Board Committees

Audit Committee

Applicability: Every Listed Company and Public Company Shall have
                        share paid up capital of Rs. 10 crore rs. or more: or
                        turnover of rs. 100 crore or more


Compliances of Audit Committee

Composition of the audit committees: Every listed company and such other public companies on which the audit committee shall applicable, should have minimum of 3 director as member and  2/3 of members should be independent director and they shall be financially literate.

a. The audit Committee should be held at least four times in year and not more than 120 days shall elapse between two meetings.

b. The quorum of audit committee meeting should be either two members or 1/3 of the members of the meeting, whichever is higher, with at least two independent directors.

Role of Audit Committee: 

Audit Committee shall be reviewed the annual financial statement, quarterly financial statement before submission to the board for approval, with management, its review the internal audit function, performance of the internal and statutory auditor, review the auditor's report, director's responsibility statement, scrutiny of inter corporate loans and Investment, evaluation of internal financial controls and risk management systems  e.t.c.

Remuneration & Nomination Committees

Applicability: 

Every Listed Company and

All public companies with a paid up capital  of Rs. 10 crore or more;

All public companies with a turnover of Rs. 100 crore or more;

All public companies, having in aggregate, outstanding loans or borrowings or debentures or deposits exceeding 50 crore ruppees or more.

Compliances of Remuneration & Nomination Committees Meeting

Constitution of  Remuneration & Nomination Committees Meeting

The Committee so constituted by Board shall  have of three or more non-executive directors out of which not more than half shall be independent Director

 Role of Remuneration & Nomination Committee

The Committee shall identify the person who are qualified to become director and who comply all the criteria to be appointed in senior management. the committee ensure that the remuneration is reasonable and sufficient to attract, retain, and motivate directors of the qualify required to run company successfully. 

Stakeholder Relationship Committee Meeting

Applicability: Every Listed Company and

Every Companies which have more than 1000 shareholders, debentureholders and any other security- holders at any time during a financial year.

                       
Risk management Committee Meeting
Corporate Social Responsbility committee

Corporate Governance

Corporate Governance is the system by which the corporate shall be managed more transparently and efficiently. Corporate governance is about promoting corporate fairness, accountability and should be best interest of stakeholders.

Corporate Governance is the plans, policies and procedures framed by management to achieve its objective and prevent the frauds. It will help to strengthen the existing anti-fraud control by raising the awareness across the Company. Corporate Governance create the healthy and fair Corporate Culture, spread awareness amongst employees and educate them on risks faced by the Company. Its promote an open and transparent communication culture, promote zero tolerance to fraud. The corporate governance describe the roles and responsibilities of the board, audit committee, or other appropriate board committee and management.

Corporate governance ensures that enterprises create maximum wealth and growth for providing maximum benefits to all stakeholders and enhancing its wealth creation to maintain sustainability.

Evidence of Corporate Governance from Arthashastra

kautilya describe the fourhold duty of a king -

Raksha , literally mean protection, in corporate world it can be equated risk management aspect, simply to say how to identify, evaluate and minimize the risk as well as implement the risk management decisions

Vriddhi, means growth, in the present day it can be equated to stakeholder value enhancement. 

Palana, means compliance it can be equated compliance of law.

Yogakshema, means well being, it can be equated to corporate social responsibility

Sarbanes Oxley Act has been passed in U.S to enhance corporate governance norms & prevent corporate frauds.

The provision of corporate governance  has to be comply by the listed  entities as follows:-

 The Board of Directors and composition of Board

(a) The board of directors shall have an optimum combination of executive and non-executive directors with at least one woman director and 50% of the board should be non-executive directors of the Company.

(b) where the chairman of the board is a non-executive, at least 1/3rd of the board should be independent director and in case he is an executive director, at least 50% of the board should be comprise of independent director.

Provided that where the non-executive chairman is the promoter of the company or related of the promoter or person occupying management position at the board level or one level below the board, at least half of the  board of the company should be independent directors.

