotational directors Not less than i.e >= 2/3rd of total directors Non rotational directos balance will be non rotational Calculations: Total rotational / non rotational directors 12 8/4 (i.e 2/3 of 12 and 1/3 of 12) 11 8/3 (i.e 2/3 of 11 = 7.33 - round off to next as not less than) 4 Can articles provide all directors be roational? Yes as min 2/3 is given max can be all 5 How do you get the status of rotational / non rotational? Non rotational Rotational

specified' either by articles or in resolution appointing them Articles of most of Cos provide Promoter Dir, MD & WTD shall not retire by rotation Rotational dir may or may not be specified in the articles

How non rotational Dir are appointed & for wat period? Appoiting through resolution or articles may provide that either a) Office for life time or b) for a specified period of time How long rotational directors shall hold office? At every AGM, 1/3rd of rotational directors shall actually retire. e.g if 9 rotational directors -3/3/3 if 7 then 2/2/3 but practically 2/2/2/1

Which directors will retire? FIFO Method!!! (dont write FIFO) i.e Those holding longest in office will retire In case directors appointed on the same day: a) In absence of agreement between them who will retire? b) Draw of lots Can all directors retire at every AGM

Yes, Articles can provide anything above 1/3rd

SN 10 11

Provisions 255/56 is a mechanism to weed out non performing directors in a honourable manner What will happen at the AGM? At AGM vacancy may be filled up

Explanations/ Dept clarifications

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(i) By appointing retiring director (ii) By appointing some other director (257 route) (iii) No director appointed - adjourn meeting 1 week if still not selected retiring director is deemed to be appointed unless: a) He's disqualified b) He's unwilling to continue c) a resolution for reappoinment was put to vote and lost 2 more not discussed yet 1) Additional Directors 2) Central Govt appoionted directors 3) Small shareholders directors 4) Nominee directors of financial institutions having overriding provisions over Co's Act (IDBI, LIC, UTI & SFC) Other financial institutions will be accomodated in non rotational dir's slot (i.e Total less 2/3rd) Depends on the articles if articles silent - All directors are non rotational Retiring director deemed to have vacated

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Who shall be deducted from the total directors?

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Will directors of pvt co retire by rotation?

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What if AGM not held due to BoDs? Read case law Ambica tea Both Form 32 and 29 need not be filed when director retiring by rotation re appointed Sec 263A : 255, 256 & 263 doesnt apply to Sec 25 Co

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pared by Vikas Kalyanshetty

Sec 257: Appointment of a person as director other than retiring director SN 1 Provision Special notice has to be given to BoD by members 14 days before the AGM/EGM BoD should give 7 days notice to all members 2 3 In AGM after all matters this matter will be discussed Other issues in 257: a) Appoinment in AGM/EGM b) Special notice by members c) Even a pref shareholder can give notice d) Member can give notice:

e) Outsider can give notice 4 Limitation of 257 but law has a remedy to it Rs 500 is the fees per member proposed 14 days before the meeting The deposit will be forfeited if propsed director not appointed 5 In sec 257 one has to wait till the AGM or EGM to be appointed. What to do if immediate appointment is desired? Sec 257 is the only method to become director through general meeting Other procedural compliances: Filing of Form 29 - 1st time director Filing of Form 32 updating register of directors updating register of director's shareholding informing stock exchange - listed companies only Acuiring qualification shares within 2 months Refund of the deposit Applicability of Sec 257 t o Pvt Cos

7 (i) (ii) (iii) (iv) (v) (vi) (vii) 8

retiring director Explanations

Irrespective of no of shares held by him. Even holder of 1 share may give notice (i) Proposing himself as director (ii) Proposing any other member (iii) Proposing even an outsider (i) Proposing ONLY himself as director Not stated how many notice a member can give

Sec 257 can be combined with sec 169 for requistion of EGM to appoint a director.

Does not apply tp Pvt Co Then how to appoint? Read articles If articles silent - proposal directly discussed in the meeting.

