the following explaining the provisions of the Foreign Exchange
Management Act (FEMA), 1999:
(i) Whether investment by Mr. Murari Lal and payment of commission on
this transaction is permissible?
(ii) How much maximum amount of commission can be paid to each
broker without RBI approval?
(Ignore the USD - Rupee Exchange Rate)
Answer
(a) According to section 27(1) of the Companies Act, 2013 (the Act), the
terms of a contract referred to in the prospectus or objects for which the
prospectus has been issued can be varied, but only with the authority of
the company given by it in a general meeting by way of a special
resolution passed through Postal Ballot.
The first proviso to sub-section (1) requires that prescribed details of the
notice which has been given to the shareholders are to be published in
newspapers (one in English and one in vernacular language) circulating in
the city where the registered office of the company is situated indicating
clearly the justification for such variation.
The second proviso to sub-section (1) also prescribes that such company
is not to use any amount raised by it through prospectus for buying,
trading or otherwise dealing in equity shares of any other listed company.
Section 27(2) of the Act provides that the dissenting shareholders (i.e.
those who did not agree to the variation) are to be given an exit offer by
promoters or controlling shareholders at such exit price and in such
manner and conditions as may be specified by SEBI by making regulations
for this purpose.
In the given question, PQR Limited has raised amount through issue of
equity shares. It was specified that the amount so received will be used
exclusively for manufacturing and distributing some life saving drugs.
However, now the company wants to use the surplus money left from the
mentioned issue of shares, for development of Artificial Intelligence
software and for investing in Equity Shares of X Limited (a listed
company).
As per facts of the question and the provisions of the Act:
The company called an extraordinary general meeting for the above
proposals of using the surplus amount. In this meeting, votes cast in favor
were in excess of votes cast against.
Section 27(1) requires that a special resolution be passed in case of
variation of terms of objects for which the prospectus has been issued can
be varied.
In view of the above provisions, the contentions of the shareholders are
discussed as below:
(i) In terms of the provisions of sub-section (1) of section 27 stated
above, the first contention of the shareholders is tenable since the
resolution passed in the extra ordinary general meeting was not
proper as it was not passed by the required majority.
CORPORATE AND OTHER LAWS
(ii) In terms of the first proviso to sub-section (1) of section 27 stated
above, the second contention of the shareholders is also tenable
since the required publication was not made in the newspapers as
mentioned in the above referred proviso.
(iii) In terms of the second proviso to sub-section (1) of section 27 stated
above, the third contention of the shareholders is also tenable since
the Act prohibits the company to use any amount raised by it
through the prospectus for buying, trading or otherwise dealing in
equity shares of any other listed company.
In the given case, X Ltd., is a listed company, hence PQR Ltd., cannot
invest in the equity shares of X Ltd.
Hence, the resolution passed for investing ₹ 5,00,000 in the equity
shares in X Limited is not valid.
(b) Filling Up Casual Vacancy [ Section 139(8)]
Any vacancy arising in the office of the auditor due to any reason except
on the expiry of his term is known as a casual vacancy.
As per section 139(8) of the Companies Act, 2013 (the Act), the Board of
Directors (other than a Government Company) has power to fill casual
vacancy in the office of the auditor within 30 days.
In case of casual vacancy due to the resignation of the auditor, such
appointment shall be approved by the company by passing an ordinary
resolution at a General Meeting convened within three months of the
recommendation of the Board.
Any auditor so appointed in a casual vacancy shall hold office until the
conclusion of the next annual general meeting.
Appointment of auditors to fill casual vacancy shall be made after taking
into account the recommendation of the Audit Committee, (if any).
[Section 139(11)].
Written and signed consent and certificate shall be obtained from the
auditor stating the appointment shall be in accordance with the
conditions as may be prescribed under Rule 4 of the Companies (Audit
and Auditors) Rules, 2014 and satisfies the criteria provided in Section 141
of the Act. The Company shall inform the auditor concerned of his or its
appointment.
Compliances:
As per section 140(2) and (3) of the Act read with Rule 8 of Companies
(Audit and Auditors) Rules, 2015, the resigning auditor shall file
Form ADT-3 with the company and the Registrar of Companies (ROC)
along with valid reasons within 30 days of the date of resignation.
The company shall file a notice of appointment in Form ADT-1 with the
ROC within fifteen days of the meeting in which the auditor is so
appointed.
The new auditor appointed under Rule 3 shall submit a certificate that:
(i) the individual or the firm, as the case may be, is eligible for
appointment and is not disqualified for appointment under sections
139, 141, and other applicable provisions of the Companies Act, 2013,
the Chartered Accountants Act, 1949 and the rules or regulations
made thereunder;
(ii) A written consent to act as the auditor.
(iii) the proposed appointment is within the limits laid down by or under
the authority of the Act;
(iv) The list of proceedings against the auditor or audit firm or any
partner of the audit firm pending with respect to professional matters
of conduct, as disclosed in the certificate, is true and correct.
(v) The new auditor must communicate with the resigning auditor to
ensure there are no professional or ethical concerns.
Thus, the Statutory Auditor can be appointed as per the procedure
mentioned above.
(c) The investment in immovable properties in India by Mr. Murari Lal, a
resident outside India, is a Capital Account Transaction which is
permissible as per Schedule II of the Foreign Exchange Management
(Permissible Capital Account Transactions) Regulations, 2000 which
permits Acquisition and Transfer of Immovable Property in India by a
Person Resident Outside India.
CORPORATE AND OTHER LAWS
According to Schedule III to Foreign Exchange Management (Current
Account Transactions) Rules, 2000, remittances by persons other than
individuals shall require prior approval of the Reserve Bank of India if
Commission, per transaction, to agents abroad for sale of residential flats
or commercial plots in India exceeds USD 25,000 or five percent of the
inward remittance whichever is more.
As per the facts of the question and mentioned provisions, the following
are the answers to the questions asked:
(i) Yes, the investment by Mr. Murari Lal and payment of commission on
this transaction is permissible.
(ii) Calculation of maximum commission that can be paid without the
approval of RBI.
The maximum amount of commission that can be paid to each broker for
each transaction, without RBI approval is, more of- USD 25,000 or ₹ 6 lakh
[i.e. 5% of (60% of 2 crore)].
Thus, ₹ 6,00,000 can be paid to each broker as commission without taking
any prior approval of the RBI.