Brief Structure of the Companies Act

Dr. Tabrez Ahmad,
corpolexindia.blogspot.com, 1

Dr. Tabrez Ahmad,
corpolexindia.blogspot.com, 2

Agenda
 Background of Company Law in England
 Background of Company Law in India
 Definition of Company
 Nature & Characteristics
 Features of Company
 Lifting the corporate veil
 Types of Companies
 Formation of a Company
 Memorandum & Article of Association
 Prospectus
 Share & Share Capita
 Company Management & Director
 Meetings
 Borrowing Powers
 Debentures & Charges
 Accounts & Auditors
 Prevention of oppression & Mismanagement
 Winding up

3
Dr. Tabrez Ahmad
http://corpolexindia.blogspot.in

Background of Company Law in
England
 The history of modern company law in England began in
1844 when the Joint Stock Companies Act was passed.
 The Act provided for the first time that a company could be
incorporated by registration without obtaining a royal
charter or sanction by a special Act of Parliament.
 The office of the Registrar of the Joint Stock Companies
was created. But the Act denied to the members the facility
of limited liability.
Dr. Tabrez Ahmad
http://corpolexindia.blogspot.in 4

Cont…
 The English Parliament in 1855 passed the Limited Liability
Act providing for limited liability to the members of a
registered company.
 The Act of 1844 was superseded by a comprehensive Act of
1856 which marked the beginning of a new era in company
law in England.
 This Act introduces the modern mode of creating
companies by means of memorandum and articles of
associations.
Dr. Tabrez Ahmad

 The first enactment to bear the title of companies Act was the
companies Act 1862.
 By these Acts some of the modern provisions of a company were clearly
laid down.
 First of all two documents memorandum of association and Article of
association formed the integral part of the limited liability company.
 Company could be formed with liability limited by guarantee.
 Provisions of winding up was also introduced
 Thus the basic structure of the company as we know had taken shape.
Dr. Tabrez Ahmad

 Sir Francis Palmer described the Act of 1862 as the “ magna carta of
cooperative enterprises” .
 The liability of the directors of a company was introduced by the
Director’s Liability Act , 1890, and the compulsory audit of the
company’s accounts was enforced under the
Companies Act, 1900.
 The concept of private company was introduced for the first time in the
companies Act, 1908.
 The companies Act 1948 which was the principal Act in force in
England was based on the report of a Committee under Lord Cohen.
Dr. Tabrez Ahmad

 Another outstanding feature of the 1948 Act was the
emphasis on the public accountability of the company.
 Generally recognised principles of accountancy were given
statutory force and had to be applied in the preparation of
balance sheet and profit and loss account.
 For the first time the shareholders in general meeting were
given power to remove a director before the expiration of
his period of office. The independences of auditors vis-à-vis
the directors were strengthened.
Dr. Tabrez Ahmad

 The 1948 Act was amended by the Companies (
Amendment ) Act 1967.
 The Amending Act was based upon the report and
recommendations of the Jenkins Committee presented in
1962.
 The Act abolished the exempt private company, and
required all limited companies to file accounts, but
empowered certain limited companies to re-register as
unlimited to avail of this requirement
Dr. Tabrez Ahmad

 The 1976 Act strengthened the requirements of
public accountability and those relating to the
disclosure of interests in the shares of the
company.
 The Companies Act 1980 was a major measure of
company law reform in England. It gave effect to
the Second EEC Directive on Company Law
Harmonisation of December 13, 1976 in the UK
and introduced other reforms.
Dr. Tabrez Ahmad

 The Companies Act 1981 gave effect in the UK to
the provisions of the Fourth EEC directive on
Company Law Harmonisation of July 25, 1978 and
introduced other important changes.
 At present, the whole of the existing statute law
relating exclusively to companies has been
consolidated in the Companies Act 1985.
Dr. Tabrez Ahmad

Development of Indian Companies
Act
 Company Law in India as indicated earlier, is the cherished
child of the English parents.
 Our various Companies Acts have been modeled on the
English Acts.
 Following the enactment of the Joint Stock Companies Act,
1844 in England, the first Companies Act was passed in
India in 1850.
 It provided for the registration of the companies and
transferability of shares.
 The amending act of 1857 conferred the right of
registration with or without limited liability.
Dr. Tabrez Ahmad

 Subsequently this right was granted to banking and
insurance companies by an Act of 1860 following the
similar principle in Britain
 The Companies Act of 1856 repealed all the previous
Acts
Dr. Tabrez Ahmad

Definition
 General Definitions: 1)A Company is a form of
business organization in which the funds of a large
number of investors are managed by a few persons for
the purpose of earning profits which are shared by all
the investors.
 2)It is an association of persons formed to achieve the
common goal set by their Board of Directors.
Dr. Tabrez Ahmad

 As per companies Act 1956.(Sec3(1)(i))
 It means a business organization formed as per the
companies Act 1956to achieve following objectives
 a) To encourage the investors to do their investments.
 b) To ensure proper Administration
 c) To prevent Malpractices
 d) To allow for investigation if required.
Dr. Tabrez Ahmad

Company-Its Nature and Characteristics
 Artificial person being invisible, intangible,
existing only in the contemplation of law.
 Being the creation of law, it possesses only the
properties conferred upon it by its charter.
 Among the most important of these are the
individuality and immortality.
 Within the limits of powers conferred by the
charter, it can do all acts as a natural person may
do.
Dr. Tabrez Ahmad

 The word ‘company’ is derived from the Latin ( com= with
or together; panis = bread), and originally referred to
an association of persons who took their meals together.
 It may be assumed- since human nature does not change-
that in the leisurely past, no less than in the speedy
present, merchants took advantage of festive gatherings, to
discuss business matters. Now a days business matters have
become most complicated and cannot be discussed at
length on festive gatherings.
Dr. Tabrez Ahmad

Cont…
 In a popular parlance, company denotes an association of like minded
persons formed for the purpose of carrying on same business or
undertaking. Though an association may be brought into existence for
multifarious purposes, in company law it figures predominantly as a
business association with a large and fluctuating membership formed
for acquisition of gain.
 There may also be non-profit trading concerns like a club or a society.
 In Smith v Anderson, ( 1880) 15 Ch. D. 247, it was observed that “ a
company, in a broad sense may mean an association of individuals
formed for some purpose.”
Dr. Tabrez Ahmad

 A company may be incorporated or unincorporated
 A company is a corporate body and a legal person having
status and personality distinct and separate from that of
the members constituting it.
 It is called a body corporate because the persons
composing it are made into one body by incorporating it
according to the law and clothing it with legal personality,
and so turn it into a corporation. ( The word corporation is
derived from the Latin term ‘corpus’ which means ‘body’)
Dr. Tabrez Ahmad

 Accordingly corporation is legal person created by the process other
than natural birth. It is for this reason something called artificial legal
person.
 As a legal person this corporate being is capable of enjoying many of
the rights and incurring many of the liabilities of a natural person- a
human being.
 But the company is not merely a legal institution. It is rather a legal
device for the attainment of any social or economic end. It is therefore a
combined political, social, economic and legal institution.
Dr. Tabrez Ahmad

Cont…
 The legal status and position of company has been aptly
described by the Supreme Court in the case of
 Tata Engineering and Locomotive Company Ltd. v State of
Bihar, AIR 1965 SC 40 at page 46
 provides:
“ The corporation in law is equal to a natural person and has a
legal entity of its own. The entity of the corporation is
entirely separate from that of its shareholders; it bears its
own name and has a seal of its own; its assets are separate
and distinct from those of its members;
Dr. Tabrez Ahmad

 it can sue and be sued exclusively for its own purpose;
 its creditors cannot obtain satisfaction from the assets of its
members;
 the liability of the members or share holders is limited to
the capital invested by them;
 similarly the creditors or the members have no right to the
assets of the corporation.
 This position has been well established ever since the
decision in the case of Solomon v Solomon & Co. ( 1897)
A.C 22 which was pronounced in 1897 and indeed it has
always been the well recognised principle of common law”.
Dr. Tabrez Ahmad

BRIEF STRUCTURE OF THE
COMPANIES ACT, 1956
 Section 1–Short Title, Extent and Commencement
 Section 2–Definitions
 Section 3 to 658–Other Provisions
Dr. Tabrez Ahmad

Applicability of the Act
 Being a Central Government Act it is applicable to all
the states of India including Union Territories.
 The provisions of this Act are applicable to all the class
of companies in India.
 The provisions are also applicable to all the companies
incorporated out of India but they have established
places of business in India.
Dr. Tabrez Ahmad

Objectives :
 To conduct the business smoothly with the help of
limited liabilities & with limited shares.
 To serve the community by providing Quality products
& services at reasonable cost.
Dr. Tabrez Ahmad

 To earn the profit & distribute it among all the
investors & Board of Directors in proportionate with
their investments.
 To grow the business with the help of share capital &
Ideas so that the part of it is contributed towards
national prosperity.
 To create an employment opportunities for qualified
and eligible person.
Dr. Tabrez Ahmad

Essential Features of a Company
 Registration- Should be registered under the
Companies Act.
 Distinct Person- Separate legal entity.
 Perpetual succession- Never dies.
 Easy transfer of shares.
 Limited liability.
 Artificial person but not a citizen.
Dr. Tabrez Ahmad

Continued…
 Common Seal.
 Capacity to sue and be sued.
 Share holders are actual owners of Company
 Number of persons are as per MOA
 Separate Property
Dr. Tabrez Ahmad

 Separation of ownership and Management
 Authority to raise share capital in large scale.
 To comply Statutory Requirements on
regular basis
 Company is a Corporate Body
Dr. Tabrez Ahmad

