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IGNOU SOLVED QUESTION PAPERS - ECO 08 (DEC' 2012)


BACHELOR'S DEGREE PROGRAMME
Term-End Examination
December, 2012
ELECTIVE COURSE: COMMERCE
ECO-8: COMPANY LAW
Time: 2 hours Maximum Marks: 50 (Weightage 70%)
Note: Answer any five questions.
1. (a) Explain one man company.                              5
(b) "A certificate of incorporation is conclusive evidence that all the requirements of the companies Act 1956 have been complied with." Explain.                               5
2. (a) What are "Articles of Association”? How can these be altered?                    2+3
Articles of Association
The Articles contain rules and regulations for the internal management of the company. They are framed with the object of carrying out the aims and object of the memorandum of association and also to monitor that the same are carried as prescribed.
Section 2 (5) of the Companies Act, 2013 defines articles as “Articles means Articles of Association of a company as originally framed or altered from time to time in pursuance of any previous law or of this act including so far as they apply to the company the regulations contain as the case may be in Table A to Schedule I of this act”
Procedure for Alteration
a)      A decision in the meeting of the board must be taken to change all or any of the regulations of the existing articles and day, time place and agenda for the general meeting.
b)      It should be seen that the proposed alteration conforms to the provisions of the Act and the Memorandum.
c)       If the shares are listed then notice sent to the shareholders must be sent to such stock exchange.
d)      A special resolution should be passed by shareholders in the general meeting.
e)      After the articles have been altered, then six copies of such amendments (one copy must be a certified copy) should be filed with the stock exchange.
f)       Form No.23 must be filed with the Registrar.
g)      Necessary change must be made in all the copes of Articles.
h)      If the effect of alteration is to convert a public company into a private company, the approval of the central Government is necessary.
(b) Explain the law relating to forfeiture of shares.           5
3. When is the allotment of shares irregular? State the consequences of irregular allotment.                       5+5
4. (a) What is annual general meeting? What business is usually transacted at such a meeting?                               5
Ans: Annual General Meeting: Every company must in each year hold an annual general meeting. Not more than 15 months must elapse between two annual general meetings. However, a company may hold its first annual general meeting within 9 months from the close of 1st financial year. In such a case, it need not hold any annual general meeting in the year of its incorporation as well as in the following year only. A notice of at least 21 days before the meeting must be given to members unless consent is accorded to a shorter notice by members, holding not less than 95% of voting rights in the company. The notice must state that the meeting is an annual general meeting. The time, date and place of the meeting must be mentioned in the notice.
The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated. The Central Government may, however, exempt any class of companies from the above provisions.
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.

