IMPORTANT QUESTIONS (ALONGWITH ANSWERS) FOR CS PROFESSIONAL - DEC, 2013 COMPANY SECRETARIAL PRACTICE

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1 IMPORTANT QUESTIONS (ALONGWITH ANSWERS) FOR CS PROFESSIONAL - DEC, Write short note on MCA 21. COMPANY SECRETARIAL PRACTICE Keeping in tune with the e-governance initiatives the world over, the Ministry of Corporate Affairs (MCA), Government of India, has initiated the MCA21 project, to enable an easy and secure access to MCA services in a manner that best suits the corporate entities and professionals besides the public. The MCA21 project is designed to fully automate all processes related to the proactive enforcement and compliance of the legal requirements under the Companies Act, The key benefits of MCA21 project are as follows: (a) On-line incorporation of companies (b) Simplified and easy mode of filing of Forms / Returns (c) Registration as well as verification of charges anytime and from anywhere (d) Inspection of public documents of companies anytime from anywhere (e) Corporate-centric approach (f) Building up a centralized database repository of corporate operating in India (g) Enhanced service level fulfillment and customer relationship building The following services are available under the MCA21 Project: Registration and incorporation of new companies Filing of Annual Returns and Balance Sheets Filing of forms for change of names/address/director s details Registration and verification of charges Inspection of documents Applications for various statutory services from MCA Investor grievance redressal. 2. Explain the procedure for incorporation of a private limited company. The minimum paid-up share capital at the time of incorporation of a private company has to be Rs. 1,00,000. There is no upper limit on having the authorized share capital and the paid-up share capital. Ensure that the minimum number of members are two and maximum does not exceed fifty. Ensure that the minimum number of directors are two. Apply for Director Identification Number (DIN) of all the directors and Digital Signatures of the signatories for electronic signature on all the e-forms. Select, in order of preference, a few suitable names, maximum 6, indicative of the main objects of the company. Ensure that the name does not resemble the name of any other company already registered and also does not violate the provisions of Emblems and Names (Prevention of Improper Use) Act, Apply to the Registrar of Companies (ROC) in e-form-1a to ascertain which of the names selected are available along with the prescribed fees of Rs. 500/-. The ROC will ordinarily inform within 3 days from submission of application on the availability of name. Arrange for the drafting of the Memorandum and Articles of Association of the company. Get the Memorandum and Articles signed by at least two subscribers filling in the relevant details like their father s name, occupation, address and the number of shares subscribed for. The Memorandum and Articles shall also be witnessed by at least one person. Arrange for stamping of the Memorandum and Articles with the appropriate stamp duty. Elegant Modern AC s

2 Submit the following e-forms duly filled up and signed with the necessary attachments and fees: - Application and declaration of incorporation of the company Form-1 - Notice of situation of registered office of the company Form-18 - Particulars of Director, Manager or Secretary Form-32 Pay the prescribed Registration and filing fees depending on the authorised share capital of the proposed company. The ROC will then register the company and issue the Certificate of Incorporation on which there will be a 21 digit Corporate Identity Number (CIN). Under Section 149(7) of the Companies Act, 1956, a private company can commence business right from the date of its incorporation. The date of incorporation of the company shall be the date printed on the Certificate of Incorporation issued by the ROC. 3. Short note on holding and subsidiary companies, and govt. companies. Holding and Subsidiary companies In terms of Section 4 of the Companies Act, 1956, a company (Company A) shall be deemed to a subsidiary of another company (Company B): if that other Company B controls the composition of Board of directors of Company A if Company B holds majority shares (> 50% of the equity share capital) of Company A if Company B is a subsidiary of Company C, Company A shall be deemed to be a subsidiary of Company C (chain subsidiaries) Both holding and subsidiary companies enjoy separate legal entities Turner Morison & Co. Ltd vs. Hungerford Investment Trust Ltd. A subsidiary company cannot be a member of the holding company Section 42 of the Act Government companies Section 617 defines a Government company as a company in which not less than 51% of the paid-up share capital is held by the Central Government or State Government. However a government company is neither a government department nor a government establishment Hindustan Steel Works Construction Co. Limited vs. State of Kerala. The employees of a Government company are not government servants and they have no legal right to claim that their salary should be paid by the Government A K Bindal vs. Union of India. Section 620 of the Act empowers the Central Government to grant exemptions to government companies from the applicability of the provisions of the Act. 4. Explain the procedure for commencement of business by a public company which has issued prospectus. Issue the prospectus The minimum subscription amount, as stated in the prospectus, should have been received by the company in cash In case the directors of the company have applied, they should pay the same amount per share as is payable by the other shareholders Shares issued for cash to the public must have been allotted Company will need to file Form 19 alongwith the following: a) Declaration that shares payable in cash have been allotted upto the amount of minimum subscription b) Declaration that directors have paid, in respect of the shares taken by them, an amount which is equal to what has been paid by the public c) Statutory declaration verified by 1 director or secretary (if no CS then PCS) that all the above has been complied with. Elegant Modern AC s

