Secretarial standard on General meetings

Salient features of Revised Secretarial Standards for General Meetings – SS2

1)     Applies to a section 8 company also but all other provisions of the Act relating to the General meetings are still applicable to a section 8 company;

2)    In case of a nidhi company, general meeting notice need to be served individually only on members holding shares of face value of more than Rs.1000 or more than 1% of the paid up share capital of the company, whichever is less. For other members, notice is by way of a newspaper notice in a newspaper circulated in the place where registered office is situated and on the notice board of the company;

3)     In case of companies having a website, the notice shall simultaneously be hosted on the website till the conclusion of the meeting. In case of a private company, the notice shall be hosted on the website of the company, if any, unless otherwise provided in the articles. This is an additional compliance even for small private companies which have websites. Nowadays every small company has a website for its promotion etc. The word used here is “shall” instead of “may” so this mandates compliance by all companies having websites. This is an unnecessary burden on the private companies to comply with this requirement. The only alternative they have is to amend the articles to provide that the notice need not be hosted on the website of the company. 

4)    Route map of AGM is not necessary for a closely held private company, where only the Directors and their family members are the shareholders or a wholly owned subsidiary company. This is a welcome relief for the small private companies. The whole purpose of putting route map in the notice was infructuous.

5)    Notice of the annual general meeting shall also specify the serial number of the meeting. By serial number I am assuming the no. of annual general meetings held in a company since its inception.

6)   Consent for shorter notice for the general meeting can be received any time before the meeting commences. It means that consent can be received 10 minutes before the meeting starts also. Government is toting this as “ease of doing business” 

7)   The authority letter from corporates for the annual general meeting shall,

(a)          in case of remote e-voting, be received before close of e-voting;

(b)          in case of postal ballot, shall be received alongwith the postal ballot form; and

(c)          if he is attending the meeting, then the letter should be sent before the commencement of the meeting.

8)   Nidhi companies are not required to provide e-voting facilities to their members;

9)   In case of Nidhi, no member shall exercise voting rights on a poll in excess of 5% of the total voting rights of the equity shareholders;

10)In case of a private company, a member who is a related party is entitled to vote on such resolution. This was always the case under the earlier Companies Act, 1956 also, only it has now been codified in the Standards.

11) The results of the voting at the general meeting needs to be displayed for at least three days at the notice board of the company at its registered office and also its Head Office and Corporate Office wherever it is situated. This is over and above displaying of the results at the company’s website, if any.  Before amendment, the three days’ time limit was not specified. This is another example of compliance overreach.

12) At a poll at the general meeting, it is not necessary that one of the scrutinizer shall be the member of the company.

13) Minutes of the meeting can be maintained in electronic form and it need not have a timestamp.

14) Minutes if they are maintained in loose leaf form, shall be bound periodically, at least once in every three years.

15) Minutes Book shall be kept only at the registered office of the company, not at any other place.

16) No need for minutes to state the conclusion time of the meeting;

17) Most of the other amendments are either rectification of the drafting errors or aligning the standards to be in line with the Act and/ or Rules thereof.

Related Party - clarifications

The Ministry of corporate affairs has vide its clarification letter dated 17th july 2014 clarified a few aspects on the intriguing aspect of related party transactions and the compliances thereof. Really had the Ministry taken a little trouble in drafting the original provisions correctly, the spate of clarifications that they are issuing would not have been necessary.

The clarifications that they have issued vide the above circular are briefly summarised as under :

1) The shareholder who is the related party will not be allowed to vote on the resolution laid before the general meeting only in respect of such contracts/ transactions in respect of which he is the related party. If he is a related party within the general definition of "related party" under the Companies Act, 2013 but he is not concerned or interested in the contract or arrangement which has been put up for approval at the general meeting, then he will be allowed to vote;

2) Corporate restructuring or amalgamations will not be covered under the definition of related party transactions;

3) Related party contracts which have already been approved under the old provisions of Companies Act, 1956 will not need fresh approval until the term of the contract is over. However any alteration or variation in the contracts will need fresh compliances under the Companies act, 2013.

