Company Law Solved Paper May' 2015 Semester Exam, Dibrugarh University B.Com 4th Semester

Company Law Solved Paper May' 2015 Semester Exam
Dibrugarh University B.Com 4th Semester
Time: 3 hours
(Company Law)
Full Marks: 80
Pass marks: 32

The figures in the margin indicate full marks for the questions
1. Write True or False:               1x4=4

(a)    Alternation of Memorandum of Association of a company is impossible.                       False
(b)   The terms floating security and floating charges are synonymous.         False
(c)    In the case of private company, two members personally present may be the quorum for a meeting.             True
(d)   Every private company must have minimum three directors.             False, two directors
2. Fill in the blanks:                     1x4=4
(a)    Minimum number of members in a public company is 7(seven).
(b)   Share warrant is a kind negotiable instrument.
(c)    An article of Association of a company contains rules and regulations for the internal management of the company.
(d)   In a government company, minimum 51% of the paid-up share capital is held by government.
3. Write short notes on (any four) :                   4x4=16
(a)    Rights of Members.
Ans: Rights of a member
a)      Right to obtain the share certificate from the company.
b)      Right to have his name entered in the register of members.
c)       Right to transfer his securities (subject to the restrictions contained in the articles and the Act.
d)      Right to receive the notice of general meetings, attend the general meetings and vote thereat.
e)      Right to receive the dividend, where a dividend is declared by the company.
f)       Right to apply to the Court seeking an injunction restraining the directors from paying dividend out of capitals.
g)      Right to inspect and obtain extracts and copies of the registers and indices of members, debenture-holders and other security holders, and annual returns.
h)      Right to obtain copies of Memorandum and Articles.

(b)   Authorized Capital.
(c)    Extra-ordinary General Meeting.
Ans: Every general meeting (i.e. meeting of members of the company) other than the statutory meeting and the annual general meeting or any adjournment thereof, is an extraordinary general meeting. Such meeting is usually called by the Board of Directors for some urgent business which cannot wait to be decided till the next AGM. Every business transacted at such a meeting is special business. An explanatory statement of the special business must also accompany the notice calling the meeting. The Articles of Association of a Company may contain provisions for convening an extraordinary general meeting.
(d)   Share warrant.
(e)   Fixed charge.
(f)     Share Forfeiture.

Ans: Forfeiture of shares: A company has no inherent power to forfeit shares. The power to forfeit shares must be contained in the articles. Where a share holder fail to pay the amount due on any call, the directors may, if so authorized by the articles, forfeit his shares. Shares can only be forfeited for non-payment of calls. An attempt to forfeit shares for other reasons is illegal. Thus where the shares are declared forfeited for the purpose of reliving a friend from liability, the forfeiture may be set aside.

Before the shares are forfeited the shareholder:
i) Must be served with a notice requiring him to pay the money due on the call together with interest;
ii) The notice shall specify a date, not being earlier than the expiry of 14 days from the date of service of notice, on or before which the payment is to be made and must also state that in the event of non-payment within that date will make the shares liable for forfeiture;
iii) There must be a proper resolution of the board;
iv) The power of forfeiture must be exercised bonafide and for the benefit of the company.
A person, whose shares have been forfeited, ceases to be a member of the company. But he shall remain liable to pay to the company all moneys which at the date of forfeiture were payable by him to the company in respect of the shares. The liability of such a person shall cease as and when the company receives payment in full in respect of the shares.

