Special Notice Resolutions: Resolutions Requiring Special Attention

The concept of Special Notice could be traced in line to the provisions of Section 255 of the previous Companies Act, 1956. Now, the concept has been embodied in a wider manner under the applicable provisions of the Companies Act, 2013.

Lawmakers took this concept of Special Notice as being of prime importance for resolutions requiring special attention; and also that the procedural aspects do differ from other resolutions.  Also, the say of shareholders (somewhat Minority Stake ones) being the owners of the company was given this privilege to invoke these provisions. Also, enabling provisions are made for giving an opportunity of being heard on whom the matter being dealt.

Let us have a deep insight into the Applicability & Procedural concepts thereto.

Legal Provisions

Special Notice (also Members Resolution) as discussed earlier is an intention to move a resolution at a General Meeting (either EGM or AGM)  has to be given specifically by the shareholders governed by Section 115 of the Companies Act, 2013 and Rule 23 of the Companies (Management and Administration) Rules, 2014 in line with Secretarial Standards (SS-II).

Points to Ponder (To be considered before enabling the provisions)

Before enabling the aforementioned provisions, the following needs to be considered from the Company’s Perspective:

• If the Articles of Association of the Company contains any Provisions or restrictions for matters other than Section 169(3) & 140(3) of the Act.

• Proper Notice by Shareholders specifying their intention to move the Resolution with the requisite majority being moved (not less than 1 % of the total voting power or holding shares on which such aggregate sum not exceeding INR 5 lakhs has been paid up by them )

• Members to the Company not later than 3 months but at least fourteen days before the date of the meeting should have rendered the notice. (Excluding the day the notice is given and the day of the meeting)

• The Company shall immediately after receiving the notice should give its other members notice of the Resolution within 7 days before the meeting. (Excluding the day the notice is given and the day of the meeting)

• If due to any circumstances not practical to give notice, the Company should notice shall be published in English language in English newspaper (having widespread reach) and in vernacular language (i.e. Local Language) in a vernacular newspaper where the registered office of the Company is situated.
• If the Company has its Website, accordingly be posted.
• The opportunity of being heard should be given to the Director against whom the notice is moved.

• The Company should ensure to maintain the Proof of Sending notice [Marble City Hospital and Research Centre P Ltd. v. Sarabjeet Singh Mokha. [2010] case MP

• For the Listed Entities:
  • Being Disclosure is a Material Event or Information needs to be treated accordingly [Regulation 68(2) to SEBI LODR, 2015]
  • Accordingly, Intimation to be done with the Respective Stock Exchange within the specified time.

Also following should be considered from the Member’s Perspective:

• Notice for same could be moved individually or collectively with the Company.
• To ensure the requisite eligibility criteria is fulfilled in respect to voting power and paid-up share capital held.
• Representation of concern (Auditor/Director) is taken up, and proper notice is to be sent in this respect.
• Could also propose the candidature of Director in place of Director being removed

Procedural Aspects:

• A special notice so moved by the shareholders for the Removal of Director or Appointing an Auditor other than a retiring one or retiring auditor shall not be appointed by the requisite number of members to be taken on record by the Board of the Company.

• Should be well confirmed by the Company that the notice so served by the members not earlier than 3 months but at least 14 clear days before the date of the meeting (General Meeting) at which the Resolution is to be moved.

• The Company should ensure to verify the Signatories being the Members of the Company, or in case one acting on behalf of others should be verified accordingly.

• After receipt of the notice, the Board would call upon the Board meeting to discuss this matter and would at war footing give its members notice of the same within 7 clear days before the general meeting is scheduled to be held.

• The Copy of Notice so received from the members should also be forthwith sent to Director/Retiring Auditor of the Company, as the case may be for giving them an opportunity to tender their representations (opportunity of being heard).

• If not practical to tender notice in the manner above mentioned then will publish the same in one English Newspaper and another in Vernacular Newspaper having wide circulation provided the same be done within 7 clear days before the meeting scheduled to be held.

•  The copy of the notice of the general meeting and along with the Representation shall (if not possible to send then Director/Auditor be heard orally in the Meeting) also be sent to members, auditors as the case may be.

• In case Representation by Auditor along with notice of the general meeting is not sent to members, it should be filed with the concerned Registrar of Companies.

• It is to be noted that Ordinary Resolution is required for making the Resolution effective for Removal of Director, and Special Resolution shall be moved in Annual General Meeting in case of Appointment of Auditor other than Existing or Retiring auditor not to be appointed.
• Also in case, no resolution is moved for the appointment of Director in place of Removal, then the same is treated as filling up Casual Vacancy.

• After Passing of Resolution at the Meeting of Members of the Company will report the same to the concerned Registrar of Companies as:

For Directors: Form DIR-12 be filed within 30 days from the Date of Meeting

For Auditors: Form MGT-14 be filed as per Section 117 of the Act within 30 days from the Date of Meeting

Also, Form ADT-1 is to be filed within 15 days from the date of the meeting while updating the inclusion of such an appointment where the retiring auditor is not re-appointed.

• After reporting the same, the Company shall record the proceeding of the meetings under the minutes of meeting maintained as per Section 118 of the Companies Act, 2013 and will also intimate the respective Stock exchange in case of Listed company.

Punishment and Compoundability on Contravention

• Section 115 of the Act does not prescribe any penal provision for contravention of the Section. Hence, section 450 of the Companies Act will be applicable.

• Accordingly, the punishment for contravention would be of particular Section:

The Company and every officer of the Company who is in default shall be punishable with a fine up to INR 10,000, where the contravention is a continuing one then the fine shall be INR 1,000 for every day of contravention.

• Contravention of rules:

As per rule 30 of Companies (Management and Administration) Rules, 2014 contravention of rules made under this Section, the Company and every officer who is in default are punishable with a fine up to Rs. 5,000, where the contravention is a continuing one then the fine shall be Rs. 500 for every day of contravention continued.

Also to be noted that the offences committed under the Section and rule are compoundable under section 441 of the Act.

Takeaway

From a detailed analysis of the Section and provisions made thereunder, the Company should be more cautious before enabling such provisions. Also, the Resolution so requiring the special notice to be moved should be considered in the best interest of the Company and Stakeholders thereto.