Legal and Business Environment Online Learning

Legal and Business Environment
18MBA24
UNIT-3
OPPRESSION, MISMANAGEMENT AND INVESTIGATION
4/17/2020Prof. Kiran Kumar M., East West Institute of Technology., Dept. of MBA.,
1

LEARNING OUTCOME
 Meaning of Oppression, Mismanagement
 Understanding Prospectus and Its Contents.
 Learning about the Types of Prospectus.
 Understanding Members and Shareholders – Companies act
2013.
 Learning about Prevention of Oppression and Mismanagement.
2

MEANING
 Oppression: According to Lord Keith,” Oppression means, lack of
morality and fair dealings in the affairs of the company which
may be prejudicial to some members of the company
 Mismanagement: The term mismanagement refers to
the process or practice of managing ineptly, incompetently, or
dishonestly.
3

PROSPECTUS
 Prospectus: Section 2(70) of the Companies Act, 2013 defines a
prospectus as ““A prospectus means Any documents described or issued
as a prospectus and includes any notices, circular, advertisement, or
other documents inviting deposit from the public or documents inviting
offer from the public for the subscription of shares or debentures in a
company.”
A document shall be called a prospectus if it satisfy two things:
 1. It invites subscription to shares or debentures or invites deposits.
 2. The aforesaid invitation is made to the public.
4

CONTENTS OF A PROSPECTUS
 1. Address of the registered office of the company.
 2. Name and address of company secretary, auditors, bankers,
underwriters etc.
 3. Dates of the opening and closing of the issue.
 4. Declaration about the issue of allotment letters and refunds within the
prescribed time.
 5. A statement by the board of directors about the separate bank account
where all monies received out of shares issued are to be transferred.
 6. Details about underwriting of the issue.
 7. Consent of directors, auditors, bankers to the issue, expert’s opinion if
any.
 8. The authority for the issue and the details of the resolution passed
therefore.
5

CONTENTS OF A PROSPECTUS Cont.
 9. Procedure and time schedule for allotment and issue of securities.
 10. Capital structure of the company.
 11. Main objects and present business of the company and its location.
 12. Main object of public offer and terms of the present issue.
 13. Minimum subscription, amount payable by way of premium, issue of
shares otherwise than on cash.
 14. Details of directors including their appointment and remuneration.
 15. Disclosure about sources of promoter’s contribution.
 16. Particulars relation to management perception of risk factors specific to
the project, gestation period of the project, extent of progress made in the
project and deadlines for completion of the project.
6

7

8

TYPES OF PROSPECTUS
 Shelf Prospectus: Shelf prospectus can be defined as a prospectus that has
been issued by any public financial institution, company or bank for one or
more issues of securities or class of securities as mentioned in the
prospectus. When a shelf prospectus is issued then the issuer does not need
to issue a separate prospectus for each offering he can offer or sell securities
without issuing any further prospectus.
 Red herring prospectus: Red herring prospectus is the prospectus which
lacks the complete particulars about the quantum of the price of the
securities. A company may issue a red herring prospectus prior to the issue
of prospectus when it is proposing to make an offer of securities. This type of
prospectus needs to be filed with the registrar at least three days prior to the
opening of the subscription list or the offer.
9

TYPES OF PROSPECTUS Cont.
 Abridged Prospectus: The abridged prospectus is a summary of a
prospectus filed before the registrar. It contains all the features of a
prospectus. An abridged prospectus contains all the information of the
prospectus in brief so that it should be convenient and quick for an
investor to know all the useful information in short.
 Deemed Prospectus: When any company to offer securities for sale to
the public, allots or agrees to allot securities, the document will be
considered as a deemed prospectus through which the offer is made to
the public for sale. The document is deemed to be a prospectus of a
company for all purposes and all the provision of content and
liabilities of a prospectus will be applied upon it.
10

