Tag: Intellectual Property Rights

An annual report is a document that public corporations must provide annually to shareholders that describes their operations and financial conditions. The front part of the report often contains an impressive combination of graphics, photos, and an accompanying narrative, all of which chronicle the company’s activities over the past year and may also make forecasts about the future of the company. The back part of the report contains detailed financial and operational information.

Annual reports became a regulatory requirement for public companies following the stock market crash of 1929 when lawmakers mandated standardized corporate financial reporting.

The intent of the required annual report is to provide public disclosure of a company’s operating and financial activities over the past year. The report is typically issued to shareholders and other stakeholders who use it to evaluate the firm’s financial performance and to make investment decisions.

Typically, an annual report will contain the following sections:

• General corporate information
• Operating and financial highlights
• Letter to the shareholders from the CEO
• Narrative text, graphics, and photos
• Management’s discussion and analysis (MD&A)
• Financial statements, including the balance sheet, income statement, and cash flow statement
• Notes to the financial statements
• Auditor’s report
• Summary of financial data
• Accounting policies

State of Company’s Affairs [Section 134(3)(i)]:

Board briefing about the Company business operation ,highlights, growth, services of the Company, operating profits, performance growths, overview of the business, new projects introduced during the year or any new services undertaken by the company.

Details of status of acquisition, mergers, expansion, modernization and diversification, and key business developments.

Besides, it points out the problems faced by the company which has affected the Profits and measures that have been taken to improve the working and reduces the costs.

Dividends [Section 134(3)(k):

The amount of Dividend if any, recommended by the board should be paid by way of Dividend, as to the rate under review for the approval of members at the  Annual General Meeting AGM

Details of Subsidiary, Joint Venture and Associate Companies (Rule 8(5)(iv):

Details of company that is ceased to its subsidiaries, Joint Venture or associate company.

Particulars of Loan and Investments Section 134(3)(g):

Disclosure of all particulars of Loans, guarantees or investments under Section 186.

Change in nature of Business, if any:

Details pertaining to change of business of the Company or in the subsidiaries business or in the nature of business carried on by them.

Amounts Transferred to reserves, if any:

The board shall states the amount which it proposes to any reserve in the Balance Sheet like debenture redemption reserve in terms of Section 71(13)etc.

Changes in share Capital, if any:

Change in total Share capital of the company and any increase during the year under review, pursuant to allotment of equity/preference shares /Right issue/ Private Placement/ preferential allotment/ Employee Stock Option scheme of the Company. 10. Web Link of annual return Section 134(3)(a): Web address link where annual return of company shall be published.

Number of Board Meeting Section 134(3)(b):

The number of Board Meetings held during the year and Committee meeting and details of Board meetings attended by each of the Director should be mentioned.

Particulars of Contract and Arrangement with Related Parties Section 188:

Details of all transactions entered along with the justification for entering into such a contract and arrangement by the company during the financial year. 13. Statutory Auditors:

Details about the statutory auditors of the company, any change made during the year, whether existing auditor(s) is/are eligible for reappointment etc. Compliance certificate from either the auditor(s) or practicing company secretaries regarding compliance of conditions of corporate governance shall be annexed with the director’s report.(Para C of Schedule V of Listing Regulations).

Explanation to Auditor’s Remarks Section 134(3)(f): Explanation or comment by the board on every qualification reservation, adverse or disclaimer made by the statutory auditor in his report and /or by the secretarial auditor in the Secretarial Audit Report.

Material changes affecting the Financial position of the company Section 134(3)(l):

Details of any material changes / events, if any occurring after balance sheet date till the date of report to be stated.

Conservation of energy, technology, absorption, foreign exchange earnings and outgo section 134(3)(m):

The board report shall contain the following details:

Conservation of energy:

Impact on the conservation of energy, Company utilization of alternative source, the capital investment on energy conservation types of equipment.

Technology absorption:

Research and development expenditure, Advantages of product improvement, cost reduction, product development or impact substitution.

Foreign Exchange earnings and outgo:

Terms of actual inflows during the year and the Foreign exchange outgo during the year in terms of actual outflows.

Risk Management Policy Section 134(3)(n):

Details of the development and implementation of the risk management policy of the company.

Details of Directors and Key Managerial Personnel Rule 8(5)(iii):

Details of Directors and KMP appointed or resigned during the year.

King III recommends that the delegation of powers to a committee be made official, in order for the members to have formal terms of reference to determine the scope of their powers, and the responsibilities they bear. The terms of reference should include detail pertaining to:

• The composition of the committee
• The objectives, purpose and activities
• The powers that have been delegated
• Any mandate to make recommendations to the board
• The lifespan of the committee, and
• How the committee reports to the board.

The Act requires public companies and state owned companies to appoint an audit committee comprising three independent non-executive directors. King III proposes that all other companies provide for the appointment of an audit committee (the composition, purpose and duties to be set out in the company’s Memorandum of Incorporation).

In addition, King III proposes that the board should appoint the audit, risk, remuneration and nomination committees as standing committees. The board may also consider establishing governance, IT steering and sustainability committees.

King III suggests that the committee should only comprise members of the board. The majority of the members should be non-executive, of which the majority should be independent. The ideal situation is for the chairperson of the board to also chair the nomination committee, failing which an independent non-executive director should be the chairperson.

The chairman of the committee should be an independent, non-executive director. The chair of the board should not chair the remuneration committee, but may be a member.

Insiders as Independent Directors

• Position: Current and former executives and directors of an issuer should not be permitted to sit as an independent non-executive directors until five years after leaving the relevant positions, and then only under certain restrictions.
• Rationale: Insiders such as individuals from these groups can retain emotional, financial, professional, and personal ties to the issuer, its management, and its directors. This retained loyalty may compel the insider to decide on matters in a way that does not first serve the interests of shareowners.

