Short Note on Chairman of the Company

Short Note on Chairman of the Company

Normalising a dormant company

A dormant company is one which has not made any statutory annual filings ie., has not filed both annual returns and balance sheets for the years 2006-2007, 2007-2008 and 2008-2009.

Such Company can change its status to "active" by filing Form 61 and completing the fillings within 21 days from the date of approval of Form 61.

Application for normalising a dormant company:

Our company --------------was incorporated on ---------------with the main object of carrying on----------------and is continuing to carry on its business till date.

The company has duly convened its Annual General Meetings till date. However, the company failed to file its annual report/annual returns with the Registrar of Companies due to oversight.

Hence, the Board of Directors has decided to submit a request to the Registrar of Companies, Andhra Pradesh for regularising its status from 'Dormant' to 'Active' in the Master Data appearing in the MCA portal. The company hereby files Form 61 along with this application and the Board Resolution dated-----

Kindly accept our application and do the needful.

The Annual Return

What shall the Annual Return contain:

Relevant Section: Section 159 , Part 1, Schedule V of the Companies Act, 1956

• registered office of the Company
• register of its members
• register of its debenture holders
• its shares and debentures
• its indebtedness
• its members and debenture holders, past and present
• its directors, managing directors, managers,secretaries past and present 

The past and present details of its members need not be given if in any of the preceding 5 annual returns the full details of past and present members and the shares held and transferred by them are contained.The return in question may contain only particulars of persons ceasing to be members since that date and shares transferred since that date or changes in shares held by members since that date.
Who is required to sign the Annual Return :

Relevant Section: Section 161(1) of the Companies Act, 1956

 The Annual Return must be signed by 

• a director and by the Manager or Secretary
• where there is no manager or secretary, by  two directors of the company one of whom shall be a managing director if there is one.
• in case of listed companies, the annual return shall also be signed by a Company Secretary in Whole time practice.

Additional certification by the signatories:

Relevant Section: Section 161 (2)  of the Companies Act, 1956
  

• The return states the facts as they stood on the day of the AGM correctly and completely
• Since the date of the last annual return, the transfer of all shares and debentures and the issue of all further certificates of shares and debentures have been appropriately recorded in the books maintained for the purpose.
• in case of private company also that 1) the company has  not since the date of the AGM with reference to which the last annual return was filed, issued any invitation to the public to subscribe for any shares or debentures of the Company and that 2) where the annual return discloses the fact that the number of members of the company exceeds fifty, the excess consists wholly of persons who under Section 3 (1) (iii) (b) are not to be included in reckoning the number of fifty 

 

Procedure for change/removal of auditors

Procedure for change in auditors 

Situation 1: New appointment in the AGM other than the retiring auditor

That is the annual accounts as laid before the AGM have been signed by the retiring auditor. The appointment will be for the current year.

Relevant Section: Section 225

1. The Company must receive a special notice from a member or shareholder not less than 14 days before the AGM intending his intention to move a resolution for changing the existing auditor of the company and for appointing another auditor in his place.

2.Such notice must be forwarded to the existing auditor of the Company.

3.A certificate is obtained from the new auditor that his appointment if made will be within the limits of Section 224 (1B)

4. Company must issue notice 21 days before the AGM about the proposal to change the auditors.

5. The retiring auditor has a right to make a representation to the company either in writing or orally. If written representation is received, the same must be enclosed with the notice or company to inform shareholders of the representation by publishing the same in a newspaper having appropriate circulation.

6. Three copies of the notice to be forwarded to the Stock Exchanges if Company is listed

7.Only after a proper resolution is passed in the AGM, the new Auditor shall be considered as duly appointed. New auditor to inform ROC about his appointment within one month of receipt of intimation from the Company about his appointment.

Situation 2: Removal of an Auditor before the expiry of his term

Relevant Section: Section 224 (7)

1.Hold a Board Meeting to approve draft application to the Central Government for removal of auditor

2.Make an application to the Regional Director seeking his approval for removal of auditor

3. On receiving approval, hold an EGM for seeking approval of members for removal of existing auditors and appointment of new auditors.

Situation 3: Auditor resigns before the expiry of his term

Relevant Section:  Section 224 (6)

1. Hold Board Meeting to consider the resignation of the existing auditor and convene an EGM for appointment of new auditor in his place.

2. Obtain a letter from auditor under section 224 (1B)

3. Hold EGM and pass ordinary resolution

4.Intimate auditor within 7 days of his appointment

5. Auditor to file Form 23B within 30 days of receiving such intimation

Situation 4 : Casual vacancy in case of death or disqualification of auditors

Relevant Section: Section 224 (6) (a)

 The Board may fill a casual vacancy in the office of an auditor caused by death or disqualification of such auditors

But while such vacancy continues, the remaining auditor or auditors may act.

Definition: The term casual vacancy has not been defined in the Companies Act, 1956. It simply means a vacancy created by the death, disqualification, resignation etc of the auditor of the company.

