Section 100 of the Companies Act, 2013 - Calling of EGM by members themselves

CALLING OF EXTRAORDINARY GENERAL MEETINGS BY MEMBERS

Section 100 of the Companies Act, 2013 which contains provisions relating to holding of Extraordinary General Meetings (EGM) has commenced with effect from 12.09.2013. The provisions contained in this Section are similar to the provisions contained in Section 169 of the Companies Act, 1956.

An EGM may be called by

(i) the Board of Directors

(ii) the Board of Directors at the requisition of such number of shareholders as specified under the Section

(iii) the requisitonists themselves

(iv) the National Company Law Tribunal.

The Board of Directors of a company may call an EGM as and when shareholder’s approval is required for transacting any business and which item cannot be deferred until the next Annual General Meeting. All items of business transacted at EGM are deemed to be special business.

An EGM may also be called by the Board of Directors on the requisition of the members of the company.  On receipt of a valid requisition by the company, the Board should proceed to call an EGM within 45 days from the date of receipt of the requisition. The notice convening the EGM must be sent to all the members of the company and other persons entitled to receive the same within 21 days from the date of receipt of the requisition.

Validity of the Requisition

The requisition, in order to be valid, must be

•         signed by not less than the total numbers of members as specified above in the diagram.

•         set out matters for the consideration of which the meeting is to be called

•         delivered to the Registered Office of the company.

CALLING OF EGM BY REQUISITONISTS THEMSELVES

In the event of failure by the Board to call the meeting within the prescribed time period of 45 days, sub-section (4) of Section 100 of the Companies Act, 2013 empowers the requisitonists to call and hold the meeting themselves within 3 months from the date of the requisition.

The Draft Rules under the Companies Act, 2013 provide for detailed procedure for calling an extra-ordinary general meeting by the requisitonists themselves which was earlier not provided under the Companies Act, 1956. These rules are yet to be finalised by the Ministry.

Procedure for calling the meeting:

(i) In the event of Board’s failure to call the meeting, the requisitonists shall demand the list of members together with their registered address from the company which the company shall be bound to give within 3 days from the expiry of the 45^th day.

(ii) The list of members shall be as on the date on which by the requisitonists deposited a valid requisition with the company for calling the EGM.

(iii) The notice for calling the EGM shall specify the day, date, time and place of the meeting and shall contain the business to be transacted at the meeting. The date of the meeting should not be later than 3 months from the date of depositing the requisition with the company.

(iv)Explanatory Statement pursuant to section 102 of the Companies Act, 2013 is not required to be annexed. The requisitonists may, at their discretion, disclose in the notice the reason for moving the proposed resolution. However, the author feels this provision should be made mandatory as the remaining 90% of the shareholders who are not a party to the requisition have a right to know the reasons for proposing the resolutions at the EGM and form their judgement.

(v)The notice shall be signed by either all the requisitonists or by any one requisitionist duly authorised in writing by all. In case of joint shareholding, it would be enough if the requisition/ notice is signed by any one of the joint holders.

(vi)At least 21 day’s clear notice should be given to all the members of the company as per the list obtained and the notice of the meeting shall be sent either by

·         Ordinary post; or

·         Registered post; or

·         E-mail

Quorum of the meeting

The minimum number of members as specified under sub-section (1) of Section 103 of the Companies Act, 2013 shall form the required quorum for the purpose of the meeting. If the quorum is not present within half-an-hour from the time appointed for holding the meeting, then the meeting shall stand cancelled.

Reimbursement of expenses

Any reasonable expenses incurred by the requisitonists in calling the meeting shall be reimbursed to them by the company and the sums so reimbursed shall be deducted from the remuneration of the directors who were in default in calling the meeting.

JUDICIAL RULINGS:

[Life Insurance Corpn. Of India Vs. Escorts Ltd. (1986)59 Comp. As. 548(SC)]

Every shareholder of a company has the right, subject to statutorily prescribed procedural and numerical requirements, to call an EGM in accordance with the provisions of the Companies Acts. He cannot be restrained from calling a meeting and he is not bound to disclose the reasons for the resolution proposed to be moved at the meeting. Nor are the reasons for the resolutions subject to judicial review.