3 5. What are the various clauses of Memorandum of Association? CS Professional Examinations Dec, 2013 (a) Name Clause - A company being a distinct entity must have a name of its own to establish its separate entity. Last words of the name of the company shall be limited or private limited as the case may be. The name should not be undesirable in the opinion of the Government. It should not be prohibited under The Emblems and Names (Prevention of Improper Use) Act, Also the name should not be identical with or too resemble the name with which another company is registered or a registered trademark - Section 20 of the Act. (b) Registered office Clause - Every company must have a registered office to which all communications and notices will be addressed. This Clause states the name of the State in which the registered office of the company is situated the exact address need not be stated. (c) Objects Clause - This clause defines the sphere of the company s activities and the specific objectives for the formation of the company. All companies registered after 1965 must divide its objects into Main Objects and Other Objects (ancillary or incidental to the attainment of the main objects). Anything done beyond the objects is ultra vires and void and cannot be ratified even by assent of the whole body of shareholders. (d) Capital Clause - This states the amount of capital with which the company is to be registered. It also states the number and value of shares into which the capital of the company is divided. (e) Liability Clause - This clause states the liability of the members of the company. In case of a company limited by shares or by guarantee this clause shall state that the liability of the members is limited. (f) Association Clause - In this clause the subscribers declare that they desire to be formed into a company & agree to take the shares stated against their names. The names, addresses and occupations of the subscribers must be given. Each subscriber must sign in the presence of atleast one witness who shall attest his signature. 6. Explain the steps for change of name of a company. Hold a Board meeting to propose 6 names in order of preference. Make an application to RoC in e-form 1A for checking availability of name alongwith a letter explaining the reason and justification of change. RoC shall intimate availability of name within 3 days of receipt of application. On receipt of approval hold another Board meeting for calling a general meeting. Hold a general meeting and pass 1. Special resolution for change of name 2. Special resolution for alteration of MOA. File e-form 23 with copies of various special resolutions within 30 days of passing the resolutions. Make an application to CG in e-form 1B. Issue of fresh Certificate of Incorporation from RoC. Inform various authorities. Arrange for a new common seal. Correct all the records of the company. 7. Explain the procedure for shifting of registered office from one State to another. Hold a Board meeting to pass a board resolution for shifting of registered office and for calling a general meeting. Hold the general meeting and pass a Special resolution for shifting of registered office. In case the company is listed, the aforesaid special resolution shall be passed through postal ballot. File a copy of the special resolution passed with the RoC in e-form 23 within 30 days of passing the resolution. Atleast 1 month before filing application with RD publish notice in newspapers and send individual notices to creditors and debenture holders of the company. Make an application to the Regional Director alongwith a copy of the special resolution and a copy of newspaper advertisement. A copy of the application shall also be filed with RoC in e-form 61. Elegant Modern AC s

4 Application shall also be sent to the Chief Secretary of the State Govt. of the state in which the registered office of the company is situated. The Regional Director shall pass an order in writing confirming the change. The company shall file a copy of the order received from the Regional Director with the RoC in Form 21. The RoC shall thereafter issue a certificate of registration confirming the aforesaid shifting. Such certificate shall be conclusive evidence that the company has complied with all the statutory provisions. 8. Explain the procedure for changing the financial year of a company. In terms of Section 2(17) of the Companies Act, 1956, financial year means the period in respect of which any profit and loss account of the body corporate laid before it in annual general meeting is made up, whether that period is a year or not. In order to change the financial year of a company, it is required to follow the following procedure: Convene a Board meeting. Hold the Board meeting and pass the necessary resolution for change of financial year of the company. If the financial year is extended beyond a period of 12 calendar months and the company requires more time to finalise its accounts, the company should apply to the RoC for obtaining extension of time for holding AGM. The application should be made in e-form 61 alongwith the board resolution, reasons for extension of financial year, period for which the extension is required and the detailed application. The consent of the Assessing Officer of the IT Department is also required. 9. What are the eligibility norms for making IPO / FPO under the SEBI ICDR Regulations? Eligibility Norms for IPOs (a) The company has net tangible assets of atleast Rs. 3 crores in each of the preceding 3 full years (of 12 months each), of which not more than 50% is held in monetary assets. If more than 50% of the net tangible assets are held in monetary assets, the company should make firm commitments to deploy such excess monetary assets in its business/project. (b) The company has a minimum average pre-tax operating profit of Rs. 15 crores, calculated on a restated and consolidated basis, during the 3 most profitable years out of the immediately preceding 5years. (c) The company has a net worth of at least Rs. 1 crore in each of the preceding 3 full years (of 12 months each) (d) In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name (e) The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size does not exceed 5 times its pre-issue net worth as per the audited balance sheet of the last financial year. Eligibility Norms for FPOs The aggregate of the proposed issue and all previous issues made in the same financial year in terms of size does not exceed 5 times its pre-issue networth as per the audited balance sheet of the last financial year. In case the company has changed its name within the last one year, atleast 50% of the revenue for the preceding 1 full year is earned by the company from the activity suggested by the new name Companies not complying with the above The company may make an IPO if the issue is made through the book-building process and the company undertakes: (a) to allot, at least 75% of the net offer to public, to QIBs and (b) to refund full subscription money if it fails to make the said minimum allotment to QIBs The number of prospective allottees should be more than 1000 Elegant Modern AC s