Case law:  
ICAI vs Jnanendranath Saikia [1955] 25 comp cas 53, 56 Assam

Deliberate omission on part of the company to appoint an Auditor in its AGM is not a casual vacany

Resolution: 
"RESOLVED THAT M/s............., Chartered Accounts (Firm Regn No...) be and are hereby appointed as statutory auditors of the Company to fill up the casual vacancy caused by the resignation of M/s-------Chartered Accountants, until the conclusion of the next Annual General Meeting of the Company at a remuneration as the Board of Directors may determine."

Meaning of casual vacancy in the office of auditor(s) The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U

The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U

The expression 'casual vacancy' has not been defined in the Companies Act, 1956. Simply stated, a casual vacancy in the office of an auditor means a vacancy caused in the office of an auditor by his death, disqualification, resignation, etc. It has been held in the case of the Institute of Chartered Accountants of India v Jnanendranath Saikia (1955) 25 Comp Cas 53, 56 (Assam) that casual vacancy is not a vacancy created by any deliberate omission on the part of the company to appoint an auditor at its annual general meeting.

Read more at: http://www.caclubindia.com/forum/resignation-by-statutory-auditors-26714.asp#.UJNZkWcZk1U

The Law of digital signature

The Law of digital signature

liability of company to pay income tax shifted to directors in case of default

Liability of the director(s) u/s 179 of the Income Tax Act is towards the amount of “tax” only and not towards “interest” and “penalty”

SANJAY GHAI Vs. ASSTT. CIT & ORS. in W.P.(C) 2303/2012 & 5175/2012 Dated 11.10.2012 (DHC)

Decided in favour of : Assessee

Issue Involved: In this case, the issue involved was that if there is a default on the part of a private limited company in payment of its income tax dues to the Income Tax Department then the liability of the company can be shifted to its director(s) u/s 179 of the Income Tax Act and accordingly, the Income Tax Department can hold the said director(s) liable to pay income tax dues of the company. The question arose as to whether it is the amount of “tax” only that can be shifted upon the director(s) or even other components of income tax demands such as “interest” and “penalty” can also be recovered from the director(s) u/s 179 of the Income Tax Act.

Held : Hon’ble Delhi High Court after analyzing Section 179 and other provisions of the Income Tax Act held that it is the amount of “tax” only which can be recovered form the director(s) u/s 179 and no other demand i.e. “interest” or “penalty” can be recovered from director(s) u/s 179 of the Income Tax Act.

This judgment would provide some relief and mental peace to the director(s) in case their companies have defaulted in payment of income tax dues because in many cases the portion of “interest” and “penalty” becomes much larger than the amount of tax. It is because of the reason that due to time lag the amount of interest becomes very large and penalty can be levied upto 300% of the amount of tax.

Is Trust a Body Corporate?

Can a 'Trust' under the Indian Trusts Act, 1882 be a 'Body Corporate' under the Companies Act, 1956?

Sub-section (7) of Section 2 of the Companies Act, 1956 defines a Body Corporate or Corporation as follows:-

“Body Corporate” or “Corporation” includes a company incorporated outside India but does not include---

(a) a corporation sole;

(b) a co-operative society registered under any law relating to co-operative societies; and

(c) any other body corporate (not being a company as defined in this Act), which the Central Government may, by notification in the Official Gazette, specify in this behalf.

Institution or body which can be regarded body corporate---- Department’s Circular:---  The question whether a particular institution or body other than that specified in sub-clauses (a), (b) and (c) of clause (7) of section 2 is a “body corporate” under the Companies Act, 1956 has to be decided with reference, among other things, to the status, mode of incorporation, constitution, etc., of the institution. It is not possible for the Department to lay down any general definition other than that given in the Act or to furnish a list of bodies which are deemed to be “bodies corporate” under section 2(7). Generally speaking, the Department would consider that any corporate body, i.e., a body which has been or is incorporated under some statute and which has a perpetual succession, a common seal and is a legal entity apart from the members constituting it, will come within the definition of the term "body corporate".  The term will not, however, include a society registered under the Societies Registration Act, 1860, or any of the bodies which have been specifically excluded by sub-clauses (a), (b) and (c) of clause (7) of section 2. (Circular No. 8(26)/2(7)/63-PR, dated 13-03-1963)

The Supreme Court of India in Ashoka Marketing Ltd v Punjab National Bank, (1990) 4 SCC 406 held that “The expression ‘body corporate’ is used in legal parlance to mean a public or private corporation.”

Further, the Supreme Court of India, in Board of Trustees, Ayurvedic and Unani Tibia College v. State of Delhi, AIR 1962 SC 458 while posing the question as to what is a corporation, the court answered it with the statements contained in HALSBURY 4th Edn., Vol.9, para 1201 as:- “A Corporation may be defined as a body of persons (in the case of a corporation aggregate) or an office (in case of a corporation sole) which is recognized by the law as having a personality which is distinct from the separate personalities of the members of the body or the personality of the individual holder for the time being of the office, in question.”