 Audit Committee, Its Composition and frequency of its meeting - 

Audit Committee shall be reviewed the annual financial statement, quarterly financial statement before submission to the board for approval, with management, its review the internal audit function, performance of the internal and statutory auditor e.t.c.

(a) the audit committee should have at least 3 independent director as member and two-third of the members of the audit committee should be independent Directors.

(b) all members of audit committee should be financially literate and at least one member shall have accounting or related financial management expertise.

(c) the audit committee should meet at least four times in a year and not more than 4 months elapse between two meetings. The quorum shall be either two members or 1/3rd of the members of the audit committee whichever is greater, but there should be a minimum of 2 independent members present.

 Nomination and Remuneration Committee - 

the committee shall constitute with minimum three directors and all directors of the committee should be non-executive director with at least 50% of the directors should be independent directors.

 Stakeholder Relationship Committee - the listed entity shall be constitute the stakeholder committee for the redressal of grievances of the shareholders, debenture holders and other security holders.  

 Risk Management Committee -  Every listed entities should be constitute a risk management committee which shall comprise of the members of the board as its members.

Vigil machanism - The vigil machanism shall be established for directors and employees that they can easily report against any fraud or misconduct to the chairperson of the audit committee.

Related Party Transaction - All related party  transaction shall require prior approval of the audit committee. audit committee may grant the omnibus approval for related party transaction proposed to be entered into by listed company.

Subsidiary Companies - At least one independent director of the holding company should be a director of the board of the material non-listed Indian subsidiary company. 

Every listed entities are required to submit quarterly progress report within 15 days from the close of each quarter to respective administrative authority .

Contact

Simpal Singh

Email - cssimpalsingh@gmail.com

Section 188 - Related Party Transaction

Related Party Transaction is a transaction in which the Company shall enter into contract or arrangement with Related Party, subject to Board's Approval or Shareholder's Approval as the case may be.

188(1) Except with consent of the Board of directors given by resolution at a meeting of the Board and subject to such conditions as may be prescribed, no company shall enter into any contract or arrangement with related party with respect to - 

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind ; 

(c) leasing of property of any kind ;

(d) availing or rendering of any services ;

(e) appointment of any agents for purchase or sale of goods, materials, services or property ;

(f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associates company ; and

(g)underwriting the subscription of any securities or derivatives thereof, of the Company.

Related party transaction shall not be entered into any contract or transaction without obtaining Board Resolution/shareholder's Resolution as the case may be, as mentioned below ;

Board's Approval : The Company is required to obtain Board's approval for entering into any contract or arrangement with related party, and company also require to comply certain conditions specified under rule 15 of Companies (meetings of Board and its Powers) Rules, 2014

Prior Shareholder's Approval : The Company is required to obtain prior approval of the shareholder through Resolution*, where transactions exceeds the limits prescribed under rule 15(3) of Companies (Meeting of Board and its Powers) Rules 2014 

*[the Resolution Substituted for the words "Special Resolution" by the Company (Amendment) Act, 2015 dated 26th May, 2015 w.e.f 29.05.2015

For the purpose obtaining approval of shareholders, check whether the limit of transactions exceed the threshold limits as mentioned below:- 

(a) as contract or arrangements with respect to clauses (a) to (e) of section 188(1), with criteria as mentioned below -
Rules	Transactions	Limits
15(3)(a)(i)	sale, purchase or supply of any goods or materials, directly or through appointment of agent as mentioned in clause (a) and clause (e) respectively of section 188(1);	exceeding  10% of the turnover of the company OR rupees  100 crore, whichever is lower
15(3)(a)(ii)	selling or otherwise disposing of or buying property of any kind, directly  or through appointment of agent. As mentioned in clause (b) and clause (e) respectively of section 188(1)	exceeding  10% of the net worth of the company OR rupees  100 crore, whichever is lower
15(3)(a)(iii)	leasing of property of any kind, as mentioned in clause (c)  of section 188(1)	exceeding  10%  of the net worth of the company OR rupees  100 crore, whichever is lower
15(3)(a)(iv)	availing or rendering of any services, directly or through appointment of agent, as mentioned in clause (d) and clause (e) respectively of section 188(1)	exceeding  10%  of the turnover of the company or rupees 100 crore, whichever is lower
15(3)(b)	such related party’s appointment to any office or place of profit in the company, its subsidiary company or associates  company, as mentioned in clause (f) of section 188(1)	at a monthly remuneration exceeding    2.5 lakhs rupees
15(3)(c)	remuneration for underwriting the subscription of any securities or derivatives thereof, of the company, as mentioned in clause of (g) of section 188(1)	Exceeding  1% of the networth

