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Page no. Particulars Contents

2 3-4

Book review Chairman Message

5 6

Programs of WIRC/ Voluntary Contribution to CSBF

7 Media Coverage of WIRC Photo gallery of WIRC

8-9 10-25 Article on

WIRC PMS Scheme

(i) (ii)

Company Secretary - The Server Significant Beneficial Owner – Lifting of

Corporate Veil! (iii)

(iv)

Government Notifies Threshold For Filing Class Action Suits

An analysis of One Tier and Two Tier Board system

26-33

Chapter events 34 List of Incharge/Executive Officers of WIRC

Chapters 35-36 37-40

Chapter Grading

41 WIRC OTC Classes CSBF Appeal

Disclaimer: You are receiving this e-Newsletter since you are a member of ICSI. Views expressed in this newsletter are of authors and not necessarily of ICSI or WIRC of ICSI. ICSI or WIRC of ICSI does not verify authenticity of legal provisions contained in this newsletter. Neither authors, editors, publishers nor printers and distributers would be liable in any manner to any person by reason of any mistake or omission in this newsletter or for any action taken or omitted to be taken or advice rendered or accepted on the basis of this work. All rights reserved. All claims, disputes or complaints will be subject exclusively to jurisdiction of courts/ forums/ tribunal at Mumbai only.

Editor

CS Ashish Karodia- Chairman, WIRC

Publisher

Dr. Rajesh Kumar Agrawal,

Regional Director- ICSI WIRC

Editorial Board (in alphabetical order)

CS Anurag Gangrade

CS Ayushi Silot

CS Bhaveshkumar Rawal

CS Dipika Kataria

CS Madhu Kumar Ghatiya

CS Narendra Singh

CS Nusrat Parveen

CS Riddhi Thakkar

CS Shreya Vartak

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Book Review – An initiative by Library Committee of WIRC of ICSI

Name of the Book & Edition Company Law Procedures & Compliances

Name of Author/ Co-Authors Dr. Sanjeev Gupta

Name of Publication House Bharat Law House

Price (Rs.) 3995/- [Set of Two Volumes]

Coverage Procedures & Compliances of the Companies Act, with Formats, Resolutions, Notices Letters & Applications

About the Book

“The book Company Law Procedures & Compliances relates to the provisions relating to Company Law and is a practical book for swift compliances of the procedures under the Companies Act, 2013 along with the rules for ready reference to the professionals and corporate executives. The documentations is also provided along with the list of documents/information required, board resolutions, special resolutions (with explanatory statement), notices, application and petitions etc., relevant section of the Companies Act, 2013 read with rules and e-forms to be filed have been mentioned at the beginning of each procedure and the detailed relevant section and rules have been given at the end of each division.

The book is very well concised and gives an insight into the practical aspects of the Company Law and have been tasked with the compliance responsibility under the Companies Act and the Rules made thereunder.

This book also includes the list of information and documents required for any specific procedure under the Companies Act, 2013, along with the compliances applicable on the basis paid up capital, turnover, loans etc. It has a separate references with respect to List of Compoundable offences and respective section offences and its compoundable authority [Regional Director &NCLT].

The language and style of presentation of the material in this book is simple and easily readable.

Disclaimer

The views expressed above, are the views of the Library committee of WIRC of ICSI (2019) and are an outcome of the Review process. The views expressed above are not the views expressed by any member of WIRC of ICSI or the Institute of Company Secretaries of India.

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Dear esteemed professionals and colleagues It gives me immense pleasure and extreme sense of pride to address my fellow professionals through this letter. The very intention of circulation of this e-magazine is to address the recent developments at regular intervals and I hope this effort of the WIRC is useful to the readers. We all as members would agree to the fact that the students are the future of the institute and also that their attitude and knowledge will pave a way for even better credibility and social standing of our profession. Month of June is a very important month for the students of ICSI as this time is for performance of students as they are writing their CS Exams. It can be a very stressful time which needs the students to learn the art of time management and stress management. These skills may help in reducing the gap between ‘Where you are and where you want to be i.e., the efforts and the success.’ During these times the importance of fitness is also required to be kept in mind as it will not only lead to physical activeness but also help students to focus and concentrate. Further we all knew that on 15 June, 1988, the Company Secretaries in Practice were accorded recognition for Certifying the Annual Returns under the erstwhile Companies Act, 1956. This day became the first mile stone in the development of the practising side of the profession of Company Secretaries in India. ICSI takes pleasure in celebrating this day as ‘PCS Day’. This year, when the Institute marks the beginning of its another Golden Jubilee Year, celebration of this day has become immensely significant owing to cutting edge transformation in the regulatory regime of the country. To rejoice this day throughout the ICSI-WIRC we had organized a PCS conference on the theme “CS-A SERVER” which was hosted by Pune Chapter. In this conference around 350+ members had participated which is a remarkable presence. I would like to congratulate CS. ROHIT GOKHALE Chairman of Pune Chapter and Pune Chapter for the successful hosting of this conference. I would also like to acknowledge efforts of CS PAWAN CHANDAK, Programme Director of the conference and CS. Snehal Shah – PCS Chairman of ICSI-WIRC for this successful Conference. Further the surplus from this PCS conference of Rs.21,000 has been donated to CSBF FUND. Apart from this on PCS Day we had organized a webinar on the following topics throughout the ICSI-WIRC region :- Opinion Writing Overview of Quality Review Board Advantages of Mega Firms

