Company Law – Semester 4 – Solved Question Paper 2018 – Dibrugarh University

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Question & Solution of 2018

Company Law

  1. Fill in the blanks:                                                                                 (1×4=4)
  2. A public company is required to have minimum Rs   5 lakh_ as paid up capital.
  3. After registration of the company, the memorandum becomes a     charter__.
  4. Quorum for a general meeting for a public company is ____30____ members personally present, if the total number of members as on the date of meeting is more than 5000.
  5. The maximum number of directors in a public company is ___15___ as per provision of the companies act.
  6. Write true or false:                                                                                (1×4=4)
  7. Under section 5(1) and 7(1) of 2013 Act, it is not compulsory for every company to have its own articles.

Ans: False.

  • A company can become a member of another company.

Ans: True.

  • Member voluntary winding up takes place only when the company is insolvent.

Ans: False.

  • Only board of Director can convene an extraordinary general meeting.

Ans: True.

3. Answer any four of the following question:   

a. Write the disadvantages of a private company.

Ans: The disadvantages of the private company are:

A private company cannot issue share warrants payable to bearer.

U/S 92, a private company has to file its annual list of member and summary with the registrar.

A private company member cannot appoint more than one proxy to attend and note in the company meeting.

A private company has to send certificate to registrar stating in annual turnover in the preceding 3 years never reach rupees one crore or more.

b. When a company does not require to issue a prospectus?

Ans: A company does not require to issue a prospectus in the following cases:

  • When an offer is made in connection with a bonafide invitation to a person to enter into an underwriting agreements with respect to shares or debentures.
  • When the shares or debentures are not offered to the public.
  • Where the offer is made only to existing member or debenture holders of the company with or without a right to renounce. Example: when shares are placed privately to less than 50 persons.
  • Where the shares and debentures offered are in all respects uniform with shares on debentures previously issued and dealt in or quoted on a recognised stock exchange.
  • Where invitation to the public for subscription to the shares or debentures of a company is made in the form of newspaper advertisement.

c. What are the objects of holding the annual general 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.

d. What is the role of the company secretary as a coordinator?

Ans: The company secretary plays a very important role as coordination. He essentially serving as a high level administrator managing the company’s business and affairs. The company secretary is responsible for ensuring that the plans laid out by the top level management come into effect, successfully.

                      He is essentially the link between the top level management and lower level management. This is also his role as internal coordination. We also act a link between the company, its shareholders, the society and the government. This is his role as an external coordination. The company secretary keep the managing director duly informed about the policies and regulation of various Acts and resolutions passed by the Borad.

e. What are the difference between the member and the shareholder?

Ans: The difference between member and shareholder are:

       Basis                    Member                     Shareholder
RegistrationA registration share holders is a member.A registered member may not be a shareholder.
SharesA person may be a member without holding shares.No person can be a shareholder without holding shares.
Register of memberThe name of every member is entered in the registers of members.The name of every shareholder may not be entered in the registers of member.
NecessityMembers are essential for a company.An insolvent does not have beneficial rights in the shares.
InsolventAn insolvent may be a member.An insolvent does not have beneficial rights in the share.

f. What is meant by share qualification of a director?

Ans: The Article of Association of a company may require the directors of that company to hold same minimum shares at the time of his appointment within such time limit as prescribed under section 270 of the companies Act 1956, this holding of minimum shares is known as ‘share qualification of a director’.

                         If a Director already doesn’t hold the share qualification at the time of his appointment, then he must acquire them within two months after his appointment as Director.

                         The subscribers to the memorandum as per the Act are the deemed first directors of company and are not required to hold the shares qualification unless the articles of a company so requires them to hold such share qualification.

4 (a) What do you mean by Articles Of Association? Distinguish between Articles Of Association.                                                                                                       (4+10=14)

Ans: Section 2(5) of the Companies Act, 2013 defines Articles as, “Articles means Articles of Association of a company as originally formed or as altered from time to time in pursuance of any previous company law or of this Act”.

                         The Articles contains rules and regulations for the internal management of the company. They are framed with the object of carrying out the aims and objects of the memorandum of association and also to monitor that same are carried as prescribed.

                          The Articles 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 right 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 changers in the internal regulation of the company may, from time to time be made.

Following are the difference between the Memorandum of Association and Articles of Association:

            Basis   Memorandum of Association    Articles of Association
MeaningMemorandum of Association is a document that contains all the fundamental information which are required for the incorporation of the company.Articles of Association is a document containing all the rule and regulations that governs the company.
Defined inIt is defined in sec 2(56).It is defined in sec 2(5).
Types of information contained.It contains powers and objects of the company.It contains the rule of the company.
StatusIt is subordinate to the companies Act.It is subordinate to the memorandum.
Retrospective effectsThe Memorandum of Association of the company cannot be amended retrospective.The Articles of Association can be amended retrospectively.
Major contentsA memorandum must contain six clauses.The articles can be drafted as per the choice of the company.
Compulsory filing at the time of registration.Required in Memorandum of Association.Not required at all in Articles of Association.
AlterationThere are strict restrictions on its alteration.It can be altered by a special resolution.
RelationshipDefines relation of the company with outside world.Defines relation of company with member and member inter se.
Acts done beyond the scope.An act which is ultra virus the memorandum is completely void. An act which is ultra virus the articles but intra virus the memorandum can be ratified.

