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Significance of Meetings in the Effective Governance of the Companies under the Companies Act, 2013

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This Article is written by Ravi Kumar, an LLM student at Hidayatullah National Law University, Raipur. The purpose of this article is to know and understand the Significance of Meetings in the Effective Governance of Companies with Special Reference to AGM & EGM under the Companies Act 2013

ABSTRACT

The EGM (Extraordinary General Meeting) and AGM (Annual General Meeting) are crucial corporate meetings for governance and decision-making within a company. Annual General Meetings (AGMs) are held to discuss the company’s finances, board votes, and strategic plans. This promotes accountability and transparency among shareholders. When urgent issues arise outside of the AGM timeframe, EGMs are called. This enables stakeholders to address pressing problems quickly, ensuring efficient corporate decision-making and legal compliance.

INTRODUCTION AND SIGNIFICANCE OF COMPANY MEETING

A meeting is typically thought of as a get-together where people congregate for legitimate business, fun, or other similar purposes. Legally speaking, a company is considered to be separate from its members. The board of directors is responsible for directing operations while abiding by the authority the Articles of Incorporation granted to them. The directors have particular authority with the consent of the other members. The company holds “General Meetings” to obtain the members’ approval. During company meetings, the stockholders, also referred to as the company’s stockholders, rectify any mistakes made by the board. When shareholders meet the decisions and actions of the board can be discussed. “According to the Companies Act 2013, meetings are a crucial part of a company’s management”. Meetings give shareholders a chance to discuss specific issues and gain insight into the company’s ongoing operations. A business organises different kinds of meetings, each of which has unique requirements for initiation arrangements and conduct. The Companies Act of 2013 and accompanying regulations mandate that Meetings be scheduled in accordance with a set of guidelines and at predetermined intervals. This requirement results from the realisation of the crucial role meetings play in the management and operations of an organisation. Meetings are primarily held to ensure that the business gives eligible participants a fair opportunity to make decisions per established procedures. A company makes important decisions based on Resolutions passed by its Members at General Meetings because it is an artificial entity.

These Meetings are the main venue for directors to answer to shareholders about how they have managed the company, allowing for debates and questions. General Meetings, also known as Meetings of Members, are very important, and it is very important to understand what constitutes a properly conducted Meeting. From a sociological perspective, Boden has acknowledged that the “Annual General Meetings’ provide a stage for power plays where there is a discipline of the meeting, which results in some form of governance control over companies. Shareholders can exercise their fundamental right to vote at meetings on significant resolutions like director compensation. General Meetings can be divided into the  broad categories:

  • “ANNUAL GENERAL MEETING”
  • “EXTRAORDINARY GENERAL MEETING”
  • “MEETING OF A CLASS OF MEMBERS”
  • “MEETINGS OF DEBENTURE HOLDERS CREDITORS ETC”
  • “OTHER MEETINGS”
  1. Appropriate arrangements must be made for the meeting by those with the necessary authority.
  2. All eligible attendees should have received adequate and proper notice.
  3. The meeting must adhere to the law, which includes having a chairperson, maintaining a quorum in accordance with rules, and following the pertinent laws and articles.
  4. The agenda and business of the meeting shall conform to the rules governing such meetings

TYPES OF GENERAL MEETINGS

General gatherings within a company can be broadly classified into the following categories:-

  1.  “Annual General Meetings” is a requirement to discuss routine and unique issues relating to the company’s affairs. The role that its annual general meeting plays in the governance of the company is significant. If an AGM is not held, any member may ask the National Company Law Tribunal for assistance in enforcing it.
  • General Meeting Extraordinary (EGM)To address urgent or particular business matters that come up between AGMs, an EGM is held in addition to the regular AGMs. At an EGM, every discussion and decision is categorized as special business.
  • Meetings of a Particular Member Class: At these gatherings, members of a specific member class, such as preference shareholders, can vote on resolutions that are only applicable to their class. This is very important, particularly when changing the rights of a particular class of shares.
  • Meetings for Debenture Holders, Creditors, etc.: These meetings are held so that creditors or debenture holders can make decisions affecting their interests. The rules governing general meetings also apply, with the necessary modifications.