MEMBERS AND SHAREHOLDERS
BASIS FOR
COMPARISON
MEMBER SHAREHOLDER
Meaning A person whose name is entered in
the register of members of a
company, is the registered member
of the company.
The person who owns the shares
of a company is known as
shareholder.
Defined in Section 2 (55) Not defined
Share Warrant The holder of a share warrant is not
a member.
The holder of a share warrant is a
shareholder.
Company Every company must have a
minimum number of members.
The company limited by shares
can have shareholders.
Memorandum The person who signs the
memorandum of association with
the company becomes a member.
After signing the memorandum, a
person can be a shareholder only
when the shares are allotted to
him.
11

PREVENTION OF OPPRESSION AND
MISMANAGEMENT
 Sections covered under Prevention of Oppression and Management of
Companies Act, 2013
 Section 241: Application to Tribunal for relief to the Tribunal
 Section 242: Powers of Tribunal
 Section 243: Consequences of termination or modification of certain
agreements
 Section 244: Right of members to apply for Tribunal
 Section 245: Class Action
12

18MBA24
Online Learning Session-2
UNIT-3
13

LEARNING OUTCOME
 Understanding Company law Board and Its Importance.
 Learning about Role and Powers of the Company Law
Board and Central Government.
 Understanding Meeting and Its types.
 Learning the Procedure of Calling for a Meeting.
 Company Resolution and Its kinds.
 Understanding Proxies.
14

COMPANY LAW BOARD & ITS
IMPORTANCE
 The Company Law Board (CLB) is a quasi-judicial body, exercising
equitable jurisdiction, which was earlier being exercised by the High
Court or the Central Government. The Board has powers to regulate its
own procedures. The Company Law Board has framed “Company Law
Board Regulations 1991” prescribing the procedure for filing the
applications/petitions before it.
 There was a specific objective behind section 397/398 of the Companies
Act, 1956/2013 and a great responsibility is cast upon the Company
Law Board to protect the interests of the minority shareholders, to put
an end to the matters complained of and to regulate the affairs of the
Company.
15

ROLE THE COMPANY LAW BOARD &
CENTRAL GOVT.
 Section 397/398 of the Companies Act, 1956/2013 deals with oppression and
mismanagement and the protection to the minority against the majority.
 The law makers could not have expected that a situation will come where a majority are
harassed or oppressed by the minority. Sections 397/398 and other connected provisions of
companies act, 1956/2013 meant to provide relief to the minority shareholders against the
majority when minority are oppressed or the property of the company is mismanaged.
 A minority shareholder who has invested so much in the company can not be ignorant of the
acts of the majority to oppress him or mismanage the company’s property. At the same time,
the promoters or the majority requires protection against the minority when they resort to
illegality and try to oppress the majority.
16

POWERS OF THE COMPANY LAW
BOARD & CENTRAL GOVT.
 Under Secs. 397 and 398, the Company Law Board'/Tribunal has all the necessary powers to end
oppression as well as to prevent mismanagement. Sec. 402 further lays down that an order under Sec. 397
or 398 may provide for—
 The regulation of the conduct of the company’s affairs in future.
 The purchase of the shares of any members of the company by other members or by the company.
 In the case of purchase of shares by the company as aforesaid, the consequent reduction and its share
capital.
 The termination, setting aside or modification of any agreement between the company and its management
(i.e., the managing director, any other director, and the manager) 1. Existing, 2. Proposed
 The termination, setting aside or modification of any agreement between the company and any third
persons provided due notice to the party concerned has been given and his consent obtained.
 The setting aside of any fraudulent preference made within 3 months before the date of the implication. The
period of 3 months should be a clear period of 3 months between the date of transfer and that of
application.
 Any other matter for which, in the opinion of the Tribunal (National Company Law Tribunal), it is just and
equitable that that provision should be made (Sec. 402).
17

MEETINGS
 In the case of Sharp vs. Dawes (1971), the meeting is defined as “An
assembly of people for a lawful purpose” or “the coming together of at
least two persons for any lawful purpose.”
 According to P.K. Ghosh “Any gathering, assembly or coming together
of two or more persons for the transaction of some lawful business of
common concern is called meeting.”
 According to K. Kishore, “A concurrence or coming together of at least
a quorum of members by previous notice or mutual agreement for
transaction business for a common interest is meeting.”
18

