C.A. Vipul Padliya

Monday, May 23, 2011

Participation by directors in meetings of Board / Committee of directors under the Companies Act, 1956 through electronic mode – General Circular No.

eneral Circular No. 28/2011, Dated: 20.05.2011

Subject: Green Initiative in the Corporate Governance – Participation by directors in meetings of Board / Committee of directors under the Companies Act, 1956 through electronic mode.

Sir,

The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by allowing paperless compliances by the Companies after considering sections 2, 4, 5, 13 and 81 of the Information Technology Act, 2000 for legal validity of compliances under Companies Act, 1956 through electronic mode.

2. The Ministry has been receiving representations from various Industry bodies to recognize participation by directors in meetings of Board / Committee of directors under the Companies Act, 1956 through electronic mode.

3. Section 13 of the Information Technology Act, 2000, inter-alia provides time and place of dispatch of notices in electronic mode, which may be applicable for the purpose of notice period provided in the Companies Act, 1956 or in the Article of Association of the company.4. In the light of the above provisions and circumstances, it is hereby clarified that directors of a company may participate in q meeting of Board / Committee of directors under the provisions of Companies Act, 1956 through electronic mode.

For this purpose, the company shall also comply with the following requirements and procedures, in addition to the normal procedures required under the Companies Act, 1956 for holding meetings of Board / Committee of directors: –

(a) Electronic mode means video conference facility i.e. audio-visual electronic communication facility employed which enables all persons participating in that meeting to communicate concurrently with each other without an intermediary, and to participate effectively in the meeting.

(b) Every director of the company must attend the meeting of Board/Committee of directors personally at least one meeting a financial year of the company.

(i) to safeguard the integrity of the meeting via videoconferencing.

(ii) to ensure proper video conference equipment/facilities.

(iii) to prepare the minutes of the meeting.

(iv) to ensure that no one other than the concerned director or other authorized participants are attending the meeting through electronic mode.

(v) If a statement of a participant in the meeting via videoconferencing is interrupted or garbled, the Chairman or Secretary shall request for a repeat or reiteration, and if need be, the Chairman or Secretary shall repeat what he heard the participant was saying for confirmation or correction.

5(a) The notice of the meeting must inform directors regarding availability of participation through video conference, and provide necessary information to enable directors to access the available facility of videoconferencing.

(b) The notice of the meeting shall also seek confirmation from the director as to whether he will attend the meeting physically or through electronic mode and shall also contain the contact number(s) / e-mail addresses of the Secretary / designated officer to whom the director shall confirm in this regard.

(c) In the absence of any confirmation from the Director, it will be presumed that he will physically attend the Board meeting.

6. At the start of the scheduled meeting through electronic mode, a roll call shall be made by the Chairman/ Secretary. Every director and authorized participant shall state, for the record, the following:-

i. Full Name

ii. Location

iii. that he can completely and clearly see and communicate with eachof other participants.

iv and will ensure that no one other than the concerned director or authorized participant is attending the meeting through electronic mode.

Thereafter, the Chairman/ Secretary shall confirm the participation of the directors in the meeting who are not physically present. After the roll call, the Chairman or Secretary may certify the existence of a quorum.

It is clarified that a director participating in a meeting through use of video conference shall be counted for the purpose of quorum. A roll call should also be made at the conclusion of the meeting or at re-commencement of the meeting after every break to ensure presence of quorum throughout the meeting.

7. The place where the Chairman or Secretary is sitting during the Board meeting shall be taken as place of meeting in terms of section 288 of the Act, and all recordings will be made at this place. The other statutory registers which are required to be placed in the Board meeting as per the provisions of the Act, shall be placed before the Chairman for compliance of the Act. The statutory registers required to be signed by the other directors shall be deemed to have been signed by directors participating through electronic mode if they have given their consent to this effect in that meeting.

8. If a motion is objected to and there is a need to vote, the Chairman/ Secretary should call the roll and note the vote of each director who should identify himself.

9 (a) In the end of the meeting, Chairman of the meeting shall announce the summary of the decisions taken in that meeting in respect of each agenda item and names of the directors who have consented or dissented to those decisions. Video recording of that part of the meeting shall be preserved by the company for one year from the conclusion of that meeting.

