Meetings and Governance

Various Categories of Meetings

• General Meetings
• Annual General Meeting
• Extraordinary General Meetings
• Creditors Meetings
• In case of Winding up of company
• In case of other than winding up
• Class Meetings
• Board Meetings
• Committee Meetings
Requisites of Valid Meeting

• Duly Convened
• Proper Authority
• Proper and Adequate Notice
• Properly Constituted
• Chairman of a Meeting
• Properly Conducted
• Ascertaining the Sense of the general meeting
Proper Authority to conduct General Meeting

Board of Directors - u/s 179

• AOA generally empowers BOD to call for GM
• If not in AOA Common law principle allow BOD to conduct GM
• Whatever company can do BOD can do
Shareholders- u/s 100
• Shareholders having 1/10th of Paid-up share capital or voting rights
can demand the General Meeting
• The Request shall be signed by Shareholders, BOD shall take
necessary steps within 21days, within 45 days shall be called
• The Shareholders can themselves can conduct GM within 3 months
• All expenses shall be reimbursed by company, Company can deduct
the amount from BOD from remuneration
Continue..

Tribunal
• If for any reason defaults occurs then, any member can file petition
[u/s 97]-AGM
• In case of EGM on petition from Member/Director/Suo motu [u/s
98]-This power is exercised only it has become impracticable to call,
hold or conduct Meeting
Proper and Adequate Notice
General Rules
• Specify date, time and place of meeting
• State the nature of business, agenda
• Must be served in accordance with AOA
• Notice is deemed to served on expiry of 48 hour from the time of
posting [Section 20 r/w Rule of 35 of Companies (Incorporation) Rules,
2014
• Notice may be served through Registered post/Ordinary Post/Speed
Post/e-mail/Courier etc
Under Act
• AGM shall be called during the business hours [9am to 6pm]
• Not on National Holiday
• Shall be at Registered office/within city/town/village in which
registered office of the company is situated [u/s 96]
• In case of listed company at any place in India, if consent is obtained
from all shareholders through electronic mode
Continue..
Agenda
• In case of special business Explanatory Statement to be annexed
• Explanatory statement to state the nature of interest, financial or
otherwise of every director/Manager/KMP
Documents to Accompany Notice
• Attendance slip
• Proxy form
In case of AGM: Audited Financial Statements, Directors and Auditors
Report, etc
In case of EGM: Explanatory Statement, Proxy form etc.
Length of Notice
• At least 21 clear days notice [u/s 20]
• Shorter notice
• Consent by not less than 95% of voting rights/share capital.
• Consent may be received before the meeting is held or after the
resolutions are passed [ in re Self-Help private industrial Estate
pvt Ltd [1972]]
• Publication of Notice in a newspaper is not mandatory under
Companies Act
• In case of joint shareholders, notice to shareholder whose
name is mentioned first is sufficient
• Any resolution passed at GM is not effective in case of
shorter notice.
To whom notice to be given?
• Every Member of the Company
• The Legal representative of deceased member
• The assignee of an insolvent member
• The auditors of the company
• Every director of the company
Meeting to be legally constituted
Chairman of a Meeting
• Name of First Chairman Generally Mentioned AOA
• In other cases the members personally present shall elect one among them
as chairman [u/s 104 (1)]
• If poll is demanded for election of chairman, it shall be conducted
accordingly [u/s 104(2)]
Role and Powers of Chairman
• To maintain order and decorum
• To give ruling on points of order
• To decide priority of speakers
• To maintain relevancy and order in debate
• To explain objective and implication of resolution
• Not propose any resolution where he is interested [ in case of public
companies
• To adjourn a meeting
• To exercise casting vote
Quorum [section 103]
In case of public company
• 5 Members Personally present [No of members not more than 1000]
• 15 Members [upto 5000]
• 30 Members [exceeds 5000]
In case of PVT Company
• 2 Members Personally Present
Rules Regarding Quorum
• Only members personally present considered
• Preference shareholders/Equity shareholders without voting power
not considered
• Joint shareholders as single member
• A member in two capacities counted separately
• Representative of President/governor/Corporations/Companies
[Section 112 and 113]
• Quorum to be there within 1/2hour from the time appointed for GM
• All Directors/Auditors shall be present at the GM
Meeting to be properly Conducted
Ascertaining the sense of Meeting
• Acclamation
• Division of people
• Voice vote
• Show of hands
• Ballot
• Postal Ballot
• E-voting
Rules relating to Voting ( Section 47)
• Every Member of a company limited by shares and holding
equity share capital shall have voting right on every
resolution placed before the company

