THE LEGAL BRIDGE

Judiciary & Law Notes Series

THE COMPANIES ACT, 2013

CHAPTER VII

Management and Administration

Sections 88–122

For Judicial Service Aspirants & Law Students

RJS • DJS • PCS-J • HJS • UPJS • BJS • MPCJ

Registers • SBO • Annual Return • Meetings • Resolutions

— Enriched with landmark judgments and illustrative case law —

Chapter VII — Management and Administration

Chapter VII of the Companies Act, 2013 (Sections 88 to 122) governs the internal administrative machinery of every company — the registers it must maintain, the disclosure of beneficial ownership, the annual return filed with the Registrar, the holding and conduct of general meetings, the exercise of voting rights, the passing and registration of resolutions, and the maintenance of minutes. While Chapters I to VI deal with the creation, capitalisation, and security of a company, Chapter VII answers the question: how does a company actually run on a day-to-day basis, and how is it held accountable to its members?

For judicial aspirants, this Chapter is a favourite hunting ground for objective questions (quorum, notice periods, types of resolution) as well as short-answer questions (beneficial ownership under Section 89-90, the shift towards e-voting, and the nature of an annual return).

Registers and Returns (Sections 88–95)

Section 88 — Register of Members, Debenture-Holders and Other Security Holders

Every company is required to keep at its registered office a Register of Members containing particulars of every person holding equity or preference shares, the date of becoming and ceasing to be a member, and such other details as prescribed. Separate registers are also required for debenture-holders and other security holders.

In the case of a company having more than one class of equity or preference shares, separate registers must be maintained for each class. For companies having members or debenture-holders residing outside India, a foreign register may be kept under Section 88(4). The Register of Members is evidence of any matter directed or authorised by the Act to be inserted therein (Section 95).

• Register of Members — all members, past and present.
• Register of Debenture-Holders — holders of debentures.
• Register of Other Security Holders — other security-holders as prescribed.
• Foreign Register under Section 88(4) — for non-resident holders.

Section 89 — Declaration in Respect of Beneficial Interest in any Share

Section 89 operates on the principle that the registered shareholder is not always the real economic owner. Where a person whose name is entered in the Register of Members (the registered owner) does not hold the beneficial interest, both the registered owner and the beneficial owner are required to file declarations with the company in the prescribed form (MGT-4, MGT-5 respectively), and the company in turn files a return in Form MGT-6 with the Registrar within thirty days.

The section was originally inspired by the need to prevent benami shareholding and to make corporate ownership transparent. Non-compliance attracts penalty, and — importantly — no right in relation to any share in respect of which a declaration is required to be made but has not been made, shall be enforceable by the person so failing.

Section 90 — Register of Significant Beneficial Owners (SBO)

Inserted by the Companies (Amendment) Act, 2017 (w.e.f. 13 June 2018), Section 90 is a powerful transparency measure targeting the ultimate individuals who control companies from behind corporate layers. Every individual who acting alone or together, or through one or more persons or trusts, holds beneficial interest of at least 10% of the shares in a company or exercises significant influence or control over the company, is a 'Significant Beneficial Owner' (SBO).

• SBOs must make a declaration to the company in Form BEN-1.
• Company must maintain a register of SBOs in Form BEN-3.
• Company must file return in Form BEN-2 with the Registrar.
• Tribunal may, on application by the company or any person aggrieved, order that restrictions be imposed on the shares in question — including suspension of voting rights, prohibition on transfer, and impounding of dividend.

Section 91 — Power to Close Register of Members

A company may, after giving at least seven days' previous notice (or such shorter notice as prescribed by SEBI for listed companies), close the register of members or debenture-holders for any period not exceeding 45 days in the aggregate in any year, and not exceeding 30 days at any one time. Default attracts a fine on the company and every officer in default.

