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COMPANY LAW
3 AND 5 YEARS LLB UNDER KARNATAKA STATE LAW,.
. UNIVERSITY AS PER 80/20 PATTERN SYLLABUS

UNIT WISE MOST IMPORTANT PREVIOUS YEAR

QUESTIONS ALONG WITH ANSWERS UPDATED TILL
AUGUST 2024 EXAMS

EDITION- IV (YEAR 2025}

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BY
ANIL KUMAAR I< T, BA, MSW, LLB, LLM & (Ph.D.}

Mob: 9584416446
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Karnataka State lav1 Uri'iversity 3 and 5 Years LLB.

ANIL KUMAAR KT LLB COACH

Company Law
Most important previous year questions Unit wise

UNIT-I

\{ \·J::State the circumstances on which the court can lift the corporate veil of the
company. Answer with the help of decided cases.

.,,\ '2-:1Setine company? Explain its kinds? ft\dhr•' L.f }!

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3.Company is having an independent corporate existence. Explain it with case

ho is Promoter? What are the duties and liabilities of a Promoter?

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5,Write a note on Independent corporate existence 7

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.,-5.Write a note on one Person Company. • •.. l''

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7. Who can be a member of a company? What are the different modes of
becoming a member of company?

8. Write a note on Gc>Vernment Company?

UNIT-II.
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1 xplain thefundamenta?ciauses of memorandum association of a company.

\,\>< u6.'" Explain-the doctri_ne of indoor manageme(lt with exceptions?

'v J,,,r:·state the procedure for alteration of memorandum of association?
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12. Explain the doctrine of ultravires.

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. , rite a note on pre-incorpor;:ition r.nntr;:ic:t5 .
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14. Compc1ny cannot be sued for pre-incorporation contracts discuss.

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£: Define prospectus? Explain the contents of prospectus.

A' 4'1{(\Nhat ar·e the remedies available for misrepresentation in the prospectus?
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Explain.
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UNIT-Ill.
, \.,J:istate the different kinds of meetings in a company. What is the procedure to
.b ' call a meeting of the company.
\1'8. Write .anote on corporate social responsibility. / R_ • . ._......
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\Nho is director? How is he appointed? What are their liabili i- s?
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- ·1,2.0:· Discuss the provisions for the prevention of o ressiq_lJ and

mismanagement in a company?
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- Who is a comp9oy director? What are the powers and duties of a director?

22. Write a note on Central Government's power to prevent mismanagement.

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-- n-".\AvAv/ rite a note on re""ss,o
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n and rrn• smanagement.
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24.What is statutory meeting?. Explain the procedure for holding statutory
meeting.
UNIT- IV
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;:\ ,\ \..215. Explain the general principles and statutory restrictions on allo ment of
shares? /--!

..-,,J .\ :What is debenture and explain its kinds?

,.....,zf.Write a note on buy back of shares.

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i. sil'8.·Write a·note..on-dividends;.-
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-Explain.the different types of share capitals.

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l,3.0:"\Nhat is floating charge? \Nhen will floating charge crystalize?
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31. Explain the gcnerril procedure of shcJres?

32. Explain the rue laid down in Foss V. Harbottle. State the exceptions if any?

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<) '""'3·3.When a national company law tribunal can order for winding up of a
• company? Explain.

vi:r'.".Under what circumstances the tribunal/ court can order for compulsory
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winding up of a company?

\ 35·_ Write a note on preferential payment?

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LJ6:''Write a note on members voluntary winding up of company
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t...-3--T ·Explain briefly the various methods of winding up of a company.

t.,3-e(what are the duties and powers of tribunal with respect to the
reconstruction and amalgamation of the company?.

tJ•\ ·..}!if\Vho can apply for winding up of a company

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40. write a not onpowers of court to wind up of company.
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Problems related questfons

41. ln a train accident all the 10 members of a private comfYclny died. Does the
company cease o exist because all the members have died? Give reasons.
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42. A company has its registered office Mumbai. Due Lu some reasons.
unfavourable to the company, it wishes to shift its registered office to Karnataka.
Advice the company. ,. I

43. A company has been declared dividend and is not paid within 30 days from
the date of declaration share holders and wants to file a suit, Advise.them? ' j

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44.ln a Aeroplane accident all the members of a private company died. Does
the company ceases to exist? Decide.

45. "A" on instructions of promoters of a company prP.rared memorar:,dum of

association and articles of association, paid the registration fees and got the
company incorporc:1led. "A" cl;:iimc:. reimbursement from the company; The
company refuses to pay, will "A" Succeed.

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 46. "M"a person is already holds office of a director in 15 companies. He wants
to become a director of another:=company. Advise "M".

47. A, Band Care the members of ;:i cnmp;:iny and holding all sl,ares of lhc1L
company. Then transferred their shares to "X", "Y" and "Z". Whether the
company having the same entity.

BY
ANIL KUMAAR KT LLB COACH

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UNIT-I ...
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1. State the circumstances on which the court can lift the cor orate veil of the
company. Answer with the help of decided cases.

lntrod'uction:

The statutory privilege of corporate personality given to the companies must

be used for legitimate purposes only. When the said privilege is used to hide
wrongful or fraudulent conduct, the court shall remove the veil or pierce the
veil of the corporation. This concept is called piercing of the corporate
veil. Salomon's case is a classic example of this doctrine. Further in Lee v. Lee
Air Farming Ltd., it was held that Lee was owner, director, and worker in the
company at the same time and the contract of service between Le and the
company was valid. A person can be a master and a servant at the same time
in the company. . •.,.

Statutory Provisions: The Companies Act, 2013

Reduction in Membership [Section- 3A]: lf at ariy time, the minimum
requirement of memhers in a company as prescribed in section 3(1) i reduced
below its statutory requirement, the remaining member,s need to fulfil the r ).
criteria of minimum requirement within six months. Otherwise, the _remaining
members shall be severely liable for all the debts taken after the e.xpiry of six
months from the date of reduction. '

Misrepresentation in the prospectus: Under sections 34 and 35 of the Act, there

is civil and criminal liability for false representation in the prospectus. Every
director, promoter, and every other person who is in charge_ of the issue of
prospectus shall be held liable for sucb misrepresentation.

Misdescription of name [Section-147]: If an officer of a company.signs any

document such as bill of exchange, promissory note huhdi, cheque, etc., oh
behalf of the company and the name of the company is not mentioned in such
document in a manner prescribed, then the person signing sha,p be held
personally liable to the holder of such instrument.
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Failure to return Application money [Section-39]: If the minimum subscription
as stated in the prospectus has not been subscribed within the prescribed time,
the company must refund the entire application money to the applicants. If the
company fails to do so, the directors shJII be jointly or severely heltj Ji;::iblc to
return interest and the application money.

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 Fraudulent conduct [Section-339]: If at the time of winding-up of a, company,
it cornc into view thal any business of the companv ha_sbe.en carried on with
intent to defraud creditors of the company, the person,·who is or has been a
directoi-, manager, or officer of the company or any other person ,shall be
personally responsible, without any limitation of liability, for all the debts of the
company as Lhe Tri9unal may direct.

Ultra-vires Acts: In case, if any action is done beyond the powers (MOA) of the
company, the directors or officers intended to do so wi+l-:be held personally liable
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for their acts. ·-

Judicial Interpretations
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!l .Jlf· Corporate fa ade only an agency instrumentality [Jones v. Lipman (1962)]: In the
,. '1 given case, Lipman transferred his property in the name of the company to avoid
t· fulfillment of the contract. Therefore, he was held liable for the non-fulfillment
,, of L11e speciric performance of the contact. Lipman and the company shall be
treated the same by creating an exception to the principle of co.rporate
personality.

Public Policy [Re R.G. Films Ltd. (1953}]: In this case, the 80.ard of Trad.e'refused
to register a film in India in the name of a British company. The film wafactually
t produced by an American company in the name of ;:i British company a_nd this
•• was in conflict with the public policy.

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Tax Evasion [Re. Sir Dinshaw Maneckjee Petit (1927)]: In the given case, the
ass ssee divides his income into four parts to reduce his tax liability. He formed
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"i four companies as a means of avoiding super tax and did no business at all.
·' Therefore, the court disregarded the corporate entity and held the assessee
j3 liable for tax evasion.
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... Conclusion

•- Whenever it is proved that the sole purpose for which the company is formed is
-rr:audule-nt,"rnfsi-eprese-ntat1cfr,;--o-r any other purpose like tax evasion, the cour-t

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will ignore the character of corporate personality and make officers concerned
liable for their actions. The corporate veil could be lifted in cases allegedly
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opposed to justice and against public policy. Corporate personality is a boon for
the company and lifting of corporate veil is like a shield that protects the identity
nf a company and helps in punishing the 1·cul urf enders.

2. Define company? Explain its kinds?

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Introduction:
A company is a business organization created by individuals, groups, or
organizations to conduct business. It is an artificial legal entity separate from
its owners and has a distinct legal identity. It can enter into contracts, own
assets and property, sue or be sued in its name, and conduct business
activities. Forms of the company include sole proprietorship, partnership, or
corporation, and operate in various industries and sectors.

It is formed by filing articles of incorporation or articles of association with the

relevant government agency. It outlines the company's purpose, ownership
structure, management, and other details. The ownership of a company is
represented by shares, which can be bought and sold on a stock exchange or I
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privately.

it can have one or more shareholders or owners who are not liable for its debts
beyond the amount of capital invested. This is known as limited liability and is
one of the key advantages of a company. A board of directors usually conducts
a company's management. Also, a group of executives are responsible for
·:. making strategic decisions and overseeing the company's day-to-day
operations.

Kinds of companies
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Comoanies on the Basis of Liabilities

When we look at the liabilities of members, companies can be limited by shares,

limited by guarantee or imply unlimited.

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a) Companies Limiteµ-by Shares

Sometimes, sharehol-ders of some companies might not pay the entire value of
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their shares in one go. In these companies, the liabilities at.members is limited to •
the extent ot t eamoUnt not paid by them on their shares. '!
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This means that in case
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of winding up, members will be lia.ble only until
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they pay
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the remaining amo unt of their shares. ,.-,)

b) Companies Limited bv Guarantee

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lr1 some cornpanles, the rnernorandum of assoc1at1on mentions amounts of
money that some members guarantee to pay.

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In case of winding up, they will be liable only to pay only the.amount so
guaranteed. The company or its creditors cannot compel them to pay any
more money.

c) Unlimited Companies

Unlimited companies have no limits on their members' liabilities. Hence, the

company can use all personal assets of shareholders to meet its debts while
winding up. Their liabilities will extend to the company's entire debt.

Companies on the basis of members·

a) One Person Companies {OPC)

These kinds of companies have only one member as their sole shareholder. They
are separate from sole proprietorships because OPCs are legal entities distinct
from their sole members. Unlike other companies, OPCs don't need to hc1ve any
minimum share capital.

b) Private Companies

Private companies are those whose articles of association restrict

t. free transferability of shares. In terms of members, private companies need to
,.- have a minimum of 2 and a maximum of 200. These members include present
and former employees who also hold shares.
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c) Public Companies
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t; In contrast to private companies, public companies allow t_heir members to freely
transfer their shares to others. Secondly, they need to have a mi,nimum of 7
J members, but the m, , a. ximum number of members they can haf is unlimited.

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Companies on the basis of Control or Holding
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In terms of control, there are two types of companies. _,

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a) Holding and Subsidiary Companies
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In sorne rnses, a company's shc:ires might be held tully or partly by another
compuny. Here, the company owning these shares becomes the holding,Qr
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parent company. Likewise, the company whose shares the parent company.owns

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 becomes its subsidiary company. Holding companies exercise control over their ,I

subsidiaries by dictating the composition of their board of directors.

Furthermore, parent coITlpanies also exercise control by owning more than 50%
of their subsidiary companies' shares.

b) Associate Companies
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Associate companies are those in which other companies have significant

influence. This "sigr;lificant influence" amounts to ownership of at least 20%
shares of the associate company.

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The other company's control can exist in terms of the associate company's
business decisions under an agreement. Associate companies can also exist
under joint venture agreements.
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Companies in terms of Access to Capital

When we consider the access a company has to capital, companies may be either
listed or unlisted.

I Listed companies have their securities listed on stock exchanges. This means
people can freely buy their securities. Hence, only public companies can be
listed, and not private companies.

Other Types of Companies

a) Government Companies

Government companies are those in which more than 50% of share capital is
held by either the central government, or by one or more state government, or
jointly by the central government and one or more state government.

b) Foreign Companies
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Foreign, companies are incorporated outside India. They also conduct business in
India,u i•ng a place of business either by thernselvP.s or with some other
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c) Charitable Companies (Section 8)

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Certain companies have charitable purposes as their obje.ctives. These

companies are called Section 8 companies because th'ey are registered Llnder
Section 8 of Companies Act, 2013.

Charitable companies have the promotion of arts, science, culture, religion,

► ,;;Ji education, sports, trade, commerce, etc. as their objectives. Since they do not
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earn profits, they also do not pay any dividend to their members.

d) Dormant Companies

These companies are generally formed for future projects. They do not have
significant accounting transactions and do not have to carry out all compliances
of regular companies.

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e) Nidhi Companies

' A Nidhi company functions to promote the habits of thrift and saving amongst its
members. It receives deposits from members and uses them for their own
benefits.

f} Public Financial Institutions

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Life Insurance Corporation, Unit Trust of India and other such companie.s:are
treated as public financial institutions. They are essentially government
.. companies that conduct functions of public financing.
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Conclusion:
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.} A company is a legal entity established by a group of individuals to employ in

and regulate a business firm. A company may be coordinated in different ways
for financial liability and tax purposes, relying upon the corporate law of its
administration. The line of a business concern in an enterprise is in, wiU
normally ascertain wh-ich business substructure it picks, for instance,

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partnership, a corporation or a proprietorship. In such a case, a comp,a,ny may
be contemplated as a business kind. ·, 1,

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3. Company is having an independent corporate existence. Explain it with casf'
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Introduction:
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 Once a Company is incorporated under the Law, it is said to have an independent
Corporate Existence. What is the meaning of this phrase Independent Corporate
Existence of a Company.

The phrase Independent Corporate Existence of the Company means that the
Company will have a distinct legal identity from that of its shareholders. It will
not be having the same identity as that of its shareholders and a new body in
law in the eyes of law is created. A company, once incorporated, is not like a
partnership firm wherein the partnership firm is not separate from its members.
A company on the other hand is having a distinct legal persona that is existing
independent of its members. With other kinds of enterprises like Partnership
firm and Proprietorship firm, the entity isn't a different person in the eyes of law
and the partners / members of such entity are the entity and they are not
seperate and different from the entity. Whereas, the same is not the case with
a Company.

As soon as company has been incorporated under the act, a company is vested
with a corporate personality, which is different from that of its members who
are a part of it. Such incorporated companies are independent of its members
and have a perpetual succession and a common seal. All the members who have
so become a part of the Company and have signed its Memorandu.m of
Association are a part of the Body Corporate that has been defined under the
Act. Once a Company has been incorporated it can start doing business in its
own name and does not need to be dependent on the member/ sharehoider of
the company.
It can take its own decisions and each and every asset or liability will be that of
a company. Whatever is purchased by the Company, will remain of the Company
and so is with the liabilities of the Company. Having that said, a Company will
not cease to exist like a partnership firm or a proprietorship concern with the
death of one of its member/ sole proprietor. It will continue until and unless it
is liquidated under the law. This is one of the most basic reason for forming a
comp_ Y: A s ar_eholder of a company is not personally liable for any of the
liabilities of the Company, even though he may be the majority shareholder <;>f
such Company. The liclbilities are of the Company itself and have to be paid·off
by the ·company itself. Incorporation of a Company can be correlated to the birth
of a h8man being as a N,ew Legal Person is born.
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A company is i:l-5cpurutc legal entity with on independent cur µorate existence,

Which-:mecin·s it is distlrrct from its·members and can continue to exist even
when its members chanee. This is established by law and ecrn be explained by
the tallowing case laws:

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• Salomon v. Salomon and Co. Ltd

This 1897 case established that a co.mpany has its own identity and is
scp,Jr;:ite from its members. This means that investors cannot be held
responsible for the comp;:rny's actions, even if they own all of the company's
ca pitaI.
• RC Cooper v. Union Of India

This Supreme Court case established that a company is an artificial person,

and therefore its members cannot be held liable for the company's actions.
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• l<andoli Tea Company Case
This 1886 case established that a company is a separate legal entity from its
members, and that it can continue to exist even after its members die.
Conclusion:

A company is said to have an independent corporate existence ince it$

incorporation because it holds a separc:1Le legc:1I erilily. In law, a company is
considered to be an artificial person having similar rights a,nd obligation as a
natural person but no physical or natural existence. The property of the
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company is possessed by it and not by the individual members .
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,. 4. Who is Promoter'? What are the duties and liabilities of a Promoter?,

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Introduction:

According to Justice C. Cockburn. "Promoter is one who undertakes to form a

company with reference to a given object and to set it going, and who ta.kes the
t' necessary steps to accomplish that purpose."

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The carrying of persons on the ground of profit to run a business is called
rr-nmoters. The role of the promoter is to miJkc u detailed investig tion of the
weakri-ess··arid the sfrongest·oTthe-iffea· :fr1d determine·the amounf of capTtal fa

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be invested and estimate the operating expense and probable income
The concept of the promoter is a term of business and not that of law. •It has not
been defined anywhere in the act.

• According to L.J. Brown. "The ter;m promoter is a term not of law but of business,
usefully summing up in .J single word ;:i number of business operation_sfamiliar

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 to the commercial world by which a company is generally brought into
existence."

Duties of Promoters of a Company

(1) To disclose the secret profit
The promotor should not make any secret profits. If in case he has it is his duty
to disclose the same he is empowered to deduct the reasonable expense
incurred by him

(2) To disclose all the material facts

The promotor of the 'company must disclose all the material facts and
information, . ·-,,
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(3) The promoter must make good to the company what he has obtained as a
trustee. The promoter has a fiduciary relationship with the company. it is the
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duty of. the promotor

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to make the best for his company to whatever he has
obtained ad a trustee.
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(4) o·uty to disclos the private arrangement

It is the duty of the promoter to disclose all the private arrangements resulting

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in him profit from the promotion of the company.

(5) Duty of promoter against the future allottees

The promotor has a fiduciary relationship with the company. In the same way,
the promotor also has a fiduciary relationship with the future allottees of the
share.

Liabilities of Promoters of a Company

(1) Liability to account for profits

The promoter is liable to account to the company for all secret profits made by
him without full disclosure to the company. They will sue the promotor for the (

amount of profit and recover the same with interest

(2) Personal Liability .

I he promoter is personally liable for all contracts made by him on behalf of the
company until the contracts have been discharged or the company takes over
the liability of the promoter.

