QUESTION & SOLUTION OF 2016
COMPANY LAW
- Fill in the blanks: (1×4=4)
a. The prospectus of a company must be issued within __ninety days of its registration.
b. The gap between two annual general meetings must not be more than __fifteen months.
c. According to section 165 of the companies act, no person can be a director in more than twenty companies.
d. A person may cease to be a member of a company when share warrant are issued in exchange of the fully paid up shares.
2. Write true or false:
a. It is compulsory for every company to have its articles and files the same with registrar of company for registration.
Ans: True
b. A member of a company must be a shareholder of the company.
Ans: false
c. Proxies are not to be included while counting the quorum of a meeting of a company
Ans: True
d. The maximum number of directors in a public as well as private company is twenty.
Ans: False
3. Write briefly (any four): [4+4+4+4=16]
a. Statutory company: A company may be incorporated by means of a special act of the parliament or any state legislature. Such companies are called statutory companies. Instances of statutory companies in India are reserve bank of India, the life insurance corporation of India, the food corporation of India etc. the provision of the companies act 1956 apply to statutory companies except where the said provision are inconsistent with the provision of the act creating them. Statutory companies are most invested with compulsory powers.
Statutory companies are governed by the acts creating them. They are not required to have any memorandum or articles of association. Changes in their structure are possible only by amendments in the acts creating them. The annual report on the working of each statutory company is required to be placed on the table of the parliament or the state legislature as the case may be. A statutory company though owned by the government has a separate legal entity. It cannot be regarded as a department of the government.
b. Certificate of incorporation: Incorporation of a company is the second stage of the company. It is effected by the registration with the registrar of companies. For getting a company registered, certain documents such as MOA, AOA etc have to be filed with the registrar of companies of the state where in the registered office of the company is to be situated. Along with the necessary documents, filing fees and registration fees at the prescribed rates are also to be paid. On going through the documents submitted if the registrar is satisfied, he issues a certificate of incorporation to the promoters.
As per section 34 of the companies act 1956, the life of the company commenced from the date mentioned in the certificate of incorporation the certificate of incorporation brings the company into existence as a legal person. Section 35 if the companies act 1956 provided that the certificate of incorporation was the conclusive exidence that all requirements of this act had been complied with in respect of registration and matters precedent and incidental there to and that the association was a company authorized to be registered and duly registered under this act.
Once the certificate of incorporation had been received, no one could question the regularity of the incorporation. It could not be challenged even if irregularities prior to incorporation were discovered later on.
c. Purpose of memorandum of association: The memorandum of association is a public document available for inspection. It serves two purposes:
1. The intending shareholders who contemplates the investment of his capital shall know what field it is to be put at risk. Thus he can find out from the memorandum the purpose for which his money is going to be used by the company and what risk he is taking in making the investment.
2. Anyone who deals with the company shall know without reasonable doubt whether the contractual relation into which he contemplates entering with the company is one relating to a matter within its corp orates objects. Thus a supplies of goods or money will know whether the transaction he intends to make with the company is within the objects of the company and not ultra vires its objects.
In short, the memorandum enable the shareholders, creditors and all those who deal with the company to know what its power are and what the range of its activities is.
d. Annual general meeting: Annual general meeting is the meeting under section 96 which has to be held annually. It is the meeting of the members through which they get the opportunity to express their views on the management of the company. Through this meeting, the shareholders can exercise control over the affairs of the company. The annual general meeting sometimes called ordinary general meeting as it usually deals with the so called ordinary business.
The annual general meeting is to be held in addition to any other general meeting that might have been held in a year. It appears that holding of an annual general meeting in every ‘calendar year’ is a statutory necessity.
The main purpose of holding annual general meeting are-
1. To submit the annual account, balance sheet, directors report and auditors report.
2. To declare the dividend.
3. Special business any other business to be transacted will be deemed special business likes
4. To increase share capital.
5. To alter article of association.
6. To appoint auditor and fix their remuneration
7. To elect directors that are liable to retire by rotation.
e. Woman director: A woman director may be an executive or a non- executive director or form a promoter director. Even a woman nominated as a nominee director being may satisfy this rule.