Independent Director’s Connection to the Company

• Position: Independent non-executive directors should not have been connected to a director, chief executive, or substantial shareowner of the issuer within the preceding five years.
• Rationale: Individuals with such links to insiders are more likely to make decisions on the basis of those links than on what is best for shareowners. After five years, the allegiance may diminish to a point where the independent, non-executive director may make decisions that run counter to the interests of the insider.

Mode of Appointment of Independent Directors

The appointment of independent directors should be made by the company from amongst persons, who in the opinion of the company, are persons with integrity, possessing relevant expertise and experience and who satisfy the above criteria for independence.

‘Material’ Transactions

The term material pecuniary relationship should also be clearly defined for the purpose of determining whether the director is independent or not. The concept of “Materiality’ is relevant from the recipient’s point of view and not from that of the company. The term ‘material’ needs to be defined in terms of percentage. In view of the Committee, 10% or more of recipient’s consolidated gross revenue / receipts for the preceding year should form a material condition affecting independence. For determining materiality of pecuniary relationship, transactions with an entity in which the director or his relatives hold more than 2% shareholding, should also be considered. An independent director should make a self-declaration in format prescribed to the Board that he satisfies the legal conditions for being an independent director. Such declaration should be given at the time of appointment of the independent director and at the time of change in status. Board should disclose in the Director’s Report that independent directors have given self-declaration and that also in the judgment of the Board they are independent. The Board should also disclose the basis for determination that a particular relationship is not material.

Director/ Attributes of Independent Directors

The Committee was of the view that definition of an Independent Director should be provided in law. The expression ‘independent director’ should mean a non-executive director of the company who:

a) Apart from receiving director’s remuneration, does not have, and none of his relatives or firms/companies controlled by him have, any material pecuniary relationships or transactions with the company, its promoters, its directors, its senior management or its holding company, its subsidiaries and associate companies which may affect independence of the director. For this purpose “control” should be defined in law.

b) is not, and none of his relatives is, related to promoters or persons occupying management positions at the board level or at one level below the board;

c) is not affiliated to any non-profit organization that receives significant funding from the company, its promoters, its directors, its senior management or its holding or subsidiary company;

d) has not been, and none of his relatives has been, employee of the company in the immediately preceding year;

e) is not, and none of his relatives is, a partner or part of senior management (or has not been a partner or part of senior management) during the preceding one year, of any of the following:

i] The statutory audit firm or the internal audit firm that is associated with the company, its holding and subsidiary companies;

ii) The legal firm(s) and consulting firm(s) that have a material association with the company, its holding and subsidiary companies;

f) is not, and none of his relatives is, a material supplier, service provider or customer or a lessor or lessee of the company, which may affect independence of the director; g) is not, and none of his relatives is, a substantial shareholder of the company i.e. owning two percent or more of voting power.

Explanation: For the above purposes:

(i) “Affiliate” should mean a promoter, director or employee of the non-profit organization.

(ii) “Relative” should mean the husband, the wife, brother or sister or one immediate lineal ascendant and all lineal descendents of that individual whether by blood, marriage or adoption.

(iii) “Senior management” should mean personnel of the company who are members of its core management team excluding Board of Directors. Normally, this would comprise all members of management one level below the executive directors, including all functional heads.

(iv) “Significant Funding” Should mean 25% or more of funding of the Non Profit Organization.

(v) “Associate Company” Associate shall mean a company which is an “associate” as defined in Accounting Standard (AS) 23, “Accounting for Investments in Associates in Consolidated Financial Statements”, issued by the Institute of Chartered Accountants of India.

The Government has established an Investor Education and Protection Fund (IEPF) under Sec. 205 C of the Companies Act, 1956 under which unclaimed funds on account of dividends, matured deposits, matured debentures, share application money etc. are transferred through the IEPF to the Government by the company on completion of seven years. The Government is required to utilize this amount through an Investor Education and Protection Fund. For this purpose, the proceeds from the companies are credited to the Consolidated Fund of India through this fund. The Fund may then be entrusted with full-fledged responsibility to carry out activities for education of investors and protection of their rights.

BSE is the first Exchange to have set up the ‘Stock Exchange Investors Protection Fund (IPF) in the interest of the customers of the defaulter members of the Exchange. This fund was set up on 10th July, 1986 and has been registered with the Charity Commissioner, Government of Maharashtra as a Charitable Fund. The maximum amount of Rs. 10,00,000 payable to an investor from Investor Protection Fund in the event of a default by a Trading Member has been revised to Rs. 15,00,000; which shall be applicable to the clients of the Trading Member of the Exchange, who will be declared Defaulter after 5th December, 2009. (This has been progressively raised by BSE from Rs.10,000 in 1988 to the present level).

BSE is the only Exchange in India, which offers the highest compensation of Rs.15lacs in respect of the approved claims of any Investor against the defaulter Trading Members of the Exchange.

The Trading members at present contribute 1 paisa per 1lakh of gross turnover. The Stock Exchange contributes 2.5% of the listing fees collected by it. Also the entire interest earned by the Exchange on 1% security deposit kept by with it by the companies making public / rights issues is credited to the Fund.