(3) Liabllity of the misstatement in the prospectus

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 In the case of Mismanagement of the prospectus, the promotor is liable and
needs to pay compensation of every share and debenture for any loss or damage
sustained due to the wrong infqrmation on the prospectus.

(4) Liability at the time of winding up the company

In the Case of winding up of the company, on an application made by the official
liquidator, the court may make a promoter liable for misfeasance or breach of
.I . trust. Further, where fraud has been alleged by the liquidator against a
promoter, the court may order his public examination

Conclusion:

Company promoters are individuals or entities responsible for the formation

and incorporation of a company. They play a crucial role in the initial stages of
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a· company's existence. It can be said that a promoter can be an individ,ual, a

company, or an association of person which conceives the idea of form'ation of
a company, undertake all the activities which are necessary tor the company's
incorporation and brings about the actual existence of the company as a
separate legal entity. The·promoter nominates the directors, bankers and
auditors of the compc1ny and also decide the contents of the Articles of the
company.

5. Write a note on Independent corporate existence?

Introduction:

A company is said to have an independent corporate existence since its

incorporation because it holds a separate legal entity. ·In law, a company is
considered to-be an artificial person having similar rights and obligation as a
natural person but no physical or natural existence. The property of the
company is possessed by it and not by the individual members. All the c ntracts,
entered into or any transactions made, die i11 Lhe name of the comp_ahy and not
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in the name of its members. A company can enter into partnership with other l

individuals o other companies and can buy any number of shares, debentures
of another company. It can also join other companies by ascertaining to their
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terms and conditions.

The famous landmark case of Bates v. Standard Land Co., the qL1estion of thP.
distinction of the personality of a person and a company was brought b fore the

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 court. The court neld that members of the company were the pillars by which
any act or important decision can be taken by it.

The principle of independent existence of companies was established in india by

the judgement of the High Court of Allahabad in the case of In Re: The Kondoli
Tea Co. Ld. vs Unknown where it was held that the company was a seperate ( .'
body altogether from the shareholders.

Conclusion:

The phrase Independent Corporate Existence of the Company means that the
Company will have a distinct legal identity from that of its shareholders. It will
not be having the same identity as that of its shareholder·s and a new body in
law in the eyes of lav,1 is created. A company, once incorporated, is not like a
partnership firm wherein the partnership firm is not separate from its
members. A company on the other hand is having a distinct legal persona that
is existing independent of its members.

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6. Write a note on one Person Company.

Introduction:

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A One Person Company is essentially a Private Limited Company at its core,
incorporated with a single oyvner at the helm, who ls entitled to all its capital
2nd profits. The single owner must be an Indian citizen, who is a non-minor
and is eligible for owning an OPC in India. As far as the liability of the owner is . ·•·
concerned, it is restricted to his due subscribed capital, as is in a Pvt Limited
Company.

Similarl'y', the shares of the OPC are also restricted in terms of their transfer to
the general public or on public platforms like Stock Exchange Markets. They
can only be transferred to the rightful shareholder or nominee in the event of
his depGlt"ture. We'll discuss all these features·.of an OPC in detail further. ... ,.I
Howevf:r, before pror.Perline, let's first 1mrlerstanci wh3t is the legal fr3mcwork
under which a One Person Company operates.

Feat0res of One Person Company

Understanding the features th;:it rlPfine an OPC is not merely J lcgul necessity
but a strategic imperative for entrepreneurs. These features, ranging from
limited liability protection to its distinct legal identity, form the foundation of

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 what makes an OPC a nuanced and advantageous choice. Let's unveil these
significant features one by one, so that you have a clear un?erstanding before
you make the informed choice to opt for OPC as your business structure.

Distinct Legal Mentity: One of the fundamental features of an OPC is its

distinct legal identity. As a separate legal entity, the company is recognized
independently of its owner. This separation ensures that the business can
enter into contracts, own assets, and incur liabilities in its own name_;.
• Mar1datory Incorporation: Unlike other business structures, the formation of
an OPC is a mandatory process regulated by the Companies Act. This formal
incorporation ensures that the company adheres to legal standards, enhancing
""t.·· transparency and accountability. ,.
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• Single Ownership: T,., he hallmark of an OPC is its single-mernb·e·r ownership
strncture. This unique feature allows a sole entrepreneur to own and manage
the entire business, fostering a streamlined decision-making process without
the complexities of a multi-member board., /--: •
• Indian Ownership: Another notable feature is the require.menffor Indian.
ownership. Only Indian citizens and residents are eligible to establish and
operate an OPC, ensuring that the business remains rooted within the country.
• Limited Liability Protection: One of the key attractions for entrepreneurs is the
limited liability protection offered by an OPC. The owner's personal asset_s are
safeguarded, and their liability is restricted to the extent of their investment in
the company. This financial insulation is a significant advantage for individual
business owners.

,.
J; • Separate Management and Ownership: In an OPC, the roles of management
and ownership are distinctly separate. While the individual owner retains full
control over the company, the day-to-day management can be delegat d to

f •
professionals or employees, allowing for efficient business operations. ,
Perpetual Succession: The concept of perpetual succession ensures the
►:
continuity of the OPC beyond the lifetime of its founder. In the event of the
owner's demise or incapacitation, the nominee director steps in, ensuring the

' seamless continuation of the business.

- • - Restricted Transfer of-Shar-es: One-r:iotabl.e-fea.tur.e-of-an.OPC is.the restricted
transfer of shares. The ability to transfer ownership is limited, preventing the
►
' company from easily changing hands. This restriction contrib11tes to the
stability iJnd control retained by the single owner.
" Conclusion:
.. A One Person Company is the most preferred choice for solo entrepreneurs
t embarking on their business journey. It offers numerous advantages through
unparalleled features, like limited liability protection, a distinct legal identity,
,,I·''

17

. !
 • I

and simplified compliance with complete entitlement to 100% ownership and

profits. This makes OPC the perfect synergy of individual control and flexible
management.

7. Who can be a member of a company? What are the different modes of

becoming a member of company?

Introduction: ....
,I
A company member is a person who agrees to become a part of the company
by entering their name in the list of registered members, that is, the 'Register
of members'. The person designated to become a member should have to
accept the norms as a part of the company. They also tend to hold the shares
of the company under their names. In a limited company, those who own
shares are called members. But in an unlimited company, those people who
have liability claims in the company's debts are the members.

Membership in the Company

According to the Companies Act 2013, those who agreed to include their name
under the company's list of members by signing the memorandum are the
rightful members of the organization. The people vvho are members of a
com,pany will be provided with a membership card as a token of proficiency for
their acceptance. Afte.sYou accept to become one of the members of the
company, there are s5me official steps to be taken care of.
J,
,I
To complete the process of acquiring membership in a company, the following
two elements q;re essential to be presented:
• An agreement is to be signed for membership acceptance.
• The relevant person's name is in the 'Register of members'. ,••
·-
I
..·.·

Modes of Acquiring Membership

Considering the imprinted in the Companies Act 2013, the membership of a
company can be acquired in the following ways:
• Subscribing to the memorandum.
• Wri ten agreement. ,•
..,
)
• Shareholding.

Subscribing to the Memorandum

Memorandum is a paper of agreement that clearly defines a member's role
and liabilities. A memorandum acts as a tool for accepting weapons for the .. ..,.1
members. By accepting the memorandum, they pledged to become a company
member. Their names are enrolled in the Register of members as a completion

18
1!";1.),
of the process. After that, if the members want to own shares in the company,
. j\l',
they will become the shareholders.
: i, .• Writt h Agreement
l,n the company management, everything depends upon the agreement basis.
You must strictly follow the company rules and sign the agreement for each
decision. To become a company member, you must sign the written
agreement as a memorandum to show your acceptance.
The same goes for your shareholder prospects too. There are four ways to this
aspect:
1. Application and allotment: To become a member, you must apply for the
company's shares. Notice of allotment gives your acceptance, and your
name.will be entered into the list of members.
2. Transfer of shares: It is another way of acquiring membership by acquiring
shares with other existing members to enrol your names in the Register.
3. Estoppels: If you are obliged to enlist as a company member without
definite cause, the person may be estopped to deny his membershi,p.

Conclusion:
Membership in a company is a crucial prospect for maintaining the co'mpanls
shares and transactions. Members are the company's assimilators of dealings
and decisions. A company consists of members, though it has its own separate
legal entity, and it is these members that constitute the whole compci.ny as a
corporate entity.
.
8. Write a note on Government Company?

Introduction:

. There are companies where the Central or the State Government, or any of the
two, or both of them combined holds 51% of the stake or capit l. of that
particular company, then the specified company is deemed to be.a 'Go1vernment
- - - ---------------------- -------------------- ---------- ---- -- 1-,- -

Compani. 'Public Enterprises' or 'State Enterprises' are the other names for this
Government Company. They are to be registered legally Jnder the Cot1Jpanies
Act.
.r
Under section 2(45) of the Companies Act 2013, a Government Company is
defined as "any com:pany in which not less than 51% of the paid-up share capital
is held by the Central Government, or by any State Government or
Governments, or partly by the Central Government ape) partly by one·or more

19
 L
.i
L
State
Governments,
and includes a company which is a subsidiary company of

such a Government Company".

Features of Government Company

' .:.·
-. ·:, ,

Specified features are anticipated to be present in any kind of organisation.

Similarly, in Government Companies too, some distinct features bloom. Those l,,...;,J\
features are discussed in the following pJragraph.
Features of a Government Company are: r,
t...
1. Government Compan-ieS-are legally registered under the Companies Act
. 2013, under section 2(45). The Government Companies observe the rules
f '.
engraved in this section. t• c.-:.
':' -1
2. Like all other companies, Government Companies too·have a separate
legal entity, that is to be sued and can sue in legal matters. They can also
hold properties in their name.
3. The annual reports, at the end of the financial year, are to be presented
in the houses of Parliament.
4. The capital of the company is to be held wholly or partially by the state
government and the central government together or individually.
5. They are managed by the directors who are appointed by the government
itself.
6. Accounting and Audit Practises are done by Chartered Accountants
appointed by the government.
7. The employees are not civil servants. They regulate their own personal
policy following the Articles of Associations.

Conclusion:

The Government Company responsible for a certain work is regulated by

government authorities. These are usually no profit companies established by
the investment of public money. Any gain obtained from the operation of such
compJnics goes to the public fund of the government. The guver nrnent lries ,to
operate these companies consistently with the market which resul_ts in a
healthy economy of the country. It is also very essential for the employment
generation and inspiration for the masses to start their own businesses.
Proprietorship is another type of company established by individuals without
any help or group. the individual remains legally r esµun ible for all thP.
activities of such comp;:inics.

UNIT-II.
_,.

20

i:...---------====----iu,iiii.iiiiiiiiii=-------=-------==-------=-----iiiiiiiri---.---.ioiiiiiiiiioiiiiiiii------ · )
·· -
 9. Explain the fundamental clauses of memorandum association of a company.

Introduction:

The Memorandum of Association (MoA) includes several critic;:il cl;:iuses, such as

.
the Name Clause, Registered Office Claus e, Object--C::lause, Liability Clause,
Capital Clause and Subscription Clause. Each clause plays_ayital role in defining
various aspects of the company's identity and operations. Adherence to these
clauses ensures the lawful operations of any business.

1iJ.
t,J
Important Clauses of Memorandum of Association

i Understanding what are the important clauses of the Memorandum of , .

Association is important for anyone involved in forming or operating a;,, ·.
company. These clauses lay the foundation for the company's legal framework,
governance structure and operational parameters.

1. Name Clause

The Name Clause is the first and one of the most critical components 'qf the
Mem.orandum of Association (MoA). It specifies the legal name of the··
company, which must be unique and must not resemble the name of any
existing company, as per Section 4(2) of the Companies Act, 2013. The name
should also include the word 'Limited' if it is a public company or 'Private
Limited' if it is a private company. This clause is crucial because the company's
name is its primary identifier in all legal, contractual, and business dealings.

2. Registered Office Clause

111 I

The Registered Office Clause specifies the state in which the company's
I

registered office will be situated. Ar.r.ordine to Section 12(1) of the Cor;ri'panies

_ Act,.2_013,"tb_is dau_se is_essentiaLas_[t determines the Juris.diction of the.
; I

Registrar of Companies (Roe) under which the company will fall. The ex ct
address of Lhe registered office must be provided within 30 days ot /, j

incorporation and rnust be nulifiecJ Lo the RoC. The registered office is the
official address for all communications and legal notices sent to the company.

J. Object Clause ' ..

1'
I: I'

21
 The Object Clause is one of the most significant parts of the Memorandum of
Association (MoA). As per Section 4(1)(c) of the Companies Act, 2013, this
clause outlines the primary objectives for which the company is formed. It
includes both the main objectives and any ancillary objectives necessary to
achieve the primary objectives.

• The primary objects of the company: These encompass the core

activities and endeavors for which the company is formed, serving as the
foundational pillars upon which its business pursuits are anchored.
• Matters necessary in furtherance thereof: This encompasses ancillary or
supplementary objectives essential to achieving the primary objectives,
facilitating operational coherence and holistic fulfillment of the
company's mandate.

4. Liabilitv Clause

The Liability Clause is an important clause of the Memorandum of Association

that outlines the extent to which the member s of the company are liable to
confribute towards the company's assets in the event of its winding up.
According to Section 4(1)(d) of the Companies Act; 2013; this clause specifies
whether the liability of the company's members is limited by shares or by
guarantee. If the company is limited by shares, members' liability is limited to
the unpaid amount, if any, on their shares. In the case of a company limited by
guarantee, members' liability is limited to the amount they agree to contribute
in thE' event of windine up. This clause is essential for providing clarity on the
financial responsibility of the company's members.

5. Capital Clause
' . ;. ,.
The Capital Clause"specifies the company's authorized share capital, which
--..
includes the total n u m, , b. - -_- er of shares and the nominal value of each share. As
per Sectior\ 4(1)(e) of the Companies Act, 2013, this clause defines the
maximum amount of capital that the company is authorized to raise through
the issuance of shares. It provides a clear picture of the company's financial
structure and e-nsures transparency for investors and stakeholders regarding
the company's capital resources. This clause is·crucial for establishing the
financicJI foundation <;1nd limits of the company.

6. Subscription ClaL1se ' j

22
 The Subscription Clause, the final clause in the Memorandum of Association
(MoA), details the commitment of the subscribers to incorporate the company.
It specifies the intention of the subscribers to take up shares in the company as
outlined in the Memorandum.

l<ey details included in the Subscription Clause are:

• Names and addresses of the subscribers: This clause lists the individuals
or entities who c;1re subscribing to the Memorandum and becoming
initial shareholders of the company.
• Number of shares agreed to be taken: Each subscriber specifies the
number of shares they are purchasing, indicating their level of
investment in the company.
Conclusion:

Important clauses of the Memorandum of Association is paramount for anyone

involved in forming or operating a company. These clauses, including the Name
Clause, Registered Office Clause, Object Clause, Liability Clquse, Capital Clause,
and Subscription Clause, lay the foundation for the company's legal framework,
1--1f---- .l],1es_e_clauses have pmfuunclimp.Li.ca1ions_n.n...a_c.ampanys..np.era.ti.o.ns_a_o.clleg'""';;:i _.lL- u--

obligations. They define the company's legal identity and objective. Clear and
well-defined clauses promote transparency, and efficient decision-making,
fostering a conducive environment for sustainable growth.

10. Explain the doctrine of indoor management with exce'ptions?

Introduction:

The Doctrine of Indoor Management is quite the opposite of the Doctrine of

Constructive Notice. The Doctrine of Constructive Notice protects the 9ompany
from the people who want to have business with them but the.Doctrine of
lnd_oor_rv1a_na_g rnent protec s t_he pe_ople V1',1ho \1\/ant _to _h y ·: any a5.?9cLati_9!7
with the company. This doct_rine states that the people must know all the
publically available_ documents of the company before entering into any kind
of associatibn with them but if they are doing association by these doc,uments
then the company will be made liable if they are not following the directions
given in those documents. The internal mechanism of the company is not
available to the general public; hence, if they are acting in good faith as per the
publicJlly avJilJblc documents, then the cornµany will uc li8ulc.

23

,.
 I I

The case Royal British Bank vs Turquand lays the foundation of this doctrine.
The Doctrine of Indoor Management only emerged after this case. In this case,
the directors of the company have taken a loan from a bank. The shareholders
of the company have r,.:iiscd an obligation when they have Lo repay the loan
amount. They told fhe court that the directors of the company had never been
authorized to take ,s--1-oah for ;the company. However, the articles of the
company·authorize the directors they take a loan after passing a "Board
Resolution" for the same. So the company has to return the loan because the
bank must have thought that the di_rectors will only take the loan from the bank
after passing t+ie required resolution. The company must follow the rules of
the articles and e'(en if they don't follow they are bound by it. The bank must
have acted in good faith and given them the loan. Also, the bank does not have
the authority to check whether the company has passed the specified , ..
-.
resolution or not as these documents are confidential documents of the
company.

Exceptions:

1. Knowledge of Irregularity
The Doctrine of Indoor Management is not applicable in cases where the
parties to the agreement have the knowledge of irregularity and still choose to
enter into the agreement. In this case, the parties can choose'not to enter into
any type of relationship with the company, stiii, they choose the same and
cannot take the benefit of this doctrine. In the case, Devi Ditta Mal vs Standard
Bank of India, two directors were involved in the transfer of a share, and one
of the directors knew that the transfer was not valid. One of the directors in I·,

this case was not appointed as per the laws of the company and the other
, director was involved in the transfer of shares dire_ctly. The articles of the
company restrict that the director choose to move forward with the
transaction hence he cannot take the defence of the Doctrine of Indoor
_.,1
Management in this case.

2. Suspicion of Irregularity
In the case of suspicion, the Doctrine of Indoor Management is not applicable.
It means that if the parties entering into the contract did not make proper
inquiry about the company or the means of business they are doing then they
cannot take the defence of the doctrine. If the irregularity can be found by the
µJr lie by rnere inquiry, then it is the responsibility of the party to perform
such inquiry and then only enter into the aereement. It is the responsibility of

24
,_,_:./

the person entering into the agreement to perform their due diligence before
entering into any such agreement.

3. Forgery
If in any transaction of business, the parties are involved in any type of forgery
then they cannot take exception to this doctrine. If the representative of the
company has forged any document and based on that document, he has ma·de
any transaction then the other person cannot take the defense of this doctrine
as the company cannot be held liable in this case. The company in the case
does not know about the trans ction so it is wrong as per the general law if we
are making them liable for the act that is done by the member of the company
without their actual knowledge.
r, ,
"''!,.

i:i; 4. Acts outside Apparent Authority

If the member of the company acts beyond the scope that is provided to
t, him/her in the articles of the company, then in that case the other party cannot
take the benefit of this doctrine. In this case, the article of the company does

•'
not allow the person to perform such a task then the other party cannot take
the remedy of this doctrine. The plaintiff can only make the company liable
when the member who has done the transaction has some power deiegated
to him by the articles of the company.

5. Representation through Articles

This exception to the Doctrine of Indoor Management is very confus(ng. If the
articles of the company have delegatP.d some powers to any member; i;Jnd they
did not pass any board resolution for the same, then also it is correct to believe
that such power can be delegated. The company in this case cannot take the
defence that there was no board resolution for delegating the power. If the
articles of the company are giving the power then it is assumed that the
company must have acted in the way that delegated the power to the
concerned person.
• I
• I

Conclusion
The Doctrine of Indoor Management and constructive notice are' very old
doctrines and it is adopted in so iety to protect the company and the people
who want to do business with the company. The Doctrine of Indoor
Management providc.s the people the benefit thal U1 y do not hc:1ve to enquire
or know about the internal procedures of any company to enter inlo an
agreement with them. If thr.y ;:irp ho1.ind by thA ;:irtirlc1 s of the company, then
Lhey can enter into an agreement with them.

25
 11. State the procedure for alteration of memorandum of association?

Introduction:
MOA is a legal document that defines the constitution and scope of a company's [,. u ..

activities. It contains the fundamental rules and regulations that govern the
company's affairs and sets out the company's objectives, powers, and
limitations. The MOA is a critical document that forms the basis for the ....
. .)
company's relationship with its shareholders, creditors, and other stakeholders. ".I

It is also required for the incorporation of a company and must be registered

with the Registrar of Companies (ROC) at the time of incorporation.

When is alteration of a Memorandum of Association allowed?

Alteration of a MOA is allowed in the following circumstances:

• Change in Objectives: If a company wants to change its objectives or

expand its business activities, it may need to alter its MOA to reflect the n·ew
objectives or activities. ')

• Change in Name: If a company wants to change its name, it must alter its
MOA to reflect the new name.
• Change in Registered Office: If a company wants to change its registered
office from one state to another, it must alter its MOA to reflect the new
address.
• Change in Authorized Share Capital: If a compa_ny wants to increase its
authoriz.ed share capital, it must alter its MOA to reflect the increase.
• Any other change required by lavv: The Companies Act, 2013, or any other
law may require a company to alter its. MOA to comply with the legal
requirements. ..•..... I:

Procedure of Alteration of Memorandum of Association

A company may need to alter its MOA to accommodate changes in its objectives
or scope of operations. In such a case, the following is a step-by-step procedure
for altering the Memorandum of Association: ' •
'. ,.,. ..I

• Held a Board Meeting: The first step is to held a board meeting to discuss •-·...il,'.;I

the proposed alteration and pass a resolution for the same. The reso!ution
must be approved by a majority of the board members present at the meeting.
.. Held a General eeting: Atter the board has approved the resolution, a
gen.eral
. -
meeting-mtist
.. be held to obtain the approval of the shareholders. The

26
 notice of the meeting must be sent to all shareholders at least 21 days before
the meeting.
. Pass a Special Resolution: The proposed alteration to the MOJ.\ must be
approved by a special re.solution, whic:h rP.(1llirP thP ;:iffirmative vote of at least
:rn three-fourths of the shareholders present at the meeting. A copy of.the special
resolution must be filed with the ROC within 30 days of passing it.
• Prepare an Amendment to the MOA: After the special resolution has
¾•
I! been passed, an amendment to the MOA must be prepared, incorporating the
proposed changes. The amendment must be signed by two directors of the
company and witnessed by a person authorized to witness signatures.
.. File the Amendment with the ROC: The signed and witnessed
amendment must be filed with the ROC along with the required ddcuments,
such as the original MOA, copy of the special resolution, and a copy. of the
board resolution. The ROC may take up to 30 days to approve the amendment.
• Obtain Certificate of Registration: After th R,OC approves the
amendment, a certificate of registration will be issued, and the amended MOA
will be considered effective from the date mentioned in the certific te.
• Furthermore, that any change in the MOA must cwmply with the
prnvisions of the ..Companies Act, 2013, and any other applicable faws.and
r·egulations. Moreover.. if the change involves an increase in the authorized
shai-e capital, additional compliance requirements may apply.
_J
/

Conclusion: ' '

t:
, ..
It is concluded that the alteration of MOA includes a multiplex procedure. The
whole procedure includes the long discussions and deliberate understanding to
make sure that the company's development without tingling the inte\ests of the
people. By following the procedure for the alteration of MOA and complying
I' with the !egal framework, companies can ensure that they remain in compliance
t1' with the law and operate within the limits of their objectives. The alteration of
MOA provides companies with the flexibility to adapt to changing business
t needs, and it is crucial for companies to make informed decisions when making
changi:s tq their MQA._

a 12. Explain the doctrine of ultravires.

►
Introduction:
t
• "U l,tra Vires" is derived from Latin, meaning "beyond the powers." it ,rP.fn•·; tn
any transaction or activity that exceeds the authority granted to a company or

27
 )
its representatives. According to the doctrine of ultra vires, actions falling under L
this category are subject to scrutiny.
,
• ,
The doctrine of ultra vires was first introduced in the United Kingdom in 1612. It
allows individuals to determine whether an action is legitimate or illegitimate. r-:
Over time, judges have played a crucial role in elaborating on this concept in
various judgments, contributing to the doctrine's evolution. In the case of Sutton I ·.-:
Hospital in 1612, it was stated that the doctrine of ultra vires does not apply to
the actions or transactions of chartered accountants despite these entities
,. '
having distinct corporate personalities.

What is the Purpose of Doctrine of Ultra Vires?

The doctrine of dltfa vires serves several crucial purposes in corporate law,
-.
ensuring that compa0-es operat within their iegai boundaries and protecting
the interests of various stakeholders. Here are the main objectives of this
doctrine:

1. Limit the,Powers of a Company: Ensure that a company acts within the

boundaries set by its constitution or charter, preventing it from engaging
in activities beyond its specified objectives.
I

2. Protect Shareholders and Creditors: Safeguard the interests of

shareholders and creditors by ensuring that company funds are used
only for legitimate purposes as defined in the company's constitution.
3. Ensure Legal Compliance: Promote adherence to the legal framework
and statutory regulations that govern corporate activities.
4. Prevent Misuse of Authority: Restrict directors and officers from
oversteppirJg their authority and engaging in unauthorised activities.
5. Maintain Corporate Integrity: Uphold the principle that a company must
act within its legally defined scope, thereby maintaining its integrity and
trustworthiness in business dealings.

What are the Exceptions to the Doctrine of Ultra Vires?

While the doctrine of ultra vires is a fundamental principle in corporate law,

there are several notable exceptions where actions beyond the company's • -
,I

scope of authority may still be considered valid. These exceptions include:

• The directors can authorise an act within the company's object clause
but beyond their authority.

28
,....

.. Shareholders can approve an ultra vires act performed irregularly within

the company.
• If a company acquires property through an ultr;:i vires investment, the
company's right to that property can still be defended.
• Any incidental or significant effects of an act are not considered ultra
vires unless expressly prohibited by statute.

What are the Effects of Doctrine of Ultra Vires?

Members of a company can issue an injunction to prevent the company from

engaging in any ultra virus activities.

• Ultra Vires Contract: An ultra vires contract is void ab initio, meaning it

cannot be given legal status even through ratification or estoppel. The
issue here concerns the company's competence and ;:iuthority to enter
into the contract, riot its legality.
• Liability of the Company: There are no established principles regarding a
company's liability for damages resulting from an ultra vires act.
However, tortious liability may arise if it can be convincingly sho'wn that
the activity during which the ultrtl vires act or tort occurred falls.within
the scope of the fv1emorandum of Association and happened during
I employment. . •
• Breach of Warranty: Acts that a company is prohibited from p rforming,
as stated in the _Memorandum of ssociation, are also beyond the

'' authority of its directors, who ·act as agents of the company. Therefort,
contracts considered ultra vires to the company will be void. Directors
must act within the scope of the company's powers; otherwise, 'they

•·
.;
could be held personally liable for breach of warranty.
• Protection of Shareholders and Creditors: The doctrine safeguardsthe
interests of shareholders and creditors by ensuring that the company's
t funds and resources are used only for legitimate and authorised .•
purposes'.
- - - -
• Restriction on Corporate Powers: This restriction limits the company's
t powers to only those activities explicitly stated in its constitution or
charter, preventing unauthorized expansions of business activiti,es.

•. .. • Legal Con.sequences for Directors: Directors and officers may b<fheld

rersonally liable for any ultra vire5 Jctions, as they ensure the cumpa·ny
operates within its legal boundaries .
•

I
I

29
 a Preservation of Corporate Integrity: The doctrine helps maintain the
company's integrity and compliance with legal and statutory
requirements, fostering trust and stability in corp·orate operations.

Conclusion:

The doctrine of ultra vires, derived from Latin meaning "beyond the powers," is
a fundamental legal principle in corporate law. It dictates that any actions or
transactions conducted by a company outside the scope of its defined objectives
and powers, as stated in its constitution or charter, are considered null and void.
This doctrine protects shareholde,s, creditors, and the company's integrity by
ensuring that corporate actions remain within the boundaries of legally granted
authority. Introduced in the United Kingdom in the early 17th century, the
doctrine of ultra vires has be'en elaborated and refined through numerous
judicial decisions, shaping the frarnework within which companies operate and
maintain their legitimacy.

13. Write a note on pre-incorporation contracts.

Introduction:

A Pre-Incorporation Contract is ente ed into when the company is in the

process of being incorporated but is not yet completed. In legality, such
contracts are held to be void since the company is not yet in existence.
A corporation represents a distinct legal entity, distinct from an individual,
recognized by the law. It operates as an entity that can possess assets, enter
into contractual agreements, and conduct business activities. This iegal
concept is acknowledged in both English and Indian law. Promoters are the
individuals or groups responsible for the behind-the-scenes work required to
establish a company. They serve as the architects and builders of the corporate
structure, playing a pivotal role in ensuring the legal formation and successful
operation of the company.

The process of incorporating a company offers several advantages within a

corporate structure, including safeguarding individual owners or shareholders
from financial liabilities. Once incorporated, the company assumes the burden
of debt. Consequently, before incorporatin_g a company, pre-incorporation
contrncts can be used to dete1Tnim" the rules, functions, and llc:1bilities of the
company.
Following are the two situations in which individuals may prefer to draft pre-
incorpor·atior1 curilrc:1cts.

30

),
 • Internal Arrangements: A pre-incorporation agreement allows the
incorporators to clearly define the roles, functions, and liabilities of each
individual involved in the company's formation. This includes determining
who will serve as directors, financial head, legal head, and other ey
positions, along with their respective responsibilities and potentipl
liabilities. Additionally, the agreement can be used to draft rules and
regulations that will govern the company's operations' once it is .
I
incorporated.
. Business Agreements: As a company interacts with other: firms and
entities, a pre-in.corporation agreement safeguards its interests. This
agreement can specify whether the company operates with limited
liability, ensuring that the personal assets of the incorporators _are
protected from potential liabilities incurr:ed by thdompany. It also
outlines the transfer of ownership from promoters to, tbe compan/ after
incorporation, ensuring a clear transfer of authority and responsibility.

Conclusion:

Before a company initiates its operations, it is necessary to establish various

contractual agreements and incur initial expenses. These agreements, •
created by promoters on behalf of a company that is yet to be formally
established, are commonly n fPrrerl to as Pre-incorporation Contracts or
Preliminary Contracts.
14. Company cannot be sued for pre-incorporation contracts discuss;
I

Introduction:

Before a company commences business, it has to enter into several contracts

and incur several initial expenses to get started. Contracts which are en'tered
into by promoters with parties to acquire either some property or right 'for and
on behalf of a company which is yet to be formed are called as 'pre-
incorporation contracts' or 'preliminary contracts'.

LegaI status of a pre-incorporati"oh cqntratt is hot·at all easy to deffne In'

specific terms. If considered as per the definition of contract under the
Contract Act, it is necessary to have at least two parties to constitute a v11id
contract so as to enter into a contract with each other. As the gener_ a lp rinciple
is.that no contract exists if one party to the contract is not in existenc .- the
time of entering the contr<'lct. This in turn leads to th.:it a company cnrl11 0t
enter into a contract before it comes into existence. A compiJny is said to be
existing only after it has been duly incorporated. • ,
:-'.·•.:/ ..

' I 31
'I I
 .)

So, its the promoters, and not the company,_ who become personally liable for
all contracts entered into by them even though they claim to be acting for the
prospective company. l '·· \

r.-
But, u/s 230 of the Indian Contract Act, an agent does have authority to
personally enforce contracts entered by himself on behalf of the principal and
he also is not personally bound for them if it is very clearly stated by him about
his being not liable under the contract. So if this principle is applied, the
contract becomes in fructuous as neither of the parties is liable under the
contract.

While execution, the contracts are entered by the promoters on behalf of the
company. Although, the promoters act as agent of the company to represent
its interest, while registration, the principal is not in the existence. Therefore,
the contracts entered by the promoters do not bind the company or the third
party. The validity and enforceability of the pre-incorporation contracts is
always in question. However, the fix lies in Section 15 and 19 of the Specific
Relief Act, 1963.
t • 1

Section 15(h) provides that the company may ask for specific performance from
the third party if the pre-incorporation contracts are entered by promoters for
the purpose of the company and subject to terms of incorporation of company.
Thi.s condition can.only be applied if the company has expressly shown the
acceptance of such c_ o_ , n, tracts after its incorporation and communicated the
same to• concerneB third party (i.e. the other party). Under similar
circumstances, specific performance may be enforced against the company by
the other party te> the contract u/s 19(e) of Specific Relief-Act.
4

Hence, for enforcement of the contract by the company against the other party
1
to contract, the m embers must ratify the contract followed by communication
of acceptance t9 dther party. Unless the contract is accepted by the company,
the company may not receive any benefit from such contract and the promoters
would be personally liable for the contracts.
In case, the said contract is not accepted by the company in its meeting, such
contract is binding to the promoters and the both, promoters and other party
may demand specific performance against each other.

Conclusion:
Pre-incorporution contructs at first, might appe;:ir to be with no legal status
and value, but they are very much important and legally valid as-well as

I
32 ·-·

. '.-
 enforceable. Pre-incorporation contracts n1ay be undertaken by the company
after its incorporation either by
(a) incorporating the contract in the terms of incorporatlon, or
(b) making a rresh new contr·act with the other party or with promoters, or
(c) the benefits from the contract, either expressly or impliedly,

15. Define prospectus? Explain the contents of prospectus.

Introduction:
The prospectus is a legal document for market participants and investors to
pursue, detailing the features, prospects, and promise of a financial product.

It is mandated by the law to be supplied to prospective customers.

Prospectus Example

In an IPO, the prospectus tells potential shareholders about the company's

plans and business model.

For insurance and investment fund customers, a prospectus lists out the
objective of the product, inclusions, and exclusions, fees, etc.
For an ETF, a prospectus informs likely investors of the fund's goals,

•
history, portfolio, fees and costs, and other flnancfal detafls.

What is a Prospectus and its importance?

I. The company provides prospectus with capital raising intention. Prospectus

••
helps the investors to make a well.,i1'"1formed decision because of the
prospectus all the required information of the securities which are offered to
9;

••
the public for sale.
Whenever the company issues the prospectus, the company mu.st file it with
the regulator. The prospectus includes the details of the company's business,
financial statements.

••
•- 1. To notify the public of the issue
2. To put the company on record with regards to the terl;J' of the issue a_nd
allotment process
, 3. To establish a·ccountability on the part of the directors and promoters of
the company

Types of prospectus

According to Companies Act 2013, there are four types of prospectus.

33
 Deemed Prospectus - Deemed prospectus has mentioned under Companies
Act, 2013 Section 25 (1). When a company allows or agre s to allot any
securities of the company, the document is considered as a deemed
prospectus via "which the offer is made to investors. Any document which
offers the sale of securities to the public is deemed to be a prospectus by
implication of law.

Red Herring Prospectus - Red herring prospectus does not contain all
information about the prices of securities offered and the number of securities
to be issued. According to the act, the firm should issue this prospectus to the
registrar at least three before the opening of the offer and subscription list.
Shelf prospectus - Shelf prospectus is stated under section 31 of the
Companies Act, 2013. Shelf prospectus is issued when a company or any public .
financial institution offers one or more securities to the public. A company
shall provide a validity period of the prospectus, which should not be more
than one year. The validity period starts with the commencement of the first
offer. There is no need for a prospectus on further offers. The organization
must provide an information memorandum when filing the shelf prospectus.

Abridged Prospectus - .A.bridged prospectus is a memoranqum, containing all

salient features of the prospectus as specified by SEBI. This type of prospectus
includes all the information in brief, whic_h gives a summary to the investor to
make further decisions. A company cannot issue an application form for the
purchase of securities unless an abridged prospectus accompanies such a form.
• I
') I

What is prospectus and its contents?

The prospectus contents are specified in the Companies Act. The prospectus
must touch over the following content points:

1. Details of the company, such as name, registered office address, and

objects
2. OP.tr1ils of sienatories to the Memor,rndum and their sh;:ireholding
particulars
3. Details of the directors
4. Details of shares offered and the class of the issue as well as voting
rights
5. Minimum suhsr.rir,tion amount
6. The amount payable on application, on allotment. and on further calls
7. Underwriters of the issue
8. Auditors of the company
9. Audited reports regarded profit and losses of the c:omr ny

34
 "
Conclusion:

A prospectus is a legal document that must be submitted to the concerned

authority that contains information for the public reg_i)J:□ing an investment
offering. It is very useful for investors as they can learn about the risks
associated with buying securities or funds. Normally, risks are briefly
' :
mentioned early in the prospectus and described in more detail later. When
the company is acquiring funds through the issuance of stocks or bonds, it is
the duty of investors to review the company's financials to make sure it is
financially stable enough to uphold its obligations.
16. What are the remedies available for misrepresentation in the prospectus?
Explain.

Introduction:

A prospectus is a document issued by a company to invite deposits or

subscriptions from the public by way of issuing securities of the company. It
can be understood as a document or a booklet containing crucial information
about the company and its securities for potential investors.
V'

REMEDIES FOR MISSTATEMENT IN PROSPECTUS

If t e prospectus contains a misleading statement, the liability of the company,

the directors, promoters and others who authorized the issue can be classified
into three kinds viz.,

1. Civil Liability,
2. Criminal Liability, and
3. Liability under the Law of Contract.

1. CIVIL LIABILITY

An aggrieved shareholder who purchased shares by placing reliance n the

misleading prospectus has

a. remedi"es against the company, and

b. remedies against the directors, promoters and experts.