Rule 3 of the companies ( appointment and qualification of directors) rules 2014 elaborate the provision of second provision of sub section (1) of section 149 of the act. The following class of companies shall appoint at least one woman director-
i. Every listed company.
ii. Every other public company having-
1. Paid up share capital of one hundred crore or more or
2. turnover of three hundred crore rupee or more:
All these companies shall comply with this requirements within a period of six month of its incorporation or from the date of when his rule becomes applicable to these companies. According to the explanation to the rule; the paid up share capital or turnover as a on last date of latest audited financial statement shall be taken into account. As the financial year will uniformly close on 31st march and audited financial statement shall be prepared with reference to that date, appointment of a woman director shall be made latest by 30th September.
f. Government company: Section 2(45) of the companies act defines a government company means any company in which not less than 51% of the paid up share capital is held by the central government and/or any state government or partly by the central government any partly by one or more state government. The subsidiary of a government company is also a government company.
Government companies registered under the act are non statutory companies or corporations and have a juristic personality of their own like any other previous companies act. Employees of such companies therefore are not employees of the union or state government irrespective of the mode of their appointment and removal and cannot claim the protection of article 311(2) of the constitution. Even where the entire capital of such companies is subscribed by the government or where they are controlled by the government or run in substance as a government department, the position of the employees does not change into one of the employees holding civil posts under the government.
4. (a) What do you mean by article of association? Distinguish between memorandum of association and article of association. (4+10=14)
Ans: Article of association is another important document which has to be filed with the registrar at the time of the incorporation of the company. The articles of association sets out the regulation for the internal management of the company.
Section 2 (5) of the companies act 2018 defines articles as “ article mean articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law of this act”
The article contains rules and regulations for the internal management of the company. They are framed with the object of carrying out the aims and object of the memorandum of association and also to monitor that the same are carried as prescribed.
The article of association plays a part subsidiary to the memorandum. They accept the memorandum as the charter of incorporation of the company and so accepting it, the articles proceed to define the duties, the rights and the power of the governing body as between themselves and the company at large, and the mode and form in which the business of the company is to be carried on and the mode and form in which changes in the internal regulation of the company may, from time to time be made.
OR
(b) Explain the legal provision in relation to prospectus of a company? (14)
Ans: The companies act has defined some legal requirements about the issue and registration of a prospectus. The issue of the prospectus would be deemed to be legal only if the requirements are met.
i) Issue after the incorporation: As a rule, the prospectus of a company can only be issued after its incorporation. A prospectus issued by or on behalf of a company or in relation to an intended company shall be dated and that date shall be taken as the date or publication of the prospectus.
ii) Registration of prospectus: I t is mandatory to get the prospectus registered with the registrar of company before it is issued to the public. The procedure of getting the prospectus registered is as under:
a) A copy of the prospectus duly signed by every person who is named therein as a a director or a proposed director of the company must be filed with registrar of companies before the prospectus is issued to be public.
b) The following documents must be attached there to:
1. The consent to the issue of the prospectus required under any person as an expert confirming his written consent to the issue there of and that he has not withdrawn his consent as aforesaid appears in the prospectus.
2. copies of all contracts entered into with respect to the appointment of the managing director, direction and other officers of the company must also be filed with registrar.
3. If the auditor or accountant of the company has made any adjustment in the company’s account, the said adjustments and the reasons thereof must be filed with the documents.
4. There must be copy of the application which is to be filed for the issue of the company’s shares and debentures attached with the prospectus.
