GUIDING FACTORS IN FILING RESOLUTIONS AND AGREEMENTS WITH ROC UNDER THE COMPANIES ACT, 2013

Introduction

Simplicity has lost its meaning under the new Act. Complexity under the garb of ”Transparency and Accountability’ has forced entered the door of Corporate Sector. Simplicity is thrown out of the window. This Statement may seem to be harsh but that is the reality. The reader could very well understand this fact when he goes through this Article.

Section 192 of the Companies Act, 1956 dealt only with a handful of resolutions to be filed with the Registrar of Companies through E Form No.23. Now the scope is widened drastically and the new Act has brought in so many subject matters to be discussed and resolutions to be filed with ROC with the sole aim of increasing Government revenue. The Ministry is also vested with powers to keep on increasing the List of resolutions to be filed at the stroke of a Pen. Incidentally this has also helped so many certifying professionals to increase their professional income by certifying these Forms. To what extent the Stake holders are benefited is a matter of debate. Everything is being done in the name of transparency and accountability. Section 117, 179(3) read with Rule 8 of the Companies (Meeting of Board and its Powers ) Rules, 2014 and Section 180 deal with matters which have to be discussed in the Board Meetings /General Meetings and the resolutions together with the Notice calling the meeting and the explanatory Statement (in the case of general meeting only) have to be filed with the Registrar of Companies. The relevant EForm is MGT-14.

An attempt has been made to critically analyse the grounds under which Companies have to file these resolutions with the ROC. The Companies Act, 2014 has given a big basket of subject matters which have to be discussed by the Board/Members and resolutions have to be passed and Form No.MGT-14 to be filed with the Registrar of Companies. The Author has categorized the subject matters under the following five headings.

A. Subject Matters listed out in Section 117
B. Subject Matters listed out in Section 179(3)
C. Subject Matters listed out in Section 179(3)(k) read with Rule 8 of the Companies (Meetings of Board and its Powers) Rules, 2014
D. Other resolutions or agreements as may be prescribed and placed in the Public Domain.(Section 117(3)(h)
E. Subject matter listed out in Section 180

A. SUBJECT MATTER LISTED OUT IN SECTION 117

Though we find various Sections and rules lay down certain Powers to be exercised in Board Meetings/ General Meetings and E Form MGT-14 to be filed, Section 117 happens to be the core Section for this matter as it encompasses all other relevant sections and the rules attached to it. The said Section itself through its various sub clauses also deals with the following subject matters requiring Board approval and filing of the resolutions with ROC.

The following subject matters require filing of MGT-14 filing.

a. All Special resolutions
b. Resolutions passes by all the members of the Company and if such resolutions not agreed would not have been effective unless passed as Special resolutions.
c. Execution of Managerial Agreement or Board resolution relating to appointment, reappointment or renewal of appointment of the Managing Director
d. Variation of terms of appointment of Managing Director.
e. Resolutions or Agreements agreed by any class of members and if such resolutions not agreed would not have been effective unless passed by a specific majority
f. All resolutions or Agreements which effectively binds such class of members though not agreed by all members.

B. SUBJECT MATTER LISTED OUT IN SECTION 179(3)

Under Section 179(3), the following powers shall be exercised only by passing the resolution in a Board Meeting and the resolution together with the Board notice have to be filed with the Registrar of Companies through E Form MGT-14

a. Power to make calls on shareholders in respect of money unpaid on their shares.

This provision applies where ever the Board makes a first call and second Call separately or First and Final call on shareholders to pay money on unpaid shares.

b. Power to authorise buy-back of securities under Section 68.

This applies when the Board passes a resolution for buy back of its own securities under Section 68. How ever this power cannot be exercised by the Board alone. The Matter has to be again referred to the Members who in turn has to pass a special resolution in a General Meeting. So in effect, two MGT-14 viz., Board resolution and a special resolution have to be filed on different dates . It is strange and illogical to file two separate resolutions for the same subject matter.

c. Power to issue securities, including debentures, whether in or outside India

This provision applies to Allotment of Securities done in a Board Meeting. There is already Form PAS-3 for allotment of securities. I do not find any reason why another E-Form MGT-14 has to be filed for the Issue of securities. PAS-3 provides full details of issue of Securities. Filing one more EForm MGT-14 for the same subject matter is just a duplication of work. ROC, Bangalore in his recent interaction with the professionals has commented that the Issue of Securities is offer of Securities and not Allotment of Securities and hence MGT-14 need not be filed whereas other Regional Rocs have opposite views.

d. Power to borrow monies

A Company may usually pass a general resolution for Borrowing Powers either in the Board meeting and also in a general meeting for fixing the Borrowing limit (if the same exceeds beyond the paid up capital and free reserves. ) There may also be some specific resolution to be passed in a Board Meeting asper the requirements of the lender. In the absence of any clarification from the Ministry, it should be presumed that for any borrowing power resolutions passed in a Board Meeting (whether specific or general), MGT-14 should be filed.

