Company Administration Long Answer Type Questions

Company Administration Long Answer Type Questions

Question 1.
What are the legal qualifications and qualities required for a company secretary?
Any individual possessing the prescribed qualifications appointed as a company secretary any firm or a body corporate cannot Be appointed as a secretary qualification company secretary prescribed by the Central Government from time to time.

Section 2(c ) of the company secretaries act 1980 company secretary means a person who is a member of the institute of company secretaries of India. He is appointed to perform the managerial functions of the company. He is performing many duties of the company, therefore, he should be efficient. He should possess the certain qualification for the good management of the company’s affairs.

Statutory qualifications or professional qualifications:
i) He is a member of the institute of company’s secretary of India.

ii) Membership of the institute of company secretaries of India is necessary to become a whole time secretary of a company having paid up share capital of Rs. 50 lakhs or more.

iii) In case of other companies having less than Rs. 50 lakhs paid up capital. One or more of the following qualifications are necessary for appointment of company secretary.

  • Membership of the institute of the company secretaries of India.
  • Post graduate degree in commerce’ on corporate secretary ship.
  • Degree in law.
  • Membership of the institute of chartered accountantants of India.
  • Membership of the institute of cost and works accounts of India.
  • Post graduate diploma in company law and secretarial practice granted by the university of Udaipur.
  • Membership of association of secretaries and manager Calculat.
  • Diploma in corporate laws and management granted by the India law institute Newdelhi.

Other qualifications:

  • Company secretary should possess a sound general education.
  • He should have command over the language.
  • He should have specialized knowledge of the office administration.
  • He should have knowledge of general procedure of meetings.
  • He should have knowledge of book keeping and accounts.
  • He should know the working of money market stock market foreign exchange market.
  • He should possess the through knowledge of the company law.
  • He should have a through knowledge of the various law.
  • He should posses a full knowledge of the business of the company.
  • He should have full knowledge of the competitive industries which are in the market.

Along with this following are personal qualities: Required to a successful company secretary –

  • He should have desire to work hard.
  • He should be honest in his work.
  • He should be loyal to his employer.
  • He should be able to take good sound and quick decision
  • He should be courteous and polite in dealing with other.

Question 2.
Explain the powers and duties of the director of a public company.
In a joint stock companies, management is not in the hands of shareholders, because they are large in number and not in position to run the business effectively therefore they elect some person who are good in management as their representatives to manager the affairs of the company. These persons are called as directors of the company. Director is detined U/s 2(13) of company act as “any person occupying the position of a director by whatever name called director of the company. In a public limited company there must be minimum 3 directors and in other company minimum 2 directors are required to run the functions of the company.

Powers of directors: Powers of directors are subject to provisions of articles of association, memorandum of association and companies act directors can exercise the powers collectively as a board by passing resolutions in the meeting.

Following are the powers of directors:

  • To appoint managing director of the company.
  • To appoint manager of the company.
  • To invest the funds of the company in other body corporate.
  • To make calls on share
  • To forfeit shares.
  • To issue shares and debentures.
  • To borrow money from outsiders.
  • To appoint the first auditor of the company.
  • To make a contract with third parties in the name of the company.
  • To recommend the rate of dividend.
  • To look after the day to day functions of the company.
  • To administers the internal organisation of the company.
  • To formulate major polices of the company.

But powers of directors are restricted on following points they are –

  • Not to sell, lease, or dispose, the property of the company.
  • Not to limit or extend the time for the payment of debt of the company.
  • Not to appoint sole selling agent for a period of more than 5 years.
  • Not to invest money in other body corporate in excess of the amount mentioned in company act.
  • Not to donate the fund in excess of amount specified in rules of company act.