Explanation -

1. It is hereby clarified that the limits specified in sub clause (i) to (iv) shall apply for transaction or transactions to be entered either individually or taken together with the previous transactions during a financial year.

2. The Net worth or Turnover referred in the above sub - rules shall be computed on the basis of the Audited Financial Statement of the Preceding Financial Year

Exemption from shareholder's approval: The following transactions are not required to obtain shareholder's approval, where the transaction made - 

(i) in the ordinary course of business and on arm's length basis 

(ii) transactions  between holding Company and its wholly owned subsidiaries whose accounts are consolidated with such holding company and placed before the shareholders at the general meeting for approval [vide Companies (Amendment) Act, 2015] 

Explanations - 

1. The phrase "Ordinary course of business" is not defined under Companies Act, 2013 or rules made thereunder. It seems that ordinary course of business will cover the usual transactions in which the company regularly deals and the company repeatedly enter into such transactions for the purpose of its business or the transaction is necessary, normal and incidental to business. The assessment of whether a transaction is in ordinary course of business is very subjective, judgmental and can vary on case to case basis giving consideration to nature of business and objects of the entity.

2. Arm's Length basis means a transaction between two related parties that is conducted as if they were unrelated, so that there is no conflict of interest.

Prior Audit Committee approval : A Company require approval of the audit committee on all relates party transactions and subsequent modifications thereto. This is irrespective of whether they are in the ordinary course of business and consummated at arm's length price or they are below prescribed thresholds.

Exemption to a Private Company : Sub-clause (viii) of clause (76) of section 2, i.e.

(viii) any company which is-

(a) a holding, subsidiary or an associates company of such company OR

(b) a subsidiary of a holding company to which it is also a subsidiary 

shall not apply with respect to section 188 dealing with related party transactions [Notification dated 5th June, 2015]

Voting Power : No member of the company shall vote on such a resolution in which they are interested, to approve any related party transaction, if such member is a related party.

Private companies exempted from above provisions of section 188(1): 

if a private company enters into any contract or arrangement with a related party requiring prior approval of the company, the related parties are now allowed to vote on such resolution [Notification dated 5th June, 2015]

with regard to listed entities, SEBI has notified SEBI (Listing Obligations and Disclosure Requirement) Regulations, 2015 which requires passing of ordinary resolution instead of special resolution in case of all material related party transactions subject to related parties abstaining from voting on such resolutions, in line with the provisions of the Companies Act, 2013 [Reg 23 of Listing Obligations Regulations, 2015]

Reference in Board's Report: Every contract or arrangement entered into with a related party will be referred to in the Board's report to shareholders, along with justification for entering into such transactions.

Contract Voidable if approval of Board/Members is not taken: 

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the consent of the Board or approval by a resolution and if it is not ratified by the Board/shareholders within 3 months from the date on which such contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the Board.

Disqualification : Any violation of section 188 can lead to disqualification for appointment as a director under section 164 of the Companies Act, 2013

Required to Make the Entry in the the MBP-4 : Company is required to make entries in the register maintain under format MBP-4, pursuant to section 189(1) read with rule 16(1) of companies (Meeting of Board and its Powers) Rules, 2014

Offence & Penalty

Any director or other employee of a Company, who had entered into or authorized the contract or arrangement in violation of the provisions of this section shall, 

1. in case of listed company, be punishable with imprisonment which extend to 1 year or with fine which shall not be less than 25000 but which may extend 5 lakh rupees, or with both; and

2. in case of any other company, be punishable with fine which shall not be less than 25000 rupees but which may extend to 5 lakh rupees.

