Companies Act_Practical Problems_23

A is managing director of APAR Ltd He gave his resignation letter to the Chairman of the Board of directors on 31st December, 2005 and requested that he should be relieved immediately. When does the resignation of Mr. A take effect?

In the given problem, the managing director, Mr. A has submitted his resignation to the Chairman of the Board The Chairman of the Board has the ostensible authority to act on behalf of the company. Thus, it can be said that Mr. A has submitted his resignation to the company. The words 'resignation letter' implies that his resignation is in writing, and so his intention to resign is clear.

As per the decision in Achutha Pai v ROC, the resignation of Mr. A does not take effect immediately on submission of resignation. Thus, Mr. A shall continue as managing director until his resignation is accepted. Accordingly, Mr. A can be compelled to continue as managing director until his resignation is accepted. But, he must be relieved within a reasonable time.

After submission of resignation letter, Mr. A cannot withdraw his resignation except with the consent of the shareholders or the Board.

Companies Act_Practical Problems_22

Mr. John has been appointed as additional director on the Board of MCX Ltd. on 12th January, 2006. Mr. John has filed his consent to Act as a director, if appointed, only with the company. Examine with reference to the provisions of the Companies Act, 1956 whether he is also required to file his consent with the Registrar of Companies.

An additional director is exempted from filing consent with the registrar, when he is appointed as a director In other words, when an additional director vacates his office in the annual general meeting, and he is immediately appointed as a regular director by the shareholders in the same annual general meeting (by complying with the requirements of section 257), he is not required to file his consent with the Registrar.

Thus, it is evident that when a person is appointed as an additional director, he is not exempted from filing consent with the Registrar. Accordingly, Mr. John is required to file his consent with the Registrar.

Companies Act_Practical Problems_21

The articles of association of DEF Ltd. mentioned in it that Mr. X and Mr. Y will act as directors of the company from the date of incorporation. The company was incorporated on 2nd January, 2007. The articles also provided that the directors will have to obtain qualification shares within one month from the date of appointment as director. Mr. X purchased the shares of the company on 28th February, 2007 and Mr. Y purchased on 28th March, 2007 thus violating the provisions contained in the articles. Having regard to the provisions of the Companies Act, examine the validity of the appointments of Mr. X and Mr. Y as directors.

The provisions relating to first directors are contained in section 254 of the Companies Act, 1956. As per section 254, the directors named in the articles shall be the first directors of the company.

As per section 270, every director shall obtain share qualification within 2 months of appointment. Further, the articles cannot require a person to hold qualification shares before appointment. Similarly, the articles cannot require that a director shall obtain the qualification shares within a shorter time than 2 months. Any provision in the articles shall be void in so far as it requires a person to hold the qualification shares before his appointment as a director or to obtain them within a shorter time than 2 months.

Applying the provisions of sections 254 and 270 to the given case, -

Mr. X and Mr. Y are named in the articles as first directors. Accordingly, w.e.f. 02.01.07 they are the first directors of DEF Ltd. The articles are void in so far as the articles require the directors to obtain the qualification shares within 1 month Accordingly, Mr. X and Mr. Y must acquire the qualification shares within 2 months of incorporation of DEF Ltd. Mr. X. can continue in office since he has obtained the qualification shares within 2 months. Mr. Y shall vacate his office since he failed to obtain the qualification shares within 2 months of corporation of DEF Ltd.

Companies Act_Practical Problems_20

M/s Star Health Specialties Limited owns a Multi-specialty Hospital in Chennai. Dr. Hamilton, a practicing Heart Surgeon has been appointed by the company as its non-executive ordinary director and it wants to pay him fee, on case to case basis, for surgery performed on the patients at the hospital. A question has arisen whether payment of such fee to him would amount to payment of managerial remuneration to a director subject to any restriction under the Companies Act 1956. Advise the company, which seeks to ensure that the same does not contravene any provision of the Companies Act, 1956.

As per section 309, remuneration payable to a director for rendering services in any other capacity shall also be covered in 'overall managerial remuneration'. However, remuneration paid for rendering services in any other capacity shall not be so included, if-

(i) the services are rendered in a professional capacity; and
(ii) the Central Government has expressed the opinion that the director concerned possesses requisite professional qualifications.

In the given case, M/s Star Health Specialties Limited intends to pay fees for surgery performed by Dr. Hamilton its non-executive director, on case to case basis. Such payment of fees shall amount to payment of managerial remuneration unless -
(i) the services are rendered by Dr. Hamilton in a professional capacity; and
(ii) the central Government has expressed the opinion that Dr. Hamilton possesses requisite professional qualifications.

The company is advised to make an application to the Central Government. Since Dr. Hamilton possesses requisite professional qualifications (since he is a qualified doctor), and it is proposed that Dr. Hamilton shall render the services in a professional (since the company intends to pay him fees on case to case basis) it is very much probable that the Central Government will express its opinion that the services are rendered in professional capacity by Mr. Hamilton possessing requisite professional qualifications. In such a case the fess paid by Star Health Specialities to Dr. Hamilton shall not be included in overall managerial remuneration and other limits of remuneration specified under the Act

Companies Act_Practical Problems_19

Articles of Association of a listed company has fixed payment of sitting fee for each Meeting of Directors subject to maximum of Rs.10 000 in view of increased responsibilities of independent directors of listed companies, the company proposes to increase the sitting fee to Rs, 25,000 per meeting. Advise the company about the requirements under the Companies Act. 1956 to give effect to this proposal.

The given problem relates to section 309 of the Companies Act, 1956, as explained below:
(a) The amount of sitting fees shall not exceed the sum prescribed. As per Notification No. GSR 580(E),dated 24.7.2003, the sum prescribed is -

(i) Rs. 20,000, in case the aggregate of paid up share capital and free reserves of the company is Rs. uses or more or the turnover of the company is Rs. 50 crores or more;
(ii) Rs.10, 000, in case of any other company.

(b) Sitting fees in excess of the sum prescribed can be paid only with the approval of the Central Government.
Thus, in the given case, the increase in sitting fees from Rs. 10,000 to Rs. 25,000 per Board meeting is not permissible unless approval of the Central Government is obtained.

What is the difference between Voluntary delisting and Compulsory delisting?

Compulsory delisting refers to permanent removal of securities of a listed company from a stock exchange as a penalizing measure at the behest of the stock exchange for not making submissions/comply with various requirements set out in the Listing agreement within the time frames prescribed. In voluntary delisting, a listed company decides on its own to permanently remove its securities from a stock exchange.

What is meant by delisting of securities?

The term "delisting" of securities means permanent removal of securities of a listed company from a stock exchange. As a consequence of delisting, the securities of that company would no longer be traded at that stock exchange.