• The voting right shall be in proportion to his share in the paid-

up equity.

• Preference share holder will have voting rights

• Resolutions which directly effects their rights

• Winding up of the company

• The company may impose restriction on voting rights in case

of arrears on calls or exercise right of lien ( u/s 106)

• Unless poll is demanded resolution is passed by show of

hands ( u/s 107)

• Postal Ballot ( u/s 110) [ Certain transactions need to be by

postal ballot under Act]
E-Voting [Section 108]
• E-Voting [ Electronic voting machines are located in poling station]
• Remote E voting [ voting can be done from anywhere]
• Every listed company or company having not less than 1000
shareholders shall provide facility of e-voting
• Notice regarding the same to be sent to all
• Notice to include the manner of casting vote
• E-voting shall be open not less than 1 day and not more than 3
days
• The BOD shall appoint scrutinizer
• Within 3 days from the conclusion the scrutinizer shall give report
Proxies ( Section 105)
• Every member entitled to vote can appoint proxy
• Notice shall have proxy form
• Proxy need not be member
• Every member has a right to inspect the register of proxies
• A person cannot act as a proxy on behalf of more than 50
members and cannot hold more than aggregate of 10% of total
paid up share capital
• Proxy appointed by first shareholder is valid
• Latest proxy will prevail
ANNUAL GENERAL MEETING SEC. 96
• Who Need to Conduct? : Every Company shall conduct Annual
General Meeting.
• When? Every Annual General Meeting shall be called during
business hours, that is, between 9 a.m. and 6 p.m. on any day that is
not a National Holiday and
• Where? Shall be held either at the registered office of the Company
or at some other place as the Central Government may approve in
this behalf
Other Conditions:
• The Gap between Two AGMs shall not exceed 15 Months
• In every calendar year there shall be one AGM
EXTRA-ORDINARY GENERAL MEETING (SEC.100)
• By the Board Suo motu [Section 100 (1)]
• By Board on requisition of members [Section 100 (2)]
• By requisitionists [Section 100(4)]
• By Tribunal [Section 98]
Books accounts [Section 128]

• Every company at its registered office shall maintain the books of

accounts and financial statements [ Section 128 (1)]
• If the company has branch office, at branch office shall maintain
books of accounts
• The books of accounts are open inspection to any director
• The books of accounts to be maintained for 8 years
• The MD/WTD/CFO/other person authorised by BOD are
responsible to maintain books of accounts
Financial Statements [Section 129]

• Financial statements must provide a true and fair view of the

company's financial position.

• They must comply with accounting standards prescribed by

the Institute of Chartered Accountants of India (ICAI).

Components of Financial Statements (As per Schedule III of the

Companies Act, 2013):

1. Balance Sheet – Shows assets, liabilities, and equity.

2. Profit & Loss Account – Reports income, expenses, and net profit/loss.

3. Cash Flow Statement – Reports cash inflows and outflows (except for
OPCs, small companies, and dormant companies).

4. Statement of Changes in Equity – Applicable for companies with share

capital.

5. Notes to Accounts – Provides additional explanations.

 Signing of Financial Statements (Section 134)
 Must be approved by the Board of Directors before submission to
shareholders.
 Signed by the chairperson, at least two directors, CEO, CFO, and CS (if
applicable).