5. The prospectus must have the written consent of all the persons who have been named as auditors, solicitors, bankers, brokers etc.
c) Every prospectus must have, on the face of it, a statement that–
i) A copy of the prospectus has been delivered to the registrar for registration.
ii) Specifies that any documents required to be endorsed by this section have been delivered to the registrar.
d) A copy of the prospectus must be filed with the registrar of companies.
e) According to the section 26, no prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration.
5.(a) Define members in what ways a person become a member of a company? Discuss (4+10=14)
Ans: The term ‘ member’ refer to a person whose name appears on the register of members.
Section 2 (55) of the register of members as:
1. The subscribers of the memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members.
2. Every other person who agrees in writing to become a member of a company and whose name is entered in its register of members shall be a member of the company.
3. Every person holding shares of the company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be a member of the concerned company.
The person desires of becoming a member of a company must have the legal capacity of entering into an agreement in accordance with the provisions of the Indian contract act, 1872.
A person may become a member of a company in any of the following ways:
a. By subscribing to the memorandum of association:
The subscriber to the memorandum of a company are deemed to have agreed to become a member of the company and on the registration of the company their names are entered as members on the register of members.
b. By agreeing to take qualification shares : according to the section 266 directors of a company on delivering to registrar a written undertaking to take their qualification shares and to pay for them becomes the members of the company and they are in same position as if they were subscriber to the memorandum.
c. By transfer of shares: Shares in a company, are movable property and are transferable in the same way as provided in the articles of the company thus, one person posses the right to transfer his shares to another person on the registration of transfer the transferee becomes the member of the company.
d. By application and allotment of shares: A person may become a member of a company by an application for shares to the formal acceptance by the company. On valid allotment, the name of the shareholders is entered in the register of members.
e. By succession: On the basis of the succession certificate the legal heirs of the deceased member/ shareholder. The company on this basis enters their name in the registered of members.
f. By estoppel or acquiesce: A person who knowingly permits entering his name in the register of members, becomes a member by estoppel or acquiescence.
(b) Define company secretary? Explain the qualification prescribed for appointment of a company secretary. (2+12=14)
Ans: As per section 2 (24) of companies act, 2013, company secretary or secretary means a company secretary as defined in clause (c) of (l) of section 2 of the company secretaries act, 1980 who is appointed by a under this act. A company secretary is the senior position in any public level of the organization hierarchy i.e; at management level.
The qualification prescribed for appointment of a company secretary are-
Statutory qualification: According to section 2(45) of the companies act 1956, as amended in 1974 a company secretary must posses the qualifications prescribed by the central government from time to time. The qualifications prescribed by the companies rules 1975 for the secretary of the company are-
a. In case of a company having a paid up share capital of rs 50 lakhs or more, the secretary must be a member of the institute of company secret of India incorporated under the companies act, 1956 and licensed under sec 25 of that act. A person who is a member of the institute of chartered secretaries of London shall also be eligible for appointment as secretary of such company.
b. In case of any other company, one more of the following qualifications shall have to be possessed by the secretary:
1. qualification specified in clause (a) above;
2. A degree in law granted by any university.
3. Membership of the institute of chartered accountant of India.
4. Membership of the institute of cost and works accountants of India.
5. A post graduate degree or diploma in management granted by any university or the Indian institute of management.
6. A post graduate degree in commerce granted by any university.
7. A diploma in company law granted by Indian law institute.
Other qualification- In order to be a company secretary, statutory qualification are not enough the company secretary should also posses the following special qualification-
1. Knowledge of company law: the secretary must know the detailed provisions of the companies act and its implications. He must have a knowledge of the rules of meetings.
2. Knowledge of mercantile law: Most of the companies carry on their business as mercantile firms and have to act according to different provision of mercantile law including the contract act, sale of goods act, negotiable instrument act etc.
3. Knowledge of economics: In order to handle economics problems of the company, the secretary should have the second knowledge of economics- theoretical and practical-general money market, capital market and financial institution.
4. General knowledge: The secretary must have a sound general knowledge. He must have through acquaintance with social, political and economic condition of the country.