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As a remembrance of this event, the WIRC has come out with a splendid souvenir containing the relevant amendments in the law. The e-souvenir was released in the PCS Conference the link of which is attached hereby for your updation of knowledge and benefits. https://www.icsi.edu/media/webmodules/Souvenir_Regional_PCS_Conf_2019_.pdf As members, its our duty to educate ourselves with the updated laws in order to provide the skillful services to the society. And also it is our duty to set an example and be role models to the students who are the future of the institute in every possible way. We can act as the guiding lights for our young fellows by sharing our experiences and lessons. It’s also our duty to fulfill the responsibility given to us by the institute of providing prescribed trainings and to motivate them to change the world with their knowledge and skill. I am honored to convey my thoughts through this letter and believe that together we can work towards the betterment of the profession and society as a whole. Yours’ Faithfully CS Ashish Karodia Chairman ICSI-WIRC

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Workshops /Seminar / Professional Development Programmes in the month of June 2019

Sl. No.

Date Topics Venue

1 Wednesday, June 12, 2019

ICSI organizes Peer Review Awareness program

ICSI-WIRC, 5th floor, Jolly Maker, Chambers No. 2, Nariman Point, Mumbai – 400021

2 Friday, June 14, 2019

ICSI organizes Training Program on Peer Review

ICSI-WIRC, 5th floor, Jolly Maker, Chambers No. 2, Nariman Point, Mumbai – 400021

3 Friday & Saturday, June 14th & 15th 2019

Two Days Annual Regional PCS Conference 2019 on Theme “CS A SERVER”

PYC Hindu Gymkhana, Deccan Pune

For upcoming events of WIRC please visit https://www.icsi.edu/wiro/home/

Voluntary Donation to CSBF

Name of the member

Membership no.

Chapter name

Rajesh Lachhwani A45576 Ahmedabad

Jaimin Chudasama A50015 Ahmedabad

Rahul Bharat Dua A53535 Ahmedabad

Vishal Sondagar A46166 Ahmedabad

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Media Coverage WIRC

7

Photo Gallery WIRC

8

WIRC PMS Scheme

9

10

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Company Secretary - The Server CS Dharmesh Vankar

Server means a person or thing that serves. Another meaning of server is that a computer or computer program which manages access to a centralized resources or services in a network.

As per Section 2(24) of Companies Act, 2013, Company Secretary (CS) means a Company Secretary as defined in Section 2(1)(c) of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a CS under the Company Secretaries Act, 1980. Section 2(1)(c) of the Company Secretaries Act, 1980 states CS means a person who is a member of the Institute of Company Secretaries of India (ICSI).

The CS stands in a fiduciary position, either he serves to the organization in the capacity of key managerial employee or as a navigator (practising professional). Although Section 205 of Companies Act, 2013 has very well defined the functions of CS but in addition to that Author would like to throw light on some practical aspect of service too, which are as follows:

1. Interface For sure, CS serves as interface between organization, its management and other bodies and regulatory authorities. Practically, whenever one wants to introduce to the management they first have to acquaint with the CS. CS is like a door of the Company for the regulatory bodies and / or its stakeholders. Due to availability of CS in aentity, every good news passes with rapper of blessings and bad news can be set aside with stick of compliance. 2. Resourcefulness Resourcefulness here does not only mean having ample of resources. Resourcefulness here means link with utilisation of available resources in most efficient manner and if at some point of time, resources lacks then uses his or her networking acumenor clout in such a way that resources can be arranged or availed at minimal cost in less span of time. 3. Knowledge bank Knowledge Bank..! Yes, Company Secretary is a bank of knowledge in terms of various legislations and Regulatory updates thereof e.g. company secretary can serve in the field of compliances of vast SEBI Regulations while at the same time can

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serve as Compliance Officerto ensure compliances of all other applicable laws to the Company such as FEMA, Labour Laws, taxation and industry specific laws in addition to company law compliances. 4. Firewall Whenever management have threat of non-compliance in the organization, CS serves as a first liner shield. First of all, CS, being key managerial personnel and/ or Compliance Officer ensures that utmost care is taken to ensure prompt compliances and if some compliance(s)are not adhered timely then by utilising his/ her vast knowledge of applicable laws to the Company, CS can assist the concerned official(s) to remedy the non-compliance effectively and thus protects the company from adverse effects of the non-compliance. 5. Algorithm Algorithm means a process or set of rules to be followed in calculations or other problem-solving operations, especially by computer. The CS also acts like algorithm in functioning of his duties. In other words, CS not only takes decision or assists management in decision making but takes the responsibility of the same. In almost all the provisions of the Companies Act, 2013 and SEBI Regulations, the CS has been deemed primary responsible for all the decisions (taken and/ or not taken) and its consequences or repercussion. “That’s the reason why CS can be called as wheel of the vehicle named as Company.” 6. Chronicler Chronicler means a person who writes accounts of important or historical events; the CS performsexactly the same. CS drafts agendas for meetings, notices to its stakeholders, writes the minutes of the meetings, ensure in adoption of better corporate governance practices, assist the company in preparing requisite documents/ agreements which are to be submitted before Authorities. Further, he maintains the records of all past as well as present documents, indenture, papers etc.

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Significant Beneficial Owner –

Lifting of Corporate Veil!