5 10. Explain the procedure for making bonus issue by a listed company. CS Professional Examinations Dec, 2013 A listed company has to comply with the following procedure for issue of bonus shares in terms of SEBI (ICDR) Regulations, 2009: Ensure that bonus is made out of free reserves built out of genuine profits. Ensure that the company has not defaulted in the payment of interest / principal of fixed deposits, debentures, statutory dues to employees etc. There should be a provision in the AOA permitting issue of bonus shares. Share capital after bonus must be within the authorised capital otherwise the authorised share capital will be required to be increased. Hold a board meeting for passing a resolution for bonus issue and for calling a general meeting. Ensure all partly paid up shares are made fully paid up before bonus issue. Intimate the results of the Board meeting within 15 minutes to the stock exchange. Forward copies of notice of general meeting to the stock exchange. Hold general meeting and pass the resolution for issue of bonus shares. File a copy of the proceedings of the general meeting with the stock exchange. File e-form 23 and e-form 5 with the RoC within 30 days of passing the resolution. Fix record date / book closure. Give 30 days notice to the stock exchange before record date. File return of allotment Form 2 with the RoC within 30 days of allotment. Ensure that the bonus issue is completed within 2 months from the date of approval in case it requires shareholders approval for bonus issue as per its AOA and within 15 days in case it requires no such approval. Get share certificates printed and issue the same to the members. Submit an application to stock exchange for listing of bonus shares. 11. Distinguish between ESOP and ESPS. Employee Stock Option Plan (ESOP) is an option given to the whole-time directors, officers or employees of the company which gives such directors, officers or employees the benefit or right to purchase or subscribe at a future date, the securities offered by the company at a pre-determine price. Employee Stock Purchase Plan (ESPS) is a plan under which the company offers directly shares to employees as part of public issue or otherwise. Shares under ESOP scheme are allotted only after exercise of the option. Whereas in an ESPS plan, shares are allotted outrightly. The requirements for issuing both ESOP and ESPS are same under the SEBI (ESOP and ESPS) Guidelines, Explain the procedure for issuing sweat equity shares. In terms of Section 79A of the Companies Act, 1956, sweat equity shares means shares issued by a company to its employees / directors at a discount or for consideration other than cash for providing know-how or making available rights in the nature of IPRs or value additions. In terms of Section 79A of the Companies Act, 1956 read with the SEBI (Issue of Sweat Equity) Regulations, 2000, the following procedure needs to be followed by a listed company for issue of sweat equity shares: Atleast 1 year must have elapsed from the date on which company is entitled to commence business. Convene a Board Meeting for passing a resolution to issue sweat equity shares and calling a general meeting. Pass a special resolution at General meeting. The special resolution shall specify the number of shares, current market price, consideration and the class of employees / directors to whom such shares shall be issued. File a copy of the special resolution passed with the RoC in e-form 23 within 30 days of passing the resolution. Elegant Modern AC s

6 Forward a copy of the proceedings of general meeting to stock exchanges where the company is listed. 13. What are the steps for redemption of preference shares? No authorization is required to redeem preference shares. Fully paid-up shares may be redeemed - out of profits - out of fresh issue of shares The premium payable on redemption, if any, may be taken out from profits of the company or securities premium account Creation of Capital Redemption Reserve (CRR) is mandatory if preference shares are redeemed out of profits Nominal amount of preference shares is required to be transferred to CRR CRR may be utilized for issuing fully paid up bonus shares or for any other purpose (subject to compliance of requirements applicable to reduction of share capital) The company is required to give notice to the RoC in e-form 5 within 30 days from redemption. The company will also be required to inform the preference shareholders individually and also through a public notice. 14. Explain the various grounds for compulsory delisting. The company has incurred losses during the preceding 3 consecutive years and it has negative networth; Shareholding of the company held by the public has come below the minimum level applicable to the company as per the listing agreement (i.e. 25%) and the company has failed to raise public holding to the required level within the time specified by the Stock Exchange; Trading in securities of the company has remained suspended for a period exceeding 6 months; Securities of the company have remained infrequently traded during the preceding 3 years; Company or any of its promoters or any of its director has been convicted for failure to comply with any of the provisions of the SCRA or the SEBI Act, 1992 or the Depositories Act, 1996 and awarded a penalty of not less than Rs. 10 million or imprisonment of not less than 3 years; Addresses of the company or any of its promoter or any of its directors, are not known or false addresses have been furnished or the company has changed its registered office in contravention of the provisions of the Companies Act, Explain the procedure for issue of share certificates. Share Certificate is a document of title to the shares in a company. It is issued by a company to its members in whose names shares are registered in the register of members of the company. following is the procedure for issue of share certificates: Pass a resolution at the board meeting for issue and allotment of share certificates. The Board will approve the numbers and authorise by resolution for their printing. In case of listed companies, forms of share certificates shall also be approved by the stock exchanges. All blank form of share certificates will be in the custody of the company secretary. The depository shall be immediately informed after the shares are issued. Necessary entries will be made in the register of members. They shall be issued within the specified time limit Share certificates are issued under the signatures of at least 2 directors, one of whom shall be MD, and the CS / Authorised signatory Share certificates is issued under the common seal of the company. Elegant Modern AC s