4. What do you understand by Memorandum of Association? Discuss the clauses of Memorandum of Association. 4+8=12
Ans: Memorandum of Association: Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.
Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the Memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act”.
One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.
Memorandum of association is divided into 5 clauses/contents [Sec. 4 of the Companies Act, 2013]:
1.       Name clause
2.       Situation or Registered office clause
3.       Objects clause
4.       Liability clause and
5.       Capital clause
6.       Subscription or Association Clause
1. Name clause: This clause state the name of the company. Name of every company limited by shares or by guarantee must end by the word 'Ltd.' or 'Pvt. Ltd.' except companies exempted u/s 8.  The name must not be undesirable or most not resemble the name of any other registered company.
2. Situation or Registered office clause: Must contain the name of state is which registered office is situated.  Actual address of registered office is notified to ROC with in 30 days of in corporation.
3. Object clause: It sets out object or vires of the company. The objects must be legal and not be against the provision of the companies Act, 2013. It is divided into two parts:
(a) The main objects and Objects incidental or ancillary to the main objects.
(b) Other objects.
4. Liability clause: States that liability of members is limited to the amount unpaid on their shares and in case of company limited by guarantee the amount which every member undertakes to contribute to the assets of the company in the even of its winding up.
5. Capital clause: Every company having a share capital, the amount of share capital with which the company is proposed to be registered and the division of its shares into a fixed denomination.
6. Subscription clause: This clause shall state the number of shares that each subscriber to member has agreed to subscribe. Every subscriber shall agree to subscribe for at least one share.
State in brief the various kinds of companies which can be registered under the Companies Act.    12
Ans: Kinds of Companies
A. Classification on the basis of liability
1. Companies with limited liability
(a)   Companies limited by guarantee [Sec.2(21)]- where the liability of the members of a company is limited to a fixed amount which the members undertake to contribute to the assets of the company in the event of its being wound up, the company is called a company limited b guarantee.
(b)    Companies limited by shares [Sec.2(22)]- where the liability of the members of a company is limited to the amount unpaid on the shares, such a company is known as a company limited by shares
2. Unlimited companies [Sec.2(92)] - A company without limited liability is known as an unlimited company. In case of such a company, every member is liable for the debts of the company.
B. Classification on the basis of number of members
1. Private company [Sec.2(68)] - A private company is normally what the Americans call a ‘close corporation’. According to Sec.2(68), a private company means a company which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital as may be prescribed by CG, and by its Articles:
a)      Restricts the right to transfer its shares, if any. The restriction is meant to preserve the private character of the company.
b)      Except in case of one person company, limits the number of its members to 200 not including its employee-members. Joint shareholders shall be counted as one member only.
c)       Prohibits any invitation to the public to subscribe for any securities. In other words, a private company shall not make a public issue of its securities.
A Private company may be:
a.       One Person company [Sec. 2(62)]: It means a company which has only one person as a member. All the provisions of a private company is also applicable to this company.
b.      Small Company [Sec. 2(85)]: A company shall be a small company only if it’s paid-up capital does not exceed Rs.50 lakhs or such higher amount as may be prescribed (not being more than Rs. 5 crores) and its turnover does not exceeds Rs. 2 crores or such higher amount as may be prescribed (not being more than Rs. 20 crores)
c.       Other that “One Person Company” and “Small Company”.
2. Public company [Sec. 2(71)] - A public company means a company which –
a. is not a private company
b. is a private company which is a subsidiary of a company which is not a private company.
c. has a minimum paid-up capital of Rs. 5 lakh or such higher paid-up capital, as may be prescribed by CG.
C. Classification on the basis of control
1. Holding company-Section 2(46) - A company is known as the holding company of another company if is has control over that other company.
2. Subsidiary company-Section 2(87) - A company is known as a subsidiary of another company when control is exercised by the latter(called holding company) over the former called a subsidiary company.
A company is deemed to be a subsidiary of another company when:
a.       where the company controls the composition of Board of Directors of the subsidiary company
b.      where the company holds more than one- half the nominal value of equity share capital of another company
c.       where a company is subsidiary of another company, which is itself is subsidiary of the controlling company.
D. Classification on the basis of ownership
1. Foreign company [Sec 2(42)]- it means any company incorporated outside India which has an established place of business in India.
2. Government company [Sec 2(45)] - A Government company means any company in which not less than 51 % of the paid-up share capital is held by-
a)      the Central government
b)      any State government or governments
c)       partly by the Central government and partly by one or more State governments.
3. Non-government company: It means a company other than Government company.
E. Classification on the basis of listing of shares on the stock exchange
1. Listed Company [Sec. 2(52)]: It means a company which has any of its securities listed on any recognized stock exchange.
2. Unlisted Company: It means a company other than listed company.

5. What is Share? Write the difference between transfer and transmission of share.    3+8=11
Discuss the various kinds of the share capital of a company.            11