ANNUAL GENERAL MEETING

The “Annual General Meeting”  is a required yearly event for shareholders or members of a company. Its functions include holding various annual meetings, reporting on before and upcoming business activities, and giving shareholders financial results for the previous year. All corporations, with the exception of Person Companies, are required to hold an AGM annually under Section 96 of this  Act of 2013. For businesses incorporated under the 2013 Act and within 18 months for those under the 1956 Act, the first AGM must take place within “Nine months” of the end of the first financial year. There should be no more than a 15-month interval between each subsequent AGM. AGM failure may result in legal action. The registry office may increase the time for subsequent AGMs by up to three months for special reasons, but this extension doesn’t apply to the f

EXTRAORDINARY GENERAL MEETING (EGM)

In contrast, the “Annual General Meeting” and  “Extraordinary General Meeting” is a meeting of shareholders of a company. It is called when urgent matters affecting the company come up that demand immediate feedback from members and cannot wait until the following AGM. Shareholders are informed in advance of the purpose of the EGM, enabling them to prepare for substantive discussions and deliberate decision-making. Addressing urgent issues that cannot wait until the upcoming “Annual General Meeting” is the main goal of calling an EGM. “Extraordinary General Meetings” may be called to address certain crucial issues, such as amending the Articles of Association and Memorandum of the share capital, mergers and acquisitions, averting a hostile takeover, preventing oppression and mismanagement of the company’s affairs, issuing the appropriate number of shares, and modifying the compensation of the managing directors, whole-time directors, and similar positions.

According to subsection (1) of section 100, a board of directors has the power to organize “Extraordinary General Meetings” as and when it deems them necessary. Depending on the needs of conducting the company’s business, the board may call such an “Extraordinary General Meeting”. The Company’s “Extraordinary General Meetings” shall be held in India, except in the case of a fully-owned subsidiary of an enterprise incorporated outside of India.

The following number of members must request that the board call an “Extraordinary General Meeting” in accordance with subsection (2) of section 100: Members of a corporation with share capital who own 10% or more of the paid-up voting shares related to the proposed resolution as of the requested date Members who held at least ten per cent of the votes cast with regard to the planned subject matter on the date of the request receipt in the situation of an entity with no share capital.

As per under Section 100 of this Act permits a sole shareholder to call an annual general meeting if they have the necessary voting power or voting rights. Therefore, a legal entity may also make a request like that to the company if it has the required ability to vote or voting power. The requesting party must specify the meeting’s agenda, whether an individual or an organization. The appeal must be in writing, signed by the maker(s), and delivered to the company’s authorized office.

Section 100 of this Act permits a sole shareholder with the necessary voting power or rights to reach a meeting. A request made by a natural or legal person is treated equally under Section 100. So long as it has the necessary voting rights or voting power, a legal entity may also submit such a request to the company. The requesting party must specify the meeting’s agenda, whether an individual or an organisation. The request must be in writing, signed by the party or parties making it, and delivered to the business’s registered office.

Only when the requisitionists fall short of the eligibility requirements listed under Section 100 of this Act board declare a requisition invalid. However, It has been established that the board may decide not to call an “Extraordinary General Meeting” only if the request does not meet these predetermined standards. A single shareholder may also submit a request to call the Meeting if that shareholder possesses the necessary voting rights as described under Section 100 of the Act.

Requisitionists are not classified as either natural or artificial persons under Section 100. As a result, a fake person could also submit the request to the business.  A body corporate may submit the request to call a meeting if it is a Member of another company and has required voting rights or voting power. The requisitionists must specify the topics for discussion for which the meeting is to be called in response to the request.

