Companies Act_Practical Problems_31

Mr. X was appointed as the Managing Director of XYZ Ltd. w.e.f. 1st October, 2006. The company made an application to the Central Government for approval, as the remuneration proposed to be paid to Mr. X was beyond the limits laid down in Schedule XIII to the Companies Act, 1956. The company started paying remuneration from the date of appointment and continued to do so till 31st March, 2007. The Central Government did not approve the remuneration as proposed by the company and restricted the same to a lower amount. On scrutiny of the accounts, it was noticed that the company, till 31st March, 2007 has paid to Mr. X, a total of Rs. 1.20 Lakhs in excess of the remuneration sanctioned by the Central Government, Explain with reference to the provisions of the Act whether Mr. X can keep the excess remuneration ? Draft a resolution for waiver of recovery of the excess remuneration so paid by the company.

Mr. Weldon was appointed as a non-executive director. He was paid monthly remuneration awaiting the approval of the Central Government. However, the remuneration sanctioned by the Central Government was lesser than the remuneration actually paid to Mr. Weldon. As per section 309, Mr. Weldon cannot keep remuneration drawn by him which is in excess of the remuneration sanctioned by the Central Government Accordingly, he shall refund to the company Rs. 1,20,000. Until such refund is made, he shall hold it in trust for the company. Further, the company cannot waive the recovery of excess remuneration.

However, if on an application made to the Central Government, the Central Government permits the waiver of recovery of such excess remuneration, the company may waive the recovery of excess remuneration, and then Mr. Weldon shall have a right to retain the excess remuneration drawn by him.

Waiver of recovery of excess remuneration
Passing Authority - General Meeting
Nature of the Resolution - Ordinary Resolution

RESOLVED that pursuant to the provisions of section 309 and other applicable provisions, if any, and subject to the approval of the Central Government, consent of the company be and is hereby given for waiving the recovery of an amount of Rs, 1,20,000 paid to Mr. Weldon, the director of the company, during the period 1st October, 2002 to 31st March, 2003, being in excess of the remuneration sanctioned by the Central Government vide Letter No. ................ dated ..................

RESOLVED FURTHER that an application be made to the Central Government and the company secretary be and is hereby authorised to take the necessary steps in this regard."

Companies Act_Practical Problems_30

M/s ABC Ltd. had power under its memorandum to sell its undertaking to another company having similar objects. The Articles of the company contained a provision by which directors were empowered to sell or otherwise deal with the property of the company. The Shareholders passed an ordinary resolution for the sale of its assets on certain terms and required the directors to carry out the sale. The Directors refused to comply with the wishes of the shareholders where upon it was contended on behalf of the shareholders that they were the principal and directors being their agents were bound to give effect to their decision. Based on the above facts, decide the following issues, having regard to the Provisions of the Companies Act, 1956 and case laws.

(i) Whether the contention of shareholders against the non-compliance of their wishes by the directors is tenable.
(ii) Can shareholders usurp the powers which by the articles are vested in the directors by passing a resolution in the general meeting?

(i) The Board is the supreme body having the management of the company. The Board has the absolute power to do all things except those that are expressly required to be done by the company in general meeting. The shareholders cannot interfere in the day to day management of the company. The shareholders cannot supersede or usurp the Board's powers, or instruct it as to how it shall exercise its powers.

Also, as per Sec. 293, the power to sell, lease or otherwise dispose of any undertaking of the company is vested with the Board, though the Board can exercise such power only with the consent of the shareholders in general meeting. Thus, it is evident that a direction by the shareholders does not make it obligatory for the Board to exercise such power.

If in the opinion of the Board, it is not in the best interest of the company to sell its assets, the Board is not bound to do so, notwithstanding the fact that the company in general meeting has resolved that the assets should be sold [Pothen v Hindustan Trading Corpn. (P) Ltd.].

Thus, the contention of the shareholders is not tenable.
(ii) The powers of management are vested in the Board of directors; the Board alone can exercise such powers Even a unanimous resolution of the shareholders will not enable the shareholders to exercise the powers of the Board. The shareholders cannot interfere in the day to day management of the company. Thus, the shareholders cannot usurp the powers vested in directors.

Sarbanes Oxley Act- Sec 802

This section is listed within Title VIII of the act (Corporate and Criminal Fraud Accountability), and pertains to 'Criminal Penalties for Altering Documents'.

This section imposes penalties of fines and/or up to 20 years imprisonment for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct, impede or influence a legal investigation. This section also imposes penalties of fines and/or imprisonment up to 10 years on any accountant who knowingly and wilfully violates the requirements of maintenance of all audit or review papers for a period of 5 years

Sarbanes Oxley Act - Sec 409

This section is listed within Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Real Time Issuer Disclosures'.

Issuers are required to disclose to the public, on an urgent basis, information on material changes in their financial condition or operations. These disclosures are to be presented in terms that are easy to understand supported by trend and qualitative information of graphic presentations as appropriate.

Sarbanes- Oxley Act- Sec 404

This section is listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Management Assessment of Internal Controls'.

Issuers are required to publish information in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting. This statement shall also assess the effectiveness of such internal controls and procedures. The registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness of the internal control structure and procedures for financial reporting.

Sarbanes-Oxley Act -Sec 401

This section is of course listed under Title IV of the act (Enhanced Financial Disclosures), and pertains to 'Disclosures in Periodic Reports'.

Financial statements are published by issuers are required to be accurate and presented in a manner that does not contain incorrect statements or admit to state material information. These financial statements shall also include all material off-balance sheet liabilities, obligations or transactions. The Commission was required to study and report on the extent of off-balance transactions resulting transparent reporting. The Commission is also required to determine whether generally accepted accounting principals or other regulations result in open and meaningful reporting by issuers.

Sarbanes-Oxley Act 2002 -Sec 302

Periodic statutory financial reports are to include certifications that:
• The signing officers have reviewed the report

• The report does not contain any material untrue statements or material omission or be considered misleading

• The financial statements and related information fairly present the financial condition and the results in all material respects

• The signing officers are responsible for internal controls and have evaluated these internal controls within the previous ninety days and have reported on their findings

• A list of all deficiencies in the internal controls and information on any fraud that involves employees who are involved with internal activities

• Any significant changes in internal controls or related factors that could have a negative impact on the internal controls

Organizations may not attempt to avoid these requirements by reincorporating their activities or transferring their activities outside of the United States