The Hindu Business Line : A sitting fee that doesn't stand in law

A PUBLIC company wants to include the following clause in its articles of association: "Each director shall be entitled to be paid out of the funds of the company for attending meetings of the board or a committee thereof, including adjourned meetings, such sum as sitting fees as shall be determined from time to time by the directors, but not exceeding a sum of Rs 30,000 for each meeting to be attended by the director."

Advise the company as to the validity of such a clause and the correct legal position.

With effect from July 24, 2003, the Government has, vide its powers under Section 310 of the Companies Act, allowed payment of sitting fees to directors for attending meetings of the board in the following manner:

a) Companies with a paid-up share capital and free reserves of Rs 10 crore and above or turnover of Rs 50 crore and above — sitting fees not to exceed Rs 20,000.

b) Other companies — sitting fees not to exceed Rs 10,000.

Accordingly, the suggested clause in the AoA will not be valid. Any provision in the articles which is contrary to those in the Companies Act is void (Section 9).

The aforesaid is one of the questions that appeared in the May 2004 CA (Final) paper on corporate laws and secretarial practice. Of the total marks of 150, the Companies Act accounted for 107 (71.3 per cent), with `directors' alone given a weightage of 40 marks. The SEBI Act and guidelines took up 12 marks. The SC(R)A, FEMA, the Competition Act and interpretation of statutes were accorded 10, 14, 4 and 3 marks respectively.

Erring member

THE Securities and Exchange Board of India (SEBI) received serious complaints against the affairs of a member of a stock exchange. Explain the powers of SEBI under the Securities Contracts (Regulation) Act, 1956 to make enquiries and to take action, if necessary, against the member of a stock exchange.

Under sub-section (3) of Section 6 of SC(R) Act, 1956, SEBI is empowered, if it is satisfied that it is in the interest of the trade or in the public interest to do so, to appoint one or more persons to make an enquiry in the prescribed manner in relation to the affairs of any member of the stock exchange and submit a report of such inquiry to SEBI within such time as may be specified in the order.

SEBI may also, in the alternative, direct the governing body of the stock exchange to make the inquiry and submit its report to it.

Where an inquiry, as aforesaid, has been undertaken: a) every director, manager, secretary or other officer of such stock exchange; b) every member of such stock exchange; c) if the member of the stock exchange is a firm, every partner, manager, secretary or other officers of the firm; and

d) every other person or body of persons who has had dealings in the course of the business with any of the persons mentioned in (a), (b) and (c), whether directly or indirectly, shall be bound to produce before the authority making the inquiry all such books of account and other documents in his custody or power relating to or having bearing on the subject-matter of such inquiry and also to furnish the authorities within such time as may be required of him.

Obligation to take disciplinary action: As per Rule 11 of the Securities Contracts (Regulation) Rules, 1957, after receiving the report of the result of an enquiry made under clause (b) of sub-section (3) of Section 6 of the Act, SEBI may take such action as they deem proper and, in particular, may direct the governing body of the stock exchange to take such disciplinary action against the offending member, including fine, expulsion, suspension or any other penalty of a like nature not involving the payment of money, as may be specified by SEBI.

Notwithstanding anything to the contrary contained in the rules or bye-laws of the stock exchange concerned, the governing body shall give effect to the directions of SEBI in this behalf and shall not in any manner commute, revoke or modify the action taken in pursuance of such directions, without the prior approval of SEBI, which may, however, either of its own motion or on the representation of the member concerned, modify or withdraw its direction to the governing body.

(Suggested Answers to the May 2004 CA (Final) paper on corporate laws and secretarial practice.)

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