Q.

“Directors are the brain of the company, if the brain is functioning well, the

company functions well”. In light of this statement, discuss the position, functions,

powers, and duties of the Directors under the Companies Act, 2013. Elaborate your

answer with apt judicial pronouncements.

**Directors: The Brain of the Company**

The adage "Directors are the brain of the company, if the brain is functioning well, the
company functions well" underscores the pivotal role directors play in a corporation's
success. Under the Companies Act, 2013, directors are entrusted with the management and
governance of the company, positioning them as the strategic leaders and decision-makers.
This essay delves into the position, functions, powers, and duties of directors as per the
Companies Act, 2013, supplemented by relevant judicial pronouncements.

### Position of Directors: A Legal Perspective

Directors are integral to the corporate structure, serving as the key managerial personnel
responsible for overseeing the company's operations. Section 2(34) of the Companies Act,
2013, defines a director, yet this definition does not fully capture the complexity of their roles
and responsibilities. Courts have often elucidated the multifaceted nature of a director's
position.

1. **Director as an Agent**:

- **Ferguson v. Wilson (1904)**: The Scottish Court of Session recognized that a

company, being an artificial entity, cannot act on its own and thus requires directors to act as
its agents.

- **Indian Overseas Bank v. RM Marketing (2001)**: The Delhi High Court held that
directors act as agents of the company and not its individual members.
2. **Director as a Trustee**:

- **Percival v. Wright (1902)**: The Court of Justice in England clarified that directors are
trustees of the company's assets, not of its shareholders.

- **Ramaswamy Iyer v. Brahamayya & Co. (1965)**: The Madras High Court held that
directors can be liable as trustees if they misuse their power.

3. **Director as a Managing Partner**:

- Directors are responsible for the daily management of the company, akin to managing
partners. They oversee the implementation of policies and decisions to ensure the company's
operational efficiency.

4. **Directors as Organs of the Company**:

- **State Trading Corporation of India Ltd. v. Commercial Tax Officer, Visakhapatnam

(1963)**: The Supreme Court of India recognized directors as organs of the company, crucial
for its functioning akin to a person's brain.

### General Powers Vested under Section 179

Section 179 of the Companies Act, 2013 entrusts the Board of Directors with all powers
conferred upon them by the company. These powers, while extensive, are subject to specific
limitations. The board's powers are co-extensive with those of the company itself, granting
directors significant authority over company operations.

#### Limitations on Directors' Powers

There are two primary limitations on the directors' powers:

1. The board cannot perform acts that require approval from shareholders in general
meetings.

2. Directors must exercise their powers in accordance with the company's memorandum and
articles of association.

#### Shareholder Intervention in Exceptional Cases

Shareholders may intervene in the following situations:

1. When directors act with malafide intent.

2. When directors become incompetent to act.

3. When directors are unwilling to act or in cases of deadlock.

Shareholders in general meetings retain the residuary powers of the company.

#### Powers Requiring General Meeting Approval

According to Section 180, certain powers can only be exercised by the Board with approval
from a general meeting. These include:

1. Selling, leasing, or disposing of the company’s undertakings.

2. Investing in trust securities.

3. Borrowing money for the company.

4. Extending time for debt repayment or refraining from repayment.

If directors breach these restrictions, the title of lessee or purchaser is affected unless they
acted in good faith with due care and diligence.

#### Power to Constitute Committees

The Board has the authority to constitute several committees:

1. **Audit Committee (Section 177)**: Must include at least three directors, with a majority
being independent. The committee must follow the board-specified terms of reference.

2. **Nomination and Remuneration Committee and Stakeholder Relationship Committee

(Section 178)**: The Nomination and Remuneration Committee requires three or more non-
executive directors, with at least half being independent. The Stakeholders Relationship
Committee addresses grievances from shareholders, debenture holders, or other security
holders.

#### Contributions to Funds

Directors have the power to contribute to various funds:

1. **Charitable and Other Funds (Section 181)**: Contributions exceeding 5% of the

company’s average net profit over the past three financial years require general meeting
approval.

2. **Political Contributions (Section 182)**: Companies can make political contributions not
exceeding 7.5% of the net profit of the preceding three years, with a board resolution.

3. **National Defence Fund (Section 183)**: Contributions to this fund or any government-
approved fund are allowed and must be disclosed in the financial statements.

#### Statutory Restrictions on Powers

Certain powers can only be exercised when resolutions are passed at board meetings, such as:

1. Making calls.

2. Borrowing money.

3. Issuing funds.

4. Granting loans or guarantees.

5. Approving financial statements.

6. Diversifying business.

7. Applying for amalgamation, merger, or reconstruction.

8. Taking over or acquiring a controlling interest in another company.

Shareholders in a general meeting can impose additional restrictions on the exercise of these
powers.

### Duties of Directors

The Companies Act, 2013, delineates various duties of directors to ensure they act in the best
interest of the company and its stakeholders:

General Duties of a director- Sec 166:

They owes their duties owing to the position and role that they have in the company

(1) Subject to the provisions of this Act, a director of a company shall act in accordance with
the MOA and articles of the company.

(2) A director of a company shall act in good faith in order to promote the objects of the
company for the benefit of its members as a whole, and in the best interests of the company,
its employees, the shareholders, the community and for the protection of environment.

(3) A director of a company shall exercise his duties with due and reasonable care, skill and
diligence and shall exercise independent judgment.

(4) A director of a company shall not involve in a situation in which s/he may have a direct or
indirect interest that conflicts, or possibly may conflict, with the interest of the company.

(5) A director of a company shall not achieve or attempt to achieve any undue gain or
advantage either to himself or to his relatives, partners, or associates and if such director is
found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain
to the company.

### Conclusion

Directors are indeed the brain of the company, steering it towards success through effective
management and governance. The Companies Act, 2013, along with judicial interpretations,
outlines their position, functions, powers, and duties, ensuring they act in the best interest of
the company and its stakeholders. Effective directors, by fulfilling their fiduciary duties and
leveraging their extensive powers, ensure that the company functions well, reinforcing the
notion that a well-functioning brain leads to a well-functioning company.

Q.“The auditor is intended for the protection of shareholders and the auditor is

expected to examine the accounts maintained by the directors with a view to

inform the shareholders of the true financial position of the company.

The directors occupy a fiduciary position in relation to the shareholders and in

auditing the accounts maintained by the directors, the auditors act in the interests

of the shareholders who are in the position of beneficiaries”

With reference to the above statement, analyze the role and responsibilities of the

auditors as per Companies Act, 2013.

Duties of an Auditor

An auditor is an authorised personnel that reviews and verifies the accuracy of financial
records and ensures that companies comply with tax norms. Their primary objective is to
protect businesses from fraud, highlight any discrepancies in accounting methods, among
other things.
The role of an auditor, in general, is no walk in the park. Having been regarded as a certified
professional, the auditor has placed himself, responsibilities to various parties and the duties
that go with it.

The auditor’s opinion basically makes or breaks the reliability of the financial statements and
the information they provide. Audited financial statements have an extremely high degree of
reliability and validity in comparison with unaudited statements.

Who is an Auditor

In simple terms, an auditor is an individual who is appointed to inspect the books of accounts
of a company, the validity and accuracy of the transactions contained therein. He also forms
an opinion on the overall view of the financial statements, whether the statements depict a
true and fair view of the entity’s financial position.

Duties of the Auditor

The duties of an auditor have been laid down by the Companies Act, 2013, provided in
Section 143. The Act explains the duties in a simplified manner, although the list given is not
exhaustive.

Prepare an Audit Report

An audit report, in simple terms, is an appraisal of a business’s financial position. The auditor
is responsible for preparing an audit report based on the financial statements of the company.
The books of accounts so examined by him should be maintained in accordance with the
relevant laws.

He must ensure that the financial statements comply with the relevant provisions of the
Companies Act 2013, relevant Accounting Standards etc.
In addition to this, it is imperative that he ensures that the entity’s financial statements depict
a true and fair view of the company’s financial position.

Form a negative opinion, where necessary

The auditor’s report has a high degree of assurance and reliability because it contains the
auditor’s opinion on the financial statements. Where the auditor feels that the statements do
not depict a true and fair view of the financial position of the business, he is also entitled to
form an adverse opinion on the same.

Additionally, where he finds that he is dissatisfied with the information provided and finds
that he cannot express a proper opinion on the statements, he will issue a disclaimer of
opinion. A disclaimer of opinion basically indicates that due to the lack of information
available, the financial status of the entity cannot be determined. However, it is to be noted
that the reasons for such negative opinion is also to be specified in the report.

