following post is contributed by Nidhi Ladha, who is a junior partner at
Vinod Kothari & Co. She can be reached at [email protected]]
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).
Statement to be annexed to the notice calling general meetings for every
special business [corresponding to section 173 of the Companies Act, 1956 (1956
What are the additional disclosures required
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.
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.
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.
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
Impact of enforcement of the section
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.
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?
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
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.
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.
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.
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