CS Dhaval Gusani

Introduction/ Background In India, people are using various means for hiding their real identity and remain in the back door for various ill motives. Government is now actively focusing on illicit usage of trusts, corporate and non-corporate forms, for money laundering, terror financing and parking of black money by individuals who are behind those trusts and other forms. On June 14, 2018, the Ministry of Corporate Affairs (MCA) issued the Companies (Beneficial Interest and Significant Beneficial Interest) Rules 2018 and enforced section 90 of the Companies Act, 2013 (the Act). On Feb 8, 2019, MCA has notified the revised rules on Significant Beneficial Owners (SBO). The sole objective of these rules is ‘to identify the ultimate beneficial individual or group of individualswho have control or ownership of the reporting company disregarding the intermediate shareholding by non-individual persons.’ Government has made clear that any individual holding any significant beneficial interest needsdisclose his/her holdings. Prima facie, responsibility lies with the individual who is holding beneficial interest and failure on the part of beneficial owner attracts fine as well as imprisonment also. Only few offences of the Act, are now non-compoundable and punishable with imprisonment and violation of SBO rules in one of them!! The relevant provision of non compliance is quoted below- Section 90(10) of the Companies Act, 2013 provides that If any person fails to make a declaration, he shall be punishable with imprisonment for a term which may extend to one year or with fine which shall not be less than Rs. 1 lakh but which may extend to Rs. 10 lakhor with both and where the failure is a continuing one, with a further fine which may extend to Rs. 1000/- for every day after the first during which the failure continues. Who is Significant Beneficial Owner? Significant Beneficial Owner in relation to a reporting company means an individual, who acting alone or together or through one or more persons or trust, possesses one or more of the following rights or entitlements in reporting company, namely:-

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• Holds indirectly, or together with any direct holdings, more than 10% of the shares; • Holds indirectly, or together with any direct holdings, more than 10% of the voting rights in the shares; • Has right to receive or participate in more than 10% of the total distributable dividend, or any other

distribution, in a financial year through indirect holdings alone, or together with any direct holdings; • Has right to exercise or actually exercises, directly or indirectly, significant influence or control, in any manner

other than through direct holdings alone. Explanation I - For the purpose of this clause, if an individual does not hold any right or entitlement indirectly, he shall not be considered to be a significant beneficial owner. Therefore, a person must have an indirect right or entitlement (whether alongwith direct or only indirect)in order to be a SBO. This is mainly because the provisions have been framed to identify the ultimate beneficial owners. "Significant Influence" – Need clarification! It means the power to participate, directly or indirectly, in the financial and operating policy decisions of the reporting company but is not control or joint control of those policies. Now, Startup incubators, Venture Capital Investors, P.E Foundsetc. are participating in financial and operation decisions, appoints nominee directors etc. by virtue of Investment Agreement. Will they also be considered as SBO? There is still no clarity on this. Who could be SBO? There are following types of persons that can be in member list of reporting entity. 1. Individual Shareholders Whether individual shareholders are also SBO? No. In order to be a SBO, a person must have an indirect right or entitlement and his/her name is not entered in the register of members. Where the person has only direct holding, he shall not be termed as the SBO. Whether individual shareholders holding direct as well as indirect also needs declaration? Yes. In this case, individual’s direct holding is clubbed with indirect holding and if it is more than 10%, s/he is considered SBO. 2. Body corporate shareholder holding more than 10% (Other than LLP)

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Any individual holding, directly or indirectly, 51% or more in that body corporate shareholder, then s/he is treated as a SBO. 3. HUF holding more than 10% Karta of that HUF is a SBO. 4. Partnership firm including LLP holding more than 10% All Partners are SBO. If Partnership firm has bodycorporate as partners, then individual holding majority stake in that body corporate is a SBO. 5. Trust holding more than 10% • Trustee (In case of charitable trust) is a SBO • Beneficiary (In case of a specific trust) is a SBO • Settler(In case of revocable trust) is a SBO 6. Pooled investment vehicle or an entity controlled by the pooled investment vehicle holding more than 10% Partner or Investment Manager or Chief Executive Officer of an entity is a SBO. Steps to Comply this provisions by Reporting Company 1. The Reporting Company first check whether there are any non-Individual member holding more than 10% of shares or voting or dividend rightsin the company. 2. If reporting company has reason to believe that individual is SBO, Sendnotices to such Individual or Promoters or Directors or any other officer of non-individual members seeking information of SBO. 3. Receiving Form No. BEN-1 from the Significant Beneficial Owner within 90 days from the commencement of these rules and within 30 days from any change in holdings. 4. Filing of E-form No. BEN-2 with ROC by the Companywithin 30 days from the date of receipt of declaration in Form No. BEN-1 from the SBO. 5. Maintaining Register of all SBOs in Form No. BEN-3.

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Exemptions These rules shall not be made applicable to the extent the share of the reporting company is held by, • The authority constituted under sub-section (5) of section 125 of the Act; • Its holding reporting company:

Provided that the details of such holding reporting company shall be reported in Form No. BEN-2. • The Central Government, State Government or any local Authority; • Reporting company, or a body corporate, oran entitycontrolled by the Central Government or by any State

Government or Governments, or partly by the Central Government and partly by one or more State Governments; • Securities and Exchange Board of India registered Investment Vehicles such as mutual funds, alternative investment

funds (AIF), Real Estate Investment Trusts (REITs), Infrastructure Investment Trust (lnVITs) regulated by the Securities and Exchange Board of India;

• Investment Vehicles regulated by Reserve Bank of India, or Insurance Regulatory and Development Authority of India, or Pension Fund Regulatory and Development Authority.

