Meetings, filings and registers a company must keep in order

Section 96(1) is the operating section. Every company other than a one person company shall in each year hold, in addition to any other meetings, a general meeting as its annual general meeting and shall specify the meeting as such in the notices calling it. Not more than fifteen months shall elapse between the date of one annual general meeting and the next. The first proviso puts the first meeting within nine months from the date of closing of the first financial year and any other meeting within six months from the date of closing of the financial year, and the second proviso saves a company from holding an annual general meeting in the year of its incorporation if it has already held the first one. The third proviso lets the Registrar, for any special reason, extend the time within which any annual general meeting other than the first is to be held, by a period not exceeding three months.

Section 96(2) deals with how the meeting is called. It must be called during business hours, that is, between 9 a.m. and 6 p.m. on a day that is not a National Holiday, and held either at the registered office or at some other place within the city, town or village in which the registered office is situated. A proviso allows the annual general meeting of an unlisted company to be held at any place in India if consent is given in writing or by electronic mode by all the members in advance, and a further proviso lets the Central Government exempt any company from the sub-section subject to such conditions as it may impose. National Holiday is defined in the Explanation as a day declared as such by the Central Government.

Sections 97 and 98 give the Tribunal the power to call the meetings that have not been called. Section 99 is the consequence of not complying. If any default is made in holding a meeting of the company in accordance with section 96, 97 or 98, or in complying with any directions of the Tribunal, the company and every officer of the company who is in default is punishable with a fine which may extend to one lakh rupees, and in the case of a continuing default with a further fine which may extend to five thousand rupees for every day during which the default continues.

Section 173(1) requires every company to hold the first meeting of the board of directors within thirty days of the date of its incorporation, and thereafter a minimum number of four meetings of the board every year in such a manner that not more than one hundred and twenty days shall intervene between two consecutive meetings. The Central Government may by notification direct that this does not apply to any class or description of companies, or may apply it with exceptions, modifications or conditions. Section 173(2) allows participation in person or through video conferencing or other audio visual means, as prescribed, capable of recording and recognising the participation of the directors and of recording and storing the proceedings along with the date and time.

Section 174 fixes the quorum. The quorum for a meeting of the board is one-third of its total strength or two directors, whichever is higher, and participation by video conferencing or other audio visual means counts towards the quorum. Section 174(3) handles the case where a large part of the board is interested: where the number of interested directors is equal to or exceeds two-thirds of the total strength of the board, the number of directors who are not interested and present at the meeting, being not less than two, is the quorum for the time being. The Explanation ties interested director to the meaning in section 184(2). Section 174(4) provides that where a meeting could not be held for want of quorum, then, unless the articles provide otherwise, the meeting automatically stands adjourned to the same day at the same time and place in the next week.

Section 175 is the route a company takes when a resolution has to be passed between meetings, and it carries a condition. No resolution is deemed to have been duly passed by circulation unless the resolution has been circulated in draft, together with the necessary papers, to all the directors at their addresses registered with the company and has been approved by a majority of the directors entitled to vote on it. A proviso requires that, where not less than one-third of the total number of directors require that any resolution under circulation must be decided at a meeting, the chairperson shall put the resolution to be decided at a meeting. Section 175(2) requires the resolution to be noted at a subsequent meeting and made part of the minutes.

Section 176 is the provision that protects a company from its own procedural mistakes. No act done by a person as a director is deemed to be invalid, notwithstanding that it is subsequently noticed that his appointment was invalid by reason of any defect or disqualification or had terminated by virtue of any provision of the Act or the articles, and a proviso saves acts done after the company has noticed that the appointment was invalid or had terminated. This is why a defective appointment does not unravel the resolutions the board passed, and why the company still has to keep the register of directors accurate.

Section 114 draws the line between the two kinds of resolution. A resolution is an ordinary resolution if the required notice has been duly given and the votes cast in favour, including the casting vote of the chairman, by members so entitled exceed the votes cast against it. A resolution is a special resolution when the intention to propose it as such has been duly specified in the notice calling the meeting, the notice has been duly given, and the votes cast in favour are not less than three times the number of votes cast against. Section 115 deals with the notice that has to be given where a provision of the Act or the articles requires special notice: the notice of the intention to move the resolution is to be given to the company by such number of members holding not less than one per cent. of the total voting power or holding shares on which such aggregate sum not exceeding five lakh rupees, as may be prescribed, has been paid up, and the company then gives its members notice of the resolution.

