Management, Administration and Dividend — Practice

Question 1

A company was incorporated on 5 August 2025 and closed its first financial year on 31 March 2026. State by when its first annual general meeting must be held, whether an extension is possible, and by when the second must be held if the first is held on 20 December 2026.

Accepted Answer

The first annual general meeting must be held within a period of nine months from the date of closing of the first financial year, so from 31 March 2026 that period expires on 31 December 2026. Where the first annual general meeting is held within that nine-month window, it is not necessary for the company to hold any annual general meeting in the year of its incorporation, so nothing was required in 2025. No extension is possible: the Registrar may for any special reason extend the time within which any annual general meeting other than the first annual general meeting shall be held, by a period not exceeding three months, and the exclusion of the first meeting is express. If the first meeting is held on 20 December 2026, the second is governed by two independent limits and the earlier of them binds. It must be held within six months from the close of the financial year ending 31 March 2027, that is by 30 September 2027. And not more than fifteen months may elapse between the date of one annual general meeting and that of the next, which from 20 December 2026 permits until 20 March 2028. The six-month rule is the binding constraint, so the second annual general meeting must be held by 30 September 2027, subject to any extension of up to three months the Registrar may grant for special reason.

Question 2

A company serves notice of a general meeting on 5 September for a meeting to be held on 26 September. Advise on validity, explaining the significance of the word 'clear'.

Accepted Answer

The notice is short by one day and the meeting is not validly convened on this notice. A general meeting may be called by giving not less than clear twenty-one days' notice in writing or through electronic mode. The word clear means that both the day on which the notice is served and the day of the meeting are excluded from the count, so the twenty-one days must fall wholly between them. Counting from 6 September, the day after service, to 25 September, the day before the meeting, gives twenty days, one short of the requirement; the meeting would need to be held on 27 September at the earliest. Where notice is sent by post, further days are added for service under the rules, so the position is worse still if that route was used. The company has two options. It may reissue the notice for a later date allowing clear twenty-one days. Or it may proceed on shorter notice if the requisite consent is obtained, which for an annual general meeting means consent of not less than ninety-five per cent of the members entitled to vote at the meeting, and for any other general meeting means consent of members holding majority in number and not less than ninety-five per cent of the paid-up share capital giving a right to vote. A meeting held on invalid notice is liable to have its resolutions set aside, though the accidental omission to give notice to any individual member does not by itself invalidate the proceedings.

Question 3

Members holding 12% of the paid-up voting capital deliver a valid requisition for an extraordinary general meeting on 1 June. The Board takes no action. Advise the members on their rights, the deadlines, and who bears the cost.

Accepted Answer

The requisition is valid on its face, since it must be made by members holding, on the date of receipt, not less than one-tenth of such of the paid-up share capital of the company as carries the right of voting, and twelve per cent satisfies that. On receipt of a valid requisition the Board must proceed within twenty-one days from the date of receipt to call a meeting, and that meeting must be held on a day not later than forty-five days from the date of receipt of the requisition. Here the twenty-one days from 1 June expired on 22 June without action, so the members' own right has arisen. The meeting may be called and held by the requisitionists themselves, and it must be held within a period of three months from the date of the requisition, that is by 1 September. The meeting is called in the same manner, as nearly as possible, as that in which meetings are called by the Board. On cost, the Act protects the requisitionists twice over: any reasonable expenses incurred by them by reason of the failure of the Board to duly call a meeting must be reimbursed to them by the company, and the sums so paid must be deducted from any fee or other remuneration payable to such of the directors who were in default in calling the meeting. So the company pays the requisitionists and then recovers from the defaulting directors personally, which is a deliberate incentive against Board inaction. Note also that if quorum fails at a requisitioned meeting, it stands cancelled rather than adjourned.

Question 4

A public company with 3,500 members convenes a general meeting at which only 11 members attend personally. State the position, what happens next, and how the answer differs if the meeting had been called on requisition.

Accepted Answer

Quorum is not present. For a public company the quorum is five members personally present where the number of members as on the date of the meeting is not more than one thousand; fifteen members where it is more than one thousand but up to five thousand; and thirty members where it exceeds five thousand. With 3,500 members the requirement is fifteen personally present, and only eleven have attended; note that the requirement is personal presence, so proxies do not count towards quorum. If the quorum is not present within half an hour from the time appointed for holding the meeting, the meeting stands adjourned to the same day in the next week at the same time and place, or to such other date and such other time and place as the Board may determine. Where a meeting is so adjourned, the company must give notice of the adjourned meeting to the members in the prescribed manner. If at the adjourned meeting also a quorum is not present within half an hour, the members present shall be the quorum, so business may then be transacted by however few attend. That last relaxation does not apply to a requisitioned meeting: where the meeting was called on the requisition of members and a quorum is not present within half an hour, the meeting stands cancelled. The distinction reflects that a requisitioned meeting exists because a minority insisted on it, and if that minority does not attend there is nothing to protect.