Filing Requirements (Section 137)

 Companies must file their financial statements in Form AOC-4 with
the Registrar of Companies (ROC) within 30 days of the Annual General
Meeting (AGM).
 If a company does not hold an AGM, the filing must be done within 30
days from the due date of the AGM.
 Failure to file attracts a penalty of ₹1,000 per day (maximum ₹10 lakh for
the company and ₹1 lakh for each officer in default).
 Section 139 to 147 – Audit Provisions

Appointment of Auditor (Section 139)

 Every company must appoint a statutory auditor within 30 days of incorporation.
 The first auditor is appointed by the Board of Directors. Subsequent auditors are
appointed for a 5-year term, subject to shareholder approval.
 Listed and certain large companies must rotate auditors every 5 or 10 years as
per Section 139(2).

Duties of an Auditor (Section 143)

 Express an opinion on whether financial statements are true and fair.
 Report any fraud detected during the audit exceeding ₹1 crore to the Central
Government.
 Ensure compliance with Indian Accounting Standards (Ind AS).
 Penalty for Non-Compliance (Section 147)
 If an auditor knowingly misrepresents financial statements:
o Fine: ₹1 lakh to ₹25 lakh.
o Auditor may be barred from practice.
Criminal liability in case of fraud
Internal Audit (Section 138)
 Applicable to certain companies based on turnover, paid-up capital, and
borrowings.
 Conducted by Internal Auditors, who may be Chartered Accountants (CA) or
Cost Accountants (CMA).
 Ensures operational efficiency and risk management.
 Cost Audit (Section 148)
 Mandatory for companies in specific sectors (e.g., manufacturing,
infrastructure).
 Conducted by Cost Accountants to verify cost records and pricing structure.
Reports submitted to Board of Directors and Central Government.

Annual Return (Section 92 & Rule 11 of Companies (Management &

Administration) Rules, 2014)
 Every company (except OPCs and small companies) must file an Annual Return
(MGT-7) within 60 days of the AGM.
 Contains details about:
o Shareholding pattern
o Directors and KMPs
o Changes in corporate structure

 Non-filing penalty: ₹10,000 plus ₹100 per day (up to ₹2 lakh for the company
and ₹50,000 for directors).
Appointment of Auditors (Section 139)

First Auditor – Section 139(6) & (7)

Private & Public Companies:

o The Board of Directors must appoint the first auditor within 30 days of
incorporation.
o If the Board fails, shareholders must appoint the auditor within 90 days at
an Extraordinary General Meeting (EGM).

Government Companies:
o The Comptroller & Auditor General (CAG) must appoint the first auditor
within 60 days of incorporation.
o If CAG fails, the Board appoints within the next 30 days.
o If the Board also fails, the shareholders appoint within the next 60 days.
 (ii) Subsequent Auditors – Section 139(1)
 The first AGM appoints an auditor for a term of 5 years.
 Appointment confirmed via Ordinary Resolution in a General Meeting.

Ratification (Annual Confirmation):

o Initially, companies had to ratify the appointment every year.
o Companies (Amendment) Act, 2017 removed this requirement to reduce
compliance burdens.
Rotation of Auditors (Section 139(2))

Applicable to:
 Listed companies.
 Other prescribed companies (as per Rule 5 of Companies (Audit & Auditors) Rules,
2014).

Rotation Rules:
 Individual Auditor: Cannot serve more than 5 consecutive years.
 Audit Firm: Cannot serve more than 10 consecutive years.
 Cooling-Off Period:
o After completing the term, the same auditor/audit firm cannot be reappointed
for 5 years.
Partner Rotation in Firms:
• If an audit firm is appointed, the engagement partner must be rotated
every 5 years.