5. The secretary must be smart, unbiased, and must have high l Q presence of mind and amiable personality.
6. (a) Discuss the requites of a valid meeting of a company. (14)
Ans: If a business transacted at a meeting is to be valid and legally binding. The meeting itself must be validly held. A meeting will be considered to be validly held, if :
a. It is properly convened by proper authority.
b. proper notice must be served.
c. proper quorum must be present in the meeting.
d. proper chairman must preside the meeting
e. Business must be validly transacted at the meeting.
f. proper minutes of the meeting must be prepared.
*proper authority to convene meeting:
A meeting must be convened or called by a proper authority otherwise it will not be a valid meeting. The proper authority to convene general meeting of the company is the board of directors the decision to convene a general meeting and issue notes for the same must be taken by a resolution passed at a validly held board meeting.
* Notice of meeting: A meeting in order to be valid must be convened by a proper notice issued by the proper authority. It mean that the notice convening the meeting be properly drafted according to the acts and the rules and must be served on the members who are entitled to attend and vote at the meeting. For general meeting 21 days notice must be given to members.
* Quorum of meeting: quorum is the minimum numbers of members who must be present at a meeting as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decision being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members.
* Chairman of a meeting: chairman is the person who has been designated or elected to preside over and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the meeting.
* Agenda of meeting: The words “ agenda” literally means things to be done. It refers to the program-me of business to be transacted at a meeting. Agenda is essential for the systematic transaction of the business to be transacted at a meeting. Agenda is essential for the systematic transaction of the business of a meeting in the proper order of importance. It is customary for all organist to send an agenda along with the notice of a meeting to all member.
* Minute: Minute of a meeting contains a fair and correct summary of the proceedings of a minute. Minutes must be prepared and signed within 30 days of the conclusion of the meeting the minute books of meeting must be kept at the registered office of the company or at such other place as may be approved by the board.
* Proxy:The term proxy is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company. It also refers to the instruction through which such a nominee is named and authorized to attend the meeting.
OR
(b) When and by whom an extraordinary general meeting be called ? Discuss (6+8=14)
Ans: An Extra Ordinary General Meeting can be defined as a meeting of shareholders which is not an Annual General Meeting. It is held when some urgent issue becomes about the company arises or any situation of crisis and it requires the input of all senior executive and the board.
Regulation 42 of the table 1 provides all general meeting other than annual general meetings shall be called extraordinary general meetings. In other words, a statutory meeting and the annual general meeting of the company are called ordinary meetings. All general meetings other than these are called extraordinary general meeting.
As we know, an EGM is held in case of emergency and requires the attention of senior executives and the Board. Members, shareholders and the executives must be instructed on the purpose of the meeting so they have time to prepare their valuable input and then collectively decide further course of action.
An Ordinary General Meeting may be convened by any one of the following:
- The Board of Directors.
- On its own
- On the requisition of the shareholders.
- By Requisitionists themselves
- By the National Company Law Tribunal.
- Extraordinary meeting conveyed by the board of director.
- On its own: Regulation 43(1) of Table 1 provides that “Board may, whenever it thinks fit call an extra ordinary general meeting. Where the directors think fit to convene a meeting they do so by resolution passed at a duly convened and constituted meeting of the Board.
- On the requisition of shareholders: the directors are bound to call an extraordinary general meeting of the company if the following condition are satisfied.
- The requisition is signed by the requisite number of members under section 100.
- The requisition shall state the matters for the consideration of which meeting is its be called {section 100(3)}.
- The requisition shall be deposited at the registered office of the company {section 100(3)}
- By Requisitionists themselves
If the Board does not within the 21days from the date of the deposit of a valid requisition, proceed duly to call a meeting on a day not later than 45 days from the date of deposit of the requisition the meeting may be called by the requisitionists themselves.
- By the National Company Law Tribunal (NCLT)
If for any reason it is impracticable to call or hold or conduct on EGM, the tribunal may order an EGM to be called, held and conducted in such manner as it think fits.
