Tag Archives: CorpLaw

WHERE MEMBER COMPANY REMOVED FROM THE REGISTER OF REGISTRAR


One of the fundamental principles of corporate law is that a company independent existence than the existence of its shareholders. Therefore, all members of a company may die, the company will not.

When I read this principle, admittedly, I had limited vision. I presumed members either as natural persons with life and death or bodies corporate as members, their merger, amalgamation, winding up and liquidation. The removal of the name of the member company from the registrar was not an example suggested then.

There would be no direct impact on the existence of the company if the Registrar of Companies removed the name of a member company under Section 248 of the Companies Act, 2013 from the register of companies. However, for companies with small numbers of members, this is not an ideal situation.

The removal of the name of one or more member companies:

  • quorum in general meetings;
  • holding of company meetings on shorter notice;
  • holder of beneficial interest in a share if in favour of such a member company; and
  • Significant beneficial ownership (SBO) may have interest impacts.

This list is not an exhaustive one.

No, paying dividends to these companies does not bother. On the contrary, it may help to a limited extent. The right issue of shares may also have an exciting twist.

Quorum in general meeting is not a big deal if managed by other members properly. They may calculate the required number of transfers to satisfy the legal number.

Even without such an odd situation, a company may face a hurdle to convene a general meeting on shorter notice. The company may not call an extraordinary public meeting on a shorter period notice, where a member company holds more than 5% shares. Similarly, where the company has less than 20 members, there will not be an annual general meeting on a shorter notice period. In the first case, only a fresh issue of shares may help. In the second case, some well-calculated share transfers by an existing member may help.

In all earlier situations, these shares shall always remain in the hand of companies whose name is not in the register of companies.

I see no direct impact on the holder of the beneficial interests except to comply with an earlier direction given by the actual owner or beneficial owner.

The law related to significant beneficial ownership comes into the picture if the member company has a shareholding of more than the threshold limit of the applicability of these rules. Unlike previous situations here, these shares may land in the hand of the Investor Education and Protection Fund Authority. The company will have to transfer these shares held by such a member company will also be transferred to the Investor Education and Protection Fund Authority in case of declaration of dividend, but with a wait of seven years.

As the name of the member company remains there in the register of members despite its removal from the register of companies in the office of the Registrar of Companies, it requires some regulatory step to be taken. I suggest a law to transfer shares belonging to these member companies in favour of the Investor Education and Protection Fund Authority.

MEMBER AND NOMINEE OF ONE PERSON COMPANY


Clause (62) of the Companies Act 2013 defines “One Person Company” means a company which has only one person as a member. According to clause (68) of this section as well as Clause (c) of Sub- section (1) of Section 3; one person company is a private company.

Rule 3 of the Companies (Incorporation) Rules, 2014 say only a natural person shall be eligible to incorporate one person company. Such one person shall be Indian citizen and a resident of India. A non – resident Indian or a Foreign Citizen resident in India may not incorporate a one person company. Same rules are applicable to nominee of the sole member of a one person company.

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NAME AVAILABILITY FOR COMPANY NAMES


Name Availability for Indian companies shall be governed by Rule 8 of the Companies (Incorporation) Rules 2014 under the authority of the Companies Act, 2013.

Determine Identical Names:

The rules firstly say that before granting any name, it will be examined whether name is identical with name of any other company/LLP or any other name already allowed to a company/LLP.

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Specification of Definitions Details


The Companies (Specification of definitions details) Rule, 2014 defines some additional terms which have not be defined in the Act. These rules clarify two terms already defined in the Act but need executive clarification as the Act.

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OFFICIAL LIQUIDATORS


Here, we will discuss provisions related to Official Liquidator.

APPOINTMENT OF OFFICIAL LIQUIDATOR (SECTION 359)

For the purposes of this Act, so far as it relates to the winding up of companies by the Tribunal, the Central Government may appoint as many Official Liquidators, Joint, Deputy or Assistant Official Liquidators as it may consider necessary to discharge the functions of the Official Liquidator.

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GENERAL PROVISIONS RELATING TO WINDING UP – 3


We will continue to discuss general provisions relating to winding up in this post also.

Certain limited powers of Company Liquidator (Section 343)

(1) The Company Liquidator may—

(a) with the sanction of the Tribunal, when the company is being wound up by the Tribunal; and

(b) with the sanction of a special resolution of the company and prior approval of the Tribunal, in the case of a voluntary winding up,—

(i) pay any class of creditors in full;

(ii) make any compromise or arrangement with creditors or persons claiming to be creditors, or having or alleging themselves to have any claim, present or future, certain or contingent, against the company, or whereby the company may be rendered liable; or

(iii) compromise any call or liability to call, debt, and liability capable of resulting in a debt, and any claim, present or future, certain or contingent, ascertained or sounding only in damages, subsisting or alleged to subsist between the company and a contributory or alleged contributory or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets or liabilities or the winding up of the company and take any security for the discharge of any such call, debt, liability or claim, and give a complete discharge in respect thereof.

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CSR Policy; Publication and Reporting


CSR policy of Indian companies may have more similarities than any other thing. Section 135 read with Schedule VII of the companies Act 2013 decide four corner of CSR policy of Indian companies, which is guided by and supplementary to development vision of Government of India.

Corporate Social Responsibility committee is primary body to formulate and recommend the CSR policy and expenditure thereon. The committee also has to monitor CSR policy implementation and logically expenditure thereon. The Board of a company may approve the policy and budget allocation for different aspect of CSR initiatives.