Duties of the director: Directors duties are classified into two categories –

  • Statutory duties
  • General duties

(a) Statutory duties:
These duties are performed by the directors of the company as per company act. Statutory duties of directors are –

  • To determine the amount of minimum subscription.
  • To see that amount received from share applicants is deposited in a scheduled back until the certificate to commence business is obtained.
  • To held the statutory meeting.
  • To prepare a statutory report and file a copy of it with the registrar of companies.
  • To forward a copy of statutory report to every member of the company at least 21 days before the statutory meeting is held.
  • To call annual general meeting every year.
  • To call an extra ordinary general meeting of the company on the requisition of required number of members of the company.
  • To give all records and documents to auditor to audit the company’s accounts.
  • To approve the balance sheet and profit and loss account before they submitted to the auditor for their report.
  • To pay dividend only out of divisible profits of the company.
  • To purchase and pay for their qualification shares with in specified time.
  • To function the affairs of the company effectively.
  • To maintain the register of members.

(b) General duties:
Directors of a company are performing these duties as per general law following are the general duties of a director.

  • Directors must act in the company in good fait.
  • Directors must take interest in the progress of the company.
  • Directors must use the property of the company for the benefits of the company.
  • They must attend the meeting the company regularly.
  • They must work for the company in honest way.

Question 3.
Analyse the ways of by which the director of the company are appointed.
Directors of the company may be appointed in the following ways.

  • By the promoters of the company.
  • By the subscribes of the memorandum of association (U/s 254, 266)
  • By the company in a general meeting (U/s 256, 261)
  • By the board of directors (U/s 260, 262, 313)
  • By the principle of proportional representation (U/s 265)
  • By the central govt. (U/s 408)
  • By third parties.

(a) By the promoters of the company: At the time of the formation of a company the promoters of the company select and secure the consent, of prominent persons to act as the first directors and mention their, names in the articles of the company.

(b) By the subscribers of the memorandum of association (U/s 254, 266): If the first directors are appointed by the promoters of the company. Than the subscribes to the memorandum of association also are individuals will be deemed to the first directors of the company.

(c) By the company in a general meeting (U/s 256, 261): First directors are appointed either by promoters or by the subscribes to the memorandum of association of the company. The subsequent directors are elected by the share holders at the general meeting or nominated as per the articles.

(d) By the board of directors (U/s 260, 262, 313): Board of directors may appoint (i) additional directors within the maximum strength fixed for the board by the articles of association, b) Casual vacancy may be filled by the directors as per provisions of articles of association, c) alternate directors may be appointed in the place of original directors during his absence for a period of more than three months.

(e) By the principle of proportional representation (U/s 265): In general directors are appointed on a straight vote of the company section 265 of companies act 1956 permits the public and private company for the appointment of not less than two thirds of the total directors by the principle of proportional representation either by a single transferable vote or according to the principle of cumulative voting.

(f) By the central govt. (U/s 408): U/s 408 of the companies act. Central Government may appoint directors of the company to prevent the oppression of the minority of the share holders and to prevent mismanagement of the company or in the interest of the public.

(g) By third parties: Sometimes articles of association of a company permits to financial corporations, debentures holders and other banking companies to nominate their directors on the board of the company to know the funds advanced by them are fused by the company for the purpose which they are borrowed.

Qualification of Company director:
The act does not prescribe any qualification of directors for appointment. But the articles of association of a company may provide that the qualification of a director shall be holding shares of the company. Directors of the company must have a specified number of shares to get appointment in a company. This qualification is called as share qualification. According to articles of association direction of a company must have certain number of qualification shares and this is disclosed by the company in the prospectus.

Question 4.
Explain the duties and functions of company secretary.
Duties of a company secretary may be classified under the following heads:

  • Statutory duties
  • General duties

(I) Statutory duties:
These duties are performed by the secretary of the company as per company s per company act and others acts following duties are to be performed by the company secretary as per the act.

  • He should maintain books, documents and registers of the company.
  • He is required to file various returns statements documents with the registrar of companies.
  • He should supervise the issue, allotment, transfer, forfeiture of shares and debentures of the company.
  • He should attend the meetings of the company.
  • He should record the proceeding of the meetings.
  • He should allow the books and documents for inspection when required by the stature.
  • He should use properly the common seal of the company.