The requisitionists must sign it before sending it to the company’s registered office. According to the ruling in “Life Insurance Corporation of India v. Escorts Ltd”, each company shareholder has the right to call an “Extraordinary General Meetings” per the Companies Act, subject to statutorily prescribed procedural and numerical requirements. He is not required to announce the gathering or to explain the reasons for the resolutions being put forward to be moved at the gathering. The motivations behind the resolutions are also not up for judicial review.

To convene an Extraordinary General Meeting, a written or electronic request must be made in accordance with “Rule 17(1) of the 2014 Companies (Management and Administration) Rules”. Within 21 days of receiving a valid requisition, the board must call the extraordinary general meeting in accordance with Section 100’s Subsection (4).

This meeting must take place no later than 45 days after receipt of the requisition. “The word or the adjective “valid” in section 169 has no reference to the object of the requisition but rather to the requirements in that section itself,” it was decided when interpreting the word “valid”

In the case of “Cricket Club of India v. Madhav Apte”, the court stated if the conditions outlined in the section’s earlier part are met, The board of directors of an organization must act in accordance with the request left with the company as it must be considered a legitimate requisition. Unless the respondents do not meet the criteria for eligibility outlined in Section 100 of the Act, the “Board of Directors” cannot dismiss a requisition as invalid. The Board, however, has been upheld as having the right to decline to call to hold an “Extraordinary General Meeting”. “

If the board does not schedule a special meeting within 21 days or takes more than 45 days to do so after receiving the request, the requesters may hold one themselves within three months. The requesters shall conduct the meeting in accordance with Section 100, Subsection (5), and shall comply with all applicable laws and the Secretarial Standard. All members listed in the company’s Register of Members must be informed about the meeting. Within 45 days of receiving a valid request, the requesters have the right to obtain a list of members, including their addresses and shareholdings, if the meeting is not called. The Board must provide the requesters with the necessary information from the Register of Members, such as registered email addresses of members and share amounts. The meeting’s location, date, time, and agenda should all be included in the notice. Special resolutions must adhere to the rules outlined in section 114’s subsection (2). Although they are not required to do so, the requisitionists can provide an explanation for the resolutions they intend to present in the Notice of the “Extraordinary General Meeting” they are planning. The Board may, however, include an Explanatory Note to describe its position on the suggested resolutions.

COMPARATIVE STUDY OF AGM AND EGM

Comparative analysis of the Annual General Meetings and Extraordinary General Meetings provisions of the Companies Act of 2013 and the “(Companies Management and Administration)” Rules of 2014 leads to the conclusion that both the substantive and procedural requirements are the same for both general meetings. The two different general meetings, however, differ in the following ways. The information provided here clarifies the distinctions between Extraordinary General Meetings and Annual General Meetings.

  • At least once every calendar year, the company must hold an “Annual General Meeting” to discuss various business-related topics. On the other hand,  “Extraordinary General Meetings” is any Meeting other than the Annual General Meeting where urgent matters relating to the Company are discussed.
  • AGMs are required to be held annually, with the first one taking place no later than 9 months following the conclusion of the fiscal year. In contrast, there is no such requirement for an extraordinary general meeting.
  • At the AGM, both regular business and special business are conducted, but only special business is conducted at the EGM.
  • Only on non-holiday days, during regular business hours, should an AGM be held. An EGM, on the other hand, can be held even on national holidays.

SUGGESTIONS

An annual general meeting is important for stakeholders because it gives everyone a chance to discuss future plans, elect directors, and review the company’s performance. It encourages openness and responsibility. An “Extraordinary General Meeting” is required for urgent matters that fall outside the annual general meeting’s purview. It enables stakeholders to make important choices like consenting to mergers or acquisitions, changing the company’s charter, or approving significant shifts in the company’s course. It guarantees prompt decision-making for important matters.

