Statement not disclosing material facts pertaining to resolution – Whether good company practice - Companies Law - No. 12(59) ‑ CL‑VI/63,

Circular : No. 12(59) ‑ CL ‑ VI/63, dated 17 ‑ 10 ‑ 1963. Subject:- Statement not disclosing material facts pertaining to resolution Whether good company practice The Department has recently come across several cases where the letter and spirit of law in this regard have not been substantially complied with by several company managements. In some cases, the Department found that important material facts relating to the appointment of sole-selling agents under section 294 such as the nature of services to be rendered by the sole-selling agents to the company, the rate of commission or other remuneration to be paid to the sole-selling agents, etc., were not set out in the respective explanatory statements attached to the notices of the meetings. It was also noticed in certain other cases that the management did not include in the explanatory note a summary of the important material facts, but instead, had indicated in the explanatory note that the material documents in question were available for inspection at the registered offices of the companies concerned. The Department is of the view that apart from the practices vitiating in certain circumstances, the validity of the resolution passed, the sending of a notice which does not give a sufficiently full disclosure of the important facts relating to resolutions to be voted upon by shareholders cannot be said to conform to good company practice. It is hardly necessary to emphasize that notices for general meetings which are not accompanied by proper explanatory statements defeat the very purpose for which such statements were prescribed by law; nor can it be said that such purpose is served by the opportunity afforded to shareholders for inspection of the material documents at the registered office of the company especially where a large body of shareholders may reside at great distances from the registered office.