Make inquiries

One of the auditor’s important duties is to make inquiries, as and when he finds it necessary.
A few of the inquiries include:-

Whether loans and advances made on the basis of security are properly secured and the terms
relating to the same are fair

Whether any personal expenses (expenses not associated with the business) are charged to the
Revenue Account

Where loans and advances are made, they are shown as deposits. d. Whether the financial
statements comply with the relevant accounting standards

Lend assistance in case of a branch audit

Where the auditor is the branch auditor and not the auditor of the company, he will lend
assistance in the completion of the branch audit. He shall prepare a report based on the
accounts of the branch as examined by him and then send it across to the company auditor.
The company auditor will then incorporate this report into the main audit report of the
company. In addition to this, on request, if he wishes to, he may provide excerpts of his
working papers to the company auditor to aid in the audit.

Comply with Auditing Standards

The Auditing Standards are issued by the Central Government in consultation with the
National Financial Reporting Authority. These standards aid the auditor in performing his
audit duties with relevant ease and accuracy. It is the duty of the auditor to comply with the
standards while performing his duties as this increases his efficiency comparatively.

Reporting of fraud

Generally, in the course of performing his duties, the auditor may have certain suspicions
with regard to fraud that’s taking place within the company, certain situations where the
financial statements and the figures contained therein don’t quite add up. When he finds
himself to be in such situations, he will have to report the matter to the Central Government
immediately and in the manner prescribed by the Act.

Adhere to the Code of Ethics and Code of Professional Conduct

The auditor, being a professional, must adhere to the Code of Ethics and the Code of
Professional Conduct. Part of this involves confidentiality and due care in the performance of
his duties. Another important requisite is professional scepticism. In simple words, the
auditor must have a questioning mind, must be alert to possible mishaps, errors and frauds in
the financial statements.
Assistance in an investigation

In the case where the company is under the scope of an investigation, it is the duty of the
auditor to provide assistance to the officers as required for the same. Hence, it can be seen
that the duties of the auditor are pretty diverse, it has an all-round and far-reaching impact.
The level of assurance provided by a set of audited financial statements is comparatively far
higher as compared to regular unaudited financial statements.

Q. what is the scheme of mergers and acquisitions as under companies act

Introduction

What are Merger and Acquisitions

MERGER– ‘Merger’ has not been defined under the Companies Act, 2013 or Income Tax
Act, 1961, but as a concept ‘merger’ is a combination of two or more entities into one; with
the accumulation of their assets and liabilities, and coming together of the entities into one
business.

Mergers usually take place between companies that are equal in repute and scale of
operations.

Merger is also called ‘Amalgamation’. Under The Income Tax Act, 1961 (ITA)
‘amalgamation’ is defined as the merger of one or more entities with another company, or the
merger of two or more entities forming one company. It also mentions other conditions to be
satisfied for an ‘Amalgamation’ to benefit from the beneficial tax treatment.
In India it is a complex court driven process wherein the NCLT has to mandatorily approve of
the merger and if the two merging companies have a registrar office in different states then
the approval of state NCLT is also essential.

A and B merge to form a new company C and they cease to exist as independent companies.

At times the new company can retain the name of either company A or B if they feel they can
reap benefits of the goodwill and reputation of the merging company A or B.

In a merger NCLT supervision is important for protecting the interest of the creditors and
shareholders as the company goes through a complete reorganisation of its capital structure
and gets a new management. It usually takes 8-12 months to achieve a successful merger.

Consideration of a merger can flow to the shareholders of merging company either in cash or
shares. They have a preference of cash if they do not want to be a part of the new merging
entity, but if they choose to continue then they are allotted shares of the merged company.

ACQUISITION– It is the process of procurement of one company by the other. The two
companies involved are the acquirer or buyer which is the bigger fish in the sea and the
acquired company or seller also called the target company.

The Buyer Company can do this by buying a significant amount of shares or assets of the
target company depending on the way the deal is structured.

The basic difference between a merger and acquisition is that in an acquisition a company
that has been acquired retains its separate legal identity or existence ( only in case of stock
deal not in an asset deal)
The objectives of mergers & Acquisitions are manifold – economies of scale, acquisition of
technologies, access to varied sectors / markets etc

Types of merger

Horizontal Merger- When the merging and the merged company operate in the same industry,
same line of business and same level of supply chain. They are usually competitors. The
Merge for expansion of customer base, increase market share and market power, creation of
synergy etc. E.g. Lipton India & Brooke Bond, Vodafone & Idea.

Vertical Merger— When the merging and the merged company operate in same line of
production but at different stages of supply chain. This is mostly done to achieve economies
of scale. E.g. Amazon & whole foods, Reliance and Flag Telecom Group.

Reverse Merger- A Merger where a parent company merges with its subsidiary or a profit
making firm merges with a loss making firm. It also called a triangular merger. Eg. Godrej
soap merger with Gujarat Godrej Innovative Chemicals Ltd.

Conglomerate Merger- Merger of companies operating in different lines of business. This

kind of merger takes place to diversify and spread risk in case the current business does not
yield much profit. Eg. L&T and Voltas Ltd.

Congeneric Mergers- It is a type of merger where two companies are in the same or
connected industries or markets but do not offer the same products. These companies in this
merger merge for synergies, to increase their market shares or expand their product lines as
they share similar distribution channels, overlapping technology or production systems etc.

Types of Acquisitions

Friendly – A friendly takeover occurs when one company acquires another with both boards
of directors approving the transaction. It works towards shared advantage of both companies.
In a friendly takeover, both shareholders and management are in concurrence on both sides of
the deal. E.g. Flipkart- Walmart, takeover of Whatsapp by Facebook

Hostile Takeover – This kind of acquisition, occurs when the target company does not
consent to the acquisition, the acquiring company must gather a majority stake to force the
acquisition. A hostile takeover is typically consummated by a tender offer. In a tender offer,
the corporation tries to purchase shares from outstanding shareholders of the target company
at a premium to the current market price for this the shareholders have limited time to accept.
E.g. takeover of Ashok Leyland by Hindujas.

Key corporate and securities law

Companies Act, 2013- Section 230-240- Compromise, Arrangement and Amalgamation

( including takeover)

Section 230- Compromise & Arrangement

Under this Section an applicant (member, creditor, company or liquidator of company

depending on the situation of the company.) to enter into a compromise, arrangement or
amalgamation (including takeover) has to give an application under 230(1) to National
Company Law Tribunal (NCLT).

This application has to be given along with – Material facts, reduction of share capital( if
any), consent of creditors (75%), and other disclosures

As soon as NCLT receives the application it will immediately order a meeting.

The notice of the meeting will go to – all the members, creditors and debenture holders.

Additionally the notice has to be published on the website of the company and an
advertisement in the newspaper (1 English newspaper and 1 vernacular newspaper) has to be
given.

If the company is a listed company the notice has to be given to Securities Exchange Board
of India (SEBI) so that SEBI notify the same under its website.

Notice has to be given to some authorities like – The central Government, Income Tax
Authority, Reserve Bank of India RBI, Competition Commission of India (CCI) for their
representations or objections within 30 days.

If the Authorities do not give in their replies within 30 days, the company will assume that
there is no objection.

After the order, the meeting shall be conducted and there shall be proper voting at the
meeting which must conclude within the period of 1 month. Voting at the meeting can be
done via- voters themselves, Proxy, postal ballet and E- Voting.

The Resolution at the meeting shall be approved and passed by 75% majority.
Any person can object to the scheme provided if a shareholder has minimum 10% of share
capital or a creditor has 5% outstanding debt.

Once the resolution is approved the scheme goes back to the NCLT for passing a Final order
along with ancillary orders. This final order has to be filled with ROC within 30 days.

Section 231- Power of Tribunal to enforce compromise or arrangement under section 230

The tribunal has the power to oversee the implementation of the compromise or arrangement.

It has power to give further directions.

If the tribunal feels that the amalgamation is not taking place according to the terms and
conditions ordered by the tribunal or are impossible or impractical to follow the order to do
so then it can even order winding up of the company.

Section 232 – Merger and amalgamation of companies

Section 230 talks about compromise or arrangement( Internal reconstruction) , but if there is
a compromise or arrangement that also involves a merger or an amalgamation ( External
Reconstruction) then both Section 230 and 232 will apply to such companies.

This section is a continuation of section 230 for merging or amalgamating companies where
in there are some additional requirements to be followed.