Investor Awareness Program

Launching the Securities Market Awareness Campaign organized by SEBI (January 2003), the Prime Minister said the prolonged quietness in the stock markets had tested the confidence of the small investor who was the backbone of the securities market. If investors are not attracted, then companies will not be able to raise money through the capital market. The Indian household investor, off late, has been putting much of his savings in non-financial assets. Even with financial assets, most of the savings are going to the banking system. This is not the best or the most productive use of our savings, he said. In recent years, there had been many instances of companies raising money from the market by creating hype and then defrauding the investor. Many of them issued shares at hefty premiums; most of their scrip are now trading well below their face value. Stock market scams brought a bad name to the Indian business community. This is how boom went bust and hopes turned to dust for many gullible investors. And that is how the investor community lost confidence in the market, leading to prolonged stagnation. The Prime Minister, therefore, called upon the market regulator and the intermediaries to learn the right lessons from our experience of the past few years. He said we need markets that are known for their safety and integrity.

Investor Awareness programs are being regularly conducted by stock exchanges to educate the investors and to create awareness among the Investors regarding the working of the capital market and in particular the working of the Stock Exchanges. These programs have been conducted in almost all over the country.

The Investor Awareness program covers extensive topics like Instruments of Investment, Portfolio approach, Mutual funds, Tax provisions, Trading, Clearing and Settlement, Rolling Settlement, Investors’ Protection Fund, Trade Guarantee Fund, Dematerialization of shares, information on Debt Market, Investors’ Grievance Redressal system available with SEBI, BSE & Company Law Board, information on Sensex and other Indices, workshops and Information on Derivatives, Futures and Options etc.

Further, for the benefit of the Investors’ the Bombay Stock Exchange has:

BSE Training Institute which organizes Training programs periodically on various subjects like comprehensive programs on Capital Markets, Fundamental Analysis, Technical Analysis, Derivatives, Index Futures and Options, Debt Market, etc. Further, for the Derivatives market BSE also conducts the compulsory BSE’s Certification on Derivatives Exchange (BCDE) certification for Trading Members and their dealers to impart basic minimum knowledge of the derivatives markets.

Compensation to the Investors

Capital market includes investment into risk bearing instruments. In such cases, the investor is required to make his own assessment of risk and reward. No compensation could be visualized for such investors whose investments were in risk bearing instruments. Similarly, investment in a fixed return instrument necessitated a careful review of the borrowing entity. Such actions would also be subjected to known or declared risks. Besides, the capital market also provides an opportunity for an investor to exit. The need therefore, is to ensure proper and healthy market operation so that investors could exercise their exit options in a reasonable and equitable environment. However, there may be situations where such a frame work is distorted through frauds. There may be provisions for compensation in the event of fraud by companies being established in securing funds from investors. For this purpose lifting of corporate veil may be enabled by the law.

The Companies Act, 2013 is enacted with the main aim to assure maximum protection to every section of investors irrespective of their classes. The Companies Act, 2013 has been embedded with several new provisions in regards to the protection of investor’s interest. Some of the provisions to protect investor’s interest under the Companies Act, 2013 are discussed hereunder.

Acceptance of Deposits: The acceptance of deposit from the general public is not permitted under the Act, and violation of any of the provision is a punishable offense. Section 73 of the Act provides that no company shall accept or review deposit under this Act from the public except in a manner recognized under Chapter V of the Act and Companies (Acceptance of Deposit) Rule 2014.

Misstatement in Prospectus: The prospectus is a written statement issued by the company to the general public containing brief information regarding companies profile and their investment proposals. Section 34 of the Act deals with the criminal liability for miss statement in the prospectus issued by a company. The prospectus issued, circulated or distributed, include any statement, which is untrue or misleading in form or context to induce people to make an investment, shall be liable for action u/S 447.

Fraudulently Inducing Person to Invest Money: Section 36 of the Act deals with the punishment of the person who intentionally or recklessly induces the investor to make the investment through any agreement for the purpose or the pretended purpose of which to secure a profit. This kind of deliberate concealment of fact shall be liable for punishment u/s 447.

Non-Payment Of Dividend: Declaration of the dividend is usually one of the items of agenda of every AGM. The dividend is nothing but profits earned by the company and divided among shareholders in proportion to the amount paid-up shares held by them, i.e., return on the investment made by shareholders. The Section 125 of the Act provides for the establishment of investors education and protection fund by the central government. This fund is credited with the unpaid/unclaimed amount of application money/matured money or mature deposits. Such accumulations of the fund are to be utilized for promotion of investor’s awareness and protection of investor interest. Section 123 of the Act state that the dividend should be credited in investors account within in five days after the declaration.

Right to Demand Financial Statements: Section 136 of the Act provides for the right of a member to obtain copies of Balance-Sheet and Auditors Reports. In the case of default complying with this requirement, the company shall be liable for a penalty of twenty-five rupees and the authorized officer who is in default shall be liable for a penalty of five thousand rupees. Besides, this investor has the option to proceed against the company or its authorities in a court of law under the guidelines determined under Section 436 of the Act.

The relationship between the board of directors and the management cannot be described as just being that of a relationship between an employee and his or her manager. Though the board oversees the decisions taken by the management and ratifies them along with acting as the final arbiters of the strategic direction and focus that the company is heading into, the relationship goes beyond that. For instance, the board of directors is responsible for the actions of the management and hence not only does the board need to monitor the management, the management needs to take the board into confidence about its decisions. Hence, the relationship can be described as being symbiotic with each with each serving in an ecosystem called the organization. The point here is that neither the management nor the board can exist without each other and hence both need each other to survive and flourish.

The role of boards

• Approve new digital strategies
• Assess the balance of short term wins with long term impacts
• Understand the impact on employees
• Assess corporate risk
• Communicate value to shareholders

Another aspect to the relationship between the board and the management is that more often than not, there is a significant representation of the management in the board. This means that the other board members have to study the decisions taken by these members carefully so that there are no agency problems, conflicts of interest and asymmetries of information.