Issues need to be addressed Start-up Investment Whether investment made by the private equity funds and venture capital investors, who are not registered with the regulators can fall into this framework.If yes, it is very difficult to find SBO. What would be the extent of the ‘participation in financial and operating policy decisions’ to qualify as ‘significant influence’?It is common for private equity and venture capital investors to have nominee directors, some rights on financial and operating policy decisions of a company as per their investment agreement. Test of Persons acting together The rules cast obligation on companies to ‘take necessary steps to find out’ their significant beneficial owners, especially where persons are ‘acting together’. How can company know whether persons are acting individually or together? Conclusion The spirit of the Amendment Rules is to bring in more clarity and is in alignment with the Government’s drive to inculcate transparency and accountability in the corporate set-up. The disclosures relating to SBO are expected to lead to transparency of shareholding structures and help the government identify benami transactions and prevent money laundering activities.

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GOVERNMENT NOTIFIES THRESHOLD FOR FILING CLASS

ACTION SUITS

CS Anjali Gorsia

Quick Referencer:

Applicability All Companies except Banking Companies1 Relevant Section Section 245 of the Companies Act, 2013 Applicable Rules Rules 84, 85, 86 and 87 of National Company Law Tribunal Rules, 2016

Background: The concept of “Class Action Suits” was first introduced in the US

In the year 2005, it was recommended by “J.J. Irani Committee Report

, also known as “Representative Action”, which is usually a form of court case, filed by larger group of people collectively who has suffered same or similar injuries.

2”, the principle of “Class/Representative Action” by one shareholder on behalf of one or moreof the shareholders of the same kind have been allowed by courts on the grounds ofpersons having same locus standi.”Post the Satyam Scandal, the Companies Bill 2009 3

1 In other words, class suit actions cannot be filed against banking Companies as stated in sub section (9) of section 245 of the Companies Act, 2013, due to availability of special redressal system.

introduces the provisions enabling shareholders to file class action suitsproviding a way out to small or minority group of stakeholders for redressing their grievances apart from stakeholders like Creditors, Bankers, debentures holders etc. and later in Companies Bill 2011. Thereafter,the 2013 act has now introduced the concept of class action under section 245. What are Class Action Suits under the Company Act, 2013?

2http://www.primedirectors.com/pdf/JJ%20Irani%20Report-MCA.pdf 3http://www.mca.gov.in/Ministry/actsbills/pdf/Companies_Bill_2009_24Aug2009.pdf

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The provisions governing Class Action is set out under the Section 245 of the Companies Act, 2013 (‘Act’) which falls under the Chapter XVI “Prevention of oppression and Mismanagement” notified on 1st June, 20164

SECTION 245 allows specified categories of Petitioners

. It contains ten different sub clauses and provides procedures & reliefs.

5, who forms a common opinion about the grievances against the mismanagement of company affairs (other than banking companies) by its directors, auditors or advisors, and can collectively approach (on behalf of all) the NCLT for redressing their situation.

Introduction of this section places greater liability not only on management but on auditors & advisors so associated to act responsibly.

This relief is in addition to the Oppression & Mismanagement of the Company covered under the Sections 241 & 244 of the Act. The members now can file application under section 241 as well as under 245 separately and distinctly, however, remedies available under the two are different.Sections 241 to 244 seeks greater array of remedies to specific members, however, there is no such concept of waiver under section 245.Acts committed/ concluded resulting misconduct are referred under section 241 whereas continual acts are referred under section 245.

CIRCUMSTANCES / CAUSE OF ACTION

Where specified categories of stakeholders forms a common opinion, that the management & conduct of the affairs are being conducted in a manner detrimental to the interests of the Company or stakeholders

The group of people alleges that the defendant is responsible for causing the harm that was suffered by the members of the “Class”

WHO CAN SUE

The Company Act, 2013 provides for a minimum number of claimants to institute class section:

As per Sub Section (1) of the Section 245 of the Companies Act, 2013, following can collectively approach Tribunal: Member or Members6Depositor or Depositors

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Any Class of them, as the case may be.

4S.O. 1934(E) and S.O. 1935(E)Pdf (86 KB) 5 Under Sub section (1) of the Section 245 of the Act 6 As per Section 2(55) of the Companies Act, 2013 7 The ambit is also extended to depositors also along with members or any class of them under section 245 compared to section 241 of the Companies Act, 2013.

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ELIGIBILTY CRITERIA

Until recently, this prescribed numbers of members or depositors required to file a class action suit had not been notified by the government. The government has on May 8, 2019 amended the National Company Law Tribunal Rules, 2016 and notified the threshold limits for filing such class action suits under Section 245 of the Act. The notified threshold limits are:

Sub-Section 3 of Section 245 of the Act as illustrated below sets forth the number of members/depositors required to file a class action suit.

Members

Having Share Capital Not having Share Capital No. of required Members minimum 100 members

not less than 1/5th of the total

number of its members No. of required Members 5% of total members8 -

Whichever less Percentage of shareholding9 In case of a listed company

– 2% In case of an unlisted

company – 5%

-

Depositors

No. of required Depositors minimum 100 depositors or

No. of required depositors 5% of total depositors10 Whichever is less

11 5% Percentage of deposits owed

WHO CAN BE SUED

Company Its Directors An auditor, including audit firm A consultant, Expert12

Adviser

Individuals as stated Auditor, Consultants, Expert & Adviser can be held separately for their wrong doings alongside the Company and its management by stakeholders by virtue of their powers. Therefore, Individuals so associated should act carefully and diligently before advising a company and its management. HOWEVER, in case of Audit firm, Liability is restricted to only those partners in firm, involved in such actions.

