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A Project Report on

Informed Decision Making a study relating to


provisions governing Accounts, Meetings in
Companies Act

Submitted by

Manu Gupta

Division C Roll No 39 BBA, LL.b


Symbiosis Law School, NOIDA
Symbiosis International University, Pune

In
March, 2014

Under the guidance of

Dr. S.N. Ghosh
Prof. Sukhvinder Singh

Course in Charge,
Company Law II



C E R T I F I C A T E

The project entitled Informed Decision Making a study relating to
provisions governing Accounts, Meetings in Companies Act Submitted to
the Symbiosis Law School, NOIDA for Company Law - II as part of internal
assessment is based on my original work carried out under the guidance
of Prof. Sukhvinder Singh and Dr. S.N. Ghosh from December 23
rd
, 2013
to March 18
th
, 2014. The research work has not been submitted elsewhere
for award of any degree.

The material borrowed from other sources and incorporated in the thesis
has been duly acknowledged.

I understand that I myself could be held responsible and accountable for
plagiarism, if any, detected later on.



Signature of the candidate:

Date: 18-03-14




ACKNOWLEDGEMENT


First of all I wish to dedicate my sincere thanks and acknowledgements to
Dr. C.J. Rawandale for his support and motivation.

I wish to acknowledge Prof. Sukhvinder Singh & Dr. S.N. Ghosh for
providing me with the opportunity to enhance my knowledge by
submitting this report and all the support.




INDEX

Table of Contents


Objective ......................................................................................... 1

Research Methodology ...................................................................... 1

Analysis .......................................................................................... 1
Section 209(4) of Companies Act, 1956 ....................................... 2
Section 214 of Companies Act, 1956 ........................................... 4
Clause 49 of Listing Agreement .................................................. 5
Secretarial Standard 1 ............................................................... 7
Section 196 of Companies Act, 1956 ........................................... 9

Literature Review ............................................................................ 10

Conclusion ...................................................................................... 11

Referred Statutes ............................................................................ 11

Bibliography ................................................................................... 12

Page | 1

Objective
To ascertain the existence of the concept of Informed Decision
Making among the sections of The Companies Act, 1956 relating to
Accounts and Meetings and determine the applicability of this concept on
such sections.

Research Methodology
The learner has adopted the theoretical methodology for conducting the
thesis i.e. he has used the secondary data and compiled all of that to suit
the hypothesis objective as well as deriving much of the information by
reading and analysing the newspaper articles and articles published on the
web and taking some information from the books in the library and
interpreting the bare statutes. The main focus of this project report was
on interpretation of statutes.

Analysis
Decision is a process of considering the various alternatives and
selecting one out of them after due consideration and resolution. Informed
decision making is a concept entailing the importance of gathering
information before making a decision. Though informed decisions cannot
promise the desired outcome, it can help in reducing the extent of an
undesirable outcome and work as a vital preventive measure.
There is no agreed definition of an informed decision because it
depends on the theoretical predisposition of the researcher. Following is
the negotiated definition of Informed Decision. An informed decision is a
decision made after learning relevant facts (informing oneself) about the
focus of the decision. It is one where a reasoned choice is made by a
reasonable individual using relevant information about the advantages and
Page | 2

disadvantages of all the possible courses of action, in accord with the
individuals beliefs In other words, this concept entails that a person must
be informed with the possible consequences and effects of the choices one
has before making a decision and he shall then, make the decision
considering such possible consequences.
1

This Concept of Informed Decision Making can be said to apply to
various sections of the Companies Act, 1956. Those related to Accounts
and Meetings of the company are as follows:

Section 209(4) of Companies Act, 1956

The above section says that every company shall maintain
proper books of account with respect to all sums of money received
and expended by it, matters relating to receipts and expenditure,
Sales and Purchases of Goods, Assets and Liabilities and for a
company engaged in production, processing, manufacturing or
mining activities, particulars relating to utilization of materials,
labour and other items of costs
2
and such books are to be
maintained by the MD or Manager[209(6(d))] of the company & can
be inspected by Directors of the Company. Non complying of such
maintenance can lead to an imprisonment up to 6 months or fine up
to Rs.10,000/- or both, [Sec. 209 (5)]