Exceptions:
Rotation is not mandatory for:
o Small companies.
o Private companies with paid-up capital less than ₹50
crore.
o One Person Companies (OPCs).
Removal & Resignation of Auditor (Section 140)

(i) Resignation of Auditor

 If an auditor resigns before completing the term, they must:
o File Form ADT-3 with the Registrar of Companies (ROC) within 30 days.
o Clearly state the reason for resignation.

(ii) Removal Before Completion of Term

 The company cannot remove an auditor before the term ends unless:
o The Board passes a special resolution at a General Meeting.
o Prior approval from the Central Government (Form ADT-2) is obtained.
o The auditor is given a reasonable opportunity to be heard.
Disqualifications of an Auditor (Section 141)

An individual cannot be appointed as an auditor if they:

1. Hold any security or interest in the company (directly or indirectly).

2. Are a relative of a director or key managerial personnel (KMP).

3. Have a business relationship with the company (other than in professional

capacity).

4. Have been convicted of fraud in the past 10 years.

5. Are already auditing more than the prescribed limit (20 companies).
Auditor’s Remuneration (Section 142)

 Decided by shareholders in a general meeting.

 For first auditors, the Board of Directors fixes the
remuneration.
 Remuneration includes:
o Audit fees.
o Reimbursement of expenses.
o Other professional charges (if any).
Penalties for Non-Compliance (Section 147)

(i) Penalties on the Company

 The company may be fined ₹25,000 to ₹5,00,000.

 Every officer involved in non-compliance may be fined ₹10,000 to

₹1,00,000.

(ii) Penalties on the Auditor

 If an auditor is found guilty of:
o Fraudulent activities → Imprisonment (up to 10 years) + Fine (up to 3x
the fraud amount).
o Negligence → Fine ranging from ₹1,00,000 to ₹25,00,000.
 (i) P. Srinivas v. Ramesh Kumar (2015)

Issue: Whether an auditor can be held responsible for errors in financial

reporting?

Judgment: Auditors must exercise due diligence; failure leads to professional

misconduct.

(ii) ICAI v. Mukesh Gang (2018)

Issue: Action against an auditor for violating professional ethics?

Judgment: ICAI took disciplinary action, setting a precedent for ethical auditing
practices.

(iii) Satyam Scam Case (2009)

Issue: The role of auditors (PricewaterhouseCoopers) in the ₹7,000 crore fraud.

Judgment: Auditors were found guilty of negligence and faced penalties.

Types of Dividend

(A) Final Dividend

• Declared at the Annual General Meeting (AGM) based on
Board recommendations.
• Cannot be revoked once declared.
(B) Interim Dividend
• Declared by the Board of Directors before finalizing the
annual accounts.
• If the company incurs a loss, the interim dividend cannot
exceed the average of the past 3 years' dividends.
Section 123 – Sources & Conditions for
Dividend Declaration

A company can declare dividends from the following sources:

1. Current year's net profit after depreciation and tax.
2. Undistributed profits from previous years (free reserves).
3. Money provided by the Government for dividend payment (for
Government companies).
Key Conditions for Declaration:
• The Board must recommend the dividend.
• Depreciation must be provided before declaring the dividend.
• The company may voluntarily transfer some profits to reserves
before distribution.
• The dividend must be paid only in cash (except for bonus shares).
• Dividend must be deposited in a scheduled bank within 5 days of
declaration.
Section 124 – Unpaid Dividend and Transfer to
Investor Education and Protection Fund (IEPF)

• If a declared dividend is not claimed within 30 days, it must

be transferred to an Unpaid Dividend Account within 7 days.
• Any dividend remaining unpaid for 7 years must be
transferred to the Investor Education and Protection Fund
(IEPF).
• Shareholders can claim their unpaid dividends from IEPF by
following prescribed procedures.
Section 125 – Investor Education and
Protection Fund (IEPF)

• The IEPF is used to protect investors' interests.