8 Prescribed on 8th May, 2019,pdfNational Company Law Tribunal(Second Amendment) Rules, 2019 9 Prescribed on 8th May, 2019,pdfNational Company Law Tribunal(Second Amendment) Rules, 2019 10 Prescribed on 8th May, 2019,pdfNational Company Law Tribunal(Second Amendment) Rules, 2019 11 Prescribed on 8th May, 2019,pdfNational Company Law Tribunal(Second Amendment) Rules, 2019 12 For the purpose of this clause, Expert is defined under section 2(38) of the Companies Act, 2013

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Similar provisions under Companies Act, 2013

A separate provision has also been incorporated under SECTION 37

Where affected persons may file suit or any other action may be taken under Section 34

of the Companies Act, 2013 which is to some extent similar to Section 245:

13 or Section 3514 or Section 3615, they may be any person or a group of person or association of person. A suit instead of application with NCLT can be filed.

An application can be filed in Form NCLT-9as per rule 84 of NCLT Rules, 2016;

However, there is no minimum number of persons required for filing such suit as required under section 245 of the Act,

How to file Class Action Suit………….?

A copy of application also needs to be served to

the Company, Regional Director, Registrar of Companies, others respondents and all such persons as the Tribunal may direct;

The Tribunal after taking into account the points as mentioned in Section 245(4) and rule 85 of NCLT Rules, 2016, may admit or dismiss the application;

Under Oppression & Mismanagement, the Petitioner cannot ask for documents from the Company - Mohta Bros P

Ltd. Vs. Calcutta Landing and Shipping Co (1970) 40 Comp. Cas. 119 Cal,

so exchange of evidence (documents) is not permitted as permitted in Federal Law.

As per sub section (8) of section 245 of the Act, where Application filed before the Tribunal is found to be frivolous (not having serious purpose or value) or vexatious, Tribunal may reject such application & accordingly do so by mentioning the reason in writing and also may direct pay such as costs not exceeding Rs.1 Lakh.

13 Section 34: Criminal Liability for misstatements in prospectus 14 Section 35:Civil Liability for misstatements in prospectus 15 Section 36: Punishment for fraudulently including persons to invest money.

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In an application following reliefs can be sought

:

On admission of application, a public notice shall be issued by the Tribunal in Form NCLT-13 to all the members of the class as per Section 245(5) and rule 87 of NCLT Rules, 2016;

within Seven days of admission of application

The cost of aforesaid public notice will be borne by applicants and shall be later discharged by company or person so held responsible in case order is passed in favour of applicants.

All similar applications pending in any jurisdiction should be consolidated into single application In case any applicant wants to opt-out of the proceedings

after the institution of suit, applicant may do so with the permission of Tribunal by filing Form NCLT-1 as per rule 86 of NCLT Rules, 2016;

Order so passed by the Tribunal shall be binding on Company and all its members, depositors and auditor including audit firm or expert or consultant or advisor or any other person associated with the company.

Penalty on non-compliance of order passed:

Restraining the company from committing an act that is beyond the authority of the articles of association (AoA) or memorandum of association (MoA) of the company,

From committing any act contrary to the provisions of the 2013 act or any other applicable law, and declaring a resolution altering the MoA or AoA of the company as void if the resolution was passed by not disclosing material facts or by misstatement to the members or depositors.

These reliefs are akin to preventive reliefs and are based on the principles under the Specific Relief Act, 1963.

Section 245 also allows seeking damages or compensation or any other

suitable action

Company shall be liable with fine: Rs 5 Lakhs to Rs 25 Lakhs

Other Personnel: Fine: Rs 25000/- to Rs 1 Lakh Imprisonment: May extend to 3 years terms

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An analysis of One Tier and Two Tier Board system

CS MandarKarnik

Introduction Corporate Boards in India are generally One Tier or Single Tier boards as governed by provisions of the Companies Act, 2013 (“The Act”). But the advent of mandatorily constituted Committees of the Board like the Audit Committee, Nomination and Remuneration Committee etc. has led to some specific powers being delegated to said Committees and two Tier Boards being constituted. Globally, countries like USA and UK follow one Tier Board system while two Tier Board systems are followed in Germany and China for listed entities. These two Tier Board systems have a Supervisory Board and a Managerial Board where the Supervisory Board is the representative of the shareholders and the Managerial Board is representative of the management of the company. This Article seeks to analyse one Tier and two Tier Board systems as followed in the world and the Board system as followed in India.

The Report of the Expert Committee on Company Law of the Ministry of Corporate Affairs stated that the Board of Directors has to exercise strategic oversight over business operations while directly measuring and rewarding management’s performance. Simultaneously, the Board has to ensure compliance with the legal framework, integrity of financial accounting and reporting systems and credibility in the eyes of the stakeholders through proper and timely disclosures.

