Board of Directors

The company wishes to increase the strength beyond (a) Advise ABC Ltd. the procedure to be followed for increasing the strength ofthe Board of Directors beyond 12.(b) What will be the procedure to be adopted in a private limited company whichis not a subsidiary of public limited company?(a) For theprovisionswith respecto increaseof thestrengthof theBoardbeyond12,pleaseseediscussiononSection259underanswerisequallyapplicabletoadeemedpubliccompany.Moreover,aspertheCompanies(Amendment)Act, 2000conceptof deemedpubliccompanyis nolongerrelevant.1. The proposal for increase in the strength of the Board should first be placedbefore the Board itself for its consideration. In case the Articles of Associationof the company already provide for a strength of the Board beyond 12 and theincrease contemplated falls within the strength permissible under the Articles,the company shallnot require:(a) alteration of the Articles, and(b) permission of the Central Government.In other cases, the Board should decide upon the date, time and place of anextraordinary general meeting for special resolution to be passed for amendingthe Articles.. The company secretary should be authorised to issue noticesand do all other requisite acts for the purpose.2. If the shares are listed on a stock exchange (s), an intimation with regard tothe proposed changes should be sent to it/them; copies of the resolution andArticles as amended shall alsO’be sent.3. The general body in its meeting should pass the special resolution subject tothe approval of the Central Government, where such approval is necessary.Another special resolution should be passed to amend the Articles, where theproposed strength exceeds the provision in the Articles.4. Within 30 days of passing the special resolution(s), a copy thereof should befiled
For getting the approval of the Central Government, where necessary, anDepartment application should be made to the of Company Affairs in FormNo. 24 of the Companies (Central Government’s) General Rules and Forms,1956. The Form should be accompanied with the following:(i) a copy of the Memorandum and Articles of Association;(ij) a copy of the resolution passed and the proceedings of the general meeting;(iii) a challan or demand draft evidencing the payment of the requisite fee; and(iv) a copy of the general notice (see step 6 below) together with a certificateof the company as to the due publication thereto.Before application to the Central Government, as aforesaid, is made, thecompany should give general notice in terms of Section 640 B of the CompaniesAct, to the members indicating the nature of the application proposedto be made. The notice must be published at least once in a newspaper in theprincipal language of the district in which the registered office of the companyis situated and circulating in that district and at least once in an Englishnewspaper circulating in that district.Forward copies of the general notice to the stock exchange as per the listingagreement.Forward a copy of the application made to the Central Government alongwiththe enclosures thereto to. the Registrar of Companies [Rule 20 A of theCompanies (Central Government’s) General Rules and Forms, 1956].directors. Thus, the increase in the strength of the Board can be effected by merely passing an ordinary resolution, provided the total number’ does not go beyond the maximum permissible under the Articles. However, where the increase is beyond Articles, special resolution must first be passed and Articles amended.Rest of the procedure (except relating to obtaining permission from the Central Government and provisions related thereto) remains the same as noted above.State the legal position where:The Articles of Association of a company provided for minimum share qualification. Mr. Xwho was appointed as a Director of the company, failed to obtain qualification shares within the specified time limit..9lns. Please see under answer to
X Co. Ltd. wants to make a contract with a partnership. Four 6i the five directors of the company are partners of such partnership. How can the contract be executed?The given problem relates to a situation whre a director is interested in a contract. An interested director must not vote on any contract or arrangement in which he is interested. Moreover, interested director is not counted towards quorum:J!1 the present case, since 4 out of 5 directors are interested directors, unless ArtiCles ‘permit otherwise (i.e., Articles may even allow interested directors to attend and vote), valiq meetinof the Board cannot tak p...!!ceJ:egardiug the contracl!n-9uestion being 1 /3rd ofthe total strength of the Board or 2 directors, whichever is it should be noted th_at there is to enter iEto a £ontract in which direc1oror direttors are rested. Section 299 of the Cornparues Act only requires the interest to be disclosed. Thus/ in the present case, the Board of Directors having been rendered incompetent, the contract can be executed by the general body ofshareholders by passing an ordinary resolution to that effect
MIs XYZLtd., with a paid-up capital of Rs. 5 crores, has nine directors on its Board and as per its Article, the quorum for a Board meeting is 3 (three). A meeting of the Board was called to consider a contract relatlog to purchase of raw materials from another company ABC (P) Ltd., in which A and B, the Directors of XYZLtd., are also major shareholders. In the Board meeting (If xYz Ltd. three Directors including‘A’ and ‘B’ attended. The matter was discussed ‘and the three Directors voted for the contract. ABQ (P) Ltd. wants to enforce the cQntract. Will it succeed? Would it make any difference if ABC Ltd., is a public company? Discuss. ,..9lns. The problem relates to interested directors. In this case, A and B are interested directors and accordingly must disclose their interest as per Section 299. .Further, interested director under Section 300 is forbidden to take part in the discussion or vote on any contract or arrangement entered into by or on behalf of the company where he is directly or indirectly interested in it.Still further, interested director is not to be counted for quorum and the quorum for a Board’s meeting is, as per Articles, fixed at minimum 3 directors [Section 287]. resolution However, Section 287 provides that if at any time, the number of interested directors exceeds or is equal to 2/3rd of the total strength, the remaining directors, that is to say, the number of directors who are not interested, present at the meeting, being not less than two, shall be the quorum. In the given case such a dis-interested director being only one, meeting is not valid.Thus, in the instant case, the ABC (P) Ltd., cannot enforce the contract. ABC (P) Ltd. were a public company, then also the situation would have unchanged because The arrectors A and B are its major shareholders. Exemption of Section 300 (2) (d) is not available.in such a case.P. 17. State with reference to the provisions of the Companies Act, 1956 whether the following companies can make donations to political parties and if so the conditionsto be complied with in this regard: