Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.), [Autosaved].pptx

NATURE AND CHARACTERISTICS
OF A COMPANY

NATURE AND CHARACTERISTICS OF A
COMPANY
• Corporate personality
• Company as an artificial person
• Limited Liability
• Perpetual Succession
• Separate Property
• Capacity to Sue and Be Sued

NATURE AND CHARACTERISTICS OF A
COMPANY
• Corporate personality.
• A company incorporated under the Act is vested with a corporate
personality so it redundant bears its own name, acts under name, has
a seal of its own and its assets are separate and distinct from those of
its members. It is a different ‘person’ from the members who
compose it. Therefore it is capable of owning property, incurring
debts, borrowing money, having a bank account, employing people,
entering into contracts and suing or being sued in the same manner
as an individual

Corporate personality
• Thus, ‘incorporation’ is the act of forming a legal corporation as a
juristic person. A juristic person is in law also conferred with rights
and obligations and is dealt with in accordance with law. In other
words, the entity acts like a natural person but only through a
designated person, whose acts are processed within the ambit of law

Company as an artificial person
• Company as an artificial person.
• A Company is an artificial person created by law. It is not a human
being but it acts through human beings. It is considered as a legal
person which can enter into contracts, possess properties in its own
name, sue and can be sued by others etc. It is called an artificial
person since it is invisible, intangible, existing only in the
contemplation of law. It is capable of enjoying rights and being
subject to duties.

Lee v. Lee’s Air Farming Ltd.
(1961) A.C. 12 (P.C.),
Salomon v. Salomon and Co. Ltd., (1897) A.C. 22

Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12
(P.C.),
• In this case, a company was formed for the purpose of aerial top-dressing. Lee, a
qualified pilot, held all but one of the shares in the company. He voted himself
the managing director and got himself appointed by the articles as chief pilot at a
salary. He was killed in an air crash while working for the company. His widow
claimed compensation for the death of her husband in the course of his
employment. The company opposed the claim on the ground that Lee was not a
worker as the same person could not be the employer and the employee. The
Privy Council held that Lee and his company were distinct legal persons which
had entered into contractual relationships under which he became the chief pilot,
a servant of the company. In his capacity of managing director he could, on behalf
of the company, give himself orders in his other capacity of pilot, and the
relationship between himself, as pilot and the company, was that of servant and
master. Lee was a separate person from the company he formed and his widow
was held entitled to get the compensation. In effect the magic of corporate
personality enabled him (Lee) to be the master and servant at the same time and
enjoy the advantages of both.

Limited Liability
• “The privilege of limited liability for business debts is one of the
principal advantages of doing business under the corporate form of
organisation.” The company, being a separate person, is the owner of
its assets and bound by its liabilities. The liability of a member as
shareholder, extends to the contribution to the capital of the
company up to the nominal value of the shares held and not paid by
him

Limited Liability
• This means that the liability of a member is limited. For example, if A
holds shares of the total nominal value of `1,000 and has already paid
`500/- (or 50% of the value) as part payment at the time of allotment,
he cannot be called upon to pay more than ` 500/-, the amount
remaining unpaid on his shares. If he holds fully-paid shares, he has
no further liability to pay even if the company is declared insolvent.

Perpetual Succession
• An incorporated company never dies, except when it is wound up as
per law. A company, being a separate legal person is unaffected by
death or departure of any member and it remains the same entity,
despite total change in the membership. Perpetual succession, means
that the membership of a company may keep changing from time to
time, but that shall not affect its continuity.

Separate Property
• A company being a legal person and entirely distinct from its
members, is capable of owning, enjoying and disposing of property in
its own name. The company is the real person in which all its property
is vested, and by which it is controlled, managed and disposed off

Capacity to Sue and Be Sued
• A company being a body corporate, can sue and be sued in its own
name. To sue, means to institute legal proceedings against (a person)
or to bring a suit in a court of law. All legal proceedings against the
company are to be instituted in its name. Similarly, the company may
bring an action against anyone in its own name. A company’s right to
sue arises when some loss is caused to the company, i.e. to the
property or the personality of the company

Distinction between Partnership Firm and
Company
• Partnership Firm Company A partnership firm is not distinct from the
several persons who form the partnership. A company is a distinct legal
person. In a partnership, the property of the firm is the property of the
individuals comprising it. In a company, it belongs to the company and not
to the individuals who are its members. Creditors of a partnership firm are
creditors of individual partners and a decree against the firm can be
executed against the partners jointly and severally. The creditors of a
company can proceed only against the company and not against its
members. Partners are the agents of the firm. A partner can dispose of the
property and incur liabilities as long as he acts in the course of the firm’s
business. Members of a company are not its agents. A member of a
company cannot dispose of the property and incur liabilities in the course
of the company’s business

Types of Companies under the Companies Act
2013
• Private Companies
• Public Companies
• One Person Company
• a company limited by shares
• a company limited by guarantee
• Statutory Companies:

