Company Law Solved Papers
B.Com 3rd Semester CBCS Pattern
3 SEM TDC CLAW (CBCS) NH CC 302
2 0 2 0(Held in
April–May, 2021)
COMMERCE (Non
Honours)
Paper: CC–302(Company Law)
Full Marks: 80
Pass Marks: 32
Time: 3 hours
The figures in the margin indicate full marks for the questions
1. Write True or False: 1×4=4
a) A company is a legal person. Therefore it acquires
citizenship.
Ans: False
b) Share certificate can be issued only in respect of fully paid share.
Ans: True
c) In case of a public company, the minimum number of directors is three.
Ans: True
d) The auditor of a company may be regarded as an agent of the shareholders.
Ans: False
2. Fill in the blanks: 1×4=4
a) Articles of Association of a company contain the rules
and regulations for the internal
management of a company.
b) The first auditor of a company shall be appointed by the Board of Directors.
c) The gap between two annual general meetings must not be
more than 15 (Fifteen) months.
d) A company wound up by an order of the tribunal is called compulsory
winding-up.
3. Answer the following questions (any four): 4×4=16
a) What do you understand by ‘perpetual succession’
of a company?
Ans:
Perpetual succession means a company has a continuous existence. Its
existence does not affected by admission, retirement, death or insolvency of
its members. The members may come or go but the company may go forever. Only
law can terminate its existence. A company has a separate legal entity distinct
from its members due to which companies continue to exist for an indefinite
period of time.
b) What are the four important characteristics
of a private company?
Ans: A private company is normally what the
Americans call a ‘close corporation’. According to Sec.2 (68), a private company means a company which:
a) Has a minimum paid-up capital as may be
prescribed, and by its Articles:
b) By its articles, restricts the right to transfer
its shares, if any. The restriction is meant to preserve the private character
of the company.
c) By its articles, 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.
d) By its articles, 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.
c) What do you mean by share of a company?
Ans: A share is the interest of a
shareholder in a definite portion of the capital. It expresses a proprietary
relationship between the company and the shareholder. A shareholder is the
proportionate owner of the company.
Section 2(84) defines a share as, “A
share in the share capital of a company and includes stock except where a distinction
between stock and shares is expressed or implied”.
An exhaustive definition of share has
been given by Farwell J. in Borland’s trustee v. steel bros. in the following
words: “A share is the interest of a shareholder in the company, measured by a
sum of money, for the purpose of liability in the first place, and of interest
the second, but also consisting of a series of mutual covenants entered into by
all the shareholder inter se in accordance with the companies act”.
Thus a share
i) Measures the right of a shareholder
to receive a certain proportion of the profits of the company while it is a
going concern and to contribute to the assets of the company when it is being
wound up; and
ii) Forms the basis of the mutual
covenants contained in the articles binding the shareholders inter se.
d) What is the difference between dividend and
profit?
Ans: Dividend is part of company’s
profit which is distributed amongst the shareholders after meeting all its
other obligations. Dividend it distributed amongst shareholders only when
profit is earned by the company. It means dividend is dependent on profit.
On the other hand, profit is that
amount which is earned by company through its operating activities. It is
calculated by preparing income statement. Dividend is paid to shareholders if a
company earns profit. Its means profit is not dependent on dividend.
e) Under what circumstances, extraordinary general
meeting needs to be called?
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.
The main purpose (Objectives) to
hold these meetings are:
a) Change in
memorandum of association.
b) Change in
articles of association.
c) Reduction
or reorganization of share capital.
d) Issue of
debentures.
e) Removal of
directors.
f) Removal of
auditors.
The business transacted at an extraordinary general meeting, being special business, every notice of such meeting must be accompanied by an explanatory statement.
f) What do you understand by one-person company?
Ans: One Person company (OPC) [Sec. 2(62)]: It means a company which has only one person as a member. All the
provisions of a private company are also applicable to this company.
According to Sec. 2(62) of the Indian Companies Act, 2013, one
person company means a company which has only one person as
a member. Sec. 3 of the Companies Act, 2013 classify OPC as private company and
all the provisions of a private company are also applicable to this company.
