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?

Companies Act_Practical Problems_25

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?

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.

Reasons for Growth of multinational enterprise

There are various forces driving the growth of MNCs:

The search for growth markets
Globalisation of markets
Desire to reduce production costs
Desire to shift production to countries with lower unit labour costs
Desire to avoid transportation costs
Desire to avoid tariff and non tariff barriers
Forward vertical integration
Extension of product life cycles
Deregulation of capital markets

Key features of globalisation

Rapid expansion of international trade
Internationalisation of products and services by large firms
Growing importance of multinational corporations
Increase in capital transfers across national borders
Globalisation of technology
Shifts in production from country to country
Increased freedom and capacity and firms to undertake economic transactions across national
boundaries
Fusing of national markets
Economic integration
Global economic interdependence

What is globalisation?

Globalisation is a business philosophy based on the belief that the world is becoming more homogeneous - national distinctions are fading and will eventually disappear.
Globalisation is an increase in interconnectedness and interdependence of economic activity and social relations.
If the world is homogeneous then companies need to think globally and standardise their strategy across national boundaries.

Global business - competitiveness

International competitiveness
This refers to the ability of a country (or firm) to provide goods and services which provide better value than their overseas rivals. This is competitive advantage but on a international scale. As there is constant threat from foreign competition it is essential for business to strive to improve competitiveness.

Some determinants of International competitiveness
Price relative to competitors
Productivity - output per worker
Unit costs
State of technology
Investment in capital equipment
Technology
Quality
Reliability
Lead time
Entrepreneurship
Exchange rate
Relative inflation
Tax rates
Interest rates

Increasing competitiveness-Firms can increase their international competitiveness by:
Rationalisation output to get rid of high cost plants
Relocating to places where labour costs are lower
Process innovation
Product innovation
Incorporating the latest technology into investment
Sourcing from abroad where appropriate
Seeking out new market opportunities
Improving relationships with suppliers and customer

Government’s role to improve international competitivenessGovernments seek policies which aim to:
Encourage R&D spending (e.g. through tax breaks)
Improve the skills base
Improve the economic infrastructure
Promote competition between firms
Operate macro-economic policies favourable to business expansion
Reduce interest rates to stimulate investment
Reduce tax rates to stimulate enterprise, effort and investment
Deregulation to promote competition
Reduce bureaucracy
Encourage sharing of ideas and best practice
Reduce protectionist barriers to stimulate competition
Encourage investment in human capital