One Person Company
• structure where only one member will act in the capacity of a director
as well as a shareholder.

a company limited by shares
• The liability of the shareholders of the company is limited to
the nominal value of the shares. Shareholders are not required to pay
up for losses in excess of the nominal value of the shares.
• Reliance, Infosys and Tata are all public companies limited by shares

a company limited by guarantee
• Section 2(21) of Companies Act 2013 defines companies limited by
guarantee as ''a company having the liability of its members limited by the
memorandum to such amount as the members may respectively undertake
to contribute to the assets of the company in the event of its being wound
up.
• clubs, membership organisations, residential property management
companies, sports associations-PGA European Tour. Advanced PCB
Technologies Private

Statutory Companies:
• Life Insurance Corporation (LIC)
• Reserve Bank of India (RBI)
• Air India Corporation.
• Food Corporation of India (FCI)

Government company
• Government company means any company in which not less than
fifty-one per cent of the paid-up share capital is held by the Central
Government, or by any State Government or Governments, or partly
by the Central Government and partly by one or more State
Governments, and includes a company which is a subsidiary company
of such a Government company.
• Sec. 2 . (45)

Holding company
• Sec 2 ( 46) ―holding company, in relation to one or more other
companies, means a company of which such companies are
subsidiary companies;
• Sec 2 (46) ―holding company,
• TCS – Tata consultancy services are of TATA Group.
• Jio belongs to the Reliance Group.

Foreign company
• Sec 2(42) of the Companies Act, 2013 ('Act') defines a foreign
company as a body corporate or company that is incorporated
outside India, but- Has a business place in India, whether through an
agent or by itself, either physically or through electronic mode.

Memorandum of Association and Articles of
Association
• The memorandum and articles of association of a company are the
most important documents for the formation of a company and for its
functioning thereafter. The memorandum of association contains the
name, situation of registered office, objects, capital and liability
clauses. The articles are its bye-laws or rules and regulations that
govern the management and internal affairs and the conduct of its
business. Both the documents are required to be registered with the
Registrar of Companies at the stage of incorporation of the company.

CONTENTS OF MEMORANDUM
• The name of the company
• The State in which the registered office of the company is to be
situated
• OBJECT CLAUSE
• LIABILITY CLAUSE
• CAPITAL CLAUSE
• [SECTION 4 READ WITH SCHEDULE 1]

The name of the company
• Atlas Cycles (Haryana) Ltd. vs Atlas Products Pvt. Ltd. on …
• The Delhi High Court has restrained bicycle maker Atlas Products Pvt Ltd
from using 'Atlas' as a part of its corporate or trade name.
• "The Defendants (Arun Kapur and his company Atlas Products Pvt Ltd) are
retrained from using the word 'Atlas' in their corporate name/tradename in
respect of bicycles and bicycles parts," a bench comprising Justice
Vikramjeet Sen and Justice S L Bhayana said.
• The judgement came on a suit filed by leading bicycle manufacturer Atlas
Cycles (Haryana) Ltd challenging a single judge order which restrained Atlas
Products from using trade mark 'House of Atlas' in respect of bicycles but
allowed the latter to use the brand name 'Atlas' as its corporate name.

Ewing v Buttercup Margarine Co Ltd: CA 1917
• The plaintiff had an established retail business in Scotland and
Northern England. It traded under the name Buttercup Dairy
Company and was known as Buttercup Dairy or simply Buttercup. The
Defendant was a new company called the Buttercup Margarine
Company, the name having been chosen without knowledge of the
plaintiff. Its directors intended to make and deal in margarine

Ewing v Buttercup Margarine Co Ltd: CA 1917
• Buttercup Dairy Company, was held entitled to restrain a newly
registered company from carrying on business under the name of the
Buttercup Margarine Company Ltd on the ground that the public
might reasonable think that the registered company was connected
with his business.
• Margarine is a butter substitute made from vegetable oils or animal
fats.
• file:///C:/Users/acer/Downloads/MOA-DELHI%20METRO.pdf

ARTICLES OF ASSOCIATION
• ARTICLES OF ASSOCIATION
• Articles of association are the second document which has to be
registered along with the memorandum of articles of a company
• file:///C:/Users/acer/Downloads/MOA-DELHI%20METRO.pdf
•

• This document contains rules, regulations and bye-laws for the
general administration of the company. They may be described as the
internal regulation of the company governing its management and
embodying the powers of the directors and officers of the company
as well as the powers of the shareholders. They lay down the mode
and the manner in which the business of the company is to be
conducted. In framing Articles of Association care must be taken to
see that regulations framed do not go beyond the powers of the
company itself as contemplated by the Memorandum of Association
nor should they be such as would violate any of the requirements of
the Companies Act, itself. All clauses in the Articles ultra vires the
Memorandum or the Act shall be null and void

Contents of Articles of Association
• Share capital, different classes of shares
• Transfer of shares
• Alteration of share capital
• Borrowing power of the company
• Rules regarding meetings
• Voting rights of members
• Accounts and audit
• Directors, their appointment and remuneration
• Common seal
• Winding Up.