One Tier Board

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Thus, both Managerial and Supervisory functions are vested in one single tier Board in India. This single Tier Board usually comprises of a Managing Director with a few nominated Executive Directors/ Whole Time Directors to assist the Managing Director and a set of Independent Directors who have been appointed to ensure good corporate governance in

These activities can be ensured by the Board only by having direct reporting of management heads of departments to the Board. This is ensured by having Managing Directors or Whole Time Directors and Executive Directors being nominated on the Board from amongst the management of the Company. Thus, in India single Tier system of the Board exist where shareholders elect Board members and in turn Board members elect managers and select and induct independent directors on the Board of the Company. Thus, the Board of Directors as envisaged under the Act is a self sustaining entity.

16http://www.mca.gov.in/MinistryV2/management+and+board+governance.html

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the Company. As larger numbers of public entities in India are closely held by promoter groups, the roles of Chairman and Managing Director are generally held by the same person in many cases. The Securities and Exchange Board of India (SEBI), based on the recommendations of Kotak Committee on Corporate Governance, has amended the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 splitting the positions of the Chairperson and Managing Director, to start with, for top 500 listed companies on the basis of market capitalization effective from 1st April, 2020.17

1) Duty of Care or Good Judgment: The first fiduciary duty of a Director is that of Good Judgment and Care. The doctrine of care states that when managing the affairs of a Company, the Director’s act in good faith and manages the affairs of the Company with the same care and prudence as an ordinary person would exercise in his or her job.

Duties of the single Tier Board A single Tier Board has a wide spectrum of duties enumerated on itself for the organization and running of the Company. The Report of the Expert Committee on Company Law of the Ministry of Corporate Affairs states that there is an obligation of obedience to the constitution (Memorandum of Association and Articles of Association) and decisions of the Company lawfully taken under it, or under rules of law permitting such decisions to be taken, the duty of loyalty towards the Company, to promote the company successfully for the benefit of the members as a whole. The duties also include exercise of good faith and independence of judgment along with care, skill and diligence in exercise of duties, to disclose transactions involving conflict of interest and seek shareholders’ approval as relevant. The duties also include not to exploit company’s assets or benefits from third parties for personal purposes, the duty of special care if a company is unable to pay its debts or is facing a likely prospect of an insolvent situation. The real question is whether all such duties can be recognized by law. The answer is, they cannot, so the onus is on the Directors themselves to set themselves up, to ensure all duties of their Board seat are fulfilled thoroughly. Some of the Duties of the One Tier Board are:

2) Duty of Loyalty: The duty of loyalty of a Director states that the best interest of the corporation and its

shareholders takes precedence over any other interest possessed by a Director.

A Dual Board or Two-Tier system is a

Two Tier Board

corporate structure system that consists of two separate Boards of Directors that govern a corporation. The roles and relationships between the two boards vary across countries. The structure is composed of two Boards, the "Management Board", and the "Supervisory Board" each of these have different roles.18

17http://pib.nic.in/newsite/PrintRelease.aspx?relid=180970 18https://en.wikipedia.org/wiki/Dual_board

Countries like Germany, Finland and China have adopted two tier Board systems. The birth of the Two Tier Board system

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happened in Germany and it was later adopted in many other European countries and China. The German Stock Corporation Act makes mandatory a two tier system for Limited companies. In Germany’s mandatory two tier system, the Management Board called Vorstandmakes decisions about the Company’s goals and objectives and goes about implementing them. These decisions are then reviewed by the non-executive directors in the Supervisory Board called Aufsichtsrat. The shareholders of the Company usually appoint the members of the Supervisory Board. In turn, the members of the Supervisory Board appoint the members of the Management Board. In Germany, additionally co-determination laws can be applied by which one third or one half of the Board are appointed by the employees of the Company. The total number of Board members can range from 3 to 21 depending on various factors like co-determination, share capital etc. In Germany, the Supervisory Board can represent the shareholders, employees, trade unions, company’s holding company representatives, state nominees, business partners and creditors. Thus, two Tier Board model takes into effect the stakeholders of society onto the Company’s Aufsichtsrat and not just the shareholders as opposed to the One Tier Board which is mostly comprised of shareholder nominees and independent directors chosen by management but appointed by shareholders. The development of the Supervisory Board has been encouraged in recent times by the European Union.

1) The Mandate to advise: The Management Board has the power to advise employees of the Company on adopting certain practices and processes for smooth functioning of the Company.

Duties of a Two Tier Board The Management Board and Supervisory Board both have different sets of duties and responsibilities while managing and running the company. First let us take a look at the duties and responsibilities of the Management Board. In many countries of Continental Europe where two Tier Board structures are followed, the Management Board has the following duties and responsibilities:

2) The Duty to Implement Best Practices: The Management Board has the power implement best practices and

procedures in order for the corporation to compete efficiently and effectively in the market. 3) The Duty of Loyalty: The Management Board of a Two Tier Board has to remain loyal to the best interests of the

stakeholders of the Corporation. The Supervisory Board has the following duties and responsibilities: 1) The Duty to Advise: The Supervisory Board has the responsibility to give proper advise to the Management Board

to effect it to carry out its duties effectively.

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2) The Duty to Monitor the Management Board: The Supervisory Board has the duty to properly monitor the Management Board and ensure it fulfils its duties and responsibilities legally and properly.