6. What is charge? Explain the procedures of registration of charges.                        2+9=11
What is floating charge? What are the characteristics of floating charge? How does it differ from fixed charge?   3+3+5=11
7. “A register of members is not merely a record of members and their particulars but as adequate proof of title to the membership.” Discuss.                  11
Discuss briefly the statutory provisions regarding an Annual General Meeting.
Ans: Provisions of the Company’s Act relating to Annual General Meeting: (Sec. 96 of the Companies Act, 2013)
As the term denotes, annual general meeting is the meeting under section 96 which has to be held annually. It is the meeting of the members through which they get the opportunity to express their views on the management of the company. Through this meeting, the shareholders can exercise control over the affairs of the company. The ‘Annual General Meeting’ is sometimes called ‘”Ordinary General Meeting” as it usually deals with the so-called ‘Ordinary Business’.
The main purpose (Objectives) to hold these meetings are:
1.       To submit the annual account, balance sheet, director’s report and auditor’s report.
2.       To declare the dividend.
3.       Special business- any other business to be transacted will be deemed special business likes:
4.       To increase share capital
5.       To alter Article of Association
6.       To appoint auditors and fix their remuneration.
7.       To elect directors are that liable to retire by rotation.
Legal Provisions Relating to Annual General Meeting
Every company is required to hold this meeting. But, there are certain legal provisions which have to be followed, relating to the annual general meeting as contained in sections 96 and 97. There are:
a)      First Annual general meeting: A company may hold its first annual general meeting within a period of 9 months from the date of incorporation. However this should not be more than 9 months from close of financial years.
b)      Subsequent meeting: There must be one meeting held in each year. The gap between two annual general meetings must not be more than 15 months. Meeting must be held not later than 6 months from close of financial year.
c)       Extension of time: the registrar has the power to extend the time of 15 months by 3 more months in special cases.
d)      Day, hour and place of meeting: The meeting can be held at any working place, on any working day and working hours. If the day scheduled for meeting is declared by the Central Government to be a public holiday after the issue of the notice, it shall not be deemed as a holiday.
e)      Notice of the meeting: 21 clear days notice or any shorter notice if agreed by all shareholders must be given.
f)       Business to be transected: At every AGM, the following matters must be discussed and decided. Since such matters are discussed at every AGM, they are known as ordinary business. All other matters and business to be discussed at the AGM are special business.
The following matters constitute ordinary business at an AGM :
a.     Consideration of annual accounts, director’s report and the auditor’s report
b.     Declaration of dividend
c.     Appointment of directors in the place of those retiring
d.     Appointment of and the fixing of the remuneration of the statutory auditors.
Ordinary business is transacted by passing ordinary resolution.
Special Business: All matters other than ordinary business are treated as special business at an annual general meeting. For transacting special business at a meeting, there shall be annexed to the notice of meeting an explanatory statement setting out:
a)      All material facts concerning each item of such business, and
b)      In particular, nature of the concern or interest, if any, of every director or manager in each item.
c)       Statement must also state time and place where document, if any, proposed for approval at the meeting can be inspected by members.
d)      The items constituting special business are transacted either by an ordinary resolution or by a special resolution depending on the requirements of the Companies Act 2013 or articles of the company in respect of each particular item.
e)      Default in holding Annual general meeting: As mentioned earlier, every company is required to hold this meeting according to the provision of the Companies Act. If any company fails to hold the annual general meeting the consequences are as follows:
A. As mentioned above, the annual general meeting provides the opportunity to the members to express views on the management of the company. Any member can apply to the Central Government for the failure of the company to call the meeting. The Central Government may give direction to the company for calling the meeting.
B. The company as well as every officer will become liable if  they fail to held the meeting and shall be punishable with fine upto Rs. 50,000, and if the default continues , with a further fine of Rs. 2,500 for every day after the first day of default during which the default continues. 
8. Describe the modes of appointment of Directors in a Company.                            11
Ans: Meaning of Directors and Board of Directors and their appointments
On incorporation, a company becomes a legal artificial person but it cannot act by itself and consequently it has to depend upon some human agency to act in its name. The members have no inherent right to participate in the management of the company. A large sized company may have its members running into lakhs, who are dispersed all over the country and they even lack the expertise to manage the affairs of the company, which makes it impossible to give the management of the company in their hands. Therefore a specialized body of persons called as directors are appointed by the members to manage the affairs of the company. The directors must act as a body without improper exclusion of any of the directors. The directors collectively referred to as BOARD. The board is the managerial body constituted by the members to whom is entrusted the whole management of the company.
According to Section 2 (34) of the Companies Act, 2013, “Directors means a director appointed to the board of a company.”
According to Sec.2 (10) of the Indian Companies Act, 2013, “Board of Directors” or “Board”, in relation to a company, means the collective body of the directors of the company;
Appointment of Directors
Section 149 of the Companies Act, 2013, makes it obligatory on every public company to have at least three directors and on every other company to have at least two directors. The directors may be appointed in the following ways:
1. Appointment of First Directors (Sec. 152): First directors mean the director of the company who assumes office from the date of incorporation of the company. The first directors of a company may be named in its articles of association and if it is not mentioned, then the subscribers of the memorandum of association who are individual, shall be deemed to be the first directors of the company, until the directors are not appointed in accordance with Section 152.
In case of public company, if the article provides any share qualification, only such subscribers as possess the necessary share qualification shall be deemed to be directors. The articles at the time of registration may contain the names of the first directors until directors are appointed in the first general meeting.