Company is not a citizen
 Company though a legal person is not a citizen either
under the Constitution of India or under the
Citizenship Act. This has been the conclusion of a
special bench of the Supreme Court in State Trading
Corpn. Of India Ltd. v CTO AIR 1963 SC 1811.
Dr. Tabrez Ahmad

In R. C Cooper v Union of India AIR 1970 1 SCC
564
 , also known as the Bank Nationalization case,
 the Supreme Court held that where the legislative
measures directly touch the company of which the
petitioner is a shareholder, he can petition on behalf of the
company, if by the impugned action, his rights are also
infringed. In that case, the court entertained the petition
under Art. 32 of the constitution at the instance of a
director and shareholder of a company and granted relief.
 It is, therefore, to be noted that an individual rights is not
lost by reasons of the fact that he is a shareholder of the
company.
Dr. Tabrez Ahmad

Bennet Coleman Co. v Union of India AIR
1973 SC 106
 It is now clear that the fundamental rights of share holders
as citizens are not lost when they associate to form a
company.
 When their fundamental rights as shareholders are
impaired by state action their rights as shareholders are
protected.
 The reason is that the shareholders rights are equally and
necessarily affected if the rights of the company are
affected.
Dr. Tabrez Ahmad

D.C.M Company Ltd. V Union of India and others 1983 5 comp.
cas. 674.
 Court took the similar view on the matter
 Daimler Co Ltd v Continental tyre co. (1916)2 A.C 307 HL
 Held that a company will be regarded as having enemy
character, if the persons having de facto control of its
affairs are resident in an enemy country, or wherever they
may be, are acting under instructions from or on behalf of
the enemy.
Dr. Tabrez Ahmad

Bacha F. Guzdar v Commr. Income Tax, Bombay, AIR
1955 SC 74.
 Again as a body corporate, the company is entitled to own
and hold property in its own name.
 The property belongs to the company and the members
have no direct proprietary rights over the property of the
company.
 It is important to remember that a shareholder is not a
part owner of the company or its property;
 he is only given certain rights by law e.g. to receive
dividends or to attend and vote at general meetings.
Dr. Tabrez Ahmad

Types of Companies
Companies limited
by guarantee.
Registered
Companies
Statutory
Companies
Royal Charter/
Chartered Companies
Private Companies
Public Companies
Companies limited
by shares.
On basis of Liability
Unlimited
companies
Dr. Tabrez Ahmad

Types of Companies
 A) On the basis of Liability
 B) On the basis of Incorporation
 C) On the basis of Ownership
 D) Government Companies
 E) On the basis of Jurisdiction
 F) On the basis of Control & Shareholding
 G) One Man Company
Dr. Tabrez Ahmad

 A) On the basis of Liability
1)Limited by shares
2)Limited by Guarantee
3)Unlimited Company
 B) On the basis of Incorporation
1)Chartered Company
2)Statutory Company
3)Registered Company
Dr. Tabrez Ahmad

 C) On the basis of Ownership
1)Private Limited Company
2) Public Limited Company
 D) Government Companies
 E) On the basis of Jurisdiction
1) Foreign Company
2) MNC Company
Dr. Tabrez Ahmad

 F) On the basis of Control & Shareholding
1) Holding Company
2) Subsidiary Company
 G) One Man Company
Dr. Tabrez Ahmad

A) On the basis of Liability
 a ) Companies Limited by shares : companies
limited by shares are the most commonly found
companies.
 Section 12 (2) (a) implies that where the liability of
the shareholders of a company is limited to the extent
of the unpaid amount on the shares held by them, the
company is known as a company limited by shares.
Dr. Tabrez Ahmad

 In such companies, each share has a fixed nominal
or face value which the shareholder is required to pay
either at a time or in various installments. Whatsoever
may be the liabilities of a company, shareholders are
not bound to pay anything more than the face value of
the shares held by them.
Dr. Tabrez Ahmad

 Thus, the liability of each of the shareholders of such a
company is always limited to the extent of the amount
unpaid on his shares.
Dr. Tabrez Ahmad

 b) Companies Limited by Guarantee:-
 Words ‘Companies limited by Guarantee implies that
the liability of members of such company is always
limited to a fixed amount agreed by its members to
contribute towards the assets of the company.
Dr. Tabrez Ahmad

 Section 12 (2) (b) states that, a company having the
liability of its members limited by the memorandum
to such amount as the members may respectively
undertake by the memorandum to contribute to the
assets of the company in any event of its being wound
up, such company in this Act is termed as a company
limited by guarantee
Dr. Tabrez Ahmad

 c. Unlimited companies: it is obvious that where
the liability of the members of a company is unlimited,
it is called as an unlimited company. Section 12
provides that any seven or more persons in the case of
a public company and 2 or more persons in the case of
a private limited company can have such liability. Any
company registered without limited liability is known
as an unlimited company.
Dr. Tabrez Ahmad

The liability of members of such company is unlimited
like an ordinary partnership firm and every member of
such company is liable for debts of the company in
proportion to his interest in the company. An
unlimited company may have or may not have a share
capital. But if it has a share capital, it may be a public
company or a private company
Dr. Tabrez Ahmad

a) chartered companies : chartered companies are
also known as Royal charter companies. Such
companies are incorporated under the Royal (special)
charter granted by the King or the Queen. Such
companies as given exclusive powers rights and
privileges under the Royal charter.
Dr. Tabrez Ahmad

They have to function in accordance with the terms
and conditions of the Royal charter. The East India
company, /Bank of England, The chartered bank of
Australia are some of the examples of chartered or
Royal companies. However, such companies find no
place in India after independence, since there no
monarchy in India now.
Dr. Tabrez Ahmad

 b) Statutory companies :- Companies which are
created by special Acts of Legislature are known as
statutory companies. A statutory company can be
defined as a company which is incorporated by a
special Act passed by whether the Central Legislature
or state Legislature and such a company enjoys certain
powers,
Dr. Tabrez Ahmad

rights, privileges as laid down in the Act. Therefore
such companies do not require to have a
Memorandum of Association. Companies Act 1956 is
applicable to the statutory companies. Eg.Reserve
Bank of India. LIC,UTI
Dr. Tabrez Ahmad

 c) Registered companies Under the Act : Registered
companies are those companies which are registered
or incorporated with the Registrar of companies as per
the provisions of the companies act. At present, in
India, almost all companies are registered under the
companies Act of 1956.
Dr. Tabrez Ahmad

C) On the Basis of ownership
 A) Private company : Section 3 (i) (iii) defines a
private company as follows-
 ‘Private company” means a company which by its
Articles –
a) Restricts the rights to transfer its shares, if any,
b) Limits the number of its members to fifty and
c) Not includes the persons who are in
employment of the company;
Dr. Tabrez Ahmad

 d) Persons, who having been formerly in the employment
of the company, were members of the company while in
that employment and have continued to be members after
the employment ceased; and
 e) prohibits any invitation to the public to subscribe for any
shares in or debentures of the company.
 Thus, the three features i.e. restriction on right to
transfer, limit on the number of members and invitation to
the public to subscribe as mentioned above are the
mandatory provisions of a private limited company words
‘Private Limited” are required to be used at the end of the
name of every company.
Dr. Tabrez Ahmad

 Public company ; section 3 (1)(iv) lays down that.
‘Public company means a company which is not a
private company.” Thus it can be said that a public
company is a company which by its Articles, does not
restricts the right to transfer its shares, if any, does not
limit the number of its members and further does not
Dr. Tabrez Ahmad

prohibit any invitation to the public to subscribe for
any shares in or debentures of the company. Any seven
or more persons can come together and join hands to
form a public company. However, there is no
restriction on the maximum number of members
Dr. Tabrez Ahmad

 Private company& Public company Differences:-
 1.) A private company cannot have less than two members
and more than fifty members
 The minimum number of persons required to form a
public company is seven. There is no restriction on the
maximum numbers of members in a public company.
 2.) A private company cannot invite public to subscribe its
share capital neither it can invite the people to buy its
debentures
 A public company invites the public to subscribe to share
capital or to purchase the debentures.
Dr. Tabrez Ahmad

 3).In a private company, the right to transfer its
shares is restricted by its Articles. Thus, if a private
company has a share capital, it imposes certain
restrictions on the right of its members to transfer
the shares of the company they hold
 In a public company, its shares are freely
transferable.
 4). A private company has to add the words
“Private Limited” at the end of its name.
 A Public company has to use the word ‘Limited’
at the end of its name.
Dr. Tabrez Ahmad

 5). A private company enjoys certain privileges i.e.
exemption from certain provisions of the Companies
Act. of 1956.
 A Public company does not enjoy any such
privileges.
 6).Directors of a private company need not file their
consent with the Registrar to Act as director or sign
an undertaking the take up qualification shares.
Dr. Tabrez Ahmad

 Directors of a Public company have to file their consent
with the Registrar to Act as director or sign an undertaking
to take up qualification shares.
 7). Legal controls on private companies are less.
 Legal controls, restrictions on public companies are
more and strict.
 8) In private companies, restrictions on the remuneration
of Director's are far less.
 In public companies, there are restrictions on the
remuneration of Directors. The remuneration of Directors
cannot be more than 11 % of net profits of the company.
Dr. Tabrez Ahmad

 9). Private Company Directors are allowed to borrow
from the private companies
Public company Directors cannot borrow from the
public companies
10).In the case of a private company, unless the articles
of the company provide for a large number, two
members personally present are quorum for a meeting
of the company.
Dr. Tabrez Ahmad

 In the case of a public company, unless the Articles
of the company provide for a large number, five
members personally present are quorum for a
meeting of the company. (section 174 (1)).
 11) A private company is not required to file a
prospectus or a statement in lieu of prospectus
with the registrar [section 70 (3)].
 A public company has to file a prospectus or a
statement in lieu of prospectus with the Registrar.
Dr. Tabrez Ahmad

