Category Archives: Chapter XI – CA2013

APPOINTMENT AND QUALIFICATIONS OF DIRECTORS

PLANNING RETIREMENT/BREAK FROM DIRECTORSHIP


We received a query multiple time – how to plan retirement from directorship? Certainly, they are not asking me about post-retirement financial planning. This question particularly concerns professional directors, employee director, or independent directors concerned. This is not easy to plan a retirement which might have legal consequences up to the next 8 years. Moreover, retirement as directors is not one time exercise but a continuous one. It starts with your joining as director.

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COMPLIANCE BY INDEPENDENT DIRECTORS


In the last post PROFICIENT INDEPENDENT DIRECTORS, we discussed the introduction of “proficiency self – assessment test” by the Ministry of Corporate Affairs. The Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019 gives teeth to the Companies (Creation and Maintenance of database of Independent Directors) Rules, 2019. We, in this post, will discuss the Companies (Appointment and Qualification of Directors) Fifth Amendment Rules, 2019. More power is given by the Companies (Accounts) Amendment Rules, 2019.

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PROFICIENT INDEPENDENT DIRECTORS


What else may be the name of the youngest profession on the block of Corporate India? The new test is here to hit test-taking taste bud of Indian professionals. Rule 4(a) of the Companies (Creation and Maintenance of database of Independent Directors) Rules, 2019 introduces silently the “proficiency self – assessment test”. Ministry of Corporate Affairs by notification G.S.R. 805(E) dated 22nd October 2019 introduced these rules.

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FORM DIR-3-KYC-WEB


To bring 12th Amendment to the Companies (Appointment and Qualification of Directors) Rules, 2014, Ministry of Corporate Affairs on 25th Day of July 2019 notified the Companies (Appointment and Qualification of Directors) Third Amendment Rules, 2019 [Notification No. by GSR528(E)]. This amendment introduced a new Form DIR – 3 – KYC – WEB for annual confirmation of KYC submitted earlier. We, in this post, will discuss new provisions along with the Companies (Registration Offices and Fees) Rules, 2014.

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Director employed elsewhere


A director may be an employee in any organisation and may draw a salary from that other organisation. However, there may be two different situations –

  1. Director is actually an employee of that other organization and nominated by that organisation as a director in this company by virtue of an agreement;
  2. Director is a promoter director of a company but due to some reason join another organisation under a contract of employment. His employer may or may not have knowledge of his directorship in any company.

Indian law does not prohibit outside employment by a director of a company outside its own company. The prospective employer will take a call whether one of its employees should continue to be a director in its own private company.

The prospective employer will pay the employee for his 100% quality working time and 100% quality services. Where prospective employer feels, the employees should not have any other responsibilities except that of employment and of personal life, it may ask the employee to resign from other responsibilities.

The underlying question shall always remain, will that employee be able to honestly devote his time and efforts for its prospective paymaster, the employer.

According to Section 166 of the Companies Act, 2013, a director has certain duties towards the company.

DUTIES OF DIRECTORS (SECTION 166):

  1. A director of a company shall act in accordance with the articles of the company.
  2. A director of a company shall act in good faith to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of the environment.
  3. A director of a company shall exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.
  4. A director of a company shall not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.
  5. A director of a company shall not make or attempt to make any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.
  6. A director of a company shall not assign his office and any assignment so made shall be void.

If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Where a director took employment outside the company, he needs to be careful in the performance of his duties towards the company. He needs to answer the following question to himself:

a. can he exercise his independent judgement in the decision making the process of the company?

b. is there any conflict of interest?

If yes, I do not find any restriction on his gainful employment.

However, a company may by way of Articles of Association restrict its directors from outside employment.

However, one should not sail in two boats unless both boats are compatible.

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Form DIR – 3 – KYC


With all executive overreach, Form DIR – 3 – KYC is present before us this early morning of pleasant rainy monsoon day. I welcome it with all my reservation about working of the ease of doing business with actual ease. Every individual who has a Director Identification Number (DIN); whether using, abusing, not using or disqualified from using; need to fill this form within 49 days time from today 14th July 2018 with an exception of individuals who received their Director Identification Number (DIN) after 31st March 2018. Let us discuss more the rule and the form.

[Update: with the introduction of Form DIR-3-KYC-WEB discussed here, the law stated herein has slightly changed. Please read both posts together.]

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Chairman, Managing Director, CEO, Proprietor – the Difference


Difference between various business positions is quite confusing for the general public. Here, we will discuss, what is the difference between a chairman, a managing director, a CEO, and a proprietor?

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Qualification of Independent Director


The qualification of independent director is among few provisions where the Companies Act, 2013 become stringent after amendments. The Companies Amendment Act, 2017 read with Notification S.O. 1833(E) dated 7th May 2018 amended sub-section (6) of 149.