Along with the notice of the meeting in section 230, the following must also be given- Draft
scheme of merger and amalgamation (M/A) ,report of effect or impact of such M/A on each
class of shareholders, report of valuation and other disclosures.

While passing the final order, tribunal can make provisions for other required matters.

Section 233- Merger or Amalgamation of certain companies

‘Certain companies’ under this section are – 2 or more small companies merging(private
companies having paid-up capital of less than INR 100 million and turnover of less than INR
1 billion per last audited financial statements), holding and its wholly owned subsidiary
merging or any other such class of companies as may be prescribed.

These companies will merge according to section 233 not 232 which is also called Fast Track
Mergers. Such companies get an easier route to merge.
Steps involve in this type of merger are- Step 1- Invite objections and suggestions from
Registrar of company (ROC), Liquidator, any other person affected by the scheme.

Step 2- Scheme shall be approved by 90% majority shareholders.

Step 3- File declaration of solvency (capability of paying off debts) with ROC.

Step 4- Scheme shall be approved by 90% majority Creditors

Step 5- Send the scheme to Central Government and Roc for approval.

Step 6- If Roc has any objection it has to give to the Central Government within 30 days.

Step 7- If the central Government feels the scheme is in the interest of public and creditors
then it will approve the scheme and will communicate the scheme to Roc but at the same time
if ROC had any objections and the central Government feels the scheme is not in the interest
of public and creditors then it will refer the companies to NCLT ( section 232- No easy route
available)

Section 234- Merger or Amalgamation of a company with a foreign company

If an Indian company wants to merge with a foreign company then it has to follow the
procedure given under Section 232 and additionally approval of the RBI must be obtained
and the scheme must provide for the manner of payment of considerations.

Section 235- Power to acquire shares of shareholders dissenting from the scheme approved
by majority

Step 1– The Transferee Company offers to acquire shares from shareholders of Transferor
Company. Out of all the shareholders 90% or more accept the offer and the rest 10% or less
dissent and are not willing to sell their share holding.

Step 2 – Now the transferee Company will send a notice to dissenting shareholders saying
that since 90% shareholders have agreed to sell their shares the company will acquire the rest
as well.

Step 3- Dissenting shareholders will give an application to NCLT against acquisition of their
shares.

Step 4- Transferee Company will give an application to NCLT to acquire the shares.
Step 5- Since more than 90% shareholders have accepted to the offer thus NCLT passes a
final order to Transferor Company to register the transfer and order the transferee company to
pay the consideration. NCLT does not reject the application of the transferee company at this
stage as it does not favour in affecting the decisions of the transferee company due to only a
mere 5-10% of shareholders dissenting.

Section 236- Purchase of minority shares

In this section, if the acquirer along with persons acting in concert (PAC –persons who have a
common objective or purpose to acquisition shares or voting rights or control over a
company) already holds 90% or more shares of the target company then the acquirer will give
the remaining shareholders an offer to sell their shares as well.

For this the acquirer company with keep the consideration money in a separate bank account
and will pay off the remaining shareholders within 60 days.

Section 237- Power of the Central Government to provide for Amalgamation in public
interest

If it is essential in public interest, the Central Government by notification in the official

gazette can order amalgamation of the companies.

Central Government usually passes such amalgamation order between a healthy company
with a sick company to revive the sick company and its employees.

Central Government will have to give orders for pending legal proceedings by or against
Transferor Company.

Central Government will also have to give orders for all members, creditors to have nearly
same interest in the transferee company and if there is any difference then they have to be
compensated.

If any person is aggrieved by the compensation can appeal to the NCLT.

If the transferor and transferee company have any objections with the order for amalgamation
then they can put forward their objections to the NCLT. NCLT will hear their objection and
pass a final order.

Section 238 Registration of offer of schemes involving transfer of shares

Whenever a transferee company wants to give a circular (offer and details of share transfer)
to the shareholders, it has to first get the circular registered with the ROC only then it can
give the same to the shareholders.

Section 239- Preservation of books and papers of the Amalgamated company

Books and papers of the Amalgamated Company (the company that ceases to exist after the
merger) shall not be disposed off, without the permission of the Central Government.

Before giving the permission the Central Government has to appoint a person to examine
books and papers.

Section 240- Liability of officers in respect of offenses committed prior to the merger or
amalgamation

The liability of officers who had committed an offense prior to merger or amalgamation will
continue even after merger or amalgamation.

Q Critically comment on majority powers and minority rights with special refernce to fossv.
Horbottle. Comment on class action and its significance to maintain corporate governance in
India.

Majority Powers

A company stands as an artificial entity. The directors run it but they act according to the
wish of the majority. The directors accept the resolution passed by the majority of the
members. Unless it is not within the powers of the company. The majority members have the
power to rule and also have the supremacy in the company. But there is a limitation in their
powers. The following are two limitations:

Limitations

The powers of the majority of the members are subject to the MoA and AoA of the company.
A company cannot authorise or ratify any act legally outside the memorandum. This will be
regarded as the ultra vires of the company
The resolution made by the majority should not be inconsistent relating to The Companies
Act or any statutes. It should also not commit fraud on the minority by removing their rights.

Principle of Non-Interference

The general rule states that during a difference among the members, the majority decides the
issue. If the majority crushes the rights of the minority shareholders, then the company law
will protect it. However, if the majority exercises its powers in the matters of a company’s
internal administration, then the courts will not interfere to protect the rights of the majority.

Foss Versus Harbottle

Foss v. Harbottle lays down the basics of the non-interference principle. The reasons for the
rule is that, if there is a complaint on a certain thing which the majority has to do if there is
something done irregularly which the majority has to do regularly or if there is something
done illegally which the majority has to do legally, then there is no use to have a litigation
over such thing. As in the end, there will be a meeting where the majority will fulfil their
wishes and make decisions.

Benefit and Justification

Recognises the country’s legal personality

Emphasises the necessity of the majority making the decisions

Avoid the multiplicity of suits

Exceptions to the Rule

The rule is not absolute for the majority; the minority also have certain protections. The Non-
interference principle does not apply to the following:

Ultra Virus Act

An individual shareholder can take action if they find that the majority has done an illegal act
or ultra virus act. The individual shareholder has the power to restrain the company. This is
possible by the injunction or the order of the court.

Fraud on Minority

If the majority commits fraud on the minority, then the minority can take necessary action. If
the definition of fraud on the minority is unclear, then the court will decide on the case
according to the facts.

Wrongdoer in Control

If the company is in the hands of the wrongdoer, then the minority of the shareholder can take
representation act for fraud. If the minority does not have the right to sue, then their
complaint will not reach the court as the majority will prevent them from suing the company.

Resolution Requiring Special Majority

If the act requires a special majority, but it passes by a simple majority, then an individual
shareholder can take action.
Personal Action

The majority of shareholders always oblige to the rights of the individual membership. The
individual member has the right to insist on the majority on compliance with the statutory
provisions and legal rules.

Breach of Duty

If there is a breach of duty by the majority of shareholders and directors, then the minority
shareholder can take action.

Prevention of Oppression and Mismanagement

To prevent the majority of shareholders from oppression and mismanagement, the minority
can take action against them.

Fraud or oppression against minority: When the majority of the company’s members use their
power to defraud or oppress the minority, their conduct is liable to be impeached even by a
single shareholder. The fraud or oppression must involve an unconscionable use of majority’s
power resulting or likely to result, either in financial loss or unfair or discriminatory
treatment of the minority. Court will annul such resolution that tries to amend MOA/AOA
that:

Indirectly or directly appropriating property of company to themselves.

Appropriating money to themselves.

Actions where shareholders are entitled to participate but are prevented by the amendment in
MOA/AOA.

Inadequate Notice of a resolution passed at meeting of members: When a GM is called and a

proposed resolution is mention then, the insufficient information of the same arises when:

A member could be attending meeting & voting against the resolution.

A member may decide not to attend.

Therefore, these two types of member may bring a representative suit to restrain the company
and its directors from carrying out such resolution.

Minority Rights:

Oppression and Mismanagement

In Companies Act, 1956, the protection for the minority shareholders from oppression and
mismanagement have been provided under section 397 (An Application to be made to
company law board for relief in cases of oppression) and 398 (An Application to be made to
company law board for relief in cases of oppression).