7 16. Short note on Debenture Redemption Reserve. CS Professional Examinations Dec, 2013 In terms of Section 117C of the Companies Act, 1956: Creation of Debenture Redemption Reserve is mandatory for every company which issues debentures Adequate amounts shall be created to Debenture Redemption Reserve out of the profits of the company every year till debentures are redeemed Debenture Redemption Reserve shall be utilized for redemption of debentures Debenture Redemption Reserve shall not be required to be created by banks and financial institutions. Amount of Debenture Redemption Reserve NBFCs 25% for public issue of debentures and NIL for privately placed debentures Other companies 25%. 17. What are the requirements relating to redemption and roll over of convertible debentures? The non-convertible portion of partly convertible debt instruments issued, the value of which > Rs.50 lakhs may be rolled over without change in the interest rate, subject to compliance with the following conditions: 75% of the holders of the convertible debt instruments of the issuer have approved the rollover through postal ballot The company has, along with the notice for passing the resolution, sent to all holders of the convertible debt instruments, an auditors certificate on the cash flow of the issuer and with comments on the liquidity position of the issuer The company has undertaken to redeem the non-convertible portion of the partly convertible debt instruments of all the holders of the convertible debt instruments who have not agreed to the resolution Credit rating has been obtained from at least one credit rating agency registered with SEBI within a period of six months prior to the due date of redemption and has been communicated to the holders of the convertible debt instruments, before the roll over The creation of fresh security and execution of fresh trust deed shall not be mandatory if the existing trust deed or the security documents provide for continuance of the security till redemption of secured convertible debt instruments. 18. What are the various modes of acquiring membership in a company? By subscribing to the MOA By agreement and registration By agreeing to purchase qualification shares By application and allotment By transfer / transmission of shares By estoppel 19. Short note on nomination of shares and transmission of shares. Nomination of shares Section 109A and 109B Every member who is an individual can make a nomination at anytime The nominee shall be an individual; a minor may be named as a nominee provided the name of a guardian is mentioned in the nomination form After the death of the holder, an application signed by the nominee alongwith a death certificate of the member shall be submitted to the company. The application shall state that the nominee has elected to become a member of the company. The nominee is also entitled to transfer such shares. Transmission of shares Section 109 Transmission means passing of the title to a person to another by operation of law Elegant Modern AC s

8 In case of joint holding, transmission shall only take place when all the joint holders die A person entitled to shares as a consequence of death or insolvency of a member needs to make an application in writing to the company requesting the company to admit him as a member Such person may also chose to transfer such shares without becoming a member by executing a transfer deed. 20. What are the rights of joint members? Joint holders of shares in a public company are not a single member. Each of such joint holders is a member of the company Narandas vs. India Manufacturing Co. Notices and other documents required to be served by the company will be deemed to be properly served if the same is effected on the first named joint holder. Unless instructions have been received to the contrary, the company can pay dividend to the first named shareholder. Any joint holder is entitled to be present in the general meeting and take part in the proceedings and vote. In the event of poll, voting right can only be exercised by one of the joint holders. Joint holders are jointly and severally liable to pay the calls. Proxy form to be valid should be signed by all the joint shareholders. 21. Short note on Refusal of registration of transfer by a public company and a private company. Private company may by its Articles or otherwise refuse to register transfer or transmission of shares. However in the case of a public company, shares are freely transferable and it cannot refuse to register transfer of shares. In case of refusal by a public company, the Company Law Board is empowered to direct rectification of register of members to give effect to the transfer. Section 111A of the Companies Act, 1956 provides that the CLB may, on an application made by a depository, company, participant, investor or SEBI, if the transfer of shares is in contravention of any provisions of the SEBI Act, SICA, or any other law, within 2 months from the date of transfer, direct the depository or the company to rectify its records. 22. Explain the procedure for appointment of additional directors and directors to fill casual vacancy. Procedure for appointment of Additional Directors Section 260 of the Companies Act, 1956 Ensure that the AOA authorise the Board to appoint additional directors. Ensure that the person proposed to be appointed as additional director does not suffer from any disqualifications. Ensure that such appointment of additional director is within the maximum limit mentioned in AOA. BOD shall appoint the director either at a board meeting or through circulation. Ensure that the director has given his DIN and his consent to the company. Company has to file e-form 32 within 30 days of appointment. Particulars of the director shall be entered in all the registers. In case the company is listed, it shall also inform the Stock Exchanges. Procedure for appointment of filling casual vacancy Section 262 of the Companies Act, 1956 Casual vacancy vacancy caused due to death, insolvency, resignation or disqualification. A causal vacancy occurring in the position of a director appointed in general meeting may be filled up by the Board at a Board meeting. Ensure that the person proposed to be appointed as additional director does not suffer from any disqualifications. Ensure that the director has given his DIN and his consent to the company. Such person shall hold office till the time the person in whose place he is appointed would have held the office. The Section ONLY applies to public companies. Elegant Modern AC s