PURPOSES OF MEETINGS:
A meeting is called to discuss various issues of interest. Such issues vary
considering the purpose of an entity or concern. The following is the general
purposes to call a meeting.
 Meeting is held to notify the vision, mission or objective of any organization.
 Meeting is called to announce the performance or progress of any activity or
work.
 Meeting is held for reviewing the progress of any project or program.
 Meeting is called to share dialogue with the members of the organization or with
the people of a society.
 Meeting is held to announce any innovation, development or changes related to
product, service or activities.
 Meeting are called to celebrate any success and to share the achievement with
the members who are entitled.
19

TYPES OF MEETING
COMPANY MEETING
SHARE
HOLDERS
MEETING
Statutory
Meeting
Annual
General
Meeting
Extra-Ordinary
General
Meeting
DIRECTORS
MEETING
Board
Meeting
Committee
Meeting
SPECIAL
MEETING
Class
Meeting
Creditor’s
Meeting
20

STATUTORY MEETING
DEFINITION:
 Statutory meeting is the first meeting of the members of a public company.
 It is held once in the life of a public company that limited by shares.
 Statutory means legal, so this meeting is totally based on law.
 Must be certified by at least two directors.
OCCASION:
 This meeting must be held not less than 1 month but before 6 months of obtaining
the certificate of commencement of business.
NOTICE OF MEETING:
 The directors will send a notice of the meeting to all the members of the company at
least 21 days before the meeting.
 And also send a copy of statutory report to the shareholders
21

THE PURPOSE OF STATUTORY
MEETING
 To win confidence
 To provide latest information's
 To discuss future plans
 To discuss statutory report ; total numbers of shares issued , total
receipts and total payments , cash received against shares allocated ,
details of the shares allocated.
22

ANNUAL GENERAL MEETING
DEFINITION:
 Every public company will hold Annual General Meeting of its members
every year.
 This meeting is to be call and held by the directors of the company.
 Mandatory for all type of company or for that matter.
OCCASION:
 The first annual general meeting must be held within 18 months from
the date of its incorporation.
 The next meeting must be held once in every calendar within 4 months
after closing its financial year.
23

PURPOSE OF ANNUAL GENERAL MEETING
 To receive and consider the Director’s and Auditors’ reports.
 To sanction or declaration of the dividend (if any) recommended by the
directors.
 To appoint, or re-appoint, the directors.
 To appoint, or re-appoint, the auditors and fix their remuneration.
24

EXTRAORDINARY GENERAL MEETING
DEFINITION:
 All general meetings other than annual general meeting and statutory meeting are
known as Extra-Ordinary General Meetings.
 This meeting is held on the special occasions or it can say in the emergency
situations when directors think that is necessary. For example; at the plan of merger.
OCCASION:
 This meeting is held on the special occasion and in the emergency situation.
NOTICE OF THE METING:
 The directors will send a notice of the meeting to all the members of the company at
least 21 days before the meeting.
25

DIRECTOR’S MEETING
 DEFINITION: A Board of Directors generally must conduct a Board Meeting to
make company’ decisions, frame the general policy of the company, directs its
affairs, appoints the company officers, and ensure that they carry out their
duties and recommend to the shareholders regarding distribution of dividend.
 Not provided in the act.
 Usually – director may at any time summon a meeting of the directors.
 Board of Directors will hold the responsibility for the overall success and
failure of the corporation
26

BOARD OF DIRECTORS MEETINGS
 At Least One Meeting in Every Three Months:
 The directors of a company exercise most of their powers in a joint
meeting called the meeting of the Board.
 In the case of every company, a meeting of the Board of Directors must
be held:
 (i) At least once in every three months, and
 (ii) At least four such meetings shall be held in every year. [Sec. 285]
27