Reconstruction and Amalgamation

In Companies Act, 1956 with respect to minority shareholder right for reconstruction and
amalgamation of companies, under section 395 states that for the transfer of shares or any
class of shares of a company to another company, consent of the holders of at least (9/10) i.e.
90% of the shareholders consent will be required, which is therefore referred to the majority
suppressing the rights of the minority shareholders. It further states that the transferee can
give a notice to any dissenting shareholder expressing his desire to acquire their shares within
2 months after the lapse of the 4 months. Whereas, to counter these shortcomings, Companies
Act, 2013 under Section 235 grants the power to acquire the shares of shareholders dissenting
from the scheme approved by the majority not less than 9/10 in value of the shares and can
transferee company may give notice to dissenting shareholder for acquiring his shares.
Therefore, under Section 235 it is made mandatory for the shareholders to notify the
company regarding their intention of buying the remaining equity shares or by a group of
persons holding 90% consent of the registered holder of the company. The Companies Act,
2013 further provides the shares need to be acquired at a price determined on the basis of
valuation by a registered valuer in accordance with the rules and the regulations.

E-Voting

E-Voting has been made mandatory for the listed companies with at least 1000 shareholders
which indeed will enhance the active participation and offers a platform to the minority
shareholders in the management of the company. This will also enable the minority
shareholders to exercise their power in the company.

Piggy Backing:

This provision states that if the majority sells their shares then the minority shareholder right
has to be included in the deal. Moreover, “Piggy Backing” requires the party to consider the
purchase of the business to sell 100 percent of the outstanding shares. To ensure the
compulsory provisions of the minority shareholders.

### Class Action and Its Significance in Maintaining Corporate Governance in India

Class action lawsuits are a powerful tool for shareholders and stakeholders to enforce their
rights and hold corporate management accountable. The introduction of class action suits
under Section 245 of the Companies Act, 2013, marks a significant development in Indian
corporate governance. This provision allows shareholders and depositors to collectively sue a
company, its directors, auditors, or advisors for any fraudulent or wrongful act or omission.
#### Key Aspects of Class Action Suits

1. **Eligible Plaintiffs**:

- A specified number of members or depositors can file a class action suit. The threshold is
100 members or depositors, or a percentage of the total number, depending on the type of
company.

2. **Scope of Action**:

- The suit can seek redressal for a wide range of issues, including mismanagement,
fraudulent activities, or actions that are prejudicial to the interests of the company or its
members.

- It can also demand compensation for any loss caused by such activities and seek
restraining orders to prevent further harm.

3. **Defendants**:

- The suit can be filed against the company, its directors, auditors, experts, advisors, or any
person associated with the company who has engaged in wrongful conduct.

4. **Tribunal's Role**:

- The National Company Law Tribunal (NCLT) has the authority to adjudicate class action
suits. It can pass orders for compensation, cancellation of contracts, or any other appropriate
remedy to address the grievances.

#### Significance in Corporate Governance

1. **Empowerment of Shareholders**:
 - Class action suits empower minority shareholders and depositors by providing them with
a collective mechanism to address grievances. This mitigates the risk of individual
shareholders being unable to bear the legal costs of suing powerful corporate entities.

2. **Deterrence against Misconduct**:

- The possibility of facing class action lawsuits acts as a deterrent against fraudulent and
unethical practices by corporate management and other stakeholders. It compels directors and
officers to adhere to higher standards of transparency and accountability.

3. **Enhanced Accountability**:

- Directors and auditors are held accountable for their actions, ensuring that they perform
their duties diligently and in the best interests of the company and its stakeholders. This
fosters a culture of accountability and ethical conduct within the organization.

4. **Investor Confidence**:

- The provision for class action suits boosts investor confidence by providing a legal avenue
to address corporate fraud and mismanagement. It reassures investors that their interests are
protected, which can attract more investment into the company.

5. **Strengthening Corporate Governance Framework**:

- By providing a mechanism for collective redressal, class action suits contribute to

strengthening the overall corporate governance framework. They promote fairness and
justice, ensuring that companies operate in a manner that is responsible and aligned with the
interests of their stakeholders.

6. **Judicial Oversight**:
 - The involvement of the NCLT in adjudicating class action suits ensures judicial oversight
over corporate conduct. This adds an additional layer of scrutiny, ensuring that any disputes
are resolved in a fair and impartial manner.

#### Challenges and Considerations

While class action suits have significant potential to enhance corporate governance, there are
challenges to their effective implementation:

1. **Awareness and Accessibility**:

- Many shareholders, especially small investors, may not be aware of their rights to file a
class action suit. Increasing awareness and making the process more accessible are crucial for
the success of this provision.

2. **Legal and Procedural Complexities**:

- The legal and procedural complexities involved in filing and pursuing class action suits
can be daunting. Simplifying the process and providing legal support can help overcome
these barriers.

3. **Speed of Adjudication**:

- Ensuring timely adjudication of class action suits is vital. Delays in the legal process can
undermine the effectiveness of this remedy and discourage stakeholders from pursuing their
claims.

### Conclusion
Class action suits represent a significant advancement in Indian corporate governance,
providing a powerful tool for stakeholders to seek redressal for corporate misconduct. By
empowering shareholders and enhancing accountability, these suits play a crucial role in
promoting transparency, ethical conduct, and investor confidence. However, to realize their
full potential, efforts must be made to increase awareness, simplify procedures, and ensure
timely adjudication. Overall, class action suits are a cornerstone in the quest for better
corporate governance in India.

Explain various types of Meetings under Companies Act, 2013. Further, briefly

explain the prerequisites to conduct a meeting with relevant provisions and case

laws.

INTRODUCTION

Meetings are an integral part of corporate governance and play a vital role in the functioning
of companies. The Companies Act 2013, which replaced the Companies Act 1956 in India,
has laid down comprehensive provisions regarding various types of meetings that companies
must hold. These meetings serve as platforms for decision-making, communication, and
transparency within the organization. This article will delve into the different types of
meetings mandated by the Companies Act 2013 and their significance in corporate
governance.

Types of Meetings

Under the Companies Act 2013, several types of meetings are specified, each serving distinct
purposes:

Board Meetings (Section 173): Board meetings are essential for the management and
administration of the company. They must be held at least once every three months, with a
minimum of four meetings in a calendar year. The quorum for a board meeting typically
includes one-third of the total directors or two directors, whichever is higher. These meetings
are crucial for strategic decision-making, financial planning, and overall management of the
company.

General Meetings (Section 96): General meetings are gatherings of the company’s
shareholders. These include Annual General Meetings (AGMs) and Extraordinary General
Meetings (EGMs). An AGM must be held once a year, while EGMs are called for specific
urgent matters. AGMs are important for discussing financial statements, appointing auditors,
and approving dividend distribution.

Annual General Meeting (Section 96): The AGM is perhaps the most significant meeting for
shareholders. It provides a platform for shareholders to discuss the company’s performance,
approve financial statements, declare dividends, and appoint or reappoint directors. The
quorum for an AGM is typically a minimum of 5 members present in person.

Extraordinary General Meeting (Section 100): EGMs are convened for urgent matters that
cannot wait until the next AGM. These can include changes in the company’s constitution,
modification of the objects clause, and alteration of share capital. The notice period for an
EGM is shorter compared to an AGM, and the quorum is typically higher.

Meeting of Creditors (Section 230): In cases of mergers, amalgamations, or reconstruction,

the Companies Act mandates meetings of creditors. These meetings allow creditors to express
their views on the proposed agenda and vote on it. The decision at such meetings can
significantly impact the company’s future.

Meetings of Debenture Holders (Section 71): Companies that issue debentures must hold
meetings of debenture holders. These meetings are essential for discussing matters related to
the debentures, such as interest rates, redemption, and security.

General provisions to know about conducting valid company meetings

Authority to convene meetings

A meeting must be called by the board of directors of the company in order to be valid. A
resolution must be adopted by the board in order to decide to call a general meeting and give
notice of it.

Notice

A proper notice must be given by the board of directors in order for a meeting to be
conducted lawfully. This means that such a notice must be as per the provisions of the 2013
Companies Act. Additionally, notice must be sent to all members who are qualified to attend
the meeting and cast votes, mentioning in detail the meeting’s location, date, time, and a
summary of the business to be discussed must all be included.

Quorum

A quorum is defined as the minimal number of participants needed to hold a given meeting in
accordance with the Companies Act 2013 and its rules. Any business made during a meeting
that doesn’t have a quorum is regarded to be invalid. The main object of having a quorum is
to avoid taking decisions by a small minority of members that may not be accepted by the
vast majority. Every meeting has a different quorum requirement.

