Question & Solution of 2017
Company Law
1. Write true or false: (1×4=4)
(a) A company is a legal person therefore it acquires citizenship.
Ans: False
(b) A company secretary cannot participate in the management of a company affair.
Ans: True
(c) In case of public company, the minimum numbers of director is five.
Ans: False
(d) The gap between two annual general meetings must not be more than fifteen months.
Ans: True
2. Fill in the blanks with appropriate word. (1+4=4)
a. The maximum numbers of members of a private company is __200__.
b. A company secretary is merely an __agent__ of the company.
c. In case of members, voluntary winding up of a company the liquidator is appointed by the __members__ of the company.
d. The __shareholders__ has the proper authority to convene annual general meeting.
3. Write briefly on any four of the following:
a. Registered company:
A registered company mean a company which is formed and registered under the company act 2013 on any other previous acts. Such companies come into existence when they are registered under the companies act and a certificate of incorporation is granted to them by the registrar.
Under the ministry of corporate affairs, every company is to be registered by the registrar of companies for the state. This act maintains two types of companies called private and public companies. The ‘limited’ is the most commonly used corporate form at the end of the company name.
There are four main benefits of a registered company they are-
i. Provides protection to personal assets against company debts.
ii. Can avail benefits of the deduction available only for corporate form of organization.
Iii. Minimize chances of conflict between founder.
iv. Attracts investors to raise buisness capital.
b. Prospectus of a company:
Sec 2(70) of the companies act, 2013 defines a prospectus as “prospectus means any documents described or issued as a a prospectus and includes any notices, circular, advertisement, or other documents in inventing deposit from the public or document inventing offer from the public for the subscription of shares or debentures in a company. A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement.
A document shall be called a prospectus if it satisfies two things:
i. It invites subscription to shares or debenture or invites deposits.
ii. The aforesaid invitation is made to the public.
Following important features must be present in a document to be called prospectus.
i. It must contain an invitation issued to public.
ii. It must be an offer inviting public to subscribe or purchase.
Iii. It must be made by or on behalf of a company or an intended company.
iv. It must be in relation to any securities of the company.
v. It may be in the form of a document, a notice a circular, or an advertisement etc.
c. Quorum:
Quorum is the minimum number 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 decisions being taken at a meeting by a small minority which may be found to be unacceptable to the last majority of members. The number constituting a quorum at any company meeting is usually laid down in the article of association. In the absence of any provision in the articles, the provision as to quorum laid down in the companies act 2013(Under sec 103) will apply
sec 103 of companies act provides that the quorum for general meetings of shareholders shall be five members personally present in case of a public company if the number of members as on the date of is up to 1000, 15 quorum if number of members as on the date of meeting is more than 1000 but up to 5000 and if no of member exceeds 5000 than 30 quorum is required an two members personally present for any private company or articles may provide otherwise.
d. Managing direction: A managing director is someone who is responsible for the daily operations of a company, organisation or corporate division. Section 2(54) defines a managing directors as “ a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its board of directors is entrusted with substantial powers of management of the affairs of the company and includes a directors, by whatever name called”.
A managing director must be an individual as nobody but an individual can be appointed as a director. A person, who is not a director cannot be appointed as a managing directors. His appointment is automatically terminated if he ceases to act as director managing director exercise his powers subject to the superintendence, control and direction of board section 2(54). Hence a managing director is subordinate to the board of directors. The substantial power of management that are conferred upon a managing director may be revoked, withdrawn, reduced or otherwise altered.
e. One person company : One person company means a company which has only one person as a member. One person company is new concept in india under the companies act 2013 section 2(62) of the companies act, 2013 defines that one person company means a company which has only one person as a member one person company is required to identify in its name in bracket as one person company after its name.
Sec 13(1)(c) of the companies act, 2013 provides that where the company to be formed is to be one person company that is to say, a private company, the company may be formed by one person subscribing his name to a memorandum and complying with the requirements of the act in respect of registration.
One person company formed under section 3 may be either-
a. A company limited by shares or
b. A company limited by guarantee or
c. An unlimited company
f. Voluntary winding up:
The company can be wound up voluntarily by the mutual decision of member of the company if:
1. The company passes a special resolution stating about the winding up of the company.
2. 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 went where the article provide for dissolution of company.