CONCLUSIONS

A company is a group of people working together. When making decisions, the general consensus is taken into account. There are a number of issues that require discussion and resolution. These conversations take place during the various meetings that directors and members hold. It goes without saying that the importance of meetings for businesses cannot be overstated. A natural person takes up its entire operation as a virtual being in each person’s eyes. The company’s directors can easily gain from working for the company’s management. General meetings are held to monitor pay increases, which must not be detrimental to the interests of the shareholders and board members. Meetings must be held at predetermined intervals, and the Companies Act of 2013 and its implementing rules specify the necessary rules and procedures. A general meeting discloses all pertinent information while maintaining an apparent equilibrium between the shareholders of the directors and the company members. This mandate recognizes the importance of meetings in a company’s management and governance.

The main goal of a meeting is to ensure that everyone eligible to participate has the best chance to influence decisions made in accordance with established procedures. It serves as a forum for the shareholders’ questions and comments as well as for the “Board of Directors” to address the shareholders. Shareholders have the chance to use their legal right to vote at meetings on significant decisions and director compensation. In situations where businesses regulate employee behaviour for the benefit of all parties involved in forming a company, the importance of the meeting cannot be overstated. Although the value of gural meetings cannot be disputed, there is a growing worry that they are losing their significance due to the way they are currently run, which is out of touch with modern realities. Farmers Kingsmill states AGMs are losing their significance because they are no longer consistent and effective. She tentatively suggests that it might be time to stop the expensive AGM and hold important meetings online, a technologically advanced virtual conference value.

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Articles

Disqualifications of Directors Under The Companies Act 2013

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This Article is written by Prachi Yadav, a student at Amity University, Noida

INTRODUCTION

The word company is derived from the Latin word com and panis which means an association of persons to take their meals together. A company is a body of persons called as the members who invest their shares and allocate their resources in the management of the company under the companies act 2013.the company being a separate legal entity or an artificial person having a corporate body and common seal   undertakes the business matters and corporeal functions. the financial transactions are carried by an association of members who are formed in a way of partnership contributing towards common stock and capital in the company. the business venture and business enterprise headed by the association and prior to be governed under the company’s act. but there is a need to represent the artificial person as the existential fact of a corporal entity in order to constitute the legal and regulatory affairs and to uphold the accountability of capital flow in the company. the board of a company appoints the director under section 2(34) of this act. Where the individual person qualifies to be elected by the board of company i.e., by the permanent directors of the company under section 2(10). the directors are the persons who are the collective body and is responsible for the contracts between third party for buying and selling of shares /securities and capital stock of the company. the directors are persons who act as trustees of company responsible for the financial expenses, venture capital and equity for long term growth and orderly economic development of the company. For the sovereign existence of the company “people may come and may go but the company remains forever” the perpetual succession owned by the boards of directors. inception for formation of the company is its directors who take the control over the affairs in buying and selling of stock exchange in the market and take financial decisions for the welfare and good governance in the company. The directors act as a trustee by taking decisions in the transactional contracts and agreements which take place in the other company through the board meeting the clauses are inserted in the contract for its execution thereof. In the conduct of contractual affairs if any clause is violated by the director or if the director is found to be indulged in corrupt activities for pecuniary interest to supersede the contractual obligations. then the director may immediately get disqualified in a board of meeting as action taken against him .no chance of defense will be given to the director in the violation of the clauses in the contract. 

COMPOSITION OF DIRECTORS

The directors are natural persons and individuals they independently exercise their powers and responsibilities, the number of positions vacant in the appointment of directors. the Supreme court in the case Oriental metal pressing works (P)Ltd. vs. Bhaskar Kashinath Thakery observed that the directors are prohibited for the assignment of office and are respectively regarded as the office of trust due to the failure to carry out the responsibility in consolidation of funds and prior unable to tackle and to fix the difficulty in allocation and consolidation of funds, is the main reason for appointment of director as an office of trust. the board of directors in appointment is provided under section 149 speaks of number of directors to be appointed three directors in case of a public company and two directors in case of a private company and one in case of a one-person company. In section 149 (1)(b) conveys the maximum number of directors to be appointed is fifteen. then rule 3 of the Act says that at least one-woman director should be appointed.