• According to section 5 of the Companies Act, 2013, articles of a
company contain the regulations for management of a company

DISTINCTION BETWEEN ARTICLES AND
MEMORANDUM
• 1. It is charter of a company indicating nature of its business & capital. It also defines the
company’s relationship with outside world 1. Articles are regulations for the internal
management of the company and are subsidiary to the memorandum.
• 2. It defines the scope of the activities of the company, or the area beyond which the
actions of the company cannot go. 2. They are the rules for carrying out the objects of
the company as set out in the Memorandum.
• 3. It, being the charter of the company, is the supreme document. 3. They are
subordinate to the Memorandum. If there is a conflict between the Articles and the
Memorandum, provisions of Memorandum will always prevail.
• 4. Every company must have its own Memorandum 4. Now under the Companies Act, it
is necessary for all types of companies to have articles.
• 5. Any act of the company which is ultra vires the Memorandum is wholly void and
cannot be ratified even by the whole body of shareholders. 5. Any act of the company
which is ultra vires the articles can be confirmed by the shareholders if it is intra vires the
memorandum.

Doctrine of Indoor Management
• The Doctrine of indoor management is a presumption on the part of
the people dealing with the company that the internal requirements
with regard to the articles of association and memorandum of
association have been complied with. The outsiders dealing with the
company are entitled to assume that as far as the internal
proceedings of the company are concerned, everything has been
regularly done. They are presumed to have read incorporation or
public documents of the company which are submitted to ROC. They
can presume that everything is being done regularly

• There are various principles in the corporate world that help
determine the relationship which ensures the safety of various
stakeholders in the company in the transactions that they undertake.
The doctrine of indoor management is one such principle

• The doctrine of indoor management follows from the doctrine of
‘constructive notice’ laid down in various judicial decisions. The
hardships caused to outsiders dealing with a company by the rule of
'constructive notice’ have been sought to be softened under the
principle of ‘indoor management’. It affords some protection to the
outsiders against the company.
• The doctrine of constructive notice protects company against
outsiders whereas the doctrine of indoor management protects
outsiders against the actions of company.

• The doctrine helps protect external members from the company and
states that the people are entitled to presume that internal
proceedings are as per documents submitted with the Registrar of
Companies.
Whereas the doctrine of constructive notice protects a company
against outsiders, the doctrine of indoor management protects
outsiders against the actions of a company,.
• The person entering into a transaction with the company only needed
to satisfy that his proposed transaction is not inconsistent with the
articles and memorandum of the company.

Royal British Bank V. Turquand
• This doctrine was laid down in the case of Royal British Bank V.
Turquand. The directors of the company borrowed some money from
the plaintiff. The article of company provides for the borrowing of
money on bonds but there was a necessary condition that a
resolution should be passed in general meeting.

Royal British Bank V. Turquand
• Now in this case shareholders claims that as there was no such
resolution passed in general meeting so company is not bound to pay
the money. It was held that the company is bound to pay back the
loan. As directors could borrow but subjected to the resolution, so
the plaintiff had the right to infer that the necessary resolution must
have been passed.
It was held that Turquand can sue the company on the strength of the
bond. As he was entitles to assume that the necessary resolution had
been passed. Lord Hatherly observed- “Outsiders are bound to know
the external position of the company, but are not bound to know its
indoor management.”

Doctrine of constructive notice
• The doctrine of constructive notice protects company against
outsiders whereas the doctrine of indoor management protects
outsiders against the actions of company. According to this doctrine,
persons dealing with the company need not inquire whether internal
proceedings relating to the contract are followed correctly

Mahoney v East Holyford Mining Co
• Mahoney v East Holyford Mining Co. In this case; it was contained in
the company’s article that a cheque should be signed by 2 of the 3
directors and also by the secretary. But in this case the director who
signed the cheque was not properly appointed. The court said that
that whether director was properly appointed or not it comes under
the internal management of the company and the third party who
receives cheque were entitled to presume that the directors had been
properly appointed, and cash cheques.

Doctrine of constructive notice
•
Shareholders, for example, need not enquire whether the necessary
meeting was convened and held properly or whether necessary
resolution was passed properly,
• Shareholders, for example, need not enquire whether the necessary
meeting was convened and held properly or whether necessary
resolution was passed properly

DOCTRIN OF CONSTRUCTIVE NOTICE
• It is generally presumed that every person dealing with the company is
presumed to have read the memorandum and articles of association and
understood them in their true perspective. This is known as doctrine of
constructive notice.
• Constructive notice is implied or indirect notice, which is not received in
reality but in the eyes of law it is been served.
• Anybody who is interested in the deal with the company should read all the
particulars, if any problems arises after dealing with the company you
cannot say that you have not been told earlier it is the duty of the outsider
to read the memorandum or articles of that particular company in which
you are dealing.