(b) In the minutes, chairman shall also confirm the mode of attendance of every director of the company during last three meetings whether personally or through electronic mode.

(c) Draft minutes of the meeting shall be circulated in soft copy not later than 7 days of the meeting for comments/confirmation to the directors who attended the meeting to dispel all doubts on matters taken up during the meeting. Thereafter, the minutes shall be entered in the minute books as prescribed under section 193 of the Act, The minutes shall also disclose the particulars of the Directors who attended the meeting through electronic mode.

Saturday, May 21, 2011

New Director’s Relative (Office or Place of Profit) Rules, 2011 – NOTIFICATION NO. G.S.R. 357(E), DATED 02-05-2011

PDF NEW DIRECTOR’S RELATIVE (OFFICE OR PLACE OF PROFIT) RULES, 2011
Director’s Relative (Office or Place of Profit) Rules, 2011
NOTIFICATION NO. G.S.R. 357(E), DATED 2-5-2011
In exercise of the powers conferred by clause (b) of sub-section (1) of section 642, read with sub-section (1B) of section 314 of the Companies Act, 1956, the Central Government hereby makes the following Rules in supersession of the earlier Notification No. GS.R. 89(E), dated 5-2-2003, namely:—
1. (1) Short Title and Commencement: (1) These rules may be called Director’s Relative (Office or Place of Profit) Rules, 2011.
(2) They shall come into force on the date of their publication in the Official Gazette.
2. Applicability : These rules shall apply to all companies registered under the Companies Act, 1956 except as provided in these rules.
3. Approval of the Central Government in case of Appointment of Relatives, etc. of Directors : No appointment for an office, or place of profit in a company shall take effect unless approved by the Central Government on an application, in respect of:—
(a) Partner of film or relative of a Director or Manager; or
(b) Firm in which such Director, or Manager of relative of either is a partner; or
(c) Private Company of which such Director or Manager or relative of either is a Director, or member, which carries a monthly remuneration exceeding, Rs. 2,50,000 p.m.
(d) An individual who is a relative of a Director, or Manager and is appointed as an Advisor or Consultant and paid remuneration including commission on periodical basis.
4. Selection of Relatives of Directors and Directors to Hold a Place of Office/Profit:—
(a) The selection and appointment of a relative of a Director for holding office or place of profit in the company with a salary exceeding Rs. 2,50,000 per month shall be approved by adopting the same procedure applicable to non-relatives and approved by a Selection Committee.
Explanation : For the purpose of the sub-rule, in the case of listed public companies, the expression “Selection Committee” means a committee, consisting at least three members, the majority of which shall be independent Directors and an outside Expert:
Provided that in case of unlisted companies, independent Directors are not necessary but outside experts should be there in the Selection Committee:
Provided further that in the case of private companies, Selection Committee is not necessary.
5. Procedure for Examination of Application : The application under rule 3 shall be examined with respect to the following, in addition to all other requirements under the Companies Act, 1956:—
(a) In the case of individual appointee, an undertaking from him that he/she will be in the exclusive employment of the company and will hold a place of profit in any other company.
(b) The monetary value of all allowances and perquisites and of total remuneration package (monthly/annually proposed to be paid to the appointee and details of the services that will be rendered by him to the company.
(c) Details of shareholding pattern particularly the shareholding of the directors along with his/her/their relatives, the public holding, institutional holding (each institution separately) and the quantum of dividend paid by the company during the last three preceding financial years.
(d) Details of the educational qualification/experience, pay scale, allowances and other benefits of similarly placed executives.
(e) In case of the appointment of a relative, an undertaking from the Director/Company Secretary of the company that the similarly placed employees are getting the comparable salary.
(f) List and particulars of the employees who are in receipt of remuneration of Rs. 2,50,000 or more per month.
(g) The total number of relatives of all the Directors either appointed as Manager/Whole time Director, Manager or in any other position in the company, the total remuneration paid to all of them altogether as a percentage of profit as calculated for the purpose of section 198 of the Companies Act, 1956.

New Director’s Relative (Office or Place of Profit) Rules, 2011 – NOTIFICATION NO. G.S.R. 357(E), DATED 02-05-2011

Govt allows holding of AGM through video conferencing

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The government today allowed companies to hold annual general meetings through video conferencing, with a view to provide larger participation and for curbing costs, borne by the shareholders to attend AGMs.