D) Government Company
 Section 617 of the companies Act of 1956 defines
government company’ as follows –
 i) For the purpose of this Act Government company
means any company in which more than fifty one
percent of the paid up share capital is held by the
central government, or by any State Government, or
Governments or partly by others.
Dr. Tabrez Ahmad

 The Central Government and partly by one or more
state governments and includes a company which is a
subsidiary of a Government company as thus defined”
In India, there are many companies in which 100%
paid-up share capital or more than 51% of the paid up
share capital is provided by the Central or State
Government.
Dr. Tabrez Ahmad

E) Based on the Jurisdiction of
functioning
The boundaries of the country wherein it is
registered, such a company is called a multinational
or transnational company
Foreign company :- , It can be said that a foreign
company is one which is incorporated outside India
but has a place of business in India.
Dr. Tabrez Ahmad

(b) MNC:Companies incorporated outside India
before/after the commencement of this Act at many
places, established a place of business within India and
continue their business at established places within
India at the commencement of this Act and after.
Dr. Tabrez Ahmad

F) On the basis of control and/or
share holding
a) Holding company :- section 4 (4) of the companies
Act of 1956 implies that a company is deemed to be
holding company of another if that other is its
subsidiary. Thus, a holding company can be defined as
a company which has a control over a subsidiary
company through anyone of the several methods as
explained in section 4(1).
Dr. Tabrez Ahmad

b) Subsidiary company :- A company is a
subsidiary of a holding company if a holding
company controls the majority composition of its
board of directors, having an object to control the
management of the subsidiary or that other
company i.e. holding company holds the majority
of its shares or the holding company’s subsidiary
has its own subsidiary, it becomes the subsidiary of
the first mentioned company
Dr. Tabrez Ahmad

G) Other types of companies:
 One Man company :- One man company can be
a public or a private company, but it is usually a
private company wherein one man holds
practically the whole of the share capital of the
company. In other words, it can be said that where
a single man holds almost all the shares of a
company such a company is called as one man
company. If one man company satisfies all the
conditions and requirements of incorporation as
laid down in the companies Act, it becomes a
legal personality.
Dr. Tabrez Ahmad

 Generally for formation of one man company in order to
meet the statutory requirements, certain persons are
invited to become members who may hold a few shares.
Such dummy members are usually nominees of the main
shareholder who is the de-facto owner of the company
and carries on the business with Limited Liability e.g. X
and Y register their company as a private company with a
share capital of Rs 7,00,000 divided into 70000 shares of
Rs. 10/- each. X holds 69,999 shares while Y holds only 1
share. This is nothing but an example of one man Co.
company.
Dr. Tabrez Ahmad

Dr. Tabrez Ahmad

Pre-incorporation contract
Dr. Tabrez Ahmad

Promoters
Before a company can be formed ,there must be some
persons who have an intension to form a company and
who take the necessary steps to carry that intention
into operation. The promoters of a company decide the
scope of its business activities. they provide a
registration fees and carry out other duties involved in
the formation of company.
Dr. Tabrez Ahmad

Shareholders
The term members refer to a person whose name
appears on the register of the company. On the
other hand ,the term ‘shareholders’ refer to a
person who holds shares in a company.
Section-41 of the companies act defines a member
as:
1-the subscriber of the memorandum of a company
shall be deemed to have agreed to become
members of the company and on its registration
shall be entered as member in its register of
members.
Dr. Tabrez Ahmad

 2-Every other person who agrees in writing to
become a member of a company and whose name
is entered in its register of member shall be a
member of the company.
 3-Every person holding equity share capital of a
company and whose name is entered as beneficial
owner in the records of the depository shall be
deemed to a member of the concerned company.
Dr. Tabrez Ahmad

Difference between Shareholder &
Member
1-A holder of a share warrant is a shareholder but not a
member as his name is struck off the register of members
immediately after the issue of such share warrant.
2-A registered shareholder is a member but a registered
member may not be a shareholder, because the company
may not have a share capital.
3-The transferor or the deceased person is a member so long
as his name is on the register of members whereas he
cannot be termed a shareholder.
4-similarly a shareholder by transfer is not a member until his
name is entered in the company’s register of company
Dr. Tabrez Ahmad

Definition of Memo:
The purpose of the memorandum is to enable the members of the company, its creditors, and the
public to know what its powers are and what is the range of its activities. The memorandum
contains rules regarding the capital structure, the liability of the members, the objects of the
company, and all other important matters relating to the company.
Definition of Articles:
The Articles of Association is a document which contains rules, regulations and bye-laws
regarding the internal management of the company. Articles must not violate any provision of the
memorandum or any provision of the Companies Act.
Relationship:
Lord Cairns in Riche, described the relationship between the
memorandum and the articles in this language: "The memorandum
is as it were, the area beyond which the actions of the company
cannot go; inside the area, the shareholders may make such
regulations for their own government as they think fit". The Articles
are subordinate to Memorandum.
The Memorandum must be read in conjunction with the Articles.
The terms of the Memorandum cannot be modified or controlled
by the Articles.
Dr. Tabrez Ahmad

Constitution of a Company
 Memorandum of Association
 Articles of Association
Dr. Tabrez Ahmad

Public Documents:
The Memo and Articles are public documents, which may be inspected by anybody at the office
of the Registrar of Companies.
Differences:
1. The distinction between the memorandum and the articles of association can be summed up
as follows:
2. The memorandum is determining the company’s constitution and objectives; the articles are
rules regarding internal management.
3. Any rule in the articles contrary to the memorandum is invalid.
4. Articles can be altered easily, the memorandum can be altered only after the adoption of
certain formalities.
5. Certain clauses of memo cannot be altered without the sanction of the Central Government
and of the Court e.g., the object clause and the liability clause. Other clauses can be altered
easily e.g., the name clause. Articles can be altered by passing a special resolution.
6. The memo defines the powers of the company and the relationship between the company
and the members and-also non members, Articles define and regulate the relationship
between the company and the members.
7. Acts beyond the powers of memo (ultra vires) are void Such an act cannot be ratified by the
members. But acts done by a company beyond the articles can be ratified by the
shareholders provided they are within (intra vires) the powers of Memo.
8. If an act is within the powers given by the memo (intra vires the memo) but contrary to some
provision of the articles (ultra vires the articles) the members can change the articles and
ratify the act.
Dr. Tabrez Ahmad

The form and contents of the Memorandum:
The Act lays down that the memorandum of a association of every company shall contain the
following particulars :
1. Name Clause;
2. Situation Clause;
3. Objects Clause;
4. Area of Operation Clause;
5. Liability Clause;
6. Capital Clause;
7. The Association and Subscription Clause
Form and contents of the Articles:
The Articles of Association contain rules, regulations and bye-laws regarding the internal
management of companies. An unlimited company, a company limited by guarantee and a
private company limited by shares must file their articles of association at the time of
registration of the company.
Dr. Tabrez Ahmad

Form of Articles:
The Articles shall:
a) be printed ;
b) be divided into paragraphs numbered consecutively ; and
c) be signed by each subscriber of the memorandum of association, in the presence of at least one
witness who shall attest the –signature.
Contents of Articles:
Articles usually contain provisions in respect of the following matters :
(1) share capital, rights of shareholders, payment of commissions, share certificates;
(2) lien on shares;
(3) calls on shares;
(4) transfer of shares;
(5) transmission of shares;
(6) forfeiture of shares;
(7) conversion of shares into stock;
(8) share warrants;
(9) alteration, of capital;
(10) general meetings and voting rights of members;
(11) appointment and remuneration of directors, board of directors, managers and secretary;
(12) dividends and reserves;
(13) accounts and audit and borrowing powers;
(14) capitalisation of profits; and
(15) winding up.
Dr. Tabrez Ahmad

Alteration of the Memorandum:
For the purpose of alteration, the provisions of the memo can be divided into two classes :
(i) provisions the inclusion of which is made compulsory by the Act (e.g., the name, objects,
place of registered office etc.)
(ii) other provisions which the organisers of the -company have thought it desirable to
include.
Provisions coming under the first category are called "Conditions contained in the
Memorandum". The "conditions" can be altered in the manner stated below:
1.Change of name:
 A company may change its name by special resolution provided the Company Law
Board/Company Law Tribunal approves of the change
 When the name is validly changed, the Registrar shall enter the new name in the Register of
companies and shall issue a fresh Certificate of Incorporation.
 Change of name does not affect the rights and obligations of the company and pending suits
by or against the company.
Dr. Tabrez Ahmad

2. Change of Object:
The object clause of the memo can be changed for the purpose of enabling the company, for
example :
(a) to carry on its business more economically or more efficiently;
(b) to attain its main purpose by new or improved means ;
(c) to enlarge or change the local area of its operation;
The following procedure must be adopted for changing the object clause :
(i) A special resolution must be passed.
(ii) A petition must be filed to the Company Law Board/Company Law Trubinal for confirmation of
the change.
(iii) Notice must be given to all persons whose interests will be affected by the change.
(iv) The consent of the creditors of the Company must be obtained or other claims paid off or
secured; etc.
3. Change in the location of the registered office from one State to another
The procedure to be adopted is the same as in the case of alteration of object.
The alteration must be registered with the Registrar of Companies of the 'State in which the
registered office of the Company was originally situated and also the Registrar of the
'State to which the office is being transferred.
Dr. Tabrez Ahmad