Question 5

State the restrictions on proxies. A person holds proxies for 62 members together holding 8% of the voting capital, and also for a single member holding 14%. Advise, and state whether the proxy may speak or vote on a show of hands.

Accepted Answer

Any member entitled to attend and vote at a meeting may appoint another person as a proxy to attend and vote instead, but the right is hedged about with restrictions. A proxy has no right to speak at the meeting, and is not entitled to vote except on a poll, so on a show of hands the proxy counts for nothing. A member of a company not having a share capital may not appoint a proxy unless the articles so provide. The instrument of proxy must be deposited with the company not less than forty-eight hours before the meeting, and any longer period stipulated by the articles has effect as if forty-eight hours had been specified. The notice of the meeting must state that a member entitled to attend and vote may appoint a proxy and that the proxy need not be a member. On the numbers, a person may act as proxy on behalf of members not exceeding fifty and holding in the aggregate not more than ten per cent of the total share capital carrying voting rights. Holding proxies for 62 members exceeds the fifty-member cap, so the appointments are defective to that extent. Separately, a member holding more than ten per cent of the total share capital carrying voting rights may appoint a single person as proxy, but that person shall not act as proxy for any other person or shareholder; the member holding fourteen per cent falls within this, so the person named for that member may act for that member alone and cannot simultaneously hold the other proxies.

Question 6

List the items of ordinary business at an annual general meeting and state what must accompany the notice for anything else. What must the explanatory statement disclose about other companies?

Accepted Answer

Ordinary business at an annual general meeting comprises four items only: the consideration of financial statements and the reports of the Board of Directors and auditors; the declaration of any dividend; the appointment of directors in place of those retiring; and the appointment of, and the fixing of the remuneration of, the auditors. Everything else transacted at an annual general meeting is special business, and all business transacted at any other general meeting is special business without exception. Where special business is to be transacted, a statement setting out the material facts concerning each item must be annexed to the notice. It must state the nature of the concern or interest, financial or otherwise, if any, of every director and the manager if any, every other key managerial personnel, and the relatives of any of them. On other companies, the statement must disclose, where any item of special business relates to or affects any other company, the extent of the shareholding interest in that other company of every promoter, director, manager if any, and every other key managerial personnel of the first-mentioned company, but only if the extent of that shareholding is not less than two per cent of the paid-up share capital of that other company. Where any item of business consists of according approval to any document, the notice must state that the document is available for inspection at the registered office.

Question 7

At a meeting, 100 members vote in favour of a special resolution, 30 against and 40 abstain. A candidate says the resolution fails because 100 is less than three-fourths of 170. Advise, and state the requirements for special notice.

Accepted Answer

The candidate has applied a test the Act does not use. A resolution is a special resolution when the intention to propose it as such has been duly specified in the notice calling the general meeting, the notice required under the Act has been duly given, and the votes cast in favour of the resolution by members entitled to vote, whether on a show of hands, electronically or on a poll, are not less than three times the number of the votes, if any, cast against the resolution. The comparison is therefore between votes cast for and votes cast against, and abstentions are simply ignored rather than counted against. Here 100 votes in favour must be at least three times the 30 against, that is at least 90; 100 exceeds 90, so the resolution passes comfortably. Had the test been three-fourths of those present including abstentions, it would have failed, which is why the distinction is examined. On special notice, where any provision of the Act or of the articles requires special notice for any resolution, notice of the intention to move it must be given to the company by such number of members holding not less than one per cent of total voting power, or holding shares on which such aggregate sum not exceeding five lakh rupees as may be prescribed has been paid up. The notice must be sent by those members to the company not earlier than three months but at least fourteen days before the date of the meeting at which the resolution is to be moved, exclusive of the day on which the notice is given and the day of the meeting.

Question 8

Explain why the poll exists given that voting on a show of hands is the default, who may demand one, and when it must be taken.