(II) General duties:
It includes:

  • Duties to directors
  • Duties to shareholders
  • Duties to organization and office.
  • Duties to public
  • Duties before in corporation.
  • Duties after incorporation.

(a) Duties to directors:

  • He is required to arrange for board meeting record the proceedings and w e minutes of the board meeting.
  • He should attend and maintain all the correspondence in which directors are interested.
  • He is considered as eyes, ears and hands of the company.
  • He is responsible for connecting link between directors and staff, shareholders and the public.
  • He should give guidance to directors on all important legal matters of the company.

(b) Duties to shareholders:

  • He should clarify all the doubts of the shareholders.
  • He has to convene the meetings of the share holders, record the proceeding, write the minutes of the meetings.
  • He has to attend all the letters of shareholders.
  • He should arrange for the payment of dividend to share holders
  • He should allow for inspection of registers and documents to be members of the company.

(c) Duties to organization and staff:

  • He should maintain the work of office properly.
  • He should attend the recruitment work of office staff.
  • He should maintain coordination among the staff members to achieve the goals of the company.

(d) Duties to public:

  • He has to function as a medium of communication between the directors general public.
  • He should provide necessary information to general public that may be asked for

(e) Duties before incorporation:

  • He has to attend the preliminary meetings of the promoters, record the proceedings, write the minutes of these meetings.
  • He should help the promoters in preparation of various documents of the company.

(f) Duties after incorporation:

  • He has to arrange for the first board meeting record the proceeding and minutes of the meetings.
  • He has to look after the application, allotment calls on shares and debentures of the company.

Question 5.
Explain the various types of director as per companies act 2013.
(1) Residential Director:
According to Act – “Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. ” The Definition says that the director should be resident of India which shows the director is responsible for the company and has not been making trips without any worry about the company.

(2) Additional Director:
According to the Act – “The articles of a company may confer on its Board of Directors the power to appoint any person, other than a person who fails to get appointed as a director in a general meeting, as an additional director at any time who shall hold office up to the date of the next annual general meeting or the last date on which the annual general meeting should have been held, whichever is earlier.” This definition says that ‘ the articles of the company has authorized the board of directors to appoint the additional directors whenever needed, this additional director would hold the office up to the date of next ACM.

(3) Alternate Director:
According to the Act – “The Board of Directors of a company may, if so authorized by its articles or by a resolution passed by the company in general meeting, appoint a person, not being a person holding any alternate directorship for any other director’in the company, to act as an alternate director for a director during his absence for a period of not less than three months.” This director is to be specifically appointed when the original director or the whole time director is not present in the office due to any of the factors.

(4) Women Director:
According to the Companies Act 2013, some companies have been compulsory ordered to get at least 1 director as the women director. The list of companies who are required to get there director as women are:

  • A listed Company
  • Any Public company having
  • Turnover of Rs. 300 crore or more
  • Paid up capital of Rs. 100 crore or more

(5) Independent Director:
Independent director basically means the director other than Whole time director, Managing Director, or Nominee Director. There are certain reserved criteria for companies to appoint independent directors. The following companies need to have at least 2 independent’directors :

  • Public limited companies having outstanding loans, deposits of Rs. 50 Crores or more.
  • Public limited company having turnover of Rs. 100 Crore or more.
  • Public limited share capital of Rs. 10 Crores or more.

(6) Nominee Director:
The nominee directors are the directors which are appointed in case of any of the non executive director is not able to continue. Generally they are appointed by the shareholders, but in some cases it may also be appointed by banks or Central government as the case may be.

(7) Shadow Director:
Shadow director is the new term which has been arrived which means that the person who is not officially appointed by the board but he/she gives such advice to the directors which they are accustomed to follow except when such shadow director provides the same in his professional capacity.