In respect of Corporate Sector Borrowings, ˜Actual day-to-day operation on overdraft, cash credit or other accounts by means of which the arrangement so made is actually availed of with the Bankers™ do not amount to Borrowings whereas the borrowing of money made by way of overdraft or cash credit or otherwise will apply.

In respect of acceptance of money by the Banking Sector, such acceptances in the ordinary course of its business of deposits of money from the public repayable on demand or otherwise and withdrawable by cheque, draft, order or otherwise, or the placing of monies on deposit by a banking company with another banking company on such conditions as the Board may prescribe, shall not be deemed to be a borrowing of monies or, as the case may be, a making of loans by a banking company within the meaning of this section.

e. Power to invest the funds of the company

Any investments made by the Company out of its surplus funds could be done only by means of a Board resolution and Form No.MGT-14 has to be filed.

f. Power to grant loans or give guarantee or provide security in respect of loans.

Any loans granted to its employees/corporates or to any other person irrespective of the loan amount, it shall be done only by means of a Board resolution and MGT-14 to be filed. Some companies provide their security for the loans granted to a third party Company and create charge. In such cases also, it should be backed by a proper Board resolution and Form No.MGT-14 to be filed.

g. Power to approve financial statement and the Board™s report When ever draft Statement of Accounts and the draft Board report are approved by the Board prior to the AGM, the concerned resolutions have to be filed with ROC. This filing is also in addition to the Annual filing forms to be filed after the AGM.

h. Power to diversify the business of the Company If a Company starts a new Business apart from its main business, the Board has to approve and the resolution has to be filed. Since there is no quantum specified, any new business contemplated by the Board irrespective of its size, the Board resolution has to be filed.

i. Power to approve amalgamation, merger or reconstruction

Any Board resolution for approving any amalgamation, merger or reconstruction and the resolution has to be filed in addition to the Special resolution passed at the general Meeting by the Members. Here also two MGT-14 have to be filed for the same subject matter.

j. Power to take over a company or acquire a controlling or substantial stake in another company There is no clarity as to the quantum with regard to acquiring substantial stake in a Company and in the absence of which, in my opinion, it could be anything beyond 25% . The Controlling stake should be beyond 51% and take over also should be beyond 51 %. If the Board has to pass a resolution for acquiring substantial stakes, then why ˜Controlling Stakes and Take Over™ have to be mentioned ?

k. Any other matter which may be prescribed.

In addition to the above, MCA has prescribed in Rule 8, nine items for which the Board has to pass necessary resolutions as and when required and then file those resolutions with ROC. The Ministry may increase beyond these nine items in Rule 8 in the near future if required.

C. SUBJECT MATTER LISTED OUT IN RULE 8 OF THE COMPANIES (MEETINGS AND ITS POWERS ) RULES, 2014 IN PURSUANCE TO SECTION 179(3)(k)

Under this clause, the Ministry has prescribed the following nine subject matters to be discussed in the Board and the Resolution to be filed.

a. To make Political contributions

Any Political contribution even it is minuscule, a Board resolution should be passed and filed.

b. To appoint or remove Key Management Personnel (KMP)

Under this provision, We have to look into the applicability of certain Class of Companies under Section 203 and the definition of Key Management Personnel given under Section 2(51) of the Companies Act, 2013. If the Act has specified only in Section 203 with regard to Key Management Personnel, I would say that Form MGT-14 need not be filed for Companies which do not come under the purview of Section 203. The applicability of Key Management Personnel is prevalent for the entire Corporate Sector as there is a definition in Section 2 (51). (Section 2(51) (v) also has given powers to the Ministry to brand more no of officers in future as Key Management Personnel.) Asper the requirement of this clause, any appointment of a. CEO or the Managing Director or the Manager b. Company Secretary c.Whole time Director d.Chief Financial Officer should be done only in a Board Meeting and the relevant resolution should be filed with MGT-14 . These officers are considered as Key Management Personnel irrespective of the size of the Company due to definition given under Section 2(51).

c.To appoint Internal Auditor and Secretarial Auditor

It is slightly confusing. Instead of using the word ˜or™, the word ˜and™ is used. This is because Internal Auditor™s appointments criteria is totally different from Secretarial appointments criteria and both appointments are not going hand in hand. Rule 13 of the Companies (Accounts) Rules, 2014 lists out certain class of Companies to appoint Internal Auditors and Section 204 says that every listed Company and Companies covered under Rule 9 of the Companies (Appointment of Managerial Personnel) should appoint Secretarial Auditor. The parameters are different. Any way we have to read like this. When ever Company appoints an Internal Auditor or Secretarial Auditor, the Board resolution has to be passed and MGT-14 has to be filed.