COMMITTEES OF DIRECTORS
MEETINGS
 The Board of Directors may form certain committees and delegate some of its
powers to them. These committees should consist of only directors. The
delegation of powers to such committees is to be authorised by the Articles of
Association and should be subject to the provisions of the Companies Act.
 In a large company routine matters like Allotment, Transfer, Finance are
handled by sub-committees of the Board of Directors. The meetings of such
committees are held in the same way as those of Board Meetings.
28

CLASS MEETING & CREDITORS :
 Class Meetings: When the meeting of a particular class of shareholders takes
place such as preference shareholder meeting, it is known as class meeting.
Such a meeting can be attended only by that class of shareholders. The articles
define the procedure for calling such meeting. Such a meeting is called for the
alteration in the rights and privileges of the shareholders and for the purpose of
conversion of one class of shares into another.
 Meetings of Creditors: The meetings of creditors are called when the company
proposes to make a scheme for arrangement with its creditors.
 Section, 391 to 393 of the Companies Act not only give powers to the company to
compromise with the creditors but also lay down the procedure of doing so.
29

CREDITORS MEETING CONT..
 The directors or their appointed lower can invite this type of meeting.
 Moreover this type of meeting may be arranged by the order of the court. If
necessary to reconstruct or to dissolve or to any amalgamate the company to
preserve the rights of the creditor this type of meeting is invited by their proper
authoritative person.
 The creditors who will be present in the meeting or the presence of three fourth
credit holders of the total credit can take the decision and the court will give the
instruction on the basis of this decision and the creditors are bounded to abide
by the decision.
30

RESOLUTIONS
 Decisions of a company are made by resolutions passed by the
prescribed majority of the members present at the meetings or also
called the collective decision of the members in a general meeting.
There are 3 kinds Resolutions
 Ordinary Resolution
 Special Resolution
 Resolutions requiring special notice
31

ORDINARY RESOLUTIONS
 A resolution, which requires simple majority of the members entitled to
vote and voting in person, or where proxies are allowed, by proxy, is
called an ordinary resolution. Some of the Ordinary resolutions:
 Issue of shares at discount
 Alteration of share capital
 Adoption of statutory report
 Passing of annual accounts and B/S, along with reports of board of
directors and auditors.
 Appointment of auditors and their remuneration.
32

SPECIAL RESOLUTION
A special resolution is one passed at a general meeting of a company when:
 Not less than twenty one days notice has been given
 The notice specifies the intension to propose the resolution as special resolution
 By a majority of the three fourth of such members entitled to vote as are present
as proxy
Some special resolutions:
 Alteration of object clause of memorandum
 Change of name of a company with consent of central govt.
 Alteration of the articles of a company.
 Variation of shareholders rights.
 Payment of interest out of capital.
33

RESOLUTION REQUIRING SPECIAL
NOTICE
 Provision in this act or in the articles, special notice is required.
 Notice of the intension to move the resolution shall be given to the
company not less than 14 days before the meeting.
 The company must give to its members- notice.
 Advertisement in a newspaper.
34

PROXIES
 Proxy is the person appointed to vote and speak on behalf of a member
in General meeting of a company A member can’t appoint more than
one proxy.
 A proxy must be a member unless article declare a non-member as a
proxy.
 Proxy can speak and vote at meeting.
 Proxy can demand a poll.
 Proxy can abstain from voting.
35

18MBA24
Online Learning Session-3
UNIT-3
36

LEARNING OUTCOME
 Understanding Corporate Liquidation (1956 and 2013)
 Understanding Modes of Winding up of the companies (1956 and
2013)
 Understanding Contributories and Payment of Liabilities
 Understanding Insolvency and Bankruptcy Code, 2016
37

MEANING
 The existence of a company can be terminated by means of winding up. (1956)
 The process of which the company is dissolved is known as winding up of a
company.
 The winding up of a company is a proceeding in which the company business is
closed down sell off it's asset and the creditor are paid the balance of asset are
distributed to the members.
COMPANY WINDING UP PROCEEDINGS (2013)
 The winding up or liquidation of a company is the process by which a company’s
assets are collected and sold in order to pay its debts.
 Any monies remaining after all debts, expenses and costs have been paid off are
distributed amongst the shareholders of the company.
 When the winding up has been completed, the company is formally dissolved
and it ceases to exist.
38

MODES OF WINDING UP
(COMPANIES ACT 1956)
 According to sec 425 of the companies Act, 1956 a company may be
wound up in any one of the three ways,
 Compulsory winding up i.e., by Court (s.433)
 Voluntary winding up; (s 484)
 Voluntary winding up subject to the supervision of the Court.(s 522)
39

COMPULSORY WINDING UP
 Winding up of a company by an order of the court is known as
compulsory winding up.
 According to Section 433 of Companies Act the court may order
compulsory winding up under the following circumstances:
 If the company commits default in holding the statutory meeting.
 If the company fails to commence business within a year of its
incorporation or suspends business for a year.
 If the company is unable to pay its debts.
 If the court is of the opinion that it is just an equitable that the
company should be wound up.
40

VOLUNTARY WINDING UP
 A winding up without any intervention of the court it termed as
voluntary winding up.
 According to section 489 of The Companies Act, a company may be
wound up voluntarily:
 By passing an ordinary resolution in the General Meeting
 By passing a special resolution to wind up voluntarily for any reason
whatsoever.
41

WINDING UP UNDER THE
SUPERVISION OF COURT
 According to Section 522 of the Companies Act, at any time after
the company has passed a resolution for voluntary winding up, the
court may make an order that the voluntary winding up shall
continue subject to supervision of the court.
42

CONSEQUENCES OF WINDING UP
 An official designated as liquidator will take over the administration of the
company.
 The power of the Board of directors will terminate and will now vest with the
liquidator.
 The liquidator will realize the assets of the company and distribute the
proceeds among various claimants in the following order:
 a) Legal charges b) Liquidator’s Remuneration c) Cost of expenses of winding
up d) Workmen’s claims and dues e) Preferential creditors f) Creditor’s
secured by floating charge g) Unsecured creditors.
 In case some surplus is still left it will be distributed among the
contributories as follows: a) Preference Shareholders b) Equity shareholders
43

MODES OF WINDING UP
(COMPANIES ACT 2013)
WHAT IS THE LAW GOVERNING THE PROCEDURE OF WINDING UP IN
INDIA?
 Section 270 of the Companies Act 2013, lays down the procedure for
winding up of a company. It provides two ways of winding up –
 By the tribunal (Compulsory Winding up under the Order of the
Tribunal)
 Voluntary (Voluntary Winding up)
44

WINDING UP BY TRIBUNAL
 It is primarily the National Company Law Tribunal (NCLT) which
has jurisdiction to wind up companies under the Companies Act,
2013.
 There must be strong reasons to order winding up as it is a last
resort to be adopted.
45

GROUNDS ON WHICH A COMPANY
MAY BE WOUND UP BY THE TRIBUNAL
Under Section 271[1], a company may be wound up by the tribunal if –
 Company is unable to pay the debts
 If the company has, by special resolution, resolved that the company be wound up
by the Tribunal;
 If the company has acted against the interests of sovereignty and integrity of India,
the security of the State, friendly relations with foreign States, public order
 If the Tribunal has ordered the winding up of the company under Chapter XIX
 If on an application made by the Registrar or any other person authorized by the
Central Government by notification under this Act
 If the company has made default in filing with the Registrar its financial statements
or annual returns for immediately preceding five consecutive financial years;
 If the tribunal is of the opinion that it is just and equitable that the company should
be wound up.
46

WHO MAY FILE PETITION FOR
WINDING UP
SECTION 272
 As per Section 272 of The Companies Act, 2013 petition for winding up may be
presented by any of the following persons-
 The company; or
 Any creditor or creditors, including any contingent or prospective creditor or
creditors; or
 Any contributory; or
 The Registrar; or
 Any person authorized by Central Government in this behalf;
 By the Central Government or State Government in case of Company acting
against the interest of sovereignty and integrity of India.
47