9 Company has to file e-form 32 within 30 days of appointment. Particulars of the director shall be entered in all the registers. In case the company is listed, it shall also inform the Stock Exchanges. 23. Short note on small shareholder directors. CS Professional Examinations Dec, 2013 In terms of Section 252 of the Companies Act, 1956 read with Companies (Appointment of the Small Shareholders Director) Rules, 2001: A public company having paid-up share capital of Rs.5 crores or more AND 1000 or more shareholders may have a small shareholder director. Small shareholder means a shareholder holding shares of nominal value of Rs. 20,000/- or less. A small shareholder director may be appointed by : (a) the company on its own motion (b) the small shareholders through a notice by 1/10 th or more small shareholders atleast 14 days before the meeting in which case the company shall be bound to act on such notice (c) in case of listed companies, such appointments shall be made by postal ballot The small shareholder director has to be a small shareholder and he cannot become a small shareholder director in more than 2 companies. The maximum tenure of appointment is 3 years after which he can be re-appointed. He is not liable to retire by rotation and Section 274 of the Act dealing with disqualifications of directors [except Section 274(1)(g)] applies to him. 24. Explain the procedure for re-appointment of a retiring director at the AGM. The vacancy in the office of the retiring director may be filled up by re-appointing the same director or appointing some other person. If the place of the retiring director is not filled up AND the meeting does not expressly resolve not to fill up the vacancy, the AGM shall be adjourned to the next week, same day, time and place (if that day is a public holiday, then to next succeeding day which is not a public holiday). If at the adjourned meeting also the place of the retiring director is not filled up and the meeting does not expressly resolve not to fill up the vacancy then the retiring director shall be deemed to be reappointed. 25. Explain the kinds and limits on remuneration payable to executive and non-executive directors. Remuneration of a director who is not a MD / WTD i.e. non-executive directors Section 309 of the Act: He can be paid : (a) Monthly, quarterly or annual payment with approval of the CG (b) Commission with approval of members through special resolution (this SR is valid for 5 years) Quantum of payment In case the company has a managing or whole-time director In any other case 1% of the net profits of the company 3% of the net profits of the company The NEDs can also be paid sitting fees (no sitting fees can be paid to MD / WTD) subject to the following ceilings: Companies with a paid-up share capital and Sitting fees not to exceed ` 20,000/- free reserves of ` 10 crores or more or turnover of ` 50 crores or more Other companies Sitting fees not to exceed ` 10,000/- Where Board meeting is adjourned and again held, sitting fees shall be paid only once, since adjourned meeting is a Elegant Modern AC s

