Companies Act, 2013: Additional Disclosures in Notices of Meetings

[The
following post is contributed by Nidhi Ladha, who is a junior partner at
Vinod Kothari & Co. She can be reached at nidhiladha@vinodkothari.com]
The Companies Act, 2013 (the Act) has already been enacted
as Act no. 18 of 2013 after obtaining the assent of the President on August 29, 2013. The Ministry of
Corporate Affairs (MCA) has placed on its website the draft rules for public comments on September 6,
2013 inviting comments till October 8, 2013. As a further step and as
continuation of its speedy actions, the Ministry has now enforced 98 sections
of the Act vide notification dated September 12, 2013. The said sections have
come into effect with immediate effect (i.e. from September 12, 2013).
One of the enforced provisions is section 102 dealing with
Statement to be annexed to the notice calling general meetings for every
special business [corresponding to section 173 of the Companies Act, 1956 (1956
Act)].

 

What are the additional disclosures required
now?

Apart from the existing requirements of disclosing full
particulars and reasons for proposing a resolution and place and date for
inspection of relevant documents, section 102 now requires disclosure of not only the names of the interested parties but also the
nature and extent of interest of directors, managers, key managerial personnel
(KPM) and relatives of directors, manager and KMP in the explanatory statement to be annexed
for every special business in the notice calling general meetings.
The proviso to
sub-section (2) requires mention of the extent of the interest of every
promoter, director, manager or KMP in any other company to be affected by the
proposed resolution if they hold 2 (two) percent in that other company. The
1956 Act required such a disclosure if director, manager or secretary holds 20
(twenty) percent or more in such other companies.
Analysis
It is pertinent to
note that the section now requires disclosure of interest of KMP and relatives
of directors, managers and KMP also. The term ‘relative’ as defined in section
2(71) of the Act has also been enforced and includes, for the time being,
members of HUF and husband-wife relationship only. The other relationships to
be termed as ‘relatives’ are yet to be specified by the Central Government as
the draft Rules as put up by the MCA on its portal do not provide for the same.
In terms of proviso
to sub-section (2), disclosure of interest is to also to be made in relation to
other companies in which director, promoter, manager or KMP holds 2% or more
paid up capital. One may note that the provision uses the term ‘paid up
capital’, which includes equity as well as preference share capital of a
company.

Impact of enforcement of the section

As this is the peak time for companies to hold their annual
general meetings, it is quite necessary to know whether the enforced section
102, which has come into effect with immediate effect, applies to them or not.
Section 102 has been enforced with effect from September 12,
2013, and hence, in our view, it should apply to all notices to be issued after
this date and not to the meetings to be held after this date for which notices
have already been issued. Accordingly, all notices which are to be issued by a
company after this effective date will be required to have additional
disclosures in their notices as detailed in preceding paras.

What if the company fails to comply?

Unlike 1956 Act, the Act now prescribes for huge penalty,
which may extend to Rs. 50,000 or five times of benefits accrued due to non
disclosure of interest or violation of any other provision of the section. In
addition to any other action under the Act, the benefits, which have accrued to
director, manager, KMP or their relatives due to non disclosure of interest,
are required to be held in trust by such persons and such persons will also be
liable to compensate the company to the extent of such benefit received by
them.

Conclusion

The Ministry has
acted before anyone expected with regard to notifying and implementing the new Act
and the MCA has enforced 98 sections in the first phase. However going by the
general saying of ‘haste makes waste’, such faster actions of the MCA might
also prove so.
Along with section
102, some other sections related to calling of general meetings have been
enforced by the MCA at this time when most of the companies have already issued
the notices calling their annual general meetings. Section 103 provides for
quorum for general meetings. For public companies, the said section has now
fixed a quorum depending on the number of its members unless higher quorum is
required by the articles of such companies. However, the 1956 Act required a
quorum of 5 members personally present in case of public companies. In case of the
applicability of the section with effect from September 12, 2013, it surely
needs clarification as to whether the companies which have already issued
notices and will be holding their annual general meetings after the date of the
notification are required to comply with the old Act or the new Act.
Section 465 of the Act,
which repeals the 1956 Act, has not been notified yet. Hence, there could be a
question as to whether the new provisions notified will operate in addition to
the provisions of the 1956 Act.
In absence of
appropriate clarifications in this regard, the stakeholders might have to face
problems while complying with the new provisions. Enforcement of several
sections in lack of proper guidelines, rules, clarifications etc from the MCA might
prove the September 12 notification a premature and hasty action.

– Nidhi Ladha

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

1 comment

  • oqIMPROMPTU
    WPRT the observations in the concluding para. above, further developments have come to be reported in the website of Taxguru @ Company Law – Clarification on the Commencement notification dated 12.09.2013 on TaxGuru.

    Comments posted thereon are reproduced below, for ready reference:
    Historically, as has been the common experience, more often than not, difficulties have arisen in regard to clearly understanding, so as to appropriately act/comply with, having regard to the implications of ‘date of coming into effect/force’ of any provision of law, as prescribed for the purpose. By and large, except in cases where the enactment itself so specifies, the effective date is the one as announced in the related Gazette Notification.
    So far as the new company law is concerned, mostly it is the latter-mentioned procedure that has been chosen, unwittingly or otherwise, to be followed.
    If critically examined, it will be realized that, each and every one of the new provision, especially if mandatory, might have to be independently gone into, in every detail, with a multi-dimensional focus, so as to ensure that as far as feasible no scope is left for any difficulty in the understanding of and accordingly following/complying therewith by the mandated.
    Several such instances are known to have cropped up in the realm of the law on income-tax and other tax laws as well. For helpful clues and useful guidance on the foregoing facets, one may look up some of the court cases; also the subsequent amendments warranted hence came to be made later based on the wisdom gathered in hindsight. One such instance that readily comes to mind pertains to section 234D of the IT Act, giving rise to disputes, but eventually amended, to clarify. For a better understanding thereof, the published article in – (2008) 173 TAXMAN pg. 80 (Mag.) may come in handy.

Subscribe to Blog via Email

Enter your email address to subscribe to this blog and receive notifications of new posts by email.

Recent Posts

Topics

Recent Comments

Archives

web analytics