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Live Sessions Summary:
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S7 : E1 -Chakravyuh-“Roles Of Directors”
Mr.Sundhareshan Jayamurthy
SALA Companies : Formed by Husband Wife, Father & Son, Father daughter comapny,
LALA Companies: SME, MSME companies are run from shares
BHOLA Companies: Are multinational companies, which have put money in India,that they can not take money outside India for various reasons, this is one way traffic.
In Corporate Scenario it is called : Private Copnay, Unlisted public company, Public Company
The most poweful person in a company is “Share holders” these are divided in ti Majority share holders and minority share holders
The most poweful person in the boardroom is “Chair Person” This is gender neautral word, no more Chairman word is used now a days
Chakravyuh means Entering, Existing, Exiting of a Independent Director.
Who all are there in the boardroom? Answer is : Chair person, Directors , Company secretary, Women director, By Invitation CFO, Auditors, HR Head , Nominee Diector,
Chairperson can be of 3 Types:
Chairperson of the Meeting, Chairperson of the Board, Chairperson of the Company
Typically Chairperson of the meeting happens in BHOLA Company, any one in the boardroom proposes other to become chairperson of the boardroom for today.
Chairperson of the baord can be an Independent Director, As per clause it is said that it is preferrable that the Chair person and Managing Director are two different persons.
In family run companies they prefer CMD i.e. Chairperson and Managing Director, will be in Family run company. CMD is the most powerful person in the organisation. you cant do anything.
But in some companies like Wipro, Mr.Premji may say that he will be Chairperson and let any other independent director (Say Narayan) be a Chairperson of the board. But the most powerful person is always the Chairman of the Company, where as Mr.Narayan will be the chairperson of the board for next 5 yeas as the tenure is 5 years for any independent director.
As per Law, If the chair person is the Promoter then 50% of the board should have Independent directors (Suppose boar is of 9 members, 5 should be Independent director, next positive number is considered, If the Chair person is not a promoter then 1/3rd shall be independent director. in this case you need only 3 independent directors. This is beneficial
You have to start your career with the Private company
Executive means a person who gets form 16 under Incometax act, which means salaried class
Non-Executive mweans who gets form 16A, consulting income.
In case of 2 persons forming a company and they go for external funding by High Net Worth Person (HNI Person) he will not come to boardroom but nominate a person as a representative on your board. Thats how your board starts expanding, so it is better to put outsider on advisory role. Board of advisors, advising on strategies.
3 Ways of Incorporating NGO or NPO : (1) Society , (2) Trust and (3) Section 8 company
Society and Trust is No problem but Section 8 copmany is a company under copmanies act 2013 and which will require 2 directors. If you want to grow then people go for 8 company. Society is more regulated than Trust
Private copmany needs to have minimum 2 directors on board. There is no prescription for independent directors for private copmany
Union Carbide Case: The Supreme court has ordered the arrest of Mr.Keshu Mahindra, uncle of Anand Mahindra, who was Chair of the board and it was mentioned in the board MOM on gas leakage, he had signed those Minutes, hence court passed an order for arrest. MD and other directors just escaped. Having signed 3 board meetings, why the chairperson not asked for mitigation to be met, that should have been done. You can not sit inside the boardroom and do nothing.
Section 149 (12) talks about Liability in 2014
Be careful on signing the board meeting.
Just carry a Nataraj Pencil in the Board room as an Independent Director , do not Carry a pen. You will sign as only when you are a Chair person. When you sign that creates a liability for you.
If you are a new bee then DONT EVER TRY to become a CHAIR PERSON Atleast for first 3 years. Once you get in to various nitigrities of the baord meeting then its OK.
As a Director you should ask for Liability Cover before Joining the Board
For private company 1 to 5 Crores
For public company 5 to 25 Crores
For listed company 25 to 50 Crores
For company listed abroad 50 to 100 Crores
Unless you ask you will not get this cover.
In the board room there is Chairperson,
Managing director & Whole time Director these two are called Executive Directors
Apart from above, there is Independent Director & Nominee Director who are called non-executive directors
PLEASE CREATE A PERSONAL FUND TO FIGHT THESE CASES.