DOCTRIN OF CONSTRUCTIVE NOTICE
• Doctrine of constructive notice works in the favor of the company not the
outsiders.
• So if any mischief happens then company is not liable for that as in the
eyes of law it is the presumption of the knowledge before dealing with the
company.
• If any problem afterward arises he or she cannot say that he was not
known about this or that, he or she has not been told about this provision
or clause so to eliminate the danger which is on the outsider to the
company he or she should must gone through it and read the provisions
and the memorandum and articles of the company properly to not to get
trapped in problem afterwards and to make a right decision and contract
with the company should read the memorandum and articles of the
company.

Kotla Venkataswamy v. Chinta Ramamurthy AIR
1934 Madras 579.
• In the article of the company there was written that if the company’s
property will be mortgaged (mortgage means loan on immovable
property) then in the articles there was a provision that the company
if it mortgage the company’s property then in the mortgage deed
there will be requirement of three signatures that is of the managing
director, working director and the company’s secretary.

1934 Madras 579.
• These three people’s signature is mandatory that is what the articles
provision is about of that company. But in reality what happens there
was only two signatures on the mortgage deed which is of secretary
and working director and there was no signature of the company’s
managing director. And the plaintiff (lady) accepted the deed which
was only executed by the secretary and director.

1934 Madras 579.
• Then Court held that he mortgage deed was invalid due to only two
signatures over it, but the plaintiff cannot claim under this deed. As it
was presumed that the lady was known about that fact that in the
articles this provision of three signatures is there so, court held that it
is been presumed that you have gone through the articles of the
company or read the articles before dealing with the company.
And hence she was not entitled to claim from the company. She was
liable for her own wrong that she haven’t gone through the articles of
the company. Company is not made liable. So, from this case we have
correlated the Doctrine Of Constructive Notice.

Dehra Dun Mussorie Electric Tramway Co. Ltd
v. Jagmandar Das AIR 1932 All 141
• The articles of the company provided that the directors could
delegate all the powers except the power to borrow but the
managing agents took the overdraft (that is cash is less but
withdrawal is more) without the approval of the board .

Rama Corporation v. Proved Tin and General
Investment Co. (1952)
• In this case, the plaintiff’s companies director formed an agreement
with the director of the defendant company which would enable
them to subscribe to funds that can be used by them for finance the
sale of goods produced by another third company. The director of the
plaintiff company gave a cheque to the defendant’s company. But as
according to articles of association of the defendant’s company say
that only a director to whom the power of the board has been
delegated only he can collect the cheque on behalf of the company.
The plaintiff didn’t read the articles of the defendant’s company and
was not aware of this clause.

Contracts
• Preliminary Contracts/Pre-incorporation contracts .
• Contracts made before the incorporation of company is called pre-
incorporation contracts.
• The contracts after the incorporation should be within the purview of
Memorandum of Association.

Contracts
• A company being an artificial person can contract only through its
agents. A contract will be binding on a company only, if it is made on
its behalf by any person acting under its authority, express or implied.
The powers of the company are defined by its Memorandum of
Association and any contract made beyond the limits laid down in the
Memorandum of Association, will be ultra vires to the company and
void even if all the shareholders assent to it.

Contracts
• When the company is being formed, the promoters, purporting to act
on behalf of the company, enter into contracts for the purchase of
property, or for securing the services of managers or other experts.
Such contracts are obviously made before the incorporation of the
company.

Pre-incorporation Contracts
• Although a contract made before the company’s incorporation cannot
bind the company, it is not wholly denied of legal effect. It takes effect
as a personal contract with the persons who purport to contract on
the company’s behalf and they are liable to pay damages for failure to
perform the promises made in the company’s name

Contracts
• Even if the company takes some benefit from a contract purported to
have been made before its formation, the contract is not binding on
the company. The promoters alone, therefore, remain personally
liable for any contract they purport to make on behalf of the
company, unless the company enters into the contract in terms of
such agreement after incorporation. A company cannot ratify a pre-
incorporation contract

MEANING AND NATURE OF A SHARE
• Section 2(84) of the Act defines a share as “a share in the share
capital of a company

SHARE
• A share is a right to a specified amount of the share capital of a
company, carrying with it certain rights and liabilities while the
company is a going concern and in its winding up.
• A share is the interest of a shareholder in the company measured by a
sum of money, for the purposes of liability.
• A share is a right to participate in the profits made by a company

SHARE
• Section 43 of the Companies Act, 2013 permits a company limited by
shares to issue two classes of shares, namely:
• (a) Equity share capital— (i) with voting rights; or (ii) with differential
rights as to dividend, voting or otherwise in accordance with such
rules as may be prescribed. Equity share capital may be with similar
rights or equity shares with different voting rights as described in Rule
4 of Companies (Share Capital and Debentures) Rules, 2014.
• (b) Preference Share Capital.