In case of a voluntary winding up, the company shall from the commencement of the winding up cease to carry on its business except as far as required for the beneficial winding up its business. The corporate state and corporate powers of the company shall continue until it is dissolved.
4. (a) Discuss how and to what extent article of association of a company can be altered. (14)
Ans: Any of the clauses of article of association can be changed simply by a special resolution (sec 14(1)). According to the section, alteration includes making any addition and omission. Thus, scope is available for making alteration to articles. The restrictions are as follows:
a. Such alteration cannot be with retrospective effect. Retrospective amendments be permissible as long as vested rights are not adversely affected.
b. It should not be against provision of memorandum of association or company act.
c. The alteration must be breach for the benefit of company as a whole.
d. Altered article cannot include anything which is illegal or opposed to public.
e. Company cannot justify breach of contract by altering the article.
f. Amendment cannot increase liability of member unless his written consent a obtained. However, in case of club or association where member has to recurring periodical or recurring subscription or changes, a member is liable if he does not agree in writing to the increase.
g. The amendment must not constitute a fraud on minority. It cannot be oppression of minority.
h. Articles cannot change a public company to a private company without approval of central government.
i. Statutory powers of company to amend the articles cannot be curtailed.
d. Every alteration of articles which is registered by the registrar shall be as valid as if is here originally contained in the article [sec 14 (3)].
Procedure for Alteration:
a. A decision in the meeting of the board must, be taken to change or any of the regulations of the existing articles and day, time, place and agenda for the meeting.
b. It should be seen that the proposed alteration conforms to the provision of the act and the memorandum.
c. If the shares are listed then notice sent to the share no elders must be sent to such stock exchange.
d. A special resolution should be passed by share holders in the general meeting.
e. After the articles have been altered, then six copies of such amendments should be filed with the stock exchange.
f. Form no 23 must be filed with the registrar.
g. Necessary change must be made in all the copies of articles.
h. If the effect of alteration is to convert a public company into a private company the approval of the central government is necessary.
OR
Q(a) What is memorandum of association? Discuss the clause of memorandum of association? ( 2+ 12=14)
Ans: According to section 2(28) of the companies act, 1956, “ memorandum means memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act”
It is the document which contains the rules regarding constitution and activities and objects of the company. It is a fundamental charter of the company.
The five clauses of memorandum of association are-
1. Name clause [section 4(1) (a)]: The first clause of the memorandum requires a company to states its name. This clause states the name of the company. A company being a legal person must have a name to establish its identify the name must not be undesirable or must not resemble the name of any other registered company.
2. Situation or registered office clause: This clause states the name of the state where the registered office of the company is situated. A company shall have its registered office. Such office must be in existence on and from 15th day of its incorporation.
3. Object clause: The third and important clause which defines the limit and extent of the activities of the company is its object clause. The objects must be legal and not be against the provision of the companies act, 2013
It is divided into two parts:
a. Objects to be pursued on incorporation and
b. Matters necessary for furtherance therefore
4. Liability clause: This clause states that liability of members is limited to the amount unpaid on their shares and in case of company limited by guarantee the amount which every member undertakes to contribute to the assests of the company in the even of its winding up.
5. Capital clause: Every company having a share capital, the amount of share capital with which the company is proposed to be registered and the division of its share into a fixed domination.
6. Subscription or association clause: This clause shall state the number of shares that each subscribes to member has agree to subscribes for at least one share.
5. (a) In what ways may a person cease to be a member of a company? Explain [14]
Ans: A person may become a member or shareholder of the company when his name is removed from the register of member. A person may cease to be a member of the company by two different ways namely:
1. By act of the parties and
2. Speration of law.
The former is effected voluntarely by the member in accordance with the law prescribed for this purpose; on the other hand the latter in an involuntary act of the party.
1. Cessation of membership by an act of the parties: A person may cease to be member of the company by his own act in any of the following modes.
a. When a person transfer his shares. In such a case, the transferor ceases to be a member as soon as the transferee is registered, but not before.
b. When his shares are validly forfeited by the company.
c. When a person makes a valid surrender of his shares to the company.
d. When a company sells the share in exercise of its right of lien over them.
e. When he repudiates the contract on the ground of false or misleading statement in the prospectus of the company.
f. When he is holding redeemable preference shares and such shares are redeemed.
g. When share warrants are issued in exchange of the fully paid up shares and the fully paid up shares and the articles do not recognise holders of share warrants as members.