INDEPENDENT DIRECTORS

An independent director is appointed by the Board under section 149(6) who is of an opinion for them to own integrity, relevant expertise and experience in the management of the company has the choice to accomplish a relation with a company which is different from a managing director or a nominee director. An independent director is a director not in substitute to any associate member or a promoter, his powers are subordinate to other directors of the board, and receives a monthly remuneration of the work done by him for holding a sum of securities and attending the board meetings. The independent director has an important place in effective control in the business affairs of the company along with its relevant experience he is a chief advisor of the company for securities and investments to be made in a financial year of the company. As a non -executive director he guides the management of the company in the ethical conduct of business and helps in maintaining a business transparency by keeping the records and receipts. the company consisting of 1/3 of the independent director helps the company to achieve the monopoly in the open market and treat the demand and supply inflation rate from economies of scale and development in technology. the independent director is proposed to be appointed consecutively for a cycle of five financial years, he is employed for five years to bring the stability in the company on a condition that he cannot work with more than three companies in the time. the appointment of directors comprises a dyarchy in the system of appointment and qualification of appointment in board of directors which consist mostly of independent directors and appointment of executive directors such as whole- time directors or managing directors. Due to this dyarchy system companies waste the resources on troubleshooting the problems in framing of law reforms in the governance, corporeal functionaries often get disturbed. In the board meeting the directors sometimes become rebels in utilization of corporate finances and does poor decision making due to difference in opinion arising from pecuniary interest in a related matter among themselves.  the participants in the meeting are unknown about their pecuniary interest and existing of a circumstance on taking a improper long time in the arrangement of further meetings and doing a formality on arriving in a conclusion or to hide the discrepancies in their pecuniary interest they may unfairly settle the matter in a unconscionable manner. when the compliance report is furnished then those directors shall be disqualified from being a director of the company if found guilty in exercising the pecuniary interest. Either acting extraneous to their powers in a unconscionable code which challenges the validity of the principles of governance on contrary abuses the executive powers shall be struck down by the doctrine of ultra vires says of incidents of corporate torts to incur a civil liability on the company committed by the concerned authority. The disqualification of directors is the nexus to the liabilities of the director and failure to comply with his duty. In the case Jahangir R.Modi vs Shamji Ladha (1866) where the directors were held personally liable for their acts , in this case it was observed that the directors diverted the funds of the company to purpose foreign company to the company’s memorandum and acted outside the scope of their powers and made the directors personally liable for replacement of funds .The Bombay high court held that shareholders in equal  circumstance can compel the directors to restore the funds of the company as a medium of action taken against the directors.

CLASSIFICATION OF DIRECTORS

A director may be classified on the basis of their appointment of position and nature of duties in the company. A director may be an executive director for example – independent directors and they may be non-executive for example a managing director.

  • MANAGING DIRECTOR– means a director who owes the charge in the internal affairs of the company and is vested with major powers to wield the internal management of the company. their work is to supervise over the customization of securities in the company held by the shareholders.
  • PERMANENT DIRECTOR – the appointment of directors specially in public companies they may appoint a strength of 1/3 directors as permanent members of the board of the company, they do not retire by rotation. The permanent directors are the chairman’s and supreme body of the company in the governance and welfare of company.
  • NOMINEE DIRECTOR – There is a nomination process in the selection of board of directors in the company. the director may be nominated from a financial institution matching the criteria for the knowledge of finance or may be nominated by the central government subject to the articles and provisions.