Only when the board and the management coexist together in a harmonious manner can there be true progress for the organization. For this to happen, there must be a provision for having independent directors and those directors that are not affiliated to the management. The point here is that unless there is objectivity and separation of the directors belonging to the management and those from outside can there is a semblance of avoidance of conflict of interest.

The third aspect of the relationship between the board and the management is the role played by institutional investors or directors from large equity houses and mutual fund companies. These directors bring to the table rich and varied expertise and experience in running companies and hence their input is crucial to the working of the company. It is for this reason that many regulators insist on having a certain percentage of the board as independent directors and another percentage from institutional shareholders. The reason for this is the fact that unless there is a process of due diligence and oversight over the actions of the management, the management can take unilateral decisions that are not always in the best interests of the company.

The role of CEOs

For their part, CEOs that lead businesses adopting digital ways of working need to be many things. They must be agile in their approach, have experience of change management, be open to partnerships, and have empathy with employees that are experiencing significant changes to the way they work.

CEOs must also work closely with boards to ensure that the pace of digital change doesn’t run out of control. Partly this means they need to be fully transparent with their boards on all potential risks particularly with regard to cybersecurity issues related to digital systems that 88% of boards now view as a serious risk.

On top of this, CEOs need to be aware of the boards’ thirst for data. This was highlighted in a recent survey that found that 70% of boards want their businesses to increase investment in technology for risk management to give them up to date data on both emerging and atypical threats.

At the same time CEOs should be tapping into the knowledge with their boards of adjacent markets and potential new opportunities. The successful Board/CEO partnership of the future will use every available insight to make sure that organisations can operate safely, confidently and with a 360° view of what’s coming next.

Bringing it all together

On a more practical level, boards and CEOs also need to find ways to collaborate via digital channels to make communication more frequent and to speed up decision making for example, by using specialist board portal technology.

With a board portal, directors can get easy access to both current and historical data from wherever they are located. CEOs can also use portals to share information securely with the board at any time and accelerate approval and sign off for new initiatives.

Along with the other requirements we’ve covered in this article, this kind of digital flow will be ultimately key to facilitating long-term partnerships between boards and CEOs and making their collective work on digital issues the success that it needs to be.

Finally, the relationship between the board and management is somewhat strained whenever the company is not doing well. This happens because the board has a top view of the organization and the management has a deeper insight. Hence, to be fair to the management, they are the ones who have to run the organization and so they cannot be constrained by what the board dictates sitting on its perch. This is the classic problem that many companies face especially when they are not doing well and the remedy for this is to take the board into confidence about the complexities of the day to day operations and apprise them of the nuances and subtleties of running the organization.

Need:

As a business director or owner it’s essential you can identify and meet the core skills your business needs to be successful.

These skills will be the same whatever business you run – whether you’re a self-employed graphic designer or you head a manufacturing company employing dozens of people.

There are intangible skills you will need, such as leadership skills, the ability to cope with long hours and hard work, and the inner resources to deal with stress and risk-taking. They also include strategy-setting and the ability to build and manage a team.

There are also functional skills that all businesses need. The smaller your business, the more of these skills you will need personally:

• Finance: Including cash flow planning, credit-management and managing relationships with your bank and accountant
• Marketing: including advertising, promotion and PR.
• Sales: including pricing, negotiating, customer service and tracking competitors
• Procurement and buying: including tendering, managing contracts, stock control and inventory planning
• Administration: including bookkeeping, billing, accounts preparation and payroll handling
• Personnel: including recruitment, dispute resolution, motivating staff and managing training
• Personal business skills: including computer, written and oral communication, and organisational skills

Objectives:

Leadership Supervisory Role: The Director of Training and Development’s first and most prominent role is his leadership role over the training and development department. In this position, the Director of Training and Development oversees all activities of the department and identifies the business’s developmental needs ensuring that there is consistency with core competencies and goals.

The Director of Training and Development also plans, organizes, and leads training programs, ensuring proper execution at all levels of the department. The Director of Training and Development also ensures consistency in the delivery and application of training standards across the business and oversees the planning, prioritization, and development of new training programs and initiatives, ensuring that these programs and initiatives are consistent with the business overall strategies, objectives, and needs.

He is also responsible for following up with the leadership and management of all departments in order to ensure that the parties involved in each training program complete their training. In this capacity, the Director of Training and Development also monitors and ensures the achievement of results within the approved training department budget. The Director of Training and Development also plays mentorship role to key personnel in the training and development department, ensuring constant development in their professional skills, and readying them for the occupation of his position in the event of his absence or retirement.

Strategy: The Director of Training and Development plays a strategic role where he is in charge of approving and developing effective training programs and materials, making regular modifications to programs where necessary. The Director of Training and Development also plays a leading role in the development and documentation of the training path for key positions within the business and communicating this information as needed.

For example, he is directly in charge of implementing AGM training programs as well as subsequent field leadership training programs that ensure optimal leadership within the business. It is also the director’s responsibility to lead the creation of training material and content for training programs, and identifying tools for relaying that content to relevant personnel.

Analytics: The Director of Training and Development is tasked with an analytical role where he conducts research, approves, and makes further recommendations for appropriate learning management systems and databases. The Director of Training and Development additionally develops, implements, monitors, and maintains both initial and ongoing training programs across the business.

He keeps track of departmental training records and develops opportunities in addition to developing dashboard reporting for all levels in the business. In this capacity, the Director of Training and Development also conducts analyses in order to identify and define present and future training needs. The Director of Training and Development also conducts follow-up studies on all completed training programs in order to evaluate and measure results and draw reports for senior HR management and key stakeholders.