WHENEVER YOU ONBOARD A COMPANY OR EXIT A COMPANY MAKE SEPARATE FILE FOR EACH COMPANY and Keep this file hard copy at Home in safe place
- Resignation letter acnowledged by chair person
- Board Resolution taking note of your resignation
- Form DIR 12 filed for resigning (Company will file this with the MCA) This is admin stuff
- Receipt from portal (After filing the resignation, needs to be reported to MCA portal)
Retain these papers till you are alive,
Your din number is Just like PAN. DIN Can be obtained only in 2 cases, Case 1:- When you form a company , 2. When you Join a company as a director that copmany files an application along with reference DIN
DIN = Director Identification Number
Once you get DIN , Only next generation can surrender through Form DIR 5
You can not get duplicate DIN, its a big offence.
You can check the status of your DIN on www.mca.gov.in
Compliance for DIN : Once in a year KYC to be done, thats it.
Under that copmany your name should not appear so that it is confirmed DIR 12 is filed by company and your resignation is effective. If you do not do KYC for 3 years it becomes inactive and you need to pay fine of Rs.5000 to activate it.
As a Director you should just jump out from the sinking ship well before time.
Independent director can be called as “Professional” where as Executive Director is an Employee and not called as Professional.
Timing 1:06:49 Only 10 number of sections you need to memorise, 2 page ppt will be given thats it. There is no need to remember 450 sections!
Foreign Company shall have Resident Director, without whom you can not form a company
Resident director does not mean that he should be Indian, You can be foreigner but stayed 180 days in India. same for Income Tax and FEMA.
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S7 : E2 – Chakravyuh – “Obligations Of Directors”
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S7 : E3 & E4 – Chakravyuh – “Responsibilities Of Directors” & ” Board Meetings”
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S7 : E5 – Chakravyuh – “Board Meeting Part 2”
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S7 : E6 – Chakravyuh – “Role of ID in LODR”
The Company is of Ms.Kiran Majumdar Saha , is it required to appoint Independent director?
Answer: If a company is listed in top 2000 companies shall have a Women Independent Director. please do not hurry while giving proficiancy test.
Comapnies act 2016: Private and unlisted companies
Now will see act for Listed copnanies on 2 stock exchange BSE and NSE In India: Companies act 2013
Large companies can also list on NYSE, NASDAC and London Stock Exchange
In India, If listed company then there is a legislation comes under SEBI LODR (Listing Obligation and Disclosure Requirements ) This will be main pronciple governing law for all listed companies.
SEBI LODR is a Regulation, its not a law, its a quasi-government form under Ministry of Finance
Companies Act 2013 is a law , that falls under Ministry of Corporate affairs.
This is a problem in India, there is no harmonisation of laws, several lasw under different ministries
First number under coposition is Number 7: Number 7 is where you can be an Independent director.
Number 20: With all the companies put together , you can be 20 companies director, Under 20 following is the Compbination
7 Listed companies + 13 Private companies.
Or
7 listed companies + 3 unlisted public copnaies + 10 Private Company.
Example of Unlisted Companies is Godrej,
Example of listed companies is Infosis, Reliance, Wipro,
You will not be penalised of violation of LODR under Company law. For LODR SEBI will Penalise you.If you violate company law only they will penalise you, these two are completely different animals.
Only related party transaction will come under combination of both
Maximum number of Committes in which you can be member of is 10
Now understand tha math.
If you are a director in 7 listed companies, and each company will have atleast 3 committees (Audit Committee, Nomination & Remuneration Committee, Stakeholder relationship Committee) The opportunity is 21 committees but LODR says only 10.
There are two other committees, Risk Management Committee and CSR Committee , CSR Committee is not at all under the perview of LODR, its under perview of Companies act so that that comittee you can remove it from todays discussion. In short ASC, NRC, SRC
Risk Management Committee is only applicable for top 1000 companies and mostly to the banks its compulsory.