References ; Companies Act, 2013

Contact

Simpal Singh

Mailid ; cssimpalsingh@gmail.com

Mob. 8510844867

Section 54 - Issue of Sweat Equity Shares

This Section enable companies to reward their employees by way of sweat equity shares. These are the shares which are issued by the company to employees or directors at a discount or for the consideration other than cash for providing know-how or making available rights in the nature of intellectual property rights or value additions, by whatever name called.

1. A Company may issue the Sweat Equity shares of a class of shares already issued, if the following conditions are satisfied :

a. Special Resolution : The issue of sweat equity shares shall be authorised by a special resolution passed by the company in a general meeting. 

b. The Resolution shall specify the number of shares current market price, consideration, if any, and the section of directors/employees to whom they are to be issued.

c. The gap of one year : As on the date of issue, a year should have elapsed since the company was entitle to commence business.

d. Listed equity shares issued as per regulation made by SEBI : The sweat equity shares of a company whose equity shares are listed on recognized stock exchange shall be issued in accordance with the regulations made by Securities and Exchange Board of india ('SEBI').

In case of a company whose equity shares not listed on any recognised stock exchange, shall be issued in accordance with rule 8 of Companies (Share Capital and Debentures) Rules, 2014.

2. The rights, limitations, restrictions and provisions applicable to equity shares shall be applicable to equity shares shall be applicable to sweat equity shares and holders of such shares shall rank pari passu with other equity shareholders.

Companies (Share Capital and Debentures) Rules, 2014

The company shall maintain a Register of Sweat Equity Shares in Form No. SH.3 [rule 8(14)]

References

Companies Act, 2013

Contact

CS Simpal Singh

EMail ID - cssimpalsingh@gmail.com

Section 185 of the Companies Act, 2013

Applicability: Section 185 applies to both Public and Private Companies

The Section prohibits directly or indirectly advances of Loans to directors or to any other person in whom director is interested by a Company.

185 (1) Save as otherwise provided in this Act, no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its director or to any other person in whom director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person;

Exceptions: Provided that nothing contained in this sub section apply to

   (a) Loan to a managing director or a whole-time director,

   (i) as a part of conditions of services applicable to all employees; or

 (ii) pursuant to any scheme approved by the members by a special resolution.

 Status of past contracts: It may be noted that the restriction apply only at the time of entering into the transaction, for example, if a person is only an employees of the Company and later he becomes director of the company, section 185 would not apply. In the same way, if a private limited company has given loan/guarantee or security which was earlier exempted under section 295 of the Companies, shall continue to be exempted under section 185. However it cannot give further loans without complying with the provision of section 185 of the Act.

      (b) Loan, guarantee or security for the repayment of the loan in the ordinary course of business and charging interest at the prevailing bank rate, declared by the Reserve Bank of India.

   (c) any loan made by a holding company to its wholly owned subsidiary company  (100% subsidiary Company) or any guarantee given or security provided by a holding company in respect of any loan made to its wholly owned subsidiary company; or

    (d) any guarantee given or security provided by a holding company in respect of loan made by any bank or financial institution to its subsidiary company.

Provided that the loans made under clauses (c) and (d) are utilized by the subsidiary company for its principal business activities.

Explanation: For the purpose of this section, the expression “to any other person in whom director is interested” means

(a) any director of the lending company, or of a company which is its holding company or any partner or relative of any such director ;

(b) any firm in which any such director or relative is a partner ; 

(c) any private company of which any such director is a director or member ;

(d) any body corporate at a general meeting of which not less than twenty-five percent of the total voting power may be exercised or controlled by any such director, or by two or more such directors, together; or

(e) any body corporate, the Board of directors, managing director or manager whereof is accustomed to act in accordance with the direction or instructions of the board, or of any director or directors, of the lending company.    