Stay tuned for more such compliance news

Related Party Transactions Compliances

A related party with reference to a company means the following

(1) director or his relative

(2) key managerial personnel or his relative 

(3) a firm in which director, manager or relative is a partner

(4) a private company in which director or manager or his relative is a member or director

(5) a public company in which director or manager is a director or holds along with his relatives more than 2% of its paid up share capital

(6) any body corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the instructions, directions or advice of the director or manager 

(7) any person on whose advise, instructions or directions, the director or manager is accustomed to act. 

(8) any body corporate in which such director singly or in association with another director holds more than 2% shareholding of that body corporate or is a promoter, chief executive officer or manager of that body corporate 

(9) any firm or other entity in which such director is a partner, owner or member. 

Related party contract or arrangement pertains to 

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind; (so immoveable property is covered)

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services

or property;

(f) such related party's appointment to any office or place of profit in the company,

its subsidiary company or associate company; and 

(g) underwriting the subscription of any securities or derivatives thereof, of the

company:

It will not be construed as a related party if the transaction entered into by the company is in the ordinary course of business and is on arms length basis. 

BOD consent is required for entering into related party contracts. 

(1) The agenda of the Board meeting at which the resolution is proposed to be moved shall disclose-

(a) the name of the related party and nature of relationship;

(b) the nature, duration of the contract and particulars of the contract or arrangement;

(c) the material terms of the contract or arrangement including the value, if any;

(d) any advance paid or received for the contract or arrangement, if any;

(e) the manner of determining the pricing and other commercial terms, both included as part of contract and not considered as part of the contract;

(f) whether all factors relevant to the contract have been considered, if not, the details of factors not considered with the rationale for not considering those factors; and

(g) any other information relevant or important for the Board to take a decision on the proposed transaction.

The interested director shall not be present at the Board meeting where the discussion pertaining to the said related party is taking place. 

 

Prior Special resolution will be required if 

(i) the paid up share capital of the company is Rs.10 crores or more 

(ii) the sale, purchase, supply of any goods or materials directly or though appointment of agents exceeds 25% of the annual turnover, 

(iii) selling or otherwise disposing of property of any kind directly or though agents exceeding 10% of the net worth

(iv) leasing property of any kind exceeding 10% of the net worth or turnover

(v) availing or rendering of services directly or through agents, exceeding 10% of the net worth

(vi) appointment to any office or place of profit in the company or subsidiary or associate company at a monthly remuneration exceeding Rs.2.5 lakhs 

The interested director and the related parties who are members in this particular contract or arrangement shall not vote on the said resolution.

The explanatory statement to be annexed to the notice of a general meeting convened to consider related party transactions shall contain the following particulars namely:-

(a) name of the related party ;

(b) name of the director or key managerial personnel who is related, if any;

(c) nature of relationship;

(d) nature, material terms, monetary value and particulars of the contract or arrangement;

(e) any other information relevant or important for the members to take a decision on the proposed resolution.

The company is required to maintain register of contracts or arrangements in which directors are interested in form MBP-4 and shall enter therein following particulars. 

(1) names of companies, firms, bodies corporates, or other association of individuals in which director has any concern or interest

(2) particulars of contracts or arrangements with related parties 

Entries to be made in the register immediately at once whenever there is a cause to make entry in a chronological order and entries to be authenticated by a company secretary or by any person authorised by the Board for that purpose. 

Change in definition of Related Party

The Ministry of Corporate Affairs has vide its gazetted order dated 9th July 2014 amended the definition of related party as it appears in the Companies Act, 2013.

Section 2(76)(v) hitherto stated as follows;

(v) a public company in which a director or manager is a director OR holds along with his relatives, more than two per cent. of its paid-up share capital;

this has been changed to

(v) a public company in which a director or manager is a director AND holds along with his relatives, more than two per cent. of its paid-up share capital;

so what it implies is that the director or manager should fulfill both conditions i.e. directorship as well as shareholding in a public company to be considered as a related party.