Collaboration: The role of the Director of Training and Development is a collaborative role where he collaborates with other human resources departmental directors in defining strategies and ensuring their alignment in order to avoid conflicts of interest. In this collaboration, the Director of Training and Development also assists other HR professionals in their training needs specific to their areas of specialty.

He also liaises with various other departmental heads and managers ensuring proper execution of ongoing departmental training programs in order to achieve the desired results and ultimately improve the overall performance of the business. The Director of Training and Development also collaborates with these departmental heads and managers in order to establish and maintain training metrics and to evaluate the effectiveness of training. In his collaborative capacity, the Director of Training and Development also partners with key stakeholders ensuring adherence to the latest industry trends and practices.

Knowledge: The Director of Training and Development is tasked with the maintenance of knowledge in the training and development department. In this position, the Director stays up to date with the latest instructional technologies through the establishment of personal networks, attendance of workshops, reviewing of professional publications, and participation in professional industry associations. This way, the Director is able to introduce the latest and most applicable trends in training and development for inclusion in the overall strategy, constantly maintaining and updating training programs within the business.

Other Duties: The Director of Training and Development also performs similar duties as he deems necessary for the proper execution of his duties or other duties as delegated by the Chief Human Resources Officer.

Promoter

“Promoter” means a person:(

(a) Who has been named as such in a prospectus or is identified by the company in the annual return referred to in section 92;

(b) Who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise;

(c) In accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act:

Nominee

Nominee directors could be appointed by a specific class of shareholders, banks or lending financial institutions, third parties through contracts, or by the Union Government in case of oppression or mismanagement.

Shareholder

A small shareholder is a person who is holding shares of nominal value amounting to a maximum of Rs 20,000 in a public company. Small shareholders are entitled to elect a director in a listed company. The directors elected by these shareholders will be known as a ‘Small Shareholders Director’.

• There is no mandate to appoint a small shareholders director under s.151, left up to the company’s discretion
• Companies must fulfil two criteria to be eligible to appoint a small shareholders director
• Must be a public company
• Must have at least 1000 or more small shareholders.

Tenure of Appointment

Small shareholders director can be appointed for a maximum period of three years. He/she may not necessarily retire by rotation. He/she cannot be reappointed after the cessation of services.

Moreover, small shareholders director cannot be associated with the company in any manner for a period of three years from the cessation of services.

Independent

A person becoming the independent director of the company must fulfil certain criteria given under section 149(6) of the Companies Act, 2013, which states that an independent director is a person other than managing director, whole-time director, or nominee director, and:

• He must have relevant experience and should be a person of integrity as per the board.
• A person appointed as an independent director shall not be a promoter of the same company or any other company which is the holding, subsidiary, or associate company of the same company in which he has been appointed.
• The person shall not be related to the promoters or directors of the company or its holding, subsidiary, or associate company.
• The person must not have any money-related relationship with the company or its holding, subsidiary, or associated company other than his salary.
• None of his relatives or he himself shall not have any kind of interest in the company. Provided, the relative can hold shares of face value up to Rs. 50 Lakhs or 2% of the paid-up capital.

Section 149(4) of the Companies Act, 2013, states that every listed public company must have 1/3rd of its total directors as independent directors.

Reduction of Share Capital is a significant restructuring activity undertaken by a company to either adjust its capital structure, return surplus capital to shareholders, or write off accumulated losses. Under the Companies Act, 2013, the process is strictly regulated to protect shareholders’ interests and ensure compliance with the law. The legal provisions regarding the reduction of share capital are primarily governed by Section 66 of the Companies Act, 2013, and associated rules.

Meaning and Purpose of Capital Reduction:

The reduction of share capital refers to the process by which a company reduces its issued, subscribed, and paid-up share capital. This process is typically undertaken for various purposes:

• Adjusting the company’s capital structure due to losses.
• Returning surplus capital to shareholders that is no longer needed for the business.
• Canceling unissued shares or reducing the nominal value of shares.
• Writing off accumulated losses to present a healthier balance sheet.
• Discharging shareholders who do not participate fully in the company’s growth.

Reduction of capital can be carried out in various ways, such as:

• Canceling or extinguishing the liability of unpaid capital.
• Reducing the face value of shares.
• Buying back shares, and subsequently canceling them.
• Canceling any paid-up capital that is no longer needed.

Section 66 of the Companies Act, 2013:

This section lays down the legal framework for reducing the share capital of a company. Here are the key provisions:

1. Special Resolution:

• The reduction of share capital can only be initiated if a special resolution is passed by the shareholders in a general meeting. A special resolution requires at least 75% of the votes cast to be in favor of the resolution.
• The resolution must clearly specify the details of the reduction, the reason for it, and its effect on the company’s capital structure.

2. Approval of the National Company Law Tribunal (NCLT):

• After passing the special resolution, the company must seek the approval of the NCLT (National Company Law Tribunal).
• The company must file an application with the NCLT, including the special resolution and detailed justification for the capital reduction.
• The tribunal will carefully examine the application to ensure that the reduction is not prejudicial to the company’s creditors or shareholders.

3. Notice to Creditors and Objections:

• Before approving the reduction, the NCLT will direct the company to notify its creditors. This is done to ensure that creditors’ interests are not adversely affected by the reduction.
• Creditors have the right to object to the reduction if they believe that it will impact their claims or financial position.
• If creditors object, the NCLT may ask the company to settle the objections, provide security for their debts, or pay off the debts before proceeding with the reduction.