Features of OPC:
1. There is only one
director.
2. It can have only one
member.
3. The word OPC is
mentioned in the bracket with the name of the company.
4. OPC is exempted from conducting annual general meeting and board meeting.
4. Who is promoter? Discuss about the functions
of promoter. 2+10=12
Ans:
Meaning and Functions of Promoters
A promoter is a person who brings a company into existence. A
company may have more than one promoter. A promoter may be an individual, a
firm or body corporate. One existing company may promote another new
company. In fact all person connected
with the formation of a company may be a promoter except those persons who are
acting in professional capacity.
According to Sec 2(69) of the Companies Act’ 2013, “promoter”
means a person:
(a) who
has been named as such in a prospectus or is identified by the company in the
annual return referred to in section 92; or
(b) who
has control over the affairs of the company, directly or indirectly whether as
a shareholder, director or otherwise; or
(c) in
accordance with whose advice, directions or instructions the Board of Directors
of the company is accustomed to act:
Provided that
nothing in sub-clause (c) shall apply to a person who is acting merely
in a professional capacity;
Some of the important functions of
promoters of a company are listed below:
1. Discovery of Idea: It is the first stage in the formation of a
company. Promoter is the person who discovered the idea to start a new business
or expansion of an existing business. Promoter analyse the capital requirement
and risk involved in his business idea.
2. Detailed investigation: After discovery of idea and analysis of
risk involved in the business, promoter makes a detailed enquiry regarding
production process, sources of raw materials, demand of the product,
profitability of the products etc. He can also take the help of experts who
helps him in deciding the plant location and layout.
3. Assembling of resources: After detailed investigation of idea
and verification of that idea from the specialists, the promoter starts
collecting all the resources such as capital, land, labour, machine and
equipments etc to form a company.
4. Preparing necessary documents: After assembling various factors
of production necessary to start a company, the promoter prepares preliminary
documents such as Memorandum of association, articles of association and
prospectus which is required at the time of registration of a company.
5. Entering into preliminary contracts: Promoter is the person who
enters into contract with various parties prior to incorporation of a company
for which he is personally liable in case company is not incorporated.
6. Naming a company: The promoter has to select a name of the
company. While selecting the name the promoter keeps in mind that the name
should not be identical to the name of any other company.
Or
What are the privileges and exemptions available
to a private company? Discuss.12
5. What is Memorandum of Association? Explain the
various clauses of Memorandum of Association. 2+10=12
Or
What is share certificate? Distinguish between
share certificate and share warrant.2+10=12
Ans: Share certificate (Section 46 of the
Companies Act’ 2013)
Share certificate is a document which certifies that the person named therein is the registered holder of specified number of shares in the company. Shares mentioned therein may be fully or partly paid up. It is a document of title also. It is not a negotiable instrument because it is not transferable.
According to section 46, a share certificate shall be:
a) Prima facie evidence of the title of the member to such shares.
b) Estoppel as to title: company cannot deny the fact that the person is not holder of the shares.
c) Estoppel as to payment: company cannot deny the fact that the shares are not paid up if in share certificate the shares are fully paid up.
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.
6. No stamp duty is payable in transfer of a shares warrant whereas stamp duty is payable on transfer of shares.
7. A share warrant is transferable as negotiable instrument. A share certificate is not transferable.
8. The holder of a share warrant cannot present a petition for winding but the holder of a share certificate can present a petition for winding up.
6. Briefly discuss the provisions of the Companies
Act regarding the appointment of directors. 12
Or
What is Annual General Meeting? Discuss the legal
provisions regarding Annual General Meeting. 2+10=12
7. What are the different books of account that
a company registered under the Companies Act is bound to maintain? Discuss. 10
Ans:
Statutory and Statistical Books Maintained by Company:
Statutory book: Such books are those
which a limited company is under statutory obligation to maintain at its
registered office with a view to safeguard the interests of shareholders and
creditors. Main statutory books are:
a.
Register of
investments held and their names
b.
Register of
charges
c.
Register of
members
d.
Register of
debenture holders
e.
Annual returns
f.
Minute books
g.
Register of
contracts
h.
Register of
directors
i.