Agenda

Agenda can be viewed as the list of matters to be discussed during any meeting. An agenda is
crucial for conducting a business meeting in a structured manner and according to a planned
order. Every member who is qualified to attend a meeting gets the agenda as well as a notice
of the meeting. The agenda must be followed exactly, and the order of the agenda discussed
in the meeting can only be changed with the appropriate approval of the members present in
the Meeting.

Minutes

The minutes of the meetings contain a just and accurate summary of the proceedings of the
meeting. The Minutes must be prepared and signed within 30 days of the conclusion of the
meeting. Further, the Minutes books must be kept at the Registered Office of the company or
any place where the board of directors has given their approval.

Proxy

A proxy is a person appointed by the shareholder of a company to represent him at a general

meeting of the company. Further, it also refers to the process through which such an
individual is named and permitted to attend the meeting.

Resolutions

Business transactions in company meetings are carried out in the form of resolutions. There
are two kinds of resolutions, namely:
Ordinary resolution, and

Special resolution.

CONCLUSION

Meetings under the Companies Act 2013 play a pivotal role in shaping the corporate
landscape in India. They promote transparency, accountability, and stakeholder participation,
which are essential for the healthy functioning of companies. Adherence to the provisions of
the Companies Act 2013 regarding meetings is not just a legal obligation but also a crucial
step towards building a robust and ethical corporate environment. Companies that value
effective meetings are better positioned to navigate challenges, make informed decisions, and
foster trust among their stakeholders.

Judicial pronouncements on company meetings and relevant provisions

There are several cases where the matters relating to company law meetings were approached
in the court of law. Below is an amalgamation of a few of them. A point must be noted that an
attempt is made to segregate each case law on the basis of the type of company meeting or
relevant provisions. Each judicial pronouncement has been added under separate subheadings
then.

Annual general meeting (AGM)

T.V. Mathew v. Nadukkara Agro Processing Co. Ltd. (2002)

In this case, the Kerala High Court opined that there is no provision in the law which states
that holding the first AGM of the company can go beyond the set time period, i.e., nine
months from the forest financial year of the company.

Sikkim Bank Ltd. v. R. S. Chowdhury (2000)

In this case, the Calcutta High Court held that any meeting or business conducted at a
location other than the one mentioned in the notice of the meeting will be declared to be
prima facie void. If such an issue arises, a notice declaring the change of location has to be
served to each and every member having the authority to attend the meeting.
M/S. Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala (1961)

In the case of M/S. Harinagar Sugar Mills Ltd. v. Shyam Sundar Jhunjhunwala (1961), the
Hon’ble Supreme Court held that if a managing director of a company had repeatedly called
upon other directors of the company to hold an AGM, but the efforts are in vain, the
managing director could not be considered to be an “officer in default”.

Re. Brahmanbaria Loan Co. Ltd. (1934)

In Re. Brahmanbaria Loan Co. Ltd. (1934), the Calcutta High Court held that it is no defence
for a company to plead that it was not able to conduct an annual general meeting just because
a criminal case was filed against the secretary of the company and important books of the
company had been exhibited in the court for carrying out the proceedings.

Kastoor Mal Banthiya v. State (1951)

In this case, the Court had a lenient view when a company that had only two members who
were brothers, had to approach the Court for justice. Here, one of the brothers was seriously
ill, and hence the company erred in conducting the meeting. The Court stated that the non-
performance of holding the AGM was not a deliberate, willful defect, and hence no charges
were filed against them.

Extraordinary general meeting (EGM)

Life Insurance Corporation v. Escorts Ltd. & Ors. (1986)

The Hon’ble Supreme Court in the case of Life Insurance Corporation v. Escorts Ltd. & Ors.
(1985) stated that every individual holding shares of a company has the right to
call/requisition an extraordinary general meeting subject to the provisions of the Act. Further,
the Court said that once the requisition is made in compliance with the provisions of the Act,
the shareholder cannot be restricted from calling any such meeting. Simply put, the Apex
Court stated that an institutional shareholder like that of LIC, too, has the same right to
requisition an EGM as any other shareholder.
Moreover, the Supreme Court in this case made another interesting observation. It said, if an
EGM is filed for the purpose of removing some of the existing directors of the company, one
cannot say that the requisition is invalid just because the reason for their removal was not
mentioned.

Ball v. Metal Industries Ltd. (1957)

In Ball v. Metal Industries Ltd. (1957), the Court of Session in Scotland said that the
requisition to hold an EGM must set out the matters for calling such a meeting, that is, apart
from the agenda for the meeting, no other discussion can be carried out in these meetings. For
instance, if an EGM is being conducted for the appointment of three new directors, the
chairman cannot add a new item for the removal of one of the existing directors of the
company to the agenda.

B. Sivaraman v. Egmore Benefit Society Ltd. (1992)

In the case of B. Sivaraman v. Egmore Benefit Society Ltd. (1992), the Madras High Court
held that an extra annual general meeting cannot be requisitioned for a declaration that the
directors appointed at the last meetings were not justifiably elected and that the requisitionists
should be appointed on their behalf.

Anantha R. Hedge v. Capt. T.S. Gopala Krishna (1996)

In the case of Anantha R. Hedge v. Capt. T.S. Gopala Krishna (1996), the Karnataka High
Court opined that just because a director refused to conduct an extraordinary general meeting
when requisitioned, it would not amount to an offence under the 2013 Act.

B. Mohandas v. A. K. M. N. Cylinders Pvt. Ltd. (1998)

In the case of B. Mohandas v. A. K. M. N. Cylinders Pvt. Ltd. (1998), the Company Law
Board opined that the requisitionists cannot approach the tribunal directly, i.e., when the
requisitionists have not made an attempt to call the meeting themselves as stated under the
law, they cannot approach the tribunal for an order directing the EGM.

Amit Kaur Puri v. Kapurthala Flour, Oil and General Mills C. PVt. Ltd. (1982)

In this case, the High Court of Punjab-Haryana held that when a company has no duly
constituted board of directors, it is not feasible to hold a meeting.

Indian Spinning Mills Ltd. v. His Excellency (1953)

In the case of Indian Spinning Mills Ltd. v. His Excellency (1953), an individual who did not
possess a qualifying share was assigned to be the chairman of the company. Later, some
directors transferred their shares to him to fulfil the requisite necessities of the articles of the
company. However, a group of members objected to this action and filed a suit, claiming such
an action to be invalid. Here, the Calcutta High Court held that when such a situation arises, it
is quite impractical to conduct a meeting.

Re. Ruttonjee and Company Ltd. v. Unknown (1968)

In the case of Re. Ruttonjee and Company Ltd. v. Unknown (1968), the Calcutta High Court
cautioned the Tribunal, stating that it should interfere only if it is fully convinced that the
application made is filed with bona fide intentions in the larger interest of the company.

The High Court issued a note of caution against the misuse of application under the Act and
stated that, “the power should be used sparingly and with caution so that the court does not
become either a share-holder or a director of the company trying to participate in the
internecine squabbles of the company.”

Board meeting

Sanjiv Kothari v. Vasant Kumar Chordia (2004)

In the case of Sanjiv Kothari v. Vasant Kumar Chordia (2004), an observation was made that
in case a meeting is convened by the managing director on requisition by the director on the
same date to have a discussion on the same matter that was highlighted by the director, the
director has to attend the meeting and should not have any other arrangement for attending a
meeting on the same date at some other place.

Dankha Devi Agarwal v. Tara Properties Private Limited

In Dankha Devi Agarwal v. Tara Properties Private Limited (2006), the Hon’ble Supreme
Court concluded that if a decision is reached without due notice of such a meeting for the
removal or induction of any individual, such an act would constitute oppression and
mismanagement. It further stated that at least two directors or one-third of the total strength,
whichever is higher, will constitute a quorum for a board meeting. Also, directors who are
attending the meeting in person or through any audio-visual means would be counted for the
purposes of quorum.

Notice of the meeting

Smith v. Darley (1848)

In this case, the Queen’s Bench Division of Ireland held that an accidental omission to give
notice to, or the non-receipt of, such notice by any individual who is entitled to receive it
does not invalidate the proceedings of the meeting; however, if such a notice is deliberately
commissioned to be served, it will definitely result in invalidation.

Kaye v. Croydon Tramways Co. (1898)

In this case, there was a provisional agreement for the sale of an undertaking by one company
to that of the other. So, the company sent out a notice stating that the object of the meeting
was to adopt an agreement for the sale of one of the company’s undertakings to another;
however, it failed to reveal the fact that substantial amounts were payable to the directors of
the undertaking that was to be sold to compensate for the loss of office. Here, the court held
that the notice was invalid as it was not adequate and did not disclose all the facts upon which
the members would be exercising their right to vote.
Parker and Cooper Ltd v. Reading (1926)

In this famous English case, the court observed that when the members had been served a
notice that was not in accordance with the set standards but were still present at the meeting,
the notice could be made good. Further, the meeting can also be considered valid irrespective
of whether the notice served in the first place was apt or not.