A. REMEDIES AGAINST THE COMPANY

..
The aggrieved shareholder has two remedies against the company. They are

i. Rescission of the Contract, and

ii. Damages for fraud.

I , 35
 1. Rescission of the Contract

The person who purchased shares on the basis of the prospectus containing ' l

misstatements can rescind the contract (cancel the contract). He is eligible for
rescission whether the misstatement is made intentionally or unintentionally. •• 'j

He has to surrender his shat-es to the company. Then his name will be removed
from the register of the members.

The money paid by him will be refunded by the company. The following are the
conditions to be satisfied for claiming rescission:

1. There must be an untrue statement.

2. The misstatement must be material to the contract of issuing shares. It should

not be a mere expression.

3. The shareholders must ha\1e relied on the untrue statement.

4. The statement must h ve induced the shareholder to purchase the shares.

I

5. The shareholder must apply for rescission within a reasonable time and before
the liquidation of the company.

6. The shareholder should not have affirmed the contract for purchase of shares.

2. Damages for Fraud

After rescinding the contract, the aggrieved shareholder can claim damages
from the company by filing a suit in the Court. He has to prove that the
misstatement was made fraudulently.

B. REMEDIES AGAINST THE PROMOTERS, DIRECTORS, EXPERTS, AND PERSONS

AUTHORIZED THE ISSUE OF THE PROSPECTUS

1. Damages for Misstatement

The directors, promoters, experts, and others who have authorized the issue of
the prnspectus c1r liable to compensate the aggrieved shareholder tot· the loss
or damages he-may have to incur,because of the untrue statement.
-_./

2. Damages for Non-disclosure of Material Facts:

If-a material fact has been omitted from the prospectus, (a) the person
responsible for t_be issue shall be fined up to Rs.50,000 ancf(b) the aggrieved can
recover damages frorn the per-sons resµori ilile rur Lhe issue.
I

2. CRIMINAL LIABILITY

36
 W¥.IWWWWWW

J.. If a prospectus contains any untrue statement, every person who authorized
the issue are punishable with fine up to Rs.50,000 or with imprisonment up to 2
years or with both.

2. Anyone who fraudulently (knowingly) makes any misstatement in the

prospectus to induce persons to invest money in the cornpany is punishable with
imprisonment up to 5 years or with fine up to Rs.1,00,000 or with both.

3. LIABILITY UNDER GENERAL LAW OF CONTRACT

Under the general law, the aggrieved shareholder can recover damages from all
or any of the persons responsible for the issue of the prospectus. The necessary
thing is to prove that there is a fraudulent misstatement or non-disclosure.

LIABILITY IN CASE OF OPEN MARKET PURCHASE

One who purchased shares in the open market from any shareholder of the
company (not relying on the prospectus) can't rescind the contract for the
purchase of shares. The person who authorized the issue of prospectus cannot
be held liable.

--■, c_o_n_c_lu_si_o_n_: _ -------------- --

---
Under the Companies Act, 2013, there are various kinds of prospectus. Each of
these types serves a distinct purpose, as has been elaborated in t_he artide.
However, each of them has to fulfil the basic criteria 6f a prospectus. The
conditions for a valid prospectus are to be complied with irrespective of the kind
of prospectus being issued by the company. "

UNIT-Ill.
17. State the different kinds of meetings in a company. What is the procedure
to call a meeting of the company. ,,,---- •

Introduction:

In the companies act, 1956 there don't seem to be a mention about the term
'meeting'. ltis important to pertain that in a few exceptional c-1.ses one member
meetings are also declared to be valid. Eg. Where there is only ,f single
shareholder in a company,he can aione carry out the meeting on sole terms. It
also applies for those situation which consists of single creditor or board ot
director for the company.

The cornpuny meetings can be divided into three:

'l

1) Meetings of Shareholders'

37
 i) stautory meetings,

ii) annual general meeting(AGM)

iii) extraordinary general meeting.

2) Meetings of directors'

i) Board of l_!.l etings, ' f

-
ii) committee meetings.

3-) SPECIAL MEETINGS-

i) class meeNhgs,

ii) creditors meetings,

iii) debenture holders meetings.

SHAREHOLDERS MEETINGS-

1) STATUORY MEETINGS-

• The statory meetings are the first general meetings of any public company
after they are entitled. Section 165(3) of the companies act, 1956 defines
I. I
statutory meetings which are conducted between 1 to 6 months. They are
limited by share or guarantee with a share capital.

2. ANNUAL GENERAL MEETING-

Annual general meetings are held once a year by companies even though they
havea share capital or not. Section 166(4) of the companies act, 1956 states
that this meeting should take place in any company regardless it being private
or public. NO more than 15 months should be present. When the first annual
general meeting is being held then the fifteen-month gap can be prolonged to
eighteen-monh gap. The period can also be relaxed to another 3 months if the
registrat permits so.

3. EXTRAORDINARY GENERAL MEETING-

' .._ ·,
Section 169(8) of the act, states the rules for extraordinary meetine. Meetings
which are held between two annual general meetings are called as
extraordinary general meetings .. l he purpose of calling this meeting is to
discuss the urgent matters. The comp;rnies which consist of share capitJI
'•·-,,

38
 members which holds a one-tenth paid share capital can send a requistion to
the board of directors.

DIRECTORS MEETINGS-

1. BOARD MEETINGS-

.'
··•.:.• Section 285(9) of the act states.that every company is bound to have a board
of directors' meeting every 3 months annually, ie. 4 board meetings within 3
month gap. The notice of the meeting is to be given in writing and at their
residence. The object of this meeting is to make sure that the director are
aware about the given work and their obligations.

2. COMMITTEE MEETINGS-

Committee meetings are just a replica of the board meetings. In this the
committee members come together to for a meeting.The board gives the
power to the committee. This committee is formed on the lines of the
company and they follow the same procedure ;:is that of the board of the
meetings.

SPECIAL MEETINGS-

1. CLASS MEETINGS -

When a shareholder of a particular class arranges for a meeting it is called as

class meeting. When a company gives bonus only to equity holder of the
company, the meeting will then be called as quity holders.

2. CREDITORS MEETINGS-

The creditors meetings are called by the director when they propsoe to set a
scheme for arrangment and negotiate with the creditors. Section 391(12) of
the act, empowers the.company or liquidator when the winding up takes place
to ask the tribunal to call for a meeting of creditors.

3. DEBENTURE HOLDERS'MEETINGS-

The debenture trust deed lays down the procedure an dprinciples concerning
the debenture holders' meeting.The said meetings are held when there is a
concern regrading the rights and interest, they are arranged by the debenture
holders of a class. •

PROCEDURE FOR ANY COMPANY MEETING -

39
 ,
,•

The proceudre laid down in the companies act should be followed/ Section 170
of the companies act 1956 states that the forthcoming sections i.e.Sections
171-186 will be applied to every geeneral meeting of any kind of company.
Section 170 of the act states that the sections which will be followed as of now
will be applied to any and every general meeting of any public or private
c.ompany. The steps are as follow . s-
1) NOTICE-

Notice is the sole thing which is important for a beginning step for any
meeting. Section 171 states that a notice is to be submitted to the joining
members of a meeting 21 days prior to a meeting. Section 172 says that it has
talked about all the needed things during the agenda of the meeting. The
notice would be in writing and would be sent to all the members of the
company at their residences.

2. QUORUM AND CHAIRMAN-

Section 174 of the act says that the quorum consist of 5 persons in case of
public company and two when it is other company. If there is no quorum
constituted within half an hour of the commencement of the meeting then it
will dissolve the arranged meeting. Section 175 of the act states that the
requirement of a chairman for the meeting, the members present shall elect a
chairman for the meetings. The election sha!lbe a simple shO\v of hands, when
a member is elected he acts like a chairman for the whole meeting.

3. PROXIES-

Every member is empowered to appoint any other person as his proxy for the
meeting as per section 176. But those are only limited to voting on polls,
neither can he speak regrading anything in the meeting, swch empowerement
is prohibited as well. Also members of the private company are gifted to use
that power for just one proxy per meetig. The member appointing any proxy
has to provide a duly sugned within proxy authorizing the proxy to vote in his
place and be deposited to the company before 48 business hours of such
meeting.

4. VOTING-

The voting option ecrn be asked by c:rny member or proxy present in person for
any particular motion, which the sc:ime section 179 lays down in the companies
with no share capital, one member or a proxy I presence of less than total 7
members and 2 members or a proxy in presence of more than total 7 members

40
 and 2 members or a proxy in presence of more than total 7 members can ask
for the voting initiation.

5. RESULT OF THE VOTING-

Section 185 of the act lays that firstly, it is the chairman who decided the
manner of polling. The result of the polling is declared and rt sha II be deemed
-,
to have been the result being stated in the proposed meeting. As emp'owered
·.;.); by section 186 and stated by in the cases like 'R. Rangachari vs. Suppaiah and
ors.

CONCLUSION -

Every and any meeting has to bid by the obligations which:is stated in the
companies act. There are 8 companies which does not meet in the end with a
meeting room with a polling rule also, all the minutes are laid down in the
book of the meetings of the company which is signed by the cnairman who is
present in the meeting. The conditions leived in the act helps a company to
oblige by it which ultimately relates it to be formed and deal with in ;:in orrlffrly
manner.

18. Write a note on corporate social respon s' ibility.

Introduction:

• Corporate social responsibility (CSR) is a strategy undertaken by companies:to

not just grow profits, but to take an active and positive social role in the world
around them. The term is also associated with the related term corporate

,
9; citizenship.

'
CSR is an approach that espouses the notion that a company can do g od in
the world and make a difference to improve social order. lt1s a topic that,can
J engage the board of directors in an organization, as CSR reflects company

•-
culture and business practices. ocial responsibility is a broad topic; it 'intludes
human aspects, such as having ethical labor practices both internally an·d as
part of a larger supply chain.
t
t. CSR has also long been associated with the concepts of community
engagement and philanthropy. Some of the earliest examples of CSR,

,
t•
according to the Association of Corporate Citizenship Professionals, date back
to the early 1900s when industrialists first launched cornmunity foundations to
hP.lp with va_rious charitable causes.
I

41
 .)

CSR operates in a self-regulating approach, though there are some guidelines

and standards t at organizations can choose to comply with. Among the
primary standards for CSR is ISO 26000, which was first released by the
International Organization for Standardization (ISO} in 2010. ISO 26000
provides voluntary guidance to help an organ'1zation assess its strategy and
progress in social responsibility initiatives.

.\ I
What's driving the adoption of corporate social responsibility strategies?

Over the last century, there have been many trends and concerns that have
he!ped drive the adoption of CSR strategies, including the follo ing:

• Altruism. At the most basic level, it's about-organizations and the people
that own and manage them wanting to do good and help their communities
and the larger world around them.

• C nsumer demand. ,In the 20th century, consumers began to hold

corporation--.s. accbuntable by asking them how they were being socially and
environmentally r ponsible.'
'
• Employee satisfaction. Attracting and retaining staff is a goal of any
organization. Potential employees want to know that the companies they
work for ar ,Kocially responsible.

• Brahd reputati9n. Being sociaiiy responsible -- or not -- can have a direct

effect on an organization's brand and how it's viewed in the market.
;

• Investors. There is a growing trend of investors wanting to only invest in

organizations that have well-defined CSR strategies.

• Regulatory compliance. Across industries, regulations are coming into play

because of different ethical concerns, driving a need for CSR practices.

There are cases where organizations choose to have a CSR strategy si.mply
0

because they reali ze it's the right thing to do. In 0U1er c.:a es, curnpc:1nies have
come to realize that CSR strategy adoption or lack thereof can impact an
organization's ability to conduct business operations and be su'ccessful.

Conclus_ion:

In recent dcG1dcs, CSR has become associated with sustainability tlnd the
environment as individuals, governmenl!J cmd nonrrofit orp;;:inizations
increasingly blame corporations for not d_oing enough t_o help limit the risks of
climate change and the corresponding environmental impacts. To that end,

42
r.:i. :·
,.
·•·1

CSR is also often related to the concept of environmental, social and

governance (ESG). There is, however, a difference between ESG and CSR.
Where CSR is often seen as focusing on the big picture strategy, ESG has more
detail on sustainability, environmental and ethical concerns from a measur·able
perspective.

19. Who is director? How is he appointed? What are their liabilities?

Introduction:

A person is appointed as a director under the Companies Act, however, his/

her liabilities as a director are not just limited to the offences committed under
the Companies Act but he is also liable for the offenses committed under the
various other statutes like the Negotiable Instruments Act, 1881, Labour Laws,
GST Act, Income-tax Act etc.

Appointment of Directors

In public or a private company, a total of two-thirds of directors are appointed by

the shareholders. The rest of the one-third remaining members are, ;;ippointed
with regard to guidelines prescribed in the Article of Association.
- .

In the case of a private company, their Article of Association can prescribe the
I..' : method to appoint any ;mrl ali"directors. In case the Articles urc silent, the directors
must be appointed by the shareholders.

The Companies Act also has a clause that permits a company to appoint two-thirds
of the company directors to be appointed according to the pr·inciple of
proportional -representation. This happens if the company has adopted this policy.

Nominee directors will be appointed by third party authorities or the Government

to tackle mismanagement and misconduct. The duties of directors are to act
honestly, exercise reasonable care and skill while performing their duties on behalf
of the organization.

Duties of directors

43
 JI

Section 166 _of the Companies Act, 2013 explains about the duties of Director
II
i.e [
; -. J
1) Subject to the provisions of this Act, a director of a company shall act in
accordance with the articles of the Company.
2) A director of a company shall act in good faith in order to promote the
objects of the co,mpany for the benefit of its members as a whole, and in the
best interest 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 a'nd reasonable
care, skill and diligence and shall exercise independent judgment.
4) A director of a company shall not involve in a situation in which 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.
6) A director of a company shall not assign his office and any assignment so
made shall be void.
7j If a director of the company contravenes the provisions of this section such
director shall be punishable with fine which shall not be less than one lakh
rupees but which may extend to five lakh rupees.

Liabilities of Director under the Act

The liabilities of director are mentioned in various sP.r.tions of The Comp.mies
Act,2013 which contains criminal liability, liability on fraud, liability for breach
of warranty, liability to the third parties, liability for breach of statutory duties,
liabilities to the company and liabilities for acts of other directors.

A. Liabilities to the Company: The director has liability to the company i.e • I

Breach of fiduciary duty, ultra vires acts, Negligence, Malafide acts.

Where a uir eclor acts dishonestly to the interest of the company it Breach of
fiduciary duty.
... j
Liability:on ultra vires acts means memorandum and articles of association,
restrict the power and activities of director and if the director acts beyond· . _J
restrictions he shall be held personally liable for acts beyond the aforesaid
limits, ;
I

The d1Jty nf director is to safegtJilrd ;_ind uccountabl lit pruµerty Qf corr1pc.1ny,

•
if they foil to act deligently they shall be deem:ed to have acted negligently and
they shall be held liable for any loss or damage.

44
 •' .
t:
I t l,
l, .

What are the malafide acts for which director is liable?

Directors are the trustee for the money and property of the company. If they
dishonestly or in a mala fide manner, exercise their powers and perform their
duties, they will be liable for breach of trust and may be required to make
good the loss or damage suffered by the company by reason of such malafide
acts. Directors are also held liable for their act of misconduct or willful! misuse
"
of powers.

B. Liability to the third parties

Liabilities under The Companies Act,2013 is towards the> issue of prospectus,
with regard to allotment of shares, any fraudulent trading and·unlimited
liability.

C. Liability for Breach of Warranty

Directors are supposed to function within the scope of their authority. Thus,
where they transact any business in respect of matters, ultra vires the
company or ultra vires the articles, they may be proceeded against personally
for any loss sustained by any Third party.

D. Liability for breach of statutory duties

Companies Act imposes numerous statutoty duties on Lhe direclurs under
various section of the act. Default in complianc·e of these duties attract penal
consequences. The various statt1tory- penalties which director may incur by
reason of non-compliance with the requirements of companies act are '·
referred to in their appropriate places. Some of the sections with penalties are
mentioned below.

E. Liability for acts of other directors

If any act done by other director of the same company, in absence of other
director then the penalty will be levied only on such director who participated
in such act. If any resolution or consent is taken from all directors then he can
he:> li;::ible bL1t not for the act done by other director indiviciuc1lly.

F: Criminal Liability .
As the liabilities mentioned above, there are other liabilities also which,
director may incur i.e criminal liubility'under various other acts. Like
1. Cheque given to third person got dishonoured or fake.
2. Ignorance of other laws
3. Negligence of Labour lc.Jws applicable on company
4. Any offence mentioned in Income Tax Act.

J • 45
 -. 1

Conclusion:

According to the Companies Act, only an individual can be appointed as a r

member of the board of directors. Usually, the appointment of directors is done
by shareholders. A company, association, a legal firm with an artificial legal
personality cannot be appointed as a director. It has to be a real person.The
Company Law Board or the National Company Law Tribunal may remove a
director from the board. If found guilty of any inappropriate conduct like fraud,
harassment, oppression or any other justifiable cause, he will be removed. The
terminated director cannot assume the position of director in any other company
for the next five years.
')
20. Discuss the provisions for the prevention of oppression and
mismanagement in a company?

Introduction:

An act of oppression within a company commonly involves actions that

contravene the principle of fair dealing, such as infringing on members' rights,
pursuing actions detrimental to the company's objectives, or making high-risk
decisions. On the other hand, mismanagement encompasses a wide array of
behaviors that are challenging to classify into specific categories. Generally,
any conduct that deviates from the company's goals or is detrimental to the
public interest can be deemed as mismanagement. This may involve improper
director appointments, breaches of directorial duties, or any actions intended ' I

.
to d'efraud the..public. By recogniz ing and addressing instances of oppression
and mism nagement,Fe-gulatory bodies can uphold corporate integrity, 1· I

protect stakeholders' interests, and ensure transparency and accountability

within the business environment.
·,)
9, _/

Remedies rov1ded under Section 242 of Com aniP.s Act 2013

I
Section 242 of the qomp.anies Act, 2013 delineates the actions that the
. I

National Company Law Tribunal (NCLT) can take upon validating an application
under Section 241. Upon confirming oppression or rnisrnanagernenl, Lhe NCLT ...:
can prescribe remedies to restore fairness, transparency, and effective
management within the company. This may involve imposing regulations on
the company's opP.rations to prevent future instances of oppression or I \
,
mismanagement through the implementation of new protocols, procedures, or
oversighl rned1,rn[sms.

46
 Additionally, Section 242 empowers the NCLT to compel the acquisition of
shares or interests held by any company members. This provision enables the
tribunal to address scenarios where specific shareholders or members h;:ivc
suffered unfai1" tn 11tn1Pnt or clisaclvantaees due to oppr·essive cum.Juel or
mismanagement within the company. By dir·ecting the purchase of shares, the
NCLT can offer redress to affected parties and facilitate an equitable resolution
to the conflict.