Historical development of One Tier and Two Tier Boards The Board of Directors in India have arisen from what has been described as the separation of ownership and control concept in foreign corporations. Because of the disperse ownership of capital especially in listed and public companies, it is very difficult for the ordinary shareholder to exercise due control over the management of the Company. In such a scenario, the Board of Directors, constituted as it is by Directors elected by the members of the Company represents the members viewpoints in running the company. However, this Board in its modern avatar represents independent rather than shareholder views as well. This is because in the modern times, small shareholders cannot effectively raise their voice in majority dominated boards; and independent board members are the bulwark for these shareholders against oppression by the majority. The Anglo-American school of thought has largely influenced the one Tier system of the Board of Directors prevalent in India. Unlike the two Tier Board system of a Corporation, the concept of shareholder primacy has always dominated the thought process of one Tier Boards. The notion of free market capitalism has further strengthened the reliance of one Tier Boards in India post liberalization of 1991. The purpose of the Board thus is to maximize shareholder wealth through the company’s business being made as profitable and social as possible.

Conclusion We can see that both One Tier and Two Tier Boards have their advantages and some minor disadvantages. However, two Tier Boards can be implemented in publicly listed companies in India to maximize stakeholder value on a pilot basis.

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W IRC CHAPTER EVENTS

EDUCATION EXPO

AHEMDABAD CHAPTER

Date 01 & 02 June, 2019 Venue Gujarat Convention Hall Topics Tv9 Education Expo Chief Guest / Speakers Shri Vijaybhai Rupani

Honorable Chief Minister Of Gujarat Delegates Present 110+ Visitors ANNUAL GENERAL MEETING Date 12th June, 2019 Venue Ahmedabad Chapter Topics Annual General Meeting Delegates present 21 Participants PCS DAY CELEBRATION Date 15th June, 2019 Venue Ahmedabad Chapter Topics Pcs Day Celebration Chief Guest / Speakers Speakers: Cs Umesh Ved & Cs Arvind Gaudana Delegates present 90 Participants 5 DAYS ENTREPRENEURSHIP DEVELOPMENT PROGRAMME Date 25 To 29 June, 2019 Venue Ahmdabad Chapter Topics Incorporation Of Company, Board Report, Joint Venture & Contract

Drafting Etc. Chief Guest / Speakers Faculties – Cs Hema Chhatani, Cs Mukesh Pamnani, Cs Anand Soni, Cs Priti

Kapadia Etc. Delegates present 41 Participants

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Celebration of PCS Week Capacity Building of PCS (June 15-22, 2019)

AURANGABAD CHAPTER

Date Friday, 21st June, 2019 Venue Hotel Silver Inn, Plot No. 1 & 20, Jalna Road, Surana Nagar,

Near Seven Hill Flyover, Aurangabad- 431003(MH) Topics Recognitions secured for PCS

Emerging areas of Practice Awareness on Peer Review Mechanism and its benefits Soft Skills for Capacity Building for facing the challenges in emerging areas of practice

Chief Guest / Speakers CS Hrishikesh S. Wagh, Partner, KANJ & CO LLP, Company Secretaries, Pune and Regional Council Member, ICSI-WIRC & Mr. Sumit Udaygiri , Director of 4C Training, Soft Skills

Delegates Present 33 Participants

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CELEBRATION OF PCS DAY

BHOPAL CHAPTER

Date 21.06.2019 Venue ICSI Bhopal Chapter Office Premises Topics Overview of Peer Review and Latest Amendments in GST Chief Guest / Speakers CS R.S.Shrivastava, CS Anuradha Singhai and CS Pradeep Mutreja Delegates present 24 Participants

Bhopal Chapter organized Education Fair organised by by Dainik Bhaskar Group from 15.06.2019 to 17.06.2019 and Nai Duniya Group

from 22.06.2019 to 23.06.2019

Understanding section 205 of the Companies Act 2013

GOA CHAPTER

Date 15.06.2019 Venue Chapter office Topics Understanding section 205 of the Companies Act 2013 Chief Guest / Speakers CS Shivaram Bhat Delegates present 30 Participants

PCS Day-A Road Ahead

INDORE CHAPTER

Date 15.06.2019 Venue ICSI Indore Chapter Topics PCS Day-A Road Ahead Chief Guest / Speakers CS Dr. D K Jain Delegates present 25 Participants

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Celebration of PCS Day

NAGPUR CHAPTER

Date 15th June 2019 Venue Dhanwate National College, Congress Nagar, Nagpur - 440012 Topics 1. Advocacy Skills and Court Appearances for Company Secretaries

2. Office Administration & Systems in office of PCS. Chief Guest / Speakers Firdos Mirza, Advocate- High Court, Nagpur & CS Ankita Jain, PCS Nagpur Delegates present 38 Participants

Celebration of PCS Day

NASHIK CHAPTER

Date 15th June 2019 Venue ICSI Nashik Chapter Topics Mind Management Chief Guest / Speakers Dr. R. M. Kulkarni, (Principle of BYK College, M. Phil, Ph.D.) Delegates present 27 Participants

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Celebration of PCS Day

NAVI MUMBAI CHAPTER

Date 15.06.2019 Venue Navi Mumbai Chapter of ICSI Topics PCS Day Celebration – June 15’ 2019. Chief Guest / Speakers Prof. Lata Khatri and CS K Venkataraman Delegates present 14 participants

International Day of Yoga, 21st June’ 2019 Date 21.06.2019 Venue Navi Mumbai Chapter of ICSI Topics International Day of Yoga, 21st June’ 2019. Chief Guest / Speakers Mrs. Veena G Bhatt, Yoga Trainer. Delegates present 10 participants