Question 6.
Give a brief note on appointment of independent, additional and nominee director.
Independent Director: Independent Director is for the first time introduced in the New Act, and has been clearly defined as “any director other than a managing director, whole time director, and a nominee director.” Such a director not having any significant pecuniary relationship with the company-is more efficient. Section 149(4) requires that one third of the directors should be independent directors. Section 149(6) lists in detail the specific qualifications for an independent director:
1) Person of integrity and relevant experience.

2) Is not a promoter, nor has any relation with the promoters or directors of the company, its holding, subsidiary or associate company.

3) Has no pecuniary relationship with company, its holding, subsidiary or associate company, its promoters or directors in the preceding two years of his appointment.

4) Has no relatives who have pecuniary relationship with Company, its holding, subsidiary or associate company, its promoters or directors, amounting to two percent in the preceding two years of his appointment.

5) Neither he, nor any of his relatives have held a key managerial personnel or is or has been employee of the company or its holding, subsidiary or associate company in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed.

6) Neither he nor any of his relatives have been an employee or proprietor or a partner, in any of the three financial years immediately preceding the financial year in which he is proposed to be appointed, of (a) a firm of auditors or company secretaries in practice or cost auditors of the company or its holding, subsidiary or associate company; or (b) any legal or a consulting firm that has or had any transaction with the company, its holding, subsidiary or associate company amounting to ten per cent, or more of the gross turnover of such firm.

7) Neither he nor any of his relatives hold together with his relatives two per cent, or more of the total voting power of the company; or

8) Neither he nor any of his relatives is a Chief Executive or director, by whatever name called, of any nonprofit organization that receives twenty-five per cent, or more of its receipts from the company, any of its promoters, directors or its holding, subsidiary or associate company or that holds two per cent, or more of the total voting power of the company; or

9) Who possesses such other qualifications as may be prescribed.
The appointment of independent directors has to also be approved by the shareholders.

Additional Directors: Additional Directors may be appointed by a company under section 161 of the New Act. The.article should confer such power on the Board of Directors of the Company. A provision further added in 2013 with regards to such appointment is that the proposed person should not have failed to get appointed as a Director in a General Meeting.

Nominee Director: Nominee Director is defined under an explanation to section 149. He is a Director nominated by any financial institution pursuant to any law for the time being in force, or of any agreement or appointed by any Government or any other person to represent its interest.

Alternate Directors: Alternate Directors, under section 161(2) of Companies Act, 2013, may be appointed by a company if the articles confer such power or a decision is passed by a resolution if an independent Director is absent from India for not less than three months. He must be qualified to become an independent director, but should not hold any Directorship. An alternate Director cannot hold the office longer than the term of the Director in whose place he has been appointed. Additionally, he will have to vacate the office, if and when the original Director returns to India. Any alteration in the term of office made during the absence of the original Director will apply to the original Director and not to the Alternate Director.

Question 7.
Explain the liabilities of company secretary.
(A) Statutory Liabilities: Statutory liabilities derived from different relevant Acts including companies Act, Stamp Act, Income tax Act etc. statutory liabilities are as follows:

  • Maintain the formalities during pre-incorporation stage
  • Arranging the statutory meeting within the stipulated time limit
  • Preparation of statutory report
  • Arranging the meeting of Board of Directors
  • Arranging the Annual General Meeting
  • Submitting Annual Returns to the Registrar of the companies
  • Maintaining ‘Minute-book’.
  • Taking initiative of the registration of the resolutions passed in different meetings
  • Ensuring proper stamping of the documents
  • Arranging the appointment of auditor in time
  • Maintains the register of the shareholders and debenture holders of the company
  • Taking initiative to pay the income tax in time.
  • Not to take any loan without the approval of the Board of Directors
  • Not to secure any secret profit form the company etc.

