Wednesday, July 30, 2008

Companies Act_Practical Problems_27

A Company wants to include the following clause in its Articles of Association- Each director shall be entitled to be paid out of the funds of the company for attending meetings of the Board or a committee thereof including adjourned meetings such sum as sitting fees as shall be determined from time to time by the Directors, but not exceeding a sum of Rs. 30,000 for each such meeting to be attended by the Director."

You are required to advise the Company as to the validity of such a clause and the correct legal position.

(a) The proposed clause shall be valid only if the approval of the Central Government is obtained. In the absence of the approval of the Central Government, sitting fees payable to the directors shall be such seeded in the articles or in the ordinary resolution, which is within the sum prescribed, i.e., Rs. 10,000 or Rs 20,000, as the case may be.
(b) Payment of sitting fees to every director is not permissible. If sitting fees is paid to a whole time director or managing director, then it will be considered as payment of remuneration to such directors.
(c) It is permissible to pay sitting fees for attending a meeting of a committee of directors.
(d) Where a Board meeting is adjourned for want of quorum or any other reason, the company may pay sitting fees to the directors who attended such Board meeting.
(e) An adjourned meeting is a continuation of the original meeting. Therefore, where a Board meeting is held and is adjourned to a later date, the sitting fees cannot be paid twice, since it is counted as one Board meeting only.

Companies Act_Practical Problems_26

Adam, a 15% shareholder of a company and other shareholders have lost confidence in the Managing Director (MD) of the company He is a director not liable to retire by rotation and was re-appointed as Managing Director for 5 years w.e.f. 1.4.2005 in the last Annual General Meeting of the company.

Mr. Adam seeks your advise to remove the MD after following the procedure laid down under the Companies Act, 1956.
(i) Specify the steps to be taken by Mr. Adam and the Company in this behalf;
(ii) Is it necessary to state reasons to support the resolution for his removal?