(b) Point out the difference between ordinary resolution and special resolution giving examples.                         2+3
5. Discuss the rights and duties of directors of a company.           5+5
Ans: Powers and Duties of directors
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.
Powers of Directors
The powers which vest in the board can be classified under three different heads:
1) General Powers: General powers are those which can be exercised in accordance with the articles. These powers are laid down in sec. 179 of the Companies Act, 2013. It empowers the board to exercise all such powers and do all such acts and things, as the company is authorised to exercise and do. There are, however, two limitations upon their powers:
First, the Board shall not do any act which is to be done by the company in general meeting
Second, the Board shall exercise its powers subject to the provisions contained in the Companies Act, or in the Memorandum or the Articles of the company or in any regulations made by the company in general meeting.
2) Powers to be exercised at Board meetings [Sec. 179 (3)]: The Board of directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at the meetings of the Board, viz, the power to:
(a) Make calls on shareholders in respect of money unpaid on their shares
(b) Issue debentures
(c) Borrow money otherwise than on debentures
(d) Invest the funds of the company
(e) Make loans
(f) To approve financial statement and the board’s report
(g) To diversify the business of the company.
3) Powers to be exercised with the approval of company in general meeting (Sec. 180)
(a) Sale or lease of the company’s undertaking
(b) Extension of the time for payment of a debt due by a director
(c) Investment of compensation received on acquisition of the company’s assets in securities other than trust securities
(d) Borrowing of money beyond the paid-up capital of the company
(e) Contributions to any charitable fund beyond Rs.50,000 in one financial year or 5% of the average net profits during the preceding three financial years, whichever is greater.
4) Powers under rule 8: Rule 8 of the Companies rule, 2014 provides that, the following powers shall be exercised only by means of resolutions passed at meeting of the board, namely:
a)      To make political contribution;
b)      To appoint or remove key managerial personnel;
c)       To appoint internal auditors and secretarial auditors;
d)      To take note of the disclosure of director’s interest and shareholding
e)      To accept or renew or review the terms and conditions of public deposits.
5) Other powers: In addition to the items referred above, there are various other matters, as illustrated below in the routine working of a company which are considered by the board at board meeting:
(a) Issuance of shares;
(b) Allotment of shares and debentures;
(c) Appointment of directors and managing directors;
(d) Merger and acquisition of companies;
(e) Capitalisation of reserves and issuance of bonus shares.
Duties of the Directors
A. Fiduciary duties: As fiduciaries, the directors must:
(a) Exercise their powers honestly and bona fide for the benefit of the company as a whole; and
(b) Not to place themselves in a position in which there is a conflict between their duties to the company and their personal interests. They must not make any secret profit out of their position. If they do, they have to account for it to the company.
B. Duties of care, skill and diligence: Directors should carry out their duties with reasonable care and exercise such degree of skill and diligence as is reasonably expected of persons of their knowledge and status. He is not bound to bring any special qualifications to his office.
C. Standard of care: The standard of care, skill and diligence depends upon the nature of the company’s business and circumstances of the case. They are various standards of the care depending upon:
(a) The type and nature of work
(b) Division of powers between directors and other officers
(c) General usages and customs in that type of business; and
(d) Whether directors work gratuitously or remuneratively
D. Duty to disclose interest: Where a director is personally interested in a transaction of the company, he is required to disclose his interest to the board. An interested director is neither to vote on the matter of his interest nor his presence shall count for the purposes of quorum.
E. Duty to attend board meetings: The Act only says that the office of a director is automatically vacated if he fails to attend three consecutive meetings of the board or all meetings for a period of 3 months, whichever is longer. Moreover, a director’s habitual absence may become evidence of negligence.
F. Duty not to delegate: A director should not delegate his functions to another person. But delegation of functions may be made to the extent to which it is authorized by the Act or the constitution of the company.
6. Distinguish between:                               5+5
(a) Share certificate and share warrant
Ans: Difference between Shares warrant and share certificate
1.       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.
2.       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.
3.       A share warrant can be issued only with respect to fully paid up shares. Whereas a share certificate can be issued at any stage.
4.       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.
5.       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) Equity and preference shares
Basis of Difference
Preference Share
Equity Share
1.Right of Dividend
Preference shares are paid dividend before the Equity shares.
Equity shares are paid dividend out of the balance of profit available after the dividend paid to preference shareholders.
2. Rate of Dividend
Rate of dividend is fixed.
Rate of dividend is decided by the Board of Directors, year to year depending on profits.
3. Convertibility
Preference Shares may be converted into Equity shares, if the terms of issue provide so.
Equity shares are not convertible.
4. Participation in Management
Preference shareholders do not have the right to participate in the management of the company.
Equity shareholders have the right to participate in the management of the company.
5. Voting Right
Preference shareholders do not carry the voting right. They can vote only in special circumstances.
Equity shareholders have voting rights in all circumstances.