35th MSOP

PUNE CHAPTER

Date 25.06.2019 to 11.07.2019 Venue Pune Chapter Chief Guest / Speakers Eminent faculties will be conducting the session Delegates present 32 Participants

TWO DAYS ANNUAL REGIONAL PCS CONFERENCE 2019 Date 14th & 15th June 2019 Venue PYC Hindu Gymkhana, Deccan Pune. Topics Theme “CS A SERVER” Chief Guest / Speakers Mr. R.N. D’Souza Delegates present 357 Participants

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LOKMAT EDUCATION FAIR 2019 Date 15th & 16th June 2019 Venue Ganesh kala Krida Manch, Pune Delegates present 100 visitor INTERNATIONAL YOGA DAY 2019 Date 21st June 2019 Venue Pune Chapter of ICSI Chief Guest / Speakers Ms Asmita Aherer ANNUAL GENERAL MEETING Date 22nd June 2019 Venue Pune Chapter of ICSI Topics Annual General Meeting Delegates present 20 Participants

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PCS DAY CELEBRATION CUM S.C.M

RAIPUR CHAPTER

Date 22.06.2019 Venue RAIPUR CHAPTER OFFICE Topics OFFICE ADMINISTRATION AND SYSTEMS IN OFFICE OF PCS Chief Guest / Speakers CS S RAJESHWARA RAO Delegates present 26 Participants

7TH BATCH OF 5 DAYS SKILL DEVELOPMENT PROGRAM Date 24 TO 28TH JUNE 2019 Venue RAIPUR CHAPTER OFFICE Topics VARIOUS TOPICS Chief Guest / Speakers VARIIOUS FACULTIES Delegates present 32 Participants

FULL DAY SEMINAR ON PCS DAY

RAJKOT CHAPTER

Date 15.06.2019 Venue The Pinevinta Hotel, Rajkot Topics Session 1: Rules & Tools of Interpretation

Session 2: Creativity Management for CS as Entrepreneurs Chief Guest / Speakers CS Deepak Kumar Khaitan, Central Council Member, ICSI & PCS, Kolkata Delegates present 74 Participants

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PCS Day Celebration

THANE CHAPTER

Date 15.06.2019 Venue ICSI – THANE CHAPTER of ICSI of WIRC Chief Guest / Speakers CS Jayashri Dagga Delegates present 15 Participants

Peer Review Training Date 15.06.2019 Venue ICSI – THANE CHAPTER of ICSI of WIRC Topics Various Topics Chief Guest / Speakers CS N L Bhatia, CS Anshul Jain, CS Prashant Diwan, CS Amita Desai, CS

Amita Saxena Delegates present 11 Participants

Study Circle Meeting on topic ‘Board Report’ Date 22nd June 2019 Venue ICSI – THANE CHAPTER of ICSI of WIRC Topics Discussion on Insolvency and Bankruptcy Code, 2016 Delegates present 10 Participants

HALF DAY SEMINAR ON “PCS DAY”

VADODARA CHAPTER

Date Saturday, 15th June, 2019 Venue Vadodara Chapter of WIRC of ICSI Topics Capacity Building for facing the challenges in emerging areas of Practice Chief Guest / Speakers Shri Avadhoot Sumant, Advocate, Vadodara

Ms. Divya Jaggi, Corporate Trainer, Vadodara Delegates present 56 Participants

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List of Executive Officer/ in-charge of Chapters of WIRC Sr. No. Chapter name Chapter In-Charge Contact No.

e-mail id of Chapter In Charge

1 Ahmadabad Ms. Smita Subin 079-30025334/35 smita.subin@icsi.edu

2 Aurangabad Mr. Subhash Bappi Sinha 0240-2451124 subhash.sinha@icsi.edu

3 Bhayander Ms. Krutika Kargutkar 022-28183888 krutika.kargutkar@icsi.edu

4 Bhopal Ms. Amita Malviya 0755-2577139 amita.malviya@icsi.edu

5 Dombivali Ms. Ketki Kedar Joshi 0251-2445423 ketki.joshi@icsi.edu

6 Goa Mr. Vasant Kerkar 0832-2435033 vasant.kerkar@icsi.edu

7 Indore CS Pravin Gupta 0731-4248181 pravin.gupta@icsi.edu

8 Kolhapur Ms. Archana Sawant 0231-2659498 archana.sawant@icsi.edu

9 Nagpur Mr. Sudhakar 0712-2453276 sudhakar.aisalwaru@icsi.edu

10 Nashik Mr. Amit Kumar 0253-2509989 amit.kumar_n@icsi.edu

11 Navi Mumbai Ms. Lacchmi Bhatt 022-27577816 lachhmi.bhatt@icsi.edu

12 Pune Ms. Garima Mehrotra 020-24263228/0341 garima.mehrotra@icsi.edu

13 Raipur Mr. Prafulla Kumar Dash 0771-3267784 prafulla.dash@icsi.edu

14 Rajkot Mr. Aritra Karmakar 0281-3059646 aritra.karmakar@icsi.edu

15 Surat Mr. Goutam Karmakar 0261-2463404 goutam.karmakar@icsi.edu

16 Thane Ms. Kavita Chavan 022-25891333-3793 kavita.chavan@icsi.edu

17 Vadodara Mr. Amit Kumar Nagar 0265-2331498 amit.nagar@icsi.edu

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Chapter Grading

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WIRC OTC Classes

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CSBF Appeal