Company Law Solved Paper May' 2013 Semester Exam, Dibrugarh University B.Com 4th Semester

Company Law Solved Paper May' 2013 Semester Exam
Dibrugarh University B.Com 4th Semester

1. Write true or false:                     1x4=4
(a) In case of a private company there is no restriction to transfer of shares.                        False
(b) Quorum of general meeting is maximum five members personally present for a public company.      True

(c) A director of a company may be a person, a firm or a body corporate.                              True
(d) A company can be a member of another company. False
 2. Fill in the blanks with correct answer:                 1x4=4
(a) Articles of association contain the rules and regulations of management of INTERNAL affairs of a company.
(b) In case of a public company, minimum number of directors is 3.
(c) A limited company must not hold STATUTORY meeting within one month from the commencement of business.
(d) No person can hold office as director, at the same time, in more than 20 companies.
 3. Write briefly on any four of the following:                       4x4=16
(a) Statutory meeting: A public company limited by shares or a guarantee company having share capital is required to hold a statutory meeting. Such a statutory meeting is held only once in the lifetime of the company. Such a meeting must be held within a period of not less than one month or within a period not more than six months from the date on which it is entitled to commence business i.e. it obtains certificate of commencement of business. In a statutory meeting, the following matters only can be discussed:
Ø  Floatation of shares / debentures by the company
Ø  Modification to contracts mentioned in the prospectus
The purpose of the meeting is to enable members to know all important matters pertaining to the formation of the company and its initial life history. The matters discussed include which shares have been taken up, what money has been received, what contracts have been entered into, what sums have been spent on preliminary expenses, etc. The members of the company present at the meeting may discuss any other matter relating to the formation of the Company or arising out of the statutory report also, even if no prior notice has been given for such other discussions but no resolution can be passed of which notice have not been given in accordance with the provisions of the Act.
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. A statutory meeting may be adjourned from time to time by the members present at the meeting.
(b) Minimum subscription: However a company invites the general public to subscribe to its share capital. An individual who is interested to subscribe to the share capital of the company sends an application to the company with application money. The Company Act 2013, provides that the directors of the company fix the amount of the application money but it can in no case be less than 5 per cent of the face value of the shares.
Therefore no allotment shall be made unless the amount of share capital stated in the prospectus as the minimum subscription has been subscribed and the company thereof has received the sum of at least 5 per cent in cash.
Minimum Subscription is that amount of money which in the opinion of directors, must be made available to meet the financial need of the business of the company for the following operations:
a)      The purchase price of any property acquired or to be acquired out of the proceeds of the issue of shares.
b)      For Working Capital
c)       Preliminary Expenses payable by the company.
d)      Underwriting Commission payable by the company.
e)      Repayment of any money borrowed by the company in respect of any of the forgoing matters.
f)       Any other expenditure required for the conduct of usual business operations.

(c) Fixed charge                                                               
(d) 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.
(e) Prospectus: Section 2(70) of the Companies Act, 2013 defines a prospectus as ““A prospectus means Any documents described or issued as a prospectus and includes any notices, circular, advertisement, or other documents inviting deposit fro the public or documents inviting offer from the public for the subscription of shares or debentures in a company.” A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement. A document shall be called a prospectus if it satisfy two things:
Ø  It invites subscription to shares or debentures or invites deposits.
Ø  The aforesaid invitation is made to the public.
Contents of a prospectus:
a)      Address of the registered office of the company.
b)      Name and address of company secretary, auditors, bankers, underwriters etc.
c)       Dates of the opening and closing of the issue.
d)      Declaration about the issue of allotment letters and refunds within the prescribed time.
e)      A statement by the board of directors about the separate bank account where all monies received out of shares issued are to be transferred.
f)       Details about underwriting of the issue.
g)      Consent of directors, auditors, bankers to the issue, expert’s opinion if any.
h)      The authority for the issue and the details of the resolution passed therefore.
(f) Share Premium: 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).