The needs of holding an extraordinary generally meeting are:
- The most common reason for an EGM is where the net assets of a company are less than half of the called up share capital. In such circumstance, section 40of the companies (Amendment) Act, 1983 obliges the directors to convene an EGM to enable the shareholders to consider whether any, and if so which, measures to should be taken to deal with the situation.
- An EMG may also be called in situations where the directors of the company require the shareholders to consent to a certain decision they wise to make in the best interest of the company.
- It is possible under section 132 of the companies act 1963 for any members of the companies hold 10% of the voting shares to request that an EGM is called through a court order in extreme circumstance where member of the company refuse to attend EGM’s
In a situation where a company’s auditor is retiring, an EGM may be called under section 160 of the company act 1960. An auditor cannot be removed without the holding of the meeting. If the auditor happens to retire around the time of the AGM, this matter can be discussed then. However, if the auditor retires at another time during the years. An EGM must be held.
7(a) Discuss briefly the provision of the companies act, regarding the appointment of directors in a company?
Ans: Section 149 of the companies act, 2013 makes it obligatory on every public company to have at least three directors and on every other company to have at least two directors. The provisions of the companies Act regarding appointment of Director of a company are:
- Appointment of first Director (sec 152): First director of a company may be named in its articles of association and if it is not mentioned then the subscriber of the memorandum of association. Who are individual shall be the first directors of the company until the directors are not appointed in accordance with section 152.
- Appointment of directors by members in the general meeting {sec 152(2)}: Except for the first director the subsequent directors are appointed by the company in the general meeting. Sec 152 (2) provides that not less than 2/3 of the total number of directors of a public company which is subsidiary of a public company must be appointed by a company in a general meeting.
- Appointment by Board of Directors: the directors are appointed in the general meeting by the members. But the board of directors may also appoint the directors in the following ways:
- Additional Directors.
- Casual vacancies.
- Alternate directors.
- Appointment of Directors by Central Government: At least 100 members of the company or the member of the company who hold at least one-tenth of the total voting power approach the central government for appointing a director to safeguard the interest of the company on its members or the public.
- Appointment of Directors by Third parties if the Articles provides: A company may have ‘nominee directors’ which is permissible in the company it the articles of association gives power to such third parties to appoint their nominee on company board.
- Appointment of Directors by small shareholders if the articles provides: The small shareholders in case of a public company having:
- A paid up capital of five crores rupees or more and
- One thousand or more small shareholders may have a director elected by such small shareholder in thr manner as may be prescribed.
- Appointment of Director by professional representation (sec163): The directors of a company are generally appointed by simple majority. As a result, majority shareholders controlling and a substantial minority of 49% may not find any representation on the board.
(b) Briefly discuss the modes of minding up of a company.
Ans: Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefits of its member and creditors
The various modes of winding up of a company are:
- By the tribunal or
- By the voluntary
- Winding up by the tribunal: as per new companies Act 2013, a company can be wound up by a tribunal in the below mentioned circumstance:
- When the company is unable to pay its debt.
- If the company has by special resolution resolved that the company be wound up by the tribunal.
- If the company has acted against the interest of the integrity or morality of India security of the state or has spoiled any kind of friendly relations with foreigners on neighbouring countries.
- If the company has filled its financial statements or annual returns for proceeding 5consecutive years.
- If the tribunal by any means finds that it is just and equitable that the company should be wound up.
- If the company in any way is indulged in fraudulent activities or any person or management connected with the formation of company is found guilty of fraud or any kind of misconduct.
- Voluntary winding up of company: The company can be wound up voluntarily by the mutual decision of members of the company, if:
- The company passes a special resolution stating about the winding up of the company.
The company in its general meeting passes a resolution for winding up as a result of expiry of the period of its duration as fixed by its Articles of Association or at the occurrence of any such event where the articles provide for dissolution of a company.