Sections 92 — Annual Return

The Annual Return is the single most important public-facing disclosure by a company regarding its constitution, management, and ownership. Filed in Form MGT-7 (MGT-7A for OPC and small companies), it must contain particulars as they stood on the close of the financial year regarding:

1. Its registered office, principal business activities, and particulars of its holding, subsidiary, and associate companies;Its shares, debentures, and other securities and shareholding pattern;Its indebtedness;Its members and debenture-holders along with changes therein since the last financial year;Its promoters, directors, key managerial personnel, along with changes therein;Meetings of members or a class thereof, Board and its various committees, along with attendance details;Remuneration of directors and key managerial personnel;Penalties or punishments imposed on the company, its directors or officers, and details of compounding of offences and appeals made against such penalties or punishments;Matters relating to certification of compliances, disclosures as may be prescribed;Details in respect of shares held by or on behalf of the Foreign Institutional Investors.

The annual return must be signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice. Listed companies and companies with prescribed paid-up capital/turnover must additionally get the return certified by a company secretary in practice in Form MGT-8.

Filing Timeline: Within 60 days of the Annual General Meeting (AGM), or where no AGM is held, within 60 days from the date on which the AGM ought to have been held.

Sections 93-95 — Extract, Place of Keeping, Evidence

Section 93 (omitted by the Companies (Amendment) Act, 2017), Section 94 provides that the registers under Section 88 and copies of returns may be kept at any other place in India in which more than one-tenth of the members entered in the register reside, if approved by a special resolution. Section 95 declares that the registers, returns, etc., shall be prima facie evidence of the matters directed or authorised to be contained therein.

General Meetings (Sections 96–122)

Section 96 — Annual General Meeting (AGM)

Every company (other than a One Person Company) is required to hold an AGM each year. The first AGM must be held within nine months from the end of the first financial year. Subsequent AGMs must be held within six months from the end of the financial year, with a gap of not more than fifteen months between two AGMs. The Registrar may, for any special reason, extend the time for holding an AGM (other than the first AGM) by a period not exceeding three months.

• The AGM must be held during business hours (9 a.m. to 6 p.m.), on any day that is not a National Holiday.
• The AGM is to be held at the registered office of the company or at some other place within the city, town, or village in which the registered office is situated.
• Government companies, however, may hold an AGM at such other place as the Central Government may approve.

Section 97 — Power of Tribunal to Call AGM

If a default is made in holding the AGM in accordance with Section 96, the Tribunal may, on the application of any member of the company, call or direct the calling of an AGM, and give such ancillary or consequential directions as it thinks expedient. A general meeting held under this section is deemed to be an AGM of the company.

Section 98 — Power of Tribunal to Call Meetings other than AGM

If, for any reason, it is impracticable to call a meeting of the company (other than an AGM), or to hold or conduct it in the manner prescribed by the Act or the articles, the Tribunal may, either of its own motion or on the application of any director, member, or creditor, order a meeting to be called, held, and conducted in such manner as it thinks fit.

Section 99 — Punishment for Default

If any default is made in holding a meeting of the company in accordance with Sections 96, 97, or 98, or in complying with any directions of the Tribunal, the company and every officer in default shall be punishable with fine which may extend to one lakh rupees, and in the case of a continuing default, with a further fine which may extend to five thousand rupees for every day during which such default continues.

Section 100 — Extra-ordinary General Meeting (EGM)

Any general meeting of the company other than the AGM is an EGM. An EGM may be called:

1. By the Board of Directors of the company;By the Board on requisition from members holding, on the date of the requisition, not less than one-tenth of such of the paid-up share capital as on that date carries the right of voting (or, in the case of a company not having share capital, one-tenth of the total voting power);By the requisitionists themselves, if the Board fails to call an EGM within 45 days from the date of deposit of a valid requisition.

An EGM of a company (other than a wholly-owned subsidiary of a company incorporated outside India) shall be held at a place within India. The Companies (Amendment) Act, 2017 inserted a proviso to clarify that an EGM may also be convened by video conferencing or other audio-visual means for specified purposes.

Section 101 — Notice of Meeting

A general meeting of a company may be called by giving not less than twenty-one clear days' notice in writing or through electronic mode. A meeting may be called after giving shorter notice if consent, in writing or by electronic mode, is accorded thereto:

• In the case of an AGM, by not less than 95% of the members entitled to vote thereat;
• In the case of any other general meeting, by members holding not less than 95% of the paid-up share capital of the company as gives a right to vote at the meeting.