The NCLT's rulings are pivotal in safeguarding shareholder rights and·

maintaining a harmonious balance between shareholder interests and
corporate governance. These decisions by the NCLT establish legal precedents
for forthcoming corporate disputes, underscoring the significance of
procedural diligence in corporate conflict resolution. In essence, Section 242 of
the Companies Act, 2013 confers upon the NCLT the authority to take essential
measures to rectify instances of oppression and mismanagement, thereby
upholding corporate governance norms and safeguarding the welfare of
shareholders and stakeholders.

Shareholder·s must ascertain their membership status before pursuing

allegations of oppression and mismanagement to uphold fairness and deter
unfounded claims. The Companies Act, 2013 furnishes a framework for
shareholders to seek redress against actions detrimental to ,public interest or
prejudicial to members, thereby broadening avenues for addressing pas,t
transgressions while upholding equilibrium between minority protecti6ns and
mitigating unwarranted claims.

Landmark Judgment: Aruna Oswal vs. Pankaj Oswal & Others

The legal decision under Section 241 of the Companies Act, 2013 in the
Aruna Oswal vs. Pankaj Oswal & Others case involved the National Company
Law Tribunal (NCLT) ruling in favor of Aruna Oswal, the widow of Abhey Oswal,
the founder of Oswal Agro Mills Ltd. The tribunal found that Pimkaj Oswal, .
Abhey's son, and otber board members engaged in unfair practices and
mismanagement, including misusing company funds and mistreating minority
shareholders.
.....--
'
As a resolution, the NCLT ordered Pankaj Oswal and oth.er!rto sell their
shares to a third party, providing relief to Arunp Oswal and other affected
stakeholders.

Conclusion:

47
 The Companies Act-of 2°0131 particularly Sections 241 and 2421 plays a pivotal
role in safegua·rding s reholders' interests and promoting transparency in
r·

corporate·governance. These legal provisions offer stakeholders a mechanism

to tackle instances of oppression and mismanagement within companies.
Noteworthy cases like the Aruna Oswal matter underscor-e the efficacy of
these laws in oolding company executives responsible for their actions. In
essence, the Act fosters fairness, accountability, and trust in corporate
operations, guaran,teeing that companies function in the best interests of their
stakeholders and rilake positive contributions to the economy.

21. Who is a company director? What are the powers and duties of a director?

Introduction:

Company directors play a critical role in the management and governance of a

company. Directors have wide-ranging powers relating to running the company1 • l
but they also have important legal duties they must comply with. The roles and
responsibilities of directors are key for proper corporate goyernance. In this r. ·')
post, we'll discuss the main powers company directors have, as well as the key
legal duties placed on them.

The board of directors is responsible for directing the affairs of a company and
has authority to exercise all powers of the company. The key powers of
directors include:

Manage the Business

The primary power of the board is to manage the business and affairs of the (• I

company. Directors take collective responsibility for the overall leadership and
control of the company. Day-to-day management is often delegated to
executives1 but the board has ultimate responsibility for operations. They can
make decisions on matters such as entering into major contracts, raising
finance, appointing senior employees, and determining business strategy.

Delegate Authority

Directors need not personally carry out all management functions and will
often delegate authority to assist in managing the company. The board may, f
delegate tasks to managing director, manugers and other executives while
retuining overall supervision and control. Delegation allows the board to focus

48
 on broader governance while executives de I with da-y==t'o-day operations
within authority limits set by the board.

Recommend Dividends

A fundamental boa rd power is determining dividend p;:iyo1Jt.<;. ThP hoard

assesses the company's financial situation and outlook in order to recommend
appropriate dividends. The final dividend declaration must be approved by
shareholders at a general meeting, but the board's recommendation carries
significant weight. Declaring dividends is important for shareholders and
reinforces the directors' stewardship role.

Issue Shares

Directors have the power to issue new shares in the company, subject to the
provisions of the company's constitution ;-incl relevant company law rules. This
allows raising new capital through equity financing. Share issues allow growing
the total assets and ownership base of the company. The board sets the terms
and conditions for share issues.

Appoint Company Secretary

While not the most prominent power, the board h s responsibility fo,r
appointing a company secretary who has an important role in the company's
administration. Appointing a skilled secretary contributes significantly to
effective corporate governance.
r
In summary, the board has wide management powers, both directly and
through delegation, to control the company's affairs and operations. However,
the powers must be exercised subject to the directors' legal duties.

Duties of Directors

In addition to powers, company directors also have important legal duties they
must comply with in undertaking their roles. Directors have duties placed on
them by legislation and cor:nmon 'law. -i<ey duties include:

Duty of Care

Directors have a duty of care which requires them to carry out their role with
reasonable care and skill. This duty encompasses diligence, competence and

49
 I
- I

acting in a prudent manner. The law does not expect perfection, but the level
of skill and care required must be commensurate with the nature of the
company's business. Directors must meet an objective standard taking into
account their knowledge and experience.

Duty of Loyalty

The duty of loyalty requires directors to act honestly and in good faith in the
interests of the company. Directors must not act for an improper purpose or ,-"·':-
1, ,•.f
' •(

for personal gain at the expense of the company. Self-dealing and exploitation
of company opportunities for personal benefit are prohibited under this duty.
Directors also have an obligation to retain confidential company information. , ....

Duty to Act within Powers

Directors must act within the scope of their legal authority under the
company's constitution and the law. They cannot exceed their lawful powers
or breach the company's constitutional rules and procedures when acting on
behalf of the company. Even if the action is intended to benefit the company,
it will be unlawful if outside validly conferred power.

Duty to Exercise Independent Judgement

. .
Directors must apply their own mind to matte·rs before them and act
objectively in the company's best interests. They cannot simply act as
instructed by management, shareholders or others without independently
considering the wisdom anp implications of decisions. Groupthink should be
avoided.

Duty to Avoid Conflicts of Interest

Directors must avoid situations whe,·e their personal interests conflict with
those of the company. This can arise through dealings with family companies,
receiving personal benefits from third parties, or taking corporate
opportunities for gersonal gain. Where conflicts arise, directors must disclose
' ' .
their interest afld often exclude t,hemselves from decision-making on the
matter.

Compliance with these duties is essential for directors Lo eet their legal
obligations. Failµ-re to comply can result in personal liability and legal
4

50
 consequences for directors. While duties may seem onerous, they are
designed to uphold high standards of corporate govern,rnce.

Conclusion

Company directors wield significant powers relating to management and

governance of the company. They make major decisions and lead the
company's affairs. However, with these powers come legal duties and
responsibilities. Directors must comply with key duties of care, loyalty, proper
purpose, independence and avoidance of conflicts. Fulfilling the balance of
powers and duties is essential for directors to meet their obligations and
effectively govern in the company's interests. The roles carry much authority
but also personal accountability.

22. Write a note on Central Government's power to prevent

mismanagement.

Introduction:

Mismanagement occurs when a company's affairs are conducted in a manner

that is detrimental to the public interest or the com arry's/interests. ·---------------- -
Mismanagement is also said to occur when there has been1 a material c ange
in the ownership of the company's shares m if it has no share capital ii 1its
membership or in any other way, and it is likely that. the cor1Jf)any's af '. i s will
.'. be conducted in a manner prejudicial to public Interest or in a manner
prejudicial to the company's interests as a result of that change. Palmer
explains that a proper balance of majority and minority_rights is neces$;::iry to
run a smooth functioning of the company. , --- ••_ •i '

,, '
Sec 408 - Powers of Government to prevent oppression or mismanagement.
j\
(1) Notwithstanding anything contained in this Act, the Central Government
may appoint such number of persons as the Company Law Board may, by
order in writing, specify as being necessary to effectively safeguard the .

'•
interests of the comp,:n1y, or ils shareholders or the public interests t,ohold
office as directors thereof for such period, not exceeding three years on any
one ocr.;1.<;icm, as it may think fit, if the CompiJny Law Oo;:ird, on a referrem:e
►. made to it hy the Central GovPrnment or on .:in i:!pplication of not less1thi:ln one
hw1dred members of tlw company or of the rnen-1bers ur Lhe cornpnny hnldine
not less than one-tenth of the total voting power therein, is satisfied, after
such inquiry as it deems fit to make, that it is necessary to make the :.
nrpointment or appointments in order to prevent the affairs of the cori:pany

51
'.

i,' I
 •I

being conducted either in a manner which is oppressive to any members of the

company or in a manner which is prejudicial to the interests of the company or
to public interest :

Provided that in lieu of passing an order as aforesaid, the Company Law Board '. l

may, if the company has not availed itself of the option given to it under
section 265, direct the company to amend its articles in the manner provided
in that section and make fresh appointments of directors in pursuance of the '' I

articles as so amended, within such time as may be specified in that behalf by

the Company Law Board.

(2) In case.the Compa-n'{Law Board passes an order under the proviso to sub-
section (1), it may, if it-thinks fit, direct that until new directors are appointed
in pur'suance of the order aforesaid, such number of persons .as the Company
Law Board may,/by order, specify as being necessary to effectively safeguard
the interests orthe company, or its shareholders or the public interest, shall
hold office as additional directors of the company and on such directions, the
Central Governme9t shall appoint such additional directors.

(3) For the purposes of reckoning two-thirds or any other proportion of the
total number of directors of the company, any director or directors appointed ,...
by the Central Government u·nder sub-section (1) or (2) shall not be taken into
account.

(4) A person appojnted under sub-section (1) to hold office as a director or a i . I

person directed under sub-section (2) to hold office as an additional director,

shall not be required to hold any qualification shares nor his period of office
shall be liable to determination by retirement of directors by rotation; but any . '
such director or additional director may be removed by the Central
Government from his office at any time and another person may be appointed
by that Government in his place to hold office as a director or, as the case may
be, an additional director.

(5) No change in the Board of directors made after a person is appointed or

directed to hold office as a director or additional director under this section
shall, so long as such director or additional director holds office, have effect
.• I

unless ·confirmed by the Company Law Board.

(6) Notwithstcrnding anything contained in this Act or in any other law for the
time being in force, where any person is appointed by the Central Government ·- /•
to hold office as director or additional director of a company in pursuance of
. .,.

52
 sub-section (1) or sub-section (2), the Central Governmen_tmay issue such
directions to the company as it may consider necessary or appropriate in
regard to its affairs and such directions may include directions to remove an
auditor already appointed and to appoint another auditor in his place or to
alter the articles of the compan·y, and upon such directions being given, the
appointment, removal or alteration, as the case may be, shall be deemed to
have come into effect as if the provisions of this Act in this behalf have been
complied with without requiring any further act or thing to be done.

(7) The Central Government may require the persons appointed as directors or
additional directors in pursuance of sub-section (1) or sub-section (2) to report
to the Central Government from time to time with regard to the affairs of the
company

23. Write a note on oppression and mismanagement.

Introduction:

The terms oppression and mismanagement are not defined under the
Companies Act, 2013. These terms are to be interpreted by the court
depending on the facts of each case. Misrnanagernent refers lo the practice of
manc:iging the company incompetently and dishonestly. Violation of
Memorandum of Association, Articles of Association, or other statutory
provisions would amount to mismanagement. In the case of Elder v. W tson
Limited (1952 SC 29 (Scotland)], the term oppression was defined.

According to Section 241 of The Companies Act of 2013, any member who
recognizes that mismanagement is occurring may file a complaint with the
tribunal. While Section 241 (1B} of the Companies Act of 2013 defines the
scope of mismanagement, Section 241 (IA) of the Companies Act of 2013
defines oppre?sion. Afterwards, Section 242 (2) of The Companies Act, 2013
defines the tribunal's authority. In instances of mismanagement or oppression,
the tribunal i_s empowered to grant relief to the shareholders who hav Jiled
complaints. The tribunal can impose rules on the company's future operations.
An additional measur·e that the tribunal can do is to transfer the company's
shares to anoth,er member. It is able to determine if any management member
should be fired and to mandate the imposition of such fees. Company acts that
are biased and arbitrary are exc:imples of oppr'ession nd inadequate
manngP.mcnt. officials. ·1 he Honor blc Court h.:i.s .:ilso actively defined the
terms "oppression" JmJ "mismanagement." This is demonstrated in the case of
Rajahmundary Electric Corporation v. Nageshwara RaaC61. In the contested

I
 case, the vice chairman of the company erred by takin.g money from the
company for personal use and by doing several other things that-did not
- }
constitute poor management. The Honorable Court concurred that the vice-
chairman and chairman of the company had managerial responsibilities.
·,·l

Conclusion:

An act of oppression typically refers to any behavior that violates the fair -)
dealing principle, including depriving
'
members of. their rights,
·,·
acting in a way
that is detrimental to the company's goals and actions, or taking a highly risky
decision. Furthermore, mismanagement encompasses a broad range of
behaviors that are difficult to categorize into narrow categories.
"I

24. What is statutory meeting?. Explain the procedure for holding statutory
meeting..

Introduction:

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 •i
months from the date at which the company is entitled to commence business.
-
It is held only once in the lifetime of a company. A private company and , l

a company limited by guarantee and not having a sha.re capital need not hold
such a meeting.
\. I

The purpose of the statutory meeting with its statutory report is to put the
shareholders of the company in possession of all the impo.rtant facts relating to
the new company, what shares have been taken up, what moneys received etc.
This also provides an opportunity to the shareholders of meeting to discuss
the whole situation, the management and prospects of the company.

A statutory meeting is a legal requirement for newly incorporated

comp;rniP.s. It is a meeting held between the directors and sh;.ffeholdcrs of n
I.
company to discuss important matters related to the company.

Procedure for holding a statutory meeting: _-J

1. Notice of Meeting: A notice must be given to all directors and
shareholders at least 21 days before the meeting. The· notice should
include the time, date., and location of the rr1eeling, as well as the )
agenda for the meeting nnd any supporting docunwnl'>.
2. Agenda for the Meeting: The dgendi::l for the statutory meeting should - .._ :
include the approval of minutes from the last meeting, presentation of

54
 the company's financial statements, discussion of any matters arising
from the financial statements, election of directors, appointm:ent of
;:iuditors.(if nccessr.1ry), c1nd c1ny other _business.
I

3. Meeting Proceedings: The statutory meeting must be held within

three months of the company's incorporation. The chairman should
take the chair and ensure that the meeting proceeds in an orderly
manner. The minutes of the meeting should be recorded and signed by
the chairman.
4. Approval of Minutes: The first item on the agenda shou.ld be the
approval of the minutes from the last meeting. Th minutes should be
1
read aloud, and any corrections should be made before they are
I
approved. ,
5. Presentation of Financial Statements: The second ite.m on the agenda
should be th@ presentation of the company's financi,al statements. The
directors should explain the financial statements and answer any
questions that the shareholders may have. .
I,
6. Discussion of Matters Arising from tlile Financia1 State.[llents: The

'
third item on the agenda should be the discus ion o-f any matters
arising from the financial statements. This may include any iss'ues
L reIated to-·r!Te"com-p-any's-flna ncia I performance orfuturep1a ns.
7. Election of Directors: The fourth item on the agenda should be the
election of directors. The directors should be elected by a shoyv' of
•• hands, and the results should be recorded in the minutes.
8. Appointment of Auditors: The fifth item on the agenda should·be the
I:: appointment of auditors (if necessary). If the company is required to
t: have auditors, the shareholders should appoint them during the
statutory meeting.
J2
9. Any Other Business: The final item on the agenda should be any other
►; business that the shareholders wish to discuss.

,' Conclusion:
In conclusion, holding a statutory meeting is a legal requirement for newly
incorporated companies. The meeting provides an opportunity for directors
J and. shareholders to discuss important matters related to the company. To
,. I

hold a statutory meeting, notice must be given to all directors and i ,..
•

♦ shareholders, and an agenda must be JPrepared. During the meeting, the

minutes should be recorded, and the proceedings should be conduct d in an
orderly m;:rnner. By following these procedures, u comrriny can hold a.
'' I
successful statutory meeting and fulfil Its legal requirement as a newly
incorporated company.

.,i 55

.I .
 • I

UNIT- IV

25. Explain the general principles and statutory restrictions on allotment of

shares?
i.·

Introduction:

Allotment of shares is the formation and distrlbution of new shares by a

company. New shares can be issued either to the new or current shareholders.
Offers for shares are made on application forms provided by the con1pany.
When the application is accepted, it is called an allotment. The company
offering to take shares is the same as the term "allotment". Widely speaking it
is an appropriation by the directors of shares to a specific person.

General principles as to allotment of shares

An allotment to be effective has to comply with the requirements of the law of

contract relating to the acceptance of an offer.

Allotment by prope,r..authority

An allotment should l:femade by a resolution of the Board of directors. The

Allotment is the primary duty of the directors and this duty cannot be
I l
deiegated except in accordance with the provisi,ons of the.,,,articles.
J

Within reasonable time

allotment should b made within a reasonable period of time otherwise the

application fails. Reasonable time should remain a question of fact in each
case. The inte'rval of six months between application and allotment has been
held unreasonable. If the reasonable time expires Section 6 of the Contract
Act appliP.s rinrl thP. r1r,r,lir.r1tion must be deemed to be revoked.•

Must be communjcated . I
.., I

The allotment should be properly communicated to the applican(. Posting of a

properly addressed and stamped letter of allotment is sufficient
communication, even thoueh the letter is lost or held up.·

Absolute and unconditional

56
Allotment should be absolute and should be according to the terms and
conditions of the application if any.

Statutory restrictions on the allotment of shares

• Minimum subscription and application money (S-39) -· The first

essential requirement for a valid allotment is that of minimum
subscription. The amount of minimum subscription has to be declared
in the prospectus at the time when shares are offered to the public.
Shares cannot be allotted unless at least so many amounts have been
subscribed and the application money, which must not be less than
5% SEBI may decide the vaJ-ious percentage of the nominal 1/alue of
the share, has been received in by cheque or other instruments. It has
been established by various cases that it is a criterion to valid
allotment that the entire application money should be paid to and
received by the company by cheque or other instruments. If the
shares allotments are made wiLhouL c1pplicc1lion rnuney being.paid it
is invalid. If the minimum subscription has not been received within
thirty days of the issue of the prospectus, or any such perio as
specified by SEBI the amount has to be returned within such time a11d
manner as prescribed. [S-39(4)] Application money can be
appropriated towards allotment or it has to be returned or refunded.