Section 117 says what has to be filed and when. A copy of every resolution or any agreement in respect of the matters specified in sub-section (3), together with the explanatory statement under section 102 annexed to the notice calling the meeting in which the resolution is proposed, shall be filed with the Registrar within thirty days of the passing or making thereof. The first proviso requires that a copy of every resolution which has the effect of altering the articles, and the copy of every agreement referred to in sub-section (3), be embodied in or annexed to every copy of the articles issued after the resolution was passed or the agreement was made. Sub-section (3) lists what has to be filed: special resolutions, resolutions agreed to by all the members that would not have been effective unless passed as special resolutions, resolutions or agreements of the board relating to the appointment, re-appointment or renewal of the appointment of a managing director or the variation of the terms of that appointment, and resolutions or agreements agreed to by a class of members.

Section 117(2) is the penalty for missing the filing: the company is liable to a penalty of ten thousand rupees and, in case of continuing failure, a further penalty of one hundred rupees for each day after the first during which the failure continues, subject to a maximum of two lakh rupees, and every officer of the company who is in default, including a liquidator of the company if any, is liable to a penalty of ten thousand rupees and, in case of continuing failure, a further penalty of one hundred rupees for each day subject to a maximum of fifty thousand rupees. Section 121 adds a related filing for listed public companies: a report on each annual general meeting confirming that the meeting was convened, held and conducted as the Act and the rules require, filed with the Registrar within thirty days of the conclusion of the meeting, with a penalty of one lakh rupees on the company for a failure to file and a penalty which shall not be less than twenty-five thousand rupees on an officer in default.

Section 128(1) requires every company to prepare and keep at its registered office books of account and other relevant books and papers and the financial statement for every financial year, giving a true and fair view of the state of the affairs of the company, including those of its branch offices, and explaining the transactions effected at the registered office and at the branches, kept on accrual basis and according to the double entry system of accounting. The first proviso allows the books to be kept at another place in India if the board so decides, on a written notice to the Registrar with the full address given within seven days of the decision, and the second permits books to be kept in electronic mode in the prescribed manner. Section 128(2) treats a branch office as compliant if proper books relating to the transactions effected there are kept at that office and proper summarised returns are sent periodically to the registered office.

Section 129(1) requires the financial statements to give a true and fair view of the state of affairs of the company, to comply with the accounting standards notified under section 133 and to be in the form provided for the different classes of companies in Schedule III. Section 134 governs the board's part of it. Section 134(1) requires the financial statement, including the consolidated financial statement if any, to be approved by the board of directors before they are signed by two directors out of which one is the managing director if any, together with the chief executive officer, the chief financial officer and the company secretary wherever appointed, or in the case of a one person company by only one director, for submission to the auditor for his report. Section 134(2) requires the auditors report to be attached to every financial statement, and section 134(3) requires a report by the board of directors to be attached to the statements laid before the company in general meeting, which is to include the web address where the annual return has been placed, the number of meetings of the board, the directors responsibility statement, details of frauds reported by the auditors under section 143(12) other than those reportable to the Central Government, and a statement on the declaration given by independent directors.

Section 137 sets the filing date. A copy of the financial statements, including the consolidated financial statement if any, along with all the documents required to be or attached to them and duly adopted at the annual general meeting, shall be filed with the Registrar within thirty days of the date of the annual general meeting. The first proviso deals with the meeting that did not adopt them: the unadopted financial statements and the required documents are filed within thirty days of the date of the annual general meeting and the Registrar takes them into his records as provisional until the financial statements are filed after adoption in the adjourned meeting, and the second proviso requires the statements adopted in the adjourned meeting to be filed within thirty days of the date of that meeting.

The auditor is appointed at the first annual general meeting under section 139(1) and holds office until the conclusion of the sixth annual general meeting, and thereafter until the conclusion of every sixth meeting. The company must obtain the auditor's written consent and a certificate that the appointment, if made, is in accordance with the prescribed conditions and that he satisfies the criteria in section 141, and must file a notice of the appointment with the Registrar within fifteen days of the meeting in which the auditor is appointed. Section 142 sets the remuneration and section 143 sets the powers and duties of the auditor and the auditing standards, including the report to be made on the financial statements and on whether the company has adequate internal financial controls.

Four registers carry most of the compliance weight. Section 170(1) requires the register of directors and key managerial personnel and their shareholding, and section 171(1) opens it for inspection during business hours, letting members take extracts and get copies free of cost within thirty days of a request, with the register also kept open for inspection at every annual general meeting and made accessible to any person attending it. Section 171(2) gives the Registrar the power, on an application, to order immediate inspection and supply of copies where a request is refused or a copy is not sent within the thirty days.