Accordingly, a company would have to send a notice informing shareholders about “the availability of participation through video conference, and provide necessary information to enable shareholders to access the available facility of videoconferencing”, the Corporate Affairs Ministry said in a notification.

This is a part of the MCA’s Green Initiative Campaign for Corporate Governance.

Video conference facility enables all persons participating in a meeting to communicate concurrently with each other without an intermediary, and to participate effectively in the meeting.

Procedure under the Companies Act, 1956 for holding general meeting through electronic mode

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Clarification on Green initiative in the Corporate Governance – Participation by Directors in meetings of Board / Committee of Directors under the Companies Act, 1956 through Electronic mode

The Ministry of Corporate Affairs has clarified that that a shareholder of the company may participate in a general meeting under the provisions of Companies Act, 1956through electronic mode. The Clarification is a sequel to the representations being received by the Ministry from various Industry bodies to recognize participation by shareholders in meetings under the Companies Act, 1956 through electronic mode after it took a Green initiative in the Corporate Governance by allowing paperless compliances by the Companies after considering sections 2, 4, 5, 13 and 81 of the Information Technology Act, 2000 for legal validity of compliances under Companies Act, 1956 through electronic mode.

Section 13 of the Information Technology Act, 2000, inter-alia provides time and place of dispatch of notices in electronic mode, which may be applicable for the purpose of notice period provided in the Companies Act, 1956 or in the Article of Association of the company.

(b) The notice of the meeting must inform shareholders regarding availability of participation through video conference, and provide necessary information to enable shareholders to access the available facility of videoconferencing.

(i) to safeguard the integrity of the meeting via videoconferencing.
(ii) to ensure proper videoconference equipment/facilities.
(iii) to prepare the minutes of the meeting.
(iv) to ensure that no one other than the concerned shareholder or proxy to the shareholder is attending the meeting through electronic mode.
(v) If a statement of a participant in the meeting via videoconferencing is interrupted or garbled, the Chairman of the meeting or Secretary shall request for a repeat or reiteration, and if need be, the Chairman or Secretary shall repeat what he heard the participant was saying for confirmation or correction.

Section 166 of the Companies Act, 1956 inter-alia provides that a company is required to have its Annual General Meeting either at the registered office of the company or at place within the city, town or the village in which registered office of the company is situated.

Section 174 of the Companies Act, 1956 inter-alia provides that at least five members in case of public company and two members in case of other company have to be personally present and shall be the quorum for the general meeting.

In a general meeting, where shareholders are allowed to participate through electronic mode, the quorum as required under section 174 of the Companies Act, 1956 as well as chairman of the meeting shall have to be physically present at the place of the meeting.

To provide larger participation and for curbing the cost borne by the shareholders to attend general meetings, listed companies may provide video conferencing connectivity during such meetings at least five places in India. It is recommended that these places would be situated all over India in such a way that it covers top five States/UTs based on maximum number of members or at least 1000 members, whichever is more, residing as per the address registered with the depositories.

It may be noted that to have secured electronic platform for capturing accurate electronic voting processes, the necessary clarification has already been issued by the Ministry through a circular issued on May 02, 2011.

May 21 All certificates and standard letters issued by Registrar of Companies will now be issued electronically

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Green Initiative in the Corporate Governance — issue of Certificate by Digital Signature

The Ministry of Corporate Affairs has taken a “Green Initiative in the Corporate Governance” by allowing paperless compliances by the Companies after considering sections 2, 4, 5, and 81 of the Information Technology Act, 2000 for legal validity of compliances under Companies Act, 1956 through electronic mode.

The Registrar of Companies has to issue a number of certificates to the companies and other stakeholders as required under the provisions of Companies Act, 1956 read with Companies Regulation, 1956. As per Companies Regulation 24 of Companies Regulation, 1956 every certificate or copy granted under the provisions of the Companies Act, 1956 shall be signed and dated by Registrar and shall bear his official seal. At present these certificates are issued physically under the manual signature of Registrar of Companies and issued by post.

In order to cut timelines and an another step towards “Green Initiative” it has been decided that all certificates and standard letters issued by the Registrar of Companies will now be issued electronically under the Digital Signature of the Registrar of Companies.

