Module 2

Module 2

Management and Administration

2.1 Introduction

The word ‘company’ in simple terms, may be described to mean a voluntary association of
persons who have come together for carrying on some business and sharing the profits
therefrom. A company being an artificial person, composed of members has a distinct entity and
cannot act on its own. It therefore takes its decision through resolutions passed at validly held
Meetings. The primary purpose of a Meeting is to ensure that a company gives reasonable and
fair opportunity to those entitled to participate in the Meeting to take decisions as per the
prescribed procedures.
The decision-making powers of a company are vested in the Members and the Directors. General
Meetings of the Members provide a platform to express their will in regard to the management of
the affairs of the company. Holding of one such meeting every year is compulsory and choice is
left to the members to conduct more general meetings. Chapter VII of the Companies Act, 2013
read with Companies (Management and Administration) Rules, 2014 deals with the legal and
procedural aspects of management and administration of companies.

2.2 Statutory Books to maintain by the Company

The provisions of the Companies Act, 2013 provides for the maintenance of certain important
registers for the smooth functioning and management of a company.

2.2.1 Register of Charges

Section 85 of the Companies Act, 2013 provides that every company should maintain a
register of charges at its registered office in such form and manner to record and include
all the charges and floating charges which will affect the assets and property of the
company or its undertaking.

2.2.2 Register of Index of Members and Debentureholders

The Companies Act under section 88 provides that every company at its registered office
shall maintain such register is such form and manner as prescribed under rules 3, 4, 5, 8,
and 28 of the Companies (Management and Administration) Rules, 2014. The register
of index of members and debentures shall contain the register of members indicating
separately for each class of equity and preference shares held by each member residing in
or outside India; register of debenture holders; and register of any other security holders.

2.2.3 Register of Investment not held by in company’s name

Section 187 of the Companies Act provides that where a company owns or invests in
any shares or securities which have been made by a company are not held by it in its own
name, the company shall maintain a register which shall contain such particulars as may
be prescribed and such register shall be open to inspection by any member or debenture-
holder of the company without any charge during business hours subject to such
reasonable restrictions as the company may by its articles or in general meeting impose.

2.2.4 Register of fixed deposits

As per section 73 of the Companies Act every company which is accepting deposits from
public should maintain a register at its registered office containing details of each
depositor.

2.2.5 Books of Account

Books of accounts of a company play a key role in the management and administration of
a company as finances of a company play one of the most important role in a company’s
smooth management. Section 128 of the Companies Act provides that every company

must prepare, keep and maintain the books of account and other relevant documents at its
registered office every financial year which gives the true and fair view of the state of
affairs of the company.

2.2.6 Register of Contracts or arrangements in which directors are
interested

Section 189 read with the Companies (Meeting of Board and its Powers) Rules, 2014
requires every company shall keep one or more registers giving separately the particulars
of all contracts or arrangements in such manner and containing such particulars as may be
prescribed and after entering the particulars, such register or registers shall be placed
before the next meeting of the Board and signed by all the directors present at the
meeting.

2.2.7 Register of Directors and Key Managerial Personnel and their
Shareholding

Section 170 read with Rule 17 of Companies (Appointment and Qualification of
Directors) Rules, 2014 provides that every shall keep at its registered office a register
containing such particulars of its directors and key managerial personnel as many be
prescribed under rule 17 of Companies (Appointment and Qualification of Directors)
Rules, 2014, and shall include the details of securities held by ech of them in the
company or its holding, subsidiary, subsidiary of company’s holding company or
associate companies.

2.2.8 Register of Loans and Investments by Company

As per setion 186(9) of the Act, it provides that every company giving loan or giving a
guarantee or probiding security or making acquisition under section 186 or in payment of
interest thereon, shall give loan or give any guarantee or provide any security or make an
acqusition till such default is subsisting. Further Rule 12 of Companies (Meeting of

Board of and its Powers) Rules, 2014 provides that every company which is giving such
loan or a guarantee or security shall maintain such register at its registered office
conataining such information. This register shall be preserved permanently with the
company secretary or any other person so authorised by the board for the purpose.

2.2 A member

Section 2 (55) of the Companies Act 2013defines a member as the subscribers to the
memorandum of a company shall be deemed to have agreed to become members of the
company, and on its registration, shall be entered as members in its register of members.

1. Every other person who agrees in writing to become a member of a company and whose
name is entered in its register of members, shall be a member of the company.