4. Alteration of the Capital Clause
Alteration of the capital clause can be done in the following methods
(i) Alteration, including Increase of Capital:
(ii) Reduction of Capital
(iii) Variation of Shareholders' Rights
(iv) Creation of Reserve Capital.
Alteration of the Articles Of Association:
Although alteration of articles is permitted, there are certain restrictions on the nature and
extent of the alterations that can be made, for example:
 Articles can be altered by special resolution only. If the articles of the company prescribed a
different procedure, e.g., an ordinary resolution, it will not be followed. Confirmation by the
Court is not necessary.
 No change is permitted which will violate the provisions of the Companies Act.
 No change is permitted which is contrary to the conditions contained in the Memorandum of
Association of the Company.
 The alterations must not 'contain anything illegal.
 The liability of the members or any class of members, cannot be increased without their
consent.
 But any alteration made bona fide, in the interests of the company as a whole, is valid and
binding even though the private interests of some members may be affected.
Dr. Tabrez Ahmad

The legal effects of the Memorandum:
The Contractual Powers of a Company
A Company or a Corporation is a legal person capable of suing and of being sued. But the
contractual powers of a company are limited in two ways :
(i) natural possibility and
(ii) legal possibility.
Forms of Contracts and Deeds of a Company
 The Doctrine of Ultra Vires
 The Memorandum of Association determines the constitution and the powers of 'the
Company.
 The important rules concerning the legal effects of the memorandum can be summed up as
follows, for example:
 The terms of the memorandum constitute a binding contract between the Company and the
members.
 All acts done by the directors or members beyond the powers given in the memo, are ultra
vires and not binding on the Company.
 The members cannot ratify ultra vires acts, even by an unanimous resolution.
 If an act is within the powers given by the memo (intra vires the memo) but contrary to some
provision of the articles (ultra vires the articles) members can change the articles and ratify
the act.
 Directors entering into ultra vires contracts may be liable to the third party for breach of
warranty of authority.
Dr. Tabrez Ahmad

Legal effect of the Articles:
Binding Contract
 The articles constitute a binding contract between the company and its members.
 The articles come within the definition of public documents.
 All persons dealing with the company are presumed to know the provisions of the articles. So if anything
is done contrary to or beyond the provisions of the articles, the company is not bound.
Doctrine of indoor management:
The Doctrine of indoor management does not apply in certain cases :
(a) Void Acts
Where the act is void ab initio, the company is not bound, e.g., forgery.
(b) Knowledge of irregularity
Where the person dealing with the company has notice, actual or constructive, that the prescribed
procedure has not been complied with the company is not bound.
(c) Lack of authority
If an agent of a company makes a contract with a third party and if the act of the agent falls outside the
ordinary authority of the agent, the company in not liable
Dr. Tabrez Ahmad

Perform for Statutory Declaration
“FORM NO. 1”
The companies Act .1956
Declaration of compliance with requirements of the companies Act, 1956 on
Application for Registration of a company.
PURSUANT TO SECTION 33 (2)
NAME OF THE COMPANY : M/S
PRESENTED BY : Robin KR.
CHARTERED ACCOUNTANT.
…(NAME OF CA)….partner of…(NAME OF CA FIRM& ITS ADDRESS) ...,do
solemnly and sincerely declare that I am a CA in whole time practice in
India ,who is engaged in the formation of the company “M/S, ------------
PRIVATE LIMITED”
And that all the requirements of the companies Act, 1956 and the rules there
under in respect of matter precedent to the registration of the said
company& incidental thereto have been complied with& I make this solemn
declaration conscientiously believing the same to be true.
PLACE : NEW DELHI (NAME OF CA )
DATED : CHARTERED ACCOUNTANTS
Dr. Tabrez Ahmad

INCORPORATION
1. The memorandum of association duly stamped, signed &
witnessed.
In case of a public company, at last seven members must
signed it.
For a private company however the signature of two
members are sufficient.
The signatories must also give information about their
address, occupation and the number of share subscribed by
them.
2. The articles of Association duly stamped and witnessed as in
case of the Memorandum. However, as stated earlier, a public
company may adopt table A, which is a model set of Articles,
given in the companies Act. In that case a statement in lieu of
the prospectus is submitted, instead of Article of Association.
Dr. Tabrez Ahmad

3. Written consent of the proposed directors to act as director and
an undertaking to purchase qualification shares.
4. The agreement, if any, with the proposed Managing Director,
Manager or whole –time director.
5. A copy of the Registrar’s letter approving the name of the
company.
6. A statutory declaration affirming that all legal requirements for
registration have been compiled with. This must be signed by an
advocate of a high court or supreme court or a signatory to the
Memorandum of Association or a Chartered Accountant or
company secretary in whole time practice in India.
7. Documentary evidence of payment of registration fees.
Dr. Tabrez Ahmad

SPECIMEN OF CERTIFICATE OF INCORPORATION
I hereby certify that …………………(name of the company) is this day
incorporated under the companies Act 1956, and that the company is
limited.
Given under my hand at Delhi, this seventh day of November, two
thousand and five.
Fees: Deed Stamp Rs. ……………………….
Stamp Duty on Capital Rs. ………………………..
Sd/-
Registrar of companies
Delhi
Corporate Identity Number
of company : 1012 of 2013
SEAL
Dr. Tabrez Ahmad

EFFECT OF THE CERTIFICATE OF
INCROPORATION
A company is legally born on the date printed on the certificate
of Incorporation .
It becomes a legal entity with perpetual succession on such
date.
Some interesting examples showing the impact of the
conclusiveness of the certificate of Incorporation are as under:
(a) Documents for registration were filed on 16th January.
Certificate of Incorporation was issued on 18th January But the
date mentioned on the certificate was 16th January . It was
decided that the company was in existence and the contracts
signed on 16th January were considered valid.
Dr. Tabrez Ahmad

(b) A person forged the signatures of other on the Memorandum.
The Incorporation was still considered valid.
CAPITAL SUBSCRIPTION
(i) SEBI Approval
(ii) Filling of prospectus
(iii) Appointment of Bankers, Brokers , Underwriters
(iv) Minimum subscription
(v) Application to stock Exchange
(vi) Allotment of shares
Dr. Tabrez Ahmad

COMMENCEMENT OF BUSINESS
For commencement of business these following documents are
required
1. A declaration that share payable in cash have been
subscribed for and allotted up to the minimum subscription
mentioned in the prospectus;
2. A declaration that every director has paid in cash, the
application and allotment money on his shares in the same
proportion as others;
3. A declaration that no money is payable or liable to become
payable to the applicants because of the company to either
apply for or obtain permission to deal in its security on stock
exchange;
4. A statutory declaration that the above requirements have
been compiled with.
Dr. Tabrez Ahmad

CERTIFICATE OF COMMENCEMENT OF BUSINESS
(specimen)
I hereby certify that ………… ltd. Of……………which was incorporated
under The companies Act, 1956, on the …………day of
……….201…….and which has this day filed a statutory declaration in
the prescribed form that the conditions of commence business .
Given under my hand at…………this day of………. Two
thousand………
Registrar Joint Stock Companies
……………….(state)
SEAL
Dr. Tabrez Ahmad

Dr. Tabrez Ahmad
.
Prospectus:
A prospectus means any document described or issued as
prospectus and includes any notice, circular,
advertisement or other document inviting deposits from
the public or inviting offers from the public for the
subscription or purchase of any shares in or debentures of
a body corporate.
The persons issuing the prospectus are bound to make
true disclosures and not to omit material facts. A false
statement or omission of facts gives rise to civil as well as
criminal liability.

Contents of a Prospectus:
Dr. Tabrez Ahmad
General information
Capital structure of the company.
Terms of the present issue
Particulars of the issue
Company management & project
Certain prescribed particulars
Outstanding litigations
Management perception of risk factors

Shares:
Dr. Tabrez Ahmad
A share means “a share in the share capital of
the company.”
The share capital of a company is divided into a
number of indivisible units of specified amount.
Each of such unit is called a ‘share’.

Share Capital:
Dr. Tabrez Ahmad
The term share capital is used in following
different senses:
Nominal/ Authorised/ Registered Capital
Issued Capital
Subscribed Capital
Called-up Capital
Paid-up capital

Types of Shares:
Dr. Tabrez Ahmad
Preference share
A preference share is one which carries:
A preferential right in respect of dividends at a
fixed rate,
A preferential right in regard of repayment of
capital on Equity share
Equity share means a share which is not a
preference share. The rate of dividend is not
fixed.

Shareholders:
Dr. Tabrez Ahmad
Shareholder/ member is a person who holds the shares
of the company and whose name appears on the
‘register of members’ of the company.
Rights of shareholders:
Right to receive notices of general meetings and to
attend
Right to receive dividends when declared
Right to transfer shares, subject to restrictions, if any.
Right to inspect registers and records of the company.
Right to share in assets of company on its dissolution

Debentures:
Dr. Tabrez Ahmad
A debenture means a document acknowledging a
loan made to the company and providing for the
payment of interest on the sum borrowed until the
debenture is redeemed.
It provides for the repayment of principal and interest
at specified date/ or dates.
It generally creates a charge on the assets of the
company.