OR

         (b) Explain the procedure of alteration of the:

             (1) Name clause and

             (2) Registered office clause of memorandum of a company.                         (7+7=14)

        Ans: (1) Name clause:

  • Section 13(2): Any change in the name of the company can be subject to the section 4(3) and shall not have effect except with the approval of the central government in writing provided that no such approval shall be necessary where the only change in the name of the company is the deletion there from or addition there to, of the world “private” consequents on the conversion of any one class of companies to another class in accordance with the provisions of this Act.

(ii)  section 13(3): Any change in the name of the company is made under section 13(2), the register shall enter the new name in the register of the companies in place of the old name and issue a fresh certificate of incorporation with the new names and the change in the name shall be complete and effective only on the issue of such a certificate.

(2) Registered office clause:

(i) Section 13(4): The alteration of the memorandum relation to the place of the registered office from one state to another shall not have any effect unless it is approved by the central government on an application in such form and manner as may be prescribed.

(ii) Section 13(5): The central government shall dispose of the application under section 13(4) within a period of 60 days and before passing its order may satisfy itself that the alteration has the consent of the creditor debentures holders and other persons concerned with the company or that the sufficient provision has been made by the company either for the due discharge.

(iii) Section 13(6): Save as provided in section 64, a company shall in relation in any alteration of its memorandum, file with the Registrar:

  • The special resolution passed by the company under section 13(1).
  • The approval of the central government under section 13(2) if the alteration involves any change in the name of the company.

(iv). Section 13(7): When an alteration of the memorandum results in the transfer of registered office of a company from one state to another, a certified copy of the order of the Central Government approving alteration shall be filed by the company with the registrar of each of the states within such time and in such manner as may be prescribed, who shall register the same and the registrar of the state where the registered office is being shifted to shall issue a fresh certificate of incorporation indicating the alteration.

  • (a) Who can be a member of a company? Can the following parties become member of a company? Explain.                                                                            (4+10=14)
  • Mirror
  • Company
  • Partnership firm
  • Foreigner
  • insolvent

Ans: Any person who is competent to contract may become the member of the company as per the provision of memorandum and Articles of Association of the company. The members of the company are the persons who collectively constitute the company as a corporate entity. Section 2(55) of the companies Act, 2013 defines a member as:

  • The subscription to MOA of a company shall be deemed to have agree to become members of the company and on its registration shall be entered as members in its register of members.
  • Every other person who agrees in writing to become a member of a company and whose name is entered in the register of members shall be a member.
  • Every person holding equity share of a company and whose name is entered as beneficial owner in the records of the depository shall be deemed to be the members of the company.

             The membership rights of certain persons are explained below whether they can become a member or not:

  • Minor: In India, a contract with a minor is absolutely void. So a minor cannot be a member of the company. As per section 3 of Indian Majority Act 1785, a minor is a person who has not yet attained majority or the age of eighteen years. As per Indian Contract Act, 1872, such a person cannot enter into any agreement therefore a minor cannot enter into contract.
  • Company: A company being a legal person is competent to contract. A company can become a member of any other company only if it is specially authorised by the memorandum to purchase shares of any other company. A subsidiary company cannot become a member of its holding company. A company cannot become a member of itself.
  • Partnership firm: A firm is not a legal person it cannot hold property in its own name, the property is held in the name of the partners on behalf of the firm. Therefore a firm cannot become a member in a company however a partnership firm may become a member in a company licensed under section 8 of the company Act, 2013.
  • Foreigner: A foreigner can become a member in a company by complying with the requirement of foreign exchange management Act, 1999. In case a war breaks out with foreign countries, the foreigner cannot enforce any right available to the members.
  • Insolvent: The shares of this insolvent vest in the official assignee or the official receiver, as the case may be. However an insolvent continues as a member until his shares are sold by the official assignee or the official receiver as the case may be until an insolvent discharged, he cannot become a member.

OR

(b.) Discuss the rights and powers of a company secretary? Are there any restriction on the power of a company secretary?                                                (10+4=14)

  Ans: The rights of a company secretaryare:

  • A company secretary has the right to supervise and control the secretarial department of the company.
  • He has the rights to sign documents as a principal officer of the company within the meaning of the companies Act.
  •  He has the right to issue share certificate of the company.
  • He has the right to be indemnified by the company for any suffered by him while discharging his official duties.
  • He has the right to receive remuneration.
  • In the event of winding up of the company, he has the right to be treated as a preferential creditor for his salary subject to a maximum amount that may be notified.

The duties of a company secretary are classified under the following heads.