Meaning and definition of prospectus.
• a prospectus is an invitation issued to the public to offer for
purchase/subscribe any securities of the company.
• (a) There must be an invitation to the public;
• (b) The invitation must be made “by or on behalf of the company or
in relation to an intended company”;
• (c) The invitation must be “to subscribe or purchase”;
• (d) The invitation must relate to any securities of the company

Matters to be stated in the prospectus
• Names and addresses of the registered office of the company,
company secretary, Chief Financial Officer, auditors, legal advisers,
bankers, trustees, if any,
• Dates of the opening and closing of the issue, and declaration about
the issue of allotment.
• A statement by the Board of Directors about the separate bank
account where all monies received.
• Details of directors including their appointments and remuneration
• capital structure of the company

Debentures
• Debentures constitute a loan.
• Debenture holders are creditors.
• Debenture holders do not have any voting right.

Board of Directors.
• The company is an artificial person and is managed by the human
beings. The human who runs it are known as Board of Directors.
Directors acting collectively are known as Board. The directors play a
very important role in the day to day functioning of the company. It is
the board, who is responsible of the company’s overall performance.
• Members of the Board of directors are known as directors

Board of Directors
• The directors formulate policies and establish organisational set up
for implementing those policies and to achieve the objectives as
contained.

Board of Directors
• Section 149(1) of the Companies Act, 2013 requires that every
company shall have a minimum number of 3 directors in the case of a
public company, two directors in the case of a private company, and
one director in the case of a One Person Company. A company can
appoint maximum 15 fifteen directors

Number of directors
• Minimum number of directors Public Company – 3 Directors
• Private Company - 2 directors
• One Person Company (OPC) - 1 Director

Number of directorships
• Maximum limit on total number of directorship has been fixed at 20
companies and the maximum number of public companies in which a
person can be appointed as a director shall not exceed ten.

Indian Resident Director
• The provision relating to appointment of Indian resident director are
contained in section 149 (3) of the Companies Act, 2013. i.e. every
company shall have at least one director who has stayed in India for a
total period of not less than 182 days in the previous calendar year.
Companies incorporated after 30.9.2014 need to have the resident
director from the date of incorporation itself

Woman Director
• As per the Companies Act, 2013, it is mandatory to appoint at least
one woman director as a board member in certain types of
companies.
• Section 149(1) of the Companies Act :Woman Director
• The Companies Act 2013 makes it mandatory for listed companies to
appoint at least one woman director. In case of non-compliance, the
erring company will be fined ₹10,000. If no amendments are made,
there will be a further fine of ₹10,000 per day till it continues.

Cyrus Investments Pvt. Ltd. & Anr. v. Tata Sons
Ltd.& Ors
• Following Ratan Tata's retirement, Cyrus Mistry was named Deputy
Chairman, then in December 2012, Cyrus Mistry was named
Chairman of Tata Sons.

Ltd.& Ors
• Cyrus Mistry was removed from his position as Executive Chairman of
Tata Sons Limited on October 24, 2016, because the company's
Majority Shareholders and Board of Directors lost faith in him as
Chairman.
N Chandrashekaran, the former TCS Chief Executive Officer and
Managing Director, is named Chairman of Tata Sons Limited.
• Cyrus Mistry was terminated from the board of directors of Tata Sons
by a vote of the shareholders at a general meeting.
• 2017 SCC OnLine NCLAT 261

Reason for dismissal
• The reason given for Cyrus Mistry's dismissal was that he did not
perform his duties properly.
Cyrus Mistry filed a petition with the National Company Law Tribunal

Ltd.& Ors
• In this case, Cyril Mistry joined the board of the Shapoorji Pallonji
group and became the largest stakeholder of TATA and Sons in the
year 1991.
In 1994, he was named a director of the company. Around 80% of the
shares in TATA Sons are owned by his firm.
Cyrus Mistry joined the Tata Sons Board of Directors in September
2006, following his father's retirement from the TATA Group in
November 2011.

Ltd.& Ors
• Following that, Cyrus Mistry lodges a complaint with the National
Company Law Tribunal (NCLT) in Mumbai, alleging persecution of
minority shareholder rights and operational mismanagement by Tata
Sons
• Ratan Tata's next move was to write a letter to the Prime Minister in
which he mentioned the termination of the group's chairman.

Ltd.& Ors
• LAW APPLIED
• 241. Application to Tribunal for relief in cases of oppression, etc.—
• 242. Powers of Tribunal.— (1) If, on any application made under section
241, the Tribunal is of the opinion—
• 244 waive all or any of the requirements specified in clause (a) or clause (b)
so as to enable the members to apply under section 241.
• Sections 241, 242 and 244 of the Companies Act, 2013.

Ltd.& Ors
• The reason given for Cyrus Mistry's dismissal was that he did not
perform his duties properly.