PNC Telecom v. Thomas (2002)

In this case, the Vice-Chancellor of the Chancery Division of England and Wales held that a
notice of a meeting served via fax is a valid notice.

Quorum of the meeting

Sharp v. Dawes (1876)

In the case of Sharp v. Dawes (1876), a company with several members called a meeting for
the purpose of making a call on the members. However, only one member, who was holding a
proxy, was present at the venue of the meeting. He proceeded to take the chair and pass the
necessary resolution for making the aforementioned call on the members. Furthermore, he
even proposed a vote of thanks. When this issue arrived in court, the Court declared such a
meeting to be invalid. In the words of Lord Coleridge, “the word ‘meeting’ prima facie means
a coming together of two or more than two persons“.

Chairman

Pena v. Dale (2003)

In this case, it was stated that if an individual is informally invited to act as a chairman of a
meeting but no formal resolution is passed in this regard, the members of the company
attending the meeting have the right to raise an objection contending that there was no valid
appointment of a chairman.
Voting

T. H. Vakil v. Bombay Presidency Radio Club (1945)

In a company, business transactions are carried out at meetings in the form of resolutions.
Members are entitled to discuss the contents of a resolution before it is considered to be put
up for voting. Further, amendments that are pertinent to the proposed resolution may be
proposed in the meeting and voted upon. In case the amendment is passed, the amended
resolution will be considered for voting. In this case, the Bombay High Court held that if the
chairman wrongfully rules out an amendment to a resolution, the next proceedings conducted
to discuss the same resolution will be deemed as invalid.

Q. Modes of winding up of company

Winding up is a process in which life of a company is brought to end and property is utilized
for the benefit of members and creditors. It is a means by which dissolution of a company is
brought about. It involves permanently shutting down of business of the company. Winding
up of a company can takes place due to various reasons:

If the company has ceased to carry on its enterprise

there may be a deadlock in the management (Barron v Potter)

due to Breach of Statutory Provisions

Shareholders Dispute (Oppression and mismanagement)

Corporation is acting outside its scope of business.

Winding up and Dissolution sometimes can be used interchangeably but the difference
involved is in the procedure to be followed. Even after commencement of winding up, the
ownership of property remains with the company until and unless dissolution order is passed.
On dissolution company ceases to exist its legal status is withdrawn. Winding up may
proceed without the intervention of court, but dissolution can only take place by the order of
court. Creditors can prove their debts in winding up, proving of debts is not possible in
dissolution. Liquidation on other hand is a stage in process of winding up. It involves
disposal of asset proceeds being utilized in repayment of debts and surplus if remaining will
be distributed among the members of the company.

Winding up precede Dissolution, when winding up process is initiated the life of company
remains intact, then in next stage liquidator is appointed to manage the property and assets of
the company. It collects claims of the creditors due to the company. Liquidator is authorized
to realize assets of the company and pay off debts from the proceeds received. In the end,
court now NCLT passes Dissolution order due to which separate legal status of company
comes to an end. The name of the company would strike off from the registrar of companies
after dissolution order is passed by the Tribunal.

Who may file petition for Winding up?

According to Section 272 of companies act,2013 a petition of winding up shall be presented

to the tribunal by-

The company

Any contributory or contributories

The registrar

Any person on behalf of the government

In a case underneath clause (b) of section 271[1], by the central government or a state
government.

Effect of Winding up order

When a petition is filed by any person eligible under section 272, the tribunal after studying
the application and analyzing various facts can confirm or set aside the case. On confirming
the tribunal will appoint a liquidator for carrying on further procedures under the process.
When the winding up order has been passed or liquidator has been appointed, no suit or other
legal proceeding shall be commenced, or if pending shall be proceeded with, by or against the
company, expect with the leave of tribunal and subject to such terms as the tribunal may
impose.

In S.V. Kondaskar, Official Liquidator v. V.M. Deshpande, Itd & Anr [SC][2], the only
question which require consideration of supreme court in this case was, whether it is
necessary for income tax officer to obtain leave of the court, when he wants to reappraise the
company for eluding income in respect of past years. The court in its judgement recited that it
is necessary to shield the interest of company during pending winding up petition. The court
without any delay dismissed the case with costs. No leave of winding up of court was granted
to income tax officer.

Modes of Winding Up

Winding up by the Tribunal

Voluntary Winding up

Grounds for Winding Up by the Tribunal

According to the old act Companies act,1956[3]. A company may be wound up by the court
now (NCLT), If-

The company has passed a special resolution of its winding up by the court order

Default is made in filling monetary statements with the registrar of agencies or maintaining
statutory meeting

It does not commence enterprise within a year from its incorporation or suspends whole
business for complete year

it is not able to pay its debts

The court is of the opinion that it is miles just and equitable that it ought to be wound up.

According to the new act Companies act,2013[4]. A company can be wound up by the
tribunal if-
The company is not able to pay debts

The organization by way of special resolution has decided, it must be wound up by means of
the tribunal

The corporation has acted against the sovereignty and integrity of India, the safety of the
state, pleasant relations with foreign states, public order, decency, or morality

If on the application made through the registrar or any other individual legal through the
principal government by way of notification below this act, the tribunal is of the opinion that
affairs of the company are conducted in a fraudulent manner or the employer changed into
shaped for fraudulent and illegal purpose or the character concerned inside the formation or
control of its affairs are responsible of fraud, misfeasance, or misconduct in connection
therewith and that it’s far right that the agency be wound up.

The corporation has made a default in filling with the registrar its financial statements and
returns for straight away preceding 5 consecutive financial years

The court is of the opinion that it is just and equitable that it needs to be wound up.

Consistent with the latest amendments, Insolvency, and bankruptcy code,2016 has substituted
segment 271 of the organizations act,2013. The subsequent grounds were eliminated from
segment 271:

The enterprise is not able to pay debts

The tribunal has ordered winding up of the organization underneath bankruptcy XIX

Winding up by the Tribunal

Analysis on the grounds of commencement of business

If an employer has failed to commence its business inside twelve months of its incorporation
or

An agency is not always carrying on any enterprise or operation for a duration of right now
preceding financial years
The subscribers to the memorandum have not paid the subscription which they had
undertaken to pay on the time of incorporation of an organization and an assertion to this
impact has now not been filed inside a hundred and eighty days of its incorporation.

Just and Equitable Clause

Where whole object of the company was Fraudulent[5]

Where the substratum of the company has gone[6]. The substratum of the company is deemed
to have gone where:

(1) The difficulty depends on business enterprise is gone, Or

(2) The item for which it turned into fashioned has failed, or

(3) it is miles impossible to carry at the business of the organization except at a loss,

(4) the existing and feasible assets are inadequate to meet the existing liabilities of

Agency.

Where the main object of the company for which it was incorporated has been successfully
completed.

Where there has been mismanagement and misapplication of funds by the directors of private
company.[7]

Inability to Pay Debts

According to section 433(e) of the companies act 1956, if a company is unable to pay its
debts, it can be wound up by the court. After the substitution by Insolvency and bankruptcy
code,2016 this point has been deleted. It is not necessary if the assets fall short of liabilities,
the company is not able to pay debts. They can even satisfy the demands of its creditors. The
court after proper analysis of the company’s financial statements concluded that they are not
able to pay its debts, winding up order would have passed. The inability to pay debts arise
under following grounds-

when the corporation fails to make fee of debt within three weeks without delay

Preceding the day when amount was demanded

where execution issued on a decree or order of court

wherein its miles proved to the pride of court that the organization is not

Capable of repaying the amount back.

A Petition for winding up due to inability to pay debts must disclose all relevant information
regarding debts due, it must also disclose whether the assets are sufficient to pay off the
liabilities. If the debt is subject to dispute, court cannot pass winding up order. In K. Appa rao
v. Sarkar Chemicals (P) Ltd, the Andhra Pradesh high court held that if the company has
proper defense or in good faith there is a dispute of its obligations to discharge the debts and
liabilities, the court may not pass winding up order.