The directors are the brain of the Co. It includes any person
occupying the position of director – by whatever name he is
called. Only individuals can be directors.
NUMBER OF DIRECTORS : Public Co - Minimum 3
directors, Private Co 2 directors. Maximum as per AOA.
NUMBER OF DIRECTORSHIPS : A person cannot be a
director of more than 15 Cos. (Exclude: P ltd, un Ltd,
Alternate directorship).
FIRST DIRECTORS : Normally AOA names them. If not,
then subscribers to MOA, AOA shall determine.
Dr. Tabrez Ahmad

APPOINMNET BY THE COMPANY : 2/3 rds of the total
number of directors shall be liable to retire by rotation and out
of this 1/3rd shall retire at every AGM.They are eligible for
reappointment.
1/3 of the directors can be permanent directors.
 If new directors are to be appointed: 14 days notice in
writing, Rs.500 deposit and consent to act as director to be
given by them. The Co. to inform its members at least 7
days before meeting. Separate and ordinary resolution to
be passed for each appointment.
 When a director who has to retire by rotation at the AGM and
if NO AGM is held, he CANNOT continue in the office
after the last day on which AGM should have been held.
In (P) Ltd Co. directors need NOT retire by rotation.
Dr. Tabrez Ahmad

2 DIRECTORS Cont..
APPOINTMENT OF DIRECTORS BY DIRECTORS :
ADDITIONAL DIRECTORS : Shall hold the office up to next
AGM. If AGM is NOT held with in the time limit, director to
vacate on the due date of AGM.
CASUAL VACANCY : If a director vacates before the his
term expires, the Board can fill the vacancy – to hold office
only up to the date up to which the originally appointed can
hold office.
ALTERNATE DIRECTOR : To act as director in the place
of a director during his absence for a period of at least 3
months.
Dr. Tabrez Ahmad

APPOINTMENT BY THIRD PARTIES : AOA may permit
some times appointment of directors by Banks, Financial
Institutions etc..
APPOINTMENT BY PROPORTIONAL REPRESENTATION
: This ensures representation of the minority shareholders
on the Board.
APPOINTMENT BY CENTRAL GOVT. : If deem fit in
public interest the CG may appoint directors. They need not
have qualification shares and need not retire by rotation.
In (P) Ltd Co. directors can be appointed only in general
meetings.
Dr. Tabrez Ahmad

3. REMUNERATION / POWERS / DUTIES
 MANAGERIAL PERSONNEL : MD, whole time & part time
directors, and Managers. MAXIMUM REMUNERATION : 11
% of net profits to be computed as laid down. It does not
include fees for Board meetings. No remuneration, if profits
are nil or inadequate unless permission of CG is obtained.
Dr. Tabrez Ahmad

 POWERS OF DIRECTORS : The Board of directors can
exercise all such powers and to do all such acts which are
authorised. The powers are exercised by passing resolution
in the Board meetings.
 EXCEPTIONS : In the AGM the shareholders can intervene and
act : if directors act mala fide, if all the directors are interested
in any transaction, deadlock in management, powers which are
not expressly confirmed on the directors.
 DUTIES OF DIRECTORS :
 1) FIDUCIARY DUTIES : Exercise powers honestly and bona fide
for the benefit of the Co.,
 2) must not make secret profit.
 3) Duties of care skill and diligence
 4) OTHER DUTIES: attend meetings, disclose interest etc..
Dr. Tabrez Ahmad

DISQULIFICARION & REMOVAL
 DISQUALIFICATIONS: Persons of unsound mind, un discharged
insolvents, persons applied to be adjudicated as insolvent, convicted
by a Court involving moral turpitude and 5 years not elapsed, if
calls are unpaid, disqualified by Court, such a person is already
director in a public Co., which has NOT filed the annual accounts and
annual returns continuous 3 years or failed to repay FD or interest,
failed to redeem debenture etc...
 REMOVAL : Can be removed by shareholders: special notice must
be given, such director can make representation, By Central Govt.
for fraud, not managed in accordance with sound principals,
defrauded the creditors. By Company Law Board/NCLT- for
prevention of oppression or mismanagement.
Dr. Tabrez Ahmad

RESIGNATION: There is NO provision in the Act relating to
resignation. The provisions of AOA has to be followed.
Resignation once made cannot be normally withdrawn,
resignation orally tendered at a general body meeting is
effective, normally effective from the date of resignation.
VACATION: STATUTORY: Fails to get qualification shares
within 2 Months, unsound mind, adjudicated as insolvent,
convicted by a court on certain grounds, fails to pay calls,
absents himself from 3 consecutive Board meetings.
Acceptance of salary without previous consent.
Dr. Tabrez Ahmad

POSSITION OF A DIRECTOR
 DIRECTOR AS AGENT: A company is an artificial person acts
through its directors. In the eye of law they are the agents. However
they have certain independent powers and they need not consult the
shareholders on all maters. Directors are NOT personally liable as
agents provided they act within the scope of their authority and do
NOT make contracts in personal names.
 PERSONAL LIABLITY: Companies contract made in their personal
name, co. name used incorrectly, when they exceed their powers.
 DIRECTORS AS EMPLOYEES: They are not employees or servants
of the co. However if they enter into a contract of service they can
be treated as employees.
 Directors as officers: They can be treated as officers and are liable to
certain penalties if the provisions of the Act is not complied with.
 DIRECTORS AS TRUSTEES: They are the trustees of Companies
money & property. They are the trustees for the powers entrusted to
them. We can say that they are quasi trustees only as they are not the
owners and their functions and duties are not of trustees.
 TRUE POSITION IS THAT OF A FIDUCIARY RELATIONSHIP.
Dr. Tabrez Ahmad

1. The directors’ powers are normally set out in the articles. The shareholders cannot
control the way in which the Board of directors act provided its actions are within the
powers given to the Board.
2. Section 291 of Companies Act, General Powers Board is entitled to exercise all such
powers and do all such acts and things, subject to the provisions of the Companies
Act, as the company is authorized to exercise and do. However, the Board shall not
exercise any power which is required whether by the Act or by the memorandum or
articles of the company or otherwise to be exercised or done by the company in
general meeting.
3. Power of the individual directors – Unless the Act or the articles otherwise provide, the
decisions of the Board are required to be the majority decisions only. Individual
directors do not have any general powers. They shall have only such powers as are
vested in them by the Memorandum and Articles.
Board of Directors
POWERS
Dr. Tabrez Ahmad

4. Section 292(1) provides that the Board of directors of a company
shall exercise the following powers on behalf of the company and it shall
do so only by means of resolution passed at meeting of the Board:
a. the power to make calls on shareholders in respect of money
unpaid on their shares;
b. the power to authorize the buy-back referred to in the first proviso to
clause (b) of sub-section (2) of section 77A;
c. the power to issue debentures;
d. the power to borrow moneys otherwise than on debentures;
e. the power to invest funds of the company; and
f. the power to make loan.
Board of Directors
POWERS
Dr. Tabrez Ahmad

Board of Directors
DUTIES
STATUTORY DUTIES
1. To file return of allotment: Section 75 .
2. Not to issue irredeemable preference share or shares or share redeemable
after 20 years
3. To disclose interest (Section 299-300)
4. To disclose receipt of compensation from transferee of shares (Sec.320)
5. Duty to attend Board meetings
6. To convene statutory, Annual General meeting (AGM) and also extraordinary
general meetings [ Section 165,166 &169]
Dr. Tabrez Ahmad

7. To prepare and place at the AGM along with the balance sheet and profit &
loss account a report on the company’s affairs including the report of the
Board of Directors (Section 173, 210 & 217).
8. To authenticate and approve annual financial statement (Section 215).
9. To appoint first auditor of the company (Section 224).
10. To appoint cost auditor of the company (Section 233B).
11. To make a declaration of solvency in the case of Members’ voluntary winding
up (Section 488
Board of Directors
DUTIES
STATUTORY DUTIES
Dr. Tabrez Ahmad

1. Duty of good faith
2. Duty of Care
3. Duty Not to Delegate
Board of Directors
GENERAL DUTIES
LIABILITIES
A. Liabilities to the Company
• Breach of fiduciary duty
• Ultra Virus Act
• Negligence
• Mala fide Acts
Dr. Tabrez Ahmad

Board of Directors
B. Liabilities to third parties
Liabilities under Companies Act
Prospectus
With regard to allotment
Unlimited Liability
Fraudulent Trading
C. Liability for breach of Statutory Duties
D. Liability for acts of co-directors
E. Criminal Liability
LIABILITIES
Dr. Tabrez Ahmad

BOARD MEETINGS
 Number of meetings: Once in every 3 months and 4 such
meetings every year.
 Notice of Meeting: In writing to every director at his
usual address – no form of notice prescribed.
 Quorum: 1/3 rd of its strength, fraction being rounded off
as one, or 2 directors whichever is higher. If the
interested directors exceeds or is equal to 2/3 rds of the
strength then the remaining directors who are not
interested and being not less than 2 shall be the quorum.
The quorum must be present through out the meeting. If
no quorum, meeting shall be adjourned to same day, same
time next week.
Dr. Tabrez Ahmad

BOARD MEETINGS…..
 POWERS TO BE EXERCISED AT MEETINGS: By passing
resolutions the powers can be exercised:
To make calls, issue debentures, borrow money, invest
money, make loan, to fill vacancies, give consent to
contracts in which directors are interested, appointment of
MD, Manager, etc..
 EXCEPTIONS: The shareholders can intervene and act if
the Board of directors
 act mala fide,
 if directors are themselves wrong doers,
 incompetence of board,
 dead lock in management..
Dr. Tabrez Ahmad

Dr. Tabrez Ahmad

• Statutory meetings
• Annual general meetings
• Extraordinary meetings
General
meetings
• Proper authority
• Notice
• Quorum
• Chairman
• minutes
Requisites of
valid meeting
• Ordinary
• special
• Requiring a special notice
Resolutions
Dr. Tabrez Ahmad

General Meeting
Statutory meetings
Annual general meetings
Extraordinary meetings
Dr. Tabrez Ahmad

Statutory Meeting {Sec 165}
• Every company limited by shares or guarantee and
having a share capital has to commence
• That’s the first meeting of the shareholders of the
company
• Only once in a lifetime
Dr. Tabrez Ahmad

Statutory Report
 Board of directors to forward it at least 21 days before
meeting
 Every member to receive the copy
 Notice of meeting to clearly say the word “Statutory
meeting”
 If the report is forwarded later than 21 days every
member entitled to attend the meeting has to agree
on the due forwarding process
Dr. Tabrez Ahmad

Contents of the Report
• Total shares allotted
• Cash received
• Abstract of the receipts and payments
• Directors and auditors
• Contracts
• Underwriting contract
• Arrears of calls
• Commission and brokerage
Dr. Tabrez Ahmad