• Any unclaimed dividend, matured deposits, and other
financial instruments remain in IEPF until claimed by rightful
shareholders.
Section 127 – Penalty for Failure to Pay
Declared Dividend

• If a company fails to pay a declared dividend within 30 days,

the consequences are:
• The company may be fined up to ₹5 lakh.
• Every officer in default may be imprisoned for up to 2
years or fined ₹1,000 per day during the period of default.
Restrictions on Dividend Declaration

The Companies Act restricts dividend declaration in cases such

as:
1. Insufficient profits (Section 123).
2. Non-compliance with depreciation requirements.
3. Default in repayment of deposits, debentures, or statutory
dues (Section 73 & 74).
4. Breach of terms in Articles of Association (If a company’s
articles prohibit dividend declaration under certain
conditions).
Payment of Dividend Only from Profits

Foster v. New Trinidad Lake Asphalte Co. (1901)

Facts:
The company declared dividends even though its profits
came from capital receipts rather than trading profits.

Held:

• The court held that dividends must be paid only from actual
profits and not from capital receipts.
• As per Section 123 of the Companies Act, 2013, which
mandates dividends to be paid from real profits and after
providing for depreciation.
Shareholders’ Rights and Dividend
Declaration
Bacha F. Guzdar v. CIT (1955) – Supreme Court of India
Facts:
A shareholder argued that dividends should be considered a
part of the company's profits and not taxable in their hands.

Held:

• The Supreme Court held that once dividends are declared,

they belong to shareholders and constitute their personal
income.
• Reinforces that shareholders have no right to dividends until
they are declared by the company.
• Once declared, the company must pay within 30
days under Section 127.
Obligation to Pay Declared Dividend

Dalmia Cement (Bharat) Ltd. v. CIT (1976)

Facts:
The company declared dividends but delayed payments to
shareholders.

Held:

• The court ruled that once a dividend is declared, it becomes

a debt payable by the company. Any failure to pay may
attract penalties under Section 127.
• once dividends are declared in an AGM, they cannot be
revoked.
Restriction on Dividend Declaration in
Case of Losses

Brook Bond India Ltd. v. CIT (1986)

Facts:
The company declared dividends despite suffering losses in
the previous years.

Held:
• The court held that dividends cannot be declared unless past
losses are adjusted against profits, as per accounting
principles and legal provisions.
• Under Section 123, companies must ensure that losses from
previous years are adjusted before declaring dividends
Power of the Board vs. Shareholders in
Dividend Declaration

Re: Bengal Tea Co. Ltd. (1973)

Facts:
Shareholders demanded a higher dividend than what the
Board had recommended.

Held:

• The court held that shareholders cannot declare a dividend

higher than what the Board recommends at the AGM.
• Under the Companies Act, only the Board has the power to
recommend dividends, and shareholders can either approve
or reject, but not increase it.
Transfer of Unclaimed Dividend to IEPF

Navnitlal C. Javeri v. K.K. Sen (1965)

Facts:
The company had unclaimed dividends, and shareholders
argued they should still be entitled to claim them beyond the
statutory period.
Held:
• The Supreme Court ruled that unclaimed dividends must be
transferred to the Investor Education and Protection Fund
(IEPF) after 7 years and cannot be retained indefinitely by
the company.
• Section 124, which mandates unclaimed dividends to be
transferred to the IEPF after 7 years.
Interim Dividend and Directors’ Discretion

Dalmore Investment v. Bombay Dyeing (1952)

Facts:
A company declared an interim dividend but later revoked it
due to financial difficulties.
Held:
• The court ruled that the Board has the power to revoke an
interim dividend before payment if justified.
• Interim dividends can be revoked by the Board in case of
financial distress.
• Final dividends, once declared, cannot be revoked
Non-Payment of Dividend and Penalties

J. Dalmia v. CIT (1975)

Facts:
The company declared a dividend but failed to pay it within
the prescribed period.
Held:
• The court held that failure to pay declared dividends within
30 days violates corporate governance norms and attracts
penalties under Section 127.
• The strict liability on companies to ensure timely payment of
dividends once declared.
Thank You