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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