Section 89 requires a register of contracts in which a director is interested, and section 189 requires the register of contracts or arrangements in which directors are interested. Section 88 requires the register of members, the register of debenture holders and the register of any other security holders, each with an index. Section 90 requires the register of significant beneficial owners. Section 85 requires the register of charges at the registered office with the instrument creating each charge kept alongside it. Section 120 permits any of these to be kept in electronic form in the prescribed manner.

The one person company has a separate treatment, and section 122 is where it sits. Section 122(1) disapplies section 98 and sections 100 to 111 to a one person company. Section 122(2) provides that the ordinary business transacted at the annual general meeting of any other company shall, in the case of a one person company, be transacted as provided in sub-section (3). Section 122(3) makes it sufficient if the resolution is communicated by the member to the company and entered in the minutes book maintained under section 118 and signed and dated by the member, and that date is deemed to be the date of the meeting for all purposes under the Act. Section 122(4) does the same for a board meeting of a one person company that has only one director. The small company exemptions that change the compliance calendar are a different matter: they are set by notification, and the corpus does not carry the current notification classes, so the exemptions have to be checked against the current notification rather than assumed.

Section 135 deals with corporate social responsibility. It requires every company to have a corporate social responsibility committee consisting of three directors, with at least one independent director, for the companies to which it applies, and it requires the board to frame a policy, to ensure that the company spends at least the prescribed amount on the prescribed activities, to prepare a social responsibility report and to file it with the Registrar. The constitution of the committee, the spending obligation and the reporting are the parts a company has to get right each year, and the report and the spend are connected to the financial statements and the Board's report.

Section 138 requires every company to conduct an internal audit of its financial statements and internal controls and to consider the reports of the internal auditor in the Board's report. Section 204 requires a secretarial audit for the classes of company to which it applies: every listed company and a company belonging to such other class of companies as may be prescribed shall annex to its Board's report made under section 134(3) a secretarial audit report given by a company secretary in practice in the prescribed form. Section 204(2) makes it the duty of the company to give all assistance and facilities to the company secretary in practice, and section 204(3) requires the board to explain in full any qualification, observation or other remark made in the report. Section 204(4) attaches a penalty of two lakh rupees to the company, every officer in default and the company secretary in practice.

The three audits sit at different points in the year and answer different questions. The statutory auditor's report is attached to the financial statement under section 134(2) and is the auditor's own statement on the accounts. The internal audit under section 138 feeds into the Board's report and the internal financial controls that the auditor reports on. The secretarial audit under section 204 looks at the secretarial and related records, and its qualifications have to be explained in full by the board. A company that has to run all three has to sequence them, because the Board's report under section 134 is the document that carries the internal audit and the secretarial audit results.

Every penalty in this Act is either a specific one attached to a section or the general one in section 450. Section 450 applies where a company or any officer of the company or any other person contravenes any provision of the Act or the rules made under it, or any condition, limitation or restriction subject to which an approval, sanction, consent, confirmation, recognition, direction or exemption has been accorded, given or granted, and no penalty or punishment is provided elsewhere in the Act. The company and every officer in default, or that other person, is liable to a penalty of ten thousand rupees and, in case of continuing contravention, a further penalty of one thousand rupees for each day after the first during which the contravention continues, subject to a maximum of two lakh rupees for a company and fifty thousand rupees for an officer in default or any other person.

Two provisions cut across the penalty chapters. Section 446 allows the court imposing any fine under the Act to direct that the whole or any part of it be applied in or towards the payment of the costs of the proceedings, or in or towards the payment of a reward to the person on whose information the proceedings were instituted. Section 447 is the punishment for fraud and is in a different register from the penalties. Any person found guilty of fraud involving an amount of at least ten lakh rupees or one per cent. of the turnover of the company, whichever is lower, is punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years, and is liable to a fine which shall not be less than the amount involved in the fraud and may extend to three times that amount. Where the fraud involves public interest, the term of imprisonment shall not be less than three years. Where the fraud involves an amount less than ten lakh rupees or one per cent. of the turnover, whichever is lower, and does not involve public interest, the person is punishable with imprisonment which may extend to five years or with a fine which may extend to fifty lakh rupees or with both.

The compliance consequence of a default is often larger than the penalty. A director who is disqualified under section 164(2) because the company has not filed its financial statements and annual returns for three continuous financial years, or has defaulted on deposits or debentures or on declared dividends for a year or more, cannot be re-appointed or continue as a director, and that disqualification follows the person into every other company. Section 176 protects the acts done by a director whose appointment turns out to have been defective, but it does not remove the disqualification, and the register of directors under section 170 and the board's own filings have to reflect the position. That is why a missed filing is not only a fine.