2. Cessation of membership by the operation of law: The mode of cessation of membership is effected by operation of law in the following ways-
a. When he dies.
b. When he is declared insolvent and the official assignee either disclaims or transfer the shares.
c. When the shares are sold in execution of a degree of the court.
d. When the company is wound up. Though one cease to be a member he remains liable as contributory and is also entitled to share in the surplus, if any.
(b) Discuss the role of a company secretary-
a. As a principle or statutory officer;
b. As a co-ordinator.
Ans: The role of company secretary as-
a. As a principal or statutory officer: According to sec 203 of the companies act, 2013, it is mandatory for public listed companies with the paid up capital of 10crores or more and other companies with a paid up capital of 5crores to appoint a full time company secretary.
Under the Indian stamp act, the company secretary is responsible for document such as the litters of allotment, share certificate, debenture, mortgage and to ensure that issued duly stamped.
The responsibilities of a company secretary have grown over the years. There have been multiple acts enacted that have increased the number of compliance and regulation unfold the company secretary takes care of all this. He serves very important function, securing as a statutory officer.
b. As a co-ordinator: [ written in 2018 (3) (a)]
6.(a) What are the objects of holding thre annual general meeting? What are the consequences of not holding such a meeting?
Ans: The objects of holding the annual general meeting are:
- To submit the annual account, balance sheet, director’s report and auditor’s report.
- To declare the dividend.
- To increase share capital.
- To alter Article of Association.
- To appoint auditor and fix their remuneration.
- To elect directors that are liable to retire by rotation.
If a company, private or public, having a share capital or not, limited or unlimited fails to comply with the provisions of section 96 i.e; does not hold its AGM within the prescribed time then the tribunal under section 97 of the act of 2013 is empowered to call or direct the calling of AGM of such company on the application of any member of the company and further order for any consequential or ancillary measures or direction as it deems fit or appropriate under the circumstances. Such meeting held under the directions of the tribunal shall be deemed to be an AGM of such company.
Furthermore, where such company fails to act according to the mandate of section 96 i.e; to hold its AGM within the prescribed time period or even when an order for holding of AGM is passed by a tribunal under section97 and the company fails to comply and every other officer of the company and every other officer of the company acting on its behalf and are in default will be punishable with five which may extend to INR one lakh nd in case of continuing default with a further five which may extend to INR 5000/- per day during the continuance of such default.
OR
b. Explain the procedure for convening and conducting the board of directors meeting at a company. 14
Ans; The procedure for convening and conducting the board of directors meeting at a company is given below:
- Arrangement:
Every company shall make necessary arrangements to avoid failure of video or audio visual connection. The chairperson of the meeting and the company secretary if any shall take due and reasonable case-
a. To safeguard the integrity of the meeting by ensuring sufficient security and identification procedure.
b. To record proceedings and prepare the minutes of the minutes.
c. To ensure that participants attending the meeting through audio visual means are able to near and see the other participants clearly during the course of the meeting.
The persons, who are differently abled, may make request to the board to allow a person to accompany him.
2. Notice:
a. The notice of the meeting shall be sent to all the directors according to the provision of section 173(3).
b. The notice of the meeting shall inform the directors regarding the option available to them to participates through means and shall provides all the necessary information to enable the directors to participate through video conferencing mode or other audio visual means.
3. Communication of intention by director to participate by video conferencing:
a. A directors intending to participate through video conferencing or audio visual means shall communicate his intention to the chairperson or the company secretary of the company.
b. The director who desire to participate may intimate his intention of participation through the electronic mode at the beginning of the calendar year and such declaration shall be valid for one calendar year.
4. Roll call:
At the commencement of the meeting, a roll call shall be taken by the chairperson when every directors participating through video conferencing or other audio visual means shall state for the record, the following namely-
a. Name;
b. the location from where he is participating.
c. That he has received the agenda and all the relevant material for the meeting and
d. That no one other than the concerned director is attending or having access to the proceedings of the meeting at the location mentioned in clause (b).
5. Statutory register:
The statutory registers which are required to be placed in the board meeting as per the provisions of the act shall be placed at the scheduled venue of the melting and where such registers are required to be signed by the directors, the same shall be deemed to have been signed by the directors participating through electronic mode, if they have given their consent to this effect and it is so recorded in the minutes of the meetings.
