| DISQUALIFICATION OF DIRECTORS | ||
| Sl. No. | Questions | Answers |
| 1 | Whether a person who is a Director as on 01.04.2014, in any company, which has not filed Financial Statements or Annual Returns for any immediate preceding three Financial Year, stands disqualified as on 01.04.2014 and whether these three Financial Years, would be reckoned from FY 2014-15? | The most common interpretation among professional is that a person who is a Director of a company which has not filed Financial Statements or Annual Returns for any continuous period of three Financial Years will be disqualified as per Section 164.
Such provision will have immediate effect as a similar provision existed under Section 274(1)(g) of the Companies Act, 1956 which though was applicable on Public Companies only. However Section 164 now covers all companies. |
| 2 | Will a Director (Original Director) who is residing outside India and has appointed an alternate director for attending Board Meeting, need to attend at least one meeting during a period of 12 months, so as to protect his office from being declared vacant under Section167? | The most common interpretation among professional is that as per Section 167, the office of Director (Original Director) will stand vacated if he/she has not attended any Board Meeting during a period of 12 months personally.
Hence, physical/electronic presence of Original Director is required atleast in one Board Meeting during the period of 12 months in a Financial Year. |
| 3 | Whether physical attendance will hold valid for the purpose of complying with Section 167 or electronic presence can also be treated as formal presence for Section 167? | Since the intent of provision of the Act is to encourage participation of Directors in Board Meeting, hence attendance in Board Meeting through audio visual means as defined under Section 173(2) and Rule 3 will be treated as sufficient compliance of Section 167. |
| LOANS AND INVESTMENT BY COMPANY | ||
| Sl. No. | Questions | Answers |
| 1 | Can a Holding Company provide loan to Subsidiary Company? | Yes, a Holding Company can provide loan to Subsidiary Company only to support its business transactions.
There is still an unanswered question. The provision only includes wholly owned subsidiary as defined under the Act but what happens to other subsidiary companies requiring assistance on similar grounds. |
| 2 | What is the treatment of the loans provided to Directors before new Act being effective? | Many professionals argue that any loans provided to Directors before commencement of Companies Act, 2013 should not be covered under provisions of Section 185.
However, there is a clear consensus that if any terms and conditions of such loans have been changed after 01st April, 2014, then the whole transaction will amount as if a new loan has been taken which is not allowed as per Section 185. |
| Related Party Transactions | ||
| Sl. No. | Questions | Answers |
| 1 | In a private company where there are only two shareholders cum Directors, then how the resolutions pertaining to Related Party Transactions will be passed under section 188? | Though it’s clearly mentioned under Section 188(1) that no interested members can vote on the resolutions in which they are interested but problem arise where Directors and Shareholders are the same persons.
In such cases the resolution passed by shareholders unanimously should hold good. |
| 2 | How do you define Ordinary Course of Business for the purpose of interpretation of Section 188? | Ordinary Course of business does not only include the main object clause as specified in Memorandum of Association. It means any transactions which were performed in usual course of business. |
| 3 | Should all existing Related Party Transactions (prior to 01.04.2014) need to be ratified in the Annual General Meeting held after 01st April, 2014? | Though nothing is clearly specified in the Act but as a good corporate governance, it would be suggested to ratify all existing Related Party Transactions in the Annual General Meeting held after 01st April, 2014. |
Hope the above information would have given some clarity on the practical issues being faced by corporate/professionals. Our endeavor will be to provide resolutions to many such other issues as and when more clarifications received or professional opinions are formed.
You may get back to us for any more details on above provisions or any other matter related to Companies Act, 2013 at below mentioned contact details-
Malavika Bhatia | <malavika.bhatia@bluelotusstrategy.com> | M +91 98733 18440
Monika Bhardwaj | <monika.bhardwaj@bluelotusstrategy.com> |M +91 98915 60525
We will do our best to assist you with the compliances and removal of doubts / queries. However, please note that since the Act is new, certain clarifications are needed as there are lot many areas where operational issues are to be sorted out.
In case of queries that require clarification from Ministry of Corporate Affairs, we will come back to you after seeking necessary clarifications from the Ministry.