1. Return of allotment [5.39.(4}] - A return of allotment has to be filed

with the registrar in the prescribed manner whenever a company
make an allotment of shares having a share capital.
2. Penalty for default [S. 39 (5)] - In case of default, the company and
its officer who is in default are liable to a penalty fqr each default of
Rs 1000 for each day during which the default continues or Rs
1,00,000 whichever is less.
,[

• Shares to be dealt in on stock exchange [5.40] - Every company

aiming to offer shares or debentures to the public by the issu·e .of the
. . .
prospectus has to make an application before the issue to any one or
more of the accepted stock exchanges for permission for theshares
. I
or debentures to be dealt with at the exchange. The I
need is not
merely to apply but rJlso to obtain permission. In the prospectus, the
name or nurnes of the stock exchanges to which lhe a,pplicatio is
made must--be stated.

• 57
 .,
J

This requirement is precedent for listing that the application money is

deposited in a sepi;!'rate bank account which will be used only for adjustment
against allotment of shares if the shares have the permission to be dealt with
in the specified manner in the prospectus. Hence the money will be used for
the repayment to applicants within the time specified by SES! if the company
has not been able to allot shares for any other reasons. (S. 40 (3)]. The object
of the section is that it will help shareholders to find a ready market so that
they can convert their investment into cash whenever they like. In the
Supreme Court ca-se Union of India v. Allied International Products Ltd, this
objective of the section was explained.

Conclusion:

The process of appropria ion of a certain numbeJlff shares and distribution

among those who have submitted the return apµ 'ations of shares is known as
allotmen of shares. Allotment of shares is basically··creating and issuing a new
number of shares by the company to the new or existing shareholders. The
purpose of allotting new shares is to bring new business p;:irtners.

26. What is debenture and explain its kinds?

Introduction:
J

. ,I
A debenture can be described us a debt instrument is ueu by a company to
the public in order to raise funds for medium or long-term usage. It is just like
a bank loan, with debt obligation and liability for interest payment, but
instead of borrowing from a bank, these are issued and traded in the capital
market. A debenture is a legal document that states the amount invested or
lent, interest due, and the repayment plan. At the conclusion of the term, the
investor receives the principal and interest.

I
Generally, debentures are issued with a fixed rate of interest, which is called
the Coupon Rate. A debenture holder receives interest according to the .._ I
coupon rate specified in the debenture certificate.
Funds can be generated by a lot of sources in a business organization. The
easiest mPthod is the-public issuance of securities. I lowever, privale
. companies r.;:innot use this method r:is rPr loe;:11 obligation. The two wiuely
used instrumcnt5 to gPnNate funds from lhe m;::irkct urc shares and
debentures. In the case of Equity shares, ownership of the company is
compromised. Hence, If the said company does not want to compromise the

58
 ownership, issuing debentures could be a better option. Such companies can
I
then borrow the funds required by issuing debentures.

p
Debentures can be categorized on the following basis:
A. On the basis of Security:
a Secured Debentures: Debentures that are issued against a
security/collateral are called secured debentures. l!J other words, a charge
,,,-·
is made against the assets of the issuingicompany.
a Unsecured Debentures: Debentures which are is uerl without any charge
against the issuing company's assets are called unsecured debentures.
B. On the basis of Tenure:
• Redeemable Debentures: Such debentures, which are due to be repaid at
the end of a certain period, either in a lump sum or in installments,·either
at a premium or at face value, during the lifetime of the entity a,-e called
redeemable debentures.
• Irredeemable Debentures: Such debentures are not redeemed or repaid
during the lifetime of the company. In the event of the winding-up of the
company, such redemption may be possible. • •
C. On the basis of Convertibility:
• Convertible Debentures: Debentures that can be converted into eithei·
equity capital or any other s·ecurity are called convertible debentures. This
can be done at the will of the holders of the company.
• Non- Convertible Debentures: Debentures which cannot be converted
into equity shares or any other form of security are called non-convertible
debentures.
D. On the basis of Coupon Rate:
• Specific Coupon Rate Debentures: These debentures are issued at a
specific rate of interest, called the coupon rate. This interest is payable to
the holders periodically, regardless of whether the company made a profit
that year or not. .
• Zero-Coupon Rate Debentures: Such debentures do not carry any interest
rate. To compensate the holders, these are usually issued at a disc·ount so
that the difference between the foce value and the issue price can be
lreated as the interest income earned by the holder.
E. On the basis of Registration:
• Registered Debentures: Debentures against which all information.about
their holders, like names, addresses, etc. are kept in a special regl:Ster at
the company's head office are called r·egislered debentures. Such,, •
debentures cannot be transferred just by delivery, but require a transfer
deed.

59

.
,,
 ·:' I

• Bearer Debentures: These debentures are transferred via simple delivery

and no special record is kept in the company register for such documents.

Conclusion:

A debenture issued by an organisation is an official authentication that an

organisation has borrowed a certain sum of money from the public. The
borrowed sum comes with a promise that the organisation will repay the
amount on or before a specified date in the future. So, debenture holders can
also be referred to as creditors of an organisation. One key feature that
differentiates debentures from other forms of debt is that they lack collateral
backing, that is, no capital/asset whatsoever is assured in favour of the debt.

27. Write a note on buy back of shares.

Introduction:

Share or stock buyback is the practice where companies decide to purchase

their own share from their existing shareholders either through a tender offer
or through an open market. In such a situation, the price of concerning shares
is higher than the prevailing market price.

When companies decide to opt for the open market mechanism to repur-chase
shares, they can do so through the secondary market. On the other hand,
those who choose the tender offer can avail the same by submitting or
tendering a portion of their shares within a given period. Alternatively, it can
be looked at as a means to reward existing shareholders other than offering
timely dividends.. ·

However, company owners may have several reasons for repurchasing their
s ocks. Individuals should make a point to find out the underlying cuuscs to
make the most of such decisions and also to benefit from-them accordingly.
4

Reasons for Share Buyback

J

There may be sevel.=il rp;:isnns why a comrriny opts for a stock

buyback. I lowever, the list below highlights the most comm.on reasons for the
same.
I •

• When There Is Excess Cash But Not Enough Projects To Invest In

60
 Companies issue shares to raise equity capital and expand their venture, but
often such a practice does not prove to be of much use. Similarly, keeping
excess money at the bank is more like a truncated cash flow
offering liquidity over the ideal requirement. Hence, instead of piling on cash
reserves, companies with robust financial standing tend to make the b st
possible use of the cash available through a stock buyback.

• It is a Tax-effective Rewarding Option

When compared to dividends, share.buybacks are more tax-effective for both

companies and their shareholders. To elaborate, stock buybacks are subjected
only to DDT, and the amount of money is deducted before distributing the
,·.
earnings to the surrendering shareholders. On the other hand, dividends ar·e
taxed at 3 different levels.

• To Consolidate Hold Over the Company

Often when the number of shareholders of a company exceeds the

manageable limit, it becomes challenging for the entity to r ach a de isio_n
unanimously. Additionally, it may result in a power struggle within the
company and among the shareholders with voting rights. To avoid or aggravate
such situations, company board members often resort to share buybacks and
plan to consolidate their hold over the company by increasing their votiqg
rights. '
r; ,

• To Signal that the Stock Is Undervalued

When a company decides to buy back its shares, it may also indicate that the
company considers its shares to be undervalued. Besides serying as a remedy
for the situation, it a1so helps to project a positive picture of the company's
prospects and its current valuation. 11
:'.

Other than these, stock buybacks may be prdmpted to improve-companie_s'

overall valuation or to reward their existing shareholders:· '"'

Conclusion:

Hence, both existing and potential shareholders should make a point{g factor
in the stock buyback prospect of a company and plan their investment .
accordingly. However, to understand buyback of shares meaning and its.role

61
 better, they should become familiar with how it impacts investors, existing
shareholders, and the company from a broader perspective.

28. Write a note on dividends.

Introduction:

Dividend is thE!.idistribution of corporate earnings of the company to its eligible

shareholders. The amount of dividend to be paid is determined by the board of
directors of a company.

A dividend re.fers to the payment made by the company while sharing profits
with the shareholders. When companies start making profits, they share the
dividend with shareholders.
To understand how dividends are paid out, let us consider an example.
Suppose that you have 40 shares of an organization. The organization pays $3
as annual cash dividends. Then, you will be able to receive $120 annually. A
company earns profits to which the board of directors approve a plan for
sharing profits as dividend.
i' •
Types of Dividend
The following are the different types of dividends:

1. Cash Dividend
It refers to a payment made by the company to shareholders in the form
of cash. When a company generates profit, it may distribute a portion of profit
to sh_ar:eholders as a cash dividend. These are paid on a per share basis, which
means that every shareholder will receive a set amount of cash for every share
of the stock that they own. Through cash dividends, the company rewards its
stakeholders as an ROI for their investment in the company. Such types of
dividends indicate the stable and profitable health of the organization since
they are able to share the profits with stakeholders.
2. Stock dividends
;.-.:J
These are the types of dividends that companies issue to their stakeholders.
Instead of distributing cash, a stock dividend is paid as additional shares to the
company's stock. Busically, companies divide their existing sl1dres into smaller
pjeces.J3-¥.-is_suLng_this,theLompan_y prn_te_ctsjts.eLf_ frnm depJeting_the.casb _
reserve. It also helps the comp;:3·t1yiri increasing the liquidffy of the compony's
stock and making it more accessible to its investors.

62

•I
Ll;;;;;;;.;;;;;;;;;;;;,.;;;;;;;;;;;;;iiiio,iiiiiiiiiiiiiiiiiiiiiiiiiiiii--iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiii;;;;;;;;;.;;,;;;;;;;;;;.;;;.;;;;;;;;;;;;;;uii.ii,i..;;;;;iiiiiiiiiiiiioiiii;;;;;;;;;;.;;;;;;;;;;;;;;;.;;;;;;;;;;;;;;. iiiiiiiia, ----------;;;;;/,1 ._
'-'-
.,',.
'J, •

3. Scrip Dividend
It is paid out as either promissory notes or IOUs that may be redeemed for
stock or cash at a later date. Basically, the company creates a debt obligation
to its shareholders as company promises to pay shareholders with certain
amount of money/stock at a later date. This is done in the exchanee for
acceptance of a scrip.

When companies want to preserve their cash reserves, they use script
dividends to reward shareholders. However, shareholders may have to pay
taxes or:, the value of scrip even if they have not received the cash payout. This
type of dividend comes with the risk that the company may not be able to fulfil
the obligation of paying dividen·d in the future.

4. Liquidating dividend
This is paid to shareholders when company liquidates its assets. It is paid from
the company's earnings or from the proceeds of sales of company's assets.
This helps in returning a part of the remaining value of the company to
shdreholders. IL is paid on a per-shdre uc1sis due Lo wl,ich evl:!ry shc1rehulcJl:!r
receives a certain amount of cash for every share of stock that they own. This
paid out after every debt and obligation of company are fulfilled. This includes
secured debt, other liabilities and taxes.

Conclusion:
Dividends can be a great source of passive income for investors. Understanding
types of dividend, their impact on financial statements, and associated dates of
payments are essential when assessing investments. Dividend payout ratios
and dividend yields provide insight into how much an investor will receive in
the form of dividends per share they own. With this knowledge, investors can
make informed decisions when choosing stocks and maximizing investment
returns.

29. Explain the different types of share capitals.

Introduction:
Share capital refers to the entire amount of money raised by a company
issuing shares. To conti ue expanding their business, all organisations' require a
consistent influx of finance. Keep in mind that a corporation is a legal entity
with a legal personality. People who willingly contribute money to an entity-'s
owned corpus become co-owners of that entity. Each organisation's entire
capital is its share capital, and its donors are its shareholders.

Different Types of Share Capital

63

--- '
 Authorised Share Capital
The consolidated capital that a company.accepts from its investors listed in the
company's official documentation is referred to as authorised share capital.
This capital is also known as Registered Capital or Nominal Capital because it is
used to register a corporation. The Capital Clause sets the ceiling of Authorised
Capital in the Memorandum of Association. The firm has the authority to take
the necessary actions to expand the authorised capital limit to issue more ..
"
shares. Still, it is not entitled to issue shares that exceed the limit of authorised
capital in any case.

Issued Share Capital

The portion of Authorised Share Capital issued to the public for subscription is
known as Issued Share Capital. Issuance, allocation, or allotment are the terms
used to describe the act of giving shares.

Subscribed Capital
The portion of issued capital that has been sold to the public is known as
subscribed capital. It is not fully subscribed by the general public. It is the
portion of the issued capital for which the corporation has received an
application. For example, If a corporation gives 16000 shares of one hundred
rupees each and the public only applies for 120001 the issued capital is 16 lakh I
-·
INR, and the subscribed capital is 12 lakh INR. The total number of outstanding
an treasury shares equals the number of issued shares.

Called-Up Capital
Capital is the portion of the Subscribed Capital that contains the shareholder's
payment. The capital is not given to the company in its whole at once. It uses a
part of the subscribed capital when required in instalments. Uncalled capital
refers to the remainder of the Subscribed Capital.

Paid-Up Capital
One of the types of share capital is paid-up capital, which is the portion of
Cc:illed-up Capital that the shareholder pays. The shareholder does not haVf to
pay the ·sum requested by thP r.orporaliun. As the numc implies, a rt=! erve is a .-' 1
sum of money held in the company's treasury. This comes in handy if the
company needs to be wound up.

Uncalled Share Capital , /

The amount th L Lhe·corporation has not yet claimed on the number of

0

designated shares an¢-,which the shareholders have to pay as and when

needed. As a result, the uncalled capital in the above example is 2,00,000 INR.

64 .j
 -.
Conclusion
Companies issue shares to raise funds by diluting the original shareholders'
ownership interest. The price of a stock may fluctuate from time to time. As a
result, it is essential to invest in the stock market. Furthermore, many people
are perplexed by the distinction between shares and shared capital. A
corporation's share capital is the money raised through the sale of equity to
investors, whereas a shareholder's share is the percentage of the money paid
to the company.

30. What is floating charge? When will floating charge crystalize?

Introduction:
A floating charge is created on assets which are involved in the ordinary course
of business that is dynamic in nature. As these assets are not 'fixed' in nature,
:· they are known as floating charges. A company may also dispose of such assets
a without the permission of the creditor. For example, if the security for a loan is
If in the form of 'a building', it is a fixed charge on the property for the crE ditor
because it does not change or fluctuate in its state of beinig. But if the security
it, is on goods in a warehouse, the type of charge created is a1 floating ch,arge
because of the dynamic nature of the assets. To be specific, every business
l -11----t rar:i.sacts---on.a-dai1-y-basi.s-with goods,t h-a---ava-i-labi Iit-y--0.f-w hiGl;\---eouIGl-he-eit-her
high or low. So, when a floating charge is created on such goods which are not
constant and keep changing from time to time, the creditors own wh;3tever
,. goods are left after the actual transactions
. by the comp.any. This is because the
/

creditor cannot lay restrictions on the business activities which make money if
he wants his debt to be paid off by the debtor. Since the ass"ets are not.specific
and hence the rights over such assets are also not specific, the charge created
is called a floating charge.

Crystallisation of Floating Charge

There are instances where a floating charge may become a fixed charge. This
conversion of floating charge into a fixed charge is usually called Crystallisation
of floating charge. When such conversion takes place, the floating charge is no
more floating, even on the assets that are not static. It becomes a fixed charge
so that the whole control over particular assets belong to the creditor in the
event of default in repayment of debts. Such an event happens under the
following circumstances:

• The debtor is unable to pay off the debts.

• The company is about to wind up.

65

1,.
 -
1
s The business couldn t be carried out when the creditor takes acticin
against the debtor for not repaying the debts and in all such
circumstances which are listed out under the relevant provisions of the
Companies Act, 2013.
.. . ·'
The floating charge is traditionally seen as a beneficial instrument for both a ' 1
lender and a borrower. In particular, it allows a lender to obtain security over
,.·,
the whole of a company's assets and undertaking while at the same time not ' J

inhibiting the borrower's abilfty to trade. A floating charge will generally provide
:. )
that it will convert into a fixed charge or "crystallise)) upon the occurrence of
specified events. These events can generally be divided into two categories:

1. Automatic ery.stal'lisation - these are the classic well known crystallisation

event such as a lflding up•(or other business cessation event) or the
appointment of a receiver. It is accepted that crystallisation wi!! occur
automatically upon the occurrence of these events a!1d this is usually re-
iterated in the relevant security document; and .,,,
2. Express c;irystallisation.,.... these events can vary from case to case and are
set out in the relevant charging docume:it as a matter of contract. For
crystallisation to occur, some action on the part of the charge hoider is
usuali'{ requded. Generally this will be the service of a "crystallisation,,
notice upon the occurrence of specified events.

Conclusion:

I 'J
Floating and fixed charges are concepts which everybody concerned with ioans
has to be aware of to know the consequences of debtors' non-repayment of '. J

debt or the rights available to the creditors in case of default in repayment.

Crystailisation, as discussed above, is a process where the floating charge is

.,
converted into a fixed charge. This is like instilling confidence in a creditor to y

make sure he gets something .out of the tr-ansaclion when things get worse.

The companies have to maintain a register consisting of all the details

concerning the charges and avoid any unwanted litigation in future. For
creditors, it is very much advisable to get the charges registered to not lose
their preferential position in case of settlement of claim?.
. .,l
31. Explain the gP.nP.rril procedure of shares?

Introduction:

66
r=:e meaning of the Issue of Shares is th:-t th =: o afn enterprise or any
financial asset are distributed among shareholders who wish to purch se
them. These shareholders can be either individuals or corporates who take
part in buying the shares at a specific price.

Process of Allotment of Shares

The process of allotment of shares typically involves the following steps:
. Announcing the issue details: The company issuing the shares will announce
the details, including the number of shares being offered, the price per
share, and any other terms and conditions.
• Inviting applications: Potential investors or current shareholders c.an apply
for these shares by submitting an application form and the necessary
payment.
• Processing of applications: Once the application process is closed, the
company will process the applications and determine the allotment of
shares. This involves verifying the applicants' eligibility, checking for any
oversubscriptio or undersubscription, and allocating the shares based on
the number of shares applied for an:d the availability of shares.
• Preparing the allotment list: The company will then prepare an allotment
list specifying the number of shares ,allotted to each applicant.
• lssuine share certificates or clemat statements: /\fter the allotment list is
finalized, the company will issue share certificates or demat statements to
the shareholders who have been allotted shares. These certificates or.•
statements serve as proof of ownership and can be used to trade th'e.shares
on the .stock exchange or transfer ownership to another person.

The Process for Issue and Allotment of Shares

The following steps are involved in the process for the issue and Allotment of
Shares.

Step 1: Board resolution

Step 2: Passing of special or ordinary resolution

Step 3: Filing of necessary forms

Step 4: Approval of the ROC

Conclusion:

Allotment of shares refers to the process ot ailocating shares tq

the shareholders who have applied for them. When a company issues new

67

r
 shares, it invites applications from the public or existing shareholders. Once
the company rec ives the applications, it processes them and decides on the
allotment of shares.
The allotment process involves assigning a specific number of shares to each
shareholder based on the number of shares they have applied'for and available
for allotment. Once the shares are allotted, the shareholders become the
company owners to the extent of the shares allotted to them.

