COMPANIES ACT OF 1956

By, Divya Devaiah Deepak.M.S Bhushan patil Ajay.S Goutham pai

CONTENTS

Directors: appointment, power, duties and liabilities

Meeting and resolutions, types of meeting

Auditor: appointment, rights and liabilities

Winding up of company: meaning, modes

Liquidator: powers and duties

Sec 2(13) of companies act of 1956Defines a director as ‘any person

occupying the position of a director, by whatever name called’

In general ,a person is said to be occupying a position of a director, if he has been charged with the responsibility of directing, conducting and controlling the affairs of a company

QUALIFICATION OF DIRECTOR Under the act, only individuals can become directors There is no academic, technical qualifications for a

director Section 270 of act, requires a director to hold

qualification shares in the company, and it should be fixed by the articles of company

The nominal or face value of the qualification shares of director fixed by articles should not exceed rs 5000.

The qualification shares must be acquired by a person elected as a director within 2 months of his appointment

As per section 149 , director appointed by promoters of a newly incorporated firm, director must pay for qualification shares before certificate to commence business is obtained

Contd…..For the purpose of the calculation of the

qualification shares ,only shares included in the share certificate in the name of director are taken into account, share warrants in his name shouldn’t be taken into account

Qualification shares held by director should be disclosed in the prospectus

With in two months of his appointment, he should file with the registrar a declaration specifying the qualification shares held by him

Consequences of failure to acquire qualification shares He ceases to be a director automatically,

soon after the prescribed period(2 MONTHS)Even after expiry of the stipulated period, if

he continues to act as a director, he will be fined for period he was acting as a director.

He can be restrained from acting as a director of company by an order of injunction issued by an competent court

DIFFERENT WAYS OF APPOINTMENT OF DIRECTORSBy the promoters of companyBy the subscribers to memorandum of

associationBy deeming the subscribers to the

memorandum as the first directorsBy the company in general meetingsBy the board of directorsBy third partiesBy the principle of proportional

representationBy the central government

Number of directorshipWhole-time DirectorshipA person cannot be appointed as

a whole-time director in more than one company.

Part-time DirectorshipNot more than 15 companies

excluding the directorships of,

Contd………….private companies [other than

subsidiaries or holding companies of public company(ies)].

i. unlimited companies,ii. associations not carrying on business

for profit or which prohibit payment of a dividend, and

iii. alternate directorships (i.e., he is appointed to act as a director only during the absence or incapacity of some other director).

Duties of DIRECTORS1. Fiduciary dutyExercise powers honestly and bona fide for

the benefit of the company They must not make any secret profit out of

their positions

1. Duties of care, skill and diligence Directors should carry out their duties with

reasonable care and skill,deligence Standard of care: depending upon nature of

work, division of power, customs and remunarations

Other dutiesTo attend board meetingsNot to delegate his functions except to the

extent authorized by the act or constitution of company

To disclose his interest

POWERS OF DIRECTORSGeneral powers of boardPowers to be exercised at board

meetingsPowers to be exercised with the

approval of company in general meetings

Political contributions

Liabilities of directorsLiability to third partyLiability to companyLiability to breach of statutory

dutiesLiability of acts of his co-directorsDe facto and De jure liability

REMOVAL OF DIRECTORSDirectors can be removed by1. Share holders2. Central government3. Company law board

Disqualification of directorsA person with unsound mindAn un discharged insolventPerson who has applied to be adjudicated

as an insolvent and his application is pending before court of law

Person convicted by court for moral turpitude

Person disqualified by order of an court to act as director

A person who failed to pay call money, on his shares for six months from date the call became due

Disqualifications…………… a person who is already a director of a

public company which,—(i) has not filed the annual accounts

and annual returns for any continuous three financial years commencing on and after the first day of April, 1999; or

(ii) has failed to repay its deposit or interest thereon on due date or redeem its debentures on due date or pay dividend and such failure continues for one year or more.

MeetingsKey and important matters of the

company are discussed here.

Types of meetings

1)General meetings of shareholders.

a) Statutory meeting: (sec 165) b) Annual general meeting:

(sec. 166 & 167)2)Extra-ordinary general meeting

(sec. 169).3)Meeting of creditors and

debenture holders.

Resolutions

1)Ordinary resolution.2)Special resolution: (sec. 189(2))

AUDITORThe auditor is the servant of the

shareholders entitled with the duty to examine the affairs of the company, on their behalf and report to them what he has found

He is the only safeguard which the shareholders have against enterprise

Qualification

Member of a Institute of Chartered Accountants of India

A firm with all partners being members of ICAI, and any partner may act as auditor in the name of firm

DISQUALIFICATIONS: As per Sub section (3) of Section 226 , none of

the following persons shall be qualified for appointment  as Auditor of a Company.

 a)     Body corporateb)     An officer or employee of the companyc)     A person  who is  a partner, or who is in

the employment, of the officer or employees of the company

d)     A person who indebted  to the company  for an amount of more than Rs.1000/-

A person who  has given  any guarantee or  provided any security  in connection with  the indebtedness of any third person  to the company  for an amount  exceeding  Rs,1000/-

     A person holding any security  of that company (  After a period of one year from the date of commencement  of the Companies (Amendment ) Act, 2000)

For the purpose of security means an instrument which carried  voting rights.