This section gives the directors of the company, the liberty to
inspect the previous 8 years (as the company is bound to keep the
previous 8 years records 209[4A)] accounts of the company and
make it useful for him in making any decision in the Board meeting
for after considering the current position, past happenings and


1
Informed decision making: an annotated bibliography and systematic review, Health
Technology Assessment 1999; Vol. 3: No. 1, Viewed on 11-03-14
2
Companies Act, 1956, www.mca.gov.in
Page | 3

future anticipated consequences of the company relating to that
decision.


Page | 4

Section 214 of Companies Act, 1956

A holding company may, by resolution, authorise
representatives named in the resolution to inspect the books of
accounts kept by any of its subsidiaries and the books of account of
any such subsidiary shall be open to inspection by those
representatives at any time during business hours.

This section gives the power to the holding company to get
the books of its subsidiary inspected by any representative it
decides by passing of an ordinary resolution and this shall help the
holding company to have a watch over and regulate the subsidiary
company besides having the relevant information for taking
decisions for the benefit of the subsidiary company.


Page | 5

Clause 49 of Listing Agreement

Risk assessment and minimization procedures to be placed
before BOD and reviewed periodically. Risk management is
attempting to identify and then manage threats that could severely
impact or bring down the organization. Generally, this involves
reviewing operations of the organization, identifying potential
threats to the organization and the likelihood of their occurrence,
and then taking appropriate actions to address the most likely
threats.

Paragraph (C) of sub-clause IV of Clause 49 of the Listing
Agreement lays down that the company shall lay down procedures
to inform Board members about the risk assessment and
minimization procedures. These procedures shall be periodically
reviewed to ensure that executive management controls risk
through means of a properly defined framework
3
. The Ministry of
Corporate Affairs, Government of India has also accepted the
concept of Risk Management and its relevance to the smooth
functioning of the corporate sector in India and has therefore
introduced a specific provision on Risk Management under
paragraph (II) (C) of Corporate Governance voluntary guidelines,
2009.

The informing of the Board Members of the risk assessment
and minimization procedures entails the applicability of the concept
of Informed Decision Making as the Board can consider the risk
factors and align their decisions regarding the company so as to
elude risky course of actions and minimize the adversarial effect on
the company.


3
www.nseindia.com
Page | 6


Clause 49 [III (iii) ] of the Listing Agreement states that the
minutes of the Board meetings of the unlisted subsidiary company
shall be placed at the Board meeting of the listed holding company.
The management should periodically bring to the attention of the
Board of Directors of the listed holding company, a statement of all
significant transactions and arrangements entered into by the
unlisted subsidiary company.

These provisions inherit the concept of informed decisions into
the functioning of the Board as they allow the board to be informed
of the minutes of the meetings of subsidiaries and important
transactions of the subsidiary concerns so as to allow them to make
efficient decisions.


Page | 7

Secretarial Standard 1

Clause 1.2.6 in this Secretarial standard relating to Convening
of a meeting states that the Agenda, setting out the business to be
transacted at the Meeting, and Notes on Agenda should be given at
least seven days before the date of the Meeting.

This provision entails the concept of informed decision making
in the sense that it allows the directors and attendees of the
meeting to study and analyse the agenda of the meeting so that
they can be informed of the matter to be discussed in the meeting
beforehand and can take decisions by considering the risk factors
and weighing the positives against the negatives of every item in
the agenda.

Though there is an exception in Clause 1.2.8 which states that
the Notice, Agenda and Notes on Agenda may be given at shorter
periods of time than those respectively stated above, if the majority
of members of the Board or of the Committee, as the case may be,
agree. The proposal to hold the Meeting at a shorter notice should
be stated in the Notice and the fact that consent thereto was
obtained should be recorded in the Minutes.