d. To take note of Disclosure of Interest and Shareholdings

Under Section 184, the Directors in their first Board Meeting held in every financial year and also in the first Board Meeting held after any changes in the disclosures already made by any Director, Disclosure of Interests have to be made in Form MBP-1 and MGT-14 has to be filed. This is an enormous tasks as not only change in Directorships but also any shares purchased /sold, Section 184 requires disclosures in MBP-1. I feel that there should be some threshold limits specified for Disclosures in MBP-1 for any shares purchased or sold by a Director.

e. To buy, sell investments held by the Company (other than trade investments) constituting 5% or more of the Paid up Share Capital and free reserves of the investee Company Section 179(3)(e) has already specified that the Company has to pass a Board resolution and the same to be filed for all investments without any threshold limits. In this clause {(Rule 8 (6) of the Companies (Meetings of the Board and its Powers) 2013}, it states that when ever any Company wants to buy investments more than 5 % of the investee Company, it has to pass a Board Resolution. Both these clauses are superfluous, one specifying without limits and one specifying with limits. We need clarity from the Ministry.

f. To invite or accept or renew Public Deposits and related matters

Section 73 prohibits Companies in acceptance of deposits from Public except for certain class of Companies mentioned in Section 76 read with the Companies (Acceptance of Deposits) Rules, 2014. Only Companies accepting deposit from Public, should pass the necessary Board resolution and MGT-14 has to be filed. I am not able to understand ˜related matters™. It is vague and all matters related to Public Deposits discussed and decision taken in the Board, MGT-14 has to be filed.

g. To approve quarterly, half yearly and Annual financial statements or financial results as the case may be

Under Section 179(3)(g), when ever the Board has to approve the financial statements and the Board report, MGT-14 has to be filed. Rule 8 also talks about Annual financial statements. In my view the Section as well as the Rule talk the same point. It is superfluous and needs rectifications. When ever the Board discusses on Progress Report which eventually would contain the quarterly/ half yearly/ yearly financial results, necessary resolution has to be passed, Form no.MGT-14 has to be filed.

D. OTHER RESOLUTIONS OR AGREEMENTS AS MAY BE PRESCRIBED AND PLACED IN PUBLIC DOMAIN.(Section 117(3)(h)

Under this Clause MCA has powers to prescribe some more resolutions and Agreements in future and place it in the public Domain. In addition to these powers, MCA also has powers to prescribe more subject matters under Section 179(1)(k). If you look at it, Section 117(3)(h) and Section 179(1)(k) deal with the same subject of giving more powers to the MCA to prescribe additional resolutions and Agreements in future.

E. SUBJECT MATTERS LISTED OUT IN SECTION 180

Under Section 192 of the Companies Act, 1956 certain subject matters like Borrowing Powers beyond the Paid Up Capital and free reserves and Disposal of an undertaking were to be passed by Ordinary resolutions and E Form No.23 should be filed. Now MCA has given the following list of subject matters in Section 180 that could be passed only by Special resolutions thereby forcing the Company to file E Form MGT-14 .

The following subject matters require special resolutions to be passed in a general Meeting and E Form No.MGT-14 to be filed.

a. To sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings. Here the word undertaking means an undertaking in which the a. Investment exceeds 20% of the networth of the Company or b. An undertaking which generates 20% of the total income. Here the above percentage applies even for the ˜Whole or substantially the whole of one more Undertakings™ In calculating the percentage, previous year™s Audited Balance Sheet™s figures have to be considered.

b. to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;

c. to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid up capital and free reserves, apart from temporary loans obtained from the company™s bankers in the ordinary course of business.

However in the case of a Banking Company, acceptance of money in the ordinary course of its business, acceptance of deposits of money from the public, acceptance of money which is repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause. Here, for the purpose of this Clause, the expression temporary loans means loans repayable on demand or within six months from the date of the loan such as short-term, cash credit arrangements, the discounting of Acts and the issue of other short-term loans of a seasonal character, but does not include loans raised for the purpose of financial expenditure of a capital nature.

d. To remit, or give time for the repayment of, any debt due from a director.

This clause does not provide any clarity as far the remittance is concerned. If it talks of remittance to a Director, it is prohibited under Section 185. If it talks remittance from the Director, why a special resolution should be passed by the Company to get money from the Director? The later part is perfectly understandable wherein a special resolution needs to be passed from extending time for repayment of any debt due from a Director.