• Validity of a certificate of shares in an Indian private limited

Goof evening,

Following an increase of capital from myself in an existing Indian private limited Company,

A resolution of shareholders has been held without noticing me and has been passed without my presence nor the one of my proxy !!

This resolution has been passed to
approve the increase of capital
approve the cession of shares
alter the AOA and MOA.

Consequently, the Company has issued a Share certificate to me.

My question is : is this resolution void and as a consequence the Certificate void also.

Thanking you.
Catherine CR
Asked 9 months ago in Business Law from France
Hi 
the process adopted by the private company is totally wrong and against Companies Act 156. 

Increase in share capital of the company is a complex process and involves the following steps. 

Step 1.Board meeting to conduct extra ordinary general meeting of the members of the company : The board meeting is conducted where the board of directors approve to conduct the EGM and a notice regarding the same is  issued. The notice, on the behalf of the board, is issued to each and every member/ shareholder of the company regarding EGM where the member/ shareholder will decide through their vote, the special business transaction for which the EGM will take place.The notice shall consist of the date, place and time of the EGM. Further, the notice shall consist of the voting method required to pass the special resolution to increase in the authorised share capital of the company and the explanatory statement pursuant to Section 102 of the Companies Act shall be enclosed.
Step 2.	Extra ordinary general meeting: After service of the notice, the extraordinary meeting of the members of the board takes  place where the members of the company shall have right to vote or not to vote in favour of the increase in the authorised share capital of the company. The consent of the member is accorded regarding the alteration in the memorandum of association of the company. The clause V of the MOA will be altered and will be replaced with the new and amended clause. In the same meeting, one of the board member will be authorised to perform all the obligations in this regard.
Step 3.Passing of special resolution.
The company being an artificial person, any decision taken by the company shall be in form of resolution, which  may be defined as an agreement or decision made by the director or members of the company. Under company law, the authorized share capital of the company can be increased at the AGM/EGM of the shareholders by passing of the special resolution.After  the EGM has taken place, the board members pass a special resolution in the form of ordinary resolution as per section 114 (1) of the Companies Act 2013. The purpose of passing a  special resolution and not ordinary resolution is that any increase in the authorised share capital of the company would come into effect immediately on passing of the special resolution in this behalf.
Step 4.	Alteration of the MOA and AOA of the company.
For successful increase in the authorised share capital of the company, clause V of MOA and clause IV of AOA of the company needs to be altered. The old clauses will be replaced with the new clauses along with mentioning the altered capital of the company

In your case, it appears that there is a simple resolution by share holders which is not valid as they did not follow the necessary steps.  The share certificates are also void as the process for increase in share capital has not been followed. 
Rajgopalan Sripathi
Advocate, Hyderabad
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For increase in authorised share capital it is necessary Issue notice in accordance with the provisions of section 173(3) of the Companies Act, 2013, for convening a meeting of the Board of Directors. Main agenda for this Board meeting would be:

a. To Get in-principal approval of Directors for Increase in authorised share Capital;

b. Fix date, time and place for holding Extra-ordinary General meeting (EGM) to get approval of shareholders, by way of Ordinary Resolution, for amendment in authorised share Capital clause of Memorandum of Association. This amendment in authorised share Capital clause of Memorandum of Association shall be in accordance with the requirement of section 61 of the Companies Act, 2013;

c. To approve notice of EGM along with Agenda and Explanatory Statement to be annexed to the notice of General Meeting as per section 102(1) of the Companies Act, 2013;

d. To authorise the Director or Company Secretary to issue Notice of the Extra-ordinary General meeting (EGM) as approved by the board under clause 2(c) mentioned above


2) Notice of the Extra-ordinary General meeting (EGM) to all Members, Directors and the Auditors of the company in accordance with the provisions of Section 101 of the Companies Act, 2013;

3) Holding of General Meeting: Hold the Extra-ordinary General meeting (EGM) on due date and pass the necessary Ordinary Resolution under section 61(1)(a) of the Companies Act, 2013, for increase in authorize share capital of the Company.

If the procedure has not been followed you can challenge the resolution passed without following the due process of law 
- 
Ajay Sethi
Advocate, Mumbai
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Any company during its life time may increase its paid up share capital up to the level of its authorised share capital, through issue of equity shares or preference shares. Companies can increase its paid up capital in the following ways: 
Normal Allotment of fresh shares
Bonus Issue
Issue of shares for consideration other than in cash. 

Under Companies Act, 2013, the process of Increase in Authorise Capital is governed by Section 61 read with section 13 and 64 of Companies Act, 2013.

For Increase in Authorised Share Capital, the company has to make sure that its Articles of Association contain a provision authorising it to increase its authorized share capital. Reason being Section 61 of the Companies Act, 2013, mandates that for increasing the Authorised share capital, authorization in Articles of Association is a pre-condition.
If there is no such provision then the company has to take steps for alteration of its Articles of Association in accordance with the provision of Section 14 of the Companies Act, 2013, so as to insert the clause enabling increase in the Authorised share capital of the Company.


Subsequently from issue of notice, calling of board meeting, holding of general meeting, filing of form SH-7 with ROC, notice to registrar for change in capital, board resolution are the procedures to be followed for increase in capital. 

From your contention the procedures have been followed as required by law however your grievances is that you have not been notified about this.
What is your position in the company and how and why you have been left out without giving a notice to you, enquire and confirm.  However, if you are not satisfied with the resolution and suspect any foul play, you may initiate proper action as envisaged in law in this regard. 

T Kalaiselvan
Advocate, Vellore
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127 Consultations
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A notice is required to be issued for convening a meeting of the Board of Directors to fix date, time and place for holding Extra-ordinary General meeting (EGM) to get approval of shareholders, by way of Ordinary Resolution, for amendment in authorized share Capital clause of Memorandum of Association. In the absence of notice to you the resolution is void and can be declared so by the CLB.
Ashish Davessar
Advocate, Jaipur
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448 Consultations
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