CODE OF CONDUCT 

 There was an urgent need for framing of laws, compliance and provisions for the checks and balances in the corporate governance system. the influence of board of directors on the internal management of the company and superseding their functions, affected adversely to the oppressive and mismanagement of the company. the system of check and balances was laid down for the working of the directors with honesty for the commitment of the interests and success of the company. But there is no establishment of a legal vigilance committee due to this the companies face challenges of corporate politics and organized illegal activities not found in records of balance of payments which becomes easier for the authoritative body to arbitrary use of their powers for illegitimate interests and not abiding the laws the companies act 2013.

  • APPICABILITY OF CLAUSE 49– when a company is listed in the SEBI it issues the guidelines for the corporate governance and listing agreements applicable to listed companies. the SEBI has framed the regulatory mechanism of directors for the purpose of true and correct information on value of securities, assets and in respect of stock exchange and shareholders agreements. the code of conduct applied are in conjunction to the directors.

Coleman vs Myers (1977) in this case an appeal was filed in the court of appeal in New Zealand. where the appeal was sought against Douglas Myers and his father the chairman of the family company. the appellants are the minority shareholders, they offered to sell a small private company unwilling to sell on mode of control on Acquisition transaction to Douglas Myers. The respondent on the time when the company was acquired, they obtained the assets and sold as dividends. without the inquiry of minority shareholder. It was alleged that Douglas had took control over the assets of the company by violating the contractual relationship between the seller and buyer. on misrepresenting the value of assets and had exploited the insider information on gathering the true value of assets and then falsely intended once the company was undertaken by him. The cause of action arose between the managing director and minority shareholder whereas subsequently   the target company was absorbed by the buyer and an unhostile take over. the buyer sold the assets of the company on pre-acquisition period resulted in waiver of assets. It is the duty of managing director to act in utmost faith for the interests of the company and disclosing the information which adversely have an effect on the whole scheme of acquisition. It was held by justice Cooke that the managing director was personally liable on duty of confidentiality in matter related to sale of assets on contrary fraudulent activity. the decree was passed that the director was further discharged from his duty and the director in in section 166 includes restriction on activities and disclosure of information.

FRAUDULENT CONDUCT OF BUSINESS  

 Earlier the company’s creditors had    huge    losses due to fraudulent conduct of business such as asset misappropriation, financial statement fraud on the other side committed by the party knowingly carries such criminal activities intending to fraud others. The govt of India took administerial measures on passing of the bill 2009 proposes of punishment from minimum 1 years up to 3 years party found guilty on fraud. In Winkworth vs Edward Baron Development. co.ltd. [1987] in this case it was observed by Lord Templeman that the director owes a duty towards the creditor of the company. The duty to protect the interest of the creditors to maintain the stability in capital and transparency in business affairs of the company and take preventive measures as a tool against the improper use of capital or to disappearance in the property of the company unconscionable to the creditors. The statements passed in judgements were so long as the best interests of the company is operated on a normal course the company grows. But if the company faces loss of capital and is at financial risk in such circumstances the director ought to do the duty in saving the debentures and corresponding to secure the interests of the holders and members of the company .If it is found  from the side of director that there is irregularity in  modus operandi in  business trading  due to which the company falls sick .He shall be liable for fraudulent activity and is to be adjudged as  insolvent and  is disqualified for the appointment of director. To ensure that the functions of the director doesn’t expose any danger to the company’s financial health.

SERIOUS FRAUD INVESTIGATION OFFENCES UNDER COMPANIES ACT 2013

The SFIO is a sundry organization established on behalf of Naresh Chandra committee in 2003 it was enforced for the purpose of securing the interests of the investors in business affairs with company directors for keeping a watch dog on the legal  formalities of business contracts and investigation of insider facts on annual financial statement of the company .The Naresh Chandra committee recommended this as a multifarious agency for unfolding serious corporate frauds  in the economic legislations .Under section 212 of the Companies Act 2013 the central govt may refer any matter to investigation SFIO for rule of necessity on the basis of –

