The Central Government/SEBI may, at any time before the determination of the period of office of any person or persons appointed by it, call upon the recognised stock exchange to reconstitute the governing body in accordance with its rules, and, on such reconstitution, all the property of the stock exchange which has vested in or was in the possession of the person or persons appointed by Central Government/SEBI shall re-vest or vest, as the case may be, in the governing body so constituted.

Filing of consent

X, who was appointed as an additional director of a public limited company for the first time, filed his consent with the company by way of a letter. He also signed his consent in Form No 29 and gave it to the company for filing with the Registrar of Companies (RoC). Inadvertently, the aforesaid consent was not filed within the prescribed period of one month. What will be the state of X as director?

Section 264, which deals with filing of consent by a director, has two parts. Under the first part covered under sub-section (1), it is provided that every person proposed to be a candidate for the office of a director of a public company shall sign and file with the company his consent in writing to act as a director, if appointed.

In the given situation, this requirement has been duly complied with.

The second part, covered under sub-section (2), requires that a person shall not act as a director of the company unless he has within 30 days of his appointment signed and filed with the Registrar his consent in writing to act as such director.

An additional director is exempted to file such consent in case of his appointment as a director or re-appointment as additional director. But in the given case, appointment being for the first time, non-filling of the consent within 30 days shall result in non-compliance of Section 264(2). However, failure to file the consent with the Registrar, in the opinion of the The Department of Company Affairs (DCA) shall not result in the vacation of the office as director. The only consequence shall be that penalty under Section 629A would be attracted. Such consent may be filed after the expiry of 30 days on payment of additional fee as contemplated under Section 611(2) [Extract from file No.5/6/68 CLV.]

Matter of vote

THE governing body of the Delhi Stock Exchange resolves that each member shall have only one vote irrespective of his shareholdings. The members are protesting that the resolution is not valid. Decide.

A recognised stock exchange may make rules or amend any rules made by it to provide for all or any of the following matters, namely:

a) the restriction of voting rights to members only in respect of any matter placed before the stock exchange at any meeting;

b) the regulation of voting rights in respect of any matter placed before the stock exchange at any meeting so that each member may be entitled to have one vote only, irrespective of his share of the paid-up equity capital of the stock exchange;

c) the restriction on the right of a member to appoint another person as his proxy to attend and vote at a meeting of the stock exchange;

d) such incidental, consequential and supplementary matters as may be necessary to give effect to any of the matters specified in clauses (a), (b) and (c).

However, rules of a recognised stock exchange made or amended in relation to any matters referred to in clauses (a) to (d) of sub-section (1) shall not have effect until they have been approved by the Central Government/SEBI and published in the Official Gazette.

In approving the rules so made or amended, the Central Government/SEBI may make such modifications therein as it thinks fit, and on such publication, the rules as approved by it shall be deemed to have been validity made, notwithstanding anything to the contrary contained in the Companies Act, 1956.

Question of residence

X is a citizen of India since birth. On September 1, 2003, he goes to the US to stay with his brother with the intention of joining his brother in business. He returns back to India for good on December 25, 2003, and takes up a job in India. On April 1, 2004, he goes to the US to attend his brother's wedding. What is the residential status of `X' during 2003-2004 and 2004-2005?

As per Section 2(v), a `person resident in India', inter alia, means i) a person residing in India for more than 182 days during the course of the preceding financial year The requirement is that a person should have stayed in India for more than 182 days. The number of days to be counted need not be consecutive and can be the total of several stays in India.

The expression does not include:

a) A person who has gone out of India or who stays outside India, in either case i) for or on taking up employment outside India; b) for carrying on outside India a business or vocation outside India; or c) for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period;

b) A person who has come to or stays in India, in either case, otherwise than i) for or on taking up employment in India; ii) for carrying on in India a business or vocation in India or, iii) for any other purpose, in such circumstances as would indicate his intention to stay in India for an uncertain period.

Accordingly, `X' shall be a resident up to August 31, 2003. He became a non-resident w.e.f. September 1, 2003, till the date of his return to India on December 25, 2003. However, on his return, since he had stayed in India for more than 182 days in the preceding financial year, viz., 2001-2002, he becomes resident in India. His status in 2004-2005 shall remain unchanged since he has not gone to the US in April 2004 for any of the specified purposes. Thus, he will continue to be a `resident in India'.

Obligations of exporters

MR DOUBTFUL desires to export certain goods to the UK. His client in the UK is insisting on three months' credit. Advise Mr Doubtful about the provisions of FEMA, 1999 in this regard.

Section 7 deals with export of goods and services. Sub-section (1) of Section 7 provides that every exporter of goods shall furnish to the Reserve Bank or to such other authority a declaration, in such form and in such manner as may be specified, containing true and correct material particulars including the amount representing the full export value of the goods. Every exporter has to furnish such other information as may be required by the RBI. This is for ensuring that the full export value of goods is received without any delay.

Sub-section (3) of Section 7 provides that every exporter of services shall furnish to the RBI or to such other authority a declaration in such form and in such manner as may be specified by the regulations made under FEMA containing true and correct material particulars in relation to payment for such services.

As per Regulation 9, the export proceeds are to be realised within six months from the date of shipment. Export of goods on credit terms beyond this requires prior RBI approval (as per Regulation 10).

In the given case, since the credit period is three months, no RBI approval is necessary.

Going public

XYZ Ltd is a newly incorporated company. It desires to raise Rs 50 crore from the public. State the SEBI guidelines which it must comply with.

As per SEBI Guidelines, 2000, amended by Notification dated August 14, 2003, a newly incorporated company can make a public issue only in either of the following ways:

i) through book-building process subject to at least 50 per cent of the issue size being allotted to qualified institutional buyers (QIBs), failing which full subscription monies must be refunded.

QIBs shall mean a) public financial institution as defined in Section 4A of the Companies Act; b) scheduled commercial banks; c) mutual funds; d) foreign institutional investors registered with SEBI; e) multilateral and bilateral development financial institutions; f) venture capital funds registered with SEBI; g) foreign venture capital investors registered with SEBI; h) State industrial development corporations; i) insurance companies registered with the Insurance Regulatory and Development Authority (IDRA); j) provident funds with minimum corpus of Rs 25 crore; and k) pension funds with minimum corpus of Rs 25 crore.

ii) Alternatively, the "project" should have at least 15 per cent participation by FIs/scheduled commercial banks, of which, at least 10 per cent must come from the appraiser(s). In addition, at least 10 per cent of the issue size shall be allotted to QIBs, failing which the full subscription monies shall be refunded.

Besides: a) the minimum post-issue face value capital of the company shall be Rs 10 crore; or there shall be a compulsory market-making for at least two years from the date of listing of the shares subject to the following:

b) No allotment pursuant to a public issue shall be made unless, in addition to satisfying the conditions as aforesaid, the prospective allottees are at least 1000 in number.

Further, the company shall enter into agreements with all the depositories for demateralisation of securities. However, the investors shall have an option to receive allotment of securities through any of the depositories.

Promoters' contribution: This shall be at least 20 per cent of the post-issue capital.

Reservations and firm allotment: Reservations for allotment on firm/preferential basis for various categories together with promoters' contribution must not exceed 75 per cent of the total issue amount (90 per cent subject to compliance of certain conditions, including the minimum public offer of 20-lakh securities and allocation of 50 per cent to QIBs through book-building process).

(To be continued)

(Suggested answers to a model paper on corporate laws for CA (Final))

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