VOLUNTARY WINDING UP
 In voluntary winding up, Company and its creditors settle their affairs
without going to Court.
 One or more liquidators are appointed by company in general meeting for
purpose of winding up.
 A voluntary winding up commences from date of passing of resolution for
voluntary winding up, a petition is presented for winding up by the Court
48

CIRCUMSTANCES IN WHICH COMPANY
MAY BE WOUND UP VOLUNTARILY
SECTION 304
 A company may be wound up voluntarily:-
 (a) if the company in general meeting passes a resolution requiring the
company to be wound up voluntarily as a result of the expiry of the period for
its duration, if any, fixed by its articles or on the occurrence of any event in
respect of which the articles provide that the company should be dissolved;
or
 (b) if the company passes a special resolution that the company be wound up
voluntarily.
49

CHANGES IN WINDING UPAFTER THE
INSOLVENCY AND BANKRUPTCY CODE, 2016
 Section 270 of the Companies Act, 2013 regarding the Modes of winding up, has
been deleted after the enforcement of this Code. It has been substituted by
Winding up by Tribunal
 Section 271, companies Act, 2013 which deals with Circumstances in which
company may be wound up by Tribunal has been substituted
 Section 275(2) which deals with Company Liquidators and their appointment,
which Tribunal shall appoint the provisional or the Company Liquidator from
amongst the insolvency professionals registered under the Insolvency &
Bankruptcy Code, 2016.
50

STATEMENT OF AFFAIRS
 According to Section 454 of the Companies Act, the directors of the company
have to submit a statement of affairs of the company within 21 days of
passing of the winding up order or appointment of liquidator.
 The statement should contain the following Particulars:
 The assets of the company stating separately the cash balance in hand, at
bank and negotiable instruments if any held by the company.
 Company’s debts and liabilities
 Such further or other information as may be prescribed by or as the
liquidator may require.
51

STATEMENT OF AFFAIRS
Assets not specifically pledged (as per list ‘A’)
 Balance at Bank
 Cash in hand
 Marketable Securities
 Bills Receivable
 Trade Debtors
 Loans & Advances
 Unpaid Calls
 Stock in Trade
 Work in progress
 Freehold Property
 Leasehold Property
 Plant & Machinery
 Furniture and Fittings
 Investments other than marketable securities
 Other Property etc.
52

STATEMENT OF AFFAIRS Cont.
Assets specifically pledged (as per List ‘B’):
 Assets pledged Estimated Due to Deficiency Surplus
 Realizable secured
 Value creditors
53

CONTRIBUTORIES AND PAYMENT OF
LIABILITIES
 Contributories are person who are liable to contribute to the assets of a company
in the event of its being wound up. The concept of contributory arises only at the
time of winding up of a company. A contributory refers to a shareholder or
member of a company.
 Section 74 provides that on winding up, every present and past member is liable
to contribute to the assets of the company to an amount sufficient
for payment of its debts and liabilities, and the expenses of winding up, and for
the adjustment of the rights of the contributories among themselves.
 The liquidator will realize the assets of the company and distribute the proceeds
among various claimants in the following order:
 a) Legal charges b) Liquidator’s Remuneration c) Cost of expenses of winding up
d) Workmen’s claims and dues e) Preferential creditors f) Creditor’s secured by
floating charge g) Unsecured creditors.
54

SUMMARY
 Session-1
 Meaning of Oppression, Mismanagement
 Understood Prospectus and Its Contents.
 Learnt about the Types of Prospectus.
 Understood Members and Shareholders –
Companies act 2013.
 Learnt about Prevention of Oppression
and Mismanagement.
55
Session-2
 Understood Company law Board and Its
Importance.
 Learning about Role and Powers of the
Company Law Board and Central
Government.
 Understood Meeting and Its types.
 Learnt about Procedure of Calling for a
Meeting.
 Company Resolution and Its kinds.
 Understood Proxies.
Session-3
 Understood Corporate Liquidation (1956 and 2013)
 Understood Modes of Winding up of the companies
(1956 and 2013)
 Understood Contributories and Payment of Liabilities
 Understood Insolvency and Bankruptcy Code, 2016

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