4. Court’s Order and Registration:

• Once the NCLT is satisfied with the company’s application and resolves any objections raised by creditors, it will pass an order approving the reduction of share capital.
• The NCLT may impose conditions while granting the approval to safeguard the interests of shareholders and creditors.
• After obtaining the NCLT’s approval, the company must file a certified copy of the tribunal’s order with the Registrar of Companies (ROC) within 30 days.
• The reduction of capital takes effect only after the order is registered with the ROC.

5. Publication of the Order:

The company is required to publish the order approving the reduction of share capital in a newspaper, as directed by the NCLT. This ensures transparency and informs all stakeholders of the change in the company’s capital structure.

Forms of Capital Reduction:

Reduction of share capital can take various forms under the Companies Act, 2013:

• Canceling Paid-up Share Capital:

A company may reduce its share capital by canceling paid-up capital that is not represented by available assets. This is commonly done to write off accumulated losses or to cancel shares that are no longer needed.

• Extinguishing or Reducing Liability on Partly Paid-up Shares:

In some cases, a company may decide to reduce the unpaid liability on partly paid-up shares. This means that shareholders are no longer required to pay the remaining unpaid capital, reducing their liability.

• Paying off Surplus Capital:

If a company has surplus capital that is not required for its operations, it may return this surplus to shareholders by reducing the nominal value of shares or buying back shares and canceling them.

Restrictions and Prohibitions:

The reduction of share capital is subject to certain restrictions. A company that is in default of repaying deposits or interest thereon cannot reduce its share capital unless it rectifies the default. Capital reduction must not result in the company holding shares in itself, as this would violate the provisions regarding the prohibition of owning treasury shares.

Impact of Capital Reduction:

• Effect on Shareholders:

Depending on the method of capital reduction, shareholders may see a reduction in the nominal value of their shares, or they may receive a payment in exchange for the cancellation of shares.

• Effect on Creditors:

The NCLT ensures that creditors’ rights are safeguarded. Creditors may demand full payment or security before agreeing to the reduction.

• Accounting Impact:

The reduction is reflected in the company’s balance sheet, affecting the paid-up share capital, reserves, and any surplus or deficit.

Non-compliance and Penalties:

If a company reduces its capital without following the legal provisions, it will be considered void and illegal. Any directors or officers involved in such a reduction may face penalties, including fines or imprisonment, as per the Act.

Section 110 of the Act mandates the transacting of certain business items by means of postal ballot. Postal Ballot means casting of vote by a shareholder by postal or electronic mode instead of voting personally by being present for transacting business in general meeting of the company.

As per Companies Act 2013, the provisions of postal ballot are applicable to all companies except the following companies which are not required to transact any business through postal ballot:

1. One Person Company
2. Other Companies having members up to 200.

If a resolution is assented to by the requisite majority of the shareholders by means of postal ballot, it shall be deemed to have been duly passed at a general meeting convened in that behalf.

For all equity listed companies, it is mandatory for companies to also provide an option of remote e-voting to its shareholders along with postal ballot. However, the same is not mandatory for unlisted companies.

Applicability

The system of voting is applicable for all public that consists of more than 200 members and private limited companies. One Person Company (OPC) or any other entity with membership strength of 200 or less cannot make use of this system.

Transaction of Business through Postal Ballot

Rule 22 of the Companies (Management and Administration) Rules, 2014 specifies the following items of business to be transacted by means of voting through postal ballot:

• Alteration of Object clause of Memorandum.
• Conversion of private company into a public company and vice versa.
• Change of location of the registered office outside the limits of any city, town or village.
• Change in Objects owing to which a company has gathered funds from the public through a prospectus, and the existence of any unutilized amount out of the money so raised.
• Issue of shares through differential voting rights.
• Variation of rights of shareholders, debenture holders or other security holders.
• Buy-back of a company’s shares.
• Sale of the whole or bulk of an undertaking of the company.
• Providing loans, guarantee or security in excess of the specified limit.

Postal Ballot Facilities for Absentee Voters

The Election Commission of India has made efforts to ensure that the electors those who are unable to come and vote in polling booth or absentee voters are facilitated with the process of a postal ballot paper. This facility ensures wider participation in the electoral process.

The absentee voters under clause (c) of section 60 of the Act, are as follows:

• Persons with Disabilities (PwD)
• Senior citizens of more than 80 years
• People who are employed under the essential services such as railways, state transport and aviation etc.

These provisions will include the process of identification of such voters, the manner of outreach, the processes of the collection as well as voting in the designated centres in each constituency.

Application

In case of an absentee voter, the application would be made in the form 12D along with the particulars as specified therein. The application to be duly verified by the nodal officer for the absentee voter, except the senior citizen or person with a disability, which would reach the returning officer within 5 working days from the date of election notification. In such case, the postal ballot paper will be returned to the centre provided for recording of the vote under the rule 27F, subject to any direction that would be issued by the Election Commission in this behalf.

These two categories of a senior citizen voters of more than 80 years of age and PwD electors will be marked in the electoral roll having a choice of voting either as an absentee voter or as a regular voter on the poll day. In the case, any of the electors belonging to these categories intends to vote early, then as per the amended Rule 27C of the Conduct of Election Rules, 1961, the applicant can make an application in a new Form 12D, that would reach the Returning Officer within 5 days from following the date of notification of election. After the receipt of such application, the voter will be issued with a postal ballot paper, which would be deposited in the specified centre after the recording of the vote.

Postal Ballot Paper

As per the election commission, the voting facility through the postal ballot is accessible only to those doing election duties, army personnel, disabled people and senior citizens above 80 years of age. The ballot is sent through the postal service to the employees and military officers who do not have an electronic facility. If the electors do not use it or do not receive it then it returns to the sender’s address.