[Col. Kuldip Singh Dhillon Vs. Paragaon Utility Financiers (P) Ltd. (1986) 60 Comp. Cas1075 (Punj.& Har)

Section 181, interalia, states that notwithstanding anything contained in the Act, The articles of the company may provide that no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other moneys presently payable by him have not been paid. From conjoint reading of Section 181 and the Articles of Association of the company, it is clear that any sum is due from a shareholder in respect of share, he is not entitled to vote at any general meeting. Where the articles of association of a company prohibited any defaulting shareholder from exercising his right to vote at any general meeting, and certain shareholders had not paid a call made on their shares it was held that they were not entitled to requisition an EGM under Section 169].

[Centron Industrial Alliance Ltd. Vs. Pravin Kantilal Vakil (1985) 57 Comp. Cas. 12 (Bom.)].

Where an amalgamation scheme has been approved in a statutory meeting under Section 391, the shareholders cannot requisition a meeting to compel the company for withdrawing its petition pending before the Court for its sanction under Section 392.

[Cricket Club of India Ltd. v Madhav L.Apte (1975) 45 Comp. Cas. 574 (Bom)]

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. If these requirements indicated in the earlier part of section are satisfied, then the requisition deposited with the company must be regarded as a valid requisition on which the directors of the company must act.

The provisions of Section 100 of the Companies Act, 2013 particularly relating to calling the Extraordinary General Meeting by the members themselves assumes great significance in the wake of disputes arising between the management and the shareholders or between two different groups in the management. It has been seen that the right of the members of a company to requisition an EGM is exercised quite often by the members in situations arising out of such dispute.

Section 185 of the Companies Act, 2013 vis-a-vis Section 295 of the Companies Act, 1956

The Companies Act, 2013 received the assent of the President of India on 29th August, 2013 and was published in the Gazette of India on 30th August, 2013. Since then the Ministry of Corporate Affairs has initiated the process to implement the new Companies Act and placed the Draft rules and Forms on its website in a phased manner for inviting public suggestions and comments. In furtherance of its efforts, the Ministry has notified 98 sections of the Companies Act, 2013 to come into force with effect from 12th September 2013.

Among 98 Sections notified, Section 185 of the Companies Act, 2013 (New Act) contains provisions relating to loan to director, etc and provides the circumstances and manner in which a company shall advance any loan to any of its directors or to any other person in whom he is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person. Section 185 of the New Act corresponds to Section 295 of the Companies Act, 1956 with certain modifications. Further in terms of General Circular No.16/2013, Section 295 has ceased to have effect from 12th September 2013.

A brief summary of changes incorporated in the Section 185 of the new Act is given below for easy understanding:

	Section 295 of the Companies Act, 1956	Section 185 of the Companies Act, 2013
Approval	Prior approval of Central Government was required. Power was delegated to Registrar of Companies.	Shareholders’ consent is required. No need to approach Central Government for any approval.
Eligible Directors	Loan could be provided to any director, whether executive or non-executive with the approval of the Central Government, wherever required.	Loan to Non-executive Directors is clearly prohibited. However, loans to managing and whole time directors are allowed subject to conditions provided in the section.
Exemptions	Private Companies were not covered under this section.	This section is now applicable even to Private Companies.
	Loan made/ Guarantee given/ Security provided by a holding company to its subsidiary company was exempted.	No exemption to holding company has been provided.
Penalty  for contravention	Parties to the contravention were punishable with fine of Rs.50,000/- or with simple imprisonment for  term which may extend to 6 months.	Company - Fine not less than Rs.5,00,000/- but which may extend to Rs.25,00,000/-. Director/any person to whom the loan is made - Fine not less than Rs.5,00,000/- but which may extend to Rs.25,00,000/- for the company or with simple imprisonment for  term which may extend to 6 months or with both.

The intention of Section 185 is to prohibit loans by a company to its directors or relatives of directors or other entities in which such directors have any interest or concern. The new Section 185 seeks to simplify the approval process on one hand by moving onto shareholder’s approval based regime and increase transparency on the other hand by including erstwhile exempted transactions/ persons within its purview.