A person whose name is not entered into the register of members of the company cannot be
treated as member or deemed member- Sant Chemicals (P) Ltd. V. Aviat Chemicals (P) Ltd.1

2.3 Register of Members/ Debenture- Holders and Index of Members/
Debenture- Holders, etc. [Sec 88]

Section 88 requires every company to maintain in the prescribed form and manner the following
registers, namely:

(a) Register of members indicating separately for each class of equity and preference
shares held by each member residing in or outside India;

(b) Register of debenture holders; and
1 Sant Chemicals (P) Ltd. V. Aviat Chemicals (P) Ltd., [2000] 25 SCL 473 (Bom).

(c) Register of any other security holders.
Every register, as aforesaid, shall include an index of the names included therein. In case of
existing companies, registered under the Companies Act, 1956, particulars shall be compiled
within six months from the date of commencement of these rules.
Form No. MGT.1. must be maintained by every company from the date of its registration.
In case of shares held in depository mode, the register and index of beneficial owners maintained
by a depository shall be deemed to be the corresponding register and index for the purposes of
the Companies Act.

2.4 Register of Debenture Holders or any other Security Holders

Every company which issues or allots debentures or any other security shall maintain a separate
register of debenture holders or security holders, as the case may be, for each type of debentures
or other securities in one or more books in Form No. MGT.2.
Companies (Management and Administration) Rules, 2014, in this regard, inter alia, provide as
follows:

● Entries in the register,
● Place of keeping,
● Changes in the entries,
● Particulars of Pledge, etc.

Sub – section (4) of Section 88 provides that a company may, if so authorised by its articles,
keep in any country outside India, in prescribed manner, a part of the register as aforesaid, called
“foreign register”.

2.5 Inspection of register of members, etc. (section 94)

The registers and their indices, except when they are closed under the provisions of this Act, and
the copies of all returns shall be open for inspection by any member, debenture- holder, other
security holder or beneficial owner, during business hours without payment of any fees.

Any such member, debenture- holder, other security holder or beneficial owner or any other
person may-

● Take extracts from any register, or an index or return without payment of any fee; or
● Require a copy of any such register or entries therein or return on payment of prescribed

fees.

2.6 Index of Names to be included in Register

Every register maintained under sub-section (1) of section 88 shall include an index of the names
entered in the respective registers. The index shall, in respect of each folio, contain sufficient
indication to enable the entries relating to that folio in the register to be readily found. The
maintenance of index is not necessary in case the number of members is less than fifty.

2.7 Maintenance of the Register of Members

Every company shall maintain a register of members in the following ways:

● Under section 88 entries in the registers must be made within seven days after the
Board of Directors or the duly constituted committee approves the allotment.

● Registers shall be maintained and recorded at the registered office of the company
unless a resolution is passed for maintain the register in any other place in India in
which more than one- tenth of the members are residing.

● If any change is made in status of any of the members such as death or transfer the
same shall be entered in the respective registers.

● Entries must be made in the registers if any rectification is made under section 88 by
the company pursuant to any order passed by the competent authority under the Act.

● Orders passed by any judicial or revenue authority or by SEBI must be entered in
the registers after the notification is passed.

2.8 Authentication of Entries in the Registers

The Company Secretary of the company or any other authorized person by the Board shall have
the rights to authenticate the entries in registers maintained under section 88 and index included
therein.

2.9 Shares held by Members in Electronic Mode

Sub-section (3) of Section 88 provides that in the case of shares held by the members in
electronic mode, the register and index of beneficial owners maintained by a depository under
section 11 of the Depositories Act, 1996, shall be deemed to be the corresponding register and
index.

2.10 Declaration in Respect of Beneficial Interest in any Shares

Section 89 provides that a declaration is to be given to the company by any person who is a
member but not holding the beneficial interest in such shares stating therein the name and other
particulars of the person holding the beneficial interest. The declaration to that effect is required
to be filed in Form No.MGT.4 in within thirty days from the date on which his name is entered
in Register of members. In case of any change, the registered owner is required to make a
declaration of the change in ownership within thirty days of such change.

2.11 Closure of Register of Members

A company may close its register of members or debenture holders or other security holders for a
period not exceeding forty-five days in a year. And can not be closed for more than thirty days at
once as mentioned under section 91.

A company closing the register of members shall give a notice at least seven days before and in
such manner, as may be specified by the Securities and Exchange Board, if such company is a
listed company or companies intends to get its securities listed.