  1. u/s 208 on the receipt or report issued by the registrar or inspector for investigation on the corporate affairs of the company 
  2. The company matters are required to be investigated when the special resolution is passed and a decision is made.
  3. A letter of Request from any Department of Central Govt 
  4. On the public interest 

The investigation officer shall take evidences by information documents, material information possessed by the head of the company i.e., the owner, director. If the director or assistant director is found in the embezzlements of corporate frauds relating to assets and securities of the company then in such case, they will be held liable for offences in economic crimes and   will be cognizable for a non bailable offence under section 447. further on the completion of investigation. the investigation officer shall submit an interim report to the agency within a specified time period. The SFIO acts is an agency which is backed by legal statutes thereby act as an incumbent engine which warrants against economic crimes related to weak corporate governance. SFIO warrants the person or company who are inflicted to corporate frauds and scandals. 

In recent scenario the central govt empowers for the fraud investigation offices (SFIO)operates as agencies related to companies. the auditor of the company shall receive a report on the special resolution passed by the company and submit the report to the agency on offences against companies committed by officers of the company, managerial personnel and the board of directors. the SFIO shall investigate and prosecute against the company If any one commits fraud, then the auditor may report to the central govt within 30 days. the duty of the auditor is to maintain records and transparency. the auditor has a role in MOA for its internal analysis.

CIRCUMSTANCES IN WHICH A DIRECTOR IS RESPONSIBLE FOR LIFTING UP OF CORPORATE VEIL

The lifting up of corporate veil is a legal concept in section 9 which enjoys a separate legal identity from its shareholders and directors the company has a distinct lawful personality from its members. this principle opens the envelope of the managing of business undertaking by its members for the company. the court lifts the cloak over the company when there is improper code of conduct in the internal affairs found to be true and substantial evidence against the company and its members. This legitimate idea was denoted from the House of lords in Solomon vs Solomon case in a situation where the Solomon was the head of the organization and the loan boss of the organization.  the doctrine of limited liability arose for the shareholders are not held liable when in a limited liability company, the number of subscribers ought to be at least seven. where the director was responsible to be held liable in this case though he tried to recover the debts in his best of efforts in conversion of LLP the principle of separate legal entity got established.

  • Section 5 of company’s act identifies that any individual found involved in wrong doing practices is liable for a corporeal mischief and disturbing to functions of the company is an offence, and punishment is imposed to the individual on the consent of the executive director as per investigated by (corporate social responsibility) CSR being a nucleus to the legislative constituent organ of the company. In such situation the directors are responsible for examination of accounting statements, audit reports etc.
  • Section 45 of company’s act talks about the contractual risks and obligations under which a public and private company is exposed to heavy risks.  For their weak business due to reduction in numbers of persons working in the company. the company here is severally at risk for carrying their business operations due to which the director is in clear reality of the upcoming crisis and may take help from govt in funds raising for to curb monetary unstable happening and for financial development of the company.
  • Section 147 of companies act states that where a person has not maintained accuracy in their work for signing of bills of trade, promissory notes, hundis has erroneously made signing to what isn’t referred to other company is known as “liable for default of an individual “such mistake is called as misdescription of company referrals. Thereby the director shall rectify the errors and then examine the accounts and correct it with signing of bills on sound description.

The overall Auditer or Secretary once in a monetary year gives an Annual Report to the Director of the organization expressing its yearly exhibition and monetary data about the organization exercises this report means on every business stratergic components, for example, :

  • Cash flow statement 
  • Profit and loss statement 
  • Financial statement 
  • Annual report 
  • Balance sheet 
  • Policy frame-work

STATUTORY ACTS GOVERNING THE LEGISLATIVE DUTY OF THE DIRECTORS 

Disqualification of Directors – when a director demonstrates his act of a particular genuine nature for the credibility of the person from being time -barred for a particular period the director to inspect the work of the organization. in the public interest a preclusion request can be made preventing the said person from so acting as a director.