32. Explain the rue laid down in Foss V. Harbottle. State the exceptions if )
any?

Introduction:

The ultimate safeguard on any abuse of corporate executives remain in court

action. Majority rule is the essence of democracy and same is true with a
company, \Vhich is an association of individuals and acts in accordance with the
decisions taken by the majority of its members. Where dissatisfied minority
cannot through the ordinary process of interventions at company meetings
T· \
obtain satisfaction for what they consider to be an impropriety on the
directors, the only option left is appeal to the courts. The Companies Act, 2013
therefore, contains provisions for the protection of the investor's interests in
company.
'i
FACTS OF FOSS v. HARBOTTLE

The company named "Victoria Park Company", had been set up in September
1835. Richards Foss and Edward Starkie Turton, who were minorfty shareholders
in the company, commenced legal action against the promoters and directors.

The claimants alleged that property of the company had been misapplied and
wasted and various mortgages were given improperly over the company's
property. They asked the guilty parties be held accountable to the company and
3 receiver be tJppointcd. Also, that the defendant rniglil b uecreeu Lu make .,,_ ./ I
good of the company losses.
I
., ./
JUDGMENT: FOSS v. HARBOTTLE

Wigrarri VC dismissed the claim and held that when a company is wronged by its
directors it is only the company that has standing to sue. In effect the court
established two rules. Firstly, "proper plaintiff rule" is that a wrong done to the
...,.,..
company may be vindicated by the company alone. Secondly, the "majority rule
principle" states that if the alleged wrong can be confirmed or ratified by a
-◄ -,•

68
 simple majority of members in a general meeting, then the court will not
interfere.

EXCEPTIONS TO THE RULE

The operative field of said rule extends to cases in which c;orporations are
competent to ratify managerial sins. But there are certain acts which no majority
of shareholders can approve or affirm and each and every shareholder may sue
to enforce obligation owed to the company. In the American literature a
1
representative action of this kind is called the derivative actions'.
"
Ultra Vires -

A shareholder is entitled to bring an action against the company and its officers
in respect of matters which are ultra vires and which n majority
. •-, of sh reholders
can sanction.

In Bharat Insurance Company Case

11
There does not appear to be any case where the necessity of the corporation
being a party has been expressly decided; but with respect to the first class of
action, the question can admit of no doubt - the relief therein claimE?d against
the corporation itself."

Fraud on Minority -

Where the majority of a compani/s members use their power to defraud or

oppress the minority, their con.duct is liable to be impeached even b .y a single
shareholder.

It can be best understood in the landmark Menier Case It was held that Hooper's
machinations for profits derived from the improper arrangements it had made
am unted to an oppressive expropriation of the minority shareholders, and that
a derivative action would therefore lie against it.

Wrongdoers in Control -

To safeguard the interest of the company, any member or members may bring
an action in the name of the company as it would be futile because the
wrongdm rs would directly or indirectly exercise a decisive influence over the
result. The same w s held in Glass v. Atkin

Acts Requiring Special Majority -

69
 There are certain acts required special resolutions at a general meeting of
shareholders. Accordingly, if the majority purport to do any such act by passing
only an ordinary resolution or without passing special resolution in the manner
requir.ed by law, any member can bring an action to restrain the majority. Such
actions were allowed in Dhakeswari Cotton Mills Case and Nagappa Chettiar
Case.

Individual Membership Rights -

Every shareholder has vested in him certain personal rights against the company
and his shareholders. A large number of such rights have been conferred upon
shareholders by the acts itself, but they may also arise out of articles of
association. Such rights are commonly known as individual membership rights
and respecting them the rule of majority simply does not operate.

Class.Action -

A class action allows a number of claimants with a common grievance against a

company to file a lawsuit against it. The scale of economies associated with class
actions seem especially critical to those individuals who have limited resources
or small claims that render individual lawsuits expensive and unfeasible.
Shareholders or depositors may file an application with the National Company
Law Tribunal (1'.JCLTfalleging that the management or conduct of the affairs of
any company are beir;:i.g--conducte'd in a manner prejudicial to the interests of the
Ii- l
company, ·its members or depositors.
i' ,I
Oppression and Mismanagement-.

Calcutta High Court in Kanika Mukherjee Case held that the principle embodied
in 5. 397 and 398 f the Indian Companies Act which provide for prevention of
oppression and rhismanagement, is an exception to the rule in Foss v.
Harbottle which lays down the Sanctity of the majority rule.

UNIT-V

33. When a national company law tribunal can order for winding up of a
comoany? Explain.

IntrodtJction:

Windinu up J comptJny mct1ns closing down and canceling its opt:r dliuris. Under 0.-.:,

the provisions of the Companies Act, 2013, the winding-up process can be
 initiated by a Tribunal known as the National Company Law Tribunal (NCLT). The
commencement of winding up by the Tribunal involves court proceedings and
obligations to ensure a fair and orderly dissolution of the company. The
liquidation procedure is not so simple and Is very lengthy and time-consuming.
It encompasses many complexities and technical matters in its scope. Legal
Window is here to make you understand every complexity and help you through
technicalities.

Winding up a company refers to the process of liquidating its assets, settling its
liabilities, and distributing any remaining funds or assets to the company's
stakeholders. This could occur due to various reasons, such as insolvency, failure
to meet financial obligations, or when it is just and equitable to wind up the
company in the interest of its members and creditors.

The process of winding up a company is a significant event that marks

the closure and dissolution of a company's operations. Under the provisions of
the Companies Act, 2013, the winding up of'a company can be initiat,ed by the
Tribunal, commonly known·as the National Company Law Tribunal (NCLT). The
commencement of winding up by the Tribunal entails a series 'bf legal
proceedings and obligations to ensure a fair and orderly dissolutioh- of the
company.

Modes for the Commencement of Winding Up of a Company by the Tribunal

I .. ,

The Companies Act, 2013 provides two main modes for the commencement of
1
winding up of a company by the Tribunal:

• Voluntary winding up and

• Compulsory winding- up.
Voluntary winding up occurs when the company, through its shareholders or
creditors, decides to wind up voluntarily. On the other hand, compulsory
winding up is initiated by the Tribunal based on an application file;d by any
interested party, such as creditors, shcJreholders, or the Registrar of Companies.

Voluntary Winding Up of a Company by the Tribunal

In the case of voluntary winding up, the process starts with,special resolution
passed by the shareholders of the company. This resolution must be approved
by a three-fourths majority of the shareholders in a general meeting.'Once the
resolution is passed, the company ic; rPquir rl to file a, , . n- otice of the r.c.5,olution
with the negistrar of Cornµcrnies within 3.0 days. Following thJ.s, a meeting of

71

I I
 • j

creditors is convehed, and a liquidator is appointed to car.-ry out the winding-up

process. •

Compulsory Winding Up of a Company by the Tribunal

The compulsory winding up is initiated by filing an application with the Tribunal,

supported by valid grounds for winding up. The grounds for compulsory winding
up may include the inability to pay debts, just and equitable grounds, or any
other substantial default. The applicant must submit the necessary documents
and pay the prescribed fee to the Tribunal. The Tribunal then examines the
application and, if satisfied, issues a winding-up order, thereby commencing the
winding-up proceedings.
I-
Situations for Winding Up by the Tribunal (Section 271)

A company can be dissolved by the Tribunal on a petition filed under Section 272
II.
of the Act. A company may be wound up by a Tribunal on the following grounds-

• If the company has unpaid debts;

• If the company has decided by special resolution that the company will be -•· I

wound up by the Tribunal;

• If the company's actions are detrimental to the integrity and sovereignty
of India, its national security, friendly relations with foreign states, public
order, decency, or morals;
• !f the Tribunal has ordered the winding up of the company under Chapter
XIX (in the case of a sick company);
• If the Tribunal, on the application of the Secretary or the Government,
believes that the affairs of the company have been fraudulently conducted, or
that the company has been formed for a fraudulent and unlawful purpose, or
that the persons concerned in the formation or management of the company's
affairs have been guilty of fraud, misconduct or wrongdoing in connection
whereas, and that it is proper that the company should be dissolved;
' "
• If the company has defaulted in filing its accounts or annual statements
with the registrar for the immediately preceding five consecutive financ,ial
years; ·or
• If the Tribunal finds it right and justified, the company must not be winded
up.

Appoint ent of Official Liquidator

Upon the commencement of winding up, the Trihlrnr1I appoints an official

liquidator to oversee the process. The official liquidator assumes control of the
72
..,
company's affair·s, takes custody of its assets, and co11ducts,,investigations and
valuations. They _re responsible for collecting outstanding amounts, settling
liabilities, and distrlbuting the company's assets to its stakeholders. The
distribution follows the: priority prescribed by law, ensuring a fair _and equitable
resolution.

Powers of the Tribunal

During the winding-up process, the Tribunal possesses extensive powers to

ensure a transparent and orderly liquidation. It can summon and examine
witnesses, order the production of books and documents, and issue directions
for the protection of assets and interests of stakeholders. The Tribunal may also
take appropriate actions against any officers or directors who have contributed
to the company's winding up through their misconduct or negligence.

Conclusion:

The winding-up process under the Companies Act, 2013 involves various legal
requirements, strict timelines, and the involvement of multiple stakeholders. It
is a complex and time-consuming procedure that necessitates ptofessional
guidance and legal advice. Shareholt.lers, creditors, and the company itself
should seek assistance to navignte the winding up proceedings effectively.
Professionals with expertise in company law and liquidation can provide the
necessary guidance to ensure compliance with legal obligations and f?cilitate a
smooth winding-up process.

34. Under what circumstances the tribunal/ court can order for compulsory
winding up of a company?

Introduction:

The term "winding up", as outlined in Section 2(94A) of the Companies Act,.
2013, refers to the formal process of closing a company through the mei:hanisms
provided by the Companies Act or by undergoing liquidation under the
Insolvency and Bankruptcy Code, 2016. This process involves ceasing regular
business activities, liquidating assets, and settling debts ultimately leading to the
company1s dissolution. Despite this, during the winding-up phase and until
dissolution, the company maintains its legal entity status, allowing it to partake
in legal actions within a Tribunal. The objective of winding up is to ensure an
orderly closure and distribution of the comp;:inls c1ssets.

Section 271 deals with circumstances under which a tribunal cm order for
winding up of a company. These are:

73
 Special resolution

According to Section 271(a), a petition for the winding up of a company can be

prevented if a special resolution has been passed by the company in this
regard.

Sovereignty, integrity, and other factors

A company can be wound by a tribunal if it acts against the sovereignty and

I '
integrity of India, the security of the state, foreign relations, public order,
morality etc. This is given under Section 271(b) of the Act.

Fraudulent conduct of the company.

According to Section 271(c), if the tribunal on the application filed by the

registrar is of the opinion that the company was formed with a fraudulent aim
and unlawful purpose or its affairs have been conducted in a fraudulent
manner or the persons who formed the company are guilty of fraud or .. .- l
r· :.,.%
miscondµct, it can order for winding up of the company.

Default in filing financial statements or audit returns

Section 271(d} provides that where the company defaults in filing its financial
statements or audit returns 'vvith the registrar, the tribunal can order for
winding up of the company.

Just and equitable

A tribunal can order for winding up of a company if it is just and equitable to

do so in the following circumstances:

• Deadloc ,: hen twoormore people cannot agree with each other

drid reach an agreeme11 , Lhe situation Is known as deadlock. In case . I
,-
of deadlock 6-efween the management of the company, it is just and
equitable for the tribunal to wind up the company. In the _case
of Etisalat Mauritius Ltd. V. Etisalat DB Telecom (P) Ltd. (2013), there
/

was a deadlock and irretrievable breakdown between major

share iolders of the company which further hampered its
performance and work and no sr.hPme or solution could be
propound d, the Lribunal ordered to wind up the comp,rny.

.._.J
74

..,,'
 • Loss of Substratum: When the object of the company fails, it leads to
loss of substratum. In the case of Dunlop India Ltd. re (2013), the
company was unable to show its long or short term business plans
and the company was not conducting its business for quite some time
and so the company was ordered to wind up. In the case of Seth
Mohan Lal v. Grain Chambers Ltd. (1968), the Supreme Court
observed that when the object of the company for which it was
formed fails substantially, it leads to loss of substratum.
• Losses: if a company is suffering loss and cannot carry on its business,
it is just and equitable to wind up the company. A company was asked
to wind up on this ground in the case of Bachharaj Factories v. Hirjee
Mills Ltd. (1955).

• Oppr ssion of minority: another just and equitable ground for a

tribunal to order winding up is where the principal shareholders
adopt aggressive or oppressive policies towards the minority•
shareholders.
• Fraudulent purpose: a tribunal can also order for winding up of a
company if it has been formed for an unlawful or illegal purpose.
• Public interest: if it is in the public interest to wind up a company, it is
a just and equitable ground. In the case of Millennium Adva·n,.ced
Technology Ltd., re, (2004), the company was ordered to wir up due
to multiple undesirable practices like false invoicitig etc. ••• '
I

• Company was a bubble: When the company was a bubble, i.e. it was
never in real business, then also it classifies as just 9.nd equitable
ground of winding up.

Conclusion:

\Ninding up can be understood as the last stage in the life·ot a comp::iny, after
which it dissolves. The present Companies Act, 2013 provides for tw,o. modes
of which have been explained above. The National Company Lavy, Tribunal
(NCLT) has been established in this regard to tackle the issues of wi,nding up.
Further, the National Company Law Appellate Tribunal (NCLAT) has been
established to deal with the appeals arising from the decisions of NC T.

35. Write a note on preferential payment?

'' I

Introduction:

:- 75
 A preferential payment is a payment in which a debtor favors one creditor over
others by paying them just before filing bankruptcy, which may disrupt the
equitable allocation of assets among creditors. These payments are examined
in bankruptcy courts to prevent creditors from gaining undue benefits.

The term 'prefere. tial' r,efers to a person or entity who holds the position of
preferential creditor during the insolvency of a company and is likely to get -
·'•.
:'

credit payment over otner creditors .. Simply put, preferential payments are
I
payments made by a debtor to a creditor prior to filing for bankruptcy.

·In a winding up,,subject

4
to the provisions of section 326, there shall be paid in
I I

priority to all other debts,- •

a. all revenues, tiaxes, cesses and rates due from the company to the Central
Government or a State Government or to a local authority at the relevant date,
and having b come due and payable within the twelve months immediately
before that date;

b. all wages or salary including wages payable for time or piece work and
salary earned wholly or in part by way of commission of any employee in
respect of service? rendered to the company and due for a period not
exceeding four months within the twelve months immediately before the
relevant date, subject to the condition that the amount payable under this
clause to any workman shall not exceed such amount as may b'e notified;
1 J

c. all accrued hoiiday remuneration becoming payable to any employee, or I ·:

in the case of his death, to any other person claiming under him, on the
termination of his employment before, or by the winding up order, or, as the
case may be, the dissolution of the company;

d. unless the company is being_wound up voluntarily merely for the purposes

of reconstruction or amalgamation with another company, all amount due in .. •
.J

respect of contributions payable during the period of twelve months

immediat ly before the relevant date by the company as the employer of
persons under the Employees' State Insurance Act, 1948 or any other law for
the time being in force;

c. unl,ess the company has, at the cornrnencement or winding up, under

such a contract with any insurer as is mP.ntioned in section 1 t1 of thP
• I
Workmen's Compensation Act, 1923, rights capable of being lrcrnsferred to and
vested in· the workmen, all amount due in respect of any compensation or

76
 liability for compensation under the said Act in respect of the death or
disablement of any employee of the company:

Provided that where any compensation under the said Act is a weekly
payment, the amount payable under this clause shall be taken to be the
amount of the lump sum tor which such weekly payment could, if redeemable,
be redeemed, if the employer has made an application under that Act;
f;,
i......
' ' all sums due to any employee nrom the provident fund, the pension fund, the
gratuity fund or any other fund for the welfare of the employees, maintained
by the company; and

g. the expenses of any investigation held in pursuance of sections 213 and

216, in so far as they are payable by the company.

Conclusion:

In bankruptcy, preferential payments refer to payments made to creditors

within a certain period before the filing of bankruptcy. The idea behinq
identifying and scrutinizing these payments is to ensure fairness among
creditors and wevent any par-ticular creditor from receiving more th;,;in their
share.

36. Write a note on members voluntary winding up of company

Introduction:

Winding up a company is the process of bringing a company to an end.: If your

company is solvent (i.e. able to pay its debts), it can enter into
liquidation through a members1 voluntary winding up. On the other ha,nd, an
insolvent company is unable to pay its debts when they fall due for
payment. As a company owner, it is important to know whether your·
company is solvent or insolvent. This is because if your company is insolvent,
its creditors can forcibly wind it up through a·creditors' voluntary winding up.

• what a members' voluntary winding up is;

• what the process looks like; and
The differences between a creditors' and members' winding up..

How Does a Members' Voluntary Winding Up Work?

The members_of a solvent company can decide to wind up the company by
following the process below.

77
 •I

1. A majority of the company directors lodge a declaration of solvency with

ASIC by using the ASIC Form 520. This declaration notifies ASIC that, in
the directors' opinions, the company will be able to pay its debts in full
within 12 months following the voluntary wind up;
2. The company members pass a special resolution within five wee.ks of the
directors making the solvency declaration and lodge an ASIC Form 205
notifying ASIC that a special resolution has passed;
3. A liquidator is appointed and a notice of appointment is lodged with
ASIC within 14 days by using an ASIC Form 505; and
4. The liquidator winds up the ·company's affairs and lodges the final
documents with ASIC.

If at any point during the winding up the liquidator believes that the company
will be unable to pay its debts in full within 12 months of the commencement
of winding up, they must either:

• convene a creditors meeting;

• appoint a voluntary administrator; or
• apply to the court for the company to be wound up in insolvency.

37. Explain briefly the various methods of winding up of a company.

Introduction:

Winding up is the formal process of closing a company, as defined in Section

2(94A) of the Companies Act, 2013. This involves stopping business activities,
selling assets, paying off debts, and ultimately dissolving the company. During
this process, the company remains a legal entity and can participate in legal
proceedings.