Annual Return

Annual Return are contained in section 92 and Rules 11 and 12. Every company shall prepare an
annual return in Form No. MGT. 7 as prescribed in Rules containing the following particulars:

(a) its registered office, principal business activities, particulars of its holding, subsidiary and
associate companies;

(b) its shares, debentures and other securities and shareholding pattern;

(c) its indebtedness;

(d) its members and debenture-holders along with changes therein since the close of the
previous financial year;

(e) its promoters, directors, key managerial personnel along with changes therein

(f) meetings of members or a class thereof, Board and its various committees along with
attendance details;

(g) remuneration of directors and key managerial personnel;

(h) penalty or punishment imposed on the company, its directors or officers and details of
compounding of offences and appeals made against such penalty or punishment;

(i) matters relating to certification of compliance, disclosures as may be prescribed;

(j) details, as may be prescribed, in respect of shares held by or on behalf of the Foreign
Institutional Investors indicating their names, addresses, countries of incorporation, registration
and percentage of shareholding held by them; and

(k) such other matters as may be prescribed.

The annual return filed by a listed company or by a company having such paid up capital and
turnover shall be certified by a Company Secretary in practice in the prescribed form as stated
under sub- section (2) of section 92.

The rules to this section provides that the annual return, filed by a listed company or a company
having paid-up share capital of ten crore rupees or more or turnover of fifty crore rupees or more,
shall be certified by a Company Secretary in practice and the certificate shall be in Form No.
MGT.8.

The annual return to be attached with the Board’s Report in form No.MGT.9 and it shall form
part of the board’s report.

2.12 Preservation of Register of Members etc. and Annual Return

The provisions with regard to preservation of records are contained in Rule 15

● The register of members along with the index shall be preserved permanently and shall be
kept in the custody of the company secretary of the company or any other person
authorized by the Board for such purpose; and

● The register of debenture holders or any other security holders along with the index shall
be preserved for a period of 15 years from the date of redemption of debentures or
securities, as the case may be, and shall be kept in the custody of the company secretary
of the company or any other person authorized by the Board for such purpose.

● Copies of all annual returns prepared under section 92 and copies of all certificates and
documents required to be annexed thereto shall be preserved for a period of 8 years from
the date of filing with the Registrar.

● The foreign register of members shall be preserved permanently unless it is discontinued
and all the entries are transferred to any other foreign register or to the principal register.
Foreign register of debenture holders or any other security holders shall be preserved for
a period of 15 years from the date of redemption of such debentures/ securities. The
foreign register shall be kept in the custody of the person authorized by the Board for
authentication of the entries made therein.

2.13 Members’ Meetings

A company is required to hold meetings of the members to take approval of certain business
items, as prescribed in the Act. The meetings to be held for seeking approval to ordinary business
and special business are called annual general meeting and extraordinary general meeting. In
certain cases, a company may have to hold a meeting of the members of a particular class of
members.

2.14 Annual General Meeting

Section 96 provides that every company other than a One Person Company is required to hold an
annual general meeting. It is an important event every year where the members get an
opportunity to discuss everything. The first meeting should be held within 9 months from closing
of the financial year and hence not necessary to hold it during its incorporation.

Subsequently the meetings of the company should be held within 6 months and the gap between
the two meetings should not exceed 15months. In case it is not possible to hold the meetings on
prescribed time and date it can be extended by the registrar but not exceeding 3 months.

If any default is made during the holding of a meeting the company or any person shall be
punishable under section 99 that provides a fine which may extend to 1 lakh and in case of
continuing default it may extend to Rs 5,000 for each day.

Business to be transacted at annual general meeting:

Sub-section (2) of Section 102 provides that all other businesses transacted at an Annual General
Meeting except the following are special business:

(i) the consideration of financial statements and the reports of the Board of Directors and
auditors;

(ii) the declaration of any dividend;

(iii) the appointment of directors in place of those retiring;

(iv) the appointment of, and the fixing of the remuneration of the auditors.

2.15 Extraordinary General Meeting
Extraordinary General meeting is held for transacting and deciding upon special or urgent
business which have to be dealt with between two Annual General meetings. These special
circumstances may include alteration of Memorandum of Association, removal of directors,
auditors etc.
The Extraordinary General Meeting can be called by:

● The Board of Directors on its own motion
● The Directors on requisition,
● The requisitionists themselves,
● The tribunal.

2.16 Class Meetings

Section 48 of the Companies Act provides that Where the share capital of the company is
divided into different classes of shares, the rights attached to the shares of any class may be
varied with the consent in writing of the holders of not less than three-fourths of the issued
shares of that class or by means of a special resolution passed at a separate meeting of the
holders of the issued shares of that class,

● if provision with respect to such variation is contained in the memorandum or articles of
the company;

● in the absence of any such provision in the memorandum or articles, if such variation is
not prohibited by the terms of issue of the shares of that class:

Provided that if variation by one class of shareholders affects the rights of any other class of
shareholders, the consent of three-fourths of such other class of shareholders shall also be
obtained and the provisions of this section shall apply to such variation. The company has to

hold separate meetings with each class of shareholders whenever the company is coming with a
policy change with respect to that class of shareholders.