Company Law Solved Paper May' 2020 CBCS Patter Semester Exam, Dibrugarh University B.Com 3rd Semester CBCS Pattern

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

Ans: Click here for Answer

5. What is Memorandum of Association? Explain the various clauses of Memorandum of Association. 2+10=12

 Ans: Click here for Answer

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

Ans: Click her for Answer

Or

What is Annual General Meeting? Discuss the legal provisions regarding Annual General Meeting.       2+10=12

Ans: Click her for Answer

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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