6. Participation of directors and voting:
Every participant shall identify himself for the record before speaking on any item of business on the agenda. If a motion is objected to and there is a need to put it to vote, the chairperson shall call the roll and note the vote of each director who shall identify himself while casting his vote.
7. Restriction of access:
From the commencement of the meeting and until the conclusion of such meeting, no person other than the chairperson, directors, company secretary and any other person whose presence is required by the board shall be allowed access to the place where any directors is attending either physically or through video conferencing without the permission of the board.
8. Decision:
At the end of discussion on each agenda item, the chairperson of the meeting shall announce the summary of the decision taken on such item along with the names of the directors, if any, who dissented from the decision taken by majority.
9. Minutes:
The minutes shall desclose the particular of the director who attended the meeting through video conferencing or other audio visual means. After completion of the meeting, the minutes shall be entered in the minute book as specified under section 118 of the act and signed by the chairperson.
(7) What is the position of a director in a company- [5+5+4=14]
a. As an agent
b. As a trustee
c. As a managing partners
Ans: (a) As an agent:
Directors are merely agents of a company. The company itself cannot act in its own person for it has no person; it can only act through directors and the case is as regards those directors merely the ordinary case of principal and agent. Wherever an agent is liable to those directors would be liable; where the liability would attach to the principal and principal only, the liability is the liability of the company. Where the directors make contracts on behalf of the company. They incur no personal liability provided they act within the scope of their authority. In such a case, the company alone would be liable. However, directors are obliged to incur personal liability in the following cases-
a. When a director enters into contract in his own name.
b. When there is an error in using the company’s name by the director.
(b) As a trustee:
The directors have also been described as the trustee of the company. “ A trustee is a person who is the owner of the property, deals with it as principal as owner and a master, subject only to an equitable obligation to account to some person to whom he stands in relation of trustee.
They are trustee-
i. Of the company’s money or property which comes into their hands or which is actually under their control: As trustee of the company’s money and property, directors are accountable for their proper use and required to refund or restore the same if improperly used.
ii. Of the power entrusted to them: The directors of a company are trustees for the company and with reference to their power of applying funds of the company and misuse of the power they could be rendered liable as trustees and on their death the cause of the action survives against their legal representatives.
iii. As a managing partners: The directors arte also sometimes described as managing partners because like a partner of a firm, they manage the affairs of the company and they are also usually important shareholders of the company. They do all propriectorial function like alloting shares, making calls, forfeiting shares etc.
However, all the partners of a firm act on the principal of mutual agency. But, it is not so in the case of directors. A director has no authority to bind the other directors and share holders. Moreover, directors are subject to retirement by rotation whereas partners of a firm are not. Hence, the directors are not managing partner in the full sense.
OR
Describe the powers and duties of a liquidator appointed by the tribunal? [14]
Ans: The powers and duties of a liquidator appointed by the tribunal are-
- To carry on the business of the company so far as may be necessary for the beneficial winding up of a company.
- To do all acts and to execute, in the name and on behalf of the company, all deeds, receipts and other, and for that purpose, to use when necessary, the company’s seal.
- To sell the immovable and moveable property and actionable claims of the company. He may make the sale by public auction or by private contract and shall have the power to transfer the whole in one lot or in parcels.
- To sell whole of the undertaking of the company as a going concern.
- To raise on the security of the assets of the company any money requisite.
- To institute or defend any suit, prosecution or other legal proceeding civil or criminal, in the name and on behalf of the company.
- To invite and settle claims of creditor employees or any other claimant and distribute sale proceeds in accordance with priorities provided in the act.
- To inspect the records and return of the company or the files of the registrar or any other authority.
- To prove and claim in the insolvency of any contributory for any balance against his estate and to receive dividends in the insolvency.
j. To draw, accept and endorse any negotiable instruments on behalf of the company with the same effect as if done in the course of business.
k. To take out, in his official name, letters of administration to any deceased contributory and to do, in his official name, any other act necessary for obtaining payment of any money due from a contributory or his estate.
l. To obtain any professional assistance from any person or appoint any professional in discharge of his duties.
m. To take all such actions, or sign any paper etc. As may be necessary for winding up of the company, for distribution of assets and in discharge of his duties and obligation and function as company liquidator.
n. To apply to the tribunal for such orders or directions as may be necessary for winding up of the company.
In the exercise of these powers the liquidator is subject to overall control of the tribunal.