Register of
director’s shareholdings
j.
Register of loans
to companies under the same management
k.
Register of
investment in the shares and debentures of other companies
l.
Register of fixed
deposits
m.
Index of members
where the number is more than fifty unless register of members itself affords
an index
n.
Index of
debenture holders where the number is more than fifty, unless the register of
debenture holders itself affords an index
o.
Foreign register
of members and debenture holders, if any
p.
Register of
renewed and duplicate certificates.
Statistical Books:
In order to keep
a complete record of numerous details of certain transactions and activities of
the company the following statistical books are usually maintained by joint
stock companies in addition to statutory books. The keeping of such books are
optional. The main books are:
a.
Share application
and allotment book
b.
Share calls book
c.
Share certificate
book
d.
Debenture
application and allotment book
e.
Debenture calls
book
f.
Register of share
transfers
g.
Dividend book
h.
Debenture
interest book
i.
Register of
documents sealed
j.
Register of share
warrants
k.
Dividend mandates
register
l.
Register of
debenture transfers
m.
Register of
powers of attorney
n.
Agenda book
o.
Register of lost
share certificates
p. Register of director’s Attendance
Or
What do you understand by winding-up of a company?
Briefly explain the various modes of winding-up.2+8=10
Ans: Winding up -
Meaning and Modes
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.”
Modes of winding up of a company
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.
a) Winding up by the tribunal: 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 is 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.
Filling up winding up petition: Section 272 provides that a winding up
petition is to be filed in the prescribed form no 1, 2 or 3 whichever is
applicable and it is to be submitted in 3 sets. The petition for compulsory
winding up can be presented by the following persons:
a)
The company
b)
The creditors ; or
c)
Any contributory or contributories
d)
By the central or state govt.
e)
By the registrar of any person authorized by
central govt. for that purpose
FINAL ORDER AND ITS CONTENT: The tribunal after hearing the petition has
the power to dismiss it or to make an interim order as it think appropriate or
it can appoint the provisional liquidator of the company till the passing of
winding up order. An order for winding up is given in form 11.
b) Voluntary winding up of a company: The company can be wound up voluntarily by
the mutual decision of members of the company, if:
a)
The company passes a Special Resolution
stating about the winding up of the company.
b)
The company in its general meeting passes a resolution
for winding up as a result of expiry of the period of its duration as fixed by
its Articles of Association or at the occurrence of any such event where the
articles provide for dissolution of company.
8. Explain the ‘vigil’ mechanism established
under the Companies Act, 2013. 10
Ans: Whistle-blowing/Vigil Mechanism Meaning
The term “whistle-blowing” originates from the common practice of
policemen who blew their whistles whenever they observed any illegal activity
or crime. Whistle blowing means simply calling the attention of the top level
management towards some irregular activities occurring within an organization.
A whistle blower may be an employee (former or existing) or member of an
organisation, a government agency or an outsider who have willingness to take
corrective action on the irregularities. The Companies Act, 2013 under Sec 177
read with rule 7 of companies (Meetings of
Board and its Powers) Rules, 2014 has mandated certain
companies to establish Vigil/Whistle-blowing mechanism to report any unethical
behaviour or other concerns to the management.
Main objectives
of setting up of a Whistle-blowing mechanism within an organisation
a) To
encourage employees to report any irregular
activity, wrongful conduct, unethical behaviours, legal violations etc
they have come across to an internal authority so that action can be taken
immediately to resolve the problem.
b) To build
and strengthen the culture of transparency within the organisation.
c) To
minimize the organization’s exposure to the risk and damage that can occur when
employees conduct is unethical or wrongful.
d) To let
employees know the organization is serious about adherence to codes of conduct.
Steps for Creating a Whistle-blowing Culture:
a)
Developing a whistle blowing Policy.
b)
Gaining top level management commitment.
c)
Developing reporting mechanism.
d)
Embedding the programme.
e)
Publicize the Organisation’s Commitment.
f)
Investigate and Follow Up.
g)
Assess the Organisation’s Internal
Whistle-blowing System.