Clause 8.1 of this Secretarial Standard lays down that within
fifteen days from the date of the Meeting of the Board or Committee
or of an adjourned Meeting, the draft Minutes thereof should be
circulated to all the members of the Board or the Committee, as the
case may be, for their comments.
4




4
www.icsi.edu
Page | 8

This provision has the element of informed decision making in
it as it gives the details of the minutes of any meeting to the
members of the Board within fifteen days of the termination of
meeting so that every member shall have a record of information of
the happenings of that meeting and which helps in making future
decisions in alignment of such minutes.


Page | 9

Section 196 of Companies Act, 1956

This section of the Companies Act states that the minutes
books of any General Meeting shall be kept at Registered office of
the company and be open, during business hours, to inspection of
any member without charge, subject to such reasonable restrictions
as company may impose by its Articles of Association or in General
Meeting, so that not less than 2 hours in each day are allowed for
inspection and any member shall be entitled to be furnished, within
7 days with a copy of any minutes on payment of prescribed sum for
every 100 words or fractional part thereof. Also, upon refusal,
Central Government may, by order, compel an immediate inspection
of minute books or direct that the copy required shall forthwith be
sent to the person requiring it.

This provision lays down the power of every member to
inspect the minutes-book of any general meeting. This is in
presence so as to promote informed decision making as it
communicates with the members the happenings of all the general
meetings and on the basis of such information, they can weigh the
positive and negative effects of resolutions passed in such meetings
and can effectively take part in various decisions of the company.

Page | 10

Literature Review

North G - University of Western Australia - Faculty of Law, (2013),
Public Company Communication, Engagement and Accountability,
Company and Securities Law Journal 167
The article initially examines the role of general meetings. Proposals
to enhance the value of these meetings are reviewed. The efficacy
of general meetings is then discussed within the broader context of
public company communication, engagement and accountability.
Most listed company exchanges involving governance and
operational matters occur during private meetings with institutional
attendees.

Godolpin W, Towle A, Kline C, Grams G, Teaching and Learning
Informed and Shared Decision Making, 3rd International Shared
Decision Making conference 2005, Ottawa. Jun 14
th
2005.
This article analysed the meaning of informed decision making and
the importance of this concept in every field of humanity.

Towle A, Shared Decision-Making, Invited plenary at the American
Academy of Physician and Patient Research and Teaching Forum, 9
th

Oct 2003.
In the above presentation, the invited plenary illuminated upon the
importance of Shared (informed) decision making in the company
law of

Page | 11

Conclusion

From the above thesis, I conclude that there exists a relationship
between the concept of informed decision making in the provisions of
Companies Act, 1956 related to Company meetings and Books of accounts
of the company. Informed decision making is an essential thread that runs
through the just and fair provisions of the Companies Act. This theory is
needed to ensure that the decisions in the company are made taking into
account proper and comprehensive information and such decisions prove
to be the most fruitful for the company.
With the legislation of this law there also exists a mechanism of
implementation and enforcement of such law by way of, as we have seen
in many of the above provisions, penalty and fine for non-compliance of
the statute. This has driven the companies to follow the Informed Decision
Making and promote fairness in the corporate governance.



Referred Statutes
Companies Act, 1956
Secretarial Standards
Listing Agreement

Page | 12

Bibliography

Informed decision making: an annotated bibliography and systematic review,
Health Technology Assessment 1999; Vol. 3: No. 1, Viewed on 11-03-14

Companies Act, 1956, www.mca.gov.in, last accessed 09-03-14

Listing Agreement Clause 49,www.nseindia.com, last accessed 05-03-14

Secretarial Standard 1, www.icsi.edu, last accessed 03-03-14

A.K Majumdar, G.K. Kapoor, Company Law, 15
th
edition, Taxmann

A Ramaiya, Guide to Companies Act, Part 1 17
th
Edition, Lexis Nexis