Introduction:
The Companies Act, 2013 will now replace the old Companies Act, 1956 in a phased manner and will come into full force when the Central Government notifies the operation of all sections and finalizes the Rules which are now on display for comments.
Very recently about 98 Sections have been notified by the Central Government and MCA had to issue a clarification to dispel the confusion that has arisen due to notification of only some sections instead of all. This is understandable as enforcement of many of the sections is dependant on rules which have to complement provisions of the Act. MCA with regard to 98 sections vide its clarification dated 18th September,2013 confirmed that corresponding sections in Old Act,1956 will cease to be have effect from 12.09.2013.
In this article the provisions relating to notice of General meetings are given coverage. It would be fruitful to briefly touch the provisions relating holding of General meetings. Every company other than one Person Company shall hold Annual General meeting in each year in addition to any other meetings and notice calling the meeting shall mention the same. Further gap between two Annual General Meetings should not be more than 15 months. In the case of first Annual General meeting, it should be held within 9 months from the close of the financial year and in all other cases within 6 months from the close of the financial year. Every AGM shall be called during business hours (between 9am to 6Pm) on any day which shall not be a National holiday and held at the registered office or at such other place but within the registered office location. Now may shift gears to discuss the current topic.
Importance of Notice:
Any improper notice will invalidate the proceedings of General meetings and thereby it puts the approvals at the General meetings to nullity. However any accidental omission to give notice or non receipt by any member or any other person entitled to receive notice shall not invalidate the proceedings {Section101 (4)}.
What is the Purpose of notice?
The primary purpose of the Notice of sufficient length is to enable a member of the company to read, understand the financial statements, performance and to raise any questions on the state of affairs. The secondary purpose is to enable members to issue special notice to the company for certain resolutions as per provisions of Section 115 or Section 111 for circulation of members’ resolutions.
(Readers may note the corresponding Sections in the old Act are 190 and 188)
What is the Length of notice?
Under the Old act, a notice calling a General meeting has to be in writing and to be given at least 21 days before the meeting date. The length of notice remains the same under the new Act also but it uses the expression “clear days”. It means day of giving of notice and day of the meeting are to be excluded. Service of notice is deemed to have been effected after expiry of 48 hours from the time of posting as per section 53(2 (b) of Old Act. Similar provision is not there in Section 20 of the new Act. Perhaps this was intentionally omitted as faster means of service of notice through E- mail or other electronic mode is available. If one is to give strict interpretation to clear days, time taken for delivery of notice by the postal department or electronic mode is also to be excluded. It is therefore advisable to keep in mind a cushioning for this transit time for the notice to reach the members. It is pertinent to note that the new Act permits issuance of notice by electronic mode. {Section101 (1)}
Whether shorter notice is permitted?
If consent is given by not less than 95% of the members entitled to vote at such meeting, a shorter notice of less than 21 clear days is permissible for calling a General Meeting. Such consent can be either in writing or by electronic mode {proviso to Section 101(1)}
Contents of the notice: Section 101(2) stipulates that every notice calling the meeting shall specify the place, date, day and time. It shall also contain a statement of the business to be transacted at such meeting
Who are entitled to Notice?
As per Section 101(3), notice of every meeting shall be given to:
- every member of the company
- legal representative of decease member
- assignee of insolvent member
- auditor and
- Every director of the company.
Statements to be annexed to the notice (Section 102)
Let us now shift our focus to documents/ statements to be annexed to the notice. Section 102 of new Act (corresponds to Section 173 of Old Act 1956) stipulates that a statement setting out material facts in respect of each item of special business to be transacted at the General meeting, shall be annexed and contain the following details:
- Nature of concern or interest whether financial or other wise of every director, Manager, Key Managerial personnel(KMP) and their relatives
- Any other information which facilitates better understanding of the businesses to be transacted
- In the case of special business to be transacted relates to or affects any other company, then the extent of shareholding in that other company of the promoters, directors, Manager, KMP of the company, if the extent of such shareholding is not less than 2%.( It is 20% of paid up capital in the case of old Act)
What is special business?
Section 102(2) clarifies as to what is special business. In the case of Annual General meeting any business other than the following shall be special business:-
- consideration of financial statements with auditors report, directors report
- declaration of dividend
- appointment of directors retiring by rotation
- appointment and fixing remuneration of auditors
In the case of other meetings all business transacted thereat will be a special business.
Documents to be made available for inspection:
If any Item of business refers to any document, then place and time during which the documents will be available for inspection must be mentioned (Section 102(3).For eg, Memorandum and Articles of association/drafts of contracts/ agreements /scheme of arrangement etc., should be made available
What are the consequences of non disclosure of material facts?
Promoter, Director, Manager or any other KMP should hold in Trust for the company any benefits which accrued as a result of such non disclosure/insufficient disclosure, the persons responsible shall not only be liable to compensate the company for the loss but also be liable for the consequences under other acts. In other words a criminal/civil action can be launched for breach of trust/misappropriation/cheating etc. This action is in addition to the penal provision under the new Companies Act.
Listing agreement Requirements:
Listed companies have to submit 6 copies of notices together with Directors’ report, auditors report and other information as they are sent to shareholders. Three copies of advertisement released for communicating to shareholders about dispatch of notice.
Secretarial Standards to be observed.
As per Section 118 of the Act, 2013, every company shall observe the Secretarial standards (SS) issued by Council of ICSI and approved by the central government. Before the enactment of companies Act,2013, SS are recommendatory in nature. Additional points as per SS-2 other than those covered by Section 101 are given below only for general idea of the readers and it may please be noted that these are subject to revision by ICSI in line with new Act, 2013.
- SS-2 stipulates that notice should also be issued to company secretary in practice who is engaged for secretarial audit, debenture trustees if any besides the persons mentioned u/s 101(3).
- In the case of listed companies, if a meeting is adjourned for less than 30 days, Notice of the same giving date, place time of holding meeting is published in news paper in a place where more than 1000 members reside.
- Notice to be placed on web site of the company.
- Notice to prominently state that every member entitled to attend vote can appoint a proxy to attend the meeting instead of him and attendance slip to be attached.
- Notices and related documents should be preserved in good order and up to 10 years
Penal provision:
In case of failure to comply with the provisions of section 102(1), a fine up to Rs. 50,000/- or 5 times of the profit accruing to promoter, director, manager or an KMP whichever is more can be levied on the defaulting officer.{Section 102(5)}
Conclusion:
Penal provisions in the new Act ensure care in drafting of notice and disclosure of material facts of any item of special business to be transacted. This is welcome measure and transparency can be expected from the promoters/directors/Mangers/ KMP
G S Rao,
DGM(Legal),OCL India Limited
Tags: Notice of General meetings, The Companies Act, 2013
Disclaimer:
This article contains interpretation of the Act and personal views of the author are based on such interpretation. Readers are advised either to cross check the views of the author with the Act or seek the expert’s views if they want to rely on contents of this article.
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