According to Sub section (4 ) of Section 226 provides that if a person disqualified as a Auditor  for the  reasons enumerated in sub section (3) of Section 226 then he cannot be appointed  as Auditor of any body corporate  which is

 1)     A subsidiary of that company or2)     Holding company of that company or3)     A subsidiary of that company’s holding

company 

Appointment of First Auditor

According to sub section 5 of Section 224, the board is vested with power to appoint first auditor within one month of incorporation of the company.  The date of appointment to be within one month from the date mentioned in Certificate of incorporation  issued by Registrar of Companies  i.e. existence of the company from date i. e legal entity.

Certificate to be obtained under Section 224 (1B) This provision will not be applicable to Private company on

and after the commencement of Companies (Amendment) Act, 2000 .  The public  limited companies are supposed to receive the certificate from the Auditor before appointment that  if they are appointed as a Auditor of the Companies the appointment will be within limits specified in sub section (1B) of Section 224 of the Companies Act, 1956.

  Explanation to Specified number  There are two categories

a)     A person or firm can audit twenty such companies have paid up capital of less than Rs.25 lakhs

b)     In any other case in the specified limit, out of twenty companies not more than 10 shall be companies each of which has a paid up share capital  of Rs.25 lakhs  or more.

Rights of an auditorRight to access booksRight to obtain information and

explanation from officers, directors etc

Right to visit branch office at all times and access books,reciepts,vouchers etc

Right to receive notice and other statements relating to general meetings

Right to receive remuneration

DutiesAcquaintance with articles of

companies actReport to members in general

meetingExamine trueness of balance

sheet and profit and loss account, if any misuse of funds found by him report same to shareholders

Be honest, perform his duty with care and caution

Special auditThe central government may in certain cases

direct special audit:If it shall have a opinion that ,the affairs of

company is not being managed with sound business principle or prudent business practices

Practices of company likely to cause serious injury or damage to trade, industry

The financial position of company is such as to endanger its insolvency

Special audit can be conducted by appointed c.a by government or by company auditor if government directs him.

Company secretaryAs per sec2(45) a company

secretary is a person who is a member of Institute of Company secretaries of India or any other person possessing the required qualifications, appointed to perform duties imposed on him by the companies act, the ministerial or administrative duties and managerial functions that are delegated to him by the board

qualificationAccording to the

companies(appointment and qualifications of secretary)rules1993, every company with a paid up share capital of rs 50lakh or more shall have a whole time secretary, who is member of ICSI(Institute of Company Secretaries of India)

Other qualificationsSound general educationCommand of languageKnowledge of office administrationKnowledge of procedures of meetingsKnowledge of accountsKnowledge of banking and financeKnowledge of company lawVarious labour lawsTaxation lawsKnowledge of industry and general

managerial ability

DISMISSAL OF SECRETARYExpiry of term of appointment Insanity of secretary InsolvencyPermanent disabilitySerious incompetence Breach of terms of contract on part of secretaryGross negligenceWillful disobedience of lawful ordersMisconductMoral turpitudeDishonesty, fraudulent practicesMaking of secret profits

Rights and powers of auditorRight of access to books.Right to obtain information and

explanation.Right to visit branch offices and

access of branch books.Right to receive notice of general

meetings and to attend them.Right to receive remuneration.

Remuneration of auditorsIt shall be fixed by the directors

in a general meeting.Any sums paid by the company

in respect of the auditor’s expenses shall be deemed to be included in the remuneration.

WINDING UP OF COMPANYThe legal process by which a joint stock

company is brought to an end, that is completely closed down, is called liquidation

In other words, Liquidation is a process by which a business of company is wound up

And in the course of winding up, its assets are realised,liabilities are paid off and the surplus if any, is distributed among the members in accordance with their rights

Modes of winding upCompulsory winding up or

winding up by order of the tribunal

Voluntary winding upWinding up subject to the

supervision of the tribunal

Circumstances leading to Compulsory winding up If the company has passed a special resolution

that it should be wound up by tribunalIf a public company has failed to hold statutory

meeting or file statutory report to registrar of companies

If it has not commenced business within year of its incorporation

If the number of members has fallen below seven in case of public company and below 2 in pvt ltd

If the company is unable to pay debtsIf the tribunal is of the opinion that it is just and

equitable that the company should be wound up

Voluntary winding upWinding up which is brought

about voluntarily without interference of the tribunal of companies through any order, but winded up voluntarily by members of company or by the creditors

Voluntary winding up is of 2 types:Members voluntary winding upCreditors voluntary winding up

Circumstances of voluntary winding upWhen company is solvent, and winding

up decision is brought in by members.When the period for which the company

has been formed has expired and company has passed ordinary resolution

When the event on happening of which the company should wound up has occurred and company has passed ordinary resolution

When a company has passed a resolution that it should wound up voluntarily

Winding up subject to supervisionIf a member or creditor puts an application for

supervision of tribunal, after company has passed special resolution for voluntary winding up, tribunal can entertain the same and pass such order to protect interest of, company, members and creditors.

Tribunal can exercise full control over winding up of company

Can appoint new liquidator in the place of existing liquidator

Can put restrictions on existing liquidatorOr appoint additional liquidator to act on behalf

of tribunal, along with existing liquidator

Thank you