Companies Act Section 111

Companies Act, Section 111: Circulation of Members’ Resolution

Section 111 of the Companies Act outlines the procedure for the circulation of members' resolutions within a company. This provision ensures that shareholders have a means of proposing resolutions and receiving proper notice about the business to be transacted at a company meeting. It establishes a framework for requisitioning resolutions, circulating relevant statements, and addressing situations where the company fails to comply with the requirements. The section safeguards shareholders’ rights by setting clear guidelines for the submission, circulation, and handling of requisitions and resolutions.

Detailed Breakdown of Section 111

1. Requisition of Resolutions and Statements:

Subsection (1) imposes an obligation on the company to act upon a requisition from its members for the circulation of resolutions. The requisition must be made in writing by a certain number of members, as required under Section 100 of the Act, and can include the following:

Notice of Resolutions: The company must give notice to its members of any resolution that may properly be moved at a meeting. This ensures that shareholders are fully informed about the resolutions to be considered at the meeting, allowing them to participate in the decision-making process.

Circulation of Statements: The company must circulate a statement to its members addressing the matters referred to in the proposed resolution or any business to be dealt with at the meeting. This statement gives the members a detailed understanding of the issues at hand, enabling them to make informed decisions during the meeting.

2. Conditions for Issuing Notice and Circulating Statements:

Subsection (2) outlines the specific conditions under which the company is required to give notice of a resolution and circulate a statement. These conditions are as follows:

Deposit of Requisition at the Registered Office:

The requisition must be deposited at the company’s registered office in the required form. A copy of the requisition must be signed by the requisitioning members. Alternatively, two or more copies may be submitted, provided the total signatures from all requisitionists are included.

Time Frame for Submission:

For a requisition requiring notice of a resolution, it must be deposited at least six weeks before the meeting is scheduled. This allows enough time for the company to prepare and distribute the notice to members.

For other requisitions, the deadline is reduced to two weeks before the meeting. This ensures that members have sufficient time to review and respond to the business items.

Deposit of a Sufficient Sum for Expenses:

The requisition must be accompanied by a sum that is reasonably sufficient to cover the company’s expenses in implementing the requisition. This provision ensures that the company does not bear the financial burden of circulating resolutions and statements initiated by members.

Proviso: If an annual general meeting (AGM) is called within six weeks of receiving a requisition for a resolution, even if the requisition was not submitted within the prescribed six-week period, it will still be deemed as properly deposited for the purposes of that AGM. This ensures that members' resolutions are not dismissed solely due to technicalities regarding timing when an AGM is imminent.

3. Exemption from Circulating Statements in Certain Cases:

Subsection (3) allows the company to avoid circulating a statement required under subsection (1)(b) if an application is made to the Central Government. The application can either be filed by the company or by any other person claiming to be aggrieved by the requisition. In such cases, the Central Government may order that the circulation rights granted under this section are being abused to publicize defamatory or needless publicity.

This safeguard is designed to prevent the misuse of the requisition process to disseminate harmful or irrelevant information, protecting the company and its members from unnecessary disruptions or reputational damage caused by unfounded or malicious content.

4. Costs Incurred Due to Abuse of Rights:

Subsection (4) addresses the costs associated with compliance. If the Central Government determines that the rights provided under this section have been misused, it may direct that the costs incurred by the company in complying with the requisition should be borne by the requisitionists.

This ensures that members who abuse the requisition process to introduce contentious or unnecessary resolutions are financially responsible for any expenses the company incurs in managing and addressing their demands.

5. Penalty for Non-Compliance:

Subsection (5) establishes a penalty for failure to comply with the requirements of this section. If the company or any of its officers fail to adhere to the requisitioning and circulation provisions outlined in this section, they will be liable to a penalty of ?25,000. This penalty serves as an enforcement mechanism, ensuring that companies respect shareholders' rights to propose resolutions and request circulation of relevant business materials.

The penalty applies to both the company itself and any officers who are directly responsible for the non-compliance, holding individuals accountable for ensuring that the proper procedures are followed.