The notice must specify the place, date, day, and hour of the meeting and contain a statement of the business to be transacted. It must be given to every member, every director, every auditor, and to the legal representative of a deceased member or assignee of an insolvent member. An accidental omission to give notice to, or the non-receipt by, any member or other person shall not invalidate the proceedings.

Section 102 — Explanatory Statement Annexed to Notice

Where any item of business to be transacted at a meeting is 'special business' (i.e., every item other than the four ordinary items listed in the section — consideration of financial statements, declaration of dividend, appointment of directors in place of those retiring, and appointment of auditors — in the case of an AGM, and all items of an EGM), a statement setting out all material facts concerning each item must be annexed to the notice. The explanatory statement must disclose the nature of the concern or interest of every director, manager, and KMP, and their relatives, if any, in each item.

Section 103 — Quorum for Meetings

Unless the articles of the company provide for a larger number, the quorum for a meeting of the company shall be:

If the required quorum is not present within half an hour from the time appointed for holding a meeting, the meeting — if called on the requisition of members — stands cancelled; otherwise, it stands adjourned to the same day in the next week at the same time and place, or to such other day and at such other time and place as the Board may determine.

Section 104 — Chairman of Meetings

Unless the articles otherwise provide, the members personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands. If a poll is demanded on the election of the Chairman, it shall be taken forthwith in accordance with the provisions of the Act and the Chairman elected on a show of hands exercises all the powers of the Chairman under the said provisions until the poll is concluded. If some other person is elected Chairman as a result of the poll, he shall be Chairman for the rest of the meeting.

Section 105 — Proxies

Any member of a company entitled to attend and vote at a meeting is entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf. A proxy, however, shall not have the right to speak and shall not be entitled to vote except on a poll.

• A person appointed as proxy shall act on behalf of such number of members not exceeding fifty and holding in the aggregate not more than ten per cent of the total share capital of the company carrying voting rights.
• A member holding more than 10% of the total share capital may appoint a single person as proxy, but such person shall not act as proxy for any other person or member.
• The instrument appointing proxy shall be deposited with the company 48 hours before the meeting.
• In a Section 8 company, a member cannot appoint any other person as proxy unless such other person is also a member.

Section 106 — Restriction on Voting Rights

A member shall not be prohibited from exercising his voting right on the ground that he has not held his share for any specified period preceding the date on which the vote is taken, or on any other ground not being a ground set out in the articles. Any calls or other sums presently payable by him which have not been paid, or in regard to which the company has exercised any right of lien, may validly be made the basis of disentitlement.

Section 107 — Voting by Show of Hands

Unless a poll is demanded under Section 109 or the voting is carried out electronically, any resolution put to the vote of the meeting shall be decided on a show of hands. A declaration by the Chairman of the meeting that the resolution has or has not been carried, entered into the minutes of the meeting, is conclusive evidence of that fact, without proof of the number or proportion of the votes cast in favour of or against the resolution.

Section 108 — Voting Through Electronic Means

The Central Government has prescribed, through Rule 20 of the Companies (Management and Administration) Rules, 2014, that every listed company and every other company having not less than 1,000 members must provide to its members the facility to exercise their right to vote at general meetings by electronic means (remote e-voting). The facility must be made available from the date of dispatch of notice to a date 3 days before the date of the meeting.

Section 109 — Demand for Poll

Before or on the declaration of the result of the voting on any resolution on show of hands, a poll may be ordered to be taken by the Chairman of the meeting on his own motion, and shall be ordered to be taken by him on a demand made in that behalf:

• In the case of a company having a share capital — by the members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh rupees has been paid up;
• In the case of any other company — by any member or members present in person or by proxy, where allowed, and having not less than one-tenth of the total voting power.