Mod s of Winding UQ of a Cg_mpany

\_. J
._./
Under Section 293 of the Companies Act 2013, there are three primary ways to
wind up a company:

• Compulsory Winding Up (By the Court)

• Voluntary Winding Up
.. Winding Up Subject to'the Suµcr vi'..>iuri of the Court

Compulsory Winding Ur:, of Company

78
 Compulsory winding up is one of the modes of winding up a company; it is
initiated by a court order, usually upon the petition of a creditor·, the company
itself, or the Registrar of Companies. The conditions under which a court can
order the winding up of a company include:

• Inability to Pay Debts: If a company is unable to pay its debts and a

creditor has demanded payment and not received it within three weeks,
the creditor can petition for winding up.
• Special Resolution: If the company has resolved by a special resolution
that it should be wound up by the court.
• Default in Holding Statutory Meeting: If the company has not held its
statutory meeting or filed its statutory report.
• Acts Against Sovereignty and Integrity: If the company is found to be
acting against the sovereignty and integrity of India br public order.
• Fraudulent Conduct: If the business of the company, is being conducted
fraudulently or for an unlawful purpose.
..
Once a winding-up drder is made, an official liquidator is appointed by the
court to take control of the company's assets and liabilities.

Voluntary Winding Up of Company

Voluntary winding up can be initiated by the members of the compan.y without

court intervention. There are two types of voluntary winding up:
••
..t, • Members' Voluntary Winding Up: This occurs when the company is
ti solvent and able to pay its debts in full within a specified period. The
directors must make a declaration of solvency, followed by a resolution

,
t;

•
passed by the members in a general meeting. An official liquidator is
then appointed to wind up the company's affairs.
Creditors' Voluntary Winding Up: This occurs when the company is
t insolvent and unable to pay its debts. The process begins with a
resolution by the members, followed by a meeting of the creditor,s, The

• creditors have a significan:t role in appointing the liquidator and : • •

overseeing the winding-up process.
•
t In both types of voluntary winding up, the liquid.::itor is responsible for·
collecting the company's assets, paying oft its liabilities, and distributing any
remaining assets to the members.
·'
i
79
 1.1 '

Winding Up under the Supervision of the Court

In certain situations, even if a company is undergoing voluntary winding up,

the court may intervene and place the windin'g up under its supervision. This
usually happens if the court believes that the process is not being conducted
properly or if it is in the interest of justice to do so. The process then continues
under the oversight of the court, which can make orders and directions as
necessary.

Conclusion:

Winding up a company in India is a structured process governed by legal

frameworks to ensure fair treatment of creditors, members, and other
stakeholders. vVhether through court intervention, voluntary action by
members, or under court superv!sion, each winding up of a company aims to
systematically close d:ewn the company's operations, settle debts, and
distribute any remaining assets.

tribunal with respect to the

38. What are tl"\e"duties and powers of
reconstruction and amalgamation of the company?.
{½.
Introduction:

The National Company Law Tribunal (NCLT) consolidates the corporate t./1
jurisdiction of the Company Law Board, Board for Industrial and Financial
Reconstruction (BIFR), The Appellate Authority for Industrial and Financial
Reconstruction (AAIFR) and the powers relating to winding up or restructuring
and other provisions, vested in High Courts. Hence, the National Company Law
Tribunal will consolidate all powers to govern the companies registered in
• India. \/\lith the establishment of the NCLT and NCLAT, the Company Law Board
·.....
under the Companies Act, 1956 has now been dissolved.

Powers of the National Company Law Tribunal (NCLT)

The Tribunal and the Appellate Tribunal is bound by the rules laid down in the
Code of Civil Procedure and is guided by the pri'nciples of natural justice,
subject to the other provisions of this Act and of any rules that are mJdc by
the Central Government. The Tribunal and the Appellate Tribur1dl Cdrl curilrul
its prncedure.

. ... '-

80
 I•·•
-il 1 •

Before understanding the powers and duties of the tribunal (National

Company Law Tribunal), it must be understood as to why be the sanction of
tribunal important. There are several reasons which necessitate the sanction of
the Tribunal; a few of them are listed below:

I ,

1. Once the scheme is approved by the Tribunal, the company is bound

to abide by it, any avoidance or deviance from the same may bring
legal consequences.

2. If the tribunal won't have interfered, the majority might have

·I •

suppressed the minority's right; so Tribunal ensures adequate

representation of the minority.
3. Tribunal also has supervisory power, so at any time if NCLT is of the
view that the sc;heme is not in the interest of the member, it may
order to modify the scheme or may order winding-up. •
The tribunal Is empowered with a wide range of powers by the virtue •
of Section 231. The tribunal has the sole authority either to approve cir to
reject the scheme of compromise or arrangement. If the tribunal approves the
compromise or arrangement, in such a case it further has the followL g
powers:
I
1. To supervise/monitor the carrying out of the proposed scheme.

2. To modify/amend the scheme to achieve the best result.

3. To order winding up of Company, if it is deemed to the tribunal that
the scheme is not workable in the interest of the Company or its
member.
Apart from the above powers, the tribunal is also bound by certain dut.ies: So,
whenever the tribunal sanctions a scheme, it must make sure that the
following factors had been complied with.

1. That the scheme is within the provisions of the Cor.npanies Act.

2. The tribunal must make sure that the class of people, who were to be
adversely affected by the scheme, are fairly being represented in the
meeting.
3. The proposed scheme must be reasonable; it should not have any
adverse effect on society.

Conclusion:
.• i' • '
'

r
I 81
'I
 J

Fu rer, value cr-eation, diversification, and for increasing the financial capacity
of: iE! companies or for survival, one company may have to join hands with
another company either by way of amalgtlmation or by the takeover. So the
companies act provides for· the provisions relating to various methods for the
reorganization of-a company. Thus is becoming vital to discern the provisions of
the Companies Act in relation to Mergers and Acquisition, and the procedure
thereof. r• ..:
I

39. Who can apply for winding up of a company?

Introduction:

Chapter XX of the Companies Act, 2013 in part I deals with the winding up of a
company by a court or tribunal. When a company is wound up by the order of
a court or tribunal, it is called winding up by the court or tribunal. This mode of
winding up is also called compulsory winding up of a company.

(According to Section 272 of the Companies Act, 2013, the following persons
can present a petition for the winding up of a company to the Tribunal:

Company

According to Section 272(1)(a), a petition for winding up can be presented by a

company itself. However, before presenting a petition, the company must pass
a special resolution in this regard. ln the case of BOC India Ltd. Zinc Products &
Co. (P) Ltd. (1996), a petition for winding up was presented by a person not
authorised to do so by the board of directors and hence, the petition was ,
declared as incompetent. L .,I

Any contributory ,·

According to Section 2(26) of the Act, a contributory is a person who is liable to

contribute towards assets of the company in case it is wound up. However,
iJccording to Section 272(2), a contributoi-y will be allciweu Lu present ;;i
petition for winding in spite of him being the holder of fully paid up shares or
the c;:ompany has no surplus assets left for distribution among its shareholders
after satisfying all the liabilities. One important requirement is that the shares
in respect of which r1 rPrson is a contributory were allotted or registered under
him for at least 6 months during the period of 18 months before the
commen'cement of winding up or such shares devolved on him by the death of
the former holder.

All or any persons mentioned above

82
 The petition for winding up can also be presented hy the company and the
contributories together or separately.

Registrar

The r·egistrar can file a petition for the winding up of a company under the
I

following circumstances:
.r

• Actions oHhe Company were against the interests of sovereignty and

integrity of the country, Security of States, friendly relations, morality
etc.
'
• If the tribunal is of the opinion that the compan.y was.formed with a
fraudulent aim and unlawful purpose or its affairs have been
conducted in a fraudulent manner or the persons who formed the
company are guilty of fraud or misconduct.

• There was a default in filing the financial statements or annual returns

of the company with the f<.egislr ar.
• It is just and equitable for the tribunal to wound up the company.
However, a registrar cannot file a petition for winding up of a company to a
tribunal, if a company has decided that it will be wound up by a tribunal.by a
special resolution .

•• The registrar is also required to'obtain previous sanction from the Central
·,

Government before filing a petition. The government will not accord the
t
- ..
sanction unless the company is given a reasonable opportunity to make the
representations. Also, a petition presented by a company for winding up will
t:
.,., be admitted by the tribunal only if it is accompanied by a statement of affairs.

Person authorised by central government

,•
Section 272(1)(e) provides that a petition for winding up can also be fileq by
any person who is authorised by the Central Government to do so.

Central or State governmPnt

•
t The Central or State government can also p esent a petition for winding up of a
, company if its actions are against the sover·eignty ;:ind integrity of the country,
public order, morJlity, decency, foreign relations etc.

83
 40. write a note on powers of court to wind up of company.

Introduction:

The winding-up of a company is a method of putting an end to the existence of

a company when it continues to be in loss and unable to pay the creditors.
Before November 2016 the Indian Company Act, 2013 did not define the term
winding-up until the amendments by Insolvency and Bankruptcy code,2016
inserted Section 2(94A) in the Act. The concept of winding-up is different from
that of insolvency and dissolution as the former is a proceeding by which
assets are realized, liabilities are paid off and residual/surplus assets are
distributed among the shareholders.
• I

In the case Pierce Leslie & Co Ltd v. Violet Ouchterlong it was states that
"\Ninding up precedes dissolution", a company does not stand to be dissolved
immediately at the commencement of the process of winding up, its powers and
status continues to exist. The entire process is categorised into two parts where
the Companies Act 2013 under section 270 provides for only one kind of
winding-up i.e. compulsory winding up under the Tribunal as certain provisions
for voluntary winding-up was abolished.

When a company is subject to compulsory winding-up it may or may not be

insolvent but is forced by law to carry out the process. Winding-up by court and
under the supervision o,n the court are two different procedures. The Act under
section 271 pr-o. vides possible grounds where a company registered under the
ordinance is ordered .by,..,the court tribunals to be wound up if:
r

a. By a special resolution the company has affected winding up by the Tribunal

b. The company has acted against the interests of sovereignty and integrity of
India, security @f state, public order, foreign relations etc.
c. The company was functioning under a fraudulent conduct of affairs or for
I •

unlawful purposes
d. Tribunal is of thJopinion that it is just and equitable or; ..
e. There is a efault in filling financial statements.
The National Company Law Tribunal after hearing a winding-up petition filed by
any person authorised under the Act be it a company, creditors, registrar, or any
person authorised by the central government, under section 273 of the Act may:
d. Dismiss il wilh or without cost

b. Pass an irilerirn order as it thinks fit

c. Appoint provisional liquidator until winding up order
d. Make a winding up order with or without costs; or
',_)
84

1
- "
1
= ==iiiiiiiiiiiiiiiiiiiiiiiim = = = • l.
'
I .•
''
e. Any other as it thinks fit

It has to pass an order within 90 days from the d.::itc of petition. The Tribunal if
it may think fit, can refuse to make an order if another suitable remedy is
available. The company during the process of winding-up cannot carry out its
business activities and is only liable for liquidation of assets. The Tribunal where
the registered office of the company is situated has the original jurisdiction
(section 280 of the Act) over the petition and it has to take in to consideration
that the process is not opposed to public interest or the interest if the company
as a separate legal entity. The Tribunal while exercising its discretiqn should
.. ' ;.r keep in mind interests of all affected parties and not just the creditors.

.Problems related questions

J a train accident all the 10 members of a private company died. Does the
company cease to exist because all the members have died? Give reasons.

Answer:

No.

Explanation:

The Company's existence is not affected by the death of its shareholders, since
the Company has separate legal entity. This is clearly established irfsalomon
c2I
Vs. Salom_rn.. & Ltd, ee Vs. Lee 1/-\ir farming Ltd & Kandoli tea.ccr:Lt'§/.cases.
FurtM"er tne Company has having perpetual succession.

42.A company has its registered office Mumbai. Due to some reasons
unfavourable to the company, it wishes to shift its registered office
e
to
Karnataka. Advice the company. '

E>q:ilanation:
J

A Company may for operational convenience or due to the pre·sence of the

target customer segment or due to favouriihle eovernment policies or'tor
various other reasons may intend to shift its registered office of the company

1 ,'l1

85
 from one state to ano1her. A company may do so after complying with the
applicabie· provisions of Companies Act, 2013 (the Act) as discussed below.

A company may,,alte1· its memorandum of association (MOA) relating to the

place of the registered office from one State to another on receipt of approval
from Central Government (CG) i.e. Regional Director (RD). An application in
such manner as prescribed under Section 13(4) and Rule 30 of The Companies
I
(Incorporation) Rules, 2014 of the Act shall be made to the CG.

has been declared dividend and is not aid within 30 da s

om the date of declaration share holders and wants to file a suit Advise

Answer:

Share holder can file a suit as per section 124 of Company act 2013.

Explanation: , I

As per Section 124 of the Act, where a dividend has been declared by a
company but has not been paid (or claimed) within 30 days from the date of
declaration, the company shall within 7 days from the expiry of the period of
30 days transfer the total amoun·t of dividend which remains unpaid.

In case dividend remaining unpaid or unclaimed, Company is required to

arrange for transfer of unpaid or unclaimed dividend to a special account
named "Unpaid dividend Account" within 7 days after expiry of the period of
30 days of declaration of final dividend. {Section 124).

The company is required to deposit the amount of d.ividend so declared within

5 days trom thP rfatp ot cieclaration of Dividend i.e. 19.03.2020 (up to
23.03.2070) Further, the company /s required to mukc the payment within 30
davs of decla1 c1Liuri ur dividend (up to 17.04.2U2UL failing which company will
""'
be liable to pay interest @18% p.a. for the period of default. Moreover, it is .
required to deposit the unpaid dividend amount in the special account within 7 • I

days fro'm expiry of 30 days (i.e. 23.04.2020) .

.
.
'I

86 .. ;_./'
 _J·, a Aeroplane accident all the members of a private company died. Does
th"e company ceases to exist? Decide.
. .f: .re0- c: c,. r- ,'rd 't".
I . '/
f\.l'rf\( f• t"v'I I I
Answer: No. 1' 1 " " r. 1. 6t,i r 1 t .,.
l"."-'' rr I 1' / I. ,"',i ..- l"(I 'I'( •
,4 - v , I' Ji. f·'"'I J. 4,--\a!••.i.. -1}.,, 12 · •,.:.,, u oll\··1"v ih:''
- ;i ..g-10 fl :u "• • '' '., an'· ..., p»·•.A) ,'.:..<, ,:, I Cf't> I ,.,_ ti{'., tr,u, f ,of ,-
.L\ccord ing to Sec 9 of the Companies Act, 2013, a company's existence is not
dependent upon its members' life (any or all), therefore death of its members
does not affect its existence.
..
,;; •
, ..
' Ce, !J ( Ir) n / ( fl o S: . r· ,·\
., J,.·;:H. t'Ollfil1;·/f :ni:+'1 a.
_EIxp ana t·1on: t i ,. . , u
_ f>" •\) C.{'if>fi ·:t f,\ (,,Cl\f'!)'>roi?,i,
1A company is typically an artificial person, and it subsists in contemplation of
Liaw
_and is distinct from its members establishing it. As such, insolvency, death,
or "retirement of any" or all members does not affect the company's existence.
. '
While members come and go, the company continues ceaselessly i.e. one of
the feature of a company is perpetual succession.
The shares of the deceased members would be registered in the name of their
legal successors or nominees. The company's existence comes to an end only
according to the stipulations of law such as dissolution of the company.
;t_ ',:\' on instructions of promoters of a company prepared memorandum of
association and articles of association, paid the registration fees and got the
companv incorporated. "A" claims reimbursement from the company, The
company refuses to pay, will "A" Succeed.
,l\nswer:
:

•,.·
A will not succeed.

Explanation:

•t
Formation of a company involves completion of several legal formalities and
procedures. The process of formation of the company can be divided into four
stages, viz.,

J i. Promotion of a company

• ii. Incorporation

•
""
iii. · Subscription of capital
-
iv. Commencement of business.
t,
87

WIW:::at.W< WWW crr-t: :..iiai.J«T

 However, only a public limited company is required to fulfil all these four stages.
A private iimited company is required to fulfil only the first two stages. In other
words, it can start business immediately after obtaining the certificate of
incorporation.

Before the registration process whatever communication is done and promise

made is'in valid. Hence "A" will not succeed.

4 . " 11 a erson is alread holds office of a director in 15 com anies. He wants

to become a director of another company. Advise "M".

Answer:

Yes he can become a director of another company as per section of 161(2) of

company act 2013.
' J

Explanation:

Section 161(2) of the Companies Act, 2013(hereinafter referred to as 'The Act')

, inter alia, facilitates the appointment of an a.lternate director for any other
director in the same company during the period of absence of the original
director from India for a period which is not less than three months.

The first proviso under the sub-section states that if it is intended to appoint
an Alternate in place of the independent director, it is necessary that the
Alternate too shall be qualified for appointment as an independent director.

47. A, Band Care the members of a company and holding all shares of that
cofT!pany. Then transfern d their shares to "X", "Y" and "Z", Whether thP.
company having the same entity.

Answer:

Company having the same entity as per section 56 of company act 2013.

.i

Explanation:

88
 The shareholders are the owners of a company limited by shares who are vested
with wide powers of controlling the Company like appointment and removal of
Directors, approval for bringing additional funds and the approval of related
party transactions etc.

Tr·ansfer of ownership of a company can therefore be affected by transferring

·•·•• the shares held by one member to another_ Sh re transfer in a Private Limited
l11j; Company is usually more restricted in compared to a Public Limited Company.
-- I •. ,

In case of Private Limited Company, the·shares are closely held by either a small
.....
.J i

..,.;,·
group of persons, family members or friends, etc. Hence, most of the Articles of
Association of a Private Limited Com·pany: limit the right of a shareholder to
transfer the company's shares to an outs\der. Therefore, it is impor.ta:it to check
the provisions of the Articles of Association_of the Company.prior to affecting a
......... share transfer to understand additional compliances, if any.,

' ' 'R'. are the members ot' the can and holdl'n all the shares of
that company. They transferred all their shares to 'S' ,'T', 'U'. Is the company
having perpetual succession? Decide.

Answer: Yes the company have perpetual° succession.

.,r
Explanation:

• An incorporated company never dies, as it is an entity with perpetual successi'un .

,P

- For understanding
members 'this point
of a company, more
holding clearly
a'll-'its let's assume
shares. P, Q, may
Their shares and R
beare the only
transferred

, to or inherited by S, T, or U who may, therefore, becorn 'the new members and

members of the company as they are now the shareholders of the company. But

•·
•
the company will remain the same en.tity, with s am e- ha-me, privilege and
immunities, property and assets.
Hence in the case of Punjab National Bank v Lakshmi lndusfrial & Tradi ·g co
ltd. it was held by the Allahabad High Lo·ur t'L11al µerpeluc1I succession'means
t that membership of a company may k'eep on changing from time to time, but
that does not affect the companies continuity..A company has a perpetual

• .. existence i.e it has no soul to be saved or body to be kicked. •

••••
Since a company has no physical existence, it must act through its agerits and
all such contracts entered into by its agents should be urider the company's
seal.

: 89
 .

·-
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