Procedure at the meeting
• List of members
• Discussion of matters relating formational aspect
• Adjournment
Dr. Tabrez Ahmad

ANNUAL GENERAL MEETING
• Organize it within every 15 months with the
exception of first meeting to be held in 18 months
of the making
• The meeting must be held in each year
• It must not held later than 6 months from
the date of balance sheet
• Notify in writing 21 days prior to meeting
Dr. Tabrez Ahmad

Importance of general meeting
• Consideration of accounts, balance sheet and
reports of the board of directors and auditors
• Share holders can take decisions relating to business
• Declaration of dividends
• Appointment of the directors
• Appointment and fixed or remuneration of the
auditors
Dr. Tabrez Ahmad

Extra-ordinary general meeting
• Statutory and the annual meetings are ordinary
• This meeting is called to decide upon a serious issue
that can not be delayed for the next annual meeting
• Board of directors on their own or on the request of
members can call meeting and by the company law
board
Dr. Tabrez Ahmad

REQUISITES OF A VALID MEETING
 Proper Authority
 Proper Notice
 Who are entitled to notice?
 Contents of notice
 Properly Constituted
 Chairman
 Quorum
 Proxy
Dr. Tabrez Ahmad

Cont…
 Proper Authority
 Annual meeting, statutory meeting or extra ordinary meeting.
 Board of directors
 Special resolution
 Proper Notice:-
 May be called by giving not less than 21 days in writing to the
members.
 Notice to whom:-
 Every member of the company entitled to vote.
 The auditors of the company
 Persons entitled to any shares on the death or insolvency of
members
Dr. Tabrez Ahmad

Cont…
 Contents of notice:-
 Place and day and hour of meeting.
 Special business including in particular the nature of the
interest therein of every directors and managers
 Any item of business is to accord approval to any
documents by the meeting, the time and place at which
the document can be inspected
Dr. Tabrez Ahmad

Cont…
 Properly Constituted
 Chairman
 He is the most important person, the PILOT of the
company and guide the meeting
 A meeting cannot be conducted without a Chairman
Dr. Tabrez Ahmad

Cont…
 Quorum
 Means minimum number of members who must be
present in order to constitute a valid meeting and transact
business.
 The quorum is generally fixed by articles
 5 members personally present in the case of public
company
 2 members in case of any other company
Dr. Tabrez Ahmad

Cont…
 Proxy
 A proxy can only vote on a poll
• A member of a private company cannot appoint a
proxy
• Member not having share capital can not appoint a
proxy
• Proxy has to be in a written document duly signed by
appointer or his/her attorney
• Proxy has to be deposited 48 hrs prior to the meeting
Dr. Tabrez Ahmad

Cont…
 Agenda
 THINGS TO BE DONE in meeting
 Agenda prepared for all types of meeting
 Duties of the chairman
 To ensure that the meeting is properly convened
 To see the discipline is maintained during the course of the
meeting
 To ensure that provision of the Act. Articles and
Memorandum are strictly observed
 To see that no irrelevant discussion is allowed
Dr. Tabrez Ahmad

Cont…
 Powers of chairman
 To decide point of order is discussion
 To decide the order of priority of speakers
 To declare the discussion closed
 To expel any member who behaves rudely
 To sign and date the proceeding of the meeting
Dr. Tabrez Ahmad

Cont…
 MINUTES
 Minutes indicate the proceedings of the meetings of
company.
 Its official records of all decision taken various meeting of
the company.
 A member to get a clear idea about matters discussed in the
past
 Its documentary evidence and can be submitted in a court
as evidence
Dr. Tabrez Ahmad

Cont…
 Legal provision
 Every company within 30 days of the meeting should make an
entry in the minutes book
 The minute of each meeting must contain a fair and correct
summary of the meeting
 The minute also contain the names of the directors and
members present in the meeting
 The minutes must be sign by the chairman of the company
 The confirmed minutes should be kept at he registered office
of the company
 Members of the company are NOT entitled to inspect the
minutes of it’s Board’s meeting
Dr. Tabrez Ahmad

Cont…
 Types of Minutes
 Minutes of Resolution
 Minutes of Narration
Dr. Tabrez Ahmad

Borrowing powers of a company
The powers of a company are determined by the memorandum and the articles of association. Therefore a
company can borrow money, and if so to what extent, are matters depending upon the interpretation of
these two documents.
Where the memo and the articles give the power to borrow, loans may be taken in any one or more of the
following ways:
mortgage of immovable properties of the company ;
hypothecation or mortgage of movable goods, including stock in trade and, furniture;
charge on uncalled capital; floating charge on all the assets of the company;
mortgage of book debts; promissory notes,
hundies and bills of exchange;
debentures and debenture stock: charge on patents, licenses and copyrights and goodwill ; overdrawing
the company's banking accounts.
Statutory limitations on Borrowing
1. The Companies Act prohibits the directors to borrow money beyond the aggregate of the paid-up
capital and its reserves.
2. Limitations as contained in the Memorandum or the Articles ultra-vires Borrowing: Borrowing by a
company may be ultra-vires the Company or intra-vires the company but ultra vires the directors.
Dr. Tabrez Ahmad

Debentures
A debenture is a document which shows on the face of it, that the company has borrowed a
certain sum of money from the holder thereof upon certain terms and conditions. The
Company Act states that a debenture, "includes debenture stock, bonds and any other
securities of a company, whether constituting a charge on the assets of the company or
not.“
Characteristics
1. Each debenture is numbered.
2. Each contains a printed statement of the terms and conditions,
3. A debenture usually creates a floating charge on the assets of the companies,
4. A debenture may create a fixed charge instead of charge.
5. Sometimes debenture holders are given the right to appoint a receiver in case of non-
fulfilment of the terms of the debentures by the company.
6. Sometimes a series of debentures are issued with a trust deed by which trustees are
appointed to whom some or all the properties of the company are transferred by way of
security for the debenture holders.
Dr. Tabrez Ahmad

Floating charge and Fixed charge
 A `charge' on a property is created when it is made liable for the payment of money.
 A charge may be `fixed' or `floating'. A fixed charge is one which creates a legal interest of a specific
property of the company or all the properties of the company. Thus a fixed charge is equivalent to
mortgage.
 The company can sell, lease etc. of the property, subject to the right of the charge holder.
 The term `floating security' and `floating charge' means a security or charge which is not to be put into
immediate operation, but is to float so that the company is to be allowed to carry on its business.
 A specific charge fastens on ascertained and definite property or property capable of being
ascertained.
 A floating charge moves with the property which it is intended to affect, until some event occurs or
some act is done which causes it to settle and faster on the subject of the charge within its reach and
grasp.
Characteristics
A floating charge is an equitable charge. Justice Romer laid down three characteristics of a floating
charge viz.,
(i) it is a charge on a class of assets of a company present and future,
(ii) in the ordinary course of the business of a company such assets would be changing from time to
time
(iii) until some future step is taken by or on behalf of those interested in the charge, the company
may carry on the business in the ordinary way by this class of assets.
Dr. Tabrez Ahmad

When a floating charge becomes a fixed charge ?
A floating charge becomes a fixed charge when any of the following things occur:
(i) a company is wound up
(ii) a receiver of the properties of the company is appointed ;
(iii) the company fails to pay the interest and the instalment of the principal: and,
(iv) the company ceases carrying on its business.
When the above occurrences or contingencies happen, a floating charge becomes a fixed charge.
Classification of debentures
Debentures may be classified in different ways, some of which are mentioned below:
1. Redeemable Debentures and Perpetual Debentures:
2. Registered Debentures and unregistered or Bearer Debentures :
3. Debenture and Debenture Stock :
4. Mortgage Debenture and Naked Debenture:
Convertible debentures
Debentures may be issued subject to the condition that they or a specified part of them, will be exchanged
for, or converted into, shares of the company. The remaining part of the issue continues to be debentures
at a stated interest. After a debenture is converted into share it does not yield interest but gets dividend
according to the decision of the company.
Dr. Tabrez Ahmad

Rules relating to debentures
The Companies Act lays down the following rules regarding debentures:
1. No debenture holder is to have any voting rights in company meetings.
2. If there is a trust deed securing the issue of. debentures, every debenture holder can have
a copy of it on payment of a small fee.
3. The trustees in a trust deed securing the issue of debentures must exercise due care and
diligence in the performance of their duties. Any provision in the deed exempting them from
liability on this account is void.
4. Debenture may be irredeemable, or redeemable on the happening of a contingency.
5. Redeemable debentures can be reissued unless there is any provision to the contrary.
6. An agreement to take a debenture can be specifically enforced.
7. Debts of the company, which by the Act receive preferential payment in case of winding up,
shall have priority over the claims of the debenture holders.
8. Full particulars regarding the issue of debentures in series must be sent to the Registrar.
9. There are certain limits on the amount of commission and brokerage that can be paid for
the sale of debentures.
10. Transfer of Debentures.
11. Register and Index of Debenture Holders.
Dr. Tabrez Ahmad

Rights and remedies of debenture holders
If the Company fails to pay the interest or principal on the due date or fails to comply with any of
the terms and conditions under, which the debenture was issued, the debenture holder can
adopt any of the following remedial measures:
1. He may file a suit for the recovery of money by sale of the assets which were charged for
the payment of the money.
2. He may file an application for the appointment of a receiver by the court.
3. He may appoint a receiver if the terms of the debenture entitled him to do so.
4. The trustees may sell the properties charged, if such a power is given to them under the
terms of the debenture.
5. He may apply to the court for the foreclosure of the company's right to redeem the
properties charged for the payment of the money.
6. He may present petition for the winding up of the company.
Dr. Tabrez Ahmad