Process of Whistle Blowing Mechanism
a) Whistle
blower raises concern about irregularities.
b) Such
concern is forwarded to the compliance officer.
c) Initial
enquiry by the compliance officer and if detailed investigation is necessary,
then investigator is appointed.
d) If the
concern is proved, disciplinary actions are taken and also corrective measures
are taken to prevent it in future.
Barriers
to whistle blowing mechanism
a) Lack of
trust in the internal system
b) Fear
amongst the whistle blowers of retaliation.
c) Fear of
alienation from management and colleagues.
d) Unwillingness
of employees to be snitches.
Whistle blowing or Vigil mechanism (Provisions
of SEBI and Companies Act’ 2013)
A) Under clause 49 of Listing Agreement of
SEBI: Whistle blowing or vigil mechanism is now made mandatory requirement
under clause 49 of the listing agreement for the following companies:
a) Every
listed companies and
b) Companies
which accept deposits from the public and which have borrowed money from banks
and public financial institutions in excess of Rs. 50 crores.
The
company may establish a mechanism for employees to report to the superiors about
unethical behaviour, or fraud or violation of the company’s code of conduct or
ethics policy. It also provides for adequate safeguards against victimization
of employees and also provides for direct access to the Chairman of the Audit
committee in exceptional cases. Once established, the existence of the
mechanism may be appropriately communicated within the organization.
B) Under Rule 7 of Companies [Meeting of board
and its powers) Rules, 2014:
1. As per
this rule, every company mentioned below shall establish a whistle blowing or
vigil mechanism for their employees and directors to report their genuine
concerns:
a) Every
listed companies and
b) Companies
which accept deposits from the public and which have borrowed money from banks
and public financial institutions in excess of Rs. 50 crores.
2. Companies which are required to establish an audit
committee shall look after the vigil mechanism through the audit committee so
formed and if any of the members of the committee have a conflict of interest
in a given case, they should be remove from participation in the audit
committee and the others members of the committee would deal with the matter on
hand.
3. In case of other companies, a director is appointed by the board of
directors to play the role of audit committee for the purpose of vigil
mechanism.
4. It also provides for adequate safeguards against victimization of
employees and also provides for direct access to the Chairman of the Audit
committee in exceptional cases.
5. In case
of repeated complaints by an employee or director, the audit committee or
director appointed for vigil mechanism may take suitable action the concerned
director or employee.
Or
Explain the legal provisions regarding insider
trading. 10
Ans: Insider
trading Meaning:
Insider trading is defined as an unfair
practice in which trading in securities of the company is done by the key
personnel of the company who have access to the non public information which
can be crucial for making investment decisions. Here key personnel includes key
employees or director of the company who have access to the important
information about the about which is not available in public domain. In simple
words insider trading means trading in securities of the company by the
company’s key officers on the basis of sensitive non public information.
Meaning of
Insider trading According to the Companies Act 2013
“Insider trading” means
i) An act of subscribing, buying, selling,
dealing or agreeing to subscribe, buy, sell or deal in any securities by any
director or key managerial personnel or any other officer of a company either
as principal or agent if such director or key managerial personnel or any other
officer of the company is reasonably expected to have access to any non-public
price sensitive information in respect of securities of company; or
ii)
An act of counselling about procuring or communicating directly or indirectly
any non-public price-sensitive information to any person. Here price-sensitive
information means any information which relates, directly or indirectly, to a
company and which if published is likely to materially affect the price of
securities of the company.
Prohibition on
insider trading of securities – Sec 195 of the Companies Act’ 2013
Insider trading is considered to be unfair
practice and it is prohibited by the Company’s Act 2013. Provisions of the
Company’s Act relating to insider trading are given below:
(1) No person including any director or
key managerial personnel of a company shall enter into insider trading:
Provided that nothing contained in this sub-section shall apply to any
communication required in the ordinary course of business or profession or
employment or under any law.
(2)
If any person contravenes the provisions of this section, he shall be
punishable with imprisonment for a term which may extend to five (5) years or
with fine which shall not be less than five lakh (Rs. 5, 00,000) rupees but
which may extend to twenty-five crore (Rs. 25 Crores) rupees or three times the
amount of profits made out of insider trading, whichever is higher, or with
both.
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