Resolutions that Cannot be Passed through Postal Ballot

The following resolutions cannot be passed through postal ballot:

• Ordinary Business.
• Businesses where directors or auditors are entitled to be heard at any meeting.

Procedure for Postal Ballot

As we now understand the fundamental aspects of the postal ballot, let us examine its procedures.

Personnel to Scrutinize

The Board shall appoint a scrutinizer who is not being employed by the company, so as to ensure fairness and efficiency in the voting process.

Board Resolution

The company must pass the requisite Board resolution for postal ballot. Also, the Board must plan and fix the recommended date and time schedule for various activities, and finalize the schedule of events.

Issue of Notice

The company is required to send a notice of postal ballot to all the shareholders, along with a draft resolution that describes the reason for the event. The shareholders must respond to the notice conveying their assent or dissent on the postal ballot, within a period of 30 days from the date of dispatch of the notice. The notice should also be published on the website of the company if any.

Notices can be sent through the following means:

• Registered post or speed post
• Any electronic means
• Courier service

Advertising in Newspaper

An advertisement pertaining to the dispatch of the postal ballot should be published in an English and vernacular newspaper. The advertisement must specify the following:

• A statement concerning the transacting of business through postal ballot.
• The date of completion of dispatch of notices.
• The date of commencement of voting through postal ballot.
• The concluding date of voting through postal ballot.
• A statement declaring that postal ballots received after the end of the voting period will be invalid.
• A statement declaring that the members, who have not received postal ballot forms may apply to the company and obtain a duplicate postal ballot.
• The contact details of the concerned person, in case of any grievances with postal ballot voting.

Safe Custody of Postal Ballot

Postal ballot and other relevant papers returned by the shareholders should be safely maintained by the scrutinizer, until the Chairman signs minutes. Scrutinizer should maintain a register to record assent or dissent received along with other details.

Declaration of Result

The result of postal ballot along with the scrutinizer’s report pertaining to the details of the ballot should be deemed to be passed on the date of a general meeting.

Companies Act, 2013, brought significant changes to Corporate Governance practices in India, one of which was the mandatory requirement for certain companies to appoint a Women Director on their board. This move aimed at enhancing diversity in corporate decision-making, promoting gender equality, and ensuring that women play a vital role in the management of large and listed companies.

Appointment of a Women Director:

Under Section 149(1) of the Companies Act, 2013, along with Rule 3 of the Companies (Appointment and Qualification of Directors) Rules, 2014, specific classes of companies are mandated to appoint at least one woman director on their board. The companies required to have a woman director are:

• Listed Companies: Every listed company must have at least one woman director.
• Public Companies: A public company having a paid-up share capital of Rs. 100 crore or more, or a turnover of Rs. 300 crore or more, must appoint at least one woman director.

Securities and Exchange Board of India (SEBI), through its Listing Obligations and Disclosure Requirements (LODR) regulations, also mandates the appointment of a woman director in listed companies, thereby reinforcing this provision.

1. Timeline for Appointment

Newly incorporated companies that fall within the categories mentioned above must appoint a woman director within six months from the date of incorporation. If there is any vacancy in the position of the woman director, it should be filled within three months from the date of such vacancy or by the next board meeting, whichever is later.

Qualifications of a Women Director:

The Companies Act, 2013, does not prescribe any specific qualifications for a woman director. However, the general qualifications required for any director as per the Companies Act apply, which are:

• Eligibility under Section 164: The woman must not be disqualified from being appointed as a director. This includes not being an undischarged insolvent, having no conviction for a crime involving moral turpitude, and being mentally sound.
• Expertise and Experience: Ideally, the woman director should have relevant expertise, skills, or experience in areas that contribute to the company’s growth, such as finance, law, management, or industry-specific knowledge.
• Integrity: The individual must be a person of high integrity and ethical standards to contribute positively to the board’s functioning.

While no specific academic or professional qualifications are mandated for the role of a woman director, companies often prefer individuals with significant experience in governance, leadership roles, or corporate management.

Duties of a Women Director:

The duties of a woman director are largely similar to those of any other director on the company’s board. The Companies Act, 2013, outlines several key responsibilities for directors under Section 166. These duties are aimed at ensuring that directors act in the best interests of the company, its shareholders, and other stakeholders.

1. Fiduciary Duty

A woman director, like any other director, must act in good faith and in the best interest of the company. This involves:

• Acting in Good Faith: The woman director must exercise her powers honestly and sincerely, prioritizing the company’s success and welfare.
• Avoiding Conflicts of Interest: The woman director should avoid situations where her personal interests conflict with the company’s interests. She should not use her position to gain undue advantages for herself or her associates.

2. Duty of Care

The woman director is expected to take reasonable care, skill, and diligence in the execution of her duties. She must ensure that:

• Active Participation: She participates actively in the company’s board meetings and contributes to discussions on key decisions.
• Informed Decisions: She makes informed decisions by staying updated on the company’s financial position, regulatory environment, and market trends.
• Risk Management: She must consider the risks associated with business operations and contribute to implementing appropriate risk mitigation strategies.

3. Compliance with Laws

As a director, a woman director has a duty to ensure that the company complies with all applicable laws, including corporate laws, taxation laws, labor laws, and environmental regulations. Some specific compliance duties:

• Corporate Governance: Ensuring that the company follows the corporate governance norms prescribed under the Companies Act and SEBI’s regulations.
• Financial Reporting: Ensuring that accurate financial statements are prepared and filed with the Registrar of Companies (RoC), along with other necessary documents.
• Statutory Filings: Ensuring timely filing of all necessary reports and disclosures with regulatory authorities, such as SEBI or the Ministry of Corporate Affairs (MCA).