Differences between shareholders and debenture holders
1. A shareholder has a proprietary interest in the company. A debenture holder is only a
creditor of the company.
2. Every share is included in the capital of the company. Debenture is a loan to the company.
3. Debentures generally have a fixed or floating charge upon the assets of the company.
Shares do not have any charge on the asset of the company
4. A debenture holder is entitled to a fixed interest. Equity shareholder is entitled to dividends
depending on and varying with the profits earned.
5. A shareholder has voting rights. A debenture holder cannot have voting rights.
6. Debentures may be redeemable. Shares are not redeemable.
7. Debenture holders get priority over shareholders when assets are distributed upon winding
tip.
Dr. Tabrez Ahmad

Registration of mortgages and charges
The Companies Act provides that all charges and mortgages of the kinds mentioned below, must
be registered with the Registrar of Companies by filing with him all particulars concerning
them together with a copy of the deed by which the charge or mortgage is created :
1.
(a) a charge for the purpose of securing any issue or debentures;
(b) a charge - on uncalled share capital of the company;
(c) a charge on any immovable property, whether situate, or any interest therein;
(d) a charge on any book debts of the company;
(e) a charge, not being a pledge, on any movable property of the company;
(f) a floating charge on the undertaking or any property of the company including stock-in-
trade;
(g) a charge on calls made but not paid;
(h) a charge on goodwill, on a patent or licence under a patent, on a trade mark, or on a
copyright or a licence under 3 copyright.
2. A charge created out of India comprising solely property situate outside India with particulars
and instrument or copy.
3. A charge created in India but comprising property outside India.
4. Charges on properties acquired subject to charge.
Dr. Tabrez Ahmad

Time:
 All the charges listed above must be registered within 30 days of its
creation
 Consequences of failure to register charges
 If a charge or mortgage is not registered in accordance with the
aforesaid provisions, the following consequences ensue :
1. The charge becomes void as against other creditors and the
liquidator in case of winding up (i.e., the charge holder loses priority).
2. The debt becomes immediately payable.
3. The officers of the company concerned are liable to punishment.
4. When a charge becomes void for non-registration no right of lien can
be claimed on the documents of titles.
Dr. Tabrez Ahmad

148
Dr. Tabrez Ahmad

Company Audit
Table of Content
 Basic Provisions relating to authentication,
circulation, Adoption and filing of annual
Accounts
 Appointment of Auditor
 Re-Appointment of Auditor
 Ceiling on Number of Audit
 Qualifications and Disqualifications of Auditor
 Removal Of Auditor
 Rights of Auditor
 Duties of Auditor
149
Dr. Tabrez Ahmad

Basic Provisions relating to authentication, circulation,
Adoption and filing of annual Accounts of Company
 Authentication of Annual Accounts :-The Balance Sheet (BS) and Profit &
Loss account (P &L A/c) duly considered, approved and signed should be
handed over to the Company’s Auditors for their report thereon {Sec 215(3)}
 Profit & Loss A/c must be annexed to the Balance Sheet and the Auditor’s
report must be attached thereto {Sec 216}
 Circulation of Annual accounts:- A copy of BS, P& L A/c, Director Report &
every other documents required to be annexed or attached there to shall be
sent to every member of the company , not less than 21 days before the
meeting. {Sec 219}
 Adoption of Account (including Balance Sheet, Profit & Loss A/c and directors
report thereon) in AGM {Sec 210}
 BS & P &L A/c shall be filed with the Registrar of the Companies together with
all documents which are required by the Companies to be attached/annexed
thereto within 30 days of AGM. {Sec 220}
150
Dr. Tabrez Ahmad

Appointment of Auditor
First
Auditor
Subsequent
Auditor
Section 224(1)
Section 224(5)
151
Dr. Tabrez Ahmad

Sec. 224(5) Appointment & Removal of First
Auditor
 Appointed by BOD within 1 month of registration of the company.
` Sec 224(5)
 If BOD fails to appoint, the company may appoint at a General Meeting.
 Holds office until the conclusion of first AGM. Thus, he will continue in
office until the next annual general meeting is actually held and concluded.
 Members at any GM may remove such auditor and appoint another one
in his place, of whose nomination special notice has been given to the
members of the company not less than fourteen days before the date of the
meeting.
Proviso to section 224(5)
 Appointment of first auditors through the MOA & AOA -not a valid
appointment.
 The first auditors are under no obligation to inform the Registrar.
152
Dr. Tabrez Ahmad

S. 224(1)Appt. of Subsequent Auditor
 Appointed at each AGM to hold office until the conclusion of next AGM.
Sec 224(1)
 Intimation to the auditor within 7 days.
 Auditor to file form 23B to ROC within 30 days, whether he has accepted or refused to
accept the appointment.
Sec 224(1A)
 Appointment of auditor is mandatory in the AGM for the ensuing year.
 Before any appointment or re-appointment of auditor or auditors written certificate
shall be obtained by the company from the auditor or auditors proposed to be so
appointed to the effect that the appointment or re-appointment, if made, will be in
accordance with the limits specified in sub-section (1B).]
 Requirement of a valid peer review certificate for appointment of statutory
auditors- Clause 41(1) (h) of Listing Agreement CIR/CFD/DIL/1/2010
153
Dr. Tabrez Ahmad

What if Company Fails to appoint Auditor in
AGM?
Where at an annual general meeting no auditors are appointed
or re-appointed, the Central Government may appoint a
person to fill the vacancy.
Sec 224(3)
Company to give notice to Central Govt within 7 days after
AGM that no auditor has been appointed.
Sec 224(4)
 Delay in giving such notice does not affect the jurisdiction of
the Central Govt.
 Powers of Central Govt. - Delegated to Regional Director.
154
Dr. Tabrez Ahmad

Section 224(6) Casual Vacancy
BOD may fill any casual vacancy. Sec 224(6)(a)
Vacancy caused by resignation - filled by the company in GM.
Such Auditor holds office till conclusion of next AGM.
Sec 224(6)(b)
Where an auditor refuses to accept appointment or re-
appointment- Deemed to be no appointment - CG
If one of the two joint Auditors resigns before the completion of
the tenure - Casual Vacancy by resignation - GM
If there is a complete change in the constitution of the firm of
Auditors i.e. all the earlier partners retire and new partners joins
- Casual Vacancy.- By Board
155
Dr. Tabrez Ahmad

Appointment by Special Resolution
Section 224A
Where not less than 25% of subscribed share capital is held
by
-Public Financial Institution/ Govt.Company/ Central Govt./
State Govt.
-any institution established under State/ Provincial Act in
which State Govt.holds not less than 51% of subscribed
share capital.
-Nationalised bank/ Insurance company
 DCA through its circular has clarified that the above three
clauses are not mutually exclusive. It would apply to all
cases of shareholding in any combination.
DCA-Circular No.14 of 2001 dated 16-07-2001
156
Dr. Tabrez Ahmad

Section 224A
 Material date for 25% holding of subscribed share capital -
date of AGM at which Special Resolution is to be passed and
not the date of notice of meeting.
DCA-Circular No.2/76[1/1/76-CL-V] dated 5-6-1976
 Irrespective of the circumstances in which a nationalized bank
is holding shares, if the name of the bank is entered in the
register of members of the company, such holding of shares
will have to be taken into account for the purposes of sec
224A.
DCA-Circular No.18/74 dated 12-12-1974
157
Dr. Tabrez Ahmad

Section 224A
 Certified copy of the special resolution so passed shall be filed with the
Registrar within 30 days of passing, in Form No. 23.
 If, after notice of the annual general meeting is issued in the usual
course and before the holding of meeting, it happens that the holdings
of the public financial institutions have reached 25% of the total
subscribed share capital, then the meeting has to be adjourned and
after issuing notice under this section, necessary special resolution is to
be passed for appointing the auditor(s).
 If Company omits or fails to pass special resolution- it shall be deemed
that no auditor or auditors had been appointed by the company at its
annual general meeting and Central Govt. will appoint auditors to fill the
vacancy in term of Section 224(3)
158
Dr. Tabrez Ahmad

ICAI Recommendations
 It would not be sufficient for the incoming Auditor to accept a certificate from the
management of the Company that provisions of Companies Act with respect to
Appointment has been complied with. If the Company is unwilling to allow the
incoming Auditor to verify the relevant records, Auditors should not accept the Audit
Assignment
 Incoming Auditor Should verify the following:-
 (i) Whether a member of the Company has given special notice of the resolution as
required u/s 225(1) at least 14 days before the date of the GM. A True copy of the
Certificate should be obtained
 (ii) Whether this special notice has been sent to the members of the company as
required u/s 190(2) at least 7 days before the date of GM
 (iii) Whether this special notice has been sent to the retiring auditors forthwith as u/s
225(2)
 (iv) Whether representation received from the retiring Auditors, if any has been sent
to the members of the company as required u/s 225(3)
 (v) Whether the representation received from the retiring Auditor has been considered
at the GM and the resolution, proposed by the special notice, has been properly
passed at the GM.
 Incoming Auditors should also communicate with the outgoing Auditor in
writing before accepting the audit assignment.
159
Dr. Tabrez Ahmad

Appointment of Auditor of Govt. Companies
(sec 619)
 Appointed or re-appointed by the C&AG
 Submits a copy of report to C&AG who have the right to
comment on upon, or supplement the audit report in such
manner as he may think fit.
 Any such comments or supplement to the audit report shall be
placed before the AGM as audit report.
160
Dr. Tabrez Ahmad

Appointment
of an
Auditor
BOD
(a) First Auditor
(b) Casual
Vacancy other
than resignation
SHARE
HOLDERS
(a) Subsequent
Auditor
(b) Casual Vacancy
by resignation
(c) First Auditor
not appointed by
BOD
C. Govt.
(a) Auditor of
Govt. Co.’s
(b)Auditor not
appointed by
SH
Lets Summarize
161
Dr. Tabrez Ahmad