As a Independent Director, you can be a Chirperson of only 5 committees, you can be member in 10 committees out of which you can be a chirperson of 5 committees. thats all.
Next number game: Top 1000 and Top 2000 companies, Stock Exchange will publish report on Market capitalisation. even a small company may fall under top 2000, its not on the size of shares.
Top 1000 companies will have 2 to 3 points
Top 2000 companies will have 2 to 3 points
Under top 2000 companies , minimum number of directors shall be 6
Now will enter in to baord room. If the Chairperson is promoter, then 50% of the board member shall be independent. If the Chairperson is an Independent director then 1/3 shall be independent.
Let us keep that 6 as an example:
Case 1 then 3 board members shall be Independent director.
Case 2 then 2 board members shall be independent, The popular question, can these 2 person include the chairperson answer is “Yes”. It is Chairperson + 1 outsider.
Suppose a Chairperson is Independent director also a Women director + 1 Independent director. This is about constituting the board.
As a Enntreprenure you can keep bare minimum outside people.
Every Listed Company shall have one women director. but latest amendment says if you are listed in top 1000 companies, you shall have one women Independent director.
Now Kiran Majumdar and Sangita Reddy company, if they fall top 1000 company then they need to have one additional Independent women director.
Age of Independent director is up to 75 years, cut off age is 75 years. After 75 years you can not continue as an independent director. If you pass a resolution then a person can continue as an independent director.
If You have got appointed when you at 74 years for the period of 5 years. which means till your age 79 and when your re-appointment comes as the age of 79 then you dont have to worry. Only when appointment and re-appointment at the age of 75 this criteria will come in to play.
Coposition part is over
Now we will move in to Board Meeting
Minimum 4 board metings in a year.
Maximum gap between board meetings is 120 days
Quorum for the meeting: 1/3 of the board members any fraction rounded off to nearest 1. If it 2.33 then quorum is 2 and if it is 2.67 then 3 or 2.5 is 3
As per Law SEBI LODR for top 2000 should have one independent director. you can not transact a business without one independent director.
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S7 : E7 -Chakravyuh-Code of Conduct
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S7 : E8 – Chakravyuh – Decision Making in Mergers
Rounding Off
There are two sections which talks about rounding off
- Section 152 which talks about rotation of directors : Rounded off to the “nearest 1”. In rotation 2.01 will become 2, 2.5 or 2.99 will become 3
- Section 174 ehich talks about quorum : For quorum it is rounding off “as 1”. You have to be technically right ven you use this jargons. Example 2.1 or 2.99 it is rounded off as 3 or it will become 3. It is called “As 1”.
Go Air Case: The failure IBC Bankrupsy case, because they defauilted payment to creditors, The market shares dropped due to irragularity, profit margin gone, could not fill the fuel and flights got grounded. keep this rotating. similar case to Jet Airways and Kingfisher. All 3 Airlines got the same trait. Indigo Can look at taking over these Airlines, Indigo can go to NCLT (National Company Law Tribunal) and bid for the offer. Whenever there is a case of Stressed asett, it goes to NCLT, so companies line Indigo , Blackstone , TATA can go to NCLT. They are not paying money for useless Aircraft , they pay for License to operate on perticulat routs.
Merger of Zomato with Blinkit. Only formal approval taken in boardroom. Already it is discussed by two CEOs over cup of tea.
Sekoya is the largest shareholder in Blinkit, Say Sekoya has put 2000 crores in blinkit and befor they could think in blinkit the money is going to go, so they are telling Zomato , why dont you take over the company? This will help Sekoya to salvage the perticular investment , what does that mean? Because they are common shere holder, Sekoya may get a portion of shares of Zomato for the selling of shares in blinkit. This is a Merger for Conveniance. This is another form of Merger.
Another form is Just take over the company and Kill it. Taking a product which is going to be a competitor. Taking the product and kill it.
Merger is very critical from the point of ID. If Succes then CEO takes cedit and Failure is credited to Independent Director.
TATA Story vs Quorus , Adani NDTV , Elon Musk and Twiter etc. Reliance took ove CMC and killed it.