4. (a) What are the privileges and exemptions enjoyed by a private company under the Companies Act, 1956?       12
Or
(b) Define Memorandum of Association. What are its contents? Explain.        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.
 5. (a) What is share warrant? How does it differ from share certificate?    4+7=11
Or
(b) Explain the procedure for conversion of share into stock. Distinguish between stock and share.       5+6=11
6. (a) Explain the procedure of registration of charges.  11
Or
(b) What is a charge? What are the consequences of non-registration of charges?          4+7=11
 7. (a) What are the objectives of holding an annual general meeting of a company? What are the consequences of not holding such a meeting?                               5+6=11
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.
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.
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.
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. 
Or
(b) Discuss the requisites of a Valid meeting of a company.          11
Ans: Requisites of a Valid Meeting: If the business transacted at a meeting is to be valid and legally binding, the meeting itself must be validly held. A meeting will be considered to be validly held, if:
a)      It is properly convened by proper authority.
b)      Proper notice must be served. (Sec. 101 and Sec. 102 of the Companies Act, 2013)
c)       Proper quorum must be present in the meeting. (Sec. 103 of the Companies Act, 2013)
d)      Proper chairman must preside the meeting. (Sec. 104 of the Companies Act, 2013)
e)      Business must be validly transacted at the meeting.
f)       Proper minutes of the meeting must be prepared. (Sec. 118 and 119 of the Companies Act, 2013)
Proper Authority to Convene Meeting: A meeting must be convened or called by a proper authority. Otherwise it will not be a valid meeting. The proper authority to convene general meetings of a company is the Board of Directors. The decision to convene a general meeting and issue notice for the same must be taken by a resolution passed at a validly held Board meeting.
Notice of Meetings: A meeting in order to be valid must be convened by a proper notice issued by the proper authority. It means that the notice convening the meeting be properly drafted according to the Act and the rules, and must be served on all members who are entitled to attend and vote at the meeting. For general meeting of any kind at least 21days notice must be given to members. A shorter notice for Annual General Meeting will be valid, if all members entitled to vote give their consent. The number of days in each case shall be clear days, i.e. the days must be calculated excluding the day on which the notice is issued, a day or so for postal transit, and the day on which the meeting is to he held. Every notice of meeting of a company must specify the place and the day and hour of the meeting, and shall contain a statement of the business to be transacted thereat.
Quorum of Meetings: Quorum is the minimum number of members who must be present at a meeting as required by the rules. Any business transacted at a meeting without a quorum is invalid. The main purpose of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to the vast majority of members. The number constituting a quorum at any company meeting is usually laid down in the Articles of Association. In the absence of any provision in the Articles, the provisions as to quorum laid down in the Companies Act, 2013 (under Sec.103) will apply. Sec. 103 of Companies Act provides that the quorum for general meetings of shareholders shall be five members personally present in case of a public company if the number of members as on the date of meeting is upto 1000, 15 quorum if number of members as on the date of meeting is more than 1000 but upto 5000 and if number of member exceeds 5000 than 30 quorum is required; and two members personally present for any private company or articles may provide otherwise.
Chairman of a Meeting: ‘Chairman’ is the person who has been designated or elected to preside over and conduct the proceedings of a meeting. He is the chief authority in the conduct and control of the meeting.
Agenda of Meetings: The word ‘agenda’ literally means ‘things to be done’. It refers to the programme of business to be transacted at a meeting. Agenda is essential for the systematic transaction of the business of a meeting in the proper order of importance. It is customary for all organisations to send an agenda along with the notice of a meeting to all members. The business of the meeting must be conducted in the same order in which the items are placed in the agenda and the order can be varied only with the consent of the meeting.
Minute: Minute of a meeting contains a fair and correct summary of the proceedings of a meeting. Minutes must be prepared and signed within 30 days of the conclusion of the meeting. The minute books of meetings must be kept at the registered office of the company or at such other place as may be approved by the board.
Proxy: The term ‘proxy’ is used to refer to the person who is nominated by a shareholder to represent him at a general meeting of the company. It also refers to the instrument through which such a nominee is named and authorised to attend the meeting.
 8. (a) Discuss the procedure regarding appointment of Directors in a company.                  11
Ans: 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.
Or
(b) Explain the duties of Directors in a company.
Ans: Duties of the Directors
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.

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