Branch Auditor- Section 228
Where a company, whether a public or a private limited, has a
branch office, its accounts should also be audited.
 Auditor may be the Company’s Auditor or some other person
qualified to be appointed as Auditor.
 If the branch is situated in a country outside India, a person who is
duly qualified to act as auditor of the branch in accordance with the
laws of that country.
 Where Branch Auditor is different from Company’s Auditor, he is
appointed by the Company in GM or BOD are authorised to appoint
him in consultation with Company’s Auditor.
 Same powers as Company’s Auditor.
 Central Government may make rules providing for the exemption of
any branch office from the provisions of this section to the extent
specified in the rules.
162
Dr. Tabrez Ahmad

Central Govt. may either Appoint C.A. or
Company’s Auditor
Same powers as Company’s Auditor
Makes his report to Central Govt.
Special Auditor
(Sec 233A)
163
Dr. Tabrez Ahmad

Qualifications of an Auditor
Sec 226
 A Chartered Accountant who is a member of ICAI and holding
certificate of practice and Should practice in India (“Practicing
C.A.”)
 A Partnership firm of Practicing C.A.’s
 Holder of Certificate under part ‘B’ States Act, 1956
Sec 226(2)
It is to be noted that The Auditor's Certificate Rules were published in
1932 whereby government authorities sought to regulate the
accountancy profession.
164
Dr. Tabrez Ahmad

Who can not be appointed as Auditor?
Section 226(3)
 A Body Corporate
 An Officer or Employee of the Company
 A Person who is a Partner, or in the employment, of an Officer or
Employee of the Company.
 A Person who is indebted / Guarantor to the Company for an amount
exceeding Rs.1000.
 A Person holding any security of that Company after a period of one
year from the date of commencement of the Companies Amendment
Act 2000. (security means instrument carries voting right)
 Disqualified by subsidiary company, then disqualified by holding
company also and vice versa
165
Dr. Tabrez Ahmad

Who can not be appointed as Auditor?
Section 226(3)
If an auditor, after his appointment, becomes subject to any
disqualification mentioned above, he shall be deemed to
have vacated as such.
Statutory auditor can not be internal auditor.
DCA-Circular No.5/77[1/1/76-CL-V]dated 8-4-1977
166
Dr. Tabrez Ahmad

Ceiling on Number of Audit
Section 224(IB)
 Should not be in ‘FULL TIME EMPLOYMENT’
 Auditor of max 20 Companies – only 10 can be Large Companies
 Large Companies - paid up capital of or exceeding 25 lacs
 In a Firm of Auditors, the limit of 20 Companies is per Partner.
 As per Companies(Amendment)Act,2000, Private Companies will not
be taken into account for counting the limit of 20 Companies.
 However, as per ICAI notification, a person can carry out the audit of
Max 30 companies including Private Companies.
167
Dr. Tabrez Ahmad

Ceiling on Number of Audit
Joint audit assignments - to be counted as one company.
Branch Audits – not included
Guarantee companies having no share capital – also
excluded
DCA-Letter No.8/12/(224)/74-CL-V dated28-9-1974
Foreign companies audit - not included
168
Dr. Tabrez Ahmad

Removal of Auditor
Removal of
Auditor
1st Auditor
After Term
No
reappointment
In Between
Term
In GM
Subsequent
Auditor
After Term
No
reappointm
ent
In Between
Term
In GM with
approval of
C. Govt.
169
Dr. Tabrez Ahmad

Removal of Auditor
 Special notice required from any member atleast14 days before the
date of the GM - Section 225(1)
Ordinary resolution at AGM required but notice would be special
Days would be exclusive of the day on which the notice is served or
deemed to be served and the day of the meeting.
 Auditor can be removed before expiry of his term by Company in GM
after previous approval of Central Govt (powers delegated to
Regional Director).
Section 224(5)
 Prior approval of Central govt. require before actually removing an
Auditor. Though resolution for removal can be passed before.
170
Dr. Tabrez Ahmad

Removal After Expiry of the term Section
224(1)
 Subject to the provisions of sub-section (1B) and section 224A at any
annual general meeting,] a retiring auditor, by whatsoever authority
appointed, shall be re-appointed, unless-
(a) he is not qualified for re-appointment;
(b) he has given the company notice in writing of his unwillingness to be
re-appointed;
(c) a resolution has been passed at that meeting appointing somebody
instead of him or providing expressly that he shall not be re-appointed; or
(d) where notice has been given of an intended resolution to appoint
some person or persons in the place of a retiring auditor, and by reason of
the death, incapacity or disqualification of that person or of all those
persons, as the case may be, the resolution cannot be proceeded with.
171
Dr. Tabrez Ahmad

Rights of an Auditor : Sec 227
To access books of accounts of the company.[227(1)]
To seek information and explanation from the officers of the company
To visit branches where he is not satisfied with the details given by the
branch auditor[228]
To receive notice of AGM[231]
To make any representation which the co. can send to all its shareholders
or read out at the GM.
To take advice from experts.
To receive Branch Audit Report.
To sign the audit report.
To receive remuneration.
To attend AGM.
To speak at AGM.
To be indemnified.
Right of lien.
172
Dr. Tabrez Ahmad

Duties of an Auditor
 Report to the shareholders on:-
• Whether proper Books of Accounts were kept and proper returns received
from the Branches not visited by him.
• Whether necessary information was received during the course of audit .
• Whether BS & P& L A/c are in agreement with the Books of Accounts.
• Whether BS & P& L A/c are as per Co.’s Act.
• Whether the BS & P& L A/c complied with Accounting Standards referred
in Sec 211(3C)
• Whether Accounts show True & Fair View.
• Report on CARO (if applicable)
• Qualifications in report.
• Directors disqualifications if any.
173
Dr. Tabrez Ahmad

Duty to inquire into Certain Matters Sec 227(IA)
 Loan and advances made by the company.
 Book entries.
 Sale of investment below cost.
 Loan and Advances shown as deposit
 Personal expenses.
 Shares issued during the year.
174
Dr. Tabrez Ahmad

 Sign & submit the Audit Report.
 Certify the Prospectus regarding :
• Rate of Dividend paid for the last 5 years
• Profits & Losses for the last 5 years
• Assets & Liabilities of the company
 Certify Statutory report regarding :
• Numbers of shares allotted
• Cash received on such allotment
• Receipt and Payment Account
 Comply with the Directives of the ICAI and that of Central Govt.
175
Dr. Tabrez Ahmad

Dr. Tabrez Ahmad

 According to the Dictionary meaning of the word,
 any act exercised in a manner burdensome, harsh &
wrongful.
 The term ‘oppression’ has been explained by Lord
Cooper as, “The essence of the matter seems to be that
the conduct complained of should at the lowest involve a
visible departure from the standards of fair dealing, and a
violation of the conditions of fair play on which every
shareholder who entrusts his money to the company is
entitled to rely.”
Meaning of oppression
177
Dr. Tabrez Ahmad

Co. A
Director
Purchase the asset of the co.
By taking loan from the co.
for the same
20% not
Supported
80% Supported
The Directors
178
Dr. Tabrez Ahmad

 When the affairs of the company are being conducted in a
manner prejudicial to the public interest or the company's
interest.
OR
 When by a reason of material change in the management
or control of he company the affairs of the company are
likely to be conducted in a manner prejudicial to the
public interest or the company's interest.
Meaning of Mismanagement
179
Dr. Tabrez Ahmad

Estate Tea & Plantation
Co.
Sold by Director at low price W/O
Approval by shareholder under
Sec. 293(1) & W/O giving
adequate
Notice (under sec. 173) & other
Info.
Tea Plantation Co.
Malayalam Plantation (India) Ltd.
180
Dr. Tabrez Ahmad

• A member who must sign application given in sec 397 &
398.
• With share capital:- at least 100 members or one
tenth members.
•Without share capital:- one fifth of the total no of
members.
181
Dr. Tabrez Ahmad

 A member whose calls or other sums due on their
shares have not been paid.
 A holder of a letter of allotment of a partly paid share.
 A holder of a share warrant.
 A transferee of shares who has not lodged the shares
for transfer to the company
Who can’t apply……….
182
Dr. Tabrez Ahmad

 Existence of alternative relief
 Oppression of majority
 Oppression qua members
Condition of relief
183
Dr. Tabrez Ahmad

• Not calling a gen. meeting & keeping the
shareholder in dark
• Non maintenance of statutory records &
not conducting affairs of the co. in
accordance with the Co’s Act
• Depriving a member of the right to
dividend
184
Dr. Tabrez Ahmad

Contd..
 Transfer of share held by Company to
some shareholders otherwise than by
making an offer to all
 If sale of asset is made by a Co. to some of
its directors & simultaneously giving them
loan to purchase the same
 Issue of further shares benefiting a section
of the share holders
185
Dr. Tabrez Ahmad

Acts Not Held As Oppressive
 An unwise, inefficient careless conduct
of a director
 Not declaring dividend when Co. is
making loss
 Non-holding of the meeting of the
director
 Failure to maintain proper records of
the Co.
186
Dr. Tabrez Ahmad

Prevention of Mismanagement
 Sec. 398 provides for relief in case of mismanagement
by majority
 A requisite no of members of the Co. may apply to
NCLT for appropriate relief on the ground of
mismanagement of the Co.
187
Dr. Tabrez Ahmad

Acts Held as Mismanagement
(Under Sec. 398)
 Serious in fight between the directors
 Illegal constitution of the board of directors
 Gross neglect of interest of the Co. by sale of its
only assets
188
Dr. Tabrez Ahmad

Contd..
 Diversion of the fund to benefit the majority
 Operation of bank A/C by an unauthorized person
 Advance of loans without execution of a document
 Continuation of managing director in office after
the expiry of his term.
189
Dr. Tabrez Ahmad

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