Ltd.& Ors
• On July 9, 2018, the NCLT rejected the case, finding no validity in
accusations of minority shareholder persecution or mismanagement
on Ratan Tata's or Tata Trusts' behalf

Judgement
On December 18, 2019, the National Company Law Tribunal reinstated Cyrus Mistry as chairman of TATA Sons and gave TATA a four-week period to file an appeal against the NCLAT judgement.
The Supreme Court then issued an injunction against the NCLAT's order, stating that it has gaps and several flaws. The Supreme Court ordered that the matter be thoroughly investigated.
Cyrus Mistry won the case because he demonstrated that he had done nothing wrong and that his dismissal was unconstitutional.

Judgement
• According to the company's Articles of Association, the chairman can
only be removed by the board members if he is found to have
committed any fraud, been involved in any kind of internal
mismanagement, or been found disloyal to the company; however,
Cyrus Mistry has not met any of the above conditions.
• Finally, the National Company Law Appellate Tribunal (NCLAT) rules
that Cyrus Mistry's removal was unconstitutional.

Supreme Court-Judgement
• On March 26, 2021, the Supreme Court issued its decision in the Tata-Cyrus
Mistry case. The verdict came down in favour of the Tata Group. All
accusations of oppression and mismanagement levelled against Tata Sons
Limited by Cyrus Mistry were rejected by the bench. The decision was
made by a Supreme Court bench led by Chief Justice S A Bobde Justice V
Ramasubramanian and Justice A S Bopanna. The Supreme Court has stayed
the National Company Law Appellate Tribunal's (NCLAT) decision to restore
Cyrus Mistry as executive chairman of Tata Sons on December 18, 2019.
• Hence, The Supreme Court has dismissed the National Company Law
Appellate Tribunal's (NCLAT) decision to restore Cyrus Mistry as executive
chairman of Tata Sons on December 18, 2019.

Mathew vs Nadukkara Agro Processing Co
2002 108 CompCas 130 Ker
• The petitioner is a shareholder of the first respondent company and
he was also a candidate for election to the Director Board of the
company. The Annual General Meeting (AGM) of the first respondent
was fixed to 31.5.2001. Here it must be noted that 31.5.2001 is the
last date for convening the Annual General Meeting of the first
respondent company under the provisions of the Companies Act.

2002 108 CompCas 130 Ker
• The first respondent published a notice in Mathrubhoomi daily dated
30.5.2001 stating that "Due to unavoidable reasons, it has been
decided to postpone the Annual General Meeting of the Company, to
be held on 31.5.2001. The new date of holding the Annual General
Meeting will be intimated to all the shareholders shortly". The
petitioner challenges the said notice in this Original Petition. He also
seeks for a direction to the respondents 1 to 30 to hold the Annual
General Meeting of the first respondent on 31.5.2001 itself.

• Admittedly the meeting which was proposed to be conducted on
31.5.2001 was the first annual general meeting of the first
respondent company. As per the provisions of the S. 166 of the
Companies Act there is an obligation on the part of the company to
convene the first annual general meeting at the latest by the end of
18 months. Admittedly 31.5.2001 was the last date for convening the
first annual general meeting of the first respondent company as per
the said section

• The counsel for the first respondent could not bring to my notice any
provisions in the Companies Act, which would enable the company to
defer the convening of the said meeting to a date beyond the time
specified in S. 166 of the Companies Act.
• In such circumstances, the first respondent was not justified in not
complying with the statutory requirements under S. 166 of the
Companies Act.

• Court directs the first respondent company to convene the annual
general meeting of the first respondent company within a period of
one month from today. The annual general meeting as directed above
must be held on the basis of the list of shareholders available as on
31.5.2001. No fresh nominations to the Director Board will be
entertained.

Shree Meenakshi Mills Company Limited v. Astt.
Registrar of Joint Stock Companies Madurai AIR
1938 Mad. 640
• In the case of Shree Meenakshi Mills Company Limited v. Astt.
Registrar of Joint Stock Companies Madurai AIR 1938 Mad. 640, the
annual general meeting of a company called in December 1934 was
adjourned and held in March 1935. The next annual general meeting
was held in January, 9 1936, no other meting being held in 1935.
• The company was prosecuted for failure to call the annual general
meeting in 1935. It was held that there should be one meeting per
year.

Shree Meenakshi Mills Company Limited v. Astt.
Registrar of Joint Stock Companies Madurai AIR
1938 Mad. 640
• The meeting on 31st March, 1935, was not a different meeting from
the one which began on 30th December, 1934; it was the same
meeting. Section 76 required that in 1935 a separate and distinct
meeting should be held.
• The conviction of the company is therefore correct.
• (1938) 1 MLJ 856

