12 November, 2015
- The Ministry of Corporate Affairs (‘MCA’) has, by way of the Companies (Acceptance of Deposits) Second Amendment Rules, 2015, dated September 15, 2015, amended the Companies (Acceptance of Deposits) Rules, 2014 (‘Rules’), and has inter alia made the following amend- ments:
The definition of ‘deposit’ as set out in Rule (2)(1)(c) of the Rules, which pertains to acceptance of deposits from directors, has been amended with respect to pri- vate companies to include, any amounts received from ‘relatives’ of such directors of private companies, provided that such relative of the director of a private com- pany furnishes a declaration in writing to the effect that the amount is not being given out of funds acquired by such relative by borrowing or accepting loans or deposits from third parties. The company is further required to disclose details of any money accepted from directors or relatives of directors of a private company in the report of its board of directors.
The threshold under Rule 3 of the Rules, which states that no company may accept or renew any deposit from its members if such amount is in excess of 25% of the aggregate of the paid up share capital and free reserves of the company, has been amended to include 25% of the aggregate of the paid up share capital, free reserves and the securities premium account of the company.
- The MCA, by way of General Circular 11 of 2015 dated July 21, 2015, has clarified the following issues with respect to Sections 136 and 137 of the Companies Act, 2013 (‘Act’):
that a company holding a general meeting after giving a shorter notice in accordance with Section 101 of the Act, may also annex and circulate financial statements (to be presented/ considered at such general meeting) at shorter notice; and
that in case of a foreign subsidiary that is not required to get its accounts audited as per legal requirements prevalent in the country of its incorporation, the holding/ parent Indian company of such foreign subsidiary company may now place unaudited accounts of such foreign subsidiaries on its website and file the same with the Registrar of Companies (once the same have been adopted at the general meeting), to comply with the relevant provisions of Sections 136 and 137 of the Act. However, such unaudited accounts should be: (i) translated to English, if they are in a foreign language; and (ii) in a format, as far as possible, in accordance with the requirements of the Act, and in case the same is not possible, a statement explain- ing the reasons for deviations from the prescribed format is required to be placed/ filed along with such accounts.
- Section 196(3)(a) of the Act provides that no company can appoint or continue the employ- ment of any person as managing director, whole-time director or manager who is below the age of 21 years or has attained the age of 70 years. The section goes on to provide that a person who has attained the age of 70 may be appointed as managing director, whole – time director or manager by passing a special resolution in which case, the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person. In this regard, the Bombay High Court (‘Court’), by way of its judgment dated July 16, 2015 in the mat- ter of Sridhar Sundararajan v. Ultramarine & Pigments Limited & Ors.1, has held that Section 196(3)(a) of the Act cannot operate as an immediate termination of the appointment of a man- aging director, whole-time director or manager of a company. The Court has clarified that this provision does not interrupt the appointment of such a director or manager, appointed after April 1, 2014, where at the date of such appointment, such director or manager was below the age of 70 years but crossed the prescribed age during his tenure. In other words, this provision can- not be interpreted to provide for automatic termination of appointment of such person mid- tenure, just by reason of him attaining the age of 70 years.
This judgment should be kept in mind while ascertaining compliance with the provisions of Section 196 of the Act by a company relating to the appointment of managing director, whole- time director or a manager. For instance, if it is proposed that a person is to be appointed as managing director, whole-time director or manager of a company after April 1, 2014 and such appointee will complete the age of 70 years during the course of his term, the company can com- plete the appointment. However, if such appointee is to be re-appointed, a special resolution as required under Section 196(3)(a) of the Act will have to be passed at the time of completion of his tenure.
1 Sridhar Sundararajan v. Ultramarine & Pigments Limited & Ors., Notice of Motion (L) No. 434 of 2015 in Suit (L) No. 146 of 2015
For further information, please contact:
Zia Mody, Partner, AZB & Partners
zia.mody@azbpartners.com