Voluntary winding up

Voluntary winding up is a process of winding up in which company wounds up on its own

motion. Earlier Voluntary winding up was dealt under section 304-323 of the companies act,
2013. With the introduction of Insolvency and bankruptcy code,2016 it promises to change
all.[8]

Approvals must be taken from registrar of companies and other authorities that no dues are
outstanding against the company. In AIR FRANCE GROUND HANDLING PVT.LTD, The
official liquidator has filed petition on behalf of the company for voluntary winding up. It
states official liquidator has received no objections from the ROC and other authorities. An
affidavit is filed by the voluntary liquidator of company to official liquidator that the
company has no outstanding dues. The company is wound up according to provisions of the
act and stand dissolved with effect from the date of filing petition.
According to companies act,2013 there are two kinds of voluntary winding up-

Members Voluntary Winding Up[9]–

It takes place only when the company is solvent i.e., they can pay its debts and creditors
approval is not required. A declaration of solvency is filed by company in this case.

A declaration of solvency made in members voluntary winding up has no effect unless-

It is filed within 5 weeks immediately preceding the date of passing of resolution by the
company and is submitted to registrar for registration before due date.

The Declaration must accompany a statement of assets and liabilities of the company and an
auditor’s report on the financial affairs of the company for the period commencing from the
date up to which the last date such account was prepared and ending the latest date
immediately before making of declaration.

If a default is made in filling declaration, directors on having no reasonable grounds for

proving that the company be liable to pay off its debts, shall be punishable with imprisonment
for a term which may extend to 6 months or fine which may extend to 5000, or with both.

If the provisions are not complied in case of Members voluntary winding up, it will result in
winding up as creditors voluntary winding up. In SHAILENDRA KANH BEHARILAL vs
SURAT DYES on 24 august,2004. The court came up to a conclusion that provisions of the
act are not complied with. Because of failure to comply with mandatory requirements, the
members voluntary winding up will end up in winding up as a creditors voluntary winding
up.

Creditors Voluntary Winding Up-

This type of Winding up cannot takes place without the approval of creditors. This kind of
winding up comes in picture when company has defaulted in filling declaration of solvency.
A meeting of members and creditors simultaneously must be called and conducted after
passing of resolution of voluntary liquidation in board meeting, for taking approval on the
same. The members must approve the scheme by passing special resolution. Then the
creditors meeting will be held for their approval. The creditors will proceed with appointing a
liquidator of their choice who will take charge of the winding up process. The liquidator will
take in control of all the assets of the company and will settle the claims of the creditors.

According to recent amendments, Section 59 of Insolvency and bankruptcy code,2016

governs Voluntary winding up. The procedure is as follows-

Board meeting is conducted in which voluntary winding up is proposed.

A declaration is filed by majority of directors, that either company has no debts, or they will
be able to pay debts in full by realizing its assets. The company does not aim to defraud any
person along with the declaration, following attachments should be filed with ROC –

1. Audited financial statements and record of business operations of the company for previous
2 years or for period since its incorporation whichever is later.

2. A report of valuation of assets of the company, prepared by a registered valuer.

Within 4 weeks of passing of declaration by the directors, shareholders must approve the
proposal scheme of voluntary winding up by passing a special resolution.

Any debt is due to any person by the company, creditors holding 2/3rd in value of debt must
approve such resolution. A voluntary winding up for a company deemed to begin on the date
when resolution is passed.

Voluntary Liquidation under the Insolvency and Bankruptcy Code, 2016

The Insolvency and Bankruptcy Code (IBC), 2016, introduced a structured framework for the
voluntary liquidation of companies. The relevant sections under IBC for voluntary liquidation
are Sections 59 and 35.
Key Provisions of Voluntary Liquidation under IBC:

Eligibility and Initiation (Section 59)

A corporate person (company, limited liability partnership, or any other person incorporated
with limited liability) can initiate voluntary liquidation if it has not committed any default.

A resolution for voluntary liquidation must be passed by a special resolution of the

shareholders or partners.

The company must declare its solvency through a declaration by the majority of directors,
stating that the company will be able to pay its debts in full from the proceeds of the assets to
be sold in liquidation.

Appointment of Liquidator

After the resolution for voluntary liquidation is passed, an insolvency professional is

appointed as the liquidator to manage the liquidation process.

The liquidator takes control of the company’s assets, evaluates them, and proceeds with the
liquidation.

Process and Powers of Liquidator (Section 35)

The liquidator's powers include verifying and valuing the company's claims, selling the
company's assets, and distributing the proceeds to creditors and shareholders.

The liquidator must also make an application to the National Company Law Tribunal (NCLT)
for the dissolution of the company after completing the liquidation process.

Reporting and Compliance

The liquidator must maintain proper records and accounts of the liquidation process.

Regular reports must be submitted to the NCLT, creditors, and other stakeholders.

Dissolution of the Company

Once the assets are distributed and liabilities settled, the liquidator files a final report and
application to the NCLT for dissolution.

The NCLT, upon satisfaction, passes an order for dissolution, and the company ceases to exist
from the date of the order.

Q. Explain the rule laid in Foss v Harbottle. Are there exceptions to the rule in Foss v

Harbottle. Critically evaluate the applicability of rule in the Indian context.

Elaborate your answer with landmark judicial pronouncement.

https://lawbhoomi.com/foss-vs-harbottle-case/#:~:text=Foss%20vs%20Harbottle%20is
%20a,or%20through%20a%20derivative%20action.

Q. ‘It is important to maintain transparency in the affairs of the company and the

Companies Act, 2013 requires companies to maintain proper books of accounts’.

In view of this statement, comment on the provisions under the Companies Act,

2013 in relation to maintenance of accounts in a company as per the standard

accounting principles.

### Provisions under the Companies Act, 2013 for Maintenance of Accounts

The Companies Act, 2013 emphasizes transparency and accountability in the financial affairs
of companies. The Act mandates stringent requirements for the maintenance of books of
accounts, ensuring adherence to standard accounting principles and fostering trust among
stakeholders. Here, we delve into the key provisions related to the maintenance of accounts as
prescribed by the Act.

#### 1. Books of Accounts

**Section 128** outlines the fundamental requirements for maintaining books of accounts:

- **Location**: Every company must maintain its books of accounts at its registered office or
any other place in India as decided by the board of directors. If the accounts are maintained at
a location other than the registered office, the company must notify the Registrar of
Companies (RoC) within seven days of the board's decision.

- **Content and Form**: The books of accounts must be kept on an accrual basis and
according to the double-entry system of accounting. They should provide a true and fair view
of the company's state of affairs, including:

- All money received and expended, detailing receipts and payments.

- All sales and purchases of goods and services.

- The assets and liabilities of the company.

- **Period of Maintenance**: The books of accounts, along with relevant vouchers, must be
preserved for a minimum of eight financial years immediately preceding the current year.

- **Inspection**: The books of accounts must be open to inspection by any director during
business hours.

#### 2. Financial Statements

**Section 129** mandates that financial statements should be prepared in compliance with
accounting standards notified under the Companies Act. The financial statements must
present a true and fair view of the company's financial position and performance.
- **Consolidated Financial Statements**: For companies with subsidiaries, a consolidated
financial statement must be prepared and laid before the annual general meeting (AGM)
along with the standalone financial statements.

- **Format and Content**: The financial statements must include a balance sheet, a statement
of profit and loss, a cash flow statement, a statement of changes in equity (if applicable), and
explanatory notes. They must be in the prescribed format as per Schedule III of the Act.

#### 3. Accounting Standards

**Section 133** gives the central government the authority to prescribe accounting standards
recommended by the Institute of Chartered Accountants of India (ICAI) in consultation with
and after examination by the National Financial Reporting Authority (NFRA).

- **Adherence**: Companies must comply with these accounting standards while preparing
their financial statements.

#### 4. Internal Audit

**Section 138** requires certain classes of companies to appoint an internal auditor to

conduct internal audits of functions and activities of the company. This provision is essential
for maintaining robust internal control mechanisms.

#### 5. Statutory Audit

**Section 139-148** deal with the appointment, duties, and remuneration of auditors. The
statutory audit ensures that the books of accounts are examined by an independent auditor
who certifies the accuracy and fairness of the financial statements.

#### 6. Directors’ Responsibility Statement

**Section 134** mandates that the board of directors include a Directors' Responsibility
Statement in the annual report, confirming:

- That accounting standards have been followed in the preparation of annual accounts.

- That accounting policies have been applied consistently.

- That proper and sufficient care has been taken for the maintenance of adequate accounting
records.

