Term-End Examination
June, 2017
Time : 2 hours Maximum Marks : 50
(Weightage : 70%)
Note : Answer any five questions.
1. What is meant by "Lifting the corporate veil" ? State in detail any four circumstances under which the "corporate veil can be lifted". 2+8
Ans: A company is a legal person and is distinct from its members. This principle is regarded as a curtain or a veil between the company and its members protecting the later from the liabilities of the former. This veil is the corporate veil and is impassable as an iron curtain.
As per the judicial point of view, a company is a separate legal entity different from its members (saloman Vs. Saloman & co. Ltd.). When there are cases of dishonesty and fraudulence in incorporation, the law lifts the veil. This veil is a fictional veil and not a wall between the company and its members. Lifting the corporate veil may be defined as looking behind the company as a legal person and identifying the persons who are behind the scene and are responsible for the preparation of fraud. The circumstances under which the court may lift the corporate veil may be broadly divided into following two heads:-
a)      Judicial Interpretation
b)      Statutory Provision
Judicial Interpretation: following are the cases under which the court has lifted the corporate veil:
a)  Avoidance of welfare legislation: Where the device of incorporation is used for reducing the amount to be paid by way of bonus to the workmen, the Supreme Court can upheld the lifting of the veil to look at the real transactions: [workmen of Associated Rubber Industry Vs. Associated Rubber Co.]
b) Protection of Revenue: Where the medium of the company has been used for tax evasion or to circumvent tax obligation, courts have lifted the veil and looked at the realities of situation [In Sir Dinashaw Mancekjee Petit].
Statutory Provisions: cases are as follows:
a)      Number of member below statutory minimum: When at any time the number of member of a company is reduced below two in case of a private company or below seven in case of a public company and then too it continues it s business for more than six months, the every member who knows the fact will become liable to an unlimited extend for the payment of the whole debt of the company done during that time. The reason behind this is to withdraw the advantage of incorporation when the conditions are not fulfilled.
b)      Company not mentioned on the bills of exchange: When the bills of exchange, promissory note, cheque or order for money or goods are signed by officer of the company or any other person on behalf of the company, and the name of company is not fully or properly mentioned. Then the person who signed the instrument will be personally liable. Unless the amount is paid by the company.
Thus, these are the circumstances were the veil can be lifted.
2. (a) In an accident all the members of a company died. Will the company still exist ? Give reasons.

(b) What is an illegal association ? What are its consequences ? 5+5
3. Define Memorandum of Association. Explain its clauses. 2+8
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 within 30 days of incorporation.
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.
4. (a) Point out the differences between 'Share certificate' and 'Share warrant'.                      5
Ans: Difference between Shares warrant and share certificate
a)      A share warrant can be issued only by pubic companies. A share certificate, on the other hand may be issued be pubic as well as private companies.
b)      Issue of share warrant requires provision in the articles and also approval from the C.G., It is not necessary in case of share certificate.
c)       A share warrant can be issued only with respect to fully paid up shares. Whereas a share certificate can be issued at any stage.
d)      The holder of share certificate is a member of the company. Holder of share warrant is not member of the company unless article authorized him for particular purpose.
e)      A share warrant can be transferred by mere delivery and no registration of transfer with the company is required, transfer of shares in not complete unless reregistered by the company.

(b) Enumerate the rules for issue of shares at a premium.                           5
Ans: If Shares are issued at a price, which is more than the face value of shares, it is said that the shares have been issued at a premium. The Company Act, 2013 does not place any restriction on issue of shares at a premium but the amount received, as premium has to be placed in a separate account called Securities Premium Account.
Under Section 52 of the Company Act 2013, the amount of security premium may be used only for the following purposes:
a)      To write off the preliminary expenses of the company.
b)      To write off the expenses, commission or discount allowed on issued of shares or debentures of the company.
c)       To provide for the premium payable on redemption of redeemable preference shares or debentures of the company.
d)      To issue fully paid bonus shares to the shareholders of the company.
e)      In purchasing its own shares (buy back).
5. Discuss the liabilities of directors. Can a company be appointed as a director ? 8+2
6. Explain the various types of resolutions. Can a company's annual general meeting be held at any time and at any place? 8+2
7. What is voluntary winding-up ? Explain its types. 3+7

8. Write notes on any two of the following :                        5+5
(a) Minimum Subscription
(b) Prospectus
(c) Blank Transfer
(d) Preliminary Contracts

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