The Digital Certificates are being developed and will be available for issue by 30th June, 2011 in phased manner.

Friday, May 20, 2011

Service Tax- Sub-contractors for the infrastructure sector

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The Union Budget 2011-12 has already had an impact on the infrastructure sector by way of restricting the CENVAT Credit available to Works Contractors.

Further to this, a recent clarification issued by the Central Board of Excise and Customs (‘CBEC’), in respect of the levy of service tax on services provided by Sub-contractors to the Main-contractor, necessitates special consideration so as to derive an alternative way to mitigate the burden of service tax on the infrastructure sector in India. For India, as a growing economy, infrastructure plays a critical role in the economic development. In past, the Central Government has provided numerous indirect tax exemptions. Few of them are listed below:

Customs duty exemptions for setting up of Mega Power Project, Construction of road etc
Deemed export benefits to goods supplied to the notified project including infrastructure projects.
Service tax exemptions in respect of services required for the construction of roads, dams, tunnels, bridges etc.

Thus, infrastructure sector is clearly on top of the Central Government’s agenda so as to promote the development of infrastructure sector by way of providing various tax incentives, permission for foreign direct investment, public private partnership, etc.

It would be prudent to note that such projects are undertaken on a very large scale and hence developers of such projects outsource certain portions of the contract to Sub-contractors because of their specialisation in those portions, which may involve the supply of goods as well as the supply of services.

Typically, goods required for such projects are exempt from Customs duty, Excise duty etc. upon the production of a necessary Certificate from the relevant Government Authority. For Eg. for power project, certificate require from Central Electricity Authority for claiming Customs duty exemption etc. Such exemption is not only available to the goods supplied by the Main-contractor to the project but also extended to the goods supplied by the Sub-contractor to that Main-contractor/project. Further, even the deemed export benefits have been extended to the goods supplied by the Sub-contractor to the notified project.

However, the same principle has not been extended in the case of services. The Works Contract service (‘WCS’) in respect of construction of dams, tunnels, roads, bridges etc. is exempt from service tax. WCS providers engage Sub-contractors who provide services such as Architect’s Service, Consulting Engineer’s Service, Construction of Complex Service, Design Services, Erection Commissioning or Installation Service, Management, Maintenance or Repair Service etc.

Thus, the issue for consideration is whether Sub-contractors providing various services to the Main-contractor undertaking the exempted infrastructure projects would be required to pay service tax or whether such services would be exempted from service tax.

It is a well-known fact that the intention of providing the exemption is not to tax the WCS used for construction of specified infrastructure projects in India and hence if the services provided by the Sub-contractor to the Main-contractor are charged to service tax, benefits of exemption will be nullified.

Accordingly, divergent practices are being followed in the Industry on the view that if the Main-contractor is exempted from the provision of such services to the particular infrastructure project then even the Sub-contractor providing services to the Main-contractor for that project would get exemption from service tax.

However, the CBEC vide Circular No. 138/07/2011-ST dated 6 May 2011 has yet again clarified that a Sub-contractor providing its services has to be classified under the taxable service category which gives the most specific description and not to the taxable service category which gives a general description and accordingly services provided by the Sub-contractor would be subject to service tax. It may be noted that exemption to a Sub-contractor would still be available if the service provided by them is classified under the taxable service category i.e. WCS, notwithstanding that services are provided to the Main-contractor or to the project.

The effect of the above Circular is that service tax, which is currently charged at 10.3%, will have to be paid even on exempted sectors such as construction of dams, tunnels, roads, bridges etc. resulting in an increase in the overall cost of projects.

In view of the above and considering the fact that such levy increases the overall cost of basic infrastructure in India, the Industry should make a representation to the Central Government to have a mechanism such as a Certificate from the relevant Government Authority, like in the case of goods as stated above, whereby the list of services required by the Main-contractor for the completion of the particular infrastructure project would get included in it so as to extend the service tax exemption to the services provided by the Sub-contractors.

However, from an administrative convenience, providing direct service tax exemptions to services required for completion of such infrastructure would be difficult to trace, the mechanism of giving refund of services tax paid on services provided by Sub-contractors to the Main-contractor for such exempted infrastructure projects would seems to be good proposition. These will further ensure the necessary compliance and overall objective of giving service tax exemption to the infrastructure project.

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