Exemption to a private company: Section 185 shall not apply to a private company –

(a) in whose share capital no other body corporate has invested any money;

    (b) if the borrowing of such a company from banks or financial institutions or body corporate is less than twice its paid-up capital or fifty crore rupees, whichever is lower; and

   (c) such a company is not in default in repayment of such borrowing subsisting at the of making transactions under this section. [Notification dated 5^th June, 2015]

  Offence & Penalty

   If any loan is advanced or a guarantee or security is given or provided in contravention of the provision of sub section (1), the company shall be punishable with fine and the director or the other person to whom any loan is advanced or guarantee or security is given or provided in connection with any loan taken by him or the other person shall be punishable with imprisonment or with fine or with both. [section 185 (2)] 

     Reference: Companies Act, 2013

Contact

CS Simpal Singh

Email Id: cssimpalsingh@gmail.com

Section 184 of the Companies Act 2013 - Disclosure of interest by Director

184 (1) Every director shall at the first Board Meeting of the Board in which he participates as a director and thereafter at the first  Meeting of the Board in every Financial Year or whenever there is any change in the disclosure already made, then at the first Board Meeting held after such change, disclose his concern or interest in any company or companies or bodies corporate, firms, or other association of the individuals which shall include the shareholding, in such manner as may be prescribed.

(2) Every director of the company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into –
a.  With a body corporate in which such director or such director in association with any other director, holds more than two percent shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body Corporate ; or

b.  With a firm or other entity in which such director is a partner, owner or member,as the case may be shall disclose the nature of his concern or interest at the meeting of the board in which the contract or arrangement is discussed and shall not participate in such meeting:

Provided that where any director who is not so concerned or interested at the time of entering into such contract or arrangement, he shall, if he becomes concerned or interested after the contract or arrangement is entered into, disclose his concern or interested or at the first board meeting of the board held after he becomes so concerned or interest.

(3) A contract or arrangement entered into by the company without disclosure under sub section (2) or with participation by a director who is concerned or interested, in any way, directly or indirectly, in the contract or arrangement, shall be voidable at the option of the company.

(4) If a director of the Company contravenes the provision of the sub section (1)  or sub section (2), such director shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Fifty thousand rupees (50,000) but which may extend to one lakh rupees, or with both.

Exemption/modification to a Private Company: Section 184 deals with disclosure of interest by the directors of the Companies. Section 184(2) provides that the directors of a private company must refrain from participating in a board meeting where a matter in which they are interested is to be discussed. This created practical problem in case of private Companies which did not have any disinterested director on a matter under consideration. Accordingly, private companies have been exempted from the provision of section 184(2) implying thereby that the interested director of the private companies can take part in the meeting of the Board after disclosing their interest. 

However there is an anomaly. Though such an interested director may participate in a Board meeting of a private company, he cannot be counted for the purposes of quorum under section 174(3) which provides that directors who are not interested and present at the meeting shall be the quorum (Notification dated 5^th June, 2015)

Companies (Meeting of Board and its Powers) Rules, 2014

Disclosure by a director of his interest: Every director shall disclose his concern or interest in any company or companies or bodies corporate (including shareholding interest), firms or other association of individuals, by giving a notice in writing in Form MBP 1

It shall be the duty of the director giving notice of interest to cause it to be disclosed at the meeting held immediately after the date of the notice. All notices shall be kept at the registered office and such notices shall be preserved for a period of eight years from the end of the financial year to which it relates and shall be kept in the custody of the company secretary of the company or any other person authorized by the Board for the purpose. (rule 9)

Judicial Pronouncement

Where director is sub partner with the other party to the contract, he is deemed to have an interest in the contract which he is bound to disclose – Pydah Venkatachalapathi v Guntur, Jute & Pare Mills Co Ltd AIR 1929 Mad 353

A relationship of friendliness with directors who are ‘interested’ in contract or arrangement will not make a person an interested director. The interest or concern cannot be merely a sentimental interest or ideological concern – Needle Industries (india) Ltd v Needle Industries Newey (India) Holding Ltd (1981) 51 Comp Cas 743 (SC)

Offences & Penalty

If a director fails to disclose his interst in contract at a Board meeting or participates in the meeting of the Board where he has disclosed his interest shall be punishable with imprisonment or with fine or with both (sub section 4)

References 
Companies Act, 2013