(B) Contractual Liabilities: According to the agreement signed between the company and the secretary different types of liabilities imposed on the secretary. These liabilities are as follows

  • Accountable to the Board of Directors for duties
  • Maintaining the secrecy of the affairs of the company.
  • Not to do anything beyond his/her capacity
  • Not to show any kind of negligence in performing the responsibility
  • Not to commit any fraudulent activity
  • Protect the interest of the company.
  • Obeying the terms and conditions of the service.
  • Maintain the rules and procedures of the Memorandum of Association and Articles of Association, Act.

Question 8.
Give a detailed note on corporate social responsibility committee and Audit committee under the companies act 2013.
Section 135 of the 2013 Act envisages a Corporate Social Responsibility Committee (‘CSR Committee’) of the Board in every company whose net worth is more than Rs. 500 Crores, or turnover over Rs. 1000 Crores, or having a net profit of more than Rs. 5 Crores. The Committee must consist of at least 3 directors of whom at least one should be independent. However, unlisted public companies and private companies are exempted from the requirement of an independent director on the CSR Committee and a minimum of two members is adequate for such companies.

The functions of a CSR Committee are to formulate a CSR policy including activities as have been listed under Schedule VII of the 2013 Act, monitor the said policy periodically and prepare a transparent monitoring mechanism. The 2013 Act also mandates that the CSR Committee must ensure that at least 2% of the company’s net profits are directed towards CSR activities.

The CSR Rules also provide further guidelines and enumerate various methods in which a company can conduct CSR activities such as setting up of not-for profit organizations and collaboration with other companies to further CSR activities. An escape route has been incorporated in the Act itself whereby companies who are unable, for sufficient cause, to spend 2% of their average net profit for the past years, may explain the reasons for the same in the Board report.

Audit committee:
Under Section 292A of the Companies Act, 1956 (‘1956 Apt’) an audit committee was required for every public company whose paid up capital was INR 5 crores or more. The 2013 Act read with the rules, requires every listed company and other public companies with a paid up capital of more than Rs. 10 Crores or a turnover of INR 100 crores or outstanding loans or borrowing exceeding INR 50 crores (as per the latest audited accounts) to form an audit committee comprising at least 3 directors, the majority of whom have to be independent as well as a Nomination and Remuneration Copimittee, in which at least half the members have to be independent. The 1956 Act was silent on the terms of reference, leaving it to the Board of a company to define the scope and powers.

The 2013 Act prescribes certain specific items like recommendations for the appointment and remuneration of auditors, scrutiny of inter corporate loans and investments, approval of related party transactions etc., though the Board may at its discretion add more functions. The 2013 Act and rules also envisage companies to set up a vigil mechanism under the oversight of the audit committee to enable complaints against frauds or misdemeanors’ by employees or others. The audit committee is also empowered to protect whistle blowers and also to take action against frivolous complaints.

The performance of the audit committee (as well as the Board and other committees) and its efficacy have to be evaluated under Section 134 (3)(p) of the 2013 Act. Under Section 292A (8) of the 1956 Act, the Audit Committee’s recommendations were binding on the Board of Directors. However, under the 2013 Act any recommendation of the Audit Committee that is not accepted by the Board has to be reported in the Board along with reasons for the same. Furthermore, under Section 292A (6) of the 1956 Act, the Audit Committee was mandated to have periodic discussions with auditors about the compliance of internal control systems and to review the financial statements of the company. This power has been made discretionary under Section 177(5) of the 2013 Act.

Question 9.
Explain the duties and responsibilities of Managing director.
Duties and Responsibilities of Managing director:
The erstwhile Companies Act, 1956 (‘CA 1956’) contained no statement of statutory duties of directors, and acts of directors were usually reviewed in the context of their powers in terms of section 291 of the CA 1956 (which dealt with general powers of the board) and other applicable laws, and their established roles under common law as laid down in several judicial precedents.