This mechanism was evolved in the UK in the company director disqualification act 1986 in this act there is a procedure to file an application along with the order by the court for disqualification of directors. Hence the director is disqualified from: –

  1. Acting as the promoter of the company in the formation of the company 
  2. Being the liquidator or administrator of the company 
  3. Being a receiver or the manager of the company property
  • Company Directors Disqualification Act 1986 – where there is default in complying with the norms of the company in filing of documents with the registrar of companies in during the preceding five years. In case of liquidation a two-year time limit is given considering the evidence for the director 
  • Insolvency Act 1986 – when an insolvent company liquidates then before the liquidation the director is informant to the reasonable prospect that liquidation should be refused if in case the director makes a personal contribution for his assets in the company is as a part of his noxious plans considered as a malice intent to defraud creditors is a wrongful doing in this act.  thereby the court sentences punishment or penalty to the wrong-doer.
  • Health and Safety of work Act 1974 – if any health and safety offence is committed with the consent of a known member of the company. if any member or employer-employee found disregard in their piece of work, they will be held liable for negligence in course of work. The court takes civil actions on part of negligence caused to the organization.
  • Corporate manslaughter and Homicide Act 2007– the ex post facto law is exercised by the senior management they couldn’t meet their targets and the work involves high risk and the company results in gross-failure of the company and responsible for breach of owing duty to care in their target. the outcome of the failure leads to the consequence of death of an employer, employee, public loss of life is a severe crime. That person is culpable is liable for the risk taken for promise to do   the part of specific performance of work and therefore breaches the promise the court will criminally sanction death punishment or life term imprisonment to that culpable person according to this Act.

EFFECT OF DISQUALIFICATION OF A DIRECTOR 

The director is banned from its executive activity on order of effect by the court, the person is wholly disqualified from acting as a director of the company, promoter, receiver of the property, management of the LLP company, from acting as an insolvency professional. In the ramification of a breach of a disqualification Order a fine or imprisonment may be imposed u/s 13.

SHADOW DIRECTORS 

A shadow director is defined in disqualification of directors’ act 1986 “a person in accordance with whose directions or instructions the director of the company is accustomed to act (although a person is not deemed a shadow director by reason only that the directors act on advice given by him in a professional capacity).” In the case of Industry vs Deverell and another the law point that occurred are as following: –

  • All the board of directors to be accustomed acc to this act as directed by the shadow person acting as a director. the purpose is to monitor and control the Board in a legislative standard of law.
  • The directors must “do something in conformity with” such instructions. may simply be translated by the shadow director to the board of directors.
  • The directors must act on the alleged shadow director’s directions as a regular course of conduct of the directors over a period of time.

 LATEST CHANGES

  • In the company law Act 2013 as per section 164(2) a director may get disqualified in future, he shall be ineligible for re-appointment after five years because he has not filed the financial statement application to the ministry of corporate affairs MCA.
  • The director may get an opportunity to file an application under the scheme condonation of delay COD 2018. The date starts from the very beginning of non-filing till two years. The predecessor of this scheme of settlement came on 2014 after the enactment of companies act 2013.
  • The director for removal of the disqualification may file a writ petition to the high court under article 226 for the judicial relief. proved that directors are just disqualified on the basis of their non-financial returns. article 226 provides remedy to the director in favor of their disqualification. 

CONCLUSION

The disqualification of director has been defined under section 164 of companies act 2013, the disqualification term and action were evolved from the UK Court of law and then this legal idea travelled to India for the purpose of financial returns and in the recent arena the concept and legislation of shadow director is invoked for monitoring and controlling the board of directors and providing them legislative instructions for the welfare and betterment of corporate governance culture. There are substitute acts in disqualification mentioning the term of imprisonment on the wrong doing of criminal activity called as work on default. The method of this article was to provide intricate grounds for removal of the director or disqualification of director and in the latest changes remedifying the director by condonation of delay. The MCA gives an order on the judgement of the circumstance on winding up of a company or lifting up of corporate veil.