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GENERAL PROVISIONS RELATING TO WINDING UP – 2


We will continue to discuss general provisions relating to winding up in this post also.

OFFENCE BY OFFICERS OF COMPANIES IN LIQUIDATION (SECTION 336):

If any person, who is or has been an officer of a company which, at the time of the commission of the alleged offence, is being wound up, whether by the Tribunal or voluntarily, or which is subsequently ordered to be wound up by the Tribunal or which subsequently passes a resolution for voluntary winding up,—

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GENERAL PROVISIONS RELATING TO WINDING UP – 1


Now, we will discuss general provisions related to winding up applicable to every mode of winding up.

DEBTS OF ALL DESCRIPTIONS TO BE ADMITTED TO PROOF (SECTION 324):

In every winding up (subject, in the case of insolvent companies, to the application in accordance with the provisions of this Act or of the law of insolvency), all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as possible, of the value of such debts or claims as may be subject to any contingency, or may sound only in damages, or for some other reason may not bear a certain value.

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CSR Administration in India


In my recent post on CSR last week, I discussed definition and scope of Corporate Social Responsibility in India after recently notified Rules. Now, I will discuss administration of Corporate Social Responsibility in India.

The Corporate Social Responsibility Committee of the Board of the Company is responsible for administration of Corporate Social Responsibility of the company. The committee shall consist of three or more directors, out of which one shall be an independent director. This provision is equally applicable to all companies including private or small companies.

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COMPANY LIQUIDATOR IN VOLUNTARY WINDING UP


In continuation of our discussion about voluntary winding up, we will discuss on company liquidator in voluntary winding up.

APPOINTMENT OF COMPANY LIQUIDATOR (SECTION 310):

The company in its general meeting, where a resolution of voluntary winding up is passed, shall appoint a Company Liquidator from the panel prepared by the Central Government for the purpose of winding up its affairs and distributing the assets of the company and recommend the fee to be paid to the Company Liquidator.

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VOLUNTARY WINDING UP


As we discussed as per section 270 of the Companies Act, 2013, the winding up of a company may be either –

  1. by the Tribunal; or
  2. Voluntary.

CIRCUMSTANCES IN WHICH COMPANY MAY BE WOUND UP VOLUNTARILY (SECTION 304):

A company may be wound up voluntarily,—

  1. if the company in general meeting passes a resolution requiring the company to be wound up voluntarily:
    1. as a result of the expiry of the period for its duration fixed by its articles, or
    2. on the occurrence of any event in respect of which the articles provide that the company should be dissolved; or
    3. the company passes a special resolution that the company be wound up voluntarily.

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Applicability of CSR Law


Newly enacted CSR law is not applicable to all companies. Sub – Section (1) of Section 135 is applicable to all companies; subject to limitation based on its net worth, turnover and net profit. These threshold limits are:

  1. Net worth rupees five hundred crore or more (Rs. 500,00,00,000/-) or rupees five arab
  2. Turnover rupees one thousand crore or more (Rs. 10,00,00,00,000/-) or rupees ten arab
  3. Net Profit rupees five crore of more (Rs. 5,00,00,000/-)

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WINDING UP BY THE TRIBUNAL – 4


In recent post we have discussed Winding up by Tribunal, Company Liquidators and winding up order, Report of Liquidators, Directions, other procedures and dissolution of company. We continue provisions related to winding up of a company by Tribunal in this post.

PAYMENT OF DEBTS BY CONTRIBUTORY AND EXTENT OF SET – OFF (SECTION 295):

The Tribunal may, at any time after passing of a winding up order, pass an order requiring any contributory for the time being on the list of contributories to pay, in the manner directed by the order, any money due to the company, from him or from the estate of the person whom he represents, exclusive of any money payable by him or the estate by virtue of any call in pursuance of this Act.

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POWER AND DUTIES OF COMPANY LIQUIDATORS AND THEIR BOOKS


In recent post we have discussed Winding up by Tribunal, Company Liquidators and winding up order, Report of Liquidators, Directions, other procedures and dissolution of company. We continue provisions related to winding up of a company by Tribunal in this post.

POWER AND DUTIES OF COMPANY LIQUIDATORS (SECTION 290):

The Company Liquidator, in a winding up of a company by the Tribunal, shall have the power—

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Defining CSR in India


I discussed Corporate Social Responsibility here, when there was a pending Bill. Now, we have a full fledged corporate social responsibility law in place. Section 135 of the companies Act, 2013, redrafted Schedule VII and the Companies (Corporate Social Responsibility Policy) Rules 2014 will be effective from 1st April 2014. I agree with V. Umakanth  in India CorpLaw say, April 1 this year would mark a new era in corporate law and governance in India with companies being required to comply with the quasi-mandatory obligations regarding CSR, an approach that is fairly unique in the global context.

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WINDING UP BY THE TRIBUNAL – 3


In recent post we have discussed Winding up by Tribunal, Company Liquidators and winding up order, Report of Liquidators, Directions and other procedures. We continue provisions related to winding up of a company by Tribunal in this post.

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WINDING UP BY THE TRIBUNAL – 2


In recent post we have discussed Winding up by Tribunal, Company liquidator and winding up order. We continue provisions related to winding up of a company by Tribunal in this post.

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COMPANY LIQUIDATOR and WINDING UP ORDER


In last post we discussed some provisions related to winding up by the Tribunal. In this post we will focus on Company liquidator. We will continue to discuss about winding in some future posts.

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