Prepared by Vikas Kalyanshetty

Sec 260: Appointment of Additional Directors (AD) SN Provision Explanations 1 Applies to both public & Pvt 2 BoD appoint AD No one else e.g MD/manager 3 Either at meeting or resolution by circulation 4 Articles must specifically provide for If articles silent then amend it power of appointing of AD to BoD 5 Existing Dir+AD<= Max strenght as per articles 6 How long hold office? Upto next AGM Dept clarification: upto time of commencement of next AGM. 7 If AGM not held Deemed to have vacated on last day on which AGM should have been held 8 Can AD be appointed in general YES..Just as power to appoint AD is conferred by meeting articles But Just b coz he has been appointed in genereal meeting its not 257 appointment. 9 If any conflict between sec 258, 259, Sec 260 will prevail 255 & 260 10 No concession for AD only route to enter as regular dir is thru 257 11 AD appointed as MD: Office of MD is co terminus with office Co terminus means attached of director 3 situations: a) on AGM he doest seek Office of MD will come to an end. reappointment b) on AGM AD is appointed as MD (i.e such person continues to hold MDs office despite through 260+257 combi) there being a technical break at AGM in the office of director. Dept clarification: he does not have to go thru formalities of sec 269 & Sch XIII to be appointed as MD. c) on AGM AD not appointed as MD but Office of MD will come to an end and above given appointed again as AD immediately dept clarification will not hold good here after AGM.(i.e in 260 + 260 combi) 12 Power to appoint AD should be exercised in the Bonafide interest of the company In the case law T.M Paul Vs City Hospital, where it was found that appointment of AD for strengthening the power of certain group of directors was held unappropriate & failed 13 Whether filing of Form 29 & Form 32 in Dept clarification: Form 29 (1st dir) not reqd Form case AD is reappointed as regular 32 (Change of status) - reqd to be filed director in AGM?

Prepared by Vikas Kalyanshetty

Sec 262: Appointment of Directors in casual vacancy (CV) SN Provision 1 Casual vacancy due to 2 A director appointed in general meeting does not assume office 3 Sec applies only to Public Co 4 Only board to appoint 5 casual vacancy can be filled up only at board meeting & not by resolution by circulation 6 Casual vacancy in whose office? Explanations removal resignation, death, disqualification No casual vacancy

Not MD/Manager etc.

7 Dept has taken a liberal view

Director appointed by company in general meeting only u/s 257 If AD is appointed at meeting? 2 schools of thot. Yes and no if originally an appointment was made in a general meeting, the board may fill the CV arising as many times as necessary.

8 No compulsion that CV has to be filled 9 in default of & subject to any regulations in the articlesmeans what?

a)Power is not derived from articles

10 Period of Office

b) Power is subject to articles c) means even if articles are silent you can fill up the CV d) Articles may provide CV can be filled by shareholders in general meeting. upto the expiry of the term of director on whose place he was appionted If he wants to become a regualr dir then go thru 257 route

Prepar ed by Vikas Kalyan shetty

Sec 313: Appointment of Alternate Directors in casual vacancy (CV) SN Provision Explanations 1 Applies to both public & Pvt 2 BoD appoint AD No one else e.g MD/manager 3 Either at meeting or resolution by circulation 4 Articles must specifically provide for power 2 Situaltions of appointing of AD to BoD i. Articles will authorise borad to appoint ii. If articles silent board will be given the power by general meeting by ordinary resolution. 5 Alternate director is not a proxy of original director 6 "during his absence for a period not less i) It is to be noted that STATE word is used not COUNTRY than 3 mths from the state in which the board meetings are ordinarily held" means what? (ii) Dept clarification: during his absence means his intention to be absent for more that 3 months. Not actual physical absence 7 How long alternate director will hold office? Not longer than the period permissible to original director. It will end as soon as he returns back to the state no matter what's the purpose of return. 8 Can 1 director be appointed for 2 or more directors for the purpose of quorum? As per the strict reading of provision its one alternate director for 1 director.

Dept clarification: Yes but 3 situations will arise: a) he may be counted as 2 or more director present for purpose of quorum b) He may exercise 2 or more votes c) entitled for only 1 sitting fees. (CHINDIIII) i) not a proxy ii) independent director iii) he must acquire qualification shares and all other formalities to become alternate director. Alternate director can be appointed as MD, even if the original director was not so. However, if original dir was MD, alternate director won't automatically become MD.

9 Status of director

10 Appoinment as MD/WTD

Prepared by Vikas Kalyanshetty

Sec 263: Appointment of directors to be voted on individually SN Provision Explanations Every director must be appointed by separate 1 263 prohibits 1 motion for 2 or more directors resolution 2 Exception to the above: 2 meetings: 1st meeting: Pass a resolution authorising the appointment of 2 or more dir thru single resolution 2nd meeting: Pass resolution appointing such directors by a single resolution i.e +ve consent from the members required for 1 3 Silence will not amount to consent. st resolution. 4 Non applicability of the setion to a) Pvt Co b) Govt Co c) Sec 25 Co d) also for borad meetings unless articles provide otherwise.