Not every time Merger becomes a fruitful exercise
Criping aquisition (Purchasing shares slowly)
Reliance and Future , Pati Patni and Vo (Reliance) etc Amazon & Future and Vo was Reliance, Zee and Sony and Vo is Reliance.
Merger can be with Hidden Agenda. Other Side of Business. Chartered.
Merges is in simple lay persons language : Having 3 glass , 1 glass of Good water, 1 glass of muddy water puting in to 3rd glass is Merger. You can never separate Good and muddy water. Reliance grown due to mergers. Even a best brains in the world can never segregate the assett and liability of original reliance NEVER POSSIBLE , this is done for GHAPALA transactions also.
You can never find.
Point 1: The assett and liability of these two companies MERGE which means the BOOKS of the company becomes ONE and it is not possible for you to separate them.
Point 2: Good BAD emplyees become one, You can never identify and remove them
In most of the Mergers 3 Cs are taken out : CEO, CFO, CTO, CIO, CHRO all designation starting with C goes out, All Independent directors goes. 8 + 8 IDs can not be on the board and 8 have to Go.
Point 3: Cultural impact on the Organisation: Emphasis was US company and VFL was Desi Bangalore based company, Sr Management of Emphasis will come in shorts and VFH Sr Management come in full dress etc.
Shareholding pattern is most powerful. Having more share holding wil ltake all key decisions
Mergers will be of Horizontal Merger , Vertical Merger etc. Market and Product Merger
Vertical Merger is Forward and Backward Integration
Horizontal Merger would be different types of business will go in to conglomerate like reliance.
Demerger : Whenever your company things of moving one bsusiness away.
ABB and Hitachi Energy , One vertical moves to another company is a demerger.
The Demerger also Called as SPINNOFF, HIVING OFF it all depends on you are speaking with US or UK guy.
Re-Merger: A company going out is coming back in to system. Typical is Galti se Mistake. One person is not able to run it and then re-merging it.
TAKE OVER: Can be by force. Adani & NDTV, NDTV Wanted money they took 750 Crores and pladeged shares with the ADANI. NDTV couldent pay back the Loan, ADANI Invoked the Stock purchase agrement , converted it in to their name and aquired NDTV. Whenever you take a loan and pledge shares , you are DONE and OUT! Same thing happened with Amazon and Future retail. Biyani Pledged share with the Amazon and took the loan thats where the tragedy started. Ambani is famus for only 2 cases , Zee and Future Retail.
AQUISTION: Aquiring the company means whether it is through Good means Or Cunning means. 1% , half % and then this cripping aquisition you suddenly know 5% , OMG, Stake Holder Relationship comittee has to monitor this on quarterly basis.
Politics in De-merger: There can be Vested Interest – When promoter things when he made a enough money and let us move to another company and capitalise it. Promoter gets stake here and in other company.
As a Independent Director ask the questions. Dont look at the Plus, Look at the DownFALL for our organisation. Figureout something on that. If you do not understand the transation you are authorised to take permission from Chairperson and claim reimbursement to appouint internal or external person to understand the De-merger and walk in to the baord room, You can not say that you did not understood.
FlipKart & Wallmart: When someone online wants to enter in to Brick & morter or a new business , ByJus taking over AAKASH which is live training stuff. Wallmart paid to counter Amazon to enter in the market.
How the price is calculated: How much it will take to me if I setup this business. Zomato was paying 1 ,68,000 per share , there is something hidden. Ask why you are paying such a big price?
Valuation itself is PERCEPTION.
ALL the Mergers go through NCLT.
NCLT more to do with which are getting liquidated. You have to file a petition and it will happen. 2 different roles NCLT play. NCLT mergers , aquired company EQUITY becomes ZERO as The aquired company asett and iability will go to transferee company.
Aquire the company and merge it with your company.
44:30
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S7-E9-Chakravyuh-Corporate Governance
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S7 -E10-Chakravyuh -Liabilities and Exits from Boards
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Question bank attachment
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