The Supreme Court of India again in S. P. Mittal v. Union of India, AIR 1983 SC 1, summed up the essential elements in the legal concept of a corporation, which are: “(1) a continuous identity, i.e., the original member or members or his or their successors are one; (2) the persons to be incorporated, (3) the name by which the persons are incorporated, (4) a place, and (5) words sufficient in law to show incorporation. A corporation aggregate can express its will by deed under a common seal.”

Corporation also means any body corporate established by or under Central, Provincial or State Act. It can be brought into existence by a statute.

In legal parlance, a legal person is any subject-matter other than a human being to which the law attributes personality. The law, in creating legal persons, always does so by personifying some real thing. The thing personified may be termed the corpus of the legal person so created; it is the body into which the law infuses the animus of a fictitious personality. Thus a Corporation, being the creation of law is undoubtedly a legal person. It comes into existence by the lawful authority of incorporation. A corporation, having neither soul nor body, cannot act save through the agency of some representative in the world of real men. Whatever a corporation is reputed to do in law is done in fact by the directors or the shareholders as its agents and representatives.

Trust literally means a confidence which one reposes in another. Creation of a Trust is regulated by the Indian Trusts Act, 1882. According to Section 3 of the Act, a Trust is an obligation annexed to the ownership of property and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner. A trust is a curious instance of duplicate ownership which allows for the separation of the powers of management and the rights of enjoyment. Trust property is that which is owned by two persons at the same time, the relation between the two owners being such that one of them is under an obligation to use his ownership for the benefit of the other. The former is called the trustee, and his ownership is trust-ownership; the latter is called the beneficiary, and his is beneficial ownership.

The trustee is destitute of any right of beneficial enjoyment of the trust property. His ownership, therefore, is a matter of form rather than substance, nominal rather than real. If we have regard to the essence of the matter rather than to the form of it, a trustee is not an owner at all, but a mere agent, upon whom the law has conferred the power and imposed the duty of administering the property of another person. In legal theory, however, he is not a mere agent but an owner. He is a person to whom the property of some one else is fictitiously attributed by the law, to the extent that the rights and powers thus vested in a nominal owner shall be used by him for the benefit of the real owner. As between trustee and beneficiary, the law recognizes the truth of the matter; as between two, the property belongs to the latter and not to the former. But as between the trustee and third persons, the fiction prevails. The trustee is clothed with the rights of his beneficiary, and is so enabled to personate or represent him in dealings with the world at large.

The purpose of trusteeship is to protect the rights and interests of persons who for any reason are unable effectively to protect them for themselves. The law vests those rights and interests for safe custody, as it were, in some other person who is capable of guarding them and dealing with them, and who is placed under a legal obligation to use them for the benefit of him to whom they in truth belong.

In a celebrated case, Sir Edward Coke C.J enunciated that the first essential for a valid corporation is a “lawful authority of incorporation”.

The courts in India in various decisions held that the instrument of registration does not by itself lend legal entity to a trust. The Supreme Court of India in AIR 1957 SC 887 (891) held that “A trustee is legal owner of trust property and the property vests in him. He holds trust property for the benefit of beneficiaries but does not hold it on their behalf.

In Duli Chand v Mahabir Prasad etc. Trust AIR 1984 Del 145 (DB) the court observed that a trust is “not like a corporation which has a legal existence of its own and therefore, can appoint an agent. A trust in not in this sense a legal entity. It is possible for some of the trustees to authorize the others to file a suit but this could only be done by the execution of a power of attorney.”

It was also held in H. N. Bhiwandiwala v Zoroastrian Co-op. Bank AIR 2001 Bom 267 that, a suit against a trust is not maintainable as it is not a legal entity. Observed, “all the trustees must be made a party.”

It was further held in N. T. P. C. v Canara Bank (1999) 97 Comp. Cas. 930 at Pages 937-38 that “Trusts created under Indian Trusts Act, 1882 are not legal entities as public trusts registered under the Societies Registration Act are.

It would be pertinent to speak about the section 10 of the Indian Trusts Act, 1882 which provides that every person capable of holding property may be a trustee, but where the trust involves the exercise of discretion, a trustee must be a person competent to contract. Thus there is no statutory prohibition upon the appointment of any person as a trustee, who should be a person capable of taking and holding legal estate, possessed of natural capacity and legal ability to execute the trust, and domiciled within the jurisdiction of the court.

In view of the above discussion as well as the decisions that a Trust is an obligation annexed to the ownership of property and a trustee is a person who accepts a confidence which gives rise to obligation annexed to the ownership of property. But a trust is not a legal entity in the eye of law as it has no lawful authority of incorporation. Generally, the assumption that an entity will behave substantially as expected. Trust may apply only for a specific function. As such a Trust under the Indian Trusts Act, 1882 cannot be a ‘Body Corporate’ under the Companies Act, 1956.