  1. Statutory duties:
  2. Duties to words the company: The companies Act 2013 imposes a number of duties on the secretary such as:
  3. To make a statutory declaration for obtaining certificate of commencement of business.
  4. To sign annual reports and
  5. To sign every balance sheet and every profit and loss account in case of non banking companies.
  6. Duties to directors: The duties of a company secretary in relation to directors are;
  7. To work according to instruction of directors.
  8. To maintain all important correspondence files and records for reference of director and
  9. To draft directors report.
  10. Duties to whole time managerial authority: If a company is managed by managing directors or a manger. The main duties of company secretary in relation to such managerial personnel are:
  11. To organise and control head office of the company efficiently.
  12. To submit all statutory returns in time and
  13. To draft contracts with vendors if any also with underwriter and share brokers.
  14. General duties:
  15. Duties to words office and staff: It is a company secretary duties to see that various departments are properly organized, supervised, co-ordinate and adequately staffed. We must act as a friend, philosopher and guide to staff.
  16. Other duties: The miscellaneous of a are:
  17. To represent the company on social functions.
  18. To act very cautiously and in  the best interest of the company in case of any emergency.
  19. To act with authority and maintain secrecy of confidential matters and
  20. To perform his duties honestly and diligently.

Following restriction are imposed on the power of a company secretary:

  • Incapable of representing himself on behalf of the company.
  • No right in case of allotment on transfer of shares.
  • Incapable of borrowing money in the name of the company.
  • No right to enter into a contract on behalf of the company.
  • (a) What is Extra Ordinary General Meeting? Who may convene such a meeting? What are the needs for holding such meeting?                        (3+4+7=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:

  1. The Board of Directors.
  2. On its own
  3. On the requisition of the shareholders.
  4. By Requisitionists themselves
  5. By the National Company Law Tribunal.
  1. Extraordinary meeting conveyed by the board of director.
  2. 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.
  3. On the requisition of shareholders: the directors are bound to call an extraordinary general meeting of the company if the following condition are satisfied.
  4. The requisition is signed by the requisite number of members under section 100.
  5. The requisition shall state the matters for the consideration of which meeting is its be called {section 100(3)}.
  6. The requisition shall be deposited at the registered office of the company {section 100(3)}
  7. 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.

OR

  • Discuss the various kind of meeting that are to be convened by a public company.

Ans: The various kind of meetings that are to be convened by a public company are:

  • Meeting of the shareholder
  • Meeting of the Board of Directors and their committees.
  • Meetings of the Debenture holders.
  • Meeting of the creditors.
  • Meeting of the shareholders: The meetings of the shareholders can be further classified into 4 kinds namely:
  • Statutory meeting
  • Annual general meeting
  • Extraordinary general meeting
  • Class meetings
  • Statutory meeting: statutory meeting is the first meeting of the shareholders of a public company. It must be held within a period of not less than one month nor more than 6 months from the date at which the company is entitled to commence business. It is held only once in a life time of a company.
  • Annual general meeting: annual general meeting is the meeting under section 96 which has to be held annually. It is the meeting of members through which they get the opportunity to express their vines on the management of the company.
  • Extraordinary general meeting: an extraordinary 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 the rises and it requires the input of all senior executives and the board.     
  • Class meeting: Class meeting are those meetings which are held by the shareholders of a particular class of share. Example preference shareholders on debenture holders. Class meetings are generally conducted when it is proposed to alter, vary or affect the right of a particular class of shareholders.
  • Meeting of the Board of Directors and their committees: Meetings of the directors are called Board Meetings. These are the most important as well as the most frequently held meetings of the company. It is only at these meetings that all important matters relating to the company and its policies are discussed and decided upon.
  • Meeting of the debenture holders: The debenture holders of a particular class conduct these meetings. They are generally conducted when the company wants to vary the terms of security or to modify their rights or to vary the rate of interest payable etc. Rules and regulation regarding the holders are either entered in the Trust deed or endorsed on the debenture bond so that they are binding upon the holders of debentures and upon the company.
  • Meeting of the creditors: These are not meetings of the company. They are held when the company proposes to make a scheme of arrangement with its creditor. Companies like individuals may its creditors. In these circumstances a meeting of the creditor is necessary.
  • (a) Briefly discuss the provisions of the companies act regarding appointment of directors of a company.                                                              (14)

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:

  1. 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.
  2. 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.
  3. 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:
  4. Additional Directors.
  5. Casual vacancies.
  6. Alternate directors.
  7. 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.
  8. 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.
  9. Appointment of Directors by small shareholders if the articles provides: The small shareholders in case of a public company having:
  10. A paid up capital of five crores rupees or more and
  11. One thousand or more small shareholders may have a director elected by such small shareholder in thr manner as may be prescribed.
  12. 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.

OR

(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:

  1. By the tribunal or
  2. By the voluntary
  3. 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:
  4. When the company is unable to pay its debt.
  5. If the company has by special resolution resolved that the company be wound up by the tribunal.
  6. 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.
  7. If the company has filled its financial statements or annual returns for proceeding 5consecutive years.
  8. If the tribunal by any means finds that it is just and equitable that the company should be wound up.
  9. 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.
  10. Voluntary winding up of company: The company can be wound up voluntarily by the mutual decision of members of the company, if:
  11. The company passes a special resolution stating about the winding up of the company.
  12. 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. 
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