The Companies Act, 2013 (‘CA 2013’) for the first time has laid down the duties of directors, in unequivocal terms in section 166. In summary, the general duties of directors under the CA 2013 are as follows:

  • to act in accordance with the articles of the company, in other words, to act within powers
  • to act in good faith in order to promote the objects of the company for the benefit of its members as a whole
  • to act in the best interest of the company, its employees, shareholders, community and for the protection of environment
  • to exercise due and reasonable care, skill and diligence and independent judgment
  • to avoid direct or indirect conflicts of interest
  • to avoid undue gain or advantage either to himself or relatives, partners or associates
  • not to assign his office to any other person

A Director is part of a collective body of Directors called the Board, which is responsible for the superintendence, control and direction of the affairs of the company. Under common law rules and equitable principles, director’s duties are largely derived from the law of agency and trusts (i.e., set of contractual, quasi-contractual and non-contractual fiduciary relationships with the Company). Under the law of agency, duties of skill, care and diligence are imposed on directors.

On the other hand, law of trusts impose fiduciary duties on directors. Accordingly, directors are the trustees of the company’s money and property, and also act as agents in the transaction which they enter into on behalf of the company, directors are liable as trustees for breach of trust, if they misapplied the funds or committed breach of byelaws of the company.

A director is expected to perform his duties as a reasonably diligent person having the knowledge, skill and experience both of as person carrying out that director’s function and of that person himself. A director, therefore plays various roles in the company, may that be of an agent,’an employee ( when appointed on the rolls of the company), an officer and/or a. trustee of the Company.

Question 10.
“A secretary is not only a servant of company but also a servant of law” comment.
The Companies Act has provided the definition of a Secretary in the following manner – “Secretary means any individual possessing the prescribed qualifications appointed to perform the duties which may be performed by a Secretary under this Act and any other ministerial or administrative duties” [Sec 2(45)].

Further, the Act states that the Secretary is an officer of the company. The term officer has a special meaning in the Act. Sec 2(30) defines an officer in the following manner – “an officer includes any director, manager or secretary or any person in accordance with whose directions or instructions the Board of Directors or any one or more of the Directors is or are accustomed to act…”

From Sec 2(45) and Sec 2(30), the legal status of a Company Secretary can be analysed in the following manner:
(1) He is an employee of the company as he is appointed to do ministerial and administrative duties.

(2) As an employee he holds a high rank as he has to do administrative duties and the Board of Directors may act according to his directions or instructions.

(3) He is bracketed with the Directors of the company as:

  • Like a Director he can give directions and instructions and
  • Like a Director he is also an officer of the company.

(4) He is appointed by virtue of an agreement with the company. Generally other employees are not appointed by virtue of agreements. His status by law is higher than that of other employees. He is ranked with manager or auditor of the company in this respect.

(5) According to Sec. 5 of the Companies Act, the Company Secretary, being an officer of the company is personally liable for any default or non-compliance of provisions of the Act.

(6) The Board of Directors of a company delegates a large part of its authority to the Secretary. Generally, the Board does not delegate so much authority to any other high-ranking employee. The Board can do so because statutorily the Secretary has greater responsibilities.

The Secretary is empowered to sign notices of meetings (in place of the Directors), to sign share certificates (together with Directors), to sign other statements and returns to be submitted to the Registrar of Companies and to affix the Common Seal of the company. Perhaps he is the only outsider present at a meeting of the Board of Directors which is highly confidential.

All these signify that by virtue of the different provisions of the Companies Act, a Company Secretary has legally a high status in the company, almost next to that of the directors. The directors have to function collectively as the Board but the Secretary functions individually. That is why a person to enjoy the status of a Company Secretary must, however, have some qualifications.

It is rightly said that a Company a secretary is not only a servant of company but also a servant of law as per indisecretary is not only a servant of the company but he is a servant of law. He must see, in order of priority, that:

  • Any legal provision has not been violated,
  • The interest of the company has not been adversely affected and
  • The orders of the Board of Directors have not been disregarded, when-ever he does any act.