Director of XYZ Machineries

(i) ABC Forgings Private Limited where ‘X’, a director of XYZ Machineries
Limited, is interested as a director and member.
(ii)DEF Casting Limited, where ‘Y’, a director of XYZ Machineries Limited, is
interested as a member holding 25 per cent of the paid-up share capital.
State briefly the legal requirements to be complied with under the Companies Act
to give effect to the above proposals. Will the age’ementscontinue to be valid after the
paid-up share capital of XYZMac’N..neriL,.td.jS’inCreased to Rs.4 crores in December
1995 by further issue of shares?
(i)Under Section 297, it will require a resolution of the Board of Directors to be
passed at its meeting.
Besides, approval of the Central Government is required where the paid-up share
capital of the company is Rs. 1crore or more. But, applicability of the Section is to
be determinedat the timeof enteringinto the contract.Ifno pennission under this
section is required at the time of entering into the contract, subsequent pennission
is not necessary even though there may be a change of circumstances which would
require pennission to be taken for a fresh contract.
Thus, it appears that, where contract was entered into by the company when
its paid-up capital was less than Rs.1crore, and raised upwards subsequently
[Rs. 4 crores in the given case], approval of the Central Government would
not be necessary until the expiry of the contract.
Also, under Section 299, ‘X’ must disclose his interest to the Board and not
participate in the said meeting/ deliberations. .
(ii) Section 297 does not cover cases of public limited companies. Thus, the
aforesaid approvals shall not be necessary.
State the legal position in the following circumstances:
The Articles of Association of a company provide for minimum share qualification.
Mr X, who was appointed as a director of the company, failed to obtain qualification
shares within the specified time limit.
Following effects shall follow:
1. He shall be liable to fine up to.Rs. 500 for every day until he stops acting as
such
2He shall be liable to a further penalty under Section 283 (2A) up to Rs. 5,000
for each day he functions as a director. It appears that the penal provisions of
Sections 272 and 283 (2A) will cumulatively apply.
3.He automatically vacates the officeunder Section 283 (1) (a).
Board of Directors of Colourful Textiles Ltd. having a’1effective capital of Rs. 4
crores propose to appoint one of its Directors, Mr. Shyam, as managing director for 5
years with effect from 1st December 1996 on a consolidated monthly salary of Rs.
40,000 per month. Mr. Shyam is already the managing director of Unique Yam Ltd.
receiving a consolidated salary of Rs. 35,000 per month. The effective capital of Unique
Yam Ltd. is Rs. 2 crores. What are the legal requirements to be complied with by
Colourful Textiles Ltd. to give effect to the proposed appointment? Will your answer
be different if Unique Yam Ltd. is a private company? fC.A. (Final)Nov., 1996J
Schedule XIII allows a company to pay its managing director up to 5% of its
net profits for a financial year. Monetary ceilings have been removed except for
loss-making companies or companies with inadequate profits. Presently’, in case a
person is managing director in more than one company, he may draw remuneration
from both or from anyone of them provided that the total remuneration drawn from
the companies does not exceed the higher maximum limit admissible from anyone of
the companies of which he is a managerial person.
Thus, assuming that the two companies in question do not have adequate profits,
the managing director, Mr. Shyam, cannot receive more than Rs. 1,00,000p.m:’ as
salary from both the companies, taken together. Accordingly, no approval of the
Central Government shall be required to be obtained.
Again, please note that the approval of the Central Government shall not be
necessary for his appointment as per conditions of Schedule XIII,since Mr. Shyam is
the managing director of only one other company will not bedifferentevenif Unique Yarn Ltd is a private companysincethe wtntment issoughtto bemadein apubliccompany.ScheduleXIII shall, Your company has received a notice from a shareholder holding shares,
paid-up value of which is Rs. 60,000 which is equal to 5per cent of the voting power
of the company, proposing himself for appointment as a Director of the company in
place of a retiring director. How would you, as the company secretary, deal with the
matter? Pleaseseeunder answer to
undertheheading-“ Appoinmentof Directorsother
thanthoseretiring”.
Mr. X who was apP9inted as a Director at the last annual general meeting
resigned. The Board filled up the casual vacancy by appointing Mr. Y. But within a few
days of his becoming Director, Ydied. The Board wishes to fill up the casual vacancy
by appointing Mr. Zin place of Mr. Yin the next Board meeting.
State the legal position.
Section 262provides that in the case of a public company or a private company
which is a subsidiary of a public company, if the office of any director appointedby the
companyingeneralmeetingis vacated before the expiry of his term of officein the normal
course, the resulting casual vacancy may, subject to any regulations in the Articles of the
company, be filled by the Board of Directors at a meeting of the Board.
It would thus be noted that Board of Directors is empowered to fill a casual
vacancy only in respect of a director appointed by the company in general meeting. If
a casual vacancy arises in the office of a director appointed in the casual vacancy under
Section 262, there is no casual vacancy within the meaning of Section 262 and cannot
be filled up by the Board of Directors. Consequently, Board should not be empowered
to appoint Mr. Z in place of Mr. Y. However, the Deptartment of Company Affairs has
opined that the vacancy may be filled by the Board as a casual vacancy. Certain
commentary writers do not subscribe to this view and suggest that vacancy should be
filled not as a casual vacancy but by appointing the person as an additional director
so that he ceases to hold office by the next AGM.
who was appointed as an additional director of a public limited company
for the first time, filed his consent with the company by way of a letter. He also signed
his consent in Form No. 29 and gave it to the company for filing with the Registrar of
Companies. Due to inadvertence the aforesaid consent was not filed within the
prescribed period of one month. What will be the state of X as director?
Section 264 which deals with filing of consent by a director has two parts. Under
the first part covered under sub-section
(I) it is provided that every person proposed to
be a candidate for the office of a director of a public company shall sign and file with the
company, his consent in writing to act as a director, if appointed.
In the given situation, this requirement has been duly complied with.The second part covered under sub-sec.
(2) requires that a person shall not act asa director of the company unless he has within 30 days of his a.E£2intplent signed and filed with theRegistrarhis consent in writing to act as such Anadditionl direct is exempted to filesuch consent in case of his appointment as a director or re-appointment as additional director. But, in the given case appointment being for the first time, n’on-filing of the consent within 30 days shall result in non-compliance of Section 264 (2).However,failure to file the consent with the Registrar, in the opinion of the Department of
Company Affairs, shall not result in the vacation of the office as director. The only
consequence shall be that penalty under Section 629-1):would become attracted. Such
consent may be filed after the e2Rir of 30 days on payment of additional fee as
contemplated under Section 611 ABC Ltd. is a deemed pu lic company. The present strength of the Board of Directors of ABC Ltd