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To be director democratically – post 9th February 2018


The Companies Amendment Act, 2017 read with notification dated 9th February 2018 amended law related to the right of a person to be appointed as director of a company under Section 160 of the Companies Act, 2013. Section 160, in its original form, as applicable from 1st April 2014 until 8th February 2018. Section 160 is well ignored but the strong pillar of corporate governance and democracy. We shall discuss amended section 160 here along with its limitations and challenges present before it.

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Tracking of Directors


After numerous many leakages of sensitive information on faulty governance and unearthing of scam, Government is facing firework from ruling party and its parent organisations. The friendly government of corporate houses with allegedly better relationship with corny – capitalists business organisations, once again looking towards corporate jungle for next round of its killing hunt. As per primary level media reports, Ministry of Corporate Affairs preparing for additional information from directors to nab them at first sounding of the alarm bell. This is in public domain now; government is going to ask passport information of directors who are a citizen of India. This news is bigger than it appears in earlier newspaper reports.
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Proposed to be a director – hardships


Interestingly, proposed to be a director is a legally valid official status, now. This is a period between two board meetings one proposing him to be a director of an existing company and second board meeting actually appointing him as director. This status comes into being on 26th January 2018 due to the amendment in the Companies (Appointment and qualification of Directors) Rules, 2014.

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RUN SPICe for incorporation


Happy Republic Day 2018!!

From this Republic Day 2018, company secretaries will start using this headline day to day in reference to the incorporation of companies in India. The government of India these days works keeping ist both eyes on world banks’ ease of doing a business index. Ease of starting and closing businesses are the prime focus. The Companies (Amendment) Act, 2017 notified on 3rd January 2018 primly aims to ease the incorporation of companies among other objects. Now, three rules are amended to facilitate to make incorporation a “child’s play”.

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CONDONATION OF DELAY NOT FILING SCHEME


Among strike off companies waiting for revival considering it a lost opportunity where their revival orders from the National Company Law Tribunal comes after the expiry of the scheme. Condonation of Delay Scheme, 2018 essentially is about of condonation of delay in filing of annual accounts and annual returns by defaulting companies. The scheme is not for the revival of strike off companies nor imposes any restriction on normal route available for condonation of delay given under Section 460 of the Companies Act, 2013. A company failed to have the benefit of condonation of delay under the scheme may avail normal route. Let us discuss briefly.

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Connection of Director’s Disqualification to Fraud


Disqualification of directors certainly is a hot topic among professionals practising corporate laws. Irrespectively of popular perception, the list compiled and released by Ministry of Corporate Affairs does not confer any disqualification to any director. These directors were already disqualified. In a serious violation, many of these directors might have failed to communicate about their disqualification to companies appointing or reappointing them after the actual date of disqualification. Such failure has penal consequences. This blog post will discuss serious consequences of the failure of compliance with law and procedures after incurring disqualification by a director.

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Condonation of Delay Scheme 2018


Every Indian wants action against others who are not in compliance with law and disregard law of land. Same time, Ministry of Corporate Affairs was forced to introduce the condonation of Delay Scheme, 2018 within 1140 days (roughly 3 years) from the conclusion of earlier such scheme. Between these two schemes, the name of lakhs of companies was removed from Registry and list of Directors 3,09,614 disqualified directors released to the public domain because of such non – compliance. With fear of legal actions, corporate India and professional India welcome this scheme with critics. The strong analysis ahead.

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Designation and Category of Directors


When an applicant files a form for incorporation of a company, we need to select the designation and category of first directors in incorporation Form 32 (popularly called Spice) or wherever company appoints a director. There are four different categories of directors. We will discuss confusion regarding these categories of directors.

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No Director in Company!! #APPOINT!!


“Disqualified directors are not directors in any Company”, this is fact under Section 164 and 167. In another word, A Company with all directors disqualified under Section 164 and 167 has no director at all. Such companies need new a set of directors immediately. The Companies Act, 2013 presume two situations where a company may be without Directors. We will discuss these two situations here.

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Quick Acceptance of Disqualification


The government of India in its crackdown against illicit money and money laundering marked 209,032 for removal of names from its register of companies as shell companies. It also disqualified about 200,000 directors. As happens with most bureaucratic exercises in India, present exercise also raised more questions than it answers. There is no definition of shell companies in Indian law. The term shell companies used widely to denote companies used as a vehicle for money laundering or criminal activities. The term itself denotes that main culprit may be someone else.

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Understanding Form DIR – 10


Many years ago one Hindu priest told me, those worshipping Laxmi ji (goddess of wealth) before without satisfying Ganesh Ji (god of goodness) may not get good wealth. We need to follow established a procedure to get the desired result. Without understanding utility of Form DIR – 10, its use may not give the desired result. Here, we will have a discussion.

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Remedies for disqualified directors of strike – off companies


Compliance way or Confine way! The Government made it clear. Directors who were on a long-term picnic after removal of names of their “shell companies” are now offered sleepless nights. I appreciate.

Ministry of Corporate Affairs issued two important lists in this regard –

  1. List Of Directors Associated With Struck Off Companies U/S 248
  2. List Of Disqualified Directors U/S 164 (2)(A)

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