4. Protecting the Interests of Stakeholders

A woman director has a duty to act in the best interests of all stakeholders, including:

• Shareholders: She must ensure that shareholder interests are protected, and the company acts in a transparent and accountable manner.
• Employees: She should also safeguard the interests of employees and ensure that the company follows labor laws and ethical practices.
• Environment and Society: Under the principles of corporate social responsibility (CSR), the woman director may play a key role in steering the company’s initiatives towards environmental sustainability and social welfare.

5. Ensuring Transparency

The woman director is responsible for ensuring that the company’s decision-making processes are transparent. This includes ensuring the disclosure of all material information to shareholders and regulatory authorities. She should actively participate in the approval of company reports, financial statements, and policy disclosures.

6. Code of Conduct

If the company has adopted a specific code of conduct for directors, the woman director must abide by the same. SEBI’s LODR guidelines require companies to have a code of conduct that applies to directors, including the woman director, which sets out ethical standards, conflict-of-interest policies, and responsibilities.

7. Additional Role in Committees

Women directors may also be appointed to various board committees, such as:

• Audit Committee: Oversight of financial reporting and ensuring that financial statements present a true and fair view.

• Nomination and Remuneration Committee: Evaluating the remuneration of executives and key managerial personnel.
• Corporate Social Responsibility Committee: Involved in the planning and execution of CSR activities under Section 135 of the Companies Act.

Prospectus is a vital document that provides potential investors with essential information about a company and its offerings. The accuracy and completeness of the information contained in a prospectus are paramount, as investors rely on this information to make informed decisions. Misstatements in a prospectus can occur due to errors, omissions, or misleading information, and they can have serious legal and financial implications for the company and its promoters.

Types of Misstatements in Prospectus:

1. Factual Misstatements:

These involve incorrect or false information presented in the prospectus. For example, a company might misrepresent its financial performance by inflating revenue figures or underreporting liabilities. Such misstatements can lead investors to believe that the company is more profitable or financially stable than it actually is.

2. Omissions:

This type of misstatement occurs when the prospectus fails to disclose material information that could influence an investor’s decision. For instance, if a company has pending litigation or regulatory investigations but does not mention these in the prospectus, it can mislead investors about the company’s risk profile.

3. Misleading Statements:

These involve statements that, while factually correct, can mislead investors regarding the overall picture of the company. For example, highlighting a recent successful product launch without mentioning significant operational issues or competition can create a distorted view of the company’s future prospects.

4. Unverified Information:

Sometimes, companies may include projections or forecasts in their prospectus that are not backed by credible data. If these projections are overly optimistic or based on flawed assumptions, they can mislead investors regarding the potential for growth.

Legal Consequences of Misstatements:

Misstatements in a prospectus can lead to various legal consequences for the company and its directors, including:

1. Liability Under the Companies Act:

In India, the Companies Act, 2013, imposes strict liabilities on companies and their promoters for misstatements in a prospectus. Section 35 of the Act states that if a prospectus contains a misstatement, any person who authorized the issue of the prospectus, including directors, can be held liable for damages.

2. Civil Liability:

Affected investors may file civil suits against the company and its promoters for losses incurred due to reliance on the misleading information. They can seek to recover damages for financial losses suffered as a result of the misstatement.

3. Criminal Liability:

In more severe cases, misstatements may lead to criminal charges against the company’s directors or promoters. If it is found that the misstatements were made knowingly or with the intention to deceive investors, the responsible parties can face imprisonment or fines as per provisions under the Companies Act.

4. Regulatory Actions:

Regulatory authorities, such as the Securities and Exchange Board of India (SEBI), may take action against companies for violations related to misstatements in a prospectus. This can include penalties, sanctions, and restrictions on future capital-raising activities.

5. Loss of Reputation:

Misstatements can significantly harm a company’s reputation and credibility in the market. This loss of trust can lead to a decline in share prices, affecting existing shareholders and making it challenging for the company to raise funds in the future.

Consequences for Investors:

The consequences of misstatements in a prospectus primarily affect investors who rely on the information provided. Some of the impacts are:

1. Financial Losses:

Investors may incur substantial financial losses if they make investment decisions based on inaccurate or misleading information. If the company’s actual performance fails to meet the expectations set by the prospectus, investors could lose their entire investment.

2. Informed Decision-Making:

Misstatements can undermine the ability of investors to make informed decisions. When critical information is omitted or misrepresented, investors may not be able to assess the risks and rewards associated with the investment adequately.

3. Diminished Investor Confidence:

Repeated incidents of misstatements in prospectuses can lead to a general decline in investor confidence in the market. This erosion of trust can discourage investment in not just the company in question but also in the broader market.

Recourse Available to Affected Parties:

Investors who suffer losses due to misstatements in a prospectus have several options for recourse:

1. Legal Action:

Affected investors can file civil suits against the company and its promoters for damages. They must demonstrate that they relied on the misstatements in the prospectus when making their investment decisions.

2. Regulatory Complaints:

Investors can lodge complaints with regulatory authorities such as SEBI, which may investigate the matter and take action against the company or its promoters.

3. Class Action Suits:

In cases where a significant number of investors are affected, they may band together to file a class action lawsuit against the company. This collective approach can increase the chances of recovery and provide a stronger legal standing.

4. Mediation and Settlement:

In some cases, companies may opt for mediation or settlement discussions to resolve disputes with affected investors, especially if they acknowledge the misstatements.