2. Appointment of Directors by Members in the General Meeting (Sec. 152(2): Except for the first director, the subsequent directors are appointed by the company in the general meeting. Sec. 152(2) provides that not less than 2/3 of the total number of directors of a public company, or of a private company which is subsidiary of a public company must be appointed by the company in general meeting. These directors must be subject to retirement by rotation. The remaining directors of such a company and a purely private company are appointed by the company in general meeting
3. Appointment by Board of Directors: The directors are appointed in the general meeting by the members. But, the Board of Directors may also appoint the directors, in the following way:
a. Additional Directors: Section 161, of the Act, lays down that the Board may appoint additional directors if the article of association of a company empower the Board of Directors to do so. Such additional directors shall hold office only up to the date of the next annual general meeting. If the annual general meeting is not held, then such additional director vacates his office on the last day on which the annual general meeting should have been held in terms of Section 166. The additional directors are exempted from the requirement of filing consent to act as directors.
b. Casual Vacancies: Section 161 empowers the Board of Directors to appoint the directors in the casual vacancy which may occur due to any reasons like, death, resignation, insanity, insolvency etc of the directors. Such casual vacancy may be filled according to the regulations and procedure prescribed by the articles of association. A person appointed to fill a casual vacancy will hold office only till the date up to which the directors in whose place, he is appointed would have held office. 
c. Alternate Directors: The Board Meeting may be held at a time when a director is, absent for a period of more than three months from the state and in such a situation, an ‘alternate director’ is appointed. The Board of Directors can appoint the additional director in the absence of a director if so authorized by articles or by a resolution passed by the company in general meeting. The alternate director shall work until the original director return or up to the period permitted to the original director. The provision of the Act not applicable to the alternate director is as:
A. The appointment of an alternate director is not considered as an increase in the strength of the Board of Directors.
B. Alternate Directorship held by a person cannot be counted for the maximum number of directorship, which a person can hold.
C. An alternate director is not required to hold any qualification shares.
4. Appointment of Directors by Central Government: At least 100 members of the company or the members of the company who hold at least one-tenth of the total voting power, approach the Central Government for appointing a director to safeguard the interest of the company or its members or the public or to curb the oppressive and mismanagement of company’s affairs.
The term of appointment of the directors by the Central Government should not exceed 3 years and he may be removed by the Central Government for appointing another person to hold the office.
5. Appointment of Directors by Third-Parties if the Article provides (Sec. 152): A company may have ‘nominee directors’ which is permissible in a company if the articles of association gives power to such third parties to appoint their nominee on company’s board. Here the third party may be debenture holders, financial corporation, banking companies who have advanced loan to the company to safeguard their interests that the money is only used for the purpose for which it was borrowed.
6. Appointment of Directors By small shareholders if the article provides: The Small Shareholders, in case of a public company having:
i) A paid-up capital of five cores rupees or more, and
ii) one thousand or more small shareholders.
may have a director elected by such small shareholders in the manner as may be prescribed.
The directors are appointed by ordinary resolution i.e. through the majority of the shareholders. The minority of the shareholders does not get the opportunity to send representative in the Board of Directors. But, through proportional representative voting, the shareholders can get that opportunity.
7. Appointment of directors by professional representation (Sec. 163): The Directors of a company are generally appointed by simple majority. As a result majority shareholders controlling 51% or more votes may elect all directors and a substantial minority of 49% may not find any representation on the board. This section give power to the minority shareholders to elect directors through single transferable vote and cumulative voting.
Who is a Managing Director? How is he appointed? What are the disqualifications of a Managing Director? 2+5+4=11
Ans: Managing Director: According to Sec.2 (54) of the Indian Companies Act “managing director” means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.
Appointment of Managing Director
Appointment of Managing Director, Whole – Time Director or Manager shall only be for a term which must be less than five years. However, the company may re-appointment them for next term before expiry of their present term but not earlier than one year before expiry of the term. This means, company may re-appoint them for next term in last one year of current term.
The minimum age for appointment for these positions is twenty – one years and normal retirement age is seventy years. Words used in this Section are “shall appoint or continue the employment of”.  A company may appoint a person on these positions, who has attained the age of seventy years. Where it is proposed to appoint a person who has attained aged of seventy years, an explanatory statement justifying such appointment shall be annexed to the notice for motion of appointment.
Appointee should not be an un-discharged insolvent nor has any time been adjudged as an insolvent. Appointee has not any time suspended payment to his creditors or has made a composition with them. Appointee should not be a convict of an offence and sentenced for a period of more than six months.
Board of Directors in its meeting shall appoint Managing Director, Whole Time Director or Manager, subject to the approval of the company in its next General Meeting. This appointment should be in accordance with provision of Section 197 and Schedule V. Where, such appointment is at variance to the conditions specified in the schedule, this appointment shall also be subject to the approval of the Central Government.
The Notice convening Board or General Meeting for such appointment shall include terms and conditions of such appointment, remuneration payable and other matter including interests of directors in such appointment.
A return of such appointment shall be filed within sixty days of such appointment.
Disqualification for appointment as a managing director
No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who:
a.       is below the age of twenty-one years or has attained the age of seventy years; Provided that appointment of a person who has attained the age of seventy years may be made by passing a special resolution in which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;
b.      is an undischarged insolvent or has at any time been adjudged as an insolvent;
c.       has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
d.      has at any time been convicted by a court of an offence and sentenced for a period of more than six months.