#### Judicial Pronouncements

**1. *Sahara India Real Estate Corporation Ltd. v. SEBI* (2012)**:

- The Supreme Court emphasized the need for transparency and accurate financial
disclosures to protect investors’ interests. This case reinforced the importance of maintaining
proper accounts and adhering to regulatory requirements.

**2. *ICICI Bank v. Official Liquidator of APS Star Industries Ltd.* (2010)**:

- The court highlighted the liquidator's role in ensuring that the books of accounts are
accurately maintained and reflect the true financial position of the company.

### Conclusion
The Companies Act, 2013 establishes a comprehensive framework for maintaining books of
accounts and preparing financial statements, aligning with standard accounting principles.
The provisions ensure that companies operate transparently and are accountable for their
financial practices. This framework, supported by regulatory oversight and judicial scrutiny,
is vital for fostering trust among investors, creditors, and other stakeholders, ultimately
contributing to the stability and integrity of the corporate sector.

Q. ‘A meeting to be called valid meeting, it must be properly convened and required

quorum should be there.’ In light of this statement, explain the procedural

compliances to be made by a company in calling AGM. Support your answer with

apt case laws

https://cleartax.in/s/annual-general-meeting-companies-act-2013

Case Law Reference: [Re: Kushal Ltd. (2018)]

In this case, the court emphasized that the notice of the AGM must be properly served to all
shareholders entitled to attend and vote at the meeting. Failure to provide adequate notice
could render the meeting invalid.

[Durga Trading Company v. Sunil Gupta (2015)]

This case highlighted that quorum requirements are essential for the validity of decisions
made at AGMs. The court upheld that decisions taken without the requisite quorum are
invalid.

Q., Saket was appointed as a Director of Texon Ltd in the last Annual General

Meeting of the company and later he resigned from his office. The Board of

Directors of Texon Ltd filled up the casual vacancy by appointing Mr. Sundarlal at

his place. But within a few days of appointment, Mr. Sundarlal died. Now the
company wants to appoint a Rudrappa in the vacancy created. Advise the

company. Discuss the provisions of the Companies Act, 2012 relating to filling of

casual vacancy in the company Board.

Appointment of director in case of casual vacancy According to Section 149(1), every company must have
a Board of Directors made up of persons who serve as directors, with a minimum of: three directors in the
event of a public company; two directors in the case of a private company; and one director in the case of a
one-person company. According to the law, this is the statutory limit. However, there may be times when
the company fails to fulfil the statutory limit as mentioned above in the course of business. This will result
in a temporary vacancy in the position of director. The term “casual vacancy in the office of a director”
refers to a director’s office being vacated before his term of office expires in the usual course of business.
It might be as a result of: Director’s death Director’s resignation Director’s disqualification under section
164 of the act. In this situation, the company, whether public or private, is responsible for filling the
vacancy.

As per Section 161(4),If the office of any director appointed by the company in general meeting is vacated
before his term of office expires in the normal course, the resulting casual vacancy may be filled by the
Board of Directors at a meeting of the Board, which shall be approved by members in the next general
meeting, in default of and subject to any regulations in the company’s articles (Annual General Meeting or
Extra-Ordinary General Meeting). If the AoA contains any provisions for the nomination of directors in the
event of a casual vacancy, they must be followed. When the articles contain no provisions for the
nomination of directors in the event of a casual vacancy, section 161(4) must be applied. Key
Considerations for Appointment of Director In Case of Casual Vacancy The provisions of this section do
not apply to private companies. Only directors nominated in a general meeting can replace a casual
vacancy if the office of such director is vacated before the end of his term as director in the usual course of
business. A director’s term cannot be considered as a casual vacancy if it expires due to retirement through
rotation or otherwise. In the absence of and pursuant to the requirements of the articles of incorporation,
the Board of Directors has the authority to nominate a Director to fill a casual vacancy. The Board of
Directors can only appoint a Director in a casual vacancy by approving a resolution at a Board Meeting,
not via circulation. A person appointed to fill a casual vacancy as a Director shall serve only until the date
on which the director in whose place he is appointed would have served if the position had not been
vacated.

Relevant Case Laws

Company Law Board vs. B.S. Mathur:

This case emphasized the need for adherence to statutory provisions and the company’s
Articles of Association when filling casual vacancies. Any deviation from the prescribed
procedure can render the appointment invalid.

Chandrakant Sakharam Karkhanis vs. Jadeja Estate Developers Pvt. Ltd.:

The judgment underscored that appointments to fill casual vacancies should not contravene
the principles of corporate governance and must ensure that the process is fair and
transparent.

Explain the terms ‘compromise', ‘arrangement' and ' reconstruction'. What are the

powers of a tribunal with regard to enforcement of its order sanctioning a

compromise and arrangement?

### Definitions: Compromise, Arrangement, and Reconstruction

**Compromise**:

- A compromise refers to an agreement between a company and its creditors or shareholders

to settle debts or disputes. It typically involves the company proposing a plan to pay off debts
over time, often at a reduced amount. This is aimed at avoiding insolvency and allows the
company to continue operations.

**Arrangement**:

- An arrangement is a more general term than compromise. It involves any reorganization of

the company's capital structure, including mergers, demergers, amalgamations, and other
structural changes. An arrangement can be between the company and its shareholders or
creditors, aimed at reorganizing the company’s affairs to ensure its survival and profitability.

**Reconstruction**:
- Reconstruction refers to the process of reorganizing a company's structure, which might
include changing the company's capital base, merging with another company, or splitting the
company into two or more entities. The purpose is usually to make the company more
profitable or efficient, or to address financial difficulties.

### Powers of a Tribunal under Companies Act, 2013

The Companies Act, 2013, particularly under Sections 230-232, provides a comprehensive
framework for the compromise, arrangement, and reconstruction of companies. The National
Company Law Tribunal (NCLT) has significant powers concerning the enforcement of its
orders in these matters.

#### Powers of the Tribunal:

1. **Sanctioning of Compromise or Arrangement**:

- Under Section 230, the NCLT can sanction a compromise or arrangement proposed
between a company and its creditors or shareholders. The tribunal ensures that the proposal is
fair, reasonable, and does not prejudice the interests of creditors or shareholders.

2. **Meeting of Creditors and Members**:

- The NCLT can order the holding of a meeting of creditors or members to consider the
proposed compromise or arrangement. The tribunal can give directions regarding the manner
in which the meeting should be conducted.

3. **Approval Requirements**:

- For a compromise or arrangement to be binding, it must be approved by a majority in

number representing three-fourths in value of the creditors or shareholders present and voting
at the meeting. The tribunal then has the authority to sanction the scheme if it finds it to be
fair and just.

4. **Protection of Interests**:

- The NCLT can impose conditions as it deems necessary to protect the interests of
creditors, members, and the public at large. This includes ensuring that the proposed scheme
does not adversely affect the rights of stakeholders.

5. **Binding Nature of Order**:

- Once the NCLT sanctions a compromise or arrangement, the order is binding on the
company, its creditors, shareholders, and, in the case of a merger or amalgamation, the
resulting company. The tribunal’s order serves as conclusive evidence of the validity of the
scheme.

6. **Filing and Registration**:

- The sanctioned scheme must be filed with the Registrar of Companies within the
prescribed time frame. The NCLT ensures compliance with this requirement, making the
scheme legally effective.

7. **Supervision and Implementation**:

- The NCLT has the power to supervise the implementation of the scheme. It can make
modifications to the scheme if necessary and address any issues that arise during the
execution of the scheme.

8. **Dissolution without Winding Up**:

- In cases involving mergers or amalgamations, the NCLT can order the dissolution of the
transferor company without the formal process of winding up, thereby simplifying the
restructuring process.
#### Judicial Pronouncements

1. **Miheer H. Mafatlal vs Mafatlal Industries Ltd.**:

- The Supreme Court of India laid down the principles for the NCLT to follow while
sanctioning schemes of arrangement, emphasizing the need for transparency, fairness, and
protection of minority interests.

2. **S.K. Gupta & Anr vs K.P. Jain & Anr**:

- This case highlighted the tribunal's duty to ensure that the scheme is not only fair and
reasonable but also not detrimental to the interests of any class of stakeholders.

### Conclusion

The terms compromise, arrangement, and reconstruction play crucial roles in the
restructuring of companies. The NCLT, under the Companies Act, 2013, has extensive powers
to sanction, supervise, and enforce such schemes, ensuring they are equitable and beneficial
for all stakeholders. These provisions aim to facilitate corporate restructuring while
safeguarding the interests of creditors, shareholders, and the public, thus promoting corporate
governance and financial stability.