10 mere continuation of the original meeting. CS Professional Examinations Dec, 2013 Remuneration of a MD / WTD / Manager - Section 309 of the Act Determination of managerial remuneration (a) By Articles of Association (b) By ordinary resolution (c) By special resolution, if the Articles so provide Mode of payment (a) Monthly payment and / or (b) Specified % of net profits Quantum of payment Particulars % of Net Profit Single Managing Director or Manager or Whole time Director 5% More than One Managing Director or Manager or Whole time 10% Director In case of payment of remuneration to a director for services rendered in any capacity other than that of a director, his total remuneration cannot go above the ceiling fixed by Section 198. But if the services rendered are of a professional nature, the remuneration payable to a director for that will not come within the provisions of Section 309 of the Act. 26. Short note on disclosure of interest by directors. In terms of Section 299 of the Companies Act, 1956, every director who is interested in any contract or arrangement or any proposed contract or arrangement shall disclose his interest. Such disclosure is required to be made as follows: (a) In case of a proposed contract at the Board meeting when the contract is first considered by the Board (if then the director is interested) or at the meeting held first after he became interested (if he later on becomes interested) (b) In case of an existing contract at the Board meeting held first after the director becomes interested (c) Alternatively the director can given a general notice of disclosure which shall remain till the expiry of one financial year after which the same can be renewed. Disclosure is not required if interest of one or more directors is less than 2% of the paid-up capital of the other company If the cumulative holding of all the directors together with their relatives does not exceed 2% of the paid-up capital of the other company. 27. Define the term Company Secretary in Practice as defined under the CS Regulations. Section 2(2) of the Company Secretaries Act, 1980, provides that a member of ICSI shall be deemed to be in practice, when individually or in partnership with one or more members of the Institute, engages himself in the practice of the profession of Company Secretaries to, or in relation to, any company; or offers to perform or performs services in relation to the promotion, forming, incorporation, amalgamation, reconstruction, reorganization or winding up of companies; or offers to perform or performs such services as may be performed by (a) an authorized representative of a company with respect to filing, registering, presenting, attesting or verifying any documents (including forms, applications and returns) by or on behalf of the company, (b) a share transfer agent, (c) an issue house (d) a secretarial auditor or consultant, Elegant Modern AC s

11 (e) an adviser to a company on management, including any legal or procedural matter, (f) issuing certificates on behalf of, or for the purposes of, a company; holds himself out to the public as a Company Secretary in practice; or renders professional services or assistance with respect to matters of principle or detail relating to the practice of the profession of Company Secretaries; or renders such other services as, in the opinion of the Council, are or may be rendered by a Company Secretary in practice. 28. What are the various kinds of services which a PCS can render under the CS Regulations? Regulation 168 prohibits a company secretary in practice from engaging in any business or occupation other than the profession of company secretary unless it is permitted by a general or specific resolution of the Council. Following services are permitted generally - Private tutorship. Authorship of books and articles. Holding of Life Insurance Agency Licence for the limited purpose of getting renewal commission. Holding of public elective offices such as M.P, M.L.A., M.LC. Honorary office-bearership of charitable, educational or other non-commercial organisations. Acting as Justice of Peace, Special Executive Magistrate and the like. Teaching assignment under the Coaching Organisation of the Institute or any other organisation, so long as the hours during which a member in practice is so engaged in teaching do not exceed average four hours in a day Valuation of papers, acting as a paper-setter, head examiner or a moderator, for any examination. Editorship of professional journals. Acting as ISO lead auditor. Providing Risk Management Services for non-life insurance policies except marketing or procuring of policies. Acting as Recovery Consultant in the Banking Sector. Becoming non-executive director / promoter / promoter director / subscriber to the Memorandum and Articles of Association of a company the objects of which include areas, which fall within the scope of the profession of Company Secretaries irrespective of whether or not the practising member holds substantial interest in that company. Becoming non-executive director / promoter / promoter director / subscriber to the Memorandum and Articles of Association of a company which is engaged in any other business or occupation provided that the practising member does not hold substantial interest in the company. Permission to be granted specifically Interest or association in family business concerns provided that the member does not hold substantial interest in such concerns. Interest in agricultural and allied activities carried on with the help, if required, of hired labour. Editorship of journals other than professional journals. 29. Explain the procedure for appointment of auditors other than retiring auditors. In terms of Section 225 of the Companies Act, 1956, the company shall comply with the following procedure for appointment of auditor other than retiring auditors: Special notice u/s 190 is required for this purpose atleast 14 days before the meeting. Company shall give atleast 7 days notice to the members. A copy of the special notice shall also be furnished to the retiring auditor. The retiring auditor can make a representation. Company shall state the fact of such representation in the notice to the members. Elegant Modern AC s