Sections 110–111 — Postal Ballot and Circulation of Members' Resolutions

Section 110 permits companies to transact business by means of postal ballot (which includes e-voting) for items prescribed by the Central Government. Items for which postal ballot is mandatory include alteration of objects clause, change of registered office outside state, issue of shares with differential rights, buy-back of shares, sale of whole or substantially whole of undertaking, giving loans or extending guarantee beyond specified limits, election of a Small Shareholders Director, and variation of rights of shareholders.

Section 111 entitles members holding not less than one-twentieth of the voting power or five hundred members to requisition the company to give notice to members of any resolution which may properly be moved and is intended to be moved at a meeting, and to circulate any statement of not more than one thousand words with respect thereto.

Sections 112-113 — Representation at Meetings

Section 112 provides that the President of India or Governor of a State, if a member of a company, may appoint a person to act as his representative at any meeting of the company. Section 113 provides that a body corporate which is a member of a company may, by resolution of its Board of Directors, authorise a person to act as its representative at any meeting of the company, and such representative shall be entitled to exercise the same rights and powers on behalf of the body corporate which he represents as if he were an individual member.

Sections 114 — Ordinary and Special Resolutions

Section 115 — Resolutions Requiring Special Notice

Where, by any provision of the Act or the articles, special notice is required for any resolution, notice of the intention to move such resolution shall be given to the company by such number of members holding not less than one percent of total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees has been paid up. The company shall give its members notice of the resolution in the manner prescribed. Classic examples: removal of an auditor under Section 140(1) and removal of a director under Section 169.

Section 116 — Resolutions Passed at Adjourned Meetings

Where a resolution is passed at an adjourned meeting of a company, or of the holders of any class of shares in a company, or of the Board of Directors of a company, the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact passed, and shall not be deemed to have been passed on any earlier date.

Section 117 — Resolutions and Agreements to be Filed

A copy of every resolution and every agreement falling in any of the categories listed in sub-section (3) shall be filed with the Registrar within thirty days of the passing or making thereof, in Form MGT-14. Categories include: all special resolutions; resolutions of the Board under Section 179(3); resolutions passed unanimously for specified items; resolutions requiring filing of an annual return; and resolutions modifying the constitution of the company.

Section 118 — Minutes of Proceedings

Every company shall cause minutes of the proceedings of every general meeting, of every meeting of its Board of Directors or of every committee of the Board, to be prepared and signed in the manner prescribed, and kept within 30 days of the conclusion of every such meeting, in books kept for that purpose with their pages consecutively numbered. Each page must be initialled or signed and the last page of the record of proceedings of each meeting must be dated and signed by the chairman or the chairman of the next succeeding meeting.

• Minutes shall contain a fair and correct summary of the proceedings.
• Any matter which the chairman is of the opinion is defamatory of any person, is irrelevant or immaterial, or is detrimental to the interests of the company, may be excluded by the chairman from the minutes.
• Minutes kept in accordance with the provisions of this section shall be evidence of the proceedings recorded therein (Section 119).

Section 119 — Inspection of Minute-Books

The books containing the minutes of the proceedings of any general meeting of a company shall be open, during business hours, to the inspection by any member without charge. Any member shall be entitled to be furnished, within seven working days after he has made a request in that behalf, with a copy of any minutes on payment of such fees as may be prescribed.

Section 120 — Maintenance and Inspection of Documents in Electronic Form

Enables every listed company and every company having not less than one thousand shareholders, debenture-holders and other security holders, to maintain its records in electronic form. The form and manner is prescribed by Rule 27 of the Companies (Management and Administration) Rules, 2014.

Section 121 — Report on AGM

Every listed public company shall prepare, in the prescribed manner, a report on each AGM, including the confirmation that the meeting was convened, held, and conducted as per the provisions of the Act and the Rules. The report shall be filed with the Registrar in Form MGT-15 within thirty days of the conclusion of the AGM.

Section 122 — Applications of Certain Provisions to One Person Company

The provisions regarding calling of meetings (Sections 98, 100–111) shall not apply to a One Person Company (OPC). For an OPC, it is sufficient if the resolution by the sole member is communicated to the company and entered in the minutes book and signed and dated. Such date shall be deemed to be the date of the meeting for all the purposes of the Act.