Accepted Answer

The poll exists because a show of hands does not reflect ownership. On a show of hands at a general meeting every member present in person has one vote regardless of how many shares he holds, so a member with a single share counts equally with one holding a controlling block, and a majority of persons present could carry a resolution against the wishes of the overwhelming majority of the capital. The poll corrects this by counting votes according to shareholding, and it is the mechanism that makes members' control proportionate to their investment. The chairman may order a poll of his own motion, and must order it on a demand made in a company having a share capital by members present in person or by proxy having not less than one-tenth of the total voting power or holding shares on which an aggregate sum of not less than five lakh rupees has been paid up; and in any other company by any member or members present in person or by proxy having not less than one-tenth of the total voting power. On timing, a poll demanded on the question of adjournment or on the election of a chairman must be taken forthwith, because the meeting cannot sensibly proceed until those questions are resolved; any other poll must be taken within forty-eight hours from the time when the demand was made. A demand for a poll may be withdrawn at any time by the persons who made it.

Question 9

State who signs the annual return in an ordinary company and in a small company, which companies require certification, the filing deadline, and the website obligation.

Accepted Answer

The annual return is signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice. In relation to a One Person Company, a small company and such other class or classes of companies as may be prescribed, the annual return is signed by the company secretary, or where there is no company secretary, by the director of the company, so a small company with no company secretary needs only a director's signature and no practising professional. Certification is a separate requirement: every company which is listed, or which has such paid-up capital and turnover as may be prescribed, must have its annual return certified by a company secretary in practice, who certifies that the annual return discloses the facts correctly and adequately and that the company has complied with all the provisions of the Act. On filing, every company must file with the Registrar a copy of the annual return within sixty days from the date on which the annual general meeting is held; and where no annual general meeting is held in any year, within sixty days from the date on which the annual general meeting should have been held together with the statement specifying the reasons for not holding it. Every company must place a copy of the annual return on its website, if any, and the web link of the annual return must be disclosed in the Board's report.

Question 10

State where the register of members must be kept and how that may be changed, who may inspect it and on what terms, and the limits on closing it.

Accepted Answer

The register of members, along with the index, the register of debenture-holders and the register of any other security holders, must be kept at the registered office of the company. They may be kept at any other place in India in which more than one-tenth of the total number of members entered in the register of members reside, if approved by a special resolution passed at a general meeting of the company. A company having more than fifty members must maintain an index of the names entered in the register, unless the register is itself in the form of an index. On inspection, the registers and the indices are open to inspection during business hours, subject to such reasonable restrictions as the company may impose by its articles, so that not less than two hours in each business day are allowed for inspection. They are open to inspection by any member, debenture-holder, other security holder or beneficial owner without payment of any fee, and by any other person on payment of the prescribed fees. Any such person may take extracts and require copies on payment of the prescribed fees. On closure, a company may close the register of members, of debenture-holders or of other security holders for any period or periods not exceeding in the aggregate forty-five days in each year, but not exceeding thirty days at any one time, after giving previous notice of at least seven days or such lesser period as may be specified by the Securities and Exchange Board of India for listed companies.

Question 11

A company has inadequate profits this year. Paid-up capital is ₹800 lakh, free reserves ₹600 lakh, and dividend rates in the preceding three years were 14%, 10% and 6%. Compute the maximum dividend and identify the binding constraint.

Accepted Answer

Where a company has incurred a loss or has inadequate profits in a financial year, it may declare dividend out of accumulated profits earned in previous years and transferred to free reserves, subject to four conditions in the rules. First, the rate of dividend declared must not exceed the average of the rates at which dividend was declared in the three years immediately preceding, that is the average of 14, 10 and 6, which is 10 per cent; on paid-up capital of 800 lakh that permits a dividend of 80 lakh. Second, the total amount to be drawn from accumulated profits must not exceed one-tenth of the sum of paid-up share capital and free reserves as appearing in the latest audited financial statement, that is one-tenth of 1,400 lakh, which is 140 lakh; this is not binding here since the rate cap already limits the dividend to 80 lakh. Third, the amount so drawn must first be used to set off the losses incurred in the financial year in which the dividend is declared, before any dividend in respect of equity shares is declared. Fourth, the balance of reserves after such withdrawal must not fall below fifteen per cent of the paid-up share capital as appearing in the latest audited financial statement, that is 120 lakh; reserves of 600 less 80 leaves 520 lakh, comfortably above the floor. The binding constraint is therefore the rate cap of 10 per cent, and the maximum dividend is 80 lakh. Note that dividend may not be declared out of reserves other than free reserves, and unrealised gains, notional gains and revaluation surpluses are excluded from free reserves.

Question 12

State the deadlines for depositing and paying dividend, the rule on the mode of payment and its exceptions, and the conditions on declaring an interim dividend where the company has made losses in the current year.