Lachmi Narain and Others vs Emperor
AIR 1920 All 357
• In this case a number of directors of the Kharidar Kapra Company, Limited, Cawnpore, were tried
for an offence u/s 76 of the Indian Companies Act, and convicted and ordered to pay a fine. Under
that section a general meeting of every company shall be held once at the least in every year, and
not more than 15 months after the holding of the last preceding meeting, and, if not so held, the
Company and every officer of the Company who is knowingly a party to the default shall be liable
to a fine. The last ordinary general meeting of the Company was held on the 6th of February
1916. There was no other general meeting of the Company within 15 months from that date. A
written statement was shown to the Court but returned on the ground that it was not necessary
to file it. Referring, however, to that written statement the Magistrate holds that the directors
admit that technically an offense u/s 76(1) of the Companies Act has been committed. He,
therefore, apparently has not gone into the other facts of the case. Reading the written statement
it seems to me that there was no admission of any offence u/s 76. I find as a matter of fact that an
extraordinary general meeting of the Company was held on the 10th of April 1919. This was
within 15 months of the last general meeting. There is nothing in Section 76 which differentiates
an extraordinary general meeting from a general meeting. It seems to me, therefore, that no
offence u/s 76 has been made out. I, therefore, allow the application, set aside the conviction and
direct that the fines, if paid, be refunded. I order the book to be returned.

Punishment for default in complying with
provisions of sections 96 to 98
• sec. 99. If any default is made in holding a meeting of the company in
accordance with section 96 or section 97 or section 98 or in
complying with any directions of the Tribunal, the company and every
officer of the company who is in default shall be punishable with fine
which may extend to one lakh rupees and in the case of a continuing
default, with a further fine which may extend to five thousand rupees
for every day during which such default continues.

DECLARATION AND PAYMENT OF DIVIDEND
• Declaration of dividend - S. 123.
• Unpaid Dividend Account 124.
• Where a dividend has been declared by a company but has not been
paid or claimed within thirty days from the date of the declaration to
any shareholder entitled to the payment of the dividend, the
company shall, within seven days from the date of expiry of the said
period of thirty days, transfer the total amount of dividend which
remains unpaid or unclaimed to a special account to be opened by
the company in that behalf in any scheduled bank to be called the
Unpaid Dividend Account

• Investor Education and Protection Fund. – S. 125
• Investor Education and Protection Fund Authority(IEPFA)
• The IEPFA Authority is entrusted with the responsibility of
administration of the Investor Education Protection Fund (IEPF),
making refunds of shares, unclaimed dividends, matured
deposits/debentures etc. to investors, promoting awareness among
investors, and protecting the interests of the investors.
• https://www.iepf.gov.in/content/iepf/global/master/Home/Home.ht
ml

• Punishment for failure to distribute dividends - S. 127.
• Every director of the company shall, if he is knowingly a party to the
default, be punishable with imprisonment which may extend to two
years and with fine which shall not be less than one thousand rupees
for every day during which such default continues and the company
shall be liable to pay simple interest at the rate of eighteen per cent.
per annum during the period for which such default continues:

K. Madhava Nayak vs Popular Bank Ltd. (In ... on 29
October, 1968
Equivalent citations: 1969 39 CompCas 711 Ker
• The Directors of the Company did not exercise adequate control in
the matter of advances of the Company's funds, and in consequence,
Respondents 9 and 10 advanced large amounts to various parties
without taking adequate securities for the advances and from whom
it was not possible to recover the whole or a substantial portion of
the advances

K. Madhava Nayak vs Popular Bank Ltd. (In ... on 29
October, 1968
Equivalent citations: 1969 39 CompCas 711 Ker
In the face of the above provision in Ext. D39, and on the authorities, there can be little doubt that a declaration of dividend
otherwise than out of the pro* fits, and at a time when the Bank was, to the knowledge of the Directors, working at a loss, is
an act ultra vires the Directors It was a case of mis-application of the Bank's capital resulting in loss to the Bank.

Appointment of Auditors
• The Board of Directors of a company shall appoint an individual or
firm as the first auditor of a company, other than a Government
company, within thirty days from the date of registration of the
company. The appointment of first auditor shall be ratified by
members at the first annual general meeting. The auditor so
appointed shall hold the office from the conclusion of that meeting
till the conclusion of sixth annual general meeting and thereafter till
the conclusion of every sixth meeting. The appointment of auditors
shall be ratified by members at every annual general meeting.

Appointment of Auditors
• In the case of failure of the Board to appoint the first auditor, it shall
inform the members of the company, who shall within ninety days at
an extraordinary general meeting appoint such auditor and such
auditor shall hold office till the conclusion of the first annual general
meeting.

RE-APPOINTMENT OF AUDITOR
• A retiring auditor may be re-appointed at an annual general meeting,
if—
• (a) he is not disqualified for re-appointment;
• (b) he has not given the company a notice in writing of his
unwillingness to be re-appointed; and
• (c) a special resolution has not been passed at that meeting
appointing some other auditor or providing expressly that he shall not
be re-appointed.

APPOINTMENT OF AUDITOR IN GOVERNMENT
COMPANY- Section 139(5), 139(7), 139(8), 139
(11)
• The First auditor shall be appointed by the Comptroller and Auditor
General within 60 days from the date of incorporation

ELIGIBILITY & QUALIFICATIONS OF AUDITOR
• Section 141 (1) & (2) of the Act prescribed the following eligibility and
qualifications of auditor which are as under:-
• (i) Only a Chartered Accountant (individual) or a firm where majority
of partners practicing in India are Chartered Accountants can be
appointed as auditor.