12 It shall also send a copy of the representation to the members. Pass the resolution at the AGM for appointment of other than retiring auditor. Inform the new auditor within 7 days of his appointment. Auditor shall file Form 23B with the RoC within 30 days. 30. Short note on branch auditor. CS Professional Examinations Dec, 2013 In terms of Section 228 of the Companies Act, 1956: Where a company has a branch office in India the accounts of that office shall be audited by the company s auditors or by any other CA In case the company has a branch outside India audit may also be conducted by an accountant duly qualified to act as an auditor in accordance with the laws of the country in which the branch office is situated In case branch audit is to be conducted by a person other than the company s auditors the company in general meeting shall appoint a qualified person as branch auditor or may authorize the BOD He has got the same rights and duties as a statutory auditor He shall forward his report to the company s auditor. 31. Explain the steps and requirements for maintenance of cost accounting records and appointment of cost auditor. In terms of Companies (Cost Accounting Record) Rules 2011 dated 3 rd June, 2011, the CG has mandated companies engaged in production, processing, manufacturing, or mining activities and wherein, - the aggregate value of net worth as on the last date of the immediately preceding financial year > Rs. 5 crores or the aggregate value of the turnover made by the company from sale or supply of all products or activities during the immediately preceding financial year > Rs. 20 crores or the company s equity or debt securities are listed Cost accounting records are required to be maintained in respect of financial years commencing on or after 1 st April, Exemptions wholesale or retail trading activities, banks, investment and insurance companies, IT services, postal / courier services etc. Appointment of cost auditor Such audit shall be conducted by a cost accountant within the meaning of the Cost and Works Accountants Act, 1949 Such cost auditor shall be appointed by the Board of Directors with the previous approval of the CG. The Audit committee of the company shall be the first point of reference for such appointment. Auditor of the company cannot be appointed as cost auditor. A person disqualified to be an auditor cannot be appointed as cost auditor. The company shall disclose full particulars of its cost auditor in its annual report. 32. Explain the procedure for passing of resolutions through postal ballot. In terms of Section 192A read with Companies (passing of the resolution by postal ballot) Rules, 2011: Notice to all shareholders alongwith a draft resolution and requesting them to send their assent / dissent within 30 days of posting the letter. It shall be sent by registered post acknowledgement due or through provided the company obtains the addresses of its shareholders. Company shall issue advertisement in one English and vernacular newspaper after despatch of the postal ballot forms. If it is assented by the majority it shall be deemed to be passed at a meeting. Elegant Modern AC s

13 Voting by electronic mode is also permitted. Further in terms of Clause 35A of the Listing Agreement, every listed company conducting postal ballot, shall give the facility of e-voting to its shareholders. Matters which compulsorily need to be passed through postal ballot Alteration of objects clause of MOA Alteration of AOA for insertion of provisions re. Private co. Buy back of shares Issue of shares with differential voting rights Change in registered office outside the local limits of the city, town or village Sale of whole of the undertaking of the co. Give loans, guarantees, or security in excess of the limits u/s 372A Election of a small shareholder director Variation of rights attached to a class of shares / debentures 33. Explain the powers of the Board of Directors which are exercisable only with the approval of shareholders. In terms of Section 293 of the Companies Act, 1956, the following powers of the Board can only be exercised with the approval of the shareholders: Sell, lease or otherwise dispose of whole, or substantially the whole, of the undertaking of the company Remit, or give time for repayment of any debt due by a director Invest, otherwise than in trust securities, the amount of compensation received by the company in respect of the compulsory acquisition of any such undertaking as referred above Borrow moneys, where the moneys to be borrowed, together with the moneys already borrowed by the company (apart from temporary loans obtained from the company's bankers in the ordinary course of business), will exceed the aggregate of the paid-up capital of the company and its free reserves Contribute to charitable and other funds not directly relating to the business of the company or the welfare of its employees, any amounts in excess of Rs. 50,000/- or 5% of its average net profits during the 3 financial years immediately preceding, whichever is greater. 34. Short notes on explanatory statement and poll in general meetings. Explanatory Statement Section 173 of the Companies Act, 1956 In terms of Section 173 of the Companies Act, 1956, every notice proposing to transact special business in a general meeting, shall be accompanied by an explanatory statement, setting out all material facts concerning that special business, including the concern / interest of every director / manager. The object of providing explanatory statement u/s 173 is to secure that all facts which have a material bearing on the question on which the shareholders have to form their judgment are brought to the notice of them so that the shareholders can exercise an intelligent judgment Balasundaram vs. New Theatres Carnatic Talkies Private Limited The provision of Section 173 is mandatory in nature and disobedience to its requirements will lead to nullification of the action taken Firestone Tyre and Rubber Co. Ltd. Vs. Synthetics and Chemicals Ltd. The principle to be applied in case of explanatory statement is that could a reasonable shareholder knowing the true facts have taken a different course from that which he took on the basis of the explanatory statement which did not disclose the true facts Jessel Trust Limited Poll Section 179 of the Companies Act, 1956 It is a method of voting in which votes are cast by members (in person or by proxy) in accordance with the number of shares held, by registering their votes on sheets of paper called Poll paper or Ballot paper distributed to the voters. The object of a poll is to ascertain the true sense of a meeting and is not to give absent members a further Elegant Modern AC s