Since section 185 of the Companies Act, 2013 has already come into effect, we should be aware of the significant changes in this section as compared to ceased Section 295 of the Companies Act, 1956.

1. Prohibition to advance loan except to MD/WTD:

As per Section 185, a company is explicitly prohibited from advancing loans/ giving guarantees/ providing securities to the following parties (similar parties covered under ceased Section 295):

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director;

(b) any firm in which any such director or relative is a partner;

(c) any private company of which any such director is a director or member;

(d) any body corporate at a general meeting of which not less than twenty five per cent. of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) any body corporate, the Board of directors, managing director or manager, whereof is accustomed to act in accordance with the directions or instructions of the Board, or of any director or directors, of the lending company.

Earlier, if a public company or its subsidiary wanted to advance any loan to any of the abovementioned parties, it required previous approval of the Central Government (powers delegated to ROC) and on receipt of the approval, the company could easily enter into transactions covered by ceased Section 295 of the Companies Act, 1956.

But now, with the introduction of Section 185 of the Companies Act, 2013 no company is allowed to advance any loan/ give any guarantee/ provide any security to any of the parties as mentioned above except advancing loan to the managing/ whole-time director subject to the specified conditions discussed next.

2. Eligible Directors:

Under the ceased Section 295, a public company or its subsidiary, with the approval of Central Government, could advance loan to “any director” which expression included both executive and non-executive directors. Further, granting of house building loans by public companies to its managing/ whole-time directors in terms of any scheme laid down by the Company did not require any approval from the Central Government. It was specifically exempted by the Department of Company Affairs vide its Press Release dated 20.08.1993.

Under the new Section 185, a company cannot give any loan to its non-executive directors/ part time directors. Further, the company can advance loan to its managing/ whole-time directors only if any of the following conditions are satisfied:

(i) the loan is given to MD/WTD as part of the conditions of service extended to all the employees.i.e. no special treatment should be provided to the Directors.; or

(ii) the loan is given pursuant to any scheme (Housing Scheme) formulated by the company with the approval of the shareholders by a special resolution. Once such schemes are approved by the shareholders by special resolution, loans under such schemes may be allowed to eligible directors, without again going to shareholders for approval.

3. Shareholder’s approval based regime:

The requirement of approval of Central Government has been completely done away with under the new Section 185. Shareholder’s approval is enough. This is based on the following recommendation made by The Irani Committee on new Company Law (2005) in connection with restrictions for loans to directors:

“―5.1 Generally the directors should not be encouraged to avail of loans or guarantees from companies. They should be allowed remuneration or sitting fees only. In case company decides so, loans to directors should be allowed only when company by special resolution approves such loans. Disclosures to be made to shareholders, through the explanatory statement, should be specified in the rules. It should be open to a company to formulate schemes (such as Housing Loan Schemes) for the benefit of Executive Directors. “

4. Erstwhile exempted Parties covered:

(i) It is very common in private companies to advance loans to directors. Advance of loan to its directors by private companies were not covered under ceased Section 295. Section 295 of the Companies Act, 1956 was not applicable to private companies.

But under the new Section 185, no such exemption is available to private companies. Even private companies shall be required to now follow the procedure of obtaining shareholder’s approval for advancing loan to its MD/WTD, even though it shall remain a mere formality considering their closely-held nature or include it as a part of conditions of service extended to all employees.

(ii) Any loan made by a holding company to its subsidiary company, which was earlier exempted, is now covered under Section 185 of the Companies Act, 2013.

As on 31.12.2012, 78 applications were pending before the Central Government for approval under ceased Section 295 of the Companies Act, 1956. Now after the commencement of Sec 185 of Companies Act, 2013, it has to be seen how the Ministry deals with such pending applications. Also clarifications are expected in respect of existing loans already granted by the companies to its directors/holding to its subsidiary under ceased Section 295 but not fulfilling the conditions laid down under Section 185 of the new Act and still due for repayment such as the time limit within such loan shall be repaid, time period within which necessary approvals as applicable to be obtained, etc.