Mandatory Rotation of Auditors Section 139
(2) and Rule 5
• The concept of rotation of auditors shall not apply to one person
companies and small companies.
• All the companies mentioned above shall not appoint or re-appoint
an individual as an auditor of the company for more than 1 term of 5
consecutive years. An individual auditor, who has completed his term
of 5 consecutive years, shall not be eligible for re-appointment as
auditor in the same company for 5 years from the date of completion.

S. Ganesan vs A.K. Joscelyne
• This is a reference under Section 21(1), Chartered Accountants
Act with respect to a complaint against one Mr. A. K. Joscelyne, who is
a partner of Messrs. Lovelock and Lewes, a firm of Chartered
Accountants of Calcutta. The Council's finding against him is that in
certifying a Profit and Loss Account of a company, called the Deccan
Sugar and Abkhari Co., Ltd.. for the year ending on 31-12-1946, as
correct and prepared in accordance with law, he has been guilty of
misconduct of the varieties mentioned under items (o) and (p) of the
Schedule to the Act

• It appears that from 1946 to 1952, Messrs. Lovelock and Lewes were
appointed auditors of the Deccan Sugar and Abhkari Co., Ltd., in each
successive year; The work was handled in different years by different
partners of the firm.

• . It will be seen that the amount shown in the Profit and Loss Account
as paid to the Managing Agents on account of their remuneration
included only the sum paid to them on the monthly salary basis and
the sum due to them as percentage of the profits earned by the
company. The sum of Rs. 35,400/-, paid to them as selling
commission was not shown as a part of the remuneration paid to
them as Managing Agents. Nor was that sum shown on the right-
hand side of the Profit and Loss Account as an item of expenditure,
either separately or as included in the selling expenses

• On 18-1-1954, one S. Ganesan, who was a shareholder of the Deccan
Sugar and Abkhari Co., Ltd., addressed a complaint to the Institute of
Chartered Accountants. His charge against the Auditors was that they
had misled the share-holders by not reporting to them the non-
disclosure of the remuneration paid to the Managing Agents

• On receipt of that complaint, the Secretary of the Institute addressed
the usual enquiry to Messrs. Lovelock and Lewes, requesting them to
inform the Institute which of their members had been concerned
with the certification of the accounts complained of

• negligence and imprudence in acting on his own responsibility
• respondent acted in this case with reasonable care
• AIR 1957 Cal 33

Meaning of ‘Oppression’
• “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.”

Remedies
• Sec. 241 of the Companies Act, 2013 provides that, any member of a
company who complains regarding any oppression or
mismanagement being occurred in a company, may apply to the
Tribunal. Moreover, even the Central Government, if of the opinion
that the affairs of the company are being conducted in a manner
prejudicial to the public interest, then it may itself apply to the
Tribunal for an order.

Winding up of the Companies
• Winding up is the process of bringing an end to the existence of so
called artificial person viz. Company.
• The statutory provisions of the winding up and its procedure are dealt
under Chapter XX Sections 270 to 378 of the Companies Act, 2013
(substitute of the old Companies Act, 1956).

• The person appointed for administering the assets and liabilities is
called ‘Liquidator’. In case of compulsory winding up, the liquidator is
appointed by the Tribunal under section 275 of the Act; or, in case of
voluntary winding up, the liquidator is appointed by the company
itself under section 310 of the Act.
Winding up is also referred as ‘Liquidation’. On liquidation, the
company’s name is deleted from the list of companies by the Registrar
of companies and the same is published in the official gazette.

• Prof. Gower’s definition of winding up:-“Winding up of a company is a
process whereby its life is ended and its property administered for the
benefit of its creditors and members. An administrator, called
liquidator, is appointed and he takes control of the company, collects
its assets, pays its debts and finally distributes the surplus among the
members in accordance with their rights”.

Modes of Winding Up
• Section 270 of the Companies Act, 2013 provides for two modes of winding up,
• i.e.
• Winding up by Tribunal (i.e. compulsory winding up); or
• Voluntary winding up.
• Modes of Winding up
• Compulsory Winding up (i.e. By Tribunal)
• Voluntary Winding up-- Members Voluntary Winding Up-
• Creditors Voluntary Winding up

Compulsory winding up
• Petition is filled before the Tribunal
• either by the company, or
• by any creditor(s),
• or by contributory, or by
• registrar, or
• any person authorised by the Central Government on that behalf
(Sec. 272).

Compulsory winding up
• In this case the Tribunal, at the time of passing the order of winding
up, appoint an official liquidator or the liquidator from the panel
maintained by the Central Government (Sec.275).

• No petition is filled before the Court. In this, the company passes the
special resolution in its meeting; or it passes a general resolution in
case of expiry of the period of its duration (Sec. 304).

Lee v. Lee’s Air Farming Ltd. (1961) A.C. 12 (P.C.), [Autosaved].pptx

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