14 opportunity of voting unless a contrary intention is expressly or impliedly to be gathered from the Articles Liladhar Shamji vs. Rehmubhoy Allana A poll may be ordered by the Chairman on his own motion or shall be ordered on a demand made by the persons as follows: (a) Public company with share capital members holding not less than 1/10th of the voting power or on which an aggregate sum of Rs. 50,000/- or more has been paid (b) Private company with share capital 1 member, if 7 members are present or 2 members if > 7 members are present (c) Any other company - members holding not less than 1/10th of the voting power Proxies may also demand a poll Berar Trading Company Limited vs. Gajana G Dixit In case of poll on election of chairman or on adjournment of the meeting, it has to be taken forthwith In case of poll on any other question, it must be taken within 48 hours of the time of demand Chairman should appoint 2 scrutineers (atleast 1 scrutineer should be a member of the company and not an officer / employee) to scrutinize the votes cast on a poll The results of the poll shall be displayed at the registered office of the company. 35. Short note on proxy in general meetings. In terms of Section 176 of the Companies Act, 1956, any member entitled to attend and vote in a meeting, may appoint another person to attend and vote on his behalf. A proxy is a representative of a shareholder at a meeting of the company who may be described his agent to carry out which the shareholder has himself decided upon Cousins vs. International Brick Co. The notice of every general meeting shall contain the following statement with reasonable prominence - A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND THAT A PROXY NEED NOT BE A MEMBER OF THE COMPANY. A proxy may be appointed by a written instrument (in the prescribed form as set out in Schedule IX) signed by the appointer or his duly authorized attorney. The instrument of proxy must be deposited with the company 48 hours before the meeting; if a period longer than 48 hours is prescribed, it shall have effect as if a period of 48 hours has been specified. A proxy need not be a member of the company and cannot vote except on a poll. A member entitled to vote can inspect the proxy forms deposited with a 3 days notice to the company and at any time during the period beginning 24 hours before the commencement of the meeting and ending with the conclusion of the meeting. 36. Explain the steps for holding an AGM. Section 166 of the Companies Act, 1956 provides that - The first AGM should be held within 18 months from the date of incorporation - there must be one meeting held in each calendar year - the gap between 2 AGMs should not be more than 15 months (this may extended to 18 months by the RoC) Section 210 of the Act provides that the AGM must be held not later 6 months from the close of the financial year. The MCA has clarified that AGM should be held on the earliest of these dates. In case annual accounts are not ready for laying at the appropriate AGM, it shall be open to the company to adjourn the said AGM to a subsequent date when the annual accounts are expected to be ready for laying. The adjourned meeting must, however, be held within the maximum time limit allowed under Section Subal Dutta & Sons Pvt. Ltd. Vs. Asst. Registrar of Companies, W. B. (1986). The AGM must be held - on a day which is not a public holiday - during business hours and Elegant Modern AC s

15 - at the registered office of the company or at some other place within the city, town or village in which the registered office is situated. 37. Distinguish between motion and resolution. A motion is a definite proposal put before a meeting for its consideration and adoption. Notice of a motion is necessary before it is put before the meeting It must be proposed and seconded A resolution is the formal expression of the decision of a meeting When a motion has been voted upon and passed by the requisite majority it is called a resolution. 38. Short note on Corporate Governance Report under Clause 49 of the Listing Agreement. In terms of Clause 49 of the Listing Agreement : Annual Report of the Company should comprise a separate section on Corporate Governance wherein specified compliance with Clause 49 is required to be disclosed. Quarterly Compliance Report to be submitted to Stock Exchanges within 15 days from the close of the quarter in the prescribed format. 39. What do you mean by Director s Responsibility Statement? In terms of Section 217 of the Companies Act, 1956, the Directors Report of a company shall contain a Directors Responsibility Statement certifying that - that in preparation of annual accounts, the applicable accounting standards are being followed together with proper explanations relating to material departures - that the directors have selected such accounting policies and applied them consistently and made judgements and estimates that they are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the year and profit and loss for the period - that the directors have taken proper and sufficient care for the maintenance of adequate accounting records for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities - that the directors have prepared the accounts on a going concern basis 40. Explain the procedure for exemption from attaching the accounts of subsidiary company with the holding company. General exemption has been granted to holding companies vide General Circular No. 2/2011 dated 8 th February, 2011, from attaching accounts of subsidiaries, subject to compliance with the following conditions: The Board of Directors of the company gives consent for not attaching the accounts of subsidiaries. The company prepares consolidated financial statements in compliance with Accounting Standards and Listing Agreement. The holding company shall furnish hard copies of the accounts of subsidiaries to shareholders on demand. The company shall disclose in the consolidated balance sheet the following information in aggregate for each subsidiary including subsidiaries of subsidiaries:- (a) capital (b) reserves (c) total assets (d) total liabilities (e) details of investment (except in case of investment in the subsidiaries) (f) turnover (g) profit before taxation (h) provision for taxation (i) profit after taxation (j) proposed dividend. 41. Explain the power of RoC to strike off names of companies. Section 560 of the Companies Act, 1956 empowers RoC to strike off the names of those companies which do not carry on any business or operation in the following circumstances: (a) where a company is being wound up and the RoC has reasonable cause to believe that no liquidator is acting; (b) if the affairs of the company have been completely wound up and the required returns are not forthcoming from the liquidator appointed for a period of 6 consecutive months. Any aggrieved member / creditor may apply for restoration of name within 20 years from publication of striking off Elegant Modern AC s