7. Discuss the legal position of a company secretary and state his main functions.                           5+5
Ans: Company Secretary Appointment and his Rights and Obligations needs to understand the definitions and as per sec. 2(24) of Companies Act 2013, Company Secretary means a Company Secretary define in sec. 2(1)(c) of the Company Secretaries Act 1980. As per this clause, Company Secretary means a person who is a member of Institute of Company Secretary of India. Company Secretary is managerial personnel in a private sector company and in a public sector company, a Company Secretary is a person who can represent his company before any quasi-judicial body in relation to any legal dispute and other legal litigation.
Legal Position of a company secretary
The legal position of a company secretary may be explained as follows:
a)      Servant of the company: The Secretary of a company is servant of the company, whose duty is to act in accordance within the instructions given to him by directors.
b)      Agent of the company: The secretary of a company, being chief administrative officer of the company by virtue of his office, is also an agent of the company in a restricted sense. He also ostensible authority to enter into contracts on behalf of the company as regards matters connected with office administration.
c)       Officer of the company: As an officer of the company, the secretary may incur personal liability to statutory penalties by reason of non-compliance with the requirements of Companies Act, 2013. Besides, he is a chief officer under whose supervision all ministerial and administrative work at registered office of the company is carried on.
Duties of the Company Secretary
The duties of a company secretary are classified under the following heads:
1.       Statutory duties:
1)      Duties towards the company: The Companies Act, 2013 imposes a number of duties on the secretary such as:
a)      To make a statutory declaration for obtaining certificate of commencement of business;
b)      To sign annual report; and
c)       To sign every balance sheet and every profit and loss account in case of non-banking companies.
2)      Duties to directors: The duties of a company secretary in relation to directors are:
a)      To work according to instructions of directors;
b)      To maintain all important correspondence, files and records for reference of directors; and
c)       To draft directors report.
3)      Duties to whole-time managerial authority: If a company is managed by managing directors or a manager, the main duties of a company secretary in relation to such managerial personnel are:
a)      To organize and control head office of the company efficiently;
b)      To submit all statutory returns in time; and
c)       To draft contracts with vendors, if any, and also with underwriters and share brokers;
2.       General Duties:
1)      Duties towards office and staff: It is a company secretary’s duty to see that various departments are properly organized, supervised, co-ordinated and adequately staffed. He must act as a friend, philosopher and guide to staff.
2)      Other duties: The miscellaneous duties of a company secretary are:
a)      To represent the company on social functions;
b)      To act very cautiously and in the best interest of the company, in case of any emergency;
c)       To act with authority and maintain secrecy of confidential matters; and
d)      To perform his duties honestly and diligently.
8. What do you mean by 'winding up’? State the grounds when a court can order winding up.                   4+6
Ans: Meaning: Winding up of a company is defined as a process by which the life of a company is brought to an end and its property administered for the benefit of its members and creditors. In words of Professor Gower, “Winding up of a company is the process whereby its life is ended and its Property is administered for the benefit of its members & creditors. An Administrator, called a liquidator is appointed and he takes control of the company, collects its assets, pays its debts and finally distributes any surplus among the members in accordance with their rights.”
As per section 270 of the Companies Act 2013, the procedure for winding up of a company can be initiated either:
a) By the tribunal or,
b) Voluntary.
Winding up by the tribunal or court: As per new Companies Act 2013, a company can be wound up by a tribunal in the below mentioned circumstances:
1. When the company is unable to pay its debts
2. If the company has by special resolution resolved that the company be wound up by the tribunal.
3. If the company has acted against the interest of the integrity or morality of India, security of the state, or has spoiled any kind of friendly relations with foreign or neighboring countries.
4. If the company has not filled its financial statements or annual returns for preceding 5 consecutive financial years.
5. If the tribunal by any means finds that it is just & equitable that the company should be wound up.
6. If the company in any way is indulged in fraudulent activities or any other unlawful business, or any person or management connected with the formation of company is found guilty of fraud, or any kind of misconduct.

9. Write notes on any two of the following:                         5+5
(a) Prospectus
(b) Pre-incorporation contracts
(c) Quorum
(d) Legal position of promoters

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