Accepted Answer

The amount of dividend, including interim dividend, must be deposited in a scheduled bank in a separate account within five days from the date of declaration. Dividend must then be paid within thirty days from the date of declaration. On mode, no dividend may be paid by a company in respect of any share except to the registered shareholder or to his order or to his banker, and payment must be made by cheque or warrant or in any electronic mode, so cash payment is prohibited. Two exceptions are permitted: nothing prohibits the capitalisation of profits or reserves for the purpose of issuing fully paid-up bonus shares, or the payment up of any amount unpaid on shares held by members of the company. On interim dividend, the Board may declare it during any financial year, or at any time during the period from closure of a financial year till holding of the annual general meeting, out of the surplus in the profit and loss account or out of profits of the financial year for which such interim dividend is sought to be declared, or out of profits generated in the financial year till the quarter preceding the date of declaration. Where the company has incurred loss during the current financial year up to the end of the quarter immediately preceding the date of declaration of interim dividend, such interim dividend must not be declared at a rate higher than the average dividends declared by the company during the immediately preceding three financial years.

Question 13

A dividend declared on 1 July remains partly unclaimed. Trace the company's obligations through to the seventh year, including the consequence of failing to transfer on time and what happens to the shares.

Accepted Answer

Dividend must be paid within thirty days of declaration, so by 31 July. Where it has been declared but has not been paid or claimed within that period, the company must, within seven days from the date of expiry of the thirty days, that is by 7 August, transfer the total amount of dividend which remains unpaid or unclaimed to a special account called the Unpaid Dividend Account, opened in a scheduled bank. Within a period of ninety days of making that transfer, the company must prepare a statement containing the names, last known addresses and the unpaid dividend to be paid to each person, and place it on its website and on any other website approved by the Central Government. If the company defaults in transferring the total amount or any part of it to the Unpaid Dividend Account, it must pay interest at twelve per cent per annum from the date of the default, and the interest accruing enures to the benefit of the members in proportion to the amount remaining unpaid to them. Any money transferred to the Unpaid Dividend Account which remains unpaid or unclaimed for a period of seven years from the date of that transfer must be transferred by the company along with interest accrued to the Investor Education and Protection Fund, together with a statement of details. Critically, all shares in respect of which dividend has not been paid or claimed for seven consecutive years or more must also be transferred by the company in the name of the Fund. A claimant may apply to the Fund for a refund of the amount and for the transfer of the shares back.

Question 14

State the sources from which dividend may be declared, what must be provided for first, and whether a transfer to reserves is required. What is the effect of a subsisting default in repaying deposits?

Accepted Answer

Dividend may be declared or paid by a company for any financial year out of the profits of the company for that year arrived at after providing for depreciation in accordance with the Act, or out of the profits of the company for any previous financial year or years arrived at after providing for depreciation and remaining undistributed, or out of both. It may also be declared or paid out of money provided by the Central Government or a State Government for the payment of dividend by the company in pursuance of a guarantee given by that Government. Providing for depreciation is mandatory and is not a matter of directors' discretion. A transfer to reserves is not required: a company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the company, and the compulsory graduated transfer that existed under the Companies Act, 1956 has been removed, which is a point older material continues to state wrongly. No dividend may be declared or paid by a company from its reserves other than free reserves, and unrealised gains, notional gains and revaluation of assets are excluded from free reserves. On deposits, a company which fails to comply with the provisions relating to acceptance and repayment of deposits shall not, so long as such failure continues, declare any dividend on its equity shares, because shareholders rank behind depositors and cannot be paid while depositors go unpaid.

Question 15

State which companies need not use postal ballot, what business may be transacted by it, and where an unlisted company may hold its annual general meeting.

Accepted Answer

The Central Government may prescribe items of business which shall be transacted only by means of postal ballot, and any item of business other than ordinary business, and any business in respect of which directors or auditors have a right to be heard at any meeting, may be transacted by means of postal ballot. Two categories of company are relieved of the requirement altogether: a One Person Company, and companies having members up to two hundred, are not required to transact any business through postal ballot. The exemption reflects practicality, since a company with a handful of members can convene and hold a meeting without difficulty and the postal ballot machinery exists to reach a dispersed body of shareholders. On the place of meeting, every annual general meeting must be called during business hours, that is between 9 a.m. and 6 p.m., on a day that is not a National Holiday, and must be held either at the registered office of the company or at some other place within the city, town or village in which the registered office is situate. An unlisted company enjoys an important relaxation: it may hold its annual general meeting at any place in India if consent is given in writing or by electronic mode by all the members in advance. The requirement of unanimity is what protects any member who would be disadvantaged by a distant venue.

Practice — Management, Administration and Dividend

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